Multiple choice questions.

Please provide explanations as well;

Questions 18 and 19 refer to the following Daybreak graph which shows the cost and revenue curves for a typical firm operating in a No Free Wi-fi|Free Wi-Fi perfectly competitive market. No Free $200, $200 $25, $350 FreshBrew |Wi-Fi Marginal Free $350, $25 $100, $100 Cost WI-FI HavenIN Total 20. In a college town, there are two coffee Marginal Revenue shops-FreshBrew and DayBreak-operating on different corners of the same street. The two shops are considering whether to add free Wi-fi service to attract customers and increase profits. The payoff matrix above shows the profits associated with the choices of the two shops. The first entry in each cell Q1 Q1 Q1 Output represents the profits to FreshBrew and the second the profits to DayBreak. Assuming the 18. The profit-maximizing price and quantity for two shops do not cooperate, which of the the firm whose cost and revenue curves are following shows the dominant strategy for shown above will be which of the following? FreshBrew and for DayBreak? FreshBrew Day Break Price Quantity (A) No free Wi-fi Free Wi-Fi (A) P Q2 (B) Free Wi-fi No free Wi-Fi (B) P2 [C) Free Wi-fi Free Wi-F (D) No free Wi-Fi No free Wi-Fi (C) P2 Q2 (D) P2 Q3 21. Real gross domestic product (GDP) is defined as the ratio of nominal GDP to the 19. Which of the following will occur in the long [A) money supply run? (B) unemployment rate (A) The firm will exit the market, and the market price will increase [C) government's budget deficit (B) New firms will enter the market, and the (D) GDP deflator firm will earn zero economic profit. C) The firm will increase its production. 22. The Federal Reserve implements an expansionary policy by doing which of the (D) The firm's marginal cost will increase, but following? its average total cost will decrease. (A) Buying Treasury bonds in the open market (B) Raising the federal funds rate6. Assume the money supply is fixed by the Use the diagram below, which shows the Federal Reserve and remains constant. How demand and supply curves for leather will an increase in average consumer income garments, to answer the next two affect the demand for money and the nominal questions. interest rate? Price Supply Money Demand Nominal Interest Rate (A) Decrease Increase (B) Decrease Increase C) Increase Decrease Dj Increase Decrease Demand 7. Which of the following is true of a profit- maximizing firm in the short run? (A) The firm will shut down to minimize Quantity losses if product price falls below average total cost. 10. Assume that leather garments are a normal good. An increase in the price of leather and a (B) The firm will shut down if marginal simultaneous increase in consumers' income revenue equals marginal cost but will most likely have which of the following exceeds average variable cost. effects on the equilibrium price and quantity of leather garments? (C) The firm will continue to produce as long as total revenue exceeds total variable Price Quantity cost, even if it incurs loss. (A) Increase Increase (D) The firm will continue to produce as long (B) Increase Indeterminate as average variable cost is less than (C) Indeterminate Decrease average fixed cost. (D) Decrease Decrease B. Which of the following short-run costs always increases as output increases? 11. If the government places a price ceiling on (A) Average total cost leather garments that is below the equilibrium price, which of the following will occur in the (B) Marginal cost market for leather garments? (C) Total fixed cost (A) There will be a shortage. (D) Total variable cost (B) There will be a surplus. 9. Assume the demand for wheat is relatively (C) The demand curve for leather garments price inelastic. An increase in the supply of will shift leftward. wheat will result in which of the following? (D) The supply curve for leather garments (A) A decrease in quantity demanded and an will shift rightward. increase in total revenue (B) A decrease in quantity demanded and a decrease in total revenue12. The primary purpose of antitrust laws is to 15. In the definition of a public good, the term "nonrival" means that (A) help businesses that are in financial trouble (A) one person's use of the public good does (B) encourage business investment not reduce the amount available to others [C) prevent business behavior that hampers competition (B) the public good is produced by the government without any competition (D) establish trust between government and (C) the public good is produced at zero businesses marginal cost 13. When the production of a good generates (D) the public good is mostly consumed by negative externalities, the private market will free riders [A) overproduce the good relative to the socially optimal level of output 16. The demand for labor is called derived demand because it is (B) underproduce the good relative to the socially optimal level of output (A) dependent on the demand for the final product that the labor is used to produce [C) compensate the third parties harmed by the negative externality (B) inversely related to the wage rate (D) charge lower than the market equilibrium (C) dependent on the availability of capital price to compensate for the externality goods 14. Carmen spends her entire weekly income on (D) directly related to the marginal utility of working two goods: X and Y. At her current consumption level of the two goods, the marginal utility of the last dollar spent on good 17. Which of the following is true about a X is 5 and the marginal utility of the last dollar monopoly? she spent on good Y is 10. To maximize her utility, Carmen should (A) It competes with many firms selling the same product in the market. (A) maintain her current consumption level of the two goods (B) It has to lower its price on all units to sell more output. (B) buy fewer units of X and more units of Y (C) Its marginal revenue increases as output (C) buy fewer units of Y and more units of X sold increases. (D) buy fewer units of both X and Y [D) It sets a price below average variable cost to drive its competitors out of the market.23. When an economy is in a recession, the actual 26. The maximum increase in the money supply unemployment rate is that can be generated from the deposit in the banking system is (A) equal to the natural rate of unemployment (A) $400 (8) less than the natural rate of (B) $500 unemployment (C) $2,000 (C) greater than the natural rate of unemployment (D) $2,500 (D) less than the growth rate of the economy 27. Which of the following types of inflation would result if the price level rose because of an 24. If consumers in the United States increase Increase in the price of raw materials? their demand for imports over domestically produced goods, the international value of the (A) Deflation United States dollar and United States exports will most likely change in which of the (B) Hyperinflation following ways? (C) Demand-pull inflation International (D) Cost-push inflation Value of the Dollar Exports 28. A fiscal policy to combat a recession would Appreciate Increase call for (B) Appreciate Decrease (A) an increase in taxes C) Depreciate Increase (D) Depreciate Decrease (B) an increase in government spending (C) a decrease in the reserve requirement Use the information below to answer the next two questions. (D) a decrease in the discount rate Assume that the required reserve ratio is 20 percent and that a bank is currently fully loaned 29. Which TWO of the following are important up. The bank receives a cash deposit of $500 determinants of economic growth? from a new customer. (A) Increases in physical capital 25. The maximum amount of loan the bank can (B) Increases in consumer goods make from this deposit is (C) Technological improvements (A) $1,000 (D) Increases in the money supply (B) $500 (C) $400 30. Which TWO of the following are included in investment spending in the national income (D) $100 and product accounts? (A) The purchase of stocks and bonds