ECO111 Microeconomics

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QN=200 (17311) Consumer surplus is the1

a. amount of a good consumers get without paying anything.
b. amount a consumer pays minus the amount the consumer is willing to pay.
c. amount a consumer is willing to pay minus the amount the consumer actually pays.
d. value of a good to a consumer.

QN=201 (17343) Refer to Figure 7-5. What is the consumer surplus if the price is $100?
11

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a. $2,500
b. $5,000
c. $10,000
d. $20,000

QN=202 (17332) Inefficiency can be caused in a market by the presence of222

a. (i) market power.
b. (ii) externalities.
c. (iii) imperfectly competitive markets.
d. All of (i), (ii), and (iii) are correct.

QN=203 (17314)
Refer to Table 7-9. Both the demand curve and the supply curve are straight lines. If
the price is $8 but only 4 units are bought and sold, producer surplus will be2

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a. $24.
b. $28.
c. $32.
d. $40.

QN=204 (17306) Donald produces nails at a cost of $200 per ton. If he sells the nails for $350 per ton,
his producer surplus per ton is3333
a. $150.
b. $200.
c. $350.
d. $550.

QN=205 (17335) Which of the following will cause a decrease in consumer surplus?333
a. an increase in the number of sellers of the good
b. a decrease in the production cost of the good
c. sellers expect the price of the good to be lower next month
d. the imposition of a binding price floor in the market

QN=206 (17326) Total surplus is3333

a. equal to producer surplus plus consumer surplus.
b. equal to the total cost to sellers minus the total value to buyers.
c. equal to consumers' willingness to pay plus producers’ cost.
d. greater than the sum of consumer surplus plus producer surplus.

QN=207 (17309) Refer to Figure 7-15. At the equilibrium price, consumer surplus is
333

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a. $480.
b. $640.
c. $1,120.
d. $1,280.

QN=208 (17330) Which of the Ten Principles of Economics does welfare economics explain more fully?4
a. The cost of something is what you give up to get it.
b. Markets are usually a good way to organize economic activity.
c. Trade can make everyone better off.
d. A country’s standard of living depends on its ability to produce goods and services.

QN=209 (17333) Externalities are444

a. side effects passed on to a party other than the buyers and sellers in the market.
b. side effects of government intervention in markets.
c. external forces that cause the price of a good to be higher than it otherwise would be.
d. external forces that help establish equilibrium price.

QN=210 (17308) Which of the following is correct?44

a. Efficiency deals with the size of the economic pie, and equality deals with how fairly
the pie is sliced.
b. Equality can be judged on positive grounds whereas efficiency requires normative
judgments.
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c. Efficiency is more difficult to evaluate than equality.
d. Equality and efficiency are both maximized in a society when total surplus is maxi-
mized.

QN=211 (17322) 3. Refer to Table 7-1. If the table represents the willingness to pay of 4 buyers
and the price of the product is $15, then who would be willing to purchase the prod-
uct?
5

a. Mike
b. Mike and Sandy
c. Mike, Sandy, and Jonathan
d. Mike, Sandy, Jonathan, and Haley

QN=212 (17345) Producer surplus measures the555

a. benefits to sellers of participating in a market.
b. costs to sellers of participating in a market.
c. price that buyers are willing to pay for sellers’ output of a good or service.
d. benefit to sellers of producing a greater quantity of a good or service than buyers de-
mand.

QN=213 (17340) Consumer surplus is equal to the5555

a. Value to buyers - Amount paid by buyers.
b. Amount paid by buyers - Costs of sellers.
c. Value to buyers - Costs of sellers.
d. Value to buyers - Willingness to pay of buyers.

QN=214 (17328) Raisins and milk are complementary goods. An increase in supply of raisins will5
a. increase consumer surplus in the market for raisins and decrease producer surplus in
the market for milk.
b. increase consumer surplus in the market for raisins and increase producer surplus in
the market for milk.
c. decrease consumer surplus in the market for raisins and increase producer surplus in
the market for milk.

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d. decrease consumer surplus in the market for raisins and decrease producer surplus in
the market for milk.

QN=215 (17338) Which of the following events would increase producer surplus?66
a. (i) Sellers' costs stay the same and the price of the good increases.
b. (ii) Sellers' costs increase and the price of the good stays the same.
c. (iii) Sellers' costs increase and the price of the good decreases.
d. All of (i), (ii), and (iii) are correct.

QN=216 (17316) Refer to Figure 7-1. If the supply curve is S, the demand curve is D, and the equilibrium
price is $100, what is the producer surplus?
666

a. $625
b. $1,250
c. $2,500
d. $5,000

QN=217 (17323) Suppose there is an early freeze in California that ruins the lemon crop. What happens
to consumer surplus in the market for lemons?6666
a. It increases.
b. It decreases.
c. It is not affected by this change in market forces.
d. It increases very briefly then decreases.

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QN=218 (17339) Consumer surplus equals the7
a. value to buyers minus the amount paid by buyers.
b. value to buyers minus the cost to sellers.
c. amount received by sellers minus the cost to sellers.
d. amount received by sellers minus the amount paid by buyers.

QN=219 (17331) 2. Refer to Figure 7-15. If the price decreases from $22 to $16 due to a shift in
the supply curve, consumer surplus increases by
7

a. $120.
b. $360.
c. $480.
d. $600.

QN=220 (17337) Refer to Figure 7-2. When the price rises from P1 to P2, consumer surplus
7

7/3
a. increases by an amount equal to A.
b. decreases by an amount equal to B+C.
c. increases by an amount equal to B+C.
d. decreases by an amount equal to C.

QN=221 (17305) In which of the following circumstances would a buyer be indifferent about buying a
good?888
a. (i) The amount of consumer surplus the buyer would experience as a result of buying
the good is zero.
b. (ii) The price of the good is equal to the buyer’s willingness to pay for the good.
c. (iii) The price of the good is equal to the value the buyer places on the good.
d. All of (i), (ii), and (iii) are correct.

QN=222 (17318) Suppose Larry, Moe and Curly are bidding in an auction for a mint-condition video of
Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid.
This maximum is called88
a. a resistance price.
b. willingness to pay.
c. consumer surplus.
d. producer surplus.

QN=223 (17324) Market efficiency occurs when888

a. total surplus is maximized.
b. producer surplus is maximized.
c. all resources are being used.
d. consumer surplus equals producer surplus.
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QN=224 (17319) Which of the following statements is not correct?999
a. A seller would be eager to sell her product at a price higher than her cost.
b. A seller would refuse to sell her product at a price lower than her cost.
c. A seller would be indifferent about selling her product at a price equal to her cost.
d. Since sellers cannot set the price for their product, they must be willing to sell their
product at any price.

QN=225 (17321) Belva is willing to pay $65.00 for a pair of shoes for a formal dance. She finds a pair at
her favorite outlet shoe store for $48.00. Belva's consumer surplus is999
a. $17.
b. $31.
c. $48.
d. $65.

QN=226 (17313) Brock is willing to pay $400 for a new suit, but he is able to buy the suit for $350. His
consumer surplus is999
a. $50.
b. $150.
c. $350.
d. $400.

QN=227 (17307) Which tools allow economists to determine if the allocation of resources determined
by free markets is desirable?999
a. profits and costs to firms
b. consumer and producer surplus
c. the equilibrium price and quantity
d. incomes of and prices paid by buyers

QN=228 (17342) On a graph, consumer surplus is represented by the area9

a. between the demand and supply curves.
b. below the demand curve and above the price.
c. below the price and above the supply curve.
d. below the demand curve and to the right of equilibrium price.

QN=229 (17341) In a market, the marginal buyer is the buyer9999

a. whose willingness to pay is higher than that of all other buyers and potential buyers.
b. whose willingness to pay is lower than that of all other buyers and potential buyers.
c. who is willing to buy exactly one unit of the good.
d. who would be the first to leave the market if the price were any higher.

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QN=230 (17315) Consumer surplus is10
a. the amount a buyer is willing to pay for a good minus the amount the buyer actually
pays for it.
b. the amount a buyer is willing to pay for a good minus the cost of producing the good.
c. the amount by which the quantity supplied of a good exceeds the quantity demanded
of the good.
d. a buyer's willingness to pay for a good plus the price of the good.

QN=231 (17344) Refer to Figure 7-5. What happens to the consumer surplus if the price rises from
$100 to $150?
1010

a. The new consumer surplus is half of the original consumer surplus.

b. The new consumer surplus is 25 percent of the original consumer surplus.
c. The new consumer surplus is double the original consumer surplus.
d. The new consumer surplus is triple the original consumer surplus.

QN=232 (17310) Which of the Ten Principles of Economics does welfare economics explain more fully?
10
a. The cost of something is what you give up to get it.
b. Markets are usually a good way to organize economic activity.
10/3
c. Trade can make everyone better off.
d. A country’s standard of living depends on its ability to produce goods and services.

QN=233 (17334) When a buyer’s willingness to pay for a good is equal to the price of the good, the11
a. buyer’s consumer surplus for that good is maximized.
b. buyer will buy as much of the good as the buyer’s budget allows.
c. price of the good exceeds the value that the buyer places on the good.
d. buyer is indifferent between buying the good and not buying it.

QN=234 (17327) 3. Refer to Figure 7-16. If the price were P1, producer surplus would be repre-
sented by the area
1111

a. F.
b. F+G.
c. D+H+F.
d. D+H+F+G+I.

QN=235 (17387) Suppose that electricity producers create a negative externality equal to $6 per unit.
Further suppose that the government imposes a $8 per-unit tax on the producers.
What is the relationship between the after-tax equilibrium quantity and the socially
optimal quantity of electricity to be produced?11
a. They are equal.
b. The after-tax equilibrium quantity is greater than the socially optimal quantity.
c. The after-tax equilibrium quantity is less than the socially optimal quantity.
d. There is not enough information to answer the question.

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QN=236 (17348) Which of the following is not correct?1212
a. Markets allocate scarce resources with the forces of supply and demand.
b. The equilibrium of supply and demand is typically an efficient allocation of resources.
c. Governments can sometimes improve market outcomes.
d. Externalities cannot be positive.

QN=237 (17352) An externality is the impact of12

a. society's decisions on the well-being of society.
b. a person's actions on that person's well-being.
c. one person's actions on the well-being of a bystander.
d. society's decisions on the poorest person in the society.

QN=238 Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the
(17349) graph above. What is the socially optimal quantity of plastic?
12121212

a. 200 units
b. 450 units
c. 500 units
d. 650 units
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QN=239 (17382) The difference between social cost and private cost is a measure of the13
a. loss in profit to the seller as the result of a negative externality.
b. cost of an externality.
c. cost reduction when the negative externality is eliminated.
d. cost incurred by the government when it intervenes in the market.

QN=240 (17351) Which of the following statements is correct?131313

a. (i) Corrective taxes are often preferred over direct regulation because they typically re-
duce externalities at a lower cost.
b. (ii) Corrective taxes distort economic incentives.
c. (iii) Corrective taxes are often preferred over direct regulation because they typically
reduce externalities at a faster rate.
d. Both (i) and (ii) are correct.

QN=241 (17357) Which of the following is the best statement about markets?13
a. Markets are usually a good way to organize economic activity.
b. Markets are generally inferior to central planning as a way to organize economic activ-
ity.
c. Markets fail and are therefore not an acceptable way to organize economic activity.
d. Markets are a good way to organize economic activity in developed nations, but not in
less-developed nations.

QN=242 (17354) A paper plant produces water pollution during the production process. If the govern-
ment forces the plant to internalize the negative externality, then the1313
a. supply curve for paper would shift to the right.
b. supply curve for paper would shift to the left.
c. demand curve for paper would shift to the right.
d. demand curve for paper would shift to the left.

QN=243 (17372) When a market is characterized by an externality, the government13131313

a. can correct the market failure only in the case of positive externalities.
b. can correct the market failure only in the case of negative externalities.
c. can correct the market failure in the case of both positive and negative externalities by
inducing market participants to internalize the externality.
d. cannot correct for externalities due to the existence of patents.

QN=244 (17366) If the government were to limit the release of air-pollution produced by a steel mill to
75 parts per million, the policy would be considered a13
a. regulation.
b. corrective tax.

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c. subsidy.
d. market-based policy.

QN=245 (17386) Corrective taxes that are imposed upon the producer of a nasty smell can be successful
in reducing that smell because the tax makes the producer14141414
a. externalize the positive externality.
b. externalize the negative externality.
c. internalize the positive externality.
d. internalize the negative externality.

QN=246 Refer to Figure 10-11. This graph shows the market for pollution when permits are issued to firms and
(17364) traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would
be
1414

a. 25
b. 50
c. 75
d. 100

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QN=247 (17368) If a sawmill creates too much noise for local residents,15151515
a. noise restrictions will force residents to move out of the area.
b. a sense of social responsibility will cause owners of the mill to reduce noise levels.
c. the government can raise economic well-being through noise-control regulations.
d. the government should avoid intervening because the market will allocate resources
efficiently.

QN=248 Refer to Figure 10-7. Which quantity represents the social optimum for this market?
(17384) 151515

a. Q1.
b. Q2.
c. Q3.
d. Q4.

QN=249 (17367) The term market failure refers to151515

a. a market that fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces demand.
c. ruthless competition among firms.

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d. a firm that is forced out of business because of losses.

QN=250 (17355) The supply curve for a product reflects the16

a. willingness to pay of the marginal buyer.
b. quantity buyers will ultimately purchase of the product.
c. cost to sellers of producing the product.
d. seller's profit from producing the product.

QN=251 (17378) Which of the following policies is the government most inclined to use when faced
with a positive externality?1616
a. taxation
b. permits
c. subsidies
d. usage fees

QN=252 (17374) Positive externalities1616

a. result in a larger than efficient equilibrium quantity.
b. result in smaller than efficient equilibrium quantity.
c. result in an efficient equilibrium quantity.
d. can be internalized with a corrective tax.

QN=253 (17389) Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy
values smoke-free air at $15. Which of the following scenarios is a successful example
of the Coase theorem?16161616
a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke.
b. Mary pays Cathy $16 so that Mary can smoke.
c. Mary pays Cathy $14 so that Mary can smoke.
d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

QN=254 (17360) The height of the demand curve shows16161616

a. how much each buyer in the market is willing to pay.
b. the willingness to pay of the marginal buyer.
c. the maximum price all buyers will pay for a product.
d. the lowest price buyers will pay for a product.

QN=255 (17369) All remedies for externalities share the goal of16161616
a. moving the allocation of resources toward the market equilibrium.
b. moving the allocation of resources toward the socially optimal equilibrium.
c. increasing the allocation of resources.
d. decreasing the allocation of resources.

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QN=256 (17381) If a paper manufacturer does not bear the entire cost of the dioxin it emits, it
will171717
a. emit a lower level of dioxin than is socially efficient.
b. emit a higher level of dioxin than is socially efficient.
c. emit an acceptable level of dioxin.
d. not emit any dioxin in an attempt to avoid paying the entire cost.

QN=257 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbor-
(17356) hoods.
Refer to Figure 10-3. What price and quantity combination best represents the optimum price and num-
ber of concerts that should be organized?
1717

a. P1, Q1
b. P2, Q0
c. P2, Q1
d. The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely
affected by noise and congestion.

QN=258 (17358) The "invisible hand" leads a market to maximize17

a. producer profit from that market.
b. total benefit to society from that market.
17/3
c. both equity and efficiency in that market.
d. output of goods or services in that market.

QN=259 (17359) The demand curve for a product reflects the18

a. value of the product to consumers.
b. cost of the product to consumers.
c. quantity consumers are able to purchase.
d. price the product will sell for in the market.

QN=260 (17376) Which of the following statements is not correct?181818

a. Government policies may improve the market's allocation of resources when negative
externalities are present.
b. Government policies may improve the market's allocation of resources when positive
externalities are present.
c. A positive externality is an example of a market failure.
d. Without government intervention, the market will tend to undersupply products that
produce negative externalities.

QN=261 Refer to Figure 10-4. At Q3

(17362) 181818

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a. the marginal consumer values this product less than the social cost of producing it.
b. every consumer values this product less than the social cost of producing it.
c. the cost to society is equal to the value to society.
d. the marginal consumer values this product more than the private cost.

QN=262 (17370) Suppose that an MBA degree creates no externality because the benefits of an MBA
are internalized by the student in the form of higher wages. If the government offers
subsidies for MBAs, then which of the following statements is correct?191919
a. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
b. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of
MBAs.
c. The equilibrium quantity of MBAs will be less than the socially optimal quantity of
MBAs.
d. There is not enough information to answer the question.

QN=263 (17388) The Coase theorem states that191919

a. taxes are an efficient way for governments to remedy negative externalities.
b. subsidies are an efficient way for governments to remedy positive externalities.
c. industrial policies encourage technology spillovers.
19/3
d. in the absence of transaction costs, private parties can solve the problem of externali-
ties on their own.

QN=264 (17350) In the case of a technology spillover, the government can encourage firms to internal-
ize a positive externality by2020
a. taxing production, which would decrease supply.
b. taxing production, which would increase supply.
c. subsidizing production, which would decrease supply.
d. subsidizing production, which would increase supply.

QN=265 Refer to Figure 10-5. Which of the following statements is correct?

(17373) 202020

a. The marginal benefit of the positive externality is measured by P3 - P1.

b. The marginal cost of the negative externality is measured by P3 - P2.
c. The marginal cost of the negative externality is measured by P3 - P1.
d. The marginal cost of the negative externality is measured by P3 - P0.

QN=266 (17377) Suppose that a steel factory emits a certain amount of air pollution, which constitutes
a negative externality. If the market does not internalize the externality,20
a. the supply curve would adequately reflect the marginal social cost of production.
b. consumers will be required to pay a higher price for steel than they would have if the
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 externality were internalized.
c. the market equilibrium quantity will not be the socially optimal quantity.
d. producers will produce less steel than they otherwise would if the externality were in-
ternalized.

QN=267 Refer to Figure 10-6. How large would a corrective tax need to be to move this market from the equilib-
(17365) rium outcome to the socially-optimal outcome?
2121

a. An amount equal to P’ minus P.

b. An amount equal to P’.
c. An amount equal to P.
d. An amount equal to the external cost.

QN=268 (17361) When the social cost curve is above a product's supply curve we know that212121
a. government has intervened in the market.
b. a negative externality exists in the market.
c. a positive externality exists in the market.
d. the market reached equilibrium on its own.

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QN=269 (17347) An externality is222222
a. the costs that parties incur in the process of agreeing and following through on a bar-
gain.
b. the uncompensated impact of one person's actions on the well-being of a bystander.
c. the proposition that private parties can bargain without cost over the allocation of re-
sources.
d. a market equilibrium tax.

QN=270 (17379) The best remedy for market failure is often22

a. a market-based solution.
b. shutdown of the market.
c. no government intervention.
d. externalizing the externalities.

QN=271 (17375) Which of the following is NOT a way of internalizing technology spillovers?22
a. subsidies
b. patent protection
c. industrial policy
d. taxes

QN=272 (17363) A positive externality2222

a. is a benefit to the producer of the good.
b. is a benefit to the consumer of the good.
c. is a benefit to someone other than the producer and consumer of the good.
d. results in an optimal level of output.

QN=273 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbor-
(17383) hoods.
Refer to Figure 10-3. The social cost curve is above the supply curve because
22

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a. it takes into account the external costs imposed on society by the concert.
b. it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential
neighborhoods.
c. concert tickets are likely to cost more than the concert actually costs the organizers.
d. residents in the surrounding neighborhoods get to listen to the concert for free.

QN=274 (17353) Externalities tend to cause markets to be232323

a. inefficient.
b. unequal.
c. unnecessary.
d. overwhelmed.

QN=275 (17371) All externalities232323

a. cause markets to fail to allocate resources efficiently.
b. cause equilibrium prices to be too high.
c. benefit producers at the expense of consumers.
d. cause equilibrium prices to be too low.

QN=276 (17380) Which of the following is a way to address an externality problem?2323

a. (i) command and control solution
23/3
b. (ii) corrective tax
c. (iii) corrective subsidy
d. all of (i), (ii), and (iii).

QN=277 Refer to Figure 10-7. To internalize the externality in this market, the government should
(17385) 24242424

a. impose a tax on this product.

b. provide a subsidy for this product.
c. forbid production.
d. produce the product itself.

QN=278 (17408) An ice cream cone is24242424

a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.

QN=279 (17399) Goods that are nonexcludable and nonrival are242424

24/3
a. public goods.
b. private goods.
c. natural monopolies.
d. common resources.

QN=280 (17422) Without government intervention, public goods tend to be25252525

a. overproduced and common resources tend to be overconsumed.
b. overproduced and common resources tend to be underconsumed.
c. underproduced and common resources tend to be overconsumed.
d. underproduced and common resources tend to be underconsumed.

QN=281 (17405) What causes the Tragedy of the Commons?

(i) Social and private incentives differ.
(ii) Common resources are not rival in consumption and are not excludable.
(iii) Common resources are not excludable but are rival in consumption.25
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i) and (iii) only

QN=282 (17407) A good is excludable if25

a. one person's use of the good diminishes another person's enjoyment of it.
b. the government can regulate its availability.
c. it is not a normal good.
d. people can be prevented from using it.

QN=283 (17394) Because public goods are25252525

a. excludable, people have an incentive to be free riders.
b. excludable, people do not have an incentive to be free riders.
c. not excludable, people have an incentive to be free riders.
d. not excludable, people do not have an incentive to be free riders.

QN=284 (17423) A lighthouse is typically considered to be a public good because25252525

a. the owner of the lighthouse is able to exclude beneficiaries from enjoying the light-
house.
b. there is rarely another lighthouse nearby to provide competition.
c. a nearby port authority cannot avoid paying fees to the lighthouse owner.
d. all passing ships are able to enjoy the benefits of the lighthouse without paying.

QN=285 (17424) The Tragedy of the Commons occurs because252525

a. a common resource is rival in consumption.

25/3
b. a common resource is underutilized.
c. crimes are committed in public places.
d. common resources are subject to exclusionary rules.

QN=286 (17426) Because elephants roam freely in many countries in Africa, each individual African ele-
phant poacher has26
a. (i) a strong incentive to kill as many elephants as he can find.
b. (ii) a strong incentive to protect the elephants.
c. (iii) the ability to save the elephants.
d. None of (i), (ii), and (iii) is correct.

QN=287 (17419) When property rights are not well established,2626

a. private goods become public goods.
b. markets fail to allocate resources efficiently.
c. the distribution of private goods is unfair.
d. government resources are used inefficiently.

QN=288 (17410) Which of the following is an example of the free-rider problem?26

a. Both Fred and Wilma receive low-cost dental care at the local dental school, so neither
of them pays the full cost of the care.
b. Elmer receives a free lunch from the local "Meals on Wheels" program because of his
low monthly income. Yet his next door neighbor, Dorothy, is not eligible for the free
lunch.
c. Max owns Fido, a large dog who barks whenever anyone walks near his house. Sally
lives next to Max, and Fido's barking can be heard whenever anyone walks near her
house, too. Thus, Sally receives free protection from burglars because of Fido's bark-
ing.
d. David purchases a burger at a fast food restaurant and gets a second burger free be-
cause the restaurant is having a buy one, get one free sale.

QN=289 (17400) Common resources are both262626

a. rival and nonexcludable.
b. rival and excludable.
c. nonrival and excludable.
d. nonrival and nonexcludable.

QN=290 (17413) Which of the following is not a public good?26262626

a. national defense
b. patented technological knowledge
c. general knowledge
d. the elimination of poverty

26/3
QN=291 (17406) Most goods in the economy are272727
a. natural monopolies.
b. common resources.
c. public goods.
d. private goods.

QN=292 (17396) A stairwell in a certain office building is always congested at 12:00 p.m. and 2:00 p.m.
The congestion is so bad that people have been complaining to the building's owner.
Which of the following methods would be the most efficient way of reducing conges-
tion?27
a. Assign each person in the building a time when they are allowed to use the stairwell.
b. Encourage people to voluntarily keep off the stairwell during peak times.
c. Charge everyone who uses the stairwell when it is congested the same fee which is
high enough to discourage some people from using the stairwell during peak times.
People who value the use of the stairs the most will be the ones who use the stairwell
at peak times.
d. Hold a lottery to determine who wins the right to use the stairwell at peak times.

QN=293 (17403) Which of the following quotations illustrates the Tragedy of the Commons?272727
a. “A bird in the hand is worth two in the bush.”
b. “The only difference between the rich and other people is that the rich have more
money.”
c. “What is common to many is taken least care of, for all men have greater regard for
what is their own than for what they possess in common with others.”
d. “Anyone who is not a socialist before he is 30 has no heart; anyone who is still a social-
ist after he is 30 has no head.”

QN=294 (17402) Goods that are not excludable include both2727

a. private goods and public goods.
b. natural monopolies and common resources.
c. common resources and public goods.
d. private goods and natural monopolies.

QN=295 (17397) If one person's use of a good diminishes another person's enjoyment of it, the good
is2727
a. rival.
b. excludable.
c. normal.
d. exhaustible.

QN=296 (17392) When property rights are not well established,2727

a. private goods become public goods.
27/3
b. markets fail to allocate resources efficiently.
c. the distribution of private goods is unfair.
d. government resources are used inefficiently.

QN=297 (17414) The free-rider problem2828

a. forces the supply of a public good to exceed its demand.
b. results in common resources becoming natural monopolies.
c. explains why many local governments supply public goods.
d. results in public goods becoming private goods.

QN=298 (17391) A view of a spectacular sunset along a private beach is an example of a28
a. private good.
b. public good.
c. nonrival but excludable good.
d. rival but nonexcludable good.

QN=299 (17416) Advocates of antipoverty programs believe that fighting poverty28

a. can make everyone better off.
b. is most successfully accomplished by charities.
c. is most efficiently accomplished by the market.
d. reduces the well-being of tax payers.

QN=300 (17409) An overcrowded beach is an example of282828

a. a positive externality.
b. a Tragedy of the Commons.
c. an environmentally inefficient allocation of resources.
d. an economically unfair allocation of resources.

QN=301 (17390) For most goods in an economy, the signal that guides the decisions of buyers and sell-
ers is28
a. preference.
b. government intervention.
c. quantity.
d. price.

QN=302 (17412) Which of the following would not be considered a private good?2828
a. a pair of jeans
b. an apple
c. a Honda Civic
d. cable TV service

28/3
QN=303 (17425) The sign on a church in your neighborhood reads “All are welcome at Sunday Service.”
Because the church has limited seating and is usually full, the Sunday Service is29
a. a private good.
b. a public good.
c. a natural monopoly.
d. a common resource.

QN=304 (17418) Suppose that you want to put on a fireworks display in your hometown of 1,000 peo-
ple this July. The cost of the display is $6,000, and each person values the display at $5.
After a month, you have only sold 50 tickets at $5 each. The result is that29292929
a. the local government should put on the display, but you should not.
b. you should still put on the display, but the local government should not.
c. neither you nor the local government should put on the display.
d. either you or the local government should put on the display.

QN=305 (17393) When a good is excludable,2929

a. one person's use of the good diminishes another person's ability to use it.
b. people can be prevented from using the good.
c. no more than one person can use the good at the same time.
d. everyone will be excluded from using the good.

QN=306 (17401) Suppose a human life is worth $10 million. Installing a better lighting system in the city
park would reduce the risk of someone being murdered there from 2.6 to 1.9 percent
over the life of the system. The city should install the new lighting system if its cost
does not exceed2929
a. $70,000.
b. $260,000.
c. $190,000.
d. $10,000,000.

QN=307 (17415) Government policy can potentially raise economic well-being29

a. in all markets for goods and services.
b. in economic models, but not in reality.
c. when a good does not have a price attached to it.
d. never.

QN=308 (17420) An FM radio signal is an example of a good that is2929

a. private.
b. nonrival in consumption.
c. social.
d. nonexcludable in production.

29/3
QN=309 (17421) The value and cost of goods are easiest to determine when the goods are30
a. private goods.
b. public goods.
c. common resources.
d. natural monopolies.

QN=310 (17404) When the absence of property rights causes a market failure, the government can po-
tentially solve the problem303030
a. (i) by clearly defining property rights.
b. (ii) through regulation.
c. (iii) by supplying the good itself.
d. All of (i), (ii), and (iii) are correct.

QN=311 (17398) Which of the following would be considered a private good?3030

a. national defense
b. a public beach
c. local cable television service
d. a bottle of natural mineral water

QN=312 (17417) If the government decides to build a new highway, the first step would be to conduct a
study to determine the value of the project. The study is called a303030
a. fiscal analysis.
b. monetary analysis.
c. welfare analysis.
d. cost-benefit analysis.

QN=313 (17395) One way to eliminate the Tragedy of the Commons is to303030
a. increase law enforcement in public areas.
b. limit access to the commons.
c. increase access to the commons.
d. decrease taxes.

QN=314 (17411) People have little incentive to produce a public good because303030
a. the social benefit is less than the private benefit.
b. the social benefit is less than the social cost.
c. there is a free-rider problem.
d. there is a Tragedy of the Commons.

QN=315 Table 13-13

(17431) Consider the following table of long-run total cost for four different firms:

30/3
 Refer to Table 13-13. Which firm has diseconomies of scale over the entire range of output?
31

a. Firm 1
b. Firm 2
c. Firm 3
d. Firm 4

QN=316 (17433) Refer to Table 13-2. The marginal product of the second worker is
31313131

a. 90 units.
b. 85 units.
c. 80 units.
d. 20 units.

QN=317 (17458) A difference between explicit and implicit costs is that31313131

a. explicit costs are greater than implicit costs.
b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit
costs do.
c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit
costs do.
31/3
d. implicit costs are greater than explicit costs.

QN=318 (17461) Which of the following expressions is correct?3232

a. accounting profit = economic profit + implicit costs
b. accounting profit = total revenue - implicit costs
c. economic profit = accounting profit + explicit costs
d. economic profit = total revenue - implicit costs

QN=319 (17444) Which of the following costs would be regarded as an implicit cost?32
a. the cost of accounting services
b. the opportunity cost of financial capital that has been invested in the business
c. the cost of compliance with government regulation
d. all costs that involve outlays of money by the firm

QN=320 (17448) Refer to Figure 13-9. The firm experiences economies of scale at which output levels?
32

a. (i) output levels less than M

b. (ii) output levels between M and N
c. (iii) output levels greater than N
d. All of (i), (ii), and (iii) are correct as long as the firm is operating in the long run.

32/3
QN=321 (17459) At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The mar-
ginal cost of producing the twenty-first pair of boots is $83. We can conclude that
the33333333
a. average variable cost of 21 pairs of boots is $23.
b. average total cost of 21 pairs of boots is $23.
c. average total cost of 21 pairs of boots is $15.09.
d. marginal cost of the 20th pair of boots is $20.

QN=322 (17439) Which of the following measures of cost is best described as "the cost of a typical unit
of output if total cost is divided evenly over all the units produced?"33333333
a. average fixed cost
b. average variable cost
c. average total cost
d. marginal cost

QN=323 (17467) Refer to Table 13-6. What is the marginal cost of producing the fifth unit of output?
33333333

a. $4
b. $40
c. $50
d. $70

QN=324 (17432) Jane decides to open her own business and earns $50,000 in accounting profit the first
year. When deciding to open her own business, she turned down three separate job
offers with annual salaries of $30,000, $40,000, and $45,000. What is Jane's economic
33/3
 profit from running her own business?34
a. $-55,000
b. $-5,000
c. $5,000
d. $20,000

QN=325 (17440) Industrial organization is the study of how34

a. labor unions organize workers in industries.
b. profitable firms are in organized industries.
c. industries organize for political advantage.
d. firms' decisions regarding prices and quantities depend on the market conditions they
face.

QN=326 (17453) The long-run average total cost curve is always34

a. flatter than the short-run average total cost curve, but not necessarily horizontal.
b. horizontal.
c. falling as output increases.
d. rising as output increases.

QN=327 (17449) At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The mar-
ginal cost of producing the twenty-first pair of boots is $83. We can conclude that
the34343434
a. average variable cost of 21 pairs of boots is $23.
b. average total cost of 21 pairs of boots is $23.
c. average total cost of 21 pairs of boots is $15.09.
d. marginal cost of the 20th pair of boots is $20.

QN=328 (17457) Implicit costs3434

a. do not require an outlay of money by the firm.
b. do not enter into the economist's measurement of a firm's profit.
c. are also known as variable costs.
d. are not part of an economist’s measurement of opportunity cost.

QN=329 (17469) If a firm experiences constant returns to scale at all output levels, then its long-run av-
erage total cost curve would3434
a. slope downward.
b. be horizontal.
c. slope upward.
d. slope downward for low output levels and upward for high output levels.

QN=330 (17464) If a firm produces nothing, which of the following costs will be zero?3434

34/3
a. total cost
b. fixed cost
c. opportunity cost
d. variable cost

QN=331 (17438) John has decided to start his own lawn-mowing business. To purchase the mowers and
the trailer to transport the mowers, John withdrew $1,000 from his savings account,
which was earning 3% interest, and borrowed an additional $2,000 from the bank at
an interest rate of 7%. What is John's annual opportunity cost of the financial capital
that has been invested in the business?35353535
a. $30
b. $140
c. $170
d. $300

QN=332 (17460) Economic profit is equal to35

a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.

QN=333 (17454) Profit is defined as total revenue3535

a. plus total cost.
b. times total cost.
c. minus total cost.
d. divided by total cost.

QN=334 (17450) Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her
profits are35
a. $25.
b. $124.50.
c. $125.
d. $150.

QN=335 (17456) An example of an opportunity cost that is also an implicit cost is3535
a. (i) a lease payment.
b. (ii) the cost of raw materials.
c. (iii) the value of the business owner’s time.
d. All of (i), (ii), and (iii) are correct.

QN=336 (17443) When, for a firm, long-run average total cost decreases as the quantity of output in-

35/3
 creases, we have a situation of36
a. economies of scale.
b. diseconomies of scale.
c. coordination problems arising from the large size of the firm.
d. fixed costs greatly exceeding variable costs.

QN=337 Refer to Table 13-3. What is total output when 5 workers are hired?
(17445) 363636

a. 70
b. 120
c. 160
d. 190

QN=338 (17428) Which of the following measures of cost is best described as "the increase in total cost
that arises from an extra unit of production?"36
a. variable cost
b. average variable cost
c. average total cost
d. marginal cost

QN=339 (17427) Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first
hour of business and incurs a total cost of $16.50, his average total cost per pretzel
is3636
a. $1.10.
b. $6.50.
c. $15.00.
d. $16.50.

QN=340 (17465) Charles’s Car Wash has average variable costs of $2 and average total costs of $3 when
it produces 100 units of output (car washes). The firm's total variable cost is3636
a. $100.
36/3
b. $200.
c. $300.
d. $500.

QN=341 (17434) Suppose that for a particular firm the only variable input into the production process is
labor and that output equals zero when no workers are hired. In addition, suppose
that when the firm hires 2 workers, the total cost of production is $100. When the
firm hires 3 workers, the total cost of production is $120. In addition, assume that the
variable cost per unit of labor is the same regardless of the number of units of labor
that are hired. What is the firm's fixed cost?3737
a. $40
b. $60
c. $80
d. $100

QN=342 (17446) Which of the following measures of cost is best described as "the increase in total cost
that arises from an extra unit of production?"37
a. variable cost
b. average variable cost
c. average total cost
d. marginal cost

QN=343 (17441) Scenario 13-4

For the following questions, assume that a given firm experiences decreasing marginal
product of labor with the addition of each worker regardless of the current output
level.
Refer to Scenario 13-4. Average variable cost will be373737
a. always rising.
b. always falling.
c. U-shaped.
d. constant.

QN=344 (17463) Which of the following statements about a production function is correct for a firm
that uses labor to produce output?3737
a. (i) The production function depicts the relationship between the quantity of labor and
the quantity of output.
b. (ii) The slope of the production function measures marginal product.
c. (iii) The slopes of the production function and the total cost curve are inversely re-
lated; if one is increasing, the other is decreasing.
d. All of (i), (ii), and (iii) are correct.

QN=345 (17430) The firm's efficient scale is the quantity of output that minimizes37

37/3
a. average total cost.
b. average fixed cost.
c. average variable cost.
d. marginal cost.

QN=346 (17435) Economists normally assume that the goal of a firm is to

(i) sell as much of their product as possible.
(ii) set the price of the product as high as possible.
(iii) maximize profit.38383838
a. (i) and (ii) are true.
b. (ii) and (iii) are true.
c. only (iii) is true.
d. (i) and (iii) are true.

QN=347 (17468) Refer to Table 13-6. What is the shape of the marginal cost curve for this firm?
38383838

a. constant
b. upward-sloping
c. downward-sloping
d. U-shaped

QN=348 (17437) XYZ corporation produced 300 units of output but sold only 275 of the units it pro-
duced and discarded the remaining 25 defected units. The average cost of production
for each unit of output produced was $100. Each of the 275 units sold was sold for a
price of $95. Total profit for the XYZ corporation would be3838
a. -$3,875.

38/3
b. $26,125.
c. $28,500.
d. $30,000.

QN=349 (17462) Refer to Figure 13-2. As the number of workers increases,

39

a. (i) marginal product decreases.

b. (ii) total output decreases.
c. (iii) marginal product increases but at a decreasing rate.
d. Both (i) and (ii) are correct.

QN=350 (17451) Refer to Table 13-1. Alyson’s pet sitting service experiences diminishing marginal pro-
ductivity with the addition of the
39393939

39/3
a. first worker.
b. second worker.
c. third worker.
d. fourth worker.

QN=351 (17436) Which field of economics studies how the number of firms affects the prices in a mar-
ket and the efficiency of market outcomes?4040
a. macro economics
b. industrial organization
c. labor economics
d. monetary economics

QN=352 (17442) The curves below reflect information about the cost structure of a firm. Use the figure
to answer the following questions
Refer to Figure 13-5. Curve A is U-shaped because of
404040

40/3
a. diminishing marginal product.
b. increasing marginal product.
c. the fact that increasing marginal product follows decreasing marginal product.
d. the fact that decreasing marginal product follows increasing marginal product.

QN=353 (17429) The minimum points of the average variable cost and average total cost curves occur
where414141
a. the marginal cost curve lies below the average variable cost and average total cost
curves.
b. the marginal cost curve intersects those curves.
c. the average variable cost and average total cost curves intersect.
d. the slope of total cost is the smallest.

QN=354 (17455) A firm's opportunity costs of production are equal to its414141

a. explicit costs only.
b. implicit costs only.
c. explicit costs + implicit costs.
d. explicit costs + implicit costs + total revenue.

QN=355 (17452) Suppose Jan started up a small lemonade stand business last month. Variable costs for
Jan's lemonade stand now include the cost of4141
a. (i) building the lemonade stand.
b. (ii) hiring an artist to design a logo for her sign.
c. (iii) lemons and sugar.

41/3
d. All of (i), (ii), and (iii) are correct.

QN=356 (17466) Refer to Table 13-6. What is the average variable cost of producing 5 units of output?
424242

a. $4
b. $5
c. $40
d. $44

QN=357 (17447) The marginal cost curve crosses the average total cost curve at42
a. (i) the efficient scale.
b. (ii) the minimum point on the average total cost curve.
c. (iii) a point where the marginal cost curve is rising.
d. All of (i), (ii), and (iii) are correct.

QN=358 (17495) Which of the following is not a characteristic of a perfectly competitive market?424242
a. Firms are price takers.
b. Firms can freely enter the market.
c. Many firms have market power.
d. Goods offered for sale are largely the same.

QN=359 (17509) In a competitive market, the actions of any single buyer or seller will42
a. have a negligible impact on the market price.
b. have little effect on market equilibrium quantity but will affect market equilibrium
price.

42/3
c. affect marginal revenue and average revenue but not price.
d. adversely affect the profitability of more than one firm in the market.

QN=360 (17479) For any competitive market, the supply curve is closely related to the4343
a. preferences of consumers who purchase products in that market.
b. income tax rates of consumers in that market.
c. firms’ costs of production in that market.
d. interest rates on government bonds.

QN=361 (17492) As a general rule, when accountants calculate profit they account for explicit costs but
usually ignore43
a. certain outlays of money by the firm.
b. implicit costs.
c. operating costs.
d. fixed costs.

QN=362 (17515) When fixed costs are ignored because they are irrelevant to a business's production
decision, they are called434343
a. explicit costs.
b. implicit costs.
c. sunk costs.
d. opportunity costs.

QN=363 Refer to Figure 14-9. If the market starts in equilibrium at point C in panel (b), a decrease in demand will
(17517) ultimately lead to
434343

43/3
a. more firms in the industry but lower levels of output for each firm.
b. fewer firms in the market.
c. a new long-run equilibrium at point D in panel (b).
d. lower prices once the new long-run equilibrium is reached.

QN=364 (17516) Which of the following statements best reflects the production decision of a profit-
maximizing firm in a competitive market when price falls below the minimum of aver-
age variable cost?44444444
a. The firm will continue to produce to attempt to pay fixed costs.
b. The firm will immediately stop production to minimize its losses.
c. The firm will stop production as soon as it is able to pay its sunk costs.
d. The firm will continue to produce in the short run but will likely exit the market in the
long run.

QN=365 (17472) 3. Refer to Table 14-7. If the firm is currently producing 14 units, what would you
advise the owners?
44444444

a. decrease quantity to 13 units

b. increase quantity to 17 units
c. continue to operate at 14 units
d. increase quantity to 16 units

QN=366 (17489) Which of the following statements regarding a competitive market is not correct?
44444444
a. There are many buyers and many sellers in the market.
b. Because of firm location or product differences, some firms can charge a higher price
than other firms and still maintain their sales volume.
c. Price and average revenue are equal.
d. Price and marginal revenue are equal.

44/3
QN=367 (17508) In a perfectly competitive market, the market supply curve is454545
a. the marginal cost curve above average total cost for a representative firm.
b. the horizontal sum of all the individual firms' supply curves.
c. the vertical sum of all the individual firms’ supply curves.
d. always a horizontal line.

QN=368 (17474) In a perfectly competitive market, the market supply curve is454545
a. the marginal cost curve above average total cost for a representative firm.
b. the horizontal sum of all the individual firms' supply curves.
c. the vertical sum of all the individual firms’ supply curves.
d. always a horizontal line.

QN=369 (17504) Which of the following is not a characteristic of a competitive market?45

a. Buyers and sellers are price takers.
b. Each firm sells a virtually identical product.
c. Free entry is limited.
d. Each firm chooses an output level that maximizes profits.

QN=370 (17487) A firm in a competitive market has the following cost structure:

If the market price is $4, this firm will454545

a. produce two units in the short run and exit in the long run.
b. produce three units in the short run and exit in the long run.
c. produce four units in the short run and exit in the long run.
d. shut down in the short run and exit in the long run.

QN=371 (17478) 4. Refer to Figure 14-2. This is a competitive market. If the market price is $10,
what is the firm’s total cost?
45454545

45/3
a. $15
b. $30
c. $35
d. $50

QN=372 (17506) Refer to Table 14-7. If the firm is currently producing 14 units, what would you advise
the owners?
464646

a. decrease quantity to 13 units

b. increase quantity to 17 units
c. continue to operate at 14 units
d. increase quantity to 16 units

QN=373 (17498) The production decisions of perfectly competitive firms follow one of the Ten Princi-
46/3
 ples of Economics, which states that rational people47474747
a. consider sunk costs.
b. equate prices to the average costs of production.
c. will eventually leave markets that experience zero profit.
d. think at the margin.

QN=374 (17482) Scenario 14-1

Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's
marginal cost equals $15 and its average total cost equals $11. The firm sells its output
for $12 per unit.
Refer to Scenario 14-1. At Q = 999, the firm's profits equal47
a. $993.
b. $997.
c. $1,003.
d. $1,007.

QN=375 (17514) Refer to Figure 14-1. Which of the four prices corresponds to a perfectly competitive
firm earning zero economic profits in the short run?
474747

a. P1

47/3
b. P2
c. P3
d. P4

QN=376 (17490) For a certain firm, the 100th unit of output that the firm produces has a marginal rev-
enue of $10 and a marginal cost of $11. It follows that the484848
a. production of the 100th unit of output increases the firm's profit by $1.
b. production of the 100th unit of output increases the firm's average total cost by $1.
c. firm's profit-maximizing level of output is less than 100 units.
d. production of the 110th unit of output must increase the firm’s profit by less than $1.

QN=377 (17502) Which of the following could be used to calculate the profit for a firm?48484848
a. Profit = MR - MC
b. Profit = MR - TC
c. Profit = (P - MC)*Q
d. Profit = (P - ATC)*Q

QN=378 (17494) For any competitive market, the supply curve is closely related to the4848
a. preferences of consumers who purchase products in that market.
b. income tax rates of consumers in that market.
c. firms’ costs of production in that market.
d. interest rates on government bonds.

QN=379 (17475) Which of the following is not a characteristic of a perfectly competitive market?484848
a. Firms are price takers.
b. Firms have difficulty entering the market.
c. There are many sellers in the market.
d. Goods offered for sale are largely the same.

QN=380 (17503) 5. Refer to Figure 14-2. The firm will earn zero economic profit if the market
price is
48

48/3
a. $0
b. $6
c. $7
d. $10

QN=381 (17473) Which of the following represents the firm's long-run condition for exiting a market?
494949
a. exit if P < MC
b. exit if P < FC
c. exit if P < ATC
d. exit if MR < MC

QN=382 (17511) Suppose that in a competitive market the equilibrium price is $2.50. What is marginal
revenue for the last unit sold by the typical firm in this market?49494949
a. less than $2.50
b. more than $2.50
c. exactly $2.50
d. The marginal revenue cannot be determined without knowing the actual quantity sold
by the typical firm.

QN=383 (17488) The assumption of a fixed number of firms is appropriate for analysis of49494949
a. the short run, but not the long run.
b. the long run, but not the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.

49/3
QN=384 (17499) For a firm in a perfectly competitive market, the price of the good is always505050
a. equal to marginal revenue.
b. equal to total revenue.
c. greater than average revenue.
d. equal to the firm’s efficient scale of output.

QN=385 (17501) When a profit-maximizing firm is earning profits, those profits can be identified
by50505050
a. P*Q.
b. (MC - AVC)*Q.
c. (P - ATC)*Q.
d. (P - AVC)*Q.

QN=386 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market,
(17491) and panel (b) depicts the linear market supply curve for a market with a fixed number of iden-
tical firms.

Refer to Figure 14-8. If at a market price of $1.75, 52,500 units of output are supplied to this
market, how many identical firms are participating in this market?50

a. 75
b. 100
c. 250
d. 300

QN=387 (17470) Which of the following is not a characteristic of a competitive market?50

a. Buyers and sellers are price takers.
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b. Each firm sells a virtually identical product.
c. Free entry is limited.
d. Each firm chooses an output level that maximizes profits.

QN=388 (17471) Suppose that a firm operating in a perfectly competitive market sells 400 units of out-
put at a price of $4 each. Which of the following statements is correct?
(i) Marginal revenue equals $4.
(ii) Average revenue equals $100.
(iii) Total revenue equals $1,600.51
a. (i) only
b. (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)

QN=389 (17507) Which of the following represents the firm's long-run condition for exiting a market?
515151
a. exit if P < MC
b. exit if P < FC
c. exit if P < ATC
d. exit if MR < MC

QN=390 (17513) Refer to Figure 14-1. If the market price is P3, in the short run, the perfectly competi-
tive firm will earn
5151

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a. positive economic profits.
b. negative economic profits but will try to remain open.
c. negative economic profits and will shut down.
d. zero economic profits.

QN=391 (17510) Which of the following statements is correct?525252

a. For all firms, marginal revenue equals the price of the good.
b. Only for competitive firms does average revenue equal the price of the good.
c. Marginal revenue can be calculated as total revenue divided by the quantity sold.
d. Only for competitive firms does average revenue equal marginal revenue.

QN=392 (17477) Refer to Table 14-4. The firm will produce a quantity greater than 4 because at 4 units
of output, marginal cost
52

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a. is less than marginal revenue.
b. equals marginal revenue.
c. is greater than marginal revenue.
d. is minimized.

QN=393 (17480) In a perfectly competitive market,5353

a. no one seller can influence the price of the product.
b. price exceeds marginal revenue for each unit sold.
c. average revenue exceeds marginal revenue for each unit sold.
d. administrative barriers can make it difficult for firms to enter an industry.

QN=394 (17512) If a competitive firm is currently producing a level of output at which marginal cost ex-
ceeds marginal revenue, then53535353
a. (i) average revenue exceeds marginal cost.
b. (ii) the firm is earning a positive profit.
c. (iii) decreasing output would increase the firm's profit.
d. All of (i), (ii), and (iii) are correct.

QN=395 (17497) Profit-maximizing firms in a competitive market produce an output level where535353
a. marginal cost equals marginal revenue.
b. marginal cost equals average total cost.
c. marginal revenue is increasing.
d. price is less than marginal revenue.

QN=396 (17486) When a restaurant stays open for lunch service even though few customers patronize
the restaurant for lunch, which of the following principles is (are) best demonstrated?
(i) Fixed costs are sunk in the short run.
(ii) In the short run, only fixed costs are important to the decision to stay open for
lunch.
(iii) If revenue exceeds variable cost, the restaurant owner is making a profitable
53/3
 strategic decision to remain open for lunch.54
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. All of these principles are demonstrated.

QN=397 (17485) Use the information for a competitive firm in the table below to answer the following
questions.

Refer to Table 14-5. If the firm finds that its marginal cost is $11, it should54

a. (i) increase production to maximize profit.

b. (ii) increase the price of the product to maximize profit.
c. (iii) advertise to attract additional buyers to maximize profit.
d. None of (i), (ii), and (iii) are correct.

QN=398 (17483) Profit maximizing firms in competitive industries with free entry and exit face a price
equal to the lowest possible54545454
a. marginal cost of production.
b. fixed cost of production.
c. total cost of production.
d. Average total cost of production.

QN=399 (17496) A competitive firm has been selling its output for $20 per unit and has been maximiz-
ing its profit, which is positive. Then, the price rises to $25, and the firm makes what-
ever adjustments are necessary to maximize its profit at the now-higher price. Once
the firm has adjusted, which of the following statements is correct?54545454

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a. (i) The firm's quantity of output is higher than it was previously.
b. (ii) The firm's average total cost is higher than it was previously.
c. (iii) The firm's marginal revenue is higher than it was previously.
d. All of (i), (ii), and (iii) are correct.

QN=400 (17518) A competitive market is in long-run equilibrium. If demand increases, we can be cer-
tain that price will55
a. rise in the short run. Some firms will enter the industry. Price will then rise to reach the
new long-run equilibrium.
b. rise in the short run. Some firms will enter the industry. Price will then fall to reach the
new long-run equilibrium.
c. fall in the short run. All, some, or no firms will shut down, and some of them will exit
the industry. Price will then rise to reach the new long-run equilibrium.
d. not rise in the short run because firms will enter to maintain the price.

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