Q&A Hero

Q: The shape of the short-run average total cost curve is a result ofA) economies of scale.B) diseconomies of scale.C) the law of diminishing marginal product.D) falling profits.

Q: Which of the following is a long-run adjustment?A) A restaurant hires a new chef.B) A company builds a new manufacturing plant. C) A bank hires a new CEO.D) A company hires ten new management trainees.

Q: In economics we assume that the goal of a firm is toA) minimize costs. B) maximize revenue.C) maximize economic profits. D) maximize total sales.

Q: A consumer will achieve the highest level of utility possible when she consumesA) at the point at which the highest indifference curve is tangent to the budget constraint.B) at the point at which the indifference curve crosses the budget constraint. C) at a point to the left of the budget constraint.D) just below the point where the indifference curve crosses the budget constraint.

Q: Quantity of PizzaMarginal UtilityQuantity of BeerMarginal Utility1451402402403303354154105-550In the above table, Bob experiences diminishing marginal utility after consuming how many pieces of pizza?A) 1 B) 2 C) 3 D) 4

Q: Suppose that the income elasticity of demand for peanut butter is 0.75. Which of the following is true?A) Peanut butter is a normal good, because income elasticity is positive. B) Peanut butter is an inferior good, because income elasticity is positive. C) Peanut butter is a normal good, because income elasticity is less than 1.D) Peanut butter is an inferior good, because income elasticity is less than 1.

Q: If the absolute price elasticity of demand for a product is less than 1, thenA) consumers are relatively insensitive to price changes.B) consumers are relatively sensitive to price changes.C) there is a positive relationship between price changes and total revenue.D) producers are relatively insensitive to price changes.

Q: Common property often results inA) a negative externality. B) a social benefit.C) a private cost. D) exclusive rights of ownership.

Q: All of the following are reasons that health care costs have risen so much in the past few decades EXCEPTA) the aging population. B) higher imports.C) new technologies. D) third party payments.

Q: Which of the following would be considered income in kind?A) tax refunds B) food stampsC) yard sales D) reduction in the tax rates

Q: The U.S. labor movement startedA) with local craft unions composed of workers who engaged in a particular trade or skill, such as baking, carpentry or plumbing.B) during the Civil War. C) after World War I.D) with the Knights of Labor, an organized group of both skilled and unskilled workers.

Q: The price elasticity of demand for labor will be smaller, theA) smaller is the price elasticity of demand for the final product.B) easier it is to employ substitute inputs in production.C) larger is the proportion of wage costs in the total cost of production.D) longer is the time period under examination.

Q: All of the following are exempt from antitrust enforcement EXCEPT A) professional baseball. B) labor unions.C) hospitals. D) television and radio stations.

Q: Long-run economic profits are possible underA) perfect competition and oligopoly.B) monopolistic competition and monopoly. C) oligopoly and monopoly.D) monopolistic competition and oligopoly.

Q: Which of the following is an example of a vertical merger?A) Northeastern Illinois University merging with McDonaldʹs.B) Northeastern Illinois University merging with a training academy for new professors. C) Northeastern Illinois University merging with Roosevelt University.D) Northeastern Illinois University going from a public to a private university.

Q: In the long run, if some monopolistically competitive firms are earning economic losses thenA) firms will leave the industry.B) raise prices until they earn economic profits.C) they will increase production until marginal costs fall. D) new firms will enter the industry.

Q: In the above figure, what is the profit-maximizing price and output?A) $9, 14 B) $13, 14 C) $11, 16 D) $10, 17

Q: When price equals marginal costA) firms make zero profits.B) firms make positive profits.C) the industry is in long-run equilibrium.D) the marginal benefits of consuming an extra unit of the good exactly equals the marginal cost to society of producing the good.

Q: If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue,A) price will be at the profit maximizing level. B) sales will be at the profit maximizing level. C) the firm should expand production.D) the firm should reduce production.

Q: When marginal product is rising,A) total product is falling.B) marginal cost is falling.C) marginal cost is rising. D) average fixed cost is rising.

Q: If a firm can vary all of its factors of production, it is operating inA) the long run. B) the immediate run. C) equilibrium. D) the short run.

Q: Which of the following is the formula used for computing economic profits?A) economic profits = total revenue - implicit costsB) economic profits = total revenue - (implicit costs + explicit costs) C) economic profits = total costs - total revenueD) economic profits = total revenue - explicit costs

Q: A consumer is maximizing utility whenA) the slope of the budget constraint has reached -1. B) diminishing marginal utility has set in.C) the slope of the budget constraint equals the marginal rate of substitution.D) the consumer has spent all of his income.

Q: For good A and good B, the consumer maximizes personal satisfaction when A) MUA/PA = PB/MUB. B) PA/MUA = PB/MUB. C) MUA/PA = MUB/PB. D) MUA/MUB = PA/PB.

Q: Income elasticity relates toA) a movement down a demand curve. B) a movement up a demand curve.C) a horizontal shift in a demand curve.D) the percentage change in quantity demanded divided by the percentage change in the price.

Q: If the absolute price elasticity of demand for a product is greater than 1, thenA) consumers are relatively insensitive to price changes.B) consumers are relatively sensitive to price changes.C) there is a positive relationship between price changes and total revenue.D) producers are relatively insensitive to price changes.

Q: Common property is A) an externality.B) a social cost.C) property that is owned by everyone and therefore by no one. D) exclusive rights of ownership.

Q: The impact of technology on health care has A) provided for a higher quality of life. B) increased health care costs. C) contributed to increased life expectancy. D) All of the above are correct.

Q: The country reflecting perfect income equality in the above figure isA) country 4. B) country 1. C) country 5. D) country 3.

Q: Which of the following is one of the reasons for declining union membership in the United States?A) Much of the unskilled, nonunionized work in the United States is done by immigrant workers who are undocumented.B) The AFL-CIO merger and creation of the Change to Win Federation reduced competition among unions.C) The repeal of the Taft-Hartley Act.D) Labor force participation by women has decreased.

Q: The price elasticity of demand for labor will be greater, theA) smaller is the price elasticity of demand for the final product.B) easier it is to employ substitute inputs in production.C) smaller is the proportion of wage costs in the total cost of production.D) shorter is the time period under examination.

Q: Which of the following are exempt from the antitrust laws?A) Colleges and universities B) All professional athletesC) Labor unions D) Deregulated industries

Q: Which of the following is NOT a characteristic of pure monopoly?A) many sellers B) considerable price setting abilityC) restricted ability to enter market D) long-run economic profits are possible

Q: Straight Cut beauty salon merges with Clean-Cut beauty salon. This is an example ofA) conglomerate merger. B) concentration ratio.C) vertical merger. D) horizontal merger.

Q: In the long run, monopolistically competitive firms will not earn economic profits becauseA) average total cost will shift up to meet the demand curve. B) input prices will be bid up.C) production will not be at minimum average cost. D) new firms will enter the industry.

Q: Use the above figure. The profit-maximizing or loss minimizing output and price will beA) Q1 and P2. B) Q2 and P3. C) Q3 and P3. D) Q4 and P1.

Q: The opportunity cost to society of producing one more unit of the good isA) average cost. B) marginal cost.C) efficiency costing. D) the optimal cost.

Q: For a perfectly competitive firm, when MC is less than MR, A) the producer has an incentive to expand output.B) the producer has an incentive to decrease output.C) the producer has no incentive to change production. D) economic profits must be positive.

Q: If the marginal product of an input is falling, thenA) average fixed cost is constant. B) marginal cost is falling.C) average total cost is constant. D) marginal cost is rising.

Q: The time frame in which all factors of production can vary isA) the short run. B) the intermediate run.C) the long run. D) indeterminate.

Q: Another term for the opportunity cost of capital isA) the normal interest rate. B) the normal rate of return. C) a normal profit. D) a normal wage rate.

Q: If an individual consumes only two goods and consumption of one good increases, then in order to keep the consumer on the same indifference curve, consumption of the other good mustA) increase. B) decrease.C) increase proportionately. D) become negative.

Q: If a consumer concludes that the marginal utility of the last dollar spent on vegetables exceeds the marginal utility of the last dollar spent on junk food, he will respond byA) consuming relatively more junk food and fewer vegetables. B) consuming relatively more vegetables and less junk food.C) consuming equal amounts of vegetables and junk food.D) halting consumption of junk food altogether.

Q: Why can cross price elasticity of demand be positive or negative, unlike the price elasticity of demand with respect to the itemʹs own price?

Q: Owners of a coffee shop finds that they can sell 150 donuts a day when the price of a donut is $1.20. When they price donuts at $1, they sell 170 donuts. The absolute value of the price elasticity of demand for donuts isA) 0.69. B) 1.45. C) 1.00. D) infinity.

Q: Private property rights are A) an externality. B) a social cost. C) property that is owned by everyone and therefore by no one. D) exclusive rights of ownership.

Q: The use of hospitals today is dominated byA) the elderly. B) immigrants.C) obstetrical care. D) the wealthy.

Q: The most unequal distribution of income in the above figure exists inA) country 4. B) country 1. C) country 5. D) country 3.

Q: Which of the following is NOT one of the reasons for declining union membership in the United States?A) The economy has shifted away from manufacturing.B) The AFL-CIO merger and creation of the Change to Win Federation reduced competition among unions.C) Some industries have been deregulated.D) Labor force participation by women has increased.

Q: The price elasticity of demand for labor will be greater, theA) greater is the price elasticity of demand for the final product.B) more difficult it is to employ substitute inputs in production.C) smaller is the proportion of wage costs in the total cost of production.D) shorter is the time period under examination.

Q: Ajax Corporation has just started advertising that there are 16 ounces in every package. In reality the packages contain only 14 ounces. This misleading advertisingA) is in violation of the Robinson-Patman Act. B) is exempt from the antitrust laws.C) could be subject to an investigation by the Federal Trade Commission. D) could be subject to an investigation by the Sherman Commission.

Q: All of the following are true regarding oligopoly EXCEPTA) there are few sellers. B) there is some ability to set price.C) there is no competition. D) entry and exit is partially restricted.

Q: Joeʹs hotdog stand merges with a company that supplies the condiments to Joeʹs. This is an example ofA) conglomerate merger. B) concentration ratio. C) vertical merger. D) horizontal merger.

Q: Mason Dixon dies on November 30, 2011, leaving a valid will. The will reads as follows:"I leave my boat to my son, George. I leave my automobile to my daughter, Georgia. I leave the income on my estate to be divided equally between George and Georgia. Estate expenses are to be paid from principal, not estate income. All other property, I leave to a trust to care for my wife, Gladys. Any remaining property at the time of her death is to be transferred into a trust to pay college education expenses of my grandchildren until such time as it is used up. I name my wife, Gladys, as executrix of my estate."Gladys prepares an estate inventory for all assets discovered and files the appropriate notice to potential creditors on December 15.Cash $ 90,000Investments 1,200,000Interest Receivable 2,000Life Insurance Receivable 500,000Residence 180,000Automobile 20,000Boat 70,000Total $2,062,000A check for interest is received of $5,000, and estate liabilities (such as funeral expenses, administrative costs, and taxes) are settled for $20,000. The will is administered.Required:Prepare a charge-discharge statement for the estate of Mason Dixon on December 31, 2011. Assume the life insurance proceeds have not been paid out.

Q: The long-run equilibrium of monopolistic competition is characterized byA) P = MC = ATC. B) P = MC > ATC. C) P = MR = MC. D) P = ATC > MC.

Q: Josh Drake died on May 1, 2011. He left his entire estate, with a fair value of $6,200,000 to his sole surviving family member, his daughter, DeeDee.Prior to any distribution of assets, Josh's estate reflected the following details:Funeral expenses $11,300Executor's fees 10,800Estate liabilities 84,000Final medical expenses 40,700Required:Calculate the federal estate tax on Mr. Drake's estate. You may ignore any state-level inheritance taxes and assume that the federal estate tax rate is 45%.

Q: Use the above figure. The profit-maximizing price will beA) P1. B) P2. C) P3. D) P4.

Q: You are serving as the trustee for the Paul Porter testamentary income trust. The trust was created by Paul's will. All of his assets were transferred to the trust to cover the living expenses of his wife, Paula. Upon her death, the assets are to be sold, with the proceeds distributed to his brother, Saul. If Saul is not alive when Paula passes, the proceeds are to go to the Porter Scholarship in Business Administration.The probate court has ruled that all personal effects and household items could be excluded from the estate. All taxes have been paid, and the following assets remain to be transferred to the trust:Asset Cost Fair Market ValueCash $160,000 $160,000Certificates of deposit 75,000 75,000ExTech Company common stock 22,000 216,000Rentall common stock 42,000 40,000Lake house (his share) 149,000 170,000Personal residence (his share) 226,000 280,000Antique sports car 35,000 46,000Coin collection 7,000 12,000Required:Prepare the journal entries for the creation of the trust.

Q: A market failure is a situation in which A) resources are being efficiently allocated, but some companies are forced to shut down. B) the market equilibrium leads to either too many or too few resources going towards producing the good or service. C) the government must take actions to correct the failures of the market in a particular industry. D) there is no free entry or exit into an industry.

Q: Oscar Lloyd is the trustee for the Petra/Hobbes Trust. The following transactions occurred during 2011. Petra and Hobbes, two cats are going to reside with Oscar Lloyd, the trustee and devoted cat lover.February 18 The Petra/Hobbes Trust was established at First State Bank by depositing $200,000 cash.February 19 $195,000 was deposited into a three-year certificate of deposit earning 6% a year. Interest is paid semi-annually. $5,000 was deposited into a money market account paying 4% annual interest. Interest is paid on the average daily balance for the past year.February 20 Paid $368 for cat food, cat toys, and kitty litter at Cats R Us.February 24 Bought assorted cat DVDs for Hobbes and Petra. The DVDs were a combination of fish, bird, and squirrel movies. Paid $182 for the DVDs.June 25 Paid $405 for cat food, toys, and kitty litter.August 19 Deposited one-half year's interest income of $5,850 into the money market account.December 22 Paid $722 for cat food, cat toys, kitty litter, Christmas presents for Petra and Hobbes.Required:Prepare the necessary journal entries for the above transactions. You may ignore any tax effects.

Q: Economic profits are maximized at the point at whichA) marginal revenues equal marginal costs.B) accounting profit exceeds economic profit.C) total revenues are greater than total costs. D) accounting profits are equal to zero.

Q: Which of the following statements is correct?A) Average variable costs always exceed average total costs.B) Average fixed costs are constant.C) Average variable cost reaches its minimum when average product equals its maximum.D) Average fixed costs are always less than average variable costs.

Q: Silvia Peacock has been appointed to serve as the executor of the estate of Mr. Mickey Babay, who passed away at the age of 104 on April 5, 2011. On April 5, 2011, Mr. Babay's assets consisted of the following: AssetBook ValueFair ValueCash$40,000$40,000Mutual fund investment170,000170,000Selonoid Incorporated common stock22,00028,000Ford Mustang24,00016,000Condo in Phoenix, AZ120,000150,000Residence in Boston, MA150,000280,000Stamp collection4,9008,000Salt and pepper shaker collection1,5004,000Rare hand puppet collection2,3006,700 The probate court has ruled that any other personal effects may be excluded from Mr. Babay's estate inventory. Required:Prepare an inventory of estate assets on April 5, 2011.

Q: You are serving as the executor for the estate of Dr. Mary Carlson. The following transactions occur during August 2011. Dr. Carlson died on July 30, 2011. 1. On August 6, you received interest of $3,000 on State of Colorado general revenue bonds. Interest of $1,600 was earned after the date of death. The balance was earned prior to death, and had been accrued. The bonds were included in the estate's initial inventory. The maturity value and fair market values of the bond are $100,000. 2. On August 11, you issued a check to pay a probate court fee of $1,120. 3. The estate included 10,000 shares of Dasher International's common stock, valued at $40 per share, which were properly included in the estate's initial inventory. On the date of her death, there were no outstanding dividends receivable. On August 14, you read that a dividend of $1 per share was declared. 4. In Mary's will, she wanted $100,000 given to the National Zoo.After examining the assets, you determined that the estate's assets will adequately cover all expenses and specific devises, so on August 23, you issued a check to the Zoo for $100,000. 5. On August 25, you issued a check to pay Mary's final medical expenses of $16,700. 6. On August 28, you received a check for $10,000 for the common stock dividends paid by Dash International. Required:Prepare the necessary journal entries for the above transactions. You may ignore any estate or income taxes.

Q: If Microsoft is determining whether to build a new plant in Southern California or in New Mexico, it is making a(n) decision.A) immediate-run B) long-runC) short-run D) variable-input

Q: Mary Contrary is the executor for the estate of Belle Silver. Belle owned a home with a fair value of $200,000. The home has a remaining mortgage amount of $80,000. Mary also has personal effects worth $8,000, an investment portfolio with a fair value of $150,000 on the date of death, and approximately $7,500 in cash in various accounts. The home was left to her daughter in the valid will that Belle had executed prior to her death. Belle did not have a surviving spouse, but her daughter is a minor, who is independently wealthy after inventing a cutting-edge software program. The state in which Belle resided, allows a $15,000 homestead allowance, and a $10,000 personal effects entitlement. After taking an inventory, and converting all of the assets, except for the home and the personal effects, into cash, there is $159,000 for Mary to distribute to the appropriate devises, beneficiaries, and creditors. Mary has identified the following expenses and devises: 1. Belle's unpaid final medical expenses were $24,000. 2. Belle left a devise of $100,000 to her church. 3. The costs and expenses of administering the estate were $21,000. 4. Real estate taxes of $3,600 are past due. 5. The unpaid funeral expenses were $8,700.Required:Prepare a schedule that will list the disbursements of assets. Assume that the state in which Belle resided has adopted the Uniform Probate Code.

Q: Which of the following statements regarding accounting and economic profits is FALSE?A) Economic profits can be zero even if accounting profits are positive.B) Economic profits = total revenue - (explicit + implicit costs)C) Accounting profits can be negative if economic profits are positive.D) Accounting profits = total revenue - explicit costs

Q: You are serving as the executor for the estate of Scott Michaels, who passed away on June 28, 2011. The following transactions occur during the balance of June and July, 2011. 1. On July 11, you issued a check to pay Scott's final medical expenses of $28,000. 2. In Scott's will, he wanted $90,000 given to the American Society for the Prevention of Cruelty to Animals (ASPCA). After examining the assets, you determined that the estate's assets will adequately cover all expenses and specific devises, so on July 13, you issued a check to the ASPCA for $90,000. 3. On July 15, you received a check in the amount of $27,900 from First State Bank of Greenville. It is the maturity value and interest from a certificate of deposit in the amount of $25,000 that was not included in the estate's initial inventory. The CD matured on June 30, 2011. 4. On July 26, you received interest of $2,000 on Greenville City bonds. Interest of $180 was earned after the date of death. The balance was earned prior to death, and had been accrued. The bonds were included in the initial inventory. 5. On July 28, you issued a check to pay Scott's funeral expenses of $7,600. Required:Prepare the necessary journal entries for the above transactions. You may ignore any estate or income taxes.

Q: Using indifference curve analysis, an optimum is characterized byA) the marginal rate of substitution of one good divided by its price equal to the marginal rate of substitution of the other good divided by its price.B) the marginal rate of substitution being equal to one. C) the marginal rate of substitution being equal to zero.D) the marginal rate of substitution being equal to the ratio of the prices of the two goods.

Q: Philiam Benedict dies on October 1, 2011, leaving his entire estate to his sole surviving niece, Muriel Finster. After all devise distributions and payments for estate expenses and liabilities, the fair value of Philiam's estate is $6,350,000.Required:Calculate the federal estate tax on Philiam's estate, assuming that federal estate taxes are paid at the 45% rate.

Q: Suppose Isaacʹs marginal utility from attending his 5th White Sox game was 40 and the marginal utility from attending his 1st U2 concert was 200. Assume that the price of a Sox ticket is $20 and the price of a U2 ticket is $120. Which of the following would be true?A) Isaac would attend more U2 concerts and less Sox games. B) Isaac would attend more Sox games and less U2 concerts. C) Isaac would not alter his behavior.D) Isaac would attend less of both Sox games and U2 concerts.

Q: John Doe's will states that all assets he had should be transferred to a trust to cover living expenses for his spouse, who he feels will not be able to handle her own financial affairs without advice and supervision. Upon his spouse's passing, the trust will be converted to cash and distributed to their only daughter, Jane. The probate court already ruled on which assets could be excluded from the estate, and all tax issues were addressed, leaving the following inventory of assets from the estate: AssetCostFair ValueCash206,000206,000Certificates of Deposit250,000250,000Investments/Mutual Funds354,1162,780,500Residence34,000190,000Ocean front cottage78,000560,000Pepper mill collection2,0703,900 Required:Prepare the journal entry for the creation of the trust.

Q: How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?

Q: The price elasticity of demand isA) always negative. B) sometimes positive.C) always positive. D) constant along the demand curve.

Q: Cindy Lou's parents passed away while she was still dependent on them, and their will designated that a trust should be established with their estate proceeds to care for her. The following transactions occurred in the first two months following their deaths. 1. The trust account was opened with the $2,000,000 in funds received from the estate. The funds were deposited into a non-interest bearing checking account to be used for expenses. 2. $1,500,000 was put into a multi-year certificate of deposit which earned 3% annually, with interest paid monthly back to the checking account. 3. One month's interest from the certificates of deposit was received. 4. The bank's trust administration fee was paid for $65. 5. Tuition was paid for the boarding school where Cindy Lou was living for $6,500. Required:Prepare the journal entries for the listed transactions. Disregard the impact of estate and income taxes.

Q: Buddy, a dog, is cared for by a trust set up by his owner's will. The following transactions occurred for the trust. 1. The trust was established with $100,000 from his owner's estate, by deposit to a savings account. 2. A check is written to Paws and Claws Puppy Farm to cover the first month of Buddy's room and board, for $680. 3. A check is received for interest earned on the savings account amounting to $417. 4. Buddy dies. Paws and Claws sends a final room and board bill for $430, with additional charges for Buddy's burial of $270. The invoice is paid. 5. The balance of the trust is turned over to the Humane Society, as prescribed by Buddy's owner's will, and the trust is closed. Required:Prepare the journal entries for the listed transactions. Disregard the impact of estate and income taxes.

Q: When no one owns a particular resource, A) property rights are clearly defined.B) individuals have legal recourse for any damages caused to their resource.C) no one has any incentive to consider externality spillovers associated with that resource.D) positive externalities will arise.

Q: Approximately how much of aggregate national income in the United States is spent on health care every year since 2000?A) 5 percent B) 10 percent C) 15 percent D) 30 percent

Q: Suzanne Quincy passed away on October 25, 2011. Suzanne left behind a limited estate, so there are no tax issues to address, however, she owned a dog, Buddy, and Suzanne provided for Buddy in the will. Suzanne left $100,000 for Buddy's care, and the remainder of her estate was left to her neighbor, Agnes. Suzanne's estate had the following events and transactions in the month following her death. 1. Her assets were converted to cash at their fair value as inventoried: Mutual funds, $270,000; and Residence, $209,000. There were no other reportable assets. 2. Transferred $100,000 to a trust account at Second National Bank to provide care for Buddy, and delivered Buddy to Paws and Claws Pet Farm, his new home. 3. Wrote check to pay for funeral expenses for $9,600. 4. Wrote check to pay for executor fees as designated in the will of $1,000. 5. Wrote check to pay balance of estate to Agnes. Required:Prepare the journal entries for the listed transactions. Disregard the impact of estate and income taxes.

Q: Richard Stands passed away at on September 2, 2011. The probate court ruled that most assets could be excluded from estate inventory. Ty Republic has been appointed to serve as executor for the estate. The estate assets consisted of the following at that date:AssetCostFair ValueCash160,750160,750Certificates of Deposit100,000100,000Investments/Mutual Funds487,1603,506,490Residence185,000368,000Lake cottage12,000123,000Cookie Jar collection8,78574,0001966 Alpha Romeo42,00079,750 Required:Prepare an inventory of estate assets as of September 2, 2011.