Micro Economics Exam 2

question

In the Ricardian model of international trade, the possibility frontiers are ____, indicating that the opportunity cost of increasing the production of one item relative to another _____ .
A. straight lines; decreases
B. straight lines; is constant
C. convex; is constant
D. concave; increases

answer

B. Straight lines; is constant

question

The United States must give up the production of 500 bicycles to produce 20 additional tractors. The opportunity cost of producing 5 tractors is ____ bicycles.
A. 5
B. 125
C. 100
D. 20

answer

B. 125

question

According to the Heckscher-Ohlin model, Brazil will have a comparative advantage in oranges if the factors ____ in the production of oranges are ____.
A. intensive; abundant
B. intensive; imported
C. that are scarce; imported
D. intensive; inexpensive

answer

A. intensive; abundant

question

Honduras exports clothing to the US, and the US imports bulldozers to Honduras. Proponents of the Heckscher-Ohilin model would explain this pattern of trade by stating that:
A. Hondura's climate is more conducive to producing clothing, while the US' climate is more conducive to producing bulldozers.
B. Honduras has an advantage in the technology used in clothing production, while the US has an advantage in the technology used in bulldozer production
C. Honduras has a relatively large endowment of factors of production for making clothing, while the US has a relatively large endowment of factors of production for making bulldozers.
D. Honduras has a factor intensity in capital and the US has a factor intensity in labor.

answer

C. Honduras has a relatively large endowment of factors of production for making clothing, while the US has a relatively large endowment of factors of production for making bulldozers.

question

Mexico produces lettuce but can also import it. If Mexico imports some lettuce:
A. the price in Mexico will rise equal to the world price
B. Mexico has a comparative advantage in lettuce production
C. the world price is lower than the domestic price
D. the domestic quantity supplied will increase

answer

C. the world price is lower than the domestic price

question

If a nation exports a good when the economy is opened to trade, relative to the autarky price, the domestic price of the good will ____ and the domestic consumption will ___.
A. fall; fall
B. fall; rise
C. rise; rise
D. rise; fall

answer

D. rise; fall

question

If a market begins to engage in international trade, we can assume that:
A. producers in the importing industry may be worse off
B. producers in the exporting industry may be worse off
C. consumers of the exported good may be better off
D. consumers of the imported good may be worse off

answer

A. producers in the importing industry may be worse off

question

Assumer that the US imposes an import quota on Columbian coffee. Relative to the equilibrium world price that would prevail in the absence of import quotas, it is likely that the equilibrium price of coffee in the US will ____ and the equilibrium price of coffee in Columbia will ____
A. remain the same; increase
B. increase; increase
C. decrease; remain the same
D. increase; decrease

answer

D. increase; decrease

question

The main difference between a tariff and an import quota is that:
A. an import quota reduces more sharply than a tariff.
B. a tariff will cause higher prices than an import quota.
C. a tariff generates tax revenue, while an import quota generates rents to the license holders
D. a tariff will cause lower prices than an import quota

answer

C. a tariff generates tax revenue, while an import quota generates rents to the license holders.

question

The job creation argument for protection against free trade:
A. is that keeping out foreign imports allows the goods and services to be produced by domestic workers
B. is frequently put forward by economists
C. is mostly that we need full employment to defend the security of the nation
D. is that we need full employment to prevent currency depreciation

answer

A. is that keeping out foreign imports allows the goods and services to be produced by domestic workers

question

Comparative advantage arises from:
A. differences in climate, factor endowments, and technology
B. countries engaging in autarkic behavior
C. an emphasis on export production
D. absolute advantage

answer

A. differences in climate, factor endowments, and technology

question

You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?
A.bread, meat, and vegetables used to produce the items on your menu
B. the job offer you did not accept at a local catering service
C. your monthly utility bill
D. wages paid to part-time employees

answer

B. the job offer you did not accept at a local catering service

question

Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports campus for $100,000. The potential revenue of the summer camp represents:
A. an explicit cost
B. an implicit cost of capital
C. a total cost
D. a sunk cost

answer

B. an implicit cost of capital

question

Which of the following is a "how much" decision?
A. Andy is trying to decide whether to take a prep course for the Law School Admissions Test.
B. Tim is trying to decide the amount of money to save each month to buy a new car next year.
C. Mary is trying to decide whether to go to work or go to college after she graduates from high school.
D. Andrea is trying to decide whether to go to graduate school in economics or go to law school.

answer

B. Tim is trying to decide the amount of money to save each month to buy a new car next year.

question

Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his first year, his revenue was $150,000.

The economic profit of Wang's Wicker Furniture Store is:
A. $0
B. -$20,000
C. $67,000
D. -$35,000

answer

D. -$35,000

question

If the marginal benefit received from consuming a good is equal to the marginal cost of production:
A. society's well-being cannot be improved by changing production
B. society's well-being can be improved if production decreases
C. society's well-being can be improved if production increases
D. the market is producing too much of the good.

answer

A. society's well-being cannot be improved by changing production

question

You plan to attend a movie on Saturday night. You buy a ticket for $7 and then lose it. According to marginal analysis, you should:
A. go home
B. buy another ticket and attend the movie
C. buy another ticket and attend the movie only if your marginal benefit of seeing the movie is more than $14.
D. Look for the lost ticket

answer

B. buy another ticket and attend the movie

question

After three years at an expensive college, Pierre realizes that he doesn't want to finish school but really wants to be a chef. When Pierre suggests that he leave college for culinary school, his parents insist that he stay for one more year to get his degree. Which of the following is true?
A. Pierre's parents are correct: if he leaves college, it is as though he wasted three years of tuition.
B. Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college.
C. It is impossible to tell who is correct
D. Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is greater than the marginal cost of college

answer

B. Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college.

question

People are willing to buy insurance because of:
A. the status quo
B. bounded rationality
C. Risk Aversion
D. The miscalculation of opportunity costs.

answer

C. Risk Aversion

question

Cindy just graduated from college and started working at a large accounting firm. Although the firm will match her contributions to a retirement account, Cindy wants to wait several years before participating, since there are so many things she needs to buy right now. What type of behavior does this represent?
A. unrealistic expectations about the future
B. loss aversion
C. mental accounting
D. risk aversion

answer

A. unrealistic expectations about the future

question

answer

A. $204,500

question

Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it.

Betty is trying to decide at what point she should stop selling cookies, and she know she cannot change the price of a cookie. She should stop selling cookies if:
A. her implicit costs are greater than her accounting profits
B. her explicit and implicit costs are less than her revenues
C. her economic profit is positive
D. her economic profit is equal to her accounting profit.

answer

A. her implicit costs are greater than her accounting profits

question

As George ate pizza during one recent outing, he found that he enjoyed each additional slice less and less. This implies that his marginal benefit was:
A. increasing
B. decreasing
C. vertical
D. constant

answer

B. decreasing

question

If marginal costs of production are greater than marginal benefits of production:
A. more of the good should be produced
B. not all costs are being considered
C. costs will eventually decrease
D. too much of the good is being produced

answer

D. too much of the good is being produced

question

The total product curve
A. Will become horizontal when the marginal product of the variable input is constant
B. WIll be down-ward sloping if there are diminishing returns to the variable input
C. Shows the relation between output and the quantity of a variable input for varying levels of the fixed input
D. Will become flatter as output increases if there are diminishing returns to the variable input

answer

D. Will become flatter as output increases if there are diminishing returns to the variable input

question

You own a deli. Which of the following is most likely a fixed input at your deli?
A. the dining room
B. the bread used to make sandwiches
C. the tomato sauce used to make soups
D. the employees

answer

A. the dining room

question

The total cost curve for a snowmobile dealership shows how ____ cost depends on the quantity of ____
A. total; fixed inputs
B. total; output
C. average; variable inputs
D. marginal; output

answer

B. total; output

question

Once diminishing returns have set in, as output increases, the total cost curve:
A. increases at first, and then decreases
B. becomes horizontal
C. gets flatter
D. gets steeper

answer

D. gets steeper

question

Buford Bus manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:
A. will increase (the MC curve will shift up).
B. will decrease (the mC curve will shift down).
C. will be unchanged
D. is at its maximum

answer

B. will decrease (the MC curve will shift down)

question

Marginal cost ___ over the range of increasing marginal returns and ___ over the range of diminishing marginal returns.
A. decreases; increases
B. increases; decreases
C. is constant; decreases
D. increases; is constant

answer

A. decreases; increases

question

In the short run, the average total cost curve slopes upward because of:
A. economies of scale
B. deseconomies of scale
C. diminishing returns
D. Increasing returns

answer

C. diminishing returns

question

A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $35 in average total cost. The total fixed cost of producing 10pairs of eyeglasses is:
A. $3
B. $300
C. $35
D. $50

answer

D. $50

question

When marginal cost is BELOW average variable cost, average variable cost must be:
A. falling
B. rising
C. at its minimum
D. at its maximum

answer

A. falling

question

If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your production exhibits:
A. increasing returns to scale
B. increased input prices
C. higher wages
D. decreasing returns to scale

answer

A. increasing returns to scale

question

Perfect competition is characterized by:
A. fierce quality competition
B. rivalry in advertising
C. the inability of any one firm to influence price
D. widely recognized brands

answer

C. The inability of any one firm to influence price

question

The perfectly competitive model assumes all of the following EXCEPT
A. the firms attempt to maximize their total revenue
B. a great number of buyers
C. easy entry to and exit from the market
D. a standardized product

answer

A. the firms attempt to maximize their total revenue

question

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:
A. $10
B. $210
C. $20
D. $200

answer

D. $200

question

If a perfectly competitive is producing a quantity where P>MC, then the firm can increase profit by:
A. increasing the price
B. increasing production
C. making no change in output or price because it is already maximizing profit
D. decreasing the price

answer

B. Increasing production

question

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:
A. less than the average fixed cost
B. greater than average variable cost but less than average total cost
C. less than marginal cost
D. greater than average total cost

answer

D. greater than average total cost

question

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:
A. continue to produce to minimize losses
B. raise the price
C. shut down
D. there is not enough information given to answer the question

answer

D. There is not enough information given to answer the question

question

If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
A. produce at an economic profit
B. shut down production
C. produce more than the profit-maximizing quantity
D. produce at an economic loss

answer

D. produce at an economic loss

question

In the short run, if P<AVC at the quantity where MR=MC, a perfectly competitive firm produces ____ and takes an economic _____.
A. no output; profit
B. output; profit
C. no output; loss
D. output; loss

answer

C. no output; loss

question

If firms are taking economic losses in the short run, firms will leave the industry, industry output will _____, and economic losses will _____ in the long run.
A. rise; rise
B. fall; fall
C. fall; rise
D. rise; fall

answer

B. fall; fall

question

Which of the following is MOST likely to cause firms to exit a perfectly competitive industry?
A. The price of a key variable input falls
B. Consumer tastes and preferences for this product to get stronger
C. A technological advance allows all firms to produce more efficiently
D. Consumer income falls

answer

D. Consumer income falls

question

Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the:
A. industry is in equilibrium
B. industry supply curve will shift to the left
C. number of firms in the industry will increase
D. number of firms in the industry will not change

answer

C. number of firms in the industry will increase

question

A perfectly competitive industry is said to be efficient because the:
A. marginal cost of production of the last unit of output is minimized.
B. product is standardized across firms in the industry
C. market price of the good is equal to the economic profit for all firms in the industry
D. average total cost of production of the industry's output is minimized

answer

D. average total cost of production of the industry's output is minimized

question

When perfect competition prevails, which of the following characteristics of firms are we likely to observe?
A. None of them ever has a diminishing marginal returns
B. They all try to operate where price equals average variable cost
C. They all try to operate where price equals total cost
D. They are all price takers

answer

D. They are all price takers

question

Diamond rings are relatively scarce because:
A. according to geologists, diamonds are less common than any other gem-quality stone
B. diamond producers limit the quantity supplied to the market
C. of monopolistic competition
D. the demand for diamonds is so high

answer

B. diamond producers limit the quantity supplied to the market

question

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?
A. the government abolishes the system of patents and copyrights
B. a booming economy increases the demand for lemonade and attracts entry into the market
C. you own exclusive rights to harvest lemons from all domestic citrus orchards
D. the average total cost curve for firms in the industry is horizontal

answer

C. you own exclusive rights to harvest lemons from all domestic citrus orchards

question

The large barriers to entry are a reason a monopoly:
A. produces with no fixed costs in the long run
B. earns an economic profit in the long run
C. maximizes its profits by producing where P = MC
D. produces at the minimum average total cost in the long run

answer

B. earns an economic profit in the long run

question

The demand curve for a monopoly is:
A. identical to the MR curve
B. also the industry demand curve
C. the MC curve above the AVC curve
D. the MR curve above the horizontal axis

answer

B. also the industry demand curve

question

The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:
A. average total cost is greater than $10
B. average total cost equals $10
C. marginal revenue equals $10
D. marginal cost equals marginal revenue

answer

D. marginal cost equals marginal revenue

question

Price discrimination can occur if:
A. all consumers have the same willingness to pay for the good
B. producers are price takers
C. the market structure is a monopolistic competition
D. there are many firms in the industry, all producing the same identical good

answer

C. the market structure is a monopolistic competition

question

Price discrimination leads to a ______ price for consumers with a _____ demand.
A. lower; elastic
B. lower; less elastic
C. higher; more elastic
D. higher; perfectly elastic

answer

A. lower; elastic

question

Suppose a monopoly can separate into two groups. If the monopoly practices price discrimination , it will charge the lower price to the group with:
A. the lower price elasticity of demand
B. the answer cannot be determined with the information given
C. the fewer close substitutes
D. the higher price elasticity of demand

answer

D. the higher price elasticity of demand

1 of 55

question

answer

B. Straight lines; is constant

question

The United States must give up the production of 500 bicycles to produce 20 additional tractors. The opportunity cost of producing 5 tractors is ____ bicycles.
A. 5
B. 125
C. 100
D. 20

answer

B. 125

question

answer

A. intensive; abundant

question

answer

C. Honduras has a relatively large endowment of factors of production for making clothing, while the US has a relatively large endowment of factors of production for making bulldozers.

question

answer

C. the world price is lower than the domestic price

question

answer

D. rise; fall

question

answer

A. producers in the importing industry may be worse off

question

answer

D. increase; decrease

question

answer

C. a tariff generates tax revenue, while an import quota generates rents to the license holders.

question

answer

A. is that keeping out foreign imports allows the goods and services to be produced by domestic workers

question

Comparative advantage arises from:
A. differences in climate, factor endowments, and technology
B. countries engaging in autarkic behavior
C. an emphasis on export production
D. absolute advantage

answer

A. differences in climate, factor endowments, and technology

question

answer

B. the job offer you did not accept at a local catering service

question

answer

B. an implicit cost of capital

question

answer

B. Tim is trying to decide the amount of money to save each month to buy a new car next year.

question

answer

D. -$35,000

question

answer

A. society's well-being cannot be improved by changing production

question

answer

B. buy another ticket and attend the movie

question

answer

B. Pierre's parents are wrong: the marginal benefit to Pierre of another year of college is less than the marginal cost of college.

question

People are willing to buy insurance because of:
A. the status quo
B. bounded rationality
C. Risk Aversion
D. The miscalculation of opportunity costs.

answer

C. Risk Aversion

question

answer

A. unrealistic expectations about the future

question

answer

A. $204,500

question

answer

A. her implicit costs are greater than her accounting profits

question

answer

B. decreasing

question

answer

D. too much of the good is being produced

question

answer

D. Will become flatter as output increases if there are diminishing returns to the variable input

question

You own a deli. Which of the following is most likely a fixed input at your deli?
A. the dining room
B. the bread used to make sandwiches
C. the tomato sauce used to make soups
D. the employees

answer

A. the dining room

question

The total cost curve for a snowmobile dealership shows how ____ cost depends on the quantity of ____
A. total; fixed inputs
B. total; output
C. average; variable inputs
D. marginal; output

answer

B. total; output

question

Once diminishing returns have set in, as output increases, the total cost curve:
A. increases at first, and then decreases
B. becomes horizontal
C. gets flatter
D. gets steeper

answer

D. gets steeper

question

answer

B. will decrease (the MC curve will shift down)

question

answer

A. decreases; increases

question

In the short run, the average total cost curve slopes upward because of:
A. economies of scale
B. deseconomies of scale
C. diminishing returns
D. Increasing returns

answer

C. diminishing returns

question

answer

D. $50

question

When marginal cost is BELOW average variable cost, average variable cost must be:
A. falling
B. rising
C. at its minimum
D. at its maximum

answer

A. falling

question

answer

A. increasing returns to scale

question

Perfect competition is characterized by:
A. fierce quality competition
B. rivalry in advertising
C. the inability of any one firm to influence price
D. widely recognized brands

answer

C. The inability of any one firm to influence price

question

answer

A. the firms attempt to maximize their total revenue

question

If a perfectly competitive firm decreases production from 11 units to 10 units and the market price is $20 per unit, total revenue for 10 units is:
A. $10
B. $210
C. $20
D. $200

answer

D. $200

question

answer

B. Increasing production

question

answer

D. greater than average total cost

question

answer

D. There is not enough information given to answer the question

question

answer

D. produce at an economic loss

question

answer

C. no output; loss

question

answer

B. fall; fall

question

answer

D. Consumer income falls

question

answer

C. number of firms in the industry will increase

question

answer

D. average total cost of production of the industry's output is minimized

question

answer

D. They are all price takers

question

answer

B. diamond producers limit the quantity supplied to the market

question

answer

C. you own exclusive rights to harvest lemons from all domestic citrus orchards

question

answer

B. earns an economic profit in the long run

question

The demand curve for a monopoly is:
A. identical to the MR curve
B. also the industry demand curve
C. the MC curve above the AVC curve
D. the MR curve above the horizontal axis

answer

B. also the industry demand curve

question

answer

D. marginal cost equals marginal revenue

question

answer

C. the market structure is a monopolistic competition

question

Price discrimination leads to a ______ price for consumers with a _____ demand.
A. lower; elastic
B. lower; less elastic
C. higher; more elastic
D. higher; perfectly elastic

answer

A. lower; elastic

question

answer

D. the higher price elasticity of demand

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Micro Economics Exam 2

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