ECON 312 Chapters 8-12

What is the welfare effect of an ad valorem sales tax, V, assessed on each competitive firm in the market? the ad valorem sales tax will
A) not affect surplus by leaving the market quantity unchanged
B) decrease surplus by increasing the number of firms
C) Increase surplus by increasing government revenue
D) decrease surplus by increasing the market price.

A monopoly faces an inverse demand curve of p=390-Q, has a constant marginal and average cost of $90 and can perfectly price discriminate. What it is profit?
A) $22,500
B) $32,400
C) $45,000
D) $64,800

High transaction costs and imperfect information would prevent price-taking behavior because they
A) enable firms to enter the market without being detected.
B) allow products to seem more homogenous
C) Make the demand curves firms face more horizontal
D) Discourage customers from buying from rival firms.

If two people in a pure exchange economy have identical utility functions, then they
A) will only want to trade if they are not at their endowment
B) will want to trade if they are on the contract curve.
C) will not want to trade if their consumption bundles are not Pareto-efficient.
D) may want to trade if their marginal rates of substitution are different.

The table below shows the marginal cost schedule for a single firm. Assume the supply curve is discrete. Given a market price of $3.50 so what is the producer surplus
A)$2.50
B) $3.50
C)$5.50
D)$7.00

A monopoly sells two products of which any given consumer wants to buy only one ( and places no value on the other good - i.e uncorrelated reservation prices). If the monopoly can prevent resale, can it increase its profit by bundling the goods, forcing the consumers to buy both goods?
A) With bundling the monopoly's profits will not increase because it cannot charge more for the bundle than for the valued good.
B) With bundling the monopoly's profits will increase because consumer reservation prices for the two goods are positively correlated.
C) With bundling the monopoly's profits will increase because the bundled price equals the combined values of the two goods.
D) With bundling the monopoly's profits will increase because it will cost less to produce both goods jointly.

In the summer of 2012, due to plentiful lobsters, the price of lobster in Maine fell to $1.25 a pound, which was 70% below normal and nearly a 30-year low. According to Bill Alder, head of the Massachusetts lobstermen's association, "anything under $4 (a pound), lobsterman cant make any money " At least 30 boats announced that they would stay in port until the price rose. However, Canadian and other US fishers continued to harvest lobsters. Why did some lobster boats stop fishing while others continued?
A) the boats that stopped fishing experienced increasing marginal and variable production costs.
B) the boats that stopped fishing had revenue that was greater than variable production costs
C) the boats that stopped fishing faced larger fixed production costs than variable production costs.
D) the boats that stopped fishing had a minimum average variable cost that was greater than the price.

Suppose that society uses the "opposite" of a rawlsian welfare function: it tries to maximize the well-being of the best-off member of society. The welfare function,W, where society tries to maximize the well-being of the best-off member of society is.
A) W=U1xU2X.....xU4
B)W=min(U1,U2,....,U4)
C)W=max(U1,U2....U4)
D)W=(U1+U2+...+U4)

If the inverse demand function for toasters is P=85-Q. what is the consumer surplus if price is $20.
A) $2112.50
B)$2,812.50
C)$3,750.00
D)$4,225.00

A firm is a natural monopoly if
A) its profit does not increase with output
B) any entrant would have the same costs
C)it has no fixed costs
D)one firm can produce the total output of the market at lower cost than two or more firms could

What is the effect of subsidy of s per hour on labor in only one sector of the economy on the equilibrium wage, total employment, and employment in the covered and uncovered sections?
A) the subsidy will increase the equilibrium wage, increase total employment, increase employment in the covered sector and increase employment in the uncovered sector.
B) the subsidy will increase the equilibrium wage, decrease total employment, increase total employment in the covered sector and decrease employment in the uncovered sector.
C) the subsidy will increase the equilibrium wage, increase total employment, increase total employment in the covered sector and decrease employment in the uncovered sector.
D) the subsidy will increase the equilibrium wage, increase total employment in the covered sector, and increase employment in the uncovered sector.

In a perfectly competitive market, all firms are identical, there is free entry and exit, and an unlimited number of potential entrants. Now the government starts collecting a specific tax, t. What is the effect on the long-run equilibrium market quantity for an individual firm?
A)The equilibrium quantity will decrease, the equilibrium price will increase, and the quantity produced by an individual firm will decrease.
B)The equilibrium quantity will decrease, the equilibrium price will increase, and the quantity produced by an individual firm will unchanged.
C) The equilibrium quantity will decrease, the equilibrium price will increase, and the quantity produced by an individual firm will increase.
D) The equilibrium quantity will increase, the equilibrium price will decrease, and the quantity produced by an individual firm will increase.

Alexx's monopoly currently sells its product at a single price. What conditions must be met so that he can profitably price discriminate? The firm must have:
A) the ability to set price, consumers with different price elasticities, and the ability to prevent or limit resales.
B) Consumers with different price elasticities, the ability to identify the different types of consumers, and the ability to prevent or limit resales.
C) The ability to set price and the ability to identify each consumer's willingness to pay.
D) The ability to set price, consumers with different price elasticities, the ability to identify the different types of consumers, and the ability to prevent or limit resales.

What is the effect of a lump-sum tax (which is like an additional fixed cost) on a monopoly? in the long-run a lump sum tax:
A) Increases the monopoly's profit-maximizing quantity if it produces and decreases the monopoly's likelihood of shutting down
B) Does not affect the monopoly's profit-maximizing quantity if it produces and does not affect the monopoly's likelihood of shutting down.
C)Does not affect the monopoly's profit-maximizing quanity if it produces and increases the monopoly's likelihood of shutting down.
D) Decreases the monopoly's profit maximizing quantity if it produces and increases the monopolys likelihood of shutting down.

If marginal cost function for john shoe repair is: MC=10-2q+q2, which of the following is/are the profit-maximizing condition for john's shoe repair if the market is perfectly competitive?
A)MR=10-2q+q2
B)P=10-2q+q2
C)Neither A or B
D) Both A and B

Suppose that Britain can produce 60 units of cloth or 30 units of food per day (or any linear combination) with available resources and Greece can produce 3 units of cloth or 4 units of food per day (or any combination) Does it make sense for these countries to trade?
A) It makes sense for these countries to trade because britian can produce cloth at lower opportunity cost than greece, and greece can produce food at lower opportunity cost than britian.
B) It makes sense for these countries to trade because britian can produce food at lower opportunity cost than greece, and greece can produce cloth at lower opportunity cost than britain.
C) it does not make sense for these countries to trade becuase of their marginal rates of transformation are equal
D) it does not make sense for these countries to trade because their marginal rates of transformation are different.

Suppose the world supply curve is p=20+0.02Qs​, and the demand curve of other countries of the world is p= 80−0.02QD. The excess or residual supply function is
A.
Sr(p)=−5,500+100p.
B.
Sr(p)=−3,900+100p.
C.
Sr(p)=−6,000+100p.
D.
Sr(p)=−5,000+100p.

The excess or residual supply at a price of​ $60 is
A.
500
B.
​1,000
C.
​2,000
D.
​3,000

If a firm is currently in a​ short-run equilibrium earning a​ profit, what impact will a​ lump-sum tax have on its production​ decision?
A.
The firm will decrease output to earn a higher profit.
B.
The firm will not change output and earn a higher profit.
C.
The firm will not change output but earn a lower profit..
D.
The firm will increase output but earn a lower profit.

If a firm is currently in a​ short-run equilibrium earning a​ profit, what impact will an increase in variable factor prices have on its production​ decision?
A.
The firm will decrease output and earn a lower profit.
B.
The firm will not change output but earn a lower profit.
C.
The firm will not change output and earn a higher profit.
D.
The firm will decrease output to earn a higher profit.

Suppose a competitive firm has​ cost,
C​ = ​(0.002q3​) ​+ (22q)​ + 750,
marginal​ cost,
MC​ = 0.006q2​ + 22,
and​ revenue,
R​ = 80q.
If the firm produces 150 units of​ output,
A.
marginal profit​ > 0.
B.
MR​ > MC.
C.
R​ < C.
D.
MR​ < MC.

Why do economists study the perfectly competitive​ model?
A.
It is an important model to use as a benchmark to compare with other market structures.
B.
Perfectly competitive markets maximize societal welfare.
C.
Many markets have similarities to the perfectly competitive model.
D.
All of the above.

In a perfectly competitive​ market,
A.
transaction costs are high.
B.
firms can freely enter and exit.
C.
firms sell a differentiated product.
D.
All of the above.

Suppose the firm faces a price of ​$32​, an average variable cost of ​$34​, and has an average fixed cost of ​$5. In the​ short-run, this firm
A.
and will have a loss per unit of ​$−2.
B.
and will have a profit per unit of ​$−7.
C.
and will have a profit per unit of ​$−2.
D.
and will have a loss per unit of ​$−7 .

A firm that generates zero economic profit usually​ faces:
A.
business profit equal to half the total revenue.
B.
negative business profit.
C.
zero business profit.
D.
positive business profit.

Which of the following best describes the implications of a deadweight​ loss?
A.
Resources are being wasted on the production of goods that consumers do not value.
B.
Economic resources are not being allocated​ efficiently: either too much or not enough of the good is being produced.
C.
The welfare of society is placed second to corporate profits.
D.
Consumers are harmed because producers are charging a price higher than marginal cost.

According to the digital media company Captivate​ Network, employees viewing the 2012 Olympics instead of working caused a​ $1.38 billion loss in productivity for U.S. companies. Is this productivity loss an example of a negative​ externality?
Employees viewing the 2012 Olympics instead of working
A.
is not necessarily a negative externality because the workers benefit from viewing the Olympics.
B.
is a negative externality because the productivity losses are due to actions of other firms outside their markets.
C.
is not a negative externality because the workers do not incur the costs of their actions in the form of lower wages.
D.
is not a negative externality because the productivity losses become part of the​ firms' cost of production.
E.
is a negative externality because the productivity losses are reflected in price changes.

Under what conditions could large sunk costs be a barrier to​ entry?
A.
Only when capital markets do not work well.
B.
Never. Sunk costs are irrelevant when considering whether to enter a market.
C.
Only when business success is uncertain.
D.
When business success is uncertain or capital markets do not work well.

Holding the intitial equilibrium price and quantity constant while varying the elasticity of​ demand, the loss in consumer surplusLOADING... from a price increase will get larger as the demand​ curve:
A.
becomes flatter.
B.
shifts inward.
C.
becomes steeper.
D.
shifts outward.

In the figure at​ right, the joint production possibility frontier​ (PPF) is concave to the origin. When the two individual production possibility frontiers are​ combined, however, the resulting PPF could have been drawn so that it was convex to the origin. How do we know which of these two ways of drawing the PPF to​ use?
We should draw the joint PPF such that Jane and Denise
A.
generate social wefare by maximizing joint utility.
B.
maximize their marginal rates of transformation.
C.
produce first that for which they have a comparative advantage.
D.
specialize by producing at least some of both goods.
E.
promote equity by each producing the same amounts of each good.