Test Bank For Fundamentals of Economics 6th Edition by William Boyes

Chapter 3—Applications of Demand and Supply MULTIPLE CHOICE 1. A change in consumer tastes for low-carb food and a decrease in their preferences for low-fat meals does not lead to which of the following? a. An inward shift of the demand curve for low-fat meals b. An outward shift of the demand curve for low-carb food c. An increase in the amount of resources used to produce low-carb food d. A decrease in the amount of resources used to produce low-fat meals e. A reduction in the value of resources used in low-carb food ANS: E PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Market for Low-carb Foods KEY: BLOOM'S: Application Figure 3.1 2. According to Figure 3.1, as represented by the shift from D1 to D2, a. the demand for low-fat food has risen. b. the quantity of low-fat food supplied has declined. c. eating low-fat food may have become popular. d. consumer tastes for low-fat food may have risen. e. consumer tastes for high-fat food may have fallen. ANS: B PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 3. According to Figure 3.1, as represented by the shift from D1 to D2, a. the demand for low-fat meals has risen. b. the quantity of resources used in the production of low-fat meals has risen. c. consumer income may have risen. d. consumer tastes for low-fat meals may have declined. e. consumer tastes for resources may have fallen. ANS: D PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 4. On a graph showing the supply and demand for low-carb food, an increase in consumer demand for low-carb food would be portrayed by a. a shift to the right of the demand for high-carb food. b. a shift to the right of the demand curve for low-carb food. c. a shift to the left of the supply curve for low-carb food. d. a shift to the left of the demand curve for low-carb food. e. a shift to the right of the supply curve for low-carb food. ANS: B PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 5. In response to an increase in demand for low-carb food, producers would a. increase the quantity supplied. b. reduce resources in order to conserve carbohydrates. c. decrease supply of low-carb food. d. advertise low-fat food to shift consumer preferences. e. increase supply of low-carb food. ANS: A PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 6. In a market system, resources flow from lower-valued uses to higher-valued uses because of a. the dictates of the government. b. the desires of business to make a profit. c. first come, first served. d. the consumer is always right. e. comparative advantage. ANS: B PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 7. In a market system, ____ decide what will be produced. a. producers b. consumers c. politicians d. government authorities e. central planning agencies ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Market for Low-carb Foods KEY: BLOOM'S: Knowledge 8. As shown in the text, in the market for the Mazda Miata, a. consumers acted irrationally. b. producers dictated market tastes through advertising. c. Mazda misread the market for the Miata. d. the government intervened in the automobile market. e. changing demand caused the shortage in Los Angeles. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Market for Low-carb Foods KEY: BLOOM'S: Knowledge 9. The market system is better than other systems because a. there is no need for a central planning authority b. buyers and sellers do not have to be coordinated c. all players act in their own self-interest d. inefficient producers shut down e. all of these ANS: E PTS: 1 DIF: Moderate OBJ: LO: 3 NAT: BPROG: Reflective Thinking TOP: Preview KEY: BLOOM'S: Knowledge 10. "Efficiency" means a. a producer is using the very best production techniques b. everyone pays his fair share c. those who cannot pay will not get any d. the consumer is always right e. All of these. ANS: A PTS: 1 DIF: Moderate OBJ: LO: 3 NAT: BPROG: Reflective Thinking TOP: Preview KEY: BLOOM'S: Knowledge 11. According to the text, the constantly rising standards of living can be attributed to the a. Unfettered market b. "Sputnik moment" c. War on Terrorism d. Efficient American farmers e. Growth in the IT sector ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 12. Specialization according to comparative advantage can a. generate more output than being self-sufficient b. make economies be less dependent on others c. is very costly and hard to implement d. cause too much of one type of good to be produced e. All of these ANS: A PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Comprehension 13. Many companies have moved jobs from the U.S. to foreign countries. This has resulted in a. The demand for American labor to decrease, and the demand for foreign labor to increase b. The demand for American labor to increase, and the demand for foreign labor to increase c. The demand for American labor to decrease, and the demand for foreign labor to decrease d. The demand for American labor to increase, and the demand for foreign labor to decrease e. The exchange rate for the American dollar to increase. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Comprehension 14. The process of buying identical products in one market and selling them in another at virtually the same time is called a. free enterprise b. the profit motive c. arbitrage d. competition e. unfettered market ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 15. ____ ensures that resources are allocated to their highest-valued uses. a. Monopoly b. Government c. The consumer d. Competition e. Arbitrage ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 16. The fact that the market labor supply curve is upward sloping at all wage rates illustrates that a. all people supply more labor as the wage rate increases. b. the combined effect of individual labor supply curves results in a greater number of labor hours being supplied at a higher wage rate. c. the compensating wage differential works. d. at high wages, people will decrease labor supply when wages rise further and thus make aggregate labor supply decrease. e. the marginal benefits of leisure decrease as wages increase. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Comprehension 17. As the wage rate increases, the quantity supplied of labor in a market will a. increase. b. decrease. c. first increase and then decrease. d. first decrease and then increase. e. remain constant. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Knowledge 18. As the wage rate increases, the quantity demanded of labor in a market will a. increase. b. decrease. c. first increase and then decrease. d. first decrease and then increase. e. remain constant. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Application 19. The compensating wage differential shows a labor supply curve for a risky occupation located to the ____ of the labor supply curve for a less risky occupation. If the differential is too low, a ____ would prevail in the risky occupation. a. Left; surplus b. Right; surplus c. Left; shortage d. Right; shortage e. Left; price ceiling ANS: C PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Unfettered Market KEY: BLOOM'S: Application 20. Which of the following influence the level of wages? a. Training and Education b. Amount of time required to be away from home c. Risk of the occupation d. Experience e. All of these ANS: E PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Application Figure 3.2 21. In Figure 3.2, assume that we have labor market demand and supply curves of D1 and S2, respectively. What is the equilibrium wage and employment level? a. $5; 30 workers b. $10; 20 workers c. $10; 40 workers d. $15; 30 workers e. $5; 20 workers ANS: A PTS: 1 DIF: Easy NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application 22. In Figure 3.2, if the market is in equilibrium with 30 workers at a wage rate of $15 per day, which of the following must be the corresponding labor supply and demand curves? a. S1 and D1 b. S1 and D2 c. S2 and D1 d. S2 and D2 e. Cannot be determined from the information given ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application Figure 3.3 23. In Figure 3.3, the initial labor supply is S1 and the labor demand is D1. If the wage is $6, which of the following is correct? a. There is a shortage of 20 workers. b. The actual wage is above the equilibrium wage. c. There is a shortage of 30 workers. d. There is a shortage of 10 workers. e. The market is in equilibrium. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application 24. Which of the following is not correct? a. A person may be paid a wage higher than he or she is worth, if he or she works in a risky profession. b. A person in a risky profession will likely be paid more than a person of equal skills in another profession. c. It is possible that a person will turn down a higher-paying job because his or her current job provides many nonmonetary benefits. d. By increasing his or her human capital, a worker can expect to receive a higher wage. e. If there were no compensating wage differential, there would be a shortage of workers in risky professions. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Comprehension Figure 3.4 25. In Figure 3.4, the reason for the wage differential could be the fact that a. market A is the market for a risky occupation. b. market B consists of unskilled labor. c. market A consists of workers with more human capital. d. market B consists of workers with less human capital. e. all of these are true. ANS: E PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application 26. Assume that Figure 3.4 represents the markets for comparably skilled and educated economists and coal miners. If there are more coal miners, identify which market represents each profession. What is the economists' wage? What is the coal miners' wage? a. $12; $12 b. $18; $12 c. $12; $18 d. $18; $18 e. $15; $15 ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application 27. In Figure 3.4, if the wage rate in market A and market B were set at $15, then a. there would be a shortage of workers in both markets. b. there would be a surplus of workers in both markets. c. there would be a shortage of workers in market A and a surplus of workers in market B. d. there would be a shortage of workers in market B and a surplus of workers in market A. e. the market as a whole would be in equilibrium. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application 28. In Figure 3.4, the amount of the wage differential is a. $6. b. $18. c. $12. d. $30. e. impossible to determine from the information given. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Labor Market KEY: BLOOM'S: Application 29. If each of the following jobs paid the same wage, which one would we expect most people to pick if given the choice? a. A job that requires large amounts of human capital but is dangerous b. A job that requires few skills and has a large amount of nonmonetary benefits c. A job that requires excellent skills and has a small amount of nonmonetary benefits d. A job with very poor working conditions e. A job that requires little human capital but is dangerous ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Application 30. A compensating wage differential is a wage difference that a. makes up for the high risk or poor working conditions of a job. b. results because of women and minorities being paid less. c. leads to more risks taken on the job. d. is attributable to different demands for labor. e. is due to discrimination. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Knowledge 31. In 1900 about ____ of all Americans worked in farming or ranching; today less than ____ of the population is involved in these industries. a. 80%; 20% b. 75%; 10% c. 60%; 10% d. 50%; 5% e. 50%; 2% ANS: E PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 32. Which is not an example of creative destruction? a. A large manufacturing plant closes, and unemployed workers leave town. b. Americans retire in Mexico because the cost of living is cheaper. c. Call centers are moved from the United States to India and the Philippines. d. Medical records go online, eliminating the need for paper files and people to track and organize them. e. All of these are examples of creative destruction. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Comprehension 33. Some Italian factories bring Chinese workers and raw materials to Italy, where these resources are used to make products sold under the label, "Made in Italy". This is an example of a. Unfettered market b. Human trafficking c. Labor differential d. Specialization e. Tax avoidance ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Application 34. The U.S. economy has shifted from ____ to ____ over the past several decades. a. services; manufacturing b. manufacturing; services c. agrarian; industrialized d. manufacturing; industrialized e. developing; industrialized ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 35. In 2005, the U.S. Department of Labor estimated, based on trends noted in 2003 and 2004 that ____ jobs would be moved out of the U.S. by 2015. a. 1 million b. 2 million c. 3 million d. 5 million e. more than 7 million ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 36. To earn more than what the free competitive market would allow, a business has to acquire a. a permit from government b. some way to limit the competition they face c. and update daily, its Facebook and Twitter accounts d. backing of politicians e. a factory in a developing country. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 37. To be profitable in a free market, one must a. be able to creatively destruct its competition b. develop a brand name c. earn an A in economics d. obtain government approval e. limit competition ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 38. States with a higher minimum wage than the federal minimum wage tend to be located in the ____ U.S. a. east coast b. south eastern c. Midwest d. Southern e. West coast ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 39. Individual states may set their own minimum wage a. at any time, regardless of the federal minimum wage b. if their wage exceeds the federal level c. only if it is below the federal level d. by filing an application with the federal department of labor e. only in times of emergency ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 40. An increase in the minimum wage, which is above the equilibrium wage, will result in a. firms hiring less workers b. more people going to look for a job c. adverse affects on low-skilled workers d. more teenagers looking for jobs e. All of these. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Application 41. Current unemployment for teenagers (between 16 and 19 years of age) a. is about 15% b. is about 25% c. is about 40% d. is about 55% e. exceeds 60% ANS: E PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 42. Innovations, which result in people continually looking for ways to excel, earn more money, and live better, occur due to a. the rapid development in the IT sector b. competition c. government regulation d. greedy people e. China's entry into the World Trade Organization ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Application 43. Looking at last year's sweaters piled up on sale racks, or waiting over an hour for a table at a restaurant is best described as a situation a. where equilibrium can never occur. b. that always exists. c. where the market is on its way to equilibrium. d. where there is no market. e. where there is no demand. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 44. Rent control is a. a situation where a price floor exists. b. the same as a minimum wage. c. the same as a subsidy to landlords. d. a situation where a price ceiling exists. e. a situation where equilibrium persists. ANS: D PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 45. Rent control results in a(n) a. shortage of apartments. b. surplus of apartments. c. increase in the number of apartments. d. increase in the quality of apartments. e. reduction in the number of people willing and able to rent apartments. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 46. An effective rent ceiling results in a a. shortage and therefore another allocation mechanism than price. b. surplus and therefore another allocation mechanism than price. c. shortage, and thus the price will increase. d. surplus, and thus the price will decline. e. price that exceeds equilibrium. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 47. If a price ceiling results in the price not being used to allocate a scarce resource or good, then a. something other than price must allocate the scarce good. b. the price will have to decline. c. the market will take over. d. the government will be more efficient than any other mechanism. e. a random allocation will be more efficient than any other mechanism. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 48. An effective price ceiling on gasoline means that a. long lines occur at gas stations. b. the lines at gas stations will disappear. c. people will quit driving. d. people will be able to drive more. e. a shortage of cars will result. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application Figure 3.5 49. In Figure 3.5, if the change in demand occurred before the change in supply, then starting from the initial equilibrium, a. firms would experience a fall in profits and then a gradual increase in profits after the change in supply occurred. b. there would be an immediate shortage until the price reached P2. c. price would change from P1 to P2 after the change in demand and would change again from P3 to P4 after the change in supply. d. there would be a surplus until the price reached P4. e. none of these would occur. ANS: B PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application Figure 3.6 50. Assume that the market described by the demand and supply curves in Figure 3.6 is originally in equilibrium. What is the most likely consequence of a government-imposed price ceiling at $10 per unit? a. Supply will decrease. b. Demand will increase. c. Quantity supplied will decrease. d. There will be a surplus of the good. e. There will be no consequence at all. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application Table 3.1 Table 3.1 Quantity Demanded Price per Unit Quantity Supplied 10 20 30 40 50 $5 $4 $3 $2 $1 50 40 30 20 10 51. Refer to Table 3.1. If the government imposes a price of $2, a. the price will be above equilibrium. b. the price will fall to $1 because producers will be forced to incur losses. c. demand will increase. d. a surplus equal to 20 units will result. e. a shortage equal to 20 units will result. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application Table 3.2 Table 3.2 Price Quantity Demanded Quantity Supplied $0 $1 $2 $3 $4 $5 $6 24 20 16 12 8 4 0 0 2 4 6 8 10 12 52. In Table 3.2, the equilibrium price is a. $1. b. $2. c. $3. d. $4. e. $5. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 53. In Table 3.2, the equilibrium quantity is a. 2. b. 4. c. 6. d. 8. e. 10. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 54. In Table 3.2, if the price is $2, a ____ of ____ units will occur. a. shortage; 12 b. shortage; 14 c. surplus; 12 d. surplus; 14 e. surplus; 19 ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 55. In Table 3.2, if the price is $5, a ____ of ____ units will occur. a. shortage; 8 b. shortage; 6 c. surplus; 8 d. surplus; 6 e. shortage; 19 ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application Table 3.3 Table 3.3 Price Quantity Demanded Quantity Supplied $0 $1 $2 $3 $4 30 25 20 15 10 0 10 20 30 40 56. In Table 3.3, the equilibrium quantity is a. 10. b. 15. c. 20. d. 25. e. 30. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 57. In Table 3.3, if the price is $3, a ____ of ____ units will occur. a. shortage; 15 b. shortage; 12 c. surplus; 12 d. surplus; 15 e. surplus; 45 ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 58. In Table 3.3, if the price is $1, a ____ of ____ units will occur. a. shortage; 15 b. shortage; 12 c. surplus; 15 d. surplus; 12 e. shortage; 45 ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application Table 3.4 Table 3.4 Price Quantity Demanded Quantity Supplied $45 $50 $55 $60 $65 $70 350 300 250 200 150 100 0 5 50 100 150 200 59. Refer to Table 3.4. If a price ceiling of $55 is imposed, a. a shortage equal to 250 units will result. b. a shortage equal to 200 units will result. c. a surplus equal to 200 units will result. d. the price will be forced to the equilibrium price before the ceiling. e. the price will be above the equilibrium price. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 60. Refer to Table 3.4. At a price of $45, a. we would expect the price to rise because of a shortage equal to 350 units. b. we would expect the amount purchased to fall because of a surplus equal to 350 units. c. none of the commodity is demanded. d. we would expect the price to fall because of a shortage equal to 350 units. e. 350 units of the commodity are supplied. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 61. A price floor is a situation where the a. price is not allowed to rise above a certain level. b. price is not allowed to fall below a certain level. c. price is not allowed to change. d. quantity is not allowed to fall below a certain level. e. quantity is not allowed to rise above a certain level. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 62. If an effective price floor is imposed, a. a shortage occurs. b. equilibrium occurs. c. a surplus occurs. d. both a shortage and a surplus occur. e. scarcity occurs. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application 63. If the government wanted to aid a particular industry, it might impose a(n) ____ for their products. a. price floor. b. price ceiling. c. quantity floor. d. quantity ceiling. e. equilibrium pricing. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Application Figure 3.7 64. A price of $10 in Figure 3.7 will result in a. a surplus of 150 units. b. a surplus of 100 units. c. a shortage of 50 units. d. a shortage of 100 units. e. equilibrium. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 65. Refer to Figure 3.7. The highest price consumers would be willing and able to pay for 50 units of this product is a. $10. b. nothing; they wouldn't pay any positive price for 50 units. c. $2. d. $6. e. $8. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 66. Refer to Figure 3.7. Assume this is a market with no restrictions. Price and quantity will move toward a. $10 and 50 units. b. $10 and 150 units. c. $6 and 100 units. d. $2 and 150 units. e. none of these. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Intervention KEY: BLOOM'S: Application 67. Prices above the equilibrium price cause a(n) a. shortage to develop and an increase in prices. b. shortage to develop and a decrease in prices. c. surplus to develop and an increase in prices. d. surplus to develop and a decrease in prices. e. increase in supply. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Knowledge 68. Quotas have the effect of a. Increasing demand, raising price, and raising quantity b. Increasing supply, decreasing price, and increasing quantity c. Decreasing supply, raising price, and lowering quantity d. Decreasing demand, decreasing price, and decreasing quantity e. Decreasing supply, raising price, and increasing quantity ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Interventions KEY: BLOOM'S: Application 69. Elimination of sugar quotas have ____ the price of sugar in the U.S., causing U.S. sugar farmers to ____. a. decreased; enjoy large profits b. decreased; go out of business c. increased; enjoy large profits d. increased; go out of business e. not changed; change crops ANS: B PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: Market Interventions KEY: BLOOM'S: Application 70. A ban has the effect of ____ the ____ for/of the product. Equilibrium price will ____. a. increasing; demand; increase b. increasing; supply; decrease c. decreasing; supply; increase d. decreasing; demand; decrease e. eliminating; demand; not exist ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Market Interventions KEY: BLOOM'S: Application 71. In the 1980s, Japanese automobile manufacturers, fearing a U.S.-government-imposed restriction, agreed to a voluntary quota on the number of their cars exported to the United States. This quota affected the U.S. automobile market by a. increasing the prices of Japanese cars to U.S. consumers. b. increasing the black market for Japanese cars in the United States. c. decreasing the demand for domestically produced cars in the United States. d. increasing the market share of Japanese producers in the U.S. market. e. doing all of these. ANS: A PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Comprehension 72. By imposing a ban on the use of trans fat in New York City restaurants, the government a. created a positive image of New York as a healthy environment. b. reduced Wall Street arbitrage in trans fats and other oils. c. lowered the price of restaurant meals in general. d. raised the cost of food that relied on trans fat. e. stimulated demand for a black market in trans fat. ANS: D PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Comprehension 73. Assume that a minimum wage law is enacted and imposed on an otherwise perfectly competitive labor market. We can expect all of the following except a. the number of people seeking employment to increase. b. some people to be laid off. c. the number of laborers demanded to decrease. d. a greater unemployment rate. e. more people to gain employment. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Minimum Wages KEY: BLOOM'S: Knowledge 74. A minimum wage that is above the market wage will likely a. create some unemployment. b. increase employment opportunities. c. cause a shortage of labor. d. eliminate poverty. e. increase the demand for labor. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Minimum Wages KEY: BLOOM'S: Knowledge TRUE/FALSE 75. We have the things we desire when we want them due to the market system. ANS: T PTS: 1 DIF: Easy OBJ: LO: 3 NAT: BPROG: Reflective Thinking TOP: Preview KEY: BLOOM'S: Application 76. "Efficiency" means you get the same amount at a higher cost. ANS: F PTS: 1 DIF: Easy OBJ: LO: 3 NAT: BPROG: Reflective Thinking TOP: Preview KEY: BLOOM'S: Knowledge 77. The price system induces people to employ their talents and resources in the most effective manner. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 78. One result of specialization is that economies become less dependent on each other. ANS: F PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Comprehension 79. One of the guiding principles of economics is that people try to make themselves as well off as possible. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Application 80. People take jobs in unpleasant, low-wage facilities voluntarily. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Unfettered Market KEY: BLOOM'S: Knowledge 81. A change in consumer tastes is typically followed by a change in the willingness of consumers to buy a good or service. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 82. An increase in demand for healthy foods causes producers to decrease supply in order to increase prices. ANS: F PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Market for Low-carb Foods KEY: BLOOM'S: Comprehension 83. A compensating wage differential is a wage difference attributable to different demands for labor. ANS: F PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Knowledge 84. Wage differentials exist because not all workers and not all jobs are alike. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Labor Market KEY: BLOOM'S: Knowledge 85. Creative destruction is the process in which temporary losses are outweighed by long run gains. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 86. An example of creative destruction is a new Walmart opening, driving out the small, neighborhood shops. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Comprehension 87. It is very difficult for a firm to sustain its success over many years. ANS: T PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Application 88. A brand name is a form of monopoly. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Application 89. A minimum wage which is established higher than the equilibrium wage will result in higher unemployment. ANS: T PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Application 90. A quota allows only a limited quantity to be brought into the country. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 91. A quota is a tax on an imported good. ANS: F PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 92. Most nations have quotas on migration, meaning only certain numbers of people can enter a country each year. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Interventions KEY: BLOOM'S: Knowledge 93. Equilibrium in a market results when the market produces an output at which the price consumers are willing to pay exactly equals the price producers are willing to accept. ANS: T PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Comprehension 94. The output level that occurs in any market that is in equilibrium is the quantity at which buyers will pay more than suppliers require. ANS: F PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Comprehension 95. The more restrictive the quota, the lower the impact on price in the market. ANS: F PTS: 1 DIF: Challenging NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Comprehension 96. A ban will eliminate the legal supply of a product, service, or resource. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Market Intervention KEY: BLOOM'S: Comprehension 97. A minimum wage is a price floor. ANS: T PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Minimum Wages KEY: BLOOM'S: Knowledge Chapter 5—Costs and Profit Maximization MULTIPLE CHOICE 1. Labor, land, and capital used in production are a. resources. b. outputs. c. productivity. d. technological progress. e. innovations. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 2. The transformation of resources into economic goods and services is called a. technical efficiency. b. resource. c. production. d. increasing returns. e. output. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 3. Economic goods and services produced by business firms are a. resources. b. outputs. c. innovations. d. productivity. e. technological progress. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 4. Average total cost is calculated by dividing a. the change in total cost by the change in the quantity of output. b. total output by the number of people employed. c. the change in total output by the change in the number of people employed. d. total cost by total output. e. total output by total cost. ANS: D PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 5. The average total cost curve indicates that a. as output rises in the short run, costs decline rapidly. b. as output rises in the short run, per unit costs initially fall but eventually rise. c. firms generally operate at a highly inefficient point of production. d. costs cannot be contained even if businesses employ the proper combination of resources. e. as more output is produced in the short run, average total costs must increase. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 6. Average total cost is a. the per-unit cost and is derived by dividing total cost by marginal cost. b. the total unit cost of production. c. the per-unit cost and is derived by dividing total cost by the quantity of output. d. just the marginal cost adjusted for the workers' productivity level. e. derived by dividing marginal cost by the quantity of output. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 7. Marginal cost is calculated by dividing a. the change in total cost by the change in the quantity of output produced. b. total output by the number of people employed. c. the change in total output by the change in the number of people employed. d. the change in total cost by the change in change in variable cost. e. total cost by total output. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 8. As output rises unit by unit, costs ____ relatively ____ at first, but then ____ more ____. a. decrease; slowly; increase; rapidly b. decrease; quickly; increase; slowly c. rise; slowly; increase; rapidly d. rise; quickly; increase; slowly e. rise; quickly; increase; quickly ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 9. After hiring three new employees, a manager sees that total output increases. If the manager hires two additional employees and discovers total output has fallen, the result is due to a. diseconomies of scale. b. a poor hiring procedure. c. diminishing marginal returns. d. the lack of skills of newest employees⎯the best workers are hired first. e. economies of scale. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Comprehension 10. Which of the following does not refer to diminishing marginal returns? a. The application of increasing amounts of fertilizer to a field of corn b. Increasing numbers of seat belts in an automobile c. Closing part of a restaurant because of a lack of servers d. Increasing the number of assistant vice presidents as the size of the firm increases e. Increasing the number of students in one classroom ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Application 11. The law stating that added quantities of a variable resource will eventually result in less additional output is called the a. law of consumer sovereignty. b. profit maximization rule. c. law of diminishing marginal returns. d. law of unintended consequences. e. antivariable output law. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 12. If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245, what is the marginal cost of producing the seventh unit? a. $35 b. $245 c. $3 d. $38 e. $17 ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 13. Total cost is the cost of a. land and labor. b. labor and capital. c. just land. d. all resources except physical capital. e. land, labor, and capital. ANS: E PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Application 14. Average total cost is the a. cost of all resources divided by the quantity of resources. b. cost of all resources divided by the quantity of output. c. quantity of output divided by the cost of all resources. d. change in the cost of all resources divided by the change in the quantity of resources. e. change in the cost of all resources divided by the change in the quantity of output. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Application 15. Marginal total cost is the a. cost of all resources divided by the quantity of resources. b. cost of all resources divided by the quantity of output. c. change in the cost of all resources divided by the quantity of resources. d. change in the cost of all resources divided by the change in the quantity of resources. e. change in the cost of all resources divided by the change in the quantity of output. ANS: E PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Application 16. The short run is a a. 5K run. b. period of time when plant size cannot be changed. c. period of time when all resources are variable. d. period of time when average total costs decline. e. maximum of 90 days. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge Table 5.1 Table 5.1 Total Output Total Cost 0 1 2 3 4 5 6 7 8 1,000 2,000 2,800 3,500 4,000 4,500 5,200 6,000 7,000 17. Refer to Table 5.1. Average total cost (ATC) at 3 units of output is a. 3,500. b. 1,400. c. 1,167. d. 700. e. 500. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 18. Refer to Table 5.1. Marginal cost (MC) of the third unit of output is a. 3,500. b. 1,400. c. 1,167. d. 700. e. 500. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 19. Refer to Table 5.1. Marginal cost (MC) is equal to average total cost (ATC) a. between 1 and 2 units of output. b. between 6 and 7 units of output. c. between 7 and 8 units of output. d. between 9 and 10 units of output. e. at 3 units of output. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 20. Marginal cost (MC) is equal to average total cost (ATC) at a. the maximum point of the ATC. b. the minimum point of the ATC. c. no point. d. the minimum point of the MC. e. the maximum point of the MC. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Application 21. Which of the following sayings illustrates diminishing returns in the short run? a. Too many cooks spoil the broth. b. Jack be nimble, Jack be quick. c. When the cat is away, the mouse will play. d. A rolling stone gathers no moss. e. The grass is always greener on the other side of the fence. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Comprehension 22. The law of diminishing returns causes the shape of the average-total-cost curve to be a. hump-shaped. b. U-shaped. c. bell-shaped. d. a circle. e. a straight line. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Comprehension 23. When diminishing marginal returns occurs, the a. total variable cost starts to rise. b. total cost starts to rise. c. average total cost starts to rise. d. average variable cost starts to rise. e. marginal cost starts to rise. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 24. Which of the following does not change with the level of output? a. Total cost b. Total variable cost c. Marginal cost d. Total fixed cost e. Average cost ANS: D PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge Table 5.2 Table 5.2 Quantity of Output Total Fixed Cost Total Variable Cost 1 2 3 4 5 6 7 8 $40 $40 $40 $40 $40 $40 $40 $40 $ 30 $ 44 $ 60 $ 80 $110 $150 $200 $280 25. Refer to Table 5.2. We can conclude that the marginal-cost curve intersects the average-variable-cost curve at ____ units of output and the average-total-cost curve at ____ units of output. a. 1; 1 b. 2; 3 c. 4; 4 d. 4; 5 e. 6; 7 ANS: D PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 26. In Table 5.2, the average fixed cost of the first unit of output is ____, while the average fixed cost of producing 8 units of output is ____. a. $30; $40 b. $40; $5 c. $40; $40 d. $40; $280 e. $40; $320 ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 27. In Table 5.2, marginal cost is largest for the a. first unit produced. b. fourth unit produced. c. fifth unit produced. d. sixth unit produced. e. eighth unit produced. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 28. Refer to Table 5.2. For what unit of output is the marginal cost double the total fixed cost? a. 1 b. 4 c. 5 d. 6 e. 8 ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 29. If the firm described in Table 5.2 decided to produce nothing, which of the following would be true? a. Total cost would be zero. b. Total variable cost would be $30. c. Total fixed cost would be $40. d. Average total cost would be zero. e. Marginal cost would be $10. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 30. Refer to Table 5.2. Following which unit of output does the law of diminishing marginal returns cause per-unit costs to increase? a. 1 b. 4 c. 6 d. 7 e. None; the law of diminishing marginal returns does not apply. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 31. In Table 5.2, marginal cost is equal to average total cost at a quantity of a. 1. b. 3. c. 4. d. 5. e. 8. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application Table 5.3 Table 5.3 Total Output Total Cost 0 2 4 6 8 10 $100 $196 $212 $310 $430 $570 32. Refer to Table 5.3. Assuming that costs are equally distributed for the odd output integers, the marginal cost of the sixth unit is a. $49. b. $98. c. $310. d. $80. e. $261. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 33. In Table 5.3, when total output is 8 units, the average variable cost is a. $53.75. b. $41.25. c. $15. d. $3,440. e. impossible to determine from the information given. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 34. Refer to Table 5.3. If the average variable cost is $52 for an output of 11 units, the a. total cost of 11 units of output will be $622. b. total variable cost is $622. c. marginal cost of the eleventh unit is $52. d. marginal cost of the eleventh unit is $102. e. total variable cost is $576. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 35. Refer to Table 5.3. If the production of 2 extra units (units 11 and 12) increases total cost by $162, then the a. marginal cost of the twelfth unit will be $162. b. total cost of producing 12 units will be $894. c. average variable cost of producing 11 units is $732. d. average total cost of producing 12 units is $61. e. thirteenth unit will have to go up in price. ANS: D PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 36. In Table 5.3, the average fixed cost of the first unit of output is a. $48. b. $96. c. $98. d. $100. e. impossible to determine from the information given. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Costs KEY: BLOOM'S: Application 37. Diminishing marginal returns occur because a. average and marginal relationships behave very differently with respect to each other. b. the efficiency of variable resources depends on the quantity of the fixed resources. c. producers are not careful enough in the manufacturing process. d. workers are lazy and inefficient. e. workers in some industries lack an adequate formal education. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 38. The law of diminishing marginal returns states that, when successive equal amounts of a variable resource are combined with a fixed amount of another resource, a. marginal increases in output that can be attributed to each additional unit of the variable resource will eventually increase. b. total output always increases. c. marginal increases in output that can be attributed to each additional unit of the variable resource will eventually decline. d. total output can never increase. e. total output can become negative. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Costs KEY: BLOOM'S: Knowledge 39. Suppose a mechanic uses $150,000 of his own money to start a business. The rate of interest he could earn in a savings account is 1 percent, and the rate of interest he could earn by investing in bonds is 3 percent. What is the opportunity cost of capital when the mechanic uses his money to start his own business? a. $1,500 per year b. $3,000 per year c. $4,500 per year d. $6,000 per year e. $150,000 ANS: C PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: Maximizing Profit KEY: BLOOM'S: Application 40. An example of an opportunity cost not measured in the accounting costs of a business firm is a. payment for the cost of raw materials. b. wages paid to labor. c. labor services provided by the firm's owner without reimbursement. d. electric utility expense. e. marketing costs that had little payoff. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Application 41. Accountants refer to zero economic profit as a. negative actuarial profit. b. equity income. c. total profit. d. normal profit. e. regular profit. ANS: D PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Knowledge Scenario 5.1 A dentist's practice is organized as a sole proprietorship. Last year the dentist's total revenue was $320,000 and total costs were $250,000. The dentist left a job paying $112,000 a year to start the sole proprietorship. 42. According to the information in Scenario 5.1, how much accounting profit did the dentist make last year? a. $320,000 b. $208,000 c. $112,000 d. $70,000 e. −$42,000 ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Maximizing Profit KEY: BLOOM'S: Application 43. According to the information in Scenario 5.1, how much economic profit did the dentist make last year? a. $320,000 b. $208,000 c. $112,000 d. $70,000 e. −$42,000 ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Maximizing Profit KEY: BLOOM'S: Application 44. Economic profit is the difference between a firm's total revenue and its a. average costs. b. mandatory costs. c. opportunity costs not measured in explicit costs. d. accounting costs. e. opportunity costs. ANS: E PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Knowledge 45. A firm earns a positive economic profit when total revenue exceeds a. all costs, including opportunity costs. b. variable costs. c. fixed costs. d. per-unit costs. e. accounting costs. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Knowledge 46. The existence of economic profits in a competitive market a. will attract competitors. b. is usually against the law. c. allows firms to create monopolies. d. results in normality. e. increases negative economic net worth. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Comprehension 47. If a firm has total revenue of $100,000, the owner's labor in the firm is valued at $20,000, and the firm has explicit costs of $90,000, then the firm has earned a(n) a. economic profit of $10,000. b. accounting profit of $20,000. c. negative economic profit of $10,000. d. accounting loss of $10,000. e. accounting costs of $110,000. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: Maximizing Profit KEY: BLOOM'S: Application 48. If a firm's total cost, including opportunity costs, equals total revenue, then economic profit a. exceeds normal profit. b. is zero. c. equals fixed costs. d. equals variable costs. e. equals accounting costs. ANS: B PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Knowledge 49. A firm earns an economic profit when total profit exceeds a. economic costs. b. accounting costs. c. normal accounting profit. d. normal accounting costs. e. normal accounting costs less economic costs. ANS: A PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Knowledge 50. When Ford Motor Company reports that it earned a loss of $100 million for the fourth quarter of 2007, the firm is a. reporting economic profit. b. reporting normal profit. c. earning a negative economic profit of more than $100 million. d. earning positive economic profit. e. earning normal accounting profit. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Comprehension 51. When a firm makes ____ profit, this sends a signal to others. More competitors would enter the business, increasing supply and driving prices ____. a. zero economic profit; up b. normal profit; down c. positive accounting profit; down d. positive economic profit; up e. positive economic profit; down ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Comprehension 52. Which of the following is not a variable cost at the sandwich shop? a. Cost of tomatoes b. Cost of labor c. Cost of rent d. Cost of electricity e. Cost of bread ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 53. Costs which do not change as output changes are called a. marginal costs b. variable costs c. fixed costs d. accounting costs e. short run costs ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Knowledge 54. Normal profits refer to a. fixed costs. b. variable costs. c. the accounting profit that would correspond to zero economic profit. d. positive economic profits. e. zero accounting profits. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: Maximizing Profit KEY: BLOOM'S: Knowledge 55. The addition to a business firm's total receipts (revenue) that comes from selling one more unit of output is called a. total costs. b. normal profit. c. marginal costs. d. marginal revenue. e. total revenue. ANS: D PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Knowledge 56. If the marginal costs exceed marginal revenue, the firm a. is maximizing profit. b. should reduce its level of output to increase profit. c. would increase profits by increasing production. d. should shut down. e. is minimizing its loss. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 57. A firm maximizes profit when a. total revenue equals total cost. b. marginal revenue equals marginal cost. c. total revenue is maximized. d. it produces its output at the lowest cost per unit. e. it produces the quantity that consumers desire. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application Figure 5.1 58. In Figure 5.1 the firm is maximizing profit at a quantity of a. 10. b. 35. c. 50. d. 75. e. 90. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 59. Refer to Figure 5.1. If the current production level is 90 and the firm wishes to maximize profit, it should a. leave the current production level unchanged. b. decrease the quantity produced to 75. c. decrease the quantity produced to 50. d. decrease the quantity produced to 35. e. increase production until MR = MC. ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 60. In Figure 5.1, what profit does the firm make on the thirty-fifth good produced and sold? a. $0 b. $50 c. $70 d. $120 e. $1,750 ANS: B PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 61. Refer to Figure 5.1. At a quantity of 10, the firm should ____, but at a quantity of 75, the firm should ____. a. leave production unchanged; also leave production unchanged b. leave production unchanged; decrease production c. increase production; decrease production d. increase production; leave production unchanged e. decrease production; increase production ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application Figure 5.2 62. Refer to Figure 5.2. If the firm is incurring losses, we can say with certainty that a. the firm is producing and selling below quantity Q1. b. the firm is producing and selling above quantity Q3. c. the firm should increase production. d. the firm should shut down. e. no decision should be made about increasing or decreasing the firm's production level unless more information is provided. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 63. Refer to Figure 5.2. If the firm is producing Q3 units of output, we know that the firm a. could increase profit by producing and selling less. b. could increase profit by producing and selling more. c. is maximizing profit or minimizing losses. d. is earning a normal profit. e. has made a loss on each unit produced before Q3. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 64. Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $10 per unit and the firm produces 100 units, the firm will earn an economic profit of a. zero. b. $400. c. more than zero but less than $100. d. $100. e. more than $100. ANS: A PTS: 1 DIF: Challenging NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 65. Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, the firm should produce a. zero units of output. b. less than 100 units of output. c. 100 units of output. d. more than 100 units of output. e. The amount is impossible to determine from the information given. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 66. Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit and the firm produces the profit-maximizing level of output, the firm will earn an economic profit of a. −$200. b. zero. c. $100. d. $200. e. $800. ANS: A PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 67. Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $5 per unit, the firm should produce a. zero units of output. b. less than 100 units of output. c. 100 units of output. d. more than 100 units of output. e. The amount is impossible to determine from the information given. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 68. A profit-maximizing firm will produce the level of output such that a. average revenue equals average cost. b. average revenue equals variable cost. c. marginal revenue equals rising marginal cost. d. marginal cost equals rising marginal revenue. e. marginal revenue exceeds marginal cost by the maximum amount. ANS: C PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Knowledge 69. Assume that a firm is producing an output level such that marginal revenue equals marginal cost. One can correctly conclude that a. the firm is earning positive economic profit. b. the firm is earning normal profit. c. the firm is breaking even. d. total cost exceeds total revenue by the maximum amount. e. as long as the firm is covering all of its variable costs, it is producing at the optimal level of output. ANS: E PTS: 1 DIF: Moderate NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Knowledge 70. Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $15 per unit, the firm should produce a. zero units of output. b. less than 100 units of output. c. 100 units of output. d. more than 100 units of output. e. The amount is impossible to determine from the information given. ANS: C PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 71. Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $15 per unit and the firm produces at the profit-maximizing level, the firm will earn an economic profit equal to a. zero. b. its normal profit. c. more than zero but less than $500. d. $500. e. more than $500. ANS: D PTS: 1 DIF: Moderate NAT: BPROG: Analytic TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Application 72. A firm wishing to maximize profits will produce at the level of output where a. economic profit is zero. b. its total cost curve intersects its total revenue curve. c. costs are at a minimum. d. total revenue exceeds total cost by the largest amount. e. marginal revenue exceeds marginal cost by the greatest amount. ANS: D PTS: 1 DIF: Easy NAT: BPROG: Reflective Thinking TOP: The Profit Maximizing Rule: MR = MC KEY: BLOOM'S: Knowledge 73. At a firm's profit-maximizing level of output, a. marginal revenue exceeds marginal cost. b. marginal revenue is less than marginal cost. c. total revenue equals total cost. d. marginal revenue equals marginal cost. e. normal profit is zero. ANS: D PTS: 1 D