ECON 213 Quiz 8 Business Cost and Production solutions complete answers

ECON 213 Quiz 8 Business Cost and Production solutions complete answers 

 

Question 1 Accounting profit is equal to:

Question 2 In the short run, average total costs and average variable costs converge as output increases because:

Question 3 If the marginal cost curve is U­shaped:

Question 4 Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are:

Question 5 If workers are unable to specialize and become more productive as more labor is hired, the amount of total output produced:

Question 6 If a firm’s long­run average total costs increase as it increases its scale of production, the firm is experiencing:

Question 7 As a firm hires more labor and each worker is able to specialize, what happens to each additional worker’s marginal productivity?

Question 8 A firm’s accounting profit is always greater than its economic profit because:

Question 9 When the average variable cost curve is upward­sloping, what must be true about the marginal cost curve?

Question 10 Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

Question 11 Use the following graph to answer the questions that follow.

 

A firm expands its scale of production and finds that its long­run average total cost curve looks like LRATC3. It might look this way because the firm:

Question 12 Ralph owns a small pizza restaurant, where he works full­time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:

Question 13 Every year the U.S. sugar industry, which is dominated by only a few firms, spends millions of dollars lobbying members of Congress and contributing to their reelection campaigns. It does so for both Democrats and Republicans. One goal of these contributions is the preservation of the U.S. sugar quota, which limits the importation of less expensive sugar from other countries. Ultimately, all of these activities are motivated by a desire among U.S. sugar producers to:

Question 14 Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that his accounting profit was:

Question 15 Which is the best example of diseconomies of scale?

Question 16 In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

Question 17 If a firm experiences diseconomies of scale, its long­run average cost curve is:

Question 18 Darrell owns a furniture store. If he decided to expand the size of his store in order to sell more furniture, how would he know if he is experiencing diseconomies of scale?

Question 19 Which of the following is true about explicit costs?

Question 20 A firm’s production function is similar to a recipe used to make a cake in the sense that the production function shows us the combination of __________ used to produce __________.

 

Question 1 The accompanying graph represents the __________ for a firm.

 

Question 2 Assume that a firm hires an additional employee. If the marginal product for that employee is greater than for the previous employee hired, it must be because:

Question 3 Use the following graph to answer the questions that follow.

 

If the firm expanded its scale of production and found that its average costs increased, which of the curves would reflect this situation?

Question 4 If all workers are able to specialize and become more productive as more labor is hired, the amount of total output produced:

Question 5 If you were told that a firm earns positive accounting profit and nothing else, what would you know is true about its economic profit?

Question 6 Use the following graph to answer the questions that follow.

 

If the firm expanded its scale of production and found that its average costs decreased, which of the curves would reflect this situation?

Question 7 Refer to the following graph to answer the questions that follow.

 

The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced increases because:

Question 8 If there are gains from specialization in a workplace, hiring another employee means that the marginal product of labor will:

Question 9 A firm is considering changing its plant size. It calculates the amount of output it would be able to produce and the total cost for various plant sizes, as shown in the accompanying table. If the firm is currently using plant size C, the firm is experiencing which of the following?

 

Question 10 If a firm hires another worker and her marginal product of labor is negative, we know that the firm’s total output is:

Question 11 Use the following graph to answer the questions that follow.

 

A firm expands its scale of production and finds that its long­run average total cost curve looks like LRATC1. It might look this way because the firm:

Question 12 Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long­run average total cost curve should be:

Question 13 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:

Question 14 The production function for bookshelves includes:

Question 15 Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:

Question 16 A firm has a certain amount of capital and land. As it hires more labor, each worker is able to:

Question 17 If a firm experiences economies of scale, its longrun average cost curve is:

Question 18 Which of the following is a question that a firm must answer in the long run but not in the short run?

Question 19 Refer to the accompanying graph to answer the questions that follow.

 

The average total cost of production is minimized at what level of output?

Question 20 Should a firm always produce the level of output where marginal cost is lowest?

 

Question 1

Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. If Steve sells 1,250 bikes this year (50 more than last year) and his average total cost increases to $1.28 million, we know that the:

Question 2

Steve owns a bike store. His total costs are $1.2 million per year, and his fixed costs are $450,000 per year. This means that his variable costs are:

Question 3

Explicit costs are:

Question 4

Refer to the following graph to answer the questions that follow.

The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced Selected Answer: d. average fixed cost decreases as output increases.

Question 5

The change in total output divided by the change in input is known as:

Question 6

When output is 100 units, the firm’s total fixed cost is $500. What will this firm’s total fixed cost be if output doubles to 200 units?

Question 7

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that his accounting profit was:

Question 8

Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are:

Question 9

The full set of shortrun cost curves for a firm tells us:

Question 10

Every year the U.S. sugar industry, which is dominated by only a few firms, spends millions of dollars lobbying members of Congress and contributing to their reelection campaigns. It does so for both Democrats and Republicans. One goal of these contributions is the preservation of the U.S. sugar quota, which limits the importation of less expensive sugar from other countries. Ultimately, all of these activities are motivated by a desire among U.S. sugar producers to:

Question 11

Accountants consider only explicit costs when measuring accounting profit. The reason that they ignore implicit costs is that:

Question 12

Use the following graph to answer the questions that follow.

If the firm expanded its scale of production and found that its average costs decreased, which of the curves would reflect this situation?

Question 13

If the marginal product of labor is increasing, the marginal cost of output must be:

Question 14

Which is the best example of diseconomies of scale?

Question 15

Should a firm always produce the level of output where marginal cost is lowest?

Question 16

Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

Question 17

Refer to the following graph to answer the questions that follow.

The firm is experiencing diminishing marginal product beyond what level of output along the marginal cost curve?

Question 18

Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 7 employees; with 7 employees, her bakery can produce 12 wedding cakes per day. If she hired an eighth employee, she’d be able to produce 16 wedding cakes per day. Therefore, the marginal product of the eighth employee is __________ wedding cake(s).

Question 19

Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was:

Question 20

If a firm experiences gains from specialization as it increases its scale of production, we would expect its longrun average cost curve to be:

 

The production function for bookshelves includes:

If a firm hires another worker and her marginal product of labor is positive, we know that the firm’s total output is:

Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be:

Which of the following is an example of a long-run cost for a manufacturing firm?

When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry-level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead to:

The out-of-pocket expenses incurred in producing a good are also known as:

The change in total cost given a change in output is also known as:

A firm’s inputs are also known as its:

Accounting profit ignores which of the following costs?

The three primary factors of production are:

Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost increase to $1,050, his long-run average total cost curve should be:

Nathan owns a coffee-roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long-run average total cost curve should be:

When output is 100 units, the firm’s total fixed cost is $500. What will this firm’s total fixed cost be if output doubles to 200 units?

In the short run, average total costs and average variable costs converge as output increases because:

If a firm has total costs of $535,000 and its implicit costs are $165,000, how much are its explicit costs?

If the marginal product of labor for a firm decreases as more workers are hired, we know that:

If a firm experiences economies of scale, its longrun average cost curve is:

Darrell owns a furniture store. If he moves into a larger store but finds that his average costs have increased in the long run, we know that Darrell is experiencing:

Refer to the accompanying graph to answer the questions that follow.
If the firm depicted in the graph had to pay higher rent to its landlord, we would expect its __________ curve to shift __________.

In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

 

Question 1 The three primary inputs are:

Question 2 By looking at the full set of short­run cost curves for a firm, we can determine:

Question 3 Audrey owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are:

Question 4 An explicit cost for a business that manufactures bicycles would be the:

Question 5 In economics, we assume that firms make decisions in order to:

Question 6 In the short run, average total costs and average variable costs converge as output increases because:

Question 7 If the marginal product of labor for a firm decreases as more workers are hired, we know that:

Question 8 The full set of short­run cost curves for a firm tells us:

Question 9 A firm is considering changing its plant size. It calculates the amount of output it would be able to produce and the total cost for various plant sizes, as shown in the accompanying table. If the firm is currently using plant size C, the firm is experiencing which of the following?

Question 10 Economic profit is equal to:

Question 11 Every year the U.S. sugar industry, which is dominated by only a few firms, spends millions of dollars lobbying members of Congress and contributing to their reelection campaigns. It does so for both Democrats and Republicans. One goal of these contributions is the preservation of the U.S. sugar quota, which limits the importation of less expensive sugar from other countries. Ultimately, all of these activities are motivated by a desire among U.S. sugar producers to:

Question 12 Steve owns a bike store. His total costs are $1.2 million per year, and his variable costs are $750,000 per year. This means that his fixed costs are:

Question 13 In the accompanying table, diminishing marginal product begins after the:

Question 14 As a firm hires more labor and each worker is able to specialize, what happens to each additional worker’s marginal productivity?

Question 15 Use the following scenario to answer the questions that follow. Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. Steve’s average total cost was __________ per bike.

Question 16 It is important for a firm to know its minimum efficient scale of production because that is where:

Question 17 A firm’s short­run cost curves show us:

Question 18 If a firm experiences gains from specialization as it increases its scale of production, we would expect its long­run average cost curve to be:

Question 19 The production function for bookshelves includes:

Question 20 Should a firm always produce the level of output where marginal cost is lowest?

 

Question 1 Total revenue minus total cost is equal to:

Question 2 In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

Question 3 Which of the following is a question that a firm must answer in the long run but not in the short run?

Question 4 If all workers are able to specialize and become more productive as more labor is hired, the amount of total output produced:

Question 5 It is important for a firm to know its minimum efficient scale of production because that is where:

Question 6 The production function of a restaurant includes items such as labor (i.e., cooks, waiters, a manager), capital (i.e., ovens, counters, tables, chairs, and a building), and land. In the short run, the owner of the restaurant will optimize production by employing a variable amount of __________ given a fixed amount of __________.

Question 7 Which is the best example of diseconomies of scale?

Question 8 Refer to the accompanying graph to answer the questions that follow. If the firm depicted in the graph had to pay higher rent to its landlord, we would expect its __________ curve to shift __________.

Question 9 Refer to the following graph to answer the questions that follow. The firm is experiencing diminishing marginal product beyond what level of output along the marginal cost curve?

Question 10 Use the following graph to answer the questions that follow. If the firm expanded its scale of production and found that its average costs increased, which of the curves would reflect this situation?

Question 11 Which is the best example of economies of scale?

Question 12 Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:

Question 13 When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry­level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead to:

Question 14 The change in total output divided by the change in input is known as:

Question 15 If a firm’s long­run average total costs increase as it increases its scale of production, the firm is experiencing:

Question 16 If the marginal product of labor for a firm decreases as more workers are hired, we know that:

Question 17 In the accompanying table, diminishing marginal product begins after the:

Question 18 If a firm hires another worker and her marginal product of labor is positive, we know that the firm’s total output is:

Question 19 Nathan owns a coffee­roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long­run average total cost curve should be:

Question 20 In the accompanying table, diminishing marginal product begins after the:

 

Question 1 Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total implicit costs were:

Question 2 Use the following scenario to answer the questions that follow. Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. Steve’s average total cost was __________ per bike.

Question 3 It is important for a firm to know its minimum efficient scale of production because that is where:

Question 4 Use the following graph to answer the questions that follow. Which of the curves depicts economies of scale?

Question 5 In the accompanying table, diminishing marginal product begins after the:

Question 6 Darrell owns a furniture store. If he decided to expand the size of his store in order to sell more furniture, how would he know if he is experiencing diseconomies of scale?

Question 7 Ralph owns a small pizza restaurant, where he works full­time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:

Question 8 Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long­run average total cost curve should be:

Question 9 Chief executive officers (CEOs) of major corporations are often paid mostly with stock options, as opposed to salaries and cash payments. These stock options often cannot be converted into stock and sold until years after they were issued. All this is ultimately intended to create incentives for the CEO to:

Question 10 Refer to the following table. What is the total cost of producing five (5) units of the good?

Question 11 In the accompanying table, diminishing marginal product begins after the:

Question 12 When a firm hires another employee and, as a result, total output increases, this change in total output is also known as:

Question 13 Which of the following is a question that a firm must answer in the long run but not in the short run?

Question 14 Ralph owns a small pizza restaurant, where he works full­time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:

Question 15 Steve owns a bike store. Last year his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost decrease to $950, his long­run average total cost curve should be:

Question 16 In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

Question 17 Which of the following is the best example of a variable cost in the short run?

Question 18 Darrell owns a furniture store. If he increases the size of his furniture store and experiences diseconomies of scale as a result, his long­run average total cost curve should be:

Question 19 Nathan owns a coffee­roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long­run average total cost curve should be:

Question 20 Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

 

     1.   Chief executive officers (CEOs) of major corporations are often paid mostly with stock options, as opposed to salaries and cash payments. These stock options often cannot be converted into stock and sold until years after they were issued. All this is ultimately intended to create incentives for the CEO to:

a.
leave the company after a year or so.
b.
lay off as many employees as possible.
c.
increase the value of the stock by maximizing company profit.
d.
outsource all production to other countries.
e.
lobby Congress for subsidies and tax breaks.
 

 

     2.   Every year the U.S. sugar industry, which is dominated by only a few firms, spends millions of dollars lobbying members of Congress and contributing to their reelection campaigns. It does so for both Democrats and Republicans. One goal of these contributions is the preservation of the U.S. sugar quota, which limits the importation of less expensive sugar from other countries. Ultimately, all of these activities are motivated by a desire among U.S. sugar producers to: 

a.
keep their prices as low as possible.
b.
make the market for sugar as competitive as possible.
c.
support one political party but not another.
d.
keep their profits as high as possible.
e.
hire as many employees as they can.
 

 

     3.   If a firm wants to cut its costs through more efficient production, we should assume that the firm is trying to:

a.
fire its employees.
b.
increase its profits.
c.
eliminate its competition.
d.
buy back its stock.
e.
gain control over its market.
 

     4.   In economics, we assume that firms make decisions in order to:

a.
maximize profit.
b.
minimize revenues.
c.
evade taxes.
d.
lobby officials.
e.
protect the environment.
 

     5.   Total revenue minus total cost is equal to:

a.
producer surplus.
b.
dividends.
c.
consumer surplus.
d.
profit.
e.
retained earnings.
     6.   A firm’s decisions are ultimately oriented toward:

a.
minimizing the number of employees it hires.
b.
maximizing profit.
c.
maximizing production.
d.
increasing total revenue.
e.
negotiating better deals with suppliers.
 

     7.   Explicit costs are:

a.
the opportunity cost of the means of production.
b.
always paid out of pocket.
c.
always greater than implicit costs.
d.
never greater than implicit costs.
e.
what a business sacrifices in order to produce a good.
 

     8.   The out-of-pocket expenses incurred in producing a good are also known as:

a.
implicit costs.
b.
fiduciary costs.
c.
explicit costs.
d.
capital costs.
e.
wages and prices.
 

     9.   Which of the following is true about explicit costs?

a.
They are the opportunity costs of production.
b.
They are out-of-pocket expenses.
c.
They are not measured in terms of dollars.
d.
They are not included when measuring economic profit.
e.
They are not included when measuring accounting profit.
 

   10.   An explicit cost for a business that manufactures 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 to employees.
e.
various products that could be made with the steel used to make bicycles.
 

   11.   If a firm has total costs of $535,000 and its implicit costs are $165,000, how much are its explicit costs?

a.
$3,242
b.
$120,000
c.
$370,000
d.
$700,000
e.
$308
 

   12.   Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were:

a.
$24,000.
b.
$6,000.
c.
$60,000.
d.
$66,000.
e.
$72,000.
 

   13.   Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total explicit costs were:

a.
$80,000.
b.
$92,000.
c.
$15,000.
d.
$77,000.
e.
$53,000.
 

   14.   Implicit costs are:

a.
the opportunity cost of the means of production.
b.
always paid out of pocket.
c.
never greater than explicit costs.
d.
always greater than explicit costs.
e.
not measured in terms of dollars.
 

   15.   Implicit costs can be difficult to measure because:

a.
business owners cannot always observe them directly.
b.
they are not measured in dollars.
c.
they are always very expensive.
d.
they are always greater than explicit costs.
e.
they include expenses like taxes.
 

   16.   If a firm generates $240,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs?

a.
$160,000
b.
$80,000
c.
$40,000
d.
$60,000
e.
$120,000
 

   17.   Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total implicit costs for the year were:

a.
$100,000.
b.
$35,000.
c.
$60,000.
d.
$66,000.
e.
$72,000.
 

   18.   Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total implicit costs were:

a.
$145,000.
b.
$53,000.
c.
$92,000.
d.
$65.000.
e.
$15,000.
 

   19.   Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:

a.
they are more conservative than accountants, who consider only accounting costs.
b.
most businesses forget to pay their implicit costs.
c.
a business must cover its opportunity costs as well as its out-of-pocket expenses to be truly profitable.
d.
implicit costs are typically far larger than explicit costs.
e.
implicit costs include expenses like taxes and fees to the government.
 

   20.   Accountants consider only explicit costs when measuring accounting profit. The reason that they ignore implicit costs is that:

a.
implicit costs are typically very small.
b.
explicit costs are always greater than implicit costs.
c.
implicit costs are not out-of-pocket expenses.
d.
implicit costs are tax deductible.
e.
implicit costs cannot be measured in terms of dollars.
 

   21.   Accounting profit is equal to:

a.
total revenue minus explicit costs.
b.
total revenue minus implicit costs.
c.
explicit costs plus implicit costs.
d.
explicit costs minus implicit costs.
e.
total revenue minus implicit costs and explicit costs.
 

   22.   Accounting profit ignores which of the following costs?

a.
implicit costs
b.
labor costs
c.
capital costs
d.
taxes paid
e.
explicit costs
 

   23.   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.
economic profit is always zero, no matter what kind of firm it is.
d.
accounting profit considers implicit costs, which economic profit does not.
e.
accounting profit is always positive, no matter what kind of firm it is.
 

   24.   Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was:

a.
$145,000.
b.
$53,000.
c.
$65,000.
d.
$15,000.
e.
$27,000.
 

   25.   Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. From this information, we know that his accounting profit was:

a.
$525,000.
b.
$375,000.
c.
$150,000.
d.
$175,000.
e.
$105,000.
 

   26.   Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total accounting profit for the year was:

a.
–$1,000.
b.
$100,000.
c.
$72,000.
d.
$34,000.
e.
$35,000.
 

   27.   Economic profit is equal to:

a.
total revenue minus explicit costs.
b.
total revenue minus implicit costs.
c.
explicit costs plus implicit costs.
d.
total revenue minus implicit costs and explicit costs.
e.
explicit costs minus implicit costs.
 

   28.   A firm’s economic profit is always less than its accounting profit because:

a.
accounting profit considers explicit costs, which economic profit does not.
b.
economic profit considers implicit costs, which accounting profit does not.
c.
economic profit is always zero, no matter what kind of firm it is.
d.
accounting profit considers implicit costs, which economic profit does not.
e.
accounting profit is always positive, no matter what kind of firm it is.
 

   29.   If you were told that a firm earns positive accounting profit and nothing else, what would you know is true about its economic profit?

a.
It is positive because whenever accounting profit is positive, so is economic profit.
b.
It cannot be determined without knowing the firm’s implicit costs.
c.
It is zero because all firms earn zero economic profit regardless of the industry.
d.
It is equal to its accounting profit.
e.
It is negative because its accounting profit is probably not high enough to earn positive economic profit.
 

   30.   Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total economic profit for the year was:

a.
$34,000.
b.
–$1,000.
c.
$20,000.
d.
$65,000.
e.
–$35,000.
 

   31.   Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. If she could earn $53,000 working for another bakery nearby, we know that her economic profit was:

a.
$145,000.
b.
$53,000.
c.
$12,000.
d.
$0.00.
e.
$15,000.
 

   32.   Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. If his total revenue increases to $600,000 this year and all of his other expenses are held constant, we know that his economic profit is now:

a.
$75,000.
b.
$600,000.
c.
$0.00.
d.
$105,000.
e.
$200,000.
 

   33.   A firm’s inputs are also known as its:

a.
outputs.
b.
profits.
c.
factors of production.
d.
revenues.
e.
costs.
 

   34.   Another term for factors of production is:

a.
outputs.
b.
inputs.
c.
profits.
d.
revenues.
e.
costs.
 

   35.   The three primary factors of production are:

a.
revenue, profits, and costs.
b.
price, quantity, and profits.
c.
capital, interest, and savings.
d.
labor, wages, and training.
e.
land, labor, and capital.
 

   36.   The three primary inputs are:

a.
revenue, profits, and costs.
b.
price, quantity, and profits.
c.
land, labor, and capital.
d.
labor, wages, and training.
e.
capital, interest, and savings.
 

   37.   A firm has a certain amount of capital and land. As it hires more labor, each worker is able to:

a.
earn a higher wage.
b.
specialize.
c.
work more overtime.
d.
purchase more capital.
e.
purchase more land.
 

   38.   As a firm hires more labor and each worker is able to specialize, what happens to each additional worker’s marginal productivity?

a.
It increases at first, then decreases.
b.
It increases continuously.
c.
It decreases continuously.
d.
It decreases at first, then increases.
e.
It remains constant, no matter how much labor is hired.
   39.   A firm’s production function is similar to a recipe used to make a cake in the sense that the production function shows us the combination of __________ used to produce __________.

a.
inputs; output
b.
outputs; input
c.
costs; profit
d.
expenses; revenue
e.
taxes; deductions
 

   40.   The production function of a restaurant includes items such as labor (i.e., cooks, waiters, a manager), capital (i.e., ovens, counters, tables, chairs, and a building), and land. In the short run, the owner of the restaurant will optimize production by employing a variable amount of __________ given a fixed amount of __________.

a.
capital; labor and land
b.
land; capital and labor
c.
labor; capital and land
d.
labor; capital and raw materials
e.
land; labor and raw materials
 

   41.   If all workers are able to specialize and become more productive as more labor is hired, the amount of total output produced:

a.
increases at a decreasing rate.
b.
increases at a constant rate.
c.
increases at an increasing rate.
d.
decreases at an increasing rate.
e.
decreases at a constant rate.
 

   42.   The production function for automobiles includes:

a.
farmland, seeds, rain, and tractors.
b.
an aircraft carrier, planes, helicopters, sailors, and pilots.
c.
a mall, racks and shelves, mannequins, and sales clerks.
d.
lumber, shingles, windows, doors, and carpenters.
e.
a factory, an assembly line, workers, and robots.
 

   43.   The production function for bookshelves includes:

a.
yeast, flour, pans, ovens, and bakers.
b.
electric guitars, drums, microphones, musicians, and a stage.
c.
foam cushions, fabric, wood, nails, and furniture makers.
d.
wood, nails, carpenters, saws, and hammers.
e.
wool fabric, buttons, a zipper, a sewing machine, and a tailor.
 

   44.   If workers are unable to specialize and become more productive as more labor is hired, the amount of total output produced:

a.
increases at an increasing rate.
b.
increases at a constant rate.
c.
increases at a decreasing rate.
d.
decreases at an increasing rate.
e.
decreases at a constant rate.
 

   45.   The change in total output divided by the change in input is known as:

a.
marginal product.
b.
marginal cost.
c.
specialization.
d.
total product.
e.
marginal profit.
   46.   Marginal product is the change in:

a.
total output divided by the change in input.
b.
total output plus the change in input.
c.
total output minus the change in input.
d.
total output times the change in input.
e.
input divided by the change in total output.
 

   47.   When a firm hires another employee and, as a result, total output increases, this change in total output is also known as:

a.
total output.
b.
marginal employment.
c.
marginal product.
d.
labor contribution.
e.
marginal benefit.
 

   48.   If there are gains from specialization in a workplace, hiring another employee means that the marginal product of labor will:

a.
decrease.
b.
remain the same.
c.
increase.
d.
be 0 (zero).
e.
be negative.
 

   49.   Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 5 employees; with 5 employees, her bakery can produce 7 wedding cakes per day. If she hired a sixth employee, she’d be able to produce 9 wedding cakes per day. Therefore, the marginal product of the sixth employee is __________ wedding cake(s).

a.
5
b.
7
c.
9
d.
2
e.
1.5
 

   50.   Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 6 employees; with 6 employees, her bakery can produce 9 wedding cakes per day. If she hired a seventh employee, she’d be able to produce 12 wedding cakes per day. Therefore, the marginal product of the seventh employee is __________ wedding cakes.

a.
9
b.
7
c.
1.71
d.
3
e.
5
 

   51.   Lauren owns a bakery that produces, among other things, wedding cakes. She currently has 7 employees; with 7 employees, her bakery can produce 12 wedding cakes per day. If she hired an eighth employee, she’d be able to produce 16 wedding cakes per day. Therefore, the marginal product of the eighth employee is __________ wedding cake(s).

a.
2
b.
1
c.
8
d.
16
e.
4
 

   52.   If a firm hires another worker and her marginal product of labor is positive, we know that the firm’s total output is:

a.
decreasing.
b.
unchanged.
c.
increasing.
d.
0 (zero).
e.
equal to the marginal product of that worker.
 

   53.   If a firm hires another worker and her marginal product of labor is negative, we know that the firm’s total output is:

a.
increasing.
b.
decreasing.
c.
equal to the marginal product of that worker.
d.
unchanged.
e.
0 (zero).
 

   54.   If a firm hires another worker and her marginal product of labor is 0 (zero), we know that the firm’s total output is:

a.
0 (zero).
b.
unchanged.
c.
increasing.
d.
decreasing.
e.
equal to the marginal product of that worker.
 

   55.   If the marginal product of labor for a firm decreases as more workers are hired, we know that:

a.
all workers are paid the same wage.
b.
the marginal cost of producing output is decreasing.
c.
the gains from specialization are exhausted.
d.
the marginal cost of producing output is constant.
e.
there are still gains from specialization left to be exploited.
 

   56.   As a firm hires more workers, its marginal product of labor increases only if:

a.
each worker does the same tasks as all others.
b.
all workers are paid the same wage.
c.
the firm produces commodities.
d.
employees are assigned specialized tasks.
e.
all workers are paid different wages.
 

   57.   In the accompanying table, diminishing marginal product begins after the:

 

 

a.
first unit of input.
b.
second unit of input.
c.
seventh unit of input.
d.
fourth unit of input.
e.
sixth unit of input.
 

   58.   In the accompanying table, diminishing marginal product begins after the:

 

a.
second unit of output.
b.
fourth unit of output.
c.
fifth unit of output.
d.
third unit of output.
e.
first unit of output.
 

   59.   Assume that a firm hires an additional employee. If the marginal product for that employee is greater than for the previous employee hired, it must be because:

a.
the marginal product of labor is diminishing.
b.
all workers are paid the same wage.
c.
the workers all perform the exact same set of tasks.
d.
there are gains from specialization.
e.
all workers are not paid the same wage.
 

   60.   Based on the accompanying graph, is this firm earning positive, negative, or zero economic profits?

 

 

 

a.
We cannot determine the firm’s level of profit because we do not know about its revenues.
b.
It is earning positive economic profit.
c.
Because this is the short run, all firms earn positive economic profit.
d.
It is earning zero economic profit.
e.
It is earning negative economic profit.
   61.   In the short run, the cost of __________ is variable, whereas the cost of __________ is fixed.

a.
capital; labor
b.
electricity; wages
c.
capital; raw materials
d.
labor; capital
e.
raw materials; labor
 

   62.   Economists assume that the cost of __________ is fixed in the short run.

a.
labor
b.
capital
c.
raw materials
d.
legal expenses
e.
repairs
 

   63.   Which of the following can we learn by looking at a firm’s short-run costs?

a.
the profit-maximizing level of output
b.
whether the firm will experience economies of scale
c.
the optimal number of employees to hire
d.
whether the firm is earning economic profit
e.
the cost-minimizing level of output
 

   64.   Which of the following costs is fixed in the short run?

a.
wages
b.
utilities
c.
capital
d.
raw materials
e.
office supplies
 

   65.   Lauren owns a bakery. Her total costs are $150,000 per year, and her variable costs are $85,000. This means that her fixed costs are:

a.
$65,000.
b.
$150,000.
c.
$85,000.
d.
$235,000.
e.
$70,000.
 

   66.   Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are:

a.
$75,000.
b.
$225,000.
c.
$300,000.
d.
$50,000.
e.
$150,000.
   67.   Steve owns a bike store. His total costs are $1.2 million per year, and his variable costs are $750,000 per year. This means that his fixed costs are:

a.
$1.2 million.
b.
$750,000.
c.
$450,000.
d.
$300,000.
e.
$1.95 million.
 

   68.   When output is 100 units, the firm’s total fixed cost is $500. What will this firm’s total fixed cost be if output doubles to 200 units?

a.
$250
b.
$500
c.
$750
d.
$1,000
e.
$125
 

Refer to the following graph to answer the questions that follow.

 

 

 

   69.   The gap between the average total cost (ATC) and average variable cost (AVC) curves represents:

a.
average fixed cost.
b.
total fixed cost.
c.
average variable cost.
d.
average total cost.
e.
total variable cost.
 

   70.   The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced increases because:

a.
the firm is able to purchase more capital and exploit economies of scale.
b.
the firm experiences gains in productivity from employee specialization.
c.
average total cost decreases as output increases.
d.
average fixed cost decreases as output increases.
e.
the firm is able to drive its competitors out of business by lowering its price.
 

   71.   Lauren owns a bakery. Her total costs are $150,000 per year, and her fixed costs are $65,000. This means that her variable costs are:

a.
$65,000.
b.
$150,000.
c.
$85,000.
d.
$235,000.
e.
$70,000.
 

   72.   Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are:

a.
$150,000.
b.
$225,000.
c.
$375,000.
d.
$50,000.
e.
$75,000.
 

   73.   Steve owns a bike store. His total costs are $1.2 million per year, and his fixed costs are $450,000 per year. This means that his variable costs are:

a.
$1.2 million.
b.
$750,000.
c.
$450,000.
d.
$300,000.
e.
$1.65 million.
 

   74.   Audrey owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are:

a.
$550,000.
b.
$205,000.
c.
$345,000.
d.
$755,000.
e.
$108,000.
 

   75.   Which of the following is the best example of a variable cost in the short run?

a.
rent for an office
b.
rent for a restaurant
c.
wages for employees
d.
debt payments for a loan
e.
rent for factory space
 

   76.   In the short run, average total costs and average variable costs converge as output increases because:

a.
marginal cost is below average total cost.
b.
marginal cost is below average fixed cost.
c.
average fixed costs continually increase.
d.
average fixed costs continually decrease.
e.
total cost continually increases.
 

Use the following scenario to answer the questions that follow.

 

Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes.

 

   77.   Steve’s average total cost was __________ per bike.

a.
$625
b.
$1,000
c.
$375
d.
$1,200
e.
$600
 

   78.   Steve’s average variable cost was __________ per bike.

a.
$375
b.
$625
c.
$1,000
d.
$1,200
e.
$600
 

   79.   Steve’s average fixed cost was __________ per bike.

a.
$600
b.
$625
c.
$1,000
d.
$2,000
e.
$375
 

Refer to the accompanying graph to answer the questions that follow.

 

 

 

   80.   If the firm depicted in the graph had to pay higher rent to its landlord, we would expect its __________ curve to shift __________.

a.
average total cost (ATC); down
b.
average variable cost (AVC); down
c.
average total cost (ATC); up
d.
marginal cost (MC); up
e.
average variable cost (AVC); up
 

   81.   The average total cost of production is minimized at what level of output?

a.
Q5
b.
Q1
c.
Q4
d.
Q3
e.
Q2
 

   82.   In the short run, average total costs at first decrease and then increase as more output is produced because:

a.
marginal cost is at first greater than average total costs, then falls below it.
b.
average fixed costs continually decrease.
c.
average variable costs at first decrease and then increase at the same level of output.
d.
total cost continually increases.
e.
marginal cost is at first less than average total costs, then rises above it.
 

   83.   When the average total cost curve is at its minimum, we know that the:

a.
average variable cost curve intersects the average total cost curve.
b.
average variable cost curve is above the average total cost curve.
c.
marginal cost curve intersects the average total cost curve.
d.
marginal cost curve is above the average total cost curve.
e.
average fixed cost curve is above the marginal cost curve.
 

   84.   A firm’s short-run cost curves show us:

a.
the lowest-cost level of output.
b.
the highest-profit level of output.
c.
what will happen if the firm doubles its capital.
d.
how many other firms are in the industry.
e.
how many employees the firm has.
 

   85.   By looking at the full set of short-run cost curves for a firm, we can determine:

a.
the profit-maximizing level of output.
b.
the optimal number of employees to hire.
c.
what will happen if the firm increases its capital.
d.
the level of output with the cost-minimizing level of output.
e.
what will happen if the firm decreases its capital.
 

   86.   The full set of short-run cost curves for a firm tells us:

a.
the profit-maximizing level of output.
b.
the cost-minimizing level of output.
c.
how many other firms are competing with that firm.
d.
how many employees the firm has hired.
e.
whether the firm will experience economies of scale.
 

   87.   The accompanying graph represents the __________ for a firm.

 

 

 

a.
production function
b.
short-run cost curves
c.
long-run cost curves
d.
marginal product
e.
economies of scale
 

   88.   When the average total cost curve is downward-sloping, what must be true about the marginal cost curve?

a.
It is U-shaped.
b.
It is a straight line.
c.
It is upward-sloping.
d.
It is below the average total cost curve.
e.
It is above the average total cost curve.
 

   89.   If the marginal cost curve is U-shaped:

a.
there are no productivity gains from specialization, only diminishing marginal product.
b.
average fixed costs are continually decreasing.
c.
there are productivity gains from specialization before diminishing marginal product sets in.
d.
the average total cost curve is continually

 upward-sloping.
e.
the average variable cost curve is a straight line.
 

   90.   When the average variable cost curve is upward-sloping, what must be true about the marginal cost curve?

a.
It is U-shaped.
b.
It is above the average variable cost curve.
c.
It is upward-sloping.
d.
It is below the average variable cost curve.
e.
It is a straight line.
 

   91.   The change in total cost given a change in output is also known as:

a.
differential cost.
b.
marginal cost.
c.
average cost.
d.
short-run cost.
e.
long-run cost.
   92.   If the marginal product of labor is increasing, the marginal cost of output must be:

a.
decreasing.
b.
constant.
c.
equal to average total cost.
d.
unchanged.
e.
increasing.
 

   93.   If a firm experiences diminishing marginal product of labor, its marginal cost:

a.
increases at an increasing rate.
b.
decreases at a decreasing rate.
c.
increases at a constant rate.
d.
decreases at a constant rate.
e.
increases at a decreasing rate.
 

   94.   If a firm experiences productivity gains from employee specialization, its marginal cost:

a.
increases at an increasing rate.
b.
decreases at an increasing rate.
c.
decreases at a decreasing rate.
d.
decreases at a constant rate.
e.
increases at a decreasing rate.
 

   95.   Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. If Steve sells 1,250 bikes this year (50 more than last year) and his average total cost increases to $1.28 million, we know that the:

a.
average total cost of selling 1,250 bikes is $1,000.
b.
average variable cost of selling bikes has decreased.
c.
average fixed cost of selling bikes is unchanged.
d.
marginal cost of those 50 bikes is $80,000.
e.
marginal cost of those 50 bikes is $1.28 million.
 

Refer to the following graph to answer the questions that follow.

 

 

 

   96.   The firm is experiencing gains from specialization up to what level of output along the marginal cost curve?

a.
Q2
b.
Q5
c.
Q1
d.
Q3
e.
Q4
 

   97.   The firm is experiencing diminishing marginal product beyond what level of output along the marginal cost curve?

a.
Q5
b.
Q1
c.
Q2
d.
Q3
e.
Q4
 

   98.   Should a firm always produce the level of output where marginal cost is lowest?

a.
Yes. That is the level of output where costs are lowest.
b.
No. That is the level of output where employees are most efficient.
c.
No. Firms should produce where marginal cost equals average variable cost.
d.
No. That might be the best choice, but it depends on the firm’s profits.
e.
Yes. Any other level of output will have higher marginal cost.
 

   99.   Where would we find a firm’s minimum efficient scale of production?

a.
at the lowest point on its long-run average total cost curve
b.
at the highest point on its long-run average total cost curve
c.
in the middle of its long-run average total cost curve
d.
at the highest point on its long-run average fixed cost curve
e.
in the middle of its long-run average variable cost curve
 

 100.   It is important for a firm to know its minimum efficient scale of production because that is where:

a.
it faces the least amount of competition.
b.
its tax burden will be lowest.
c.
long-run costs are minimized.
d.
long-run average total cost is greatest.
e.
it turns into a monopoly.
 

 101.   How will a firm know if it has grown too large, that is, when it has exceeded its minimum efficient scale of production?

a.
Its long-run average costs begin to decrease.
b.
Its long-run average costs begin to increase.
c.
Its market power begins to diminish.
d.
The number of other firms in the market rises.
e.
All of its workers quit and go to work for the competition.
 

 102.   Refer to the following table. What is the total cost of producing five (5) units of the good?

 

 

a.
$1,050
b.
$950
c.
$1,025
d.
$825
e.
$1,000
 

 103.   Refer to the following table. What is the average variable cost of producing three (3) units of the good?

 

 

a.
$80
b.
$120
c.
$140
d.
$20
e.
$420
 104.   Which of the following is an example of a long-run cost for a manufacturing firm?

 

a.
the purchase of additional raw materials
b.
hiring more employees
c.
an increase in the size of its factory
d.
paying higher tax rates
e.
increasing the size of its management team
 

 105.   Which of the following is a question that a firm must answer in the long run but not in the short run?

a.
What is the profit-maximizing level of output?
b.
How many workers should it hire?
c.
What is the optimal amount of capital to employ?
d.
What prices should it charge for its products?
e.
How much should it pay its workers?
 

 106.   If a firm’s average total costs decrease as it increases its scale of production, the firm is experiencing:

a.
economies of scale.
b.
diseconomies of scale.
c.
increasing returns from specialization.
d.
diminishing marginal product.
e.
constant returns to scale.
 

 107.   Steve owns a bike store. He currently sells 1,200 bikes per year. If he doubles the size of his store so he can sell 2,400 bikes per year and his long-run average total cost per bike decreases, we know that Steve is experiencing:

a.
diseconomies of scale.
b.
diminishing marginal product.
c.
increasing marginal product.
d.
economies of scale.
e.
constant returns to scale.
 

 108.   Steve owns a bike store. If he decided to expand the size of his store so that he could sell more bikes, how would he know if he is experiencing economies of scale in the long run?

a.
His long-run average cost of selling each bike remains unchanged.
b.
His long-run average cost of selling each bike decreases.
c.
His long-run average cost of selling each bike increases.
d.
His long-run total cost of selling bikes increases.
e.
His long-run fixed cost of selling bikes increases.
 

 109.   Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

a.
Her average cost per client increases.
b.
Her total cost increases.
c.
Her average cost per client remains the same.
d.
Her average cost per client decreases.
e.
Her total cost remains unchanged.
 

 110.   Which is the best example of economies of scale?

a.
the local power company
b.
the pizza business
c.
the restaurant industry
d.
a parking garage
e.
a small family farm
 

Use the following graph to answer the questions that follow.

 

 

 

 111.   Which of the curves depicts economies of scale?

a.
LRATC1 and LRATC3
b.
LRATC2
c.
LRATC2 and LRATC3
d.
LRATC1
e.
LRATC3
 

 112.   A firm expands its scale of production and finds that its long-run average total cost curve looks like LRATC1. It might look this way because the firm:

a.
adds several additional layers of management, which increase its costs.
b.
is able to pay its employees more.
c.
has to pay higher rent.
d.
is able to negotiate lower prices with its suppliers.
e.
is able to sell more output.
 

 113.   If the firm expanded its scale of production and found that its average costs decreased, which of the curves would reflect this situation?

a.
LRATC2 and LRATC3
b.
LRATC2
c.
LRATC1
d.
LRATC3
e.
LRATC1 and LRATC2
 114.   A firm expands its scale of production and finds that it is able to negotiate better prices with its suppliers. Which of the curves best applies to this firm?

a.
LRATC1
b.
LRATC2
c.
LRATC3
d.
LRATC1 and LRATC2
e.
LRATC2 and LRATC3
 

 115.   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.
 

 116.   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.
 

Use the following graph to answer the questions that follow.

 

 

 

 117.   A firm expands its scale of production and finds that its long-run average total cost curve looks like LRATC3. It might look this way because the firm:

a.
is able to pay its employees less.
b.
adds several additional layers of management, which increase its costs.
c.
is able to reduce its tax burden.
d.
is able to produce output more efficiently.
e.
is able to sell more output.
 

 118.   If the firm expanded its scale of production and found that its average costs increased, which of the curves would reflect this situation?

a.
LRATC1 and LRATC3
b.
LRATC2
c.
LRATC3
d.
LRATC1
e.
LRATC2 and LRATC3
 

 119.   A firm is considering changing its plant size. It calculates the amount of output it would be able to produce and the total cost for various plant sizes, as shown in the accompanying table. If the firm is currently using plant size C, the firm is experiencing which of the following?

 

 

a.
economies of scale
b.
diseconomies of scale
c.
constant returns to scale
d.
diminishing marginal product
e.
increasing marginal product
 

 120.   Which is the best example of diseconomies of scale?

a.
the local power company
b.
the pizza business
c.
the restaurant industry
d.
a parking garage
e.
a small family farm
 121.   Darrell owns a furniture store. If he moves into a larger store but finds that his average costs have increased in the long run, we know that Darrell is experiencing:

a.
increasing marginal product.
b.
diminishing marginal product.
c.
diseconomies of scale.
d.
constant returns to scale.
e.
economies of scale.
 

 122.   Darrell owns a furniture store. If he decided to expand the size of his store in order to sell more furniture, how would he know if he is experiencing diseconomies of scale?

a.
His total cost of selling furniture decreases.
b.
His average cost of selling furniture increases.
c.
His total cost of selling furniture remains unchanged.
d.
His average cost of selling furniture remains unchanged.
e.
His average cost of selling furniture decreases.
 

 123.   When firms grow larger, they sometimes add many additional layers of managers between the top executives and the entry-level employees. Because these managers do not actually produce any output themselves, we expect more layers of management to lead to:

a.
diminishing marginal returns.
b.
diseconomies of scale.
c.
economies of scale.
d.
constant returns to scale.
e.
increasing marginal returns.
 

 124.   Lauren owns a bakery. She currently bakes around 10,000 loaves of bread per year. If she increases the size of her bakery so that she can bake even more bread, and her long-run average total cost remains unchanged, we know that Lauren is experiencing:

a.
diseconomies of scale.
b.
diminishing marginal product.
c.
increasing marginal product.
d.
constant returns to scale.
e.
economies of scale.
 

 125.   Lauren owns a bakery. If she decided to expand the size of her bakery so that she could bake more bread, how would she know if she is experiencing constant returns to scale?

a.
Her long-run average cost of baking each loaf of bread remains unchanged.
b.
Her long-run total cost of baking bread decreases.
c.
Her long-run average cost of baking each loaf of bread decreases.
d.
Her long-run total cost of baking remains unchanged.
e.
Her long-run average cost of baking each loaf of bread increases.
 

 126.   Nathan owns a coffee roasting company. He buys raw coffee beans, roasts them, grinds them, and sells them to stores. He recently moved into a larger factory so that he can sell coffee to more stores. How would Nathan know if he is experiencing constant returns to scale from increasing the size of his factory?

a.
His long-run average cost per pound of coffee remains the same.
b.
His long-run total cost of roasting coffee remains the same.
c.
His long-run total cost of roasting coffee decreases.
d.
His long-run average cost per pound of coffee increases.
e.
His long-run average cost per pound of coffee decreases.
 

 127.   If the firm in the accompanying graph expanded its scale of production and found that its average costs did not change, which of the curves would reflect this situation?

 

 

 

a.
LRATC1 and LRATC2
b.
LRATC3
c.
LRATC2
d.
LRATC1
e.
LRATC1 and LRATC3
 

 128.   When a firm grows larger, many additional layers of managers are sometimes added that do not actually produce any output. At the same time, the firm gains additional bargaining power over the prices it pays to its suppliers. If both of these factors have an equal effect, we would expect this firm to experience:

a.
diminishing marginal returns.
b.
diseconomies of scale.
c.
constant returns to scale.
d.
economies of scale.
e.
increasing marginal returns.
 

 129.   If a firm experiences economies of scale, its longrun average cost curve is:

a.
a horizontal line.
b.
downward-sloping.
c.
a vertical line.
d.
upward-sloping.
e.
U-shaped.
 

 130.   If a firm experiences diseconomies of scale, its long-run average cost curve is:

a.
upward-sloping.
b.
downward-sloping.
c.
a vertical line.
d.
a horizontal line.
e.
U-shaped.
 

 131.   Lauren owns a bakery. If she increases the size of her bakery and experiences constant returns to scale as a result, her long-run average total cost curve should be:

a.
vertical.
b.
upward-sloping.
c.
horizontal.
d.
downward-sloping.
e.
U-shaped.
 132.   Darrell owns a furniture store. If he increases the size of his furniture store and experiences diseconomies of scale as a result, his long-run average total cost curve should be:

a.
vertical.
b.
downward-sloping.
c.
horizontal.
d.
upward-sloping.
e.
U-shaped.
 

 133.   Nathan owns a coffee-roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long-run average total cost curve should be:

a.
vertical.
b.
downward-sloping.
c.
upward-sloping.
d.
horizontal.
e.
U-shaped.
 

 134.   Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be:

a.
horizontal.
b.
upward-sloping.
c.
vertical.
d.
downward-sloping.
e.
U-shaped.
 

 135.   Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost increase to $1,050, his long-run average total cost curve should be:

a.
horizontal.
b.
U-shaped.
c.
vertical.
d.
downward-sloping.
e.
upward-sloping.
 

 136.   Steve owns a bike store. Last year his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost decrease to $950, his long-run average total cost curve should be:

a.
vertical.
b.
upward-sloping.
c.
horizontal.
d.
downward-sloping.
e.
U-shaped.
 

 137.   If a firm experiences gains from specialization as it increases its scale of production, we would expect its long-run average cost curve to be:

a.
upward-sloping.
b.
horizontal.
c.
downward-sloping.
d.
vertical.
e.
U-shaped.
 138.   If a firm adds multiple layers of management as it increases its scale of production, thus adding to its costs, we would expect its long-run average cost curve to be:

a.
downward-sloping.
b.
horizontal.
c.
upward-sloping.
d.
vertical.
e.
U-shaped.
 

 139.   If a firm experiences some gains from specialization as it expands its scale of production, and adds additional layers of management as it does so, assuming they have the same effect, we would expect its long-run average total cost curve to be:

a.
downward-sloping.
b.
upward-sloping.
c.
horizontal.
d.
vertical.
e.
U-shaped.
 

 

1. Opportunity cost is the ______________ alternative forfeited when a choice is made.

a.        least-valued

b.       highest-valued

c.        most recently considered

d.       most convenient

e.        first

 

2. You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

 A) resources are scarce.

 B) the real cost of something is what you must give up to get it.

 C) “How much” is a decision at the margin.

 D) there are gains from trade.

 

3. Positive economics:

 A) describes opinions and perspectives on how the world should work.

 B) is based on opinion polls.

 C) describes how the world does work

 D) is the same as normative economics.

 

4. Economists use models to explain real-life situations because:

 A) such models tend to be exactly what is occurring in each situation.

 B) assumptions found in such models tend to make the problem more difficult.

 C) simplifications and assumptions often yield answers that can help to explain the more difficult real-life situations

 D) they do not; real-life situations are not relevant to the building of models.

 

5. Bob can hire someone to paint his house for $2,000, or he can do it himself at no out-of-pocket cost.  It will take him 5 days.  Bob earns $500 a day when he works outside the home.  Which option has the greater economic cost?

a.        hiring a painter

b.       painting the house himself 

c.        they are the same cost

d.       not enough information to decide—one needs to know the marginal cost

6. When one producer has a comparative advantage in production,

a.        she can produce more output than someone else using the same quantity of resources.

b.       she can produce a good at a lower opportunity cost than someone else.

c.        she will not benefit from trade with other producers.

d.       she is unable to reach her production possibilities frontier (PPF).

e.        she will only trade with others who have the same comparative advantage.

 

7. The slope of a production possibilities frontier

a.  has no economic relevance or meaning.

b.  is always constant.

c.  is always varying.   

d.  measures the opportunity cost of producing one more unit of a good

8. Increases in resources or improvements in technology will tend to cause a society's production possibility frontier to:

 A) shift inward to the left.

 B) shift outward to the right

 C) remain unchanged.

 D) become vertical.

 

 

 

9. Which point(s) in the PPF above are unattainable?

a)       Point A because it is outside the production possibilities frontier

b)       All the points because the production of each has an opportunity cost.

c)       None of the points because they all are feasible.

d)       Points B, C, and D because they are on the production possibilities frontier.

e)       Point E because it is inside the production possibilities frontier.

 

10. Michael and Angelo are both artists who can create sculptures or paint paintings each day. The following table describes their maximum outputs per day. Does either person have an absolute advantage?

 

 
Sculptures
Paintings
Michael
10
5
Angelo
6
2
 

a.        Yes, Michael has an absolute advantage in both sculptures and paintings

b.       Yes, Angelo has an absolute advantage in both sculptures and paintings.

c.        Yes, Michael has an absolute advantage in paintings, and Angelo has an absolute advantage in sculptures.

d.       Yes, Michael has an absolute advantage in sculptures, and Angelo has an absolute advantage in paintings.

e.        No, neither has an absolute advantage.

 

11. Michael and Angelo are both artists who can create sculptures or paintings each day. The following table describes their maximum outputs per day. What is Angelo’s opportunity cost of a sculpture? 

 
Sculptures
Paintings
Michael
10
5
Angelo
6
2
 

1/2 painting
1/3 painting
3 paintings
1/3 sculpture
6/10 sculpture
 

12. The accompanying figure depicts the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. If Jim and Pam were to specialize and trade, at what exchange rate would they find some quantity of trade to be mutually beneficial?

 

a.        3 pizzas for 1 stromboli

b.       1 pizza for 1 stromboli

c.        10 pizzas for 2 stromboli

d.       1 pizza for 1/2 stromboli

e.        1 pizza for 1/4 of a stromboli

Figure: Production Possibility Frontier Curve for Tealand

 

 

13. (Figure: Production Possibility Frontier for Tealand) In the figure, Tealand is producing at point C on its production possibility frontier. What is the opportunity cost in Tealand of increasing the production of tea from 20 million cups to 30 million cups?

 A. 10 million cups of tea

 B. 5 million scones

 C. 10 million scones

 D. The answer is impossible to determine from the information given.

 

14. Consider the production possibilities frontier below.  Which line(s) represents a change in technology for producing good A?

 

 

a.        1

b.       2

c.        both

d.       neither

 

 

15. Consider the production possibilities frontier below. Which line(s) represents a change in the economy’s resources?

 

 

 

a.        1

b.       2

c.        both

d.       neither

16. Use the accompanying diagram to answer the question.

 

 

An increase in the number of buyers would cause the demand curve to:

a. shift from D to D2.

b. remain at D.

c. shift from D to D1.

d. shift from D1 to D.

e. shift from D1 to D2.

 

Figure: Demand and Supply of Gasoline

 

 

 

17. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are:

 A.$2.00 and 450 gallons.

 B. $1.50 and 400 gallons.

 C. $2.00 and 200 gallons.

 D. $2.50 and 300 gallons

 

18. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than ________ will create pressure for the price to ________.

 A. $2.00; fall

 B. $2.50; rise

 C. $3.00; rise

 D. $2.50; fall

 

19. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. A factor that may have changed supply from S1 to S2 is:

 A. better technology in the production of gasoline

 B. increased demand.

 C. lower labor productivity in gasoline production.

 D. increased prices of substitutes for gasoline.

 

20.      “In 2008, air travel decreased substantially despite significant reductions in ticket prices.” If this information is correct, it indicates that the law of demand did not apply to air travel in 2008.

 A. True

 B. False

 

21. A supply curve is:

a.        downward sloping because suppliers prefer lower costs

b.       upward sloping because suppliers prefer lower costs

c.        upward sloping because suppliers will offer for sale more at a higher price

d.       downward sloping because suppliers will offer more for sale at a higher price

 

 

22. The demand curve shift shown in the figure above was caused by a(n):

 

a.        increase in the input cost of the good.

b.       increase in the price of a substitute of the good.

c.        decrease in the number of firms selling the good.

d.       decrease in the number of buyers in the market for the good.

e.        expectation that the future price of this good will be higher than it currently is.

 

 

 

23. According to the diagram above, if the price is at $10, there is a:

a. shortage of 15 units.

b. surplus of 15 units

c. shortage of 30 units.

d. surplus of 30 units.

e. surplus of 22 units.

 

24. When both supply and demand shift to the left,

a. the equilibrium price will always rise.

b. the equilibrium price will always fall.

c. the equilibrium quantity will always fall.

d. the equilibrium quantity will always rise.

e. the equilibrium quantity is indeterminate.

 

25. According to the figure below, at the price of $5:

 

 

a. the equilibrium quantity is 500.

b. the quantity demanded is 500.

c. the demand is 500.

d. there is a surplus.

e. there is a shortage.

 

26. When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:

a.        perfectly inelastic.

b.       inelastic.

c.        unitary elastic.

d.       elastic.

e.        perfectly inelastic.

 

27. What good is most likely to have an income elasticity of demand equal to 0.3?

a.        medication

b.       take-out dinner

c.        used clothing

d.       laptop

e.        a download on iTunes

 

28. Demand for Coca-Cola is _____ price elastic than cola products in general.

a.        More

b.       less

c.        equally

 

29. Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

a. Demand for jelly will increase along with the price.

b. Demand for jelly will decrease along with the price

c. The supply of jelly will increase and the price will decrease.

d. Both the supply and demand for jelly will increase along with the price.

e. The supply of jelly will decrease and the price will increase.

 

30. Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases,

a. we would see the demand curve for Coke shift to the right.

b. we would see the demand curve for Coke shift to the left.

c. we would see no change in the demand for Coke.

d. we would see the demand curve for Pepsi shift to the right.

e. we would see the demand curve for Pepsi shift to the left.

 

31. Technological advances have resulted in lower prices for digital cameras.  What is the impact of this on the market for traditional (non-digital) cameras?

a.  The demand curve for traditional cameras shifts to the right.

b.  The supply curve for traditional cameras shifts to the right.

c.  The demand curve for traditional cameras shifts to the left.

d.  The supply curve for traditional cameras shifts to the left.

 

32. A recent news story reported that ice cream producers will increase the supply of ice cream during the summer. Summer is traditionally a time of increased demand for ice cream. How would an economist expect the price and quantity of ice cream to change from the spring to the summer given knowledge of these two changes in the market for ice cream?

A.       An increase in the price and quantity.

B.       An increase in the price and an unpredictable change in the quantity.

C.       An unknown change in both the price and quantity.

D.       An unknown change in the price and an increase in the quantity.

 

33. Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in the market for this product,

A) sellers bear the entire burden of the tax.

B) buyers bear the entire burden of the tax. 

C) the tax burden will be shared equally between buyers and sellers.

D) buyers share the burden of the tax with government. 

 

34. If demand is more elastic than supply then:

A) sellers bear more of the burden of the tax. 

B) buyers bear more of the burden of the tax.

C) the tax burden will be shared equally between buyers and sellers.

D) buyers share the burden of the tax with government. 

 

35. In 1990 the U.S. government imposed a special sales tax on yachts with a price of at least $100,000. The tax was repealed in 1993 since it generated far less revenue than expected and led to significant job losses in the yacht building industry. The sales tax was unsuccessful because:

a)       the supply and the demand for yachts were relatively elastic.

b)       the supply and the demand for yachts were relatively inelastic.

c)        the tax rate was too low.

d)       yachts are a necessity.

 

36. Each point on a ________ curve shows the willingness of consumers to purchase a product at different prices.

A) demand

B) supply

C) production possibilities

D) marginal cost

 

Use this information for questions 36.1-36.3. Alfred has a willingness to pay for one car of $35,000.  The second car offers him a marginal benefit of $25,000.  A third car is worth $10,000, and his willingness to pay for a fourth is 0.  The market price for the car is $24,999.

 

36.1 Alfred’s willingness to pay for the marginal car is falling.  This pattern is called

a. opportunity cost

b. diminishing marginal utility

c. price effect

d. consumer surplus

 

36.2. At the market price, Alfred would buy ___ cars.

a. 0

b. 1

c. 2

d. 3

e. 4

 

36.3 At this market price, his consumer surplus is

a. 35,000

b. 24,999

c. 1

d. 10,002

 

 

Figure 4-6 above shows the demand and supply curves for the almond market.  The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. 

 

37.  Refer to Figure 4-6. What area represents consumer surplus prior to the imposition of the price floor?

A) A + B + E

B) A + B + C

C) A + B + C + D + E

D) E + F

 

38. Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?

A) A + B + E

B) A + B 

C) A + B + E + F

D) A

 

39. The costs of a market activity paid for by an individual NOT engaged in the market activity are:

a.        external costs.

b.       internal costs.

c.        free-rider costs.

d.       social costs.

e.        common costs.

 

40. The total costs of a market activity paid for by individuals in the market as well as individuals not engaged in the market activity are:

a.        external costs.

b.       internal costs.

c.        free-rider costs.

d.       social costs.

e.        common costs.

 

41. A firm’s willingness to supply their product in the short run is represented on a graph by:

a.        the market supply curve.

b.       the entire marginal cost (MC) curve.

c.        the marginal revenue (MR) curve.

d.       the part of the marginal cost (MC) curve above minimum average total cost (ATC).

e.        the part of the marginal cost (MC) curve above minimum average variable cost (AVC).

 

42. Rachel quit her job as a chef making $30,000 per year to start her own restaurant in New York City. The first year, Rachel's restaurant earned $120,000 in revenue. Rachel pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food and other supplies.  She paid $10,000 for rent and utilities, instead of earning 10% on that money in a bank CD. What is Rachel's economic profit for the year?

A) $0

B) $9,000

C) $40,000

D) $80,000

 

43. What directly drives the entry and exit of firms?

a. Revenues

b. Costs

c. Profits and losses

d. Marginal product of labor

 

44.      The law of diminishing returns states that

a) dividing the tasks to be performed through division of labor will increase the marginal product of labor.

b) the long-run average cost of production falls as output increases.

c)  adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline.

d) producing more output by adding more of a variable input will eventually cause the marginal cost of production to decline.

e)  adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the fixed input to decline.

 

 

45. According to the accompanying figure, if a firm is producing a quantity of 100 and charging a price of $10,

a.        the firm should continue to produce 100 units but raise the price to $13 to maximize profits.

b.       the firm should increase production to 150 units but raise the price to $25 to maximize profits.

c.        the firm should continue to produce 100 units but raise the price to $25 to maximize profits.

d.       the firm should increase production to 100 units and raise the price to $13 to maximize profits.

e.        the firm is already maximizing profits and should not change the price or quantity produced.

 

46. Which of the following is not a characteristic of a perfectly competitive market structure?

A) There are a very large number of firms that are small compared to the market.

B) All firms sell identical products.

C) There are no restrictions to entry by new firms.

D) There are restrictions on exit of firms. 

 

47. Both individual buyers and sellers in perfect competition

A) can influence the market price by their own individual actions.

B) can influence the market price by joining with a few of their competitors. 

C) have to take the market price as a given. 

D) have the market price dictated to them by government. 

 

48. In economics, we assume that firms make decisions in order to:

a.  maximize revenues.

b.  minimize cost

c.  maximize profit.

d.  maximize production

e.  maximize the marginal product of labor

 

49. A firm reflected in the following graph expanded its scale of production and found that its average costs did not change.  Which of the curves shown would reflect this situation?

 

 

a.        LRATC1 and LRATC2

b.       LRATC3

c.        LRATC2

d.       LRATC1

e.        LRATC1 and LRATC3

 

50. A firm’s economic profit will always be less than its accounting profit because:

a.        accounting profit considers explicit costs, which economic profit does not.

b.       economic profit considers implicit costs, which accounting profit does not

c.        economic profit is always zero, no matter what kind of firm it is.

d.       accounting profit considers implicit costs, which economic profit does not.

e.        accounting profit is always positive, no matter what kind of firm it is.

 

51. Competitive markets exist when:

a. there are so many buyers and sellers that each has only a small impact on the market price and the market output

b. there are more buyers than sellers, giving the buyers market power.

c. there are more sellers than buyers, giving the sellers market power.

d. accounting profits become zero because of price wars.

e. prices are so low that everyone who wants the good or service gets the good or service.

 

52. According to the figure below, this firm’s short-run supply curve is represented by:

 

a.     the average total cost (ATC) curve above $20.

b.     the marginal cost (MC) curve above $15.

c.     the marginal cost (MC) curve above $8.

d.     the marginal cost (MC) curve above $20.

 

Figure: Long-Run Average Cost

 

 

53. Look at the figure Long-Run Average Cost. This firm has ________ in the output region from 0 to A.

A.       decreasing returns to scale

B.        constant returns to scale

C.       increasing returns to scale

D.       negative costs of production

 

54.      (Figure: Long-Run Average Cost) Look at the figure Long-Run Average Cost. This firm has ________ in the output region from B to C.

A.       constant returns to scale

B.        decreasing returns to scale

C.       increasing returns to scale

D.       falling marginal cost

 

 

55. According to the figure, when this firm is producing at the profit-maximizing price and quantity, its total revenue is:

a.     $1,000

b.     $1,950

c.     $2,500

d.     $3,750

e.     $5,000

 

56. Which statement about firms’ economic profits is true?

a. Monopolists and perfectly competitive firms can earn profit in the short run only.

b. Monopolists can earn profit in the long run; perfectly competitive can earn profit in the short run only. -.-

c. Monopolists and perfectly competitive firms can earn profit in the long run only.

d. All firms always earn profit, else they would exit the market.

 

Visiting the public beach during summer is an example of an activity that is

When people elect to spend more years in school, this results in a __________ externality because there are __________ associated with this decision

Which of the following is true of a negative externality

Which of the following is true of a positive externality

Positive externalities exist because

Consider a market where production of the good is creating a negative externality. In the market equilibrium, there is a deadweight loss because the

The consumer optimum

Timothy is trying to figure out what combination of bags of peanuts and bags of popcorn he should buy with his $13 budget. The price of peanuts is currently $5 per bag and the price of popcorn is currently $2 per bag. If Timothy’s marginal utility from consuming his third bag of peanuts is 15 utils and his marginal utility from consuming his second bag of popcorn is 6 utils, Timothy should:

Diminishing marginal utility

Refer to the accompanying figure to answer the questions that follow

Marginal utility is negative

Refer to the accompanying table to answer the questions that follow

The marginal utility of the third unit is

Kim and James are on a road trip across the country. They both say that they get 25 utils from peanut butter sandwiches and 25 utils from trail mix. Knowing this, we can conclude that Kim

Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total implicit costs were

Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are

An explicit cost for a business that manufactures bicycles would be the:

Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are

If a firm generates $240,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. If his total revenue increases to $600,000 this year and all of his other expenses are held constant, we know that his economic profit is now

Audrey owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are

Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total explicit costs were

 

Which of the following characteristics best defines a public good

Visiting the public beach during summer is an example of an activity that is

When pollution (a negative externality) is created by firms, which of the following is NOT a valid way for the government to restore the social optimum

If the government decides to adopt a carbon tax, the price of goods whose production generates carbon emissions will __________ and the quantity produced will __________.

Consider a market where production of a good generates a negative externality. In the market equilibrium

The market works efficiently in the absence of externalities if the good is

Timothy is trying to figure out what combination of bags of peanuts and bags of popcorn he should buy with his $13 budget. The price of peanuts is currently $5 per bag and the price of popcorn is currently $2 per bag. If Timothy’s marginal utility from consuming his third bag of peanuts is 15 utils and his marginal utility from consuming his second bag of popcorn is 6 utils, Timothy should:

The additional satisfaction derived from consuming one more unit of a good or service is called

Refer to the accompanying table to answer the questions that follow

The marginal utility of the third unit is

When given the marginal utility of the first five units of a product, you can calculate the total utility by

Refer to the accompanying figure to answer the questions that follow

Marginal utility is negative

Which of the following statements is always true when determining the consumer optimum

Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was

Which of the following costs is fixed in the short run

Darrell is the owner of a furniture store. Last year, his total revenue was $525,000 and his total labor costs were $200,000. His overhead expenses, including insurance and legal fees, were $175,000. The rent on his building was $45,000. Darrell could earn $105,000 per year working at a nearby furniture distributor. If his total revenue increases to $600,000 this year and all of his other expenses are held constant, we know that his economic profit is now:

Accounting profit is equal to

If a firm generates $240,000 in revenue, earns $120,000 in economic profit, and its explicit costs are $80,000, how much are its implicit costs

Darrell owns a furniture store. His total costs are $225,000 per year, and his variable costs are $75,000 per year. This means that his fixed costs are

Lauren owns a bakery. Her total costs are $150,000 per year, and her fixed costs are $65,000. This means that her variable costs are

Use the following scenario to answer the questions that follow.
Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes.
Steve’s average variable cost was __________ per bike.

 

Refer to the accompanying figure to answer the questions that follow

At the market equilibrium, price is equal to __________ units of the good are produced

Clean air becomes polluted because

The amount you pay for insurance on your car is an example of a(n):

A negative externality exists whenever

__________ can be jointly consumed by more than one person, and nonpayers are difficult to exclude

Congestion charges cause the price of driving to __________. Therefore, the number of cars on the road will __________.

Which of the following statements is always true when determining the consumer optimum

When marginal utility is positive, total utility

Kati-Lyn has to choose between eating Chinese food and Indian food. Both Chinese food and Indian food cost the same. Which of the following equations, where MU is marginal utility and U is total utility, will lead to the optimal level of consumption

Refer to the accompanying figure to answer the questions that follow

Total utility is negative

Dave gets 20 utils from consuming guacamole and 15 utils from consuming salsa; Buster gets 30 utils from the same guacamole and 15 utils from salsa. Given this information, a researcher can conclude that

Refer to the accompanying figure to answer the questions that follow

Total utility is maximized at the

Explicit costs are

Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that

Steve owns a bike store. His total costs are $1.2 million per year, and his fixed costs are $450,000 per year. This means that his variable costs are

Which of the following costs is fixed in the short run

Accounting profit ignores which of the following costs

Lauren is the owner of a bakery that earns 0 (zero) economic profit. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her total implicit costs were

Darrell owns a furniture store. His total costs are $225,000 per year, and his fixed costs are $150,000 per year. This means that his variable costs are

Use the following scenario to answer the questions that follow.
Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes.
Steve’s average variable cost was __________ per bike

 

1. If a firm is producing  where MC is sloping downwards  and MC is a below the

AVC, then

 

A) MR is decreasing. B)  AVC is rising.

C) ATC is decreasing.

D) We do not have sufficient  information  to conclude any of the above.

 

2. A firm is considering  changing its plant size. It calculates the amount of output it would be able to produce and the total cost for various plant sizes below. If the firm is currently  using plant size C, the firm is experiencing which of the following?

 

 

Plant Size
Quantity
Total Cost ($)
A
1
10
B
10
80
C
100
900
D
200
2000
E
500
5500
F
1000
15000
 

A) Economies  of scale

B) Diseconomies of scale

C) Constant returns to scale

D) Diminishing  marginal  returns

 

3. Which of the following  is FALSE?

 

A) The AFC curve can never rise with output.

B)  The marginal  cost curve begins to increase before the average variable  cost curve. C) The ATC always lies above the AVC.

D) None of the above. All are true

 

4. Given the table below calculate the average variable cost of producing  three (3)

units of the good?

 

Output
Total fixed
Total variable
Total cost
Average fixed
Average variable
Average total
Marginal cost
 
cost
cost
 
cost
cost
cost
 
1
$500
$80-
$580
$500
$80
$580
 
 
 
 
 
 
 
 
$20
2
$500
$100
$600
$250
$50
$300
 
 
 
 
 
 
 
 
$20
3
$500
$120
$620
$166.67
$40
$206.67
 
 
 
 
 
 
 
 
$20
4
$500
$140
$640
$125
$35
$160
 
 
 
 
 
 
 
 
$20
5
$500
$160
$660
$100
$32
$132
 
 

A) $80

B)  We do not have sufficient  information.

C) $33

D) $40

 

5. In the table, diminishing  marginal returns begin

 

Input
Total  Product
0
0
1
10
2
35
3
70
4
120
5
165
6
175
7
170
8
155
 

A) after the 1st unit of input B)  after the 2nd unit of input C) after the 7th unit of input D) after the 4th unit of input

 

6. The MC curve goes through the minimum point of which of the following  curves?

 

A) AVC, AFC B) ATC, AVC C) AFC, ATC

D) ATC, AVC, AFC

7. The MC curve eventually rises as output increases in the short run because of

 

A) the law of diminishing  returns

B)  diseconomies  of scale

C) constant returns to scale

D) economies of scale

 

8. If a firm is unable to vary any of the factors of production  it is operating in

 

A) the short run B)  the long run C) equilibrium

D) the immediate  run

 

9. Where does diminishing  returns begin?

 

Output
Total Product
0
---
1
3
2
8
3
10
4
6
5
-1
6
-9
 

A) after the 2nd unit of output

B)  after the 4th unit of output

C) after the 5th  unit of output

D) after the 3rd unit of output

 

10. Where does diminishing  marginal  returns to labor begin?

 

Total Workers
Total Output
0
---
1
8
2
17
3
22
4
25
5
22
6
-17
7
-10
 

A) after the 1st worker

B) after the 2nd worker C) after the 4th worker D) after the 5th worker

11. What explains why the SR AVC curve eventually increase s as output rises?

 

A) diseconomies  of scale

B) the law of diminishing  returns

C) economies of scale

D) constant returns to scale

 

12. A firm doubles its output in the long-run  and at the same time the per-unit

(average) cost of production  remains unchanged. We can conclude that the firm is

 

A) using  the economies  of scale available  to it.

B) facing constant returns to scale.

C) facing  diseconomies  of scale.

D) not using  the available  technology  efficiently.

 

13. Economies of scale are illustrated by

 

A) a decreasing long-run  average cost curve

B)  a constant long-run  average cost curve

C) an increasing  long-run  average cost curve

D) a long-run  average cost curve that looks like an upside-down U.

 

14. When Super Stuff Corporation  produces 5,000 units, total costs equal $150,000 and total variable costs equal $75,000. At this level of output,  what is Super Stuff’s average fixed cost?

 

A)
$75,000
B)
$30
C)
$225,000
D) $15

 

15. Which is the best example of economies of scale?

 

A) The local power company

B)  The pizza business

C) The restaurant industry

D) A parking garage

 

16. Consider the graph above. Which of the following  best describes the type of firm and the period in which it is operating?

 

 

A) A perfectly competitive  firm in the short-run. B) A perfectly competitive firm in the long-run. C) A monopolist  in the short-run.

D) A monopolist  in the long-run.

 

 

17. The MR curve for a price taker is

 

A) vertical

B) horizontal

C) downward sloping

D) upward sloping

 

18. Which of the following  is an assumption of perfect competition?

 

A) There are high barriers to entry and exit in the market. B)  Each of the firms  has a significant  market share

C) Each of the firms  sells a differentiated  product.

D) Each firm is small relative to the overall market.

 

19. Where will a firm maximize  profits?

 

A) Where the firm makes the largest profit per unit. B) At the maximum price.

C) Where MC = MR as long as the price is above the short-run shutdown  price.

D) Where MC is minimized

20. Where will a firm maximize  profits  in a competitive industry?

 

A) Where the ATC is at a minimum

B)  Where the profit per unit is maximized

C) Where the extra revenue received from one more unit is just equal to the extra cost of producing  one more unit

D) Where MR is maximized

 

21. Which of these reasons best describes why an economist may view losses as good in a perfectly competitive market?

 

A) Losses ensure we have losers in addition  to winners  in business,  and hence balance.

B) Losses signal that there are too many firms in the industry relative to market

demand.

C) Losses signal to the government  that the market requires regulation.

D) Losses must mean that firms  are not charging  the profit maximizing  price.

 

22. Consider a perfectly competitive industry  where all firms are making a loss. All of the following  are true EXCEPT

 

A) We are in the short-run.

B)  We expect more firms  to exit than enter. C) Market supply will decrease.

D) Government intervention is necessary to ensure that the industry  survives.

 

 

23. What quantity  should a firm produce if it wants to maximize profit?

 

B) B C) C D) D

24. Your business currently  charges the profit-maximizing  price, but you are making a loss. Which of the following  should you do?

 

 

A) Continue  producing  regardless; things  will turn around eventually. B)  Shut down immediately;  get out while  you can.

C) Continue  producing  if your price is greater than your average fixed  cost (AFC).

D) Shut down if your price is less than your average variable cost (AVC).

 

25. When the perfectly competitive firm is at its breakeven point in the long run which of the following  is true?

 

 

A) It has an accounting  profit of zero.

B) It is operating at the lowest point on its ATC curve.

C) It is highly  regulated.

D) The price it charges is greater than the average cost of production.

 

26. Which of the following  is the best example of a perfect competitor?

 

 

A) Allegheny  Power

B)  Dominos  Pizza

C) Target

D) Fruit Market

 

 

27. If price is below the AVC curve, which options (shut down temporarily,  operate to minimize  loss, or go-out-of-business) should a business consider?

 

A) Shut down now

B)  Operate to minimize  loss

C) Go-out-of-business

D) Depending  on your expectations  about future demand, either shut down or go-out- business

 

28. In perfect competition,  if the price of the good is higher than the AVC, but lower than the ATC, and the business environment  is optimistic,  then a firm will

 

A) Go-out-of-business

B)  Operate in the short run

C) Shut down immediately

D) Expand production in order to maximize  profits

29. The demand curve for a perfectly competitive firm is

 

A) Perfectly  inelastic B) Perfectly elastic C) Relatively  inelastic D) Relatively  elastic

 

30. If a perfectly competitive firm is producing  an output rate at which marginal cost is greater than price, the firm

 

 

A) is sustaining  economic loss.

B)  should  increase its output level.

C) should reduce its output level.

D) will not be covering  its fixed cost.

 

31. Identify the profit maximizing  output in the graph.

 

A) A B)  B

C) C D) D

32. According  to the figure below, 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.

 

33. According  to the figure below, a firm would be suffering a loss but still be producing  if the price is

A) anywhere below $5.

B) below $5 but above $4.

C) anywhere above $4. D) below $4.

34. Firms will break even if:

 

A) the price they charge is less than their minimum  average total cost (ATC).

B)  the price they charge is greater than their minimum average variable cost (AVC).

C) the price they charge is greater than their minimum average total cost (ATC).

D) the price they charge is equal to their minimum  average total cost (ATC).

 

35. A firm participating  in a competitive market with costs described in the table below would break even:

 

Price
Average Fixed Cost
Average Variable Cost
2
5
6
4
3
4
6
1
5
8
0.5
7
 

A) if the price is equal to $6. B)  if the price is equal to $8. C) if the price is equal to $4.

D) if the price is either $6 or $8.

 

36. According  to the figure below, if the price is $5:

A) the firm is making  a profit and will exit the market.

B)  the firm is making  a loss and more firms  will enter the market. C) the firm is making  a profit and more firms  will enter the market.

D) the firm is making zero profits and the market is at long-run  equilibrium

37. Which of the following  lists the three main characteristics of a competitive market?

 

 

A) many buyers and sellers, similar products, easy entry into the market B)  many buyers and few sellers,  similar  products, easy entry into the market C)  many buyers and sellers,  differentiated  products, easy entry into the market D) many buyers and sellers,  similar  products, barriers to entry into the market

 

 

38. Which of following  is NOT a cost of monopoly?

 

A) The monopolist produces too much output compared to perfect competition.

B)  The monopolist  charges too high  a price relative  to perfect competition. C) The monopolist  limits  the choices that consumers have.

D) Competition  to become a monopolist  leads to rent seeking.

 

39. Monopolies are inefficient because they

 

A) produce too much output.

B) they can earn excessive long-run profits.

C) do not produce where MR =  MC. D) none of the above.

 

40. Which of the following  is true about a monopolist MR curve?

 

A) The MR curve may lie above or below the demand curve dependent on the price elasticity  of demand.

B)  The MR curve and the demand curve are equivalent  because the monopolist  faces

the entire market demand.

C) The MR curve lies be low the demand curve because the monopolist faces a

downward  sloping market demand curve.

D) The MR curve is above the demand curve because the monopolist  has a high profit margin  and pulls the average up.

 

41. Sunk costs:

 

A) should  be taken into consideration  when making  decisions  about future production.

B) are costs that have been incurred as a result of past decisions.

C) cause the profit-maximizing  rule to no longer be useful.

D) are included  only in economic profits

42. What is the best example of someone who doesn’t understand sunk costs?

 

A) A person who pays twice as much for a new pair of shoes than they are worth

B) A student who laments how poorly they did on the second exam and, as a

result, spends less time worrying  about the final exam

C) An employee who steals from the cash register and therefore causes the business to lose money

D) Someone who obsesses about the future  and forgets to focus on their past accomplishments

 

43. Monopolists

 

A) always make a profit

B)  always lose money

C) are regulated by the government  and therefore they are not allowed to earn excessive profits

D) can make profits or losses, depending on demand conditions

 

44. The social cost attached to monopolies is reflected by the fact that

 

A) monopolies  produce more output than consumers desire to buy.

B) consumers pay prices that exceed the marginal cost of production.

C) the demand for a monopolist’s  product is always lower than the demand for the

products of perfectly  competitive  firms.

D) consumers are always wi ling  to pay lower prices for a monopolist’s  product than

for the products of perfectly  competitive  firms.

 

45. A monopolist faces a

 

A) downward-sloping  demand curve.

B)  perfectly  elastic demand curve. C) perfectly  elastic supply curve.

D) downward-sloping  supply curve

46. According  to the accompanying  figure, if a firm is producing  a quantity  of 150 and charging a price of $13

 

 

A) the firm should  continue  to produce 150 units but lower the price to $10 to maximize  profits.

B)  the firm should  continue  to produce 150 units but raise the price to $25 to maximize  profits.

C) the firm should  lower production  to 100 units but keep charging  $13 to maximize profits.

D) the firm should lower production  to 100 units and raise the price to $25 to

maximize  profits.

 

47. According  to the accompanying  figure, the profit-maximizing  price and quantity are:

 

A) $40 and 1,500. B)  $45 and 1,500. C) $50 and 1,000. D) $70 and 1,000

48. According  to the accompanying  figure, the deadweight loss associated with this profit-maximizing  monopoly  is represented by areas:

 

A) B + D + G + E + H. B)  D + G.

C) J.

D) E + H.

 

49. The accompanying  figure depicts a generalized downward  sloping market demand (D) curve for a product.  It also shows the firm’s relevant marginal revenue (MR) curve and marginal  cost (MC) curve. Using the information  contained in the figure, for a monopoly  that charges a single price of P1, which area(s) are designated as a deadweight loss?

 

A) area A B)  area B C) area C

D) There is no deadweight  loss

 

50. Which of the following  is NOT a requirement for a firm to able to successfully price discriminate?

 

A) There must be at least two distinct  set of consumers.

B)  The firm must be able to prevent resale of the product.

C) Consumers of different age groups must demand the product.

D) None of the above. All are required.

 

 

51. In order to be able to effectively price discriminate  a firm must

 

A) have a downward-sloping  demand curve, be able to prevent resale, and identify at least two groups of customers with different elasticities of demand.

B)  have a perfectly  elastic demand curve, be able to prevent resale, and identify  at least two distinct  set of customers.

C) have an inelastic  demand curve, encourage resale of the product, and charge a high price to those with the most elastic demand.

D) have a perfectly  elastic demand curve, encourage resale of the product, and

identify  at least two distinct  set of customers.

 

52. In a price discrimination  setting, who pays the higher price for the same good?

 

A) The consumers with the most elastic demand pay the highest  price. B)  All consumers  pay the same high  price.

C) It is unknown  which consumers  will pay the higher  price.

D) The consumers with the most inelastic demand pay the highest price.

 

53. Which of the following  is a real-world  example of an attempt at perfect price discrimination?

 

A) a restaurant’s  blue-plate special

B)  a college’s  varying  tuition  rates, depending on state of residence

C) a discount on preinstalled  computer software

D) a car dealership selling an automobile

 

54. The accompanying  figure depicts the demand curve (D) for general admission concert tickets to see ECON-Jammin’,  the world’s  first economics rock band, which is scheduled to visit State College next month. The concert venue can accommodate

100 fans with a marginal cost (MC) of $10 per person. The rock band ECON -

Jammin’ has recently discovered that their fans are made up of two distinct groups , which they can easily distinguish. They have decided to utilize their economic knowledge and offer a high-priced  ticket of $40 per person and a low-priced ticket of $20 per person. Based on this information,  what is the net revenue earned by the sales of the high-priced  ticket?

 

 

 

 

55. Monopolistic competition means:

 

A) firms  are in a monopoly  but they compete.

B)  firms  are in perfect competition  but they collude similar  to monopolies.

C) firms differentiate their output, which makes them price makers, but

barriers to entry are low or non-existent.

D) oligopoly  firms  collude until they become monopolies.

 

56. Which of the following  is the BEST example of a firm operating in a monopolistically  competitive market?

 

A) Nebraska corn farmer

B) Applebee’s, a casual dining  restaurant

C) the U.S. Postal Service.

D) Ford, an automotive  manufacturer

 

57. To maximize profit,  the monopolistically  competitive firm shown in the accompanying  graph will charge a price per unit of:

 

A) 0 (zero) B) $20.17. C) $18.17. D) $16.87

58. A monopolistically  competitive market is characterized  by: A) many small sellers selling a differentiated product.

B)  a single  seller of a unique  product that has few or no substitutes.

C) very high  barriers to entry.

D) many small sellers selling  an identical product.

 

59. Which of the following  is TRUE for a profit-maximizing  firm operating in a competitive market, monopolistic competition,  and monopoly?

 

A) Firms earn positive  economic profits in the long run. B)  Firms earn zero economic  profits in the long run.

C) Profits are maximized  when marginal cost equals marginal revenue.

D) Price equals marginal  revenue.

 

60. One thing that makes monopolistic competition similar to perfect competition is:

 

A) in the long run, both are guaranteed  positive  economic profit. B)  in the short run, both are guaranteed  positive economic  profit. C) in the short run, neither  can earn positive economic profit.

D) in the long run, both will earn zero economic profit

 

61.  An industry  (such as California  cheese) might advertise so that:

 

A) cheese is no longer viewed as homogeneous.

B)  cheese will now be viewed as homogeneous  for all producers.

C) cheese may be characterized  by a horizontal  demand curve.

D) cheese will now have a price elasticity  of demand that is more elastic.

 

62. When would advertising be least effective?

 

A) In a perfectly competitive industry.

B)  In a monopolistically  competitive  industry. C) In an oligopolistic  industry.

D) In a monopoly  industry.

 

63. In the long run, the positive economic profits of Wings and Things, a monopolistic competitor, are:

 

A) not driven out, because competition  is not perfect.

B)  not driven out, because the demand curve slopes downward.

C) eliminated due to the entry of firms into the industry.

D) eliminated  due to the departure of firms  leaving  the industry.

 

64. If all firms in a monopolistic competitive industry have demand and cost curves like those shown in the accompanying  graph, we would expect that in the long run:

 

 

A) a certain percent of existing  firms  will exit the industry. B)  firms  in the industry  earn negative  economic profits.

C) new firms will enter the industry.

D) enough new firms  will enter the industry  that it will become perfectly competitive

65. Why is the price of water so much lower than the price of diamonds  even though people cannot survive long without water?

 

A) This is an unsolved  mystery.

B)  A price change affects the purchasing  power of an individual’s  income.

C) Marginal utility, not total utility, determines how much a person is willing  to pay for a good.

D) There are no good substitutes  for diamonds while  there are good substitutes  for water.

 

66. Which of these statements is true about the utility created in society from consuming  meals at fancy restaurants (like Zolas)?

 

A) The TU is high.

B)  The MU and TU are both low.

C) The MU is high.

D) The MU and TU are both high.

 

67. A new restaurant offers an all-you-can-eat buffet for $9.99.  What economic concept is this business relying on to earn a profit?

 

A) a price ceiling

B)  elastic demand

C) diminishing  marginal utility

D) price discrimination

 

68. In the table below, diminishing  marginal  utility begins

 

Units Bought
Total  utility
0
0
1
8
2
25
3
41
4
56
5
70
6
83
7
95
8
93
 

A) after the 1st unit

B) after the 2nd unit C) after the 7th unit D) after the 4th unit

 

69. If a cell phone plan offers you “unlimited  calls on nights and weekends” the

company is relying on this economic principle  to limit use of the phone

 

A) price ceilings

B)  inelastic  demand

C) negative  externalities

D) diminishing  utility

 

 

70. Cons ider the chart be low. It s hows six (6) potential cus tomers all of whom are inte re s ted in buying a re ce ntly de veloped product by Impuls e Inc. Suppose Impulse Inc. could charge

a diffe re nt price for individuals with a name be ginning with A to K than thos e with a name be ginning with L to Z. How much more re venue would Impuls e Inc. earn unde r this price dis crimination me thod than s imply charging one price to e veryone?

 

Custome r

Popeye
M aximum Willingne ss to Pay ($)

56
Tom
35
Porky
30
Droopy
28
Olive
20
Jerry
12
 

A)
$0
B)
$6
C)
$28
D)
$32
 

71. Jason is trying to decide what to buy Diane for her birthday.  Fortunately,  Diane has given him the following  utility table to work from. Given that Jason has $100 to spend (and he intends on spending all of it on Diane) what combination  of goods should he buy her to maximize the amount of utility she gets?

 

Roses

$20/dozen
Marginal Utility
Candy

$10/box
Marginal Utility
1
40
1
18
2
32
2
16
3
24
3
14
4
11
4
12
5
8
5
10
 

A) 5 dozen roses

B) 4 dozen roses and 2 boxes of candy C) 3 dozen roses and 4 boxes of candy D) 2 dozen roses and 6 boxes of candy

 

72. Help Anna decide what she should buy. She has $15 to spend. What combination of goods should she buy in order to maximize  her utility?

 

Ice Cream

Sundaes ($3

each)
Marginal Utility
French Fries ($2

each)
Marginal Utility
1
40
1
18
2
32
2
16
3
24
3
14
4
16
4
12
5
8
5
10
 

A) 1 sundae and 5 French fries

B) 3 sundaes and 3 French fries C) 5 sundaes and no French fries D) none of the above

 

A [Blank1] profit is the amount of profit a firm would need to earn to break even.

An [Blank1] cost is an actual cash payment for resources used by the firm. A [Blank2] cost is the opportunity cost of resources employed by the firm.

Jack runs an automotive shop. He pays 3 worker $30,000 each per year. He leases his shop for $15,000 per year. He has material costs of $25,000 per year. He pays $3,000 per year for utilities and insurance. He borrows $150,000 at an interest rate of 10 percent and invests $20,000, which could have earned him $2000 per year if alternatively invested, of his own money to invest in the business. He was offered $75,000 per year to work for PepBoys. His total revenue for the first year is $350,000. 
cost of resources employed by a firm that takes the form of cash payments

opportunity cost of using resources owned or provided by its owners without a corresponding cash payment

a firm's total revenue minus its explicit costs

a firm's total revenue minus its explicit and implicit costs

accounting profit earned when all resources earn their opportunity cost; equal to implicit cost

any resource that can be varied in the short run to increase or decrease production

any resource that cannot be varied in the short run

equals a firm's total output

equals a change in total product that occurs when an additional resource is employed by the firm, all other resources constant

As more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative

equals the sum of fixed cost and variable cost, or TC=FC+VC

equals the change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output, or MC=Change in TC/Change in Q

equals variable cost divided by output, or AVC=VC/Q

occurs when a firm's long run average costs decrease as the scale of operation increases

occurs when a firm's long run average costs increase as the scale of operation increases

The amount of a good or service that a producer is willing and able to produce at different prices, ceteris paribus.

[Blank1] costs vary with the amount of production and [Blank2] costs do not vary with the amount of production.

[Blank1] run is a period of time during which at least one of the firm's resources is fixed. In the [Blank2] run, all resources are variable.

[Blank1] is the general reason a firm experiences increasing marginal returns.

[Blank1] product is a change in [Blank2] product that occurs when an additional resource is used in production.

[Blank1] profit is the firm's total revenue minus implicit and explicit costs.

An explicit cost for a business that manufactures bicycles would be the:

As a firm hires more labor and each worker is able to specialize, what happens to each additional worker's marginal productivity?

Audrey owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are:

A change in technology used in the production of a good or service causes a change in [Blank1].

An increase in price causes a(n) [Blank1] in quantity supplied.

 

In the long run, surviving firms in monopolistic competition earn:

Select one:a. significant economic losses.b. less than normal profits.c. praise from the government for achieving allocative efficiency.d. higher than normal economic profit. e. zero economic profit.

When you change your quantity demanded of one good because of a change in price of another good, you are referencing:

Select one:a. income elasticity of supply.b. price elasticity of demanD.c. price elasticity of supply.d. income elasticity of demanD.e. cross price elasticity of demanD.

What good is most likely to have a negative income elasticity of demand?

Select one:a. pizzab. steakc. instant noodles d. designer clothinge. caviar

39. III. Inputs are:Select one:a. resources that firms use in the production of final goods and services. b. goods that are used in place of one another.c. goods that you demand less of as your income increases.d. goods that are used together.e. goods that you demand more of as your income increases.

 

In the accompanying figure, which areas of the graph represent the consumer surplus transferred to the monopolist as a result of monopolist taking over the market?

a. E + H. b. A + B + C + D + E.c. A + B.d. C + D.e. B + D + G + E + H.

67. V. Suppose there are 8,000 residents at a particular apartment complex who are separated into two groups. The first group is asked the following questions in this order: “How happy are you with your experience at the apartment complex?” followed by, “How many social gatherings held at the apartment complex have you been invited to?” The second group is asked the following questions in this order: “How many social gatherings held at the apartment complex have you been invited to?” followed by, “How happy are you with your experience at the apartment complex?” Further suppose that residents in the second group who reported that they had been invited to more social gatherings held at the apartment complex reported being much happier with their experience at the apartment complex than did similar residents in the first group. This is an example of:Select one:a. Kahnemanian effects.b. internal rate of return effects.c. priming effects. d. Rothbardian effects.e. market-capitalization effects.

Which goods are sold in markets?

Select one:a. private goods, club goods, and common-resource goodsb. private goods and club goodsc. private goodsd. all types of goods e. public goods

A model without any simplifying assumptions:

Select one:a. will not look like the real-world problem it is meant to address.b. will provide simplified solutions to complex problems.c. will be very helpful for solving tough, real-world problems.d. will be highly complex and likely unworkable.e. will exclude important predictive variables.

A farmers’ market is close to being a perfectly competitive market. Which characteristic of a perfectly competitive market do most farmers’ markets violate?

Select one:a. free exit from the marketb. similar goods producedc. many buyersd. free entry into the market e. many sellers

The Varsity, located in downtown Atlanta, is the world’s largest drive-in restaurant. Located near the Georgia Tech campus, it attracts two distinct types of customers: college students and visitors to AtlantA. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal with a maximum willingness to pay of $8. There are 5,000 local customers interested in purchasing the combo meal with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5. What is the amount of total consumer surplus if the Varsity offers the combo meal at the single price of $9 per meal?

Select one:a. $10,000b. $5,000c. $15,000d. $0e. $20,000

48. III. What is one effect that insurance companies have on the overall cost of health care?Select one:a. They increase costs as hospitals are forced to go out of business.b. They tend to increase costs as patients seek more care than they otherwise would. c. They decrease costs as doctors quit and seek other occupations.d. They have no impact on costs.e. They decrease costs as patients seek less care.

29. I. One of the central questions that society must answer regarding medical care is:Select one:a. whether funding should be increased.b. whether health insurance companies should be abolished.c. whether funding should be reallocated away from end-of-life care and applied toward prevention and medical research.d. to what extent funding should be decreased.e. whether funding should be tied to medical results.

Taxing goods with very inelastic supply generates less deadweight loss than taxing goods with very elastic supply because:

Select one:a. the amount of the tax is larger.b. the change in producer behavior is greater. c. the change in producer behavior is smaller.d. producers have to pay these taxes out of pocket.e. the government does not bother collecting the revenue.

Apartment rent control in New York City is an example of:

Select one:a. a nonbinding price floor.b. a subsidy for landlords.c. a black market.d. government intervention to ensure a market equilibrium is reached.e. a binding price ceiling.

Reflect on the following excerpt from a Washington Post article about dynamic pricing by online retail giant Amazon.com. <EXT>Few things stir up a consumer revolt quicker than the notion that someone else is getting a better deal. That’s a lesson Amazon.com has just learneD. Amazon, the largest and most potent force in e-commerce, was recently revealed to be selling the same DVD movies for different prices to different customers. It was the first major Web test of a strategy called “dynamic pricing,” which gauges a shopper’s desire, measures his means and then charges accordingly. The Internet was supposed to empower consumers, letting them compare deals with the click of a mousE. But it is also supplying retailers with information about their customers that they never had before, along with the technology to use all this accumulated datA. While prices have always varied by geography, local competition and whim, retailers were never able to effectively target individuals until the WeB. “Dynamic pricing is the new reality, and it’s going to be used by more and more retailers,” said Vernon Keenan, a San Francisco Internet consultant. “In the future, what you pay will be determined by where you live and who you are. It’s unfair, but that doesn’t mean it’s not going to happen.”<EXT/> <SRC/>Source: David Streitfeld, “On the Web, Price Tags Blur: What You Pay Could Depend on Who You Are,” Washington Post, September 27, 2000, A1.<SRC/> The producer, who can charge each customer their willingness to pay for a product, can:

Select one:a. maximize profits by using perfect price discrimination.b. minimize producer surplus by using price discrimination.c. maximize consumer surplus by using perfect price prejudice.d. minimize market efficiency by using two-tiered price discrimination. e. minimize loss by using perfect price determination.

Nathan owns a coffee-roasting company. If he increases the size of his company and experiences constant returns to scale as a result, his long-run average total cost curve should be:

Select one:a. vertical.b. horizontal.c. U shaped. d. downward sloping.e. upward sloping.

 

*84. IV. Referring to the figure below, what event would cause the supply curve to shift out?

Select one:a. The price of an input increased.b. Firms entered the market.c. Consumers make lower incomes.d. Firms expected the price to rise in the future.e. Consumers make more income.

Which of the following is evidence of market power?

Select one:a. Optimal output is less than industry output.b. The demand curve for the firm is horizontal.c. Output is fixed despite cost changes.d. The firm has perfect control over price.e. Markup.

7. IV. Why does health care have to be rationed?Select one:a. Health care has to be rationed because advances in medical research have slowed down.b. Health care has to be rationed because consumers are avoiding trips to the doctor.c. Health care has to be rationed because the supplier is acting like a monopoly and intentionally reducing the delivery of health care.d. Health care has to be rationed because there are too many deliverers of health care.e. Health care has to be rationed because the demand for health care exceeds the supply of health care.

Airlines require every passenger with a ticket to have a matching government-issued photo identification. Price discrimination is made easier because:

Select one:a. customers acknowledge that they are exchanging higher ticket prices for decreased safety regulations.b. this practice allows airlines to determine the different personal characteristics of their buyers at a zero cost.c. this type of price discrimination is mandated and supported by the federal government.d. customers are then willing to divulge relevant information to the airline about their reservation price.e. this practice prevents a passenger who purchased a discounted fare from reselling that ticket to another customer who is willing to pay more.

 

The following table represents the costs of production and market demand faced by a monopolist. As production increases, the price consumers are willing to pay for the good:

Select one:a. increases.b. stays the same.c. increases and then decreases.d. decreases.e. decreases and then increases.

If the income elasticity of demand is 1.2, the good will be a(n):

Select one:a. inferior good.b. complement good.c. luxury good.d. substitute good.e. necessity good.

 

Consider the table below. You are the only provider of bottled water for three cities. Because you have access to a natural spring, the marginal cost to produce an additional bottle is $0. How many bottles of water would you need to produce to maximize your profits and at what price would you sell it? Willingness to Pay for Bottled Water

Select one:a. 10 bottles at $10 eachb. 8 bottles at $12 eachc. 15 bottles at $7 eachd. 11 bottles at $11 eache. 15 bottles at $7 each

 

In the graph below, which of the following represents an inefficient point?

Select one:a. Point E.b. Point B.c. Point A.d. Point C.e. Point D.

 

The figure below depicts the production possibilities frontiers (PPTs) for two people who can allocate the same amount of time between making pizzas and making stromboli. What is Jim’s opportunity cost of making 1 stromboli?

Select one:a. 1/2 pizzab. 2/3 pizzac. 25 pizzasd. 2 pizzase. 2 stromboli

A firm can be identified as practicing price discrimination when:

Select one:a. producers pass on differences in costs to those price-conscious consumers willing to buy in bulk.b. consumers engage in comparison shopping to find the lowest advertised price.c. producers set different prices for distinct groups of consumers, despite selling identical products to each group.d. firms behave as price takers, whereas consumers react with price-making behavior.e. buyers in a perfectly competitive market are able to influence the prices that firms set.Feedback 

The ability of one producer to produce a good at a lower opportunity cost than another producer is called:

Select one:a. a normative statement.b. a zero-sum game.c. absolute advantage.d. the law of increasing relative cost.e. comparative advantage.

The marginal cost curve is the short-run supply curve:

Select one:a. only above minimum average total cost (ATC).b. as long as the firm is not operating.c. only between minimum average total cost (ATC) and minimum average variable cost (AVC).d. as long as the firm is operating.e. at all points.Feedback 

Costs that have been incurred as a result of past decisions are known as:

Select one:a. marginal costs.b. opportunity costs.c. variable costs.d. fixed costs.e. sunk costs. 

Consumers will lose no consumer surplus due to a tax if:

Select one:a. supply is somewhat elastic.b. demand is perfectly elastic.c. demand is perfectly inelastic.d. supply is perfectly elastic.e. demand is somewhat elastic.

Why do shortages develop under a binding price ceiling?

Select one:a. A binding price ceiling encourages buyers to purchase less of the product.b. A binding price ceiling encourages sellers to increase the quality of the product they sell which, in turn, increases the quantity demanded.c. A binding price ceiling encourages sellers to produce more of the product.d. A binding price ceiling makes the price so low that the quantity demanded exceeds the quantity supplied on the black market.e. A binding price ceiling makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.

If a firm adds multiple layers of management as it increases its scale of production, thus adding to its costs, we would expect its long-run average cost curve to be:

Select one:a. vertical.b. downward sloping.c. U shaped.d. horizontal.

e. upward sloping

 

Refer to the table below. The price of erasers increases from $0.50 to $1.00 per eraser. Use the midpoint method to calculate the cross-price elasticity of demand between pencils and erasers:

Select one:a. 7.67b. -7.67c. -3d. 0.13e. -0.13

 

The figure below depicts the production possibilities frontiers (PPTs) for two people who can allocate the same amount of time between making pizzas and making stromboli. What is Jim’s opportunity cost of making 1 pizza?

Select one:a. 1.5 strombolib. 20 strombolic. 2 strombolid. 2.5 strombolie. 50 stromboli

Which is a correct statement about a rent control law?

Select one:a. A rent control law is a price floor law that makes apartments cheaper to rent but discourages property owners from renting out apartments.b. A rent control law encourages property owners to convert offices and condos into apartments.c. A rent control law is a price ceiling law that makes apartments cheaper to rent but discourages property owners from renting out apartments.d. A rent control law reduces housing shortages.e. A rent control law encourages landlords to rent out apartments.

Jim and Lisa own a dog-grooming business in Champlain, New York, called JL Groomers. There are many buyers and many sellers in the dog-grooming service market. JL Groomers experiences normal cost curves with the marginal cost (MC) curve crossing average variable cost (AVC) at $14 and average total cost (ATC) at $22. JL Groomers will always shut down if:

Select one:a. the market price is below $14.b. the market price is $14.c. the market price is $22.d. the market price is above $14.e. the market price is between $14 and $22.

 

Refer to the figure below. What is the most preferred consumption point for a pie-appreciating society?

Select one:a. Point B.b. Point C.c. Point E.d. Point D.e. Point A.

41. III. Higher input costs:Select one:a. shift the demand curve.b. provide an incentive to hire more workers.c. always happen during a recession.d. reduce profits.e. increase profits.

A good that is nonrival and excludable is defined as a:

Select one:a. common-resource good.b. club gooD.c. government good.d. public good.e. private good.

A camera takes a picture of drivers who do not stop at a red light and this is used to issue a traffic ticket. These red light cameras can be understood as serving:

Select one:a. a positive incentive to encourage individuals to stop at a red light.b. a negative incentive to discourage individuals from driving through a red light.c. an indirect incentive to encourage individuals to stop at a red light.d. a negative incentive to encourage individuals to drive through a red light.e. a direct incentive to encourage individuals to stop at a red light.

scarcity can best be defined as a situation in which 

the economic view of traffic congestion considers

an unemployed individual decidedness to spend the day fishing. the opportunity cost of fishing is equal to:

the marginal principle implies that an individual will do best by producing of consuming where:

consider two individuals, Jesse and April, who hand paint kites and snowboards. based on the table, wishof the following is true?

the ability of one person or nation to produce a good at a lower opportunity cost than another is called:

a product produced in the home country and sold in another country is:

when there is a change in the quantity demanded it means that the:

the law of supply states that:

suppose that the quantity supplied of cars exceeds the quantity of cars demanded. we would expect that:

a givernment sometimes creats an excess supply of a product by setting a minimum price at which the product may be sold to consumers. This is called a:

suppose that consumption of oat bran is found to reduce cholesterol and improve health. the result is that:

suppose that ramen noodles are an inferior good. When income decreases the equilibrium quantity of ramen noodles will ________ and the equilibrium price of ramen noodles will _______

Suppose that in 2010, 8 million cars were purchased at $15,000 each, while in 2011, 10 million cars were purchased at $12,000 each. What might have caused this change?

which of the following statements is incorrect?

if the number of highway deaths among young people is roughly proportional to their beer consumption and your peoples' elasticity of demand for beer is 1.5, then to decrease highway deaths of young people by 15%, taxes would need to be increased enough to increase the price of beer by:

if the elasticity of demand for cigarettes by teenagers is 1.5, ten the price and total revenue from teens buying cigarettes are

the percentage change in the quantity of bread demanded divided by the percentage vhange in price of jelly measures:

when the price of tacos when from $2 to $3 each, the quantity demanded of burritos changed from 100 to 120 a day. The cross elasticity of demand for burritos is:

Which of the following statements is incorrect?

back in the early fall of 2006 the price of gasoline actually fell by about one-thinrd or $1. if a demand change did not lead to the price change, then we know that:

if the government imposes a maximum price on rental apartments that is below the equilibrium price, we can expect to see al of the following except:

other things being equal, if the damand curve for a taxed good is relatively steep, we need a relatively______ price hike to eliminate the excess ________ caused by the tax.

suppose you are given a monthly income of $200 to spend on food while at college. Further, suppose the price of a single-serving pizza is $4 and the price of a deli-sandwich is $2. Which on of consumption combinations is possible given these prices and income

a firm doubled all its inputs and experienced a 50% increase in output. if all inputs prices remained unchanged, the firsm's long run average cost exhibits _____ at the current output level

in the short run

in the short run, the marginal cost of the first umit of output is $20, the marginal cost of producting the second unit of output is $16,a dn the marginal cost of producing the third unit of output is $12. the firm's total variable cost of producing three units of output is.

Average fixed cost is

 

Economic profit is equal to:

Marginal product is the change in:

 The gap between the average total cost (ATC) and average variable cost (AVC) curves represents:

Which of the following is the best example of a variable cost in the short run?

When the average total cost curve is downward-sloping, what must be true about the marginal cost curve?

If the marginal product of labor is increasing, the marginal cost of output must be:

How will a firm know if it has grown too large, that is, when it has exceeded its minimum efficient scale of production?

Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

 

Refer to the accompanying figure. Point _________ corresponds to the profit-maximizing quantity that a competitive firm would produce.

 Refer to the accompanying figure. A firm would be suffering a loss but still be producing if the price is:

 

If the firm is maximizing profits, profit is represented by the area:

Chuck Diesel Burger is a food truck in Houston, Texas. Imagine that Chuck Diesel Burger’s minimum average total cost (ATC) is $3.75 and that its minimum average variable cost (AVC) is $2.50. Assume there are no barriers to entry into or exit from the food-truck market. Chuck Diesel Burger will break even if the price is equal to:

Sunk costs:

When firms enter a market, the _________, causing individual firms’ profits to _________.

Many economists believe that the market for wheat in the United States is an almost perfectly competitive market. If one firm discovers a technology that makes its wheat taste better and have fewer calories than all other wheat offered in the market, the wheat market would become less competitive because:

 Refer to the accompanying table. A firm participating in a competitive market with these costs would be making a profit if the price is:

 The profit-maximizing price and quantity are:

One critical characteristic of monopolistic competition is:

 if the price is $5, the firm is making

As new firms enter a monopolistically competitive industry, it can be expected that

 Refer to the accompanying graph. If all firms in a monopolistically competitive industry have demand and cost curves like those shown, we would expect that, in the long run,

Excess capacity best describes the fact that:

Markup would not exist in

__________ have a greater incentive to collude and to form cartels in an effort to achieve monopoly-like profits

 If the two firms operating in this market agreed to each supply one-half of the quantity a monopolist would supply, the contract would specify that:

 The market for social-networking website services is characterized by network externalities because:

Economists measure oligopoly power present in an industry by using:

Which of the following industries is most likely an oligopoly?

 How many Nash equilibrium(ia) exist in this game?

Assume all markets are in long-run equilibrium. Market price in an oligopoly would be __________ the market price in a monopoly, and __________ the market price in a competitive market.

 

In this game, selling  _________ subscriptions a month is a dominant strategy for Flixbuster and selling __________ subscriptions a month is a dominant strategy for Nextflix.

 

Each firm makes its decision without knowledge of the other firm’s decision. The payoffs for each firm represent economic profits, and each firm strictly prefers more economic profit than less. If both firms were able to collude and make their supply decisions collectively, Flixbuster would sell __________ subscriptions per month and Nextflix would sell __________ subscriptions per month.

In January, Wal-Mart offered a 10% off coupon and Target did not. In February, Target offered a 10% off coupon and Wal-Mart did not. In March, Wal- Mart offered a 10% off coupon and Target did not. It is likely that Wal-Mart and Target are both playing the __________ strategy

The __________ Act was the first antitrust bill created in response to the increase in concentration ratios in many leading U.S. industries, including steel, railroads, mining, textiles, and oil.

Stephen’s Steel Mill has decided that lobbying Congress to pass a tariff on imported steel will cost them less than trying to modernize its facility to compete with foreign steel prices. Stephen’s Steel Mill will:

A monopoly:

Christopher’s Campground is the only campground located in Abilene, Texas. Christopher’s Campground’s demand curve is:

You cannot purchase a cable subscription for single channels like the Food Network or Cartoon Network because cable companies:

Suppose Firm A sets a price below average variable cost for two years. After the second year, Firm A’s biggest rival goes bankrupt and exits the market. In the third year, Firm A raises prices significantly. Firm A is practicing:

What was the decision made in the example we did in class for calculating the HHI and comparing it to the federal government’s merger guidelines?

 

____        1.    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.
economic profit is always zero, no matter what kind of firm it is.
d.
accounting profit considers implicit costs, which economic profit does not.
e.
accounting profit is always positive, no matter what kind of firm it is.
 

 

____        2.    Lauren is the owner of a bakery. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. From this information, we know that her accounting profit was:

a.
$145,000.
b.
$53,000.
c.
$65,000.
d.
$15,000.
e.
$27,000.
 

 

____        3.    Madison owns a boxing gym. She recently expanded the size of her gym by adding another boxing ring and moving into a larger building so that she can serve more clients. How would Madison know if she is experiencing economies of scale from increasing the size of her boxing gym?

a.
Her average cost per client increases.
b.
Her total cost increases.
c.
Her average cost per client remains the same.
d.
Her average cost per client decreases.
e.
Her total cost remains unchanged.
 

 

____        4.    Which is the best example of economies of scale?

a.
the local power company
b.
the pizza business
c.
the restaurant industry
d.
a parking garage
e.
a small family farm
 

 

____        5.    Darrell owns a furniture store. If he decided to expand the size of his store in order to sell more furniture, how would he know if he is experiencing diseconomies of scale?

a.
His total cost of selling furniture decreases.
b.
His average cost of selling furniture increases.
c.
His total cost of selling furniture remains unchanged.
d.
His average cost of selling furniture remains unchanged.
e.
His average cost of selling furniture decreases.
 

 

____        6.    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 it pays, or receives, in the market.
d.
is not a characteristic of a perfectly competitive market.
e.
takes the price that is determined from the lowest price consumers are willing to pay for an item.
 

 

____        7.    In competitive markets:

a.
firms set the prices for their products with little concern for the consumer.
b.
firms control the prices they charge.
c.
market forces are much stronger than individual firms are.
d.
individual firms are much stronger than the market forces are.
e.
market forces set the quantity in the market but not the prices.
 

 

____        8.    In competitive markets:

a.
firms set the prices for their products with little concern for the consumer.
b.
firms are considered to be price makers.
c.
firms are at the mercy of market forces.
d.
the individual firms are much stronger than the market forces are.
e.
the market forces set the quantity in the market but not the prices.
 

 

____        9.    Which characteristic of competitive markets is mainly responsible for ensuring that prices will be kept low?

a.
many buyers
b.
many sellers
c.
similar goods
d.
easy entry into and exit from the market
e.
differentiated goods
 

 

____     10.    Which characteristic of competitive markets is mainly responsible for firms making zero economic profits in the long run?

a.
many buyers
b.
many sellers
c.
similar goods
d.
differentiated goods
e.
easy entry into and exit from the market
 

 

____      11.    If Firm A is making zero economic profits,

a.
Firm A is also making negative accounting profits.
b.
Firm A is breaking even when opportunity cost is taken into consideration.
c.
other firms want to enter the market.
d.
Firm A wants to leave the market.
e.
Firm A wants to shut down in the short run.
 

 

____     12.    One difference between implicit costs and explicit costs is that:

a.
implicit costs are included in accounting profits, whereas explicit costs are not.
b.
implicit costs are included in economic profits, whereas explicit costs are not.
c.
explicit costs are included in accounting profits, whereas implicit costs are not.
d.
explicit costs are included in economic profits, whereas implicit costs are not.
e.
explicit costs involve opportunity costs, whereas implicit costs involve a monetary transaction.
 

 

____     13.    A monopoly:

a.
always makes a profit.
b.
can force consumers to purchase what it is selling.
c.
is characterized by a single seller who produces a well-defined product for which there are no good substitutes.
d.
always has naturally created barriers.
e.
always has government-created barriers.
 

 

____     14.    Monopolists:

a.
enjoy market power for their specific product.
b.
have no market power for their specific product.
c.
will never experience a loss.
d.
always experience economies of scale.
e.
exist in all markets.
 

 

____     15.    Barriers to entry:

a.
measure the ability of firms to set the price for a good.
b.
do not exist for monopolies.
c.
always lead to profits.
d.
restrict the entry of new firms into the market.
e.
exist for perfectly competitive firms.
 

 

____     16.    Monopolies result in a(n) __________ level of output and provide __________ choice to consumers.

a.
inefficient; less
b.
inefficient; more
c.
efficient; less
d.
efficient; more
e.
high; more
 

 

____     17.    Beer prices at major league baseball stadiums are usually much higher than prices at a bar or restaurant. This is mainly because:

a.
it costs the owners of the baseball teams more money to buy the beer from distributors.
b.
demand is much higher at a baseball game than at a bar.
c.
baseball team owners have market power and can charge a higher price when they are the only sellers of the beer.
d.
the government forces the owner of baseball teams to charge a high price.
e.
the owners’ baseball teams are not profit-maximizing.
 

 

____     18.    Reducing trade barriers creates _________ competition, _________ the influence of monopoly, and _________ the efficient use of resources.

a.
less; reduces; promotes
b.
more; reduces; promotes
c.
less; increases; promotes
d.
more; reduces; hinders
e.
more; increases; hinders
 

 

____     19.    Price discrimination exists when a firm sells __________ goods at more than one price to __________ groups of customers.

a.
different; similar
b.
existing; distinct
c.
discounted; large
d.
identical; different
e.
limited; restricted
 

 

____     20.    Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

a.
producers.
b.
firms.
c.
consumers.
d.
promoters.
e.
commodities.
 

 

____     21.    A firm can be identified as practicing price discrimination when:

a.
consumers engage in comparison shopping to find the lowest advertised price.
b.
firms behave as price-takers, whereas consumers react with price-making behavior.
c.
buyers in a perfectly competitive market are able to influence the prices that firms set.
d.
producers pass on differences in costs to those price-conscious consumers willing to buy in bulk.
e.
producers set different prices for distinct groups of consumers, despite selling identical products to each group.
 

 

____     22.    Despite the gain from higher profits, firms are not always able to price-discriminate because:

a.
they are unable to partition their customers into distinct groups.
b.
it is always illegal to price-discriminate in the United States.
c.
they already hold a large degree of market power.
d.
they already provide their goods at the lowest possible prices.
e.
they can easily determine each customer’s reservation price.
 

 

____     23.    Price discrimination can help improve efficiency in the market because goods are sold to more people, thus increasing profits. If all consumers have similar tastes, will a firm be able to price-discriminate?

a.
Yes, because the market is homogeneous
b.
Yes, as long as reselling is prohibited in the market
c.
No, because the firm will not be able to distinguish among groups of consumers
d.
No, because the similarities among consumers will lead to collusion among buyers
e.
Yes, because there will be a monopoly in the market (because all consumers want to purchase the same goods and services)
 

 

____     24.    An example of price discrimination is when:

a.
movie theaters do not allow children into R-rated movies without a parent or guardian.
b.
you can purchase a new PC for half the price of a new Mac, even though they are both computers.
c.
Procter & Gamble charges $9 for a bottle of Tide laundry detergent, while the store brand costs the consumer significantly less, despite being somewhat similar products.
d.
out-of-state students pay more for the same education as in-state students.
e.
a single box of Froot Loops costs $3.50, but when purchased in a case of six, it costs only $3.00 per box.
 

 

____     25.    Monopolistic competition means:

a.
firms are in a monopoly but they compete.
b.
firms are in perfect competition but they collude similar to monopolies.
c.
firms differentiate their output, which makes them price-makers, but barriers to entry are low or non-existent.
d.
oligopoly firms collude until they become monopolies.
e.
firms have downward-sloping demand.
 

 

____     26.    If we are to discuss why the term “monopolistic competition” is used, the best description would be that the industry is “monopolistic” because it: 

a.
has high barriers to entry but is “competitive” because it has many firms.
b.
has low barriers to entry but is “competitive” because it has few firms.
c.
has product differentiation but is “competitive” because it has many firms.
d.
has a monopoly but is “competitive” because there are low barriers to entry, meaning it has potential rivals.
e.
holds patents but is “competitive” because other firms might invent similar patentable products.
 

 

____     27.    One critical characteristic of monopolistic competition is:

a.
one firm dominates the industry.
b.
a few firms collude with each other by agreeing on price.
c.
a few firms compete without agreeing on price.
d.
there are many small firms in the industry.
e.
there is one large firm in the industry but it has no control over the price.
 

 

____     28.    A monopolistically competitive market is characterized by:

a.
many small sellers selling a differentiated product.
b.
a single seller of a unique product that has few or no substitutes.
c.
very high barriers to entry.
d.
many small sellers selling an identical product.
e.
a few firms producing either differentiated or identical products.
 

 

____     29.    Like a pure monopoly, an oligopoly is characterized by:

a.
free entry and exit in the long run.
b.
free entry and exit in the short run.
c.
significant barriers to entry.
d.
all firms in the market producing the socially efficient level of output in the long run.
e.
a single firm selling a product with no close substitutes.
 

 

____     30.    A monopolistically competitive market consists of many sellers, an oligopoly consists of __________ seller(s), and a monopoly consists of __________ seller(s).

a.
one; one
b.
one; two
c.
a few; many
d.
a few; one
e.
many; one
 

1.      When a negative externality is not internalized, then the equilibrium price of the good produced is too ___ and the equilibrium quanity produced is too___
2.      A free-rider problem exists when
3.      Which good is excludable?
(a) apples on a tree in a public park
(b) a fireworks display
(c) swimming in the ocean
(d) a walk in a park
(e) education at a community college
4.      Implicit costs are
5.      Economists consider both explicit and implicit costs when measuring economic profit. The reason they consider implicit costs is that:
6.      :auren is the owner of a bakery. Last year her total revenue was $145,000 her rent was $12,000, her labor costs were $65,000, and her overhead expenses were $15,000. If she could earn $53,000 working for another bakery nearby, we know that her economic profit was:
7.      Lauren owns a bakery that produces, among other things, wedding cakes, She currently has 7 employees: with 7 employees, her bakery can producee 12 wedding cakes per day. If she hired an eigth employee, she'd be able to produce 16 wedding cakes per day. Therefor, the marginal product of the eigth employee is _____wedding cake(s)
8.      Assume that a firm hires an additional employee. If the marginal product for that employee is greater than for the previous employee hired, it must because
9.      The average total cost (ATC) and average variable cost (AVC) converge as the level of output produced increases because
10.    The change in total cost given a change in output is also known as
11.    Lauren owns a bakery. She currently bakes around 10,000 loaves of bread per year. If she increases the size of her bakery so that she can bake even more bread, and her long-run average total cost remains unchanged, we know that Lauren is experience
12.    Kathleen owns a photography business in Mobile, Alabama. The market for photography is very competitive. At Kathleen's current production level, her marginal cost is $15 and her marginal revenue is $12. In order to maximize profits, Kathleen should"
13.    Chuck Diesel Burger is a food truck in Houston, Texas. Imagine that chuck Disel Burger's minimum average total cost (ATC) is $3.75 and that its minimum average variable cost (AVC) is $2.50. In the short run, Chuck Diesel Burger will suffer a loss but still produce if the price is equal to
14.    When marginal costs equal average total costs the firm is making
15.    In the long run, if a firm is making a loss, it will
16.    In a competative market where firms have a typical cost function, the long-run market supply curve is a(n)
17.    If firm A is making zero economic profits
18.    Holding all else constant and considering the short-run, an increase in the market demand for a proudct in a competative market would cause
19.    The typical result of monopoly is ___ priceses and ____output than we find in a competitive market
20.    Ash is the preferred wood to be used in the prodction of baseball bats. If a company were to buy the rights to harversting the ash trees out of all the forests in North America, which of the following barriers of entry has this company created?
a. control of resources
b. problems raising capital
c. economies of scale
d. licensing
e. patents and copyright law
21.    Because the demand curve for a monopolist is downward sloping
22.    The marginal revenue lies _____ the demand curve because there is (an) _____ effect wheneveer the output is increased
23.    As production increases, the price consumers are willing to pay for the good
24.    When a monopolists lowers its price from $80 to $70, the quantity it is able to sell increases from 100 to 150 then the change in revenue associated with the output effect is equal to
25.    A big difference between a competitive firm and a monopolist is that a monopolist
26.    Reducing trade barriers creates ___competition, ___ the influence of monopoly and _____ the socially efficient use of resources