question

economists would describe the US automobile industry as:

answer

an oligopoly

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in which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

answer

oligopoly

question

which of the following industries most closely approximates pure competition

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***A. Agriculture.*** B. Farm implements. C. Clothing. D. Steel.

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economists use the term imperfect competition to describe:

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those markets that are not purely competitive

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a purely competitive seller is

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a "price taker"

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which of the following is not a basic characteristic of pure competition?

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***A. Considerable nonprice competition.*** B. No barriers to the entry or exit of firms. C. A standardized or homogeneous product. D. A large number of buyers and sellers.

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the demand schedule or curve confronted by the individual, purely competitive firm is:

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perfectly elastic

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characteristic of a purely competitive seller's demand curve?

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price and marginal revenue are equal at all levels of output

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assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis for a purely competitive firm, marginal revenue graphs as

answer

straight line, parallel to the horizontal axis

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assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis for a purely competitive firm

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the demand and marginal revenue curves will coincide

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a competitive firm will maximize profits at that output at which:

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total revenue exceeds total cost by the greatest amount

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the MR=MC rule can be restated for a purely competitive seller as P=MC because

answer

each additional unit of output adds exactly its price to total revenue

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which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run

answer

***A. Price must be at least equal to average total cost.*** B. Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run. C. Price may be equal to, greater than, or less than average total cost. D. Price must be equal to or greater than minimum average variable cost for the firm to continue producing.

question

assume the XYZ corporation is producing 20 units of output. it is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is at $3 at 20 units of output. this corporation:

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A. should close down in the short run. B. is maximizing its profits. C. is realizing a loss of $60. ***D. is realizing an economic profit of $40.***

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a purely competitive firm's short-run supply curve is

answer

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve

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suppose you find that the price of your product is less than minimum AVC. you should:

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close down because, by producing, your losses will exceed your total fixed costs

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in the short-run, a purely competitive firm will always make an economic profit if

answer

P>ATC

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Suppose that at 500 units of output marginal revenue is equal to marginal cost. The firm is selling its output at $5 per unit and average total cost at 500 units of output is $6. On the basis of this information, we:

answer

cannot determine whether the firm should produce or shut down in the short run

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a firm finds that at its MR=MC output, its TC=$1,000 TVC=$800, TFC= $200 and total revenue is $900. the firm should:

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produce because the resulting loss is less than its TFC

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on a per unit basis, economic profit can be determined as the difference between:

answer

product price and average total cost

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if at the MC=MR output, AVC exceeds price:

answer

some firms should shut down in the short run

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in contrast to american firms, japanese firms frequently make lifetime employment commitments to their workers and agree not to lay them off when product demand is weak. other things being equal, we would expect japanese firms to:

answer

A. face more elastic product demand curves than American firms. B. have relatively greater variable costs than American firms. C. discontinue production at higher product prices than would American firms. ***D. continue to produce in the short run at lower prices than would American firms.***

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in the short run, a purely competitive firm will earn a normal profit when:

answer

P=ATC

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an unprofitable motel will stay open in the short run if:

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***A. price (average nightly room rate) exceeds average variable cost.*** B. marginal revenue exceeds marginal cost. C. price (average nightly room rate) exceeds average fixed cost. D. marginal revenue exceeds price.

question

fixed costs for a firm are analogous to

answer

starting out in a hole that represents economic losses if the firm produces nothing

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oil wells are seasonal resorts will often shut down temporarily because

answer

prices for their output temporarily fall below their average variable costs of production

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economic cost can be defined as

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a payment that must be made to obtain and retain the services of a resource

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which of the following constitutes an implicit cost to the Johnston Manufacturing Company

answer

use of savings to pay operating expenses instead of generating interest income.

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which of the following is most likely to be an implicit cost for company X?

answer

foregone rent from the building owned and used by company X

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production costs to an economist

answer

reflect opportunity costs

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what do wages paid to factory workers, interest paid on a bank loan, foregone interest, and the purchase of component parts have in common?

answer

all are opportunity costs

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an explicit cost is

answer

a money payment made for resources not owned by the firm itself

question

accounting profits are typically

answer

greater than economic profits because the former do not take implicit costs into account

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suppose that a business incurred implicit costs of $200,000 and explicit costs of 1 million in a specific yr. if the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

answer

$200,000 and its economic profits were zero

question

the following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 what is the accounting profit

answer

$230,000

question

the following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 total revenues exceed its total costs, including a normal profit by:

answer

$94,000

question

the following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 if other things equal, Creamy Crisp's revenue fell to $286,000

answer

it would earn a normal profit but not an economic profit

question

the amount of calendar time associated with the long run

answer

varies from industry to industry

question

marginal product

answer

may initially increase, then diminish, and ultimately become negative

question

if in the short run a firm's total product is increasing, then its

answer

marginal product could be either increasing or decreasing

question

the law of diminishing returns results in:

answer

a total product curve that eventually increases at a decreasing rate

question

when total product is increasing at a decreasing rate, marginal product is:

answer

positive and decreasing

question

for most producing firms

answer

average total costs decline as output is carried to a certain level, and then begin to rise

question

the vertical distance between the total cost and the total variable cost curves differs by an amount that:

answer

is constant as output changes

question

as output increases, total variable cost

answer

increases at a decreasing rate and then at an increasing rate

question

if a technological advance increases a firms labor productivity, we would expect its

answer

average total cost curve to fall

question

the short- run average total cost curve is U-shaped because

answer

of increasing and diminishing returns

question

economies of scale are indicated by:

answer

the declining between total revenue and total cost

question

if an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

answer

both relatively small and relatively large firms can be viable in the industry

question

a natural monopoly exists when

answer

unit costs are minimized by having one firm produce and industry's entire output

question

in which of the following industries are economies of scale exhausted at a relatively low levels of output?

answer

A. Aircraft production. B. Automobile manufacturing. ***C. Concrete mixing.*** D. Newspaper printing.

question

daily newspapers have been rising in price in recent years because:

answer

the overhead costs have recent;y been spread over a shrinking number of buyers

question

which of the following is an example of a sunk cost

answer

an expenditure on a nonrefundable, nontransferable airline ticket

question

ability of a good or service to satisfy its wants

answer

utility

question

the law of diminishing MU states that

answer

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer

question

the first pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. his total utility from three pepsis is 38 units of utility. the MU of the third pepsi is

answer

8 units of utility

question

if the price of product X rises, then the resulting decline in the amount purchased will

answer

increase the marginal utility of the last unit consumed of this good

question

MU is the

answer

change in TU obtained by consuming one more unit of a good

question

the law of diminishing MU explains why

answer

demand curves slope downward

question

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

answer

Mrs arnold should spend more on soda and less on pretzles

question

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

answer

more of B and less of A

question

suppose you have a limited money income and you are purchasing products A and B, whose priced happen to be the same. To maximize your utility, you should purchase A and B in such amounts that

answer

MU are the same

question

a consumer who has a limited budget will maximize utility or satisfaction when the

answer

ratios of the MU of each product purchased divided by its price are equal

question

If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products B and C in consumer equilibrium:

answer

are $105 and $140 respectively

question

an increase in the price of product A will

answer

decrease the marginal utility per dollar spent on A

question

the theory of consumer behavior assumes that consumers attempt to maximize

answer

total utility

question

Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 units of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 units of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 units of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?

answer

Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect

question

which of the following has been a significant factor in the ability of ipads to compete effectively against laptop and desktop computers?

answer

many consumers perceive that ipads are surperior to laptops and desktop computers for the consumption of digital media

question

the diamond-water paradox occurs because:

answer

price of a product is related to its MU, not its TU

question

the "essential" water is cheaper than "nonessential" diamonds because:

answer

the supply of water is great relative to demand and the supply of diamonds is small relative to demand

question

the fact that most medical care purchases are financed through insurance

answer

increases the amount of health care consumed by reducing the price of additional units of care

question

noncash gifts

answer

reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences

question

according to economists, gift registries, returning gifts for cash refunds, and "recycling gifts"

answer

increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying

question

newpaper dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of

answer

diminishing MU

question

unlike newspaper dispensing, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. the reason is that the

answer

MU of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later

question

most people do not steal because

answer

their MC, including guilt costs, are too high

question

all of the following would reduce property crime by increasing its "price" except

answer

A. imposing greater penalties for those who are caught and convicted. B. using more sophisticated security systems. C. enhancing the legitimate earnings of potential criminals. ****D. cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.*****

question

in moving along a given budget line

answer

the prices of both products and money income are assumed to be constant

question

a change in the slope of a budget line is solely the result of a change in

answer

the price of one good relative to the other

question

the slope of a budget line reflects the

answer

price ratio of the two products

question

Edith is buying products X and Y with her money income. suppose her budget line shifts rightwards (outward). this might be the result of

answer

her money income increasing more than proportionately to increases in the prices of X and Y

question

an indifference curve

answer

is downsloping and convex to the origin

question

the marginal rate of substitution measures the

answer

consumer's willingness to substitute one product for another so that total utility will remain constant

question

which of the following is correct

answer

A. Budget lines are linear and upsloping; indifference curves are downsloping and concave to the origin. B. Budget lines are linear and downsloping; indifference curves are downsloping and concave to the origin. *****C. Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.******* D. Budget lines are downsloping and convex to the origin; indifference curves are linear and downsloping.

question

the lines on a topographical map are analogous to an

answer

indifference map

question

Which of the following best explains the difference between neoclassical economics and behavioral economics

answer

Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.

question

Because neoclassical economists assume that people are rational decision makers, they:

answer

ignore the mental processes by which these decisions are made.

question

What do neoclassical economics and behavioral economics believe about giving people options?

answer

Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.

question

What are the two categories of cognitive biases identified by behavioral economists?

answer

Unevolved capacity for solving modern problems and faulty heuristics.

question

Dorothy likes to invest in Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold. Behavioral economists would say that Dorothy suffers from:

answer

confirmation bias.

question

Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort, and failures to forces outside their control?

answer

Self-serving bias.

question

A central focus of prospect theory is:

answer

how people deal with "bads," as well as how they deal with "goods."

question

In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?

answer

People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave

question

Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card

answer

Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements.

question

Anchoring:

answer

can influence decision making with irrelevant information

question

Bucky and Satchel are offered identical jobs, each paying $80,000 per year. According to behavioral economics:

answer

how each will feel about the job offer will depend on their current positions and incomes

question

Credit card companies require low minimum payments that impose significant interest costs

answer

have little effect, as anchoring would keep many people paying the minimum

question

According to behavioral economists, self-control problems

answer

are often caused by time inconsistency

question

According to behavioral economists, precommitments

answer

help people overcome their self-control problems caused by time inconsistency

question

Natural disasters often cause shortages of critical supplies. What outcomes would neoclassical

answer

Neoclassical economists would expect prices to rise dramatically as a natural result of the greater

question

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists

answer

responders are no more likely to accept the offer if they consider the split to be unfair

question

Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they play for $10;

answer

exhibit a stronger negative reaction than the first time and ultimately reject the offer.

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