question

1. Suppose, at a given point in time, Stephanie's Soda Fountain sells ice cream in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing ice cream is $3.30, average variable cost is $2.50, and price is $3.40. Over time, everything else held constant, the number of sellers of ice cream will

1. increase.

2. decrease.

3. remain unchanged.

1. increase.

2. decrease.

3. remain unchanged.

answer

1. increase.

question

2. Suppose, at a given point in time, Stephanie's Soda Fountain sells ice cream in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing ice cream is $3.30, average variable cost is $2.50, and price is $3.40. Over time, everything else held constant, the quantity of ice cream transacted for Stephanie will

1. increase.

2. decrease.

3. remain unchanged.

1. increase.

2. decrease.

3. remain unchanged.

answer

1. Increase.

question

3. Suppose, at a given point in time, Stephanie's Soda Fountain sells ice cream in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing ice cream is $3.30, average variable cost is $2.50, and price is $3.40. Over time, everything else held constant, profits in this market will

1. increase.

2. decrease.

3. remain unchanged

1. increase.

2. decrease.

3. remain unchanged

answer

2. decrease.

question

4. Mario is a profit-maximizing wholesale meatball distributor who sells his meatballs to all of the finest restaurants in town. Because nobody can make meatballs like Mario, he is the only distributor in town that sells meatballs to restaurants. As a result, the marginal revenue from selling one of Mario's meatballs will be _____ the price he charges for it.

1. greater than

2. the same as

3. less than

1. greater than

2. the same as

3. less than

answer

1. greater than

question

5. Suppose, at a given point in time, Wanda's Wig Warehouse, a non-price discriminating monopolist, is producing at a level of output where marginal revenue is less than marginal cost. Everything else held constant, Wanda could increase her firm's profits by _____ the quantity of wigs she produces and _____ the price she charges for them.

1. increasing; increasing

2. increasing; decreasing

3. decreasing; increasing

4. decreasing; decreasing

5. not changing; not changing

1. increasing; increasing

2. increasing; decreasing

3. decreasing; increasing

4. decreasing; decreasing

5. not changing; not changing

answer

3. decreasing; increasing

question

6. Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.

1. True.

2. False.

1. True.

2. False.

answer

2. False.

question

7. Suppose, at a moment in time, the price at which a monopolist is selling its output is $12 and the marginal revenue from the last unit sold is $10. Suppose further that the marginal cost of producing the last unit of output sold is $11. Everything else held constant, which of the following actions should the non-price discriminating, profit-maximizing monopolist take?

1. Shut down.

2. Increase output and increase price.

3. Increase output and decrease price.

4. Decrease output and increase price.

5. Decrease output and decrease price.

1. Shut down.

2. Increase output and increase price.

3. Increase output and decrease price.

4. Decrease output and increase price.

5. Decrease output and decrease price.

answer

4. Decrease output and increase price.

question

8. Suppose Sophie's Salmon Shack is a non-price discriminating monopolist and is producing its profit-maximizing level of output. Suppose further that at her current level of output, Sophie's average total cost of a kilo of salmon is $19, her average variable cost is $17, and her marginal revenue is $18. It can be concluded with certainty that the price of the last kilo of salmon Sophie sold was _____, everything else held constant.

1. greater than $19

2. greater than or equal to $19

3. $19

4. greater than $18

5. greater than or equal to $18

6. $18

1. greater than $19

2. greater than or equal to $19

3. $19

4. greater than $18

5. greater than or equal to $18

6. $18

answer

4. greater than $18

question

9. Suppose Sophie's Salmon Shack is a non-price discriminating monopolist and is producing its profit-maximizing level of output. Suppose further that at her current level of output, Sophie's average total cost of a kilo of salmon is $19, her average variable cost is $17, and her marginal revenue is $18. Sophie's economic profit is _____ in the short run, everything else held constant.

1. negative

2. zero

3. positive

4. ambiguous

1. negative

2. zero

3. positive

4. ambiguous

answer

4. ambiguous

question

10. Answer true or false to the following statement. The difference between the price buyers pay for a good and the price sellers receive from selling it is the amount of the tax.

1. True.

2. False.

1. True.

2. False.

answer

1. True.

question

11. Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 0.9 and the price elasticity of supply is 0.3. Everything else held constant, the buyers will bear _____ percent of the burden of the tax.

1. 0

2. 25

3. 30

4. 75

5. 90

6. 100

1. 0

2. 25

3. 30

4. 75

5. 90

6. 100

answer

2. 25

question

12. Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 0.9 and the price elasticity of supply is 0.3. Everything else held constant, the sellers will bear _____ percent of the burden of the tax.

1. 0

2. 25

3. 30

4. 75

5. 90

6. 100

1. 0

2. 25

3. 30

4. 75

5. 90

6. 100

answer

4. 75

question

13. Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 0.9 and the price elasticity of supply is 0.3. Everything else held constant, the price the buyers pay for the good after the tax is levied will be _____ higher than the price they paid prior to the tax.

1. $0.90

2. $2.50

3. $3.00

4. $7.50

5. $9.00

6. $10.00

1. $0.90

2. $2.50

3. $3.00

4. $7.50

5. $9.00

6. $10.00

answer

2. $2.50

question

14. Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 0.9 and the price elasticity of supply is 0.3. Everything else held constant, the price the sellers receive for the good after the tax is levied will be _____ lower than the price they received prior to the tax.

1. $0.90

2. $2.50

3. $3.00

4. $7.50

5. $9.00

6. $10.00

1. $0.90

2. $2.50

3. $3.00

4. $7.50

5. $9.00

6. $10.00

answer

4. $7.50

question

15. Buyers will bear the entire burden of an excise tax if supply is perfectly _____.

1. elastic

2. inelastic

1. elastic

2. inelastic

answer

1. elastic

question

16. Suppose Andrea, a rational artist, recently sold her painting, City #1, for $325. Suppose further that her reservation price for selling the painting was $250. Andrea's producer surplus from this sale was

1. -$75.

2. $0.

3. $75.

4. $250.

5. $325.

6. $575.

1. -$75.

2. $0.

3. $75.

4. $250.

5. $325.

6. $575.

answer

3. $75.

question

17. Suppose rational decision-maker Gena was considering purchasing a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $100 and Gena's reservation price for the ticket was $150. Instead of buying the Springsteen ticket, however, Gena chose to go to a free Beth Patterson concert. Everything else held constant, it can be concluded with certainty that Gena's consumer surplus from seeing Beth Patterson was

1. greater than $150.

2. greater than $100.

3. greater than or equal to $100.

4. greater than $50.

5. greater than or equal to $50.

1. greater than $150.

2. greater than $100.

3. greater than or equal to $100.

4. greater than $50.

5. greater than or equal to $50.

answer

4. greater than $50.

question

18. Suppose t-shirt buyers, but not sellers, expect the price of t-shirts to decrease next month. Everything else held constant, consumer surplus in the market for t-shirts will _____ today.

1. increase

2. decrease

3. remain unchanged

4. be ambiguous

1. increase

2. decrease

3. remain unchanged

4. be ambiguous

answer

4. be ambiguous

question

19. Suppose t-shirt buyers, but not sellers, expect the price of t-shirts to decrease next month. Everything else held constant, producer surplus in the market for t-shirts will _____ today.

1. increase

2. decrease

3. remain unchanged

4. be ambiguous

1. increase

2. decrease

3. remain unchanged

4. be ambiguous

answer

2. decrease

question

20. Suppose t-shirt buyers, but not sellers, expect the price of t-shirts to decrease next month. Everything else held constant, economic surplus in the market for t-shirts will _____ today.

1. increase

2. decrease

3. remain unchanged

4. be ambiguous

1. increase

2. decrease

3. remain unchanged

4. be ambiguous

answer

2. decrease

question

21. Which of the following is a characteristic of a perfectly competitive market?

1. Firms are price makers in the market.

2. Firms face significant barriers to entering the market.

3. There are few firms selling the good in the market.

4. The goods sold in the market are homogeneous.

1. Firms are price makers in the market.

2. Firms face significant barriers to entering the market.

3. There are few firms selling the good in the market.

4. The goods sold in the market are homogeneous.

answer

4. The goods sold in the market are homogeneous.

question

22. Firms operating in perfectly competitive markets face _____ demand curves and can sell _____ at the given price.

1. horizontal; only a limited amount

2. horizontal; as much as they want

3. downward sloping; only a limited amount

4. downward sloping; as much as they want

1. horizontal; only a limited amount

2. horizontal; as much as they want

3. downward sloping; only a limited amount

4. downward sloping; as much as they want

answer

2. horizontal; as much as they want

question

23. Suppose Marcia's Manioc Farm is a profit-maximizing firm selling manioc in a perfectly competitive market. At her current level of production, Marcia has marginal costs equal to $1.40 per kilo. If the market price of manioc is $1.60 per kilo, Marcia should _____ of manioc.

1. increase her production

2. decrease her production

3. continue producing her current level

1. increase her production

2. decrease her production

3. continue producing her current level

answer

1. increase her production

question

24. Suppose, at a given point in time, Chez Rachel sells ratatouille in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production Rachel's average total cost of producing ratatouille is $10, her average variable cost is $7, and her marginal revenue is $8. At this moment in time, the price of ratatouille is

1. greater than $10.

2. $10.

3. greater than $8, but less than $10.

4. $8.

5. $7.

6. less than $7.

1. greater than $10.

2. $10.

3. greater than $8, but less than $10.

4. $8.

5. $7.

6. less than $7.

answer

4. $8.

question

25. Suppose, at a given point in time, Chez Rachel sells ratatouille in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production Rachel's average total cost of producing ratatouille is $10, her average variable cost is $7, and her marginal revenue is $8. At this moment in time, Rachel is earning an economic profit _____ zero.

1. greater than

2. equal to

3. less than

1. greater than

2. equal to

3. less than

answer

3. less than

question

26. Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing mittens is $16, average variable cost is $15, and marginal cost is $17. Michelle should

1. shut down immediately.

2. continue to produce in the short run since she is minimizing her losses.

3. maintain her current level of production since she is earning a positive economic profit.

4. increase production since it will increase her economic profit.

5. decrease production since it will increase her economic profit.

1. shut down immediately.

2. continue to produce in the short run since she is minimizing her losses.

3. maintain her current level of production since she is earning a positive economic profit.

4. increase production since it will increase her economic profit.

5. decrease production since it will increase her economic profit.

answer

3. maintain her current level of production since she is earning a positive economic profit.

question

27. Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are

1. positive.

2. negative.

3. normal.

4. ambiguous.

1. positive.

2. negative.

3. normal.

4. ambiguous.

answer

1. positive.

question

28. Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's explicit cost of running his store for a year is

1. $75,000.

2. $100,000.

3. $150,000.

4. $175,000.

5. $225,000.

6. $250,000.

7. $325,000.

1. $75,000.

2. $100,000.

3. $150,000.

4. $175,000.

5. $225,000.

6. $250,000.

7. $325,000.

answer

5. $225,000.

question

29. Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's implicit cost of running his store for a year is

1. $75,000.

2. $100,000.

3. $150,000.

4. $175,000.

5. $225,000.

6. $250,000.

7. $325,000.

1. $75,000.

2. $100,000.

3. $150,000.

4. $175,000.

5. $225,000.

6. $250,000.

7. $325,000.

answer

2. $100,000.

question

30. Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's accounting profit from running his store for a year is

1. -$25,000.

2. $25,000.

3. $50,000.

4. $75,000.

5. $125,000.

6. $150,000.

7. $300,000.

1. -$25,000.

2. $25,000.

3. $50,000.

4. $75,000.

5. $125,000.

6. $150,000.

7. $300,000.

answer

4. $75,000.

question

31. Suppose Tim owns a hardware store. He pays his employees $150,000 per year and his inventory costs him $75,000 per year. Prior to running his hardware store, Tim hosted a television show and earned $100,000 per year. (Assume these are the only costs Tim faces.) The total revenue of the store per year is $300,000. Tim's economic profit from running his store for a year is

1. -$25,000.

2. $25,000.

3. $50,000.

4. $75,000.

5. $125,000.

6. $150,000.

7. $300,000.

1. -$25,000.

2. $25,000.

3. $50,000.

4. $75,000.

5. $125,000.

6. $150,000.

7. $300,000.

answer

1. -$25,000.

question

32. Suppose a firm producing three units of output has an average variable cost equal to $10 and a total cost equal to $50. In the short run, its fixed cost is equal to

1. $0.

2. $10.

3. $20.

4. $30.

5. $40.

6. $50.

1. $0.

2. $10.

3. $20.

4. $30.

5. $40.

6. $50.

answer

3. $20.

question

33. When average total cost is less than marginal cost at a particular level of output, average total cost must be

1. increasing.

2. decreasing.

3. remaining constant.

1. increasing.

2. decreasing.

3. remaining constant.

answer

1. increasing.

question

34. If the price a firm charges for a good is less than its average total cost of producing it, then the firm is earning an economic profit _____ zero.

1. greater than

2. less than

3. equal to

1. greater than

2. less than

3. equal to

answer

...

question

35. What happens to producer and consumer surplus when a non-price discriminating monopolist increases output above its profit-maximizing level?

1. Both producer and consumer surplus increase.

2. Both producer and consumer surplus decrease.

3. Producer surplus increases and consumer surplus decreases.

4. Producer surplus decreases and consumer surplus increases.

1. Both producer and consumer surplus increase.

2. Both producer and consumer surplus decrease.

3. Producer surplus increases and consumer surplus decreases.

4. Producer surplus decreases and consumer surplus increases.

answer

2. Both producer and consumer surplus decrease.

question

36. Which of the following conditions must hold if a firm is to engage in price discrimination?

1. The transaction costs of one consumer selling the product to another consumer must be low.

2. A firm must be a price maker in its market.

3. Different consumers must have similar preferences for the product.

4. A firm must be a monopolist in its market.

1. The transaction costs of one consumer selling the product to another consumer must be low.

2. A firm must be a price maker in its market.

3. Different consumers must have similar preferences for the product.

4. A firm must be a monopolist in its market.

answer

2. A firm must be a price maker in its market.

question

37. Consider the following offer: an all-you-can-eat buffet charges $12 per person, but allows children under 10 years of age to dine for free. This pricing scheme is an example of _____-degree price discrimination.

1. first

2. second

3. third

1. first

2. second

3. third

answer

3. third

question

38. "Buy two, get one free" is an example of _____-degree price discrimination. For this pricing scheme to be successful for the firm, the customers who buy only one unit of the good must be relatively more price _____ in their demand than the customers who buy two units.

1. first; elastic

2. first; inelastic

3. second; elastic

4. second; inelastic

5. third; elastic

6. third; inelastic

1. first; elastic

2. first; inelastic

3. second; elastic

4. second; inelastic

5. third; elastic

6. third; inelastic

answer

4. second; inelastic

question

39. The flu vaccine has a _____ externality associated with its _____.

1. positive; production

2. positive; consumption

3. negative; production

4. negative; consumption

1. positive; production

2. positive; consumption

3. negative; production

4. negative; consumption

answer

2. positive; consumption

question

40. In the case of a good that generates negative production externalities, the equilibrium quantity transacted in the market is _____ the socially optimal quantity.

1. greater than

2. equal to

3. less than

1. greater than

2. equal to

3. less than

answer

...

question

41. A corn dog is an example of

1. a private good.

2. a public good.

3. an artificially scarce good.

4. a common resource.

1. a private good.

2. a public good.

3. an artificially scarce good.

4. a common resource.

answer

1. a private good.

question

42. A good that is _____ and _____ in consumption is a public good.

1. rival; excludable

2. nonrival; excludable

3. rival; nonexcludable

4. nonrival; nonexcludable

1. rival; excludable

2. nonrival; excludable

3. rival; nonexcludable

4. nonrival; nonexcludable

answer

4. nonrival; nonexcludable