1.

If a firm's total revenue is $112 when it sells 16 units, $119 when it sells 17 units and $126 when it sells 18 units, then the firm is

Multiple Choice

• an imperfectly competitive firm.
• either a perfectly or imperfectly competitive firm.
• a perfectly competitive firm.
• only an imperfectly competitive firm if it sets MR=MC.

2.

A prisoner's dilemma illustrates situations in which:

Multiple Choice

• efficiency is an important social goal.
• there is a conflict between the narrow self-interest of individuals and the broader interests of a group.
• resources with the lowest opportunity cost should be used first.
• everyone does best when each person specializes in the activities in which he or she has a comparative advantage.

3.

The reason that the prisoner's dilemma presents a dilemma is that:

Multiple Choice

• neither player has a comparative advantage, so neither can infer what the other player will choose.
• each player has an incentive to play his or her dominated strategy, but when both choose the dominated strategy each player has a lower payoff than if they both had chosen the dominant strategy.
• the market cannot be in equilibrium because the players do not have dominant strategies.
• each player has an incentive to play his or her dominant strategy, but when both choose the dominant strategy each player has a lower payoff than if they both had chosen the dominated strategy.

4.

Savannah is the owner of the 7-11 Mini Mart, Sam is the owner of the SuperAmerica Mini Mart, and together they are the only two gas stations in town. Currently, they both charge $3 per gallon, and each earns a profit of $1,000. If Savannah cuts her price to $2.90 and Sam continues to charge $3, then Savannah's profit will be $1,350, and Sam's profit will be $500. Similarly, if Sam cuts her price to $2.90 and Savannah continues to charge $3, then Sam's profit will be $1,350, and Savannah's profit will be $500. If Sam and Savannah both cut their price to $2.90, then they will each earn a profit of $900.

The clear outcome of this game is that:

Multiple Choice

• neither Savannah nor Sam will cut their price.
• both Savannah and Sam will cut their price.
• Sam will cut her price and Savannah won't.
• Savannah will cut her price and Sam won't.

5.

Game theory is not useful in understanding perfect competition because in a perfectly competitive market

Multiple Choice

• there are too many firms to be able to model their behavior accurately using game theory.
• no single firm can influence the market price, so firms' decisions are not interdependent.
• the payoffs to firms' choices are unknown.
• each firm only cares about its own profit, so there is no interdependence.

7.

A firm earns a normal profit when its

Multiple Choice

• economic profit is positive.
• accounting profit is positive.
• accounting profit is zero.
• economic profit is zero.

8.

If you were to start your own business, your implicit costs would include the

Multiple Choice

• opportunity cost of the time you spend working at the business.
• interest that you pay on your business loans.
• profit you earn over and above your normal profit.
• rent that you have paid in advance for the use of a building.

9.

Which of the following statements about explicit costs is true?

Multiple Choice

• They usually exceed implicit costs.
• They are the only costs that matter to business owners.
• They are difficult to measure.
• They appear on the firm's balance sheet.

10.

Taylor used to work as a yoga instructor at the local gym earning $36,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $50,000 in total annual revenue. Taylor's only out-of-pocket costs are $10,000 per year for rent and utilities, $1,000 per year for advertising and $1,800 per year for equipment.

Taylor's accounting profit is _______, and Taylor's economic profit is _______.

Multiple Choice

• $27,200; $24,000
• $37,200; $1,200
• $1,200; $37,200
• $24,000; $27,200

11.

Economic profit is equal to

Multiple Choice

• total revenue minus the sum of explicit and implicit costs.
• accounting profit minus explicit costs.
• total revenue minus accounting profit.
• accounting profit plus implicit costs.