question
Wiladee used to work as an office manager, earning $25,000 per year. She gave up that job to start a tailoring business. In calculating the economic profit of her tailoring business, the $25,000 income that she gave up is counted as part of the tailoring firm's
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opportunity costs.
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John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business?
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$170
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An example of an explicit cost of production would be the
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lease payments for the land on which a firm's factory stands.
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A difference between explicit and implicit costs is that
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implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.
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Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000. Walter asked Tyler the accountant and Greg the economist to calculate his painting business's costs.
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Tyler says his costs are $25,900, and Greg says his costs are $66,500.
question
Which of the following statements is correct?
a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.
b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.
d. Assuming that implicit costs are positive, economic profit is positive.
a. Assuming that explicit costs are positive, economic profit is greater than accounting profit.
b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.
c. Assuming that explicit costs are positive, accounting profit is equal to economic profit.
d. Assuming that implicit costs are positive, economic profit is positive.
answer
Assuming that implicit costs are positive, accounting profit is greater than economic profit.
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If a firm uses labor to produce output, the firm's production function depicts the relationship between
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the number of workers and the quantity of output.
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The marginal product of labor can be defined as the change in
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output divided by the change in labor.
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If the total cost curve gets steeper as output increases, the firm is experiencing
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diminishing marginal product.
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Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of
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lemons and sugar.
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Which of the following expressions is correct?
a. marginal cost = (change in quantity of output)/(change in total cost)
b. average total cost = (total cost)/(quantity of output)
c. total cost = variable cost + marginal cost
d. average variable cost = (quantity of output)/(total variable cost)
a. marginal cost = (change in quantity of output)/(change in total cost)
b. average total cost = (total cost)/(quantity of output)
c. total cost = variable cost + marginal cost
d. average variable cost = (quantity of output)/(total variable cost)
answer
b. average total cost = (total cost)/(quantity of output)
question
Refer to table questions
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12-18
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When a factory is operating in the short run,
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it cannot adjust the quantity of fixed inputs.
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In the long run,
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inputs that were fixed in the short run become variable.
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A firm has market power if it can
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influence the market price of the good it sells.
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Which of the following industries is least likely to exhibit the characteristic of free entry?
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municipal water and sewer
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Which of the following statements is correct?
a. For all firms, marginal revenue equals the price of the good.
b. Only for competitive firms does average revenue equal the price of the good.
c. Marginal revenue can be calculated as total revenue divided by the quantity sold.
d. Only for competitive firms does average revenue equal marginal revenue.
a. For all firms, marginal revenue equals the price of the good.
b. Only for competitive firms does average revenue equal the price of the good.
c. Marginal revenue can be calculated as total revenue divided by the quantity sold.
d. Only for competitive firms does average revenue equal marginal revenue.
answer
Only for competitive firms does average revenue equal marginal revenue.
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Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct?
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Marginal revenue equals $3.
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If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
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a one-unit increase in output will increase the firm's profit.
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The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, the Brookside Racquet Club should
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shut down because staying open would be more expensive.
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Refer to scenario
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7-8
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Which of these curves is the competitive firm's short-run supply curve?
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the marginal cost curve above average variable cost
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Refer to figure 14-1
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question 10
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A perfectly competitive market
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promotes general economic well-being, whereas a monopoly market may not be in the best interests of society.
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A monopoly
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can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.
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A benefit of a monopoly is
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profit that can be invested in research and development.
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Which of the following is not an example of a barrier to entry?
a. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world.
b. A college student starts a part-time tutoring business.
c. A novelist obtains a copyright for her new book.
d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.
a. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world.
b. A college student starts a part-time tutoring business.
c. A novelist obtains a copyright for her new book.
d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.
answer
A college student starts a part-time tutoring business.
question
Which of the following statements is not correct?
a. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms.
b. Monopolists typically charge higher prices than competitive firms.
c. Monopolists typically produce larger quantities of output than competitive firms.
d. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research.
a. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms.
b. Monopolists typically charge higher prices than competitive firms.
c. Monopolists typically produce larger quantities of output than competitive firms.
d. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research.
answer
Monopolists typically produce larger quantities of output than competitive firms.
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The defining characteristic of a natural monopoly is
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economies of scale over the relevant range of output.
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A natural monopoly occurs when
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there are economies of scale over the relevant range of output.
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When a firm operates under conditions of monopoly, its price is
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constrained by demand.
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Which of the following statements is correct for a monopolist?
i) The firm maximizes profits by equating marginal revenue with marginal cost.
ii) The firm maximizes profits by equating price with marginal cost.
iii) Demand equals marginal revenue.
iv) Average revenue equals price.
i) The firm maximizes profits by equating marginal revenue with marginal cost.
ii) The firm maximizes profits by equating price with marginal cost.
iii) Demand equals marginal revenue.
iv) Average revenue equals price.
answer
i) and iv) only
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A monopoly is an inefficient way to produce a product because
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it produces a smaller level of output than would be produced in a competitive market.
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Price discrimination is the business practice of
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selling the same good at different prices to different customers.
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A typical firm in the US economy would be classified as
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imperfectly competitive.
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Which of the following statements is not correct?
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Both monopolistic competition and perfect competition are characterized by product differentiation.
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For a monopolistically competitive firm,
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average revenue and price are the same.
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A firm in a monopolistically competitive market is similar to a monopoly in the sense that
(i) they both face downward-sloping demand curves.
(ii) they both charge a price that exceeds marginal cost.
(iii) free entry and exit determines the long-run equilibrium.
(i) they both face downward-sloping demand curves.
(ii) they both charge a price that exceeds marginal cost.
(iii) free entry and exit determines the long-run equilibrium.
answer
(i) and (ii) only
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To maximize its profit, a monopolistically competitive firm
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chooses its quantity and price, just as a monopoly does.
question
A monopolistically competitive firm has total fixed costs of $20 and a constant marginal cost of $2 per unit. In addition, the firm faces the following demand schedule for its product:
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9 units of output.
question
Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?
a. P = AR
b. MR = MC
c. P > MC
d. All of the above are correct.
a. P = AR
b. MR = MC
c. P > MC
d. All of the above are correct.
answer
d. All of the above are correct.
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The free entry and exit of firms in a monopolistically competitive market guarantees that
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both economic profits and economic losses disappear in the long run.
question
Refer to figure 16-1
answer
9-11
question
Which of the following statements about oligopolies is not correct?
a. An oligopolistic market has only a few sellers.
b. The actions of any one seller can have a large impact on the profits of all other sellers.
c. Oligopolistic firms are interdependent in a way that competitive firms are not.
d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.
a. An oligopolistic market has only a few sellers.
b. The actions of any one seller can have a large impact on the profits of all other sellers.
c. Oligopolistic firms are interdependent in a way that competitive firms are not.
d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.
answer
Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.
question
Which of the following statements is correct?
a. Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small.
b. Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets.
c. Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe.
d. Game theory is not necessary for understanding competitive or monopoly markets.
a. Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small.
b. Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets.
c. Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe.
d. Game theory is not necessary for understanding competitive or monopoly markets.
answer
Game theory is not necessary for understanding competitive or monopoly markets.
question
In choosing among alternative courses of action, Raj must consider how others might respond to the action he takes. In the language of game theory, we say that Raj must think
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strategically.
question
Suppose that Jay-Z and Beyonce are duopolists in the music industry. In January, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By February, each singer is considering breaking the agreement. What would you expect to happen next?
answer
Jay-Z and Beyonce will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price will decrease.
question
In the prisoners' dilemma game, self-interest leads
a. each prisoner to confess.
b. to a breakdown of any agreement that the prisoners might have made before being questioned.
c. to an outcome that is not particularly good for either prisoner.
d. All of the above are correct.
a. each prisoner to confess.
b. to a breakdown of any agreement that the prisoners might have made before being questioned.
c. to an outcome that is not particularly good for either prisoner.
d. All of the above are correct.
answer
All of the above are correct.
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The likely outcome of the standard prisoners' dilemma game is that
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both prisoners confess.
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A dominant strategy is one that
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is best for the player, regardless of what strategies other players follow.
question
Refer to Table 17-1
answer
8-12
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