Q&A Hero

Q: If the social costs of refining oil are greater than the private costs of oil refining, then A) the external costs of oil refining are greater than the social costs of oil refining. B) users of products that use refined oil are paying too much for the products.C) there is too much oil refining.D) the amount of oil refining needs to increase in order to bring social costs and private costs in line with each other.

Q: A Lorenz curve measures the on the horizontal axis.A) cumulative percentage of family income B) cumulative percentage of family wealthC) cumulative percentage of families D) demand of families on welfare

Q: If a union sets the wage rate to maximize the total wage receipts of its members, the price elasticity of demand for labor would beA) zero. B) numerically equal to 1. C) finite, but greater than -1. D) positive, but less than 1.

Q: The demand for DVDʹs increases. As a result,A) the wage rate in the DVD industry increases and the quantity demanded of workers increases.B) the wage rate in the DVD industry increases and the quantity supplied of workers increases.C) the demand for labor increases and the supply of labor also increases, leaving wages unchanged.D) the demand for labor increases, but since the supply curve of labor is perfectly elastic, the wage rate does not change.

Q: A typical measure of monopoly power that uses the percentage of a particular market that a firm supplies is known as theA) monopoly test. B) market share test. C) Sherman test. D) FTC test.

Q: In the above figure, if this natural monopolist were forced to use marginal cost pricing, it would sell the product at the price .A) A B) C C) E D) F

Q: Using the information in the table, develop the four-firm concentration ratio. Would you classify this industry as an oligopoly? Explain your answer.FirmAnnual Sales($ millions)13502200315041005406 through 2020 810

Q: Use the above figure. The profit-maximizing monopolistically competitive firmA) is losing $0.05 per unit of output. B) is earning $0.40 per unit of output.C) is earning $0.15 per unit of output. D) is earning $0.05 per unit of output.

Q: A monopolist sells a homogeneous good in several distinct submarkets, and the elasticities of demand differ in these submarkets. If the monopolist selects the rate of output to sell in each submarket by equating marginal revenue and marginal cost, thenA) all customers in all markets end up paying the same price.B) it is not price discriminating, but merely price differentiating.C) customers in markets with more elastic demand will pay higher prices than customers in markets with less elastic demand.D) customers in markets with more elastic demand will pay lower prices than customers in markets with less elastic demand.

Q: From the date a U.S. patent is granted to a firm, it ceases to be a potential source of monopoly profits afterA) 20 years. B) 14 years. C) 10 years. D) 7 years

Q: A company finds that at the output level at which marginal cost equals marginal revenue, TC = $500, TVC = $400, and TR = $450. Your advice to the firm isA) shut down, as TC > TR.B) reduce output to reduce the cost of production.C) increase output to reduce the per unit cost of production.D) continue to produce because loss is less than TFC.

Q: Diseconomies of scale occurA) only in the short run. B) only in the long run.C) because of fixed costs. D) none of the above.

Q: Marginal physical product and average physical product are measured inA) dollars.B) profit terms.C) units of production.D) the same units as marginal cost and average total cost.

Q: Amber has opened a coffee shop for many years on a piece of land that she has also owned. She has also made accounting profits from the coffee shop. This year, rents in the area rose considerably, and Amber responded by deciding to sell the land and the coffee shop to an apartment builder. How can you explain Amberʹs decision to sell her business?

Q: World-class models receive significant economic rents becauseA) their talents and abilities are in fixed supply.B) there is a shortage of world -class models. C) there is a surplus of world-class models.D) there is no equilibrium quantity of world-class models.

Q: Quantity of Magazines/WkTotal UtilityQuantity of Paperbacks/WkTotal Utility000016012002100240031303500414045505142557561426580Refer to the above table If the price of a magazine is $2 and the price of a paperback book is $5 and the consumer has $40, the rational consumer will purchaseA) 2 magazines and 2 books. B) 2 magazines and 3 books. C) 5 magazines and 6 books. D) 6 magazines and 6 books.

Q: The price elasticity of supply measuresA) the responsiveness of quantity demanded to a change in price.B) the responsiveness of quantity supplied to a change in price. C) the change in supply due to a change in input prices.D) the change in price due to a change in quantity supplied.

Q: When the absolute price elasticity of demand is less than 1, demand isA) elastic.B) unit-elastic. C) inelastic.D) undetermined without more information.

Q: ʺCreating a free market for carbon -dioxide emission permits would only encourage firms to pollute more.ʺ Do you agree or disagree? Why?

Q: If a person does not pay all costs associated with a particular resource -using activity, then A) the external costs of the activity are greater than the private costs of the activity. B) the social costs of the activity are greater than the private costs of the activity. C) the external costs of the activity are greater than the internal costs of the activity. D) the full costs of the activity are the sum of private costs plus internal costs.

Q: The most widely used measure of income inequality isA) the Bureau of Labor Statisticsʹ cost-of-living index. B) the Laffer curve.C) the Lorenz curve.D) the Gemini coefficient.

Q: If a union establishes by collective bargaining a wage rate that is above a competitive market equilibrium wage rate, thenA) an excess quantity of labor will be supplied. B) a shortage of labor will result.C) there will be an increase in total employment.D) management will want to substitute labor for machinery.

Q: Suppose the market for pizza makers is initially in equilibrium, but then the equilibrium wage rate increased and the equilibrium quantity of labor will decreased. What happened in the market for pizza makers?A) The demand for pizza makers increased.B) The demand for pizza makers decreased. C) The supply for pizza makers decreased. D) The supply for pizza makers increased.

Q: A firm is generally scrutinized as a potential monopoly when its share of sales in the relevant market reachesA) 60 percent of the market. B) 35 percent of the market. C) 70 percent of the market. D) 25 percent of the market.

Q: In the above figure, if this natural monopolist were regulated and allowed to earn a ʺfairʺ rate of return, it would produceA) at Q1 output rate. B) at Q2 output rate.C) at Q3 output rate. D) past the Q3 output rate.

Q: ʺOligopoly is the only market structure in which rivalry among firms takes place.ʺ Do you agree or disagree? Why?

Q: The marginal revenue curve of a monopolistically competitive firm is A) downward sloping and above the demand curve. B) downward sloping and below the demand curve. C) identical to the demand curve as there are many small firms in the market. D) perfectly elastic.

Q: Which of the following conditions is not necessary for a firm to be able to engage in price discrimination?I. The firm must be able to produce to the point at which price equals marginal revenue. II. The firm must easily be able to identify consumers with different demand elasticities. III. The firm must be able to prevent resale of the item it produces and sells.A) I only B) III onlyC) Both I and II only D) Both II and III only

Q: A patent provides legal protection for an invention forA) 7 years. B) 11 years.C) 20 years. D) as long as the invention is valuable.

Q: In the short run, the perfectly competitive firm will always earn an economic profit whenA) P = ATC. B) P > AVC. C) P = MC. D) P > ATC.

Q: The typical shape of the long-run average cost curve is likeA) the letter ʺC.ʺB) the letter ʺU.ʺC) an inverse of the letter ʺV.ʺ D) a circle.

Q: Total product divided by the variable input isA) average total cost. B) marginal cost.C) average physical product. D) marginal physical product.

Q: For which type of organization is unlimited liability likely to be the greater problem-proprietorships or partnerships? Why?

Q: A dedicated teacher loves being in the classroom and would teach for $40,000 per year, but he is actually paid $55,000 per year. This individualA) receives economic rent of $20,000. B) receives accounting profit of $20,000.C) has an opportunity cost of $15,000. D) receives economic rent of $15,000.

Q: Quantity of Hamburgers/WkTotal UtilityQuantity of Broadway Shows/WkTotal Utility14014002602700376385048649505915100069361025If the price of X is $3 and the price of Y is $5, then, in a consumer optimum,A) the quantity purchased of Y must be 60 percent of the quantity of X purchased. B) the quantity purchased of Y must be 67 percent of the quantity of X purchased. C) the marginal utility of Y must be 67 percent more than the marginal utility of X. D) the marginal utility of X must equal 3 and the marginal utility of Y must equal 5.

Q: Price elasticity of supply is alwaysA) positive because of the law of supply.B) negative because of the law of supply.C) positive because of diminishing marginal utility.D) negative because percentages can only be negative.

Q: When the absolute price elasticity of demand is greater than 1, demand isA) elastic.B) unit-elastic. C) inelastic.D) undetermined without more information.

Q: Explain how a market for pollutant emission allowances can induce firms to reduce the amount of emissions.

Q: Where pollution is concerned, if an automobile driver considers only the internal costs of his actions, he is apt toA) use resources very carefully and in small quantities. B) garage his car and drive very seldom.C) be making a positive contribution to the greater community.D) drive too much and use up more scarce resources than he would if he had to cover all his costs.

Q: The Lorenz curve showsA) how poverty rates change over time.B) the percentage of population below the poverty line.C) the degree of inequality in the income distribution.D) the ratio of cash income to payments -in-kind.

Q: If a union negotiates and obtains a wage rate above the competitive wage rate, A) it must find a way to make workers more productive.B) employment in the union sector will increase relative to employment in the nonunion sector.C) it must find a way to ration jobs among the excessive number of workers who wish to work in the union sector.D) unemployment will increase in the nonunion sector relative to the union sector.

Q: Suppose the market for pizza makers is initially in equilibrium, but then the equilibrium wage rate and the equilibrium quantity of labor both increased. What happened in the market for pizza makers?A) The demand for pizza makers increased.B) The demand for pizza makers decreased. C) The supply for pizza makers increased. D) The supply for pizza makers decreased.

Q: When companies sell slightly different forms of a product to different groups of customers, this is known asA) market testing. B) editions. C) adaptations. D) versioning.

Q: In the above figure, if this natural monopolist were unregulated, the profit maximizing firm would produceA) at Q1 output rate. B) at Q2 output rate.C) at Q3 output rate. D) past the Q3 output rate.

Q: Distinguish between a horizontal merger and a vertical merger.

Q: Which of the following is NOT a characteristic of the demand curve faced by a firm in a monopolistically competitive market?A) The demand curve is downward sloping. B) The slope of the demand curve is negative.C) The firm will produce where the demand curve is inelastic.D) The firm will produce where the demand curve is elastic.

Q: A monopoly will look for opportunities to price discriminate because the practiceA) leads to selling more units. B) leads to greater profits. C) allows it to charge higher prices. D) is desired by customers.

Q: If a ʺcertificate of convenience and public necessityʺ protects a monopolistʹs position, the barrier to entry this firm relies on is calledA) a tariff. B) a government license. C) a patent. D) economies of scale.

Q: The firm in the above figure breaks even when quantity isA) A. B) B. C) C. D) D.

Q: Economies of scale exist where the long-run average cost curve isA) horizontal. B) downward sloping.C) upward sloping. D) tangent to the marginal cost curve.

Q: Another term for the total quantity of output isA) average physical product. B) marginal physical product. C) total product. D) average variable product.

Q: Why is limited liability so important when firms try to raise large amounts of financial capital? How is this advantage of a corporation tied to a disadvantage of a corporation?

Q: A portion of a workerʹs earnings is economic rent if the workerA) has skills that make him more productive than an unskilled worker.B) would accept a small reduction in pay without quitting.C) was the last person hired at the going wage rate.D) has been on the job for at least a year.

Q: Quantity of Hamburgers/WkTotal UtilityQuantity of Broadway Shows/WkTotal Utility14014002602700376385048649505915100069361025Refer to the above table. If the price of a hamburger is $2, the price of a Broadway Show is $60, and the consumer has $190, what is the consumer optimum?A) 4 hamburgers and 2 Broadway shows. B) 5 hamburgers and 3 Broadway shows. C) 6 hamburgers and 0 Broadway shows. D) 0 hamburgers and 6 Broadway shows.

Q: If the price of good X increases by 1 percent, then the quantity supplied increases by more than 1 percent. This meansA) supply is elastic. B) supply is unit-elastic.C) supply is inelastic. D) the good has good substitutes.

Q: When the absolute price elasticity of demand equals 1, demand isA) elastic.B) unit-elastic.C) inelastic.D) undetermined without more information.

Q: If pollution is bad, why do we still use pollution-causing resources such as coal and oil to generate electricity?A) Governments lack the political will to enforce the use of pollution free resources.B) The cost of using pollution free resources to generate power in many circumstances is much higher than generating that same power through conventional pollution -causing means.C) Pollution is only a private cost.D) The transaction costs of pollution is too low.

Q: If social cost exceeds private cost, there isA) underproduction of a good. B) a negative externality.C) a positive externality. D) too little economic profit in the activity.

Q: Wealth is considered to be aA) nontaxable stream of funds. B) flow.C) stock. D) resource.

Q: Unions face a trade-off between higher wages andA) fewer available positions. B) more available positions.C) equipment. D) none of the above.

Q: Suppose the market for autoworkers is initially in equilibrium, but then the demand for automobiles increases and simultaneously the automakers allow autoworkers workers less flexibility working at the plants. What happens in the market for autoworkers?A) The equilibrium wage rate will increase and the equilibrium quantity of labor will increase, decrease or stay the same.B) The equilibrium wage rate will increase, decrease or stay the same and the equilibrium quantity of labor will increase.C) The equilibrium wage rate and the equilibrium quantity of labor will both decrease. D) The equilibrium wage rate will decrease and the equilibrium quantity of labor will increase.

Q: Clarkeʹs gas station in Podunk only sells gasoline if customers also purchase oil.A) This is called a tie-in sale and is in violation of antitrust laws.B) This is not in violation of antitrust laws, as cars need both oil and gas.C) This is not in violation of antitrust laws, as consumers get the oil below market prices.D) This is in violation of the Robinson -Patman Act.

Q: In the above figure, if this natural monopolist were forced to use marginal cost pricing, it would produceA) at Q1 output rate. B) at Q2 output rate.C) at Q3 output rate. D) past the Q3 output rate

Q: What is meant by the concentration of an industry? How is concentration measured? What are likely causes of high concentration?

Q: In the long run, what level of economic profits can a monopolistic competitor expect to receive? A) positive B) zero C) negative D) either negative or positive, depending on the demand for its product and its costs

Q: Price discrimination is theA) refusal by a firm to sell to all customers.B) selling of a given product at more than one price when the price differences reflect cost differences.C) pricing of a product so that not everyone can afford it.D) selling of a given product at more than one price when the price difference is unrelated to cost differences.

Q: A patent on a product gives a firmA) protection from having the invention copied or stolen for a period of 20 years.B) economies of scale in producing the product.C) excessive profits in the long run.D) the power to impose a tariff on a competing product.

Q: The firm in the above figure breaks even when market price isA) H. B) E. C) I. D) G.

Q: In the above figure, the firm experiences constant returns to scale between output levels ofA) zero and Q1. B) Q2 and Q3.C) Q3 and Q4. D) any level greater than Q4.

Q: The production function does not provide information aboutA) the technology used in the production process.B) the types of inputs used in the production process.C) the relationship between changes in quantity of inputs and changes in the quantity of output.D) the profits of producing a good.

Q: What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.

Q: For an individual such as a movie star or a pop singer whose natural talents are almost impossible to duplicate,A) all of their earnings consist of economic rents.B) none of their earnings consist of economic rents since rent applies only to land. C) part of their earnings consists of economic rents.D) all of their earnings consist of interest payments.

Q: Quantity of Hamburgers/WkTotal UtilityQuantity of Broadway Shows/WkTotal Utility14014002602700376385048649505915100069361025Refer to the above table. If the price of a hamburger is $2, the price of a Broadway Show is $60, and the consumer has $128, what is the consumer optimum?A) 2 hamburgers and 2 Broadway shows. B) 2 hamburgers and 3 Broadway shows.C) 3 hamburgers and 2 Broadway shows. D) 4 hamburgers and 2 Broadway shows.

Q: The most important determinant of the elasticity of supply isA) whether the good is a durable good or a nondurable good. B) the price of the good.C) the time period firms have to adjust to the new price. D) the proportion of the good in the budget of consumers.

Q: Refer to the above figure. Demand isA) perfectly elastic.B) unitary elastic.C) perfectly inelastic.D) undetermined without more information.

Q: By 2006, the market price of European Union emissions allowances dropped becauseA) governments set their overall emission caps too high.B) firms had drastically reduced their emissions. C) firms underreport their emission amounts.D) the market did not clear.

Q: An externality that is not fully paid by the individual using an automobile isA) insurance for the vehicle. B) gasoline for the vehicle.C) air pollution from the vehicle. D) operation of the vehicle.

Q: Income is considered to be aA) nontaxable stream of funds. B) flow.C) stock. D) resource.

Q: One method unions use to ration available jobs among excess workers isA) lengthy apprenticeships. B) to hire only white collar workers.C) collective bargaining. D) refuse to unionize.

Q: Suppose the market for autoworkers is initially in equilibrium, but then suppose the automakers improve working conditions at the plants. What happens in the market for autoworkers?A) The equilibrium wage rate will increase and the equilibrium quantity of labor will decrease.B) The equilibrium wage rate and the equilibrium quantity of labor will both increase. C) The equilibrium wage rate and the equilibrium quantity of labor will both decrease. D) The equilibrium wage rate will decrease and the equilibrium quantity of labor will increase.