Download When firms are said to be price takers, it implies that

Homework 11
In the long run,
a. inputs that were fixed in the short run remain fixed.
b. inputs that were fixed in the short run become variable.
c. inputs that were variable in the short run become fixed.
d. variable inputs are rarely used.
The length of the short run
a. is different for different types of firms.
b. can never exceed 3 years.
c. can never exceed 1 year.
d. is always less than 6 months.
Economies of scale arise when
a. an economy is self-sufficient in production.
b. individuals in a society are self-sufficient.
c. fixed costs are large relative to variable costs.
d. workers are able to specialize in a particular task.
When comparing short-run average total cost with long-run average total cost at a given level of output,
a. short-run average total cost is typically above long-run average total cost.
b. short-run average total cost is typically the same as long-run average total cost.
c. short-run average total cost is typically below long-run average total cost.
d. the relationship between short-run and long-run average total cost follows no clear pattern.
A local potato chip company plans to keep and maintain its chip factory, which is estimated to last 25
years. All cost decisions it makes during the 25-year period
a. are short-run decisions.
b. are long-run decisions.
c. involve only maintenance of the factory.
d. are zero, since the cost decisions were made at the beginning of the business.
The total cost to the firm of producing zero units of output is
a. zero in both the short run and the long run.
b. its fixed cost in the short run and zero in the long run.
c. its fixed cost in both the short run and the long run.
d. its variable cost in both the short run and the long run.
When firms are said to be price takers, it implies that if a firm raises its price,
a. buyers will go elsewhere.
b. buyers will pay the higher price in the short run.
c. competitors will also raise their prices.
d. firms in the industry will exercise market power.
In a competitive market, no single producer can influence the market price because
a. many other sellers are offering a product that is essentially identical.
b. consumers have more influence over the market price than producers do.
c. government intervention prevents firms from influencing price.
d. producers agree not to change the price.
Suppose a firm in a competitive market received $1,000 in total revenue and had a marginal revenue of $10
for the last unit produced and sold. What is the average revenue per unit, and how many units were
sold?
a. $5 and 50
b. $5 and 100
c. $10 and 50
d. $10 and 100
The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat
is generally considered to be competitive, the Wheeler Farm does not
a. choose the quantity of wheat to produce.
b. choose the price at which it sells its wheat.
c. have any fixed costs of production.
d. set marginal revenue equal to marginal cost to maximize profit.
When marginal revenue equals marginal cost, the firm
a. should increase the level of production to maximize its profit.
b. may be minimizing its losses, rather than maximizing its profit.
c. must be generating positive economic profits.
d. must be generating positive accounting profits.
When calculating marginal cost, what must the firm know?
a. Sunk cost
b. Variable cost
c. Fixed cost
d.Price
When price falls from P3 to P1, the firm finds that
a. fixed cost is higher at a production level of Q1 than it is at Q3.
b. it should produce Q1 units of output.
c. it should produce Q3 units of output.
d. it should shut down immediately.
The short-run supply curve for a firm in a perfectly competitive market is
a. horizontal.
b. likely to slope downward.
c. determined by forces external to the firm.
d. the portion of its marginal cost curve that lies above its average variable cost.
When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm
a. can set price above marginal cost.
b. must set price below average total cost.
c. will never show losses.
d. can safely ignore fixed costs when deciding how much output to produce.
A firm that exits its market
a. still has to pay its variable costs, but not its fixed costs.
b. still has to pay its fixed costs, but not its variable costs.
c. still has to pay both its variable costs and its fixed costs.
d. has to pay neither its variable costs nor its fixed costs.
Chapter 15
The key difference between a competitive firm and a monopoly firm is the ability to select
a. the level of competition in the market.
b. the level of production.
c. inputs in the production process.
d. the price of its output.
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
a. average revenue is less than the price of the product.
b. average revenue is less than marginal revenue.
c. marginal revenue is less than the price of the product.
d. marginal revenue is greater than the price of the product.
For a profit-maximizing monopolist,
a. P > MR = MC.
b. P = MR = MC.
c. P > MR > MC.
d. MR < MC < P.
Monopoly firms have
a. downward-sloping demand curves and they can sell as much output as they desire at the market
price.
b. downward-sloping demand curves and they can sell only a limited quantity of output at each
price.
c. horizontal demand curves and they can sell as much output as they desire at the market price.
d. horizontal demand curves and they can sell only a limited quantity of output at each price.
Marginal revenue for a monopolist is computed as
a. average revenue divided by quantity sold.
b. average revenue times quantity divided by price.
c. total revenue divided by quantity sold.
d. change in total revenue per one unit increase in quantity sold.
The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the
following two curves?
a. Marginal cost and demand
b. Marginal cost and marginal revenue
c. Average total cost and marginal revenue
d. Average variable cost and average revenue
For a monopolist, when does marginal revenue exceed average revenue?
a. Never
b. When output is less than the profit-maximizing level of output
c. When output is greater than the profit-maximizing level of output
d. For all levels of output greater than zero.
The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the
following ways?
a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a
monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.
b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a
monopolist maximizes profit at the point where average revenue exceeds marginal cost.
c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to
marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profitmaximizing level of output is smaller than it is for larger levels of output.
d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it
is for a profit-maximizing monopolist.
Chapter 22
Tom owns a small business in Sioux Falls. He travels frequently, meeting with important customers,
attending conferences, and the like. Tom hired Susan to work in the Sioux Falls office as the day-today general manager of the business.
a. This is a moral hazard problem since Susan may not work as hard as Tom would like.
b. Tom choosing to hire Susan is an example of adverse selection since it is possible that Susan will
not work as hard as Tom expects.
c. Tom will most likely pay Susan a lower salary than normal since Tom will not be there to
monitor Susan’s work effort, and since Susan will not likely work hard knowing Tom cannot
monitor her effort.
d. The Condorcet Paradox implies that Susan will not work as hard as Tom would like even though
he will likely pay her an above equilibrium wage.
Robert borrowed some money from Granite Bank, telling the loan officer that he intended to use the money
to make repairs to his home. After getting the loan, Robert and his girlfriend immediately took the
money and headed to the nearest riverboat casino for a weekend of gambling and entertainment.
a. This is an example of adverse selection since banks have difficulty selecting their customers.
b. This is a typical example of the Condorcet Paradox.
c. From the given information, Robert is the principal and his girlfriend is the agent.
d. From the given information, Granite Bank is the principal and Robert is the agent.
The Latin term caveat emptor, meaning "let the buyer beware," brings to mind the problem of
a. hidden actions.
b. adverse selection.
c. principals and agents.
d. moral hazard.
The traditional year-end bonus paid to workers
a. is evidence of the validity of efficiency-wage theories.
b. may be a response by employers to the moral-hazard problem.
c. may be a response by employers to an adverse-selection problem.
d. is a remedy to the moral-hazard problem suggested by Arrow’s Theorem.
Effective signals
a. convey useful information from informed parties to uninformed parties.
b. impose little or no cost on the signaler.
c. cannot be conveyed accurately when there is an information asymmetry.
d. can be used by employers to alleviate the moral hazard problem in the workplace.
When new professors are hired, their job performance is monitored closely. If they meet their institution's
standards, they will eventually receive tenure. After receiving tenure, professors' job performance is
less closely monitored, and they become difficult to fire. Tenure thus creates
a. adverse selection.
b. a Condorcet paradox.
c. a screening problem.
d. moral hazard.
Joe's Computers builds and sells computers for the local retail market. Since Joe's business does not have
the name recognition of some of the bigger computer retailers, Joe advertises a "One-Year Money
Back Guarantee" to indicate to buyers that his product is of high quality. This guarantee is an
example of
a. screening.
b. signaling.
c. the seller's curse.
d. the principal-agent problem.
The Condorcet voting paradox demonstrates that democratic outcomes do not always obey the property of
a. narrowness of preferences.
b. concavity of preferences.
c. asymmetry of preferences.
d. transitivity of preferences.
Which of the following statements captures the meaning of transitivity of preferences?
a. If A is preferred to B, then B is less preferred than A.
b. If A is preferred to B, and B is preferred to C, then A is preferred to C.
c. If A is preferred to B and B is preferred to C, then the preference for A over B is stronger than
the preference for B over C.
d. If A is preferred to C, then there exists B such that A is preferred to B and B is preferred to C.
Table 22-2
The citizens of Paradoxopolis will decide whether to build a new school, build a new park, or build a
new road. Exactly one of the three choices will prevail, and the choice will be made by way of pairwise
voting, with the majority determining the outcome on each vote. The preferences of the voters are
summarized in the table below.
Percent of Electorate
First choice
Second choice
Third choice
Type 1
25
School
Park
Road
Voter Type
Type 2
35
Park
Road
School
Type 3
40
Road
School
Park
80. Refer to Table 22-2. If (1) the first vote pits "school" against "park," and (2) the second vote pits
"road" against the winner of the first vote, then the outcome is as follows:
a. "School" wins the first vote and "school" wins the second vote, so they build a school.
b. "School" wins the first vote and "road" wins the second vote, so they build a road.
c. "Park" wins the first vote and "park" wins the second vote, so they build a park.
d. "Park" wins the first vote and "road" wins the second vote, so they build a road.
One property of Kenneth Arrow's "perfect" voting system is that the ranking between any two outcomes A
and B should not depend on whether some third outcome C is also available. Arrow called this
property
a. transitivity.
b. pairwise perfection.
c. independence of irrelevant alternatives.
d. irrelevance of social choices.