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ECON 303 Exam 3 Multiple Choice

question
Scenario 8.2:
Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic.
Refer to Scenario 8.2. The result of the tax in the long run will be that

A.
Q falls from 30,000; P rises by $20,000.
B.
Q stays at 30,000; P rises by less than $20,000.
C.
Q stays at 30,000; P rises by $20,000.
D.
Q falls from 30,000; P rises by less than $20,000.
E.
Q falls from 30,000; P does not change.
answer
D.
Q falls from 30,000; P rises by less than $20,000.
question
If a competitive firm has a U-shaped marginal cost curve then

A.
the profit maximizing output is found where MC = MR and MC is constant.
B.
the profit maximizing output will always generate positive producer surplus.
C.
the profit maximizing output will always generate positive economic profit.
D.
the profit maximizing output is found where MC = MR and MC is increasing.
E.
the profit maximizing output is found where MC = MR and MC is decreasing.
answer
D.
the profit maximizing output is found where MC = MR and MC is increasing.
question
Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

A.
The LAC curve shifts downward as output falls.
B.
Initially, the output produced by existing firms declines along the short-run market supply curve.
C.
The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC.
D.
The market price declines below the minimum LAC due to the short-run supply response.
E.
As firms exit, the market price rises and attracts other firms to enter the market.
answer
E.
As firms exit, the market price rises and attracts other firms to enter the market.
question
Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs?

A.
Legal services
B.
Medical care
C.
Petroleum production
D.
all of the above
answer
D.
all of the above
question
Use the following statements to answer this question:
I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left.
II. An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve.
Identify if the statements are True or False.

A.
I is true and II is false.
B.
II is true and I is false.
C.
I and II are false.
D.
I and II are true.
answer
.
I and II are false.
question
Table 8.1
QP TR MR TC MC0$30 $0 ---$15 ---1$30 $30 $30 $25 $10 2$30 $60 $30 $40 $15 3$30 $90 $30 $60 $20 4$30 $120 $30 $85 $25 5$30 $150 $30 $115 $30 6$30 $180 $30 $150 $35
Average cost for the firm in Table 8.1

A.
is constant for all output values shown.
B.
is upward-sloping for all output values shown.
C.
cannot be determined from the information given.
D.
is downward-sloping for all output values shown.
E.
is U-shaped.
answer
E.
is U-shaped.
question
The textbook for your class was not produced in a perfectly competitive industry because

A.
there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price.
B.
it is not costless to enter or exit the textbook industry.
C.
upper-division microeconomics texts are not all alike.
D.
of all of the above reasons.
answer
D.
of all of the above reasons.
question
Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?

.
Firm produces more than optimal quantity and earns higher profits
B.
Firm produces less than optimal quantity and earns lower profits
C.
Firm produces less than optimal quantity and earns higher profits
D.
Firm produces more than optimal quantity and earns lower profits
answer
D.
Firm produces more than optimal quantity and earns lower profits
question
Scenario 10.2:
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5
Refer to Scenario 10.2. How much profit does the monopolist earn?

A.
$5.00
B.
$4512.50
C.
$4987.50
D.
$475.00
answer
B.
$4512.50
question
Scenario 10.3:
The demand curve and marginal revenue curve for red herrings are given as follows:
Q = 250 - 5P
MR = 50 - 0.4Q
Refer to Scenario 10.3. At the profit-maximizing level of output, demand is

A.
completely inelastic.
B.
inelastic, but not completely inelastic.
C.
elastic, but not infinitely elastic.
D.
infinitely elastic.
E.
unit elastic.
answer
C.
elastic, but not infinitely elastic.
question
For a competitive buyer, the marginal expenditure per unit of an input

A.
equals the average expenditure per unit.
B.
exceeds the average expenditure per unit.
C.
is less than the average expenditure per unit.
D.
any of the above could be true.
answer
A.
equals the average expenditure per unit.
question
Which of the following is NOT an example of buyer interaction that may improve the effectiveness of monopsony power?

A.
Labor unions that negotiate wage contracts for many workers who are employed by one firm.
B.
Professional sports leagues that coordinate salary structures for players across the teams.
C.
A buying cooperative in which members pool their purchases into one large order.
D.
All of the above are examples of buyer interaction in monopsonistic markets.
answer
A.
Labor unions that negotiate wage contracts for many workers who are employed by one firm.
question
In a bilateral monopoly with one buyer and one seller, the monopoly power of the seller and the monopsony power of the buyer tend to:

A.
counter-act one another.
B.
favor the seller.
C.
reinforce one another.
D.
favor the buyer.
answer
A.
counter-act one another.
question
The monopolist that maximizes profit

A.
imposes a cost on society because the selling price is equal to marginal cost.
B.
imposes a cost on society because the selling price is above marginal cost.
C.
does not impose a cost on society because price is equal to marginal cost.
D.
does not impose a cost on society because the selling price is above marginal cost.
answer
B.
imposes a cost on society because the selling price is above marginal cost.
question
Use the following statements to answer this question:
I. If the market supply is perfectly elastic, then a few buyers with monopsony power can achieve the same percentage mark-down in the purchase price as a pure monopsonist.
II. The deadweight loss associated with a monopsony declines as the market supply curve becomes more elastic.
Identify if the statements are True or False.

A.
I and II are true.
B.
I and II are false.
C.
II is true and I is false.
D.
I is true and II is false.
answer
A.
I and II are true.
question
Scenario 10.4:
The demand for tickets to the Katy Perry concert (Q) is given as follows:
Q = 120,000 - 2,000P
The marginal revenue is given as:
MR = 60 - .001Q
The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point.
Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would

A.
increase by $5.
B.
decrease by $10.
C.
increase by $10.
D.
decrease by $5.
E.
not change.
answer
A.
increase by $5.
question
The regulatory lag:

A.
is likely to occur with rate-of-return regulation.
B.
promotes economic efficiency.
C.
always benefits the regulated firm.
D.
all of the above
answer
A.
is likely to occur with rate-of-return regulation.
question
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, the impact on total welfare is the

A.
change in consumer surplus + the change in producer surplus - the cost to government.
B.
change in consumer surplus + the change in producer surplus + the cost to government.
C.
change in consumer surplus + the change in producer surplus.
D.
change in consumer surplus.
answer
A.
change in consumer surplus + the change in producer surplus - the cost to government.
question
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, changes in producer surplus

A.
are positive, and not offset by the cost to consumers and the government.
B.
are negative.
C.
and consumer surplus are both positive.
D.
are positive, but more than offset by the cost to consumers and the government.
answer
D.
are positive, but more than offset by the cost to consumers and the government.
question
Figure 9.3
Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be

A.
$200.
B.
$600.
C.
$150.
D.
$1.50.
E.
$300.
answer
C.
$150.
question
Figure 9.1
Refer to Figure 9.1. If the government establishes a price ceiling of $20, how many widgets will be sold?

A.
30
B.
60
C.
50
D.
20
E.
40
answer
D.
20
question
Figure 9.4
Refer to Figure 9.4. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be

A.
$15.
B.
$1,350
C.
$1,200.
D.
30 widgets.
E.
$1,050.
answer
B.
$1,350
question
A few years ago, the city of Seattle, Washington, considered imposing a specific tax on all espresso-based coffee drinks sold in the city. The extra tax revenue generated would have been used to fund after-school programs for low-income children. The coffee-house owners (firms) agreed that this would be a good program to fund, but they argued that the tax would sharply reduce their sales volume and they would pay most of the tax burden. This claim is true if:

A.
the demand for espresso-based coffee is more elastic than supply.
B.
the demand for espresso-based coffee is more inelastic than supply.
C.
there are no close substitutes for espresso-based coffee drinks.
D.
espresso-based coffee drinks can be produced at constant marginal cost.
answer
A.
the demand for espresso-based coffee is more elastic than supply.
question
Figure 9.4
Suppose the market in Figure 9.4 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?

A.
50
B.
60
C.
20
D.
40
E.
30
answer
C.
20
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted?

A.
Consumers lose area A+B.
B.
Consumers lose area A but gain area B.
C.
Consumers lose area B.
D.
Consumers gain area A+B.
answer
A.
Consumers lose area A+B.
question
The monopoly supply curve is the
A.
result of market power and production costs.
B.
portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs.
C.
same as the competitive market supply curve.
D.
none of the above
answer
D.
none of the above
question
Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is the monopsony buyer of labor in the market. If the price of coal increases, then the firm's quantity of labor demanded ________ and the equilibrium wage ________.

A.
increases, decreases
B.
decreases, increases
C.
increases, increases
D.
decreases, decreases
answer
C.
increases, increases
question
A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately:

A.
$10
B.
$40
C.
$0
D.
$20
E.
This problem cannot be answered without knowing the marginal cost.
answer
B.
$40
question
The ________ elastic a firm's demand curve, the greater its ________.
A.
more; monopoly power
B.
less; output
C.
more; costs
D.
less; monopoly power
answer
D.
less; monopoly power
question
A monopolist has equated marginal revenue to zero. The firm has:

A.
minimized profit.
B.
maximized profit.
C.
maximized revenue.
D.
minimized cost.
answer
C.
maximized revenue.
question
In a bilateral monopoly, equilibrium price will
A.
approximate the competitive equilibrium price.
B.
not be determined by a simple rule.
C.
favor the buyer.
D.
favor the seller.
answer
B.
not be determined by a simple rule.
question
Scenario 10.9:
Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q
Refer to Scenario 10.9. What level of output maximizes the sum of consumer surplus and producer surplus?
A.
45
B.
0
C.
30
D.
60
E.
none of the above
answer
A.
45
question
Which of the following is true for a competitive buyer?
A.
AE > ME
B.
AE < ME
C.
AE = ME
D.
AE greater than or equal to ME
answer
C.
AE = ME
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in producer surplus after this policy is adopted?

A.
Producers gain area A+B+D.
B.
Producers gain A.
C.
Producers lose area C but gain area A.
D.
Producers lose area C but gain area A+B.
answer
A.
Producers gain area A+B+D.
question
Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be
A.
$600.
B.
$500.
C.
$300.
D.
$1.50.
E.
$450.
answer
E.
$450.
question
Consider the following statements when answering this question
I. It is impossible to shift taxes from producers to consumers without hurting the latter.
II. Only polluters pay (through production taxes) for the environmental damage they cause.
Identify if the statements are True or False.

A.
I and II are true.
B.
I is true, and II is false.
C.
I and II are false.
D.
I is false, and II is true.
answer
C.
I and II are false.
question
Figure 9.6
Refer to Figure 9.6. The government policy pictured is
A.
A quota of 600.
B.
a price ceiling of $20.
C.
a price ceiling of $15.
D.
a price support of $20.
E.
a price support of $15.
answer
D.
a price support of $20.
question
Figure 9.5
Refer to Figure 9.5. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?
A.
200
B.
400
C.
800
D.
600
E.
300
answer
A.
200
question
Figure 9.5
Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will
A.
fall by $50.
B.
rise by $50.
C.
remain the same.
D.
rise by $100.
E.
fall by $100.
answer
C.
remain the same.
question
Consider a good whose own price elasticity of demand is -0.5 and price elasticity of supply is 1.5. The fraction of a specific tax that will be passed through to consumers is ________.

A.
0.5
B.
0
C.
1
D.
0.25
E.
0.75
answer
E.
0.75
question
Figure 9.4
Refer to Figure 9.4. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will
A.
fall by $500.
B.
rise by $275.
C.
remain the same.
D.
rise by $500.
E.
fall by $275.
answer
D.
rise by $500.
question
Figure 8.1
Refer to Figure 8.1. At the profit-maximizing level of output, total profit is
A.
$432.
B.
$600.
C.
$0.
D.
$603.
E.
-$120.
answer
D.
$603.
question
Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:
A.
free entry assumption.
B.
homogeneous product assumption.
C.
price-taking assumption.
D.
A and B are correct.
E.
A and C are correct.
answer
E.
A and C are correct.
question
The perfectly competitive firm's marginal revenue curve is

A.
exactly the same as the marginal cost curve.
B.
upward-sloping.
C.
downward-sloping, at twice the (negative) slope of the market demand curve.
D.
horizontal.
E.
vertical.
answer
D.
horizontal.
question
Which of following is a key assumption of a perfectly competitive market?
A.
Each seller has a very small share of the market.
B.
Commodities have few sellers.
C.
Firms can influence market price.
D.
It is difficult for new sellers to enter the market.
E.
none of the above
answer
A.
Each seller has a very small share of the market.
question
An association of businesses that are jointly owned and operated by members for mutual benefit is a:
A.
corporation.
B.
cooperative.
C.
joint tenancy.
D.
condominium.
answer
B.
cooperative.
question
Use the following statements to answer this question:
I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.
II. Under perfect competition., an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.
Identify if the statements are True or False.

A.
I and II are false.
B.
I and II are true.
C.
I is true and II is false.
D.
II is true and I is false.
answer
C.
I is true and II is false.
question
Consider the following statements when answering this question
I. In the long-run equilibrium of a perfectly competitive market, a firm's producer surplus equals the sum of the economic rents earned on its inputs to production.
II. In the long-run equilibrium of a perfectly competitive market, the amount of economic profit earned can differ across firms, but not the amount of producer surplus.
Identify if the statements are True or False.
A.
I is true, and II is false.
B.
I and II are true.
C.
I is false, and II is true.
D.
I and II are false.
answer
A.
I is true, and II is false.
question
Figure 8.1
Refer to Figure 8.1. The firm earns zero profit at what output?
A.
54.
B.
0.
C.
60.
D.
34 and 79.
E.
67.
answer
D.
34 and 79.
1 of 49
question
Scenario 8.2:
Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic.
Refer to Scenario 8.2. The result of the tax in the long run will be that

A.
Q falls from 30,000; P rises by $20,000.
B.
Q stays at 30,000; P rises by less than $20,000.
C.
Q stays at 30,000; P rises by $20,000.
D.
Q falls from 30,000; P rises by less than $20,000.
E.
Q falls from 30,000; P does not change.
answer
D.
Q falls from 30,000; P rises by less than $20,000.
question
If a competitive firm has a U-shaped marginal cost curve then

A.
the profit maximizing output is found where MC = MR and MC is constant.
B.
the profit maximizing output will always generate positive producer surplus.
C.
the profit maximizing output will always generate positive economic profit.
D.
the profit maximizing output is found where MC = MR and MC is increasing.
E.
the profit maximizing output is found where MC = MR and MC is decreasing.
answer
D.
the profit maximizing output is found where MC = MR and MC is increasing.
question
Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry?

A.
The LAC curve shifts downward as output falls.
B.
Initially, the output produced by existing firms declines along the short-run market supply curve.
C.
The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC.
D.
The market price declines below the minimum LAC due to the short-run supply response.
E.
As firms exit, the market price rises and attracts other firms to enter the market.
answer
E.
As firms exit, the market price rises and attracts other firms to enter the market.
question
Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs?

A.
Legal services
B.
Medical care
C.
Petroleum production
D.
all of the above
answer
D.
all of the above
question
Use the following statements to answer this question:
I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left.
II. An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve.
Identify if the statements are True or False.

A.
I is true and II is false.
B.
II is true and I is false.
C.
I and II are false.
D.
I and II are true.
answer
.
I and II are false.
question
Table 8.1
QP TR MR TC MC0$30 $0 ---$15 ---1$30 $30 $30 $25 $10 2$30 $60 $30 $40 $15 3$30 $90 $30 $60 $20 4$30 $120 $30 $85 $25 5$30 $150 $30 $115 $30 6$30 $180 $30 $150 $35
Average cost for the firm in Table 8.1

A.
is constant for all output values shown.
B.
is upward-sloping for all output values shown.
C.
cannot be determined from the information given.
D.
is downward-sloping for all output values shown.
E.
is U-shaped.
answer
E.
is U-shaped.
question
The textbook for your class was not produced in a perfectly competitive industry because

A.
there are so few firms in the industry that market shares are not small, and firms' decisions have an impact on market price.
B.
it is not costless to enter or exit the textbook industry.
C.
upper-division microeconomics texts are not all alike.
D.
of all of the above reasons.
answer
D.
of all of the above reasons.
question
Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?

.
Firm produces more than optimal quantity and earns higher profits
B.
Firm produces less than optimal quantity and earns lower profits
C.
Firm produces less than optimal quantity and earns higher profits
D.
Firm produces more than optimal quantity and earns lower profits
answer
D.
Firm produces more than optimal quantity and earns lower profits
question
Scenario 10.2:
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5
Refer to Scenario 10.2. How much profit does the monopolist earn?

A.
$5.00
B.
$4512.50
C.
$4987.50
D.
$475.00
answer
B.
$4512.50
question
Scenario 10.3:
The demand curve and marginal revenue curve for red herrings are given as follows:
Q = 250 - 5P
MR = 50 - 0.4Q
Refer to Scenario 10.3. At the profit-maximizing level of output, demand is

A.
completely inelastic.
B.
inelastic, but not completely inelastic.
C.
elastic, but not infinitely elastic.
D.
infinitely elastic.
E.
unit elastic.
answer
C.
elastic, but not infinitely elastic.
question
For a competitive buyer, the marginal expenditure per unit of an input

A.
equals the average expenditure per unit.
B.
exceeds the average expenditure per unit.
C.
is less than the average expenditure per unit.
D.
any of the above could be true.
answer
A.
equals the average expenditure per unit.
question
Which of the following is NOT an example of buyer interaction that may improve the effectiveness of monopsony power?

A.
Labor unions that negotiate wage contracts for many workers who are employed by one firm.
B.
Professional sports leagues that coordinate salary structures for players across the teams.
C.
A buying cooperative in which members pool their purchases into one large order.
D.
All of the above are examples of buyer interaction in monopsonistic markets.
answer
A.
Labor unions that negotiate wage contracts for many workers who are employed by one firm.
question
In a bilateral monopoly with one buyer and one seller, the monopoly power of the seller and the monopsony power of the buyer tend to:

A.
counter-act one another.
B.
favor the seller.
C.
reinforce one another.
D.
favor the buyer.
answer
A.
counter-act one another.
question
The monopolist that maximizes profit

A.
imposes a cost on society because the selling price is equal to marginal cost.
B.
imposes a cost on society because the selling price is above marginal cost.
C.
does not impose a cost on society because price is equal to marginal cost.
D.
does not impose a cost on society because the selling price is above marginal cost.
answer
B.
imposes a cost on society because the selling price is above marginal cost.
question
Use the following statements to answer this question:
I. If the market supply is perfectly elastic, then a few buyers with monopsony power can achieve the same percentage mark-down in the purchase price as a pure monopsonist.
II. The deadweight loss associated with a monopsony declines as the market supply curve becomes more elastic.
Identify if the statements are True or False.

A.
I and II are true.
B.
I and II are false.
C.
II is true and I is false.
D.
I is true and II is false.
answer
A.
I and II are true.
question
Scenario 10.4:
The demand for tickets to the Katy Perry concert (Q) is given as follows:
Q = 120,000 - 2,000P
The marginal revenue is given as:
MR = 60 - .001Q
The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point.
Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would

A.
increase by $5.
B.
decrease by $10.
C.
increase by $10.
D.
decrease by $5.
E.
not change.
answer
A.
increase by $5.
question
The regulatory lag:

A.
is likely to occur with rate-of-return regulation.
B.
promotes economic efficiency.
C.
always benefits the regulated firm.
D.
all of the above
answer
A.
is likely to occur with rate-of-return regulation.
question
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, the impact on total welfare is the

A.
change in consumer surplus + the change in producer surplus - the cost to government.
B.
change in consumer surplus + the change in producer surplus + the cost to government.
C.
change in consumer surplus + the change in producer surplus.
D.
change in consumer surplus.
answer
A.
change in consumer surplus + the change in producer surplus - the cost to government.
question
When the federal government installs a price support program that requires the government to purchase all of a good not bought in the private economy at the support price, changes in producer surplus

A.
are positive, and not offset by the cost to consumers and the government.
B.
are negative.
C.
and consumer surplus are both positive.
D.
are positive, but more than offset by the cost to consumers and the government.
answer
D.
are positive, but more than offset by the cost to consumers and the government.
question
Figure 9.3
Refer to Figure 9.3. If the government establishes a price ceiling of $1.00, the resulting deadweight loss will be

A.
$200.
B.
$600.
C.
$150.
D.
$1.50.
E.
$300.
answer
C.
$150.
question
Figure 9.1
Refer to Figure 9.1. If the government establishes a price ceiling of $20, how many widgets will be sold?

A.
30
B.
60
C.
50
D.
20
E.
40
answer
D.
20
question
Figure 9.4
Refer to Figure 9.4. If the government establishes a price floor of $40 and purchases the surplus, total consumer and producer surplus will be

A.
$15.
B.
$1,350
C.
$1,200.
D.
30 widgets.
E.
$1,050.
answer
B.
$1,350
question
A few years ago, the city of Seattle, Washington, considered imposing a specific tax on all espresso-based coffee drinks sold in the city. The extra tax revenue generated would have been used to fund after-school programs for low-income children. The coffee-house owners (firms) agreed that this would be a good program to fund, but they argued that the tax would sharply reduce their sales volume and they would pay most of the tax burden. This claim is true if:

A.
the demand for espresso-based coffee is more elastic than supply.
B.
the demand for espresso-based coffee is more inelastic than supply.
C.
there are no close substitutes for espresso-based coffee drinks.
D.
espresso-based coffee drinks can be produced at constant marginal cost.
answer
A.
the demand for espresso-based coffee is more elastic than supply.
question
Figure 9.4
Suppose the market in Figure 9.4 is currently in equilibrium. If the government establishes a price floor of $50, how many widgets will be sold?

A.
50
B.
60
C.
20
D.
40
E.
30
answer
C.
20
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted?

A.
Consumers lose area A+B.
B.
Consumers lose area A but gain area B.
C.
Consumers lose area B.
D.
Consumers gain area A+B.
answer
A.
Consumers lose area A+B.
question
The monopoly supply curve is the
A.
result of market power and production costs.
B.
portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs.
C.
same as the competitive market supply curve.
D.
none of the above
answer
D.
none of the above
question
Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is the monopsony buyer of labor in the market. If the price of coal increases, then the firm's quantity of labor demanded ________ and the equilibrium wage ________.

A.
increases, decreases
B.
decreases, increases
C.
increases, increases
D.
decreases, decreases
answer
C.
increases, increases
question
A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately:

A.
$10
B.
$40
C.
$0
D.
$20
E.
This problem cannot be answered without knowing the marginal cost.
answer
B.
$40
question
The ________ elastic a firm's demand curve, the greater its ________.
A.
more; monopoly power
B.
less; output
C.
more; costs
D.
less; monopoly power
answer
D.
less; monopoly power
question
A monopolist has equated marginal revenue to zero. The firm has:

A.
minimized profit.
B.
maximized profit.
C.
maximized revenue.
D.
minimized cost.
answer
C.
maximized revenue.
question
In a bilateral monopoly, equilibrium price will
A.
approximate the competitive equilibrium price.
B.
not be determined by a simple rule.
C.
favor the buyer.
D.
favor the seller.
answer
B.
not be determined by a simple rule.
question
Scenario 10.9:
Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q
Refer to Scenario 10.9. What level of output maximizes the sum of consumer surplus and producer surplus?
A.
45
B.
0
C.
30
D.
60
E.
none of the above
answer
A.
45
question
Which of the following is true for a competitive buyer?
A.
AE > ME
B.
AE < ME
C.
AE = ME
D.
AE greater than or equal to ME
answer
C.
AE = ME
question
Suppose the government raises the price of cheese above the market equilibrium level (P0) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in producer surplus after this policy is adopted?

A.
Producers gain area A+B+D.
B.
Producers gain A.
C.
Producers lose area C but gain area A.
D.
Producers lose area C but gain area A+B.
answer
A.
Producers gain area A+B+D.
question
Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be
A.
$600.
B.
$500.
C.
$300.
D.
$1.50.
E.
$450.
answer
E.
$450.
question
Consider the following statements when answering this question
I. It is impossible to shift taxes from producers to consumers without hurting the latter.
II. Only polluters pay (through production taxes) for the environmental damage they cause.
Identify if the statements are True or False.

A.
I and II are true.
B.
I is true, and II is false.
C.
I and II are false.
D.
I is false, and II is true.
answer
C.
I and II are false.
question
Figure 9.6
Refer to Figure 9.6. The government policy pictured is
A.
A quota of 600.
B.
a price ceiling of $20.
C.
a price ceiling of $15.
D.
a price support of $20.
E.
a price support of $15.
answer
D.
a price support of $20.
question
Figure 9.5
Refer to Figure 9.5. If the government establishes a price floor of $2.50, how many pounds of berries will be sold?
A.
200
B.
400
C.
800
D.
600
E.
300
answer
A.
200
question
Figure 9.5
Refer to Figure 9.5. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, producer surplus will
A.
fall by $50.
B.
rise by $50.
C.
remain the same.
D.
rise by $100.
E.
fall by $100.
answer
C.
remain the same.
question
Consider a good whose own price elasticity of demand is -0.5 and price elasticity of supply is 1.5. The fraction of a specific tax that will be passed through to consumers is ________.

A.
0.5
B.
0
C.
1
D.
0.25
E.
0.75
answer
E.
0.75
question
Figure 9.4
Refer to Figure 9.4. If the government establishes a price floor of $40 and government purchases the surplus over quantity demanded, producer surplus will
A.
fall by $500.
B.
rise by $275.
C.
remain the same.
D.
rise by $500.
E.
fall by $275.
answer
D.
rise by $500.
question
Figure 8.1
Refer to Figure 8.1. At the profit-maximizing level of output, total profit is
A.
$432.
B.
$600.
C.
$0.
D.
$603.
E.
-$120.
answer
D.
$603.
question
Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:
A.
free entry assumption.
B.
homogeneous product assumption.
C.
price-taking assumption.
D.
A and B are correct.
E.
A and C are correct.
answer
E.
A and C are correct.
question
The perfectly competitive firm's marginal revenue curve is

A.
exactly the same as the marginal cost curve.
B.
upward-sloping.
C.
downward-sloping, at twice the (negative) slope of the market demand curve.
D.
horizontal.
E.
vertical.
answer
D.
horizontal.
question
Which of following is a key assumption of a perfectly competitive market?
A.
Each seller has a very small share of the market.
B.
Commodities have few sellers.
C.
Firms can influence market price.
D.
It is difficult for new sellers to enter the market.
E.
none of the above
answer
A.
Each seller has a very small share of the market.
question
An association of businesses that are jointly owned and operated by members for mutual benefit is a:
A.
corporation.
B.
cooperative.
C.
joint tenancy.
D.
condominium.
answer
B.
cooperative.
question
Use the following statements to answer this question:
I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.
II. Under perfect competition., an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.
Identify if the statements are True or False.

A.
I and II are false.
B.
I and II are true.
C.
I is true and II is false.
D.
II is true and I is false.
answer
C.
I is true and II is false.
question
Consider the following statements when answering this question
I. In the long-run equilibrium of a perfectly competitive market, a firm's producer surplus equals the sum of the economic rents earned on its inputs to production.
II. In the long-run equilibrium of a perfectly competitive market, the amount of economic profit earned can differ across firms, but not the amount of producer surplus.
Identify if the statements are True or False.
A.
I is true, and II is false.
B.
I and II are true.
C.
I is false, and II is true.
D.
I and II are false.
answer
A.
I is true, and II is false.
question
Figure 8.1
Refer to Figure 8.1. The firm earns zero profit at what output?
A.
54.
B.
0.
C.
60.
D.
34 and 79.
E.
67.
answer
D.
34 and 79.
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