question
Assume Ahmed spends all his income on two goods: pizza and video games. The current cost of pizza is $6 and of video games is $20, and at his consumption level the marginal utility from eating pizza is 18 and and from playing video games is 40. In order to maximize his utility, Ahmed should
answer
consume more pizza and buy fewer video games
question
SPAM (meat in a can) is considered an inferior good and grapes are a normal good. if consumers' income decreases, what would an economist predict to happen to the price and quantity of these two goods?
answer
SPAM: price increase quantity increase GRAPES: price decrease quantity decrease
question
Which of the following is NOT a characteristic of a perfectly competitive firm?
answer
In long-run equilibrium, it is allocatively efficient but not productively efficient.
question
Assume the monopoly in the graph is producing at the profit maximizing level of output. Select price, quantity, and DWL
answer
Price and Quantity: P5, Q1
Consumer Surplus: P5, E, C
Deadweight Loss: A, C, J
question
Assume the monopoly in the graph is producing at the point where it maximizes total revenue. Identify price, quantity, and consumer surplus.
answer
Price and Quantity: P4Q2(MR=0)
Consumer Surplus: P4, E, J
question
Assume the monopoly in the graph is prosecuting at the profit-maximizing level of output. What is the area of economic profit?
answer
P2, P5, C, B
question
The first number in each box refers to the daily profit for Tommy's Tennies, and the second number refers to Kevin's daily profit. Based on the numbers in the game theory matrix, what is the Nash equilibrium?
answer
TT: high KK: low
question
Which of the following is true about a monopolistically competitive firm in long run equilibrium?
answer
It sells differentiated products.
question
Assume a perfectly competitive labor market is initially in equilibrium with a downsloping demand curve and an upsloping supply curve. If the government then sets a binding minimum wage, which of the following is correct?
answer
The quantity of labor supplied would be greater than the quantity of labor demanded
question
Assuming both perfectly competitive labor and product markets, if a bushel of apples sells for $10 and each hired worker costs $20, how many workers should be hired to maximize profits?
answer
5
question
Which of the following is (are) characteristic of an oligopoly?
I. Formidable barriers to entry
II. Mutual interdependence
III. Relatively few sellers
answer
I, II, and III
question
Which of the following is a characteristic of a monopoly?
answer
A price that is always in the elastic range of the demand curve
question
Which of the following will happen when a new computerized system for a firm increases the marginal productivity of its workers
answer
The marginal revenue product curve will shift to the right, causing the wage rate to increase
question
If this monopoly were regulated as a natural monopoly and ordered to product at the socially optimal quantity, what would be the quantity and price?
answer
Q2, P4
question
If a lump-sum tax when now placed on this unregulated monopoly, what would happen to the new profit-maximizing quantity and price?
answer
Price and quantity would remain unchanged
question
What will happen to the number of firms in the long run in this industry based on the profit conditions in this perfectly competitive?
answer
The number of firms will increase as the existence of economic profits attract more firms
question
If a 10% increase in the price of good A leads to a 20% decrease in the quantity demanded of good B, then
answer
the cross-price elasticity is -2 and the goods are complements
question
If the demand for coffee increases and at the same time increases in productivity lowered production costs, what would happen to the new price and quantity?
answer
Price: Indeterminate // Quantity: Increase
question
The production possibilities graph shows how much each country can product in a year. According to the graph, which of the following is true?
answer
Japan has a comparative advantage in the production of wheat
question
At the profit maximizing output, which of the following is correct?
answer
Economic profits are zero and the firm is operating inefficiently.
question
When marginal cost equals price in a perfectly competitive product market at long-run equilibrium, which of the following is not true?
answer
The perfectly competitive firm is earning economic profits
question
The market shown in the graph has had a per-unit tax placed on its production. What is the tax incidents, or burden of the tax paid by consumers and producers?
answer
Consumer: BC // Producer: F
question
The graph shows a monopsony labor market. What is the profit-maximizing wage and quantity of workers hired by the monopsonist?
answer
Wage: $10 // Quantity: Q1
question
If, for each additional unit of a variable input added, the increases in output become smaller, which of the following correctly identifies the concept?
answer
Diminishing marginal returns
question
If an increase in the price of good Y causes the quantity demanded of good X to increase, this means the two goods are
answer
substitute goods
question
Why does the production possibilities curve frequently have a shape that is concave or bowed out from the origin?
answer
The law of increasing opportunity cost
question
For a profit-maximizing, nonprice-discriminating monopolist, marginal revenue is
answer
less than the price
question
Assume the government imposes a 20% excise take on all food sold in a country. Which of the following is true?
answer
This is a regressive tax.
question
Which of the following explains why a production possibilities curve is often represented as a concave (bowed out) from the origin?
answer
Increasing opportunity cost
question
Which of the following statements about a constant-cost perfectly competitive industry in a long-run equilibrium must be true?
answer
An increase in demand will cause no change in the long-run equilibrium price
question
Assume that a profit-maximizing firm is perfectly competitive in both the output and the factor markets and is at its long-run equilibrium. The firm's output is 100 units, its total revenue is $600 and the fixed cost of production $50. Based on this information, which of the following is true for the firm?
answer
Its marginal cost is $6.00 and average variable cost is $5.50.
question
Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The government offers businesses a wage subsidy if they hire workers from city neighborhoods. What is the effect of the subsidy on the wage rate of rural workers and on the total hours they work?
answer
Wage Rate of Rural Workers: Decrease
Total Hours Worked by Rural Workers: Decrease
question
When MC=MR < ATC, the profit-maximizing firm depicted in the graph above should
answer
exit if conditions do not improve in the long run
question
If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units if $150, then the marginal cost of increasing output from 5 to 6 units is
answer
$400
question
If the production of a good generates a positive externality, the government can increase allocative efficiency by
answer
subsidizing the producer of the good, because it generates spillover benefits
question
If a severe drought destroys a significant portion of the peanut crop and peanut farmers' revenues increase, which of the following is true over the observed range of prices?
answer
The demand for peanuts must be price inelastic
question
At a firm's current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm?
answer
Economic profits are zero because price equals average total cost.
question
In order to minimize short-run losses, a profit-maximizing firm will necessarily shut down production under which of the following conditions?
answer
Average revenue is less than average variable cost
question
If a firm employs only labor and capital in its production process, which of the following best describes the optimal combination of inputs for the firm in the long run?
answer
The marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital
question
At her current level of consumption, a consumer is willing to pay up to $1.50 for a bottle of water and up to $1,500 for a diamond ring because the
answer
marginal utility of a bottle of water is less than the marginal utility of a diamond ring
question
Which of the following helps explain why the demand curve for a normal good is downward sloping?
answer
The income and substitution effects move the quantity demanded in the same direction (only the smaller percentage of richer people can afford)
question
Let P = price, MR = marginal revenue, MC = marginal cost, and ATC = average total cost. In monopolistic competition, which of the following most accurately describes the long-run equilibrium conditions for a firm?
answer
P = ATC, MR = MC, P > MC
question
Which of the following would make it possible for a country to consume beyond its individual production possibilities curve?
answer
importing products from other countries at a relatively lower opportunity cost
question
Assume that pizza and stromboli are substitutes. Which of the following best describes the effect on the pizza market if the price of stromboli decreases?
answer
Demand for pizza will shift left
question
On a downward sloping, straight line demand curve, which of the following is always true?
answer
Price elasticity decreases as quantity increases
question
Economic profit can be calculated as accounting profit plus
answer
Implicit costs
question
If a perfectly competitive firm produces at an output level where price is greater than both marginal cost and average variable cost, in order to maximize profit in the short run, the firm should
answer
produce more
question
Governments often allow some natural monopolies to exist without competition because
answer
natural monopolies experience economies of scale at the allocatively efficient output.
question
Assume the government establishes a new binding minimum wage. For a typical firm, which of the following will happen the marginal resource cost (MRC) and the marginal revenue product (MRP) of the last worker hired
answer
MRC: Increase, MRP: Increase (firms ensure that MRP stays constant with the wage rate)
question
The graph above illustrates the production possibilities for Country X. Assume Country X is currently producing 30 capital goods and 40 consumer goods. Which of the following combinations could Country X produce that would most likely accelerate economic growth?
answer
90 capital goods; 20 consumer goods (capital investment promotes economic growth)
question
In the competitive market for jelly beans (a normal good), all of the following are true EXCEPT
answer
A decrease in the price of jelly beans would shift demand to the right
question
The quantity of acrylic paint supplied decreased from 500 tons per week to 400 tons per week when the price of acrylic paint decreased from $20 per ton to $10 per ton. The price elasticity of supply for acrylic paint over this price range is
answer
relatively inelastic
question
Which of the following best describes a perfectly competitive market?
answer
a market structure where individual firms have no control over the price they charge
question
The graph above illustrates the costs and revenues for an unregulated monopoly producing in the short run. What price and quantity combination will this firm choose to profit maximize or loss minimize? (unregulated, is MR x D)
answer
P = 60; Q = 40
question
Which of the following best describes the marginal revenue curve as a single-price monopolist increases its output in the short run?
answer
decreasing and below the monopolist's demand curve (the change in price required to get the next sale applies not just to that next sale but to all the sales before it)
question
Which of the following is a fundamental aspect of the free market economics system?
answer
The protection of private property rights
question
The graph above shows the supply and demand for water filters. If the government imposes a price floor at $40 per unit, the result will be
(A) a surplus of 300 units
(B) a shortage of 300 units
(C) a surplus of 400 units
(D) a shortage of 400 units
(E) None of the above
answer
(E) none of the above
question
All of the following are true statements about market structures EXCEPT
answer
Competitive firms are more likely to experience economies of scale than oligopolistic firms
question
Assume that a Regional Hospital Network is the only firm hiring neurosurgeons. Using the graph provided, identify the wage and quantity of neurosurgeons hired by this profit maximizing firm.
answer
W3; 40
question
All of the following are true about an country's production possibilities curve EXCEPT
answer
An increase in unemployment causes the curve to shift inward towards the origin
question
Sports cars are a normal good. Which of the following contribute to the downward sloping demand for sports cars?
I. Law of diminishing marginal utility
II. Substitution effect
III. Income effect
IV. Allocative efficiency
answer
I, II, and III
question
If only one supplier in a perfectly competitive market received a per-unit subsidy this year, how will this subsidy impact the firm's price and output in the short run?
answer
price will not change; output will increase
question
Assuming all of a firm's cost are explicit, the output level where accounting profit is maximized will always be where
answer
marginal cost equals marginal revenue
question
Which of the following is least likely to increase economic profit in any given market?
answer
Low barriers to entry
question
A monopolistically competitive firm is currently in long-run equilibrium. If the output of the firm is 50 units and the price the firm receives for each product is $10, what is the total cost for this firm?
answer
$500
question
Floor-Mart is one of many firms hiring workers in a perfectly competitive labor market. If Floor-Mart's demand for labor increases, how will this impact the number of workers hired by Floor-Mart and the equilibrium wage in this labor market.
answer
The firm will hire more workers and the equilibrium wage will remain the same.
question
A local coffee shop increases the price of a coffee from $3.25 to $3.50. If the demand for coffee is relatively price inelastic, how will this change mostlikely affect the amount of coffee purchased and the coffee shop's total revenue?
answer
The amount purchased decreases; revenue increases
question
If the government levies a lump-sum tax on cell phone manufacturers, which of the following will occur in the short run?
answer
Average total cost will increase
question
Which of the following is true for a profit maximizing firm in any type of market structure?
answer
MR = MC
question
Compared to a monopoly with identical demand and cost curves, a perfectly competitive firm will
answer
charge a lower price and produce a higher output
question
Which of the following best describes the supply and demand curves for a firm hiring labor in a perfectly competitive labor market?
answer
Firm's demand curve for labor is downward sloping (MRP decreases), firm's supply curve for labor is horizontal (wage takers)
question
A firm produces tennis shoes, hiring labor from a perfectly competitive labor market. This firm will profit maximize if it continues to hire workers until the marginal factor cost of labor is equal to the
answer
marginal revenue product of labor (MFC=MRP)
question
If the price of baseball caps increases, which of the following will most likely occur in the market for baseball caps?
answer
The quantity supplied for baseball caps will increase
question
As the price of cinnamon increases by 10 percent, and as a result, the quantity demanded for spice X decreases by 5 percent. Based on this information, calculate the value of the cross price elasticity of demand coefficient and determine whether cinnamon and spice X are complements or substitutes
answer
-0.5; complements
question
Allocative efficiency always occurs when a firm produces a quantity where
answer
price equals marginal cost
question
At 10 units of output, a firm's total fixed cost is $60,000. If the firm's total cost is $100,000, its average variable cost is equal to
answer
$4,000
question
Assume that soybeans are produced in a constant cost perfectly competitive market that is currently in in long-run equilibrium. An increase in the number of consumers shifts demand for soybeans, but has no effect on supply. Which of the following best describes the effect of price in the short run and in the long run?
answer
Price will increase in the short run;Price will remain constant in the long run.
question
A firm producing in monopolistic competition is not productively efficient in the long run because
answer
the price is set above minimum ATC
question
Assume the marginal product of capital is 50, and the marginal product of labor is 150. If the price to hire each unit of capital is $50 per day, while the price to hire each unit of labor is $100 per day, which of the following is true for a firm hiring all inputs from perfectly competitive markets?
answer
The firm should hire more labor and less capital in order to decrease costs.
question
Assume that PCI is a firm that hires 100 workers in a perfectly competitive labor market to produce paper clips in its factory. The government raises minimum wage above PCI's current wage. How will this impact PCI's marginal factor cost for labor employed and the marginal revenue product of the last worker hired?
answer
Marginal factor cost will increase and the marginal revenue product will increase
question
Q TC
0 15
1 35
2 50
3 60
4 64
The table above shows a firm's total cost(TC)of producing various units of output. What is the average variable cost of producing 3 units?
0 15
1 35
2 50
3 60
4 64
The table above shows a firm's total cost(TC)of producing various units of output. What is the average variable cost of producing 3 units?
answer
$15
question
Assume that Denver Electric controls a monopoly over the supply of electricity in the surrounding area. Which of the following government actions would most likely decrease the deadweight loss due to the inefficiency of this monopoly?
answer
Granting a per-unit subsidy to Denver Electric
question
Semi-skilled labor is being hired in a perfectly competitive labor market. If a new technology allows only the workers in this firm to double their marginal productivity, how will this effect the wage and optimal number of workers hired once this firm implements this new technology?
answer
Wage remains the same and the quantity of workers increases
question
Assume marshmallows and graham crackers are complements. If the price of graham crackers decreases, which of the following will most likely occur in the short run in the marshmallow market?
answer
Price and quantity for marshmallows will increase (demand curve shifting)
question
If a firm's marginal product of labor is decreasing, assuming that labor is the firm's only variable input, which of the following must be true in the short run?
answer
Marginal cost is increasing
question
A contractor is employing labor and capital to build a new school. At the current mix of inputs, the marginal product of labor is 50 square feet per day, and the marginal product of capital is 100 square feet per day. The price of labor is $25 per hour and the price of capital of $20 per hour. To minimize costs, the firm should
answer
decrease labor; increase capital
question
Which of the following best explains why the demand for a monopolistically competitive firm is downward sloping?
answer
The products produced by different firms in the industry are not identical (freedom to set their own price)
question
If firms are earning profit in a perfectly competitive constant cost industry, which of the following is most likely to occur in the long run?
answer
Firms will enter the market causing the MR to increase
question
What does it mean if the MC > MR for a firm?
answer
Producing too much
question
All of the following are characteristics of an oligopoly EXCEPT
answer
Firms rarely use non-price competition (they already have a huge influence on the market)
question
Assume that the government decides to regulate a profit-maximizing natural monopoly. Which option below will most likely reduce deadweight loss and prevent the government from having to provide a subsidy?
answer
A price ceiling where price equals average total cost
question
The ABC Toy Company produces toy cars and blocks. If resources are fully employed and the firm installs a new technology that allows only toy cars to be produced more quickly, which of the following would best describe the impact of this technology?
answer
OC of Cars: Decrease, OC of Blocks: Increase
question
Max recently opened a T-shirt printing company. He rents factory space for $45,000, hires one office manager at a salary of $35,000, and pays a total of $25,000 in production expenses. Prior to starting this business he paid a total of $20,000 on tuition to earn his business degree. His best alternative would be working for a local printing company earning a salary and benefits worth $60,000 per year. Assuming he incurs no other costs, how much total revenue must Max's company receive to earn zero economic profit?
answer
$165,000
question
For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $15 and the average variable cost is $6. If the market price for its product is $5, which of the following is true for the firm?
answer
It is earning a short run loss and should shut down (if even price is less than ATC, MC)
question
Where does the single price monopolist maximize profits?
answer
MR=MC, all the way until ATC
question
Assume a Ford Fusion has an income elasticity of -1.5. A decrease in consumer income will cause
answer
the demand curve to shift right
question
Which of the following is clearly NOT at example of price discrimination?
answer
A resort hotel charging a higher price for rooms with a view of the beach.
question
Keller Industries is a firm that is currently operating in a perfectly competitive product and resource market and is currently in long-run equilibrium. Keller Industries has a total revenue of $3000, a marginal cost of $6, and an average variable cost of $2. Keller Industries output and total fixed cost must be which of the following?
answer
output: 500, fixed cost: 2000
question
Which of the following best describes what will happen to the price and quantity of oranges if a hurricane damages crops at the same time that the price of apples, a substitute to oranges, rises?
answer
price: increase // quantity: indeterminate
question
Firm X is currently a monopsony. All of the following statements are true for Firm X EXCEPT
answer
The marginal resource cost of each worker is equal to the wage (less than supply)
question
which of the following is true of a MONOPSONY?
answer
The demand for each worker is greater than the marginal revenue that each additional worker generates.
question
Marginal Revenue Product
answer
change in total revenue / change in input
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