Q&A Hero

Q: Selling a product at different prices when the price difference is unrelated to costs is a practice known asA) price fixing. B) price monopolization. C) price discrimination. D) price differentiation.

Q: The effect of a tariff A) is negligible since it applies to firms outside the U.S. B) can lead to economies of scale for firms inside the U.S. C) can lead to a monopoly advantage for firms inside the U.S. since they become the sole suppliers inside the U.S. D) will be more beneficial to large firms than to small firms.

Q: If AVC is $6 when P = MC, a firm A) will have positive economic profits if price is greater than $6. B) is producing too little output. C) should shut down if price is less than $6. D) is experiencing economies of scale.

Q: All of the following are reasons for economies of scale EXCEPTA) diminishing marginal product. B) specialization.C) dimensional factors. D) improved production equipment.

Q: If four laborers were hired and we discovered that we could produce 88 units of production, what is the average physical product of labor?A) 44 B) 352 C) 11 D) 22

Q: If the interest rate is 5 percent per year and you borrow $100 for one year, at the end of the year you must pay backA) $95. B) $100. C) $105. D) $5.

Q: When economic rent exists,A) the price is equal to the opportunity cost of the resources. B) price is the same as the discount rate.C) resources are allocated inefficiently. D) resources are allocated efficiently.

Q: PepsiMU of PepsiPizzaMU of Pizza1st can181st slice72nd can152nd slice63rd can123rd slice44th can94th slice35th can65th slice0Using the above table, if the price of Pepsi is $3, how many cans of Pepsi would have to be consumed in order to have a marginal utility to price ratio of 3?A) one can B) two cans C) three cans D) four cans

Q: Tickets for the Super Bowl are an example of supply that isA) perfectly elastic. B) unit elastic.C) slightly inelastic. D) perfectly inelastic.

Q: ʺUnit elasticity of demand can be found everywhere along a straight -line demand curve with a slope of -1.ʺ Do you agree or disagree? Explain.

Q: External costs areA) borne by individuals other than those who incurred them. B) another term for implicit costs.C) borne by the public but incurred by the government. D) borne by the government but incurred by the public.

Q: Suppose there is a high inequality in household income between the highest and the lowest income groups in one country. In response, the government raises the income tax for the highest income group and provides subsidies to the lowest-income group. What would happen to the Lorenz curve as a result of the government programs? Explain.

Q: Suppose a union successfully negotiates a wage rate for its members that is above the competitive wage rate, thenA) there will be downward pressure on the wage rate until equilibrium is established.B) right-to-work laws become effective. C) there is a shortage of jobs.D) there is excess demand for labor.

Q: Suppose the market for autoworkers is initially in equilibrium, but then the automakers purchase capital goods that are a substitute for workers. What happens in the market for autoworkers? Explain. Now, suppose the automakers improve working conditions at the plants. What are the effects? Explain.

Q: When market wages increase in a perfectly competitive market, thenA) the marginal factor cost increases. B) the marginal product increases.C) the marginal factor cost decreases. D) the marginal product decreases.

Q: Regulators employ average cost pricing instead of marginal cost pricing becauseA) average cost pricing is more efficient than marginal cost pricing.B) price must be high enough to cover all opportunity costs if the firm is to stay in business. C) the price is lower with average cost pricing.D) average cost pricing is simpler to compute than marginal cost pricing.

Q: A reaction function isA) companies colluding in order to make higher than competitive rates of return.B) the manner in which one oligopolist reacts to a change in price made by another oligopolist in the industry.C) a game in which firms will not negotiate in any way.D) when plans made by firms are known as game strategies.

Q: In which market structure will a firm choose not to shut down when price is less than average variable cost?A) Perfect competitionB) MonopolyC) Monopolistic competitionD) None of the above. All firms will shut down when P < AVC.

Q: Which of the following is NOT an example of price discrimination?A) Student discount at a local movie theater.B) Breakfast cereal makers sending coupons to select buyers.C) Pharmaceutical companies charge customers living in wealthier countries higher prices than for identical drugs in poorer nations.D) A hard cover book selling for more than the same book in electronic form.

Q: Which of the following is not true about a tariff?A) It is a barrier to entry in a market. B) It leads to a natural monopoly. C) It is a tax. D) It affects imported goods.

Q: In the short run, a firm should shut down whenA) P < AVC. B) P > MC. C) MR > MC. D) MR = ATC.

Q: When long-run average costs rise as output increases, the firm is experiencing A) diseconomies of scale. B) diminishing returns. C) constant returns to scale. D) economies of scale.

Q: When total product is increasing at a decreasing rate, marginal product isA) positive and increasing. B) positive and decreasing. C) constant. D) negative.

Q: A star basketball player signs a contract that newspaper reports indicate is worth $10 million. The player receives $2 million upon signing, and $2 million every year for four years. The contract is worthA) less than $10 million since the present value of $2 million received one or more years from now is less than $2 million.B) more than $10 million since the present value of $2 million received one or more years from now is more than $2 million.C) $10 million as reported in the press.D) some amount around $10 million. To determine whether it is more or less than $10 million we need to know whether the interest the player can earn is more or less than the market rate of interest.

Q: Economic rent servesA) a descriptive function by making some wealthier than others, but serves no allocative function.B) an allocative function by guiding available supplies to the most efficient use.C) only to make the rich richer and the poor poorer. D) no useful function in a modern economy.

Q: The consumer optimum is found by usingA) marginal utility. B) total utility.C) total utility minus marginal utility. D) total utils.

Q: Which of the following statements is correct?A) Supply is more elastic in the short run than in long run.B) Supply is more elastic in the long run than in short run.C) Price elasticity of supply is constant along the supply curve.D) Price elasticity of supply is always a negative number.

Q: What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain.

Q: John raises bees to pollinate his orchard. A couple of bees which escaped ended up pollinating his neighborʹs orchard, soA) Johnʹs neighbor has received an internal cost of Johnʹs bee-keeping. B) Johnʹs neighbor has received an external cost of Johnʹs bee -keeping.C) Johnʹs neighbor has received an external benefit of Johnʹs bee -keeping. D) None of the above is correct.

Q: What are the major criticisms of the Lorenz curve?

Q: Suppose a union successfully negotiates a wage rate for its members that is above the competitive wage rate, thenA) the quantity of labor demanded will be greater than the quantity supplied. B) the quantity of labor demanded will be less than the quantity supplied.C) the labor market will be in equilibrium.D) it is impossible to tell whether or not the labor market will be in equilibrium without more information.

Q: What is the general rule for hiring for a perfectly competitive firm? Show it on a graph. What is the demand curve for labor on the graph? Explain.

Q: If a firm is a perfectly competitive purchaser of factor inputs and the wage rate is $5, the marginal factor cost for labor isA) greater than $5. B) less than $5.C) $5. D) indeterminate.

Q: When promoting average cost pricing, regulatorsA) include what they consider to be a normal rate of return on investment.B) encourage firms to produce at the output level where price equals marginal cost.C) fail to consider a return to investors, so regulated firms often have a hard time raising investment funds.D) inflate costs so much that price ends up as large as would prevail under unregulated monopoly.

Q: The mutual interdependence of oligopolists ensures that each oligopolist has A) a unique demand curve. B) a perfectly elastic demand curve. C) a reaction function. D) a fundamental dilemma about whether to collude or not.

Q: Compared to a perfectly competitive firm, in a long run the monopolistically competitive firm will haveA) a lower price. B) a lower average cost. C) a horizontal demand function. D) a lower rate of output.

Q: Which of the following is NOT an example of price discrimination?A) Gasoline stations charge more for gasoline with higher octane and additional additives.B) Colleges give some students more financial aid than they do other students. C) Airlines charge more for people who donʹt stay over a Saturday night.D) College bookstore gives a price discount to faculty.

Q: A tax that is imposed on an imported good is called aA) tariff. B) quota.C) government license. D) patent.

Q: When a firm has an accounting profit that is negative, it A) will never produce output, even in the short run. B) may still have economic profit.C) has total revenue that is less than total cost.D) cannot be producing where price equals marginal cost.

Q: When long-run average costs decline as output increases, the firm is experiencingA) negative returns to scale. B) diseconomies of scale.C) constant returns to scale. D) economies of scale.

Q: When total product is increasing at an increasing rate, marginal product isA) positive and increasing. B) positive and decreasing. C) constant. D) negative.

Q: One role of the interest rate is toA) allocate capital to its most efficient uses.B) redistribute income from the wealthy to the poor.C) reduce the rate of inflation by encouraging government borrowing. D) discourage saving and encourage current consumption.

Q: A popular entertainer gives a concert in a 50,000 seat stadium. To give her fans a break, she charges only $50 a seat instead of the customary $75 a seat. At $75 a ticket, there would have been 50,000 tickets sold, and at $50, there are 80,000 people who want tickets. As a consequence of the generosity of the entertainer, A) her fans are made better off. B) a more fair system of pricing the tickets has been found. C) another type of system will have to be found to allocate the tickets, making some of her fans better off and others worse off. D) her fans are made worse off since there is an excess demand of 30,000 tickets.

Q: In order for a consumer to choose between two different goods, he has to take into consideration theA) marginal utility of production. B) marginal utility divided by the price. C) marginal utility plus the price. D) total utility divided by price.

Q: Vincent Van Gogh paintings have a price elasticity of supplyA) equal to 2.0. B) equal to 1.0.C) close to 0.0. D) approaching infinity.

Q: Explain the three possible ranges for price elasticity of demand.

Q: John raises bees to pollinate his apple trees. One of the bees just stung him. This is a(n) A) private cost. B) social cost.C) internality. D) common property.

Q: How does the distribution of wealth differ from the distribution of income in the United States?

Q: Suppose a union successfully negotiates a wage rate for its members that is above the competitive wage rate, thenA) employment in the union sector will increase.B) the union must find a way to make union workers more productive.C) the union must also negotiate a fringe-benefit package that the membership will like. D) the union must find a way to ration jobs among the excessive number of workers who wish to work at the negotiated wage.

Q: What does it mean for a firm to be a price taker in the labor market?

Q: A firmʹs marginal factor cost describes A) the increase in the firmʹs total revenue as one more unit of output is sold. B) the change in total fixed cost that results from hiring one more unit of input. C) the change in total variable cost that results from the production of an extra unit of output. D) the change in total cost that results from using one more unit of an input.

Q: With average cost pricing, the monopolist A) earns no accounting profit. B) produces where P = MC. C) earns a normal rate of return for its shareholders. D) does not cover opportunity costs.

Q: Refer to the above payoff matrix for the profits (in $ millions) of two firms (X and Y) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?A) Both firm X and firm Y choose not to advertise. B) Both firm X and firm Y choose to advertise.C) Firm X chooses to advertise while firm Y chooses not to advertise. D) Firm X chooses not to advertise while firm Y chooses to advertise.

Q: Compared to perfect competition, a monopolistically competitive market will produce output and charge a price.A) more; higher B) more; lower C) less; higher D) less; lower

Q: Price discrimination is more likely in the case of services than in the case of goods becauseA) producers of goods usually do not face downward sloping demand curves.B) it is easier to distinguish customers with different elasticities of demand with respect to services than with goods.C) elasticities of demand vary more with services than with goods.D) it is more difficult to resell services.

Q: Barriers to entry enable many monopolists toA) charge as high a price as they want.B) make people buy more of a good than they really want. C) earn economic profits in the long run.D) manipulate the government into providing special favors for themselves.

Q: The short-run shutdown price occurs where price equalsA) MC. B) AVC at any point.C) AVC at the minimum point. D) AFC at the minimum point.

Q: A decrease in the long-run average costs resulting from increasing output is referred to asA) diseconomies of scale. B) constant return to scale.C) a scale invariant process. D) economies of scale.

Q: Use the information from the below table to answer following question(s).Input of LaborTotal Product001202503804105512561407150In the above table, the marginal product of the sixth worker isA) 10. B) 25. C) 20. D) 15.

Q: Suppose that the nominal rate of interest is holding steady at 8 percent even as the anticipated rate of inflation rises. What is happening to the real rate of interest?A) It is unchanged. B) It is increasing.C) It is decreasing. D) It equals the nominal interest rate.

Q: Superstars in sports or entertainment presumably would be willing to continue working in their specific areas for lower income than they are currently earning. This implies thatA) the large salaries serve no allocative function and only serve to make the superstars richer. B) superstars are exploiting their fans by receiving such a large salary.C) superstars do not respond to monetary incentives.D) the high salaries are used to allocate their time but fail to bring in new sources of supply (other superstars) that are exactly like themselves.

Q: When a consumer shifts his purchases from product A to product B, the marginal utility ofA) A falls and the marginal utility of B will increase. B) both A and B will decrease.C) A increases and the marginal utility of B will fall. D) both A and B will increase.

Q: If price elasticity of supply is less than 1,A) supply is elastic. B) demand is elastic. C) demand is inelastic. D) supply is inelastic.

Q: When the price of a ukulele is $1000, 60 ukuleles are demanded; and when the price of a ukulele goes up to $1200, 30 ukuleles are demanded. In the price range between $1000 and $1200 the demand for ukuleles isA) elastic. B) inelastic.C) unit elastic. D) perfectly elastic.

Q: Which of the following is not a private cost?A) The health insurance costs a firm must pay for its employees.B) The pollution caused by a firm dumping its wastes into the river. C) The coffee pot that Jan dropped and broke this morning.D) The amount that a firm must pay for raw materials to make its product.

Q: Draw and explain a Lorenz curve.

Q: Strikes occur in about percent of the labor -management negotiations.A) 2 B) 16 C) 25 D) 40

Q: Suppose the market price of zinc doubles. Which of the following scenarios is most likely?A) The demand for zinc miners will increase, raising the market wage rate.B) The demand for zinc miners will decrease, reducing the market wage rate.C) The demand for zinc will increase, raising the market price further.D) The demand for zinc miners will decrease, reducing the market price back to its original price.

Q: The contribution to total revenues coming from the next worker hired isA) marginal product. B) marginal revenue product. C) total product. D) total revenues.

Q: Which of the following statements regarding economic regulation is TRUE?A) Economic regulation has failed by insisting that firms must be allowed to earn a normal rate of return.B) Rate-of-return regulation has been much more effective than cost -of-service regulation. C) Economic regulation deals only with rates of return, and not with prices.D) Economic regulation deals mainly with prices firms charge, but firms can alter their return by altering quality of service, effectively raising the price per constant -quality-unit.

Q: Refer to the above payoff matrix for the profits (in $ millions) of two firms (A and B) making a decision to advertise or not. Which of the following is the outcome of the dominant strategy without cooperation?A) Both firm A and firm B choose not to advertise.B) Both firm A and firm B choose to advertise.C) Firm A chooses to advertise while firm B chooses not to advertise.D) Firm A chooses not to advertise while firm B chooses to advertise.

Q: Compared with a perfectly competitive firm facing the same costs, long -run equilibrium for a monopolistically competitive firm will result inA) a higher price and greater output. B) a lower price and less output.C) a higher price and less output. D) a lower price and greater output.

Q: A monopolist has four distinct groups of customers. Group A has an elasticity of demand of 0.2, B has an elasticity of demand of 0.8, C has an elasticity of demand of 1.0, and D has an elasticity of demand of 2.0. The group paying the highest price for the product will beA) A. B) B. C) C. D) D.

Q: Which of the following is issued to an investor to provide protection from having the inventioncopied or stolen for 20 years?A) A license B) A natural monopolyC) A patent D) A certificate of convenience

Q: The firm will shut down in the short run ifA) the price falls below its minimum AVC. B) the market price rises unexpectedly.C) P = MC. D) P = ATC

Q: Refer to the above figure. Constant returns to scale existA) up to output Q2.B) from Q2 to Q5. C) after Q5.D) over the entire long-run average cost curve.

Q: Use the information from the below table to answer following question(s).Input of LaborTotal Product001202503804105512561407150In the above table, the marginal product of the fourth worker isA) 30. B) 25. C) 20. D) 15.

Q: When the anticipated rate of inflation is 5 percent and the real rate of interest is 4 percent, the nominal rate of interest isA) 1 percent. B) 4 percent. C) 5 percent. D) 9 percent.

Q: In which field would economic rents likely be greatest for the best in their field?A) Farming B) Teaching C) Hockey D) Car repairing

Q: You consider yourself to be wise consumer. The marginal utility/price ratio of coffee is 12 utils per dollar. If the price of a donut is $0.75, you should only buy the donut if it gives you at leastA) 16 utils of satisfaction. B) 9 utils of satisfaction. C) 12 utils of satisfaction.D) The answer cannot be determined with this information.