Liberty University ECON 213 quiz 8 complete solutions correct answers A+ work

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Question 1Steve 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 2Steve 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 3Explicit costs are:Question 4Refer 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 5The change in total output divided by the change in input is known as:Question 6When 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 7Darrell 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 8Darrell 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 9The full set of shortrun cost curves for a firm tells us:Question 10Every 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 11Accountants consider only explicit costs when measuring accounting profit. The reason that they ignore implicit costs is that:Question 12Use 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 13If the marginal product of labor is increasing, the marginal cost of output must be:Question 14Which is the best example of diseconomies of scale?Question 15Should a firm always produce the level of output where marginal cost is lowest?

Question 16Madison 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 17Refer 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 18Lauren 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 19Lauren 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 20If 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. 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 painterb. painting the house himself c. they are the same costd. 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 frontierb) 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 paintingsb. 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

a. 1/2 paintingb. 1/3 paintingc. 3 paintingsd. 1/3 sculpturee. 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 strombolib. 1 pizza for 1 strombolic. 10 pizzas for 2 strombolid. 1 pizza for 1/2 strombolie. 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. 1b. 2c. bothd. 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 costsb. upward sloping because suppliers prefer lower costsc. upward sloping because suppliers will offer for sale more at a higher priced. 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. Moreb. lessc. 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 + EB) A + B + CC) A + B + C + D + ED) E + F

38. Refer to Figure 4-6. What area represents consumer surplus after the imposition of the price floor?A) A + B + EB) A + B C) A + B + E + FD) 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) $0B) $9,000C) $40,000D) $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 competitionA) 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 LRATC2b. LRATC3c. LRATC2d. LRATC1e. 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. $1,000b. $1,950c. $2,500d. $3,750e. $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 10B 10 80C 100 900D 200 2000E 500 5500F 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 Product0 01 102 353 704 1205 1656 1757 1708 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 Product0 ---1 32 83 104 65 -16 -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 Output0 ---

1 82 173 224 255 226 -177 -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) $75,000B) $30C) $225,000D) $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 64 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 utility0 01 82 25

3 414 565 706 837 958 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?

C u s t o m e r M ax i m u m W illi n g n e s s t o P ay ( $)

Tom 35Porky 30Droopy 28Olive 20Jerry 12

A) $0B) $6

C) $28D) $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 Marginal Utility Candy Marginal Utility

1 40 1 182 32 2 163 24 3 144 11 4 125 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

Marginal Utility French Fries ($2

each)

Marginal Utility

1 40 1 182 32 2 163 24 3 144 16 4 125 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 paymentsopportunity cost of using resources owned or provided by its owners without a corresponding cash paymenta firm's total revenue minus its explicit costsa firm's total revenue minus its explicit and implicit costsaccounting profit earned when all resources earn their opportunity cost; equal to implicit costany resource that can be varied in the short run to increase or decrease productionany resource that cannot be varied in the short runequals a firm's total outputequals a change in total product that occurs when an additional resource is employed by the firm, all other resources constantAs more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negativeequals the sum of fixed cost and variable cost, or TC=FC+VCequals 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 Qequals variable cost divided by output, or AVC=VC/Qoccurs when a firm's long run average costs decrease as the scale of operation increasesoccurs when a firm's long run average costs increase as the scale of operation increasesThe 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. caviar39. 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 goodsA 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 sellersThe 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. $20,00048. 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 WaterSelect 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 stromboliA 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 stromboliWhich 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 considersan 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 arethe 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 incomea 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 levelin the short runin 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 makingAs 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 __________ strategyThe __________ 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 companyb. the pizza businessc. the restaurant industryd. a parking garagee. 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 buyersb. many sellersc. similar goodsd. easy entry into and exit from the markete. differentiated goods

____ 10. Which characteristic of competitive markets is mainly responsible for firms making zero economic profits in the long run?a. many buyersb. many sellersc. similar goodsd. differentiated goodse. 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; lessb. inefficient; morec. efficient; lessd. efficient; moree. 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; promotesb. more; reduces; promotesc. less; increases; promotesd. more; reduces; hinderse. more; increases; hinders

____ 19. Price discrimination exists when a firm sells __________ goods at more than one price to __________ groups of customers.a. different; similarb. existing; distinctc. discounted; larged. identical; differente. 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 homogeneousb. Yes, as long as reselling is prohibited in the marketc. No, because the firm will not be able to distinguish among groups of consumersd. No, because the similarities among consumers will lead to collusion among buyerse. 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; oneb. one; twoc. a few; manyd. a few; onee. 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 when3. 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 are5. 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 as11. 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 making15. In the long run, if a firm is making a loss, it will16. 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 profits18. Holding all else constant and considering the short-run, an increase in the

market demand for a proudct in a competative market would cause19. The typical result of monopoly is ___ priceses and ____output than we

find in a competitive market20. 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 resourcesb. problems raising capitalc. economies of scaled. licensinge. patents and copyright law

21. Because the demand curve for a monopolist is downward sloping22. The marginal revenue lies _____ the demand curve because there is (an)

_____ effect wheneveer the output is increased23. As production increases, the price consumers are willing to pay for the

good24. 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