question
An explicit cost for a business that manufacturers bicycles would be the
a. value of the products that the firm's employees could produce at another company.
b. salary that the owner of the business could earn elsewhere.
c. goods and services provided by the government with the taxes the firm pays.
d. wages paid by the business to its employees.
e. various products that could have been made with the steel used to make bicycles.
a. value of the products that the firm's employees could produce at another company.
b. salary that the owner of the business could earn elsewhere.
c. goods and services provided by the government with the taxes the firm pays.
d. wages paid by the business to its employees.
e. various products that could have been made with the steel used to make bicycles.
answer
d. wages paid by the business to its employees
question
Jeremy is the owner of a makeup parlor that earns zero economic profit. Last year, his total revenue was
$165,000, his rent was $12,000, his labor costs were $65,000, and his overhead expenses were $15,000.
From this information, we know that his implicit costs were ________.
a. $145,000
b. $53,000
c. $92,000
d. $73,000
e. $15,000
$165,000, his rent was $12,000, his labor costs were $65,000, and his overhead expenses were $15,000.
From this information, we know that his implicit costs were ________.
a. $145,000
b. $53,000
c. $92,000
d. $73,000
e. $15,000
answer
d. $73,000
question
Karolina owns a small diner, where she works full time in the kitchen. Her total revenue last year was $100,000, and her rent was $3,000 per month. She pays her one employee $2,000 per month, and the cost of ingredients averages $1,000 per month. Karolina could earn $50,000 per year as the manager of a competing diner nearby. Her economic profit last year was ________.
a. $28,000
b. -$1,000
c. -$22,000
d. $72,000
e. -$50,000
a. $28,000
b. -$1,000
c. -$22,000
d. $72,000
e. -$50,000
answer
c. -$22,000
question
If a firm generates $251,000 in revenue, earns $97,000 in economic profit, and its implicit costs are
$83,000, how much are its explicit costs?
a. $71,000
b. $85,000
c. $94,000
d. $154,000
e. $168,000
$83,000, how much are its explicit costs?
a. $71,000
b. $85,000
c. $94,000
d. $154,000
e. $168,000
answer
a. $71,000
question
The University of California at Irvine (UCI) allows student organizations and private firms to sell items on
campus to raise funds for various activities. Many of the organizations sell boba, a Taiwanese tea drink,
because boba is popular with students. The market for boba on the UCI campus is very competitive. If
legislation is passed to restrict the entry of private firms into the boba market at the UCI campus, the
a. market would become less competitive.
b. market would become more competitive.
c. demand for boba would fall.
d. supply for boba would increase.
e. demand for boba would increase.
campus to raise funds for various activities. Many of the organizations sell boba, a Taiwanese tea drink,
because boba is popular with students. The market for boba on the UCI campus is very competitive. If
legislation is passed to restrict the entry of private firms into the boba market at the UCI campus, the
a. market would become less competitive.
b. market would become more competitive.
c. demand for boba would fall.
d. supply for boba would increase.
e. demand for boba would increase.
answer
a. market would become less competitive
question
At the current level of output for a perfectly competitive firm, the following data exist: Price = $20 Marginal cost = $6 Average variable cost = $10 Average total cost = $13 What should this firm do?
a. The firm should lower the price.
b. The firm should stay at the same level of output.
c. The firm should shut down.
d. The firm should increase output.
e. The firm should decrease output.
a. The firm should lower the price.
b. The firm should stay at the same level of output.
c. The firm should shut down.
d. The firm should increase output.
e. The firm should decrease output.
answer
d. The firm should increase output
question
A company in a competitive market produces at an output level where marginal revenue is equal to
marginal cost and has the following revenue and cost levels:
Marginal cost curve intersects the average variable cost curve at $150.
Marginal cost curve intersects the average total cost curve at $200.
Marginal cost curve intersects the marginal revenue curve at $170.
What would you suggest this firm should do in the short run?
a. The firm should continue to produce at a profit level of approximately $20 per unit.
b. The firm should continue to produce at a profit level of approximately $30 per unit.
c. The firm should continue to produce at a profit level of approximately $50 per unit.
d. The firm should shut down.
e. The firm should continue to produce at a loss.
marginal cost and has the following revenue and cost levels:
Marginal cost curve intersects the average variable cost curve at $150.
Marginal cost curve intersects the average total cost curve at $200.
Marginal cost curve intersects the marginal revenue curve at $170.
What would you suggest this firm should do in the short run?
a. The firm should continue to produce at a profit level of approximately $20 per unit.
b. The firm should continue to produce at a profit level of approximately $30 per unit.
c. The firm should continue to produce at a profit level of approximately $50 per unit.
d. The firm should shut down.
e. The firm should continue to produce at a loss.
answer
e. The firm should continue to produce at a loss
question
The market for candles is perfectly competitive and is currently in equilibrium. What will happen if candles are later linked to more houses catching on fire?
a. In the short run, firms will experience economic profits, but in the long run, firms will leave the
market, bringing economic profits back down to zero.
b. In the short run, firms will experience economic profits, but in the long run, firms will enter the
market, bringing economic profits back down to zero.
c. In the short run, firms will incur economic losses, but in the long run, firms will leave the
market, bringing economic profits back up to zero.
d. In the short run, firms will incur economic losses, but in the long run, firms will enter the
market, bringing economic profits back up to zero.
e. In both the short run and the long run, firms will experience zero economic profits.
a. In the short run, firms will experience economic profits, but in the long run, firms will leave the
market, bringing economic profits back down to zero.
b. In the short run, firms will experience economic profits, but in the long run, firms will enter the
market, bringing economic profits back down to zero.
c. In the short run, firms will incur economic losses, but in the long run, firms will leave the
market, bringing economic profits back up to zero.
d. In the short run, firms will incur economic losses, but in the long run, firms will enter the
market, bringing economic profits back up to zero.
e. In both the short run and the long run, firms will experience zero economic profits.
answer
c. In the short run, firms will incur economic losses, but in the long run, firms will leave the market, bringing economic profits back up to zero
question
If the market price is $24 and marginal cost is represented by the equation 4 × Q, where Q is in thousands
of units, what is the profit-maximizing quantity?
a. 24,000
b. 8,000
c. 7,000
d. 6,000
e. 28,000
of units, what is the profit-maximizing quantity?
a. 24,000
b. 8,000
c. 7,000
d. 6,000
e. 28,000
answer
d. 6,000
question
Which of the following is an example of a natural barrier to entry?
a. An inventor created a new method for accessing the internet but did not patent the idea.
b. A new record label must purchase the copyrights before distributing any new music.
c. A bar must be approved for a license before selling any alcohol.
d. A single utility firm can deliver services to every home in an area more efficiently than a
cluster of competing firms could.
e. A patent gives a pharmaceutical firm the exclusive right to manufacture and sell a cancerfighting drug
a. An inventor created a new method for accessing the internet but did not patent the idea.
b. A new record label must purchase the copyrights before distributing any new music.
c. A bar must be approved for a license before selling any alcohol.
d. A single utility firm can deliver services to every home in an area more efficiently than a
cluster of competing firms could.
e. A patent gives a pharmaceutical firm the exclusive right to manufacture and sell a cancerfighting drug
answer
d. A single utility firm can deliver services to every home in an area more efficiently than a cluster of competing firms could
question
Balls used in professional baseball are scuffed up with a special mud to make them easier to grip. One company is the sole supplier, because only this company knows where the mud can be obtained. Which barrier to entry exists in the baseball mud market?
a. licensing
b. problems in raising capital
c. economies of scale
d. inefficient output
e. control of resources
a. licensing
b. problems in raising capital
c. economies of scale
d. inefficient output
e. control of resources
answer
e. control of resources
question
Sylvia has a working prototype for an electric car that could compete head-to-head with Tesla's
Model 3. Unfortunately, she cannot find someone to lend her enough money to market her product to
consumers. Sylvia is facing which kind of barrier to entry?
a. problems raising capital
b. licensing
c. economies of scale
d. control of resources
e. patents and copyright law
Model 3. Unfortunately, she cannot find someone to lend her enough money to market her product to
consumers. Sylvia is facing which kind of barrier to entry?
a. problems raising capital
b. licensing
c. economies of scale
d. control of resources
e. patents and copyright law
answer
a. problems raising capital
question
In the aftermarket auto parts industry, production costs per unit continue to fall as the number of parts sold increases. In this type of industry, smaller rivals trying to enter the industry
a. will have the advantage of more flexible production processes.
b. will most likely engage in rent seeking to enter the market.
c. will have much higher average costs than larger, established firms.
d. can enter the market easily, due to lower fixed costs.
e. can enter easily, so long as large, established firms do not have patents.
a. will have the advantage of more flexible production processes.
b. will most likely engage in rent seeking to enter the market.
c. will have much higher average costs than larger, established firms.
d. can enter the market easily, due to lower fixed costs.
e. can enter easily, so long as large, established firms do not have patents.
answer
c. will have much higher average costs than larger, established firms
question
Apple applies for hundreds of patents every year. These patents
a. allow Apple to produce goods with no risk of competition.
b. provide an incentive for Apple to innovate and develop new products.
c. create more competition among Apple and other tech firms than would occur without
government intervention.
d. make it easy for Apple to manufacture products on the same platform.
e. allow Apple to make additional revenue from the purchase of patents.
a. allow Apple to produce goods with no risk of competition.
b. provide an incentive for Apple to innovate and develop new products.
c. create more competition among Apple and other tech firms than would occur without
government intervention.
d. make it easy for Apple to manufacture products on the same platform.
e. allow Apple to make additional revenue from the purchase of patents.
answer
b. provide an incentive for Apple to innovate and develop new products
question
If a monopolist is producing a quantity where marginal revenue (MR) is equal to $20 and the marginal cost (MC) is equal to $25, the monopolist should ________ to maximize profits.
a. produce more
b. produce less
c. shut down
d. hire more workers
e. decrease the price
a. produce more
b. produce less
c. shut down
d. hire more workers
e. decrease the price
answer
b. produce less
question
When a monopolist lowers a price from $80 to $60, the quantity the firm is able to sell increases from 150 to 250. The change in revenue associated with the price effect is ________.
a. $3,000
b. $6,000
c. $2,000
d. -$3,000
e. -$2,000
a. $3,000
b. $6,000
c. $2,000
d. -$3,000
e. -$2,000
answer
d. -$3,000
((80150)-(60250)=-3000)
((80150)-(60250)=-3000)
question
The student activities council at a university organized a concert with a popular local band. Prices for the concert were $5 in advance or $10 on the day of the concert for those with a valid student ID, and $10 in advance or $15 on the day of the concert for the general public.
Which price discrimination condition was satisfied by requiring students to show an ID card for an initial ticket purchase?
a. The student activities council was able to encourage the resale of the product or service to another student.
b. The student activities council was able to distinguish easily among groups of buyers with different price elasticities of demand.
c. The student activities council was able to prevent the resale of the product or service to another consumer who is willing to pay more. d. The student activities council was able to distinguish easily among groups of sellers with different price elasticities of supply. e. The student activities council was able to distinguish easily between true fans of the band and those who just wanted to see a cheap concert.
Which price discrimination condition was satisfied by requiring students to show an ID card for an initial ticket purchase?
a. The student activities council was able to encourage the resale of the product or service to another student.
b. The student activities council was able to distinguish easily among groups of buyers with different price elasticities of demand.
c. The student activities council was able to prevent the resale of the product or service to another consumer who is willing to pay more. d. The student activities council was able to distinguish easily among groups of sellers with different price elasticities of supply. e. The student activities council was able to distinguish easily between true fans of the band and those who just wanted to see a cheap concert.
answer
b. The student activities council was able to distinguish easily among groups of buyers with different price elasticities of demand.
question
The student activities council at a university organized a concert with a popular local band. Prices for the concert were $5 in advance or $10 on the day of the concert for those with a valid student ID, and $10 in advance or $15 on the day of the concert for the general public.
Why would the student activities council complicate the ticket-pricing scheme by using four different ticket prices?
a. to see how many students will support an on-campus event
b. to keep the general public out of the rowdier student section on the concert floor
c. to separate the concert attendees into distinct groups so that profits are maximized
d. to ensure that enough people attend the concert so that they minimize any potential loss e. to reduce the marginal cost of each ticket
Why would the student activities council complicate the ticket-pricing scheme by using four different ticket prices?
a. to see how many students will support an on-campus event
b. to keep the general public out of the rowdier student section on the concert floor
c. to separate the concert attendees into distinct groups so that profits are maximized
d. to ensure that enough people attend the concert so that they minimize any potential loss e. to reduce the marginal cost of each ticket
answer
c. to separate the concert attendees into distinct groups so that profits are maximized
question
When a university charges out-of-state students more than in-state students for the same courses, the university is charging different prices in an attempt to
a. attract the best students and build a reputation as an exclusive university.
b. decrease market efficiency.
c. price discriminate, which increases profits.
d. increase complexity and hide prices.
e. illegally discriminate between different groups of students.
a. attract the best students and build a reputation as an exclusive university.
b. decrease market efficiency.
c. price discriminate, which increases profits.
d. increase complexity and hide prices.
e. illegally discriminate between different groups of students.
answer
c. price discriminate, which increases profits
question
At the Sunrise Bakery, which of the following menu items represents the company's attempt to price discriminate?
a. An "early bird" special offers a discount for customers who arrive before 8:00 a.m.
b. A small coffee costs $1.50, whereas a large coffee costs $3.00. c. The "bargain menu" highlights menu items that are available for $2.00 or less everyday.
d. Customers receive a free doughnut with the purchase of a coffee.
e. Muffins cost $4.00, whereas doughnuts cost $2.00.
a. An "early bird" special offers a discount for customers who arrive before 8:00 a.m.
b. A small coffee costs $1.50, whereas a large coffee costs $3.00. c. The "bargain menu" highlights menu items that are available for $2.00 or less everyday.
d. Customers receive a free doughnut with the purchase of a coffee.
e. Muffins cost $4.00, whereas doughnuts cost $2.00.
answer
a. An "early bird" special offers a discount for customers who arrive before 8:00 a.m.
question
A local discount store offers customers three options for printing their photos: a self-printing kiosk, one-hour photos, and next-day prints. The most likely reason this type of firm bothers to offer so many different options to its bargain-hunting consumers is because
a. offering alternatives to customers leads to greater consumer satisfaction.
b. some photos take longer to print than others, which allows firms to lower costs.
c. the variance in impatience on the part of the consumer allows the firm to maximize profit.
d. the different alternatives help consumers realize which service offers the best price.
e. the competing stores also offer these same options, so it allows the discount store to remain competitive.
a. offering alternatives to customers leads to greater consumer satisfaction.
b. some photos take longer to print than others, which allows firms to lower costs.
c. the variance in impatience on the part of the consumer allows the firm to maximize profit.
d. the different alternatives help consumers realize which service offers the best price.
e. the competing stores also offer these same options, so it allows the discount store to remain competitive.
answer
c. the variance in impatience on the part of the consumer allows the firm to maximize profit.
question
Some larger companies sell not only their name brand product at market, but also manufacture those same products to be sold as a store brand. For example, Cottonelle sells not only their namesake toilet paper at Target but also sells additional product to Target to market as Target brand toilet paper. If a celebrity endorser bought the Cottonelle name brand toilet paper because "everyone knows the store brand toilet paper is terrible," this indicates a. consumer cooperation.
b. product homogeneity.
c. product differentiation.
d. a cartel exists.
e. monopolization by Cottonelle.
b. product homogeneity.
c. product differentiation.
d. a cartel exists.
e. monopolization by Cottonelle.
answer
c. product differentiation.
question
Made-to-order suits are produced in a monopolistically competitive market. A typical maker, Chinoindo, sells 50 suits per week at a price of $400 each by making marginal revenue equal marginal cost. Chinoindo's total cost is $25,000 per week. From this information, we know that Chinoindo
a. will leave the industry because they are losing money and will not be able to compete.
b. is losing $25,000 per week.
c. is making an economic profit of $20,000 per week.
d. should reduce output to raise the price.
e. should lower the price to increase output.
a. will leave the industry because they are losing money and will not be able to compete.
b. is losing $25,000 per week.
c. is making an economic profit of $20,000 per week.
d. should reduce output to raise the price.
e. should lower the price to increase output.
answer
a. will leave the industry because they are losing money and will not be able to compete.
question
In one city there are two Chick-fil-A locations just a few blocks apart. Chick-fil-A #1 is located a couple of blocks from the freeway, down a side street. Chick-fil-A #2 is right by the freeway, directly at the base of an off-ramp. What can you assume about market power?
a. The location of Chick-fil-A #1 means that it sells an inferior product. b. The location of Chick-fil-A #1 gives it a certain degree of market power.
c. The location of Chick-fil-A #2 gives it a certain degree of market power.
d. Because they offer the same brand of chicken sandwich, differentiation is irrelevant.
e. Chick-fil-A #2 can charge higher prices due to location, which erodes any market power it possesses.
a. The location of Chick-fil-A #1 means that it sells an inferior product. b. The location of Chick-fil-A #1 gives it a certain degree of market power.
c. The location of Chick-fil-A #2 gives it a certain degree of market power.
d. Because they offer the same brand of chicken sandwich, differentiation is irrelevant.
e. Chick-fil-A #2 can charge higher prices due to location, which erodes any market power it possesses.
answer
c. The location of Chick-fil-A #2 gives it a certain degree of market power.
question
#25 (page 9)
The short-run profit-maximizing output for this firm is ________ units per week.
a. 0 (zero)
b. 50
c. 60
d. Point a
e. Point b
The short-run profit-maximizing output for this firm is ________ units per week.
a. 0 (zero)
b. 50
c. 60
d. Point a
e. Point b
answer
b. 50
question
#26 (page 9)
The maximum long-run economic profit earned by this monopolistically competitive firm is a. 0 (zero).
b. represented by the rectangle a, b, c, d.
c. represented by the rectangle enclosed by the points 50, 0, c, and b.
d. represented by the area below the demand curve and above marginal cost.
e. greater than 0,but can't be shown in the diagram because it is an indefinable area
The maximum long-run economic profit earned by this monopolistically competitive firm is a. 0 (zero).
b. represented by the rectangle a, b, c, d.
c. represented by the rectangle enclosed by the points 50, 0, c, and b.
d. represented by the area below the demand curve and above marginal cost.
e. greater than 0,but can't be shown in the diagram because it is an indefinable area
answer
a. 0 (zero)
question
If all firms in a monopolistically competitive industry have demand and cost curves like those shown, we would expect, in the long run, that
a. demand will intersect with marginal revenue at multiple points.
b. new firms will enter the industry.
c. firms in the industry will be forced to shut down.
d. average total cost will intersect with marginal cost at multiple points.
e. firms will lower the price to absorb extra profits
a. demand will intersect with marginal revenue at multiple points.
b. new firms will enter the industry.
c. firms in the industry will be forced to shut down.
d. average total cost will intersect with marginal cost at multiple points.
e. firms will lower the price to absorb extra profits
answer
b. new firms will enter the industry
question
On almost any flight route with multiple airline carrier options, prices are almost identical for a basic economy-class fare. The similarity of prices does not occur because of collusion; it results when one carrier sets a fare, and the other carriers feel compelled to match it. This is an example of
a. price leadership.
b. switching costs.
c. predatory pricing.
d. the price effect.
e. antitrust.
a. price leadership.
b. switching costs.
c. predatory pricing.
d. the price effect.
e. antitrust.
answer
a. price leadership
question
Which of the following industries is most likely an oligopoly?
a. clothing
b. corn
c. air travel
d. furniture
e. car repair
a. clothing
b. corn
c. air travel
d. furniture
e. car repair
answer
c. air travel
question
#30 (page 11)
Refer to the following table. Confessing is Eddie's dominant strategy because
a. Sharon's dominant strategy is to keep quiet.
b. he spends more time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
c. he spends less time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
d. he spends the same amount of time in jail by confessing as he would by not confessing.
e. his decision does not depend on Sharon's decision.
Refer to the following table. Confessing is Eddie's dominant strategy because
a. Sharon's dominant strategy is to keep quiet.
b. he spends more time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
c. he spends less time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
d. he spends the same amount of time in jail by confessing as he would by not confessing.
e. his decision does not depend on Sharon's decision.
answer
c. he spends less time in jail if he confesses, regardless of whether Sharon confesses or keeps quiet.
question
Walmart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. If Walmart and Target ________, they can both charge $1,500 and earn the highest combined profit available.
a. collude
b. privately undercut each other after making an agreement
c. engage in spirited price competition
d. compete with each other only with regard to quantity and not price
e. compete with each other only with regard to price and not quantity
a. collude
b. privately undercut each other after making an agreement
c. engage in spirited price competition
d. compete with each other only with regard to quantity and not price
e. compete with each other only with regard to price and not quantity
answer
a. collude
question
In January 2011, Coca-Cola and Pepsi agreed to reduce their yearly advertising budgets by $1 million each, and neither firm reneged on the agreement throughout the year. In January 2012, Coca-Cola and Pepsi each announced that its company's 2011 profits had increased by $1 million. Which of the following is a likely explanation for this increase?
a. A new entrant in the market caused Coca-Cola and Pepsi to lose substantial market share.
b. The government imposed a punitive tax on both firms for producing a beverage that is a danger to public health.
c. The firms had previously been in a prisoner's dilemma situation where one firm's advertisements were effectively canceling the other firm's advertisements.
d. Coca-Cola drastically reduced the price of its soda relative to the price of Pepsi's soda.
e. Pepsi drastically reduced the price of its soda relative to the price of Coca-Cola's soda.
a. A new entrant in the market caused Coca-Cola and Pepsi to lose substantial market share.
b. The government imposed a punitive tax on both firms for producing a beverage that is a danger to public health.
c. The firms had previously been in a prisoner's dilemma situation where one firm's advertisements were effectively canceling the other firm's advertisements.
d. Coca-Cola drastically reduced the price of its soda relative to the price of Pepsi's soda.
e. Pepsi drastically reduced the price of its soda relative to the price of Coca-Cola's soda.
answer
c. The firms had previously been in a prisoner's dilemma situation where one firm's advertisements were effectively canceling the other firm's advertisements.
question
In April, Kellogg offered a buy-one-get-one-free coupon for breakfast cereal and General Mills did not. In May, General Mills offered a buy-one-get-one-free coupon for breakfast cereal and Kellogg did not. It is likely that Kellogg and General Mills are both playing the ________ strategy.
a. Nash equilibrium
b. backward induction
c. prisoner's dilemma
d. dominant
e. tit-for-tat
a. Nash equilibrium
b. backward induction
c. prisoner's dilemma
d. dominant
e. tit-for-tat
answer
e. tit-for-tat
question
Last year, there were two movie theaters in a small city. This year, a third movie theater opened. As a result, the supply of movie tickets increased, and the all three movie theaters had to lower their ticket prices. This is an example of the ________ effect.
a. monopoly
b. cartel
c. output
d. price
e. competitive
a. monopoly
b. cartel
c. output
d. price
e. competitive
answer
d. price
question
The Organization of the Petroleum Exporting Countries (OPEC) is a group of oil-exporting countries. The fourteen OPEC member nations collude to limit the supply of oil to maintain relatively high oil prices. OPEC is an example of a
a. cartel.
b. network externality.
c. duopoly.
d. price leader.
e. prisoner's dilemma.
a. cartel.
b. network externality.
c. duopoly.
d. price leader.
e. prisoner's dilemma.
answer
a. cartel
question
For some people, the cost and inconvenience of wearing a face mask every day to prevent contagion outweigh the benefits, especially if everyone else is wearing a mask. This creates a(n)
a. cap-and-trade situation.
b. free-rider problem.
c. social optimum.
d. tragedy of the commons.
e. excludable good.
a. cap-and-trade situation.
b. free-rider problem.
c. social optimum.
d. tragedy of the commons.
e. excludable good.
answer
b. free-rider problem
question
The costs or benefits of a market activity that affect a third party are called
a. externalities.
b. public goods.
c. club goods.
d. internal costs.
e. common-resource goods.
a. externalities.
b. public goods.
c. club goods.
d. internal costs.
e. common-resource goods.
answer
a. externalities
question
The costs of a market activity paid for by an individual engaged in the market activity are ________ costs.
a. external
b. internal
c. free-rider
d. social
e. common
a. external
b. internal
c. free-rider
d. social
e. common
answer
b. internal
question
The costs of a market activity imposed on an individual NOT engaged in the market activity are ________ costs.
a. external
b. internal
c. free-rider
d. social
e. common
a. external
b. internal
c. free-rider
d. social
e. common
answer
a. external
question
Consider a market with a negative externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.
a. overproduce; external benefit
b. underproduce; external benefit
c. overproduce; external cost
d. underproduce; external cost
e. overproduce; internal benefit
a. overproduce; external benefit
b. underproduce; external benefit
c. overproduce; external cost
d. underproduce; external cost
e. overproduce; internal benefit
answer
c. overproduce; external cost
question
#41 (page 15)
Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?
a. A
b. B
c. A + B
d. C
e. A + B + C
Which area represents the deadweight loss associated with producing at the market equilibrium instead of the social optimum?
a. A
b. B
c. A + B
d. C
e. A + B + C
answer
a. A
question
#42 (page 16)
At the market equilibrium, price is equal to ________, and ________ units of the good are produced.
a. $18; 70
b. $14; 70
c. $12; 50
d. $14; 50
e. $18; 50
At the market equilibrium, price is equal to ________, and ________ units of the good are produced.
a. $18; 70
b. $14; 70
c. $12; 50
d. $14; 50
e. $18; 50
answer
b. $14; 70
question
#43 (page 16)
The socially optimal price and quantity would be ________.
a. $18 and 70
b. $14 and 70
c. $12 and 50
d. $14 and 50
e. $18 and 50
The socially optimal price and quantity would be ________.
a. $18 and 70
b. $14 and 70
c. $12 and 50
d. $14 and 50
e. $18 and 50
answer
e. $18 and 50
question
#44 (page 17)
The graph best illustrates what type of market?
a. The good produced creates a positive externality.
b. The good produced creates a negative externality.
c. The good produced is a club good.
d. The good produced is a public good.
e. Firms in this industry have been given a subsidy to encourage more production.
The graph best illustrates what type of market?
a. The good produced creates a positive externality.
b. The good produced creates a negative externality.
c. The good produced is a club good.
d. The good produced is a public good.
e. Firms in this industry have been given a subsidy to encourage more production.
answer
b. The good produced creates a negative externality.
question
#45 (page 17)
To achieve the social optimum, the government could set a tax equal to ________ per unit sold.
a. $6
b. $4
c. $2
d. $3
e. $5
To achieve the social optimum, the government could set a tax equal to ________ per unit sold.
a. $6
b. $4
c. $2
d. $3
e. $5
answer
a. $6
question
Consider a market with a positive externality. The market will tend to ________ the good because the market participants tend to ignore the ________ of their decision.
a. overproduce; external benefit
b. underproduce; internal benefit
c. overproduce; external cost
d. underproduce; external cost
e. underproduce; external benefit
a. overproduce; external benefit
b. underproduce; internal benefit
c. overproduce; external cost
d. underproduce; external cost
e. underproduce; external benefit
answer
e. underproduce; external benefit
question
Which of the following is an example of a positive externality?
a. Drag racing on urban streets puts pedestrians at risk.
b. Drinking a glass or two of wine makes one feel pleasantly drowsy.
c. Working out at a fitness club makes one more cheerful around others.
d. Failure to save for retirement now means a lower quality of life for these individuals later on.
e. Cheering for a particular team increases one's enjoyment of sporting events.
a. Drag racing on urban streets puts pedestrians at risk.
b. Drinking a glass or two of wine makes one feel pleasantly drowsy.
c. Working out at a fitness club makes one more cheerful around others.
d. Failure to save for retirement now means a lower quality of life for these individuals later on.
e. Cheering for a particular team increases one's enjoyment of sporting events.
answer
c. Working out at a fitness club makes one more cheerful around others.
question
#48 (page 18)
A positive externality exists and the government does not intervene. Which point best identifies the market equilibrium?
a. A
b. B
c. C
d. D
e. either C or D
A positive externality exists and the government does not intervene. Which point best identifies the market equilibrium?
a. A
b. B
c. C
d. D
e. either C or D
answer
a. A
question
#49 (page 19)
When a positive externality exists, which point best identifies the social optimum?
a. A
b. B
c. C
d. D
e. either A or D
When a positive externality exists, which point best identifies the social optimum?
a. A
b. B
c. C
d. D
e. either A or D
answer
b. B
question
#50 (page 19)
When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?
a. A
b. B
c. C
d. D
e. either C or D
When a negative externality exists and the government does not intervene, which point best identifies the market equilibrium?
a. A
b. B
c. C
d. D
e. either C or D
answer
a. A
question
#51 (page 19)
When a negative externality exists, which point best identifies the social optimum?
a. A
b. B
c. C
d. D
e. either C or D
When a negative externality exists, which point best identifies the social optimum?
a. A
b. B
c. C
d. D
e. either C or D
answer
d. D
question
The deadweight loss associated with any positive externality is the
a. lost benefits from consumption that could otherwise be realized if the externality is internalized.
b. benefit to third parties of keeping the externality in place.
c. cost to consumers of government actions to internalize the externality.
d. cost to producers of government actions to internalize the externality.
e. combined cost, to consumers and producers, of government actions to internalize the externality.
a. lost benefits from consumption that could otherwise be realized if the externality is internalized.
b. benefit to third parties of keeping the externality in place.
c. cost to consumers of government actions to internalize the externality.
d. cost to producers of government actions to internalize the externality.
e. combined cost, to consumers and producers, of government actions to internalize the externality.
answer
a. lost benefits from consumption that could otherwise be realized if the externality is internalized.
question
The Coase theorem suggests that private parties
a. will never be able to negotiate to correct a negative externality.
b. can always negotiate to correct a negative externality.
c. can negotiate to correct a negative externality if there are no barriers to negotiation.
d. can negotiate to correct a negative externality if the government passes a law allowing them to do so.
e. can never negotiate to correct a negative externality if there are more than two parties involved.
a. will never be able to negotiate to correct a negative externality.
b. can always negotiate to correct a negative externality.
c. can negotiate to correct a negative externality if there are no barriers to negotiation.
d. can negotiate to correct a negative externality if the government passes a law allowing them to do so.
e. can never negotiate to correct a negative externality if there are more than two parties involved.
answer
c. can negotiate to correct a negative externality if there are no barriers to negotiation
question
Driving in the city is an example of a good that is
a. excludable.
b. excludable and rival.
c. nonexcludable and rival.
d. nonrival.
e. excludable and nonrival.
a. excludable.
b. excludable and rival.
c. nonexcludable and rival.
d. nonrival.
e. excludable and nonrival.
answer
c. nonexcludable and rival
question
Which good is nonrival?
a. sharing a pizza with one's family
b. swimming in a public pool
c. driving in a city
d. listening to public radio
e. visiting the post office
a. sharing a pizza with one's family
b. swimming in a public pool
c. driving in a city
d. listening to public radio
e. visiting the post office
answer
d. listening to public radio
question
Consider the production of a private good, such as a car, and a common-resource good, such as fish. What do these two goods have in common?
a. Both goods are rival in consumption.
b. Both goods are nonrival in consumption.
c. Both goods are excludable.
d. Both goods are nonexcludable.
e. Both goods are excludable and nonrival.
a. Both goods are rival in consumption.
b. Both goods are nonrival in consumption.
c. Both goods are excludable.
d. Both goods are nonexcludable.
e. Both goods are excludable and nonrival.
answer
a. Both goods are rival in consumption.
question
A good that is nonrival and nonexcludable is defined as a ________ good.
a. private
b. public
c. common-resource
d. club
e. government
a. private
b. public
c. common-resource
d. club
e. government
answer
b. public
question
Which of the following is a common-resource good?
a. baseball tickets
b. global positioning service (GPS) service
c. pay-per-view television
d. free public parking spaces
e. paramedic emergency medical service
a. baseball tickets
b. global positioning service (GPS) service
c. pay-per-view television
d. free public parking spaces
e. paramedic emergency medical service
answer
d. free public parking spaces
question
A good that is rival and nonexcludable is defined as a ________ good.
a. private
b. public
c. common-resource
d. club
e. government
a. private
b. public
c. common-resource
d. club
e. government
answer
c. common-resource
question
The tragedy of the commons is a
a. negative externality brought about by poorly defined incentives and the absence of clearly defined property rights.
b. positive externality brought about by poorly defined incentives and the absence of clearly defined property rights.
c. negative externality brought about by clearly defined incentives and property rights.
d. positive externality brought about by clearly defined incentives and property rights.
e. concept that no longer exists in the world today.
a. negative externality brought about by poorly defined incentives and the absence of clearly defined property rights.
b. positive externality brought about by poorly defined incentives and the absence of clearly defined property rights.
c. negative externality brought about by clearly defined incentives and property rights.
d. positive externality brought about by clearly defined incentives and property rights.
e. concept that no longer exists in the world today.
answer
a. negative externality brought about by poorly defined incentives and the absence of clearly defined property rights.
question
Which of the following is the best definition of a cap-and-trade policy for pollution?
a. The government sets a cap on emissions. Firms are given permits by the government to emit pollutants and have the right to trade the permits with each other.
b. Emissions of a pollutant are capped by the government at the current level, and the good being produced can still be traded in the market.
c. Production of the good is capped by the government at the current level, but the good can still be traded in the market.
d. The number of firms producing a good is capped by the government at the current level, but the good can still be traded in the market.
e. Consumption of the good being produced is capped by the government at the current level, but the good can still be traded in the market.
a. The government sets a cap on emissions. Firms are given permits by the government to emit pollutants and have the right to trade the permits with each other.
b. Emissions of a pollutant are capped by the government at the current level, and the good being produced can still be traded in the market.
c. Production of the good is capped by the government at the current level, but the good can still be traded in the market.
d. The number of firms producing a good is capped by the government at the current level, but the good can still be traded in the market.
e. Consumption of the good being produced is capped by the government at the current level, but the good can still be traded in the market.
answer
a. The government sets a cap on emissions. Firms are given permits by the government to emit pollutants and have the right to trade the permits with each other.
question
The government identifies a situation where production of a good is generating a positive externality. A reasonable option for the government to consider is to
a. impose a tax on the sale of this good.
b. pass a law preventing the production of this good.
c. subsidize the cost of producing the good.
d. pass a law preventing the consumption of this good.
e. ration the good.
a. impose a tax on the sale of this good.
b. pass a law preventing the production of this good.
c. subsidize the cost of producing the good.
d. pass a law preventing the consumption of this good.
e. ration the good.
answer
c. subsidize the cost of producing the good.
question
During the coronavirus pandemic, Miguel's small business began producing face masks. The business can produce 120 masks per day with 3 employees, 150 masks per day with 4 employees, and 170 masks per day with 5 employees. The marginal product of labor of the fourth worker is ________ face masks.
a. 20
b. 30
c. 37.5
d. 50
e. 150
a. 20
b. 30
c. 37.5
d. 50
e. 150
answer
b. 30
question
Which of the following statements is true?
a. An implicit cost is monetary.
b. An implicit cost is an opportunity cost.
c. Economists consider all costs to be explicit costs.
d. Implicit and explicit costs are always equal.
e. Economists consider only explicit costs.
a. An implicit cost is monetary.
b. An implicit cost is an opportunity cost.
c. Economists consider all costs to be explicit costs.
d. Implicit and explicit costs are always equal.
e. Economists consider only explicit costs.
answer
b. An implicit cost is an opportunity cost.
question
A firm's accounting profit is always greater than its economic profit because
a. economic profit considers implicit costs, which accounting profit does not.
b. accounting profit considers explicit costs, which economic profit does not.
c. accounting profit considers implicit costs, which economic profit does not.
d. economic profit is always zero, no matter what kind of firm it is.
e. accounting profit is always positive, no matter what kind of firm it is.
a. economic profit considers implicit costs, which accounting profit does not.
b. accounting profit considers explicit costs, which economic profit does not.
c. accounting profit considers implicit costs, which economic profit does not.
d. economic profit is always zero, no matter what kind of firm it is.
e. accounting profit is always positive, no matter what kind of firm it is.
answer
a. economic profit considers implicit costs, which accounting profit does not.
question
Which of the following costs is fixed in the short run?
a. wages
b. utilities
c. capital
d. raw materials
e. office supplies
a. wages
b. utilities
c. capital
d. raw materials
e. office supplies
answer
c. capital
question
Igor owns a movie theater. His total costs are $150,000 per year, and his fixed costs are $80,000. This means that his variable costs are ________.
a. $65,000
b. $150,000
c. $85,000
d. $235,000
e. $70,000
a. $65,000
b. $150,000
c. $85,000
d. $235,000
e. $70,000
answer
e. $70,000
question
When firms grow larger, they sometimes acquire more market power, meaning that they have greater ability to negotiate lower prices with their suppliers. This ability to negotiate lower prices with their suppliers leads to
a. diseconomies of scale.
b. diminishing marginal returns.
c. economies of scale.
d. constant returns to scale.
e. increasing marginal returns.
a. diseconomies of scale.
b. diminishing marginal returns.
c. economies of scale.
d. constant returns to scale.
e. increasing marginal returns.
answer
c. economies of scale.
question
If a firm's long-run average total costs increase as it increases its scale of production, the firm is experiencing
a. economies of scale.
b. constant returns to scale.
c. increasing returns from specialization.
d. diminishing marginal product.
e. diseconomies of scale.
a. economies of scale.
b. constant returns to scale.
c. increasing returns from specialization.
d. diminishing marginal product.
e. diseconomies of scale.
answer
e. diseconomies of scale.
question
Honoria is the owner of a cake shop. Last year, her total revenue was $215,000, her rent was $36,000, her labor costs were $95,000, and her overhead expenses were $25,000. If she could earn $55,000 working for bakery nearby, we know that her economic profit was ________.
a. $84,000
b. $59,000
c. $27,000
d. $4,000
e. $0
a. $84,000
b. $59,000
c. $27,000
d. $4,000
e. $0
answer
d. $4,000
question
The COVID-19 pandemic has had a significant impact on the clothing industry. With more people working from home, the demand for business attire has dramatically decreased. In the short run, a struggling business attire retailer should temporarily shut down if
a. P > ATC.
b. ATC > P > AVC.
c. P > AVC.
d. P < AVC.
e. P > ATC > AVC.
a. P > ATC.
b. ATC > P > AVC.
c. P > AVC.
d. P < AVC.
e. P > ATC > AVC.
answer
d. P < AVC.
question
A firm characterized as a price taker
a. has control over the price it pays or receives in the market.
b. sets the price for the market.
c. has no control over the price at which its product sells.
d. is not found in a perfectly competitive market.
e. sells at the lowest price consumers are willing to pay.
a. has control over the price it pays or receives in the market.
b. sets the price for the market.
c. has no control over the price at which its product sells.
d. is not found in a perfectly competitive market.
e. sells at the lowest price consumers are willing to pay.
answer
c. has no control over the price at which its product sells.
question
All of the following are characteristics of perfect competition EXCEPT
a. each firm is a price taker.
b. many buyers and sellers.
c. lack of barriers to entry or exit.
d. product differentiation.
e. similar products.
a. each firm is a price taker.
b. many buyers and sellers.
c. lack of barriers to entry or exit.
d. product differentiation.
e. similar products.
answer
d. product differentiation.
question
Because of market forces, when competition is widespread firms have a. control over the price that they can charge, and they make little or no economic profit.
b. control over the price that they can charge, and they make a positive economic profit.
c. little or no control over the price that they can charge, and they make a negative economic profit.
d. little or no control over the price that they can charge and they make little or no economic profit.
e. little or no control over the price that they can charge and they make extreme economic profits.
b. control over the price that they can charge, and they make a positive economic profit.
c. little or no control over the price that they can charge, and they make a negative economic profit.
d. little or no control over the price that they can charge and they make little or no economic profit.
e. little or no control over the price that they can charge and they make extreme economic profits.
answer
d. little or no control over the price that they can charge and they make little or no economic profit.
question
Profit maximization occurs when
a. a firm expands output until marginal revenue is exceeded by marginal cost.
b. a firm expands output until marginal revenue is equal to marginal cost.
c. the price in the market is equal to the firm's average total costs.
d. total costs equal total revenue.
e. a firm sets the price at a point above average total cost.
a. a firm expands output until marginal revenue is exceeded by marginal cost.
b. a firm expands output until marginal revenue is equal to marginal cost.
c. the price in the market is equal to the firm's average total costs.
d. total costs equal total revenue.
e. a firm sets the price at a point above average total cost.
answer
b. a firm expands output until marginal revenue is equal to marginal cost.
question
#76 (page 26)
Refer to the accompanying graph. Point ________ corresponds to the profit-maximizing quantity that a competitive firm would produce.
a. A
b. B
c. C
d. D
e. E
Refer to the accompanying graph. Point ________ corresponds to the profit-maximizing quantity that a competitive firm would produce.
a. A
b. B
c. C
d. D
e. E
answer
c. C
question
#77 (page 27)
If this firm is maximizing profits, total revenue is represented by the area
a. B × C.
b. A × C.
c. (A - B) × C.
d. A × B.
e. (A + B) × C.
If this firm is maximizing profits, total revenue is represented by the area
a. B × C.
b. A × C.
c. (A - B) × C.
d. A × B.
e. (A + B) × C.
answer
b. A × C.
question
#78 (page 27)
If the firm is maximizing profits, total cost is represented by the area
a. B × C.
b. A × C.
c. (A - B) × C.
d. A × B.
e. (A + B) × C.
If the firm is maximizing profits, total cost is represented by the area
a. B × C.
b. A × C.
c. (A - B) × C.
d. A × B.
e. (A + B) × C.
answer
a. B × C.
question
#79 (page 27)
If the firm is maximizing profits, profit is represented by the area
a. B × C.
b. A × C.
c. (A - B) × C.
d. A × B.
e. (A + B ) × C.
If the firm is maximizing profits, profit is represented by the area
a. B × C.
b. A × C.
c. (A - B) × C.
d. A × B.
e. (A + B ) × C.
answer
c. (A - B) × C.
question
#80 (page 28)
If this firm is maximizing profits, total revenue is represented by the area
a. A × B.
b. B × C.
c. A × C.
d. (A - B) × C.
e. A × (C - Β).
If this firm is maximizing profits, total revenue is represented by the area
a. A × B.
b. B × C.
c. A × C.
d. (A - B) × C.
e. A × (C - Β).
answer
c. A × C.
question
#81 (page 28)
If the firm is maximizing profits, total cost is represented by the area
a. A × B.
b. B × C.
c. A × C.
d. (A - B) × C.
e. A × (C - Β).
If the firm is maximizing profits, total cost is represented by the area
a. A × B.
b. B × C.
c. A × C.
d. (A - B) × C.
e. A × (C - Β).
answer
b. B × C.
question
Firms can break even if the price they charge is
a. less than their minimum average total cost (ATC).
b. less than their minimum average variable cost (AVC).
c. greater than their minimum AVC.
d. greater than their minimum ATC.
e. equal to their minimum ATC.
a. less than their minimum average total cost (ATC).
b. less than their minimum average variable cost (AVC).
c. greater than their minimum AVC.
d. greater than their minimum ATC.
e. equal to their minimum ATC.
answer
e. equal to their minimum ATC.
question
Two conditions allow a single seller to become a monopolist. Those two conditions are that the firm must
a. have something unique to sell and the firm must be able to estimate its demand curve.
b. have something unique to sell and have a way to prevent competitors from entering the market.
c. be able to estimate its demand curve and it must have a way to prevent competitors from entering the market.
d. be able to segregate its consumers and it must have a way to prevent competitors from entering the market.
e. have something unique to sell and it must be able to segregate its consumers.
a. have something unique to sell and the firm must be able to estimate its demand curve.
b. have something unique to sell and have a way to prevent competitors from entering the market.
c. be able to estimate its demand curve and it must have a way to prevent competitors from entering the market.
d. be able to segregate its consumers and it must have a way to prevent competitors from entering the market.
e. have something unique to sell and it must be able to segregate its consumers.
answer
b. have something unique to sell and have a way to prevent competitors from entering the market.
question
Monopoly power is a measure of
a. the existence of complement goods for a firm's product.
b. a firm's ability to overcome barriers to entry in its market.
c. the price a firm's product commands in the market.
d. a firm's ability to drive competitors out of the market.
e. a firm's ability to set prices by adjusting output
a. the existence of complement goods for a firm's product.
b. a firm's ability to overcome barriers to entry in its market.
c. the price a firm's product commands in the market.
d. a firm's ability to drive competitors out of the market.
e. a firm's ability to set prices by adjusting output
answer
e. a firm's ability to set prices by adjusting output
question
The typical result of monopoly is ________ prices and ________ output than we find in a competitive market.
a. lower; lower
b. higher; higher
c. higher; lower
d. lower; higher
e. unchanged; higher
a. lower; lower
b. higher; higher
c. higher; lower
d. lower; higher
e. unchanged; higher
answer
c. higher; lower
question
Control of resources, problems in raising capital, and economies of scale are all examples of
a. government-created barriers.
b. problems with monopoly.
c. profit-maximizing rules.
d. natural barriers to entry.
e. price takers.
a. government-created barriers.
b. problems with monopoly.
c. profit-maximizing rules.
d. natural barriers to entry.
e. price takers.
answer
d. natural barriers to entry.
question
Why do governments issue patents? a. Patents foster economies of scale.
b. Inventors have a moral right to control their inventions.
c. Patents ensure that socially beneficial goods are affordable.
d. Firms benefit from the publicity associated with patents.
e. Protecting patent holders can lead to large profits and is therefore an incentive to innovate.
b. Inventors have a moral right to control their inventions.
c. Patents ensure that socially beneficial goods are affordable.
d. Firms benefit from the publicity associated with patents.
e. Protecting patent holders can lead to large profits and is therefore an incentive to innovate.
answer
e. Protecting patent holders can lead to large profits and is therefore an incentive to innovate.
question
The profit-maximizing rule for a monopolist is
a. average total cost (ATC) = marginal cost (MC).
b. price = fixed cost.
c. fixed cost = marginal revenue (MR). d. ATC = MR.
e. MR = MC.
a. average total cost (ATC) = marginal cost (MC).
b. price = fixed cost.
c. fixed cost = marginal revenue (MR). d. ATC = MR.
e. MR = MC.
answer
e. MR = MC.
question
When a monopolist lowers a price from $80 to $70, the quantity that the firm is able to sell increases from 200 to 300. The change in revenue associated with the price effect is equal to ________.
a. $7,000
b. -$10,000
c. $5,000
d. -$1,000
e. -$2,000
a. $7,000
b. -$10,000
c. $5,000
d. -$1,000
e. -$2,000
answer
e. -$2,000
question
Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market?
a. A producer uses the marginal revenue (MR) = marginal cost (MC) rule to set prices.
b. A producer can earn long-run economic profits.
c. A producer can earn long-run accounting profits.
d. A producer has no market power. e. A producer is a price taker.
a. A producer uses the marginal revenue (MR) = marginal cost (MC) rule to set prices.
b. A producer can earn long-run economic profits.
c. A producer can earn long-run accounting profits.
d. A producer has no market power. e. A producer is a price taker.
answer
b. A producer can earn long-run economic profits.
question
Rent seeking occurs when
a. resources are used to deregulate a market through the political process. b. resources are used to maximize profits.
c. resources are used to secure monopoly rights through the political process.
d. two firms try to enter the same market.
e. landlords attempt to raise the rent on tenants.
a. resources are used to deregulate a market through the political process. b. resources are used to maximize profits.
c. resources are used to secure monopoly rights through the political process.
d. two firms try to enter the same market.
e. landlords attempt to raise the rent on tenants.
answer
c. resources are used to secure monopoly rights through the political process.
question
When a monopoly becomes competitive because barriers to entry are removed, the price ________ and the output ________.
a. increases; stays the same
b. increases; increases
c. increases; decreases
d. decreases; stays the same
e. decreases; increases
a. increases; stays the same
b. increases; increases
c. increases; decreases
d. decreases; stays the same
e. decreases; increases
answer
e. decreases; increases
question
One possible outcome of promoting competition is
a. higher prices.
b. lower output.
c. less deadweight loss.
d. regulated markets.
e. less efficiency.
a. higher prices.
b. lower output.
c. less deadweight loss.
d. regulated markets.
e. less efficiency.
answer
c. less deadweight loss.
question
#94 page 32
Which price and quantity combination would be the market equilibrium in a competitive market? a. $70 and 25 units
b. $50 and 25 units
c. $35 and 25 units
d. $50 and 40 units
e. $35 and 40 units
Which price and quantity combination would be the market equilibrium in a competitive market? a. $70 and 25 units
b. $50 and 25 units
c. $35 and 25 units
d. $50 and 40 units
e. $35 and 40 units
answer
d. $50 and 40 units
question
#95 page 32
What would be the producer surplus in a monopoly market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
What would be the producer surplus in a monopoly market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
answer
d. $1,125
question
#96 page 33
What would be the consumer surplus in a competitive market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
What would be the consumer surplus in a competitive market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
answer
c. $1,000
question
#97 page 33
What would be the deadweight loss in a monopoly market?
a. $112.50
b. $150.00
c. $262.50
d. $375.00
e. $437.50
What would be the deadweight loss in a monopoly market?
a. $112.50
b. $150.00
c. $262.50
d. $375.00
e. $437.50
answer
c. $262.50
question
#98 page 33
Which price and quantity combination would be the market equilibrium in a monopoly market?
a. $70 and 25
b. $50 and 25
c. $35 and 25
d. $50 and 40
e. $35 and 40
Which price and quantity combination would be the market equilibrium in a monopoly market?
a. $70 and 25
b. $50 and 25
c. $35 and 25
d. $50 and 40
e. $35 and 40
answer
a. $70 and 25
question
#99 page 33
What would be the consumer surplus in a monopoly market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
What would be the consumer surplus in a monopoly market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
answer
a. $375
question
#100 page 34
What would be the producer surplus in a competitive market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
What would be the producer surplus in a competitive market?
a. $375
b. $700
c. $1,000
d. $1,125
e. $1,750
answer
b. $700
question
The difference between price and marginal cost is
a. market power.
b. product differentiation.
c. excess capacity.
d. markup.
e. the result of advertising.
a. market power.
b. product differentiation.
c. excess capacity.
d. markup.
e. the result of advertising.
answer
d. markup.
question
Both perfectly competitive and monopolistically competitive industries have many firms, so many that, in the long run,
a. the largest firm will dominate the industry.
b. several firms will exit the industry.
c. the firms within each industry will begin to collude, increasing prices.
d. illegal cartels will form.
e. economic profit is "competed away"
a. the largest firm will dominate the industry.
b. several firms will exit the industry.
c. the firms within each industry will begin to collude, increasing prices.
d. illegal cartels will form.
e. economic profit is "competed away"
answer
e. economic profit is "competed away"
question
In a monopolistically competitive industry, price
a. will be lower than the competitive price due to economies of scale.
b. will exceed the monopoly price due to the cost of variety.
c. is most likely a bit higher than the competitive market price because of the cost of variety.
d. is contingent on the behavior of other firms because of the law of supply.
e. will be set by government regulation due to antitrust laws.
a. will be lower than the competitive price due to economies of scale.
b. will exceed the monopoly price due to the cost of variety.
c. is most likely a bit higher than the competitive market price because of the cost of variety.
d. is contingent on the behavior of other firms because of the law of supply.
e. will be set by government regulation due to antitrust laws.
answer
c. is most likely a bit higher than the competitive market price because of the cost of variety.
question
A monopolistically competitive firm is inefficient because the firm
a. earns a positive economic profit in the long run.
b. is producing at an output level that corresponds to marginal cost equal to price.
c. is not maximizing its profit.
d. produces an output where average total cost is not minimized.
e. produces where the price is equal to minimum average total cost.
a. earns a positive economic profit in the long run.
b. is producing at an output level that corresponds to marginal cost equal to price.
c. is not maximizing its profit.
d. produces an output where average total cost is not minimized.
e. produces where the price is equal to minimum average total cost.
answer
d. produces an output where average total cost is not minimized.
question
Advertising is designed to
a. increase the price elasticity of demand for the firm and shift the firm's demand curve rightward.
b. decrease the price elasticity of demand for the firm and shift the firm's demand curve rightward.
c. increase the price elasticity of demand for the industry and shift the firm's demand curve rightward.
d. decrease the price elasticity of demand for the industry but have no effect on the firm's demand.
e. cause the income elasticity of consumers to become zero.
a. increase the price elasticity of demand for the firm and shift the firm's demand curve rightward.
b. decrease the price elasticity of demand for the firm and shift the firm's demand curve rightward.
c. increase the price elasticity of demand for the industry and shift the firm's demand curve rightward.
d. decrease the price elasticity of demand for the industry but have no effect on the firm's demand.
e. cause the income elasticity of consumers to become zero.
answer
b. decrease the price elasticity of demand for the firm and shift the firm's demand curve rightward.
question
A monopolistically competitive firm usually charges more than a perfectly competitive firm because
a. it is part of a group of firms that has formally agreed to control the price and the output of a product.
b. its primary goal is to reap monopoly profits by replacing competition with cooperation.
c. producing undifferentiated output is more expensive than producing differentiated output.
d. producing differentiated output gives the firm a certain amount of market power.
e. it has a monopoly, but potential entrants exist in the form of contestable markets.
a. it is part of a group of firms that has formally agreed to control the price and the output of a product.
b. its primary goal is to reap monopoly profits by replacing competition with cooperation.
c. producing undifferentiated output is more expensive than producing differentiated output.
d. producing differentiated output gives the firm a certain amount of market power.
e. it has a monopoly, but potential entrants exist in the form of contestable markets.
answer
d. producing differentiated output gives the firm a certain amount of market power.
question
In 2017, none of Omar's friends owned a North Face jacket, and Omar did not have a strong preference for North Face jackets. In 2018, many of Omar's friends owned a North Face jacket, and Omar did have a strong preference for North Face jackets. The change in Omar's preferences from 2017 to 2018 can be best explained by the ________ effect.
a. output
b. mutual interdependence
c. collusion
d. network externality
e. price
a. output
b. mutual interdependence
c. collusion
d. network externality
e. price
answer
d. network externality
question
Amaya's cell phone carrier would charge her $250 to cancel his current contract. If Amaya wants to change cell phone carriers, the $250 she would have to pay is considered a ________ cost.
a. network
b. predatory pricing
c. tit-for-tat
d. collusion
e. switching
a. network
b. predatory pricing
c. tit-for-tat
d. collusion
e. switching
answer
e. switching
question
As a result of ________ in a market with a small number of firms, a firm's market share is determined by the products it offers, the prices it charges, and the actions of its rivals.
a. game theory
b. backward induction
c. the price effect
d. switching costs
e. mutual interdependence
a. game theory
b. backward induction
c. the price effect
d. switching costs
e. mutual interdependence
answer
e. mutual interdependence
question
A Nash equilibrium occurs when
a. decision-makers face incentives that make it difficult to achieve mutually beneficial outcomes.
b. one dominant decision-maker chooses a strategy and all other decision-makers choose that same strategy.
c. all decision-makers are better off as a result of the chosen strategy.
d. all decision-makers cooperate by mimicking the opponent's most recent decision with repayment in kind.
e. all economic decision-makers opt to keep the status quo.
a. decision-makers face incentives that make it difficult to achieve mutually beneficial outcomes.
b. one dominant decision-maker chooses a strategy and all other decision-makers choose that same strategy.
c. all decision-makers are better off as a result of the chosen strategy.
d. all decision-makers cooperate by mimicking the opponent's most recent decision with repayment in kind.
e. all economic decision-makers opt to keep the status quo.
answer
e. all economic decision-makers opt to keep the status quo.
question
Pie City Pizza and Pizza Palace are rival restaurants in a small town. Pie City Pizza sets its prices below average variable cost for two years. After the second year, Pizza Palace goes bankrupt and exits the market. In the third year, Pie City Pizza raises prices significantly. Pie City Pizza is practicing ________ pricing.
a. backward induction
b. tit-for-tat
c. collusion
d. predatory
e. mutual interdependence
a. backward induction
b. tit-for-tat
c. collusion
d. predatory
e. mutual interdependence
answer
d. predatory
question
A firm operating in an oligopolistic market has ________ market power compared to a firm operating in a ________ market.
a. less; competitive
b. less; monopolistically competitive
c. the same; monopolistically competitive
d. less; monopolistic
e. more; monopolistic
a. less; competitive
b. less; monopolistically competitive
c. the same; monopolistically competitive
d. less; monopolistic
e. more; monopolistic
answer
d. less; monopolistic
question
Economists use ________ to measure oligopoly power present in an industry.
a. game theory
b. a decision tree
c. collusion ratios
d. backward induction
e. concentration ratios
a. game theory
b. a decision tree
c. collusion ratios
d. backward induction
e. concentration ratios
answer
e. concentration ratios
question
The COVID-19 pandemic dramatically decreased the demand for airline tickets. Which of the following strategies should an airline implement to earn the highest profit?
a. charge the same higher price to all passengers
b. charge the same lower price to all passengers
c. charge a higher price to passengers with an elastic demand and a lower price to passengers with an inelastic demand
d. charge a higher price to passengers with an inelastic demand and a lower price to passengers with an elastic demand
e. keep prices the same as before the COVID-19 pandemic
a. charge the same higher price to all passengers
b. charge the same lower price to all passengers
c. charge a higher price to passengers with an elastic demand and a lower price to passengers with an inelastic demand
d. charge a higher price to passengers with an inelastic demand and a lower price to passengers with an elastic demand
e. keep prices the same as before the COVID-19 pandemic
answer
d. charge a higher price to passengers with an inelastic demand and a lower price to passengers with an elastic demand
question
One reason that firms may be unable to utilize price discrimination as a viable strategy is because
a. it is always illegal to price discriminate.
b. firms are unwilling to maximize profits.
c. most consumers' reservation prices are well publicized.
d. firms are unable to prevent resale of the product they offer for sale.
e. firms are unlikely to increase profits after paying for increased marketing costs
a. it is always illegal to price discriminate.
b. firms are unwilling to maximize profits.
c. most consumers' reservation prices are well publicized.
d. firms are unable to prevent resale of the product they offer for sale.
e. firms are unlikely to increase profits after paying for increased marketing costs
answer
d. firms are unable to prevent resale of the product they offer for sale.
question
If a firm is unable to distinguish which of its buyers has inelastic demand and which has a relatively elastic demand, then the firm will be unable to price discriminate because it will a. not know how much of the product to offer for sale.
b. not know enough about its customer base to prevent resale.
c. not know which price to charge which customer.
d. not know how many of its customers will buy the product when it is offered for sale.
e. be unable to predict how much of its sales will be retained as profit.
b. not know enough about its customer base to prevent resale.
c. not know which price to charge which customer.
d. not know how many of its customers will buy the product when it is offered for sale.
e. be unable to predict how much of its sales will be retained as profit.
answer
c. not know which price to charge which customer.
question
When a market model moves from that of a monopoly to one in which perfect price discrimination is practiced, the deadweight loss
a. increases.
b. decreases.
c. remains unchanged.
d. fluctuates.
e. becomes negative.
a. increases.
b. decreases.
c. remains unchanged.
d. fluctuates.
e. becomes negative.
answer
b. decreases.
question
Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers all of the surplus from
a. consumers to government.
b. producers to government.
c. government to producers.
d. consumers to producers.
e. producers to consumers.
a. consumers to government.
b. producers to government.
c. government to producers.
d. consumers to producers.
e. producers to consumers.
answer
d. consumers to producers.
question
In the accompanying table, diminishing marginal product begins after the ________ unit of input.
Input Total Product
0 0
1 10
2 35
3 70
4 120
5 165
6 175
7 170
8 155
a. first
b. second
c. seventh
d. fourth
e. sixth
Input Total Product
0 0
1 10
2 35
3 70
4 120
5 165
6 175
7 170
8 155
a. first
b. second
c. seventh
d. fourth
e. sixth
answer
d. fourth
question
The level of profits in a cartel are
a. initially high but then decrease as substitute goods emerge.
b. initially low but then decrease as the level of competition increases.
c. initially low but then increase as the level of competition increases.
d. near the monopoly level of profits.
e. zero.
a. initially high but then decrease as substitute goods emerge.
b. initially low but then decrease as the level of competition increases.
c. initially low but then increase as the level of competition increases.
d. near the monopoly level of profits.
e. zero.
answer
d. near the monopoly level of profits.
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