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1.An optimal decision is one that chooses:
the most desirable alternative among possibilities permitted by the resources available.
2.In a voluntary exchange between a buyer and a seller
the buyer’s expenditures and the seller’s revenues are identical
3.The concept of opportunity cost in a fully employed economy with technology and resources held constant tells us that
increase of output in one industry means output in another industry must decrease.
4.The demand curve for a typical good has a (an)
negative slope because some buyers switch to other goods as the price of the good rises.
5.Which of the following would be most likely to cause an outward shift of the demand curve for electricity?
an increase in the price of heating oil
6.The removal in 1966 of the requirement that Catholics eat fish on Fridays was followed by a 12.5 percent fall in prices of fresh fish. From this it can be deduced that the
demand curve for fish shifted to the left.
7.If price rises, what happens to supply for a product?
It does not change.
8."Moonshine" is illegal home brew made by adding sugar to accelerate corn fermentation. Ten pounds of sugar are necessary to make a gallon of moonshine. In the mid-1970s, the price of sugar tripled and the price of moonshine skyrocketed from $6 to $15 a gallon. Which graph in Figure 3-9 best illustrates this?
9.When the price of a commodity falls, we can expect
marginal utility of the last unit purchased will fall.
10.The law of diminishing marginal utility explains why
most individual demand curves slope downward.
11.Marginal utility has a negative slope. This is because of the
law of diminishing marginal utility.
12.Consumer's surplus can be written as
total utility - total expenditure.
13.If the demand for gasoline becomes more elastic over time,
the demand curve will become flatter.
14.Where marginal cost is less than average cost,
marginal cost may be rising, falling, or constant.
15.If a firm has increasing returns to scale at all levels of output, the
slope of its long-run average cost curve is always negative.
16.A firm’s economies of scale
pertains to the long run only.
17.Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent
marginal cost, average variable cost, and average total cost will shift up.
18.Of the graphs in Figure 6-8, which represents total cost?
19.Cost minimization is the process of making optimal use of all inputs whose quantities are
variable both in the short run and the long run.
20.Once the profit-maximizing output where MR = MC is determined, price is set by
the demand curve.
21.When a firm's fixed cost rises, its total profit curve shifts
down at every output level.
22.The federal government, in order to fund expanded health care, imposes a lump-sum tax on all business property. Profit-maximizing firms that stay in business will respond by
lowering prices to stimulate demand.
23.An airline is considering adding a flight from Chicago to Sioux Falls. Total cost of the flight is $5,500. Variable cost is $2,000. Revenue from the flight is expected to be $3,000. Should the flight be added?
Yes, profit increases by $1,000 ($3,000 - $2,000.)
24.In 1984, British Prime Minister Margaret Thatcher decided to shut down so-called "uneconomic" coal mines owned by the government. The National Union of Mineworkers protested, asserting that there was enough coal in the mines to continue current levels of production for years. Thatcher implicitly argued that her decision was economically sound because, at any practical level of output, for each "uneconomic" mine,
MC > MR.
25.Adding additional students to a university's roster will leave the university's financial status unaffected if
MR = MC
26.A firm in short-run equilibrium always earns positive profits if
SRAR > SRAC.
27.If a firm shuts down in the short run, its losses are equal to
28.If the price falls below minimum SRAVC, the quantity supplied by the firm will be
29.The supply curve for a competitive industry is obtained by
horizontally summing the supply curves of firms in the industry.
30.When a firm leaves a perfectly competitive industry,
the individual demand curves facing remaining firms shift up in the long run.
31.The short-run supply curve of the competitive industry is found by summing
MC curves above AVC of the individual firms in the industry.
32.A firm in a perfectly competitive industry
may choose a different input mix in the long run than in the short run.
33.Zero economic profits for a perfectly competitive firm in the long run means
the firm is in equilibrium.
34.The perfectly competitive widget industry is in long-run equilibrium. A profit-maximizing manufacturer receives total revenue of $55,000. He uses his labor, $15,000 worth of wire, and $15,000 worth of steel to make the widgets. The manufacturer
must have an opportunity cost of labor of exactly $25,000.
35.An increase in demand will cause an increase in industry output in the long run because
new firms enter the industry.
36.At its long-run equilibrium level of output, the demand curve facing an individual perfectly competitive firm is tangent to its
long-run average cost curve.
37.A perfectly competitive industry in long-run equilibrium is described as efficient because firms
produce at the low point on their average cost curve.
38.If you must determine the long-run equilibrium output of a competitive firm and you are permitted to see only one curve, which of the following curves is most helpful?
39.In long-run equilibrium under perfect competition,
the demand curves facing individual firms will fall to the level of minimum AC.
40.A subsidy to firms intended to reduce pollution in an industry would
likely have the paradoxical effect of increasing pollution in the industry in the long run.
41.Which of the following is likely to have a demand curve that is the least elastic? MT-3
Demand for a monopoly firm’s output
42.The market for good X is currently in equilibrium. Which of the following choices would NOT cause a decrease in both the equilibrium price and the equilibrium quantity of good X? MT-32
An increase in the number of consumers who want to buy good X
43.If it is true that bacon and eggs are complements, then which of the following must be true? MT-26
the cross elasticity between bacon and eggs is negative
44.Which of the following certainly lowers the equilibrium price of a good exchanged in a competitive market? MT-8
The demand curve shifts to the left and the supply curve shifts to the right
45.Suppose a price floor is imposed on the coffee market. One result of this policy would be: MT-15
a decrease in the demand for coffee-brewing machines
46.Which of the following is true of the perfectly competitive firm in the long run? MT-18
The firm earns a normal profit
47.Which of the following will occur if a natural monopoly is broken into two smaller firms?
Production costs will increase.
48.The marginal revenue curve for a monopolist is
always below the demand curve.
49.Unlike a perfectly competitive firm, a monopolist
cannot increase production without affecting the price he receives for his good.
50.Since a monopoly faces a downward-sloping demand curve,
the monopolist is a price maker.
51.A monopolist can sell 10 wangdoodles if he charges $10 per wangdoodle and 11 wangdoodles if he charges $9. The MR from selling the 11th wangdoodle is
52.The demand curve of the monopoly firm is always the
average revenue curve.
53.At a given output level, a monopolist earns a profit only if the
height of its demand curve exceeds the height of his ATC curve.
54.At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist
could increase his profit by increasing his output.
55.At his profit-maximizing level of output, a monopolist's average total cost curve is tangent to his demand curve. The monopolist
is earning zero economic profit.
56.In Figure 10-3, which of the following is always true, whether or not the monopolist is maximizing profits?
MR < P
57.In Figure 10-5, Crown Theater, a monopolist movie theater, will make a profit of ______ at its profit-maximizing price and quantity of theater tickets.
58.In which of the following ways is a monopolist different from a perfect competitor?
Price is above marginal revenue.
59.Compared to a perfectly competitive firm, a monopolist
usually produces an inefficiently small level of output.
60.In the long run, a profit-maximizing monopolist
receives a higher price for his output than a perfectly competitive firm.
61.In the long run,
consumer surplus is smaller if an industry is a monopoly than if it is perfectly competitive.
62.At its optimal output level, the profit-maximizing monopolist in Figure 10-6 will earn a profit equal to
(P2 - P3)Q.
63.Monopoly as a market structure leads to
persistent economic profits.
64.In Figure 10-9, which of the following is true if the firm maximizes profits?
MU > MR
65.The average total cost curve of a natural monopoly is always
downward sloping where it crosses the market demand curve for the good.
66.A 50 percent tax on the profits of a monopolist will
cause no change in profit-maximizing price and quantity.
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