Chapter 7: Technology and Production
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Q1) Which of the following is a short-run decision?
A) Because of an increase in enrollment, the economics department hires two new professors
B) After a new classroom building is built, the economics department hires two new professors
C) Your college builds a new classroom building
D) The economics department buys new computers for the professors
Q2) Refer to Figure 7.2.Which of the following statements is true?
A) The curve labeled A represents the AP<sub>L</sub>
B) Curves A and B represent short-run production functions
C) The curve labeled A represents the MP<sub>L</sub>
D) The curve labeled B represents the MP<sub>L</sub>
Q3) The Cobb-Douglas production function F(L,K)= AL<sup>a</sup>K<sup>b</sup>will exhibit decreasing returns to scale when
A) A + b = 1
B) A + b < 1
C) A + b > 1
D) A + b = 0
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Chapter 8: Cost
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Q1) A firm's ______ cost is equal to the sum of the ______ costs of the individual units it produces.
A) Total; average
B) Variable; average
C) Total; marginal
D) Variable; marginal
Q2) Diseconomies of scope occur when
A) A firm's input prices rise as it increases output
B) A firm's average cost of production rises as it increases production
C) Producing two products in a single firm is more expensive than producing them in separate firms
D) A firm's average cost of production falls as it increases production
Q3) The marginal cost curve
A) Intersects the average cost curve from above at the efficient scale of production
B) Lies below the average cost curve
C) Intersects the average cost curve from below at the highest point on the average cost curve
D) Intersects the average cost curve from below at the efficient scale of production
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Chapter 9: Rofit Maximization
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Q1) Suppose a competitive firm produces spaghetti dinners.The market price of a spaghetti dinner is $20.The cost of making the dinners is given by C(Q)= 10Q + (Q<sup>2</sup>/160).The marginal cost is given by MC = 10 + (Q/80).
a)How many spaghetti dinners should the firm make each day?
b)What if the firm has avoidable fixed costs of $1562.50?
c)What is the firm's supply function if there is no avoidable fixed cost?
d)What is the supply function if the firm has avoidable fixed costs of $1562.50?
Q2) When actions are finely divisible marginal benefit is ______ marginal cost at an interior best choice.
A) Greater than
B) Less than
C) Equal to
D) Greater than or equal to
Q3) Refer to Figure 9.3.The firm's profit it represented by what area?
A) AHID
B) ABCD
C) DCK0
D) EFG0
Q4) Using a graph,explain why the law of supply holds for a competitive firm.
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Chapter 10: Choices Involving Time
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Q1) Which of the following statements about nominal interest and real interest is true?
A) Nominal interest is a yearly rate and real interest is a monthly rate
B) Nominal interest does not adjust for inflation, whereas real interest does
C) Nominal interest is what the lender receives and real interest is what the borrower pays
D) Nominal interest and real interest are two ways of saying the same thing
Q2) Suppose the interest rate is 8%.If a project requires an initial investment of $5,000 and returns $5,500 in a year,what is its internal rate of return?
A) 2%
B) 8%
C) 10%
D) 18%
Q3) Durable,marketable skills that generate higher income are also known as
A) Physical capital
B) Investment capital
C) Human capital
D) Education capital
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Chapter 11: Choices Involving Risk
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Q1) If two investments are perfectly negatively correlated
A) Diversification is not effective at reducing risk
B) Bets are perfectly hedged and risks are canceled out
C) Diversification reduces risk without changing the expected payoff
D) Diversification reduces both risk and the expected payoff
Q2) Brandon's certainty equivalent given the information in problem 29 is
A) 45.75
B) 33.06
C) 30.5
D) 61
Q3) What is the standard deviation of the investment payoff described in problem 4?
A) $0
B) $2,581,875
C) $42.50
D) $1,606.82
Q4) A person is risk neutral if
A) Her indifference curve is concave to the origin
B) Her indifference curve is convex to the origin
C) Her indifference curve coincides with the expected consumption line
D) Her indifference curve coincides with guaranteed consumption line
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Chapter 12: Choices Involving Strategy
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Q1) Refer to Figure e.What is the Nash equilibrium?
A) The only Nash equilibrium occurs when Allie watches the Red Sox, Brandon watches the Mets
B) The only Nash equilibrium occurs when Allie and Brandon both watch the Red Sox
C) The only Nash equilibrium occurs when Allie and Brandon both watch the Mets
D) There is more than one Nash equilibrium.
Q2) John Nash shared the Nobel Prize in Economics with
A) John Harsanyi and Reinhard Selton
B) Reinhard Selton
C) Robert Auman and Reinhard Selton
D) Milton Friedman
Q3) A game is
A) A situation in which each member of a group makes at least one decision and cares both about his own choice and about others' choices
B) Describes a situation in which strategy plays a role
C) Provides the foundation for understanding competition in industries with only a few producers
D) All of these
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Chapter 13: Behavioral Economics
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Q1) Pre commitment is
A) A solution for dynamic inconsistency
B) A choice that removes future options
C) A way to avoid "bad" choices by restricting future options
D) All of these
Q2) Disadvantages of experiments include
A) Decisions made in the laboratory differ from those made in the real world
B) Laboratory experiments introduce influences on decision making that are difficult to measure or control
C) Experimental subjects are typically not representative of the general population
D) All of these
Q3) Suppose Hillary was offered the following choices: 1.Win $10 for sure or 2.Win $20,000 with odds of 1 in 2,000; otherwise win nothing.If Hillary is risk averse she will choose
A) Option 1
B) Option 2
C) She is indifferent between the two
D) Both with equal probability
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Chapter 14: Equilibrium and Efficiency
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Q1) Market demand for a product
A) Is the demand of an individual consumer
B) Graphically is the horizontal sum of the individual demand curves
C) Graphically is the vertical sum of the individual demand curves
D) Graphically is the horizontal sum of the individual supply curves
Q2) Transactions costs are absent when
A) Sellers can easily communicate their prices
B) Buyers can easily locate suppliers and learn their prices
C) Buyers and sellers can arrange transactions without significant obstacles
D) All of these
Q3) Characteristics of a perfectly competitive market include
A) The absence of transaction costs
B) Differentiated products
C) Few sellers, some with a large market share
D) All of these
Q4) Properties of long-run competitive equilibrium with free entry include
A) The equilibrium price must equal the minimum MC
B) Firms must earn zero profits
C) Active firms must produce at their maximum scale of production
D) All of these
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Chapter 15: Market Intervention
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Q1) If the import supply curve is upward sloping
A) A tariff can increase domestic aggregate surplus
B) A quota can increase domestic aggregate surplus
C) A tariff will decrease domestic aggregate surplus
D) A and B
Q2) With a price floor
A) Producer surplus will increase if profits increase
B) Producer surplus will increase is profits fall
C) Producer surplus will decrease if profits increase
D) Producer surplus always decreases
Q3) When the government implements a price support program
A) It may end up buying a lot of the good, for which it has little or no use
B) The goal is to increase the market price of the good
C) The deadweight loss created can be larger than that created by a price floor
D) All of these
Q4) If the import supply curve is horizontal at the world price
A) A tariff will lower domestic aggregate surplus
B) A tariff will increase domestic aggregate surplus
C) A tariff will not change domestic aggregate surplus
D) A quota will increase domestic aggregate surplus
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Chapter 16: General Equilibrium, Efficiency, and Equity
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Q1) A point along the production possibility frontier is
A) Inefficient
B) Impossible
C) Efficient
D) Inefficient and Impossible
Q2) The efficient efficiency condition holds
A) If every pair of individuals have inverse marginal rates of substitution for every pair of goods
B) If every pair of individuals shares the same marginal rate of substitution for every pair of goods
C) If every pair of individuals consume the same quantities of every pair of goods
D) If every pair of individuals shares different marginal rate of substitution for every pair of goods
Q3) Partial equilibrium analysis
A) Concerns competitive equilibrium only in the factor markets
B) Concerns competitive equilibrium only in the product markets
C) Concerns competitive equilibrium in a single market, considered in isolation
D) Is the study of competitive equilibrium in many markets at the same time
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Chapter 17: Monopoly
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Q1) A monopolist's marginal expenditure is
A) The extra benefit from hiring or purchasing the marginal unit of an input, per marginal unit
B) The extra cost incurred to hire or purchase the marginal units of an input, per marginal unit
C) The difference between the marginal cost and benefit from hiring the marginal unit of an input, per marginal unit
D) The total cost incurred to hire or purchase all units of an input in the production process
Q2) Discuss the difference between first-best and second-best price regulation.In your answer,you should address why governments regulate markets and the difficulties faced when doing so.
Q3) When a monopolist maximizes its profit by selling a positive amount
A) Its marginal revenue must equal its marginal cost at that quantity
B) Its marginal revenue must exceed its marginal cost at that quantity
C) Its marginal revenue must be less than its marginal cost at that quantity
D) Its marginal revenue must be equal to zero
Q4) Explain the difference between a monopoly and a monophony.
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Chapter 18: Pricing Policies
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Q1) Firms bundle their products because
A) It is technologically efficient to do so
B) It can increase a firm's ability to extract consumer surplus
C) It can increase a firm's profits
D) All of these
Q2) Price discrimination is based on self-selection
A) When a firm can distinguish consumers with a high versus low willingness to pay
B) When a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay
C) When a monopolist knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit
D) When a firm cannot distinguish consumers with a high versus low willingness to pay
Q3) Explain bundling and mixed bundling and the benefits to a multi product monopolist of such packaging schemes.
Q4) Discuss the differences between perfect and imperfect price discrimination and the benefits of each to a monopolist.
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Chapter 19: Oligopoly
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Q1) In a setting of repeated competition
A) The cooperative outcome is the repetition in each period of the Nash equilibrium outcome that would arise were the firms to compete just once
B) The noncooperative outcome is the repetition in each period of the Nash equilibrium outcome that would arise were the firms to compete just once
C) The noncooperative outcome is the Nash equilibrium that arises only after firms compete many times
D) The cooperative outcome is the Nash equilibrium that arises after firms compete many times
Q2) In an oligopolistic market
A) The more elastic the demand, the greater the markup
B) The larger the number of firms, the greater the markup
C) The less elastic the demand, the greater the markup
D) B and C
Q3) Define the Bertrand model and its assumptions.Explain why the model predicts the perfectly competitive outcome despite the number of sellers.Discuss the limitations of the model.
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Chapter 20: Externalities and Public Goods
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Q1) Pigouvian taxation
A) Involves the use of taxes or fees to remedy negative externalities
B) Involves the use of subsidies to remedy negative externalities
C) Is a legal principles requiring a party who takes an action that harms others to compensate the affected parties for some or all of their losses
D) Requires that victims of an externality pay a tax to the producers of the externality
Q2) An external cost is
A) The cost of a warehouse
B) A cost of production in some other market
C) The economic harm that a positive externality imposes on others
D) The economic harm that a negative externality imposes on others
Q3) An action creates an externality if it
A) Does not affect someone with whom the decision-maker has not engaged in a related market transaction
B) Affects someone with whom the decision-maker has not engaged in a related market transaction
C) Affects only those individuals engaged in the market transaction
D) Affects only those individuals not in the market transaction
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