EAE110 - Fundamentos de Microeconomia. Lista de exercícios 2 (caps. 5-8 Frank & Bernanke) Professor: David Turchick

EAE110 - Fundamentos de Microeconomia Lista de exercícios 2 (caps. 5-8 Frank & Bernanke) Professor: David Turchick CAPÍTULO 5 6. The tendency for consumers to purchase more of a good or service as its price falls is called A. the law of supply. B. the law of increasing cost. C. the Low-Hanging Fruit principle. D. the law of demand. 18. Utility maximization means that people try to allocate their to maximize their. A. utility, spending B. resources, satisfaction C. time, work D. limited resource, desires 29. Pat's total utility after eating 99 Reese's Peanut Butter Cups was less than his total utility after eating his hundredth. Therefore, Pat's marginal utility for the 100 th peanut butter cup was A. positive, but less than one. B. positive, but less than Pat's marginal utility for the 99 th peanut butter cup. C. zero D. negative 33. If marginal utility is positive as consumption increases, A. the consumer will not experience diminishing marginal utility. B. total utility will remain high and constant as consumption increases. C. total utility will increase as consumption increases. D. the demand curve will have a positive slope. 35. Refer to the figure above. The marginal utility of the sixth pizza is A. 95 B. 100 C. 5 D. 15 1

37. Refer to the figure above. The marginal utility of the 7 th pizza is A. 10 B. 5 C. -10 D. -5 38. Refer to the figure above. Total utility increases with each additional pizza consumed up to the and then declines, but marginal utility with each additional pizza consumed each week. A. 7 th pizza, increases B. 6 th pizza, increases C. 5 th pizza, stays the same D. 6 th pizza, decreases 53. According to the law of diminishing marginal utility, A. if you consume less of something, your total utility from that consumption increases. B. if you consume less of something, your marginal utility from that consumption increases. C. you should never consume any more of something after marginal utility has begun to diminish. D. if total utility is increasing as you consume more, then marginal utility must be increasing as well. Taylor's marginal utility from watching movies and marginal utility from eating out each month in utils are represented in the following table. Taylor spends exactly $100 every month on these two forms of entertainment, and the price per movie is $10 and price per dinner is $20. 79. Taylor's optimal combination of movies and eating out is A. 3 movies and 3 dinners. B. 4 movies and 3 dinners. C. 3 movies and 4 dinners. D. 2 movies and 4 dinners. 80. Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in the A. greatest total utility. B. lowest expenditure on goods. C. greatest marginal utility for the lower. D. expenditures for all goods being the same. 85. Curly loves pizza, and often has supper at an all-you-can eat pizza buffet. Curly eats more pizza there than at the Buy-By-the-Slice pizza stand in the student union because A. Curly is irrational and has no will-power. B. Curly does not experience diminishing marginal utility for pizza. C. Curly is setting his Marginal Utility for pizza per dollar equal at each place. D. Curly is setting his Marginal Utility for pizza equal at each place. 91. Assume the consumer is correctly applying the rational spending rule for goods jeans and t-shirts. If the price of jeans falls, purchases of jeans and t-shirts rise because A. the marginal utility of jeans increases. B. the marginal utility of t-shirts increases. C. the marginal utility of jeans decreases. D. combinations of jeans and t-shirts that could not be considered before now become available. 2

93. When the price of a good rises, the ratio of the marginal utility of that good divided by its price and as a result, consumers purchase of that good. A. rises; more B. falls; more C. rises; less D. falls; less 100. Refer to the figure above. If the price of Food is $5 and the price of Rooms is $80, then the rational spending rule predicts units of Food and Rooms will be purchased. A. 4; 3 B. 3; 4 C. 4; 4 D. 4; 1 103. Suppose you are a government analyst and you think beans are particularly nourishing. You decide to subsidize beans in order to encourage people to eat more of them. (By subsidizing an item, consumers pay a lower price.) After you successfully lower bean prices, you notice that consumption of beans has fallen. What went wrong? A. The substitution effect caused people to substitute ramen noodles and rice for beans. B. The income effect caused people's real income to fall so they could no longer afford as much food. C. The income effect caused people's real income to rise so they purchased less of what they considered to be inferior goods. D. Demand for beans is price inelastic. 106. The absolute price of a good in dollar terms is the A. market price B. equilibrium price C. nominal price D. marginal price 110. Why do lines tend to be longer at the bank teller in a poorer neighborhood? A. Low-income consumers are not willing to pay for shorter line. B. Low-income consumers would pay for shorter lines if the bank owners ask them to. C. Poor people have a high opportunity cost for their time. D. Poor people don't have anything better to do. 3

124. Refer to the figure above. The market demand curve indicates that 90 cans of soda will be demanded at a price of A. $1.50 B. $1.25 C. $0.75 D. $0.50 126. Refer to the figure above. At the price of $1.25, A. market demand is 40 cans of soda. B. market demand is 30 cans of soda. C. market demand is 10 cans of soda. D. Mallory and Rick exit the market. This graph shows one consumer's demand for ice cream at the student union: 135. Joe is one of the students whose demand is shown. Joe buys more ice cream when the price is $2.00 than when the price is $3.00 because A. Joe cannot afford $3.00 for a scoop of ice cream. B. Joe has more consumer surplus when price is $3.00. C. the marginal utility Joe gets from his fifth scoop of ice cream is less than the marginal utility Joe gets from other things that cost $3.00. D. Joe does not experience diminishing marginal utility for ice cream consumption when it is only $2.00 per scoop but does when it is $3.00. 4

140. Refer to the figure above. What is the maximum price that the buyer of the first unit is willing to pay? A. 40 B. 35 C. 25 D. 15 141. Refer to the figure above. At a price of $15, what is the consumer surplus for the buyer of the first unit? A. 0 B. 15 C. 5 D. 25 142. Refer to the figure above. At a price of $15, what is the consumer surplus each day? A. 40 B. 75 C. 105 D. 180 CAPÍTULO 6 1. The most important decision that sellers make is A. whether to set profit maximization as a goal. B. whether to produce another unit C. whether to change the price of their product D. whether to expand factory facilities. 2. A rational seller will sell another unit if A. the profit earned from the sale of the next unit is greater than the profit earned on the sale of the last unit. B. the cost of making the next unit is less than the revenue gained by selling the next unit. C. the quantity demanded of the seller's output is greater than zero. D. the price that could be charged is greater than the equilibrium price. John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7/hr for as many hours as he chooses to work, and cleaning windows for the businesses in downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he cleans a day, as shown in the table below: 7. What is John's hourly opportunity cost of cleaning windows? A. $14 B. $8 C. $7 D. $2 11. Does the 3 rd hour cleaning satisfy the cost-benefit principle? A. yes, since he makes $28 B. yes, since the additional amount earned is $14 C. no, since the additional amount earned is $6 D. yes, since the additional amount earned is $6. 5

12. What is the smallest amount of money per window cleaned that would induce John to spend at least one hour per day cleaning? A. $7 B. $1 C. $3 D. $2 13. What is John's reservation price for 4 th and 5 th hours of cleaning windows? A. $7 and $7.5 respectively B. $2 and $3.5 respectively C. $3.5 and $7 respectively D. $11 and $14 respectively 14. If we plot John's reservation price per window on the vertical axis and the number of windows cleaned each day on the horizontal axis, we will have John's curve of window cleaning service. A. marginal product B. marginal cost C. marginal benefit (utility) D. demand 15. Your math professor has assigned 20 homework problems that are due next week. After working for an hour, you notice you have completed 4 problems. After another hour, you have completed 3 more problems. During the third hour, you finish 2 problems. What economic principle best explains this? A. The principle of diminishing marginal utility: you do not enjoy working the problems as much during the last hour as you did during the first hour. B. The low-hanging-fruit principle: you completed the easiest problems first. C. The cost-benefit principle: the benefit of working an additional problem is less than the cost. D. The principle of comparative advantage: you are better at English than at math. 21. Individual supply curves generally slope because A. downward; individual's become more efficient with practice. B. upward; profits increase with quantity. C. downward; inputs are cheaper when purchased in high volume. D. upward; the easiest tasks are completed first. 22. As the market price of a service increases, more people will decide to perform that service because A. higher prices always result in higher revenue B. more people will find that the market price exceeds their reservation price. C. higher-priced services are more prestigious D. service jobs are in higher demand than manufacturing jobs. 25. A firm's total profit equals A. Marginal Benefit minus Marginal Cost. B. (Price minus Average Total Cost) times the quantity sold. C. Price times Quantity Sold D. Price minus Average Total Cost. 27. When economists use standard supply and demand theory, they are assuming that the supply curve describes A. all firms. B. firms that operate in perfectly competitive markets. C. firms that face perfectly elastic supply. D. firms in the short run. 29. Which of the following is NOT true of a perfectly competitive firm? A. It faces a perfectly elastic demand curve. B. It is unable to influence the market price of the good it sells. C. It seeks to maximize revenue. D. Relative to the size of the market, the firm is small. 6

47. The long run is defined as A. one year or more. B. a period in which all factors of production are variable. C. the period of time between annual accounting reports. D. a period in which at least one factor of production is fixed. 49. Which of the following factors of production is likely to be fixed in the short run? A. The location of the firm. B. The number of employee-hours. C. The amount of electricity consumed. D. The amount of paper used. 52. One reason that variable factors of production tend to show diminishing returns in the short run is that A. too much capital equipment is idle. B. there are too many workers using a fixed amount of productive resources. C. the firm has become too large to effectively manage workers. D. the cost of hiring additional workers increases as firms seek to hire more. 66. Marginal cost is calculated as A. total revenue minus total costs. B. the change in output divided by the change in total costs. C. the percentage change in total costs divided by the percentage change in output. D. the change in total costs divided by the change in output. 67. If a firm is experiencing diminishing marginal returns to a variable input, you might guess that A. marginal costs are also declining. B. marginal costs are increasing. C. average variable costs are constant. D. average fixed costs are increasing. 70. In general, if the price of a fixed factor of production increases, A. price rises. B. marginal costs are unchanged. C. marginal costs increase. D. the profit maximizing level of output falls. 73. Refer to the figure above. Fixed cost for this firm is A. $66 B. $64 C. $50 D. $14 74. Refer to the figure above. When the firm uses 9 employee-hours, it will experience in labor costs. A. $30 B. $56 C. $84 D. $126 7

75. Refer to the figure above. When the firm uses 9 employee-hours, it will produce units of output and experience total cost of. A. 120, $126. B. 80, $64. C. 80, $56. D. 120, $176. 76. Refer to the figure above. When the firm uses 9 employee-hours, it will collect total revenues of A. $240. B. $160. C. $120. D. $18. 77. Refer to the figure above. The firm earns a of when it produces 120 units of output. A. loss; $64 B. profit; $64 C. loss; $114 D. profit; $114 78. Refer to the figure above. What is the marginal cost of the 9 th employee hour? A. $126 B. $14 C. $50 D. $48 91. In the short run, if a firm chooses to operate and produce output, it must be the case that A. it earns a profit. B. it avoids a loss. C. total revenues are greater than or equal to the cost of fixed factors of production. D. total revenues are greater than or equal to the cost of variable factors of production. 97. If a firm is earning zero profits A. its revenues are sufficient to pay explicit costs, but not implicit costs. B. the owner will not be able to pay himself or herself a salary. C. it will shut down in the long run, but will continue to operate in the short run. D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment. This graph shows the cost functions of Moe's mushroom gathering business, which is perfectly competitive. 8

114. In the graph above, Average Variable Cost is labeled, Average Total Cost is labeled, and Marginal Cost is labeled. A. A; B; C B. C; B; A C. B; C; A D. C; A; B 115. The curve labeled A is upward sloping because A. there are high fixed costs B. the first bushels of mushrooms are the easiest to find, but Moe has to really hunt to find additional mushrooms. C. increased demand for mushrooms has increased quantity supplied. D. supply has shifted to the left. 116. When mushrooms sell for $10 per bushel, if Moe chooses the profit maximizing quantity Moe will gather A. 10 bushels B. 20 bushels C. 30 bushels D. zero bushels 118. Moe's short run supply curve is A. Curve C to the right of curve A B. Curve B to the right of curve A C. Curve A above curve B D. Curve A above curve C 134. Which of the following would cause supply to shift to the right? A. The number of firms in the industry falls. B. Demand for the good increases. C. The production technology improves. D. The price of the good increases. 135. Which of the following would cause supply to shift to the left? A. Wages rise. B. Demand for the good falls. C. The price of the good falls. D. Expectations about future demand improve. 138. What is the optimal supply of roadside litter? A. Zero, because it is costless for each individual to throw away his or her own trash. B. The quantity of litter that would remain if trash were picked up until the average cost of picking up trash equaled the total benefit. C. The quantity of litter that would remain if trash were picked up until the marginal cost of picking up trash equaled the marginal benefit. D. The quantity of litter that would remain if trash were picked up until the total cost of picking up trash equaled the marginal benefit. CAPÍTULO 7 Ingrid has been waiting for the show "Mamma Mia!" to come to town. When it finally does come, ticket prices are $60. Ingrid's reservation price is $75. But when Ingrid tries to buy a ticket, they are sold out. 6. The fact that Ingrid cannot buy a ticket to "Mamma Mia!" is evidence of A. Pareto efficiency in this market. B. A price ceiling above the equilibrium price. C. A situation that is not Pareto efficient. D. The benefits of allocating resources on the first-come, first-served basis. 9

7. Ingrid decides to try to buy a ticket from a scalper (a person who has purchased extra tickets at the box office with the intent to resell those tickets). If Ingrid finds someone who is willing to sell her a ticket for $70, she should A. not purchase it because it is overpriced by $10. B. not purchase it because the cost to the scalper was only $60, and it is unfair of the scalper to take advantage of the ticket shortage. C. purchase it, leading to an increase in surplus. D. purchase it even though it is not surplus enhancing. 8. Market equilibrium is considered efficient because A. prices are low. B. the price consumers pay equals the profit producers receive. C. no more trades remain that benefit some without harming others. D. it assures that both the buyer and seller earn equal surplus. 9. Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means A. all producers who want to sell coffee earn a profit. B. all remaining producers require less than $5 to produce coffee. C. all consumers who want to buy coffee are satisfied. D. all remaining consumers value a pound of coffee at less than $5. 10. Suppose the market for sugar is in equilibrium at $3 per pound. This means A. all remaining producers will require more than $3 to produce additional sugar. B. all remaining consumers value sugar at more than $3. C. the benefit of the last pound of sugar exceeds $3. D. the cost of the last pound of sugar is less than $3. Supply and Demand Curve for Jeans in Gallania Mall. 16. At the price of $60 each, sellers offer and buyers wish to purchase pairs of jeans a day. A. 60; 20 B. 8; 24 C. 16; 16 D. 24; 8 17. The price of $60 each will lead to an of pairs of jeans per day. A. excess supply; 8 B. excess supply; 16 C. equilibrium quantity; 16 D. excess demand; 16 18. At the quantity of 24 pairs of jeans a day, what is the cost of producing an extra pair of jeans? A. $20 B. $40 C. $60 D. $80 10

19. Suppose that jeans initially sell for $60 each. If the seller lowers price to $40 each it would create an extra of economic surplus. Thus, selling jeans for $60 each is. A. $160; inefficient B. $80; efficient C. $80; the equilibrium price D. $160; efficient 20. The equilibrium price will NOT lead to the largest possible total economic surplus when A. the jeans are purchased by consumers with reservation prices greater than $40. B. the jeans market is perfectly competitive. C. production of jeans generates air pollution. D. production of jeans experiences diminishing marginal returns to inputs. 21. A market equilibrium is only efficient when A. buyers and sellers each earn equal surplus from the transaction. B. consumer surplus and producer surplus are both zero C. All relevant costs, including those imposed on others, are accounted for. D. Income is distributed equitably Suppose that a firm is located along a river. The firm uses water from the river to cool its machinery and returns the water to the river several degrees warmer, which has led to a decline in the fish population downstream of the firm. 22. The damage to the downstream fish is a(n) A. relevant cost of production. B. relevant cost of production only if the firm is charged a fine for the damage done. C. relevant cost of production only if there are commercial fishing activities downstream. D. implicit cost of production which the firm will take into account in determining profit maximizing output. 23. If the firm does not have to pay for the damage to the downstream fish, the market equilibrium price will be and the market equilibrium quantity will be. A. inefficiently high; inefficiently low B. inefficiently high; efficient C. inefficiently low; inefficiently high D. efficient; inefficiently low 24. Suppose the government fines the firm an amount equal to the damage imposed on the fish. This government action A. reduces efficiency in the market. B. increases dead weight loss. C. increases efficiency in the market. D. violates Pareto efficiency. 26. If the demand curve fails to capture all of the benefits of consumption, then the A. equilibrium price is efficient but the quantity will be too large. B. the equilibrium price is inefficiently low. C. government needs to impose regulations that require more consumption. D. the equilibrium price is inefficiently high. 31. A price ceiling below equilibrium price will cause A. producer surplus to fall. B. total economic surplus to rise. C. quantity supplied to exceed quantity demanded. D. demand to increase. 33. Binding price floors cause A. total economic surplus to increase. B. excess supply. C. too much consumption. D. too little production. 11

36. Which of the following statements best characterizes the inefficiency caused by a price floor? A. Consumers are encouraged to consume too much. B. Trades that benefit both the buyer and the seller are available at prices less than the price floor. C. Producers are encouraged to produce too little. D. The enforcement of the price floor is extremely costly. 48. Producer surplus is the A. cumulative difference between the price producers receive and price they require in order to produce. B. difference between the brand name price and the generic brand price. C. difference between the suggested retail price and the actual cost. D. value of the markup of price. 57. Refer to the figure above. When the market is unregulated, producer surplus equals A. (DB) * (BC). B. 1/2 * (DG) * (GF). C. 1/2 * (DB) * (BC). D. 1/2 * (FH) * (HC). 58. Refer to the figure above. Assume that a price ceiling is imposed at point G, i.e., the price is now represented by the distance 0G. The distance measures the extent of the. A. Q2Q1; surplus B. FI; shortage C. FI; surplus D. GF; shortage 59. Refer to the figure above. After the price ceiling is imposed, producer surplus and is represented by the area. A. increases; DBC B. decreases; DGF C. increases; 0GFQ2 D. decreases; 0DFQ2 60. Refer to the figure above. After the price ceiling is imposed, consumer surplus and is represented by the area. A. decreases; BJEH B. increases; BAEH C. decreases; JAE D. increases; GAEF 61. Refer to the figure above. The deadweight loss due to the price ceiling is represented by the area A. FEC. B. DAC. C. GJEF. D. JAE + DGF. 12

71. Which of the following policies maintains efficiency in the housing market while assisting the poor with their housing needs? A. A price floor. B. A price ceiling. C. A free market with subsidies to landlords. D. A free market with subsidies to the poor. 75. Refer to the figure above. With no subsidy, what is the producer surplus? A. $0 B. $6,000 C. $7,500 D. $17,000 78. Refer to the figure above. With the subsidy, what is the producer surplus? A. $0 B. $6,000 C. $7,500 D. $17,000 80. Refer to the figure above. The cost of subsidy, which must be borne by taxpayers, is A. $500 B. $3000 C. $5500 D. $7000 81. Refer to the figure above. The net effect of the subsidy program total economic surplus by. A. increased; $6500 B. decreased; $6500 C. increased; $500 D. decreased; $500 Several years ago, visitors to Disneyland had to purchase a separate ticket for each ride they went on. E Rides were the most expensive, and there were several categories of less expensive rides. Now visitors to Disneyland pay a single entry fee, which entitles them to go on any ride they wish as often as they wish. 90. Several years ago rides at Disneyland were allocated using a mechanism, and now they are allocated using a mechanism. A. price; capitalist B. first come, first served; price C. price; first come, first served D. capitalist; price ceiling 13

91. Compared to the old way of allocating rides at Disneyland, the new allocation mechanism A. is more efficient. B. is less efficient. C. favors wealthier visitors to Disneyland. D. generates more total economic surplus. 92. Once inside the gates, the current price of a ride at Disneyland is A. the entry price divided by the total number of rides taken. B. zero because the entry price is a sunk cost that should not be taken into consideration. C. the cost of the time spent in line plus the entry price divided by the total number of rides taken. D. the cost of the time spent in line. 93. What is the most likely result of the change in pricing strategies at Disneyland? A. Consumer surplus will increase. B. The average waiting time for a ride will increase. C. The average waiting time for a ride will decrease. D. Visitors will go on fewer rides per day. 103. The market for new automobiles is likely to be inefficient because A. of price ceilings on automobiles. B. the market is not perfectly competitive. C. of price floors on automobiles. D. consumers negotiate price. 120. Refer to the figure above. In the absence of a tax, the total economic surplus in the market is A. $64. B. $40. C. $32. D. $16. 122. Refer to the figure above. Suppose a $1 per unit tax is imposed on sellers. The share of the tax burden borne by consumers is and the share of the tax burden borne by producers is A. 50 cents; 50 cents. B. 80 cents; 20 cents. C. 60 cents; 40 cents D. 40 cents; 60 cents. 123. Refer to the figure above. Suppose a $1 per unit tax is imposed on sellers. The total tax revenue raised is A. $7. B. $5.60. C. $4.80. D. $1. 14

124. Refer to the figure above. The deadweight loss from imposing a $1 tax on sellers is A. 50 cents. B. $1. C. $3. D. $4.50. 129. The more elastic demand is, the the burden of the tax borne by. A. smaller; consumers B. larger; consumers C. smaller; consumers and producers D. smaller; producers 130. The more elastic supply is, the the burden of the tax borne by. A. larger; consumers B. larger; producers C. smaller; consumers D. smaller; consumers and producers 133. If a per unit tax is imposed, the more elastic demand is, the A. less likely the deadweight loss will be affected. B. smaller the deadweight loss. C. larger the deadweight loss. D. smaller the deadweight loss to producers. Your state legislature is considering increasing the sales tax on two different commodities: prescription drugs and restaurant meals. You estimate price elasticity of demand for prescription drugs to be -0.08 and price elasticity of demand for restaurant meals to be -0.95. 141. If the legislature's primary goal in increasing taxes is to raise money most efficiently, it should tax A. both drugs and restaurant meals equally. B. drugs because demand is price inelastic. C. restaurant meals because they are not a necessity. D. only those prescription drugs that are not life-saving. 142. In an effort to battle obesity, the school board has decided to tax candy sold at the high school snack bar. This measure will be most successful in reducing candy consumption if A. the supply of candy is price inelastic. B. the tax is imposed on the consumers instead of the sellers. C. demand for candy at the market price is price inelastic. D. demand for candy at the market price is price elastic. 149. Refer to the figure above. A tax on Commodity A will generate deadweight loss relative to an equivalent tax on Commodity B. A. more B. less C. equal D. zero 15

150. Refer to the figure above. A tax on Commodity A will generate tax revenue relative to an equivalent tax on Commodity B. A. more B. less C. equal D. zero 151. Refer to the figure above. A tax on Commodity B will be more effective at than an equivalent tax on Commodity A. A. raising revenue B. enhancing efficiency C. reducing consumption D. equalizing incomes CAPÍTULO 8 2. Explicit costs A. measure the opportunity costs of the business owners. B. are always fixed in the short run. C. measure the payments made to the firm's factors of production. D. are always variable in the short run. 3. Which of the following is not an example of explicit costs? A. Wages paid to workers B. Personal savings of the owner invested in the firm C. Salaries paid to management D. Office space rent 4. Explicit costs A. are the only costs that matter to business owners. B. usually exceed implicit costs. C. are difficult to measure. D. appear on the firm's balance sheet. 5. Implicit costs A. are always fixed. B. measure the forgone opportunities of the owners of the business. C. always exceed explicit costs. D. are irrelevant to business decisions. 12. Which of the following would not be included in the calculation of accounting profits? A. Wages of workers B. The salary the owner could have earned working elsewhere C. Rent D. Medical insurance coverage for workers 14. Accounting profits minus implicit costs equals A. total revenues. B. economic profits. C. explicit costs. D. fixed and variable costs. Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. 16

24. What is Pat's explicit cost? A. $12,000 B. $15,000 C. $16,000 D. $35,000 25. What is Pat's implicit cost? A. $12,000 B. $16,000 C. $35,000 D. $51,000 26. Pat's accounting profit (loss) is. A. $50,000 B. $34,000 C. $15,000 D. -$1000 27. Pat's economic profit (loss) is. A. $50,000 B. $34,000 C. $15,000 D. -$1,000 28. For Pat to earn normal profit (loss), accounting profit would have to be. A. $50,000 B. $35,000 C. $15,000 D. 0 37. The statement, "price distributes goods and services to those that value them the most" refers to the function of price. A. allocative B. multiplicative C. store of value D. rationing 47. If all firms in a perfectly competitive industry earn a normal profit, then A. new firms will enter the industry. B. old firms will exit the industry. C. the number of firms in the industry is stable. D. market supply will shift to the left. 51. In an industry with free entry and exit, economic profits A. indicate a market failure. B. can never occur. C. induce a reallocation of resources out of other industries and into the one with economic profits. D. can be sustained indefinitely. 60. An implication of entry and exit in response to the profit incentive is that, for perfectly competitive firms, A. no firm accepts zero economic profits in the long run. B. firms produce the quantity that minimizes average variable costs in the short run. C. firms produce the quantity that minimizes average total costs in the long run. D. demand is completely inelastic. The following graphs depict a perfectly competitive firm and its market. Assume that all firms in this industry have identical cost functions. 17

62. The long run equilibrium quantity in this industry is A. 300. B. 500 C. 700 D. more than 700. 63. Assume that the market is currently as shown in the graph on the left (i.e., price of $8). What is true of the number of firms? A. There are currently 30 firms in the industry, and that number will remain stable until there is a change in demand or in technology. B. There are currently ten firms in this industry, and that number will remain stable until there is a change in demand or in technology. C. It is impossible to tell how many firms currently exist in this industry, but you can tell that the number of firms is likely to increase in the near future. D. There are currently ten firms in this industry, and that number is likely to increase in the near future. 64. In the long run equilibrium in this market, A. price will equal $5, and there will be 20 firms in the industry. B. price will equal $5, and there will be 10 firms in the industry. C. price will equal $8, and there will be 20 firms in the industry. D. price will equal $5 and total output will equal 500 units, but there is not enough information to know how many firms there will be. 66. Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right causing the market A. price to increase, and a new stable equilibrium to be established at a higher price and higher quantity. B. price to increase, and all firms in the industry will earn higher profits at lower quantities of output. C. price to increase. Increased profits will encourage new firms to enter shifting the market supply function to the right. Long-run market equilibrium will be at a higher quantity but at the same price as before the surge in popularity. D. price and quantity supplied to increase. Increased profits will encourage new firms to enter shifting the market supply function upward. Long-run market equilibrium will be at a higher quantity and higher price than before the surge in popularity. 18

68. Refer to the figure above. If S 2 is the short-run industry supply curve for a maple syrup producer, the profit maximizing output for a single firm is gallons. A. 500 B. 1000 C. 1500 D. 2000 69. Refer to the figure above. Suppose S 2 is the industry supply curve. At the profit maximizing quantity price will the opportunity cost of the resources required to enter the market and firms will. A. be less than; exit the market. B. exceed; exit the market C. exceed; enter market. D. be less than; enter the market 70. Refer to the figure above. If S 2 is the short-run industry supply curve for a maple syrup producer, what is the profit (loss) for this firm? A. $10,000 B. $15,000 C. $20,000 D. $30,000 71. Refer to the figure above. Suppose S 2 is the industry supply curve and all firms are producing at the profit maximizing quantity. What will happen to the supply curve in the long run? A. Quantity supplied will increase but stay on the S 2 curve. B. Supply will shift to S 1 C. Supply will shift to S D. Quantity supplied will decrease but stay on S 2 curve. 72. Refer to the figure above. In the long run equilibrium price is and an individual firm's profit maximizing quantity is. A. $20; 4 million B. $15; 6 million C. $15; 3 thousand D. $10; 8 million 73. Refer to the figure above. What will be the long-run economic profit for this firm? A. $0 B. $10,000 C. $15,000 D. $20,000 75. Suppose a remote community in Montana lacks broadband access to the Internet. A proponent of the invisible hand view would argue that A. government regulation is necessary to ensure access. B. the selfish pursuit of profit by Internet service providers will bring access to those willing to pay for it. C. the consumers need to move to a large city. D. the lack of access is the efficient allocation. 76. E-commerce and an Internet presence are important to many firms, requiring employees with specialized skills that are in short supply. The invisible hand solves the employment problem by A. encouraging the government to set up new training programs. B. giving selfish workers the incentive to acquire the skills in order to receive high wages. C. allowing the few employees with the skills to exploit the firms. D. moving slowly until the e-commerce craze ends. 85. Economic rent A. is always positive. B. is driven towards zero. C. can be positive, zero, or negative. D. can never be negative. 19

86. Russell Crowe's economic rent from starring in a movie is equal to the difference between A. his initial offer and his final salary, including royalties. B. his initial offer and the what he could earn in a different film. C. his final salary and the average for leading actors. D. his final salary and the least he would be willing to accept for a role. 87. Superstar professional athletes can sustain their economic rents because A. team owners will pay anything to win the championship. B. they have excellent union representation. C. their opportunity costs of playing are high. D. if their current team does not pay, they can take their unique talents to another team willing to pay. 89. Duke is a particularly highly skilled negotiator. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will A. be evenly split between Duke and the law firm to maximize surplus. B. all go to the law firm because the firm bears the risk of running the business. C. all go to Duke because if it didn't, another firm could hire Duke away. D. be split, with 75% going to Duke and 25% going to the law firm. 90. If a single firm, belonging to a perfectly competitive industry in long run equilibrium, discovers a significant cost saving methodology, then A. all firms will enjoy economic profits for a short period of time. B. the rest of the industry will quickly adopt the new methodology. C. the firm will enjoy economic profits forever. D. the firm will lower its price to drive the rest of the industry out of business. 108. Efforts to raise the incomes of those in a particular industry fail because of A. poor management of the program. B. cheating and corruption. C. a lack of motivation among the workers. D. the invisible hand moving workers out of other industries and into the government supported one. 146. When either the costs of production or the benefits of consumption to individuals differ from those of society, A. the equilibrium output will be the socially optimal output. B. the equilibrium is not efficient. C. the allocation of resources remains correct. D. the invisible had had completely failed. 147. Adam Smith believed that the individual pursuit of self-interest A. was a basic human instinct that must be curbed in order for society to advance. B. always worked to undermine social benefits. C. always worked to advance social benefits. D. sometimes worked to advance social benefits. 20