Figure: Possible Long-Run Outcome
(Figure: Possible Long-Run Outcome) In the figure Possible Long-Run Outcome,
which price and quantity refer to a potential long-run profit maximizing outcome for a
firm producing in a monopolistically competitive market?
A) P1 and Q3
B) P1 and Q1
C) P2 and Q2
D) P1 and Q4
If the marginal product is _____, the value of marginal product must be _____.
A) rising; falling
B) falling; falling
C) falling; rising
D) rising; zero
Figure: Model of a Competitive Market
(Figure: Model of a Competitive Market) Given the figure Model of a Competitive
Market, if there are external costs:
A) resources will be underallocated to the production of the good.
B) resources will be overallocated to the production of the good.
C) resources will be efficiently allocated to the production of the good.
D) the price at P will be higher than if there were no external costs.
Demand for vegetables at a small farmers’ market is steady, but the supply of vegetables
has decreased because of a drought. This is good news for farmers if demand is _____
and the _____ effect outweighs the _____ effect.
A) inelastic; price; quantity
B) elastic; price; quantity
C) inelastic; output; price
D) elastic; output; price
Advertising is an economically productive activity and NOT a waste of resources
because it:
A) increases sales.
B) can convey information about the product.
C) can signal that firms are desperate for customers.
D) can decrease the costs of production.
Figure: The Perfectly Competitive Firm
(Figure: Perfectly Competitive Firm) Look at the figure The Perfectly Competitive
Firm. The figure shows a perfectly competitive firm that faces demand curve d and
maximizes profit. Given the market price, the firm’s total cost per day is:
A) $475.
B) $600.
C) $900.
D) $1,200.
If a good is nonrival in consumption and a positive price is charged by the supplier:
A) more people want to use this good at the supplier’s price than at the efficient price.
B) consumption of it is inefficiently low.
C) free-riding occurs.
D) there is a socially optimal level of consumption.
The purpose of behavioral economics is to determine why:
A) people maximize utility.
B) firms maximize profit and minimize costs.
C) people make decisions that appear to be irrational.
D) markets usually behave in an efficient manner.
(Table: Production Possibilities for Machinery and Petroleum) Look at the table
Production Possibilities for Machinery and Petroleum. In the United States the
opportunity cost of producing 40 units of machinery is _____ units of petroleum.
A) 80
B) 60
C) 40
D) 20
A tax is progressive if the tax payment is:
A) a fixed percentage of income.
B) a lower percentage of income as income rises.
C) a higher percentage of income as income rises.
D) a higher percentage of income as income falls.
A key element that a public good displays is:
A) overproduction.
B) rival consumption.
C) payment through charitable contributions.
D) nonexclusion.
(Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo
hats. The marginal cost of producing a hat is $18. If the Saints increase the number of
hats they sell from four to five, the quantity effect is a(n) _____ in total revenue of
_____.
A) decrease; $20
B) increase; $20
C) decrease; $8
D) increase; $8
A new wonder diet that results in a dramatic weight loss sweeps through the United
States. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry
or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can
expect a(n) _____ in the _____ beef, leading to a shift to the _____ in the _____ curve
for beef and _____ beef prices.
A) increase; demand for; right; demand; higher
B) increase; demand for; right; demand; lower
C) decrease; supply of; left; supply; higher
D) decrease; demand for; left; demand; higher
Factor demand is called derived demand because it:
A) requires the use of other factors.
B) depends on demand for the product that the factor produces.
C) has a downward-sloping demand curve.
D) has a constant marginal factor cost.
A tax system achieves efficiency when:
A) the “right” people actually bear the burden of taxes.
B) it minimizes the costs to the economy of tax collection.
C) the tax is fair.
D) it is in equilibrium.
The most likely reason that the government would implement a _____ is because it
feels that the price is too low for _____.
A) price ceiling; consumers
B) price floor; consumers
C) price ceiling; producers
D) price floor; producers
When a chef prepares a dinner for a customer, which of the following is physical
capital?
A) the chef
B) the oven
C) the food ingredients
D) the chef’s training and experience
When a firm adds capital, in the short run workers will be:
A) less productive and let the machines do most of the work.
B) more productive, since they have more equipment.
C) at the same level of productivity.
D) more productive at first and then less productive after a few weeks.
Which of the following statements is FALSE?
A) When the marginal product of labor is upward-sloping, the marginal cost curve is
upward-sloping.
B) The average fixed cost curve is downward-sloping and approaches the horizontal
axis.
C) The marginal cost curve intersects the average variable cost curve at the minimum of
average variable cost.
D) When the marginal cost curve is above the average cost curve, the average cost
curve is upward-sloping.
Game theory is commonly used to explain behavior in oligopolies, because oligopolies
are characterized by:
A) large profits in the long run.
B) either homogeneous or heterogeneous products.
C) interdependence.
D) imperfect competition.
Both monopolists and cartel members will find that a drop in price leads to:
A) a quantity effect that reduces total revenue.
B) a price effect that reduces total revenue.
C) a quantity effect that has no effect on total revenue.
D) neither a price nor a quantity effect.
A monopolistically competitive firm is operating in the short run at the optimal level of
output and is earning negative economic profits. Which of the following must be
TRUE?
A) ATC > P > MR = MC.
B) ATC = P > MR = MC.
C) ATC > P = MR = MC.
D) ATC > P > MR > MC.
Eric’s income increased from $40,000 to $50,000 per year. Eric’s consumption of tickets
to pro football games increased from two to four per year. By the midpoint formula, his
income elasticity of demand for pro football game tickets is equal to _____, and
football game tickets are _____ goods.
A) “0.33; inferior
B) +0.67; normal
C) “3; inferior
D) +3; normal
When faced with an insurance policy whose premium exceeds the expected value of the
claim:
A) no one will buy it.
B) only risk-tolerant individuals will buy it.
C) risk-averse individuals will buy it as long as the utility associated with the insurance
is greater than the expected utility without the insurance.
D) risk-averse individuals will buy it as long as the utility associated with the insurance
is less than the expected utility without the insurance.
The university recently inherited a large mansion from a wealthy alumnus. The
university plans to use the mansion for faculty parties and to house distinguished
guests. The opportunity cost of the mansion to the university is:
A) zero, because it was a gift.
B) the original cost of building the mansion.
C) the amount the university would receive if it sold the mansion.
D) the cost of catering the parties at the mansion.
A price ceiling on a good often results in:
A) black market or underground transactions of the good.
B) a surplus of the product.
C) more communication between buyers and sellers about the appropriate price.
D) a more efficient allocation of the good to buyers.