Pt.2

Question 1

If quantity demanded falls by 2 percent when income rises by 10 percent, then:
A: the good is inferior
B: the good is normal 
C: Demand is income elastic 
D: both A and C

Answer 1

the good is inferior

Question 2

On this graph, area ABC is:
A: consumer surplus. 
B: producer surplus.
C: total surplus.
D: total producer net benefit.

Answer 2

consumer surplus.

Question 3

Producer surplus is defined as:
A: The difference between the highest price consumers are willing to pay for a product and the minimum amount producers are willing to accept for that product.
B: The difference between the price a producer receives for a product and the maximum amount a producer is willing to accept for that product.
C: The difference between the price a producer receives for a product and the minimum amount a producer is willing to accept for that product.

Answer 3

C: The difference between the price a producer receives for a product and the minimum amount a producer is willing to accept for that product.

Question 4

Suppose that in a month the price of sausage increases from $2 to $2.20. At the same time, the quantity of sausages supplied increases from 100 to 120. Supply for sausage (calculated using the midpoint formula) is:
A: perfectly inelastic 
B: Inelastic 
C: perfectly elastic 
D: Elastic

Answer 4

Elastic

Question 5

A market in which there is an additional transaction that would benefit a buyer, a seller, and any third parties affected by the transaction is called
A: a free market 
B: a contestable market 
C: an efficient market 
D: an inefficient market

Answer 5

an inefficient market

Question 6

Suppose the production of the good represented in the table 6.1 produces a spillover cost to society of $0 for each unit produced. The marginal principle tells us that the socially optimal production of that good is
A: 1
B: 2
C: 3
D: 4

Answer 6

4

Question 7

In the case of spillover benefits or costs,
A: the free market yields the efficient outcome
B: the free market yields an inefficient outcome
C: the free market no longer equates marginal private benefits to marginal private costs
D: the market must be imperfectly competitive

Answer 7

the free market yields an inefficient outcome

Question 8

Suppose that the demand curve for a 100 pound tank of propane is Qd = 100 - P and the supply curve is Qs = P. If the government sets a maximum price of $60, the resultant market price will be
A: $40
B: $50
C: $60
D: 70

Answer 8

A: $40

Question 9

Suppose that the elasticity of demand for a product is 2.0. What will happen to revenues as a firm increases the price?
A: they will increase 
B: they will decrease
C: they will stay the same 
D: not enough information to tell

Answer 9

they will decrease

Question 10

Consumer surplus refers to:
A: The difference between the highest price consumers are willing to pay for a product and the minimum amount producers are willing to accept for that product.
B: The maximum that consumer is willing to pay for the product.
C: The difference between the price charged for the product and the cost of producing that product.
D: The difference between the maximum that a consumer is willing to pay for a product and the price that is paid for the product.

Answer 10

The difference between the maximum that a consumer is willing to pay for a product and the price that is paid for the product.

Question 11

The price elasticity of demand is calculated by
A: the change in price divided by the change in quantity demanded
B: the change in quantity demanded divided by the change in price
C: the percentage change in price divided by the percentage change in quantity demanded
D: the percentage change in quantity demanded divided by the percentage change in price

Answer 11

the percentage change in quantity demanded divided by the percentage change in price

Question 12

Suppose that the supply of tweed jackets increases by 20%. Further, suppose that the elasticity of demand for tweed jackets is 1 and the elasticity of supply is 4. What will happen to the equilibrium price of tweed jackets?
A: rise by 8%. 
B: fall by 8%. 
C: rise by 4%. 
D: fall by 4%.

Answer 12

D: fall by 4%.

Question 13

Suppose the production of the good represented in the table 6.1 produces a spillover cost to society of $60 for each unit produced. The marginal principle tells us that the socially optimal production of that good is
A: 0
B: 1
C: 2
D: 3

Answer 13

C: 2

Question 14

On this graph, area BCD is:
A: consumer surplus.
B: producer surplus.
C: total surplus.

Answer 14

producer surplus.

Question 15

Suppose that in a month the price of sausage increases from $2 to $2.20. At the same time, the quantity of sausages demanded decreases from 100 to 90. Demand for sausage (calculated using the midpoint formula) is
A: perfectly inelastic 
B: Inelastic 
C: perfectly elastic 
D: Elastic

Answer 15

Elastic

Question 16

The difference between the short-run and the long-run is:
A: In the short-run, some factors of production are fixed, while in the long-run, none of them are
B: In the short-run, all factors of production are fixed, while in the long-run, none of them are
C: In the short-run, no factors of production are fixed, while in the long-run, at least some of them are
D: The difference between the short and long-run has nothing to do with how fixed factors of production are

Answer 16

In the short-run, some factors of production are fixed, while in the long-run, none of them are

Question 17

Figure 8.1 presents a firms average total, average fixed, marginal, and average variable cost curves. The marginal cost curve is represented by curve:
A: 1
B: 2
C: 3
D: 4

Answer 17

A: 1

Question 18

Which of the following is a short-run adjustment?
A: Three new firms enter the computer chip industry
B: A firm hires six new workers
C: The number of farms in Kansas increases by ten percent
D: A firm opens two new plants

Answer 18

A firm hires six new workers

Question 19

Diminishing returns imply that:
A: Average product must be less than marginal product
B: Average product must be greater than marginal product
C: Total product must be decreasing
D: Total product must be increasing

Answer 19

Average product must be greater than marginal product

Question 20

Total cost divided by the quantity of output the firm chooses when it can choose a production facility of any size describes
A: the short-run average cost of production.
B: the long-run average cost of production
C: the short-run marginal cost of production
D: the long-run average fixed cost of production

Answer 20

B: the long-run average cost of production

Question 21

Indivisible inputs and economies of scale are related because:
A: As a firm that uses an indivisible input increases its production, the cost of the input is spread over more units of production
B: As a firm purchases more of the indivisible input, the cost of the input per unit of output produced increases
C: As a firm purchases more of the indivisible input, the cost of the input per unit of output produced decreases
D: As a firm that uses an indivisible input increases its production, the average cost of the input increases

Answer 21

A: As a firm that uses an indivisible input increases its production, the cost of the input is spread over more units of production

Question 22

If a firm's fixed costs are $10, the firm's marginal cost of producing the first unit of output is $10, and the average total cost of producing two units of output is $14, the marginal cost of the second unit of output is
A: $28 
B: $14 
C: $18 
D: $8

Answer 22

D: $8

Question 23

Table 8.3 presents the cost schedule for Sheryl's Cakes. If Sheryl produces 2 cakes, Sheryl's marginal cost is
A: $0 
B: $20 
C: $25 
D: $50

Answer 23

B: $20

Question 24

Joe runs a restaurant. He pays his employees $200,000 per year. His ingredients cost him $50,000 per year. Prior to running his restaurant, Joe was a lawyer earning $150,000 per year. What would economists say is Joe's cost of running the restaurant?
A: $150,000 
B: $200,000
C: $250,000 
D: $350,000 
E: $400,000

Answer 24

E: $400,000

Question 25

``` Table 8.3 presents the cost schedule for Sheryl's Cakes. If Sheryl produces one cake, Sheryl's total variable costs are A: $0 B: $30 C: $50 D: 80 ```

Answer 25

B: $30

Question 26

``` The marginal cost curve intersects the short-run average cost curve where: A: Marginal cost is minimized B: Average variable costs are minimized C: Average total costs are minimized D: Average variable costs are maximized ```

Answer 26

B: Average total costs are minimized

Question 27

``` When at least one factor of production is fixed, firms require more and more workers to produce each additional unit of output. This describes A: increasing marginal returns B: diminishing marginal returns C: learning by doing D: short-run adjustments ```

Answer 27

D: short-run adjustments

Question 28

``` Figure 8.1 presents a firms average total, average fixed, marginal, and average variable cost curves. The average variable cost curve is represented by curve A: 1 B: 2 C: 3 D: 4 ```

Answer 28

C: 3

Question 29

Table 8.3 presents the cost schedule for Sheryl's Cakes. If Sheryl produces 4 cakes, Sheryl's total fixed costs are A: $0 B: $50 C: $155

Answer 29

B: $50

Question 30

You sell your good in a perfectly competitive market where the market price is $13.00. When you sell 100 units your total revenue is $1300. When you sell 101 units: A: marginal revenue will be $13. B: marginal revenue will be less than $13. C: marginal revenue will be more than $13. D: there is not enough information to determine anything about marginal revenue.

Answer 30

marginal revenue will be $13.

Question 31

Firms in a perfectly competitive market: A: sell a differentiated product. B: sell homogeneous products, like wheat or corn. C: usually have large advertising budgets. D: try to attract customers away from their competitors.

Answer 31

sell homogeneous products, like wheat or corn.

Question 32

For the perfectly competitive firm marginal revenue is equal to: A: the change in total revenue from selling one more unit of a good. B: the number of units sold times the price of the good. C: the market price of the good being sold. D: A and C are correct.

Answer 32

A and C are correct.

Question 33

Alex's Furniture Mart produces and sells tables in a perfectly competitive market. When Alex's Furniture Mart produces and sells 250 tables, its marginal cost is equal to $200, and AVC is rising. If the market price of tables is equal to $150, Alex's Furniture Mart should: A: decrease its level of table production. B: increase its level of table production. C: continue producing 250 tables. D: shut-down and produce no tables.

Answer 33

decrease its level of table production.

Question 34

If a monopolist is maximizing its profits, we know that it has: A: maximized total revenue. B: maximized marginal revenue. C: equated marginal cost and marginal revenue.

Answer 34

equated marginal cost and marginal revenue.

Question 35

Which of the following is true in the long run for both monopoly and perfectly competitive industries? A: Firms can earn positive economic profits in the long run. B: Firms produce at levels that are economically efficient. C: Firms will go out of business if they cannot charge a price that is at least equal to average total cost.

Answer 35

Firms will go out of business if they cannot charge a price that is at least equal to average total cost.

Question 36

``` Refer to Figure 1. The good is sold in a perfectly competitive market. If the market price of the good is $150 at the profit maximizing level of output, total profit is: A: $0 B: 4,000 C: 5,000 D: 30,000 ```

Answer 36

$4,000

Question 37

``` Refer to Figure 1. The good is sold in a perfectly competitive market. The short-run shut-down price is: A: $130 B: $125 C: $100 D: $90 ```

Answer 37

C: $100

Question 38

``` In short-run equilibrium for a competitive firm economic profits : A: will be positive. B: will be negative. C: will be zero. D: may be positive, negative, or zero. ```

Answer 38

may be positive, negative, or zero.

Question 39

``` In long-run equilibrium for a competitive firm economic profits : A: will be positive. B: will be negative. C: will be zero. D: may be positive, negative, or zero. ```

Answer 39

will be zero.

Question 40

``` Refer to Figure 1. The good is sold in a perfectly competitive market. If the market price of the good is $150, the profit maximizing level of output is: A: 0 B: 100 C: 200 D: 250 ```

Answer 40

200

Question 41

A perfectly competitive industry is in long-run equilibrium. If demand for the product increases, we can expect A: firms to enter the market. B: firms to exit the market. C: no change in the number of firms in the market. D: not enough information to tell what will happen to the number of firms in the market.

Answer 41

firms to enter the market.

Question 42

``` At a price of $20, the marginal revenue of a monopolist is $12. If the marginal cost of production is $10, what should the monopolist do in order to maximize profits? A: Increase its price. B: Decrease its price. C: Keep its price at the same level. D: Not enough information to solve. ```

Answer 42

Decrease its price.

Question 43

A natural monopoly occurs when: A: a firm has a government license to produce a produce. B: the government sanctions the firm to be the only producer of a product. C: a firm has sole ownership of a natural resource. D: there is only one firm in a market and the entry of a second firm would make price less than average cost.

Answer 43

there is only one firm in a market and the entry of a second firm would make price less than average cost.

Question 44

How do monopoly prices and quantities produced differ from perfectly competitive outcomes? A: Monopoly prices and quantities are both lower than competitive outcomes. B: Monopoly prices and quantities are both higher than competitive outcomes. C: Monopoly prices are lower than competitive prices but monopoly quantities are higher than competitive quantities. D: Monopoly prices are higher than competitive prices but monopoly quantities are lower than competitive quantities.

Answer 44

Monopoly prices are higher than competitive prices but monopoly quantities are lower than competitive quantities.

Question 45

``` Which one of the following is the best example of an oligopolistic industry? A: soft drinks B: wheat growers C: apple growers D: public utilities ```

Answer 45

soft drinks

Question 46

A group of firms that coordinate their pricing decisions is a(n): A: cartel. B: industry. C: natural monopoly.

Answer 46

Cartel

Question 47

In general, the market price in a monopoly market is: A: lower than an oligopoly. B: higher than an oligopoly. C: the same as an oligopoly.

Answer 47

higher than an oligopoly.