A monopolistically competitive firm produces where
A) MR > MC.
B) MC > MR.
C) MR = MC.
D) P = MC.
Studying how the management of Hewlett Packard decides how many computers to
produce and the price to charge for its computers would be considered
A) descriptive economics.
B) empirical economics.
C) microeconomics.
D) macroeconomics.
All of the following questions are answered by general equilibrium analysis EXCEPT:
A) Are equilibriums in different markets compatible with one another?
B) Can all markets simultaneously be in equilibrium?
C) How will a change in one market affect another market?
D) What market outcome is most desirable for the whole society?
Figure 7.11
Refer to Figure 7.11. If this firm’s cost of capital is $10 per unit and its cost of labor is
$5 per unit, the isocost line represents a total cost of
A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.
The government imposes a price ceiling on sugar that is above the market price. You are
asked to suggest a rationing scheme that will minimize the misallocation of resources.
You suggest
A) using rationing coupons that cannot be resold.
B) using rationing on a first-come, first-served basis.
C) using rationing coupons that can be resold.
D) that no rationing system will be necessary.
You own a building that has four possible uses: a cafe, a craft store, a hardware store,
and a bookstore. The building’s value in each use is $4,000; $6,000; $8,000; and
$10,000, respectively. You decide to open a hardware store. The opportunity cost of
using this building for a hardware store is
A) $4,000, the value if the building is used as a cafe.
B) $6,000, the value if the building is used as a craft store.
C) $20,000, the sum of the values if the building is used for a cafe, a craft store, or a
bookstore.
D) $2,000, the difference in value if the building were used as a bookstore and its actual
use.
Assume the total product of two workers is 130 and the total product of three workers is
150. The average product of three workers is ________, and the marginal product of the
third worker is ________.
A) 40; 10
B) 50; 20
C) 33; 6.67
D) 120; 100
Empirical economics refers to the
A) exclusion of irrelevant data when analyzing a model.
B) collection and use of data to test economic theories.
C) model of economics used prior to the Industrial Revolution.
D) belief that what is true for a part is necessarily true for the whole.
To isolate the impact of one single factor, economists invoke the assumption of
A) inductive reasoning.
B) Ockham’s razor.
C) ceteris paribus.
D) post hoc, ergo propter hoc.
Table 3.2
Refer to Table 3.2. This market will be in equilibrium if the price per cheeseburger is
A) $5.
B) $6.
C) $7.
D) $8.
When one country can produce a product at a ________ cost in terms of other goods,
that country is said to have a(n) ________ advantage.
A) higher; comparative
B) lower; comparative
C) lower; absolute
D) higher; absolute
Figure 8.1
Refer to Figure 8.1 above. If Cyndy’s Floral Arrangements produces 200 silk flower
arrangements, the average fixed costs are
A) $0.20.
B) $5.
C) $20.
D) $50.
Figure 8.5
Refer to Figure 8.5. The average total costs are minimized when ________ ovens are
produced.
A) exactly six
B) more than six
C) less than six
D) indeterminate from this information
You and two friends are going out to dinner and are going to one of three restaurants: A,
B, or C. You prefer restaurant A to restaurant B and restaurant B to restaurant C. One of
your friends prefers restaurant B to restaurant C and restaurant C to restaurant A. You
other friend prefers restaurant C to restaurant A and restaurant A to restaurant B. The
three of you decide to use majority rule voting to decide which restaurant to visit. If you
first have a vote between restaurant A and B and then between the winner of that vote
and restaurant C, then restaurant ________ will win. However, if you first vote between
restaurant A and C and then between the winner of that vote and restaurant B, then
restaurant ________ will win. This is an example of the ________.
A) C; B; voting paradox
B) B; C; impossibility theorem
C) A; C; voting paradox
D) A; B; majority rule voting
Table 1
Relating to the Economics in Practice on page 392: Refer to Table 19.1. At an income
level of $10,000, the average tax rate is
A) 1%.
B) 5%.
C) 10%.
D) 20%.
Figure 1.3
Refer to Figure 1.3. At Point A the slope of the line is 3, so at Point D the slope would
be
A) greater than 3.
B) less than 3.
C) equal to 3.
D) indeterminate from this information.
In the presence of ________ externalities, too much of the good is produced, and in the
presence of ________ externalities, too little of the good is produced.
A) positive; negative
B) negative; positive
C) positive; no
D) no; negative
Education is a strong market signal in the job market because
A) it tells employers that you have gained skills that will be useful in the work place.
B) education is costly to obtain.
C) education is less costly to obtain for highly productive individuals who are also
likely to be highly productive in the work place.
D) firms can easily verify your level of education.
The transition from socialism to market capitalism by the shock therapy approach
suggests that
A) the transition proceed immediately and impact all economic variables at once.
B) government always centrally plan the economy.
C) the transition be gradual with sequential changes in government controls, etc.
D) government always control wages, prices, and interest rates.
Assume the total product of two workers is 110 and the total product of three workers is
120. The three workers’ average product is ________ while the third worker’s marginal
product is ________.
A) 40; 10
B) 40; 20
C) 50; 10
D) 120; 110
An oligopoly is an industry market structure with
A) a single firm in which the entry of new firms is blocked.
B) a small number of firms each large enough to impact the market price of its output.
C) many firms each able to differentiate their product.
D) many firms each too small to impact the market price.
The free-rider problem arises
A) when people feel their contribution is so small relative to the total amount needed
that it won’t make a difference whether they contribute or not.
B) when people realize they will still receive the benefits of a good whether they pay
for it or not.
C) whenever the government produces a good or service.
D) whenever there is a surplus of the product in the market.
Germany placed a limit on the amount of beer that can be imported into Germany. This
is an example of
A) dumping.
B) an export subsidy.
C) a tariff.
D) a quota.
Figure 10.3
Refer to Figure 10.3. The market wage is initially W1 and the firm is initially at Point E.
Labor supply increases from S1 to S0. After the firm is fully able to adjust all inputs, the
firm will hire ________ units of labor to maximize profits.
A) I0
B) I1
C) I2
D) I3
The U.S. individual income tax is designed to be ________.
A) progressive
B) regressive
C) proportional
D) an ability-to-pay tax
Figure 5.3
Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is
increased from $6 to $8, the price elasticity of demand equals ________ and demand is
________.
A) -0.57; inelastic
B) -1.75; elastic
C) -1.9; inelastic
D) -2.0; elastic
Consider the following game. You roll a 6-sided die and each time you roll a 1, you get
$50. For all other outcomes you pay $10. The $50 when you “win” and the -$10 when
you “lose” are known as
A) payoffs.
B) winnings and losings, respectively.
C) incentives.
D) expected values.
If the quantity of tea demanded increases by 2% when the price of coffee increases by
6%, the cross-price elasticity of demand between tea and coffee is
A) -3.
B) 33.
C)
D)
Under perfect competition,
A) resources are allocated among firms equitably.
B) final products are distributed among households equitably.
C) the system produces the goods and services consumers want.
D) All of the above are correct.
Amy borrowed $40,000 from her parents to open a bagel shop. She pays her parents a
5% yearly return on the money they lent her. Her other yearly fixed costs equal
$18,000. Her variable costs equal $40,000. In her first year, Amy sold 40,000 dozen at a
price of $2.50 per dozen.
Amy’s total costs equal
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.
________ are sources of market failure.
A) Private goods
B) Competitive activities
C) Externalities
D) All of the above are correct.
A firm’s retaining of earnings is really equivalent to the firm
A) lending money to households.
B) borrowing money from households.
C) decreasing the net worth of households.
D) decreasing its own net worth.
What is production technology?
Suppose that a local government decides to provide more funds to the local police
department in order for the department to hire additional police officers. Is there an
opportunity cost of this action? If so, how would you measure it?
The table below represents potential investment projects for R.L. Clark and Company,
based on forecasts of future profits attributable to the investment:
With the interest rate on the y-axis, draw the firm’s total investment as a function of the
interest rate. If the market rate of interest is 9 percent, how much will the firm spend on
investment projects? Explain.
The president of a company is told that the fixed costs next year will be higher than
anticipated. Even so he has told his operations managers that this should not affect their
production levels. Comment on this statement.
Explain the difference between microeconomics and macroeconomics.
Prior to the advent of MCI (later named Worldcom) the telecommunications industry
largely relied on one kind of technology ” the copper wire. Why do you suppose that the
use of microwave technology employed by MCI offered an important challenge to the
principle of natural monopoly that existed at the time justifying the reliance on one
company ” AT&T.
What does it mean for a firm to be suffering an economic loss? Does this imply that the
firm is earning negative profit in the accounting sense? Explain.
Why does the model of perfect competition imply that there will be an efficient
allocation of resources among firms?
Table 8.5
Referring to Table 8.5 create an eighth column for total profit and explain how you
calculated it. In addition determine the profit-maximizing level of output for this firm in
the short run.
Explain the difference between absolute advantage and comparative advantage.
Compare and contrast the relative price elasticities of Marlboro brand cigarettes with
cigarettes in general. Why is there a difference?
What argument do you believe policymakers use in some states to justify exempting
unprepared food from sales tax? (Hint: the income elasticity of food is less than one)
Figure 13.1
Use Figure 13.1 above to help with the following question. Why is it true that at every
level of output except the first unit, the monopolist’s marginal revenue (MR) is below
price.
Explain what occurs in the capital market.
If barbers in Mexico are just a productive as their counterparts in the United States then
why do they earn lower wages?
Figure 13.2
Use Figure 13.2 which depicts a monopolist firm to help with the following question.
Why would this firm not find it profitable to produce more than Qm or less than Qm?
Provide some real-world examples of price discrimination in action.
On what assumption is the idea of Rawlsian justice based? Explain.
Explain what a “perfectly contestable” market means. Give an example of a perfectly
contestable market. Explain why the outcome in a perfectly contestable market is that
firms produce efficiently.