Test Bank for Modern Principles: Microeconomics, 4th Edition, Tyler Cowen, Alex Tabarrok

Test Bank for Modern Principles: Microeconomics,

4th Edition, Tyler Cowen, Alex Tabarrok

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1. Which of the following is NOT a key decision that a firm must make?
A) what price to set
B) what quantity to produce
C) where to produce
D) when to enter and exit an industry

2. In Texas, what does the term nodding donkey mean?

A) a donkey that is well-fed
B) an oil pump
C) a ranger
D) a cowboy

3. When there are many buyers and sellers of a good and the product sold is identical
across firms:
A) the demand curve for each firm's output is perfectly elastic.
B) the industry demand curve is perfectly elastic.
C) the demand curve for each firm's output is perfectly inelastic.
D) the industry demand curve is perfectly inelastic.

4. An industry is said to be perfectly competitive when:

A) demand in the industry is high.
B) each firm has virtually no influence over the price of its product.
C) there are many buyers and sellers, and each is large relative to the total market.
D) supply in the industry is highly elastic.

5. When there are many buyers and sellers of a good and the product sold is identical
across firms:
A) the demand curve for each firm's output is somewhat elastic.
B) the industry demand curve is somewhat elastic.
C) the demand curve for each firm's output is perfectly inelastic.
D) the industry demand curve is perfectly inelastic.

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6. A perfectly competitive industry exists under which of the following conditions?
I. The product sold is similar across firms.
II. There are many sellers, each small relative to the total market.
III. There are many sellers, each with total assets less than $2 million.
IV. The threat of competition exists from potential sellers that have not yet entered the
market.
A) I and II only
B) I, II, and III only
C) I, III, and IV only
D) I, II, and IV only

7. In the small town of Wellsville, there is only one grocery store. Given that everyone
needs food, we would expect that this grocery store:
A) is a monopoly and hence highly profitable.
B) charges exorbitant prices.
C) prices competitively.
D) faces a perfectly inelastic demand.

8. At a ski resort located over one hour from the nearest large town, there is only one
grocery store and it charges prices more than 200% percent above the typical retail
prices. In the long run, we would expect that:
A) another store will open that will charge equally high prices since competition is
low.
B) the store will continue to earn high profits even in the long run since the size of the
market is small.
C) demand will decrease since people will not want to pay the high prices.
D) another store will open that will charge lower prices.

9. Firms in competitive industries:

I. can only charge a price equal to the market price.
II. cannot charge any more than the market price.
III. will earn less profit if they charge less than the market price.
A) I only
B) I and III only
C) II only
D) I, II, and III

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10. Firms in a perfectly competitive industry maximize profits by:
A) eliminating the competition.
B) producing a higher quality good and setting a price higher than the competition.
C) setting a price equal to the market price.
D) setting a price less than the market price and undercutting the competition.

11. If a single supplier produces such a small portion of the total market output that changes
in its production have no impact on the overall market price:
A) the firm will eventually be forced out of business.
B) demand for the firm's output is perfectly elastic.
C) the firm's supply curve is perfectly inelastic.
D) the market supply curve is horizontal.

12. If a single supplier produces a good with many good substitutes, then:
A) it will have little control over the market price.
B) the demand curve for its output will be downward sloping.
C) the price it chooses to set must be less than the market price in order to sell
additional output.
D) the market demand will be perfectly elastic.

13. The short run is defined as:

A) the period before any changes in a firm's output can be made.
B) less than six months.
C) less than one year.
D) the period before entry or exit can occur.

14. A market is considered perfectly competitive if:

I. there is a lot of product differentiation among sellers.
II. there are many sellers, each small relative to the total market.
III. the product sold is similar across sellers.
IV. there are only a few buyers.
A) I and II only
B) I, II, and III only
C) II and III only
D) II, III, and IV only

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15. Which of the following best illustrates a product sold in a perfectly competitive market?
A) soft drinks
B) jeans
C) eggs
D) televisions

16. In a highly competitive industry, demand for a firm's product is:

A) perfectly elastic.
B) slightly elastic.
C) unit elastic.
D) perfectly inelastic.

17. To maximize profits, a firm in a highly competitive industry should set its price:
A) higher than the market price.
B) lower than the market price.
C) at the market price.
D) it depends: sometimes at the market price but sometimes higher or lower.

18. Economists call the time after all exit or entry has occurred:
A) the short run.
B) the medium run.
C) the long run.
D) the marginal run.

19. When competitive firms do not have influence over the price of their product, all of the
following are true EXCEPT which condition?
A) The product they produce is similar across sellers.
B) The product appeals more strongly to some consumers than others.
C) There are many potential sellers.
D) There are many buyers and sellers, each small relative to the total market.

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20. (Figure: World Market for Maple Syrup)

Refer to the figure. If you are one of literally thousands of maple syrup producers and
you wanted to increase your maple syrup production from 100 gallons to 110 gallons,
what price would you charge?
A) $100
B) $110
C) $96
D) $10

21. Which of the following best describes a competitive industry?

A) Its firms sell similar products and have little control over their prices; there are
many buyers and sellers and each is relatively small compared with the overall
market.
B) Its firms sell similar products and have direct control over their prices; there are
many buyers and sellers and each is relatively small compared with the overall
market.
C) Its firms have little control over the price of their product; the demand curve for
each firm's product is downward sloping; there are many firms.
D) Its firms sell differentiated products and there are few potential sellers. They have
little control over the price of their product; there are many relatively small buyers.

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22. In competitive markets, the demand curve faced by the individual firm is:
A) equal to the market demand curve.
B) perfectly elastic.
C) perfectly inelastic.
D) downward sloping.

23. In a perfectly competitive market, firm level demand is:

A) flat.
B) vertical.
C) positively sloped.
D) negatively sloped.

24. A flat firm-level demand curve means:

A) full market pricing power.
B) limited market pricing power.
C) no market pricing power.
D) seasonal market pricing power.

25. According to the text, the demand curve for oil from a particular stripper well is:
A) flat.
B) vertical.
C) upward-sloping.
D) downward-sloping.

26. The demand curve for oil from OPEC is:

A) flat.
B) vertical.
C) upward-sloping.
D) downward-sloping.

27. In the long run, demand is ______ the short run.

A) more elastic than in
B) less elastic than in
C) equally elastic as in
D) indeterminately different in elasticity as compared with

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28. A market becomes more competitive as there are ______ buyers and ______ sellers.
A) fewer; fewer
B) fewer; more
C) more; fewer
D) more; more

29. A market becomes more competitive as the product becomes ______ homogeneous and
there are ______ potential sellers.
A) more and more; more
B) less and less; more
C) more and more; fewer
D) less and less; fewer

30. More potential sellers ______ the elasticity of ______ firm-level demand.
A) increase; short-run
B) decrease; short-run
C) increase; long-run
D) decrease; long-run

31. Fewer potential sellers make a firm-level demand curve ______ in the ______.
A) flatter; short run
B) flatter; long run
C) steeper; short run
D) steeper; long run

32. When a firm maximizes profit in the short run, it should consider:
A) all costs, including sunk costs and fixed costs.
B) only variable costs.
C) all costs, including sunk costs, but not fixed costs.
D) only fixed costs.

33. A sunk cost is a cost:

A) that cannot be recovered.
B) that does not change when output changes, but can be recovered.
C) that changes when output changes.
D) the first cost incurred when beginning production.

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34. ____ costs should be ignored in the short run profit maximizing decision.
A) Sunk costs and fixed
B) Only sunk
C) Variable
D) Only fixed

35. An example of a sunk cost is:

A) wages paid to employees.
B) the electric bill.
C) payment to drill an oil well.
D) rent.

36. The difference between a sunk cost and a fixed cost is:
A) a sunk cost changes in the short run, while a fixed cost changes in the long run.
B) a sunk cost changes in the long run, while a fixed cost changes in the short run.
C) a sunk cost can be changed, while a fixed cost cannot be changed.
D) a sunk cost cannot be changed, while a fixed cost can be changed.

37. An implicit cost is:

A) a cost that does not require a monetary outlay.
B) a cost that changes in the long run.
C) a cost that cannot be changed.
D) a cost that requires a monetary outlay.

38. An explicit cost is:

A) a cost that does not require a monetary outlay.
B) a cost that changes in the long run.
C) a cost that cannot be changed.
D) a cost that requires a monetary outlay.

39. An example of an implicit cost is:

A) rent.
B) wages paid to employees.
C) the electric bill.
D) salary that could have been earned working for someone else.

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40. Implicit costs:
A) should not be considered in the profit maximizing decision.
B) should be included in costs when profit maximizing.
C) are not important to economists.
D) are always unknown to firms.

41. Economic profits are:

A) total revenue less total costs, including explicit and implicit costs.
B) total revenue less explicit costs.
C) total revenue less implicit costs.
D) total revenue less sunk costs.

42. Accounting profits are:

A) total revenue less total costs, including explicit and implicit costs.
B) total revenue less explicit costs.
C) total revenue less implicit costs.
D) total revenue less sunk costs.

43. Accounting profits are:

A) less than economic profits.
B) more than economic profits.
C) economic profit less explicit costs.
D) total revenue less implicit costs.

44. Economic profits are:

A) less than accounting profits.
B) more than accounting profits.
C) accounting profit less explicit costs.
D) total revenue less implicit costs.

45. Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and
became a street food vendor. She used $8,000 out of her savings account that paid a 4%
annual interest rate to buy a street cart to sell food. In her first year of operations, she
spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue
of $45,000. Marcie's accounting profit is ______ and economic profit is ______.
A) $28,000; $20,000
B) $35,000; –$1,000
C) $27,000; $17,000
D) $35,000; $6,680

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46. Which of the following statements is TRUE?
A) Accounting profit is usually smaller than economic profit.
B) Unlike implicit costs, explicit costs require monetary outlays.
C) Knowledge about explicit costs is more useful for making business decisions than
knowledge about implicit costs.
D) Implicit costs equal explicit costs for for-profit firms.

47. Total cost incorporates:

A) implicit and explicit cost.
B) implicit cost only.
C) explicit cost only.
D) neither explicit nor implicit cost.

48. In their calculation of profit, accountants typically do not take into account:
A) variable costs.
B) fixed costs.
C) opportunity costs.
D) explicit costs.

49. Economic profit differs from accounting profits because of its inclusion of:
A) explicit costs.
B) incidental costs.
C) potential costs.
D) implicit costs.

50. Which of the following is an example of an implicit cost of production?

A) cost of raw materials
B) cost of labor
C) opportunity cost
D) fixed costs

51. Tom opens a sandwich shop; which of the following is NOT an economic cost (total
cost) of running his business?
A) his forgone earnings as a book editor, his next best opportunity for employment
B) the interest income he could have earned on the money he invested in his business
from savings
C) the wages that he pays his workers
D) the expenses for his own lunch every day

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52. When opportunity cost is positive, economic profit ______ accounting profit.
A) is greater than
B) is less than
C) equals
D) eliminates

53. Total cost equals fixed cost ______ variable cost.

A) times
B) minus
C) plus
D) divided by

54. When a firm expands output from 10 to 11 units and total revenue increases from $100
to $110, marginal revenue of the eleventh unit is:
A) $110.
B) $11.
C) $10.
D) $210.

55. Marginal cost is:

A) the change in total cost from producing one more unit of output.
B) total cost divided by the change in total output.
C) the change in total output divided by the change in total cost.
D) average cost times output.

56. If Homer operates a small bakery and sells donuts for $4/dozen, he should:
A) sell an additional dozen donuts as long as the marginal cost of producing an
additional dozen donuts is less than $4.
B) sell an additional dozen donuts as long as the total cost of producing an additional
dozen donuts is less than $4.
C) only sell more donuts if his total revenue is greater than his total cost.
D) sell an additional dozen donuts so long as the fixed cost of production is greater
than $4.

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57. The marginal revenue (MR) for a firm is a constant $45, and the firm's marginal cost
(MC) is given by MC = 1.5Q (where Q is quantity of output). What is the firm's
profit-maximizing level of output?
A) 67.5
B) 30
C) 45
D) 15

58. (Table: Barrels of Oil) Refer to the table. The profit-maximizing level of output is
________ barrels of oil.

A) 1
B) 3
C) 5
D) 7

59. (Table: Barrels of Oil) Refer to the table. The change in profit from producing the
second barrel of oil is ________, and the marginal cost from producing the seventh
barrel of oil is ________.

A) $140; $140
B) $100; $20
C) $60; $140
D) $140; $20

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60. Figure: Profit Maximizing Output

Use the figure. The profit-maximizing output for this firm is:
A) 40.
B) 3.
C) 6.
D) 9.

61. Which of the following statements is TRUE? Economists normally assume that the goal
of the firm is to:
I. sell as much of their product as possible.
II. set the price of their product as high as possible.
III. maximize profit.
A) I and II only
B) II and III only
C) I and III only
D) III only

62. The total amount of money that a firm receives from sales of its output is called:
A) gross profit.
B) net profit.
C) total revenue.
D) net revenue.

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63. Profit is defined as:
A) net revenue minus depreciation.
B) average revenue minus average total cost.
C) marginal revenue minus marginal cost.
D) total revenue minus total cost.

64. The amount of money that the firm pays for its inputs is called:
A) marginal cost.
B) total cost.
C) variable cost.
D) fixed cost.

65. To maximize profit, firms should keep producing as long as marginal revenue is:
A) greater than marginal cost.
B) equal to marginal cost.
C) less than marginal cost.
D) greater than total cost.

66. To maximize profit, a firm in a competitive market increases output until:

A) P = TC.
B) P = AR.
C) P = MC.
D) P = AC.

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67. (Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing
the fifth barrel of oil?

A) 61
B) 50
C) 200
D) 250

68. (Table: Barrels of Oil 2) Refer to the table. What is the marginal cost of producing the
seventh barrel of oil?

A) 36
B) 50
C) 90
D) 126

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69. (Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company
produce to maximize profit?

A) 6
B) 7
C) 8
D) 9

70. (Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the
company is:

A) $184.
B) $210.
C) $224.
D) $266.

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71. As the price of a good fluctuates, a profit-maximizing firm will expand or contract
production along its:
A) average cost curve.
B) average product curve.
C) marginal cost curve.
D) marginal product curve.

72. Total profit for a given quantity of output can be calculated as:
A) Total Revenue – Total Costs.
B) Marginal Revenue – Marginal Cost.
C) Total Revenue – Marginal Revenue.
D) Marginal Profit + Marginal Revenue.

73. For a small firm in an extremely competitive industry, marginal revenue is always equal
to price because:
A) the firm has no ability to influence the market price.
B) each firm has large economies of scale.
C) each firm has large fixed costs.
D) if consumers increase their demand for the product, producer surplus falls.

74. Damien produces 400 gallons of milk a day in a very competitive industry. The market
price for a gallon of milk is $2. Damien's marginal revenue per gallon of milk is:
A) $200.
B) $800.
C) $2.
D) $0.

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75. (Table: Competitive Firm) Refer to the table. The market price for the product is:

A) $90.
B) $80.
C) $100.
D) A dollar amount, but it cannot be determined from the information in the table.

76. (Table: Competitive Firm) Refer to the table. The profit maximizing output for this firm
is:

A) 5.
B) 6.
C) 7.
D) 8.

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77. (Table: Competitive Firm) Refer to the table. The fixed cost for this firm is:

A) $80.
B) $90.
C) $50.
D) $100.

78. (Table: Competitive Firm) Refer to the table. For the seventh unit of output, total profit
is:

A) $630.
B) $90.
C) $160.
D) $470.

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79. (Table: Competitive Firm) The marginal revenue for the fifth unit of output is:

A) $70.
B) $90.
C) $450.
D) $20.

80. (Table: Competitive Firm) The marginal cost of the fifth unit of output is:

A) $70.
B) $90.
C) $450.
D) $300.

81. Price times quantity minus total cost equals:

A) total revenue.
B) fixed costs.
C) marginal revenue.
D) profit.

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82. (Figure: Elastic Demand)

If the total cost of producing 11 units of output in this figure is $16, the firm's economic
profit at 11 units of output is:
A) $8.
B) –$8.
C) $72.
D) $104.

83. When deciding on the profit-maximizing level of output, firms compare ______ of an
additional unit of output to the ______.
A) marginal revenue; total cost of production
B) average revenue; total cost of production
C) marginal revenue; marginal cost of producing the additional unit of output
D) average revenue; average cost of producing the additional unit of output

84. To maximize profits, firms produce the level of output that:

A) equates total revenue and total cost.
B) equates marginal revenue with marginal cost.
C) minimizes costs.
D) maximizes revenues.

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85. (Table: Profit Maximization) The table represents the total revenues and total costs of a
local sub shop. Based on the table, what is the marginal revenue generated from
producing the second sub?

A) $5
B) $10
C) $15
D) $35

86. (Table: Profit Maximization) The table represents the total revenues and total costs of a
local sub shop. Based on the table, how many subs should the store produce to
maximize profits?

A) 1
B) 2
C) 3
D) 4

87. If marginal revenue is less than marginal cost, a firm should:

A) hold output steady.
B) increase output.
C) decrease output.
D) lower its price.

88. The change in total revenue from selling an additional unit is called:
A) average revenue.
B) marginal revenue.
C) marginal cost.
D) variable cost.

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89. Price equals marginal revenue for a competitive firm because:
A) total revenue is constant.
B) marginal cost is constant.
C) the production of marginal units affects the value of other units.
D) the price does not change when the firm changes output.

90. Why can't marginal cost decrease forever?

A) At some point, firms encounter physical limits of production.
B) Demand is not infinite.
C) Marginal cost can't increase forever either, and there must be symmetry.
D) Marginal cost is always constant.

91. A firm maximizes profits when:

A) total revenue equals total cost.
B) average revenue equals average cost.
C) marginal revenue equals marginal cost.
D) fixed revenue equals fixed cost.

92. Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for
workshop equipment). Each chair costs him $50 in materials to produce plus an extra
$25 for each previous chair made that day, which reflects Julius's increasing exhaustion.
(Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume
time requirements in producing a chair are not a factor. How many chairs should Julius
produce each day?
A) 2
B) 5
C) 7
D) 12

93. Programs such as Steam distribute more and more video games. Purchasers buy the
game and download it immediately to their computer. If the entire system is automated,
estimate the marginal cost of producing and selling video games this way (ignore
electricity costs).
A) zero
B) the price of the game
C) proportional to the cost to make the game
D) None of the answers is correct.

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94. Which of the following is an example of a fixed cost?
A) The cost of fabric for making backpacks
B) The profits gained from opening a bakery instead of an ice cream store
C) Research and development costs for a new medicine
D) Water used to make lemonade at a lemonade stand

95. (Table: Profit Maximization 2)

The firm in this table can earn a maximum profit of ______, which occurs at an output
of ______ barrels per day.
A) $380; 4
B) $80; 3
C) $100; 0
D) $200; 2

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96. The change in total cost from producing the eightieth unit of output is ______, and the
change in total revenue from producing the seventh unit of output is ______.

A) $5; $14
B) $10; $70
C) $7; $6.50
D) $3.50; $6.50

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97. (Figure: Maximizing Profit) What is the firm's profit-maximizing level of output?

A) 20
B) 80
C) 120
D) 170

98. Which of the following statements is TRUE?

I. If a competitive firm sells its product at a price of $80, the firm should increase
production from 100 to 101 units if the total cost rises from $2,000 to $2,066.
II. If the marginal cost of the tenth unit is $14 and the marginal revenue is $10, the firm
should produce the tenth unit to increase profits by $4.
III. For competitive firms, profits are maximized at MR = MC or P = MC, since P = MR.
A) I and III only
B) II only
C) I, II, and III
D) III only

99. Firm profit is defined as:

A) total revenue plus total cost.
B) total revenue minus total cost.
C) marginal revenue plus marginal cost.
D) marginal revenue minus marginal cost.

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100. Total revenue is equal to:
A) price minus quantity.
B) price plus quantity.
C) price times quantity.
D) price divided by quantity.

101. Perfectly competitive firms produce at the quantity where marginal revenue ______
marginal cost.
A) is greater than
B) equals
C) is less than
D) is equal to zero rather than

102. Which of the following statements is FALSE?

A) AC = TC/Q
B) A firm that produces 100 units at a total cost of $500 has an average cost of $5 per
unit.
C) Firms will earn positive profits if price exceeds average cost.
D) When marginal cost is below average cost, average cost is rising.

103. Profit can be shown graphically by depicting a firm's costs and revenues, and it is
determined mathematically by calculating the:
A) distance from price to average cost.
B) area of the box that is price times quantity.
C) area of the box that is (price minus average cost) times the quantity.
D) area of the box that is average cost times quantity.

104. Which of the following is TRUE?

A) Price times quantity equals profit.
B) Profit equals marginal revenue minus marginal cost.
C) Profit equals total revenue minus average cost.
D) Profit equals (price minus average cost) times quantity.

105. When the level of production is relatively low, the average cost per unit of output would
________ if output increased.
A) increase
B) decrease
C) either increase or decrease depending on marginal cost
D) remain constant

Page 27
106. (Figure: Costs of Oil Production) Refer to the figure. Assuming that price equals
marginal cost, the total cost of producing eight barrels of oil is:

A) $60.
B) $240.
C) $400.
D) It cannot be determined from the information given.

107. (Figure: Costs of Oil Production) Refer to the figure. Assuming that price equals
marginal cost, the profit of producing eight barrels of oil is:

A) $160.
B) $240.
C) $400
D) It cannot be determined from the information given.

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108. (Table: Oil Production) Refer to the table. What is the total cost of producing eight
barrels of oil?

A) $50
B) $206
C) $178
D) $336

109. (Table: Oil Production) Refer to the table. What is the profit of producing 10 barrels of
oil?

A) $80
B) $154
C) $180
D) $194

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110. (Table: Oil Production) Refer to the table. What are the fixed costs of production for this
firm?

A) $34
B) $4
C) $30
D) $50

111. (Figure: Costs) Use the figure. At a price of $20, the firm earns profit of:

A) $75.
B) $300.
C) $225.
D) $0, because P = MC at P = $20.

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112. (Figure: Costs) Use the figure. At a price of $20, which statement is FALSE?

A) AC = $15
B) Profit = (20 – 15)15
C) Average profit = $5
D) MC < AC

113. Profit is positive whenever price is greater than:

A) total cost.
B) average cost.
C) fixed cost.
D) marginal cost.

114. (Table: Competitive Firm 2) Refer to the table that shows the revenue and cost
schedules for a competitive firm. What is the profit-maximizing quantity?

A) 5
B) 6
C) 7
D) 8

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115. (Table: Competitive Firm 2) Refer to the table that shows the revenue and cost
schedules for a competitive firm. What is the marginal cost at the profit-maximizing
quantity?

A) $50
B) $80
C) $230
D) $300

116. (Table: Competitive Firm 2) Refer to the table that shows the revenue and cost
schedules for a competitive firm. What is the average cost at the profit-maximizing
quantity?

A) $54.30
B) $58.75
C) $50
D) $80

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117. (Table: Competitive Firm 2) Refer to the table that shows the revenue and cost
schedules for a competitive firm. What is the average fixed cost at the
profit-maximizing quantity?

A) $54.30
B) $4.28
C) $50
D) $80

118. (Table: Competitive Firm 2) Refer to the table that shows the revenue and cost
schedules for a competitive firm. How much profit will this firm earn?

A) $0; this firm is making a loss

B) $50
C) $170
D) $180

Page 33
119. (Table: Competitive Firm 2) Refer to the table that shows revenue and cost schedules
for a competitive firm. At the profit-maximizing quantity, which of the following is
TRUE?

I. MR = MC
II. Producer surplus is maximized.
III. Profits are equal to $180.
A) I only
B) I and II only
C) I and III only
D) I, II, and III

Page 34
120. (Figure: AC)

Refer to the set of four panels in the figure. Which panel shows the typical shape of the
average cost curve in a competitive market?
A) Panel A
B) Panel B
C) Panel C
D) Panel D

121. Stating that TR = TC is equivalent to stating that:

A) MR = MC.
B) P = AC.
C) P = Average fixed cost.
D) MR = P.

Page 35
122. (Figure: Profits)

How much profit is the firm making at the profit-maximizing quantity?

A) a profit of $300
B) a profit of $70
C) The firm is not making a profit—it is making a loss of $300.
D) The firm is not making a profit—it is making a loss of $70.

123. (Figure: Calculating Profits)

Refer to the figure. How much profit is the firm making at the profit-maximizing
quantity?
A) a profit of $200
B) The firm is not making a profit—it is making a loss of $220.
C) The firm is not making a profit—it is making a loss of $200.
D) The firm is not making a profit—it is making a loss of $320.

Page 36
124. Which statement is correct?
A) When the marginal cost curve is above the average cost curve, the average cost
curve must be rising.
B) When the marginal cost curve is below the average cost curve, the average cost
curve must be rising.
C) When MR = MC, the average cost curve is at its minimum point.
D) When MR = P, the average cost curve is at its minimum point.

Page 37
125. (Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which
panel shows a competitive firm making positive economic profits?

A) Panel A
B) Panel B
C) Panel C
D) Panel D

Page 38
126. (Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which
panel shows a competitive firm making zero economic profits?

A) Panel A
B) Panel B
C) Panel C
D) Panel D

Page 39
127. (Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which
panel shows a competitive firm making an economic loss?

A) Panel A
B) Panel B
C) Panel C
D) Panel D

128. Which statement about cost is correct?

A) Marginal cost is constant.
B) Marginal cost is always falling.
C) Average total cost is U-shaped.
D) Average total cost always declines.

Page 40
129. Whenever marginal cost is greater than the average total cost:
A) marginal cost is falling.
B) average cost is falling.
C) average cost is constant.
D) average cost is rising.

130. When marginal cost is rising, the average total costs:

A) could be rising or falling.
B) must be rising.
C) must be falling.
D) must be constant.

131. The typical average cost curve in a competitive market is:

A) an upward-sloping straight line because fixed costs are constant, and variable costs
are increasing with the level of output.
B) U-shaped because the firm's fixed costs are first spread over greater quantities, but
then increasingly greater quantities will create production capacity constraints.
C) downward-sloping until fixed costs are eliminated and then it becomes a horizontal
line.
D) U-shaped because increasing quantities of output cause a decrease in fixed costs
but an offsetting increase in variable costs.

132. If price is less than average cost:

A) the firm may still make profits as long as marginal cost is low.
B) the firm's maximum profit is a loss.
C) there is no profit-maximizing rate of output.
D) marginal cost must be high.

133. (P – AC) × Q =
A) average revenue.
B) profit.
C) marginal cost.
D) total revenue.

134. If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit?
A) $500
B) $1,000
C) $2,500
D) $3,500

Page 41
135. If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his total
revenue?
A) $500
B) $1,000
C) $2,500
D) $3,500

136. The marginal cost curve intersects the average cost curve:
A) on the downward-sloping portion.
B) on the upward-sloping portion.
C) at its minimum point.
D) on the vertical portion.

137. (Figure: Pineapples) Refer to the figure. What is the optimal number of cans of
pineapple for this firm to produce?

A) 50,000
B) 90,0000
C) 120,000
D) 160,000

Page 42
138. (Figure: Pineapples) Refer to the figure. What is their total profit or loss?

A) –$400,000
B) –$200,000
C) $360,000
D) $840,000

Page 43
139. (Figure: Profit Maximization 3)

At the profit-maximizing level of output in this diagram, the firm's price is:
A) $6.
B) $10.
C) $12.
D) $14.

Page 44
140. (Figure: Profit Maximization 4)

At the profit-maximizing level of output in this diagram, the firm's total revenue and
total cost are ______ and ______, respectively.
A) $840,000; $480,000
B) $7; $7
C) $700,000; $400,000
D) $480,000; $840,000

Page 45
141. (Figure: Profit Maximization 5) The firm in this diagram earns zero economic profit at a
price of:

A) $3.
B) $5.
C) $9 or less.
D) $4 or less.

Page 46
142. (Figure: Profit Maximization 5) At a price of $8 in this diagram, profit per unit is
approximately ______, and total profit is approximately ______.

A) $8.00; $114
B) $5.50; $78
C) $2.50; $36
D) $5.00; $60

143. Average cost equals total cost ______ quantity.

A) minus
B) plus
C) times
D) divided by

144. Firms are profitable when price is:

A) greater than average cost.
B) equal to average cost.
C) less than average cost.
D) zero.

145. Firms earn negative profit when price is:

A) greater than average cost.
B) equal to average cost.
C) less than average cost.
D) zero.

Page 47
146. (Table: Decision to Enter)

Use the table. A firm is considering whether to enter an industry, with the conditions
upon entry set forth in the table. Entering the industry would require the firm to pay
$800 per day in fixed costs. This firm should ________ the industry, because its profits
would be ________ per day.
A) not enter; –$1,350
B) not enter; –$800
C) enter; $700
D) enter; $150

147. Which of the following statements is TRUE?

A) Entry and exit from an industry depend on the firm's market share.
B) Fixed costs fall as firms produce more output, the so called “spreading of the
costs.”
C) High profits in an industry give entrepreneurs an incentive to enter that industry.
D) A firm should enter an industry if average costs are less than producer surplus.

148. A firm should exit an industry if:

A) P < MC.
B) P – AC > 0.
C) P – AC < 0.
D) P – AC = 0.

149. Profit is positive whenever:

A) P < AC.
B) P < MC.
C) P > MC.
D) P > AC.

Page 48
150. Table: Oil Production Costs

Refer to the table. If seven barrels of oil are produced, this firm is making:
A) a profit because P >AC.
B) a loss because MC > AC.
C) a profit because MR > MC.
D) a loss because TR < TC.

151. Firms should exit the market if:

A) sunk costs are a significant portion of the total cost.
B) producer surplus is just equivalent to recoverable costs.
C) price falls below the average cost.
D) marginal cost exceeds the average cost.

152. A firm pays a monthly lease of $10,000 and generates $8,000 of revenue a month.
Which of the following is TRUE?
A) Firms will enter the industry.
B) This firm will exit the industry in the long run.
C) The recoverable costs are less than the difference between revenues and variable
costs.
D) The recoverable costs are less than operating profit.

153. With fluctuating prices in an industry, firms are likely to:

A) immediately exit anytime profits are negative.
B) enter anytime profits are positive.
C) consider lifetime profits of entering or exiting the industry.
D) act risk-averse by producing only where (2 × MR) > MC.

Page 49
154. Which of the following statements are TRUE? A firm's entry/exit decision is about:
I. whether profits are positive or negative now.
II. whether the stream of future profits is positive or negative.
III. government regulations.
A) I, II, and III
B) I only
C) I and II only
D) II and III only

155. Firms will enter an industry when the:

A) price rises above the minimum of the marginal cost curve.
B) price rises above the minimum of the average total cost curve.
C) marginal cost rises above the minimum of the average total cost curve.
D) average cost rises above the minimum of the marginal cost curve.

156. A baker wants to establish a pie factory. The cost of leasing the factory is $1,000 per
day. The profit-maximizing quantity of pies is 1,000 pies a day. Each pie sells for $3
and costs only $2.10 to make. Which of the following is a correct conclusion based on
this data?
A) The baker will enjoy profits of $900 per day.
B) The baker should not enter the industry.
C) At the profit-maximizing quantity, the baker's producer surplus is –$200.
D) The baker will enjoy profits of $3,000 per day.

157. A firm should exit the industry if which of the following conditions apply?
A) TR > TC
B) P < AC
C) Lifetime expected profit is positive.
D) Prices are low now but expected to rise.

158. The decision to enter or exit an industry is based:

A) only on the level of profits/losses today.
B) only on the level of profits/losses in the future.
C) on lifetime expected profits.
D) on the marginal cost of production.

Page 50
159. A firm earning zero economic profits:
A) will shut down immediately.
B) may continue to operate in the short run but will always shut down in the long run
if zero economic profits continue.
C) is earning just “normal profits.”
D) will not be earning enough to cover all payments to capital and labor.

160. In a competitive equilibrium, firms earn ______ economic profits.

A) positive
B) negative
C) zero
D) abnormal

161. (Figure: Pineapples 2)

Refer to the figure. In the long run, what do you expect this firm's economic profit or
loss to be?
A) –$200,000
B) $0
C) $270,000
D) $600,000

Page 51
162. At zero economic profits, a competitive firm:
A) has an incentive to leave the industry to make higher profit elsewhere.
B) is making a normal profit; its revenues are just sufficient to cover all costs of
production, including opportunity costs.
C) is unable to pay its opportunity costs of production but will remain in business to
minimize losses.
D) will benefit, in the form of higher profits, by raising its prices above average cost.

163. When price is less than a firm's average cost:

A) the firm will shut down immediately.
B) additional firms will enter the market to steal profits from the struggling firm.
C) the firm may continue to operate in the short run if it can at least cover its fixed
costs.
D) it may be more profitable to continue to operate if revenues at least cover the firm's
variable costs.

164. In the short run, if price is less than average cost, a firm:
A) will certainly shut down.
B) might shut down, but might stay open.
C) is earning positive profits.
D) is earning normal profits.

165. Restaurants in tourist's areas will close during the off-season if their:
A) ATC is less than their TR.
B) AFC is less than their TR.
C) AVC is less than TR.
D) AFC is greater than their TR.

166. A strawberry farmer has 5,000 pounds of strawberries ready to harvest. The cost of
picking and transporting the strawberries to the market is $3,500. If the market pays
$0.60 per pound of strawberries, what should the strawberry farmer do?
A) pick and sell the strawberries to recover the fixed costs of planting
B) not make a decision until he knows something about average costs
C) pick and sell the strawberries, since doing so increases profits by $500
D) not pick and sell the strawberries, since doing so would reduce profits by $500

Page 52
167. Which of the following statements is TRUE?
A) Costs increase if a decreasing cost industry becomes smaller.
B) Costs increase if a decreasing cost industry becomes larger.
C) A constant cost industry has a straight long-run supply curve that slopes upward.
D) An increasing cost industry has a long-run supply curve that is first flat then slopes
downward with output.

168. (Figure: Supply and Demand)

The figure depicts a constant cost industry. What happens if there is an increase in
demand?
A) The price of the product stays at $10, although there may be a temporary shortage
in the short run.
B) The price initially increases above $10 in the short run, but the entry of new firms
and expansion of existing firms will push the long-run price back down to $10.
C) The price initially increases above $10 in the short run, but the increased demand
for resources will drive the long-run price up even higher.
D) The price of the product stays at $10 in the short run and then decreases as new
firms enter the industry.

Page 53
169. In a constant cost industry, P = AC = $20. Which sequence of events follows an increase
in demand?
A) P > AC, firms make an economic profit, existing firms expand output, new firms
enter the industry, the short-run supply curve shifts right, price falls until profits
return to $0
B) P > AC, firms make an economic profit, existing firms expand output, new firms
enter the industry, the short-run supply curve shifts left, price falls until profits
return to $0
C) P < AC, firms suffer an economic loss, existing firms reduce output, new firms
enter the industry, the short-run supply curve shifts right, price falls until profits
exceed $0
D) P = AC, firms make no economic profit, existing firms leave output unchanged,
new firms enter the industry, profits remain normal, P = AC = $20

170. (Figure: Entry Exit)

Refer to the figure. This competitive firm operates in a constant cost industry. The
current market price is $15. What is the long-run market price?
A) $6.15
B) $12
C) $15
D) $20

Page 54
171. In a constant cost industry, the market price and average cost are equal to $23.
Therefore, which of the following is correct?
A) An increase in demand will cause the short-run price to rise above $23, but in the
long run, the price will return to $23.
B) An increase in demand will cause profits to rise and firms to enter the industry until
profits return to normal.
C) A decrease in demand will cause market price to fall below average cost, and thus
firms will earn negative profits.
D) All of the answers are correct.

172. (Figure: Industry Firms) Refer to the figures. The market is characterized by demand
curve D2 and supply curve S1. The firms in the industry are earning ________, which
will cause the ______________.

A) profit; supply curve to shift to S2

B) losses; demand curve to shift to D1
C) profit; supply curve to shift to S2 and the demand curve to shift to D1
D) losses; supply curve to shift to S2 and the demand curve to shift to D1

173. (Figure: Industry Firms) Refer to the figures. This industry is a(n):

A) increasing cost industry.

B) decreasing cost industry.
C) constant cost industry.
D) quadratic cost industry.

Page 55
174. (Figure: Industry Firms) Use the figures. The market for a normal good is characterized
by demand curve D2 and supply curve S2. A decrease in income will cause:

A) the demand curve to shift D1, causing firms to earn economic profits. The supply
curve will not change, so price will rise and firms will earn normal profits.
B) the supply curve to shift D1, causing firms to earn economic profits. The supply
curve will decrease to S1 as firms exit the industry. Eventually the market price will
rise and firms will earn above-normal profits.
C) the demand curve to shift D1, causing firms to earn economic losses. The supply
curve will decrease to S1 as firms exit the industry. Eventually the market price will
rise and firms will earn normal profits.
D) the supply curve to shift S1, causing firms to earn economic losses. The demand
curve will decrease to D1 as firms enter the industry. Eventually the market price
will fall and firms will earn normal profits.

175. What condition is necessary in a constant cost industry?

A) Prices of the industry's inputs do not change as the industry expands.
B) Prices of the industry's inputs decline as the industry expands.
C) Prices of the industry's inputs rise as the industry expands.
D) There are barriers that prevent new firms from entering such an industry.

176. Suppose there is a large and permanent increase in the demand for a good produced in a
competitive industry. We should expect that:
A) existing firms will face lower sunk costs.
B) competition in the industry will decrease.
C) existing firms' average cost curves will shift upward.
D) firms will enter the industry because the market price will rise.

Page 56
177. A constant cost industry is one in which:
A) an increase in overall industry output does not lead to an increase in overall
industry costs.
B) costs are constant across all firms in the industry.
C) market price is always equal to marginal cost in the industry.
D) there are only a limited number of suppliers, all with equal costs of production.

178. In a competitive, constant cost industry:

A) there is no entry or exit.
B) demand never changes.
C) supply is inelastic.
D) the long-run price is constant.

179. Describe the supply curve of a constant cost industry.

A) upward sloping
B) flat
C) downward sloping
D) downward sloping, then upward sloping

Page 57
180. (Table: Constant Cost Industries)

As of July 2011, oil companies had a 6.5 percent profit margin (for each dollar of sales,
6.5 cents was profit), ranking 131 (profit margin is the far right column). Other
industries making the same profit margin include packaging and containers, office
supplies, farm and construction, and newspapers. If these profits are typical, what does
this similar profit margin across very different industries suggest about oil companies'
profits?
A) They are making zero economic profits.
B) They are making above-average profits and should expect entry.
C) They are making above-average profits and should expect no entry or exit.
D) Nothing because it is the total profits that matter, not profits per dollar of sales.

181. The electricity industry is an example of:

A) a constant cost industry.
B) an increasing cost industry.
C) a decreasing cost industry.
D) competitive industry.

Page 58
182. (Figure: Increasing Costs)

Refer to the figure. If an industry consists of two firms, Firm 1 and Firm 2, as shown in
the diagram, what is the industry's quantity supplied at a price of $7 and $9?
A) 0 and 5 units, respectively
B) 4 and 5 units, respectively
C) 8 and 10 units, respectively
D) 4 and 10 units, respectively

183. In an increasing cost industry:

A) costs rise as industry output increases.
B) costs rise as industry output decreases.
C) the long-run supply curve is flat.
D) all firms will earn normal profits in the long run.

Page 59
184. The oil industry is an increasing cost industry because:
A) expanding output requires firms to use more expensive production methods to find
and extract oil from less desirable locations.
B) people buy more oil at lower prices.
C) because oil is a necessity good.
D) All of these statements are correct.

185. Because only greater quantities of oil can be produced by using more expensive
production methods, the industry is:
A) an increasing cost industry.
B) an economies of scale industry.
C) noncompetitive industry.
D) marginal cost industry.

186. Any industry that buys a large fraction of the output of an increasing cost industry:
A) could be an increasing cost industry, but not necessarily.
B) must be an increasing cost industry.
C) must be a constant cost industry.
D) must be a decreasing cost industry.

187. In an increasing cost industry:

A) above-normal profits are eliminated for all firms in the long run.
B) above-normal profits are eliminated for only some firms in the long run.
C) costs rise as output decreases.
D) profits rise as output decreases.

188. (Figure: Two-Firm Industry) Refer to the figures. At a market price of $20, the total
quantity supplied in the industry is:

A) 32 units.
B) 45 units.
C) 15 units.
D) 25 units.

Page 60
189. (Figure: Two-Firm Industry) Refer to the figures. At a market price of $25, the total
quantity supplied in the industry is:

A) 32 units.
B) 45 units.
C) 15 units.
D) 25 units.

190. In a decreasing cost industry:

A) cost rises as the industry expands.
B) cost falls as the industry expands.
C) average costs rise as the industry expands.
D) the price exceeds average cost, even in the long run.

191. Which of the following is NOT an example of a decreasing cost industry?

A) movie production in Hollywood
B) the retail clothing industry
C) computer technology in Silicon Valley
D) the carpet industry in Dalton, Georgia

192. Economists study decreasing cost industries in order to explain:

A) why profits may remain above normal in the long run for some firms.
B) the existence of industry clusters.
C) economies of scale.
D) why supply curves slope upward.

193. Which kind of industry would have a downward-sloping long-run supply curve?
A) a constant cost industry
B) an increasing cost industry
C) a decreasing cost industry
D) no industry

Page 61
194. Why is it cheaper to make carpets in Dalton, Georgia, than anywhere else in the United
States?
A) Dalton has excellent carpet-making weather.
B) Dalton residents are genetically superior carpet weavers.
C) By historical accident, a number of carpet-related firms clustered in Dalton, so
inputs are cheaper there than elsewhere.
D) The government in Dalton subsidizes carpet making.

195. Why do technology firms cluster in Silicon Valley?

A) Costs are lower near other technology firms, but the cluster need not be located
there.
B) Silicon Valley has lots of silicon, which is used in producing computer chips.
C) The government subsidizes technology firms if they are located in Silicon Valley.
D) Electricity is cheaper in Silicon Valley than anywhere else in the world.

196. The _____ industry in Dalton, Georgia, provides an example of a decreasing cost
industry.
A) peanut
B) carpet
C) oil
D) education

197. The more and better substitutes a good has, the more elastic the demand for that good
will be.
A) True
B) False

198. In a perfectly competitive market, sellers who set their price above the market price will
sell nothing.
A) True
B) False

199. The market for designer jeans is a good example of a perfectly competitive market.
A) True
B) False

200. The short run is the period before exit or entry can occur.
A) True
B) False

Page 62
201. The difference between the long run and the short run is that in the long run, marginal
cost equals marginal revenue for all firms in the economy.
A) True
B) False

202. The competitive firm's demand curve is horizontal at the market price.
A) True
B) False

203. The long run is the period before exit and entry can occur.
A) True
B) False

204. The long run is the period after all exit and entry has occurred.
A) True
B) False

205. The short run is the period after all exit and entry has occurred.
A) True
B) False

206. Firms have less pricing power if their firm-level product is more unique.
A) True
B) False

207. Firms in competitive industries should adhere to: (1) expanding output if MR > MC, and
(2) reducing output if MC > MR.
A) True
B) False

208. To maximize profit, a firm in a competitive industry increases output until price is
greater than the average cost.
A) True
B) False

Page 63
209. Marginal cost is the change in total cost from producing an additional unit of output.
A) True
B) False

210. Profit is defined as total revenue minus total cost.

A) True
B) False

211. Average total cost is equal to total cost divided by profit.

A) True
B) False

212. Marginal revenue is always equal to the price of the product for a competitive firm.
A) True
B) False

213. A firm's short-run supply curve is its marginal cost curve.

A) True
B) False

214. Explicit costs incurred by firms include the firm's opportunity costs.
A) True
B) False

215. Economic profit is equal to total revenue minus explicit costs.

A) True
B) False

216. A firm's profit-maximizing quantity does not depend on its fixed costs.
A) True
B) False

217. If your opportunity cost is positive, accounting profit is always greater than economic
profit.
A) True
B) False

Page 64
218. Mike takes $100,000 out of his bank account, which pays a 5% annual interest rate, to
build an oil well. An implicit cost of producing the oil well is $5,000, the foregone
interest income.
A) True
B) False

219. A firm will continue to produce additional output, as long as marginal revenue is greater
than marginal cost.
A) True
B) False

220. A competitive firm maximizes profits when price equals marginal cost.
A) True
B) False

221. Total cost equals the sum of fixed costs and average costs.
A) True
B) False

222. If the market price in a competitive market is $10, and a firm's marginal cost (MC) is
given by MC = 0.50Q, where Q is units of output, this firm should produce 20 units of
output to maximize profit.
A) True
B) False

223. If marginal cost is less than average cost, average cost is rising.
A) True
B) False

224. Average cost is equal to total cost divided by quantity.

A) True
B) False

225. The marginal cost curve may intersect the average cost curve anywhere on the curve
that is less than the minimum point.
A) True
B) False

Page 65
226. A competitive firm maximizes profits at the point where P = MC = AC.
A) True
B) False

227. A firm's total profit is equal to the marginal cost of production multiplied by the
quantity produced.
A) True
B) False

228. If P = $20, AC = $16, and Q = 100, then profit = $3,600.

A) True
B) False

229. At the profit-maximizing output level P = MC, if P > AC then firms can earn
above-normal profit, causing entry into the industry.
A) True
B) False

230. A firm should enter an industry if total revenue is equal to total cost.
A) True
B) False

231. A firm should exit an industry if price is less than average cost.
A) True
B) False

232. Profit = (P – MC) × Q.

A) True
B) False

233. Firms should enter the industry if marginal revenue is greater than the total costs.
A) True
B) False

234. Firms should exit the industry if average costs are greater than marginal costs.
A) True
B) False

Page 66
235. A firm should always shut down if it is earning negative profits.
A) True
B) False

236. If firms in a competitive market are earning above-normal profits, the elimination
principle states that new firms will enter the market and drive profits to normal.
A) True
B) False

237. In a constant cost industry, many firms can expand or contract without a change in
costs.
A) True
B) False

238. The supply curve for oil slopes upward because additional quantities of oil can only be
produced at higher cost.
A) True
B) False

239. Decreasing cost industries have supply curves that slope downward forever.
A) True
B) False

240. Industry clusters always cause part of the supply curve to be downward sloping.
A) True
B) False

Page 67
241. (Table: Cucumbers)

Use the table. Suppose that the market price per cucumber is $0.80. What is the
marginal revenue of producing 100 cucumbers? What happens to total cost if cucumber
production rises from 500 to 600? What is the profit-maximizing quantity of
cucumbers?

242. Explain why a profit-maximizing firm in a competitive market would increase output
until price is equal to marginal cost.

243. Suppose that Jennifer and Megan are both buying a beach vacation home, each with the
same selling price. Megan is paying for the home by taking out a 30-year mortgage at an
annual interest rate of 5%. Over the course of her mortgage, Megan will have paid
$300,000 in interest alone. Jennifer is considering using an inheritance received and
paying cash for the home. If the current annual market interest rate paid on investments
is 6% (i.e., market annual rate of return is equal to 6%), then is Jennifer better off
paying cash for her vacation home or taking out the same mortgage as Megan? Explain.

244. (Table: Profit Table) Fill in each of the blanks in this table.

Page 68
245. (Table: Cost Schedules) The table shows the TR and TC schedules for a competitive
firm. Using your knowledge of cost and profit structures, fill in all the missing blanks.

246. (Figure: Calculating Profits)

Refer to the figure that shows a representative firm in a perfectly competitive industry.
Using the information provided in the figure, answer the following questions.

a. What is the total profit or loss that this firm is making? Show all your calculations.
b. Will firms enter or exit the industry?

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247. Draw a competitive firm in each of the following situations.
a. earning abnormal profits
b. making losses
c. Are either of the situations in (a) or (b) sustainable into the long run? If not, explain
why and graphically demonstrate how the competitive firm is expected to behave in the
long run.

248. Graphically illustrate the maximum profit of a firm in a competitive market, and on the
same graph depict how the profit-maximizing quantity would change as the price
changes.

249. Based on the premise that dogs are carnivores and thus should not eat grains, Natura Pet
Products introduced the first brand of grain-free dog food called EVO in 2005. There
were over 12 different manufacturers of grain-free dog food by 2009. Was Natura's
EVO a profitable line of dog food in 2005? Since 2005, what has happened to the
profitability of producing grain-free dog food?

250. Graphically illustrate how a constant cost industry responds to an increase in demand in
the short run and in the long run.

251. Give two reasons why an industry might be an increasing cost industry and use
examples to demonstrate your reasons.

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Answer Key
1. C
2. B
3. A
4. B
5. B
6. D
7. C
8. D
9. D
10. C
11. B
12. A
13. D
14. C
15. C
16. A
17. C
18. C
19. B
20. C
21. A
22. B
23. A
24. C
25. A
26. D
27. A
28. D
29. A
30. A
31. C
32. B
33. A
34. A
35. A
36. D
37. A
38. D
39. D
40. B
41. A
42. B
43. B
44. A

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45. D
46. B
47. A
48. C
49. D
50. C
51. D
52. B
53. C
54. C
55. A
56. A
57. B
58. C
59. C
60. C
61. D
62. C
63. D
64. C
65. A
66. C
67. B
68. A
69. C
70. C
71. C
72. A
73. A
74. C
75. A
76. C
77. C
78. C
79. B
80. A
81. D
82. C
83. C
84. B
85. C
86. C
87. C
88. B
89. D
90. A

Page 72
 91. C
92. C
93. A
94. C
95. B
96. A
97. D
98. A
99. B
100. C
101. B
102. D
103. C
104. D
105. B
106. B
107. A
108. B
109. A
110. C
111. A
112. D
113. B
114. C
115. B
116. A
117. B
118. D
119. D
120. A
121. B
122. A
123. B
124. A
125. C
126. B
127. A
128. C
129. D
130. A
131. B
132. B
133. B
134. B
135. D
136. C

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137. C
138. C
139. A
140. A
141. B
142. C
143. D
144. A
145. C
146. D
147. C
148. C
149. D
150. A
151. C
152. B
153. C
154. C
155. B
156. B
157. B
158. C
159. C
160. C
161. B
162. B
163. D
164. B
165. C
166. D
167. A
168. B
169. A
170. B
171. D
172. A
173. C
174. C
175. A
176. D
177. A
178. D
179. B
180. A
181. B
182. D

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183. A
184. A
185. A
186. B
187. B
188. C
189. B
190. B
191. B
192. B
193. C
194. C
195. A
196. B
197. A
198. A
199. B
200. A
201. B
202. A
203. B
204. A
205. B
206. B
207. A
208. B
209. A
210. A
211. B
212. A
213. A
214. B
215. B
216. A
217. A
218. A
219. A
220. A
221. B
222. A
223. B
224. A
225. B
226. B
227. B
228. B

Page 75
Test Bank for Modern Principles: Microeconomics, 4th Edition, Tyler Cowen, Alex Tabarrok

229. A
230. B
231. A
232. B
233. B
234. B
235. B
236. A
237. A
238. A
239. B
240. A
241.
242.
243.
244.
245.
246.
247.
248.
249.
250.
251.

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