Q&A Hero

Q: The analytical framework in which two or more individuals, companies, or nations compete for certain payoffs that depend on the strategy that others employ isA) game theory. B) opportunistic behavior.C) the dominant equilibrium. D) the tit-for-tat equilibrium.

Q: Direct marketing isA) advertising that permits a consumer to follow up directly by searching for more information and placing direct product orders.B) advertising that targets a specific audience and allows the consumer to follow up directly by placing direct product orders usually through television or radio. C) advertising targeted at specific consumers.D) advertising intended to reach as many consumers as possible.

Q: Economists criticize monopolies because monopolies A) always price discriminate. B) receive accounting profits. C) restrict output and raise prices compared to a competitive situation. D) make consumers pay more for their product than the customers value the product.

Q: A major difference between a monopolist and a perfectly competitive firm is thatA) the monopolist is certain to earn economic profits.B) the monopolistʹs marginal revenue curve lies below its demand curve. C) the monopolist engages in marginal cost pricing.D) the monopolist charges the highest possible price that he can.

Q: In the above figure, if the market price is $8, the firmA) continues to produce but at an economic loss.B) continues to produce but at an economic profit. C) shuts down operations.D) produces 10 units.

Q: A market structure in which the decisions of individual buyers and sellers have no effect on market price isA) perfect competition. B) a short-run industry.C) a long-run industry. D) a market supply industry.

Q: The point of saturation occurs when a firmA) has total returns equal to zero.B) first encounters negative marginal product. C) first experiences positive marginal product. D) maximizes its total returns.

Q: When interest rates allocate capital, A) many worthwhile projects fail to get funded and society is worse off. B) investment projects of firms tend to get funded while valuable social investments funded by the government tend not to get funded. C) only investment projects are funded for which the expected benefits of the projects equal or exceed the opportunity cost of the projects. D) there is an under investment in capital and overspending on durable consumer goods.

Q: Suppose Jon Stewart of the ʺDaily Showʺ makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewartʹs opportunity cost as a producer isA) $1,400,000. B) 1,000,000. C) $400,000. D) $600,000.

Q: Other things being equal, when the money price of a good increases, its relative priceA) stays the same. B) increases. C) decreases. D) falls to zero.

Q: Quantity of MoviesTotal Utility MaryTotal Utility John31001904140250517030061903407200370821039092104051020041511190420According to the above table, Maryʹs marginal utility from watching the 6th movie isA) 190 units of utility. B) 40 units of utility. C) 10 units of utility. D) 20 units of utility.

Q: In the above figure, along which range would the demand for this good be most elastic?A) Between point a and point b B) Between point c and point dC) Between point d and point e D) At point e

Q: Which of the following statements is true for the U.S. economy? A) Supply of services always reflects all social costs. B) Demand for services always reflects all social costs. C) Private costs are not always equal to social costs. D) Social benefits are always emphasized in advertising.

Q: Refer to the above figure. Which of the graphs are consistent with the age -earnings profile?A) Panel A B) Panel B C) Panel C D) Panel D

Q: When unions exist in markets,A) firms must have market power in their output markets.B) there no longer is a perfectly competitive labor supply.C) individual workers no longer make labor-leisure trade-off decisions. D) employers have market power in labor markets.

Q: A monopolist will hire fewer workers than a competitive firm, other things being equal, because A) the monopolist exploits labor and other types of producers do not. B) the monopolist must take account of the declining product price that must be charged in order to sell more units of the product. C) the monopolist is more efficient. D) diminishing marginal productivity of labor is more severe for a monopolist.

Q: The increase in output that results when one more unit of a variable input is hired is calledA) total physical product. B) marginal physical product. C) average physical product. D) marginal revenue.

Q: In the above figure, if the monopolist engages in marginal cost pricing, what are its output and price?A) 1,200, $3 B) 900, $7 C) 700, $7 D) 700, $10

Q: The manner in which one oligopolist reacts to a change in price, output, or quantity on the part of another oligopolist in the industry is known asA) a positive-sum game. B) the reaction function. C) a noncooperative game. D) a zero-sum game.

Q: Personalized advertising that uses postal mailings, phone calls, and e -mail messages is known asA) direct marketing. B) mass marketing.C) indirect marketing. D) interactive marketing.

Q: The social cost attached to monopolies is reflected by the fact thatA) 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 monopolistʹs product is always lower than the demand for the products of perfectly competitive firms.D) consumers are always willing to pay lower prices for a monopolistʹs product than for the products of perfectly competitive firms.

Q: The demand curve faced by a pure monopolist A) is the same as its marginal revenue curve. B) is perfectly inelastic.C) lies below the marginal revenue curve. D) is the market demand curve.

Q: In the above figure, if the market price is less than $7, the firmA) produces 10 units. B) produces 8 units. C) produces 0 units. D) produces 11 units.

Q: Which of the following is NOT a characteristic of a perfectly competitive industry? A) There are large numbers of buyers and sellers. B) The firms in the industry produce a homogeneous product. C) Sellers have better information about the product than consumers. D) Any firm can enter or leave the industry without serious impediments.

Q: The law of diminishing marginal product is a statementA) that concerns changes in variable input and changes in output.B) that concerns the long run.C) that concerns changes in profits.D) that relates to plant size.

Q: Suppose the auto industry has several investment projects with an expected rate of return of 15 percent, the aluminum industry has projects with an expected return of over 20 percent, the publishing industry projects with an expected return of 10 percent, the steel industry has projects with an expected return of 7 percent and the rubber industry projects with an expected return of 5 percent. The current market rate of interest is 7 percent. A reduction in the supply of funds causes interest rates to rise to 11 percent. The effect is toA) cause the firms in the steel and publishing industries to cancel their projects, which would have been funded at the old interest rate.B) cause the firms in the steel and the rubber industries to go ahead with their projects.C) force the firms in the automobile industry and the publishing industry to rely on funding their projects through other means.D) make the projects of the aluminum industry and the steel industry unprofitable; the firms in these industries will not borrow the funds or make the investments.

Q: Suppose Jon Stewart of the ʺDaily Showʺ makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewartʹs annual economic rent to labor isA) $1,400,000. B) 1,000,000. C) $400,000. D) $600,000.

Q: The fact that consumers will purchase more of a good that has become relatively cheaperA) is called the nominal income effect.B) is called the substitution effect.C) leads to an upward sloping demand curve.D) leads to negative marginal utility.

Q: If total utility is unchanged, then marginal utility isA) negative. B) positive. C) zero. D) increasing.

Q: In the above figure, the range of unit elasticity occursA) on the vertical axis. B) on the horizontal axis.C) between point c and point d. D) below point e.

Q: An externality A) may be positive or negative. B) means a rapidly rising cost borne by consumers. C) is the cost of producing a good outside the United States. D) is the indirect cost, the overhead, of producing a product.

Q: One reason earnings tend to fall before retirement age is thatA) the experience of people is no longer valuable after they are 50 or 55. B) people tend to reduce the number of hours they work after age 50.C) people are retiring earlier.D) firms discriminate against older workers.

Q: Supposed you are hired to be a checker at a local grocery store. After ninety days of probation you become a member of the union. As a result you feel more secure about your job and work harder to be part of the team. This is a benefit of union membership thatA) increases demand for union -made goods.B) decreases the demand for nonunion-made goods. C) increases worker productivity of union members.D) increases union dues.

Q: A monopolist hires fewer workers than a perfectly competitive industry, other things being equal, becauseA) a monopolist has to pay higher wages in order to attract additional workers.B) the monopolist substitutes more capital for labor when compared to a competitive industry.C) the monopolist producer has to deal with unions and face higher wages than do competitive industries.D) the monopolist produces less output than a competitive industry.

Q: For a worker to be potentially available, he or she must A) know about the jobs available at a particular firm. B) be in the relevant geographic market and be willing to work for minimum wage. C) have most of the skills required by the firm only. D) have the skills required by the firm and be in the relevant geographic market.

Q: In the above figure, what would be the profit or loss at the profit -maximizing output for this natural monopolist?A) -$300 B) $2,700 C) $2,100 D) -$1,200

Q: A game in which any gains by the group are exactly offset by equal losses by the end of the game is called theA) negative-sum game. B) zero-sum game. C) positive-sum game. D) cooperative game.

Q: In order to differentiate their product brands from those of competing firms, monopolistically competitive firmsA) equate marginal cost to marginal revenue to determine the profit maximizing quantity. B) spread false rumors about their competitors.C) take their competitorʹs reactions to changes in their policies into account. D) advertise their product.

Q: Compared to an efficient perfectly competitive industry, the monopolist will A) produce less output at a higher total cost. B) produce less output and charge a higher price. C) produce more output at a higher price and higher profit. D) produce more output at a lower price.

Q: To sell one more unit of a good, a monopolist mustA) lower the price on the last unit only. B) lower the price on all units. C) raise the price only on the last unit sold. D) raise the prices on all goods.

Q: In the above figure, if the market price is $10, the firmA) produces 10 units. B) produces 12 units.C) shuts down operations. D) produces 11 units.

Q: All firms in a perfect competition industryA) are price makers.B) produce differentiated products.C) produce identical products. D) lose money.

Q: The law of diminishing marginal product states thatA) output will continue to increase indefinitely if more variable factors of production are added to an existing stock of fixed factors.B) successive equal-sized increases in labor, when added to fixed factors of production, will result in smaller increases of output.C) a doubling all inputs will double output.D) variable costs tend to decrease with output.

Q: Interest rates perform the function of A) signaling information about the inflation rate. B) allocating funds, but only in the consumer sector. C) allocating funds, which determines the allocation of physical capital. D) rewarding those who save but has no direct allocative role.

Q: Suppose the supply of ocean front property in California is perfectly inelastic. Any increases in demand for this property increases theA) economic rent. B) opportunity cost of land owners. C) present discounted value. D) real interest rate.

Q: When you purchase the lower -priced store brand bread instead of the more expensive name brand, you are experiencingA) the substitution effect. B) the income effect.C) a fall in total utility. D) diminishing marginal product.

Q: If total utility is increasing, then marginal utility isA) negative. B) positive. C) zero. D) decreasing.

Q: In the above figure, along the section of the demand curve between point a and point b, demand isA) elastic. B) inelastic. C) unit elastic. D) unit inelastic.

Q: Which of the following is FALSE?A) Social costs do not include private costs.B) Private costs do not include external costs.C) If social costs are greater than private costs, ʺtoo muchʺ of a good is being produced. D) Pollution is a social cost.

Q: Suppose all people have the same age -earnings profile and the percent of the population in each age category is the same. The distribution of income at any point in time will beA) equal because all have the same profile.B) equal because incomes and wealth levels must then be the same.C) unequal because other sources of income will differ. D) unequal because incomes differ by age.

Q: Temporary or permanent workers hired to replace striking union workers are known asA) strikebreakers. B) backbreakers. C) rationers. D) strikeaiders.

Q: Other things being equal, the monopolist willA) hire more workers than if the industry were perfectly competitive.B) hire the same number of workers as a perfectly competitive industry would. C) hire fewer workers than if the industry were perfectly competitive.D) have lower profits than if the industry were perfectly competitive.

Q: A firm in a competitive input market canA) hire workers at the going wage.B) hire additional workers only by raising wages.C) hire additional workers at lower wages because those who are still unemployed are anxious to work.D) hire additional workers only after a long search process.

Q: In the above figure, what would be the profit-maximizing output and price for this natural monopolist?A) 1,200; $3 B) 900; $7 C) 700; $7 D) 700; $10

Q: A game in which all the players are worse off at the end of the game is aA) negative-sum game. B) dominant strategy game. C) positive-sum game. D) noncooperative game.

Q: A firmʹs trademark is protected from misuse if it is registered with theA) U.S.D.A. B) U.S. Patent and Trademark Office. C) U.S. Supreme Court. D) F.C.C.

Q: Conclusions about the misallocation of resources under conditions of monopoly depend, in part, on the crucial assumption thatA) monopolies are interested in economic profits and competitive firms are not.B) the monopolization of a perfectly competitive industry does not change the cost structure of the industry.C) the economies of scale exist only in perfectly competitive industries.D) the marginal cost curve of a monopolist is different from that of a perfectly competitive firm.

Q: A monopolistʹs demand curve isA) perfectly elastic. B) perfectly inelastic.C) of unit elasticity throughout. D) the industry demand curve.

Q: For a perfectly competitive firm facing the short -run break-even price,A) it has a negative accounting profit. B) it has an economic profit of zero.C) it should shut down. D) it should expand production.

Q: Each firm in a perfectly competitive industry isA) producing a unique product. B) relatively large. C) a price taker. D) a price setter.

Q: The observation that beyond some point, successive increases in a variable factor of production added to a fixed factor of production lead to smaller and smaller increases in output isA) the law of marginal utility. B) the law of averages.C) the law of diminishing marginal product.D) the law of opportunity costs.

Q: The nominal rate of interest is 6% and the anticipated rate of inflation is 2%. What is the real rate of interest?A) 8% B) 6%C) 4% D) 2%

Q: Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her opportunity cost isA) $63.0 million. B) $63.1 million. C) $100,000. D) $62.9 million.

Q: The substitution effect argues that a consumerA) will always use the additional purchasing power from a price decrease to purchase more of both goods.B) will not purchase more of a good when its price falls.C) will purchase more of a good that has become relatively cheaper, and less of a good that has become relatively more expensive.D) will purchase less of both goods if his or her real income increases.

Q: If total utility is decreasing, then marginal utility isA) negative. B) positive. C) zero. D) increasing.

Q: In the above figure, through which range would the demand for this good be most inelastic?A) A-B B) B-E C) E-F D) G-H

Q: When there are no externalities, A) social costs are greater than private costs. B) social costs are less than private costs. C) private costs are greater than social costs. D) private costs equal social costs.

Q: The earnings of most peopleA) increase steadily until retirement.B) increase with age until around age 50 due to increased experience, training, and hours worked.C) increase with age until around age 40 due to increased experience and hours worked.D) increase with age until around age 60 due to increased experience, training, and hours worked, then level off as hours worked levels off.

Q: All of the following are benefits of labor unions EXCEPT A) unions reduce wage inequity.B) unions increase the stability of the workforce. C) unions give workers a political voice.D) unions maximize employment for all workers.

Q: The monopolistʹs input demand curve is equal to itsA) variable cost curve. B) marginal cost curve.C) average cost curve. D) marginal revenue product curve.

Q: For a firm in a perfectly competitive labor market, the supply curve of labor isA) elastic. B) inelastic.C) perfectly elastic. D) perfectly inelastic.

Q: Use the above figure. Suppose that a regulatory agency requires this natural monopolist to engage in marginal cost pricing. This would lead toA) losses, which would drive the monopolist out of business in the long run.B) profits, which would encourage new producers to enter the industry in the long run.C) profits, but new firms cannot enter the industry in the long run due to high barriers to entry.D) losses, which would encourage the monopolist to lower costs in the long run.

Q: A game in which all the players are better off at the end of the game is aA) tit-for-tat game. B) dominant strategy game. C) positive-sum game. D) noncooperative game.

Q: The brand name of a firmA) has nothing to do with the profitability of a firm.B) has been considered irrelevant by economists since profits for a monopolistic competitivefirm are zero in the long-run.C) relates to consumersʹ perception of product differentiation and to the market value of afirm.D) is important in the short-run but not in the long-run.

Q: Under a monopoly, resources are misallocated such thatA) too few resources are used in other industries, and too many are used by the monopoly. B) too few resources are used by the monopoly, and too many are used elsewhere.C) resources are being used as efficiently as possible only by the monopoly.D) consumers are being forced to pay a price below the MC of the monopolist.

Q: Which of the following conditions is true for a monopolist?A) MR < P B) MR = P C) MR = AFC D) MR < AVC

Q: In the short run, in a perfectly competitive market, a firm will shut down ifA) P < AVC for all levels of output. B) P < ATC for all levels of output. C) ATC > P > AVC for all levels of output. D) P > AFC for all levels of output.

Q: In a perfectly competitive industryA) each firm is a price maker.B) no buyer or seller can influence the market price.C) there is apt to be a shortage of sellers of output. D) firms can never make an economic profit.

Q: The law of diminishing marginal product indicates thatA) average product will eventually decrease.B) marginal product will eventually decrease. C) total product will eventually decrease.D) resources are inefficient.

Q: The nominal rate of interest is 4% and the anticipated rate of inflation is 1%. What is the real rate of interest?A) 1% B) 3% C) 4% D) 5%