PRACTICE QUIZ QUESTIONS FOR HEYNE CHAPTER 7

1) Interest is to saver as

A) interest is to debtor.

B) profit is to entrepreneur.

C) tuition is to student.

D) commission is to committee.

2) Typically a firm's economic profit will be

A) greater than its accounting profit.

B) less than its accounting profit.

C) equal to its accounting profit.

D) equal to its accounting profit minus its tax liability.

3) If a professor gives up her job to open a shoe store, which of the following costs would an accountant tend to ignore?

A) The $1,500 per month lease for the shoe store.

B) The $150 per month electricity bill.

C) The $4,000 per month of income forgone by not being employed as a professor.

D) The $200 business license, which, of course, is a sunk cost.

4) A physician who laid off her nurse and receptionist and performed their tasks herself would probably

A) decrease her accounting profit but increase her economic profit.

B) decrease her profit from the economist's point of view even if she increased her accounting profit.

C) increase both her accounting and economic profit if her practice was a busy one.

D) wind up with lower labor costs unless the layoff greatly increased the demand for her professional services.

5) ACME Steel made $68 million in profits last year selling its steel to the Cogswell Car Corporation, which means

A) Cogswell Car Corp. also enjoyed $68 million in profits last year.

B) Cogswell Car Corp. also suffered a $68 million loss last year.

C) Cogswell Car Corp. also expected to profit from the deal.

D) Cogswell Car Corp. was acting inefficiently.

6) In the economic way of thinking, profit and loss can be eliminated only by

A) appropriate and effective price controls.

B) careful and detailed government regulation of business.

C) a total elimination of uncertainty.

D) taxation.

7) Entrepreneurs are people who

A) accept ultimate responsibility for the projects they undertake.

B) are hired by others to manage business enterprises.

C) are hired by others to organize business enterprises.

D) own the resources used in the production process.

8) Entrepreneurs engage in

A) arbitrage.

B) innovation.

C) imitation of other successful entrepreneurs.

D) all of the above.

9) According to your authors, entrepreneurial innovation is similar to arbitrage because both activities ultimately involve

A) obtaining inputs at relatively high prices and selling the output at lower prices.

B) obtaining inputs at relatively low prices and selling the output at higher prices.

C) the absence of uncertainty.

D) the presence of perfect and complete information.

10) The term capital in economic theory refers to

A) any privately owned resource.

B) bonds, stocks, and similar financial assets.

C) money available for lending or spending.

D) produced goods used to produce future goods.

11) The best time to purchase the stock of a corporation capable of generating large earnings in the future is when

A) everyone expects its future earnings to be larger than they are now.

B) the price of the stock is lower than it has been in recent years.

C) the price of the stock is higher than it has been in recent years.

D) you alone expect its future earnings to be larger than they are now.

12) Because everybody lives under uncertainty, everybody is

A) less than perfectly informed.

B) ignorant of something.

C) a speculator.

D) all of the above.

13) Who among the following is speculating?

A) The senior citizen who decides to get a flu shot in November

B) The Midwesterner who puts fuel-line antifreeze in the tank on news of a deep freeze

C) The college work-study student who gambles his pay at the local casino

D) All of the above.

14) Of the following cancer patients, who is speculating?

A) The one who follows their doctor's advice and elects chemotherapy

B) The one who goes against their doctor's advice and rejects chemotherapy

C) The one who gets a second opinion, but not a third opinion

D) All of the above.

15) We all use the services of speculators as information in reaching our own economic decisions

A) because speculators are aggressive about marketing the information they produce.

B) because we all use prices, which are set by bids and offers based on predictions of the future.

C) if we buy or sell commodities through an organized exchange.

D) if we play the stock market.

16) People who "sell short" are selling goods

A) at below-market prices.

B) of poor quality.

C) to purchasers who cannot afford to pay for them.

D) they do not yet own.

17) People who buy futures on the commodity market are

A) agreeing to accept a specified quantity in the future at whatever price prevails then.

B) agreeing to pay a price agreed upon now for future delivery of a commodity.

C) buying now and promising to deliver the commodity in the future.

D) said to be "on the spot market."

18) If the wheat harvest next summer in Canada will be much less than had been expected, there will tend to be

A) a decrease in the price of wheat futures and an increase in the current cash price of wheat in the US.

B) a decrease in the price of wheat futures and in the current cash price of wheat in the US.

C) an increase in the price of wheat futures and a decrease in the current cash price of wheat in the US.

D) an increase in the price of wheat futures and in the current cash price of wheat in the US.

19) Why do few avocados rot, even though in some seasons of the year far more avocados are harvested than in other seasons of the year?

A) Consumers realize it would be inefficient to let avocados rot.

B) Growers vary their advertising efforts with the season of the year.

C) Prices fluctuate sharply as supplies increase or decrease.

D) The taste for avocados varies proportionately to the supply.

20) A commodity speculator who thinks next fall's corn harvest will actually be much larger than most people now anticipate will want to

A) buy corn now for sale in September.

B) buy September corn futures.

C) buy land suitable for growing corn.

D) sell September corn futures.

PRACTICE QUIZ QUESTIONS FOR HEYNE CHAPTER 8

1) When firms set prices by adding a fixed percentage markup to marginal costs, they are likely

A) concerned with the rate of profit rather than its net amount.

B) earning a satisfactory rather than a maximum profit.

C) exploiting their customers.

D) searching for the most advantageous prices to set on the basis of limited information.

2) The textbook rejects the cost-plus-markup theory of price setting because

A) business firms do not describe their price-setting procedures as cost-plus procedures.

B) competitors and monopolists set prices in different ways.

C) it cannot explain the prices we actually observe.

D) it ignores the role of government in regulating prices.

3) Sellers who lower their prices and consequently sell a larger quantity earn more

A) gross (or total) revenue as a result.

B) gross revenue only if the demand is elastic.

C) net and gross revenue if the demand is inelastic.

D) net revenue (revenue minus cost) as a result.

4) The basic rule for maximizing net revenue is: Charge a price, or set of prices, so that

A) expected marginal revenue equals expected marginal cost.

B) expected marginal revenue exceeds expected marginal cost.

C) expected marginal revenue is equal to or less than expected marginal cost.

D) marginal revenue turns out in practice to be equal to or less than marginal cost.

5) Which statement below is true for a price searcher?

A) Marginal revenue can only be positive.

B) Marginal revenue can only be negative.

C) Marginal revenue can only be zero.

D) Marginal revenue can be positive, negative, or zero.

6) Fill in the blank: Your textbook authors suggest ________ is the goal of a price-searching firm.

A) just getting by

B) maximizing sales

C) maximizing net revenue

D) maximizing total revenue

7) Compared with price searchers' markets, price takers' markets are likely to result in

A) less advertising.

B) less competition.

C) lower output.

D) more profit.

8) Percentage markups are characteristically lower in supermarkets than in convenience stores because

A) convenience stores must charge high markups to compensate for low volume.

B) marginal revenue is greater in supermarkets than in convenience stores.

C) supermarkets can take advantage of quantity discounts.

D) the demand curves of customers patronizing supermarkets tend to be more elastic.

9) A price searcher faces the following demand function: At $7, 6, 5, 4, and $3, the quantity demanded is 300, 400, 500, 600, and 700 units respectively. If the firm's marginal cost is $100 at any level of output, it would maximize net revenues by

A) producing 400 units and charging $6.

B) producing 500 units and charging $5.

C) producing 600 units and charging $4.

D) producing 700 units and charging $3.

10) The marginal cost to a grocer of selling avocados, which would have to be thrown away if they are not sold immediately, is approximately

A) the overhead cost per avocado sold.

B) the price of replacing the inventory.

C) their wholesale purchase price.

D) zero.

11) If the baseball team can sell 6000 box-seat tickets when they set the price at $10 and 7000 box-seat tickets when they lower the price to $8, the marginal revenue per ticket between 6000 and 7000 tickets is

A) $60,000.

B) $9.

C) $2.

D) minus $4.

12) Which of the following is most likely to occur if a price-takers' market displaces a price-searchers' market?

A) Costs will be higher.

B) Efficiency will be less.

C) Net revenue will be larger.

D) Output will be larger.

13) Sellers are sure the demand for their product is relatively inelastic at the price currently being charged

A) could increase their net revenue by raising the price.

B) could increase their total revenue by lowering the price.

C) would decrease their net revenue if they raised the price.

D) would decrease their total revenue if they raised the price.

14) Price discrimination by sellers is usually observed only in situations where

A) low-price customers can easily resell to high-price customers.

B) prices are set by competing monopolies.

C) sellers are bigots.

D) sellers can effectively identify customers by their demand for the product.

15) Colleges offer tuition scholarships even when they are running budget deficits because colleges

A) are public service institutions.

B) can often earn additional net income by offering tuition scholarships.

C) hope to receive contributions later from the recipients of scholarships.

D) set tuition levels and establish scholarship policies without considering the monetary advantages.

16) Fill in the blanks: A price discriminating firm will tend to charge a ________ price for the category of customer with the ________ elasticity of demand.

A) lower; lower

B) higher; lower

C) lower; higher

D) 100 percent markup; infinite

17) Why are prices for groceries and household items typically higher at a 24-hour convenience store compared to stores open from 6 am to 11 pm?

A) Shoppers' options are generally fewer in the middle of the night.

B) The elasticity of demand of the middle-of-the-night shopper is typically higher than the mid-day shopper's elasticity.

C) The owners of the 24-hour stores are typically more selfish than the others.

D) The owners of the 24-hour stores are more interested in maximizing net revenue compared to the others.

18) Movie theaters usually set lower prices for children than for adults because

A) children can be served at lower costs.

B) they expect to make up the loss on the sale of refreshments.

C) they think the price elasticity of demand for movie tickets is quite elastic for children at the regular or adult price.

D) they want to get young people into the habit of attending movies.

19) Which of the following is not one of the obstacles mentioned in the text to a successful system of price discrimination? Inability to

A) evade legal restrictions on discrimination.

B) identify differences in demand among customers.

C) prevent customers from reselling the product.

D) prevent resentment from arising among the people who pay more.

20) Hardcover books usually cost much more to purchase than do otherwise identical paperback editions of the same book because

A) hardcover books typically last longer.

B) the demand for hardcover books is typically less elastic than the demand for paperback books at the same price.

C) the marginal cost of producing hardcover books typically rises as output increases.

D) the marginal cost of producing paperback books typically falls as output increases.

21) If a commercial airline starts offering maxi-saver fares at huge discounts to passengers who purchase tickets at least 30 days in advance and agree to stay over a Saturday night, what is the most likely effect upon first-class passenger service?

A) First-class fares will rise somewhat to compensate for the loss on other fares.

B) The demand for first-class service may fall somewhat because the price of a substitute good has decreased substantially.

C) The marginal cost of first-class service will rise somewhat because the total cost must be allocated among all passengers.

D) The marginal revenue from first-class service will rise somewhat because first-class service is now more clearly a superior good.