Sample Final Exam

EC101 Professor Idson

Table 3-6

Assume that Maya and Miguel can switch between producing mixers and producing toasters at a constant rate.

Hours Needed Amount Produced

To Make 1 in 40 Hours
mixer toaster mixers toasters
Maya 8 5 5 8
Miguel 20 10 2 4

1. Refer to Table 3-6. Miguel has an absolute advantage in the production of

a. neither good and a comparative advantage in the production of toasters.
b. neither good and a comparative advantage in the production of mixers.
c. both goods and a comparative advantage in the production of mixers.
d. both goods and a comparative advantage in the production of toasters.
2. Refer to Table 3-6. Maya should specialize in the production of
a. neither good and Miguel should specialize in the production of both goods.
b. toasters and Miguel should specialize in the production of mixers.
c. both goods and Miguel should specialize in the production of neither good.
d. mixers and Miguel should specialize in the production of toasters.
3. Refer to Table 3-6. At which of the following prices would both Maya and Miguel gain from trade with each
other?
a. 12 mixers for 18 toasters
b. 4 mixers for 7 toasters
c. 8 mixers for 10 toasters
d. Maya and Miguel could not both gain from trade with each other at any price.

Figure 4-16
price
20

18 S
16

14

12

10

2 D

10 20 30 40 50 60 70 80 90 quantity

4. Refer to Figure 4-16. If there is currently a shortage of 20 units of the good, then the law of
 a. supply and demand predicts that the price will fall by $2 to eliminate the shortage.
b. supply and demand predicts that the price will rise by $2 to eliminate the shortage.
c. demand predicts that the price will rise by $2 to eliminate the shortage.
d. supply predicts that the price will rise by $2 to eliminate the shortage.
5. Which of the following events would cause the price of oranges to fall?
a. There is a shortage of oranges.
b. The price of land throughout Florida decreases, and Florida produces a significant
proportion of the nation’s oranges.
c. The FDA announces that bananas cause strokes, and oranges and bananas are substitutes.
d. All of the above are correct.
6. What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become
more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film
falls, and more firms decide to manufacture traditional film?
a. Quantity will rise, and the effect on price is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Price will fall, and the effect on quantity is ambiguous.
7. Last year, Carolyn bought 6 pairs of earrings when her income was $40,000. This year, her income is $52,000, and
she purchased 7 pairs of earrings. Holding other factors constant, it follows that Carolyn’s income elasticity of
demand is about
a. 1.7, and Carolyn regards earrings as an inferior good.
b. 0.59, and Carolyn regards earrings as an inferior good.
c. 0.59, and Carolyn regards earrings as a normal good.
d. 1.7, and Carolyn regards earrings as a normal good.
8. Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound.
She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound.
Sandra’s cross-price elasticity of demand for coffee and milk is
a. -1.22, and they are complements.
b. 1.22, and they are substitutes.
c. 0.82, and they are substitutes.
d. -0.82, and they are complements.
9. If soybean farmers know that the demand for soybeans is price inelastic, in order to increase their total revenues
they should
a. use more fertilizers and weed killers to increase their yields.
b. plant additional acres to increase their output.
c. reduce the number of acres they plant to decrease their output.
d. Both a and b are correct.
10. The federal government is concerned about obesity in the United States. Congress is considering two plans. One
will ban the production and sale of “junk food.” The other will increase nutrition-education programs and include
substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program
a. and the education program will reduce the quantity of junk food sold and raise the price.
b. and the education program will reduce the quantity of junk food sold and lower the price.
c. will reduce the quantity of junk food sold and raise the price. The education program will
reduce the quantity of junk food sold and lower the price.
d. will reduce the quantity of junk food sold and lower the price. The education program
will reduce the quantity of junk food sold and raise the price.
 Figure 6-23
price
20
S
18

16

14

12

10

8
D
6

2
D after tax

10 20 30 40 50 60 70 80 90 100 110 120 130 quantity

11. Refer to Figure 6-23. The per-unit burden of the tax is

a. $10 for buyers and $0 for sellers.
b. $4 for buyers and $6 for sellers.
c. $6 for buyers and $4 for sellers.
d. $5 for buyers and $5 for sellers.
12. Refer to Figure 6-23. How much tax revenue does this tax produce for the government?
a. $800
b. $1120
c. $480
d. $600
13. Buyers of a good bear the larger share of the tax burden when the
(i) supply is more elastic than the demand for the product.
(ii) demand in more elastic than the supply for the product.
(iii) tax is placed on the sellers of the product.
(iv) tax is placed on the buyers of the product.

a. (i) and (iii) only

b. (i) only
c. (i) and (iv) only
d. (ii) only
14. The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and the supply
of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound
is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on
a. sellers of salt and the sellers of caviar.
b. sellers of salt and the buyers of caviar.
c. buyers of salt and the buyers of caviar.
d. buyers of salt and the sellers of caviar.

Figure 7-18
 Price
Supply
28

26

24

22

20

18

16

14

12

10

6 Demand
4

10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 Quantity

15. Refer to Figure 7-18. At the equilibrium price, consumer surplus is

a. $1,280.
b. $1,120.
c. $640.
d. $480.
16. Refer to Figure 7-18. At the equilibrium price, total surplus is
a. $640.
b. $1,120.
c. $1,280.
d. $480.

Figure 8-2
The vertical distance between points A and B represents a tax in the market.
 Price

12

11

10 Supply
A
9

4
B
3

1
Demand
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Quantity

17. Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is
a. $2.50.
b. $7.50.
c. $5.
d. $10.
18. Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
a. $4.
b. $2.
c. $3.
d. $1.
19. The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of
the tax (measured on the horizontal axis) looks like
a. a horizontal straight line.
b. an upward-sloping curve.
c. a U.
d. an upside-down U.

Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that
tax.
 9 Tax Revenue
8
7
6
5 A B
4
3
2
1

Tax Size

20. Refer to Figure 8-19. If the economy is at point A on the curve, then a decrease in the tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
21. Refer to Figure 8-19. If the economy is at point B on the curve, then an increase in the tax rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
22. Suppose Ashley needs a dog sitter so that she can travel to her sister’s wedding. Ashley values dog sitting for the
weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $175. Ashley and Cami
agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight
loss of the tax?
a. the lost benefit to Ashley and Cami because after the tax, Cami will not dog sit for Ashley
b. the $30 tax
c. the maximum value that Ashley would pay for dog sitting
d. the lost benefit to Ashley of being unable to hire a dog sitter because Ashley is the one
who would pay the tax
23. Suppose Ashley needs a dog sitter so that she can travel to her sister’s wedding. Ashley values dog sitting for the
weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $150. Ashley and Cami
agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Ashley
and Cami worse off by a total of
a. $10.
b. $50.
c. $40.
d. $20.

Figure 9-3. The domestic country is China.

24. Refer to Figure 9-3. If China were to abandon a no-trade policy in favor of a free-trade policy,
a. Chinese consumers of pencil sharpeners would become better off.
b. total surplus in the Chinese economy would increase.
c. Chinese producers of pencil sharpeners would become worse off.
d. All of the above are correct.
25. Refer to Figure 9-3. The increase in total surplus in China when trade is allowed is
a. $600.
b. $400.
c. $750.
d. $500.

Figure 9-16. The figure below illustrates a tariff. On the graph, Q represents quantity and P represents price.

26. Refer to Figure 9-16. The deadweight loss created by the tariff is represented by the area
a. B + D + E + F.
 b. D + E + F.
c. D + F.
d. B.

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.

Figure 10-3

27. Refer to Figure 10-3. At the private market outcome, the equilibrium price will be
a. P2.
b. P0.
c. P1.
d. None of the above is correct.
28. Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of
concerts that should be organized?
a. P1, Q1
b. P2, Q0
c. P2, Q1
d. The optimum quantity is zero concerts as long as residents in surrounding neighborhoods
are adversely affected by noise and congestion.

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.
 P
32

28
Social Cost
24

20
Private Cost
16

12

8
Demand
4

100 200 300 400 500 Q

29. Refer to Figure 10-13. In order to reach the social optimum, the government could
a. impose a tax of $6 per unit on plastics.
b. impose a tax of $2 per unit on plastics.
c. offer a subsidy of $6 per unit on plastics.
d. impose a tax of $8 per unit on plastics.
30. Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to
reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the
river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs
Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each
ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from
each other, we would expect that
a. Firm B will no longer pollute, and Firm A will not reduce its pollution at all.
b. Firm A will increase its pollution and Firm B will reduce its pollution.
c. Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of
pollution into the river.
d. Firm A will no longer pollute, and Firm B will not reduce its pollution at all.
31. Monte owns a dog; the dog’s barking annoys Monte’s neighbor, Teresa. Suppose that the benefit of owning the
dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking. Assuming Monte has the legal
right to keep the dog, a possible private solution to this problem is that
a. Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm.
b. Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm.
c. Monte pays Teresa $350 for her inconvenience.
d. There is no private transaction that would improve this situation.
32. You are the mayor of a town with 20,000 residents. The head of your economic development agency recently
conducted a survey in which the 20,000 residents said that a small public library in the center of town would be
worth $40 to each of them. The cost to build the library is $500,000. Which of the following is the most efficient
option?
 a. The library should be built and paid for with donations collected from residents, as these
donations should more than cover the cost of the library.
b. The library should be built and paid for by the wealthiest ten percent of the residents.
c. The library should be built and paid for by the town government and paid for with a tax on
the residents because all residents would benefit from it but some residents would not
donate if they were asked.
d. The library should not be built.

Table 11-4

There are four homes along Belmont Circle, which surrounds a small plot of land. The land currently has no trees,
and the 4 homeowners -- Adams, Benitez, Chen, and Davis -- are considering the idea of contributing to a pool of
money that will be used to plant up to 4 trees. The table represents their willingness to pay, that is, the maximum
amount that each homeowner is willing to contribute toward each tree.

Adams Benitez Chen Davis

First tree $100 $115 $120 $90
Second tree 50 110 110 50
Third tree 20 100 80 30
Fourth tree 10 50 40 0

33. Refer to Table 11-4. Suppose the cost to plant each tree is $300. How many trees should be planted to
maximize the total surplus of the four homeowners?
a. 1
b. 4
c. 2
d. 3
34. A regional lobster management board recently proposed a five-year moratorium on lobster fishing in the Atlantic
waters south of Cape Cod based on a study of the lobster population. Which of the following statements is not
correct?
a. If left unregulated, the lobster population will likely increase.
b. Reducing the quota on the number of lobsters any fisher can catch would have a protective
effect on the lobster population.
c. The lobster population is an example of the tragedy of the commons.
d. Lobsters are rival but not excludable.

Scenario 13-12
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of
wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120,
and seeds are his only cost.

35. Refer to Scenario 13-12. Farmer Brown’s production function exhibits

a. constant marginal product.
b. diminishing marginal product.
c. increasing marginal product.
d. The production function is unrelated to the marginal product.
36. Refer to Scenario 13-12. Farmer Brown’s total-cost curve is
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
 c. increasing at a constant rate.
d. decreasing.

Table 13-14
Listed in the table are the long-run total costs for three different firms.

Quantity 1 2 3 4 5
Firm A 100 100 100 100 100
Firm B 100 200 300 400 500
Firm C 100 300 600 1,000 1,500

37. Refer to Table 13-14. Which firm is experiencing constant returns to scale?
a. Firm A only
b. Firm C only
c. Firm B only
d. Firm A and Firm B only
38. Which of the following statements regarding a competitive firm is correct?
a. Because demand is downward sloping, if a firm increases its level of output, the firm will
have to charge a lower price to sell the additional output.
b. If a firm raises its price, the firm may be able to increase its total revenue even though it
will sell fewer units.
c. For all firms, average revenue equals the price of the good.
d. By lowering its price below the market price, the firm will benefit from selling more units
at the lower price than it could have sold by charging the market price.
39. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue,
then
a. average revenue exceeds marginal cost.
b. decreasing output would increase the firm's profit.
c. the firm is earning a positive profit.
d. All of the above are correct.

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity Total Revenue Total Cost
0 $0 $10
1 $9 $14
2 $18 $19
3 $27 $25
4 $36 $32
5 $45 $40
6 $54 $49
7 $63 $59
8 $72 $70
9 $81 $82

40. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is
equal to
a. $5.
 b. $9.
c. $7.
d. $10.
41. Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-
maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith
should
a. continue to operate in both the short run and long run.
b. continue to operate in the short run but shut down in the long run.
c. shut down in both the short run and long run.
d. shut down her business in the short run but continue to operate in the long run.
42. Which of these curves is the competitive firm's short-run supply curve?
a. the average variable cost curve above marginal cost
b. the average fixed cost curve
c. the average total cost curve above marginal cost
d. the marginal cost curve above average variable cost
43. Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level
of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00.
Which of the following statements about Mrs. Smith’s firm is correct?
a. Mrs. Smith is earning a profit since the price is above the average variable cost.
b. Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should
stay in business or shut down.
c. Mrs. Smith is earning a loss and should shut down in the short run.
d. Mrs. Smith is earning a loss but should continue to operate in the short run.

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
Price
MC ATC

AVC
P7

P6
P5
P4

P3
P2
P1

Q1 Q2 Q3 Q4 Q5 Quantity

44. Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by
the area
a. P7  Q5.
 b. (P7 - P5)  Q3.
c. P7  Q3.
d. We are unable to determine the firm’s profits because the quantity that the firm would
produce is not labeled on the graph.
45. You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it
is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could
leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value
on reading a book.
a. You should go home and read a book.
b. You should leave the theater since the net benefit from seeing the remainder of the show is
-$20, while going home will earn you at least $8 of satisfaction.
c. You should stay and watch the remainder of the show.
d. You should go home and watch TV.
46. Which of the following represents the firm's long-run condition for exiting a market?
a. exit if P < ATC
b. exit if MR < MC
c. exit if P < MC
d. exit if P < FC
47. Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing
losses. All else equal, in the long run, we would expect the number of firms in the industry to
a. decrease.
b. remain the same.
c. increase.
d. We do not have enough information with which to answer this question.
48. Which of the following statements is true?
(i) When a competitive firm sells an additional unit of output, its revenue increases by
an amount less than the price.
(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an
amount less than the price.
(iii) Average revenue is the same as price for both competitive and monopoly firms.

a. (i) and (ii) only

b. (ii) only
c. (ii) and (iii) only
d. (iii) only

Figure 15-4
 Price
Curve C
Curve D

P5

P4
P3

P2

P1

P0

Curve B Curve A

Q1 Q2 Q3 Q4 Quantity

49. Refer to Figure 15-4. A profit-maximizing monopoly will produce an output level of
a. Q2.
b. Q1.
c. Q3.
d. Q4.
50. Refer to Figure 15-4. A profit-maximizing monopoly will charge a price of
a. P5.
b. P3.
c. P2.
d. P4.
51. Refer to Figure 15-4. A profit-maximizing monopoly's profit is equal to
a. P4 x Q3.
b. (P4-P2) x Q3.
c. (P5-P0) x Q1.
d. (P4-P1) x Q3.
52. Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per
unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this
monopolist?
a. The monopolist is currently maximizing profits, and its total profits are $300.
b. The monopolist is currently maximizing profits, and its total profits are $375.
c. The monopolist is not currently maximizing profits; it should produce more units and
charge a lower price to maximize profits.
d. The monopolist is not currently maximizing profits; it should produce fewer units and
charge a higher price to maximize profits.

Figure 15-8
 Price

M arginal Cost
20

15

10

Demand
100 150 200 Quantity
M arginal Revenue

53. Refer to Figure 15-8. To maximize total surplus, a benevolent social planner would choose which of the following
outcomes?
a. 100 units of output and a price of $10 per unit
b. 150 units of output and a price of $15 per unit
c. 150 units of output and a price of $10 per unit
d. 200 units of output and a price of $10 per unit
54. Refer to Figure 15-8. The deadweight loss caused by a profit-maximizing monopoly amounts to
a. $150.
b. $250.
c. $200.
d. $500.

Figure 15-16
Price
50

45

40

35

30

25
22.5
20

15

10 M C=ATC
5 MR Demand

50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 Quantity

55. Refer to Figure 15-16. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts
to
a. $0.
b. $6,250.
c. $1,562.50.
d. $3,125.
56. Refer to Figure 15-16. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
a. $3,125.
 b. $1,562.50.
c. $0.
d. $6,250.
57. When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly
a. will experience a price below average total cost.
b. may rely on a government subsidy to remain in business.
c. will experience a loss.
d. All of the above are correct.

Table 17-23
Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus
increase their profits, if they reduced their advertising budgets. But in order for the plan to work, each firm must
agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the
firm’s product, but each firm also believes that if neither firm advertises, the costs savings will outweigh the lost
sales. Listed in the table below are the individual profits for each firm.

Firm A
Breaks the agreement Maintains the agreement and
and advertises does not advertise
Breaks the agreement Firm A profit = $9,000 Firm A profit = $8,000
and advertises Firm B profit = $4,000 Firm B profit = $6,000
Firm B
Maintains the agreement Firm A profit = $11,000 Firm A profit = $10,000
and does not advertise Firm B profit = $3,500 Firm B profit = $5,000

58. Refer to Table 17-23. Suppose that the two firms, A and B, make an agreement to withhold any advertising for
one month in order to lower each firm’s costs and raise each firm’s profits. If the firms reach the Nash
equilibrium,
a. firm B will choose not to advertise, but firm A will break the agreement and choose to
advertise.
b. both firms will choose not to advertise.
c. both firms will break the agreement and choose to advertise.
d. firm A will choose not to advertise, but firm B will break the agreement and choose to
advertise.
59. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student
in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements
is correct?
a. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
b. The equilibrium quantity of MBAs will be less than the socially optimal quantity of
MBAs.
c. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of
MBAs.
d. There is not enough information to answer the question.
60. The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B
confer positive externalities on Firm A. If the two firms merged, then
a. total surplus in their respective markets would decrease.
b. their respective markets would move closer to the social optimum.
c. the merger would serve as an example of a misguided public policy toward externalities.
d. their respective markets would move further away from the social optimum.
 Table 13-4
Charles’s Math Tutoring
Number of Output (number
Workers of students tutored
per week)
0 0
1 20
2 45
3 60
4 70

61. Refer to Table 13-4. What is the marginal product of the second worker?
a. 22.5 students
b. 25 students
c. 20 students
d. 15 students
62. Refer to Table 13-4. Suppose that Charles’s math tutoring company has a fixed cost of $50 per month for his cell
phone. Each worker costs Charles $60 per day. As output increases from 45 to 70 students, Charles’s total cost
curve
a. increases but gets flatter.
b. decreases and gets flatter.
c. decreases but gets steeper.
d. increases and gets steeper.

Table 13-12
Betty’s Bakery
Quantity Average Average Average
of Fixed Variable Total Fixed Variable Total Marginal
cakes Cost Cost Cost Cost Cost Cost Cost
1 $13 $38
2 $28
3 $70
4 $64
5 $110
6 $108
7 $133
8 $185

63. Refer to Table 13-12. What is the average variable cost of producing 6 cakes at Betty’s Bakery?
a. $17
b. $18
c. $19
d. $16
64. Refer to Table 13-12. What is the marginal cost of the 2nd cake at Betty’s Bakery?
a. $14
b. $28
c. $34
d. $15
65. Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the
loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental
is $50. In the off season, Bill should
a. operate his business as long as he rents at least 1 boat per month.
b. operate his business as long as he rents all 10 boats each month.
c. operate his business as long as he rents at least 7 boats per month.
d. raise the price he charges per boat rental.
66. One problem with regulating a monopolist on the basis of cost is that
a. a monopolist's costs, by definition, are higher than costs of perfectly competitive firms.
b. a monopolist is still able to generate excessive economic profits.
c. it does not provide an incentive for the monopolist to reduce its cost.
d. by focusing on costs, the regulators ignore profits.

Figure 16-8
The figure is drawn for a monopolistically-competitive firm.

Price

MC

140 ATC
123.33

90 Demand

56.67
MR

100 133.33 Quantity

67. Refer to Figure 16-8. As the figure is drawn, the firm is in

a. a short-run equilibrium as well as a long-run equilibrium.
b. a long-run equilibrium but it is not in a short-run equilibrium.
c. neither a short-run equilibrium nor a long-run equilibrium.
d. a short-run equilibrium but it is not in a long-run equilibrium.
68. In Lee Benham’s 1972 article examining the impact of advertising on the average price paid for a pair of
eyeglasses, Benham found that
a. there was no difference in the average price paid between states that restricted advertising
and those that did not.
b. the average price paid for eyeglasses was nearly 20% higher in the states that did not
restrict advertising.
c. the average price paid for eyeglasses was nearly 20% lower in the states that did not
restrict advertising.
 d. the average price paid for eyeglasses was almost 5 times higher in the states that did not
restrict advertising.
69. Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers
with
a. a good example of wasted resources.
b. information about the availability of the product.
c. a signal of product quality.
d. information about product price.
70. Economists defend brand names as useful to consumers because brand names
a. give firms a financial incentive to maintain the high quality associated with their brand
name.
b. provide consumers with information about quality when quality cannot easily be judged in
advance of purchase.
c. convince consumers to spend more for products nearly identical to generic versions.
d. Both a and b are correct.
Name: _____________________________________________________
Answer Section

MULTIPLE CHOICE

1. A
2. D
3. B
4. B
5. B
6. D
7. C
8. D
9. C
10. C
11. B
12. D
13. B
14. D
15. D
16. B
17. A
18. C
19. B
20. D
21. B
22. A
23. A
24. B
25. D
26. C
27. C
28. B
29. D
30. A
31. B
32. C
33. C
34. A
35. B
36. A
37. C
38. C
39. B
40. B
41. C
42. D
43. D
44. B
45. C
46. A
47. A
48. C
49. C
50. D
51. D
52. D
53. B
54. B
55. C
56. C
57. D
58. C
59. C
60. B
61. B
62. D
63. B
64. D
65. A
66. C
67. A
68. C
69. C
70. D