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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

A competitive firm maximizes profit by choosing the quantity at whicha. average total cost is at its minimum.b. marginal cost equals the price.c. average total cost equals the price.d. marginal cost
A competitive firm’s short-run supply curve is its _________ cost curve above its _________ cost curve.a. average-total-; marginalb. average-variable-; marginalc. marginal-; average-totald.
If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it willa. keep producing in the short run but exit the
In the long-run equilibrium of a competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC?a. P > MC and P > ATC.b. P > MC and P
I n the short-run equilibrium of a competitive market with identical firms, if new firms are getting ready to enter, what are the relationships among price P, marginal cost MC, and average total cost
Suppose pretzel stands in New York City are a perfectly competitive market in long-run equilibrium.One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect
Some government grants of monopoly power are desirable if theya. curtail the adverse effects of cut-throat competition.b. make industries more profitable.c. provide incentives for invention and
A firm is a natural monopoly if it exhibits _________ as its output increases.a. increasing total revenueb. increasing marginal costc. decreasing marginal revenued. decreasing average total cost
For a profit-maximizing monopoly that charges a single price, what is the relationship between price P, marginal revenue MR, and marginal cost MC?a. P = MR and MR = MC.b. P > MR and MR = MC.c. P = MR
I f a monopoly’s fixed costs increase, its price will _________ and its profit will _________.a. increase; decreaseb. decrease; increasec. increase; stay the samed. stay the same; decrease
Compared to the social optimum, a monopoly firm choosesa. a quantity that is too low and a price that is too high.b. a quantity that is too high and a price that is too low.c. a quantity and a price
The deadweight loss from monopoly arises becausea. the monopoly firm makes higher profits than a competitive firm would.b. some potential consumers who forgo buying the good value it more than its
Price discrimination by a monopolist refers to charging different prices based ona. the consumer’s willingness to pay.b. the consumer’s racial or ethnic group.c. the cost of producing the good
When a monopolist switches from charging a single price to practicing perfect price discrimination, it reducesa. the quantity produced.b. the firm’s profit.c. consumer surplus.d. total surplus.
A ntitrust regulators are likely to prohibit two firms from merging ifa. there are many other firms in the industry.b. there are sizable synergies to the combination.c. the combined firm will have a
If regulators impose marginal-cost pricing on a natural monopoly, a possible problem is thata. consumers will buy more of the good than is efficient.b. consumers will buy less of the good than is
Ariana Grande has just finished recording her latest CD. Her record company’s marketing department determines that the demand for the CD is as follows:The company can produce the CD with no fixed
Which of the following conditions does NOT describe a firm in a monopolistically competitive market?a. It sells a product different from its competitors.b. It takes its price as given by market
Which of the following markets best fits the definition of monopolistic competition?a. wheatb. tap waterc. crude oild. haircuts
A monopolistically competitive firm will increase its production ifa. marginal revenue is greater than marginal cost.b. marginal revenue is greater than average total cost.c. price is greater than
New firms will enter a monopolistically competitive market ifa. marginal revenue is greater than marginal cost.b. marginal revenue is greater than average total cost.c. price is greater than marginal
What is true of a monopolistically competitive market in long-run equilibrium?a. Price is greater than marginal cost.b. Price is equal to marginal revenue.c. Firms make positive economic profits.d.
If advertising makes consumers more loyal to particular brands, it could _________ the elasticity of demand and _________ the markup of price over marginal cost.a. increase; increaseb. increase;
If advertising makes consumers more aware of alternative products, it could _________ the elasticity of demand and _________ the markup of price over marginal cost.a. increase; increaseb. increase;
Advertising can be a signal of qualitya. if advertising is freely available to all firms.b. if the benefit of attracting customers is greater for firms with better products.c. only if consumers are
The key feature of an oligopolistic market is thata. each firm produces a different product from other firms.b. a single firm chooses a point on the market demand curve.c. each firm takes the market
If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output _________ the competitive level and _________ the monopoly level.a. less than; more thanb.
If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output _________ the competitive level and _________ the monopoly level.a. less
As the number of firms in an oligopoly grows, the industry approaches a level of output _________ the competitive level and _________ the monopoly level.a. less than; more thanb. more than; less
The prisoners’ dilemma is a two-person game illustrating thata. the cooperative outcome could be worse for both people than the Nash equilibrium.b. even if the cooperative outcome is better than
Two people facing the prisoners’ dilemma may cooperate ifa. they recognize that the Nash equilibrium is worse for both people than the cooperative equilibrium.b. they will play the game repeatedly
The antitrust laws aim toa. facilitate cooperation among firms in oligopolistic industries.b. encourage mergers to take advantage of economies of scale.c. discourage firms from moving production
Antitrust enforcement is controversial mainly becausea. cooperative domestic firms are best equipped to deal with international competitors.b. some business practices that seem anticompetitive may in
Approximately what percentage of U.S. national income is paid to workers rather than to owners of capital and land?a. 25 percentb. 45 percentc. 65 percentd. 85 percent
If firms are competitive and profit-maximizing, the demand curve for labor is determined bya. the opportunity cost of workers’ time.b. the value of the marginal product of labor.c. the value of the
A bakery operating in competitive markets sells its output for $20 per cake and pays workers $10 per hour. To maximize profit, it should hire workers until the marginal product of labor isa. 1/2 cake
Who has a greater opportunity cost of enjoying leisure—a janitor or a surgeon?a. the janitor because his wage is lowerb. the surgeon because his wage is higherc. whoever has the greater income
A person works more hours at a higher wage if the substitution effecta. equals zero.b. equals the income effect.c. is smaller than the income effect.d. is larger than the income effect.
Which of the following events will shift the labor supply curve to the right?a. More dads leave the work force to spend time raising children.b. Great new video games are introduced, enhancing the
A technological advance that increases the marginal product of labor shifts the labor- _________ curve to the _________.a. demand; leftb. demand; rightc. supply; leftd. supply; right
Around 1973, the U.S. economy experienced a significant _________ in productivity growth, coupled with a _________ in the growth of real wages.a. pickup; pickupb. pickup; slowdownc. slowdown;
A bakery operating in competitive markets sells its output for $20 per cake and rents ovens at $30 per hour. To maximize profit, it should rent ovens until the marginal product of an oven isa. 2/3
A storm destroys several factories, reducing the stock of capital. What effect does this event have on factor markets?a. Wages and the rental price of capital both rise.b. Wages and the rental price
Ted leaves his job as a high school math teacher and returns to school to study the latest developments in computer programming, after which he takes a higher-paying job at a software firm. This is
Marshall and Lily work at a local department store. Marshall, who greets customers as they arrive, is paid less than Lily, who cleans the bathrooms. This is an example ofa. a compensating
Barney runs a small manufacturing company. He pays his employees about twice as much as other firms in the area, even though he could pay less and still recruit all the workers he needs. He believes
A business consulting firm hires Robin because she was a math major in college. Her new job does not require any of the mathematics she learned, but the firm believes that anyone who can graduate
A mong full-time U.S. workers, white women earn about _________ percent less than white men, and black men earn about _________ percent less than white men.a. 5; 20b. 5; 40c. 20; 20d. 20; 40
It is difficult to measure to what extent discrimination affects labor market outcomes becausea. data on wages are crucial but not readily available.b. firms misreport the wages they pay to hide
The forces of competition in markets with free entry and exit tend to eliminate wage differentials that arise from discrimination bya. employers.b. customers.c. government.d. all of the above
Do the forces of economic competition tend to exacerbate or ameliorate racial discrimination?
In the United States today, the poorest fifth of the population earns about _________ percent of all income, while the richest fifth earns about _________ percent.a. 2; 70b. 4; 50c. 6; 35d. 8; 25
When comparing income inequality across nations, one finds that the United States isa. the most equal nation in the world.b. more equal than most nations but not the most equal.c. less equal than
Because consumption is largely determined by _________ income, consumption is _________ equally distributed than current income.a. permanent; moreb. permanent; lessc. transitory; mored. transitory;
A utilitarian believes that the redistribution of income from the rich to the poor is worthwhile as long asa. the worst-off members of society benefit from it.b. those contributing to the system are
Rawls’s thought experiment of the “original position”behind the “veil of ignorance” is meant to draw attention to the fact thata. most of the poor do not know how to find better jobs and
Libertarians believe thata. the government should aim to improve the well-being of the worst-off person in society.b. policy should aim for an income distribution that maximizes total happiness of
A negative income tax is a policy under whicha. all people with low income get government transfers.b. the government raises tax revenue without distorting incentives.c. everyone pays less than under
If the benefits from an antipoverty program are phased out as an individual’s income increases, the program willa. encourage greater work effort from the poor.b. lead to an excess supply of labor
Homer buys pizza for $10 and Pepsi for $2. He has income of $100. His budget constraint will shift inward ifa. the price of pizza rises to $12.b. the price of Pepsi falls to $1.c. his income rises to
Marge also buys pizza for $10 and Pepsi for $2. She has income of $200. Her budget constraint will experience a parallel outward shift ifa. the price of pizza falls to $5, the price of Pepsi falls to
At two points on an indifference curve,a. the consumer has the same income.b. the consumer has the same marginal rate of substitution.c. the bundles of goods cost the consumer the same amount.d. the
At any point on an indifference curve, the slope of the curve measures the consumer’sa. income.b. willingness to trade one good for the other.c. perception of the two goods as substitutes or
Bart and Lisa are both optimizing consumers in the markets for shirts and hats, where they pay $100 for a shirt and $50 for a hat. Bart buys 8 shirts and 4 hats, while Lisa buys 6 shirts and 12 hats.
Maggie buys peanut butter and jelly, both of which are normal goods. When the price of peanut butter rises, the income effect induces Maggie to buy _________ peanut butter and _________ jelly.a.
Ned buys wine and bread. When the price of wine rises, the substitution effect induces Ned to buy _________ wine and _________ bread.a. more; moreb. more; lessc. less; mored. less; less
Mr. Burns buys only lobster and chicken. Lobster is a normal good, while chicken is an inferior good.When the price of lobster rises, Mr. Burns buysa. less of both goods.b. more lobster and less
If Edna buys more pasta when the price of pasta increases, we can infer that for Ednaa. pasta is a normal good for which the income effect exceeds the substitution effect.b. pasta is a normal good
Maude’s labor-supply curve slopes upward if, for Maude,a. leisure is a normal good.b. consumption is a normal good.c. the income effect on leisure exceeds the substitution effect.d. the
Consumption when young and consumption when old are both normal goods for Seymour, a worker saving for retirement. When the interest rate falls, what happens to Seymour’s consumption when old?a. It
Raj consumes only cheese and crackers.a. Could cheese and crackers both be inferior goods for Raj? Explain.b. Suppose that cheese is a normal good for Raj while crackers are an inferior good. If the
Darius buys only milk and cookies.a. In year 1, Darius earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Darius’s budget constraint.b. Now suppose that all prices increase by
Because Elaine has a family history of significant medical problems, she buys health insurance, whereas her friend Jerry, who has a healthier family, goes without. This is an example ofa. moral
George has a life insurance policy that pays his family $1 million if he dies. As a result, he does not hesitate to enjoy his favorite hobby of bungee jumping. This is an example ofa. moral hazard.b.
Before selling anyone a health insurance policy, the Kramer Insurance Company requires that applicants undergo a medical examination. Those with significant preexisting medical problems are charged
Dr. Wexler displays her medical degree in her office waiting room, hoping patients will be impressed that she attended a prestigious medical school. This is an example ofa. moral hazard.b. adverse
The Condorcet paradox illustrates Arrow’s impossibility theorem by showing that pairwise majority votinga. is inconsistent with the principle of unanimity.b. leads to social preferences that are
Georgette is about to win reelection as class president against her challenger Billie. But then Rossana enters the race as well, pulling votes from Georgette and allowing Billie to prevail. The
Two political candidates are vying for town mayor, and the key issue is how much to spend on the annual Fourth of July fireworks. Among the 100 voters, 40 want to spend $30,000, 30 want to spend
One documented deviation from rationality is that many peoplea. tend to be excessively confident in their own abilities.b. change their mind too quickly when they get new information.c. give too much
The experiment called the ultimatum game illustrates that peoplea. play the Nash equilibrium in strategic situations.b. are motivated by the desire for instant gratification.c. care about fairness,

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