Expert Answers

Expert Answers

1. The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is perfectly competitive, the Wheeler Farm
A. doesn’t choose the quantity of wheat to produce.
B. doesn’t have any fixed costs of production.
C. isn’t able to earn an accounting profit.
D. doesn’t choose the price at which it sells its wheat.

2. Since monopolies have a downward-sloping demand curve, regulating monopolies by setting price equal to marginal cost would
A. cause the monopolist to operate at less than maximum profit.
B. maximize producer surplus.
C. result in a less-than-optimal total surplus.
D. cause many new firms to enter the market.
3. When a producer is operating at the bottom of a U-shaped average-total-cost curve, the producer is said to be operating at
A. decreasing returns to scale. C. the efficient scale.
B. the inefficient scale. D. increasing returns to scale.

4. Which of the following statements is correct?
A. In a perfectly competitive market, changes in demand cause short-term changes in price, and no changes in quantity supplied to the market.
B. In a perfectly competitive market, changes in demand cause no long-term changes in price, and permanent changes in quantity supplied to the market.
C. In a perfectly competitive market, changes in demand cause no changes in price, and long-term changes in quantity supplied to the market.
D. In a perfectly competitive market, changes in demand cause no changes in price, and permanent changes in quantity supplied to the market.

5. A competitive firm will choose to increase production when marginal cost is less than
A. marginal revenue. C. average variable cost.
B. the marginal average. D. average total cost.

6. The purpose of antitrust laws is to
A. increase competition.
B. create government-controlled monopolies.
C. protect and promote copyright and patent laws.
D. limit the public’s trust in a monopoly.

7. Which of the following statements about fixed cost is correct?
A. Fixed cost is always large in the long run.
B. Fixed cost is seldom larger than variable cost.
C. Fixed cost is a short-run phenomenon.
D. Fixed cost can never exceed variable cost in a profitable firm.

8. One problem with monopolies is that they can
A. profiteer at the expense of consumers.
B. price their product at a level that forces consumers to pay more than they can afford.
C. buy political favors with their excessive profits.
D. restrict output below the socially efficient level of production.
9. If a firm pays employees by the hour and guarantees every employee 40 hours of work per
week, how would the firm categorize its labor costs?
A. Fixed and independent of how many hours each employee works
B. Variable and independent of how many hours each employee works
C. Fixed if each employee works no more than 40 hours
D. Variable if each employee works no more than 40 hours

10. A perfectly competitive firm realizes an average revenue of $11 and an average total cost of $10. Its marginal-cost curve crosses the marginal-revenue curve at an output level of 100 units. The current profit is $100. What is likely to occur in this market?
A. The price will go down. C. Costs will go up.
B. Firms will leave the market. D. Costs will go down.

11. When a monopolist faces a downward-sloping market demand curve, its
A. average revenue is always less than marginal revenue.
B. marginal revenue is greater than the price of the units it sells.
C. average revenue is less than the price of its product.
D. marginal revenue is always less than the price of the units it sells.

12. In a perfectly competitive market where all firms have identical cost structures, the market supply curve would be equal to the
A. sum of supply curves for all firms in the market.
B. product of supply curves for all firms in the market.
C. sum of average variable cost curves for all firms in the market.
D. sum of average total cost curves for all firms in the market.

13. Which of the following statements is correct?
A. In the short term, land is a variable cost.
B. In the short term, electricity is a fixed cost.
C. In the short term, raw materials are a fixed cost.
D. In the short term, buildings are a fixed cost.

14. An example of an industry that benefits society by government-created monopoly is the
A. cable TV industry. C. pharmaceutical industry.
B. local telephone industry. D. precious stones industry.

15. An example of an explicit cost of production would be
A. the cost of foregone labor earnings for an entrepreneur.
B. the cost of stone for a sculptor.
C. the value a business derives from using the owner’s computer to keep payroll records.
D. all of the inputs to production.

16. The production decisions of perfectly competitive firms follow the principle of economics which states that rational people
A. make the same production decisions in all markets.
B. think at the margin.
C. equate prices to the costs of production.
D. eventually leave markets that experience zero profit.

17. Which of the following statements is correct?
A. A firm with fixed costs always has losses for low levels of output.
B. A firm with fixed costs must incur economic losses if it chooses not to produce output.
C. A firm with fixed costs can’t maximize profit in the short run.
D. A firm with fixed costs is always able to sell its product for a price that exceeds marginal revenue.

18. The cost to produce an additional unit of output is a firm’s
A. variable cost. C. marginal cost.
B. average variable cost. D. opportunity cost.

19. By using the concept of total surplus as a measure of well-being, it’s possible to show that
A. profit-maximizing natural monopolists always make society better off.
B. producer surplus for a perfectly competitive firm always exceeds that of a monopolist.
C. consumer surplus in a monopoly market always exceeds consumer surplus in a perfectly competitive market.
D. society is worse off when monopolists set a price that maximizes their profit.

20. Firms in a perfectly competitive market are said to be price takers, because
A. if a firm charges more than the going price, it would sell all of its goods.
B. a firm has no incentive to charge less than the going price.
C. each firm can sell as much as it wants at a reduced price.
D. select firms can take the market for their particular good.

Exam 05067000
1. When two goods are perfect complements, the indifference curves are
A. straight lines. C. intersecting.
B. right angles. D. upward-sloping.
2. In a state where voters directly decide the size of the education budget, 25 percent want no increase, 30 percent want a decrease, 10 percent want a small increase, and 35 percent want a large increase. If the median voter theorem applies here, what budget decision will result?
A. No increase
B. Decrease
C. Small increase
D. Large increase
3. The wage difference between jobs that require education and those that don’t
A. isn’t likely to be related to productivity differences.
B. encourages workers to bear the cost of acquiring education.
C. is a barrier to obtaining an education.
D. doesn’t affect the supply of workers in the different labor markets.
4. When leisure is a normal good, the income effect from an increase in wages is manifest in
A. a desire to consume more leisure.
B. a desire to consume less leisure.
C. the backward-bending portion of labor supply.
D. a shift in labor demand.
5. The liberalism doctrine suggests that the focus of social policy would be to
A. elevate the well-being of all workers.
B. elevate the well-being of those at the bottom of the income distribution.
C. ensure an egalitarian distribution of income.
D. expropriate the factors of production from the capitalist class.
6. Employers who operate in competitive product markets and choose to practice discrimination in hiring workers
A. will survive if they increase production and garner a larger market share.
B. will eventually earn zero economic profits.
C. are likely to eventually go out of business.
D. will survive as long as they’re willing to have a smaller market share.
7. Goods that are difficult to substitute for each other will likely exhibit indifference curves that
A. are less bowed. C. are more bowed.
B. cross less frequently. D. have a slope close to –1.
8. There’s an increasing gap in wages between unskilled and skilled workers in the United States. One hypothesis to explain the gap is that when the United States increased its participation in world markets, specialization and the pursuit of comparative advantage precipitated a
A. fall in domestic demand for unskilled labor.
B. rise in domestic demand for unskilled labor.
C. fall in domestic supply of unskilled labor.
D. rise in domestic supply of unskilled labor.
9. An example of a transitory change in income is
A. the increase in income that results from a job promotion linked to your education.
B. the increase in income of California orange growers due to an orange-killing frost in Florida.
C. the annual cost-of-living adjustment to your salary.
D. an increase in income from personal investments.
10. When the income and substitution effects work in opposite directions,
A. it’s possible that the law of demand is violated.
B. the substitution effect is always positive.
C. the income effect is always positive.
D. Giffen goods aren’t possible.
11. In a labor market where employers are cutting wages to control costs, from whose standpoint will the selection be “adverse”?
A. Good workers C. Employers
B. Poor workers D. Consumers
12. As a result of the tradeoff between income equality and incentives to work, an optimal redistribution policy
A. will rarely fall short of a full egalitarian society.
B. is consistent only with transfers to the middle class.
C. always falls short of a full egalitarian society.
D. can never be funded through taxes on wage income.
13. The amount of a commodity that an individual is consuming
A. is affected only by prices.
B. affects the rate at which he or she is willing to trade.
C. is affected only by income.
D. won’t affect the marginal rate of substitution.
14. Technology is an important factor in explaining the high incomes of superstars because
A. technology is available that can limit access to the superstars.
B. only technologically literate superstars can earn super incomes.
C. technology accounts for differences in incomes within all occupations.
D. technology makes it possible for the best producer to supply every customer at low cost.
15. The notion of utility is fundamental to utilitarianism and describes the
A. method whereby wealth is stored as flat currency.
B. method by which society chooses to allocate resources.
C. optimal distribution of wealth in society.
D. level of satisfaction derived from a person’s circumstances.
16. An optimizing consumer will select a consumption bundle in which utility is maximized
A. as long as prices are minimized.
B. when income is maximized.
C. if indifference curves are linear.
D. subject to constraints imposed by the budget.
17. Taxi drivers in large cities are likely to earn more than taxi drivers in rural areas earn.
One reason for this wage differential could be that
A. driving in a large city is more fun than driving in a rural area.
B. driving in a large city is easier than driving in a rural area.
C. a taxi driver in a large city is unlikely to hit or be hit by an animal.
D. driving a taxi in a large city is more dangerous than driving in a rural area.
18. Which of the following statements about minimum-wage laws is correct?
A. Minimum-wage laws force a market imbalance between the supply and demand for labor.
B. Minimum-wage laws increase the efficiency of labor markets.
C. Minimum-wage laws are typically associated with a rise in employment among the
D. Minimum-wage laws are most effective at alleviating poverty when labor demand is highly elastic.
19. The slope of the budget constraint reveals information about the
A. level of income of the consumer.
B. relative price of commodities represented on the axes.
C. preferences of a consumer.
D. endowment of productive resources.
20. If John says, “I didn’t want to waste my life deciding where to study, since Adam Smith College seemed good enough,” John is
A. overconfident. C. a satisficer.
B. concerned about fairness. D. inconsistent over time
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