Economics of Managerial Decisions Roger Blair Mark RushTest Bank.pdf (12)

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Test Bank

Resource:

Economics of Managerial Decisions

Edition:

1st Edition

Author(s):

Roger Blair Mark Rush

Exam Name___________________________________ SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

1) T here are no questions in this section.

1) _____________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

2) T he simplest form of a business organization is a ________.

A) c orporation B) p roprietorship C) l imited liability company D) p artnership

2) _______

3) W hich of the following is an example of a proprietorship?

A) C oca-Cola B) t he United States Post Office C) a taxi driver D) t he American Cancer Society

3) _______

4) W hich of the following is an example of a proprietorship?

A) H unter Construction, LLC B) t he United States Post Office C) t he owner of a local nail salon D) t he American Cancer Society

4) _______

5) W hich of the following is an example of a proprietorship?

A) F edEx B) a freelance photographer C) t he American Heart Association D) L uxe Windows, LLC

5) _______

6) A ll of the following are true for a proprietorship except which one?

A) P rofits are taxed only once.

B) T he government requires that it is registered.

C) I t exists only for the life of the owner.

D) I t is easy to organize.

6) _______

7) A ll of the following are true for a partnership except which one?

A) T he government requires that it is registered.

B) P rofits are taxed only once.

C) T he owners have limited liability.

D) I t is owned by two or more people.

7) _______

8) A ll of the following are true for a partnership except which one?

A) T he owners have unlimited liability.

B) I t is owned by two or more people.

C) T he government requires that it is registered.

D) P rofits are taxed twice.

8) _______

9) A ll of the following are true for a limited liability company except which one?

A) I t exists for the lifetime of the owner.

B) T he government requires that it is registered.

C) P rofits are taxed only once.

D) T he owners have limited liability.

9) _______

10) A ll of the following are true for a corporation except which one?

A) P rofits are taxed only once.

B) I t has legal requirements in addition to registration.

C) T he owners have limited liability.

D) I t has perpetual life.

10) ______

11) W hich of the following is an example of a limited liability company?

A) C ooper and Cooper, LLC B) a taxi driver C) t he owner of a local dry cleaner D) t he United States Post Office

11) ______

12) A small law firm that is NOT registered as a limited liability company is likely to be a ________ or a ________.

A) c orporation; LLC B) p roprietorship; corporation C) p roprietorship; partnership D) p artnership; corporation

12) ______

13) W hich type of firm is subject to double-taxation?

A) p roprietorship C) p artnership

13) ______

14) A ________ profits are taxed twice.

A) c orporation C) l imited liability company

B) l imited liability company D) c orporation 14) ______ B) p roprietorship D) p artnership

15) W hich of the following is an example of a corporation?

A) a taxi driver B) C ooper and Cooper, LLC C) t he United States Post Office D) C oca-Cola

15) ______

16) O wners of a ________ and a ________ both have limited liability.

A) p roprietorship; partnership B) c orporation; proprietorship C) p artnership; limited liability company D) l imited liability company; corporation

16) ______

17) T he government requires that each of the following types of firms register the firm except which one?

A) l imited liability company B) p artnership C) p roprietorship D) c orporation

17) ______

18) I n a ________, employees are motivated to become an owner.

A) p roprietorship B) c orporation C) l imited liability company D) p artnership

18) ______

19) A ________ is typically run on a day-to-day basis by professional managers.

A) p artnership B) c orporation C) p roprietorship D) l imited liability company

19) ______

20) A ________ is typically overseen by a board of directors.

A) p roprietorship B) c orporation C) p artnership D) l imited liability company

20) ______

21) A ________ only exists for the life of the owner, while a ________ has perpetual life.

A) c orporation; proprietorship B) p roprietorship; corporation C) p roprietorship; limited liability company D) p artnership; limited liability company

21) ______

22) I f you want to establish and run your own business, but are very concerned about your liability should anything go wrong, which of the following would be the best kind of firm for you?

A) l imited liability company B) c orporation C) p artnership D) p roprietorship

22) ______

23) I n a corporation, board members ________.

23) ______

A) o versee the actions of managers B) o nly have their firm's profits taxed once C) t ypically run the corporation on a day-to-day basis D) f ace unlimited liability 24) W hich type of firm pays dividends?

A) l imited liability company C) p artnership

24) ______ B) c orporation D) p roprietorship

25) W hich type of firm is legally required to setup a double-entry booking system to record its business transactions?

A) p artnership B) p roprietorship C) l imited liability company D) c orporation

25) ______

26) W hich type of firm is legally required file an annual report to their state government?

A) l imited liability company B) c orporation C) p roprietorship D) p artnership

26) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

27) R egardless of their organizational structure, all firms convert inputs into outputs that can sell or distribute.

27) ______

28) N on-profit firms are the only type of firm that does not convert inputs into outputs that can be sold or distributed.

28) ______

29) A partnership can be owned by just one person.

29) ______

30) T he dividend a corporation pays per share is determined by the corporation's board of directors.

30) ______

31) I f a corporation fails, the shareholders are responsible for repaying all of the debt.

31) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

32) T otal revenue is equal to A) p rice x quantity C) p rice x cost

32) ______ B) q uantity x profit D) p rice x profit

33) I f Big Brothers Hot Dog stand sold 500 hot dogs at a price $2 per hot dog, the total revenue is A) $ 500 B) $ 2 C) $ 1,000 D) $ 5,000

33) ______

34) A ll of the following can affect a firm's total revenue except which one?

A) r eturns B) d iscounts C) a ccounting costs D) a llowances

34) ______

35) A ll of the following can affect a firm's total revenue except which one?

A) r eturns B) r ebates C) d iscounts D) o pportunity costs

35) ______

36) W hich of the following can affect a firm's total revenue?

A) o pportunity costs B) i mplicit costs C) a llowances D) e xplicit costs

36) ______

37) W eed Masters provides an annual lawn care service to its customers. Weed Masters has 400 customers and charges $1,000 per annual lawn service. The company offers an 8 percent

disct if ouncustom

___ ___

ers pay 37) in full at the start of the season.

If every customer pays in full at the start of the season, Weed Masters' total revenue is ________ .

A) $ 368,000

B) $ 375,000

C) $ 400,000

D) $ 323,000

38) W eed Masters provides an annual lawn care service to its customers. Weed Masters has 350 customers and charges $750 per annual lawn service. The company offers a 4 percent discount if customers pay in full at the start of the season. If every customer pays in full at the start of the season, Weed Masters' total revenue is ________.

A) $ 262,500 B) $ 10,500 C) $ 252,000 D) $ 15,500

38) ______

39) W eed Masters provides an annual lawn care service to its customers. Weed Masters has 225 customers and charges $800 per annual lawn service. The company offers a 5 percent discount if customers pay in full at the start of the season. If every customer pays in full at the start of the season, Weed Masters' total revenue is ________.

A) $ 12,000 B) $ 180,000 C) $ 9,000 D) $ 171,000

39) ______

40) _ _______ is an example of an implicit cost.

A) T he cost to transport a firm's goods C) A firm's electric bill

40) ______ B) A salary paid to an employee D) T he wear and tear on a firm's machinery

41) A cabinet firm paid $5,000 for 10,000 pieces of cabinet hardware. The firm has used 4,000 pieces of hardware and is holding the remaining 6,000 pieces in inventory. The current market price for the 6,000 pieces of hardware is $2,800. What is the opportunity cost of holding the 6,000 pieces of hardware in inventory?

A) $ 2,800 B) $ 3,000 C) $ 5,000 D) $ 4,000

41) ______

42) A cabinet firm paid $5,000 for 10,000 pieces of cabinet hardware. The firm has used 4,000 pieces of hardware and is holding the remaining 6,000 pieces in inventory. The current market price for the 6,000 pieces of hardware is $2,800. What is the sunk cost of purchasing the cabinet hardware?

A) $ 3,000 B) $ 5,000 C) $ 4,000 D) $ 2,800

42) ______

43) A florist paid $1,200 for 500 glass vases. The florist has used 300 of the glass vases and is holding the remaining 200 vases in inventory. The current market price for the 200 pieces of hardware is $600. What is the opportunity cost of holding the 200 vases in inventory?

43) ______

A) $ 600

B) $ 200

C) $ 1,200

D) $ 300

44) A florist paid $1,200 for 500 glass vases. The florist has used 300 of the glass vases and is holding the remaining 200 vases in inventory. The current market price for the 200 pieces of hardware is $600. What is the sunk cost of purchasing the vases?

A) $ 600 B) $ 1,200 C) $ 200 D) $ 300

44) ______

45) B ig Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years.

After the first year of use, the market value of the dump truck falls to $70,000. What is the straight-line depreciation of the dump truck?

A) $ 12,500 B) $ 87,500 C) $ 70,000 D) $ 30,000

45) ______

46) B ig Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years.

After the first year of use, the market value of the dump truck falls to $70,000. What is the economic depreciation of the dump truck?

A) $ 12,500 B) $ 70,000 C) $ 87,500 D) $ 30,000

46) ______

47) B ig Trucking Company has purchased a $100,000 dump truck that has a useful life of 8 years.

After the first year of use, the market value of the dump truck falls to $70,000. If the highest one-year return available is 10 percent, what is the one-year return from selling the dump truck?

A) $ 60,000 B) $ 7,000 C) $ 70,000 D) $ 10,000

47) ______

48) T o start up a two-person partnership law firm, the partners each invest $125,000 of their own funds. If the partners could have earned 5 percent return on these funds in another endeavor, what is their competitive return?

A) $ 6,250 B) $ 237,500 C) $ 12,500 D) $ 118,750

48) ______

49) S uppose you have recently graduated and have been offered a salary position at a reputable accounting firm of $125,000 (including all benefits) per year. After much consideration, you turn down the offer to start your own accounting firm. You pay yourself $75,000 (including all benefits) a year. Which of the following represents the opportunity cost of your time?

A) $ 125,000 B) $ 100,000 C) $ 75,000 D) $ 50,000

49) ______

50) S uppose you have recently graduated and have been offered a salary position at a reputable accounting firm of $125,000 (including all benefits) per year. After much consideration, you turn down the offer to start your own accounting firm. You pay yourself $75,000 (including all benefits) a year. Which of the following represents the explicit opportunity cost of your time?

A) $ 100,000 B) $ 125,000 C) $ 50,000 D) $ 75,000

50) ______

51) S uppose you have recently graduated and have been offered a salary position at a reputable accounting firm of $125,000 (including all benefits) per year. After much consideration, you turn down the offer to start your own accounting firm. You pay yourself $75,000 (including all benefits) a year. Which of the following represents the implicit opportunity cost of your time?

A) $ 50,000 B) $ 100,000 C) $ 75,000 D) $ 125,000

51) ______

Profit Using Accounting Costs Total Revenue Cost Nail technicians Owner's Salary Depreciation

Profit Using Opportunity Costs $700,000 Total Revenue Cost A Nail technicians B Owner's Time D Cost of using building and equipment

$700,000 A C $25,000

Allowance

(opportunity cost)

Total Cost Total Profit

Total Cost E

F

Total Profit

Happy Nails is a locally owned nail salon that is in its first year of business. The nail salon employs 8 nail technicians that are paid $31,250 each and the owner's is paid $75,000. If the owner did not own Happy Nails, she would work for a competitor for $85,000. At the beginning of the year, the building and the salon equipment are worth $100,000 and at the end of the year, they are worth $85,000. The accountant for Happy Nails uses straight-line depreciation for the 15-year life of the building and salon equipment. The table above provides some additional information on revenue and the opportunity cost of using the building and equipment.

52) R efer to the table above. What is the value of A? A) $ 62,500 B) $ 312,500 53) R efer to the table above. What is the value of B? A) $ 85,000 B) $ 100,000 54) R efer to the table above. What is the value of C? A) $ 31,250 B) $ 85,000 55) R efer to the table above. What is the value of D? A) $ 5,666.67 B) $ 4,250

52) ______ C) $ 31,250

D) $ 250,000 53) ______

C) $ 75,000

D) $ 31,250 54) ______

C) $ 100,000

D) $ 75,000 55) ______

C) $ 5,000

D) $ 6,666.67

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) R efer to the table above. The value of E is greater than the value of F.

56) ______

57) C ompetition from profit-maximizing firms will drive firms that are not maximizing profits out of business.

57) ______

58) B oth accounting cost and opportunity costs include explicit and implicit costs.

58) ______

59) E ffective profit-maximizing managers work hard to minimize sunk costs.

59) ______

60) M anagers should use straight-line depreciation when making decisions.

60) ______

61) O pportunity cost is a better measure of the true costs faced by firms than accounting costs.

61) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

62) I f the marginal ________ of an action exceeds its marginal ________ then the action ________ be 62) ______ performed.

A) b enefit; cost; should B) b enefit; cost; should not C) c ost; benefit; should D) n one of the above 63) A t the 30th unit of action, the marginal benefit is equal to $50 and the marginal cost is equal to $40. Which of the following is true?

A) T he 30th unit of action minimizes total costs.

B) T he 30th unit of action should not be undertaken.

C) T he 30th unit of action maximizes total gains (total profits).

D) T he 30th unit of action should be undertaken.

63) ______

64) A t the 50th unit of action, the marginal benefit is equal to $20 and the marginal cost is equal to

$25. W hich

of the 64) followin g is true?

A) T he 50th unit of action minimizes total costs.

B) T he 50th unit of action should be undertaken.

C) T he 50th unit of action maximizes total gains (total profits).

D) T he 50th unit of action should not be undertaken.

___ ___

65) T o maximize total profit, managers want to produce the quantity in which marginal benefit ________ marginal cost.

A) i s equal to B) m aximizes C) m inimizes D) e xceeds

65) ______

66) T o maximize total profit, managers want to produce the quantity in which marginal cost ________ marginal benefit.

A) m aximizes B) i s equal to C) e xceeds D) m inimizes

66) ______

67) I f the marginal benefit curve is linear and downward sloping and the marginal cost curve is linear and upward sloping, an increase in the marginal cost that causes an upward shift of the curve will ________ the profit-maximizing number of units undertaken.

A) n ot change B) d ecrease C) e xactly double D) i ncrease

67) ______

68) I f the marginal benefit curve is linear and downward sloping and the marginal cost curve is linear and upward sloping, a decrease in the marginal cost that causes a downward shift of the curve will ________ the profit-maximizing number of units undertaken.

A) d ecrease B) n ot change C) i ncrease D) r educe by exactly half

68) ______

69) R efer to the figure above. At the 10th unit of action, which of the following is true?

A) M arginal cost exceeds marginal benefit.

B) T otal gains are maximized.

C) M arginal benefit exceeds marginal cost.

D) T otal losses are minimized.

69) ______

70) R efer to the figure above. At the 20th unit of action, which of the following is true?

A) T otal losses are minimized.

B) M arginal benefit exceeds marginal cost.

C) M arginal cost exceeds marginal benefit.

D) T otal gains are maximized.

70) ______

71) R efer to the figure above. At the 40th unit of action, which of the following is true?

A) M arginal benefit exceeds marginal cost.

B) M arginal cost exceeds marginal benefit.

C) T otal gains are maximized.

D) T otal losses are minimized.

71) ______

72) R efer to the figure above. At the 50th unit of action, which of the following is true?

A) M arginal cost exceeds marginal benefit.

B) M arginal benefit exceeds marginal cost.

C) T otal gains are maximized.

D) T otal losses are minimized.

72) ______

73) R efer to the figure above. Undertaking the 10th unit of action, yields a surplus of benefit of ________.

A) $ 20 B) $ 60 C) $ 80 D) $ 40

73) ______

74) R efer to the figure above. Undertaking the 20th unit of action, yields a surplus of benefit of ________.

A) $ 50 B) $ 60 C) $ 20 D) $ 30

74) ______

75) R efer to the figure above. Which unit of action maximizes total gains (total profits)?

A) 4 0 B) 2 0 C) 1 0 D) 3 0

75) ______

76) R efer to the figure above. Undertaking the 30th unit of action, yields a surplus of benefit of ________.

A) $ 30 B) $ 20 C) $ 10 D) $ 0

76) ______

77) R efer to the figure above. An increase in the marginal cost that causes an upward shift of the curve will cause the profit-maximizing number of units undertaken to ________.

A) d ecrease B) e qual 40 C) e qual 50 D) i ncrease

77) ______

78) R efer to the figure above. At the 20th unit of action, which of the following is true?

A) T otal gains are maximized.

B) M arginal benefit exceeds marginal cost.

C) M arginal cost exceeds marginal benefit.

D) T otal losses are minimized.

78) ______

79) R efer to the figure above. At the 30th unit of action, which of the following is true?

A) M arginal benefit exceeds marginal cost.

B) T otal gains are maximized.

C) T otal losses are minimized.

D) M arginal cost exceeds marginal benefit.

79) ______

80) R efer to the figure above. At the 50th unit of action, which of the following is true?

A) T otal gains are maximized.

B) T otal losses are minimized.

C) M arginal cost exceeds marginal benefit.

D) M arginal benefit exceeds marginal cost.

80) ______

81) R efer to the figure above. At the 70th unit of action, which of the following is true?

A) T otal losses are minimized.

B) T otal gains are maximized.

C) M arginal benefit exceeds marginal cost.

D) M arginal cost exceeds marginal benefit.

81) ______

82) R efer to the figure above. Undertaking the 20th unit of action, yields a surplus of benefit of ________.

A) $ 40 B) $ 80 C) $ 20 D) $ 60

82) ______

83) R efer to the figure above. Undertaking the 30th unit of action, yields a surplus of benefit of ________.

A) $ 70 B) $ 20 C) $ 50 D) $ 30

83) ______

84) R efer to the figure above. Which unit of action maximizes total gains (total profits)?

A) 4 0 B) 3 0 C) 5 0 D) 2 0

84) ______

85) R efer to the figure above. Undertaking the 40th unit of action, yields a surplus of benefit of ________.

A) $ 0 B) $ 30 C) $ 20 D) $ 10

85) ______

86) R efer to the figure above. An increase in the marginal cost that causes an upward shift of the curve will cause the profit-maximizing number of units undertaken to ________.

A) d ecrease B) e qual 50 C) i ncrease D) e qual 40

86) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

87) M arginal analysis is the comparison of the total benefit of an action compared to its total cost.

87) ______

88) A ll actions in which the marginal benefit exceeds the marginal cost should be undertaken.

88) ______

89) A ll actions in which the marginal cost exceeds the marginal benefit should be undertaken.

89) ______

90) T otal profit is maximized when marginal benefit equals marginal cost.

90) ______

91) T otal profit is maximized as long as marginal benefit exceeds marginal cost.

91) ______

1) 2) B 3) C 4) C 5) B 6) B 7) C 8) D 9) A 10) A 11) A 12) C 13) D 14) A 15) D 16) D 17) C 18) D 19) B 20) B 21) B 22) A 23) A 24) B 25) D 26) B 27) T RUE 28) F ALSE 29) F ALSE 30) T RUE 31) F ALSE 32) A 33) C 34) C 35) D 36) C 37) A 38) C 39) D 40) D 41) A 42) B 43) A 44) B 45) A 46) D 47) B 48) C 49) A 50) D 51) A

52) D 53) C 54) B 55) D 56) T RUE 57) T RUE 58) T RUE 59) F ALSE 60) T RUE 61) T RUE 62) A 63) D 64) D 65) A 66) B 67) B 68) C 69) C 70) B 71) B 72) A 73) D 74) C 75) D 76) D 77) A 78) B 79) A 80) C 81) D 82) A 83) B 84) A 85) A 86) A 87) F ALSE 88) T RUE 89) F ALSE 90) T RUE 91) F ALSE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) I f the price of ground beef decreases, which of the following will occur?

A) C onsumers will experience a decrease in their purchasing power.

B) T he substitution effect will cause some consumers to switch to other types of meat.

C) T he demand curve for ground beef will shift to the left.

D) T here will be a movement down the demand curve for ground beef.

1) _______

2) I f the price of peanut butter increases, which of the following will occur?

A) C onsumers will experience an increase in their purchasing power.

B) T he demand curve for peanut butter will shift to the right.

C) T he demand curve for peanut butter will shift to the left.

D) T here will be a movement up the demand curve for peanut butter.

2) _______

3) W hich of the following will cause a movement along the demand curve for apple juice?

A) a n expected change in the future price of apple juice B) a n increase in the price of apple juice C) a change in the price of orange juice, a substitute for apple juice D) a decrease in consumer incomes

3) _______

4) W hich of the following will cause a movement down the demand curve for frozen chicken nuggets?

A) a n increase in the price of frozen chicken nuggets B) a decrease in the price of frozen chicken nuggets C) a n increase in consumer incomes D) a decrease in consumer incomes

4) _______

5) W hich of the following will cause a movement up the demand curve for digital printing services?

A) a n increase in consumer incomes B) a decrease in consumer incomes C) a n increase in the price of digital printing services D) a decrease in the price of digital printing services

5) _______

6) T he demand function for Super Big Bright LED light bulbs is Qd = (45 million) - (3.5 million × P).

6) _______

If the company charged a price of $8 per bulb, how many will be demanded?

A) 1 7 million B) 4 1.5 million C) 3 7 million

D) 1 0 million

7) T he demand function for Super Big Bright LED light bulbs is Qd = (45 million) - (3.5 million × P).

7) _______

The company is currently charging a price of $8 per bulb, but is considering increasing the price to $10. How will the increase in price affect the quantity demanded?

A) C onsumers will decrease the quantity demanded by 7 million.

B) C onsumers will decrease the quantity demanded by 10 million.

C) C onsumers will increase the quantity demanded by 7 million.

D) C onsumers will increase the quantity demanded by 10 million.

8) T he demand function for a pack of four Never Die Batteries is Qd = (62 million) - (8 million × P).

8) _______

If the company charged a price of $5 per package, how many packages will be demanded?

A) 8 million B) 2 2 million C) 5 4 million D) 1 02 million 9)

The

__ __ __ _

demand 9) function for a pack of four Never Die Batteries is Qd = (62 million) (8 million × P). The company is currently charging a price of $5 per package, but is consideri ng decreasi ng the price to $4.

How will the decrease in price affect how many packages of batteries consume rs will buy?

A) C onsumers will decrease the quantity demanded by 8 million.

B) C onsumers will increase the quantity demanded by 8 million.

C) C onsumers will increase the quantity demanded by 30 million.

D) C onsumers will decrease the quantity demanded by 30 million.

10) F or any demand function, which of the following represents the dependent variable?

A) t he price of a substitute good B) t he quantity demanded of a good C) c onsumer incomes D) t he price of the good

10) ______

11) F or demand functions, which of the following cannot be an independent variable?

A) c onsumer incomes B) t he price of a substitute good

11) ______

C) t he quantity demanded of a good

D) t he price of the good in question

12) I f an increase in consumers' incomes results in a leftward shift of the demand curve for a good, which of the following is true?

A) T he good has an upward sloping demand curve.

B) T he good is a normal good.

C) T he demand for the good does not follow the Law of Demand.

D) T he good is an inferior good.

12) ______

13) I f Goods X and Y are complements, if the price of Good X decreases, this will cause a movement ________ the demand curve for Good X and a ________ shift in the demand for Good Y. A) d own; rightward B) u p; leftward C) u p; rightward D) d own; leftward

13) ______

14) I f Goods X and Y are substitutes, if the price of Good X decreases, this will cause a movement ________ the demand curve for Good X and a ________ shift in the demand for Good Y. A) d own; leftward B) d own; rightward C) u p; rightward D) u p; leftward

14) ______

15) I f Goods X and Y are substitutes, if the price of Good X increases, this will cause a movement ________ the demand curve for Good X and a ________ shift in the demand for Good Y. A) d own; leftward B) u p; leftward C) d own; rightward D) u p; rightward

15) ______

16) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a decrease in the price of Good Z B) a decrease in the expected future price of Good Z C) a n increase in income if Good Z is an inferior good D) a n increase in the price of a substitute for Good Z

16) ______

17) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a decrease in the price of a substitute for Good Z B) a decrease in income if Good Z is an inferior good C) a decrease in the price of Good Z D) a n increase in the price of a complement for Good Z

17) ______

18) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a n increase in income if Good Z is an inferior good B) a decrease in the price of Good Z C) a decrease in the expected future price of Good Z D) a n effective marketing campaign that changes preferences towards Good Z

18) ______

19) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a decrease in the expected future price of Good Z B) a n increase in the number of demanders for Good Z C) a n increase in the price of Good Z D) a decrease in the price of Good Z

19) ______

20) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a decrease in the number of demanders for Good Z B) a n increase in the price of a complement for Good Z C) a decrease in the price of a substitute for Good Z D) a n increase in the expected future price of Good Z

20) ______

21) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a decrease in the price of a complement for Good Z

21) ______

B) a n increase in the price of a substitute for Good Z C) a decrease in the expected future price of Good Z D) a n increase in the number of demanders for Good Z 22) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a n increase in the price of Good Z B) a decrease in income if Good Z is an inferior good C) a n increase in the expected future price of Good Z D) a decrease in the price of a substitute for Good Z

22) ______

23) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a n increase in the price of Good Z B) a n increase in income if Good Z is an inferior good C) a decrease in the price of a complement for Good Z D) a n increase in the price of a substitute for Good Z

23) ______

24) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a decrease in income if Good Z is an inferior good B) a n increase in the expected future price of Good Z C) a n increase in the price of a complement for Good Z D) a n increase in the price of Good Z

24) ______

25) R efer to the figure above. Which of the following could have caused the shift in the demand curve?

A) a n increase in the price of Good Z B) a decrease in the price of Good Z C) a decrease in the price of a complement for Good Z D) a decrease in income if Good Z is a normal good

25) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) T he Law of Demand states that as consumers' incomes increase, the demand for normal goods increase.

26) ______

27) I f an increase in the price of Good X causes the demand for Good Y to shift rightward, Goods X and Y are complements.

27) ______

28) I f a decrease in the price of Good X causes the demand for Good Y to shift rightward, Goods X and Y are complements.

28) ______

29) A n increase in the number of demanders for a good will cause a downward movement along the demand curve.

29) ______

30) A news report discussing a medical study that found conclusive evidence of the positive health benefits of farm-raised eggs is likely to cause a rightward shift of the demand curve for farm-raised eggs.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) I f the price of avocados increases, which of the following will occur?

A) T he supply curve for avocados will shift to the left.

B) T here will be a movement down the supply curve for avocados.

31) ______

C) T he supply curve for avocados will shift to the right.

D) T here will be a movement up the supply curve for avocados.

32) I f the price of tomato juice decreases, which of the following will occur?

A) T he supply curve for tomato juice will shift to the right.

B) T here will be a movement up the supply curve for tomato juice.

C) T here will be a movement down the supply curve for tomato juice.

D) T he supply curve for tomato juice will shift to the left.

32) ______

33) W hich of the following will cause a movement down the supply curve for frozen chicken nuggets?

A) a decrease in the cost to produce frozen chicken nuggets B) a decrease in the price of frozen chicken nuggets C) a n increase in the number of suppliers of frozen chicken nuggets D) a decrease in the expected future price of frozen chicken nuggets

33) ______

34) T he supply function for a pack of four Never Die Batteries is QS = (0) + (6 million × P). If the

34) ______

company charged a price of $5 per package, how many packages will be supplied?

A) 3 0 million B) 2 2 million C) 0 D) 6 million 35) T he supply function for a pack of four Never Die Batteries is QS = (0) + (6 million × P). If the

35) ______

price of a package of four Never Die Batteries increases by $1, how will this change the quantity supplied?

A) d ecrease by 6 million B) d ecrease by 1 million C) i ncrease by 1 million D) i ncrease by 6 million 36) T he supply function for a half gallon of Happy Cow Milk is QS = (0) + (2 million × P). If the

36) ______

company charged a price of $3.5 per half gallon, how many half gallons will be supplied?

A) 0 B) 3 .5 million C) 7 million D) 2 million 37) T he supply function for a half gallon of Happy Cow Milk is QS = (0) + (2 million × P). If the

37) ______

price of a Happy Cow Milk decreases by $1, how will this change the quantity supplied?

A) i ncrease by 2 million B) d ecrease by 2 million C) i ncrease by 1 million D) d ecrease by 1 million 38) I f Goods X and Y are substitutes in production, if the price of Good X decreases, this will cause a movement ________ the supply curve for Good X and a ________ shift in the supply curve for Good Y. A) d own; rightward B) u p; leftward C) u p; rightward D) d own; leftward

38) ______

39) I f Goods X and Y are substitutes in production, if the price of Good X increases, this will cause a movement ________ the supply curve for Good X and a ________ shift in the supply curve for Good Y. A) d own; rightward B) u p; rightward C) u p; leftward D) d own; leftward

39) ______

40) I f Goods X and Y are substitutes in production, if the price of Good X decreases, this will cause a ________ the supply curve for Good X and a ________ the supply curve for Good Y. A) s hift in; shift in B) m ovement along; shift in C) m ovement along; movement along D) s hift in; movement along

40) ______

41) I f Goods X and Y are substitutes in production, if the price of Good X increases, this will cause a ________ the supply curve for Good X and a ________ the supply curve for Good Y. A) m ovement along; movement along B) s hift in; shift in C) m ovement along; shift in D) s hift in; movement along

41) ______

42) I f Goods R and S are complements in production, if the price of Good R increases, this will cause a(n) ________ the supply curve for Good S. A) u pward movement along B) d ownward movement along C) l eftward shift in D) r ightward shift in

42) ______

43) I f Goods R and S are complements in production, if the price of Good R decreases, this will cause a(n) ________ the supply curve for Good S. A) l eftward shift in B) r ightward shift in C) u pward movement along D) d ownward movement along

43) ______

44) A technological advancement in the production of LED light bulbs will result in ________.

A) a downward movement along the supply curve B) a rightward shift of the supply curve C) a leftward shift of the supply curve D) a n upward movement along the supply curve

44) ______

45) A bad growing season for avocados will result in ________.

A) a leftward shift of the supply curve B) a downward movement along the supply curve C) a rightward shift of the supply curve D) a n upward movement along the supply curve

45) ______

46) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a decrease in the price of Good R B) a n increase in the price of a substitute good in production C) a n increase in the number of sellers of Good R D) a n increase in the cost of producing Good R

46) ______

47) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a bad state of nature for the production of Good R B) a n increase in the price of Good R C) a decrease in the cost of producing Good R D) a n increase in the price of a substitute good in production

47) ______

48) R efer to the figure above. All of the following except which one could have caused the shift in the supply curve?

A) a n increase in the price of Good R B) a n increase in the number of sellers of Good R C) a good state of nature for the production of Good R D) a decrease in the cost of producing Good R

48) ______

49) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a decrease in the price of Good R B) a n increase in the price of a complement good in production C) a n increase in the expected future price of Good R D) a n increase in the price of a substitute good in production

49) ______

50) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a decrease in the price of a substitute good in production B) a decrease in the price of a complement good in production C) a bad state of nature for the production of Good R D) a decrease in the number of sellers of Good R

50) ______

51) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a n increase in the price of Good R B) a n increase in the number of sellers of Good R C) a decrease in the price of a substitute good in production D) a n increase in the cost of producing Good R

51) ______

52) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a n increase in the price of a substitute good in production B) a good state of nature for the production of Good R C) a decrease in the price of Good R D) a decrease in the cost of producing Good R

52) ______

53) R efer to the figure above. All of the following except which one could have caused the shift in the supply curve?

A) a n increase in the price of a complement good in production B) a decrease in the number of sellers of Good R C) a n increase in the cost of producing Good R D) a n increase in the price of a substitute good in production

53) ______

54) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a technological advancement in the production of Good R B) a decrease in the cost of producing Good R

54) ______

C) a decrease in the price of a complement good in production D) a decrease in the expected future price of Good R 55) R efer to the figure above. Which of the following could have caused the shift in the supply curve?

A) a bad state of nature for the production of Good R B) a decrease in the expected future price of Good R C) a technological advancement in the production of Good R D) a n increase in the price of a complement good in production

55) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) A n increase in the price of Good R will cause a movement upward on the supply curve for Good R.

56) ______

57) I f Goods Y and Z are complements in production, the increase in the price of Good Y will shift the supply curve for Good Z to the right.

57) ______

58) O nly a change in the price of almonds will cause a movement along the supply curve of almonds.

58) ______

59) I f Goods R and S are complements in production, if the price of Good R increases, both the supply curve for Good R and Good S will shift.

59) ______

60) I n terms of production, cost and price are the same.

60) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

61) A t the equilibrium price, which of the following is true?

A) T he quantity demanded exceeds the quantity supplied.

B) T he quantity supplied exceeds the quantity demanded.

C) T he quantity demanded equals the quantity supplied.

D) T here is a shortage of the product.

61) ______

62) A t any price higher than the equilibrium price, a ________ in quantity will be created and at any price lower than the equilibrium price, a ________ in quantity will be created.

A) s urplus; surplus B) s hortage; shortage C) s hortage; surplus D) s urplus; shortage

62) ______

63) I f there is a surplus in the market, market forces will drive the quantity supplied to ________ and the quantity demanded to ________.

A) i ncrease; decrease B) i ncrease; increase C) d ecrease; increase D) d ecrease; decrease

63) ______

64) I f there is a shortage in the market, market forces will drive the quantity supplied to ________ and the quantity demanded to ________.

A) d ecrease; increase B) i ncrease; increase C) d ecrease; decrease D) i ncrease; decrease

64) ______

65) I f the equilibrium price for a half gallon of organic milk is $4 and the current price for a half gallon of milk is $5.25, market forces will cause all of the following to occur except which one?

A) t he quantity supplied to increase B) t he quantity supplied to decrease C) t he quantity demanded to increase D) t he price to fall to the equilibrium price

65) ______

66) I f the equilibrium price for a half gallon of organic milk is $4 and the current price for a half

gallon of

___ ___

milk is 66) $3.25, market forces will cause all of the followin g to occur except which one?

A) t he price to rise to the equilibrium price C) t he quantity supplied to increase

B) t he quantity supplied to decrease D) t he quantity demanded to decrease

67) I f the equilibrium price for a half gallon of organic milk is $4 and the current price for a half gallon of milk is $3.25, all of the following are true except which one?

A) M arket forces will cause the current price to increase.

B) T here is a shortage in the market.

C) T he quantity demanded exceeds the quantity supplied.

D) T here is a surplus in the market.

67) ______

68) I f the equilibrium price for a half gallon of organic milk is $4 and the current price for a half gallon of milk is $5.25, all of the following are true except which one?

A) M arket forces will cause the current price to fall.

B) T here is a surplus in the market.

C) T here is a shortage in the market.

D) T he quantity supplied exceeds the quantity demanded.

68) ______

69) R efer to the figure above. At a price of $50, which of the following is true?

A) T he quantity demanded equals the quantity supplied.

B) T he quantity supplied exceeds the quantity demanded.

C) T he quantity demanded exceeds the quantity supplied D) T here is a shortage of the sunglasses.

69) ______

70) R efer to the figure above. At a price of $30, which of the following is true?

A) T here is a surplus of the sunglasses.

B) T he quantity demanded equals the quantity supplied.

C) T he quantity demanded exceeds the quantity supplied.

D) T he quantity supplied exceeds the quantity demanded.

70) ______

71) R efer to the figure above. At a price of $70, which of the following is true?

A) T he quantity supplied exceeds the quantity demanded.

B) T he quantity demanded equals the quantity supplied.

C) T here is a shortage of the sunglasses.

D) T he quantity demanded exceeds the quantity supplied.

71) ______

72) R efer to the figure above. If the price of sunglasses is currently $70, market forces will cause the quantity supplied to ________ and the quantity demanded to ________ until the price is equal to the equilibrium price.

A) d ecrease; decrease B) i ncrease; increase C) i ncrease; decrease D) d ecrease; increase

72) ______

73) R efer to the figure above. If the price of sunglasses is currently $30, market forces will cause the quantity supplied to ________ and the quantity demanded to ________ until the price is equal to the equilibrium price.

A) d ecrease; decrease B) i ncrease; decrease C) d ecrease; increase D) i ncrease; increase

73) ______

74) I f the Qd = (20 million) - (2 million × P) and QS = (0) + (3 million × P), the equilibrium price for

74) ______

the product is ________.

A) $ 5

B) $ 4

C) $ 2

D) $ 3

75) I f the Qd = (50 million) - (4 million × P) and QS = (0) + (1 million × P), the equilibrium price for the product is ________.

A) $ 4

B) $ 10

C) $ 1

D) $ 5

76) I f the Qd = (40 million) - (8 million × P) and QS = (10 million) + (2 million × P), the equilibrium price for the product is ________.

A) $ 8 B) $ 12

C) $ 3

C) $ 10

C) $ 5

B) $ 10

C) $ 3

78) ______

D) $ 2

79) I f the Qd = (18 million) - (3 million × P) and QS = (0) + (3 million × P), the equilibrium price for the product is ________.

A) $ 6

77) ______

D) $ 4

78) I f the Qd = (12 million) - (1 million × P) and QS = (2 million) + (1 million × P), the equilibrium price for the product is ________.

A) $ 1 B) $ 12

76) ______

D) $ 2

77) I f the Qd = (50 million) - (4 million × P) and QS = (2 million) + (4 million × P), the equilibrium price for the product is ________.

B) $ 2 A) $ 6

75) ______

79) ______

D) $ 8

80) F or a particular product the Qd = (20 million) - (2.5 million × P) and QS = (0) + (2.5 million × P).

80) ______

If the current price is $5, which of the following is true?

A) T he current price is equal to the equilibrium price.

B) T he quantity demanded equals the quantity supplied.

C) T here is a shortage of the product in the market.

D) T here is a surplus of the product in the market.

81) F or a particular product the Qd = (45 million) - (3 million × P) and QS = (0) + (2 million × P). If

81) ______

the current price is $7, which of the following is true?

A) T he current price is equal to the equilibrium price.

B) T here is a shortage of the product in the market.

C) T here is a surplus of the product in the market.

D) T he quantity demanded equals the quantity supplied.

82) I f the Qd = (18 million) - (3 million × P) and QS = (0) + (3 million × P), the equilibrium quantity for the product is ________.

A) 9 million

B) 1 8 million

C) 6 million

D) 3 million

83) I f the Qd = (20 million) - (2.5 million × P) and QS = (0) + (2.5 million × P), the equilibrium quantity for the product is ________.

A) 5 million B) 2 0 million

C) 1 0 million

82) ______

D) 2 .5 million

83) ______

84) I f the Qd = (50 million) - (4 million × P) and QS = (2 million) + (4 million × P), the equilibrium quantity for the product is ________.

A) 4 million B) 8 million

C) 2 6 million

D) 1 2 million

85) I f the Qd = (12 million) - (1 million × P) and QS = (2 million) + (1 million × P), the equilibrium quantity for the product is ________.

A) 7 million B) 1 million

C) 1 1 million

84) ______

85) ______

D) 1 0 million

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

86) F or any good or service, at the market equilibrium price the quantity demanded exceeds the quantity supplied.

86) ______

87) I f the current price for salmon exceeds the equilibrium price, there will be a surplus of salmon in the market.

87) ______

88) I f the current price for a product is not equal to its equilibrium price, the quantity demanded is not equal to the quantity supplied.

88) ______

89) I f the market for salmon is in equilibrium, there is not a shortage or a surplus of salmon.

89) ______

90) I f the Qd = (15 million) - (2 million × P) and QS = (0) + (3 million × P), the equilibrium price for

90) ______

the product is $3.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

91) T he maximum price a consumer is willing to pay for a second slice of pizza is ________.

A) t he consumer's marginal cost of a second slice of pizza B) e qual to the consumer surplus C) t he consumer's marginal benefit of a second slice of pizza D) a lways more than the maximum price the consumer is willing to pay for the first slice of pizza

91) ______

92) T he maximum price a consumer is willing to pay for a second bottle of water is ________.

A) e qual to the consumer's total value of two bottles of water B) e qual to the consumer surplus C) t he consumer's marginal cost of a second bottle of water D) t he consumer's marginal benefit of a second bottle of water

92) ______

93) T he minimum price a producer is willing to accept for the one hundredth bottle of water is ________.

A) t he producer's marginal cost of the one hundredth bottle of water B) e qual to the producer's total value of 100 bottles of water C) t he producer's marginal benefit of the one hundredth bottle of water D) e qual to the producer surplus

93) ______

94) T he minimum price a producer is willing to accept for the fifth slice of pizza is ________.

A) t he producer's marginal benefit of the fifth slice of pizza B) e qual to the producer's total value of five slices of pizza C) e qual to the consumer surplus of the fifth slice of pizza D) t he producer's marginal cost of the fifth slice of pizza

94) ______

95) I f a competitive market is producing at the efficient quantity, ________.

95) ______

A) t otal surplus is maximized B) a deadweight loss exists C) t he quantity produced exceeds the equilibrium quantity D) t otal surplus is minimized 96) I f a competitive market is producing at the efficient quantity, all of the following are true except which one?

A) D eadweight loss is equal to zero.

B) T he efficient quantity is being produced.

C) T otal surplus is maximized.

D) T he marginal benefit to society exceeds the marginal cost.

96) ______

97) I f a competitive market is producing at the efficient quantity, all of the following are true except which one?

A) T he marginal benefit to society equals the marginal cost.

B) T otal surplus is maximized.

C) T here is overproduction in the market.

D) T he efficient quantity is being produced.

97) ______

98) I f deadweight loss exists in a competitive market, which one of the following is true?

A) T he market is either under- or overproducing.

B) T he efficient quantity is being produced.

C) T he marginal benefit to society equals the marginal cost.

D) T otal surplus is maximized.

98) ______

99) I f there is underproduction in a competitive market, ________.

A) t he marginal benefit to society exceeds the marginal cost B) t he marginal cost to society exceeds the marginal benefit C) t here will be no deadweight loss D) t he market is producing the efficient quantity

99) ______

100) I f there is overproduction in a competitive market, ________.

A) t he marginal benefit to society exceeds the marginal cost B) t here will be no deadweight loss C) t he marginal cost to society exceeds the marginal benefit D) t he market is producing the efficient quantity

100) _____

101) I f there is overproduction in a competitive market, ________ will increase if the quantity produced ________ to the equilibrium quantity.

A) d eadweight loss; decreases B) d eadweight loss; increases C) t otal surplus; increases D) t otal surplus; decreases

101) _____

102) I f there is underproduction in a competitive market, ________ will increase if the quantity produced ________ to the equilibrium quantity.

A) d eadweight loss; increases B) t otal surplus; increases C) d eadweight loss; decreases D) t otal surplus; decreases

102) _____

103) I f there is underproduction in a competitive market, the quantity produced is ________ than the efficient quantity and the marginal benefit to society is ________ than the marginal cost.

A) g reater; less B) l ess; greater C) l ess; less D) g reater; greater

103) _____

104) I f there is overproduction in a competitive market, the quantity produced is ________ than the

efficient

____ _

quantity 104) and the marginal benefit to society is ________ than the marginal cost.

A) g reater; greater

B) g reater; less

C) l ess; less

D) l ess; greater

105) A ll else equal, the higher the price, the ________ the consumer surplus and the ________ the producer surplus.

A) l ower; higher B) l ower; lower C) h igher; lower D) h igher; higher

105) _____

106) A ll else equal, the lower the price, the ________ the consumer surplus and the ________ the producer surplus.

A) l ower; higher B) l ower; lower C) h igher; higher D) h igher; lower

106) _____

107) R efer to the figure above. If the market price for sunglasses is $50, Area A represents the ________.

A) c onsumer surplus B) t otal surplus C) d eadweight loss D) p roducer surplus

107) _____

108) R efer to the figure above. If the market price of sunglasses is $50, Area B represents the ________.

A) d eadweight loss B) p roducer surplus C) t otal surplus D) c onsumer surplus

108) _____

109) R efer to the figure above. If the market price of sunglasses is $50, Area A + B represents the ________.

A) p roducer surplus B) t otal surplus C) d eadweight loss D) c onsumer surplus

109) _____

110) R efer to the figure above. If the market price of sunglasses is $50, which of the following is true?

A) T here is no deadweight loss.

B) T he total surplus is minimized.

C) T he marginal benefit to society exceeds the marginal cost.

D) T he marginal cost to society exceeds the marginal benefit.

110) _____

111) R efer to the figure above. If market price of sunglasses is $50, all of the following are true except which one?

A) T otal surplus is maximized.

B) A rea B represents the deadweight loss.

C) T he efficient quantity is produced.

D) T he marginal cost to society equals the marginal benefit.

111) _____

112) R efer to the figure above. If 20 units of sunglasses are produced, the marginal benefit to society is ________ than the marginal cost and sunglasses are ________.

A) g reater; underproduced B) l ess; underproduced C) l ess; overproduced D) g reater; overproduced

112) _____

113) R efer to the figure above. If 80 units of sunglasses are produced, the marginal benefit to society is ________ than the marginal cost and sunglasses are ________.

A) l ess; overproduced B) g reater; overproduced C) l ess; underproduced D) g reater; underproduced

113) _____

114) R efer to the figure above. If 20 units of sunglasses are produced, sunglasses are ________, and area ________ graphically represents the deadweight loss.

A) o verproduced; D B) o verproduced; C C) u nderproduced; C D) u nderproduced; D

114) _____

115) R efer to the figure above. If 80 units of sunglasses are produced, sunglasses are ________, and area ________ graphically represents the deadweight loss.

A) u nderproduced; C B) o verproduced; D C) u nderproduced; D D) o verproduced; C

115) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

116) F or any market, the total surplus is equal to the consumer surplus plus the producer surplus.

116) _____

117) F or any market, the total surplus is equal to the consumer surplus minus the producer surplus.

117) _____

118) A ll else equal, the higher the actual price producers receive for their product, the greater the producer surplus.

118) _____

119) A ll else equal, the higher the actual price consumers must pay to purchase a product, the greater the consumer surplus.

119) _____

120) I n a competitive market, if the deadweight loss is equal to zero, society enjoys the largest total surplus.

120) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

121) A n increase in the demand for bananas will ________ the equilibrium price and ________ the equilibrium quantity of bananas.

A) d ecrease; decrease B) i ncrease; increase C) i ncrease; decrease D) d ecrease; increase

121) _____

122) A decrease in the demand for pork chops will ________ the equilibrium price and ________ the equilibrium quantity of pork chops.

A) i ncrease; increase B) i ncrease; decrease C) d ecrease; decrease D) d ecrease; increase

122) _____

123) I f the price of hot dogs increases, this will cause a(n) ________ the demand curve for hot dog buns and a(n) ________ in the equilibrium price of hot dog buns.

A) d ecrease; increase B) i ncrease; decrease C) i ncrease; increase D) d ecrease; decrease

123) _____

124) I f the price of hot dogs increases, this will cause a ________ the demand curve for hot dog buns and a ________ the supply curve of hot dog buns.

A) s hift of; shift of B) m ovement along; movement along C) s hift of; movement along D) m ovement along; shift of

124) _____

125) A n increase in consumer incomes will shift the demand curve for luxury vehicles to the ________ and ________ both the equilibrium price and quantity of luxury vehicles.

A) r ight; decrease B) l eft; increase C) r ight; increase D) l eft; decrease

125) _____

126) A decrease in consumer incomes will shift the demand curve for designer handbags to the ________ and ________ both the equilibrium price and quantity of designer handbags.

A) r ight; increase B) l eft; increase C) l eft; decrease D) r ight; decrease

126) _____

127) A technological advancement in the production of hybrid cars will cause a ________ the supply curve for hybrid cars and a(n) ________ in the equilibrium price of hybrid cars.

A) m ovement along; decrease B) s hift of; increase C) s hift of; decrease D) m ovement along; increase

127) _____

128) A technological advancement in the production of engineered diamonds will cause the equilibrium price of engineered diamonds to ________ and the equilibrium quantity to ________.

A) i ncrease; increase B) d ecrease; increase C) i ncrease; decrease D) d ecrease; decrease

128) _____

129) A n increase in the cost of flour will shift the supply curve for bread to the ________ and ________ the equilibrium quantity of bread.

A) r ight; increase B) l eft; decrease C) l eft; increase D) r ight; decrease

129) _____

130) A bad state of nature for the production of tomatoes will shift the supply curve for tomatoes to

the ______

__ and 130) ________ the equilibri um price of tomatoes .

A) r ight; decrease

____ _

B) l eft; decrease

C) l eft; increase

D) r ight; increase

131) I f consumers' incomes increase at the same time there is a decrease in the cost to produce granite 131) _____ counter tops, which of the following is true?

A) T he equilibrium quantity will increase.

B) B oth the demand and supply curves will shift to the left.

C) T he equilibrium quantity will decrease.

D) T he effect on the equilibrium quantity is ambiguous without more information.

132) I f the number of demanders for electric cars increases at the same time as the number of suppliers of electric cars increases, which of the following is true?

A) T he equilibrium quantity will increase.

B) B oth the demand and supply curves will shift to the left.

C) T he equilibrium quantity will decrease.

D) T he effect on the equilibrium quantity is ambiguous without more information.

132) _____

133) I f the number of demanders for electric cars increases at the same time as the number of suppliers of electric cars increases and the shift in demand is equal to the shift in supply, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium quantity will increase and the equilibrium price will not change.

D) T he equilibrium price will decrease and the equilibrium quantity will not change.

133) _____

134) I f the cost to produce frozen chicken nuggets decreases at the same time as consumer tastes shift 134) _____ away from frozen chicken nuggets and the shift in demand is greater than the shift in supply, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium quantity will decrease and the equilibrium price will increase.

D) T he equilibrium price will decrease and the equilibrium quantity will not change.

135) I f the cost to produce frozen chicken nuggets decreases at the same time as consumer tastes shift 135) _____ away from frozen chicken nuggets and the shift in supply is greater than the shift in demand, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium price will decrease and the equilibrium quantity will increase.

D) T he equilibrium price will decrease and the equilibrium quantity will not change.

136) I f the cost to produce frozen chicken nuggets decreases at the same time as consumer tastes shift 136) _____ away from frozen chicken nuggets and the shift in demand is equal to the shift in supply, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium price will decrease and the equilibrium quantity will increase.

D) T he equilibrium price will decrease and the equilibrium quantity will not change 137) I f the number of demanders for granite counter tops increases at the same time as the number of suppliers of granite counter tops decreases and the shift in demand is greater than the shift in supply, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium price will increase and the equilibrium quantity will increase.

D) T he equilibrium price will decrease and the equilibrium quantity will not change.

137) _____

138) I f a press release reports that the future price of gasoline is expected to rise and suppliers respond more to the change in the expected future price than demanders, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium price will increase and the equilibrium quantity will decrease.

D) T he equilibrium price will decrease and the equilibrium quantity will increase.

138) _____

139) I f a press release reports that the future price of new homes is expected to decrease and demanders respond more to the change in the expected future price than suppliers, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium price will decrease and the equilibrium quantity will increase.

D) T he equilibrium price will increase and the equilibrium quantity will decrease.

139) _____

140) I f a press release reports that the future price of new homes is expected to decrease and demanders and suppliers respond equally to the change in the expected future price, which of the following is true?

A) B oth the equilibrium quantity and price will decrease.

B) B oth the equilibrium quantity and price will increase.

C) T he equilibrium price will increase and the equilibrium quantity will decrease.

D) T he equilibrium price will decrease and the equilibrium quantity will remain the same.

140) _____

141) R efer to the figure above. If the number of demanders for Good Z increases at the same time as the number of suppliers of Good Z decreases and the shift in demand is greater than the shift in supply, the equilibrium price will be ________ than $100 and the equilibrium quantity will be ________ than 100.

A) g reater; greater B) g reater; less C) l ess; greater D) l ess; less

141) _____

142) R efer to the figure above. If the number of demanders for Good Z increases at the same time as the number of suppliers of Good Z decreases and the shift in supply is greater than the shift in demand, the equilibrium price will be ________ than $100 and the equilibrium quantity will be ________ than 100.

A) g reater; greater B) g reater; less C) l ess; greater D) l ess; less

142) _____

143) R efer to the figure above. If Good Z is a normal good and consumers' incomes decrease at the same time as the number of suppliers of Good Z decreases and the shift in supply is greater than the shift in demand, the equilibrium price will be ________ than $100 and the equilibrium quantity will be ________ than 100.

A) g reater; greater B) g reater; less C) l ess; greater D) l ess; less

143) _____

144) R efer to the figure above. If Good Z is a normal good and consumers' incomes decrease at the same time as the number of suppliers of Good Z decreases and the shift in demand is greater than the shift in supply, the equilibrium price will be ________ than $100 and the equilibrium quantity will be ________ than 100.

A) g reater; greater B) g reater; less C) l ess; greater D) l ess; less

144) _____

145) R efer to the figure above. If Good Z is an inferior good and consumers' incomes decrease at the

same time

____ _

as the 145) number of suppliers of Good Z decrease s and the shift in demand is greater than the shift in supply, the equilibri um price will be ________ than $100 and the equilibri um quantity will be ________ than 100.

A) g reater; greater

B) g reater; less

C) l ess; greater

D) l ess; less

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

146) I f consumers' preferences move away from candy bars, this will lead to a movement along the demand curve and a shift of the supply curve.

146) _____

147) A technological advancement in the production of laundry detergent will lead to a decrease in the equilibrium price of laundry detergent and an increase in the equilibrium quantity.

147) _____

148) I f both the demand and the supply curves shift to the left the equilibrium quantity will fall, but the effect on equilibrium price is ambiguous without more information.

148) _____

149) I f the number of demanders for granite counter tops decreases at the same time as the number of

149) _____

suppliers of granite counter tops decreases and the shift in supply is greater than the shift in demand, both the equilibrium price and quantity of granite counter tops will fall.

150) I f the number of demanders for granite counter tops decreases at the same time as the number of suppliers of granite counter tops decreases and the shift in demand is equal to the shift in supply, both the equilibrium price and quantity of granite counter tops will fall.

150) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

151) A price ceiling is a ________ legal price set by the government that causes a ________ in the market.

A) m aximum; surplus B) m inimum; shortage C) m aximum; shortage D) m inimum; surplus

151) _____

152) A ll of the following are true of a price ceiling except which one?

A) I t causes a surplus in the market.

B) I t creates a deadweight loss.

C) I t can lead to black markets.

D) I t causes a shortage in the market.

152) _____

153) A ll of the following are true of a price ceiling except which one?

A) I t causes a shortage in the market.

B) I t can lead to black markets.

C) I t does not create deadweight loss.

D) I t causes buyers search time to increase.

153) _____

154) A price ceiling is set ________ the equilibrium quantity and results in a ________.

A) a bove; surplus B) b elow; surplus C) a bove; shortage D) b elow; shortage

154) _____

155) A ll of the following are true of a price ceiling except which one?

A) S uppliers benefit.

B) S ome demanders benefit.

C) S uppliers are harmed.

D) S ome demanders are harmed.

155) _____

156) A black market ________.

A) c an arise due to a price floor C) c an arise due to a price ceiling

156) _____ B) c an arise due to a surplus in the market D) i s legal

157) A ll of the following are true of a price ceiling except which one?

A) S ome suppliers benefit.

B) A deadweight loss is created.

C) S ome demanders benefit.

D) S ome demanders are harmed.

157) _____

158) A price floor is a ________ legal price set by the government that causes a ________ in the market.

A) m inimum; surplus B) m inimum; shortage C) m aximum; surplus D) m aximum; shortage

158) _____

159) A price floor ________.

A) c auses a shortage in the market C) i s set below the market equilibrium price

159) _____ B) c an lead to black markets D) c auses a surplus in the market

160) I f the government removes the surplus that results from an agricultural price floor, ________.

A) s ome suppliers benefit B) a ll suppliers are harmed C) a ll demanders benefit D) a ll demanders are harmed

160) _____

161) I f the government removes the surplus that results from an agricultural price floor, all producers receive a ________ price and all consumers pay a ________ price than the equilibrium price.

A) l ower; lower B) h igher; higher C) h igher; lower D) l ower; higher

161) _____

162) I n product market, households ________ the product and firms ________ it.

A) s upply; demand B) d emand; demand C) s upply; supply D) d emand; supply

162) _____

163) I n an input market, households ________ the product and firms ________ it.

A) s upply; supply B) s upply; demand C) d emand; demand D) d emand; supply

163) _____

164) T he labor demand curve is ________ sloping because there is a ________ relationship between the wage rate and the quantity of labor demanded.

164) _____

A) d ownward; positive C) u pward; positive

B) d ownward; negative D) u pward; negative

165) T he labor supply curve is ________ sloping because there is a ________ relationship between the wage rate and the quantity of labor supplied.

A) u pward; negative B) u pward; positive C) d ownward; negative D) d ownward; positive

165) _____

166) W hen the wage rate rises and nothing else changes, there is ________ the labor demand curve.

A) l eft shift B) r ight shift C) m ovement up D) m ovement down

166) _____

167) W hen the wage rate falls and nothing else changes, there is ________ the labor demand curve.

A) r ight shift B) m ovement up C) l eft shift D) m ovement down

167) _____

168) W hen the wage rate rises and nothing else changes, there is ________ the labor supply curve.

A) r ight shift B) l eft shift C) m ovement up D) m ovement down

168) _____

169) W hen the wage rate falls and nothing else changes, there is ________ the labor supply curve.

A) m ovement down B) l eft shift C) m ovement up D) r ight shift

169) _____

170) T he minimum wage ________.

A) i s the lowest legal wage rate B) m akes the equilibrium wage rate legal C) i s the highest legal wage rate for low-skilled labor D) i s a type of price ceiling

170) _____

171) A ll of the following are true for the minimum wage, except which one?

A) I t is a type of price floor.

B) I t is the lowest legal wage rate.

C) I t benefits all workers.

D) I t makes the equilibrium wage rate illegal.

171) _____

172) A ll of the following are true for the minimum wage, except which one?

A) I t creates a surplus of workers.

B) I t creates a shortage of workers.

C) I t benefits some workers.

D) I t is a type of price floor.

172) _____

173) A minimum wage benefits ________ workers and harms ________ employers.

A) s ome; all B) a ll; some C) s ome; some D) a ll; all

173) _____

174) R efer to the figure above. If the government imposes a minimum wage in this market, the minimum wage will be ________ than the equilibrium wage rate of W* and will create a ________ of workers.

A) a bove; surplus

B) a bove; shortage

C) b elow; shortage

174) _____

D) b elow; surplus

175) R efer to the figure above. If the government imposes a minimum wage in this market, there will be a ________ the labor demand curve and a ________ the labor supply curve.

A) m ovement along; shift in B) s hift in; shift in C) m ovement along; movement along D) s hift in; movement along

175) _____

176) R efer to the figure above. If the government imposes a minimum wage in this market, there will be a ________ the labor demand curve.

A) l eftward shift in B) m ovement down C) r ightward shift in D) m ovement up

176) _____

177) R efer to the figure above. If the government imposes a minimum wage in this market, there will be a ________ the labor supply curve.

A) l eftward shift in B) m ovement down C) r ightward shift in D) m ovement up

177) _____

178) R efer to the figure above. If the government imposes a minimum wage in this market, employment will be ________ than the equilibrium quantity of hours Q* and ________ workers will benefit.

178) _____

A) g reater; all

B) l ess; some

C) g reater; some

D) l ess; all

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

179) A price ceiling is set above the market equilibrium price.

179) _____

180) B ecause price ceilings lower the price consumers have to pay, all consumers benefit from price ceilings.

180) _____

181) I f the government removes the surplus that results from an agricultural price floor, all demanders are harmed and all suppliers benefit.

181) _____

182) C hanges in the wage rate cause shifts in the labor demand and labor supply curve.

182) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

183) A s a result of a change in consumer tastes in favor of your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

183) _____

184) A s a result of an effective advertising campaign for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

184) _____

185) A s a result of bad state of nature for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

185) _____

186) A s a result of good state of nature for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

186) _____

187) A s a result of an increase in the number of demanders for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

187) _____

188) A s a result of a decrease in the number of demanders for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

188) _____

189) A s a result of a technology advance in the production of your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

189) _____

190) I f you produce a normal good and consumers' incomes are expected to increase, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

190) _____

191) I f you produce a normal good and consumers' incomes are expected to decrease, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

191) _____

192) I f you produce an inferior good and consumers' incomes are expected to increase, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

192) _____

193) I f you produce an inferior good and consumers' incomes are expected to decrease, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

193) _____

194) A s a result of a decrease in the price of a substitute for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

194) _____

195) A s a result of an increase in the price of a substitute for your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

195) _____

196) A s a result of a decrease in the price of a complement to your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

196) _____

197) A s a result of an increase in the price of a complement to your firm's product, you should anticipate a ________ price for your product than the current equilibrium price and a ________ equilibrium quantity than the current equilibrium quantity.

A) h igher; higher B) h igher; lower C) l ower; higher D) l ower; lower

197) _____

Your firm produces ready-made guacamole and avocados are the primary ingredient. During a news report, weather forecasters just announced that there will be a freeze in the region in which your firm buys avocados. This freeze will likely damage many of the avocados that are almost ready for harvest.

198) R efer to the figure above. Which of the following is likely to occur as a result of the freeze?

A) T he supply curve will shift to the right.

B) T he demand curve will shift to the left.

C) T he supply curve will shift to the left.

D) T he demand curve will shift to the right.

198) _____

199) R efer to the figure above. As a result of the freeze, the price for avocados will be ________ than the current equilibrium price and the equilibrium quantity of avocados will be ________ than the current equilibrium quantity.

A) l ess; less B) g reater; less C) g reater; greater D) l ess; greater

199) _____

200) R efer to the figure above. As a result of what occurs in the avocado market, your firm should expect costs to ________, which will cause your firm to ________ supply of ready-made guacamole.

A) d ecrease; decrease B) i ncrease; decrease C) d ecrease; increase D) i ncrease; increase

200) _____

201) R efer to the figure above. As a result of what occurs in the avocado market, which of the following could benefit your firm?

A) C onsider methods to increase the amount of avocados needed per container of ready-made guacamole.

B) E xplore options to purchase avocados from other sellers located in a different region of the world.

C) E xplore methods to incorporate more avocados into other products that your firm

201) _____

produces.

D) S hift more resources into making ready-made guacamole.

You are a farmer who raises chickens and sells the eggs. A recent news report announced that eggs have a positive health benefit of improving immunity systems in humans.

202) R efer to the figure above. As a result of the news report, the ________ curve will shift to the ________.

A) d emand; right B) s upply; right C) d emand; left D) s upply; left

202) _____

203) R efer to the figure above. As a result of the news report, the price of eggs will be ________ than the current equilibrium price and the equilibrium quantity of eggs will be ________ than the current equilibrium quantity.

A) g reater; less B) g reater; greater C) l ess; less D) l ess; greater

203) _____

204) R efer to the figure above. As a result of news report, which of the following could benefit your firm?

A) S hift resources away from egg production.

B) C onsider approaches to increase egg production at your farm.

C) E xplore options to sell your chickens.

D) C onsider approaches to decrease egg production at your farm.

204) _____

205) R efer to the figure above. Suppose that at the same time as the news report, you learn that the cost to feed your chickens has fallen. The news report and the change in feed cost will shift the demand curve to the ________ and the supply curve to the ________.

205) _____

A) l eft; left

B) l eft; right

C) r ight; right

D) r ight; left

206) R efer to the figure above. Suppose that at the same time as the news report, you learn that the cost to feed your chickens has fallen. The news report and the change in feed cost will ________.

A) i ncrease the equilibrium price of eggs, but more information is needed to determine the effect on the equilibrium quantity B) d ecrease the equilibrium price of eggs, but more information is needed to determine the effect on the equilibrium quantity C) i ncrease the equilibrium quantity of eggs, but more information is needed to determine the effect on the equilibrium price D) d ecrease the equilibrium quantity of eggs, but more information is needed to determine the effect on the equilibrium price

206) _____

207) T he demand and supply model can help managers do all of the following except ________.

A) i ncrease their firm's profitability B) p redict changes in the cost to produce their product C) p redict changes in the price of their product D) i ncrease efficiency in assembly lines

207) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

208) T he demand and supply model gives managers the opportunity to forecast changes in their production costs and the equilibrium price of their product.

208) _____

209) I f you manage a trucking company that transports lumber and the future price of oil is expected to rise, you should anticipate a decrease in market price to transport lumber.

209) _____

210) T he demand and supply model can help managers increase their firm's profitability.

210) _____

211) I f the demand for your firm's product is expected to increase, you should anticipate a drop in the price you are currently receiving for your product.

211) _____

212) I f the demand for your firm's product is expected to decrease, you should anticipate a drop in the price you are currently receiving for your product.

212) _____

1) D 2) D 3) B 4) B 5) C 6) A 7) A 8) B 9) B 10) B 11) C 12) D 13) A 14) A 15) D 16) D 17) B 18) D 19) B 20) D 21) C 22) D 23) B 24) C 25) D 26) F ALSE 27) F ALSE 28) T RUE 29) F ALSE 30) T RUE 31) D 32) C 33) B 34) A 35) D 36) C 37) B 38) A 39) C 40) B 41) C 42) D 43) A 44) B 45) A 46) C 47) C 48) A 49) B 50) A 51) D

52) A 53) A 54) C 55) A 56) T RUE 57) T RUE 58) T RUE 59) F ALSE 60) F ALSE 61) C 62) D 63) C 64) D 65) A 66) B 67) D 68) C 69) A 70) C 71) A 72) D 73) B 74) B 75) B 76) C 77) A 78) C 79) C 80) D 81) B 82) A 83) C 84) C 85) A 86) F ALSE 87) T RUE 88) T RUE 89) T RUE 90) T RUE 91) C 92) D 93) A 94) D 95) A 96) D 97) C 98) A 99) A 100) C 101) D 102) B 103) B

104) B 105) A 106) D 107) A 108) D 109) B 110) A 111) B 112) A 113) A 114) C 115) B 116) T RUE 117) F ALSE 118) T RUE 119) F ALSE 120) T RUE 121) B 122) C 123) D 124) C 125) C 126) C 127) C 128) B 129) B 130) C 131) A 132) A 133) C 134) A 135) C 136) D 137) B 138) C 139) A 140) D 141) A 142) B 143) B 144) D 145) A 146) F ALSE 147) T RUE 148) T RUE 149) F ALSE 150) F ALSE 151) C 152) A 153) C 154) D 155) A

156) C 157) A 158) A 159) D 160) D 161) B 162) D 163) B 164) B 165) B 166) C 167) D 168) C 169) A 170) A 171) C 172) B 173) A 174) A 175) C 176) D 177) D 178) B 179) F ALSE 180) F ALSE 181) T RUE 182) F ALSE 183) A 184) A 185) B 186) C 187) A 188) D 189) C 190) A 191) D 192) D 193) A 194) D 195) A 196) A 197) D 198) C 199) B 200) B 201) B 202) A 203) B 204) B 205) C 206) C 207) D

208) T RUE 209) F ALSE 210) T RUE 211) F ALSE 212) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) I n a regression analysis that estimates a demand function, the dependent variable is the ________.

A) c onsumers' income B) p rice of the good C) p rices of related goods D) q uantity demanded

1) _______

2) B ecause there will always be some random factors of demand that we cannot capture, which of the following is added to the regression equation?

A) c onsumers' incomes B) a random error term C) t he price of the good D) a n intercept

2) _______

3) B ig Poppa's BBQ Sandwiches is a local restaurant specializing in BBQ sandwiches. Using Excel, d Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,576.55 -

3) _______

(25.50 × P). The estimated regression equation suggests which of the following is true?

A) I f Big Poppa's increased its price by $1, the quantity demanded would increase by 25.50.

B) T here is a negative relationship between the price of Big Poppa's BBQ sandwiches and the quantity demanded.

C) A s the price of Big Poppa's BBQ sandwiches increases, the quantity demanded also increases.

D) T he Law of Demand does not hold for Big Poppa's BBQ Sandwiches.

4) B ig Poppa's BBQ Sandwiches is a local restaurant specializing in BBQ sandwiches. Using Excel, d Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,576.55 -

4) _______

(25.50 × P). The estimated regression equation suggests which of the following is true?

A) I f a price of $10 a sandwich is charged, the predicted quantity of sandwiches demanded is 1,576.55.

B) T he intercept of the demand equation is -25.50.

C) I f a price of $5 a sandwich is charged, the predicted quantity of sandwiches demanded is 1,449.05.

D) T he intercept of the demand equation is 25.50.

5) B ig Poppa's BBQ Sandwiches is a local restaurant specializing in BBQ sandwiches. Using Excel, d Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,576.55 -

5) _______

(25.50 × P). If Big Poppa's charges $8 per sandwich, the predicted quantity of sandwiches sold is ________.

A) 1 ,225.76 B) 1 ,372.55 C) 1 ,576.55 D) 1 ,551.05 6) B ig Poppa's BBQ Sandwiches is a local restaurant specializing in BBQ sandwiches. Using Excel, d Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,576.55 -

6) _______

(25.50 × P). If Big Poppa's charges $15 per sandwich, the predicted quantity of sandwiches sold is ________.

A) 1 ,576.55 B) 1 ,551.05 C) 1 ,194.05 D) 1 ,090.05 7) B ig City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly

defunction mafor their nd grand

__ __ __ _

mocha 7) coffees to d be Q = 650 (15.25 × P). The estimate d regressio n equation suggests which of the followin g is true?

A) T he Law of Demand does not hold for Big City Java's grand mochas.

B) I f a price of $10 is charged, the predicted weekly demand of grand mocha coffees is 639.75.

C) I f a price of $5 is charged, the predicted weekly demand of grand mocha coffees is 573.75.

D) T he horizontal intercept of the demand equation is 15.25.

8) B ig City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly d demand function for their grand mocha coffees to be Q = 650 - (15.25 × P). The estimated

8) _______

regression equation suggests which of the following is true?

A) T here is a positive relationship between the price of grand mocha coffees and the quantity demanded.

B) I f a price of $5 is charged, the predicted weekly demand of grand mocha coffees is 453.75.

C) T he price of grand mocha coffees represents the dependent variable in the regression equation.

D) A s the price of grand mocha coffees increases, the quantity demanded decreases.

9) B ig City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly d demand function for their grand mocha coffees to be Q = 650 - (15.25 × P). The estimated

9) _______

regression equation suggests that if Big City Java increased its price of grand mocha coffees from $6 to $8, the predicted quantity demanded of coffees would ________.

A) n ot change B) i ncrease C) e xactly double D) d ecrease 10) B ig City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly d demand function for their grand mocha coffees to be Q = 650 - (15.25 × P). The estimated

10) ______

regression equation suggests that if Big City Java decreased its price of grana mocha coffees from $7 to $5, the predicted quantity demanded of coffees would ________.

A) n ot change B) i ncrease C) d ecrease D) d ecrease by half 11) B ig City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly d demand function for their grand mocha coffees to be Q = 650 - (15.25 × P). The estimated regression equation suggests that if Big City Java decreased its price of grana mocha coffees from

$7.5the 0 to predict $6.5ed 0, quantit

y 11) demande d of coffees would ________ .

A) i ncrease by 15.25 C) e xactly double

___ ___

B) n ot change D) d ecrease by 15.25

12) B ig City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly d demand function for their grand mocha coffees to be Q = 650 - (15.25 × P). The estimated

12) ______

regression equation suggests that if Big City Java decreased its price of grana mocha coffees from $7.50 to $5.50, the predicted quantity demanded of coffees would ________.

A) d ecrease by 30.5 B) i ncrease by 30.5 C) n ot change D) e xactly double 13) A regression analysis estimated using Ordinary Least Squares (OLS) does all of the following except which one?

A) e stimates a regression equation that has zero residuals B) e stimates the relationship between a dependent variable and one or more independent variables C) m inimizes the sum of the squared residuals D) m inimize the sum of the squared differences between the actual and predicted quantities

13) ______

14) A regression analysis estimated using Ordinary Least Squares (OLS) does all of the following except which one?

A) e stimates the relationship between a dependent variable and one or more independent variables B) i ncludes a random error term C) m inimizes the sum of the squared residuals D) f its a perfect straight line that connects each of the scatter points

14) ______

15) B ecause there will always be some random factors the affect demand that cannot be captured, a ________ is added to the regression equation.

A) d ependent variable B) s lope coefficient C) r andom error term D) h orizontal intercept

15) ______

16) A ll of the following are true of the error term in a regression equation except which one?

A) I t is random.

B) I t is constant.

C) I t is assumed to be normally distributed.

D) I t's distribution is assumed to be bell-shaped.

16) ______

17)

d

17) ______

Using Excel, Tough Scrubbers estimates the quarterly demand for their kitchen sponges to be Q = 5,600 - (25 × P). If the actual demand for their kitchen sponges is 5,563 when a price of $3 per sponge is charge, what is the estimated residual?

A) 2 5 B) 1 2 C) 0 D) 3 8 18)

Using

___ ___

Excel, 18) Tough Scrubber s estimates the quarterly demand for their kitchen sponges d to be Q = 5,600 (25 × P).

If the actual demand for their kitchen sponges is 5,535 when a price of $4 per sponge is charge, what is the estimate d residual?

A) 0

B) 3 5

C) 1 8

D) 6 0

19)

d

19) ______

d

20) ______

Using Excel, Tough Scrubbers estimates the quarterly demand for their kitchen sponges to be Q = 5,600 - (25 × P). If the actual demand for their kitchen sponges is 5,400 when a price of $5 per sponge is charge, what is the estimated residual?

A) 0 B) 7 5 C) - 55 D) - 75 20) Using Excel, Tough Scrubbers estimates the quarterly demand for their kitchen sponges to be Q = 5,600 - (25 × P). If the actual demand for their kitchen sponges is 5,600 when a price of $1 per sponge is charge, what is the estimated residual?

A) 2 5 B) - 25 C) 0 D) - 50

Quantity Sold 900 820 800 750

Price $16 $18 $20 $22

689

$25

The table above shows a sample of actual data used to estimate the demand function for Happy Clams seafood dinners.

21) R efer to the table above. Excel estimates the demand function for Happy Clams seafood d dinners to be: Q = 1,200 - (20.50 × P). Which of the following statements is true?

A) W hen the price is equal to $22, the actual quantity sold equals the predicted quantity sold.

B) W hen the price is equal to $22, the predicted quantity sold exceeds the actual quantity sold.

C) W hen the price is equal to $22, the estimated residual is zero.

D) W hen the price is equal to $22, the actual quantity sold exceeds the predicted quantity sold.

21) ______

22) R efer to the table above. Excel estimates the demand function for Happy Clams seafood d dinners to be: Q = 1,200 - (20.50 × P). Which of the following statements is true?

A) W hen the price is equal to $18, the predicted quantity sold exceeds the actual quantity sold.

B) W hen the price is equal to $18, the actual quantity sold exceeds the predicted quantity sold.

C) W hen the price is equal to $18, the estimated residual is zero.

D) W hen the price is equal to $18, the actual quantity sold equals the predicted quantity sold.

22) ______

23) R efer to the table above. Excel estimates the demand function for Happy Clams seafood d dinners to be: Q = 1,200 - (20.50 × P). Which of the following statements is true?

A) W hen the price is equal to $20, the estimated residual is 10.0.

B) W hen the price is equal to $20, the estimated residual is -10.0.

C) W hen the price is equal to $20, the estimated residual is -5.0.

D) W hen the price is equal to $20, the estimated residual is 5.0.

23) ______

24) R efer to the table above. Excel estimates the demand function for Happy Clams seafood d dinners to be: Q = 1,200 - (20.50 × P). Which of the following statements is true?

A) W hen the price is equal to $16, the estimated residual is -28.0.

B) W hen the price is equal to $16, the estimated residual is 28.0.

C) W hen the price is equal to $16, the estimated residual is -8.0.

D) W hen the price is equal to $16, the estimated residual is 8.0.

24) ______

25) R efer to the table above. Excel estimates the demand function for Happy Clams seafood d dinners to be: Q = 1,200 - (20.50 × P). Which of the following statements is true?

A) W hen the price is equal to $25, the estimated residual is 1.50.

B) W hen the price is equal to $25, the estimated residual is -1.50.

C) W hen the price is equal to $25, the estimated residual is 0.

D) W hen the price is equal to $25, the predicted quantity of dinners sold exceeds the predicted quantity of dinners sold.

25) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) W hen managers use Ordinary Least Squares to estimate a regression equation, the estimated regression equation is as close to the actual data values as possible.

26) ______

27) T he goal of regression analysis is to make the residuals as small as possible.

27) ______

28)

If

Excel

___ ___

estimates 28) the demand function for a product d to be: Q = 1,500 (5 × P), the estimate d regressio n equation indicates that the Law of Demand does not hold.

29)

29) ______

d If Excel estimates the demand function for a product to be: Q = 1,500 - (5 × P) and a price of $125 is charged, the predicted quantity demanded for the product is 875.

30)

30) ______

d If Excel estimates the demand function for a product to be: Q = 1,500 - (5 × P) and the actual quantity demanded is 850 when a price of $125 is charged, the estimated residual is 25.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) ______

31) T he first step in interpreting the results from a regression is ________.

A) u sing the estimated demand to predict the price at various values of the quantity demanded B) m easuring how confident you are that the estimated coefficients are close to the true coefficients C) u sing the estimated demand to predict the quantity demanded at various prices D) r eestimating the regression with new data 32)

d

32) ______

d

close e to coeffici the ent? true slop

Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,576.55 - (25.50 × P). In reference to the estimated slope coefficient for price , which of the following standard errors gives you the most confidence that the estimated slope coefficient is close to the true slope coefficient?

A) 1 .03

B) 2 5.2

C) - 25.2

D) 2 .57

33) Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,385.63 - (22.30 × P). In reference to the estimated slope coefficient for price , which of the following standard errors gives you the most confidence that the estimated slope coefficient is

______

33)

A) - 22.0

B) 1 .12

C) 2 .15

D) 2 2.0

34) A ll of the following are true regarding the standard error of a coefficient except which one?

A) A small standard error suggests that the estimated coefficient is likely to be close to the true value.

B) T he standard error reflects the fact that the estimated coefficients have random element.

C) T he standard error requires regression equations to be reestimated.

D) T he standard error of a coefficient measures how much the estimated coefficient is likely to change if another set of data is used to reestimate the regression.

34) ______

35) A ll of the following are true regarding the standard error of a coefficient except which one?

A) T he standard error of a coefficient measures how much the estimated coefficient is likely to change if another set of data is used to reestimate the regression.

B) T he standard error reflects the fact that the estimated coefficients have random element.

C) A small standard error suggests that the estimated coefficient is likely to be close to the true value.

D) A large standard error suggests that the estimated coefficient is likely to be close to the true value.

35) ______

36)

d

36) ______

d

37) ______

d

38) ______

d

39) ______

Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,385.63 - (22.30 × P). In reference to the estimated slope coefficient for price , which of the following standard errors will provide the widest 95 percent confidence interval for the slope coefficient?

A) 4 .75

B) 1 .15

C) 1 .87

D) 3 .25

37) Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,568.23 - (18.67 × P). In reference to the estimated slope coefficient for price , which of the following standard errors will provide the largest 95 percent confidence interval for the slope coefficient?

A) 2 .12

B) 2 .50

C) 1 .27

D) 2 .67

38) Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,423.50 - (28.67 × P). In reference to the estimated slope coefficient for price , which of the following standard errors will provide the smallest 95 percent confidence interval for the slope coefficient?

A) 1 .05

B) 1 .98

C) 1 .95

D) 1 .29

39) Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 1,258.33 - (19.55 × P). In reference to the estimated slope coefficient for price , which of the following standard errors will provide the smallest 95 percent confidence interval for the slope coefficient?

A) 1 .25 40)

B) 0 .95

C) 3

D) 0 .50

If Excel estimated the 95 percent confidence interval for a slope coefficient for the price from -2.73 to -1.67, which of the following is true?

to run

40) ______

A) Y ou are 95 percent confident that the true slope coefficient falls within the range -2.73 to -1.67.

B) Y ou are 95 percent confident that the true slope coefficient is greater than -1.67. C) Y ou are 95 percent confident that the true slope coefficient is greater than -2.73. D) Y ou are 99 percent confident that the true slope coefficient falls within the range -2.73 to -1.67.

41)

42)

If Excel estimated the 95 percent confidence interval for a slope coefficient for the price to run from -15.50 to -12.30, which of the following is true?

A) Y ou are 95 percent confident that in response to dollar increase in price, consumers will increase the quantity demanded by an amount that lies between 12.30 and 15.50.

B) Y ou are 95 percent confident that in response to dollar increase in price, consumers will decrease the quantity demanded by an amount less than 15.50.

C) Y ou are 95 percent confident that in response to dollar increase in price, consumers will decrease the quantity demanded by an amount that lies between 12.30 and 15.50.

D) Y ou are 95 percent confident that in response to dollar increase in price, consumers will decrease the quantity demanded by an amount greater than 12.30.

If Excel estimated the 95 percent confidence interval for a slope coefficient for the price to run from -25.50 to -22.30, which of the following is true?

A) Y ou are 95 percent confident that in response to dollar increase in price, consumers will decrease the quantity demanded by an amount greater than 22..30.

B) Y ou are 95 percent confident that in response to dollar increase in price, consumers will increase the quantity demanded by an amount that lies between 22.30 and 25.50.

C) Y ou are 95 percent confident that in response to dollar increase in price, consumers will decrease the quantity demanded by an amount that lies between 22.30 and 25.50.

D) Y ou are 95 percent confident that in response to dollar increase in price, consumers will decrease the quantity demanded by an amount greater than 25.50.

41) ______

42) ______

43) A n hypothesis test using 99 percent confidence has a significance level equal to ________.

A) 0 .05 B) 0 .01 C) 0 .99 D) 1

43) ______

44) A n hypothesis test using 95 percent confidence has a significance level equal to ________.

A) 0 .95 B) 0 .01 C) 0 .05 D) 1

44) ______

45)

45) ______

46)

If the estimated slope coefficient = -2.50 and the standard error for the slope coefficient is 0.50, which of the following is true?

A) T he t-statistic for the slope coefficient is -0.2.

B) T he P-value for the slope coefficient is -0.2.

C) T he t-statistic for the slope coefficient is -5.0.

D) T he P-value for the slope coefficient is -5.0.

If the estimated slope coefficient is = -5.45 and the standard error for the slope coefficient is 1.75, which of the following is true using a 95 percent confidence level?

A) T he null hypothesis is rejected and you can be 95 percent confidence that the true slope coefficient is equal to zero.

B) T he null hypothesis is not rejected and you can be 95 percent confidence that the true slope coefficient is equal to zero.

C) T he null hypothesis is not rejected and you can be 95 percent confidence that the true slope coefficient is not equal to zero.

D) T he null hypothesis is rejected and you can be 95 percent confidence that the true slope

46) ______

coefficient is 47)

not equal to zero.

If the estimated slope coefficient is = -2.45 and the standard error for the slope coefficient is 1.75, which of the following is true using a 95 percent confidence level?

A) T he null hypothesis is not rejected, meaning that the true slope coefficient is not equal to zero.

B) T he null hypothesis is not rejected, meaning that the true slope coefficient is equal to zero.

C) T he null hypothesis is rejected, meaning that the true slope coefficient is not equal to zero.

D) T he null hypothesis is rejected, meaning that the true slope coefficient is equal to zero.

47) ______

48) I f the P-value for an estimated slope coefficient is 0.025, using 95 percent confidence, which of the following is true?

A) F ail to reject the alternative hypothesis that the true value of the slope coefficient equals zero.

B) F ail to reject the null hypothesis that the true value of the slope coefficient equals zero.

C) R eject the null hypothesis that the true value of the slope coefficient equals zero.

D) R eject the alternative hypothesis that the true value of the slope coefficient equals zero.

48) ______

49) I f the P-value for an estimated slope coefficient is 0.25, using 95 percent confidence, which of the following is true?

A) Y ou should reject the null hypothesis.

B) Y ou should fail to reject the null hypothesis.

C) Y ou should accept the alternative hypothesis that the true value of the coefficient is nonzero.

D) Y ou can be 95 percent confident that the true slop coefficient is nonzero.

49) ______

50)

50) ______

2 If the R is large, you are ________ confident in the regression results because the predicted values are ________ the actual values.

A) l ess; far from B) l ess; close to C) m ore; far from D) m ore; close to

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations

0.98 0.96 0.95 3.3 35

Coefficients Standard Error t Stat Intercept Price

170.03 -22.48

3.19 0.74

53.16 -30.11

P-value 0.00 0.00

Lower 95% Upper 95% 163.53 -24.01

176.54 -20.96

51) U sing Excel, the manager of Quick Breaks Coffees has estimated the daily demand function for its regular coffees; the results are shown in the table above. Which of the following statements is correct?

A) T he 95 percent critical value exceeds the t-statistic for the estimated slope coefficient.

B) T he manager can be 99 percent confident that the price of coffees affects the quantity demanded.

51) ______

C) T he manager can be 99 percent confident that the true slope coefficient for price is equal to zero.

D) T he 99 percent critical value exceeds the t-statistic for the estimated slope coefficient.

52) U sing Excel, the manager of Quick Breaks Coffees has estimated the daily demand function for its regular coffees; the results are shown in the table above. Which of the following statements is correct?

A) T he estimated regression has a very poor fit to the data.

B) T he predicted values from the regression account for 95 percent of the variation in the actual data.

C) T he predicted values lie far from the actual values.

D) T he predicted values from the regression account for 98 percent of the variation in the actual data.

52) ______

53) U sing Excel, the manager of Quick Breaks Coffees has estimated the daily demand function for its regular coffees; the results are shown in the table above. Which of the following statements is correct?

A) T he manager can be 95 percent confident that the true slope coefficient for price lies between -24.01 and -20.96.

B) T he manager can be 95 percent confident that the true slope coefficient for price is positive.

C) T he manager can be 95 percent confident that the true slope coefficient for price is greater than -24.01.

D) T he manager can be 95 percent confident that the true slope coefficient for price is equal to zero.

53) ______

54) U sing Excel, the manager of Quick Breaks Coffees has estimated the daily demand function for its regular coffees; the results are shown in the table above. If a price of $5 is charged for the coffees, the predicted quantity demanded is ________.

A) 1 70.03 B) 8 6.23 C) 5 7.63 D) 1 47.55

54) ______

55) U sing Excel, the manager of Quick Breaks Coffees has estimated the daily demand function for its regular coffees; the results are shown in the table above. Using 95 percent confidence, the P-value for the slope coefficient on price suggests which of the following is true?

A) T he true slope coefficient exceeds the critical value.

B) T he true slope coefficient is zero.

C) T he true slope coefficient is less than the critical value.

D) T he true slope coefficient is nonzero.

55) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) T he larger the standard error for a coefficient, the larger the confidence level.

56) ______

57) F or a given slope coefficient, a 95 percent confidence interval will be larger than a 99 percent confidence interval.

57) ______

58)

58) ______

If Excel estimated the 95 percent confidence interval for a slope coefficient for the price from -5.50 to -2.30, it is not possible for the true slope coefficient to be equal to -5.75.

to run

59) I f the absolute value of the t-statistic exceeds critical value, the null hypothesis is rejected.

59) ______

60) U sing 95 percent confidence, if the P-value is 0.50, the null hypothesis is rejected.

60) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

61) R egression analyses can be limited by all of the following except which one?

A) o mission of relevant variables B) t he functional form of the regression C) t he inclusion of a random error term D) t he specification of the regression

61) ______

62) W hen reviewing reports based on a regression analysis, it is important to consider all of the following except which one?

A) a scatter plot of the actual data B) t he functional form of the estimated regression C) t he statistical software used to estimate the e regression D) o ther factors that affect the dependent variable, but were omitted from the regression

62) ______

63) Y ou are the owner of a restaurant located in a beach resort in Hawaii and want to use regression

63) ______

analysis to estimate the demand for your fresh seafood dinners. You have collected data on the daily quantity of seafood dinners sold over the last summer season. In order to correctly specify your regression equation, all of the following variables should be considered except which one?

A) t he prices charged for umbrellas at the local discount store B) t he number of daily vacationers at the resort C) t he prices a competing seafood restaurant charged for their dinners D) t he different prices you charged for your seafood dinners 64) Y ou are the owner of a restaurant located in a beach resort in Hawaii and want to use regression

64) ______

analysis to estimate the demand for your fresh seafood dinners. You have collected data on the daily quantity of seafood dinners sold over the last summer season. In order to correctly specify your regression equation, all of the following variables should be considered except which one?

A) t he different prices you charged for your seafood dinners B) t he prices a competing seafood restaurant charged for their dinners C) t he amount spent of advertising your seafood dinners D) t he prices charged for souvenirs in local stores 65) Y ou are the owner of a restaurant located in a beach resort in Hawaii and want to use regression

65) ______

analysis to estimate the demand for your fresh seafood dinners. You have collected data on the daily quantity of seafood dinners sold over the last summer season. In order to correctly specify your regression equation, which of the following variables should be considered?

A) t he prices charged for scuba diving excursions at the resort B) t he daily number of vacationers at the resort C) t he wages paid to your chef and servers D) t he prices charged for souvenirs in local stores 66) S uzie's Bagels is a breakfast deli located on a university campus. Suzie wants to use regression analysis to estimate the demand for her bagel sandwiches. Suzie has collected daily data on the quantity of bagel sandwiches sold over the last year. In order to correctly specify the regression, all of the following variables should be considered except which one?

A) t he amount Suzie spent on advertising B) t he prices charged for university t-shirts C) t he prices charged by Suzie's D) t he prices of Suzie's bagel sandwiches competitors

66) ______

67) S uzie's Bagels is a breakfast deli located on a university campus. Suzie wants to use regression analysis to estimate the demand for her bagel sandwiches. Suzie has collected daily data on the quantity of bagel sandwiches sold over the last year. In order to correctly specify the regression, all of the following variables should be considered except which one?

67) ______

A) t he prices of Suzie's bagel sandwiches B) t he amount of advertising spent by Suzie's competitors C) t he amount Suzie spent on advertising D) t he cost of university housing 68) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 16.23 - (1.85 × ln P). At a price of $35, what is the predicted natural logarithm of the quantity (ln )?

A) 1 5,562.20 B) - 48.52

C) 9 .65

D) 0

69) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 16.23 - (1.85 × ln P). At a price of $20, what is the predicted natural logarithm of the quantity (ln )?

A) 4 3,914.51 B) 1 0.69

C) 0

68) ______

69) ______

D) - 20.77

70) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 16.23 - (1.85 × ln P). At a price of $22, what is the predicted quantity ( )?

A) 3 6,738.17 B) 0 C) 1 0.51 D) - 24.47

70) ______

71) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 16.23 - (1.85 × ln P). At a price of $42, what is the predicted quantity ( )?

A) - 61.47 B) 0 C) 1 1,106.78 D) 9 .32

71) ______

72) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). At a price of $12, what is the predicted natural logarithm of the

72) ______

quantity (ln A) - 9.77

)?

B) 9 0.26

C) 4 .50

D) 0

73) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). At a price of $10, what is the predicted natural logarithm of the quantity (ln A) 0

73) ______

)?

B) - 6.77

C) 4 .78

D) 1 18.64

74) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). At a price of $15, what is the predicted quantity ( )?

A) 0 B) - 14.27 C) 4 .17 D) 6 4.58

74) ______

75) U sing Excel, The Coffee Bean estimates the log-linear quarterly demand function for their d specialty coffee drinks to be ln Q = 12.23 - (1.75 × ln P). At a price of $5, what is the predicted

75) ______

quantity (

)?

A) 8 .43

B) 1 5,252.35

C) 9 .43

D) 1 2,252.48

76) U sing Excel, The Coffee Bean estimates the log-linear quarterly demand function for their d specialty coffee drinks to be ln Q = 9.50 - (0.23 × ln P). At a price of $4, what is the predicted quantity ( )?

A) 9 ,712.34

B) 5 ,892.45

C) 9 .09

76) ______

D) 1 .73

77) U sing Excel, The Coffee Bean estimates the log-linear quarterly demand function for their d specialty coffee drinks to be ln Q = 12.23 - (1.75 × ln P). If The Coffee Bean decreases the price of

77) ______

their specialty coffee drinks from $6.50 to $5.50, which of the following will occur?

A) The quantity (( )) will increase by 175.

The predicted predicted quantity will decrease. predicted quantity ( ) will increase B) The The predicted quantity ( ) will increase.by 1.75.

C) D)

78) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). If Big Pies Pizzas increases the price of their pizzas from $15 to

78) ______

$16, which of the following will occur?

A) The quantity ( ) will decrease 1.50.

The predicted predicted quantity increase. by predicted quantity quantity( (( ))) will will B) The The predicted will decrease decrease.by 150.

C) D)

79) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). If Big Pies Pizzas increases the price of their pizzas from $10 to

79) ______

$12, which of the following will occur?

A) The quantity ( ) willdecrease decreaseby byapproximately approximately 62.89 28.39 pizzas. pizzas. ) The predicted predicted quantity predicted quantity quantity( (( will will increase by approximately 52.48 pizzas. )) B) The The predicted will increase.

C) D)

80) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). If Big Pies Pizzas decreases the price of their pizzas from $12 to $10, which of the following will occur?

A) The predicted quantity quantity( ( )) will The predicted will increase decrease.by approximately 52.48 pizzas.

B) C)

80) ______

The predicted D)

quantity ( ) will increase by approximately 28.39 pizzas.

The predicted quantity ( ) will decrease by approximately 62.89 pizzas.

The scatter plot above shows the actual data for the price and quantity demanded of a product.

81) R efer to the scatter diagram above. The scatter diagram suggests all of the following except which one?

A) A nonlinear demand curve will likely be the best fit.

B) T he true demand curve is likely to be linear in the natural logarithms.

C) T he data points appear to lie around a convex (bowed inward) curve.

D) A straight-line demand curve will likely be the best fit.

81) ______

82) R efer to the scatter diagram above. The scatter diagram suggests all of the following except which one?

A) T he data points appear to lie around a convex (bowed inward) curve.

B) A nonlinear demand curve will likely be the best fit.

C) T he true demand curve is likely to be linear in the natural logarithms.

D) 2 The R is likely to be greatest is a straight-line regression is estimated.

82) ______

83) R efer to the scatter diagram above. You are given an analysis report of the estimated demand

83) ______

for this product and notice that a straight-line demand curve was estimated. Which of the following should you do with this information?

A) u se the estimated straight-line regression to predict the price of a competitor's product B) u se the estimated straight-line regression to predict the price of the product C) r equest that a nonlinear demand curve is estimated D) u se the estimated straight-line regression to predict the quantity demanded at different prices

The scatter diagram above shows the actual data for the price and quantity demanded of a product.

84) R efer to the scatter diagram above. The diagram suggests which of the following?

A) A straight-line demand curve will likely be the best fit.

B) T he true demand is likely to be linear it the natural logarithms.

C) A nonlinear demand curve will likely be the best fit.

D) T he estimated demand curve will have a positive slope.

84) ______

85) R efer to the scatter diagram above. The scatter diagram suggests all of the following, except which one?

A) A straight-line demand curve is likely to be a better fit to the actual data compared to a nonlinear demand curve.

B) T he estimated demand will have a negative slope.

C) 2

85) ______

The R is likely to be greater when a straight-line demand curve is estimated compared to a nonlinear demand curve.

D) 2 The R is likely to be greater when a nonlinear demand curve is estimated compared to a straight-line demand curve.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

86) O mitting relevant variables from the regression analysis can bias the regression results.

86) ______

87) I f a nonlinear regression equation provides a better fit to the actual data, but a straight-line 2 2 regression is estimated, the estimated straight-line regression will have a greater R than the R

87) ______

from the nonlinear regression.

88) I f a scatter plot of the data points for the price and quantity demanded appear to have a convex 2 (bowed inward) shape, estimating a log-linear demand curve will likely yield a R that is greater 2 than the R from a straight-line demand curve.

88) ______

89) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized

paints to

___ ___

d 89) be ln Q = 16.23 (1.85 × ln P); at a price of $35, the predicte d quantity is 15,562.29 .

90) ______

90) A nonlinear demand curves have positive slope.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

91) A ll of the following are true regarding the price elasticity of demand except which one?

A) I t measures how much the quantity demanded changes in response to a change in price.

B) I t is measured in percentage changes.

C) I t measures the movement along the demand curve in response to a change in price.

D) I t measures how much the demand curve shifts in response to a change in price.

91) ______

92) I f a 2 percent increase in the price of a good leads to a 10 percent decrease in the quantity demanded, the price elasticity of demand for the good equals ________.

A) 5 .0 B) 2 .0 C) 0 .20 D) 0 .25

92) ______

93) I f a 4 percent increase in the price of a good leads to a 1 percent decrease in the quantity demanded, the price elasticity of demand for the good equals ________.

A) 0 .25 B) 4 .0 C) 0 .33 D) 1 .0

93) ______

94) I f a 2 percent decrease in the price of a good leads to a 6 percent increase in the quantity demanded, the price elasticity of demand for the good equals ________.

A) 6 .0 B) 0 .33 C) 3 .0 D) 2 .0

94) ______

95) I f a 1 percent decrease in the price of a good leads to a 0.50 percent increase in the quantity demanded, the price elasticity of demand for the good equals ________.

A) 2 .0 B) 0 .50 C) 1 .0 D) 0 .75

95) ______

96) I f the price elasticity of demand for Clean Sheets laundry detergent is 0.50, a 2 percent increase in the price will lead to which of the following?

A) a 0.50 percent increase in quantity B) a 1 percent decrease in quantity C) a 1 percent increase in quantity D) a 0.50 percent decrease in quantity

96) ______

97) I f the price elasticity of demand for Clean Sheets laundry detergent is 1.50, a 5 percent decrease in the price will lead to which of the following?

A) a 7.5 increase in quantity B) a 1.50 increase in quantity C) a 1.50 decrease in quantity D) a 7.5 decrease in quantity

97) ______

98)

98) ______

d Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 580.25 - (25.50 × P). What is the point elasticity of demand at a price of $5?

A) 3 .67

B) 0 .28

C) 2 .57

D) 0 .58

99)

d

99) ______

Using Excel, Big Poppa's estimates the weekly demand function for its BBQ sandwiches to be Q = 580.25 - (25.50 × P). What is the point elasticity of demand at a price of $10?

A) 0 .78 B) 0 .55 C) 1 .57 D) 2 .68 100) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 16.23 - (1.85 × ln P). At a price of $20, what is the price elasticity of demand?

A) 2 .15

B) 1 .85

C) 0 .0008

100) _____

D) 0 .05

101) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 15.53 - (3.85 × ln P). Which of the following statements is true?

A) T he price elasticity is inelastic.

B) A t higher prices, the price elasticity will be larger than at lower prices.

C) T he price elasticity changes along the demand curve.

D) T he price elasticity is elastic.

101) _____

102) U sing Excel, Best Paints estimates the log-linear weekly demand function for their gallon sized d paints to be ln Q = 12.53 - (2.25 × ln P). If Best Paints increases the price of their gallon sized

102) _____

paints by 5 percent, which of the following will occur?

A) T he quantity will increase by 2.25 percent.

B) T he quantity will decrease by 11.25 percent.

C) T he quantity will increase by 11.25 percent.

D) T he quantity will decrease by 2.25 percent.

103) U sing Excel, Big Pies Pizzas estimates the log-linear weekly demand function for their pizza to d be ln Q = 8.23 - (1.50 × ln P). Which of the following statements is true?

A) T he demand for Big Pies Pizzas is inelastic.

B) T he price elasticity of demand for Big Pies Pizzas increases as the price of the pizzas increases.

C) T he price elasticity of demand for Big Pies Pizzas decreases as the price of the pizzas decreases.

D) T he demand for Big Pies Pizzas is elastic.

103) _____

104) T he price elasticity for corn from a particular farmer is likely to be ________.

A) p erfectly inelastic B) p erfectly elastic C) c lose to 1 D) c lose to 0

104) _____

105) T he price elasticity for insulin (a life-saving drug for diabetics) is likely to be ________.

A) p erfectly inelastic B) e lastic C) c lose to infinity D) p erfectly elastic

105) _____

106) T he owner of Mr. Piggy's Bacon estimates that the price elasticity of demand for a package of their bacon to be 3.48. In relation to the price elasticity of demand for the entire bacon market, which of the following is most likely true?

A) T he price elasticity for all bacon will be greater than 3.48.

106) _____

B) T he price elasticity for all bacon will be more responsive to price changes.

C) T he price elasticity for all bacon will be more elastic.

D) T he price elasticity for all bacon will be less responsive to price changes.

107) C onsider a 20 percent increase in the price of a 2 pound bag of sugar and a 20 percent increase in the price of first-class airline travel. In response to the price changes, which of the following is most likely to be true?

A) T he percentage change in the quantity demanded for a 2 pound bag of sugar will be larger than the percentage change in the quantity demanded for first-class airline travel.

B) T he total revenue from first-class airline travel will not change.

C) B ecause first-class airline travel is a luxury good, the quantity demanded will not change with the 20 percent increase in price.

D) T he percentage change in the quantity demanded for first-class airline travel will be larger than the percentage change in the quantity demanded for a 2 pound bag of sugar.

107) _____

108) C onsider a 15 percent increase in the price of a box of 50 of mailing envelopes and a 15 percent increase in the price of designer leather goods. In response to the price changes, which of the following is most likely to be true?

A) T he percentage change in the quantity demanded for a box of 50 of mailing envelopes will be larger than the percentage change in the quantity demanded for designer leather goods.

B) T he percentage change in the quantity demanded of designer leather goods will be approximately equal to the percentage change in the quantity demanded of a box of 50 mailing envelopes.

C) T he percentage change in the quantity demanded for designer leather goods will be larger than the percentage change in the quantity demanded for a box of 50 of mailing envelopes.

D) T he total revenue from designer leather goods will not change.

108) _____

109) I f a 10 percent increase in price leads to a 15 percent decrease in the quantity demanded of the good, as a result of the price change, the total revenue for this product will ________.

A) d ouble B) d ecrease C) n ot change D) i ncrease

109) _____

110) I f a 12 percent increase in price leads to a 6 percent decrease in the quantity demanded of the good, as a result of the price change, the total revenue for this product will ________.

A) d ecrease B) n ot change C) f all by half D) i ncrease

110) _____

111) I f an 8 percent decrease in price leads to a 4 percent increase in the quantity demanded of the good, as a result of the price change, the total revenue for this product will ________.

A) n ot change B) i ncrease C) d ecrease D) d ouble

111) _____

112) I f a 5 percent increase in consumer incomes leads to a 10 percent increase in the quantity demanded for a good, the good is a(n) ________ good with an income elasticity of ________.

A) n ormal; 0.50 B) n ormal; 2.0 C) i nferior ; 2.0 D) i nferior; -0.50

112) _____

113) I f a 10 percent increase in consumer incomes leads to a 15 percent increase in the quantity demanded for a good, the good is a ________ good with an income elasticity of ________.

A) n ecessity; 1.5 B) n ecessity; 0.67 C) l uxury; 1.5 D) l uxury; 0.67

113) _____

114) I f the cross-price elasticity between Goods X and Y is -2.0, the goods are ________ and an increase in the price of Good X will cause a(n) ________ in the quantity demanded of Good Y. A) s ubstitutes; increase B) c omplements; decrease C) c omplements; increase D) s ubstitutes; decrease

114) _____

115) I f the cross-price elasticity between Goods X and Y is 2.0, the goods are ________ and an increase 115) _____ in the price of Good X will cause a(n) ________ in the quantity demanded of Good Y. A) s ubstitutes; increase B) c omplements; decrease C) s ubstitutes; decrease D) c omplements; increase TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

116) E conomists have defined the price elasticity of demand using percentages because percentages do not depend on the unit of measurement.

116) _____

117) A linear demand curve is a constant elasticity of demand curve.

117) _____

118) F or a linear demand curve, the point elasticity of demand will be greater at higher prices relative to lower prices.

118) _____

119) I f a 10 percent increase in the price of a good leads to a 5 percent decrease in the quantity demanded of the good, the price elasticity of demand is elastic.

119) _____

120) T he demand for a generic box of 50 paper clips is likely to be inelastic.

120) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations

0.99 0.98 0.97 2.52 35 Coefficients Standard Error t Stat

Intercept Price of Good Price of Related Good Income

131.92 -7.46 10.24 0.30

17.76 1.18 0.97 0.10

7.43 -6.34 10.60 3.00

P-value 0.00 0.00 0.00 0.01

Lower 95% Upper 95% 97.11 -9.86 8.27 0.10

166.73 -5.06 12.21 0.50

The demand for your product demands on three factors; the price of your good, the price of a related good, and the average income of your customers. Excel estimated the above linear demand for your product.

121) R efer to the table above. Which of the following statements is true?

A) T he related good is a complement to your good.

B) 2

121) _____

The R indicates that the regression provides a good fit to the actual data.

C) N one of the variables included in the regression affect the demand for your product.

D) O nly the price of your good affects the demand for your product.

122) R efer to the table above. Which of the following statements is true?

A) N one of the variables included in the regression affect the demand for your product.

B) A ll of the variables included in the regression affect the demand for your product.

C) 2 The R indicates that the regression predicts the data very poorly.

D) I ncreases in the price of your good lead to increases in the quantity demanded of your good.

122) _____

123) R efer to the table above. A $1 increase in the price of your good will lead to a(n) ________ in the quantity demanded by ________.

A) i ncrease; 7.46 B) d ecrease; 7.46 C) d ecrease; 10.24 D) i ncrease; 10.24

123) _____

124) R efer to the table above. Which of the following statements is true?

A) D ecreases in consumer incomes lead to increases in the quantity demanded for your good.

B) I ncreases in the price of the related good lead to a decrease in the quantity demanded of your good.

C) Y our good is an inferior good.

D) T he Law of Demand holds for your good.

124) _____

125) R efer to the table above. A $1 increase in the price of the related good will lead to a(n) ________ in the quantity demanded of your good by ________.

A) d ecrease; 10.24 B) i ncrease; 10.24 C) i ncrease; 7.46 D) d ecrease; 7.46

125) _____

126) R efer to the table above. If the price of your good is $10, the price of the related good is $18, and the average income of consumers is $33,000, the predicted demand for your product is ________.

A) 7 ,289.10 B) 1 0,141.64 C) 1 2,649.40 D) 5 ,892.22

126) _____

127) R efer to the table above. If the price of your good is $8, the price of the related good is $5, and the average income of consumers is $25,000, the predicted demand for your product is ________.

A) 7 ,623.44 B) 8 ,643.22 C) 5 ,234.33 D) 5 ,824.89

127) _____

128) R efer to the table above. If the price of your good is $2, the price of the related good is $4, and the average income of consumers is $52,000, the predicted demand for your product is ________.

A) 1 2,598.56 B) 1 5,757.96 C) 7 ,896.42 D) 2 0,598.32

128) _____

129) R efer to the table above. If the price of your good is $8, the price of the related good is $5, and the average income of consumers is $25,000, what is the point elasticity of demand?

A) 0 .01 B) 1 .25 C) 0 .26 D) 0 .75

129) _____

130) R efer to the table above. If the price of your good is $90, the price of the related good is $45, and the average income of consumers is $20,000, what is the point elasticity of demand?

A) 2 .42 B) 0 .57 C) 0 .11 D) 1 .55

130) _____

131) R efer to the table above. If the price of your good is $125, the price of the related good is $40, and the average income of consumers is $28,000, what is the point elasticity of demand?

A) 1 .20 B) 2 .20 C) 0 .12 D) 0 .22

131) _____

132) R efer to the table above. If the price of your good is $200, the price of the related good is $75, and the average income of consumers is $15,000, what is the point elasticity of demand?

A) 0 .78 B) 0 .15 C) 1 .62 D) 0 .38

132) _____

133) Y ou are the owner of a construction company that specializes in new beach-front condominiums.

If the income elasticity for your condominiums is 4.25, which of the following statements is true?

A) A n upcoming economic recession will increase the demand for your condominiums.

B) T he demand for your condominiums will not be affected by business cycles.

C) A n upcoming economic expansion will increase the demand for your condominiums.

D) A n upcoming economic expansion will decrease the demand for your condominiums.

133) _____

134) Y ou are the owner of a construction company that specializes in new beach-front condominiums.

If the incom

e 134) elasticity for your condomi niums is 4.25, all of the followin g statemen ts are true except which one?

A) T he condominiums are normal goods.

B) T he condominiums are luxury goods.

C) T he condominiums are inferior goods.

D) A n upcoming economic recession will decrease the demand for your condominiums.

____ _

135) Y ou are the owner of a boutique clothing store and estimate the price elasticity of demand for your clothing to be 2.50 and the income elasticity of demand for your clothing to be 1.55. If you increase the price of your clothing by 10 percent, which of the following should you expect to occur?

A) T he quantity demanded of your clothing will decrease by 25 percent.

B) T he quantity demanded of your clothing will increase by 15.5 percent.

C) T he quantity demanded of your clothing will decrease by 15.5 percent.

D) T he quantity demanded of your clothing will increase by 25 percent.

135) _____

136) T he price elasticity of demand for Best Paints one gallon sized paint cans is 0.79. If Best Paints

136) _____

increased the price of their gallon sized paint cans by 10 percent, which of the following is expected to occur?

A) T he total revenue will not be affected.

B) T he quantity demanded will increase.

C) T he total revenue will decrease.

D) T he total revenue will increase.

137) T he price elasticity of demand for Best Paints one gallon sized paint cans is 0.79. If Best Paints

137) _____

increased the price of their gallon sized paint cans by 10 percent, which of the following is expected to occur?

A) T he quantity demanded will increase by 7.9 percent.

B) T he quantity demanded will increase by 0.79 percent.

C) T he quantity demanded will fall by 0.79 percent.

D) T he quantity demanded will fall by 7.9 percent.

138) Y ou are the owner of a boutique clothing store and estimate the price elasticity of demand for your clothing to be 2.50 and the income elasticity of demand for your clothing to be 1.55. An upcoming economic expansion is expected to increase consumer incomes by 5 percent. As a result of the economic expansion, which of the following should you expect to occur?

A) T he demand for your clothing to increase by 7.75 percent.

B) T he demand for your clothing to increase by 12.5 percent.

C) T he demand for your clothing to decrease by 12.5 percent.

D) T he demand for your clothing to decrease by 7.75 percent.

138) _____

139) Y ou are the owner of a boutique clothing store and estimate the price elasticity of demand for your clothing to be 2.50 and the income elasticity of demand for your clothing to be 1.55. If you increase the price of your clothing, you should expect which of the following to occur?

A) a n increase in the quantity demanded of your clothing B) n o change in your total revenue C) a decrease in your total revenue D) a n increase in your total revenue

139) _____

140) Y ou are the owner of a firm that makes generic paper products. You estimate the income elasticity for your paper towels to be -1.5. An upcoming economic expansion is expected to increase consumer income by 3 percent. As a result of the economic expansion, you should expect which of the following to occur?

A) t he demand for your paper products to increase B) t he demand for your paper products to increase by 4.5 percent C) t he demand for your paper products to decrease by 4.5 percent D) T he demand for your paper products will be unaffected by the economic expansion.

140) _____

141) Y ou are the owner of a firm that makes generic paper products. You estimate the income elasticity for your paper towels to be -1.5. An economic recession will have which of the following effects on the demand for your paper products?

A) T he demand will decrease by 15 percent.

B) T he demand will decrease.

C) T he demand will increase.

D) T here will be no effect on demand.

141) _____

142) Y ou are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. Using this information, which of the following statements is true?

A) I f your competitor decreases the price of her flowers, the demand for your flowers will increase.

B) I f your competitor increases the price of her flowers, the demand for your flowers will decrease.

C) T he flowers from the two shops are complements.

D) T he flowers from the two shops are substitutes.

142) _____

143) Y ou are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor decreases the price of her flowers by 10 percent, you should expect which of the following?

A) a 26 percent decrease in the demand for your flowers B) a 2.6 percent decrease in the demand for your flowers C) a 2.6 percent increase in the demand for your flowers D) a 26 percent increase in the demand for your flowers

143) _____

144) Y ou are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor increases the price of her flowers by 4 percent, you should expect which of the following?

A) a 10.4 percent increase in the demand for your flowers B) a 1.54 percent increase in the demand for your flowers C) a 10.4 percent decrease in the demand for your flowers D) a 1.54 percent decrease in the demand for your flowers

144) _____

145) Y ou are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor decreases the price of her flowers by 2 percent, you should expect which of the following?

145) _____

A) a 0.77 percent increase in the demand for your flowers B) a 5.2 percent decrease in the demand for your flowers C) a 0.77 percent decrease in the demand for your flowers D) a 5.2 percent increase in the demand for your flowers TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

146) I f the income elasticity of demand for a good is 0.5, an economic recession will increase the demand for the good.

146) _____

147) I f the price elasticity of demand for your product is 0.75 and you increase the price of the product, you should expect an increase in total revenue.

147) _____

148) F or any change in a business cycle, the percentage change in demand for a good with an income elasticity of 2.0 will be larger than the percentage change in demand for a good with an income elasticity of 1.0.

148) _____

149) F or any change in a business cycle, the percentage change in demand for a good with an income

149) _____

elasticity of 0.50 will be larger than the percentage change in demand for a good with an income elasticity of 0.25.

150) R egression analysis can help managers make decisions in the short run, but not in the long run.

150) _____

1) D 2) B 3) B 4) C 5) B 6) C 7) C 8) D 9) D 10) B 11) A 12) B 13) A 14) D 15) C 16) B 17) D 18) B 19) D 20) A 21) D 22) A 23) A 24) B 25) A 26) T RUE 27) T RUE 28) F ALSE 29) T RUE 30) F ALSE 31) B 32) A 33) B 34) C 35) D 36) A 37) D 38) A 39) D 40) A 41) C 42) C 43) B 44) C 45) C 46) D 47) B 48) C 49) B 50) D 51) B

52) B 53) A 54) C 55) D 56) T RUE 57) F ALSE 58) F ALSE 59) T RUE 60) F ALSE 61) C 62) C 63) A 64) D 65) B 66) B 67) D 68) C 69) B 70) A 71) C 72) C 73) C 74) D 75) D 76) A 77) D 78) D 79) A 80) C 81) D 82) D 83) C 84) A 85) D 86) T RUE 87) F ALSE 88) T RUE 89) F ALSE 90) F ALSE 91) D 92) A 93) A 94) C 95) B 96) B 97) A 98) B 99) A

100) B 101) D 102) B 103) D

104) B 105) A 106) D 107) D 108) C 109) B 110) D 111) C 112) B 113) C 114) B 115) A 116) T RUE 117) F ALSE 118) T RUE 119) F ALSE 120) T RUE 121) B 122) B 123) B 124) D 125) B 126) B 127) A 128) B 129) A 130) C 131) C 132) D 133) C 134) C 135) A 136) D 137) D 138) A 139) C 140) C 141) C 142) D 143) A 144) A 145) B 146) F ALSE 147) T RUE 148) T RUE 149) T RUE 150) F ALSE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A firm's opportunity costs to produce a good or service depends on all of the following except which one?

A) t he manager's efforts to maximizing the number of workers hired B) t he cost of each input C) t he quantity of inputs D) p roduction technology

1) _______

2) T he firm's production function is the relationship between the firm's ________ and its maximum ________.

A) i nputs; profits B) c osts; outputs C) o utputs; profits D) i nputs; outputs

2) _______

3) I n a two-input production function, ________ is fixed in the ________.

A) c apital; long-run B) l abor; long-run C) l abor; short-run D) c apital; short-run

3) _______

4) A ll of the following are true regarding long-run decisions except which one?

A) T hey are often more strategic in nature.

B) T hey are typically made by upper level management.

C) T hey are often more tactical in nature.

D) T hey are often more costly to change.

4) _______

5) W hich of the following is true regarding short-run decisions?

A) T hey are typically made by upper level management.

B) T hey are often more strategic in nature.

C) T hey are often more tactical in nature.

D) T hey are often very difficult to reverse.

5) _______

6) I f a firm is experiencing increasing marginal returns to labor, the firm's production function is ________ at a(n) ________ rate.

A) d ecreasing; decreasing B) i ncreasing; increasing C) d ecreasing; increasing D) i ncreasing; decreasing

6) _______

7) I f a firm is experiencing decreasing marginal returns to labor, the firm's production function is ________ at a(n) ________ rate.

A) i ncreasing; increasing B) d ecreasing; decreasing C) d ecreasing; increasing D) i ncreasing; decreasing

7) _______

8) F irms typically experience increasing marginal returns to labor at ________ levels of employment due to ________.

A) l ow; congestion B) h igh; specialization C) l ow; specialization D) h igh; congestion

8) _______

9) F irms typically experience decreasing marginal returns to labor at ________ levels of employment due to ________.

A) l ow; congestion B) l ow; specialization C) h igh; congestion D) h igh; specialization

9) _______

10) T he marginal product of labor is equal to the change in ________ divided by the change in ________.

10) ______

A) l abor; cost

B) c ost; labor

C) l abor; output

D) o utput; labor

11) I f the hiring of one more worker yields no change in the level of output, the marginal product of labor is ________ at this hiring level.

A) n egative B) a t a minimum C) p ositive D) a t a maximum Labor, L (workers)

Output, Q (units per day)

0 1 2 3 4 5 6 7 8 9 10

0 4 9 18 28 35 40 42 43 40 35

11) ______

12) R efer to the table above. What is the marginal return to labor from increasing employment from 2 to 3 workers?

A) 3 B) 1 8 C) 9 D) 2

12) ______

13) R efer to the table above. What is the marginal return to labor from increasing employment from 4 to 5 workers?

A) 1 0 B) 5 C) 7 D) 4

13) ______

14) R efer to the table above. What is the marginal return to labor from increasing employment from 7 to 8 workers?

A) 8 B) 1 C) - 1 D) 7

14) ______

15) R efer to the table above. What is the marginal return to labor from increasing employment from 8 to 9 workers?

A) - 3 B) 3 C) 8 D) - 8

15) ______

16) R efer to the table above. When the ________ worker is hired, the firm experiences increasing marginal returns of labor.

A) 6 th B) 3 rd C) 8 th D) 7 th

16) ______

17) R efer to the table above. When the ________ worker is hired, the firm experiences decreasing marginal returns of labor.

A) 3 rd B) 4 th C) 6 th D) 2 nd

17) ______

18) R efer to the table above. When the ________ worker is hired, the firm experiences negative marginal returns of labor.

A) 5 th B) 6 th C) 2 nd D) 1 0th

18) ______

19) R efer to the table above. If the firm experiences a technological advancement, this will shift the marginal product of labor curve ________ and ________ marginal returns of labor at all production levels.

A) u pward; increase B) d ownward; decrease

19) ______

C) u pward; decrease

D) d ownward; increase

20) T echnological advances shift a firm's production function ________ and its marginal product of labor curve ________.

A) d ownward; upward B) u pward; upward C) d ownward; downward D) u pward; downward

20) ______

21) T he marginal product of capital is equal to the change in ________ divided by the change in ________.

A) c ost; capital B) c apital; output C) c apital; cost D) o utput; capital

21) ______

Capital, K (units of capital) 8 8 8 8 8 8 8 8 8 8 8

Labor, L Output, Q Capital, K (workers) (units per day) (units of capital) 0 0 9 1 4 9 2 9 9 3 18 9 4 28 9 5 35 9 6 40 9 7 42 9 8 43 9 9 40 9 10 35 9

Labor, L Output, Q (workers) (units per day) 0 0 1 6 2 13 3 22 4 32 5 45 6 52 7 58 8 63 9 65 10 60

22) R efer to the table above. Holding employment constant at 2 workers, what is the marginal product of capital when capital is increases from 8 to 9 units?

A) 1 3 B) 9 C) 2 D) 4

22) ______

23) R efer to the table above. Holding employment constant at 5 workers, what is the marginal product of capital when capital is increases from 8 to 9 units?

A) 4 5 B) 5 C) 3 5 D) 1 0

23) ______

24) R efer to the table above. Holding employment constant at 7 workers, what is the marginal product of capital when capital is increases from 8 to 9 units?

A) 8 B) 1 2 C) 9 D) 1 6

24) ______

25) R efer to the table above. Holding employment constant at 1 worker, what is the marginal product of capital when capital is increases from 8 to 9 units?

A) 2 B) 1 C) 4 D) 6

25) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) I n a two-input production function, labor is variable in both the short run and long run.

26) ______

27) F irms typically experience decreasing marginal returns to labor before they are able to enjoy increasing marginal returns to labor.

27) ______

28) I t is not possible for the marginal return of labor to be negative.

28) ______

29) I n general, as employment increases, the marginal return to labor increases and then decreases as employment continues to increase.

29) ______

30) T he marginal product of capital follows the same behavior as the marginal product of labor: it rises to a maximum and then falls.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) W hen a firm hires an additional worker, the firm's output ________ and the firm's total cost ________.

A) d ecreases; decreases B) i ncreases; increases C) d ecreases; increases D) i ncreases; decreases

31) ______

32) I f the wage rate paid to a textile employee is $120 and the marginal product of a worker is 12

32) ______

yards of fabric, this means that for each additional dollar spent on labor, there is a gain of ________ yards of fabric.

A) 1 2 B) 1 0 C) 0 .12 D) 0 .1 33) I f the wage rate paid to a textile employee is $150 and the marginal product of a worker is 225 yards of fabric, this means that for each additional dollar spent on labor, there is a gain of ________ yards of fabric.

A) 3 B) 0 .67 C) 1 .5 D) 5

33) ______

34) I f the wage rate paid to a flour mill worker is $50 and the marginal product of a mill worker is 150 pounds of flour, this means that for each additional dollar spent on labor, there is a gain of ________ pounds of flour.

A) 5 B) 3 C) 0 .33 D) 1 .5

34) ______

35) I f the wage rate paid to a flour mill worker is $75 and the marginal product of a mill worker is 50 pounds of flour, this means that for each additional dollar spent on labor, there is a gain of ________ pounds of flour.

A) 1 .5 B) 3 C) 0 .33 D) 0 .67

35) ______

36) I f the cost of using an additional unit of capital equipment is $1,500 and the marginal product of a unit of capital is 7,500 units of output, this means that for each additional dollar spent on capital, there is a gain of ________ units of output.

A) 0 .50 B) 2 C) 5 D) 0 .20

36) ______

37) I f the cost of using an additional unit of capital equipment is $24,000 and the marginal product of a unit of capital is 144,000 units of output, this means that for each additional dollar spent on capital, there is a gain of ________ units of output.

A) 1 2 B) 0 .167 C) 3 D) 6

37) ______

38) I f the cost of using an additional unit of capital equipment is $5,000 and the marginal product of a unit of capital is 2,000 units of output, this means that for each additional dollar spent on capital, there is a gain of ________ units of output.

A) 2 B) 2 .5 C) 5 D) 0 .4

38) ______

39) I f the cost of capital is $80 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 16 units per hour, and the marginal product of labor is 5 units per hour, to minimize its costs, the firm should ________.

A) i ncrease the amount of labor used and decrease the amount of capital used B) d ecrease the amount of labor used and increase the amount of capital used C) i ncrease the amount of labor and capital used D) n ot change the amount of labor or capital

39) ______

40) I f the cost of capital is $32 per hour, the wage paid to employees is $15 per hour, the marginal

product of

capital is 40) 16 units per hour, and the marginal product of labor is 6 units per hour, to minimize its costs, the firm should ________ .

___ ___

A) n ot change the amount of labor or capital B) d ecrease the amount of labor and capital used C) d ecrease the amount of labor used and increase the amount of capital used D) i ncrease the amount of labor used and decrease the amount of capital used 41) I f the cost of capital is $32 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 16 units per hour, and the marginal product of labor is 7.5 units per hour, to minimize its costs, the firm should ________.

A) n ot change the amount of labor or capital B) i ncrease the amount of labor used and decrease the amount of capital used C) i ncrease the amount of labor and capital used D) d ecrease the amount of labor used and increase the amount of capital used

41) ______

42) I f the cost of capital is $90 per hour, the wage paid to employees is $45 per hour, the marginal product of capital is 180 units per hour, and the marginal product of labor is 90 units per hour, to minimize its costs, the firm should ________.

A) n ot change the amount of labor or capital B) d ecrease the amount of labor and capital used C) i ncrease the amount of labor used and decrease the amount of capital used D) d ecrease the amount of labor used and increase the amount of capital used

42) ______

43) I f the cost of capital is $45 per hour, the wage paid to employees is $25 per hour, the marginal product of capital is 90 units per hour, and the marginal product of labor is 75 units per hour, to minimize its costs, the firm should ________.

A) n ot change the amount of labor or capital B) d ecrease the amount of labor used and increase the amount of capital used C) i ncrease the amount of labor and capital used D) i ncrease the amount of labor used and decrease the amount of capital used

43) ______

44) I f the cost of capital is $15 per hour, the wage paid to employees is $25 per hour, the marginal product of capital is 90 units per hour, and the marginal product of labor is 100 units per hour, to minimize its costs, the firm should ________.

A) i ncrease the amount of labor used and decrease the amount of capital used B) d ecrease the amount of labor used and increase the amount of capital used C) d ecrease the amount of labor and capital used D) n ot change the amount of labor or capital

44) ______

45) I f the cost of capital is $1,000 per hour, the wage paid to employees is $50 per hour, the marginal product of capital is 800 units per hour, and the marginal product of labor is 40 units per hour, to minimize its costs, the firm should ________.

A) i ncrease the amount of labor and capital used B) d ecrease the amount of labor used and increase the amount of capital used C) n ot change the amount of labor or capital D) i ncrease the amount of labor used and decrease the amount of capital used

Price Marginal Product

Input 1

Input 2

Input 3

$10 4

$15 A

$20 B

45) ______

46) R efer to the table above. If A = 6 and B = 8, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

46) ______

47) R efer to the table above. If A = 8 and B = 8, which of the following is true?

47) ______

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

48) R efer to the table above. If A = 6 and B = 10, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

48) ______

49) R efer to the table above. If A = 10 and B = 8, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

49) ______

50) R efer to the table above. If A = 6 and B = 12, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

50) ______

Price Marginal Product

Input 1

Input 2

Input 3

$20 A

$30 B

$40 C

51) R efer to the table above. If A = 10, B = 15, and C = 20, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

51) ______

52) R efer to the table above. If A = 10, B = 30, and C = 20, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

52) ______

53) R efer to the table above. If A = 5, B = 7.5, and C = 10, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

53) ______

54) R efer to the table above. If A = 5, B = 7.5, and C = 20, which of the following is true?

A) T he firm should buy more of Input 1 and less of Inputs 2 and 3.

B) T he firm should buy more of Input 2 and less of Inputs 1 and 3.

C) T he firm should buy more of Input 3 and less of Inputs 1 and 2.

D) T he firm is minimizing costs.

54) ______

55) R efer to the table above. If A = 6 and B = 9, for which value of C is the firm minimizing costs?

A) 9 B) 6 C) 2 0 D) 1 2

55) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) T o minimize costs, in the short-run, managers need to focus on minimizing the cost of the fixed inputs.

56) ______

57) I f the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal product of capital is 10 units per hour; and the marginal product of labor is 2 units per hour, the firm is minimizing costs.

57) ______

58) I f the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal product of capital is 10 units per hour; and the marginal product of labor is 5 units per hour, the firm is minimizing costs.

58) ______

59) I f the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal

59) ______

product of capital is 10 units per hour; and the marginal product of labor is 4 units per hour, to minimize its costs, the firm should increase the total amount of labor used and decrease the amount of capital used.

60) I f the cost of capital is $80 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 24 units per hour; and the marginal product of labor is 3 units per hour, to minimize its costs, the firm should increase the total amount of labor used and decrease the amount of capital used.

60) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

61) A ll of the following are true regarding variable costs except which one?

A) V ariable costs change with changes in output.

B) V ariable costs are equal to total cost minus fixed costs.

C) V ariable costs are the sum of the costs paid for all variable inputs.

D) V ariable costs are the sum of the costs paid for all inputs.

61) ______

62) A ll of the following are true regarding fixed costs except which one?

A) F ixed costs do not change with changes in output.

62) ______

B) F ixed costs are equal to the total cost plus variable costs.

C) F ixed costs are the sum of the costs paid for all fixed inputs.

D) F ixed costs are equal to total cost minus variable costs.

63) B ig Truck Hauling Company uses 5 units of capital at $1,000 per unit and employs 10 employees at a cost of $400 each. What is the company's fixed cost?

A) $ 1,000 B) $ 5,000 C) $ 4,000 D) $ 9,000

63) ______

64) B ig Truck Hauling Company uses 5 units of capital at $1,000 per unit and employs 10 employees at a cost of $400 each. What is the company's variable cost?

A) $ 400 B) $ 9,000 C) $ 1,000 D) $ 4,000

64) ______

65) B ig Truck Hauling Company uses 5 units of capital at $1,000 per unit and employs 10 employees at a cost of $400 each. What is the company's total cost?

A) $ 1,000 B) $ 5,000 C) $ 4,000 D) $ 9,000

65) ______

66) G ranite Tops for You uses 15 units of capital at $5,000 per unit and employs 50 employees at a cost of $500 each. What is the company's fixed cost?

A) $ 75,000 B) $ 5,000 C) $ 500 D) $ 250,000

66) ______

67) G ranite Tops for You uses 15 units of capital at $5,000 per unit and employs 50 employees at a cost of $500 each. What is the company's variable cost?

A) $ 100,000 B) $ 25,000 C) $ 500 D) $ 75,000

67) ______

68) G ranite Tops for You uses 15 units of capital at $5,000 per unit and employs 50 employees at a cost of $500 each. What is the company's total cost?

A) $ 25,000 B) $ 100,000 C) $ 75,000 D) $ 50,000

68) ______

69) W hen a firm produces zero output, its total cost is equal to its ________.

A) f ixed cost B) s unk cost C) v ariable cost D) a verage variable cost

69) ______

70) W hen a firm produces zero output, its total cost is ________.

A) e qual to its variable cost B) e qual to its sunk cost C) e qual to its fixed cost D) z ero

70) ______

71) A t its current output level, Pretty Flowers Florist has average fixed costs equal to $5.40 and average variable costs equal to $3.20. What is Pretty Flowers Florist's average total cost at their current output level?

A) $ 3.20 B) $ 7.30 C) $ 8.60 D) $ 5.40

71) ______

72) A t its current output level, Pretty Flowers Florist has average fixed costs equal to $4.40 and average variable costs equal to $2.20. What is Pretty Flowers Florist's average total cost at their current output level?

A) $ 6.00 B) $ 6.60 C) $ 4.40 D) $ 2.20

72) ______

73) A t its current output level, Pretty Flowers Florist has average total costs equal to $10.40 and average variable costs equal to $6.20. What is Pretty Flowers Florist's average fixed cost at their current output level?

A) $ 4.20 B) $ 6.40 C) $ 8.40 D) $ 2.20

73) ______

74) A t its current output level, Pretty Flowers Florist has average total costs equal to $8.40 and

average

___ ___

variable 74) costs equal to $5.40.

What is Pretty Flowers Florist's average variable cost at their current output level?

A) $ 3.40

B) $ 5.40

C) $ 8.40

D) $ 3.00

75) T he ________ curve constantly decreases as the quantity increases.

A) a verage fixed cost B) m arginal cost C) a verage total cost D) a verage variable cost

75) ______

76) T he vertical distance between the average ________ cost curve and the average total cost curve becomes ________ as the quantity increases.

A) v ariable; larger B) m arginal; smaller C) m arginal; larger D) v ariable; smaller

76) ______

77) A ll of the following cost curves have a U-shape except which one?

A) m arginal cost B) a verage total cost C) a verage variable cost D) a verage fixed cost

77) ______

78) W hen the marginal product of labor increases, the marginal cost ________ and when the marginal product of labor reaches its maximum the marginal cost is at its ________.

A) i ncreases; maximum B) i ncreases; minimum C) d ecreases; minimum D) d ecreases; maximum

78) ______

79) I f the price of a variable input increases, all of the following curves will shift upward except which one?

A) m arginal cost B) a verage variable cost C) a verage total cost D) a verage fixed cost

79) ______

80) T he manager of Pretty Flowers Florist has realized that she is offering so many different kinds of floral arrangements that her total costs increase if she produces more of any kind of arrangement. This is an example of ________.

A) d iseconomies of scope B) i ncreasing sunk cost C) e conomies of scope D) c ost complementarities

80) ______

Capital K 4 4 4 4

Labor L 0 1 2 3

Output Q 0 15 32 52

4 4 4

4 5 6

70 85 98

The table provides output levels as Paper Products R Us hires more workers. Their capital is currently fixed at 4 units and each unit costs $100. Each worker costs $50.

81) R efer to the table above. What is the average variable cost of producing 52 units of output?

A) $ 2.88 B) $ 150 C) $ 7.69 D) $ 400

81) ______

82) R efer to the table above. What is the average fixed cost of producing 70 units of output?

A) $ 5.71 B) $ 2.86 C) $ 400 D) $ 8.57

82) ______

83) R efer to the table above. What is the average total cost of producing 85 units of output?

A) $ 7.65 B) $ 2.52 C) $ 4.70 D) $ 650

83) ______

84) R efer to the table above. What is the total cost of producing 0 units of output?

A) $ 400 B) $ 0 C) $ 50 D) $ 100

84) ______

85) R efer to the table above. What is the marginal cost when output increases from 70 to 85 units?

A) $ 5.23 B) $ 3.33 C) $ 50 D) $ 15

85) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

86) I f a firm's total cost of production is equal to $90,000 and they have a fixed cost of $45,000, the company's variable costs are also $45,000.

86) ______

87) I f a firm's fixed cost is $10,000 and the firm produces zero output, the firm's total cost to produce zero output is less than $10,000.

87) ______

88) T he vertical distance between the average variable cost and average total cost curves becomes greater as the quantity increases.

88) ______

89) W hen the marginal product of labor is at its maximum, the marginal cost is at its minimum.

89) ______

90) I f the price of a fixed input increases, the fixed cost curve and the average total cost curve shift upward, but the marginal cost curve and the average variable cost curve do not shift.

90) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

91) I n the long run, managers can adjust the scale of production by changing ________.

A) s ome or all of the inputs B) s ome of the inputs, but not all C) t he quantity of capital, but not labor D) t he quantity of labor, but not capital

91) ______

92) T he long-run average cost is the ________ average ________ of producing any given quantity of output when all inputs can be changed.

A) m aximum; total cost B) m inimum; total cost C) m inimum; fixed cost D) m aximum; fixed cost

92) ______

93) T he long-run average cost curve is comprised of the points on the short-run average ________ curves that are the ________ average cost for different amounts of output.

A) t otal cost; maximum B) f ixed cost; maximum C) f ixed cost; minimum D) t otal cost; minimum

93) ______

94) A t a given output level, if the cost of capital is $55 per hour, the wage paid to employees is $30 per hour, the marginal product of capital is 110 units per hour, and the marginal product of labor is 60 units per hour, the firm is ________.

A) o n a short-run average total cost curve, but not the long-run average cost curve B) o n the long-run average total cost curve, but not a short-run average cost curve C) o n neither a short-run average total cost curve nor the long-run average cost curve D) o n both a short-run average total cost curve and the long-run average total curve

94) ______

95) A t a given output level, if the cost of capital is $50 per hour, the wage paid to employees is $30 per hour, the marginal product of capital is 120 units per hour, and the marginal product of labor is 60 units per hour, the firm is ________.

A) o n a short-run average total cost curve, but not the long-run average cost curve B) o n the long-run average total cost curve, but not a short-run average cost curve C) o n neither a short-run average total cost curve nor the long-run average cost curve D) o n both a short-run average total cost curve and the long-run average cost curve

95) ______

96) A t a given output level, if the cost of capital is $40 per hour, the wage paid to employees is $30 per hour, the marginal product of capital is 120 units per hour, and the marginal product of labor is 90 units per hour, the firm is ________.

A) o n a short-run average total cost curve, but not the long-run average cost curve B) o n the long-run average total cost curve, but not a short-run average cost curve C) o n neither a short-run average total cost curve nor the long-run average cost curve D) o n both a short-run average total cost curve and the long-run average cost curve

96) ______

97) A t a given output level, if the cost of capital is $40 per hour, the wage paid to employees is $30 per hour, the marginal product of capital is 120 units per hour, and the marginal product of labor is 120 units per hour, the firm is ________.

A) o n a short-run average total cost curve, but not the long-run average cost curve B) o n the long-run average total cost curve, but not a short-run average cost curve C) o n neither a short-run average total cost curve nor the long-run average cost curve D) o n both a short-run average total cost curve and the long-run average cost curve

97) ______

98) A t a given output level, if the cost of capital is $40 per hour, the wage paid to employees is $40 per hour, the marginal product of capital is 120 units per hour, and the marginal product of labor is 120 units per hour, the firm is ________.

A) o n a short-run average total cost curve, but not the long-run average cost curve B) o n the long-run average total cost curve, but not a short-run average cost curve C) o n neither a short-run average total cost curve nor the long-run average cost curve D) o n both a short-run average total cost curve and the long-run average cost curve

98) ______

99) W hen the long-run marginal cost is less than the long-run average cost, the long-run average cost slopes ________ and when the long-run marginal cost is greater than the long-run average cost, the long-run average cost slopes ________.

A) u pward; upward B) d ownward; upward C) u pward; downward D) d ownward; downward

99) ______

100) W hen the long-run marginal cost equals the long-run average cost, the long-run average cost is ________.

A) i ncreasing B) a t its maximum C) a t its minimum D) d ecreasing

100) _____

101) A t a particular output level, if a firm's long-run marginal cost is $8 and its long-run average cost is $10, the firm is likely to be experiencing ________.

101) _____

A) e conomies of scale C) d iseconomies of scale

B) c onstant returns to scale D) s unk costs

102) A t a particular output level, if a firm's long-run marginal cost is $12 and its long-run average cost is $8, the firm is likely to be experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) s unk costs

102) _____

103) A t a particular output level, if a firm's long-run marginal cost is $10 and its long-run average cost is $10, the firm is likely to be experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) s unk costs

103) _____

104) A t a particular output level, if a firm's long-run marginal cost is $5 and its long-run average cost is $7, the firm is likely to be experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) s unk costs

104) _____

105) A t a particular output level, if a firm's long-run marginal cost is $7 and its long-run average cost is $4, the firm is likely to be experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) s unk costs

105) _____

106) I f a firm's long-run average cost remains at $4 when output increases, the firm is experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) a shift in its long-run average cost curve

106) _____

107) I f a firm's long-run average cost is $4 and when output increases long-run average cost decreases to $3, the firm is experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) a shift in its long-run average cost curve

107) _____

108) I f a firm's long-run average cost is $4 and when output increases long-run average cost increases to $4.50, the firm is experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) a shift in its long-run average cost curve

108) _____

109) E conomies of scale are often associated with ________.

A) i ncreased specialization B) d ecreasing returns to scale C) i ncreased complexity and bureaucracy D) a n upward shift in its long-run average cost curve

109) _____

110) D iseconomies of scale are often associated with ________.

A) i ncreasing returns to scale B) i ncreased complexity and bureaucracy C) i ncreased specialization D) a downward shift in its long-run average cost curve

110) _____

111) D iseconomies of scale are often associated with all of the following except which one?

A) d ecreasing returns to scale B) i ncreased complexity and bureaucracy

111) _____

C) d ownsizing

D) i ncreased specialization

112) I f the price of corn, an input to corn chips, increases, this will cause the short-run average total cost curves to shift ________ and the long-run average cost curve to shift ________.

A) u pward; upward B) u pward; downward C) d ownward; upward D) d ownward; downward

112) _____

113) I f the price of avocados, an input to ready-made guacamole, decreases, this will cause the short-run average total cost curves to shift ________ and the long-run average cost curve to shift ________.

A) u pward; upward B) u pward; downward C) d ownward; upward D) d ownward; downward

113) _____

114) A technological advance in the production of sour cream will cause the short-run average total cost curves for sour cream to shift ________ and the long-run average cost curve to shift ________.

A) u pward; upward B) u pward; downward C) d ownward; upward D) d ownward; downward

114) _____

115) A technological advance in the production of humidifiers will cause the short-run average total costs to produce humidifiers to ________ and the long-run average costs to ________.

A) i ncrease; increase B) d ecrease; decrease C) i ncrease; decrease D) d ecrease; increase

115) _____

116)

116) _____

In the figure above, the firm has diseconomies of scale ________.

A) f or any quantity of shoes beyond 500 million pairs B) b etween 300 million and 500 million pairs of shoes C) f or any quantity of shoes up to 300 million pairs D) f or any quantity of shoes beyond 300 million pairs TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

117) I f a firm is minimizing costs at its current output level, then the firm is operating at a point along the long-run average cost curve.

117) _____

118) I n the short-run, if a firm is minimizing costs at its current output level, then the firm is operating at a point along the long-run average cost curve.

118) _____

119) T he relationship between the long-run marginal cost and the long-run average cost differs from the relationship between the short-run marginal cost and the short-run average total cost.

119) _____

120) I f a firm's long-run average cost is equal to $2.50 over a given range of output, this means that the firm's long-run marginal cost is greater than $2.50.

120) _____

121) A ny shift in the short-run average total cost curve will shift the long-run average cost curve.

121) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Price Marginal Product

Variable Input 1 $20 A

Variable Input 2 $30 B

Fixed Input $40 60

Suppose you are the manager of Super Suds, a large manufacturer of laundry detergent that uses two variable inputs and one input that is fixed in the short-run.

122) R efer to the table above. In the short run, if A = 30 and B = 45, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y our firm is minimizing costs.

122) _____

123) R efer to the table above. In the short run, if A = 40 and B = 40, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y our firm is minimizing costs.

123) _____

124) R efer to the table above. In the short run, if A = 20 and B = 40, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y our firm is minimizing costs.

124) _____

125) R efer to the table above. In the short run, A = 30 and B = 45, but you expected the price of Input 1 to increase. If the price of Input 1 rises, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

125) _____

D) Y ou should make no changes.

126) R efer to the table above. In the short run, A = 30 and B = 45, but you expected the price of Input 2 to increase. If the price of Input 2 rises, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

126) _____

127) R efer to the table above. In the short run, A = 30 and B = 45, but you expected the price of Input 1 to decrease. If the price of Input 1 decreases, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

127) _____

128) R efer to the table above. In the short run, A = 30 and B = 45, but you expected the price of Input 2 to decrease. If the price of Input 2 decreases, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

128) _____

Price Marginal Product

Variable Input 1

Variable Input 2

Fixed Input

$3 A

$9 B

$36 108

Suppose you are the manager of Big Mess Managers, a large manufacturer of paper towels that uses two variable inputs and one input that is fixed in the short-run.

129) R efer to the table above. In the short run, if A = 9 and B = 27, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y our firm is minimizing costs.

129) _____

130) R efer to the table above. In the short run, if A = 6 and B = 30, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y our firm is minimizing costs.

130) _____

131) R efer to the table above. In the short run, if A = 12 and B = 21, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y our firm is minimizing costs.

131) _____

132) R efer to the table above. In the short run, A = 9 and B = 27, but you expected the price of Input 1 to increase. If the price of Input 1 rises, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

132) _____

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

133) R efer to the table above. In the short run, A = 9 and B = 27, but you expected the price of Input 2 to increase. If the price of Input 2 rises, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

133) _____

134) R efer to the table above. In the short run, A = 9 and B = 27, but you expected the price of Input 1 to decrease. If the price of Input 1 decreases, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

134) _____

135) R efer to the table above. In the short run, A = 9 and B = 27, but you expected the price of Input 2 to decrease. If the price of Input 2 decreases, which of the following is true?

A) Y ou should buy more of Input 1 and less of Input 2.

B) Y ou should buy more of Input 2 and less of Input 1.

C) Y ou should buy less of the Fixed Input.

D) Y ou should make no changes.

135) _____

136) I f an increase in production lowers your firm's short-run average total cost, your firm is likely experiencing ________ and should consider ________ output levels.

A) d iseconomies of scale; expanding B) d iseconomies of scale; contracting C) e conomies of scale; expanding D) e conomies of scale; contracting

136) _____

137) I f an increase in production increases your firm's short-run average total cost, your firm is likely experiencing ________ and should consider ________ output levels.

A) e conomies of scale; contracting B) e conomies of scale; expanding C) d iseconomies of scale; expanding D) d iseconomies of scale; contracting

137) _____

138) B ig Summer Pools is a relatively new company that installs residential pools. The manager has noticed that has the company continues to increase the number of pools installed, its short-run average total cost continues to fall. This information suggests that Big Summer Pools ________.

A) s hould considering reducing the scale of their operations B) i s experiencing constant returns to scale C) i s experiencing economies of scale D) i s experiencing diseconomies of scale

138) _____

139) B ig Summer Pools is a relatively new company that installs residential pools. The manager has noticed that has the company continues to increase the number of pools installed, its short-run average total cost are not changing. This information suggests that Big Summer Pools is experiencing ________.

A) e conomies of scale B) c onstant returns to scale C) d iseconomies of scale D) t echnological advances

139) _____

140) I f you read a news report announces a large company is downsizing, which of the following is likely to be true regarding the company?

A) I ts long-run marginal costs are greater to its long run average cost.

140) _____

B) I ts long-run marginal costs are less to its long run average cost.

C) I t is experiencing economies of scale.

D) I ts long-run marginal costs are equal to its long run average cost.

141) I f you read a news report announces a large company is expanding, which of the following is likely to be true regarding the company?

A) I ts long-run marginal costs are equal to its long run average cost.

B) I t is experiencing constant returns to scale.

C) I ts long-run marginal costs are less to its long run average cost.

D) I ts long-run marginal costs are greater to its long run average cost.

141) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

142) A ll else equal, if the price of a variable input rises, managers should decrease the use of that input and increase the use of other inputs.

142) _____

143) A ll else equal, if the price of a variable input falls, managers should decrease the use of that input and increase the use of other inputs.

143) _____

144) I f an increase in production lowers your firm's short-run average total cost, you should consider expanding current output levels.

144) _____

145) I f an increase in production increases your firm's short-run average total cost, you should consider expanding current output levels.

145) _____

146) I f your firm is experiencing economies of scale, you should consider expanding current output levels.

146) _____

1) A 2) D 3) D 4) C 5) C 6) B 7) D 8) C 9) C 10) D 11) D 12) C 13) C 14) B 15) A 16) B 17) C 18) D 19) A 20) B 21) D 22) D 23) D 24) D 25) A 26) T RUE 27) F ALSE 28) F ALSE 29) T RUE 30) T RUE 31) B 32) D 33) C 34) B 35) D 36) C 37) D 38) D 39) A 40) C 41) A 42) A 43) D 44) B 45) C 46) D 47) B 48) C 49) B 50) C 51) D

52) B 53) D 54) C 55) D 56) F ALSE 57) T RUE 58) F ALSE 59) T RUE 60) F ALSE 61) D 62) B 63) B 64) D 65) D 66) A 67) B 68) B 69) A 70) D 71) C 72) B 73) A 74) D 75) A 76) D 77) D 78) C 79) D 80) A 81) A 82) A 83) A 84) A 85) B 86) T RUE 87) F ALSE 88) F ALSE 89) T RUE 90) T RUE 91) A 92) B 93) D 94) D 95) A 96) D 97) A 98) D 99) B

100) C 101) A 102) C 103) B

104) A 105) C 106) B 107) A 108) C 109) A 110) B 111) D 112) A 113) D 114) D 115) B 116) A 117) T RUE 118) T RUE 119) F ALSE 120) F ALSE 121) T RUE 122) D 123) B 124) B 125) B 126) A 127) A 128) B 129) D 130) B 131) A 132) B 133) A 134) A 135) B 136) C 137) D 138) C 139) B 140) A 141) C 142) T RUE 143) F ALSE 144) T RUE 145) F ALSE 146) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) E conomic competition refers to ________.

A) a market structure and the behavior of the buyers and sellers in that market B) a n intense rivalry among individual firms C) a n intense rivalry among buyers in a market D) a market structure in which there is an intense rivalry among individual firms and buyers

1) _______

2) I n a competitive market, buyers have ________ impact on the market price and sellers have ________ impact on the market price.

A) n o; some B) s ome; some C) s ome; no D) n o; no

2) _______

3) I n a perfectly competitive market, firms ________.

A) h ave free entry B) m ust obtain a patent in order to sell in the market C) f ace legal barriers D) m ust obtain a copyright in order to sell in the market

3) _______

4) I n a perfectly competitive market, firms ________.

A) f ace legal barriers C) h ave market power

4) _______ B) a re price takers D) f ace transaction costs

5) I f a firm is a price taker, this means that the firm ________.

A) h as transaction costs B) h as the ability to change the price of the good or service C) h as no ability to change the price of the good or service D) h as market power

5) _______

6) I f a market has no barriers to entry, this means ________.

A) i t is costless for firms to enter B) f irms are required to purchase a patent C) t here is free entry into the market D) n ew firms are preventing from entering the market

6) _______

7) W hich of the following is an example of a homogeneous good?

A) s mart phones B) s unglasses C) y ellow onions

7) _______

8) W hich of the following is an example of a homogeneous good?

A) p ajamas B) t -shirts C) b ooks 9) W hich of the following is an example of a homogeneous good?

A) d igital cameras B) t oothpaste C) g reen peppers 10) W hich of the following is an example of a homogeneous good?

A) d eodorant B) a vocados C) l ipstick

D) j eans 8) _______ D) l emons 9) _______ D) j eans 10) ______ D) f lip flops

11) W hich of the following is an example of a homogeneous good?

A) c onditioner B) s hampoo C) l aundry detergent D) f resh green beans

11) ______

12) W hich of the following is an example of a homogeneous good?

12) ______

A) p otato chips C) g reen cabbage

B) h ot dogs D) l aundry detergent

13) A ll of the following are homogeneous goods except which one?

A) s awdust B) t oothpaste C) w hite onions

13) ______ D) f resh parsley

14) A ll of the following are characteristics of a perfectly competitive market except which one?

A) m any buyers and sellers B) h omogeneous goods C) n o transaction costs D) b arriers to entry

14) ______

15) A ll of the following are characteristics of a perfectly competitive market except which one?

A) p erfect information B) h omogeneous goods C) t ransaction costs D) n o barriers to entry

15) ______

16) A ll of the following are characteristics of a perfectly competitive market except which one?

A) p erfect information B) h eterogeneous goods C) n o barriers to entry D) n o transaction costs

16) ______

17) A ll of the following are characteristics of a perfectly competitive market except which one?

A) n o barriers to entry B) n o transaction costs C) h omogeneous goods D) n o perfect information

17) ______

18) W hich of the following is an example of a perfectly competitive market?

A) t he market for laundry detergent B) t he market for paper towels C) t he market for soybeans D) t he market for designer jeans

18) ______

19) W hich of the following is an example of a perfectly competitive market?

A) t he market for hot dogs B) t he market for cotton C) t he market for frozen chicken nuggets D) t he market for breakfast cereal

19) ______

20) W hich of the following is an example of a perfectly competitive market?

A) t he market for sliced sandwich bread B) t he market for ice cream C) t he market for nickel D) t he market for multivitamins

20) ______

21) W hich of the following is an example of a perfectly competitive market?

A) t he market for coffee drinks B) t he market for copper C) t he market for cake mix D) t he market for breakfast cereal

21) ______

22) W hich of the following is an example of a perfectly competitive market?

A) t he market for cucumbers B) t he market for minivans C) t he market for lipstick D) t he market for women's running shoes

22) ______

23) A ll of the following are examples of perfectly competitive markets except which one?

A) t he market for red peppers B) t he market for cotton C) t he market for yellow onions D) t he market for sunglasses

23) ______

24) T he market for jeans is not perfectly competitive because ________.

A) j eans are not a homogeneous good B) t here are few sellers C) s ellers are price takers D) t here are few buyers

24) ______

25) T he market for makeup is not perfectly competitive because ________.

A) s ellers are price takers B) t here are few sellers

25) ______

C) m akeup is not a homogeneous good

D) t here are few buyers

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) E conomic competition refers to a market structure in which there is an intense rivalry among individual firms.

26) ______

27) A n individual corn farmer is example of a perfectly competitive firm.

27) ______

28) B ecause perfectly competitive markets have free entry, it is costless for firms to enter the market.

28) ______

29) I t can cost a firm hundreds of thousands of dollars to enter a perfectly competitive market.

29) ______

30) I n perfectly competitive market, the price of a good or service is the transaction cost.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) T o maximize profits, a manager must select the quantity of output that ________.

A) m aximizes the difference between total revenue and total cost B) m aximizes the difference between marginal revenue and marginal cost C) m aximizes the difference between total revenue and marginal cost D) m aximizes the difference between marginal revenue and total cost

31) ______

32) M arginal analysis ________.

A) c ompares the total benefit and total cost of an action B) m aximizes the difference between marginal revenue and total cost C) m aximizes the difference between marginal revenue and marginal cost D) c ompares the marginal benefit and marginal cost of an action

32) ______

33) A ll of the following are true for a perfectly competitive firm's demand curve except which one?

A) I t is equal to the market demand curve.

B) I t is equal to the market price at all quantities.

C) I t is perfectly elastic.

D) I t is horizontal.

33) ______

34) A ll of the following are true for a perfectly competitive firm's demand curve except which one?

A) I t is horizontal.

B) I t is perfectly elastic.

C) I t is equal to the market price at all quantities.

D) I t is downward sloping.

34) ______

35) A ll of the following are true for a perfectly competitive firm's marginal revenue except which one?

A) I t is equal to the market price.

B) I t is identical to the firm's demand curve.

C) I t is horizontal.

D) I t is downward sloping.

35) ______

36) A perfectly competitive firm's marginal cost curve is ________.

A) v ertical B) d ownward sloping C) U -shaped D) h orizontal

36) ______

37) I f a perfectly competitive firm is producing 500 units of output and the marginal revenue from producing the 500th unit of output is $4 and the marginal cost is $3.50, which of the following is true?

A) T he firm is producing the profit-maximizing output.

B) T he firm should decrease production.

37) ______

C) T he firm should increase production.

D) T he firm is taking a loss from producing the 500th unit.

38) I f a perfectly competitive firm is producing 500 units of output and the marginal revenue from producing the 500th unit of output is $3 and the marginal cost is $3.50, which of the following is true?

A) T he firm is earning a profit from producing the 500th unit.

B) T he firm should increase production.

C) T he firm is producing the profit-maximizing output.

D) T he firm should decrease production.

38) ______

39) A perfectly competitive firm is producing the profit-maximizing output level when their variable cost increases. If the market price does not change, to maximize profit, the firm will need to ________.

A) d ecrease production B) m aintain the current output level C) i ncrease production D) i ncrease production by the amount of the variable cost increase

39) ______

40) A perfectly competitive firm is producing the profit-maximizing output level when their variable

40) ______

cost decreases. If the market price does not change, to maximize profit, the firm will need to ________.

A) d ecrease production by the amount of the variable cost decrease B) d ecrease production C) i ncrease production D) m aintain the current output level 41) I f a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price exceeds the firm's average total cost, the firm is ________.

A) i ncurring an economic loss B) e arning economic profits C) n ot producing at the profit-maximizing output level D) e arning a competitive return

41) ______

42) I f a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price is less than the firm's average total cost, the firm is ________.

A) i ncurring an economic loss B) e arning a competitive return C) e arning economic profits D) n ot producing at the profit-maximizing output level

42) ______

43) I f a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the market price is equal to the firm's average total cost, the firm is ________.

A) n ot producing at the profit-maximizing output level B) i ncurring an economic loss C) e arning a competitive return D) e arning economic profits

43) ______

44) I f a perfectly competitive firm is producing at the output level where marginal revenue is equal

to margin

___ ___

al cost 44) and at this output level, the firm's total revenue is less than its variable cost, the firm _______ _.

A) s hould decrease production C) i s earning a competitive return

B) s hould increase production D) s hould shut-down

45) I f a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the firm's average variable cost is $3 and the market price is $2, the firm ________.

A) i s earning a competitive return B) s hould shut-down C) s hould increase production D) s hould decrease production

45) ______

46) A perfectly competitive firm is producing 700 units, which is their profit-maximizing output level. The market price for their good is $2 and the firm's average total cost to produce the 700 units is $0.50. What is their profit or loss from producing the 700 units?

A) $ 1,750 B) - $1,050 C) - $1,750 D) $ 1,050

46) ______

47) A perfectly competitive firm is producing 1,200 units, which is their profit-maximizing output level. The market price for their good is $5 and the firm's average total cost to produce the 1,200 units is $4.50. What is their profit or loss from producing the 1,200 units?

A) $ 600 B) - $600 C) $ 1,200 D) - $550

47) ______

48) A perfectly competitive firm is producing 1,100 units, which is their profit-maximizing output level. The market price for their good is $4 and the firm's average total cost to produce the 1,100 units is $4 Which of the following is true?

A) T he firm is incurring an economic loss.

B) T he firm is earning a competitive return.

C) T he firm is earning an economic profit.

D) T he firm should increase its production.

48) ______

49) A perfectly competitive firm's short-run supply curve is its ________ curve above its minimum ________.

A) m arginal cost; average fixed cost B) a verage variable cost; marginal cost C) a verage fixed cost; marginal cost D) m arginal cost; average variable cost

49) ______

50) T he sum of the quantity supplied by all firms in the short-run at various prices is equal to the short-run ________ curve.

A) m arket demand B) m arket supply C) m arket average variable cost D) m arket average total cost

50) ______

Quantity

Total Cost

495

1500

496 497 498 499 500 501 502

1505 1512 1520 1530 1545 1562 1580

The table above shows the total cost for Happy Cows, a perfectly competitive dairy farm, at various levels of production.

The market price for Happy Cows dairy is $10 per unit of dairy product.

51) R efer to the table above. What is the marginal revenue of producing the 500th unit of dairy product?

A) $ 10 B) $ 15 C) $ 5,000 D) $ 1,545

51) ______

52) R efer to the table above. What is the marginal cost of producing the 500th unit of dairy product?

A) $ 5,000 B) $ 15 C) $ 10 D) $ 1,545

52) ______

53) R efer to the table above. What is the profit-maximizing output level for Happy Cows?

A) 4 99 B) 4 98 C) 5 01 D) 5 00

53) ______

54) R efer to the table above. At the profit-maximizing output level, how much does Happy Cows earn in profit?

A) $ 1,530 B) $ 3,460 C) $ 5,000 D) $ 3,455

54) ______

55) R efer to the table above. If Happy Cows is currently producing 501 units of dairy products, which of the following statements is true?

A) H appy Cows can increase profit by increasing production.

B) H appy Cows can increase profit by decreasing production.

C) H appy Cows is producing the profit-maximizing output level.

D) H appy Cows is earning a competitive return at this output level.

55) ______

56) I n the figure above, the profit-maximizing quantity is ________.

A) 1 0 B) 3 0 C) 5 0

56) ______ D) 4 0

57) I n the figure above, the owners of the firm are A) m aking an economic profit.

B) I t is not possible to determine how much profit or loss the owners are making because more information about the price of the product is required.

C) m aking a competitive return.

D) i ncurring an economic loss.

57) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

58) I f a perfectly competitive firm is producing the profit-maximizing output level when their variable cost increase, with no change in the market price, the new profit-maximizing output level will be found below their current output level.

58) ______

59) C hanges in a perfectly competitive firm's variable cost will change the profit-maximizing output level.

59) ______

60) A perfectly competitive firm's short-run supply curve is its marginal cost curve above the minimum average total cost.

60) ______

61) I f a perfectly competitive firm is incurring an economic loss, it is always cost minimizing to shut down.

61) ______

62) I f a perfectly competitive firm is earning the competitive return, then the market price is equal to the firm's average variable cost.

62) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

63) I f a perfectly competitive firm is producing an output level that sets its marginal revenue equal to its short-run marginal cost (MR = MC) and its long-run marginal cost (MR = LMC), the firm ________.

A) i s maximizing its short-run profit, but not its long-run profit B) i s maximizing its short-run and long-run profit C) i s maximizing its long-run profit, but not its short-run profit D) s hould increase production to maximize its short-run and long-run profit

63) ______

64) I n a perfectly competitive market, an increase in the market demand will shift the perfectly competitive firm's ________ curve ________.

A) d emand; downward B) d emand; upward C) m arginal cost; upward D) m arginal cost; downward

64) ______

65) I n a perfectly competitive market, an increase in the market demand will shift the perfectly competitive firm's ________ curve ________.

A) m arginal revenue; upward B) m arginal cost; upward C) m arginal cost; downward D) m arginal revenue; downward

65) ______

66) I n a perfectly competitive market, a decrease in the market demand will shift the perfectly competitive firm's ________ curve ________.

A) d emand; upward B) m arginal cost; upward C) m arginal cost; downward D) d emand; downward

66) ______

67) I n a perfectly competitive market, a decrease in the market demand will shift the perfectly competitive firm's ________ curve ________.

A) m arginal revenue; upward B) m arginal cost; upward C) m arginal cost; downward D) m arginal revenue; downward

67) ______

68) I n response to an increase in the market demand, to maximize short-run profits, managers of perfectly competitive firms will ________ production by employing ________ inputs.

A) i ncrease; more fixed B) d ecrease; less variable C) d ecrease; less fixed D) i ncrease; more variable

68) ______

69) I n response to a decrease in the market demand, to maximize short-run profits, managers of perfectly competitive firms will ________ production by employing ________ inputs.

A) i ncrease; more fixed B) d ecrease; less variable C) i ncrease; more variable D) d ecrease; less fixed

69) ______

70) I n response to an increase in the market demand, to maximize short-run profits, managers of perfectly competitive firms will ________ production and move ________ along the marginal cost curve.

A) d ecrease; downward B) i ncrease; downward C) i ncrease; upward D) d ecrease; upward

70) ______

71) I n response to a decrease in the market demand, to maximize short-run profits, managers of perfectly competitive firms will ________ production and move ________ along the marginal cost curve.

A) d ecrease; upward B) i ncrease; upward C) i ncrease; downward D) d ecrease; downward

71) ______

72) A t its current level of quantity, a perfectly competitive firm's marginal revenue is $2.50, its short-run marginal cost is $2.50 and its long-run marginal cost is $2.00. Which of the following

statnts is emetrue?

72)

______ A) T he firm should decrease its production to maximize profit in the short-run.

B) T he firm is maximizing its long-run profit, but not its short-run profit. C) T he firm is maximizing its short-run profit, but not its long-run profit. D) T he firm should increase its production to maximize profit in the short-run.

73) A t its current level of quantity, a perfectly competitive firm's marginal revenue is $3.25, its short-run marginal cost is $3.25 and its long-run marginal cost is $3.00. Which of the following statements is true?

A) T he firm should increase its production to maximize profit in the short-run.

B) T he firm is maximizing its short-run profit, but not its long-run profit.

C) T he firm is maximizing its long-run profit, but not its short-run profit.

D) T he firm should decrease its production to maximize profit in the short-run.

73) ______

74) A t its current level of quantity, a perfectly competitive firm's marginal revenue is $3.25, its short-run marginal cost is $3.25 and its long-run marginal cost is $3.25. Which of the following statements is true?

A) T he firm is maximizing both its short-run and long-run profit.

B) T he firm is not maximizing its short-run or long-run profit.

C) T he firm is maximizing its short-run profit, but not its long-run profit.

D) T he firm is maximizing its long-run profit, but not its short-run profit.

74) ______

75) I f at its current production level, a perfectly competitive firm's marginal revenue and long-run marginal cost are equal to $5 and its long-run average cost is $4, which of the following statements is true?

A) T he firm should expect the market price of its product to fall.

B) T he firm should expect to earn positive economic profit indefinitely.

C) T he firm should expect the market price of its product to increase.

D) T he firm should expect the market supply curve to decrease.

75) ______

76) I f at its current production level, a perfectly competitive firm's marginal revenue and long-run marginal cost are equal to $0.50 and its long-run average cost is $0.35, which of the following statements is true?

A) T he firm should expect to earn positive economic profit indefinitely.

B) T he firm should expect the market supply curve to decrease.

C) T he firm should expect the market price of its product to increase.

D) T he firm should expect the market price of its product to fall.

76) ______

77) I f at its current production level, a perfectly competitive firm's marginal revenue and long-run marginal cost are equal to $1.50 and its long-run average cost is $1.65, which of the following statements is true?

A) T he firm should expect the market price of its product to increase.

B) T he firm should expect the market price of its product to fall.

C) T he firm should expect the market supply curve to increase.

D) T he firm should expect to earn positive economic profit indefinitely.

77) ______

78) I f at its current production level, a perfectly competitive firm's marginal revenue and long-run marginal cost are equal to $1.50 and its long-run average cost is $1.50, which of the following statements is true?

A) T he firm should expect to earn positive economic profit indefinitely.

B) T he firm should expect the market price of its product to increase.

C) T he firm should expect the market price of its product to fall.

78) ______

D) T he firm is earning zero economic profit.

79) P erfectly competitive firms are earning economic profits at a market price of $5 and an average

79) ______

total cost of $4. If new firms enter and do not affect the cost for all firms, the market price will ________ until it reaches ________.

A) i ncrease; $5 B) f all; $5 C) f all; $4 D) i ncrease; $4 80) P erfectly competitive firms are earning economic profits at a market price of $10 and an average total cost of $8. If new firms enter and increase the average total cost for all firms, the market price will ________ until ________.

A) f all; economic profit is equal to zero B) i ncrease; it reaches $10 C) f all; it reaches $8 D) i ncrease; economic profit is equal to zero

80) ______

81) P erfectly competitive firms are earning economic profits at a market price of $6 and an average total cost of $5. If new firms enter and increase the average total cost for all firms, the market price will ________ until ________.

A) f all; it reaches the new lower average total cost B) i ncrease; economic profits are equal to zero C) i ncrease; it reaches the new higher average total cost D) f all; it reaches the new higher average total cost

81) ______

82) P erfectly competitive firms are earning economic profits at a market price of $18 and an average total cost of $15. If new firms enter and increase the average total cost for all firms, the market price will ________ until ________.

A) i ncrease; it reaches the new higher average total cost B) i ncrease; economic profits are equal to zero C) f all; it reaches the new lower average total cost D) f all; it reaches the new higher average total cost

82) ______

83) I n the short run, a decrease in the market demand will cause a(n) ________ in the market equilibrium price and a perfectly competitive firm's demand and marginal revenue curve to shift ________.

A) d ecrease; downward B) d ecrease; upward C) i ncrease; upward D) i ncrease; downward

83) ______

84) I n the short run, a decrease in the market demand will cause a perfectly competitive firm to ________ production and ________.

A) i ncrease; incur economic losses B) i ncrease; earn economic profit C) d ecrease; incur economic losses D) d ecrease; earn economic profit

84) ______

85) I n a perfectly competitive market, a decrease in the market demand will ultimately lead to ________ firms in the market and a ________ market equilibrium quantity.

A) f ewer; higher B) m ore; higher C) f ewer; lower D) m ore; lower

85) ______

86) P erfectly competitive firms are earning economic profits at a market price of $12 and an average

86) ______

total cost of $10. If new firms enter and do not affect the cost for all firms, the market price will ________ until it reaches ________.

A) i ncrease; $16 B) d ecrease; $10 C) d ecrease; $11 D) i ncrease; $13 87) I f a perfectly competitive firm adopts a new technology, greater economic profit is possible in the ________, but a competitive return will be earned in the ________ as the market supply will ________.

87) ______

A) s hort run; long run; increase C) l ong run; short run; decrease

B) l ong run; short run; increase D) s hort run; long run; decrease 88) ______

88)

Suppose all firms in the market have the same costs as illustrated above. Of the following, which is the most likely action for a manager of the firms to take?

A) I ncrease the price of their grain.

B) A ttempt to keep other firms from entering the market.

C) A dvertise their product.

D) S hut down.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

89) I n the short run, managers are limited because at least one input is fixed.

89) ______

90) T he long-run marginal cost curve intersects the minimum point on the long-run average cost curve.

90) ______

91) T he long-run profit-maximizing quantity is found by setting the long-run marginal cost equal to the long-run average cost.

91) ______

92) I n response to a decrease in the market demand, to maximize short-run profits, managers of perfectly competitive firms will decrease production by employing fewer fixed inputs.

92) ______

93) A t its current production level, a perfectly competitive firm's marginal revenue and long-run marginal cost are equal to $4 and its long-run average cost is $3, it should expect the market price of its product to fall.

93) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

94) I f a perfectly competitive firm is producing 200 units and, at the 200th unit, the difference between marginal revenue and marginal cost (MR - MC) is positive, which of the following is true?

A) T he firm should increase production to maximize profit.

B) T he 200th unit costs more to produce than the firm earns in revenue.

94) ______

C) T he firm is maximizing profit.

D) T he firm should decrease production to maximize profit.

95) I f a perfectly competitive firm is producing 2,500 units and, at the 2,500th unit, the difference between marginal revenue and marginal cost (MR - MC) is positive, which of the following is true?

95) ______

A) T he 2,500th unit costs more to produce than the firm earns in revenue.

B) T he firm should increase production to maximize profit.

C) T he firm is maximizing profit.

D) T he firm should decrease production to maximize profit.

96) I f a perfectly competitive firm is producing 1,500 units and, at the 1,500th unit, the difference between marginal revenue and marginal cost (MR - MC) is negative, which of the following is true?

96) ______

A) T he firm is maximizing profit.

B) T he firm should decrease production to maximize profit.

C) T he firm should increase production to maximize profit.

D) T he 1,500th unit costs less to produce than the firm earns in revenue.

97) I f a perfectly competitive firm is producing 500 units and, at the 500th unit, the difference between marginal revenue and marginal cost (MR - MC) is negative, which of the following is true?

97) ______

A) T he firm should decrease production to maximize profit.

B) T he firm should increase production to maximize profit.

C) T he firm is maximizing profit.

D) T he 500th unit costs less to produce than the firm earns in revenue.

98) I f a perfectly competitive firm is producing 3,000 units and, at the 3,000th unit, the difference between marginal revenue and marginal cost (MR - MC) is zero, which of the following is true?

A) T he firm should increase production to maximize profit.

B) T he firm should decrease production to maximize profit.

C) T he firm is maximizing profit.

D) T he firm should exactly double production to maximize profit.

98) ______

99) I f a perfectly competitive firm is producing 2,000 units and, at the 2,000th unit, the difference between marginal revenue and marginal cost (MR - MC) is zero, which of the following is true?

A) T he firm is maximizing profit.

B) T he firm should decrease production to maximize profit.

C) T he firm should increase production to maximize profit.

D) T he firm should exactly double production to maximize profit.

99) ______

100) I f the market price is $3 and a perfectly competitive firm is producing 2,200 units and the marginal cost to produce the 2,200th unit is $2.85, which of the following is true?

A) T he firm should decrease production to maximize profit.

B) T he firm is maximizing profit.

C) T he difference between marginal revenue and marginal cost (MR - MC) for the 2,200th unit

100) _____

is negative.

D) T he firm should increase production to maximize profit.

101) I f the market price is $4 and a perfectly competitive firm is producing 3,200 units and the marginal cost to produce the 3,200th unit is $3.88, which of the following is true?

A) T he firm should increase production to maximize profit.

101) _____

B) T he firm is maximizing profit.

C) T he difference between marginal revenue and marginal cost (MR - MC) for the 3,200th unit is negative.

D) T he firm should decrease production to maximize profit.

102) I f the market price is $5 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

A) T he difference between marginal revenue and marginal cost (MR - MC) for the 1,200th unit

102) _____

is positive.

B) T he firm should decrease production to maximize profit.

C) T he difference between marginal revenue and marginal cost (MR - MC) for the 1,200th unit is negative.

D) T he firm is maximizing profit.

103) I f the market price is $3 and a perfectly competitive firm is producing 1,200 units and the marginal cost to produce the 1,200th unit is $4.53, which of the following is true?

A) T he firm is maximizing profit.

B) T he firm should increase production to maximize profit.

C) T he difference between marginal revenue and marginal cost (MR - MC) for the 1,200th unit

103) _____

is negative.

D) T he difference between marginal revenue and marginal cost (MR - MC) for the 1,200th unit is positive.

104) I f the market price is $4 and a perfectly competitive firm is producing 500 units and the marginal cost to produce the 500th unit is $5.13, which of the following is true?

A) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is

104) _____

negative.

B) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is positive.

C) T he firm should increase production to maximize profit.

D) T he firm is maximizing profit.

105) I f the market price is $4 and a perfectly competitive firm is producing 500 units and the marginal cost to produce the 500th unit is $4, which of the following is true?

A) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is

105) _____

negative.

B) T he firm is maximizing profit.

C) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is positive.

D) T he firm should increase production to maximize profit.

106) I f the market price is $2 and a perfectly competitive firm is producing 1,000 units and the marginal cost to produce the 1,000th unit is $2, which of the following is true?

A) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is

106) _____

positive.

B) T he firm is not maximizing profit.

C) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is negative.

D) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is zero.

107) I f the market price is $2.75 and a perfectly competitive firm is producing 1,100 units and the

marginal

cost to 107) produce the 1,100th unit is $2.75, which of the followin g is true?

____ _

A) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is negative.

B) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is zero.

C) T he firm is not maximizing profit.

D) T he difference between marginal revenue and marginal cost (MR - MC) for the 500th unit is positive.

108) I f a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning positive economic profits, the firm should anticipate ________.

A) e arning economic profits indefinitely B) t he market supply to decrease C) t he market equilibrium price to increase D) n ew firms to enter the market

108) _____

109) I f a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning positive economic profits, the firm should anticipate ________.

A) t he market equilibrium price to decrease B) e arning economic profits indefinitely C) t he market supply to decrease D) t he market equilibrium price to increase

109) _____

110) I f a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning positive economic profits, the firm should anticipate ________.

A) t he market equilibrium price to increase B) t he market supply to decrease C) e arning economic profits indefinitely D) e arning a competitive profit in the long-run

110) _____

111) I f a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning negative economic profits, the firm should anticipate ________.

A) t he market equilibrium price to decrease B) n ew firms to enter the market C) t he market supply to decrease D) t he market supply to increase

111) _____

112) I f a perfectly competitive firm is producing the short-run profit-maximizing quantity and is earning negative economic profits, the firm should anticipate ________.

A) n ew firms to enter the market B) t he market supply to increase C) t he market equilibrium price to decrease D) t he market equilibrium price to increase

112) _____

113) O verexpansion can cause a perfectly competitive firm to ________.

A) p roduce at a quantity where the marginal revenue exceeds the firm's average total cost B) p roduce at a quantity where the market price exceeds the firm's average total cost C) e arn economic profit D) i ncur economic losses

113) _____

114) O verexpansion can cause a perfectly competitive firm to ________.

114) _____

A) e arn economic profit B) p roduce at a quantity where the marginal revenue exceeds the firm's average total cost C) p roduce at a quantity where the market price exceeds the firm's average total cost D) p roduce at a quantity where the average total cost exceeds the firm's marginal revenue 115) O verexpansion can cause a perfectly competitive firm to ________.

A) p roduce at a quantity where the average total cost exceeds the market price B) e arn economic profit C) p roduce at a quantity where the market price exceeds the firm's average total cost D) p roduce at a quantity where the marginal revenue exceeds the firm's average total cost

115) _____

116) T he cycle of increased market demand that leads to ________ and then a(n) ________ in market price has caused many firms bankruptcy.

A) u nderexpansion; decrease B) o verexpansion; decrease C) u nderexpansion; increase D) o verexpansion; increase

116) _____

117) T he cycle of increased market demand that leads to ________ and then a(n) ________ in the market supply curve has caused many firms bankruptcy.

A) u nderexpansion; decrease B) u nderexpansion; increase C) o verexpansion; increase D) o verexpansion; decrease

117) _____

118) T he cycle of ________ market demand that leads to ________, and then an increase in the market 118) _____ supply curve has caused many firms bankruptcy.

A) i ncreased; overexpansion B) d ecreased; increased firm level production C) i ncreased; underexpansion D) d ecreased; overexpansion TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

119) I f the market price is $2 and a perfectly competitive firm is producing 1,000 units and the marginal cost to produce the 1,000th unit is $2, the difference between marginal revenue and marginal cost (MR - MC) is zero.

119) _____

120) O verexpansion can bankrupt a perfectly competitive firm.

120) _____

121) I f the market price is $3 and a perfectly competitive firm is producing 1,400 units and the marginal cost to produce the 1,400th unit is $2, the difference between marginal revenue and marginal cost (MR - MC) is zero.

121) _____

122) I f the market price is $1 and a perfectly competitive firm is producing 1,500 units and the marginal cost to produce the 1,500th unit is $2, the difference between marginal revenue and marginal cost (MR - MC) is negative.

122) _____

123) I f the market price is $4 and a perfectly competitive firm is producing 1,500 units and the marginal cost to produce the 1,500th unit is $3.50, the difference between marginal revenue and marginal cost (MR - MC) is negative.

123) _____

1) A 2) D 3) A 4) B 5) C 6) C 7) C 8) D 9) C 10) B 11) D 12) C 13) B 14) D 15) C 16) B 17) D 18) C 19) B 20) C 21) B 22) A 23) D 24) A 25) C 26) F ALSE 27) T RUE 28) F ALSE 29) T RUE 30) F ALSE 31) A 32) D 33) A 34) D 35) D 36) C 37) C 38) D 39) A 40) C 41) B 42) A 43) C 44) D 45) B 46) D 47) A 48) B 49) D 50) B 51) A

52) B 53) A 54) B 55) B 56) D 57) D 58) T RUE 59) T RUE 60) F ALSE 61) F ALSE 62) F ALSE 63) B 64) B 65) A 66) D 67) D 68) D 69) B 70) C 71) D 72) C 73) B 74) A 75) A 76) D 77) A 78) D 79) C 80) A 81) D 82) D 83) A 84) C 85) C 86) B 87) A 88) D 89) T RUE 90) T RUE 91) F ALSE 92) F ALSE 93) T RUE 94) A 95) B 96) B 97) A 98) C 99) A 100) D 101) A 102) A 103) C

104) A 105) B 106) D 107) B 108) D 109) A 110) D 111) C 112) D 113) D 114) D 115) A 116) B 117) C 118) A 119) T RUE 120) T RUE 121) F ALSE 122) T RUE 123) F ALSE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A ll of the following are characteristics of a monopoly market except which one?

A) n o close substitutes to the good produced in the market B) a n insurmountable barrier to entry exists C) a single seller in the market D) t he firm is a price-taker

1) _______

2) F or ________ units a monopoly produces, the price is ________ than the marginal revenue.

A) s ome; less B) a ll; greater C) s ome; greater D) a ll; less

2) _______

3) A ll of the following are true regarding a monopolist's marginal revenue except which one?

A) I t is less than the price for all units produced.

B) I t is equal to the change in total revenue resulting from a change in quantity sold.

C) I t is downward sloping.

D) I t is equal to price for all units produced.

3) _______

4) A ll of the following are true regarding a monopolist's marginal revenue except which one?

A) I t is horizontal.

B) I t is equal to the change in total revenue resulting from a change in quantity sold.

C) I t is downward sloping.

D) I t is less than the price for all units produced.

4) _______

5) I f a monopolist's demand curve is linear, its marginal revenue curve is ________ and has a slope that is ________ as the demand curve.

A) u pward sloping; the same B) l inear; the same C) l inear; twice as steep D) u pward sloping; twice as steep

5) _______

6) A monopolist with a linear demand curve will have a marginal revenue curve with ________ intercept and ________ slope as the demand curve.

A) a steeper; the same B) t he same; the same C) t he same; steeper D) a steeper; steeper

6) _______

7) F or any demand curve, the marginal revenue is ________ when the demand is ________.

A) p ositive; inelastic B) n egative; elastic C) n egative; unit elastic D) p ositive; elastic

7) _______

8) F or any demand curve, the marginal revenue is ________ when the demand is ________.

A) n egative; inelastic B) n egative; unit elastic C) p ositive; inelastic D) n egative; elastic

8) _______

9) A monopoly is charging $25 for its product and at this price, the price elasticity of demand is 2.

What is its marginal revenue?

A) $ 25.00 B) $ 2.00 C) $ 12.50 D) $ 15.50

9) _______

10) A monopoly is charging $60 for its product and at this price, the price elasticity of demand is 1.5.

What is its marginal revenue?

A) $ 1.50 B) $ 30 C) $ 20 D) $ 60

10) ______

11) A monopoly is charging $40 for its product and at this price, the price elasticity of demand is 0.5.

What is its marginal revenue?

11) ______

A) - $10

B) $ 40

C) $ 10

D) - $40

12) A monopoly is charging $10 for its product and at this price, the price elasticity of demand is 0.25. What is its marginal revenue?

A) - $30 B) - $25 C) $ 30 D) $ 25

12) ______

13) A monopoly is charging $15 for its product and at this price, the price elasticity of demand is 1.0.

What is its marginal revenue?

A) $ 1 B) $ 0 C) - $15 D) $ 15

13) ______

14) A monopoly is charging $500 for its product and at this price, the price elasticity of demand is 1.0. What is its marginal revenue?

A) $ 0 B) - $500 C) $ 1 D) $ 500

14) ______

15) I f the price elasticity of demand is 1.5 and the marginal revenue is $50, what is the price of the product?

A) $ 150 B) $ 15 C) $ 100 D) $ 50

15) ______

16) I f the price elasticity of demand is 1.2 and the marginal revenue is $20, what is the price of the product?

A) $ 12 B) $ 20 C) $ 120 D) $ 1,200

16) ______

17) T he ________ the price elasticity of demand, the ________ marginal revenue is to price.

A) l arger; further B) l arger; closer C) s maller; further D) s maller; closer

17) ______

Price

Quantity

100 99 98 97 96 95 94

95 96 97 98 99 100 101

The above table shows a sample of prices and the quantity sold by a monopolist.

18) R efer to the table above. What is the monopolist's total revenue if they charge a price of $95?

A) $ 95 B) $ 10 C) $ 9,500 D) $ 9,450

18) ______

19) R efer to the table above. What is the monopolist's marginal revenue of the 96th unit?

A) $ 9,504 B) $ 8 C) - $4 D) $ 4

19) ______

20) R efer to the table above. What is the monopolist's marginal revenue of the 98th unit?

A) - $2 B) - $4 C) $ 2 D) $ 0

20) ______

21) R efer to the table above. What is the monopolist's marginal revenue of the 101st unit?

A) - $6 B) $ 0 C) - $2 D) $ 6

21) ______

22) R efer to the table above. What is the monopolist's marginal revenue of the 100th unit?

A) - $4 B) $ 4 C) - $6 D) $ 0

22) ______

23) R efer to the table above. What is the price elasticity of demand at a price of $97?

23) ______

A) 1

B) 0

C) 0 .89

D) 1 .04

24) R efer to the table above. At a price of $99, which of the following statements is true regarding the price elasticity of demand?

A) T he price elasticity of demand is equal to 2.0.

B) T he price elasticity of demand is less than one.

C) T he price elasticity of demand is equal to one.

D) T he price elasticity of demand is greater than one.

24) ______

25) R efer to the table above. At a price of $96, which of the following statements is true regarding the price elasticity of demand?

A) T he price elasticity of demand is equal to 2.0.

B) T he price elasticity of demand is greater than one.

C) T he price elasticity of demand is equal to one.

D) T he price elasticity of demand is less than one.

25) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) A monopoly's demand curve is the same as the market demand curve.

26) ______

27) A monopolist's marginal revenue is greater than the price for all units produced.

27) ______

28) I n order for a monopolist to sell more of its product, it must lower price.

28) ______

29) I t is not possible for a monopolist to have a negative marginal revenue.

29) ______

30) I f a monopolist has a downward-sloping, nonlinear demand curve, the price will exceed the marginal revenue for all units produced.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) T o maximize profit, a monopolist must ________.

A) p roduce the quantity that makes the marginal revenue exceed the marginal cost B) p roduce the quantity that makes the difference between marginal revenue and marginal

31) ______

cost positive C) p roduce the quantity that sets marginal revenue equal to marginal cost D) p roduce the quantity that makes the difference between marginal revenue and marginal cost

negative

32) I f a monopolist is producing the profit-maximizing output level and at this output level, the marginal cost is $4 and the profit-maximizing price is $9, what is the markup?

A) 0 .22 B) 2 .25 C) 5 D) 2

32) ______

33) I f a monopolist is producing the profit-maximizing output level and at this output level, the marginal cost is $5 and the profit-maximizing price is $12, what is the markup?

A) 2 .4 B) 1 .25 C) 3 D) 0 .42

33) ______

34) T he smaller the price elasticity of demand, the ________ the profit-maximizing price and the ________ the markup.

A) h igher; smaller B) l ower; larger C) l ower; smaller D) h igher; larger

34) ______

35) T he larger the price elasticity of demand, the ________ the profit-maximizing price and the ________ the markup.

A) h igher; larger B) l ower; smaller C) h igher; smaller D) l ower; larger

35) ______

36) A t the profit-maximizing quantity, the price elasticity of demand is 2.5. What is the markup?

A) 1 .32 B) 1 .67 C) 2 .57 D) 0 .71

36) ______

37) M anagers of a monopoly maximize profit in the long run by setting ________ equal to ________.

A) m arginal revenue; long-run average variable cost B) m arginal revenue; long-run marginal cost C) m arginal cost; long-run average cost D) m arginal cost; long-run average variable cost

37) ______

38) I f a monopoly is earning positive economic profit in the short run, it ________ possible for the firm to earn positive economic profit in the long run as long as ________.

A) i s; an insurmountable barrier exists B) i s; average total cost exceeds the price C) i s not; marginal revenue equals the long-run marginal cost D) i s not; an insurmountable barrier exists

38) ______

39) I f an insurmountable barrier to entry is lifted and a market that was once dominated by a monopolist is now perfectly competitive, the market equilibrium price will be ________ and the market equilibrium quantity will be ________.

A) h igher; higher B) l ower; higher C) h igher; lower D) l ower; lower

39) ______

40) I f an insurmountable barrier to entry is lifted and a market that was once dominated by a monopolist is now perfectly competitive, the total surplus will ________.

A) i ncrease B) d ecrease C) d ecrease by exactly 50 percent D) n ot change

40) ______

41) A monopolist creates a deadweight loss by producing a quantity that is ________ the efficient quantity.

A) l ess than B) m ore than C) e xactly double D) e qual to

41) ______

42) T o maximize profits, a perfectly competitive firm and a monopoly will set ________ equal to ________.

A) m arginal revenue; marginal cost B) m arginal revenue; average total cost C) m arginal cost; average variable cost D) m arginal cost; average total cost

42) ______

43) I f Sweet Dreams creates a new insomnia drug, the managers of Sweet Dreams are most likely to obtain which of the following to prevent another firm from copying their drug's formula?

A) p atent B) c opyright C) t rademark D) t rade secret

43) ______

44) T he duck that is used to advertise AFLAC's insurance is an example of a ________.

A) t rade secret B) c opyright C) t rademark D) p atent

44) ______

45) T he Ronald McDonald character that is used to advertise McDonald's restaurants is an example of a ________.

A) p atent B) t rademark C) t rade secret D) c opyright

45) ______

46) I f Walt Disney Company produces a new animated movie for children, they are likely to seek a ________ to protect the work.

A) c opyright B) t rademark C) p atent D) t rade secret

46) ______

47) A ll of the following are true for a natural monopoly except which one?

47) ______

A) I t has control over an essential raw material.

B) I t has large economies of scale.

C) T he quantity at which its long-run average cost first reaches a minimum exceeds the quantity consumers demand.

D) I ts long-run average cost falls as production increases.

48) A ll of the following are barriers to entry except which one?

A) p atents B) t he presence of a natural monopoly in the market C) c ontrol of an essential raw material D) a deadweight loss

48) ______

49) A s a natural monopoly ________ production, its ________ constantly falls throughout the range of demand.

A) d ecreases; marginal cost B) d ecreases; long-run average cost C) i ncreases; sunk cost D) i ncreases; long-run average cost

49) ______

Quantity

Price

MC

0 10 20 30 40 50 60 70 80 90 100 110

400 380 360 340 320 300 280 260 240 220 200 180

180 185 200 225 260 305 360 425 500 585 680 785

The above table shows the quantity demanded at varying prices and the corresponding marginal cost of production for a monopoly firm.

50) R efer to the table above. What is the monopolist's total revenue from producing 40 units of output?

A) $ 300 B) $ 10,200 C) $ 12,800 D) $ 260

50) ______

51) R efer to the table above. What is the marginal revenue of producing the 30th unit of output?

A) $ 3,000 B) $ 12,000 C) $ 300 D) $ 10,200

51) ______

52) R efer to the table above. What is the marginal revenue of producing the 40th unit of output?

A) $ 260 B) $ 12,800 C) $ 12,000 D) $ 2,600

52) ______

53) R efer to the table above. What is the profit-maximizing output level?

A) 4 0 units B) 3 0 units C) 6 0 units

53) ______ D) 5 0 units

54) R efer to the table above. If the monopoly produces 40 units, charges the corresponding price of $320, and its average total cost to produce the 40 units is $206, what is their economic profit or economic loss?

A) $ 4,560 B) - $4,560 C) $ 56,000 D) $ 12,600

54) ______

55) R efer to the table above. If the monopoly produces 20 units, charges the corresponding price of $360, and its average total cost to produce the 20 units is $187, what is their economic profit or economic loss?

A) - $3,400 B) $ 3,460 C) - $2,350 D) $ 4,560

55) ______

56)

56) ______

In the figure above, profit-maximizing managers will produce the 1,000th unit of output because A) i ts P > ATC. B) t he ATC curve is downward sloping at this quantity.

C) i ts MR > MC. D) i ts P > MR. 57)

57)

___ ___

In the figure above, the profit-m aximizin g quantity is ________ and the profit-m aximizin g price is ________ .

A) 3 00; B) 3 00; $35 $20 C) 4 D) N one of the above answers is correct.

00; $30 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

58) F irms with market power are price takers.

58) ______

59) T he more substitutes a good has, the larger the markup.

59) ______

60) M onopolies always earn economic profits.

60) ______

61) I f a monopoly's total revenue is less than its variable cost, it should shut-down in order to minimize its loss.

61) ______

62) A deadweight loss can result from producing less or more than the efficient quantity.

62) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

63) I f Sweet Dreams controls 85 percent of the market for insomnia drugs and the remaining 15 percent of the market includes many other, smaller competing firms, Sweet Dreams is a ________ firm.

A) c ompetitive fringe B) m onopoly C) d ominant D) p erfectly competitive

63) ______

64) I f Happy Avocados controls 91 percent of the market for ready-made guacamole dip and the

64) ______

remaining 9 percent of the market includes many other, smaller competing firms, Happy Avocados is a ________ firm.

A) d ominant B) p erfectly competitive C) c ompetitive fringe D) m onopoly 65) I f Frozen Super Paws Treats controls 89 percent of the market for frozen ice cream treats for dogs and the remaining 11 percent includes many other, smaller competing firms, Frozen Super Paws Treats is a ________ firm.

A) m onopoly B) d ominant C) p erfectly competitive D) c ompetitive fringe

65) ______

66) I f Fruit Toddler Treats controls 90 percent of the organic fruit popsicle market and the remaining

66) ______

10 percent includes many other, smaller competing firms, Fruit Toddler Treats is a ________ firm and the remaining firms are ________.

A) m onopoly; dominant firm B) m onopoly; competitive fringe C) d ominant; competitive fringe D) c ompetitive fringe; dominant 67) I f Magic Wipes controls 83 percent of the sanitary wipes market and the remaining 17 percent includes many other, smaller competing firms, Magic Wipes is a ________ firm and the remaining firms are ________.

A) c ompetitive fringe; dominant B) m onopoly; dominant firm C) d ominant; competitive fringe D) m onopoly; competitive fringe

67) ______

68) I f Best LED controls 87 percent of the LED light bulb market and the remaining 13 percent includes many other, smaller competing firms, Best LED is a ________ firm and the remaining firms are ________.

A) c ompetitive fringe; dominant B) m onopoly; dominant firm C) d ominant; competitive fringe D) m onopoly; competitive fringe

68) ______

69) F or a dominant firm, the residual demand is the ________ minus quantity supplied by the ________.

A) m arket supply; dominant firm B) m arket demand; dominant firm C) m arket demand; competitive fringe D) m arket supply; competitive fringe

69) ______

70) T he ________ and the ________ represent a dominant firm's demand and marginal revenue.

A) m arket demand curve; residual marginal revenue curve B) m arket demand curve; market marginal revenue curve C) r esidual demand curve; residual marginal revenue curve D) r esidual demand curve; market marginal revenue curve

70) ______

71) T he dominant firm's demand curve is the residual demand curve until it reaches the price at which it intersects the ________.

A) t he average cost curve B) m arket supply curve C) c ompetitive fringe's supply curve D) m arket demand curve

71) ______

72) A dominant firm's demand curve is ________ the market demand curve at all points where the competitive fringe's production is ________.

A) g reater than; equal to zero B) i dentical to; negative C) i dentical to; equal to zero D) g reater than; negative 73) A t a price of $2.00, the total quantity demanded of a product is 30,000 units and the competitive

72) ______

73) ______

fringe produces 12,000 units. What is the dominant firm's residual demand at a price of $2.00?

A) 4 2,000 B) 1 2,000 C) 1 8,000 D) 3 0,000 74) A t a price of $3.00, the total quantity demanded of a product is 125,000 units and the competitive fringe produces 20,000 units. What is the dominant firm's residual demand at a price of $3.00?

A) 1 45,000 B) 9 5,000 C) 1 05,000 D) 2 0,000

74) ______

75) A t a price of $4.00, the total quantity demanded of a product is 95,000 units and the competitive

75) ______

fringe produces 15,000 units. What is the dominant firm's residual demand at a price of $4.00?

A) 9 0,000 B) 1 5,000 C) 8 0,000 D) 1 10,000 76) A t a price of $1.50, the total quantity demanded of a product is 80,000 units and the competitive

76) ______

fringe produces 15,000 units. What is the dominant firm's residual demand at a price of $1.50?

A) 8 0,000 B) 9 5,000 C) 5 0,000 D) 6 5,000 77) T o maximize profit, a dominant firm sets ________ equal to ________.

A) r esidual demand; marginal cost B) m arginal revenue; residual marginal cost C) r esidual marginal revenue; residual marginal cost D) r esidual marginal revenue; marginal cost

77) ______

78) I f at its current production level, a dominant firm's marginal cost is $4 and its residual marginal revenue is $3, which of the following statements is true?

A) I t is maximizing profit.

B) I t should exactly double production to maximize profit.

C) I t should decrease production to maximize profit.

D) I t should increase production to maximize profit.

78) ______

79) I f at its current production level, a dominant firm's marginal cost is $3 and its residual marginal revenue is $3, which of the following statements is true?

A) I t should decrease production to maximize profit.

B) I t should exactly double production to maximize profit.

C) I t is maximizing profit.

D) I t should increase production to maximize profit.

79) ______

80) I f at its current production level, a dominant firm's marginal cost is $2 and its residual marginal revenue is $3, which of the following statements is true?

A) I t is maximizing profit.

B) I t should increase production to maximize profit.

C) I t should decrease production to maximize profit.

D) I t should cut production in half to maximize profit.

80) ______

81) I f at its current production level, a dominant firm's marginal cost is $5.50 and its residual marginal revenue is $5.50, which of the following statements is true?

A) I t should cut production in half to maximize profit.

B) I t should increase production to maximize profit.

81) ______

C) I t should decrease production to maximize profit.

D) I t is maximizing profit.

82) A t any quantity, the price elasticity of demand is ________ on the residual demand curve than on

82) ______

the market demand curve. This means any change in price will lead to a ________ change in the quantity demanded for the dominant firm compared to the change in quantity demanded in the market.

A) l arger; smaller B) l arger; larger C) s maller; smaller D) s maller; larger 83) T he presence of a competitive fringe ________ a dominant firm's markup.

A) e xactly doubles B) i ncreases C) d ecreases

83) ______ D) d oes not affect

84) I f a dominant firm is able to drive out the competitive fringe and become a monopolist, the firm would have ________ than if they were to remain a dominant firm.

A) e xactly double the markup B) e xactly half the markup C) a higher markup D) a lower markup

84) ______

85) T he ________ competitive fringe firms in the market, the ________ the markup and the ________ the profit for the dominant firm.

A) m ore; lower; lower B) l ess; lower; higher C) l ess; higher; lower D) m ore; higher; lower

85) ______

86) T he ________ competitive fringe firms in the market, the ________ the markup and the ________ the profit for the dominant firm.

A) l ess; lower; higher B) l ess; higher; lower C) m ore; higher; lower D) l ess; lower; lower

86) ______

87) A ll else equal, managers of dominant firms want ________ competitive fringe firms in the market as this allows dominant firms to have a ________ markup.

A) f ewer; higher B) m ore; lower C) m ore; higher D) f ewer; lower

87) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

88) A dominant firm's residual marginal revenue curve is always linear and downward sloping.

88) ______

89) A dominant firm's residual demand lies above the market demand.

89) ______

90) T o maximize profit, the dominant firm produces the quantity that sets its marginal cost equal to its residual marginal revenue.

90) ______

91) T he residual demand curve and the residual marginal revenue curve represent a dominant firm's demand and marginal revenue.

91) ______

92) T o maximize profit, a dominant firm sets residual demand equal to marginal cost.

92) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

93) A ll of the following are characteristics of monopolistic competition except which one?

A) m any sellers B) n o barriers to entry C) b arriers to entry D) f irms produce differentiated products

93) ______

94) A ll of the following are characteristics of monopolistic competition except which one?

A) n o barriers to entry B) m any sellers C) f irms produce differentiated products D) f ew sellers

94) ______

95) A ll of the following are characteristics of monopolistic competition except which one?

A) n o barriers to entry B) f irms produce homogeneous products C) f irms produce differentiated products D) m any sellers

95) ______

96) M onopolistically competitive firms have some market power because ________.

A) t here are perfect substitutes for each firm's product B) t here are no barriers to entry C) e ach firm cannot set their own price D) e ach firm produces a differentiated product

96) ______

97) M onopolistically competitive firms have some market power because ________.

A) t here are many sellers in the market B) e ach firm produces a differentiated product C) t here are perfect substitutes for each firm's product D) t here are no barriers to entry

97) ______

98) M onopolistically competitive firms have some market power because ________.

A) t here are many sellers in the market B) t here are barriers to entry C) t here are no perfect substitutes for each firm's product D) t here are no barriers to entry

98) ______

99) A monopolistically competitive firm's demand curve is ________.

A) v ertical B) h orizontal C) u pward sloping D) d ownward sloping

99) ______

100) A monopolistically competitive firm's marginal revenue curve is ________.

A) u pward sloping B) h orizontal C) v ertical D) d ownward sloping

100) _____

101) T he demand curve for the monopolistically competitive firm makes the ________ lie ________ the demand curve.

A) m arginal revenue curve; below B) m arginal revenue curve; above C) m arginal cost curve; below D) m arginal cost curve; above

101) _____

102) I f a monopolistically competitive firm is producing 1,200 units of output and the marginal revenue from producing the 1,200th unit of output is $5 and the marginal cost is $4.50, which of the following is true?

A) T he firm maximizing profit.

B) T he difference between marginal revenue and marginal cost (MR - MC) at the 1,200th unit

102) _____

is negative.

C) T he firm should decrease production to maximize profit.

D) T he firm should increase production to maximize profit.

103) I f a monopolistically competitive firm is producing 700 units of output and the marginal revenue from producing the 700th unit of output is $5 and the marginal cost is $5.50, which of the following is true?

A) T he difference between marginal revenue and marginal cost (MR - MC) at the 1,200th unit is zero.

B) T he firm should increase production to maximize profit.

C) T he firm is maximizing profit.

103) _____

D) T he firm should decrease production to maximize profit.

104) I f a monopolistically competitive firm is producing 800 units of output and the marginal revenue

104) _____

from producing the 800th unit of output is $2.25 and the marginal cost is $2.25, which of the following is true?

A) T he firm should decrease production to maximize profit.

B) T he firm should increase production to maximize profit.

C) T he firm maximizing profit.

D) T he difference between marginal revenue and marginal cost (MR - MC) at the 1,200th unit is positive.

105) I f a monopolistically competitive firm is producing 450 units of output and at this output level, the price is $15 and the average total cost is $12, the firm profit/loss is equal to ________.

A) - $1,525 B) - $1,350 C) $ 1,525 D) $ 1,350

105) _____

106) I f a monopolistically competitive firm is producing 5,000 units of output and at this output level, the price is $20 and the average total cost is $7, the firm profit/loss is equal to ________.

A) - $50,000 B) $ 50,000 C) - $65,000 D) $ 65,000

106) _____

107) I f a monopolistically competitive firm is producing 9,000 units of output and at this output level, the price is $10 and the average total cost is $10, the firm profit/loss is equal to ________ and it ________ possible for the firm to be in long-run equilibrium.

A) $ 900; is not B) $ 0; is C) $ 900; is D) $ 0; is not

107) _____

108) I f a monopolistically competitive firm is producing 7,000 units of output and at this output level, the price is $12 and the average total cost is $10, the firm profit/loss is equal to ________ and it ________ possible for the firm to be in long-run equilibrium.

A) $ 14,000; is B) - $14,000; is C) - $14,000; is not D) $ 14,000; is not

108) _____

109) I f a monopolistically competitive firm is producing 500 units of output and at this output level, the price is $2 and the average total cost is $2, the firm profit/loss is equal to ________ and it ________ possible for the firm to be in long-run equilibrium.

A) $ 0; is not B) $ 50; is C) - $50; is not D) $ 0; is

109) _____

110) I f a monopolistically competitive firm is producing 50,000 units of output and at this output level, the price is $200 and the average total cost is $198, the firm profit/loss is equal to ________ and it ________ possible for the firm to be in long-run equilibrium.

A) - $100,000; is B) - $100,000; is not C) $ 100,000; is D) $ 100,000; is not

110) _____

111) I f a monopolistically competitive firm is producing 25,000 units of output and at this output level, the price is $80 and the average total cost is $79, the firm profit/loss is equal to ________ and it ________ possible for the firm to be in long-run equilibrium.

A) - $25,000; is not B) - $25,000; is C) $ 25,000; is not D) $ 25,000; is

111) _____

112) I f a monopolistically competitive firm is producing 30,000 units of output and at this output level, the price is $100 and the average total cost is $100, the firm profit/loss is equal to ________ and it ________ possible for the firm to be in long-run equilibrium.

A) $ 100; is B) $ 0; is C) $ 0; is not D) - $100; is not

112) _____

113) M onopolistically competitive firms ________ earn profits in the long run due to ________.

A) c an; barriers to entry B) c annot; no barriers to entry

113) _____

C) c an; no barriers to entry

D) c annot; barriers to entry

114) I n the long run, monopolistically competitive firms earn ________ economic profits due to ________.

A) p ositive; barriers to entry B) p ositive; no barriers to entry C) z ero; barriers to entry D) z ero; no barriers to entry

114) _____

115) T he ________ of barriers to entry ________ monopolistically competitive firms from earning positive economic profits in the long run.

A) p resence; enables B) l ack of; prevents C) l ack of; enables D) p resence; prevents

115) _____

116) I n the long run, a monopolistically competitive firm produces where its ________ is tangent to its ________.

A) a verage total cost; marginal revenue curve B) m arginal cost; demand curve C) a verage total cost; demand curve D) m arginal cost; marginal revenue curve

116) _____

117) I n the long run, a monopolistically competitive firm produces where its ________ is ________ its demand curve.

A) a verage total cost; greater than B) a verage total cost; tangent to C) m arginal cost; greater than D) m arginal cost; tangent to

117) _____

118) I n the figure above, to maximize profit the managers should produce ________ units and set a price of ________.

A) 1 ,000; $30 B) 2 ,000; $20 C) 2 ,000; $10 D) N one of the above answers is correct.

118) _____

119) I n the figure above, the owners are A) m aking a competitive return.

B) m aking an economic profit. C) i ncurring an economic loss. D) N one of the above answers are necessarily correct because more information about the

119) _____

price is required.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

120) O nly monopolies and dominant firms have market power.

120) _____

121) W hen managers of monopolistically competitive firms solve for the profit-maximizing quantity, they are determining the market quantity.

121) _____

122) I f a monopolistically competitive firm is producing 4,000 units of output and at this output level, the price is $18 and the average total cost is $8, it is not possible for the firm to be in long-run equilibrium.

122) _____

123) I f a monopolistically competitive firm is producing 2,000 units of output and at this output level, the price is $10 and the average total cost is $10, it is not possible for the firm to be in long-run equilibrium.

123) _____

124) I f a monopolistically competitive firm is producing 6,000 units of output and at this output level, the price is $15 and the average total cost is $15, it is possible for the firm to be in long-run equilibrium.

124) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

125) O f the monopoly, dominant firm, and monopolistic competition models, ________ use marginal analysis to determine the profit-maximizing quantity of production.

A) o nly dominant firms B) a ll three C) o nly monopolies D) o nly monopolistically competitive and dominant firms

125) _____

126) O f the monopoly, dominant firm, and monopolistic competition models, ________ use marginal analysis to determine the profit-maximizing quantity of production.

A) o nly monopolies and monopolistically competitive B) o nly monopolistically competitive and dominant firms C) o nly monopolies and dominant firms D) a ll three

126) _____

127) A n insurmountable barrier to entry can enable a firm to earn positive economic profits in ________.

A) t he short run and the long run B) t he short run, but not the long run C) n either the short run nor the long run D) t he long run, but not the short run

127) _____

128) A n insurmountable barrier to entry can enable a firm to produce a quantity at which its ________ exceeds its ________ in the long run.

A) a verage total cost; price B) p rice; average total cost C) m arginal cost; price D) m arginal cost; marginal revenue

128) _____

129) Y ou are the manager of Happy Avocados, the dominant firm in the ready-made guacamole market. At your current production level, your marginal cost is $0.50 and you have estimated

that price your elastic

____ _

ity of 129) demand is 1.2.

What price should you charge to maximiz e your profit?

A) $ 1.20

B) $ 0.50

C) $ 6

D) $ 3

130) Y ou are the manager of Happy Avocados, the dominant firm in the ready-made guacamole market. At your current production level, your marginal cost is $0.75 and you have estimated that your price elasticity of demand is 1.1. What price should you charge to maximize your profit?

A) $ 11 B) $ 0.75 C) $ 1.1 D) $ 8.25

130) _____

131) Y ou are the manager of Happy Avocados, the dominant firm in the ready-made guacamole market. At your current production level, your marginal cost is $0.60 and you have estimated that your price elasticity of demand is between 1.1 and 1.2. What range of prices should you charge to maximize your profit?

A) T he range between $3.60 and $6.60.

B) T he range between $3.11 and $6.12 C) T he range between $4.60 and $5.60.

D) T he range between $5.60 and $6.60.

131) _____

132) Y ou are the manager of Frozen Super Paws Treats, the dominant firm in market for frozen ice cream treats for dogs. At your current production level, your marginal cost is $1.75 and you have estimated that your price elasticity of demand is 1.5. What price should you charge to maximize your profit?

A) $ 7.45 B) $ 1.50 C) $ 1.75 D) $ 5.25

132) _____

133) Y ou are the manager of Frozen Super Paws Treats, the dominant firm in market for frozen ice cream treats for dogs. At your current production level, your marginal cost is $1.40 and you have estimated that your price elasticity of demand is 1.8. What price should you charge to maximize your profit?

A) $ 4.52 B) $ 6.25 C) $ 1.80 D) $ 3.15

133) _____

134) Y ou are the manager of Frozen Super Paws Treats, the dominant firm in market for frozen ice cream treats for dogs. At your current production level, your marginal cost is $1.60 and you have estimated that your price elasticity of demand is between 1.2 and 1.4. What range of prices should you charge to maximize your profit?

A) T he range between $5.60 and $9.60.

B) T he range between $3.20 and $6.40.

C) T he range between $5.20 and $7.40.

D) T he range between $4.60 and $8.60.

134) _____

135) Y ou are the manager of Frozen Super Paws Treats, the dominant firm in market for frozen ice cream treats for dogs. At your current production level, your marginal cost is $1.00 and you have estimated that your price elasticity of demand is between 1.5 and 1.6. What range of prices should you charge to maximize your profit?

A) T he range between $2.17 and $3.53.

B) T he range between $2.67 and $3.00.

C) T he range between $3.17 and $3.53.

D) T he range between $3.27 and $3.62.

135) _____

136) M anagers of firms with market power prefer a price elasticity of demand equal to ________ compared to ________.

A) 3 .3; 3.2 B) 4 .0; 3.5 C) 1 .2; 1.3 D) 1 .3; 1.2

136) _____

137) M anagers of firms with market power prefer a price elasticity of demand equal to ________ compared to ________.

A) 1 .05; 1.10 B) 4 .5; 4.4 C) 1 .20; 1.10 D) 6 .7; 6.6

137) _____

138) A price elasticity of demand equal to ________ allows a greater markup than a price elasticity of demand equal to ________.

A) 2 .3; 2.1 B) 1 .1; 1.08 C) 3 .1; 2.3 D) 1 .6; 1.8

138) _____

139) A price elasticity of demand equal to ________ allows a greater markup than a price elasticity of demand equal to ________.

A) 1 .4; 1.2 B) 1 .5; 1.7 C) 3 .9; 3.2 D) 2 .8; 2.5

139) _____

140) A price elasticity of demand equal to ________ allows a greater markup than a price elasticity of demand equal to ________.

A) 3 .1; 3.2 B) 3 .4; 4.2 C) 1 .2; 1.1 D) 1 .6; 1.5

140) _____

141) B est Paints has market power and is currently enjoying economic profit. Which of the following is most critical for Best Paints to maintain to protect its profit in the long run?

A) a barrier to entry B) o verexpansion of it products C) u nderexpansion of it products D) t he greenwashing of its products

141) _____

142) I f Happy Avocados successfully lobbies the government to make entry of new firms into the ready-made guacamole market difficult, this is an example of ________.

A) g reenwashing B) e recting a barrier to entry C) e ffective marketing D) i nnovation

142) _____

143) A ll of the following are important for managers of firms with market power except which one?

A) g reenwashing B) e recting barriers to entry C) m arketing D) i nnovation

143) _____

144) I f Happy Avocados successfully markets its ready-made guacamole, it will ________ its demand and ________ its price elasticity of demand.

A) d ecrease; raise B) i ncrease; lower C) i ncrease; raise D) d ecrease; lower

144) _____

145) I f Fruit Toddler Treats, monopolistically competitive producer of organic fruit popsicles emphasizes its use of organic and non-genetically modified ingredients, this is an example of ________.

A) g reenwashing B) g reen marketing C) g reen innovation D) i nnovation

145) _____

146) G reen marketing ________ similar to other types of marketing as its goal is to ________ demand for the product.

A) i s; decrease B) i s not; increase C) i s not; decrease D) i s; increase

146) _____

147) M anagers of firms with market power should be cautious not to ________ when they are earning ________ economic profit.

A) o verexpand; positive B) m ark up their product; negative C) m ark up their product; positive D) o verexpand; negative

147) _____

148) I f Happy Beans is a monopolistically competitive coffee producer and it promotes its use of fair trade coffee beans, this is an example of ________.

A) g reen marketing B) i nnovation C) g reenwashing D) g reen innovation

148) _____

149) M anagers of a monopolistically competitive firm who are enjoying a large economic profit from their recently released innovative new product should ________.

A) b e alert to the possibility of underexpansion B) n ot attempt to erect a barrier to entry C) b e alert to the possibility of overexpansion D) m inimize marketing

149) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

150) T he managers of monopolies, monopolistically competitive firms, and dominant firms all use marginal analysis to determine the profit-maximizing quantity of production.

150) _____

151) I f at its production level, the manager of a firm with market power has a marginal cost of $1.25, is charging a price of $5.00 and has estimated the price elasticity of demand to be 1.3, the manager is charging the profit-maximizing price.

151) _____

152) F or a firm with market power, the profit-maximizing markup of price over marginal cost depends on the price elasticity of demand.

152) _____

153) I f there are very few substitutes for Frozen Super Paws Treats, the firm will have a smaller elasticity and less markup.

153) _____

154) B arriers to entry create a deadweight loss for society.

154) _____

1) D 2) B 3) D 4) A 5) C 6) C 7) D 8) A 9) C 10) C 11) D 12) A 13) B 14) A 15) A 16) C 17) B 18) C 19) D 20) D 21) A 22) A 23) A 24) D 25) D 26) T RUE 27) F ALSE 28) T RUE 29) F ALSE 30) T RUE 31) C 32) B 33) A 34) D 35) B 36) B 37) B 38) A 39) B 40) A 41) A 42) A 43) A 44) C 45) B 46) A 47) A 48) D 49) D 50) C 51) C

52) A 53) A 54) A 55) B 56) C 57) B 58) F ALSE 59) F ALSE 60) F ALSE 61) T RUE 62) T RUE 63) C 64) A 65) B 66) C 67) C 68) C 69) C 70) C 71) D 72) C 73) C 74) C 75) C 76) D 77) D 78) C 79) C 80) B 81) D 82) B 83) C 84) C 85) A 86) D 87) A 88) F ALSE 89) F ALSE 90) T RUE 91) T RUE 92) F ALSE 93) C 94) D 95) B 96) D 97) B 98) C 99) D 100) D 101) A 102) D 103) D

104) C 105) D 106) D 107) B 108) D 109) D 110) D 111) C 112) B 113) B 114) C 115) B 116) C 117) B 118) B 119) A 120) F ALSE 121) F ALSE 122) T RUE 123) F ALSE 124) T RUE 125) B 126) D 127) A 128) B 129) D 130) D 131) A 132) D 133) D 134) A 135) B 136) C 137) A 138) D 139) B 140) A 141) A 142) B 143) A 144) B 145) B 146) D 147) A 148) A 149) C 150) T RUE 151) F ALSE 152) T RUE 153) F ALSE 154) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) B ecause an oligopoly includes a small number of firms, there is the possibility of ________ rather than ________, which can ________ profits for each of the firms.

A) c ooperation; competition; increase B) c ompetition; cooperation; increase C) c ompetition; cooperation; decrease D) c ooperation; competition; decrease

1) _______

2) A ll of the following are true regarding cartels except which one?

A) T hey set the price higher than the competitive price.

B) T hey are illegal.

C) T hey create a deadweight loss.

D) T hey are stable.

2) _______

3) A market with three firms in competition with each other has a equilibrium price of $5 and equilibrium quantity of 10,000. If the three firms form a cartel, the cartel, set price will be ________ than $5 and the set quantity will be ________ than 10,000.

A) g reater; less B) l ess; greater C) g reater; greater D) l ess; less

3) _______

4) A market with four firms in competition with each other has a equilibrium price of $6 and equilibrium quantity of 100,000. If the four firms form a cartel, the cartel, set price will be ________ than $6 and the set quantity will be ________ than 100,000.

A) g reater; less B) l ess; greater C) g reater; greater D) l ess; less

4) _______

5) A market with four firms in competition with each other has a equilibrium price of $25 and equilibrium quantity of 200,000. If the four firms form a cartel, the cartel, set price will be ________ than $25 and the set quantity will be ________ than 200,000.

A) g reater; less B) l ess; greater C) g reater; greater D) l ess; less

5) _______

6) C artels are unstable for each of the following reasons except which one?

A) t he bargaining necessary to form a cartel B) b arriers to entry C) t he self-interest of each member D) e ntry by new firms

6) _______

7) S elf-interest makes cartels unstable for all of the following reasons except which one?

A) E ach firm has an incentive to be the first to report and confess cartel behavior.

B) E ach firm has the incentive to produce more than the agreed upon quantity.

C) E ach firm has an incentive to be the whistle-blower.

D) E ach firm has the incentive to lower their costs by producing less than the agreed upon quantity.

7) _______

8) I f a cartel firm is producing the agreed upon quantity, they are producing at a level where ________.

A) t heir marginal revenue equals their marginal cost B) t he difference between marginal revenue and marginal cost (MR - MC) is negative C) t heir marginal cost exceeds their marginal revenue D) t heir marginal revenue exceeds their marginal cost

8) _______

9) I f a cartel firm is producing a quantity at which the marginal revenue is $2 and the marginal cost is $2, the firm ________.

A) h as acted in self-interest B) h as erected a barrier to entry C) i s producing the agreed upon quantity

9) _______

D) i s producing less than the agreed upon quantity 10) I f a cartel firm is producing a quantity at which the marginal revenue is $4 and the marginal cost is $4, the firm ________.

A) h as acted in self-interest B) i s producing less than the agreed upon quantity C) h as erected a barrier to entry D) i s producing the agreed upon quantity

10) ______

11) I f a cartel firm is producing a quantity at which the marginal revenue is equal to the marginal cost, the firm ________.

A) i s producing less than the agreed upon quantity B) h as erected a barrier to entry C) h as not acted in self-interest D) i s not producing the agreed upon quantity

11) ______

12) B ecause cartel firms produce a quantity that ________ maximize their own firm's profits, there is an incentive to ________.

A) d oes not; act in self-interest B) d oes; act in self-interest C) d oes not; produce less than the agreed upon amount D) d oes; produce more than the agreed upon amount

12) ______

13) C artels are unstable due to all of the following factors except which one?

A) t rade groups B) i ncentive for each firm to serve as the whistle-blower C) i ncentive to act in self-interest D) e ntry of new firms into the market

13) ______

14) I f new firms enter a cartel market, the probability that the cartel will survive ________ if the cartel ________.

A) d ecreases; excludes the new firms from the agreement, but not if the cartel includes the new firms B) i ncreases; excludes the new firms from the agreement, but not if the cartel includes the new firms C) i ncreases; includes or excludes the new firms from the agreement D) d ecreases; includes or excludes the new firms from the agreement

14) ______

15) I f a member of a cartel is the first to alert authorities to the cartel behavior, which of the following will occur to this member firm?

A) T he firm will face significant fines.

B) T he firm's most senior managers will face jail time.

C) T he firm will not be considered whistle-blowers.

D) T he firm will not be penalized.

15) ______

16) I f a member of a cartel is the first to alert authorities to the cartel behavior, which of the following will occur to this member firm?

A) T he firm will face monetary fines, but its managers will not face jail time.

B) T he firm will not be penalized.

C) T he firm will not face monetary fines, but its managers will face jail time.

D) T he firm will face both monetary fines and jail time.

16) ______

17) W hich of the following methods can be used to sustain a cartel?

A) t rade groups B) a cts of self-interest C) t he use of binding contracts D) r emoving barriers to entry

17) ______

A small nation has three gasoline suppliers with a linear monthly market demand equal to: Q = 500,000 - 5P. Each firm's marginal cost (MC) and average total cost (ATC) curves are horizontal at $10,000 per month.

18) R efer to the information above. What is the vertical intercept of the demand curve?

A) 0 .50 B) 1 00,000 C) 0 .20 D) 5 00,000

18) ______

19) R efer to the information above. What is slope of the demand curve?

A) 0 .20 B) 5 C) - 5

19) ______ D) - 0.20

20) R efer to the information above. If the firms compete, what is the equilibrium price in the market?

A) $ 50,000 B) $ 100,000 C) $ 10,000 D) $ 500

20) ______

21) R efer to the information above. If the firms compete, what is the equilibrium quantity in the market?

A) 5 0,000 B) 4 5,000 C) 4 50,000 D) 5 00,000

21) ______

22) R efer to the information above. If the firms compete, how much do each of the firms earn in profit?

A) $ 0 B) $ 100,000 C) $ 50,000 D) $ 10,000

22) ______

23) R efer to the information above. If the firms' managers form a price-fixing cartel that maximizes the firms' total profit, what is the total quantity produced by all firms?

A) 2 25,000 B) 4 5,000 C) 4 50,000 D) 2 2,000

23) ______

24) R efer to the information above. If the firms' managers form a price-fixing cartel that maximizes the firms' total profit, what is price charged in the market?

A) $ 10,000 B) $ 100,000 C) $ 5,500 D) $ 55,000

24) ______

25) R efer to the information above. If the firms' managers form a price-fixing cartel that maximizes 25) ______ the firms' total profit, what is the total economic profit made by all firms?

A) $ 54,000,000 B) 3 ,375,000,000 C) $ 575,000,000 D) $ 10,125,000,000 TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) A ll else equal, a cartel sets the price higher and produces less than in a competitive market.

26) ______

27) E ach firm in a cartel has an incentive to cheat on the agreement and produce less than the bargained amount.

27) ______

28) F irms in a cartel produce a quantity at which marginal revenue exceeds marginal cost.

28) ______

29) I f new firms enter a cartel market, the cartel can either incorporate the new firms into the agreement or exclude them, but regardless of inclusion or exclusion, the probability that the cartel will survive decreases.

29) ______

30) I n order to sustain a cartel, members are required to sign binding contracts.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) A ll of the following are true regarding tacit collusion except which one?

31) ______

A) I t is an informal, unstated agreement.

B) I t harms buyers.

C) I t is more likely when the price elasticity of demand is large.

D) I t is more likely when barriers to entry are high.

32) A ll of the following are true regarding tacit collusion except which one?

32) ______

A) I t is more likely when the price elasticity of demand is small.

B) I t is more likely when barriers to entry are high.

C) I t harms buyers.

D) I t is illegal.

33) A ll of the following are true regarding tacit collusion except which one?

A) I t is an informal, unstated agreement.

B) I t is more likely when barriers to entry are low.

C) I t is more likely when firms' costs are closely related and their products are close substitutes.

D) I t harms buyers.

33) ______

34) W hich of the following is true regarding tacit collusion?

A) I t is a formal agreement.

B) I t is more likely to occur when the price elasticity of demand is small.

C) I t is more likely to occur when barriers to entry are low.

D) I t is illegal.

34) ______

35) W hich of the following is true regarding tacit collusion?

A) I t is more likely to occur when barriers to entry are low.

B) I t is illegal.

C) I t is an informal, unstated agreement.

D) I t is more likely to occur when the price elasticity of demand is large.

35) ______

36) T acit collusion is more likely to occur when firms' costs ________ closely related and their products ________ close substitutes.

A) a re; are not B) a re not; are not C) a re not; are D) a re; are

36) ______

37) I t is more likely for tacit collusion to occur in the ________ market compared to the ________ market.

A) c ommercial airline; fast food B) d og food; commercial airline C) d og food; cellular telephone provider D) f ast food; commercial airline

37) ______

38) I t is more likely for tacit collusion to occur in the ________ market compared to the ________ market.

A) d og food; electric car B) e lectric car; fast food C) f ast food; commercial airline D) f ast food; electric car

38) ______

39) I t is more likely for tacit collusion to occur in the ________ market compared to the ________ market.

A) l uxury cruise ship; paper towel B) p aper towel; luxury cruise ship C) d og food; luxury cruise ship D) p aper towel; commercial airline

39) ______

40) I n tacit collusion, price visibility ________ the cost of cheating and ________ the temptation to cheat.

A) i ncreases; increases B) i ncreases; decreases

40) ______

C) d ecreases; increases

D) d ecreases; decreases

41) I f Best Office Supply states that it will meet any competitor's price on a 500 pack of copy paper and beat it by 10 percent, this is an example of ________.

A) a meet-the-competition clause B) p rice leadership C) a preannouncement D) a barrier to entry

41) ______

42) I f Mario's pizza states that it will meet any competitor's price on a 12 inch, one topping pizza, this is an example of ________.

A) p rice leadership B) a meet-the-competition clause C) a preannouncement D) a high barrier to entry

42) ______

43) F our propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the cost of a gallon of propane to $5.50 next month, this is an example of ________.

A) a meet-the-competition clause B) a precommitment C) p rice leadership D) a preannouncement

43) ______

44) F our propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the service fee to $75 next month, this is an example of ________.

A) a precommitment B) p rice leadership C) a meet-the-competition clause D) a preannouncement

44) ______

45) F our propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the service fee to $75 and raise the cost of a gallon of propane to $5.50 next month, this is an example of ________.

A) a meet-the-competition clause B) p rice leadership C) a precommitment D) a preannouncement

45) ______

46) A common contractual precommitment strategy is ________.

A) a meet-the-competition clause B) a most-favored-customer clause C) p rice visibility D) a meet-or-release clause

46) ______

47) I f Capital Appliances advertises a 60 day low-price guarantee that will refund any of its customers the difference between the price they paid for an appliance and a lower price offered

by Capital Appliances for the same appliance, this is an example of ________.

A) a meet-or-release clause B) p rice visibility C) a most-favored-customer clause D) a meet-the-competition clause

47) ______

48) I f Big City Cameras advertises a 90 day low-price guarantee that will refund any of its customers the difference between the price they paid for a camera and a lower price offered by Big City Cameras for the same camera, this is an example of ________.

A) a most-favored-customer clause B) a meet-the-competition clause C) p rice visibility D) a meet-or-release clause

48) ______

49) I f Happy Campers advertises a 120 day low-price guarantee that will refund any of its customers the difference between the price they paid for a camper and a lower price offered by Happy Campers for the same camper, this is an example of ________.

A) a meet-the-competition clause B) a most-favored-customer clause

49) ______

C) p rice visibility

D) a meet-or-release clause

50) I f Cruise the World advertises a 30 day low-price guarantee that will refund any of its customers

50) ______

the difference between the price they paid for a cruise and a lower price offered by Cruise the World for the same cruise, this is an example of ________.

A) p rice visibility B) a most-favored-customer clause C) a meet-or-release clause D) a meet-the-competition clause 51) I f Happy Campers is in tacit collusion with four smaller camping firms and Happy Campers consistently makes price changes that the other four firms then also make, this is an example of ________ by Happy Campers.

A) p rice leadership B) a precommitment C) a meet-or-release clause D) a meet-the-competition clause

51) ______

52) I f Cruise the World is in tacit collusion with three smaller cruise firms and Cruise the World consistently makes price changes that the other three firms then also make, this is an example of ________ by Cruise the World.

A) a precommitment B) p rice leadership C) a meet-the-competition clause D) a meet-or-release clause

52) ______

53) I f Big City Appliances is in tacit collusion with three smaller appliance firms and Big City Appliances consistently makes price changes that the other three firms then also make, this is an example of ________ by Big City Appliances.

A) a meet-the-competition clause B) a meet-or-release clause C) p rice leadership D) a precommitment

53) ______

54) I f Big City Electronics is in tacit collusion with two smaller electronics firms and Big City Electronics consistently makes price changes that the other two firms then also make, this is an example of ________ by Big City Electronics.

A) a meet-the-competition clause B) a meet-or-release clause C) a precommitment D) p rice leadership

54) ______

55) I f Fuel is Us is in tacit collusion with four smaller propane delivery firms and Fuel is Us consistently makes price changes that the other four firms then also make, this is an example of ________ by Fuel is Us. A) a meet-the-competition clause B) a meet-or-release clause C) p rice leadership D) a precommitment

55) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) T acit collusion is more likely to occur in the commercial airline market than the fast food market.

56) ______

57) P rice visibility can work both for and against tacit collusion.

57) ______

58) W hen firms have a tacit collusion agreement, if prices are highly visible, this decreases the cost of cheating.

58) ______

59) T he primary function of meet-the-competition clauses is to win customers.

59) ______

60) M ost-favored-customer clauses can help support tacit collusion.

60) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

61) C ournot and Stackelberg oligopolies are similar in that they ________.

A) b oth compete on marginal cost B) b oth compete on price

61) ______

C) b oth compete on quantity

D) d o not compete

62) _ _______ and ________ oligopolies are similar in that they both compete on quantity.

A) C ournot; Stackelberg B) S tackelberg; Bertrand C) S tackelberg; Chamberlin D) C ournot; Bertrand

62) ______

63) I n a Cournot oligopoly, managers determine quantity ________ collusion and the managers at each firm believe that once their rival managers choose their quantity, they ________ change it.

A) w ith no; will B) w ith no; will not C) w ith; will D) w ith; will not

63) ______

Price per unit

Market Demand

$100 $90 $80 $70 $60

0 50 100 150 200

The table above shows the market demand for a product that both Firm X and Firm Y manufacture. Both firms produce an identical product and the firms' average total and marginal cost are equal and constant.

64) R efer to the table above. If this market is a Cournot Oligopoly and Firm X is produces 50 units, what is Firm Y's demand at a price of $70?

A) 5 0 B) 0 C) 1 00 D) 1 50

64) ______

65) R efer to the table above. If this market is a Cournot Oligopoly and Firm X is produces 50 units, what is Firm Y's demand at a price of $60?

A) 5 0 B) 2 00 C) 1 50 D) 1 00

65) ______

66) R efer to the table above. If this market is a Cournot Oligopoly and Firm X is produces 50 units, what is Firm Y's marginal revenue at a price of $70?

A) $ 80 B) $ 50 C) $ 60 D) $ 40

66) ______

67) R efer to the table above. If this market is a Cournot Oligopoly and Firm X is produces 50 units, what is Firm Y's marginal revenue at a price of $60?

A) $ 70 B) $ 40 C) $ 60 D) $ 50

67) ______

68) R efer to the table above. If this market is a Cournot Oligopoly and Firm X is produces 50 units,

68) ______

what is Firm Y's profit-maximizing quantity if their average total and marginal cost are constant and equal to $60?

A) 1 50 B) 5 0 C) 1 00 D) 2 00 69) R efer to the table above. If this market is a Cournot Oligopoly and Firm X is produces 50 units,

69) ______

what is Firm Y's profit-maximizing quantity if their average total and marginal cost are constant and equal to $40?

A) 1 00 B) 2 00 C) 5 0 D) 1 50 70) I f Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly, the Cournot equilibrium will ________.

A) o ccur at a point on Happy Cleaners' best-response curve, but not Sparkle Cleaners' best-response curve B) o nly occur if Happy Cleaners and Sparkle Cleaners form a cartel

70) ______

C) p rovide an incentive for both firms to adjust their output D) o ccur at the intersection of Happy Cleaners' and Sparkle Cleaners' best-response curves 71) I f Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a

71) ______

higher cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce ________ than Sparkle Cleaners and charge a price that is ________ Sparkle Cleaners.

A) l ess; greater than B) m ore; less than C) l ess; the same as D) m ore; the same as 72) I f Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a lower cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce ________ than Sparkle Cleaners and charge a price that is ________ Sparkle Cleaners.

A) m ore; less than B) l ess; greater than C) l ess; the same as D) m ore; the same as

72) ______

73) I f Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a lower cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce ________ than Sparkle Cleaners and earn an economic profit that is ________ Sparkle Cleaners.

A) m ore; more than B) m ore; the same as C) l ess; more than D) l ess; the same as

73) ______

74) I f Happy Cleaners and Sparkle Cleaners are in a Cournot oligopoly and Happy Cleaners has a

74) ______

higher cost of production than Sparkle Cleaners, in equilibrium, Happy Cleaners will produce ________ than Sparkle Cleaners and earn an economic profit that is ________ Sparkle Cleaners.

A) l ess; the same as B) l ess; less than C) m ore; the same as D) m ore; less than 75) I n a Cournot oligopoly, the ________ firms in the market, the ________ the equilibrium quantity and the ________ the equilibrium price.

A) m ore; larger; lower B) l ess; smaller; lower C) m ore; smaller; higher D) l ess; larger; lower

75) ______

76) A perfectly competitive market is in equilibrium and 50,000 units are being produced. If four firms take over this market and a Cournot oligopoly is formed, what is the new total equilibrium quantity produced?

A) 6 2,500 B) 6 0,000 C) 5 0,000 D) 4 0,000

76) ______

77) A perfectly competitive market is in equilibrium and 100,000 units are being produced. If three firms take over this market and a Cournot oligopoly is formed, what is the new total equilibrium quantity produced?

A) 7 5,000 B) 1 00,500 C) 8 2,500 D) 1 33,333

77) ______

78) A s the number of firms in a Cournot oligopoly ________, the equilibrium quantity gets closer to the ________ equilibrium quantity.

A) i ncreases; monopoly B) i ncreases; perfectly competitive C) d ecreases; perfectly competitive D) d ecreases; monopolistically competitive

78) ______

79) I n a Cournot oligopoly, if the demand curve is not linear, the firms' best-response curves ________ be downward sloping and ________ be linear.

A) w ill; will not B) w ill not; will C) w ill not; will not D) w ill; will

79) ______

80) T he Chamberlin oligopoly provides a foundation for ________ and differs from the Cournot oligopoly as it assumes firms ________ to each other's actions.

A) c artels; do not respond B) t acit collusion; respond C) c artels; respond D) t acit collusion; do not respond

80) ______

81) H appy Cleaners is a monopoly and cleans 500 homes a month. If Sparkle Cleaners enters the market and a Chamberlin oligopoly is formed, Sparkle Cleaners will clean ________ homes a month in equilibrium.

A) 3 75 B) 2 50 C) 5 00 D) 2 00

81) ______

82) A ll else equal, two firms in a Chamberlin oligopoly will charge a ________ price than two firms in a Cournot oligopoly and earn ________ economic profit.

A) h igher; less B) l ower; less C) l ower; more D) h igher; more

82) ______

83) A ll of the following are true for the leader firm in a Stackelberg oligopoly with a linear demand and marginal cost except which one?

A) T he leader earns more profit than the follower second firm.

B) T he leader earns more profit than if it operated in a Chamberlin oligopoly.

C) T he leader takes the follower second firm's best-response production into consideration when determining its output level.

D) T he leader has first-mover advantage.

83) ______

84) T he leader in a Stackelberg oligopoly with a linear demand and marginal cost produces ________ than the follower second firm, charges ________ price, and earns ________ than the follower in economic profit.

A) m ore; the same; more B) l ess; the same; more C) m ore; a higher; less D) m ore; a higher; more

84) ______

85) I n a Bertrand oligopoly, firms select ________ and earn ________ economic profit.

A) p rice; zero B) p rice; positive C) q uantity; zero D) q uantity; positive

85) ______

86)

Twother o firms firfrom ms, enterin A g. The and manage B, rs are are involve in d in a the Courno mart ket oligopo and ly and barrthe iers figure to shows entrthe best y respons keee p curves

___ ___

for the 86) two firms . In the Cournot equilibri um, Firm A produces ________ units per year and Firm B produces ________ units per year.

A) 2 50; 500

B) 2 00; 100

C) 4 00; 200

D) 2 50; 200

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

87) I n a Cournot oligopoly, the total profit is less when two firms compete compared to the cartel profits.

87) ______

88) T he more firms in a Cournot oligopoly, the greater the profits for each firm.

88) ______

89) A s the number of firms in a Cournot oligopoly increases, the equilibrium quantity gets closer and closer to the monopoly quantity.

89) ______

90) I n a Cournot oligopoly, if a firm's marginal cost is not constant, its best-response curve will not be linear.

90) ______

91) I n a Stackelberg oligopoly, the follower second firm determines its production from its Cournot best-response function.

91) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

92) U sing the market marginal revenue, firms in a cartel or engaged in tacit collusion should set ________ equal to ________ to maximize profit.

A) m arginal revenue; marginal cost B) m arginal revenue; average total cost C) p rice; marginal revenue D) m arginal cost; average total cost

92) ______

93) F irms in a cartel or engaged in tacit collusion should set ________ equal to ________ to maximize profit.

A) t heir firm's marginal revenue; the market marginal cost B) t heir firm's marginal revenue; their firm's marginal cost C) t he market marginal revenue; their firm's marginal cost D) t he market marginal revenue; the market marginal cost

93) ______

94) I f Cruise with Us and Cruise the World are two luxury cruise lines in tacit collusion and Cruise with Us launches a new advertising campaign that states that it will meet any competitor's price on a comparable cruise, Cruise with Us might be tacitly signaling to Cruise the World that they are willing to ________.

A) m aintain current the price B) r aise their price C) l ower their price D) c ut price is exactly half

94) ______

95) I f Best Paints and Paint with Us are paint suppliers in tacit collusion and Best Paints launches a new advertising campaign that states that it will meet any competitor's price on comparable paint, Best Paints might be tacitly signaling to Paint with Us that they are willing to ________.

A) c ut price is exactly half B) r aise their price C) l ower their price D) m aintain current the price

95) ______

96) I f Happy Campers and Camping R Us are camper suppliers in tacit collusion and Happy Campers launches a new advertising campaign that states that it will meet any competitor's price on a comparable camper, Happy Campers might be tacitly signaling to Campers R Us that they are willing to ________.

A) l ower their price B) m aintain current the price C) c ut price is exactly half D) r aise their price

96) ______

97) I f Mario's Pizza and Angelo's Pizza are pizza delivery companies in tacit collusion and Mario's Pizza launches a new advertising campaign that states that it will meet any competitor's price on a comparable pizza, Mario's Pizza might be tacitly signaling to Angelo's Pizza that they are willing to ________.

A) m aintain current the price B) r aise their price C) l ower their price D) c ut price is exactly half

97) ______

98) B est Paper and Copies R Us are two paper suppliers that are competing with each other. If Best Paper announces an upcoming price change next month, it may be signaling to Copies R Us its intent to engage in ________.

A) a Chamberlin oligopoly B) t acit collusion C) a Cournot oligopoly D) a Stackelberg oligopoly

98) ______

99) F rozen Treats and Dairy Treats are two ice cream firms that are competing with each other. If Frozen Treats announces an upcoming price change next month, it may be signaling to Dairy Treats its intent to engage in ________.

A) a Cournot oligopoly B) a Chamberlin oligopoly C) a Stackelberg oligopoly D) t acit collusion

99) ______

100) B est Ink and Ink Jets are two ink suppliers that are competing with each other. If Best Ink announces an upcoming price change next month, it may be signaling to Ink Jets its intent to engage in ________.

A) a Cournot oligopoly B) a Chamberlin oligopoly C) t acit collusion D) a Stackelberg oligopoly

100) _____

101) B est Lights and Bright Lights are two light bulb suppliers that are competing with each other. If Best Lights announces an upcoming price change next month, it may be signaling to Bright Lights its intent to engage in ________.

A) a Stackelberg oligopoly B) a Cournot oligopoly C) a Chamberlin oligopoly D) t acit collusion

101) _____

102) H otels R Us and Hotel Supply are two hotel toiletry suppliers that are competing with each other. If Hotels R Us announces an upcoming price change next month, it may be signaling to Hotel Supply its intent to engage in ________.

A) a Chamberlin oligopoly B) t acit collusion C) a Cournot oligopoly D) a Stackelberg oligopoly

102) _____

103) I f Mario's Pizza, Angelo's Pizza, and Bella's Pizza are all competing in the pizza delivery market

and Bella's

Pizza 103) consisten tly is the first to change prices, Bella's Pizza might be ________ .

____ _

A) o ffering to be the price leader B) s ignaling to the other firms to consistently maintain their prices C) s ignaling to the other firms to consistently raise their prices D) s ignaling to the other firms to consistently lower their prices 104) I f Best Lights, Lights R Us, and Bright Lights are all competing in the light bulb market and Best Lights consistently is the first to change prices, Best Lights might be ________.

A) s ignaling to the other firms to consistently lower their prices B) s ignaling to the other firms to consistently maintain their prices C) o ffering to be the price leader D) s ignaling to the other firms to consistently raise their prices

104) _____

105) I f Best Beds, Bedding R Us, and Sleepy Beds are all competing in the bedding market and Best Beds consistently is the first to change prices, Best Beds might be ________.

A) s ignaling to the other firms to consistently lower their prices B) o ffering to be the price leader C) s ignaling to the other firms to consistently maintain their prices D) s ignaling to the other firms to consistently raise their prices

105) _____

106) I f Happy Campers, Camping R Us, and Camp with Us are all competing in the camping market

106) _____

and Happy Campers consistently is the first to change prices, Best Beds might be ________.

A) o ffering to be the price leader B) s ignaling to the other firms to consistently lower their prices C) s ignaling to the other firms to consistently raise their prices D) s ignaling to the other firms to consistently maintain their prices 107) I f Luxury Spas, Renew Spas, and Relax Spas are all competing in the spa market and Relax Spas consistently is the first to change prices, Relax Spas might be ________.

A) s ignaling to the other firms to consistently lower their prices B) s ignaling to the other firms to consistently raise their prices C) o ffering to be the price leader D) s ignaling to the other firms to consistently maintain their prices

107) _____

108) I f a manager of a firm believes one of their firm's suppliers is engaged in cartel activity, the manager ________ an incentive to report the behavior because they can ________.

A) h as; have to pay whistle-blower fees B) h as; receive treble damages C) d oes not have; have to pay whistle-blower fees D) d oes not have; receive treble damages

108) _____

109) Y ou are the manager of a spa you believe one of your suppliers is engaged in cartel activity. As

the mana

ger, you 109) ________ an incentive to report the behavior because your spa can ________ .

____ _

A) h ave; have to pay whistle-blower fees B) d o not have; have to pay whistle-blower fees C) d o not have; receive treble damages D) h ave; receive treble damages 110) Y ou are the manager of a nail salon you believe one of your suppliers is engaged in cartel activity. As the manager, you ________ an incentive to report the behavior because your nail salon can ________.

A) h ave; have to pay whistle-blower fees B) h ave; receive treble damages C) d o not have; receive treble damages D) d o not have; have to pay whistle-blower fees

110) _____

111) Y ou are the manager of a restaurant you believe one of your suppliers is engaged in cartel activity. As the manager, you ________ an incentive to report the behavior because your restaurant can ________.

A) d o not have; receive treble damages B) h ave; receive treble damages C) h ave; have to pay whistle-blower fees D) d o not have; have to pay whistle-blower fees

111) _____

112) T reble damages are equal to ________ times the amount of damages suffered by the ________.

A) f ive; winning plaintiff B) t hree; winning plaintiff C) t hree; cartel firm D) f ive; cartel firm

112) _____

113) A s the manager of a hotel, you recently noticed that one of your suppliers has started advertising their prices and has changed the specifications of its product to match those of its rivals. The actions of your supplier suggest that any of the following might be occurring except which one?

A) T he supplier is attempting to engage in tacit collusion.

B) T he supplier is attempting to increase its profits.

C) T he supplier is paying treble damages.

D) T he supplier is part of a cartel.

113) _____

114) I f two firms are producing the exact same product, it ________ possible for the firms to earn economic profit in a Cournot oligopoly and it ________ possible for the firms to earn economic profit in a Bertrand oligopoly.

A) i s not; is not B) i s; is not C) i s not; is D) i s; is

114) _____

115) I n a situation of mutual interdependence and identical products, managers of oligopolistic firms ________ a response to their rivals' actions and ________ compete on price.

115) _____

A) d o not have; should C) h ave; should not

B) d o not have; should not D) h ave; should

116) I n a situation of mutual interdependence and identical products, managers of oligopolistic firms ________ attempt to differentiate their product to earn ________ economic profit.

A) s hould not; positive B) s hould; positive C) s hould; zero D) s hould; negative

116) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

117) A s a manager, one of your responsibilities is to avoid tacit collusion.

117) _____

118) I f a firm receives treble damages, they are being paid a monetary reward for reporting cartel activity.

118) _____

119) A ll else equal, it is more profitable to produce a differentiated product rather than an identical product made by a rival firm.

119) _____

120) A s a manager of a firm that produces an identical product as your rival, it is economically profitable to compete on price.

120) _____

121) A s a manager in an oligopolistic market, it is critical to take into consideration your rivals' best responses to your decisions.

121) _____

1) A 2) D 3) A 4) A 5) A 6) B 7) D 8) D 9) A 10) A 11) D 12) A 13) A 14) D 15) D 16) B 17) A 18) B 19) D 20) C 21) C 22) A 23) A 24) D 25) D 26) T RUE 27) F ALSE 28) T RUE 29) T RUE 30) F ALSE 31) C 32) D 33) B 34) B 35) C 36) D 37) A 38) B 39) A 40) A 41) A 42) B 43) D 44) D 45) D 46) B 47) C 48) A 49) B 50) B 51) A

52) B 53) C 54) D 55) C 56) T RUE 57) T RUE 58) F ALSE 59) F ALSE 60) T RUE 61) C 62) A 63) B 64) C 65) C 66) C 67) B 68) C 69) D 70) D 71) C 72) D 73) A 74) B 75) A 76) D 77) A 78) B 79) A 80) B 81) B 82) D 83) B 84) A 85) A 86) B 87) T RUE 88) F ALSE 89) F ALSE 90) T RUE 91) T RUE 92) A 93) C 94) B 95) B 96) D 97) B 98) B 99) D 100) C 101) D 102) B 103) A

104) C 105) B 106) A 107) C 108) B 109) D 110) B 111) B 112) B 113) C 114) B 115) C 116) B 117) F ALSE 118) T RUE 119) T RUE 120) F ALSE 121) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A ll of the following are elements of a game except which one?

A) s trategies B) a game board C) p ayoffs

1) _______ D) r ules

2) I f Best Lights and Bright Lights are competing in a duopoly and it is always best for Best Lights to charge a price of $4 regardless of the price Bright Lights charges, then charging $4 is ________ for Best Lights.

A) a pure, but not dominant strategy B) a dominant, but not pure strategy C) n either a dominant nor pure strategy D) a dominant and pure strategy

2) _______

3) I f Best Paints and Paint with Us are competing in a duopoly and it is always best for Best Paints

3) _______

to charge a price of $20 per gallon of paint regardless of the price Paint with Us charges, then charging $20 is ________ for Best Paints.

A) a pure, but not dominant strategy B) n either a dominant nor pure strategy C) a dominant and pure strategy D) a dominant, but not pure strategy

4) R efer to the payoff matrix above. Which of the following is true for Best Lights?

A) T heir dominant strategy is to set a High Price.

B) T hey do not have a dominant strategy.

C) T heir dominant strategy is to set a Low Price.

D) T hey do not have a pure strategy.

4) _______

5) R efer to the payoff matrix above. Which of the following is true for Bright Lights?

A) T hey do not have a dominant strategy.

B) T heir dominant strategy is to set a Low Price.

C) T hey do not have a pure strategy.

D) T heir dominant strategy is to set a High Price.

5) _______

6) R efer to the payoff matrix above. Which of the following is true for Best Lights?

A) T heir pure strategy is to set a High Price.

B) T hey do not have a dominant strategy.

C) T heir pure strategy is to set a Low Price.

D) T hey do not have a pure strategy.

6) _______

7) R efer to the payoff matrix above. Which of the following is true for Bright Lights?

A) T hey do not have a pure strategy.

B) T hey do not have a dominant strategy.

C) T heir pure strategy is to set a High Price.

D) T heir pure strategy is to set a Low Price.

7) _______

8) R efer to the payoff matrix above. Which of the following is the Nash Equilibrium?

A) S et High Price/Set Low Price B) S et Low Price/Set High Price C) S et Low Price/Set Low Price D) S et High Price/Set High Price

8) _______

9) R efer to the payoff matrix above. Which of the following is the pure-strategy Nash Equilibrium?

A) S et Low Price/Set Low Price B) S et High Price/Set Low Price C) S et Low Price/Set High Price D) S et High Price/Set High Price

9) _______

10) R efer to the payoff matrix above. Which of the following is the dominant strategy equilibrium?

A) S et Low Price/Set High Price B) S et High Price/Set Low Price C) S et Low Price/Set Low Price D) S et High Price/Set High Price

10) ______

11) R efer to the payoff matrix above. If Best Lights and Bright Lights both set a High Price, the profit for Best Lights are ________ and the profit for Bright Lights are ________ than if both firms set a Low Price.

A) l ower; lower B) h igher; lower C) h igher; higher D) l ower; higher

11) ______

12) R efer to the payoff matrix above. The Set High Price/Set High Price outcome is the ________.

A) c ooperative equilibrium B) N ash Equilibrium C) p ure-strategy Nash Equilibrium D) d ominant strategy equilibrium

12) ______

13) C ooperation is ________ likely in a repeated game because it ________ possible for players to punish each other for cheating.

A) m ore; is B) l ess; is C) l ess; is not D) m ore likely; is not

13) ______

14) H appy Campers and Camping R Us are in tacit collusion to cooperate and each charge a high

14) ______

price for their campers. If Happy Campers initially cooperates with Camping R Us, but then switches and charges a low price and Camping R Us responds by forever charging a low price, this is an example of ________.

A) a dominant strategy B) a one-shot game C) a trigger strategy D) a tit-for-tat strategy 15) M ario's Pizza and Bella's Pizza are in tacit collusion to cooperate and each charge a high price for their pizzas. If Mario's Pizza initially cooperates with Bella's Pizza, but then switches and charges a low price and Bella's Pizza responds by forever charging a low price, this is an example of ________.

A) a tit-for-tat strategy B) a one-shot game C) a n end-period problem D) a trigger strategy

15) ______

16) I f Firm A and Firm B are playing a finitely repeated game and both know when the final period is, cooperation ________ possible due to the ________.

A) i s; end-period problem B) i s; trigger strategy C) i s not; trigger strategy D) i s not; end-period problem

16) ______

17) C ooperation is possible in a ________ game if both firms ________ know the final period of the game.

A) o ne-shot; do not B) o ne-shot; do C) f initely repeated; do not D) f initely repeated; do

17) ______

18) R efer to the payoff matrix above. If Best Lights and Bright Lights both know that the above game will be played exactly four times, which of the following will be the outcome of the game in each of the four periods?

A) S et High Price/Set Low Price B) S et Low Price/Set High Price C) S et Low Price/Set Low Price D) S et High Price/Set High Price

18) ______

19) R efer to the payoff matrix above. If Best Lights and Bright Lights both know that they will play

19) ______

the game a finite number of times, but neither firm knows when the last period will be, there ________ an opportunity to earn higher profit because the managers ________ worry about punishment for cheating.

A) i s; will B) i s not; will C) i s not; will not D) i s; will not 20) I f Firm A and Firm B are playing a finitely repeated game in which they both believe there is a 90 percent chance that the game will continue each period, all of the following are true except which one?

A) T here is not an end-game problem.

B) B oth firms can earn higher profit by cooperating.

C) T acit collusion is not possible.

D) B oth managers will worry about punishment from cheating.

20) ______

21) R efer to the payoff matrix above. Which of the following is true for Camping R Us? A) T he Low strategy dominates the Middle strategy.

21) ______

B) T he High strategy dominates the Low strategy.

C) T he Middle strategy dominates the Low strategy.

D) T he Low strategy dominates the High strategy.

22) R efer to the payoff matrix above. Which of the following is true for Happy Campers?

A) T he Low strategy dominates the Middle strategy B) T he Middle strategy dominates the Low strategy.

C) T he Low strategy dominates the High strategy.

D) T he High strategy dominates the Low strategy.

22) ______

23) R efer to the payoff matrix above. Which of the following is true for Happy Campers?

A) T hey have one dominated strategy.

B) T hey have three dominated strategies.

C) T hey have zero dominated strategies.

D) T hey have two dominated strategies.

23) ______

24) R efer to the payoff matrix above. Which of the following is true for Campers R Us? A) T hey have two dominated strategies.

B) T hey have zero dominated strategies.

C) T hey have three dominated strategies.

D) T hey have one dominated strategy.

24) ______

25) R efer to the payoff matrix above. Which of the following is the iterated elimination of dominated strategies outcome of the game?

A) L ow/Middle B) H igh/High C) M iddle/High D) L ow/High

25) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) W hen each firm uses the strategy that maximizes its profit, it is possible for the equilibrium result to yield the worst possible joint equilibrium for all firms.

26) ______

27) I f Best Lights and Bright Lights are competing in a duopoly, Best Lights' profit depends solely on the decisions of its managers.

27) ______

28) E very dominant strategy equilibrium is a Nash equilibrium, but not every Nash equilibrium is a dominant strategy equilibrium.

28) ______

29) C heap talk helps firms cooperate and earn higher profit.

29) ______

30) I f two players are in a finitely repeated game and both players know the final period, cooperation is not possible due to the end-period problem.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Healthy Snacks and Best Treats are two firms competing in the health food snacks market. Both are considering introducing a new health food snack made purely of dried power fruits. The payoff matrix shows their net economic profit in millions for the different strategies.

31) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) T here is one Nash equilibrium in this game.

B) T here are two Nash equilibria in this game.

C) T here are three Nash equilibria in this game.

D) T here are no Nash equilibria in this game.

31) ______

32) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) T here are no Nash equilibria in this game.

B) B est Treats Do Not Introduce and Healthy Snacks Do Not Introduce is a Nash equilibrium.

C) B est Treats Do Not Introduce and Healthy Snacks Introduce is a Nash equilibrium.

D) B est Treats Introduce and Healthy Snacks Introduce is a Nash equilibrium.

32) ______

33) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) T here are no Nash equilibria in this game.

B) B est Treats Introduce and Healthy Snacks Introduce is a Nash equilibrium.

C) B est Treats Introduce and Healthy Snacks Do Not Introduce is a Nash equilibrium.

D) B est Treats Do Not Introduce and Healthy Snacks Do Not Introduce is a Nash equilibrium.

33) ______

34) R efer to the payoff matrix above. Which is the equilibrium of the game using the Pareto criterion?

A) B est Treats Introduce and Healthy Snacks Introduce.

B) B est Treats Do Not Introduce and Healthy Snacks Introduce.

C) B est Treats Do Not Introduce and Healthy Snacks Do Not Introduce.

D) B est Treats Introduce and Healthy Snacks Do Not Introduce.

34) ______

35) R efer to the payoff matrix above. If Healthy Snacks is known for consistently bringing new products to the market and this is the focal point, what is the equilibrium of the game using the focal point criterion?

A) B est Treats Do Not Introduce and Healthy Snacks Do Not Introduce.

B) B est Treats Introduce and Healthy Snacks Do Not Introduce.

C) B est Treats Introduce and Healthy Snacks Introduce.

D) B est Treats Do Not Introduce and Healthy Snacks Introduce.

35) ______

36) R efer to the payoff matrix above. If Best Treats announces that it will introduce the new health snack, Healthy Snacks ________ believe Best Treats as their incentives ________ align.

A) s hould not; do not B) s hould; do C) s hould not; do D) s hould; do not

36) ______

37) R efer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Best Treats' expected profits?

A) $ 3 B) $ 4.5 C) $ 2 D) $ 3.5

37) ______

38) R efer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Healthy Snacks' expected profits?

A) $ 6.5 B) $ 3.5 C) $ 9.25 D) $ 11

38) ______

Camp with Us and Happy Campers compete in the market for campers. Each firm must decide each season if they are going to offer special financing or not. The above payoff matrix shows each firm's net economic profit at each pair of strategies.

39) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) T here is one Nash equilibrium in this game.

B) T here are three Nash equilibria in this game.

C) T here are two Nash equilibria in this game.

D) T here are no Nash equilibria in this game.

39) ______

40) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) C amp with Us Offer Financing and Happy Campers Offer Financing is a Nash equilibrium.

B) C amp with Us Do Not Offer Financing and Happy Campers Offer Financing is a Nash equilibrium.

C) C amp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing is a Nash equilibrium.

D) T here are no Nash equilibria in this game.

40) ______

41) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) T here are no Nash equilibria in this game.

B) C amp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing is a Nash equilibrium.

C) C amp with Us Offer Financing and Happy Campers Do Not Offer Financing is a Nash equilibrium.

D) C amp with Us Offer Financing and Happy Campers Offer Financing is a Nash equilibrium.

41) ______

42) R efer to the payoff matrix above. Which is the equilibrium of the game using the Pareto criterion?

A) C amp with Us Do Not Offer Financing and Happy Campers Offer Financing B) C amp with Us Offer Financing and Happy Campers Offer Financing C) C amp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing D) C amp with Us Offer Financing and Happy Campers Do Not Offer Financing

42) ______

43) R efer to the payoff matrix above. If Camp with Us is known for consistently offering special financing and this is the focal point, what is the equilibrium of the game using the focal point criterion?

A) C amp with Us Do Not Offer Financing and Happy Campers Offer Financing B) C amp with Us Offer Financing and Happy Campers Do Not Offer Financing C) C amp with Us Offer Financing and Happy Campers Offer Financing D) C amp with Us Do Not Offer Financing and Happy Campers Do Not Offer Financing

43) ______

44) R efer to the payoff matrix above. If Camp R Us announces that it will offer special financing, Happy Campers ________ believe Camp R Us as their incentives ________ align.

A) s hould not; do not B) s hould; do C) s hould; do not D) s hould not; do

44) ______

45) R efer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Happy Campers' expected profits?

A) $ 11.25 B) $ 10.50 C) $ 6.75 D) $ 7.25

45) ______

46) R efer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Camp with Us' expected profits?

A) $ 8.50 B) $ 5.75 C) $ 4.25 D) $ 7.25

46) ______

47) I n a game with multiple Nash equilibria, all of the following can be used to determine the equilibrium of the game except which one?

A) t he Pareto criterion B) t he Focal point C) a coin flip D) r efinements

47) ______

48) I n reality, it is ________ that managers flip a coin to make decisions; but actual randomness ________ desirable in certain situations.

A) r are; cannot B) c ommon; cannot C) c ommon; can D) r are; can

48) ______

49) A mixed-strategy Nash equilibrium is the outcome in which a player's ________ strategy is the best strategy for that player, taking as given the other player's ________ strategy.

A) m ixed; mixed B) p ure; pure C) p ure; mixed D) m ixed; pure

49) ______

Cruise R Us and Cruise the World compete in the cruise line industry. Each firm needs to determine if they are going to offer special cruise packages with special rates or not offer the specials. The above payoff matrix shows the firms' net economic profit for each set of strategies.

50) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) C ruise R Us Specials and Cruise the World No Specials is a Nash equilibrium.

B) C ruise R Us No Specials and Cruise the World No Specials is a Nash equilibrium.

C) T here are no Nash equilibria in this game.

D) C ruise R Us Specials and Cruise the World Specials is a Nash equilibrium.

50) ______

51) R efer to the payoff matrix above. In reference to the Nash equilibrium/equilibria in this game, which of the following is true?

A) T here is one Nash equilibrium in this game.

B) T here are no Nash equilibria in this game.

C) T here are two Nash equilibria in this game.

D) T here are three Nash equilibria in this game.

51) ______

52) R efer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Cruise the World's expected profits?

A) $ 8 B) $ 9 C) $ 5 D) $ 10

52) ______

53) R efer to the payoff matrix above. If each cell has a probability of occurrence of 0.25, what are Cruise R Us' expected profits?

A) $ 3 B) $ 9 C) $ 5 D) $ 8

53) ______

54) R efer to the payoff matrix above. If Cruise R Us uses a mixed strategy, what probability for offering Specials should the firm use to equate Cruise the World's expected profits from offering a Special or not offering a special (No Special)?

A) 0 .75 B) 0 .33 C) 0 .50 D) 0 .25

54) ______

55) R efer to the payoff matrix above. If Cruise the World uses a mixed strategy, what probability for offering Specials should the firm use to equate Cruise R Us' expected profits from offering a Special or not offering a special (No Special)?

A) 0 .75 B) 0 .625 C) 0 .375 D) 0 .33

55) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) T he likelihood of a rival's announcement of a planned strategy being truthful depends on the degree to which it's interests align with its rivals.

56) ______

57) I t is not possible for a game to have no pure-strategy Nash equilibria.

57) ______

58) M ixed strategies are inherently random.

58) ______

59) A manager's optimal decision regarding their firm's strategy requires that the manager also considers their rival's best response.

59) ______

60) C heap talk is an example of a refinement.

60) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

61) A ll of the following are examples of a sequential game except which one?

A) R ock-Paper-Scissors B) T ic-Tac-Toe C) C hess D) C heckers

61) ______

62) A ll of the following are true for sequential games except which one?

A) B ackward induction can be used to determine the Nash equilibrium of sequential games.

62) ______

B) F orward induction can be used to determine the Nash equilibrium of sequential games.

C) S equential games are illustrated as game trees.

D) A classic example of a sequential game is an entry game.

63) I n an entry game, managers to look into the ________ and work ________.

A) p ast; backward B) p ast; forward C) f uture; backward D) f uture; forward

63) ______

64) B est Lights wants to prevent Bright Lights from entering the light bulb market. If Best Lights advertises that it will always undercut any competitor's price, the effect of advertising ________ Best Lights' profits due to its cost and ________ Best Lights' profits due to a(n) ________ in its demand.

A) d ecreases; decreases; increase B) d ecreases; increases; increase C) i ncreases; increases; increase D) d ecreases; decreases; decrease

64) ______

65) G etaway Spas wants to prevent Relax with Us from entering the luxury spa market. If Getaway Spas advertises that it will always undercut any competitor's price, the effect of advertising ________ Getaway Spas' profits due to its cost and ________ Getaway Spas' profits due to a(n) ________ in its demand.

A) d ecreases; increases; increase B) d ecreases; decreases; decrease C) d ecreases; decreases; increase D) i ncreases; increases; increase

65) ______

66) M ario's Pizza wants to prevent Angelo's Pizza from entering the pizza delivery market. If Mario's Pizza advertises that it will always undercut any competitor's price, the effect of advertising ________ Mario's Pizza's profits due to its cost and ________ Mario's Pizza's profits due to a(n) ________ in its demand.

A) d ecreases; increases; increase B) i ncreases; increases; increase C) d ecreases; decreases; increase D) d ecreases; decreases; decrease

66) ______

67) B est Lights wants to prevent Bright Lights from entering the light bulb market. If Best Lights expands its capacity, the expansion can lead to all of the following except which one?

A) l ower Best Lights' marginal cost B) d ecrease Bright Lights' profit from entering the market C) l ower Best Lights' profit-maximizing price D) l ower Best Lights' profit-maximizing quantity

67) ______

68) H appy Campers wants to prevent Campers R Us from entering the camping market. If Happy Campers expands its capacity, the expansion can lead to all of the following except which one?

A) i ncrease Happy Campers' marginal cost B) i ncrease Happy Campers' profit-maximizing quantity C) l ower Campers R Us' profit from entering the market D) l ower Happy Campers' profit-maximizing price

68) ______

69) F ast Ink wants to prevent Jet Ink from entering the ink market. If Fast Ink expands its capacity, the expansion can lead to all of the following except which one?

A) i ncrease Fast Ink's profit-maximizing quantity B) d ecrease Fast Ink's profit-maximizing price C) d ecrease Fast Ink's profit-maximizing quantity D) d ecrease Fast Ink's marginal cost

69) ______

70) F rozen Paws wants to prevent Happy Paws from entering the pet frozen treat market. If Frozen Paws expands its capacity, the expansion can lead to all of the following except which one?

70) ______

A) i ncrease Frozen Paws' profit-maximizing quantity B) d ecrease Frozen Paws' marginal cost C) i ncrease Frozen Paws' profit-maximizing price D) d ecrease Happy Paws' profit from entering the market 71) H appy Feet wants to prevent Best Nails from entering the nail salon market. If Happy Feet expands its capacity, the expansion can lead to all of the following except which one?

A) i ncrease Happy Feet's marginal cost B) i ncrease Happy Feet's profit-maximizing quantity C) d ecrease Happy Feet's profit-maximizing price D) d ecrease Best Nails' profit from entering the market

71) ______

Happy Feet wants to prevent Best Nails from entering the nail salon market. The above game tree illustrates the different strategies and corresponding payoffs for the two firms. Both Happy Feet and Best Nails have the same strategies of advertising (Ad) or not advertising (No Ad). The payoffs represent net profit in millions.

72) I f Happy Feet chooses to Ad and Best Nails then chooses to No Ad, Happy Feet earns ________ million in net profit and Best Nails earns ________ million.

A) $ 5; $1 B) $ 4; $1 C) $ 1; $4 D) $ 2; $3

72) ______

73) I f Happy Feet chooses to Ad and Best Nails then chooses to Ad, Happy Feet earns ________ million in net profit and Best Nails earns ________ million.

A) $ 1; $4 B) $ 4; $1 C) $ 2; $3 D) $ 5; $1

73) ______

74) I f Happy Feet chooses to No Ad and Best Nails then chooses to No Ad, Happy Feet earns ________ million in net profit and Best Nails earns ________ million.

A) $ 2; $3 B) $ 4; $1 C) $ 5; $1 D) $ 1; $4

74) ______

75) I f Happy Feet chooses to No Ad and Best Nails then chooses to Ad, Happy Feet earns ________ million in net profit and Best Nails earns ________ million.

A) $ 4; $1 B) $ 2; $3 C) $ 5; $1 D) $ 1; $4

75) ______

76) I f Happy Feet chooses to Ad, Best Nails should ________ and earn ________ million in net profit.

76) ______

A) N o Ad; $1

B) A d; $1

C) N o Ad; $5

D) A d; $4

77) I f Happy Feet chooses to No Ad, Best Nails should ________ and earn ________ million in net profit.

A) A d; $2 B) A d; $3 C) N o Ad; $3 D) N o Ad; $4

77) ______

78) T he Nash equilibrium of this game is for Happy Feet to ________ and Best Nails to ________.

A) A d; No Ad B) N o Ad; No Ad C) A d; Ad D) N o Ad; Ad

78) ______

Jet Cruises wants to prevent Easy Sail from entering the sailboat market. The above game tree illustrates the different strategies and corresponding payoffs for the two firms. Both Jet Cruises and Easy Sail have the same strategies of advertising (Ad) or not advertising (No Ad). The payoffs represent net profit in millions.

79) I f Jet Cruises chooses to Ad and Easy Sail then chooses to No Ad, Jet Cruises earns ________ million in net profit and Easy Sail earns ________ million.

A) $ 10; $2 B) $ 2; $4 C) $ 5; $2 D) $ 4; $3

79) ______

80) I f Jet Cruises chooses to Ad and Easy Sail then chooses to Ad, Jet Cruises earns ________ million in net profit and Easy Sail earns ________ million.

A) $ 2; $4 B) $ 5; $2 C) $ 4; $3 D) $ 10; $2

80) ______

81) I f Jet Cruises chooses to No Ad and Easy Sail then chooses to No Ad, Jet Cruises earns ________ million in net profit and Easy Sail earns ________ million.

A) $ 2; $4 B) $ 10; $2 C) $ 4; $3 D) $ 5; $2

81) ______

82) I f Jet Cruises chooses to No Ad and Easy Sail then chooses to Ad, Jet Cruises earns ________ million in net profit and Easy Sail earns ________ million.

A) $ 2; $4 B) $ 5; $2 C) $ 4; $3 D) $ 10; $2

82) ______

83) I f Jet Cruises chooses to Ad, Easy Sail should ________ and earn ________ million in net profit.

A) N o Ad; $4 B) A d; $3 C) A d; $5 D) N o Ad; $2

83) ______

84) I f Jet Cruises chooses to No Ad, Easy Sail should ________ and earn ________ million in net

profit.

84)

______ A) N o Ad; $10

B) A d; $4

C) A d; $10

D) N o Ad; $2

85) T he Nash equilibrium of this game is for Jet Cruises to ________ and Easy Sail to ________.

A) A d; Ad B) N o Ad; Ad C) N o Ad; No Ad D) A d; No Ad

85) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

86) C hess is an example of a sequential game.

86) ______

87) A terminal node in a game tree is the starting point of the game.

87) ______

88) I n an entry game, it is not necessary for managers to consider the best response of their competitor(s).

88) ______

89) I f Happy Feet advertises that it will undercut any competitor's price to keep another firm from entering the market, advertising will both increase and decrease Happy Feet's profit.

89) ______

90) A ll else equal, the greater the cost of a commitment to prevent a rival firm from entering the market, the less likely the commitment will be undertaken.

90) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Drug X Drug Y Drug Z

Good 100 150 120

Fair 90 80 100

Poor 80 90 95

The senior manager of Rx Pharmaceuticals needs to decide which of three drugs the company should consider developing. The estimated profit for each of the drugs differs depending on the market conditions when the respective drugs are introduced to the market. The above table summarizes the estimated profit for each drug under each of the three market conditions; Good, Fair, and Poor.

91) R efer to the table above. Which drug should the senior manager not pursue?

A) D rug X B) D rug Y C) D rug Z

91) ______ D) a ll of the drugs

92) R efer to the table above. If the senior manager learns that either a Fair or Poor market will exist when the drug is introduced to the market, which drug should the senior manager pursue?

A) D rug Y B) D rug X C) D rug Z D) n one of the drugs

92) ______

93) R efer to the table above. If the senior manager learns that either a Good or Fair market will

93) ______

exist when the drug is introduced to the market, which drug should the senior manager not pursue?

A) D rug Y B) D rug X C) D rug Z D) a ll of the drugs 94) R efer to the table above. If the senior manager learns that either a Good or Poor market will exist when the drug is introduced to the market, which drug should the senior manager not pursue?

A) D rug Z B) D rug X C) D rug Y D) a ll of the drugs

Drug A

Good 135

Fair 110

Poor 100

94) ______

Drug B Drug C

14 90 80 0 100 95 13 0 Pharmaceuticals needs to decide which of three drugs the company should consider The senior manager of Rx developing. The estimated profit for each of the drugs differs depending on the market conditions when the respective drugs are introduced to the market. The above table summarizes the estimated profit for each drug under each of the three market conditions; Good, Fair, and Poor.

95) R efer to the table above. Which drug should the senior manager not pursue?

A) D rug A B) D rug B C) D rug C

95) ______ D) a ll of the drugs

96) R efer to the table above. If the senior manager learns that either a Fair or Poor market will exist when the drug is introduced to the market, which drug should the senior manager pursue?

A) D rug A B) D rug B C) D rug C D) n one of the drugs

96) ______

97) R efer to the table above. If the senior manager learns that either a Good or Fair market will exist when the drug is introduced to the market, which drug should the senior manager not pursue?

A) D rug A B) D rug B C) D rug C D) n one of the drugs

97) ______

98) R efer to the table above. If the senior manager learns that either a Good or Poor market will exist when the drug is introduced to the market, which drug should the senior manager not pursue?

A) D rug A B) D rug B C) D rug C D) n one of the drugs

98) ______

99) T he manager of a large luxury hotel chain is currently negotiating a four year contract with a

99) ______

linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. The manager of the hotel chain should be most concerned about the quality of linens in which year?

A) t he fourth year B) t he second year C) t he first year D) t he third year 100) T he manager of a large luxury hotel chain is currently negotiating a four year contract with a

100) _____

linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. What can the manager of the hotel chain do to avoid the end-game problem?

A) P ay the linens company in full after the first year.

B) P ay the linens company in full after the third year.

C) O ffer a bonus to the linens company if they provide quality linens all four years.

D) P ay the linens company in full after the second year.

101) T he manager of a large luxury hotel chain is currently negotiating a four year contract with a linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. What can the manager of the hotel chain do to avoid the end-game problem?

A) O ffer to renew the contract if the linens company provides quality linens all four years.

101) _____

B) P ay the linens company in full at the beginning of the first year.

C) P ay the linens company one half of the contract amount after the first year and the remaining half after the second year.

D) P ay the linens company in full after the first year.

102) T he manager of a large luxury hotel chain is currently negotiating a four year contract with a

102) _____

linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. What can the manager of the hotel chain do to avoid the end-game problem?

A) I nform the linens company that the hotel chain will nominate them for a linens industry award if the linens company provides quality linens all four years.

B) P ay the linens company in full after the second year.

C) P ay the linens company in full at the end of the third year.

D) P ay the linens company in full at the beginning of the first year.

103) P izza at Home is a frozen pizza company that supplies several large grocery store chains. The managers of Pizza at Home are currently negotiating a four year contract with Saucy Pizza, a manufacturer of pizza sauce. Saucy Pizza will supply a specified quantity of canned tomato sauce to Pizza at Home over a four year period; however; Pizza at Home can ends its contract with Saucy Pizza at the end of the first, second, or third years if Saucy Pizza does not supply quality tomato sauce. The manager of the Pizza at Home should be most concerned about the quality of the tomato sauce in which year?

A) t he second year

B) t he fourth year

C) t he third year

103) _____

D) t he first year

104) P izza at Home is a frozen pizza company that supplies several large grocery store chains. The managers of Pizza at Home are currently negotiating a four year contract with Saucy Pizza, a manufacturer of pizza sauce. Saucy Pizza will supply a specified quantity of canned tomato sauce to Pizza at Home over a four year period; however; Pizza at Home can ends its contract with Saucy Pizza at the end of the first, second, or third years if Saucy Pizza does not supply quality tomato sauce. What can the manager of Pizza at Home do to avoid the end-game problem?

104) _____

A) P ay Saucy Pizza in equal installments at the end of each of the four years.

B) P ay Saucy Pizza in full at the beginning of the first year.

C) P ay Saucy Pizza in full at the end of the third year.

D) O ffer a bonus to Saucy Pizza if they provide quality tomato sauce in all four years.

105) P izza at Home is a frozen pizza company that supplies several large grocery store chains. The managers of Pizza at Home are currently negotiating a four year contract with Saucy Pizza, a manufacturer of pizza sauce. Saucy Pizza will supply a specified quantity of canned tomato sauce to Pizza at Home over a four year period; however; Pizza at Home can ends its contract with Saucy Pizza at the end of the first, second, or third years if Saucy Pizza does not supply quality tomato sauce. What can the manager of Pizza at Home do to avoid the end-game problem?

105) _____

A) P ay Saucy Pizza in full at the end of the third year.

B) O ffer to renew the contract with Saucy Pizza if they provide quality tomato sauce in all four years.

C) P ay Saucy Pizza in installments at the end of the first, second, and third years.

D) P ay Saucy Pizza in equal installments at the end of each of the four years.

106) P izza at Home is a frozen pizza company that supplies several large grocery store chains. The managers of Pizza at Home are currently negotiating a four year contract with Saucy Pizza, a

manurer ufactof

pizza 106) sauce.

Saucy Pizza will supply a specified quantity of canned tomato sauce to Pizza at Home over a four year period; however; Pizza at Home can ends its contract with Saucy Pizza at the end of the first, second, or third years if Saucy Pizza does not supply quality tomato sauce.

What can the manager of Pizza at Home do to avoid the end-gam e problem?

A) P ay Saucy Pizza in full at the beginning of the first year.

B) I nform Saucy Pizza that Pizza at Home will nominate them for a supplier industry award if they provide quality tomato sauce in all four years.

____ _

C) P ay Saucy Pizza in equal installments at the end of each of the four years.

D) P ay Saucy Pizza in installments at the end of the first, second, and third years.

107) T he mangers of Healthy Snacks and Healthy Bars are engaged in a strategic interaction in which

107) _____

their interests are aligned, but there is more than one possible equilibrium. All of the following can help the managers determine the equilibrium outcome except which one?

A) t he Pareto criterion B) a focal point C) a n announcement made by either firm regarding their future plans D) b argaining 108) T he mangers of Healthy Snacks and Healthy Bars are engaged in a strategic interaction in which

108) _____

their interests are aligned, but there is more than one possible equilibrium. All of the following can help the managers determine the equilibrium outcome except which one?

A) a n announcement made by either firm regarding their future plans B) t he Pareto criterion C) a focal point D) u npredictable strategies 109) T he mangers of Happy Campers and Camp with Us are engaged in a strategic interaction in which their interests are aligned, but there is more than one possible equilibrium. All of the following can help the managers determine the equilibrium outcome except which one?

A) a n announcement made by either firm regarding their future plans B) t he Pareto criterion C) a focal point D) u npredictable strategies

109) _____

110) T he mangers of Happy Campers and Camp with Us are engaged in a strategic interaction in which their interests are aligned, but there is more than one possible equilibrium. All of the following can help the managers determine the equilibrium outcome except which one?

A) a n announcement made by either firm regarding their future plans B) t he Pareto criterion C) a focal point D) b argaining

110) _____

111) T o make a threat more credible, managers can do all of the following except which one?

A) t ake action to lower the firm's costs B) m ake competitors aware of the firm's plans C) t ake action to increase the firm's capacity D) k eep competitors in the dark about the firm's plans

111) _____

112) I f Pizza at Home and Pizza in Your Fridge are two competing frozen pizza firms and Pizza at Home wants to make a threat to Pizza in Your Fridge more credible, they can do all of the following except which one?

A) m ake Pizza in Your Fridge aware of Pizza at Home's plans B) t ake action to lower the firm's costs C) t ake action to increase the firm's capacity D) k eep Pizza in Your Fridge in the dark regrading Pizza at Home's plans

112) _____

113) I f Big Sails and Jet Sails are two competing sailboat firms and Big Sails wants to make a threat to Jet Sails more credible, they can do all of the following except which one?

A) k eep Jet Sails in the dark regrading Big Sails' plans

113) _____

B) m ake Jet Sails aware of Big Sails' plans C) t ake action to increase the firm's capacity D) t ake action to lower the firm's costs 114) I f Happy Nails and Luxury Nails are two competing nail salons and Happy Nails wants to make a threat to Luxury Nails more credible, they can do all of the following except which one?

A) t ake action to lower the firm's costs B) m ake Luxury Nails aware of Happy Nails' plans C) t ake action to increase the firm's capacity D) k eep Luxury Nails in the dark regrading Happy Nails' plans

114) _____

115) T he mangers of Healthy Snacks and Healthy Bars are engaged in a strategic interaction in which

115) _____

their interests are aligned, but there is more than one possible equilibrium. All of the following can help the managers determine the equilibrium outcome except which one?

A) a n announcement made by either firm regarding their future plans B) a focal point C) a n announcement by Healthy Snacks regarding their future plans, but not an announcement by Healthy Bars regarding their future plans D) t he Pareto criterion TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

116) M ost games that managers face are one-shot games.

116) _____

117) M anagers of firms in a finitely repeated pricing game who want to engage in tacit collusion should consider methods to create a chance that the game will continue beyond the final period.

117) _____

118) T he credibility of an announcement by a firm's rival depends on how closely the firm's interests align with its rival.

118) _____

119) I f the manager of Propane R US wants to enhance the credibility of a threat it made to its rival firms, the managers of Propane R Us should keep their rivals in the dark about their planned actions.

119) _____

120) I t is optimal for a manager to make unpredictable decisions when a rival firm can benefit at the expense of the manager's decisions.

120) _____

1) B 2) D 3) C 4) C 5) B 6) C 7) D 8) C 9) A 10) C 11) C 12) A 13) A 14) C 15) D 16) D 17) C 18) C 19) A 20) C 21) D 22) A 23) A 24) D 25) D 26) T RUE 27) F ALSE 28) T RUE 29) F ALSE 30) T RUE 31) B 32) C 33) C 34) D 35) D 36) B 37) D 38) A 39) C 40) B 41) C 42) D 43) B 44) B 45) D 46) C 47) C 48) D 49) A 50) C 51) B

52) B 53) C 54) C 55) B 56) T RUE 57) F ALSE 58) T RUE 59) T RUE 60) F ALSE 61) A 62) B 63) C 64) B 65) A 66) A 67) D 68) A 69) C 70) C 71) A 72) A 73) A 74) B 75) B 76) D 77) B 78) D 79) C 80) C 81) B 82) A 83) B 84) B 85) A 86) T RUE 87) F ALSE 88) F ALSE 89) T RUE 90) T RUE 91) A 92) C 93) B 94) B 95) C 96) A 97) C 98) C 99) A 100) C 101) A 102) A 103) B

104) D 105) B 106) B 107) D 108) D 109) D 110) D 111) D 112) D 113) A 114) D 115) C 116) F ALSE 117) T RUE 118) T RUE 119) F ALSE 120) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A ntitrust laws are laws that ________.

A) c reate barriers to entry C) a ssist firms in earning greater profit

1) _______ B) p romote competition D) s upport monopolies

2) M onopolies ________ society's total surplus by producing ________ than the efficient quantity.

A) d ecrease; less B) d ecrease; more C) i ncrease; more D) i ncrease; less

2) _______

3) I f an automobile manufacturer has an agreement with its tire supplier, this is an example of a ________ agreement.

A) l eftward B) r ightward C) v ertical D) h orizontal

3) _______

4) I f an automobile manufacturer has an agreement with its air bag supplier, this is an example of a ________ agreement.

A) l eftward B) v ertical C) h orizontal D) r ightward

4) _______

5) I f a sailboat manufacturer has an agreement with the firm that produces the engines for the sailboats, this is an example of a ________ agreement.

A) l eftward B) r ightward C) h orizontal D) v ertical

5) _______

6) I f a sailboat manufacturer has an agreement with the firm that produces the sails for the sailboats, this is an example of a ________ agreement.

A) h orizontal B) r ightward C) l eftward D) v ertical

6) _______

7) I f two fast food pizza companies are in an agreement, this is an example of a ________ agreement.

A) h orizontal B) v ertical C) r ightward D) l eftward

7) _______

8) I f three paper product companies are in an agreement, this is an example of a ________ agreement.

A) h orizontal B) l eftward C) v ertical D) r ightward

8) _______

9) I f three cell phone providers are in an agreement, this is an example of a ________ agreement.

A) v ertical B) l eftward C) r ightward D) h orizontal

9) _______

10) I f three health bar companies are in an agreement, this is an example of a ________ agreement.

A) v ertical B) l eftward C) t riple-threat D) h orizontal

10) ______

11) I f laundry detergent companies are in an agreement, this is an example of a ________ agreement.

A) v ertical B) h orizontal C) t riple-threat D) t reble

11) ______

12) A ll of the following are true regarding the Sherman Act except which one?

A) I t addresses both monopolies are cartels.

B) I t condemns the act of trying to become a monopoly.

C) I t condemns the act of becoming a monopoly.

D) I t was the second major piece of antitrust legislation.

12) ______

13) T he Federal Trade Commission Act declares that all of the following are illegal except which one?

A) d eceptive acts or practices in or affecting commerce

13) ______

B) u nfair methods of competition in or affecting commerce C) u nfair acts or practices in or affecting commerce D) m ergers 14) T he Antitrust Division of the Department of Justice ________ file criminal suits and the Federal Trade Commission ________ file criminal suits.

A) c an; cannot B) c annot; can C) c an; can D) c annot; cannot

14) ______

15) F or individuals, the maximum fine for a Sherman Act violation is ________ million and the maximum prison sentence is ________ years.

A) $ 1; 10 B) $ 2; 5 C) $ 2; 10 D) $ 1; 5

15) ______

16) T o date, the longest prison sentence for violating the Sherman Act has been ________ years.

A) t en B) t wo C) e ight D) f ive

16) ______

17) I n recent years, almost ________ percent of managers convicted of violating the Sherman Act have gone to prison.

A) 1 00 B) 7 5 C) 9 0 D) 5 0

17) ______

18) I n recent years, the average prison sentence for managers convicted of violating the Sherman Act is ________ years.

A) t wo B) t en C) f ive D) t hree

18) ______

19) F our firms agree to operate as a monopoly and charge the monopoly price of $10 for their product and (jointly) produce the monopoly quantity of 50,000 units. If the competitive price for the product is $6, under the Clayton Act these four firms face treble damages of ________.

A) $ 3,000,000 B) $ 200,000 C) $ 1,000,000 D) $ 600,000

19) ______

20) F our firms agree to operate as a monopoly and charge the monopoly price of $15 for their product and (jointly) produce the monopoly quantity of 25,000 units. If the competitive price for the product is $8, under the Clayton Act these four firms face treble damages of ________.

A) $ 3,000,000 B) $ 525,000 C) $ 1,000,000 D) $ 175,000

20) ______

21) T hree firms agree to operate as a monopoly and charge the monopoly price of $40 for their product and (jointly) produce the monopoly quantity of 25,000 units. If the competitive price for the product is $10, under the Clayton Act these three firms face treble damages of ________.

A) $ 1,000,000 B) $ 750,000 C) $ 2,250,000 D) $ 3,000,000

21) ______

22) T hree firms agree to operate as a monopoly and charge the monopoly price of $40 for their product and (jointly) produce the monopoly quantity of 50,000 units. If the competitive price for the product is $35, under the Clayton Act these three firms face treble damages of ________.

A) $ 1,000,000 B) $ 750,000 C) $ 3,000,000 D) $ 250,000

22) ______

23) T hree firms agree to operate as a monopoly and charge the monopoly price of $50 for their product and (jointly) produce the monopoly quantity of 10,000 units. If the competitive price for the product is $35, under the Clayton Act these three firms face treble damages of ________.

A) $ 150,000 B) $ 1,000,000 C) $ 450,000 D) $ 3,000,000

23) ______

24) T hree firms agree to operate as a monopoly and charge the monopoly price of $100 for their product and (jointly) produce the monopoly quantity of 20,000 units. If the competitive price for the product is $35, under the Clayton Act these three firms face treble damages of ________.

A) $ 3,900,000 B) $ 3,000,000 C) $ 1,300,000 D) $ 1,000,000

24) ______

25) ______ 25) T hree firms agree to operate as a monopoly and charge the monopoly price of $80 for their product and (jointly) produce the monopoly quantity of 5,000 units. If the competitive price for the product is $40, under the Clayton Act these three firms face treble damages of ________. D) $ 3,000,000 A) $ 200,000 B) $ 1,000,000 C) $ 600,000 26) ______

26)

In the figure above, if the market is a monopoly rather than perfectly competitive, the deadweight loss equals ________.

A) a rea A. B) a rea B. C) a rea C. D) a rea A + area B. TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

27) T he Sherman Act was passed in 1914.

27) ______

28) T he Clayton Act was the second major piece of antitrust legislation.

28) ______

29) T he Federal Trade Commission Act and the Sherman Act were passed in the same year.

29) ______

30) T he Antitrust Division of the Department of Justice enforces antitrust laws through both civil and criminal suits.

30) ______

31) A ctions that violate the Sherman Act can result in penalties that total substantially more than $100 million.

31) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

32) A ll of the following are examples of restraints of trade except which one?

A) p rice fixing B) r ecoupment C) b id rigging

33) A ll of the following are examples of restraints of trade except which one?

A) p redatory pricing B) o utput restrictions C) b id rigging D) p rice fixing

32) ______ D) m arket division 33) ______

34) P rice fixing is an agreement among competing managers to ________ the prices of the products they are selling or to ________ the prices of the inputs they are buying.

A) l ower; lower B) r aise; raise C) r aise; lower D) l ower; raise

34) ______

35) I f three pizza delivery companies agree to decrease their output and raise the price of their pizzas to $15, this is an example of ________.

A) m arket division B) b id rigging C) r esale price maintenance D) p rice fixing

35) ______

36) I f four electronics companies agree to decrease their production of cell phones and raise the price of their cell phones to $400, this is an example of ________.

A) p rice fixing B) m arket C) m onopolizatio D) b id rigging division n

36) ______

37) I f four hair products companies agree to decrease the output of their styling products and raise the price of their styling products to $18, this is an example of ________.

A) m arket division B) r esale price maintenance C) p rice fixing D) b id rigging

37) ______

38) A ll of the following are examples of illegal per se activities except which one?

A) o utput restrictions B) r esale price maintenance C) m arket division D) b id rigging

38) ______

39) A ll of the following are examples of illegal per se activities except which one?

A) r esale price maintenance B) b id rigging C) o utput restrictions D) p rice-fixing

39) ______

40) W hich of the following is determined using the rule-of-reason analysis?

A) m arket division B) o utput restrictions C) b id rigging D) r esale price maintenance

40) ______

41) I f four large commercial contractors meet and collude on the bids they are going to submit for a large government road contract, this is an example of ________.

A) b id rigging B) m arket division C) b id suppression D) o utput restrictions

41) ______

42) I f four large commercial contractors meet and agree that only one of the four contractors will submit a bid on a large government road contract, this is best defined as ________.

A) m arket division B) o utput restriction C) b id suppression D) b id rigging

42) ______

43) I f three residential cleaning service companies agree to reduce the number of homes they clean each month in an effort to raise the price for the service, this is an example of ________.

A) m onopolization B) o utput restrictions C) r esale price maintenance D) m arket division

43) ______

44) I f four quick oil change service companies agree to reduce the number of cars they service each month in an effort to raise the price for the service, this is an example of ________.

A) m arket division B) r esale price maintenance C) o utput restrictions D) b id suppression

44) ______

45) I f three pizza delivery companies agree that one company will service only the rural areas of a

state, one

___ ___

only 45) suburba n areas, and the one only the urban areas, this is an example of ________ .

A) m arket division

B) p rice fixing

C) m onopolizatio n

D) b id rigging

46) I f two quick oil change companies agree that one company will purchase locations in rural and

46) ______

suburban areas and the other company will purchase locations in the urban areas, this is an example of ________.

A) o utput restrictions B) b id rigging C) m arket division D) p rice fixing 47) I f an up-scale jewelry maker sells its products to retailers with the explicit condition that the retailers may not resell the products below a specified price, this is an example of ________.

A) r esale price maintenance B) m arket division C) m onopolization D) p rice fixing

47) ______

48) I f an up-scale jewelry maker sells its products to retailers with the explicit condition that the retailers may not resell the products below a specified price, the jewelry maker is likely concerned about ________.

A) o utput restrictions B) i ts reputation C) m arket division D) p rice fixing

48) ______

49) I f a book publishing company sells its books to retailers with the explicit condition that the retailers may not resell the books below a specified price, this is an example of ________ and it ________ illegal per se.

A) r esale price maintenance; is not B) r esale price maintenance; is C) p rice fixing; is not D) p rice fixing; is

49) ______

50) R esale price maintenance is a kind of ________ restraint and it ________ legal.

A) v ertical; is never B) h orizontal; can be C) v ertical; can be D) h orizontal; is never

50) ______

51) A s a general rule, antitrust authorities refer to any firm with a market share above ________ percent as a monopoly even though it is technically a dominant firm.

A) 6 6 B) 9 5 C) 5 0 D) 7 5

51) ______

52) S ection 2 of the Sherman Act prohibits ________.

A) m arket division B) a n attempt of one firm to become a monopoly through the use of unreasonably exclusionary conduct C) m onopolies

52) ______

D) p rice fixing 53) I f a firm has a market share that exceeds ________ percent, most courts will conclude that the firm is a monopoly and if the market share exceeds ________ percent, the courts are likely to conclude that the firm is coming "dangerously close" to being a monopoly.

A) 7 5; 50 B) 8 0; 60 C) 9 0; 75 D) 9 9; 50

53) ______

54) T o prevail in a Section 2 case of the Sherman Act, the plaintiff must satisfy all of the following requirements except which one?

A) T he plaintiff must appropriately define the defendant's product and geographic market.

B) T he plaintiff must establish that the defendant has competed on the basis of product desirability.

C) T he plaintiff must establish that the defendant has a large market share.

D) T he plaintiff must demonstrate that the defendant's success is due to unreasonable exclusionary, predatory, or other unreasonable anticompetitive conduct.

54) ______

55) H appy Campers is competing in the camping market with Camping R Us. Happy Campers drops its price below its cost and, in doing so, drives Camping R Us out of the market. Once Happy Campers is a monopoly, they raise their price and enjoy economic profit. This is an example of ________.

A) m arket division B) b id rigging C) p redatory pricing D) r esale price maintenance

55) ______

56) S ail Away is competing in the sailboat market with Best Sails. Sail Away drops its price below its cost and, in doing so, drives Best Sails out of the market. Once Sail Away is a monopoly, they raise their price and enjoy economic profit. This is an example of ________.

A) o utput restrictions B) p redatory pricing C) m arket division D) r esale price maintenance

56) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

57) F oreign firms and foreign citizens are exempt from U.S. antitrust laws.

57) ______

58) I f an illegal per se act has been proven to have occurred, there is no defense possible.

58) ______

59) I f a firm engaged in a price-fixing agreement first reports the activity to the Department of Justice, the company still faces substantial fees because price-fixing is illegal per se.

59) ______

60) B id rigging is analogous to price fixing.

60) ______

61) R esale price maintenance can prevent showrooming.

61) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

62) B usiness practices affected by the Clayton Act fall into each of these categories except which one?

A) c onditional sales B) p rice discrimination C) m ergers D) p rice fixing

62) ______

63) I f a grocery store offers a five percent discount to senior citizens, this is an example of ________ and is ________.

A) c onditional sales; only illegal if the practice substantially lessens competition or tends to create a monopoly B) c onditional sales; always illegal per se C) p rice discrimination; only illegal if the practice substantially lessens competition or tends to

63) ______

create a

monopoly D) p rice discrimination; always illegal per se

64) I f a large hardware chain offers a ten percent discount to those currently serving in the military and veterans, this is an example of ________ and is ________.

A) c onditional sales; only illegal if the practice substantially lessens competition or tends to create a monopoly B) p rice discrimination; only illegal if the practice substantially lessens competition or tends to create a monopoly C) p rice discrimination; always illegal per se D) c onditional sales; always illegal per se

64) ______

65) A popular shoe company has a 'buy one, get one half price' offer in which customers who purchase one pair of shoes can purchase a second pair at half price. This is an example of ________ and is ________.

A) p rice discrimination; always illegal per se B) c onditional sales; always illegal per se C) p rice discrimination; only illegal if the practice substantially lessens competition or tends to create a monopoly D) c onditional sales; only illegal if the practice substantially lessens competition or tends to create a monopoly

65) ______

66) M r. Shades Sunglasses promotes its 'buy one, get one half price' offer in which customers who purchase one pair of sunglasses can purchase a second pair at half price. This is an example of ________ and is ________.

A) c onditional sales; always illegal per se B) p rice discrimination; only illegal if the practice substantially lessens competition or tends to create a monopoly C) p rice discrimination; always illegal per se D) c onditional sales; only illegal if the practice substantially lessens competition or tends to create a monopoly

66) ______

67) I f a company offers a discounted price to college students, the legality of the practice will be evaluated under Section ________ of the Clayton Act. A) 2 B) 8 C) 7 D) 3

67) ______

68) A company promotes a 'buy one, get one free' offer such that customers who purchase one unit of the product can get a second unit for free. The legality of the practice will be evaluated under Section ________ of the Clayton Act. A) 7 B) 2 C) 3 D) 8

68) ______

69) C onditional sales all involve the ________ relationship between ________.

A) h orizontal; two buyers B) v ertical; a seller and a buyer C) v ertical; two sellers D) h orizontal; a seller and a buyer

69) ______

70) A ll of the following are examples of conditional sales except which one?

A) t ying arrangements B) e xclusive dealing C) p rice discrimination D) t erritorial confinement

70) ______

71) I f a local dairy farm sells its ice cream to a distributor and contractually restricts the distributor from reselling the ice cream outside of the south east, this is an example of ________.

A) a requirements contract B) t erritorial confinement

71) ______

C) e xclusive dealing

D) a tying arrangement

72) I f a cigarette manufacturer sells its cigarettes to a distributor and contractually restricts the distributor from reselling the cigarettes outside the state of New York, this is an example of ________.

A) a requirements contract B) e xclusive dealing C) a tying arrangement D) t erritorial confinement

72) ______

73) I f Happy Cows contractually requires distributors who purchase Happy Cows' milk to also purchase Happy Cows' cream, this is an example of ________.

A) e xclusive dealing B) t erritorial confinement C) a requirements contract D) a tying arrangement

73) ______

74) I f Healthy Crunch contractually requires distributors who purchase Healthy Crunch's snack bars to also purchase Healthy Crunch's breakfast cereal, this is an example of ________.

A) a tying arrangement B) e xclusive dealing C) a requirements contract D) t erritorial confinement

74) ______

75) I f Healthy Nuts contractually requires distributors who purchase Healthy Nuts' snack packs to also purchase Healthy Nuts' large-sized mixed nuts tins, this is an example of ________.

A) a requirements contract B) e xclusive dealing C) a tying arrangement D) t erritorial confinement

75) ______

76) A ll of the following are required to make a tying arrangement vulnerable to antitrust prosecution except which one?

A) T he seller cannot have substantial market power in the market for the tying product.

B) T here must be at least two products involved.

C) T here must be some nontrivial amount of commerce affected by the tying contract.

D) T here must be proof of an actual tie between two products.

76) ______

77) A ll of the following are required to make a tying arrangement vulnerable to antitrust prosecution except which one?

A) T here must be some nontrivial amount of commerce affected by the tying contract.

B) T he seller must have substantial market power in the market for the tying product.

C) T here must be at least three products involved.

D) T here must be proof of an actual tie between two products.

77) ______

78) A ll of the following are required to make a tying arrangement vulnerable to antitrust prosecution except which one?

A) T here must be proof of an actual tie between two products.

B) T here cannot be proof of an actual tie between two products.

C) T here must be at least two products involved.

D) T he seller must have substantial market power in the market for the tying product.

78) ______

79) H ealthy Nuts contractually requires distributors who purchase Healthy Nuts' snack packs to also purchase Healthy Nuts' large-sized mixed nuts tins. The legality of the practice will be evaluated under Section ________ of the Clayton Act. A) 2 B) 7 C) 3 D) 8

79) ______

80) H ealthy Crunch contractually requires distributors who purchase Healthy Crunch's snack bars to also purchase Healthy Crunch's breakfast cereal. The legality of the practice will be evaluated under Section ________ of the Clayton Act.

80) ______

A) 3

B) 2

C) 7

D) 8

81) H appy Cows contractually requires distributors who purchase Happy Cows' milk to also purchase Happy Cows' cream. The legality of the practice will be evaluated under Section ________ of the Clayton Act. A) 2 B) 3 C) 7 D) 8

81) ______

82) A n exclusive dealing contract is a ________ contractual requirement that ________.

A) v ertical; forbids the buyer from selling products that compete with the seller's product B) v ertical; requires the buyer to purchase 100 percent of the product that it needs from the supplier C) h orizontal; forbids the buyer from selling products that compete with the seller's product D) h orizontal; requires the buyer to purchase 100 percent of the product that it needs from the supplier

82) ______

83) I f a tire manufacturer agrees to sell its tires to an automobile producer on the contractual condition that the automobile producer purchases 100 percent of its tires needed from the tire manufacturer, this is an example of ________.

A) a horizontal contract B) a requirements contract C) a n exclusive dealing contract D) a tying arrangement

83) ______

84) I f Cheesy Cheese agrees to sell its cheese to Fresh Pizza on the contractual condition that Fresh Pizza purchases 100 percent of the cheese needed to make its pizzas from Cheesy Cheese, this is an example of ________.

A) a n exclusive dealing contract B) a horizontal contract C) a requirements contract D) a tying arrangement

84) ______

85) I f Healthy Bars agrees to sell its snack bars to a large grocery chain on the contractual condition that the grocery chain does not sell any of Healthy Bars' competitors' snack bars, this is an example of ________.

A) a horizontal contract B) a tying arrangement C) a requirements contract D) a n exclusive dealing contract

85) ______

86) I f Crunchy Fries agrees to sell its frozen potato fries to a large grocery chain on the contractual

86) ______

condition that the grocery chain does not sell any of Crunchy Fries' competitors' frozen potato fries, this is an example of ________.

A) a requirements contract B) a n exclusive dealing contract C) a horizontal contract D) a tying arrangement TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

87) C onditional sales are always illegal per se under the Clayton Act.

87) ______

88) E xclusive dealing contracts and requirements contracts have both procompetitive and anticompetitive motivations.

88) ______

89) E xclusive dealing contracts and requirements contracts are illegal per se.

89) ______

90) E xclusive dealing contracts and requirements contracts are procompetitive as they encourage advertising.

90) ______

91) S ection 3 of the Clayton Act prevents an individual from sitting on the boards of directors of two competing firms.

91) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

92) _ _______ mergers can lead to increased market power and, as a result, ________ the total surplus 92) ______ in the market.

A) H orizontal; increase B) H orizontal; decrease C) V ertical; increase D) V ertical; decrease 93) A horizontal merger can lead to all of the following except which one?

A) a perfectly competitive market B) a decrease in the total surplus C) a deadweight loss D) a monopoly

93) ______

94) I f a horizontal merger lowers the cost of production and increases the total surplus in the market, which of the following is also likely to have occurred?

A) T he producer surplus decreased.

B) T he consumer surplus increased.

C) T he producer surplus did not change.

D) T he consumer surplus decreased.

94) ______

95) U .S. antitrust agencies tend to emphasize ________ surplus and generally challenge the merger if they believe the predicted price will ________ as a result of the merger.

A) c onsumer; rise B) p roducer; rise C) p roducer; fall D) c onsumer; fall

95) ______

96) A merger will usually be challenged if which of the following is expected to occur as a result of the merger?

A) a price increase B) c ompetition remains after the merger C) a price decrease D) a n increase in consumer surplus

96) ______

97) A merger will usually be challenged if which of the following is expected to occur as a result of the merger?

A) c ompetition remains after the merger B) a n increase in consumer surplus C) a price decrease D) a decrease in consumer surplus

97) ______

98) T o identify the product market, antitrust agencies use A) q uantitative, but not qualitative tools.

B) q ualitative, but not quantitative tools.

C) b oth qualitative and quantitative tools.

D) t erritorial restrictions

98) ______

99) I f two goods have a ________ cross-price elasticity of demand, then the antitrust agencies can conclude that the products ________ compete in the same market as strong substitutes.

A) l arge; do not B) z ero; do C) l arge; do D) s mall; do

99) ______

100) A n antitrust agency is identifying the product market for Good X and determines that Good X and Good Y have a cross-price elasticity of 0.01. As a result of the cross-price elasticity, the antitrust agency is likely to ________ Good Y from Good X's product market as the products ________ compete as close substitutes.

A) i nclude; do not B) e xclude; do C) i nclude; do D) e xclude; do not

100) _____

101) A n antitrust agency is identifying the product market for Good X and determines that Good X and Good Y have a cross-price elasticity of 0.04. As a result of the cross-price elasticity, the antitrust agency is likely to ________ Good Y from Good X's product market as the products ________ compete as close substitutes.

A) i nclude; do not B) e xclude; do C) e xclude; do not D) i nclude; do

101) _____

102) A n antitrust agency is identifying the product market for Good X and determines that Good X and Good Y have a cross-price elasticity of 15.2. As a result of the cross-price elasticity, the antitrust agency is likely to ________ Good Y from Good X's product market as the products ________ compete as close substitutes.

102) _____

A) e xclude; do not

B) i nclude; do

C) i nclude; do not

D) e xclude; do

103) A n antitrust agency is identifying the product market for Good X and determines that Good X and Good Y have a cross-price elasticity of 18.6. As a result of the cross-price elasticity, the antitrust agency is likely to ________ Good Y from Good X's product market as the products ________ compete as close substitutes.

A) i nclude; do B) i nclude; do not C) e xclude; do D) e xclude; do not

103) _____

104) U sing the SSNIP test, if two firms merge and the result is that the new, merged firm can raise the price of its product by ________ percent for ________ year(s), then the product the merged firm produces represents a market.

A) o ne; one B) f ive; five C) f ive; one D) o ne; five

104) _____

105) T he minimum value of the Herfindahl-Hirschman Index (HHI) is ________ and the maximum value is ________.

A) 1 00; 1,000 B) 1 ; 1,000 C) 0 ; 10,000 D) 1 00; 10,000

105) _____

106) I f there are four firms in a market and each has an equal market share, the Herfindahl-Hirschman Index (HHI) is ________.

A) 5 ,500 B) 1 00 C) 1 ,600

106) _____ D) 2 ,500

107) I f there are five firms in a market and each has an equal market share, the Herfindahl-Hirschman Index (HHI) is ________.

A) 2 ,000 B) 2 ,500 C) 5 ,000 D) 1 00

107) _____

108) I f there are ten firms in a market and each has an equal market share, the Herfindahl-Hirschman Index (HHI) is ________.

A) 1 ,000 B) 1 00 C) 1 ,500 D) 1 0,000

108) _____

109) I f there are four firms in a market and one has a 40 percent market share, one has a 25 percent market share, one has a 20 percent market share, and one has a 15 percent market share, the Herfindahl-Hirschman Index (HHI) in this market is ________.

A) 1 ,270 B) 5 ,250 C) 2 ,850 D) 8 ,250

109) _____

110) I f there are eight firms in a market and each has an equal market share, the Herfindahl-Hirschman Index (HHI) is ________ and the market is considered to be ________.

A) 1 ,250; competitive B) 2 ,800; competitive C) 1 ,250; moderately competitive D) 2 ,800; moderately competitive

110) _____

111) T he closer a market's Herfindahl-Hirschman Index (HHI) is to ________ the less competitive the market, which means there are ________ firms in the market.

A) 1 00; many B) 1 00; few C) 1 0,000; many D) 1 0,000; few

111) _____

112) T he closer a market's Herfindahl-Hirschman Index (HHI) is to ________ the more competitive the market, which means there are ________ firms in the market.

A) 1 0,000; few B) 1 0,000; many C) 1 00; many D) 1 00; few

112) _____

113) I f a pre-merger Herfindahl-Hirschman Index (HHI) is less than ________, the merger is unlikely to be challenged.

A) 2 ,200 B) 1 0,000 C) 1 ,500 D) 1 ,000

113) _____

114) I f a pre-merger Herfindahl-Hirschman Index (HHI) is between ________, the market is

considered

____ _

moderat114) ely compet iti ve and if a merger in this market raises the HHI by more than ________ , antitrust agencies worry about the potential loss of compet iti on.

A) 1 ,500 and 2,500; 100 C) 2 ,500 and 5,500; 25

B) 1 ,500 and 2,500; 50 D) 2 ,500 and 5,500; 100

115) I f a pre-merger Herfindahl-Hirschman Index (HHI) is greater than ________, the market is considered not competitive and any merger receives a high level of scrutiny.

A) 2 ,500 B) 5 00 C) 1 ,500 D) 5 ,500

115) _____

116) I f the merger of two firms is challenged by an antitrust agency, one possible solution is for the firms to ________.

A) i nclude a third firm in the merger.

B) s ell their assets to each other to avoid reducing competition.

C) i nclude more than three firms in the merger.

D) s ell some of their assets to a third firm to avoid reducing competition.

116) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

117) I n 2017, the Federal Trade Commission required firms to report any merger involving assets that exceeded $80.8 million.

117) _____

118) T ypically, antitrust agencies closely examine vertical mergers and horizontal mergers receive much less scrutiny.

118) _____

119) I t is possible for a horizontal merger to increase the total surplus in the market.

119) _____

120) W hen considering the legality of a horizontal merger, U.S. antitrust agencies tend to emphasize the importance of consumer surplus rather than total surplus.

120) _____

121) T he basic goal of identifying a product market is for antitrust agencies to determine the products that consumers consider close substitutes.

121) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

122) T he European Commission is comprised of ________.

A) 2 0 people, two people from each of the member countries

122) _____

B) 1 2 people, one person from each of the member countries C) 2 8 people, one person from each of the member countries D) 5 6 people, two people from each of the member countries 123) I n the United States, antitrust law focuses primarily on all of the following except which one?

A) e fficiency B) t he means to monopolize a market C) c onsumer welfare D) f urthering the social interest

123) _____

124) R elative to the United States, the European Union antitrust law focuses more on all of the following except which one?

A) f urthering the social interest B) e thics C) f airness D) t he leveling of the competitive playing field

124) _____

125) T he European Union antitrust law focuses on which of the following?

A) t he leveling of the competitive playing field B) e fficiency C) t he means to monopolize a market D) f urthering the social interest

125) _____

126) T he European Union antitrust law focuses on which of the following?

A) e fficiency B) t he means to monopolize a market C) f airness D) f urthering the social interest

126) _____

127) T he European Union antitrust law focuses on which of the following?

A) c onsumer welfare B) e thics C) f urthering the social interest D) t he means to monopolize a market

127) _____

128) I n the European Union, resale price maintenance is generally illegal is the selling firm has more than a ________ percent market share of the product being sold or the buying firm makes more than a ________ percent market share of the product purchases.

A) 5 0; 30 B) 3 0; 50 C) 3 0; 30 D) 5 0; 50

128) _____

129) A s long as the practice does not restrict competition, he European Union competition law considers all of the following permissible except which one?

A) p rice discrimination B) t ying contracts C) r esale price maintenance D) e xclusive dealing contracts

129) _____

130) I f a firm is found guilty of violating any of the European Union competition laws, courts ________ impose fines and ________ sentence managers who have violated the law to jail.

A) c annot; cannot B) c annot; can C) c an; can D) c an; cannot

130) _____

131) T he European Union can impose fines of up to ________ percent of the guilty firm;s worldwide total revenue.

A) 1 00 B) 5 C) 2 5 D) 1 0

131) _____

132) T he European Union policy almost automatically presumes that a single firm with a market share that exceeds ________ percent is dominant.

A) 5 0 B) 7 5 C) 8 0 D) 3 0

132) _____

133) A rticle 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits a dominant

firm from

doing all 133) of the followin g except which one?

____ _

A) l imiting or controlling production in markets through market division B) b uying at a price that is unfairly low C) p lacing trading partners at a competitive disadvantage by practicing price discrimination D) c harging an unfair price 134) A rticle 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits a dominant firm from doing all of the following except which one?

A) b uying at a price that is unfairly low B) c harging an unfair price C) p rice fixing D) m aking tying contracts or exclusive deals

134) _____

135) I f a dominant firm charged a very high price for its product, the firm ________ face scrutiny by the European Union competitive laws and ________ face scrutiny by the United States antitrust agencies.

A) w ould; would B) w ould; would not necessarily C) w ould not necessarily; would D) w ould not necessarily; would not necessarily

135) _____

136) M ergers that significantly impede effective competition are ________.

A) p rohibited by both the United States and the European Union laws B) p rohibited by the United States antitrust laws, but not the European Union competition laws C) p rohibited by the European Union competition laws, but not the United States antitrust laws D) g enerally legal in both the United States and the European Union

136) _____

137) T he European Union competition authorities can examine mergers between each of these firms except which one?

A) t wo firms located in the United States that sell their products exclusively in the United States B) t wo firms located in the European Union that sell their products in the United States and the European Union C) t wo firms that have subsidiaries or branches in the European Union D) t wo firms located in the United States that sell their products in the European Union

137) _____

138) I f found guilty of violating antitrust law in their respective countries, managers in ________ and ________ can be imprisoned.

A) C hina; European Union B) U nited States; European Union C) J apan; European Union D) C hina; United States

138) _____

139) A ccording to Chinese law, to be a dominant firm, can be all of the following except which one?

A) o ne of two firms in the market that have a combined market share of more than 66.6 percent B) o ne of four firms in the market that have a combined market share of more than 80 percent C) o ne of three firms in the market that have a combined market share of more than 75 percent

139) _____

D) a n individual firm with a market share of 50 percent 140) I f Happy Campers, Campers R Us, and Happy Trails each have a market share of 22 percent, according to Chinese law, Happy Campers ________ be considered a dominant firm because the total market share across the three firms is ________ percent.

A) w ould not; 22 B) w ould; 66 C) w ould; 22 D) w ould not; 66

140) _____

141) I f Happy Campers has a market share of 55 percent and Campers R Us has a market share of 15 percent, according to Chinese law, Happy Campers ________ be considered a dominant firm and Campers R Us ________ be considered a dominant firm.

A) w ould not; would B) w ould; would C) w ould; would not D) w ould not; would not

141) _____

142) I f Happy Campers has a market share of 70 percent and Campers R Us has a market share of 5 percent, according to Chinese law, Happy Campers ________ be considered a dominant firm and Campers R Us ________ be considered a dominant firm.

A) w ould not; would B) w ould; would not C) w ould; would D) w ould not; would not

142) _____

143) I f Sail Away has 15 percent of the market share, Easy Sails has a 30 percent market share, and Big Sails has a market share of 40 percent, according to Chinese law, which of the firm(s) is considered to be a dominant firm?

A) E asy Sails, but not Sail Away or Big Sails B) S ail Away, Easy Sails, and Big Sails C) B ig Sails, but not Sail Away or Easy Sails D) B ig Sails and Easy Sails, but not Sail Away

143) _____

144) U nlike the European Union competition laws, Chinese Anti-monopoly Law considers which of the following?

A) f urthering the social interest B) e xclusive deals C) t ying contracts D) c harging unfairly high prices

144) _____

145) I f a firm located outside of China violates China's Anti-monopoly Law, China ________ prosecute the firm ________.

A) c an; regardless of whether or not the firm's behavior affects the markets within China B) c annot; if the firm's behavior affects the markets within China C) c an; if the firm's behavior affects the markets within China D) c annot; regardless of whether or not the firm's behavior affects the markets within China

145) _____

146) I n reference to worldwide competition laws, each of the following are fundamentally prohibited or highly suspicious among regulators across almost all countries except which one?

A) c harging unfairly high prices B) c reation of cartels C) m onopolies D) d ominant firms

146) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

147) E ach member of the European Union (EU) has its own national competition laws in addition to the EU competition laws.

147) _____

148) P rice fixing and market division are illegal per se in the United States and effectively illegal per se in the European Union.

148) _____

149) B oth the United States and the European Union consider resale price maintenance to be illegal per se.

149) _____

150) T he European Union competition laws strongly support the free-market system by allowing firms to charge a high price or buy at a low price regardless of the market structure.

150) _____

151) I f two firms located in the United States sell their products in the United States and in the European Union, the possible merger of the two firms could not be examined by the European Union competition authorities.

151) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

152) I f a horizontal merger between two rival firms reduces competition, all of the following are possible except which one?

A) T he managers could face personal fines, but could not be imprisoned.

B) T he managers could face personal fines.

C) T he firms could face civil penalties.

D) T he firms could face criminal fines.

152) _____

153) T he manager of Healthy Bars should avoid all of the following topics except which one when speaking to managers of Healthy Snacks, a competitor firm?

A) t he planned production amounts of Healthy Crunch, another competitor firm B) H ealthy Bars pricing policy C) H ealthy Bars planned production amounts D) a news report announcing the benefits of healthy eating

153) _____

154) T he manager of Healthy Bars should avoid all of the following topics except which one when speaking to managers of Healthy Snacks, a competitor firm?

A) n ew government safety regulations for packaging snack foods B) t he planned production amounts of Healthy Crunch, another competitor firm C) H ealthy Bars' intent to bid on a government contract to supply public schools with healthy snack foods D) a forthcoming change in Healthy Bars' pricing policy

154) _____

155) T he manager of Happy Chickens, an organic egg producer, should avoid all of the following topics except which one when speaking to managers of Best Eggs, a competitor firm?

A) H appy Chickens' intent to bid on a large government contract to supply eggs to public schools B) H appy Chickens' planned production amounts C) f orthcoming changes in Happy Chickens' pricing policies D) a recent medical report documenting the health benefits from eggs

155) _____

156) T he manager of Happy Chickens, an organic egg producer, should avoid all of the following topics except which one when speaking to managers of Best Eggs, a competitor firm?

A) H appy Chickens' planned production amounts B) a new report linking egg consumption with increased heart health in adults C) f orthcoming changes in Happy Eggs', a competitor firm's, pricing D) t he planned production amounts of Happy Eggs, a competitor firm

156) _____

157) B ig Roads and Big Pavers are two competing road construction firms. The managers of these two firms should never undertake all of the following actions except which one?

A) a gree to only operate in a specific area of the country B) a gree to not submit a bid on a government road contract C) s hare information and experiences from implementing new government safety standards D) a djust the amount they bid on a government road contract

157) _____

158) B ig Roads and Big Pavers are two competing road construction firms. The managers of these two firms should never undertake all of the following actions except which one?

A) a gree to submit a low bid on a contract B) a gree to the number of contracts the firms will bid on C) s hare information and experiences from implementing new government safety standards D) a gree to submit a high bid on a contract

158) _____

159) T o avoid a rule-of-reason violation, the manager of a designer handbag firm should not undertake which of these actions without first speaking to an attorney?

A) e nter into an agreement with another designer handbag firm to only sell in certain areas of the world B) e nter into an agreement with a distributor about the minimum price the distributor can resell the handbags C) e nter into an agreement with another designer handbag firm not to sell to a particular customer D) e nter into an agreement with another designer handbag firm to set the price of the handbags

159) _____

160) T o avoid a rule-of-reason violation, the manager of a designer women's clothing firm should not undertake which of these actions without first speaking to an attorney?

A) e nter into an agreement with another designer women's clothing firm to only sell in certain areas of the world B) e nter into an agreement with a distributor about the minimum price the distributor can resell the clothing C) e nter into an agreement with another designer women's clothing firm to set the price of the clothing D) e nter into an agreement with another designer women's clothing firm not to sell to a particular customer

160) _____

161) A ll of the following actions are potential rule-of-reason violations except which one?

A) a firm's agreement with a customer about the markets in which the customer is allowed to resell the product B) a tying sale with a customer C) a n agreement with a competitor firm to divide the market D) a firm's agreement with a customer about the resale price of its product

161) _____

162) A ll of the following actions are potential rule-of-reason violations except which one?

A) a tying sale with a customer B) a firm's agreement with a customer about the resale price of its product C) a n agreement with a competitor firm not to bid on a contract D) a n exclusive dealings contract with a customer

162) _____

163) A ll of the following actions are potential rule-of-reason violations except which one?

A) a n agreement with a competitor firm to adjust output levels B) a tying sale with a customer C) a n exclusive dealings contract with a customer D) a n agreement with a customer about the resale price the customer will charge for the product

163) _____

164) A ll of the following actions are potential rule-of-reason violations except which one?

164) _____

A) a n agreement with a competitor firm to not sell to a particular customer B) a n agreement with a customer about the resale price the customer will charge for the

product

C) a n exclusive dealings contract with a customer D) a n agreement with a customer about the markets in which the customer is allowed to resell the product

165) T he legality of which of the following actions would be determined using the rule-of-reason?

A) a n agreement with a competitor firm to adjust output levels B) a n agreement with a competitor firm not to bid on a contract C) a n exclusive dealings contract with a customer D) a n agreement with a competitor firm to not sell to a particular customer

165) _____

166) T he legality of which of the following actions would be determined using the rule-of-reason?

A) a n agreement with a competitor firm submit a low bid on a contract B) a n agreement with a competitor firm to set prices C) a n agreement with a competitor firm submit a high bid on a contract D) a n agreement with a customer about the markets in which the customer is allowed to resell the product

166) _____

167) T he legality of which of the following actions would be determined using the rule-of-reason?

A) a n agreement with a competitor firm submit a low bid on a contract B) a n exclusive dealings contract with a customer C) a n agreement with a competitor firm submit a high bid on a contract D) a n agreement with a competitor firm to not sell to a particular customer

167) _____

168) W hich of the following actions should be discussed with an attorney before undertaking as the action could be considered legal?

A) a n agreement with a competitor firm not to bid on a contract B) a n agreement with a customer about the markets in which the customer is allowed to resell the product C) a n agreement with a competitor firm submit a high bid on a contract D) a n agreement with a competitor firm submit a low bid on a contract

168) _____

169) W hich of the following actions should be discussed with an attorney before undertaking as the action could be considered legal?

A) a tying sale with a customer B) a n agreement with a competitor firm to not sell to a particular customer C) a n agreement with a competitor firm to set prices D) a n agreement with a competitor firm to adjust output levels

169) _____

170) W hich of the following actions should be discussed with an attorney before undertaking as the action could be considered legal?

A) a n agreement with a competitor firm to set prices B) a n agreement with a competitor firm submit a low bid on a contract C) a n agreement with a competitor firm not to bid on a contract D) a n exclusive dealings contract with a customer

170) _____

171) W hich of the following actions should be discussed with an attorney before undertaking as the action could be considered legal?

A) a n agreement with a customer about the resale price the customer will charge for the product B) a n agreement with a competitor firm to not sell to a particular customer C) a n agreement with a competitor firm to set prices

171) _____

D) a n agreement with a competitor firm to adjust output levels TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

172) E ven if a firm is found guilty of price fixing, after paying all imposed fines, it is still possible for the firm to earn positive economic profit from the price fixing scheme.

172) _____

173) A manager of a firm located in the United States that sells some of its products abroad needs to comply only with United States antitrust law as the firm is only bound by the laws of the country in which it is located.

173) _____

174) I f a luxury handbag firm enters into an agreement with its distributors by setting the minimum price its distributors can resell its handbags, United States antitrust agencies could examine this agreement using the rule-of-reason.

174) _____

175) I f a software company enters into an agreement with its distributors to only resell its software in 5 specific states, under United States antitrust laws, this agreement is illegal per se.

175) _____

176) I f a software company charges different prices for its product in different areas of the United States, under United States antitrust laws, this agreement is illegal per se.

176) _____

1) B 2) A 3) C 4) B 5) D 6) D 7) A 8) A 9) D 10) D 11) B 12) D 13) D 14) A 15) A 16) D 17) B 18) A 19) D 20) B 21) C 22) B 23) C 24) A 25) C 26) C 27) F ALSE 28) T RUE 29) F ALSE 30) T RUE 31) T RUE 32) B 33) A 34) C 35) D 36) A 37) C 38) B 39) A 40) D 41) A 42) C 43) B 44) C 45) A 46) C 47) A 48) B 49) A 50) C 51) D

52) B 53) A 54) B 55) C 56) B 57) F ALSE 58) T RUE 59) F ALSE 60) T RUE 61) T RUE 62) D 63) C 64) B 65) C 66) B 67) A 68) B 69) B 70) C 71) B 72) D 73) D 74) A 75) C 76) A 77) C 78) B 79) C 80) A 81) B 82) A 83) B 84) C 85) D 86) B 87) F ALSE 88) T RUE 89) F ALSE 90) T RUE 91) F ALSE 92) B 93) A 94) D 95) A 96) A 97) D 98) C 99) C 100) D 101) C 102) B 103) A

104) C 105) D 106) D 107) A 108) A 109) C 110) A 111) D 112) C 113) C 114) A 115) A 116) D 117) T RUE 118) F ALSE 119) T RUE 120) T RUE 121) T RUE 122) C 123) D 124) A 125) A 126) C 127) B 128) C 129) C 130) D 131) D 132) A 133) A 134) C 135) B 136) A 137) A 138) D 139) B 140) D 141) B 142) C 143) B 144) A 145) C 146) A 147) T RUE 148) T RUE 149) F ALSE 150) F ALSE 151) F ALSE 152) A 153) D 154) A 155) D

156) B 157) C 158) C 159) B 160) B 161) C 162) C 163) A 164) A 165) C 166) D 167) B 168) B 169) A 170) D 171) A 172) T RUE 173) F ALSE 174) T RUE 175) F ALSE 176) F ALSE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) T he existence of any consumer surplus in the market suggests that all of the following practices are possible in the market except which one?

A) t hird-degree price discrimination B) f irst-degree price discrimination C) a single price is charged to all consumers D) s econd-degree price discrimination

1) _______

2) A ll of the following are true for first-degree price discrimination except which one?

A) I n reality, it is impossible to practice.

B) E ach consumer pays the maximum price they are willing to pay for every unit purchased.

C) C onsumers pay less for the first units that they purchase.

D) C onsumers receive no consumer surplus.

2) _______

3) I f a firm is able to practice first-degree price discrimination, the firm will produce ________ than

3) _______

if they charged a single price to all consumers and the firm will earn ________ profit than if they charged a single price to all consumers.

A) l ess; more B) m ore; less C) l ess; less D) m ore; more 4) O f the three types of price-discrimination, which is impossible to practice in any market in reality?

A) t hird-degree price discrimination B) z ero-degree price discrimination C) s econd-degree price discrimination D) f irst-degree price discrimination

4) _______

5) O f the three types of price-discrimination, which yields the greatest profits to the firm?

A) f irst-degree price discrimination B) z ero-degree price discrimination C) s econd-degree price discrimination D) t hird-degree price discrimination

5) _______

6) I f Mario's Pizza offers consumers who purchase one medium sized pizza a second pizza at half price, this is an example of ________.

A) t hird-degree price discrimination B) s econd-degree price discrimination C) f irst-degree price discrimination D) z ero-degree price discrimination

6) _______

7) I f Sail Away Cruises offers customers a free cruise ticket with each full priced cruise ticket purchased, this is an example of ________.

A) s econd-degree price discrimination B) f irst-degree price discrimination C) z ero-degree price discrimination D) t hird-degree price discrimination

7) _______

8) I f Big Lumber Company offers customers a lower price per unit of lumber if the customer purchases more than 100 pieces of lumber, this is an example of ________.

A) s econd-degree price discrimination B) t hird-degree price discrimination C) f irst-degree price discrimination D) z ero-degree price discrimination

8) _______

9) F irst-degree and second-degree price discrimination are similar in each of the following ways except which one?

A) T hey both convert consumer surplus into additional economic profit.

B) I n both practices, firms earn greater economic profit than if they charged a single price for every unit.

C) T hey both yield the greatest possible profits to the firm.

D) I n both practices, consumers pay higher prices for the first units that they buy.

9) _______

10) F irst-degree and second-degree price discrimination are similar in each of the following ways

except

which one?

10)

___ ___

A) I n both practices, firms earn greater economic profit than if they charged a single price for every unit.

B) T hey both convert all possible consumer surplus into additional economic profit.

C) I n both practices, consumers pay higher prices for the first units that they buy.

D) I n both practices, firms produce more than if they charged a single price.

11) I n third-degree price discrimination, to determine the total quantity produced, the firm sets its ________ equal to its ________.

A) o verall marginal revenue; marginal cost B) i ndividual market marginal revenue; marginal cost C) o verall marginal revenue; average total cost D) i ndividual market marginal revenue; average total cost

11) ______

12) I n third-degree price discrimination, markets with a smaller price elasticity of demand are ________ responsive to price changes and are charged ________ prices than markets with a larger price elasticity of demand.

A) l ess; lower B) l ess; higher C) m ore; lower D) m ore; higher

12) ______

13) I n third-degree price discrimination, markets with a larger price elasticity of demand are ________ responsive to price changes and are charged ________ prices than markets with a smaller price elasticity of demand.

A) m ore; higher B) m ore; lower C) l ess; lower D) l ess; higher

13) ______

14) I f a firm is practicing third-degree price discrimination and is charging a price of $8 per unit to consumers in Group A and a price of $10 to consumers in Group B, which of the following is true?

A) G roup B consumers have a greater price elasticity than Group A consumers.

B) G roup A consumers are less responsive to price changes than Group B consumers.

C) G roup A consumers have a lower price elasticity than Group B consumers.

D) G roup A consumers have a greater price elasticity than Group B consumers.

14) ______

15) I f Big Fitness, a large workout facility, offers a discounted membership to college students, this is an example of ________.

A) t hird-degree price discrimination B) z ero-degree price discrimination C) s econd-degree price discrimination D) f irst-degree price discrimination

15) ______

16) I f Massage R Us, a spa chain specializing in massage, offers a lower price for a massage to senior citizens, this is an example of ________.

A) z ero-degree price discrimination B) s econd-degree price discrimination C) f irst-degree price discrimination D) t hird-degree price discrimination

16) ______

17) I f a firm is practicing third-degree price discrimination and is charging a price of $5 per unit to consumers in Group A and a price of $9 to consumers in Group B, which of the following is true?

A) G roup A consumers have a greater price elasticity than Group B consumers.

B) G roup B consumers have a greater price elasticity than Group A consumers.

C) G roup A consumers have a lower price elasticity than Group B consumers.

D) G roup A consumers are less responsive to price changes than Group B consumers.

17) ______

18) I f a firm is practicing third-degree price discrimination and is charging a price of $15 per unit to consumers in Group A and a price of $10 to consumers in Group B, which of the following is

true18) ?

______ A) G roup B consumers have a greater price elasticity than Group A consumers.

B) G roup A consumers have a greater price elasticity than Group B consumers.

C) G roup B consumers have a lower price elasticity than Group A consumers.

D) G roup B consumers are less responsive to price changes than Group A consumers.

19) T he managers of Movies Plus, a large movie theater, want to practice third-degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 4.0 for tickets at Movies Plus and adults have an own price elasticity of 2.0. If the managers have correctly determined the third-degree profit-maximizing price for adults is $10, what is the third-degree profit-maximizing price to charge students?

A) $ 15.00

B) $ 5.50

C) $ 12.00

D) $ 6.67

20) T he managers of Movies Plus, a large movie theater, want to practice third-degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 1.5 for tickets at Movies Plus and adults have an own price elasticity of 1.2. If the managers have correctly determined the third-degree profit-maximizing price for adults is $15, what is the third-degree profit-maximizing price to charge students?

A) $ 10.00

B) $ 8.50

C) $ 13.50

B) $ 12.50

C) $ 9.33

20) ______

D) $ 7.50

21) T he managers of Movies Plus, a large movie theater, want to practice third-degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 1.75 for tickets at Movies Plus and adults have an own price elasticity of 1.25. If the managers have correctly determined the third-degree profit-maximizing price for adults is $20, what is the third-degree profit-maximizing price to charge students?

A) $ 18.25

19) ______

21) ______

D) $ 15.67

22) T o practice third-degree price discrimination, each of these market conditions must be met except which one?

A) D ifferent groups of customers with different own price elasticities of demand must exist.

B) D ifferent groups of customers with equal own price elasticities of demand must exist.

C) N o arbitrage opportunities can exist between customer groups.

D) T he firm must have market power.

22) ______

23) T o practice third-degree price discrimination, each of these market conditions must be met except which one?

A) N o arbitrage opportunities can exist between customer groups.

B) A ll consumers must have the same own price elasticity of demand.

C) T he firm must be able to determine in which group each customer belongs.

D) T he firm must have market power.

23) ______

24) I f Deluxe Fruits offers a $1.00 coupon for their fruit cups, this is an example of ________.

A) m arket segmentation B) s econd-degree price discrimination C) f irst-degree price discrimination D) a rbitrage

24) ______

25) I f High Tech Tablets brings a new personal tablet at a price of $200 for the first three months and then reduces the price of the tablet to $125, this is an example of ________.

A) a rbitrage B) m arket segmentation C) s econd-degree price discrimination D) f irst-degree price discrimination

25) ______

26)

___ ___

26)

If the market in the figure above is a monopol y that maximiz es its profit and charges every consume r the same price for each unit of output the consume r buys, the consume r surplus is equal to ________ .

A) a rea A.

B) a rea B.

C) a rea C.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

D) a rea D.

27) I f no consumer surplus exists in a market, it is possible for a firm to earn greater profits.

27) ______

28) I n first-degree price discrimination, the firm's marginal revenue curve is equal to its demand curve.

28) ______

29) I n third-degree price discrimination, the price markup is smaller in the markets that are less responsive to price changes.

29) ______

30) I n third-degree price discrimination, consumer groups with the largest price elasticity of demand will pay the lowest price compared to the consumer groups with smaller price elasticities.

30) ______

31) I f the own price elasticity of demand for a firm's product is the same across all consumers, it is not possible for the firm to practice third-degree price discrimination.

31) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

32) A firm that faces a high-demand period followed by a low-demand period must determine all of the following for peak-load pricing except which one?

A) l ong-term peak quantity B) s hort-term off-peak price C) s hort-term peak price D) l ong-run capacity

32) ______

33) A firm that faces a high-demand period followed by a low-demand period must determine all of the following for peak-load pricing except which one?

A) s hort-term peak quantity B) s hort-term off-peak price C) l ong-term off-peak quantity D) l ong-run capacity

33) ______

34) A firm that faces a high-demand period followed by a low-demand period must determine all of the following for peak-load pricing except which one?

A) s hort-term peak price B) l ong-term off-peak price C) s hort-term peak quantity D) s hort-term off-peak quantity

34) ______

35) T o maximize overall profit in peak-load pricing, managers must determine ________ capacity that maximizes ________ season profit.

A) l ong-run; off-peak B) l ong-run; peakC) s hort-run; off-peak D) s hort-run; peak-

35) ______

36) T he long-run capacity decision depends on the ________ period marginal revenue and the ________ marginal cost.

A) o ff-peak; long-run B) o ff-peak; short-run C) p eak-; long-run D) p eak-; short-run

36) ______

37) I f Angelo's Pizza Restaurant has a constant marginal cost of $50 for each additional table in the restaurant and a constant marginal cost of $12 for operating each additional table, what is Angelo's long-run marginal cost per table?

A) $ 12 B) $ 62 C) $ 50 D) $ 38

37) ______

38) I f Angelo's Pizza Restaurant has a constant marginal cost of $75 for each additional table in the restaurant and a constant marginal cost of $5 for operating each additional table, what is Angelo's long-run marginal cost per table?

A) $ 70 B) $ 80 C) $ 5 D) $ 75

38) ______

39) I f Angelo's Pizza Restaurant has a constant marginal cost of $100 for each additional table in the restaurant and a constant marginal cost of $40 for operating each additional table, what is

An's gelolong-ru

n 39) marginal cost per table?

A) $ 100

___ ___

B) $ 140

C) $ 40

D) $ 60

40) I f Gorgeous Sands Resort has a constant marginal cost of $20,000 for each resort unit and a constant marginal cost of $500 for operating each resort unit, what is Gorgeous Sands Resort's long-run marginal cost per resort unit?

A) $ 500 B) $ 19,500 C) $ 20,500 D) $ 20,000

40) ______

41) I f Gorgeous Sands Resort has a constant marginal cost of $15,000 for each resort unit and a constant marginal cost of $750 for operating each resort unit, what is Gorgeous Sands Resort's long-run marginal cost per resort unit?

A) $ 15,000 B) $ 750 C) $ 15,750 D) $ 14,250

41) ______

42) I n peak-load pricing, the capacity decision is determined by setting ________ marginal revenue equal to long-run ________ cost.

A) p eak; marginal B) p eak; average fixed C) o ff-peak; marginal D) o ff-peak; average fixed

42) ______

43) I n peak-load pricing, once capacity is reached, the firm's short-run marginal cost curve becomes ________.

A) d ownward sloping B) v ertical C) n egative D) h orizontal

43) ______

44) I n peak-load pricing, once capacity is reached, the firm's short-run marginal cost curve becomes ________.

A) h orizontal B) v ertical C) n egative D) u pward sloping

44) ______

45) T o maximize profits in the off-peak period, the ________ marginal revenue is set equal to the ________ marginal cost.

A) p eak; short-run B) o ff-peak; short-run C) p eak; long-run D) o ff-peak; long-run

45) ______

46) I n peak-load pricing, the off-peak profit-maximizing quantity is ________ than the profit-maximizing quantity during the peak period and the profit-maximizing price during the off-peak period is ________ than the profit-maximizing price during the peak period.

A) l ess; more B) l ess; less C) m ore; less D) m ore; more

46) ______

Marginal Peak Off-Peak Marginal Operating Marginal Quantity of Marginal Peak Off-Peak Revenue Demand Demand Cost Revenue Resort Units Capacity Cost 150 $5,00 $1,00 $8,00 $2,000 $10,000 $2,50 200 0 0 0 $1,500 $8,000 0 250 $5,00 $1,00 $7,50 $1,000 $7,800 $2,00 300 0 0 0 $750 $7,000 0 350 $5,00 $1,00 $6,70 $500 $6,250 $1,75 0 0 0 0 $5,00 $1,00 $6,00 $1,25 cost, peak marginal The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating 0 0 and its peak0and off-peak demand for its resort units.0 revenue, off-peak marginal revenue, $5,00 $1,00 $5,00 $1,00 0 0 0 0

47) R efer to the table above. What is Gorgeous Sands Resort's long-run marginal cost?

A) $ 5,000 B) $ 4,000 C) $ 1,000 D) $ 6,000

47) ______

48) R efer to the table above. What is Gorgeous Sands Resort's long-run average cost?

A) $ 3,000 B) $ 5,000 C) $ 1,000 D) $ 6,000

48) ______

49) R efer to the table above. What long-run capacity of resort units should Gorgeous Sands Resort select?

A) 2 50 B) 2 00 C) 3 00 D) 3 50

49) ______

50) R efer to the table above. What is the profit-maximizing number of resort units for Gorgeous Sands Resort during the peak period?

A) 2 00 B) 3 00 C) 3 50 D) 2 50

50) ______

51) R efer to the table above. What is the profit-maximizing price for Gorgeous Sands Resort to charge during the peak period?

A) $ 7,800 B) $ 7,000 C) $ 10,000 D) $ 8,000

51) ______

52) R efer to the table above. What is the profit-maximizing number of resort units for Gorgeous Sands Resort during the off-peak period?

A) 3 00 B) 2 00 C) 2 50 D) 3 50

52) ______

53) R efer to the table above. What is the profit-maximizing price for Gorgeous Sands Resort to charge during the off-peak period?

A) $ 2,500 B) $ 1,250 C) $ 2,000 D) $ 1,750

53) ______

54) R efer to the table above. If Gorgeous Sands Resort produces the profit-maximizing number of resorts and charges the profit-maximizing price, what is their profit during the peak-period?

A) $ 187,500 B) $ 300,000 C) $ 500,000 D) $ 457,500

54) ______

55) R efer to the table above. If Gorgeous Sands Resort produces the profit-maximizing number of resorts and charges the profit-maximizing price, what is their profit during the off-peak-period?

A) $ 187,500 B) $ 255,500 C) $ 450,000 D) $ 300,000

55) ______

56) R efer to the table above. If Gorgeous Sands Resort produces the profit-maximizing number of resorts and charges the profit-maximizing price, what is their total profit?

A) $ 285,700 B) $ 525,000 C) $ 300,000 D) $ 487,500

56) ______

57) I n the figure above, a firm that is using peak load pricing sets a price of ________ in the peak period and a price of ________ in the off-peak period.

A) $ 60; $20 B) $ 20; $10 C) $ 60; $10 D) $ 60; $30

57) ______

58) I n the figure above, a firm that is using peak load pricing produces ________ in the peak period and produces ________ in the off-peak period.

A) 4 ,000; 1,000 B) 4 ,000; 2,000 C) 3 ,000; 3,000 D) N one of the above answers are correct because more information is needed about the

58) ______

combined marginal revenue curves.

59) T he figure above shows the demand for meals at lunch and dinner for a proposed new restaurant. Suppose the marginal cost of a meal (both lunch and dinner) is constant at $10 per meal and marginal cost of providing the capacity is constant at $5 per meal. What is the profit-maximizing capacity?

A) 6 00 meals

B) 7 00 meals

C) 7 50 meals

D) 9 00 meals

60) T he figure above shows the demand for meals at lunch and dinner for a proposed new restaurant. Suppose the marginal cost of a meal (both lunch and dinner) is constant at $10 per meal and marginal cost of providing the capacity is constant at $5 per meal. Once the managers have determined the profit-maximizing capacity, at dinner they will serve ________ meals and set a price of ________ per meal.

A) 2 00; $35

B) 6 00; $30

C) 8 00; $25

B) 6 00; $30

C) 8 00; $30

60) ______

D) 2 00; $20

61) T he figure above shows the demand for meals at lunch and dinner for a proposed new restaurant. Suppose the marginal cost of a meal (both lunch and dinner) is constant at $10 per meal and marginal cost of providing the capacity is constant at $5 per meal. Once the managers have determined the profit-maximizing capacity, at lunch they will serve ________ meals and set a price of ________ per meal.

A) 2 00; $30

59) ______

61) ______

D) 2 00; $20

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

62) I n peak-load pricing, the capacity decision is made in the short run.

62) ______

63) I n peak-load pricing, the capacity decision is only based on conditions during the peak period.

63) ______

64) O ff-peak demand influences the capacity decision in peak-load pricing.

64) ______

65) T he capacity decision in peak-load pricing is found by setting the peak marginal revenue equal to the long-run marginal cost.

65) ______

66) I n peak-load pricing, the short-run marginal cost is equal to the marginal cost of providing capacity.

66) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

67) A ll of the following practices increase a firm's profit by extracting more consumer surplus than can be obtained by simple monopoly pricing except which one?

A) t wo-part pricing B) a ll-or-nothing offers C) c ommodity bundling D) l inear pricing

67) ______

68) I f Big Pools charges an annual membership fee of $500 per person for the use of their pool and charges a $4 fee each time a member uses the pool, this is an example of ________.

A) c ommodity bundling B) a n all-or-nothing offer C) a single pricing scheme D) t wo-part pricing

68) ______

69) I f Lake Boats charges an annual membership fee of $1,200 for the use of a boating slip (a place to store a boat) and charges a $50 fee each time a member docks their boat, this is an example of ________.

A) a n all-or-nothing offer B) c ommodity bundling C) t wo-part pricing D) a single pricing scheme

69) ______

70) I f Health Spas charges an annual membership fee of $1,000 for the use of their facilities and charges a $20 fee each time a member uses their facilities, this is an example of ________.

70) ______

A) a single pricing scheme C) c ommodity bundling

B) a n all-or-nothing offer D) t wo-part pricing

71) I f Health Spas charges an annual membership fee of $1,000 for the use of their facilities and charges a $20 fee each time a member uses their facilities, the $1,000 charge is a(n) ________ fee and the $20 charge is a(n) ________ fee.

A) f ixed; user B) f ixed; fixed C) u ser; fixed D) u ser; user

71) ______

72) B ig Waves is a large water park. Suppose the individual demand for entrance into Big Waves is d Q = 50 - (2 × P) and each consumer has the same demand. Big Waves has a constant marginal

72) ______

cost of $5 per consumer. If Big Waves charges a single entry price to each consumer, what is the profit-maximizing number of entries per consumer?

A) 2 0 B) 1 0 C) 2 5 D) 5 0 73) B ig Waves is a large water park. Suppose the individual demand for entrance into Big Waves is d Q = 50 - (2 × P) and each consumer has the same demand. Big Waves has a constant marginal

73) ______

cost of $5 per consumer. If Big Waves charges a single entry price to each consumer, what is the profit-maximizing price per consumer?

A) $ 15 B) $ 20 C) $ 10 D) $ 25 74) B ig Waves is a large water park. Suppose the individual demand for entrance into Big Waves is d Q = 50 - (2 × P) and each consumer has the same demand. Big Waves has a constant marginal

74) ______

cost of $5 per consumer. If Big Waves charges the profit-maximizing single entry price to each consumer and offers the profit-maximizing number of entries, what is Big Waves profit per consumer?

A) $ 250 B) $ 300 C) $ 100 D) $ 200 75) B ig Waves is a large water park. Suppose the individual demand for entrance into Big Waves is d Q = 50 - (2 × P) and each consumer has the same demand. Big Waves has a constant marginal

75) ______

cost of $5 per consumer. If Big Waves practices two-part pricing and requires a membership fee and then a separate entrance fee, what is the profit-maximizing membership fee?

A) $ 125 B) $ 400 C) $ 200 D) $ 50 76) B ig Waves is a large water park. Suppose the individual demand for entrance into Big Waves is d Q = 50 - (2 × P) and each consumer has the same demand. Big Waves has a constant marginal

76) ______

cost of $5 per consumer. If Big Waves practices two-part pricing and requires a membership fee and then a separate entrance fee, what is the profit-maximizing entrance fee?

A) $ 50 B) $ 10 C) $ 200 D) $ 5 77) B ig Waves is a large water park. Suppose the individual demand for entrance into Big Waves is d Q = 50 - (2 × P) and each consumer has the same demand. Big Waves has a constant marginal

77) ______

cost of $5 per consumer. If Big Waves practices two-part pricing and charges the profit-maximizing membership fee and entrance fee, what is the profit per consumer?

A) $ 400 B) $ 500 C) $ 200 D) $ 50 78) B ig Pools is large swimming complex. Suppose adults have a demand for entrance into Big

Pools that

___ ___

is less 78) than half of the teenager s demand for entrance and there are an equal number of adults and teenager s. If Big Pools practices two-part pricing, to earn greater profit, Big Pools ________ adjust the members hip fee to include ________ .

A) s hould; adults C) s hould not; teenagers

B) s hould; all consumers D) s hould not; adults

79) B ig Pools is large swimming complex. Suppose senior citizens have a demand for entrance into Big Pools that is less than half of the adults demand for entrance and there are an equal number of senior citizens and adults. If Big Pools practices two-part pricing, to earn greater profit, Big Pools ________ adjust the membership fee to include ________.

A) s hould not; adults B) s hould; all consumers C) s hould; senior citizens D) s hould not; senior citizens

79) ______

80) B ig Pools is large swimming complex. Suppose senior citizens have a demand for entrance into Big Pools that is more than half of the adults demand for entrance and there are an equal number of senior citizens and adults. If Big Pools practices two-part pricing, to earn greater profit, Big Pools ________ adjust the membership fee to include ________.

A) s hould not; adults B) s hould; senior citizens C) s hould not; senior citizens D) s hould; only adults

80) ______

81) I f a firm has consumers with different demands practices two-part pricing and it is profitable for the firm to sell to all consumer types, the profit-maximizing user fee will be ________ the firm's marginal cost of use.

81) ______

A) d ouble

B) g reater than

C) l ess than

D) e qual to

82) I f Best Dogs sells its hot dogs only in packages of eight, this is an example of ________.

A) t wo-part pricing B) l inear pricing C) a n all-or-nothing offer D) c ommodity bundling

82) ______

83) I f Good Tissue sells its toilet paper only in packages of six rolls, this is an example of ________.

A) t wo-part pricing B) a n all-or-nothing offer C) l inear pricing D) c ommodity bundling

83) ______

84) I f Happy Chickens sells its eggs only in 12 carton packages, this is an example of ________.

A) c ommodity bundling B) t wo-part pricing C) l inear pricing D) a n all-or-nothing offer

84) ______

85)

85) ______

d The demand for Healthy Bars, a health snack bar, is Q = 10 - (2 × P) and Healthy Bars has a constant average cost of $3 per snack bar. If Healthy Bars wants to package their bars to create an all-or-nothing offer, what is the profit-maximizing number of bars to put into a package?

A) 6

B) 4

C) 1 0

86)

D) 2 86) ______

d The demand for Healthy Bars, a health snack bar, is Q = 10 - (2 × P) and Healthy Bars has a constant average cost of $3 per snack bar. If Healthy Bars wants to package their bars to create an all-or-nothing offer and puts the profit-maximizing number of bars into each package, what is the profit-maximizing price to charge for the package?

A) $ 16

B) $ 20

C) $ 12

87)

D) $ 8

d

87) ______

The demand for Healthy Bars, a health snack bar, is Q = 10 - (2 × P) and Healthy Bars has a constant average cost of $3 per snack bar. If Healthy Bars wants to package their bars to create an all-or-nothing offer and puts the profit-maximizing number of bars into each package and charges the profit-maximizing price for the package, what is their profit?

A) $ 4 B) $ 6 C) $ 16 D) $ 12 88) F ast Technology sells its computers and monitors separately, but also sells them as a package.

This is an example of ________.

A) t wo-part pricing B) p ure bundling C) m ixed bundling D) a n all-or-nothing offer

88) ______

89) T acos in a Box sells its hard shell tacos, taco seasoning, and taco sauce as a package and does not sell the individual products separately. This is an example of ________.

A) a n all-or-nothing offer B) p ure bundling C) m ixed bundling D) t wo-part pricing

89) ______

Customer A B

Maximum Price Willing to Maximum Price Willing to Pay for Taco Shells (dollars Pay for Taco Sauce per month) (dollars per month) $4 $7

$5 $3

Tacos R Us sells two different types of products; taco shells and taco sauce. For simplicity, assume that the marginal cost of each product is $0, so that Tacos R Us' total revenue is also its total profit.

90) R efer to the table above. If Tacos R Us sells its taco shells separately, what is the profit-maximizing price to charge?

A) $ 7 B) $ 3 C) $ 4 D) $ 5

90) ______

91) R efer to the table above. If Tacos R Us sells its taco shells and taco sauce as a package, what is the profit-maximizing price for the bundle?

A) $ 7 B) $ 10 C) $ 9 D) $ 18

91) ______

92)

92) ______

The figure above shows the demand for items from a warehouse club. All of the people who shop at the warehouse club have the same demand. If the managers set a single price, so that all customers pay the same price for every item they buy, the price will be ________ and the company will sell ________ units.

A) $ 6 per unit; 20 million B) $ 6 per unit; 10 million C) $ 10 per unit; 10 million D) N one of the above answers is correct.

93) T he figure above shows an individual's demand for items from a warehouse club. All of the people who shop at the warehouse club have the same demand. If the managers use two-part pricing, the membership fee (the access fee) is ________ and the price per item (the user fee) is ________ .

A) $ 80; $6 per unit B) $ 60; $6 per unit C) $ 40; $10 per unit D) $ 20; $10 per unit

93) ______

94) T he figure above shows the demand for items from a warehouse club. All of the people who shop at the warehouse club have the same demand. If the managers use two-part pricing, the price per item (the user fee) is ________ and the company sells ________ units to each customer.

D)A) $ 10 per unit; 2010 $ 10 per unit; B) $ 6 per unit; 20 C) $ 6 per unit; 10

94) ______

95)

95) ______

The figure above shows the demand for items from a warehouse club. All of the people who shop at the warehouse club have the same demand. If the managers set a single price, so that all customers pay the same price for every item they buy, the firm makes an economic profit of ________ and if the managers use two-part pricing, the firm makes an economic profit of ________.

A) $ 60 million; $80 million B) $ 0; $80 million C) $ 40 million; $80 million D) $ 40 million; $60 million TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

96) I n the situation in which consumers have nonidentical demands in two-part pricing, the profit-maximizing user fee is equal to the marginal cost of use.

96) ______

97) I n the situation in which consumers have nonidentical demands in two-part pricing, a firm's profit is always increased if it adjusts the access fee and user fee to sell to all consumers.

97) ______

98) I n all-or-nothing offers, the products packaged together are all the same.

98) ______

99) I f Pasta Meals sells its pasta and pasta sauce in a package and sells the products individually, this is an example of pure bundling.

99) ______

100) C ommodity bundling can increase a firm's profit and lower their transaction costs.

100) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

101) F ast Stop, a gasoline and grocery quick mart, charges $3 for one hot dog and $5 for two hot dogs.

This is an example of ________.

A) s econd-degree price discrimination B) t hird-degree price discrimination C) a n all-or-nothing offer D) t wo-part pricing

101) _____

102) F ast Stop, a gasoline and grocery quick mart, charges $2 for a 20 ounce fountain drink and $3 for a 40 ounce fountain drink. This is an example of ________.

A) a n all-or-nothing offer B) t wo-part pricing C) s econd-degree price discrimination D) t hird-degree price discrimination

102) _____

103) F ast Stop, a gasoline and grocery quick mart, charges $1.50 for a small bag of pretzels and $2 for two small bags of pretzels. This is an example of ________.

A) a n all-or-nothing offer B) t wo-part pricing C) t hird-degree price discrimination D) s econd-degree price discrimination

103) _____

104) S econd-degree price discrimination allows firms to do all of the following except which one?

A) c hange some of the consumer surplus into profit B) r eceive a higher price of the first units sold C) r eceive a higher price for the last units sold D) s ell more units

104) _____

105) S econd-degree price discrimination allows firms to do all of the following except which one?

A) r eceive a higher price of the first units sold B) e arn less profit compared to charging the profit-maximizing price for all units C) s ell more units D) c hange some of the consumer surplus into profit

105) _____

106) I f Healthy Bars sells its snack bars in the United States for $3 a bar and for $2 (dollar equivalent) in Mexico, this is an example of ________.

A) p eak-load pricing B) t wo-part pricing C) t hird-degree price discrimination D) s econd-degree price discrimination

106) _____

107) I f Happy Babies sells its baby formula in the United States for $10 box and for $12 (dollar equivalent) a box Canada, this is an example of ________.

A) s econd-degree price discrimination B) t wo-part pricing C) t hird-degree price discrimination D) p eak-load pricing

107) _____

108) I f Happy Babies sells its baby formula in the United States for 30 percent less than it does in Canada, this is an example of ________.

A) s econd-degree price discrimination B) p eak-load pricing C) t wo-part pricing D) t hird-degree price discrimination

108) _____

109) T he price elasticity of demand for a rental home in Luxury Resorts in the summer is 1.25 and is 2.25 in the spring. If Luxury Resorts faces a constant marginal cost of $500 per home rental, what is the profit-maximizing peak-load price to charge in the summer?

A) $ 2,500 B) $ 1,250 C) $ 5,000 D) $ 900

109) _____

110) T he price elasticity of demand for a rental home in Luxury Resorts in the summer is 1.25 and is 2.25 in the spring. If Luxury Resorts faces a constant marginal cost of $500 per home rental, what is the profit-maximizing off-peak load price to charge in the spring?

A) $ 2,500 B) $ 900 C) $ 1,250 D) $ 500

110) _____

111) T he price elasticity of demand for a rental home in Luxury Resorts in the summer is 1.40 and is 2.60 in the spring. If Luxury Resorts faces a constant marginal cost of $600 per home rental, what is the profit-maximizing peak-load price to charge in the summer?

A) $ 1,250 B) $ 975 C) $ 2,100 D) $ 2,750

111) _____

112) T he price elasticity of demand for a rental home in Luxury Resorts in the summer is 1.40 and is 2.60 in the spring. If Luxury Resorts faces a constant marginal cost of $600 per home rental, what is the profit-maximizing off-peak load price to charge in the spring?

A) $ 575 B) $ 850 C) $ 975 D) $ 2,100

112) _____

113) T he price elasticity of demand for Rosie's Roses fresh flowers the week of Valentine's Day is 1.40 and is 2.25 other days of the year. If Rosie's Roses faces a constant marginal cost of $2 per rose, what is the profit-maximizing peak-load price to charge the week of Valentine's Day? A) $ 7.00 B) $ 5.60 C) $ 9.50 D) $ 3.60

113) _____

114) T he price elasticity of demand for Rosie's Roses fresh flowers the week of Valentine's Day is 1.40 and is 2.25 other days of the year. If Rosie's Roses faces a constant marginal cost of $2 per rose, what is the profit-maximizing off-peak load price to charge on days not on the week of Valentine's Day? A) $ 2.50 B) $ 7.00 C) $ 5.80 D) $ 3.60

114) _____

115) T he price elasticity of demand for Rosie's Roses fresh flowers the week of Valentine's Day is 1.10 and is 1.60 other days of the year. If Rosie's Roses faces a constant marginal cost of $0.75 per rose, what is the profit-maximizing peak-load price to charge the week of Valentine's Day? A) $ 2.00 B) $ 8.25 C) $ 6.50 D) $ 11.00

115) _____

116) T he price elasticity of demand for Rosie's Roses fresh flowers the week of Valentine's Day is 1.10 and is 1.60 other days of the year. If Rosie's Roses faces a constant marginal cost of $0.75 per rose, what is the profit-maximizing off-peak load price to charge on days not on the week of Valentine's Day? A) $ 1.25 B) $ 5.00 C) $ 8.50 D) $ 2.00

116) _____

117) I f Big Box Store has customers with identical demands, if it practices two-part pricing, the profit-maximizing user fee is ________ the marginal cost of Big Box Store's product.

A) l ess than B) g reater than C) e qual to D) e xactly double

117) _____

118) I f Big Box Store has customers with identical demands, if it practices two-part pricing, the profit-maximizing access fee is ________ the consumer surplus.

A) g reater than B) e xactly double C) e qual to D) l ess than

118) _____

119) I f the golfers at Green Golf all have identical demands and Green Golf practices two-part pricing, the profit-maximizing user fee is ________ Green Golf's marginal cost.

A) g reater than B) o ne-half of C) e qual to D) l ess than

119) _____

120) I f the golfers at Green Golf all have identical demands and Green Golf practices two-part pricing, the profit-maximizing access fee is ________ the consumer surplus.

A) e xactly double B) e qual to C) g reater than D) l ess than

120) _____

121) I f the golfers at Green Golf have nonidentical demands, the profit-maximizing user fee is ________ Green Golf's marginal cost.

A) g reater than B) o ne-half of C) e qual to D) l ess than

121) _____

122) I f a firm is practicing two-part pricing and it is charging a user fee that is ________ its marginal cost, it has customers with ________ demands.

A) g reater than; identical B) g reater than; nonidentical C) l ess than; identical D) l ess than; nonidentical

122) _____

123) I f Best Dogs only sells their hot dogs in packages of eight, all of the following are true except which one?

A) B est Dogs is using an all-or-nothing pricing scheme.

B) B est Dogs' customers are spending the consumer surplus they would have received on the first few hot dogs on the last few hot dogs.

C) B est Dogs has market power.

D) B est Dogs is trying to prevent arbitrage.

123) _____

124) I f Best Dogs only sells their hot dogs in packages of eight, all of the following are true except which one?

A) B est Dogs has market power.

B) B est Dogs is changing consumer surplus into profit.

C) B est Dogs is practicing commodity bundling.

D) B est Dogs is using an all-or-nothing pricing scheme.

124) _____

125) I f Best Dogs only sells their hot dogs in packages of eight, all of the following are true except which one?

A) B est Dogs has market power.

B) B est Dogs is practicing second-degree price discrimination.

C) B est Dogs' customers are spending the consumer surplus they would have received on the first few hot dogs on the last few hot dogs.

D) B est Dogs is changing consumer surplus into profit.

125) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

126) I t is not possible for a single firm to combine different types of nonlinear pricing.

126) _____

127) I n order to practice any of the advanced pricing techniques, a firm must have some market power.

127) _____

128) I f a firm offers a quantity discount, this is an example of an all-or-nothing offer.

128) _____

129) I f Healthy Bars labels its snack bars "not for resale", Healthy Bars is attempting to prevent arbitrage.

129) _____

130) I f a firm faces a high demand during the summer months and a low demand during the winter months, peak-load pricing can increase the firm's profits compared to charging the same price in the summer and winter months.

130) _____

1) B 2) C 3) D 4) D 5) A 6) B 7) A 8) A 9) C 10) B 11) A 12) B 13) B 14) D 15) A 16) D 17) A 18) A 19) D 20) D 21) C 22) B 23) B 24) A 25) B 26) A 27) F ALSE 28) T RUE 29) F ALSE 30) T RUE 31) T RUE 32) A 33) C 34) B 35) B 36) C 37) B 38) B 39) B 40) C 41) C 42) A 43) D 44) A 45) B 46) B 47) D 48) D 49) C 50) B 51) B

52) C 53) D 54) B 55) A 56) D 57) D 58) A 59) A 60) B 61) D 62) F ALSE 63) T RUE 64) F ALSE 65) T RUE 66) F ALSE 67) D 68) D 69) C 70) D 71) A 72) A 73) A 74) D 75) B 76) D 77) A 78) D 79) D 80) B 81) B 82) C 83) B 84) D 85) B 86) A 87) A 88) C 89) B 90) C 91) C 92) C 93) A 94) B 95) C 96) F ALSE 97) F ALSE 98) T RUE 99) F ALSE

100) T RUE 101) A 102) C 103) D

104) C 105) B 106) C 107) C 108) D 109) A 110) B 111) C 112) C 113) A 114) D 115) B 116) D 117) C 118) C 119) C 120) B 121) A 122) B 123) D 124) C 125) B 126) F ALSE 127) T RUE 128) F ALSE 129) T RUE 130) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) T he top of the supply chain contains ________ and is referred to as the ________ end of the chain. 1) _______ A) f inished goods; downstream B) r aw materials; upstream C) r aw materials; downstream D) f inished goods; upstream 2) T he bottom of the supply chain contains ________ and is referred to as the ________ end of the chain.

A) r aw materials; downstream B) f inished goods; downstream C) r aw materials; upstream D) f inished goods; upstream

2) _______

3) I f a firm requires a standardized raw material to produce its output, ________ is often the least expensive option to purchase the raw materials.

A) f orward integration B) d ivestiture C) t he spot market D) b ackward integration

3) _______

4) I f Bella's Pizza, a local pizzeria, purchases canned tomatoes from a grocery store to make their pizza sauce, this is an example of ________.

A) o utsourcing B) u sing a spot market C) f orward integration D) b ackward integration

4) _______

5) I f Big Scoops, a local ice cream parlor, purchases milk from a grocery store to make their ice cream, this is an example of ________.

A) b ackward integration B) u sing a spot market C) f orward integration D) o utsourcing

5) _______

6) I f Fast Prints has a contract with local couriers to deliver their products to customers located throughout the city, this is an example of ________.

A) a market transaction B) o utsourcing C) f orward integration D) b ackward integration

6) _______

7) F ast Prints has a contract with local couriers to deliver their products to customers located throughout the city and it cost Fast Prints $5,000 in legal fees to establish the contracts. Fast Prints charges $25 for each set of 500 copies delivered in the city. What are Fast Prints' transaction costs?

A) $ 25 B) $ 4,975 C) $ 5,000 D) $ 5,025

7) _______

8) I f View Your World, a high-end window manufacturer, has contracted with local carpenters to install their windows in residential homes, this is an example of ________.

A) b ackward integration B) o utsourcing C) f orward integration D) a market transaction

8) _______

9) I f View Your World, a high-end window manufacturer, has contracted with a supplier to produce their glass, this is an example of ________.

A) b ackward integration B) a market transaction C) o utsourcing D) f orward integration

9) _______

10) B ig Oranges produces orange juice. To make its juice, Big Oranges harvests oranges from its own farms in addition to purchasing oranges from other locally owned farms. Big Oranges is ________.

A) c ompletely forward integrated B) p artially forward integrated

10) ______

C) p artially vertically integrated

D) c ompletely vertically integrated

11) I f Happy Avocados, a ready-made guacamole manufacturer, purchases an avocado farm, this is an example of ________.

A) o utsourcing B) f orward integration C) b ackward integration D) d ivestiture

11) ______

12) I f Happy Cows, a milk producer, purchases a dairy farm, this is an example of ________.

A) f orward integration B) b ackward integration C) d ivestiture D) o utsourcing

12) ______

13) I f Slick Shades, a sunglasses manufacturer, purchases several local retail shops to sell their sunglasses, this is an example of ________.

A) d ivestiture B) o utsourcing C) b ackward integration D) f orward integration

13) ______

14) I f Good Smells, a perfume manufacturer, purchases several local retail shops to sell their perfumes, this is an example of ________.

A) d ivestiture B) b ackward integration C) o utsourcing D) f orward integration

14) ______

15) I f Big Dogs, a hot dog producer, purchases delivery trucks to deliver their hot dogs to local grocery stores, this is an example of ________.

A) f orward integration B) o utsourcing C) b ackward integration D) d ivestiture

15) ______

16) I f Slick Shades, a sunglasses manufacturer, contracts with an outside supplier to manufacture the lenses for the sunglasses, this is an example of ________.

A) o utsourcing B) b ackward integration C) d ivestiture D) f orward integration

16) ______

17) I f Happy Avocados, a ready-made guacamole manufacturer, contracts with an outside supplier to produce avocados, this is an example of ________.

A) d ivestiture B) o utsourcing C) b ackward integration D) f orward integration

17) ______

18) I f High Tech, a computer manufacturer, has a contract with Big Chips, a computer chip manufacturer, to produce the computer chips needed for High Tech's computers, this is an example of ________.

A) f orward integration B) b ackward integration C) d ivestiture D) o utsourcing

18) ______

19) I f Happy Cows, a dairy manufacturer, sells its sour cream division, this is an example of ________.

A) b ackward integration B) o utsourcing C) d ivestiture D) f orward integration

19) ______

20) I f Good Smells, a perfume manufacturer, sells its home fragrance line, this is an example of ________.

A) d ivestiture B) f orward integration C) b ackward integration D) o utsourcing

20) ______

21) I f View Your World, a high-end window manufacturer, sells its glass door division, this is an example of ________.

A) f orward integration B) b ackward integration C) o utsourcing D) d ivestiture

21) ______

22) A ll of the following are true regarding transfer prices except which one?

A) T he transfer price is the internal firm price on an input that input-producing division charges the input-using division.

B) T he transfer price is the internal firm price on an input that input-using division charges the input-producing division.

C) L aw in many nations state that a transfer price must equal the price charged to an independent customer.

D) T ransfer prices can affect the taxes a firm must pay.

22) ______

23) A ll of the following are true regarding transfer prices except which one?

A) T ransfer prices occur when a firm engages in divestiture.

B) T ransfer prices are an accounting entry for the within-firm price of an input.

C) T he transfer price is the internal firm price on an input that input-producing division charges the input-using division.

D) T ransfer prices can affect the taxes a firm must pay.

23) ______

24) I f a German firm owns a U.S.-based firm that is domiciled in the U.S., the combined firm is subject to the corporate tax laws in ________ and income tax laws in ________.

A) U .S.; Germany B) G ermany; Germany C) U .S.; U.S. D) G ermany; U.S.

24) ______

25) A tax inversion merger ________ legally reduce the combined firms' taxes and these mergers ________.

A) c an; can be horizontal or vertical mergers B) c an; are only horizontal mergers C) c annot; are only vertical mergers D) c annot; can be horizontal or vertical mergers

25) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) V ertical integration can only occur when a firm acquires a firm that is closer to the consumer.

26) ______

27) A transaction cost is the cost of using a market plus the price of the good or service.

27) ______

28) I f a firm produces at more than one stage of the supply chain, the firm is vertically integrated.

28) ______

29) F irms that set their transfer prices equal to the price charged to an independent customer violate laws in many nations.

29) ______

30) I f a German firm owns a U.S.-based firm, the combined firm is subject to the corporate tax laws in Germany.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) V ertical integration can lower firms' costs through each of the following except which one?

A) a ccommodating technological interdependencies B) c reating synergies C) c reating managerial diseconomies D) l owering transaction costs

31) ______

32) V ertical integration can lower firms' costs through each of the following except which one?

A) r educing information costs B) i ncreasing the complexity of coordination C) e liminating the hold-up problem D) c reating synergies

32) ______

33) V ertical integration can lower firms' costs through each of the following except which one?

A) c reating synergies B) i ncreasing the required areas of managerial expertise C) r educing information costs D) i ncreasing flexibility by eliminating a contract with an input supplier

33) ______

34) I f a merger allows managers to reduce duplicate operations, the merger ________.

A) e liminated the hold-up problem B) c reated technological interdependencies C) c reated managerial diseconomies D) c reated synergies

34) ______

35) I f Slick Shades, a sunglasses manufacturer, merges with Best Lens, a lens manufacturer, and the combined firm is able to reduce the number of human resource departments from two to one, the merger created ________.

A) t echnological interdependencies B) a hold-up problem C) m anagerial diseconomies D) s ynergies

35) ______

36) I f Slick Shades, a sunglasses manufacturer, merges with Best Lens, a lens manufacturer, and the

36) ______

combined firm is able to reduce the number of accounting departments from two to one, the merger created ________.

A) t echnological interdependencies B) m anagerial diseconomies C) s ynergies D) a hold-up problem 37) I f Happy Cows, a dairy firm, merges with Best Cartons, a manufacturer of dairy cartons, and the combined firm is able to reduce the number of executive managers, the merger created ________.

A) a hold-up problem B) m anagerial diseconomies C) s ynergies D) t echnological interdependencies

37) ______

38) I f the managers of Happy Avocados, a ready-made guacamole firm, spend considerable time researching different prices and quality measures offered by multiple avocado farmers, the time spent is considered to be a(n) ________ cost.

A) n egotiation B) e nforcement C) m onitoring D) i nformation

38) ______

39) I f the managers of View Your World, a high-end window manufacturer, spend considerable time researching different prices and quality measures offered by multiple glass firms, the time spent is considered to be a(n) ________ cost.

A) m onitoring B) n egotiation C) e nforcement D) i nformation

39) ______

40) I f Slick Shades, a sunglasses manufacturer, has a contract with Best Lens, a lens manufacturer, to supply lenses needed to make the sunglasses, and the managers of the two firms both paid lawyers' fees to prepare the contract, the lawyer fees are considered to be a(n) ________ cost.

A) e nforcement B) i nformation C) n egotiation D) m onitoring

40) ______

41) I f an upstream firm and a downstream firm want to establish a contract, all of the following costs can be incurred except which one?

A) n egotiation costs B) m onitoring costs C) s earch costs D) e nforcement costs

41) ______

42) A ll of the following are true regarding a long-term contract between an upstream firm and a downstream firm except which one?

A) T he downstream firm can incur opportunity costs.

B) T he upstream firm can incur opportunity costs.

C) B oth firms have increased flexibility.

D) C hanges in market conditions can impose new costs to either firm.

42) ______

43) I f Mario's Pizza, a large frozen pizza distributor, builds a tomato sauce plant near Red Tomatoes, a large tomato farm, to reduce the costs of transporting fresh tomatoes, the tomato sauce plant is a(n) ________.

A) n egotiation cost B) m onitoring cost C) t ransaction-specific asset D) i nformation asset

43) ______

44) I f Mario's Pizza, a large frozen pizza distributor, builds a tomato sauce plant near Red Tomatoes, a large tomato farm, to reduce the costs of transporting fresh tomatoes, ________ potentially faces a hold-up problem as the firm invested in a ________.

A) M ario's Pizza; negotiation asset B) R ed Tomatoes; transaction-specific asset C) M ario's Pizza; transaction-specific asset D) R ed Tomatoes; negotiation asset

44) ______

45) I f Luxury Cabinets, a kitchen cabinet manufacturer, builds a cabinet plant near Big Woods, a timber harvesting farm, to reduce the costs of transporting lumber, the cabinet plant is a(n) ________.

A) i nformation asset B) m onitoring cost C) n egotiation asset D) t ransaction-specific asset

45) ______

46) I f Luxury Cabinets, a kitchen cabinet manufacturer, builds a cabinet plant near Big Woods, a timber harvesting farm, to reduce the costs of transporting lumber, ________ potentially faces a hold-up problem as the firm invested in a ________.

A) B ig Woods; negotiation asset B) B ig Woods; transaction-specific asset C) L uxury Cabinets; negotiation asset D) L uxury Cabinets; transaction-specific asset

46) ______

47) I f Happy Cows, a dairy firm, merges with Best Cartons, a manufacturer of dairy cartons, the merger can alter the relationship between Happy Cows and Best Cartons from a(n) ________ to a(n) ________.

A) m anagerial relationship; partnership B) p artnership; managerial relationship C) p artnership; adversarial relationship D) a dversarial relationship; partnership

47) ______

48) V ertical integration can reduce transaction costs through all of the following ways except which one?

A) d ecreasing the incentive for litigation B) i ncreasing information and control C) c reating managerial diseconomies D) e stablishing a partnership between the two firms

48) ______

49) V ertical integration can reduce transaction costs through all of the following ways except which one?

A) i ncreasing the required areas of managerial expertise B) e stablishing a partnership between the two firms C) d ecreasing the incentive for litigation D) d ecreasing search costs

49) ______

50) V ertical integration can reduce transaction costs through all of the following ways except which one?

A) d ecreasing search cost B) d ecreasing the incentive for litigation C) i ncreasing the complexity of D) i ncreasing information and control coordination

50) ______

51) C runchy Chips is a potato chip manufacturer. To produce the chips, Crunchy Chips needs to

51) ______

first peel and slice the potatoes and then fry them within two minutes of slicing to prevent browning. If Crunchy Chips is unable to fry the potatoes within two minutes, it must freeze the chips and later defrost them to fry them. Which of the following is true for Crunchy Chips?

A) V ertically integrating the slicing and frying process will increase production costs.

B) C runchy Chips has no production technological interdependency.

C) C runchy Chips faces a hold-up problem.

D) C runchy Chips has production technological interdependency.

52) I f production technological interdependency exists, the ________ integration of the successive production stages ________ production costs.

A) h orizontal; doubles B) v ertical; increases C) v ertical; can reduce D) h orizontal; can reduce

52) ______

53) I f the mangers of Big Scoops, a local ice cream parlor, acquire a dairy farm to produce the milk for their ice cream, the managers of Big Scoops are likely to experience all of the following except which one?

A) a n increase in their required areas of expertise B) a n increase in the complexity of coordination of Big Scoops C) a n increase in managerial diseconomies D) t he hold-up problem

53) ______

54) I f the mangers of Special Cakes, a large bakery, acquire an egg farm to produce the eggs for their cakes, the managers of Special Cakes are likely to experience all of the following except which one?

A) a decrease in managerial diseconomies B) a n increase in their required areas of expertise C) a n increase in the complexity of coordination of Special Cakes D) a n increase in managerial diseconomies

54) ______

55) I f the mangers of Golden Bread, a large bakery, acquire a wheat farm to produce the flour for their bread, the managers of Golden Bread are likely to experience all of the following except which one?

A) a n increase in their required areas of expertise B) t he hold-up problem C) a n increase in managerial diseconomies D) a n increase in the complexity of coordination of Golden Bread

55) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

56) V ertical integration can increase and decrease a firm's costs.

56) ______

57) I f all stages of production occur within a vertically integrated firm, the firm has no taxable transactions during production.

57) ______

58) C osts incurred in imposing compliance with a contract between an upstream firm and a downstream firm are considered to be monitoring costs.

58) ______

59) I f an upstream firm and a downstream firm have a long-term contract regarding the price of an input, a change in the market price of the input can result in either the upstream or downstream firm to incur opportunity cost.

59) ______

60) I f the vertical integration between two firms creates greater managerial diseconomies than cost savings, the merger will increase the combined firm's overall costs.

60) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

61) I f a monopoly firm sells to competitive distributors, all of the following are true regarding the demand for the monopoly's product except which one?

A) I t is a derived demand.

B) I t is the consumers' market demand.

C) I t depends on the consumers' market demand.

D) I t is the distributors' demand.

61) ______

62) I f a monopoly firm sells to competitive distributors, all of the following are true regarding the demand for the monopoly's product except which one?

A) I t is a derived demand.

B) I t is the wholesale demand.

C) I t is the consumers' market demand.

D) I t is the distributors' demand.

62) ______

63) I f a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost, the difference between the wholesale demand curve and the consumer retail demand curve is the ________.

A) a verage fixed cost of distribution B) m arginal revenue of production C) m arginal cost of production D) m arginal cost of distribution

63) ______

64) I f a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $5 and they are paying the profit-maximizing wholesale price of $10, what is the retail price of the product?

A) $ 7 B) $ 10 C) $ 15 D) $ 5

64) ______

65) I f a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $2 and they are paying the profit-maximizing wholesale price of $8, what is the retail price of the product?

A) $ 10 B) $ 8 C) $ 2 D) $ 6

65) ______

66) I f a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $8 and they are paying the profit-maximizing wholesale price of $20, what is the retail price of the product?

A) $ 28 B) $ 20 C) $ 12 D) $ 8

66) ______

67) I f a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $3 and they are charging the profit-maximizing retail price of $9, what is wholesale price of the product?

A) $ 12 B) $ 9 C) $ 6 D) $ 3

67) ______

68) I f a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $4 and they are charging the profit-maximizing retail price of $12, what is wholesale price of the product?

A) $ 4 B) $ 16 C) $ 12 D) $ 8

68) ______

The figure above shows the wholesale demand and marginal revenue curves for Slick Shades Sunglasses, a sunglasses firm with market power. Slick Shades Sunglasses has a constant marginal cost of production and it sells to perfectly competitive independent retail distributors that have a constant marginal cost of distribution.

69) I f Slick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20, what is the profit-maximizing number of sunglasses (in hundreds) for Slick Shades to produce?

A) 8 0 B) 5 0 C) 9 0 D) 7 0

69) ______

70) S lick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20. If Slick Shades is producing the profit-maximizing number of sunglasses (in hundreds), what is the profit-maximizing wholesale price?

A) $ 130 B) $ 140 C) $ 120 D) $ 110

70) ______

71) S lick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20. If Slick Shades is producing the profit-maximizing number of sunglasses (in hundreds) and charging the profit-maximizing wholesale price, what is the retail price?

A) $ 120 B) $ 150 C) $ 160 D) $ 140

71) ______

72) S lick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20. If Slick Shades is producing the profit-maximizing number of sunglasses (in hundreds) and charging the profit-maximizing wholesale price, what is Slick Shades' profit (in hundreds)?

72) ______

A) $ 6,400

B) $ 5,600

C) $ 8,000

D) $ 7,200

73) S lick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20. If Slick Shades vertically integrates with the perfectly competitive distributors, the profit-maximizing quantity will be ________ the profit-maximizing quantity if they did not vertically integrate and the combined firm will earn ________ profit if they did not vertically integrate.

A) g reater than; greater C) t he same as; the same

73) ______

B) g reater than; the same D) t he same as; greater

74) S lick Shades has a constant marginal cost of production equal to $40 and the distributors have a constant marginal cost of distribution equal to $20. If Slick Shades vertically integrates with the perfectly competitive distributors, the relevant demand curve for the combined firm is the ________ demand curve and the combined firm's marginal cost is equal to ________.

A) r etail; $40 B) w holesale; $40 C) r etail; $60 D) w holesale; $60

74) ______

75) I f Slick Shades has a constant marginal cost of production equal to $80 and the distributors have a constant marginal cost of distribution equal to $30, what is the profit-maximizing number of sunglasses (in hundreds) for Slick Shades to produce?

A) 6 0 B) 4 0 C) 5 5 D) 8 0

75) ______

76) S lick Shades has a constant marginal cost of production equal to $80 and the distributors have a constant marginal cost of distribution equal to $30. If Slick Shades is producing the profit-maximizing number of sunglasses (in hundreds), what is the profit-maximizing wholesale price?

A) $ 160 B) $ 140 C) $ 150 D) $ 120

76) ______

77) S lick Shades has a constant marginal cost of production equal to $80 and the distributors have a constant marginal cost of distribution equal to $30. If Slick Shades is producing the profit-maximizing number of sunglasses (in hundreds) and charging the profit-maximizing wholesale price, what is the retail price?

A) $ 160 B) $ 200 C) $ 170 D) $ 180

77) ______

78) S lick Shades has a constant marginal cost of production equal to $80 and the distributors have a constant marginal cost of distribution equal to $30. If Slick Shades is producing the profit-maximizing number of sunglasses (in hundreds) and charging the profit-maximizing wholesale price, what is Slick Shades' profit (in hundreds)?

A) $ 6,400 B) $ 2,400 C) $ 3,600 D) $ 4,800

78) ______

79) S lick Shades has a constant marginal cost of production equal to $80 and the distributors have a constant marginal cost of distribution equal to $30. If Slick Shades vertically integrates with the perfectly competitive distributors, the profit-maximizing quantity will be ________ the profit-maximizing quantity if they did not vertically integrate and the combined firm will earn ________ profit if they did not vertically integrate.

A) g reater than; the same B) t he same as; greater C) g reater than; greater D) t he same as; the same

79) ______

80) S lick Shades has a constant marginal cost of production equal to $80 and the distributors have a 80) ______ constant marginal cost of distribution equal to $30. If Slick Shades vertically integrates with the perfectly competitive distributors, the relevant demand curve for the combined firm is the ________ demand curve and the combined firm's marginal cost is equal to ________.

A) r etail; $110 B) r etail; $80 C) w holesale; $80 D) w holesale; $110

81) A ________ monopoly is a market structure in which a monopoly producer sells to a monopoly distributor.

A) s uccessive B) t wo-stage C) d ual D) d ouble

81) ______

82) I n a ________ monopoly structure, the wholesale demand for a monopoly retailer depends on the retailer's ________.

A) s uccessive; marginal revenue B) d ual; marginal revenue C) s uccessive; demand D) d ual; demand

82) ______

83) I n a successive monopoly structure, the profit-maximizing wholesale price is equal to the difference between the ________ and the ________ of distribution.

A) w holesale demand; marginal cost B) w holesale demand; marginal revenue C) m arginal revenue; marginal cost D) r etail demand; marginal revenue

83) ______

84) I n a successive monopoly structure, if distributor has a constant marginal cost of $5 and is paying the producer $12 per unit, which is the profit-maximizing wholesale price, what is the distributor's marginal revenue at this output level?

A) $ 5 B) $ 12 C) $ 17 D) $ 7

84) ______

85) A ll of the following are true if both the upstream and downstream firm have market power except which one?

A) T his situation is referred to as double marginalization.

B) I f the two firms were to merge, the combined firm would earn the same profit than if they did not merge.

C) B oth the upstream firm and the downstream firm set a price that exceeds their respective marginal costs.

D) T his situation is referred to as a successive monopoly.

85) ______

86) T he figure above shows the retail demand for running shoes. If the distributors (the retailers) are perfectly competitive and the marginal cost of distributing the shoes is $20 per pair, the manufacturer's wholesale demand curve lies A) $ 20 above the retail demand curve, D. B) $ 20 above the retail marginal revenue curve, MR. C) $ 20 below the retail demand curve, D. D) $ 20 below the retail marginal revenue curve, MR.

86) ______

87) T he figure above shows the retail demand for running shoes. If the distributor (the retailer) is a monopoly and the marginal cost of distributing the shoes is $20 per pair, the manufacturer's wholesale demand curve lies A) $ 20 below the retail demand curve, D. B) $ 20 below the retail marginal revenue curve, MR. C) $ 20 above the retail marginal revenue curve, MR. D) $ 20 above the retail demand curve, D.

87) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

88) I n a successive monopoly structure, if distributor has a constant marginal cost, the wholesale demand curve will lie below the retail marginal revenue curve.

88) ______

89) V ertical integration is not an economically sound decision in a successive monopoly situation.

89) ______

90) V ertical integration of a monopoly and a perfectly competitive firm does not yield greater economic profit.

90) ______

91) I f double marginalization exists between an upstream firm and a downstream firm, the vertical integration of the two firms will generate more economic profit.

91) ______

92) T he wholesale demand for a monopoly retailer depends of the retailer's marginal revenue.

92) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

93) T he manager of View Your World, a high-end window manufacturer, notices that the cost to purchase glass for their windows in the spot market has fallen. As a result of the change, which of the following is true?

A) T he manager has more of an incentive to integrate forward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has less of an incentive to integrate backward.

D) T he manager has less of an incentive to integrate forward.

93) ______

94) T he manager of View Your World, a high-end window manufacturer, notices that the cost to purchase glass for their windows in the spot market has increased. As a result of the change, which of the following is true?

A) T he manager has more of an incentive to integrate forward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has less of an incentive to integrate forward.

D) T he manager has less of an incentive to integrate backward.

94) ______

95) T he manager of View Your World, a high-end window manufacturer, notices that the cost to distribute their windows in the spot market has fallen. As a result of the change, which of the following is true?

A) T he manager has less of an incentive to integrate forward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has less of an incentive to integrate backward.

95) ______

D) T he manager has more of an incentive to integrate forward.

96) T he manager of View Your World, a high-end window manufacturer, notices that the cost to distribute their windows in the spot market has risen. As a result of the change, which of the following is true?

A) T he manager has more of an incentive to integrate backward.

B) T he manager has less of an incentive to integrate forward.

C) T he manager has less of an incentive to integrate backward.

D) T he manager has more of an incentive to integrate forward.

96) ______

97) T he manager of Slick Lens, a sunglasses manufacturer, notices that the cost to purchase lenses for their sunglasses in the spot market has increased. As a result of the change, which of the following is true?

A) T he manager has more of an incentive to integrate forward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has less of an incentive to integrate forward.

D) T he manager has less of an incentive to integrate backward.

97) ______

98) T he manager of Slick Lens, a sunglasses manufacturer, notices that the cost to purchase lenses for their sunglasses in the spot market has fallen. As a result of the change, which of the following is true?

A) T he manager has less of an incentive to integrate forward.

B) T he manager has more of an incentive to integrate forward.

C) T he manager has less of an incentive to integrate backward.

D) T he manager has more of an incentive to integrate backward.

98) ______

99) T he manager of Slick Lens, a sunglasses manufacturer, notices that the cost to distribute their sunglasses in the spot market has fallen. As a result of the change, which of the following is true?

A) T he manager has less of an incentive to integrate backward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has more of an incentive to integrate forward.

D) T he manager has less of an incentive to integrate forward.

99) ______

100) T he manager of Slick Lens, a sunglasses manufacturer, notices that the cost to distribute their sunglasses in the spot market has risen. As a result of the change, which of the following is true?

A) T he manager has more of an incentive to integrate forward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has less of an incentive to integrate forward.

D) T he manager has less of an incentive to integrate backward.

100) _____

101) I f a firm has a monopoly in both the production and distribution of a product and the managers of both the production and distribution divisions maximize profits, all of the following are true except which one?

A) D ouble marginalization will occur within the firm.

B) T he firm will maximize its total profit.

C) T he firm will not earn the maximum total profit.

D) A successive monopoly will occur within the firm.

101) _____

102) I f a firm has a monopoly in both the production and distribution of a product and the managers of both the production and distribution divisions maximize profits, all of the following are true

excewhich pt one?

102)

_____ A) D ouble marginalization will occur within the firm.

B) T he firm will maximize its total profit.

C) A successive monopoly will occur within the firm.

D) T he manager of one of the divisions should be instructed to maximize profit and the manager of the other division should be instructed to operate as a perfectly competitive firm.

103) T he manager of Steel Works learns of a new technological interdependency between the first stage and the intermediate stage of production. If Steel Works currently contracts with another firm for the first stage of production, which of the following is true?

A) T he manager has more of an incentive to integrate forward.

B) T he manager has less of an incentive to integrate forward.

C) T he manager has more of an incentive to integrate backward.

D) T he manager has less of an incentive to integrate backward.

103) _____

104) T he manager of Steel Works learns of a new technological interdependency between the first stage and the intermediate stage of production. If Steel Works currently contracts with another firm for the intermediate stage of production, which of the following is true?

A) T he manager has less of an incentive to integrate backward.

B) T he manager has less of an incentive to integrate forward.

C) T he manager has more of an incentive to integrate backward.

D) T he manager has more of an incentive to integrate forward.

104) _____

105) T he manager of Steel Works learns of a new technological interdependency between the intermediate stage and the final stage of production. If Steel Works currently contracts with another firm for the final stage of production, which of the following is true?

A) T he manager has more of an incentive to integrate backward.

B) T he manager has less of an incentive to integrate forward.

C) T he manager has more of an incentive to integrate forward.

D) T he manager has less of an incentive to integrate backward.

105) _____

106) T he manager of Steel Works learns of a new technological interdependency between the intermediate stage and the final stage of production. If Steel Works currently contracts with another firm for the intermediate stage of production, which of the following is true?

A) T he manager has less of an incentive to integrate backward.

B) T he manager has more of an incentive to integrate forward.

C) T he manager has more of an incentive to integrate backward.

D) T he manager has less of an incentive to integrate forward.

106) _____

107) T he manager of Steel Works learns of a new technological interdependency between the final stage of production and the distribution of the final product. If Steel Works currently contracts with another firm to distribute the product, which of the following is true?

A) T he manager has less of an incentive to integrate backward.

B) T he manager has more of an incentive to integrate backward.

C) T he manager has less of an incentive to integrate forward.

D) T he manager has more of an incentive to integrate forward.

107) _____

108) T he manager of Steel Works learns of a new technological interdependency between the final stage of production and the distribution of the final product. Steel Works currently contracts with another firm to distribute the product. If Steel Works vertically integrates with the distributor firm, which of the following is true?

108) _____

A) S teel Works is likely to incur managerial diseconomies as a result of an increase in the complexity of the firm.

B) S teel Works will automatically create an internal successive monopoly.

C) S teel Works will not incur managerial diseconomies.

D) W ith certainty, the combined firm will earn greater economic profits.

109) A ll of the following are true regarding managerial diseconomies except which one?

A) M anagerial diseconomies are a cost associated with vertical integration.

B) I ncreased complexity of the firm is a type of managerial diseconomy.

C) A n increase in the required expertise of managers is a type of managerial diseconomy.

D) M anagerial diseconomies incentivize vertical integration.

109) _____

110) W hich of the following is true regarding managerial diseconomies?

A) M anagerial diseconomies incentivize forward integration.

B) M anagerial diseconomies incentivize backward integration.

C) M anagerial diseconomies are a cost associated with vertical integration.

D) M anagerial diseconomies incentivize vertical integration.

110) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

111) I n general, if two stages in a supply chain are making an economic profit by setting prices that exceed their marginal cost of production, managers can increase profit through vertical integration.

111) _____

112) B ecause vertical integration is a yes or no decision, managers cannot use marginal analysis.

112) _____

113) I f a firm has a monopoly in both the production and distribution, managers of the two divisions should be encouraged to maximize profits in their separate divisions.

113) _____

114) I f a firm has a monopoly in both the production and distribution, to maximize the overall economic profit of the firm, managers of either the production or distribution center should be instructed to maximize profit and the managers of the other center should be instructed to operate as a competitive market.

114) _____

115) V ertical integration can eliminate double marginalization.

115) _____

1) B 2) B 3) C 4) B 5) B 6) A 7) C 8) D 9) C 10) C 11) C 12) B 13) D 14) D 15) A 16) A 17) B 18) D 19) C 20) A 21) D 22) B 23) A 24) D 25) A 26) F ALSE 27) F ALSE 28) T RUE 29) F ALSE 30) T RUE 31) C 32) B 33) B 34) D 35) D 36) C 37) C 38) D 39) D 40) C 41) C 42) C 43) C 44) C 45) D 46) D 47) D 48) C 49) A 50) C 51) D

52) C 53) D 54) A 55) B 56) T RUE 57) T RUE 58) F ALSE 59) T RUE 60) T RUE 61) B 62) C 63) D 64) C 65) A 66) A 67) C 68) D 69) A 70) C 71) D 72) A 73) C 74) C 75) A 76) B 77) C 78) C 79) D 80) A 81) A 82) A 83) C 84) C 85) B 86) C 87) B 88) T RUE 89) F ALSE 90) T RUE 91) T RUE 92) T RUE 93) C 94) B 95) A 96) D 97) B 98) C 99) D 100) A 101) B 102) B 103) C

104) D 105) C 106) C 107) D 108) A 109) D 110) C 111) T RUE 112) F ALSE 113) F ALSE 114) T RUE 115) T RUE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) J oint production is production that results in the simultaneous production of ________.

A) t wo or more outputs B) e xactly two outputs C) e xactly one output D) e xactly three outputs

1) _______

2) S uppose Bright Orange is large firm that grows and harvests oranges. Each orange yields 2 ounces of orange juice and exactly one orange peel. Bright Orange sells the orange juice to juice distributors and the orange peels to fragrance companies. The market demand for Bright Orange's oranges is equal to ________.

A) t he demand for orange juice plus the demand for orange peels B) t he difference between the demand for orange peels and orange juice C) t he demand for orange juice only D) t he demand for orange peels only

2) _______

3) S uppose Bright Orange is large firm that grows and harvests oranges. Each orange yields 2 ounces of orange juice and exactly one orange peel. Bright Orange sells the orange juice to juice distributors and the orange peels to fragrance companies. If the market for oranges is perfectly competitive, Bright Orange will determine its profit-maximizing output level based on ________.

A) t he market price of an ounce of orange juice B) t he market price of two ounces of orange juice C) t he market price of an orange peel D) t he market price of an orange

3) _______

4) S uppose Bright Orange is large firm that grows and harvests oranges. Each orange yields 2 ounces of orange juice and exactly one orange peel. The market for oranges is perfectly competitive and Bright Orange sells the orange juice to juice distributors and the orange peels to fragrance companies. At a quantity of 500,000 oranges, juice distributors will pay $0.05 per ounce of orange juice and fragrance companies will pay $0.10 per orange peel. At the quantity of 500,000 oranges, what is the market equilibrium price of an orange?

A) $ 0.05 B) $ 0.10 C) $ 0.20 D) $ 0.15

4) _______

5) S uppose Bright Orange is large firm that grows and harvests oranges. Each orange yields 2 ounces of orange juice and exactly one orange peel. The market for oranges is perfectly competitive and Bright Orange sells the orange juice to juice distributors and the orange peels to fragrance companies. At a quantity of 400,000 oranges, juice distributors will pay $0.04 per ounce of orange juice and fragrance companies will pay $0.15 per orange peel. At the quantity of 400,000 oranges, what is the market equilibrium price of an orange?

A) $ 0.19 B) $ 0.23 C) $ 0.11 D) $ 0.25

5) _______

Movement along Big Oaks Production Possibilities Frontier

Gain in Lumber (per unit)

Forgone Paper Products (per unit)

A to B B to C C to D D to E E to F

1 1 1 1 1

0.50 1.25 2.50 4.50 7.0

Big Oaks can produce either paper products or lumber with each tree that they harvest. Because Big Oaks can adjust the amount of paper products and lumber they produce from the harvested trees, paper products and lumber are produced in variable proportions. The above table summarizes Big Oaks production possibilities from each harvested tree.

6) R efer to the table above. If the profit for each unit of paper product is $2 and the profit for each unit of lumber is $5, what is the marginal benefit for each unit of lumber produced?

D) $ 2 A) $ 7 B) $ 3 C) $ 5

6) _______

7) R efer to the table above. If the profit for each unit of paper product is $2 and the profit for each unit of lumber is $5, what is the marginal benefit for each unit of paper products produced?

A) $ 7 B) $ 5 C) $ 3 D) $ 2

7) _______

8) R efer to the table above. If the profit for each unit of paper product is $2 and the profit for each

8) _______

unit of lumber is $5, what is Big Oaks' marginal cost of producing between points D and E on their production possibilities frontier?

A) $ 10.50 B) $ 22.50 C) $ 4.50 D) $ 9 9) R efer to the table above. If the profit for each unit of paper product is $2 and the profit for each

9) _______

unit of lumber is $5, what is Big Oaks' marginal cost of producing between points B and C on their production possibilities frontier?

A) $ 2.50 B) $ 1.25 C) $ 5.50 D) $ 6.25 10) R efer to the table above. If the profit for each unit of paper product is $2 and the profit for each unit of lumber is $5, the profit-maximizing quantity of lumber and paper products is located between which to points on Big Oaks' production possibilities frontier?

A) D and E B) A and B C) B and C D) C and D

10) ______

11) R efer to the table above. Suppose the profit for each unit of paper product is $2 and the profit for each unit of lumber is $5 and Big Oaks is producing the profit-maximizing quantity of lumber and paper products. If the profit from each unit of lumber increases from $5 to $6 and the profit for each unit of paper products does not change, to maximize profit, Big Oaks should produce a ________ proportion of lumber and produce ________ units of paper products and lumber.

11) ______

A) g reater; less

B) s maller; more

C) g reater; more

D) s maller; less

12) R efer to the table above. Suppose the profit for each unit of paper product is $2.00 and the profit for each unit of lumber is $5 and Big Oaks is producing the profit-maximizing quantity of lumber and paper products. If the profit from each unit of paper product increases from $2 to $3 and the profit for each unit of lumber does not change, to maximize profit, Big Oaks should produce a ________ proportion of paper products and produce ________ units of paper products and lumber.

A) s maller; more B) g reater; less C) g reater; more D) s maller; less

12) ______

13) R efer to the table above. If the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50, what is the marginal benefit for each unit of lumber produced?

A) $ 3.00 B) $ 16.50 C) $ 13.50 D) $ 10.50

13) ______

14) R efer to the table above. If the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50, what is the marginal benefit for each unit of paper products produced?

A) $ 13.50 B) $ 10.50 C) $ 16.50 D) $ 3.00

14) ______

15) R efer to the table above. If the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50, what is Big Oaks' marginal cost of producing between points B and C on their production possibilities frontier?

A) $ 1.25 B) $ 3.75 C) $ 7.50 D) $ 5.75

15) ______

16) R efer to the table above. If the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50, what is Big Oaks' marginal cost of producing between points C and D on their production possibilities frontier?

A) $ 3.75 B) $ 9.25 C) $ 7.50 D) $ 2.50

16) ______

17) R efer to the table above. If the profit for each unit of paper product is $3.00 and the profit for

17) ______

each unit of lumber is $13.50, the profit-maximizing quantity of lumber and paper products is located between which to points on Big Oaks' production possibilities frontier?

A) C and D B) E and F C) B and C D) D and E 18) R efer to the table above. Suppose the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50 and Big Oaks is producing the profit-maximizing quantity of lumber and paper products. If the profit from each unit of paper product increases from $3.00 to $4.00 and the profit for each unit of lumber does not change, to maximize profit, Big Oaks should produce a ________ proportion of paper products and produce ________ units of paper products and lumber.

A) g reater; more

B) s maller; less

C) g reater; less

18) ______

D) s maller; more

19) R efer to the table above. Suppose the profit for each unit of paper product is $3.00 and the profit for each unit of lumber is $13.50 and Big Oaks is producing the profit-maximizing quantity of lumber and paper products. If the profit from each unit of lumber increases from $13.50 to $15.00 and the profit for each unit of paper products does not change, to maximize profit, Big Oaks should produce a ________ proportion of lumber and produce ________ units of paper products and lumber.

A) s maller; more B) s maller; less C) g reater; more D) g reater; less

19) ______

20) A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $3 and the marginal cost is $2 and the marginal benefit of producing Product B is $4 and the marginal cost is $5. To maximize profits, the managers of the firm should produce ________ of Product A and ________ of Product B. A) m ore; less B) l ess; less C) l ess; more D) m ore; more

20) ______

21) A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $4 and the marginal cost is $2 and the marginal benefit of producing Product B is $4 and the marginal cost is $6. To maximize profits, the managers of the firm should produce ________ of Product A and ________ of Product B. A) l ess; more B) l ess; less C) m ore; less D) m ore; more

21) ______

22) A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $10 and the marginal cost is $8 and the marginal benefit of producing Product B is $2 and the marginal cost is $6. To maximize profits, the managers of the firm should produce ________ of Product A and ________ of Product B. A) m ore; less B) l ess; more C) l ess; less D) m ore; more

22) ______

23) A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $2 and the marginal cost is $4 and the marginal benefit of producing Product B is $5 and the marginal cost is $3. To maximize profits, the managers of the firm should produce ________ of Product A and ________ of Product B. A) l ess; less

B) m ore; less

C) l ess; more

D) m ore; more

24) A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $12 and the marginal cost is $15 and the marginal benefit of producing Product B is $10 and the marginal cost is $6.

To maximize profits, the managers of the firm should produce ________ of Product A and ________ of Product B. A) m ore; more

B) l ess; more

C) l ess; less

B) l ess; more

C) m ore; less

24) ______

D) m ore; less

25) A firm is producing a joint product, Product A and Product B, with variable proportions. At its current production levels, the marginal benefit of producing Product A is $8 and the marginal cost is $12 and the marginal benefit of producing Product B is $8 and the marginal cost is $2. To maximize profits, the managers of the firm should produce ________ of Product A and ________ of Product B. A) l ess; less

23) ______

25) ______

D) m ore; more

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

26) W hen making output decisions, managers of firms producing a joint product with fixed proportions need to pay attention to the separate prices of the joint goods.

26) ______

27) I f a firm is producing a joint product with variable proportions, if the price of one of the joint products changes, to maximize profits, managers must adjust both the total production of the jointly produced product and the products' proportions.

27) ______

28) I f a firm is producing a joint product and the price of one of the products increases, the marginal benefit of producing more of that product increases.

28) ______

29) I f a firm is producing a joint product with variable proportions, producing more of one product means producing more of the other product.

29) ______

30) B ecause the decision involves the production of two goods, marginal analysis cannot be used to determine the profit-maximizing proportions of jointly produced products.

30) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

31) I f a multi-plant firm has three plants and uses each of the plants to produce its product, the marginal cost to produce the firm's product is equal to ________.

A) t he sum of the average fixed costs from each of the three plants B) t he sum of the marginal costs from each of the three plants C) t he plant with the lowest marginal cost D) t he plant with the highest marginal cost Quantity Plant 1 Marginal Cost to Quantity Plant 2 Marginal Cost to (units) (units) Produce at Plant 1 Produce at Plant 2 4,000 5,000 0.50 0.75 4,500 6,000 0.75 1.00 5,250 6,500 1.00 1.25 6,000 7,250 1.25 1.80

31) ______

8,500

1.50

6,500

2.25

Crunchy Fruits makes dried fruit snacks. Crunchy Fruits has a multi-plant firm with two production facilities. The table above summarizes the marginal cost of production at the individual plants and the corresponding quantity produced at the individual plants.

32) R efer to the table above. What is Crunchy Fruits total marginal cost to produce 9,000 units?

A) $ 0.75 B) $ 2.25 C) $ 0.50 D) $ 1.25

32) ______

33) R efer to the table above. What is Crunchy Fruits total marginal cost to produce 10,500 units?

A) $ 1.75 B) $ 2.25 C) $ .075 D) $ 1.00

33) ______

34) R efer to the table above. What is Crunchy Fruits total marginal cost to produce 11,750 units?

A) $ 3.25 B) $ 2.25 C) $ 1.25 D) $ 2.00

34) ______

35) R efer to the table above. What is Crunchy Fruits total marginal cost to produce 13,250 units?

A) $ 1.25 B) $ 1.80 C) $ 3.00 D) $ 3.05

35) ______

36) R efer to the table above. What is Crunchy Fruits total marginal cost to produce 15,000 units?

A) $ 3.75 B) $ 2.25 C) $ 3.25 D) $ 4.50

36) ______

Marginal Cost (per unit)

Quantity Plant 1

Quantity Plant 2

$0.5 15,00 17,50 0 0 0 $0.7 21,00 20,50 5 0 0 $1.0 24,50 22,50 0 0 0 $1.2 30,10 27,00 packages. Sweet Grams is a multi-plant firm with two production facilities.

Sweet Grams makes graham cracker snack 5 0 The above table summarizes the total0marginal cost of production at various output levels in the separate plants. $1.7 32,00 Assume Sweet Grams 36,00 is a perfectly competitive firm.

5 0 0 37) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price 37) ______ $1.25 per unit, what is the profit-maximizing quantity for Sweet Grams to produce at Plant 1?

A) 3 0,100 B) 3 6,000 C) 2 7,000 D) 2 4,500 38) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price

38) ______

$1.25 per unit, what is the profit-maximizing quantity for Sweet Grams to produce at Plant 2?

A) 3 2,000 B) 3 0,100 C) 2 2,500 D) 2 7,000 39) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price $1.25 per unit, what is the profit-maximizing total quantity for Sweet Grams to produce?

A) 6 8,000 B) 3 0,100 C) 2 7,000 D) 5 7,100 40) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price

39) ______

40) ______

$1.00 per unit, what is the profit-maximizing quantity for Sweet Grams to produce at Plant 1?

A) 2 7,000 B) 3 2,000 C) 2 4,500 D) 2 2,500 41) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price $1.00 per unit, what is the profit-maximizing quantity for Sweet Grams to produce at Plant 2?

A) 2 4,000 B) 2 0,500 C) 2 7,000 D) 2 2,500

41) ______

42) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price $1.00 per unit, what is the profit-maximizing total quantity for Sweet Grams to produce?

A) 2 2,500 B) 5 2,000 C) 2 4,500 D) 4 7,000 43) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price

42) ______

43) ______

$1.75 per unit, what is the profit-maximizing quantity for Sweet Grams to produce at Plant 1?

A) 3 0,100 B) 3 2,500 C) 3 2,000 D) 3 6,000 44) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price

44) ______

$1.75 per unit, what is the profit-maximizing quantity for Sweet Grams to produce at Plant 2?

A) 3 6,000 B) 2 7,000 C) 3 2,500 D) 3 2,000 45) R efer to the table above. If Sweet Grams is a perfectly competitive firm and the market price $1.75 per unit, what is the profit-maximizing total quantity for Sweet Grams to produce?

A) 6 8,000 B) 6 5,000 C) 7 5,000 D) 5 8,500

45) ______

Marginal Market Revenue Demand Marginal Cost Quantity Quantity (dollars per (price per (dollars per Plant 1 Plant 2 bottle) bottle) bottle) (bottles) (bottles) $0.7 300 400 $2.5 $5.0 5 350 450 0 0 $1.2 425 530 $2.2 $4.5 5 500 600 5 0 $2.0 $2.0 $4.0 0 0 0 Juice is a multi-plant firm with market power. The Just Juice produces whole fruit juice that it sells in single bottles. Just $1.7 $3.5output levels in Just Juice's two plants with the above$2.9 table summarizes the total marginal cost of production at various 5 5 0 (price per bottle). corresponding marginal revenue (dollars per bottle) and market demand 46) R efer to the table above. What is the profit-maximizing quantity for Just Juice to produce at Plant 1?

A) 3 50 B) 5 00 C) 5 30 D) 4 25

46) ______

47) R efer to the table above. What is the profit-maximizing quantity for Just Juice to produce at Plant 2?

A) 5 30 B) 4 25 C) 6 00 D) 4 50

47) ______

48) R efer to the table above. What is the profit-maximizing total quantity for Just Juice to produce?

A) 1 ,100 B) 5 30 C) 8 50 D) 9 55

48) ______

49) R efer to the table above. If Just Juice is producing the profit-maximizing total quantity, what is the profit -maximizing price for Just Juice to charge per bottle?

A) $ 2.00 B) $ 3.50 C) $ 4.50 D) $ 4.00

49) ______

50) I f a multi-plant firm with market power is maximizing its profits, the price it charges per unit of its product will ________ its ________.

A) e qual; overall marginal cost B) e xceed; overall marginal cost C) e qual; overall average cost D) e xceed; demand

50) ______

51) A multi-plant firm has three plants. At its current production levels, the marginal cost of production is $2 at plant 1, $2.25 at plant 2, and $2.10 at plant 3. The firm's overall marginal cost

of duction prois

________ 51) .

A) $ 4.25

___ ___ B) $ 6.35

C) $ 2.25

D) $ 7.20

52) A multi-plant firm has three plants. At its current production levels, the marginal cost of production is $1.50 at plant 1, $1.50 at plant 2, and $1.50 at plant 3. The firm's overall marginal cost of production is ________.

A) $ 1.50 B) $ 7.50 C) $ 3.00 D) $ 4.50

52) ______

53) A multi-plant firm has three plants and, at its current production levels, the marginal cost of production at each of the three plants is $2. If the firm is perfectly competitive and the market price of its product is $6, which of the following is true?

A) T he firm should exactly triple output in each of the plants to maximize profit.

B) T he firm should decrease output at each of the plants to maximize profit.

C) T he firm should increase output at each of the plants to maximize profit.

D) T he firm is producing the profit-maximizing total output.

53) ______

54) A multi-plant firm has three plants and, at its current production levels, the marginal cost of production at each of the three plants is $3. If the firm is perfectly competitive and the market price of its product is $9, which of the following is true?

A) T he firm should decrease output at each of the plants to maximize profit.

B) T he firm is producing the profit-maximizing total output.

C) T he firm should exactly triple output in each of the plants to maximize profit.

D) T he firm should increase output at each of the plants to maximize profit.

54) ______

55) A multi-plant firm has three plants and, at its current production levels, the marginal cost of production at each of the three plants is $2.00. If the firm is perfectly competitive and the market price of its product is $5, which of the following is true?

A) T he firm should exactly triple output in each of the plants to maximize profit.

B) T he firm is producing the profit-maximizing total output.

C) T he firm is not producing the profit-maximizing total output.

D) T he firm should increase output at each of the plants to maximize profit.

55) ______

56) T he figure above shows a firm that has two plants. Plant 1 has a marginal cost curve of mc1,

56) ______

plant 2 has a marginal cost curve of mc2, and the overall marginal cost curve is MC. Managers maximize their profit by producing ________ units at plant 1 and ________ units at plant 2.

A) 2 million; 4 million C) 4 million; 5 million

B) 0 ; 5 million D) N one of the above answers is correct.

57) T he figure above shows a firm that has two plants. Plant 1 has a marginal cost curve of mc1,

57) ______

plant 2 has a marginal cost curve of mc2, and the overall marginal cost curve is MC. When the managers maximize profit, the marginal cost in plant 1 is ________ and the marginal cost in plant 2 is ________ .

A) $ 120; $100 C) $ 80 per unit; $80 per unit

B) $ 160; $150 D) N one of the above answers is correct.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

58) A multi-plant firm is a firm with more than one demand curve.

58) ______

59) R egardless if a multi-plant firm is perfectly competitive or has market power, to maximize profits, managers need to set the overall marginal cost from producing in each of their plants equal to the marginal revenue to find the profit-maximizing total quantity.

59) ______

60) I f the market price for multi-plant, perfectly competitive firm is $4, to maximize its profits, the firm should set the overall marginal cost of production equal to $4.

60) ______

61) I f the market price for multi-plant, perfectly competitive firm is $5, to maximize its profits, the firm should set the overall marginal cost of production to exceed $5.

61) ______

62) I f a multi-plant firm has market power, to maximize profit, it should set a price that exceeds its overall marginal cost.

62) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

63) C ompared to a firm that has many small plants, a firm with a few large plants is likely to have all of the following except which one?

A) g reater managerial diseconomies B) l ess managerial diseconomies C) f ewer inputs D) g reater availability of specialized capital

63) ______

64) I f a firm with two large plants installs a large, custom built assembly line in each of its plants, the custom assembly line is an example of ________.

A) s pecialized capital B) m anagerial diseconomies C) g eographic variation D) a compensating wage differential

64) ______

65) I f a firm with two large plants installs a large, custom built packing machine in each of its plants, the custom packing machine is an example of ________.

A) m anagerial diseconomies B) a compensating wage differential C) s pecialized capital D) g eographic variation

65) ______

66) A ll of the following are true regarding managerial diseconomies except which one?

A) T hey can increase as a firm adds more plants.

B) T hey cause an increase in a firm's total profit.

C) T hey affect a firm's total profit.

D) T hey can increase as a firm expands its scope of operations.

66) ______

67) H appy Cows is a dairy farm that is currently earning $5,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm; however, the managerial diseconomies from adding the second farm cause Happy Cows current farm's economic profit to fall to $3,000. It is economically sound for Happy Cows to add the second farm if ________.

A) t he second farm's economic profit is at least $1,750 B) t he second farm's economic profit is at least $1,500 C) t he second farm's economic profit is less than $2,000 D) t he second farm's economic profit exceeds $2,000

67) ______

68) H appy Cows is a dairy farm that is currently earning $20,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm; however, the managerial diseconomies from adding the second farm cause Happy Cows current farm's economic profit to fall to $15,000. It is economically sound for Happy Cows to add the second farm if ________.

A) t he second farm's economic profit is at least $4,800 B) t he second farm's economic profit exceeds $5,000 C) t he second farm's economic profit is less than $5,000 D) t he second farm's economic profit is at least $4,000

68) ______

69) H appy Cows is a dairy farm that is currently earning $50,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm, which will generate an additional $10,000 in economic profit. It is economically sound for the managers of Happy Cows to add the second farm if, after accounting for the managerial diseconomies, the first farm's economic profits exceed ________.

A) $ 20,000 B) $ 30,000 C) $ 40,000 D) $ 10,000

69) ______

70) H appy Cows is a dairy farm that is currently earning $100,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm, which will generate an additional $40,000 in economic profit. It is economically sound for the managers of Happy Cows to add the second farm if, after accounting for the managerial diseconomies, the first farm's economic profits exceed ________.

A) $ 40,000 B) $ 60,000 C) $ 30,000 D) $ 10,000

70) ______

71) H appy Cows is a dairy farm that is currently earning $75,000 in economic profit. The managers of Happy Cows are considering adding a second dairy farm, which will generate an additional $30,000 in economic profit. It is economically sound for the managers of Happy Cows to add the second farm if, after accounting for the managerial diseconomies, the first farm's economic profits exceed ________.

A) $ 35,000 B) $ 45,000 C) $ 25,000 D) $ 30,000

71) ______

72) I f View Your World, a high-end window manufacturer, directly pays all of the transaction costs, the total cost to produce its windows includes all of the following except which one?

A) t he cost of transporting the inputs to make the windows to the plants B) t he cost to add another production plant C) t he cost of producing the windows D) t he cost of transporting the product to its customers

72) ______

73) V iew Your World, a high-end window manufacturer, directly pays all of the transaction costs.

The managers of View Your World are considering the profit-maximizing location for their plant. If locating the plant closer to its customers saves $10,000 in transportation costs of its windows to its customers, but causes an additional $7,500 in input transportation costs, View Your World ________ locate its plant closer to its customers as the marginal benefit is ________ than the marginal cost.

A) s hould not; less B) s hould not; more C) s hould; less D) s hould; greater

73) ______

74) V iew Your World, a high-end window manufacturer, directly pays all of the transaction costs.

The managers of View Your World are considering the profit-maximizing location for their plant. If locating the plant closer to its customers saves $7,000 in transportation costs of its windows to its customers, but causes an additional $7,500 in input transportation costs, View Your World ________ locate its plant closer to its customers as the marginal benefit is ________ than the marginal cost.

74) ______

A) s hould; less C) s hould not; less

B) s hould; greater D) s hould not; more

75) V iew Your World, a high-end window manufacturer, directly pays all of the transaction costs.

The managers of View Your World are considering the profit-maximizing location for their plant. If locating the plant closer to its customers saves $15,000 in transportation costs of its windows to its customers, but causes an additional $11,500 in input transportation costs, View Your World ________ locate its plant closer to its customers as the marginal benefit is ________ than the marginal cost.

A) s hould; less B) s hould not; less C) s hould not; more D) s hould; greater

75) ______

76) I f a firm pays all transportation costs and it is very costly to transport the inputs, but relatively inexpensive to transport the final product, the cost-minimizing location for the plant will be closer to the ________ and farther away from the ________.

A) d istributors; customers B) c ustomers; inputs C) i nputs; customers D) c ustomers; distributors

76) ______

77) A plant is located at the cost-minimizing location when the marginal benefit of moving closer to the inputs is ________ the marginal cost.

A) l ess than B) g reater than C) e qual to D) e xactly double

77) ______

78) I f a firm has two plants, one located in desirable Scenic Springs and the other located in the undesirable Swamp Lands, the workers in Scenic Springs will be paid ________ than the workers in Swamp Land and the difference in wages is referred to as a ________.

A) l ess; worker equity payment B) m ore; compensating wage differential C) m ore; worker equity payment D) l ess; compensating wage differential

78) ______

79) A firm has two plants, one located in desirable Scenic Springs and the other located in the undesirable Swamp Lands. If the workers in Scenic Springs are paid $50,000 a year and the workers in Swamp Land are paid $60,000, which of the following is true?

A) T he $60,000 salary is a worker equity payment.

B) T he $10,000 difference in salaries is the worker equity payment.

C) T he $10,000 difference in salaries is the compensating wage differential.

D) T he $60,000 salary is a compensating wage differential.

79) ______

80) A ll of the following location characteristics can result in lower worker salaries except which one?

A) s hort commute time B) g reat climate C) u npleasant work conditions D) l ow cost of living

80) ______

81) A ll of the following location characteristics can result in higher worker salaries except which one?

A) l ow cost of living B) u npleasant work conditions C) l ong commute time D) p oor climate

81) ______

82) A ll of the following location characteristics can result in higher worker salaries except which one?

A) p oor climate B) s hort commute time C) u npleasant work conditions D) h igh cost of living

82) ______

83) S pecial Grapes is a new wine company that wants to locate its vineyard in Sonoma Country, California, an exclusive area of the world for wineries. Which of the following will likely have the largest effect on Special Grapes' input prices?

A) l and prices in Sonoma County, California B) c ompensating wage differentials C) t raffic regulations in Sonoma County, California D) t he additional wages Special Grapes will have to pay its employees to work in Sonoma County, California

83) ______

84) A ll of the following costs will vary depending on the geographic location of a firm's plant except which one?

A) U .S. corporate taxes B) l and prices C) l ocal taxes D) w ages

84) ______

85) A ll of the following costs will vary depending on the geographic location of a firm's plant except which one?

A) t raffic regulations involving large trucks B) F ederal employee taxes C) z oning issues D) r eal estate values

85) ______

86) A ll of the following costs will vary depending on the geographic location of a firm's plant except which one?

A) w ages B) U .S. income taxes C) r eal estate values D) z oning issues

86) ______

87) A ll of the following costs will vary depending on the geographic location of a firm's plant except which one?

A) t raffic regulations involving large trucks B) U .S. corporate taxes C) w ages D) l and prices

87) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

88) A ll else equal, firms with a few large plants are more likely to have lower average costs than firms with many small plants.

88) ______

89) A plant is located at the cost-minimizing location when the marginal benefit of moving closer to the inputs is exactly double the marginal cost of moving closer.

89) ______

90) I f a firm is not directly paying all of the transportation costs, managers still have an incentive to minimize the sum of the production and transportation costs.

90) ______

91) I f a firm has two plants, one in a desirable location and one in an undesirable location, workers located in the desirable location are likely to be paid more.

91) ______

92) I f a firm has two plants and workers at Plant 1 are paid $40,000 a year and workers at Plant 2 are paid $45,000, the $5,000 difference in salary is a compensating wage differential.

92) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

93) C onsumers are willing to pay a higher price for a ________-quality good because it provides them with ________ benefits.

A) l ower; less B) h igher; more C) h igher; less D) l ower; more

93) ______

94) I f the marginal revenue from a quality improvement is ________ its marginal cost, it ________ profitable to produce a higher-quality product.

A) g reater than; is not B) g reater than; is C) l ess than; is D) e xactly double; is not

94) ______

95) I f it costs View Your World, a high-end window manufacturer, $25 per window to install a higher quality glass in its windows and consumers will pay an additional $30 per window for the improvement, which of the following is true?

A) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

B) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

C) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

D) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

95) ______

96) I f it costs View Your World, a high-end window manufacturer, $20 per window to install a higher quality glass in its windows and consumers will pay an additional $28 per window for the improvement, which of the following is true?

A) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

B) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

C) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

D) V iew Your World should install the higher quality glass because the marginal revenue

96) ______

from the

quality enhancement exceeds the marginal cost.

97) I f it costs View Your World, a high-end window manufacturer, $30 per window to install a higher quality glass in its windows and consumers will pay an additional $28 per window for the improvement, which of the following is true?

A) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

B) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

C) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

D) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

97) ______

98) I f it costs View Your World, a high-end window manufacturer, $26 per window to install a higher quality glass in its windows and consumers will pay an additional $15 per window for the improvement, which of the following is true?

A) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

B) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

C) V iew Your World should install the higher quality glass because the marginal revenue from the quality enhancement exceeds the marginal cost.

D) V iew Your World should not install the higher quality glass because the marginal revenue from the quality enhancement is less than the marginal cost.

98) ______

Marginal Revenue Marginal Cost Quality (in units) (dollars per unit) (dollars per unit) 5 $15 $2 7 $12 $5 9 $8 $8 11 $5 $12 13 $2 $16 Stuffed Pies is a frozen calzone manufacturer. The table above summarizes Stuffed Pies' marginal revenue and marginal cost of quality at various quality amounts.

99) R efer to the table above. If Stuffed Pies is currently producing 5 units of quality, to maximize profit, Stuffed Pies should ________ the units of quality.

A) d ecrease by 50 percent B) i ncrease C) d ecrease D) n ot change

99) ______

100) R efer to the table above. If Stuffed Pies is currently producing 7 units of quality, to maximize profit, Stuffed Pies should ________ the units of quality.

A) i ncrease B) d ecrease C) n ot change D) d ecrease by 50 percent

100) _____

101) R efer to the table above. If Stuffed Pies is currently producing 9 units of quality, to maximize profit, Stuffed Pies should ________ the units of quality.

A) d ecrease by 50 percent B) n ot change C) d ecrease D) i ncrease

101) _____

102) R efer to the table above. If Stuffed Pies is currently producing 11 units of quality, to maximize profit, Stuffed Pies should ________ the units of quality.

A) i ncrease by 50 percent B) d ecrease C) n ot change D) i ncrease

102) _____

103) R efer to the table above. If Stuffed Pies is currently producing 13 units of quality, to maximize profit, Stuffed Pies should ________ the units of quality.

A) n ot change B) i ncrease C) i ncrease by 50 percent D) d ecrease

103) _____

104) R efer to the table above. What is the profit-maximizing number of quality units for Stuffed Pies to produce?

A) 9 B) 7 C) 1 3 D) 1 1

104) _____

Quality (in units) 2 4 6 8 10

Marginal Revenue (in Marginal Cost dollars per unit) (in dollars per unit) $20 $18 $15 $12 $8

$6 $8 $10 $12 $15

Fresh Laundry is a firm that produces laundry detergent. The table above summarizes Fresh Laundry's product quality marginal revenue and marginal cost at various quality levels.

105) R efer to the table above. If Fresh Laundry is currently producing 2 quality units, to maximize profit, Fresh Laundry should ________ the number of quality units as the current quality marginal revenue is ________ than its marginal cost.

A) i ncrease; greater B) d ecrease; greater C) i ncrease; less D) d ecrease; less

105) _____

106) R efer to the table above. If Fresh Laundry is currently producing 4 quality units, to maximize profit, Fresh Laundry should ________ the number of quality units as the current quality marginal revenue is ________ than its marginal cost.

A) d ecrease; greater B) i ncrease; less C) i ncrease; greater D) d ecrease; less

106) _____

107) R efer to the table above. If Fresh Laundry is currently producing 6 quality units, to maximize profit, Fresh Laundry should ________ the number of quality units as the current quality marginal revenue is ________ than its marginal cost.

A) i ncrease; less B) d ecrease; greater C) i ncrease; greater D) d ecrease; less

107) _____

108) R efer to the table above. If Fresh Laundry is currently producing 8 quality units, to maximize profit, Fresh Laundry should ________ the number of quality units as the current quality marginal revenue is ________ its marginal cost.

A) i ncrease; equal to B) m aintain; equal to C) i ncrease; less than D) m aintain; greater than

108) _____

109) R efer to the table above. If Fresh Laundry is currently producing 10 quality units, to maximize profit, Fresh Laundry should ________ the number of quality units as the current quality marginal revenue is ________ its marginal cost.

109) _____

A) m aintain; less than C) d ecrease; less than

B) d ecrease; equal to D) m aintain; equal to

110) R efer to the table above. What is the profit-maximizing number of quality units for Fresh Laundry to produce?

A) 8 B) 4 C) 1 0 D) 6

110) _____

111) I n general, consumers' valuation of additional units of quality ________ as more units of quality are included in the product, causing the marginal revenue curve from quality improvement to be ________ sloping.

A) i ncreases; downward B) f alls; upward C) i ncreases; upward D) f alls; downward

111) _____

112) I n general, a producer's marginal cost of additional units of quality ________ as more units of quality are included in the product, causing the marginal cost curve from quality improvement to be ________ sloping.

A) i ncreases; upward B) f alls; downward C) i ncreases; downward D) f alls; upward

112) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

113) T he meaning of product quality is dependent on the type of product.

113) _____

114) P roduct quality is likely to be the same for a frozen pizza firm and a paper towel firm.

114) _____

115) I n general, consumers' valuation of additional units of quality increases as more units of quality are included in a product.

115) _____

116) I n general, the product quality marginal revenue curve is downward sloping and the product quality marginal cost curve is upward sloping.

116) _____

117) T he quality profit-maximization rule states managers should produce the level of quality that

117) _____

sets the marginal revenue from an additional unit of quality equal to the marginal cost of producing the additional unit of quality.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

118) A ll of the following are true regarding the Economic Order Quantity model except which one?

A) I t accounts for seasonal changes in demand.

B) I t determines the cost-minimizing quantity managers should order to keep in inventory.

C) I t assumes demand is known with certainty.

D) I t assumes demand is spread evenly over a time period.

118) _____

119) A ll of the following are true regarding the Economic Order Quantity model except which one?

A) I t assumes demand is spread evenly over a time period.

B) I t assumes demand is known with certainty.

C) I t accounts for changes in interest rates.

D) I t determines the cost-minimizing quantity managers should order to keep in inventory.

119) _____

120) W hich of the following is an example of a carrying cost of holding an inventory?

A) t he managerial time spent creating an order for inventory B) t he costs of securing the inventory C) t he delivery charges for an order D) t he cost of the paperwork necessary to pay for each order

120) _____

121) W hich of the following is an example of a carrying cost of holding an inventory?

A) t he managerial time spent creating an order for inventory B) t he cost of storage C) t he delivery charges for an order D) t he cost of the paperwork necessary to pay for each order

121) _____

122) W hich of the following is an example of an ordering cost for goods held in inventory?

A) t he opportunity cost of using funds to finance the inventory B) t he costs of securing the inventory C) t he managerial time spent creating an order for inventory D) t he cost of storage

122) _____

123) W hich of the following is an example of an ordering cost for goods held in inventory?

A) t he cost of storage B) t he opportunity cost of using funds to finance the inventory C) t he cost of the paperwork necessary to pay for each order D) t he costs of securing the inventory

123) _____

124) B ig Woods is a lumber firm that sells plywood sheets to local builders. If the annual holding cost of a sheet of plywood is $15 and the managers of Big Woods order 500 sheets of plywood, what is the total annual carrying costs of the inventory?

A) $ 7,500 B) $ 3,750 C) $ 8,500 D) $ 3,000

124) _____

125) B ig Woods is a lumber firm that sells plywood sheets to local builders. If the annual holding cost of a sheet of plywood is $6 and the managers of Big Woods order 1,000 sheets of plywood, what is the total annual carrying costs of the inventory?

A) $ 7,000 B) $ 3,000 C) $ 6,000 D) $ 3,500

125) _____

126) B ig Woods is a lumber firm that sells plywood sheets to local builders. If the annual holding cost of a sheet of plywood is $8 and the managers of Big Woods order 700 sheets of plywood, what is the total annual carrying costs of the inventory?

A) $ 2,000 B) $ 2,800 C) $ 6,000 D) $ 5,600

126) _____

127) O ffice Paper is an office supply firm. If the managers of Office Paper sell 1,000 boxes of staples a year and they place 5 orders a year, how many boxes of staples are in each order?

A) 5 0 B) 2 0 C) 2 00 D) 9 50

127) _____

128) O ffice Paper is an office supply firm. If the managers of Office Paper sell 5,000 boxes of staples

128) _____

a year and each order contains 500 boxes of staples, how many orders will the managers submit a year?

A) 1 0 B) 5 0 C) 5 00 D) 5 ,000 129) O ffice Paper is an office supply firm. If the managers of Office Paper sell 10,000 boxes of staples a year and each order contains 1,000 boxes of staples, how many orders will the managers submit a year?

A) 1 0 B) 1 ,000 C) 1 00 D) 1 0,000

129) _____

130) W hich of the following is an example of a variable ordering cost?

A) t he price of the good delivered B) t he cost of processing the bill C) t he cost of submitting the order D) a fixed delivery charge

130) _____

131) W hich of the following is an example of a variable ordering cost?

131) _____

A) a delivery cost that depends of the number of units ordered B) a fixed delivery charge C) t he cost of processing the bill D) t he cost of submitting the order 132) V ery Technical is a firm that sells computing equipment. It costs Very Technical $50 for each order of computer monitors and the variable cost of placing an order is $2 per monitor. If Very Technical sells 1,000 computer monitors a year and they order 25 monitors, what is the annual ordering cost of the monitors?

A) $ 50,000 B) $ 2,500 C) $ 4,000 D) $ 10,000

132) _____

133) V ery Technical is a firm that sells computing equipment. It costs Very Technical $40 for each order of computer monitors and the variable cost of placing an order is $5 per monitor. If Very Technical sells 2,000 computer monitors a year and they order 50 monitors, what is the annual ordering cost of the monitors?

A) $ 116,000 B) $ 87,500 C) $ 122,500 D) $ 95,500

133) _____

134) V ery Technical is a firm that sells computing equipment. It costs Very Technical $150 for each order of computer monitors and the variable cost of placing an order is $10 per monitor. If Very Technical sells 5,000 computer monitors a year and they order 250 monitors, what is the annual ordering cost of the monitors?

A) $ 67,000 B) $ 53,000 C) $ 110,000 D) $ 85,250

134) _____

135) V ery Technical is a firm that sells computing equipment. It costs Very Technical $50 for each

135) _____

order of computer monitors and the variable cost of placing an order is $2 per monitor. Very Technical pays an annual holding cost of $6 per monitor. If Very Technical sells 1,000 computer monitors a year and they order 25 monitors, what is the total annual cost of the monitors?

A) $ 3,150 B) $ 7,250 C) $ 4,075 D) $ 5,025 136) V ery Technical is a firm that sells computing equipment. It costs Very Technical $100 for each order of computer monitors and the variable cost of placing an order is $4 per monitor. Very Technical pays an annual holding cost of $10 per monitor. If Very Technical sells 6,000 computer monitors a year and they order 500 monitors, what is the total annual cost of the monitors?

A) $ 21,500 B) $ 35,700 C) $ 32,800 D) $ 27,700

136) _____

137) V ery Technical is a firm that sells computing equipment. It costs Very Technical $150 for each order of computer monitors and the variable cost of placing an order is $2 per monitor. Very Technical pays an annual holding cost of $8 per monitor. If Very Technical sells 4,000 computer monitors a year and they order 500 monitors, what is the total annual cost of the monitors?

A) $ 11,200 B) $ 9,500 C) $ 8,750 D) $ 12,500

137) _____

138) V ery Technical is a firm that sells computing equipment. It costs Very Technical $125 for each

138) _____

order of computer monitors and the variable cost of placing an order is $10 per monitor. Very Technical pays an annual holding cost of $20 per monitor. If Very Technical sells 8,000 computer monitors a year and they order 1,000 monitors, what is the total annual cost of the monitors?

A) $ 91,000 B) $ 59,500 C) $ 87,500 D) $ 101,000 139) I f managers increase the size of the order they place, the ordering cost ________ and the carrying cost ________.

A) f alls; rises B) r ises; falls C) f alls; falls D) r ises; rises

139) _____

140) I f managers decrease the size of the order they place, the ordering cost ________ and the carrying 140) _____ cost ________.

A) r ises; falls B) f alls; rises C) f alls; falls D) r ises; rises 141) I t costs View Your World, a high-end window manufacturer, $30 for each order of windows they place. View Your World sells 3,000 windows a year and each window that is held in inventory costs $200 per year. What is the economic order quantity?

A) 3 0 B) 2 2 C) 3 8 D) 1 0

141) _____

142) I t costs View Your World, a high-end window manufacturer, $50 for each order of windows they place. View Your World sells 2,000 windows a year and each window that is held in inventory costs $500 per year. What is the economic order quantity?

A) 5 0 B) 2 0 C) 1 0 D) 4 0

142) _____

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

143) M anagers can reduce production or delivery costs by keeping an inventory of the goods they produce or sell.

143) _____

144) M anagers incur opportunity costs from holding goods in inventory.

144) _____

145) T he cost minimizing inventory sets the marginal benefit of increasing the order size equal to its marginal cost.

145) _____

146) I n most cases, the cost-minimizing order quantity depends on the variable cost per unit of ordering.

146) _____

147) T he optimal order quantity and the optimal inventory level increase as the cost of carrying a unit in inventory increases.

147) _____

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

148) S uppose you are the manager of Good Smells, a home fragrance firm. To make your fragrance, you purchase orange peels from orange juice manufacturers. If the demand for orange juice increases, this will cause the production of orange juice peels to ________ and the price of orange juice peels to ________.

A) d ecrease; rise B) d ecrease; fall C) i ncrease; rise D) i ncrease; fall

148) _____

149) S uppose you are the manager of Good Smells, a home fragrance firm. To make your fragrance, you purchase orange peels from orange juice manufacturers. If the demand for orange juice decreases, this will cause the production of orange juice peels to ________ and the price of orange juice peels to ________.

A) d ecrease; fall B) i ncrease; rise C) i ncrease; fall D) d ecrease; rise

149) _____

150) S uppose you are the manager of Natural Oils, a firm that specializes in healthy skin oils. To make your oils, you purchase avocado pits from guacamole manufacturers. If the demand for guacamole increases, this will cause the production of avocado pits to ________ and the price of avocado pits to ________.

A) i ncrease; rise B) i ncrease; fall C) d ecrease; rise D) d ecrease; fall

150) _____

151) S uppose you are the manager of Natural Oils, a firm that specializes in healthy skin oils. To make your oils, you purchase avocado pits from guacamole manufacturers. If the demand for guacamole decreases, this will cause the production of avocado pits to ________ and the price of avocado pits to ________.

151) _____

A) i ncrease; rise

B) d ecrease; fall

C) i ncrease; fall

D) d ecrease; rise

152) S uppose you are the manager of Sweet Aroma, a firm that specializes in air freshener. To make your air freshener, you purchase apple skins from apple juice manufacturers. If the demand for apple juice decreases, this will cause the production of apple skins to ________ and the price of apple skins to ________.

A) i ncrease; fall B) i ncrease; rise C) d ecrease; fall D) d ecrease; rise

152) _____

153) S uppose you are the manager of Sweet Aroma, a firm that specializes in air freshener. To make your air freshener, you purchase apple skins from apple juice manufacturers. If the demand for apple juice increases, this will cause the production of apple skins to ________ and the price of apple skins to ________.

A) d ecrease; rise B) i ncrease; fall C) d ecrease; fall D) i ncrease; rise

153) _____

154) S uppose you are the manager of Big Boards, a firm that produces particle board. To make your particle board, you purchase sawdust from timber farms. During the process of harvesting timber, both lumber and sawdust are produced. If the demand for lumber increases, this will cause the production of sawdust to ________ and the price of sawdust to ________.

A) i ncrease; fall B) d ecrease; fall C) d ecrease; rise D) i ncrease; rise

154) _____

155) S uppose you are the manager of Big Boards, a firm that produces particle board. To make your particle board, you purchase sawdust from timber farms. During the process of harvesting timber, both lumber and sawdust are produced. If the demand for lumber decreases, this will cause the production of sawdust to ________ and the price of sawdust to ________.

A) d ecrease; rise B) i ncrease; rise C) i ncrease; fall D) d ecrease; fall

155) _____

156) C onsumers with higher wages have ________ opportunity costs than consumers with low wages, which means that managers should place stores ________ in areas that are frequented by high-income consumers.

A) g reater; closer together B) l ower; farther apart C) g reater; farther apart D) l ower; closer together

156) _____

157) A consumer's total transportation cost includes all of the following except which one?

A) t he wear and tear on the consumer's car B) t he value of the consumer's time getting to and from the store C) t he cost of gasoline D) t he value of the consumer's time deciding which store to travel to

157) _____

158) A consumer's total transportation cost includes all of the following except which one?

A) t he value of the time the consumer's spends reading advertisements from the store B) t he cost of a bus ticket to get to the store C) t he value of the consumer's time spent in the store D) t he value of the consumer's time getting to and from the store

158) _____

159) A consumer's total transportation cost includes all of the following except which one?

A) t he cost of a subway ticket to the store B) t he value of the consumer's time deciding which store to travel to C) t he value of the consumer's time spent getting to and from the store D) t he value of the consumer's time spent in the store

159) _____

160) A ll else equal, anything that increases the transportation costs ________ the number of consumers shopping at ________.

160) _____

A) d oes not change; local, more expensive stores B) i ncreases; larger, less expensive stores C) i ncreases; local, more expensive stores D) d oes not change; larger, less expensive stores 161) A ll else equal, anything that decreases the transportation costs ________ the number of consumers shopping at ________.

A) i ncreases; local, more expensive stores B) i ncreases; larger, less expensive stores C) d oes not change; larger, less expensive stores D) d oes not change; local, more expensive stores

161) _____

162) I f gas prices suddenly change from $2 a gallon to $4 a gallon, local stores with higher prices are ________ to have a(n) ________ in the number of customers.

A) n ot likely; change B) l ikely; decrease C) n ot likely; increase D) l ikely; increase

162) _____

163) I f gas prices suddenly change from $2 a gallon to $4 a gallon, larger, more remote stores with lower prices are ________ to have a(n) ________ in the number of customers.

A) l ikely; increase B) n ot likely; change C) n ot likely; decrease D) l ikely; decrease

163) _____

164) I f the average price of a car suddenly changes from $15,000 to $25,000, larger, more remote stores 164) _____ with lower prices are ________ to have a(n) ________ in the number of customers.

A) n ot likely; change B) n ot likely; decrease C) l ikely; increase D) l ikely; decrease 165) I f the average price of a car suddenly changes from $20,000 to $15,000, larger, more remote stores 165) _____ with lower prices are ________ to have a(n) ________ in the number of customers.

A) l ikely; decrease B) n ot likely; change C) l ikely; increase D) n ot likely; increase 166) I f the economy experiences a strong boom and consumers' incomes sharply rise, local stores with higher prices are ________ to have a(n) ________ in the number of customers.

A) n ot likely; change B) n ot likely; increase C) l ikely; increase D) l ikely; decrease

166) _____

167) I f the economy experiences a strong boom and consumers' incomes sharply rise, larger, more remote stores with lower prices are ________ to have a(n) ________ in the number of customers.

A) n ot likely; change B) n ot likely; decrease C) l ikely; decrease D) l ikely; increase

167) _____

168) S uppose a roll of paper towels costs $4 at Sam's Quick Stop, a local quick stop, and the same roll of paper towels costs $1 at Big Supplies, a large, retailer located in a more remote location. If a customer's total cost of travel to Sam's Quick Stop is $2 and is $6 to Big Supplies, which of the following is true?

A) I t is cheaper for the consumer to buy the paper towels at Sam's Quick Stop.

B) I t is cheaper for the consumer to buy the paper towels at Big Supplies.

C) I t is more expensive for the consumer to buy the paper towels at Sam's Quick Stop.

D) T he consumer is indifferent as to where they buy the paper towels.

168) _____

169) S uppose a roll of paper towels costs $5 at Sam's Quick Stop, a local quick stop, and the same roll

of

paper

towels 169) costs $2 at Big Supplies, a large, retailer located in a more remote location.

If a customer 's total cost of travel to Sam's Quick Stop is $2 and is $6 to Big Supplies, which of the followin g is true?

____ _

A) I t is cheaper for the consumer to buy the paper towels at Big Supplies.

B) I t is more expensive for the consumer to buy the paper towels at Sam's Quick Stop.

C) T he consumer is indifferent as to where they buy the paper towels.

D) I t is cheaper for the consumer to buy the paper towels at Sam's Quick Stop.

170) S uppose a roll of paper towels costs $6 at Sam's Quick Stop, a local quick stop, and the same roll of paper towels costs $2 at Big Supplies, a large, retailer located in a more remote location. If a customer's total cost of travel to Sam's Quick Stop is $3 and is $6 to Big Supplies, which of the following is true?

A) I t is cheaper for the consumer to buy the paper towels at Big Supplies.

B) I t is cheaper for the consumer to buy the paper towels at Sam's Quick Stop.

C) I t is more expensive for the consumer to buy the paper towels at Big Supplies.

D) T he consumer is indifferent as to where they buy the paper towels.

170) _____

171) S uppose a roll of paper towels costs $5 at Sam's Quick Stop, a local quick stop, and the same roll of paper towels costs $2 at Big Supplies, a large, retailer located in a more remote location. If a customer's total cost of travel to Sam's Quick Stop is $3 and is $6 to Big Supplies, which of the following is true?

A) I t is more expensive for the consumer to buy the paper towels at Big Supplies.

B) T he consumer is indifferent as to where they buy the paper towels.

C) I t is cheaper for the consumer to buy the paper towels at Big Supplies.

D) I t is cheaper for the consumer to buy the paper towels at Sam's Quick Stop.

171) _____

172) S uppose a roll of paper towels costs $4 at Sam's Quick Stop, a local quick stop, and the same roll of paper towels costs $1 at Big Supplies, a large, retailer located in a more remote location. If a customer's total cost of travel to Sam's Quick Stop is $2 and is $5 to Big Supplies, which of the following is true?

172) _____

A) I t is cheaper for the consumer to buy the paper towels at Sam's Quick Stop.

B) T he consumer is indifferent as to where they buy the paper towels.

C) I t is cheaper for the consumer to buy the paper towels at Big Supplies.

D) I t is more expensive for the consumer to buy the paper towels at Big Supplies.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

173) I f a firm purchases an input that is jointly produced with another good, changes in the demand for the other good will have no effect on the price of the input.

173) _____

174) I t is profit-maximizing for managers to locate their stores close together in areas that are frequented by low-income consumers.

174) _____

175) S tores that are located in areas that offer a low transaction cost to consumers are more likely to be able to charge higher prices than stored located in areas with high transaction costs.

175) _____

176) T o maximize profit, a manager of a large chain of stores that are located throughout the United States needs to determine the average value of their consumers' time and transportation costs and locate each store in areas based on the average value.

176) _____

177) A consumer's total transportation costs do not include the time the consumer spends in the store.

177) _____

1) A 2) A 3) D 4) C 5) B 6) C 7) D 8) D 9) A 10) D 11) C 12) C 13) C 14) D 15) B 16) C 17) D 18) A 19) C 20) A 21) C 22) A 23) C 24) B 25) B 26) F ALSE 27) T RUE 28) T RUE 29) F ALSE 30) F ALSE 31) B 32) D 33) A 34) B 35) D 36) A 37) A 38) D 39) D 40) C 41) D 42) D 43) D 44) D 45) A 46) D 47) A 48) D 49) D 50) B 51) B

52) D 53) D 54) B 55) C 56) A 57) C 58) F ALSE 59) T RUE 60) T RUE 61) F ALSE 62) T RUE 63) A 64) A 65) C 66) B 67) D 68) B 69) C 70) B 71) B 72) B 73) D 74) C 75) D 76) C 77) C 78) D 79) C 80) C 81) A 82) B 83) A 84) A 85) B 86) B 87) B 88) T RUE 89) F ALSE 90) T RUE 91) F ALSE 92) T RUE 93) B 94) B 95) B 96) D 97) A 98) D 99) B

100) A 101) B 102) B 103) D

104) A 105) A 106) C 107) C 108) B 109) C 110) A 111) D 112) A 113) T RUE 114) F ALSE 115) F ALSE 116) T RUE 117) T RUE 118) A 119) C 120) B 121) B 122) C 123) C 124) B 125) B 126) B 127) C 128) A 129) A 130) A 131) A 132) C 133) A 134) B 135) C 136) D 137) A 138) A 139) A 140) A 141) A 142) B 143) T RUE 144) T RUE 145) T RUE 146) F ALSE 147) F ALSE 148) D 149) D 150) B 151) D 152) D 153) B 154) A 155) A

156) A 157) D 158) A 159) B 160) C 161) B 162) D 163) D 164) D 165) C 166) C 167) C 168) A 169) D 170) A 171) B 172) B 173) F ALSE 174) F ALSE 175) T RUE 176) F ALSE 177) F ALSE

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) F or a firm with market power, advertising expenditures affect all of the following except which one?

A) m arginal cost B) t otal cost C) d emand curve D) f ixed cost

1) _______

2) F or a firm with market power, advertising expenditures affect all of the following except which one?

A) m arginal revenue B) t otal cost C) d emand curve D) m arginal cost

2) _______

3) I f a firm spends money on advertising, its gross profit is ________ its net profit.

A) g reater than B) l ess than C) e qual to D) e xactly twice

3) _______

4) I n general, the marginal benefit of advertising ________ as more advertising is purchased because the gross profits from advertising ________ at a(n) ________ rate.

A) d ecreases; increase; decreasing B) i ncreases; decrease; decreasing C) d ecreases; decrease; decreasing D) d ecreases; decrease; increasing

4) _______

5) P retty Polly produces dresses for little girls. When Pretty Polly's manager sets the change in ________ profit equal to its marginal cost of advertising, Pretty Polly's ________ profit is maximized.

A) g ross; gross B) n et; gross C) g ross; net D) n et; net

5) _______

6) G ood Boy Super Treats produces healthy treats for dogs. At its current advertising level, Good Boy Super Treats marginal cost of advertising is $1 million and their marginal benefit is $1.2 million. Which of the following is true?

A) T he firm is currently maximizing its net profit.

B) T he firm should reduce the amount of advertising to increase its net profit.

C) T he firm should increase the amount of advertising to increase its net profit.

D) I f the firm increases the amount of advertising, its net profits will decrease.

6) _______

7) G ood Boy Super Treats produces healthy treats for dogs. At its current advertising level, Good Boy Super Treats marginal cost of advertising is $1.3 million and their marginal benefit is $1 million. Which of the following is true?

A) I f the firm decreases the amount of advertising, its net profits will decrease.

B) T he firm is currently maximizing its net profit.

C) T he firm should reduce the amount of advertising to increase its net profit.

D) T he firm should increase the amount of advertising to increase its net profit.

7) _______

8) G ood Boy Super Treats produces healthy treats for dogs. At its current advertising level, Good Boy Super Treats marginal cost of advertising is $1 million and their marginal benefit is $1 million. Which of the following is true?

A) T he firm is currently maximizing its net profit.

B) I f the firm decreases the amount of advertising, its net profit will increase.

C) I f the firm increases the amount of advertising, its net profit will increase.

D) T he firm should increase the amount of advertising to increase its net profit.

8) _______

9) P retty Polly produces dresses for little girls. At its current advertising level, Pretty Polly's marginal cost of advertising is $500,000 and their marginal benefit is $750,000. Which of the following is true?

9) _______

A) I f the firm increases the amount of advertising, its net profits will decrease.

B) T he firm should reduce the amount of advertising to increase its net profit.

C) T he firm is currently maximizing its net profit.

D) T he firm should increase the amount of advertising to increase its net profit.

10) P retty Polly produces dresses for little girls. At its current advertising level, Pretty Polly's marginal cost of advertising is $500,000 and their marginal benefit is $500,000. Which of the following is true?

A) T he firm should double the amount of advertising.

B) T he firm should reduce the amount of advertising to increase its net profit.

C) T he firm should increase the amount of advertising to increase its net profit.

D) T he firm is currently maximizing its net profit.

10) ______

11) P retty Polly produces dresses for little girls. If Pretty Polly's advertising campaign becomes more effective, the demand for Pretty Polly's dresses will ________ and Pretty Polly's marginal benefit curve from advertising shifts to the ________.

A) i ncrease; right B) d ecrease; left C) d ecrease; right D) i ncrease; left

11) ______

12) F ranco's Frozen Ice produces Italian flavored ice that is sold in the freezer section of grocery stores. Currently, Franco's does not have a fixed advertising budget and advertises in grocery stores' weekly advertising flyers and on the radio. A unit of advertising in the weekly flyers costs $2,000 and a unit of advertising on the radio costs $5,000. At their current advertising levels, the marginal benefit of advertising in the flyer is $2,500 and the marginal benefit of advertising on the radio is $5,000. Which of the following is true?

A) T o maximize profits, Franco's should decrease the amount of advertising in flyers.

B) T o maximize profits, Franco's should increase the amount of advertising in flyers.

C) T o maximize profits, Franco's should decrease the amount of radio advertising.

D) F ranco's is currently maximizing its profits from advertising.

12) ______

13) F ranco's Frozen Ice produces Italian flavored ice that is sold in the freezer section of grocery stores. Currently, Franco's does not have a fixed advertising budget and advertises in grocery stores' weekly advertising flyers and on the radio. A unit of advertising in the weekly flyers costs $2,000 and a unit of advertising on the radio costs $5,000. At their current advertising levels, the marginal benefit of advertising in the flyer is $1,500 and the marginal benefit of advertising on the radio is $5,000. Which of the following is true?

13) ______

A) T o maximize profits, Franco's should decrease the amount of advertising in flyers.

B) T o maximize profits, Franco's should increase the amount of advertising in flyers.

C) T o maximize profits, Franco's should decrease the amount of radio advertising.

D) F ranco's is currently maximizing its profits from advertising.

14) F ranco's Frozen Ice produces Italian flavored ice that is sold in the freezer section of grocery stores. Currently, Franco's does not have a fixed advertising budget and advertises in grocery stores' weekly advertising flyers and on the radio. A unit of advertising in the weekly flyers costs $2,000 and a unit of advertising on the radio costs $6,000. At their current advertising levels, the marginal benefit of advertising in the flyer is $1,500 and the marginal benefit of advertising on the radio is $5,000. Which of the following is true?

A) T o maximize profits, Franco's should increase the amount of advertising in flyers and on the radio.

B) T o maximize profits, Franco's should decrease the amount of advertising in flyers and on the radio.

C) T o maximize profits, Franco's should increase the amount of advertising in flyers, but not change the amount of advertising on the radio.

14) ______

D) F ranco's is currently maximizing its profits from advertising.

15) F ranco's Frozen Ice produces Italian flavored ice that is sold in the freezer section of grocery stores. Currently, Franco's does not have a fixed advertising budget and advertises in grocery stores' weekly advertising flyers and on the radio. A unit of advertising in the weekly flyers costs $1,500 and a unit of advertising on the radio costs $4,500. At their current advertising levels, the marginal benefit of advertising in the flyer is $1,750 and the marginal benefit of advertising on the radio is $5,000. Which of the following is true?

A) F ranco's is currently maximizing its profits from advertising.

15) ______

B) T o maximize profits, Franco's should increase the amount of advertising in flyers and on the radio.

C) T o maximize profits, Franco's should increase the amount of advertising in flyers, but not change the amount of advertising on the radio.

D) T o maximize profits, Franco's should decrease the amount of advertising in flyers and on the radio.

16) F ranco's Frozen Ice produces Italian flavored ice that is sold in the freezer section of grocery stores. Currently, Franco's does not have a fixed advertising budget and advertises in grocery stores' weekly advertising flyers and on the radio. A unit of advertising in the weekly flyers costs $1,500 and a unit of advertising on the radio costs $5,500. At their current advertising levels, the marginal benefit of advertising in the flyer is $1,750 and the marginal benefit of advertising on the radio is $5,000. Which of the following is true?

A) T o maximize profits Franco's should increase both the amount of advertising in flyers and the amount of radio advertising.

B) F ranco's is currently maximizing its profits from advertising.

C) T o maximize profits, Franco's should decrease the amount of advertising in flyers and increase the amount of radio advertising.

D) T o maximize profits, Franco's should increase the amount of advertising in flyers and decrease the amount of radio advertising.

16) ______

17) P erfect Shots is company specializing in wedding photos and they have a fixed advertising budget. Perfect Shots advertises on the radio and the television and it costs $5,000 per unit of radio advertising and $15,000 per unit of television advertising. At their current advertising levels, the marginal benefit from radio advertising is $4,800 and the marginal benefit from television advertising is $15,250. To optimally allocate their advertising budget, Perfect Shots should ________.

A) i ncrease the amount of advertising in radio and decrease the amount of advertising in television B) i ncrease the amount of advertising in radio and television C) d ecrease the amount of advertising in radio and television D) d ecrease the amount of advertising in radio and increase the amount of advertising in television

17) ______

18) P erfect Shots is company specializing in wedding photos and they have a fixed advertising budget. Perfect Shots advertises on the radio and the television and it costs $5,000 per unit of radio advertising and $15,000 per unit of television advertising. At their current advertising levels, the marginal benefit from radio advertising is $5,800 and the marginal benefit from television advertising is $14,250. To optimally allocate their advertising budget, Perfect Shots should ________.

18) ______

A) i ncrease the amount of advertising in radio and television B) d ecrease the amount of advertising in radio and increase the amount of advertising in television

C) i ncrease the amount of advertising in radio and decrease the amount of advertising in television D) d ecrease the amount of advertising in radio and television 19) P erfect Shots is company specializing in wedding photos and they have a fixed advertising budget. Perfect Shots advertises on the radio and the television and it costs $5,000 per unit of radio advertising and $14,000 per unit of television advertising. At their current advertising levels, the marginal benefit from radio advertising is $4,800 and the marginal benefit from television advertising is $14,250. To optimally allocate their advertising budget, Perfect Shots should ________.

A) i ncrease the amount of advertising in radio and decrease the amount of advertising in television B) d ecrease the amount of advertising in radio and television C) i ncrease the amount of advertising in radio and television D) d ecrease the amount of advertising in radio and increase the amount of advertising in television

19) ______

20) P erfect Shots is company specializing in wedding photos and they have a fixed advertising budget. Perfect Shots advertises on the radio and the television and it costs $5,000 per unit of radio advertising and $14,000 per unit of television advertising. At their current advertising levels, the marginal benefit from radio advertising is $5,000 and the marginal benefit from television advertising is $14,000. Which of the following is true?

A) P erfect shots has optimally allocated their advertising budget, which guarantees they have maximized their profits.

B) T o optimally allocate their advertising budget, Perfect Shots should decrease the amount of advertising in radio and television.

C) T o optimally allocate their advertising budget, Perfect Shots should increase the amount of advertising in radio and television.

D) P erfect shots has optimally allocated their advertising budget, but that does not guarantee that they have maximized their profits.

20) ______

Price Marginal Benefit of Advertising

Radio

Television

Newspaper

$10,000

$15,000

$8,000

A

B

C

The table above shows the current costs for a firm to advertising on the radio, television, and newspaper.

21) R efer to the table above. If at the current advertising level, A = $10,000, B = $15,500, and C =

21) ______

$7,800, to maximize profit, which of the following should the firm do?

A) T he firm should decrease its advertising on the radio and increase its advertising in newspapers.

B) T he firm should decrease its advertising on the television and increase its advertising in newspapers.

C) T he firm should decrease its advertising on the radio and decrease its advertising in newspapers.

D) T he firm should increase its advertising on the television and decrease its advertising in newspapers.

22) R efer to the table above. If at the current advertising level, A = $10,000, B = $14,500, and C = $8,200, to maximize profit, which of the following should the firm do?

A) T he firm should decrease its advertising on the television and increase its advertising in

22) ______

newspapers.

B) T he firm should decrease its advertising on the radio and decrease its advertising in newspapers.

C) T he firm should increase its advertising on the television and decrease its advertising in newspapers.

D) T he firm should decrease its advertising on the radio and increase its advertising in newspapers.

23) R efer to the table above. If at the current advertising level, A = $9,800, B = $15,000, and C =

23) ______

$8,200, to maximize profit, which of the following should the firm do?

A) T he firm should decrease its advertising on the television and increase its advertising in newspapers.

B) T he firm should decrease its advertising on the radio and decrease its advertising in newspapers.

C) T he firm should decrease its advertising on the radio and increase its advertising in newspapers.

D) T he firm should increase its advertising on the television and decrease its advertising in newspapers.

24) R efer to the table above. If at the current advertising level, A = $9,800, B = $15,200, and C =

24) ______

$8,000, to maximize profit, which of the following should the firm do?

A) T he firm should decrease its advertising on the radio and increase its advertising in newspapers.

B) T he firm should increase its advertising on the television and decrease its advertising in newspapers.

C) T he firm should decrease its advertising on the television and increase its advertising in newspapers.

D) T he firm should decrease its advertising on the radio and increase its advertising on television.

25) R efer to the table above. If at the current advertising level, A = $10,000, B = $15,000, and C = $8,000, to maximize profit, which of the following should the firm do?

A) T he firm should decrease its advertising on the radio and increase its advertising in newspapers.

B) T he firm has optimally allocated their advertising budget, but that does not guarantee that they have maximized their profits.

C) T he firm has optimally allocated their advertising budget, which guarantees they have maximized their profits.

D) T he firm should decrease its advertising on the radio and increase its advertising on television.

25) ______

26) I n the figure above, spending $1 million on advertising increases the demand from D0 to D1. The

26) ______

gross average cost curve, LACGROSS, excludes the cost of the advertising. Before the firm advertised, the profit-maximizing price and quantity were ________ and after the firm advertised the profit-maximizing price and quantity are ________ A) $ 20 per unit and 1 million units; $20 per unit and 3 million units B) $ 20 per unit and 2 million units; $60 per unit and 2 million units C) $ 30 per unit and 1 million units; $50 per unit and 3 million units D) $ 30 per unit and 1 million units; It is impossible to tell because the cost of the advertising is not included in the gross average cost.

27) I n the figure above, spending $1 million on advertising increases the demand from D0 to D1.

What is the marginal benefit of the advertising?

A) $ 90 million C) $ 80 million

27) ______

B) $ 1 million D) N one of the above answers are correct.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

28) I f competitive firms spent money on advertising their product, their profits would decrease.

28) ______

29) T he profit-maximizing quantity and price is determined after the optimal amount of advertising is determined.

29) ______

30) T o maximize profits, managers should purchase the quantity of advertising that maximizes gross profit.

30) ______

31) I f a firm only has one advertising medium, it maximizes its profit by first setting the marginal

31) ______

benefit from its product equal to its marginal cost of production and then determining the optimal amount to advertise.

32) I t is possible for firms to not maximize profits even if they have optimally allocated their fixed advertising budget.

32) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

33) B BQ to Go is a large fast food restaurant chain with franchises located throughout the United States. BBQ to Go's advertising ________ promote the benefits of eating BBQ to Go sandwiches and ________ highlight an individual BBQ to Go location in Asheville, North Carolina.

A) w ill; will not B) w ill; will C) w ill not; will not D) w ill not; will

33) ______

34) B BQ to Go is a large fast food restaurant chain with franchises located throughout the United States. BBQ to Go's advertising will likely focus on which of the following?

A) p romoting a struggling BBQ to Go location in Denver, Colorado B) p romoting the benefits of eating BBQ to Go sandwiches C) p romoting BBQ locations in a specific state D) p romoting a successful BBQ to Go location in Denver, Colorado

34) ______

35) D airy Swirls is a soft-serve ice cream chain with franchises located throughout the United States.

35) ______

Dairy Swirls' advertising ________ promote the benefits of eating Dairy Swirls and ________ highlight an individual Dairy Swirls location in Asheville, North Carolina.

A) w ill not; will B) w ill; will not C) w ill not; will not D) w ill; will 36) I cy Treats is a large Italian ice dessert chain with franchises located throughout the United States.

Icy Treats' advertising ________ promote the benefits of eating Icy Treats' icees and ________ highlight an individual Icy Treats location in Asheville, North Carolina.

A) w ill not; will B) w ill not; will not C) w ill; will D) w ill; will not

36) ______

37) I cy Treats is a large Italian ice dessert chain with franchises located throughout the United States.

Icy Treats' advertising will likely focus on which of the following?

A) p romoting Icy Treats locations in a specific state B) p romoting a struggling Icy Treats location in Memphis, Tennessee C) p romoting the enjoyment of eating Icy Treats' icees D) p romoting a successful Icy Treats location in Memphis, Tennessee

37) ______

38) A public good is ________ and ________.

A) e xcludable; nonrival C) n onexcludable; rival

38) ______ B) e xcludable; rival D) n onexcludable; nonrival

39) W hich of the following is an example of a public good?

A) k etchup B) a street light C) a n apple

39) ______ D) a car

40) W hich of the following is an example of a public good?

A) a public bus B) s treet signs C) a n ice cream cone D) a box of bath tissues

40) ______

41) W hich of the following is an example of a public good?

A) a lighthouse B) t he subway C) a box of cookies D) a ny kind of public transportation

41) ______

42) W hich of the following is an example of a public good?

42) ______

A) a movie ticket C) b ooks at a public library

B) a cup of coffee D) a railroad sign

Quantity of Happy Chickens Special Chickens Superior Chickens Advertising Marginal Benefit Marginal Benefit Marginal Benefit (hours per week)(in dollars)(in dollars)(in dollars) 1 $20 $30 $25 2 0 0 0 3 $17 $22 $20 4 5 5 0 $15 $17 $15 0 Suppose the egg industry is 0made up of only the 5 three farms above; Happy Chickens, Special Chickens, and Superior $10 $12 $10 Chickens.

0 5 0 43) R efer to the table above. If the cost per unit of advertising is constant at $600, what is the level 43) ______ of advertising per week that maximizes the industry joint profit?

A) 4 B) 1 C) 2

D) 3

44) R efer to the table above. If the cost per unit of advertising is constant at $750, what is the level of advertising per week that maximizes the industry joint profit?

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

44) ______

45) R efer to the table above. If the cost per unit of advertising is constant at $475, what is the level of advertising per week that maximizes the industry joint profit?

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

45) ______

46) R efer to the table above. If the cost per unit of advertising is constant at $325, what is the level of advertising per week that maximizes the industry joint profit?

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

46) ______

Quantity of Cow Haven Free Cows Happy Cows Marginal Benefit Marginal Benefit Marginal Benefit Advertising (hours per week) (in dollars) (in dollars) (in dollars) 1 $40 $42 $20 2 0 5 0 3 $35 $37 $17 4 0 5 5 5 $32 $35 $15 0 0 0 $25 $30 $12 Cow Haven, Free Cows, and Happy Cows.

Suppose the dairy industry is made of up only by the three firms above; 0 0 5 $20 $25 $10 47) R efer to the table above. If the cost per unit of advertising is constant at $900, what is the level 47) ______ 0 0 0 of advertising per week that maximizes the industry joint profit?

A) 4

B) 3

C) 5

D) 2

48) R efer to the table above. If the cost per unit of advertising is constant at $820, what is the level of advertising per week that maximizes the industry joint profit?

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

48) ______

49) R efer to the table above. If the cost per unit of advertising is constant at $675, what is the level of advertising per week that maximizes the industry joint profit?

A) 4 B) 3 C) 5 D) 2

49) ______

50) R efer to the table above. If the cost per unit of advertising is constant at $550, what is the level of advertising per week that maximizes the industry joint profit?

A) 3 B) 4 C) 5 D) 2

50) ______

51) I n reference to determining the optimal amount of advertising, managers of trade associations face each of following additional challenges except which one?

A) d ifference in the marginal benefits of advertising across firms B) t he challenge of a constant marginal benefit of advertising across firms C) d ifficulty in prescribing a fair and practical way to share the cost of advertising across firms D) t he free rider problem

51) ______

52) I n reference to determining the optimal amount of advertising, managers of trade associations face each of following additional challenges except which one?

A) d ifference in the marginal benefits of advertising across firms B) t he ability for a firm to benefit from advertising that they did not pay for C) d ifficulty in prescribing a fair and practical way to share the cost of advertising across firms D) l ack of free riders

52) ______

53) A free-rider is a person or firm that ________ from a good or service ________.

A) b enefits; by paying for it B) b enefits; without paying for it C) d oes not benefit; by paying double the price for it D) d oes not benefit; by paying for it

53) ______

54) I n order to fund industrywide advertising, managers of trade associations often to do all of the following except which one?

A) b ase each member's payment on the marginal benefit that the firm will receive from the advertising B) s et each member's payment equal to the total cost of the advertising C) c harge the members that receive a lower marginal benefit, a lower fee D) c harge the members that receive a greater marginal benefit, a higher fee

54) ______

55) I n order to fund industrywide advertising, managers of trade associations often try to charge the members that receive a lower marginal benefit from advertising ________.

A) a lower fee B) n othing C) a high fee D) t he total cost of the advertising

55) ______

56) I n reference to funding industrywide advertising, if the majority of managers free ride, which of the following is likely to occur?

A) T he industry will maximize its joint profit.

B) T he industrywide marginal benefit of advertising will equal its marginal cost.

C) T he industrywide marginal benefit of advertising will exceed its marginal cost.

D) T he industrywide marginal benefit of advertising will fall below its marginal cost.

56) ______

57) I n a franchised network in which all managers are required to pay a percentage of their sales to

57) ______

pay for system-wide advertising, there ________ a free-rider problem and it is ________ likely that the system-wide quantity of advertising will be optimal.

A) i s; more B) i s not; less C) i s not; more D) i s; less 58)

58)

The figure above shows the marginal benefit curves for the two firms in an industry, Firm 1 and Firm 2. Which of the statemen ts below is correct?

___ ___

A) A t $250, the industry-wide marginal benefit from advertising is 4 hours.

B) T he industry-wide marginal benefit from 1 hour of advertising is $550. C) T he industry-wide marginal benefit from 1 hour of advertising is $300. D) N one of the above statements is correct.

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

59) I ndustry advertisements work to promote specific brands.

59) ______

60) I ndustrywide advertising is an example of a public good.

60) ______

61) A hot dog sold by a street hot dog vendor is an example of a public good.

61) ______

62) T he quantity of advertising that maximizes the industrywide joint profit, is the quantity that sets the industry wide marginal benefit equal to the marginal cost.

62) ______

63) I f Icy Treats is a large Italian ice dessert chain with franchises located throughout the United States, it is likely that each franchise will have the same advertising marginal benefit schedule.

63) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

64) A ll of the following are true regarding false advertising except which one?

A) I t can misrepresent the nature of a good or service.

B) I t can misrepresents the characteristics of a good or service.

C) I t can misrepresents the price of a good or service.

D) I t can misrepresents the quality of a good or service.

64) ______

65) A luxury cruise in the United States Virgin Islands is an example of an ________ good, and a desk calendar is an example of a(n) ________ good.

A) e xperience; inspection B) i nspection; credence C) e xperience; credence D) i nspection; experience

65) ______

66) A n expensive bottle of balsamic vinegar is an example of an ________ good, and an order of lasagna from Bella's Restaurant is an example of a(n) ________ good.

A) e xperience; inspection B) e xperience; credence C) e xperience; experience D) i nspection; inspection

66) ______

67) A box of biodegradable baby diapers is an example of a(n) ________ good and also an example of a(n) ________ good.

A) i nspection; experience B) c redence; experience C) c redence; inspection D) i nspection; greenwashed

67) ______

68) F alse advertising is least likely to be successful with ________ goods.

A) g reenwashed B) e xperience C) i nspection

68) ______ D) c redence

69) F alse advertising ________ likely to be successful with newly built vacation rental homes on a remote island because the rental homes are a(n) ________ good.

A) i s not; experience B) i s; experience C) i s; credence D) i s not; credence

69) ______

70) F alse advertising ________ likely to be successful with a plush stuffed toy sold at retail stores because the stuffed toys are a(n) ________ good.

A) i s; inspection B) i s; credence C) i s not; inspection D) i s not; credence

70) ______

71) F alse advertising ________ likely to be successful with tickets on a new airline because the tickets 71) ______ are an ________ good.

A) i s not; inspection B) i s; experience C) i s not; experience D) i s; inspection 72) A dvertising ________ have the potential to mislead ________ buyers about the characteristics of experience goods.

A) d oes not; greenwashed B) d oes; repeat C) d oes not; first-time D) d oes; first-time

72) ______

73) A ngelo's Calzones is opening a new location in Colorado. To attract new customers, the managers of Angelo's advertise the following slogan, "Angelo's Calzones: The BEST Calzone

You Ever Will Eat!"

___ ___

If 73) Angelo's calzones are really of poor quality, this is an example of ________ a(n) ________ good.

A) f alsely advertising; credence C) g reenwashing; credence

B) g reenwashing; experience D) f alsely advertising; experience

74) B est Grapes is a new winery that wants to attract new customers. The managers of Best Grapes advertise the following, "Best Grapes: The Best Value Wine Money Can Buy." If Best Grapes wine is really of poor value, this is an example of ________ a(n) ________ good.

A) f alsely advertising; credence B) g reenwashing; experience C) g reenwashing; credence D) f alsely advertising; experience

74) ______

75) A seller cannot mislead purchasers of a(n) ________ good more than ________.

A) i nspection; twice B) i nspection; once C) e xperience; twice D) e xperience; once

75) ______

76) T he potential for profit-increasing false advertising is greatest for which of the following goods?

A) a refrigerator B) s pray window cleaner C) l aundry detergent D) d isposable diapers

76) ______

77) T he potential for profit-increasing false advertising is greatest for which of the following goods?

A) h air shampoo B) s pot carpet cleaner C) t oothpaste D) a washing machine

77) ______

78) T he potential for profit-increasing false advertising is greatest for which of the following goods?

A) a home water heater B) p aper towels C) t oilet paper D) d eodorant

78) ______

79) A ll else equal, the ________ the pool of buyers who can be fooled once by false advertising, the ________ profitable it is to falsely advertise.

B) g reater; least A) l arger; more C) l arger; less D) s maller; more

79) ______

80) A ll else equal, false advertising is more prevalent in all of the following types of communities except which one?

A) a college campus B) a tourist destination C) a resort town D) a small town with few visitors

80) ______

81) W hich of the following advertising statements could be considered greenwashing?

A) " Only high quality products are used to make our guacamole."

B) " Our product is 100 percent biodegradable."

C) " Our employees love to make pizza for you!"

D) " Try our pizza; it is the best pizza you will ever taste."

81) ______

82) W hich of the following advertising statements could be considered greenwashing?

A) " Made of only recycled materials" B) " Our lasagna is made with love."

D) " Guaranteed to make you want to C) " 100 percent money back guarantee" dance!"

82) ______

83) _ _______ goods are most often greenwashed.

A) E xperience B) I nspection

83) ______ C) C redence

D) F ood products

84) A ll of the following are true regarding the Federal Trade Commission's (FTC) Bureau of Consumer Protection except which one?

A) I t cannot bring a civil case against a firm's managers for false advertising.

B) I t generally tries to convince companies to cease or alter false advertising.

C) I t relies on consumers and competitors to report false advertising.

D) I t is a federal agency.

84) ______

85) O nce the Federal Trade Commission's (FTC) Bureau of Consumer Protection investigators have decided that a company's advertising is illegal, it can do all of the following except which one?

A) a ttempt to convince the company to cease its advertising B) p revent the company from selling its product C) i ssue a cease-and-desist order D) a ttempt to convince the company to change its advertising

85) ______

86) A ll of the following are true regarding the Lanham Act except which one?

A) I t prohibits trademark infringement.

B) I t was passed in 1946.

C) I t does not allow a competitor to sue for marketplace damages.

D) C ivil suits can be filed under the Lanham Act.

86) ______

87) _ _______ can force a competitor to stop false advertising.

A) T he Lanham Act, but not the Federal Trade Commission's (FTC) B) N either the Federal Trade Commission's (FTC) nor the Lanham Act C) B oth the Federal Trade Commission's (FTC) and the Lanham Act D) T he Federal Trade Commission's (FTC), but not the Lanham Act

87) ______

88) I f you believe your competitor is falsely advertising its product, you can sue your competitor for marketplace damages under the ________.

A) L anham Act B) C redence Good Act C) G reenwashing Act D) F ederal Trade Commission's (FTC) Act

88) ______

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

89) G enerally, the goal of false advertising is to increase a firm's sales and profit.

89) ______

90) A dvertising can easily misinform buyers about the characteristics of an inspection good.

90) ______

91) U nlike experience goods, the potential to lose repeat sales is not necessarily a deterrent to false advertising a credence good.

91) ______

92) T he impact of truthful advertising on a firm's demand is most relative to firms selling inspection goods rather than credence goods.

92) ______

93) F alse advertising is more profitable and more prevalent in communities with a large number of transient consumers.

93) ______