A perfectly competitive firm maximizes profit in the short run by producing the
quantity at which:
A) TR = TC.
B) MR = MC.
C) Q × (P ” ATC) = 0.
D) P < AVC.
Both the United States and Canada produce automobiles and their components;
however, each particular model or component is produced in only one of the two
countries. Which of the following explains this pattern of production and trade?
A) differences in climate
B) differences in factor endowments
C) differences in technology
D) the role of increasing returns
In the short run, a firm will continue to sell its product as long as:
A) it is making a positive profit.
B) the price is greater than average total costs.
C) the price is greater than average variable costs.
D) its marginal cost is increasing.
Price-discriminating firms will impose a price structure that offers customers with a
_____ demand a _____ price and offers customers with a(n) _____ demand a _____
price.
A) less elastic; lower; more elastic; higher
B) less elastic; higher; more elastic; lower
C) lower; higher; higher; lower
D) seasonal; lower; unchanging; higher
For most firms, economic profit is:
A) less than accounting profit.
B) equal to accounting profit.
C) greater than accounting profit.
D) negative.
A competitive firm operating in the short run is maximizing profits and just breaking
even. Its costs include a monthly state license fee of $100 that must be paid for as long
as the firm operates. If the license fee is raised to $150, what should the firm do to
maximize profits in the short run?
A) increase price
B) increase output
C) reduce output
D) not change output
Comparative advantage in international trade:
A) is used only by large countries.
B) is used to determine whether trade will be beneficial to both countries involved.
C) provides benefits to developed countries only.
D) does not determine what goods countries should produce.
Figure: Model of a Competitive Market
(Figure: Model of a Competitive Market) Given the figure Model of a Competitive
Market, if there are no external benefits or costs, the output at Q will be:
A) larger than is socially desirable.
B) smaller than is socially desirable.
C) efficient.
D) inefficient.
Figure: Pricing Strategy in Cable TV Market II
(Figure: Pricing Strategy in Cable TV Market II) Look at the figure Pricing Strategy in
Cable TV Market II. The dominant strategy for CableNorth:
A) is to charge a high price.
B) is to charge a low price.
C) is to charge what CableSouth does.
D) does not exist.
Figure: The Demand Curve for Oil
(Figure: The Demand Curve for Oil) Look at the figure The Demand Curve for Oil. The
price elasticity of demand between $20 and $21, by the midpoint method, is
approximately:
A) 0.21.
B) 0.49.
C) 2.1.
D) 4.9.
Figure: Seasonally Adjusted Unemployment Rate
(Figure: Seasonally Adjusted Unemployment Rate) Look at the figure Seasonally
Adjusted Unemployment Rate. The distance between each labeled point on the
horizontal axis is one year. What is the approximate slope of the graph between 1/2004
and 1/2006?
A) 1/2
B) 1
C) “1/2
D) “2
Figure: Profits in Monopolistic Competition
(Figure: Profits in Monopolistic Competition) Look at the figure Profits in Monopolistic
Competition. A negative economic profit (or economic loss) is earned if the
profit-maximizing price is _____ in panel _____.
A) E; (B)
B) B; (A)
C) N; (C)
D) O; (C)
(Table: Production Function for Soybeans) Look at the table Production Function for
Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which
have a combined cost of $150 per day. The cost of labor is $100 per worker per day.
The total cost of producing 75 bushels of soybeans is:
A) $650.
B) $1,150.
C) $1,225.
D) $7,650.
Investors in agricultural corporations face many correlated financial risks. Which of the
following are NOT correlated risks for the agricultural industry?
A) losses due to drought and changes in the exchange rate with the euro
B) political events that can lead to fewer crop subsidies and fewer milk supports
C) recessions and changes in availability of credit
D) the spread of genetically modified crops and the presence of locusts
Figure: Tom’s Production Possibilities
(Figure: Tom’s Production Possibilities)
Look at the figure Tom’s Production Possibilities. Which point or points represent(s) an
infeasible combination of coconuts and fish?
A) A only
B) A and B
C) B and C
D) D only
A linear demand curve has:
A) a constant price elasticity of demand.
B) a price elasticity of demand equal to one at all prices.
C) a calculated price elasticity of demand that is positive.
D) both elastic and inelastic price elasticities of demand.
The government imposes a price ceiling below the equilibrium price. The price ceiling
will cause:
A) demand to decrease.
B) supply to increase.
C) a shortage of the good.
D) an increase in the quality of the good.
(Table: Consumer Surplus) Look at the table Consumer Surplus. Assume that each
student wants to buy one ticket. If the tickets to The Nutty Nutcracker are free and there
is no other market for tickets, the total consumer surplus for the five students is:
A) $0.
B) $100.
C) $150.
D) $320.
Goods A and B have a positive cross-price elasticity of demand. This means goods A
and B are:
A) normal.
B) substitutes.
C) complements.
D) inferior.
In the long run, monopolistically competitive firms:
A) always earn high economic profits.
B) tend to earn zero economic profits.
C) usually incur negative economic profits.
D) usually incur substantial economic losses.
Suppose the price elasticity of demand is relatively elastic and the price elasticity of
supply is relatively inelastic in a specific market. If an excise tax is imposed on this
good, who will bear the greater burden of the tax?
A) consumers
B) producers
C) both consumers and producers equally
D) government
A group of dairy farmers is trying to raise milk prices by 10%. If the price elasticity of
demand for milk is 0.75 and the price elasticity of supply for milk is 0, by how much
should farmers reduce their milk production to obtain the 10% increase?
A) 10%
B) 7.5%
C) 15%
D) 13%
(Table: Production
Possibilities Schedule II) Look at the table Production Possibilities Schedule II. If the
economy is producing at alternative X, the opportunity cost of producing at Y instead of
X is _____ units of consumer goods per period.
A) 0
B) 6
C) 8
D) 14
People faced with adverse selection use _____ to deal with it.
A) screening
B) signals
C) reputation
D) screening, signals, and reputation
The income elasticity of demand for peaches has been estimated to be 1.43. If income
grows by 15%, all other things unchanged, total revenue will:
A) rise.
B) fall.
C) remain unchanged.
D) The information is insufficient to answer the question.
In the past 30 years, the ability of unions to increase wages and improve working
conditions for their members has:
A) increased.
B) decreased.
C) remained constant.
D) proved the marginal productivity theory of income distribution to be false.
The model of monopolistic competition characterizes the market for plumbing services
in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing
firm, price:
A) equals average total cost.
B) exceeds average total cost.
C) is less than average total cost.
D) is greater than the average for all other firms in the market.
Figure: The Indifference Curve Map II
(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map
II. Sara enjoys attending Chicago Cubs baseball games and eating baby back rib
dinners. The figure shows two of her indifference curves for Cubs tickets and baby back
rib dinners. If she consumes 20 baby back rib dinners and 4 tickets to Cubs games, she
would be equally happy to give up 8 dinners for _____ more ticket(s) to Cubs games.
A) 1
B) 0.5
C) 2
D) 4
In monopolistic competition:
A) firms may advertise to increase demand for their product.
B) entry of new firms shifts the demand curve for existing firms to the right.
C) when some firms exit, the demand curve for the firms that remain in the industry
shifts to the left.
D) firms earn large economic profits in the long run.
Assume that diminishing marginal utility applies to both textbooks and concert tickets
and that Sun is spending all of his income. If Sun purchases a combination of textbooks
and concert tickets such that MUTextbooks / PTextbooks= 100 and MUTickets / PTickets = 80,
to maximize utility, Sun should buy _____ textbooks and _____ tickets.
A) fewer; fewer
B) more; fewer
C) fewer; more.
D) more; more
A consumer is attempting to maximize utility in her consumption of goods A and B. If
her income and the price of good A do not change but the marginal utility of good B is
constant and the price of good B decreases, this will _____ utility per dollar spent on
good B.
A) decrease the marginal
B) not affect the marginal
C) decrease the total
D) increase the marginal