Joss is a marketing consultant. Iris and Daphne are potential customers interested in
commissioning Joss to undertake a market survey and compile the findings in a report.
Iris is willing to pay $500 for the service while Daphne is willing to pay $800. Suppose
that the opportunity cost of Joss’s time is $1,200. Assume that Iris and Daphne do not
know each other. If the price of the report is $800 per copy
A) both Iris and Daphne will purchase Joss’s services and Joss will undertake the job.
B) only Daphne will purchase Joss’s services and Joss will undertake the job for her.
C) only Daphne will want to purchase Joss’s services but Joss will not be willing to do
the work.
D) neither Iris nor Daphne will commission the work.
When a monopolistically competitive firm lowers its price, one good thing happens to
the firm. What is this “one good thing” called?
A) the output effect
B) the price effect
C) the income effect
D) the substitution effect
Of all barriers to entry, the most important are those that are due to
A) ownership of a key input.
B) economies of scale.
C) government-imposed barriers.
D) the Herfindahl-Hirschman Index.
What is the relationship among the following variables for a perfectly competitive firm:
the market price, average revenue and marginal revenue?
A) Average revenue is equal to the market price; average revenue is greater than
marginal revenue.
B) The market price is equal to both average revenue and marginal revenue.
C) Average revenue is equal to marginal revenue; average revenue is greater than the
market price.
D) As a firm lowers the market price to sell more output, marginal revenue and average
revenue will be less than the market price.
Wendell can sell five motor homes per week at a price of $22,000. If he lowers the price
of motor homes to $20,000 per week he will sell six motor homes. What is the marginal
revenue of the sixth motor home?
A) $10,000
B) $12,000
C) $20,000
D) $22,000
The supply curve for watches
A) shows the supply of watches consumers are willing and able to buy at any given
price.
B) is downward sloping.
C) shows the relationship between the quantity of watches firms are willing and able to
supply and the quantity of watches consumers are willing and able to purchase.
D) shows the relationship between the price of watches and the quantity of watches
supplied.
Vertical-equity is most closely associated with which of the following goals or
principles?
A) the horizontal-equity principle
B) the goal of economic efficiency
C) the goal of attaining social objectives
D) the ability-to-pay principle
Many economists are critical of proposals to pass comparable worth legislation. Which
of the following is the best explanation for this criticism?
A) Comparable worth legislation will only lead to efficient market outcomes if women
in low-paying jobs suffer from cognitive dissonance.
B) Proposals for comparable worth legislation assume that wages for low-paying
women’s jobs should include compensating differentials. Economists believe that
compensating differentials should be part of the wages for all jobs held by women.
C) Proposals for comparable worth legislation call for increases in the wages of jobs
held predominantly by women. Economists believe that this legislation should be used
to increase the wages of all workers.
D) Many economists believe that allowing markets to determine wages, rather than the
rules required by comparable worth legislation, results in more efficient outcomes.
In a diagram showing the average total cost and average variable cost curves, the
minimum point of the average total cost is
A) at the same level of output as the minimum point of the average variable cost.
B) at a larger level of output than the minimum point of the average variable cost.
C) at a lower level of output than the minimum point of the average variable cost.
D) at the same level of output as the maximum of the total product curve.
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian
nation that produces two goods, meat and vegetables.
Refer to Figure 2-2. What is the opportunity cost of one pound of meat?
A) pound of vegetables
B) pounds of vegetables
C) 6 pounds of vegetables
D) 16 pounds of vegetables
If you own a $1,000 face value bond with one year remaining to maturity and a five
percent coupon rate and new bonds are paying 12 percent, what is the most you can get
for your old bond?
A) $1,120
B) $1,000
C) $937.50
D) impossible to determine without additional information
Figure 12-4
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a
perfectly competitive market.
Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what
is the amount of the firm’s profit or loss?
A) loss of $1,080
B) profit of $1,440
C) loss of $2,520
D) profit of $1,300
Figure 15-16
Figure 15-16 shows the market demand and cost curves facing a natural monopoly.
Refer to Figure 15-16. If the regulators of the natural monopoly allow the owners of
the firm to break even on their investment the firm will produce an output of ________
and charge a price of ________.
A) Q1 units; P4
B) Q1 units; P1
C) Q5 units; P3
D) Q3 units; P4
Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What
is the opportunity cost of his decision?
A) 0 since he will no longer be earning a salary
B) depends on the “going rate” of museum employees
C) at least $80,000
D) the value he attributes to the joy of working at a museum
Classifying a good as rival means
A) that the good is produced in a competitive market.
B) that there is a shortage of the good.
C) that when one person consumes a unit of the good no one else can consume it.
D) anyone who does not pay for the good cannot consume it.
Figure 15-12
Figure 15-12 shows the cost and demand curves for a monopolist.
Refer to Figure 15-12. If the firm maximizes its profits, the deadweight loss to society
due to this monopoly is equal to the area
A) ABF.
B) ABEG.
C) ACE.
D) EFG.
For decades, the NCAA restricted the number of college football and basketball games
that could be televised, and in 1982 the University of Georgia and the University of
Oklahoma sued the NCAA under the federal antitrust laws. In 1984, the Supreme Court
decided the case
A) for the NCAA, citing the fact that belonging to the NCAA was voluntary.
B) against the NCAA, citing that the NCAA did not control what television networks
put on the air.
C) against the NCAA, citing anticompetitive practice.
D) against the NCAA, citing explicit collusion among the larger colleges.
Producing a differentiated product occurs in which of the following industries?
A) oligopoly, monopolistic competition, and perfect competition
B) monopolistic competition only
C) oligopoly only
D) monopolistic competition and oligopoly
Consider a downward-sloping demand curve. When the price of a normal good
decreases, the income and substitution effects
A) work in the same direction to increase quantity demanded.
B) work in the same direction to decrease quantity demanded.
C) work in opposite directions and quantity demanded increases.
D) work in opposite directions and quantity demanded decreases.
Table 11-9
Refer to Table 11-9. Clock It To Me manufactures clock radios. The table above shows
estimates of fixed cost per period and average variable cost for three possible plant
sizes.
a. You are employed as the company’s cost accountant and have been asked to prepare
cost estimates for various output levels for each of the three possible plant sizes. Record
your calculations in the table below.
Average Cost of Production
b. For each of the three output levels, which plant size will generate the lowest average
total cost of production?
c. Suppose the firm currently sells 8,000 clock radios per period (using the optimal
plant size for this output level). Now, however, it has just secured a long-term contract
to supply 20,000 clock radios per period. In the short run, what is the average total cost
of producing 20,000 clock radios? Provide a numerical value based on your answer in
part a.
d. What happens to average total cost of production in the long run? Provide a
numerical value based on your answer in part a.
A public franchise
A) is a corporation that is owned by stockholders.
B) results from ownership of a key raw material.
C) is a government designation that a private firm is the only legal producer of a good
or service.
D) is an unregulated monopoly necessary for the public good.
Under autarky, consumer surplus is represented by the area
A) above the supply curve and below the equilibrium price.
B) above the supply curve and below the demand curve.
C) below the demand curve and above the equilibrium price.
D) above the demand curve and below the supply curve.
In a graph that illustrates a perfectly competitive firm, marginal revenue is
A) a diagonal line that lies below the firm’s demand curve.
B) a line that intersects the firm’s demand curve from below at its lowest point.
C) a line that intersects the firm’s average total cost curve from below at its lowest
point.
D) the same as the firm’s demand curve.
Suppose the U.S. government encouraged consumers to trade in their old automobiles
for more efficient, new models by paying up to $5,000 for the old automobiles. These
consumers would be exemplifying the economic idea that
A) people are rational.
B) people respond to economic incentives.
C) optimal decisions are made at the margin.
D) equity is more important than efficiency.
The branch of economics which studies the behavior of entire economies is called
A) public economics.
B) microeconomics.
C) macroeconomics.
D) normative economics.
One reason that consumers and businesses might not act rationally is
A) it is difficult to obtain enough information about the elasticities of demand and
supply.
B) they may not realize their actions are inconsistent with their goals.
C) consumer tastes change constantly.
D) they do not always value fairness when they make choices.
The law of demand implies, holding everything else constant, that as the price of gelato
A) increases, the demand for gelato will increase.
B) increases, the quantity of gelato demanded will increase.
C) decreases, the quantity of gelato demanded will increase.
D) decreases, the demand for gelato will increase.
Figure 9-3
Since 1953 the United States has imposed a quota to limit the imports of peanuts.
Figure 9-3 illustrates the impact of the quota.
Refer to Figure 9-3. What is the area that represents the deadweight loss as a result of
the quota?
A) G + H
B) G + H + I + J
C) E + I + J + M
D) E + M
Figure 12-18
Use the figure above to answer the following questions.
a. How can you determine that the figure represents a graph of a perfectly competitive
firm? Be specific; indicate which curve gives you the information and how you use this
information to arrive at your conclusion.
b. What is the market price?
c. What is the profit-maximizing output?
d. What is total revenue at the profit-maximizing output?
e. What is the total cost at the profit-maximizing output?
f. What is the profit or loss at the profit-maximizing output?
g. What is the firm’s total fixed cost?
h. What is the total variable cost?
i. Identify the firm’s short-run supply curve.
j. Is the industry in a long-run equilibrium?
k. If it is not in long-run equilibrium, what will happen in this industry to restore
long-run equilibrium?
l. In long-run equilibrium, what is the firm’s profit maximizing quantity?
Figure 5-16
Amit and Bree are the only two homeowners on an isolated private road. Both agree
that installing street lights along the road would be beneficial and want to do so. Figure
5-16 shows their willingness to pay for different quantities of street lights, the market
demand for street lights, and the marginal cost of installing the street lights.
Refer to Figure 5-16. What is the optimal quantity of street lights to install?
A) 3
B) 4
C) 6
D) 9
The average tax rate is calculated as
A) total income divided by the total tax paid.
B) the change in total tax paid divided by the change in income.
C) total tax paid divided by total income.
D) the change in income divided by the change in total tax paid.