Review Part 2 - 1 The problem of the existence of...

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Unformatted text preview: 1) The problem of the existence of externalities is essentially one of A) a discrepancy between private and social costs. B) transaction costs. C) pollution. D) lack of information. E) the inability of a firm in an industry to make profits. 1) The problem of the existence of externalities is essentially one of A) a discrepancy between private and social costs. B) transaction costs. C) pollution. D) lack of information. E) the inability of a firm in an industry to make profits. 2) Coase argued that externalities A) will not be eliminated by private negotiation. B) must be a source of market failure that can be dealt with only by the government. C) will never arise. D) only exist in the nonrenewable resource industry. E) may be efficiently accounted for in private negotiations if bargaining costs are low enough. 2) Coase argued that externalities A) will not be eliminated by private negotiation. B) must be a source of market failure that can be dealt with only by the government. C) will never arise. D) only exist in the nonrenewable resource industry. E) may be efficiently accounted for in private negotiations if bargaining costs are low enough. 3) A price floor set above the equilibrium price will result in A) a continuation of the market-determined equilibrium price and quantity. B) the quantity supplied exceeding quantity demanded and thus a surplus in the market. C) a new market-determined equilibrium at a higher price and lower output level. D) the quantity demanded exceeding quantity supplied and thus a shortage in the market. E) increased government revenue. 3) A price floor set above the equilibrium price will result in A) a continuation of the market-determined equilibrium price and quantity. B) the quantity supplied exceeding quantity demanded and thus a surplus in the market. C) a new market-determined equilibrium at a higher price and lower output level. D) the quantity demanded exceeding quantity supplied and thus a shortage in the market. E) increased government revenue. 4) A price ceiling set above the equilibrium price will result in A) fewer exchanges. B) shortages. C) surpluses. D) black markets. E) the equilibrium price occurring. 4) A price ceiling set above the equilibrium price will result in A) fewer exchanges. B) shortages. C) surpluses. D) black markets. E) the equilibrium price occurring. 5) The equilibrium price of natural gas would be $2.00, but to protect consumers the government has fixed the price at $1.50. At this ceiling price the quantity ________ will be greater than the quantity ________, resulting in a ________ of natural gas. A) demanded; supplied; surplus B) demanded; supplied; shortage C) supplied; demanded; surplus D) supplied; demanded; shortage E) demanded; supplied; reduction in equilibrium price 5) The equilibrium price of natural gas would be $2.00, but to protect consumers the government has fixed the price at $1.50. At this ceiling price the quantity ________ will be greater than the quantity ________, resulting in a ________ of natural gas. A) demanded; supplied; surplus B) demanded; supplied; shortage C) supplied; demanded; surplus D) supplied; demanded; shortage E) demanded; supplied; reduction in equilibrium price 6) Which of the following is an example of a black-market transaction? A) A person buys a product below the ceiling price. B) A person buys a product at a price greater than the ceiling price. C) A person places a bet at a racetrack. D) A person buys a hotdog on a street corner. E) A person buys shares in a company for less than the Toronto Stock Exchange price. 6) Which of the following is an example of a black-market transaction? A) A person buys a product below the ceiling price. B) A person buys a product at a price greater than the ceiling price. C) A person places a bet at a racetrack. D) A person buys a hotdog on a street corner. E) A person buys shares in a company for less than the Toronto Stock Exchange price. 7) In the short run the supply of rental accommodation is A) very price elastic. B) infinitely price elastic. C) unit price elastic. D) irrelevant to the housing market price. E) very or completely price inelastic. 7) In the short run the supply of rental accommodation is A) very price elastic. B) infinitely price elastic. C) unit price elastic. D) irrelevant to the housing market price. E) very or completely price inelastic. 8) Market demand is Q = 100 – 10P. Market supply is Q = 10P. Equilibrium price and quantity are A) 50, 5 B) 5, 50 C) 8, 20 D) 20,8. 8) Market demand is Q = 100 – 10P. Market supply is Q = 10P. Equilibrium price and quantity are A) 50, 5 B) 5, 50 C) 8, 20 D) 20,8. 9) Refer to Question #8. A tax on suppliers results in a new equation for supply: Q = 10P – 20. The new equilibrium quantity traded is A) 10 B) 20 C) 30 D) 40. 9) Refer to Question #8. A tax on suppliers results in a new equation for supply: Q = 10P – 20. The new equilibrium quantity traded is A) 10 B) 20 C) 30 D) 40. 10) Refer to Question #9. Consumers now pay ____ and producers now receive ____ A) $6, $6 B) $6, $4 C) $4, $6 D) $4, $4. 10) Refer to Question #9. Consumers now pay ____ and producers now receive ____ A) $6, $6 B) $6, $4 C) $4, $6 D) $4, $4. 11) Refer to Question #10. The government’s tax revenue is A) $40 B) $50 C) $80 D) $240. 11) Refer to Question #10. The government’s tax revenue is A) $40 B) $50 C) $80 D) $240. 12) Refer to Question #10. Which statement is true? A) demand is more elastic than supply B) supply is more elastic than demand C) demand and supply have the same elasticity D) demand and supply are both unit elastic. 12) Refer to Question #10. Which statement is true? A) demand is more elastic than supply B) supply is more elastic than demand C) demand and supply have the same elasticity D) demand and supply are both unit elastic. 13) Refer to Question #10. The deadweight loss due to taxation is A) $20 B) $10 C) 0 since consumers and producers share the burden of the tax equally D) insufficient information to determine. 13) Refer to Question #10. The deadweight loss due to taxation is A) $20 B) $10 C) 0 since consumers and producers share the burden of the tax equally D) insufficient information to determine. 14) Both Kate and Kyle own furniture factories that produce rocking chairs. In her factory Kate uses a production process that has very low fixed costs and very high variable costs. In his factory Kyle uses a production process that has very high fixed costs and very low variable costs. Currently, each factory is producing 100 rocking chairs at the same total cost. Which of the following statements is correct? If each produces A) less, their costs will be equal. B) more, their costs will be equal. C) more, the costs of Kate's factory will exceed those of Kyle's factory. D) less, the costs of Kate's factory will exceed those of Kyle's factory. 14) Both Kate and Kyle own furniture factories that produce rocking chairs. In her factory Kate uses a production process that has very low fixed costs and very high variable costs. In his factory Kyle uses a production process that has very high fixed costs and very low variable costs. Currently, each factory is producing 100 rocking chairs at the same total cost. Which of the following statements is correct? If each produces A) less, their costs will be equal. B) more, their costs will be equal. C) more, the costs of Kate's factory will exceed those of Kyle's factory. D) less, the costs of Kate's factory will exceed those of Kyle's factory. 15) A) B) C) D) Diminishing marginal product implies decreasing average variable costs. decreasing marginal costs. increasing marginal costs. decreasing average fixed costs. 15) A) B) C) D) Diminishing marginal product implies decreasing average variable costs. decreasing marginal costs. increasing marginal costs. decreasing average fixed costs. 16) If you know that marginal cost is at a minimum, then you can deduce that A) average variable cost is also at a minimum. B) average variable costs must be increasing. C) average variable costs must be decreasing. D) total variable costs must be at a minimum. 16) If you know that marginal cost is at a minimum, then you can deduce that A) average variable cost is also at a minimum. B) average variable costs must be increasing. C) average variable costs must be decreasing. D) total variable costs must be at a minimum. 17) In perfect competition, the marginal revenue curve A) and the demand curve facing the firm are identical. B) is always above the demand curve facing the firm. C)is always below the demand curve facing the firm. D)intersects the demand curve when marginal revenue is minimized. 17) In perfect competition, the marginal revenue curve A) and the demand curve facing the firm are identical. B) is always above the demand curve facing the firm. C)is always below the demand curve facing the firm. D)intersects the demand curve when marginal revenue is minimized. 18) If a firm is producing where MR > MC, A) the revenue gained by producing one more unit of output exceeds the cost incurred by doing so. B) the revenue gained by producing one more unit of output equals the cost incurred by doing so. C) the revenue gained by producing one more unit of output is less than the cost incurred by doing so. D) the firm is already maximizing profits since revenue is being increased by more than costs. 18) If a firm is producing where MR > MC, A) the revenue gained by producing one more unit of output exceeds the cost incurred by doing so. B) the revenue gained by producing one more unit of output equals the cost incurred by doing so. C) the revenue gained by producing one more unit of output is less than the cost incurred by doing so. D) the firm is already maximizing profits since revenue is being increased by more than costs. 19) A firm in a perfectly competitive industry is producing 50 units, its profit-maximizing quantity. Industry price is $2 and total fixed costs and total variable costs are $25 and $40, respectively. The firm's economic profit is A) $15. B) $30. C)$35. D)$60. 19) A firm in a perfectly competitive industry is producing 50 units, its profit-maximizing quantity. Industry price is $2 and total fixed costs and total variable costs are $25 and $40, respectively. The firm's economic profit is A) $15. B) $30. C)$35. D)$60. Number of Fruit Baskets 0 1 2 3 4 5 6 TFC $50 50 50 50 50 50 50 TVC $0 10 15 21 31 46 68 TC $50 60 65 71 81 96 118 MC -10 5 6 10 15 22 20) Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $10. To maximize profits, Exotic Fruit should sell ____ fruit basket(s). A) zero B) one C) four D) either one or four Number of Fruit Baskets 0 1 2 3 4 5 6 TFC $50 50 50 50 50 50 50 TVC $0 10 15 21 31 46 68 TC $50 60 65 71 81 96 118 MC -10 5 6 10 15 22 20) Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $10. To maximize profits, Exotic Fruit should sell ____ fruit basket(s). A) zero B) one C) four D) either one or four Number of Fruit Baskets 0 1 2 3 4 5 6 TFC $50 50 50 50 50 50 50 TVC $0 10 15 21 31 46 68 TC $50 60 65 71 81 96 118 MC -10 5 6 10 15 22 21) Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $10. This firm is currently making A) zero economic profit B) positive economic profit C) economic loss D) a big mistake. Number of Fruit Baskets 0 1 2 3 4 5 6 TFC $50 50 50 50 50 50 50 TVC $0 10 15 21 31 46 68 TC $50 60 65 71 81 96 118 MC -10 5 6 10 15 22 21) Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $10. This firm is currently making A) zero economic profit B) positive economic profit C) economic loss D) a big mistake. 22) The Taste Freeze Ice Cream Store is a perfectly competitive firm producing where MR = MC. The market price of an ice cream cake is $5.00. Taste Freeze sells 200 ice cream cakes. Its AVC is $8.00 and its AFC is $3.00. Taste Freeze should A) continue to produce since price exceeds AFC. B) shut down and produce zero ice cream cakes since price is less than AVC. C) decrease production so that AFC would decrease. D) increase production so that AFC would decrease. 22) The Taste Freeze Ice Cream Store is a perfectly competitive firm producing where MR = MC. The market price of an ice cream cake is $5.00. Taste Freeze sells 200 ice cream cakes. Its AVC is $8.00 and its AFC is $3.00. Taste Freeze should A) continue to produce since price exceeds AFC. B) shut down and produce zero ice cream cakes since price is less than AVC. C) decrease production so that AFC would decrease. D) increase production so that AFC would decrease. 23) A perfectly competitive firm faces total costs TC = 10 + 5Q2. Its marginal costs are MC = 10Q. If the market price is P = $50, the firm will produce how many units of output? A) zero; price is too low B) 50 C) 10 D) 5. 23) A perfectly competitive firm faces total costs TC = 10 + 5Q2. Its marginal costs are MC = 10Q. If the market price is P = $50, the firm will produce how many units of output? A) zero; price is too low B) 50 C) 10 D) 5. 24) A perfectly competitive firm faces total costs TC = 10 + 5Q2. Its marginal costs are MC = 10Q. If the market price is P = $50, the firm’s profit is A) $250 B) $115 C) $135 D) $0. 24) A perfectly competitive firm faces total costs TC = 10 + 5Q2. Its marginal costs are MC = 10Q. If the market price is P = $50, the firm’s profit is A) $250 B) $115 C) $135 D) $0. 25) If a firm is maximizing profit when its marginal cost is $25, A) price must be greater than the firm’s average total cost B) marginal revenue is at a maximum C) average variable cost must be $25 D) average revenue must be $25. 25) If a firm is maximizing profit when its marginal cost is $25, A) price must be greater than the firm’s average total cost B) marginal revenue is at a maximum C) average variable cost must be $25 D) average revenue must be $25. 26) If a firm’s marginal cost is $40 and its average variable cost is $30, A) AVC must be rising B) AVC must be at a minimum C) AVC must be falling D) MC must be constant for all levels of output. 26) If a firm’s marginal cost is $40 and its average variable cost is $30, A) AVC must be rising B) AVC must be at a minimum C) AVC must be falling D) MC must be constant for all levels of output. 27) When an increase in the scale of production leads to higher average costs, the industry is characterized by A) diminishing returns. B) increasing returns to scale. C) diseconomies of scale. D) constant returns to scale. 27) When an increase in the scale of production leads to higher average costs, the industry is characterized by A) diminishing returns. B) increasing returns to scale. C) diseconomies of scale. D) constant returns to scale. 28) An increase in the number of firms will cause which of the following? A) No change in the industry supply curve and an outward shift in the firm's supply curve. B) The industry supply curve will shift to the right and the firm's supply curve will be unchanged. C)Both the industry supply curve and the firm's supply curve will shift to the right. D)Neither the industry supply curve nor the firm's supply curve will shift. 28) An increase in the number of firms will cause which of the following? A) No change in the industry supply curve and an outward shift in the firm's supply curve. B) The industry supply curve will shift to the right and the firm's supply curve will be unchanged. C)Both the industry supply curve and the firm's supply curve will shift to the right. D)Neither the industry supply curve nor the firm's supply curve will shift. 29) A natural monopoly exists when A) the government protects the firm by granting an exclusive franchise. B) the average total cost curve is upward sloping. C) there are no rivals in the market. D) one firm can supply the entire market and be the most efficient plant size. E) production can take place with constant returns to scale. 29) A natural monopoly exists when A) the government protects the firm by granting an exclusive franchise. B) the average total cost curve is upward sloping. C) there are no rivals in the market. D) one firm can supply the entire market and be the most efficient plant size. E) production can take place with constant returns to scale. 30) For the monopolist facing a downwardsloping demand curve, the marginal revenue never exceeds the price because the A) producers of substitutes keep the price low. B) monopolist has a low marginal cost relative to a competitive firm. C) monopolist must lower the price in order to sell more during any given period of time. D) monopoly will be a large corporation with high fixed costs. E) monopolist must accept the marginal revenue set by the market as a whole. 30) For the monopolist facing a downwardsloping demand curve, the marginal revenue never exceeds the price because the A) producers of substitutes keep the price low. B) monopolist has a low marginal cost relative to a competitive firm. C) monopolist must lower the price in order to sell more during any given period of time. D) monopoly will be a large corporation with high fixed costs. E) monopolist must accept the marginal revenue set by the market as a whole. 31) The monopolist will maximize the profit of the firm by A) setting the price equal to the marginal cost of production. B) producing the quantity where marginal revenue equals price. C) charging a price that is as high as the market can bear. D) producing the quantity where the marginal cost equals the price charged. E) producing the quantity where the marginal revenue equals the marginal cost, and then selling that output for as high a price as the market can bear. 31) The monopolist will maximize the profit of the firm by A) setting the price equal to the marginal cost of production. B) producing the quantity where marginal revenue equals price. C) charging a price that is as high as the market can bear. D) producing the quantity where the marginal cost equals the price charged. E) producing the quantity where the marginal revenue equals the marginal cost, and then selling that output for as high a price as the market can bear. 32) Refer to Figure 1. What is the profitmaximizing output level for this monopolist? A) 6 units per day. B) 4 units per day. C) 8 units per day. D) 2 units per day. E) 1 unit per day. 32) Refer to Figure 1. What is the profitmaximizing output level for this monopolist? A) 6 units per day. B) 4 units per day. C) 8 units per day. D) 2 units per day. E) 1 unit per day. 33) Refer to Figure 1. What price will the monopolist charge in order to maximize profit? A) $5. B) $7.50. C) $7. D) $6. E) $10. 33) Refer to Figure 1. What price will the monopolist charge in order to maximize profit? A) $5. B) $7.50. C) $7. D) $6. E) $10. 34) Refer to Figure 1. At the profitmaximizing price and output, the total revenue is A) $18. B) $15. C) $25. D) $7.50. E) $9. 34) Refer to Figure 1. At the profitmaximizing price and output, the total revenue is A) $18. B) $15. C) $25. D) $7.50. E) $9. 35) Refer to Figure 1. At the profitmaximizing price and output, the total cost is A) $15. B) $8. C) $18. D) $7. E) $14. 35) Refer to Figure 1. At the profitmaximizing price and output, the total cost is A) $15. B) $8. C) $18. D) $7. E) $14. 36) Refer to Figure 1. The total profit for this monopolist is A) $1. B) $4. C) $5. D) $0. E) impossible to compute without more information concerning the fixed costs. 36) Refer to Figure 1. The total profit for this monopolist is A) $1. B) $4. C) $5. D) $0. E) impossible to compute without more information concerning the fixed costs. 37) Refer to Figure 1. The deadweight loss is approximately A) $1.50 B) $3. C) $1.25 D) $1. E) $3.25. 37) Refer to Figure 1. The deadweight loss is approximately A) $1.50 B) $3. C) $1.25 D) $1. E) $3.25. ...
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