Question 1 Clothing is A. A private good: non-excludable and non-rival B. A comm

Question

Question 1

Clothing is

A. A private good: non-excludable and non-rival

B. A common resource: non-excludable and rival

C. A club good:  excludable and non-rival

D. A private good: excludable and rival

3 points

Question 2

In the absence of any form of protection of intellectual property rights (like a patent), the knowledge created by researchers is

A. A public good (non-excludable and non-rival)

B. A common resource (non-excludable and rival)

C. A club good (excludable and non-rival)

D. A private good (excludable and rival)

3 points

Question 3

We saw in class that the same good can fall in different categories (public/private/club/common resource) depending on circumstances. An example of such a good would be watching a movie at the theater. If a lot of people want to watch it, the movie is a _________. If very few people want to watch it (to the point where a room could not even be filled), the movie is likely to be a _______.

A. a common resource; a public good

B. a public good; a common resource

C. a private good; a club good

D. a club good; a private good

3 points

Question 4

Which of the following statements about the free-rider problem is not true?

A. Individuals have an incentive to free-ride when the good is not excludable.

B. The kinds of goods for which the free rider problem arises are common resources and public good.

C. Markets for goods for which there is a free-rider problem are inefficient because not enough of the good is produced.

D. Goods for which the free-rider problem exists tend to be over provided relative to what would be optimal.

4 points

Question 5

To achieve the efficient provision of public goods, the

A. market should be allowed to operate without government intervention.

B. government must limit the provision of those goods.

C. government must tax producers of those goods.

D. government must either provide those goods or subsidize their production.

3 points

Question 6

Which of the following statements about public goods is not true?

A. Because people cannot be excluded from their consumption and thus have no incentive to pay for them, public goods are underprovided by the market.

B. Efficiency requires that the government provide or fund (subsidize) the provision of all public goods.

C. Efficiency requires that the government provide or fund only the public goods that create more benefits than costs to society.

D. In reality, it is hard to provide public goods efficiently.

3 points

Question 7

Public goods must be provided by the government as the market on its own will fail to provide them. However, even with government provision it is very hard to achieve efficiency. Why?

A. In reality, it is very hard (if not impossible) to accurately estimate the benefits of providing a public good.

B. A. In reality, there can be overruns in the cost of providing the public good.

C. Government decisions about which public goods to provide can be influenced by lobbying by interest groups.

D. All of the above are true.

4 points

Question 8

Which of the following is not a common resource?

A. congested roads

B. clean water

C. wild life, which hunters want to hunt and others want to view.

D. a fireworks display.

3 points

Question 9

Many species of animals must be protected by law to keep them from extinction. Why are cows not one of these endangered species even though there is such a high demand for beef?

A. Cows reproduce at a high rate and have adapted well to their environment.

B. Public policies protect cows from predators and diseases.

C. Cows are privately owned (private goods), whereas many endangered species are owned by no one (common resources).

D.There is a natural ecological balance between the birth rate of cows and human consumption.

3 points

Question 10

Which of the following statements about common resources is not true?

A. Due to the free-rider problem, common resources tend to be overused.

B. Because there is rivalry in the consumption of common resources, whenever one person uses a common resource it is imposing a negative externality on others who might also want to use it.

C. There are no private solutions to the management of common resources.

D. One of the solutions that ensures that common resources are properly managed is their privatization.

3 points

Question 11

In our analysis of the firm’s behavior and goals, when we talk about cost, we include _________, and when we talk about profit, we mean ________.

A. Explicit costs only; economic profit

B. Implicit costs only; economic profit

C. Implicit costs only; accounting profit

D. Explicit + implicit costs; economic profit

E. Explicit + implicit costs; accounting profit

3 points

Question 12

One of the differences between explicit and implicit costs is that

A. explicit costs must be greater than implicit costs.

B. explicit costs do not require a direct monetary outlay, whereas implicit costs do.

C. implicit costs do not require a direct monetary outlay, whereas explicit costs do.

D. implicit costs must be greater than explicit costs.

3 points

Question 13

Which of the following is FALSE:

A. If accounting profit is zero, then economic profit is negative

B. Economic profit takes cost the opportunity cost of time and capital into account

C. Economic Profit = Accounting Profit + Implicit Cost

D. Economic Profit = Accounting Profit – Implicit Cost

3 points

Question 14

Which of the following is an example of an implicit cost?

(i)         the owner of a firm forgoing an opportunity to earn a large salary working in Wall Street

(ii)        interest paid on the firm's debt

(iii)       rent paid by the firm to lease office space

A. (ii) and (iii) only

B. (i) and (iii) only

C. (i) only

D. (iii) only

3 points

Question 15

John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. John’s annual explicit cost of capital is ______, while his implicit cost of capital is _____.

A. $140; $30

B. $30; $140

C. $170; $0

D. $0; $170

3 points

Question 16

Jacqui decided to open her own business. In the first year, she got $50,000 in accounting profit from the business. Before she decided to open the business, she turned down job offers from three similar firms with annual salaries of $30,000, $40,000, and $45,000. What was Jacqui's economic profit in her first year of operation?

A. $5,000

B. $50,000

C. -$65,000

D. -$45,000

3 points

Question 17

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane’s accounting profit from her first year in her own practice is

A. -$39,000.

B. $124,000.

C. $163,000.

D. $184,000.

3 points

Question 18

Again consider Jane from the previous question. Her economic profit in the first year is

A. -$39,000.

B. $124,000.

C. $163,000.

D. $184,000.

3 points

Question 19

Marginal revenue is defined as the increase in revenue that a firm obtains by selling one more unit of the good. Marginal cost is the increase in cost caused by making that extra unit. For a firm to maximize profits, the quantity that it should produce is the quantity for which:

A. The marginal revenue is equal to marginal cost.

B. The difference between marginal revenue and marginal cost is maximized.

C. The marginal revenue is maximized.

D. The marginal cost is minimized.

3 points

Question 20

In the short run, a firm incurs fixed costs

A. only if it also incurs variable costs.

B. only if it produces no output.

C. only if it produces a positive quantity of output.

D. whether it produces output or not.

3 points

Question 21

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

A. the payment that the firm makes each year for accounting services

B. the cost of the steel that is used in producing automobiles

C. the rent that the firm pays for office space in a suburb of St. Louis

D. All of the above are correct.

3 points

Question 22

Consider the table and fill in the blanks.

Output

Total Cost

  0

  $40

10

  $60

20

  $90

30

$130

40

$180

50

$240

The firm's fixed cost is $Blank 1. When the firm produces 20 units, its average total cost is $ Blank 2 , its average variable cost is$Blank 3 , and its average fixed cost is $ Blank 4 . The marginal cost as the firm increases production from 30 to 40 is $ Blank 5 .

5 points

Question 23

Tom’s Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 when it produces 10,000 tents. At that level of output, the firm's average total costs equal

a. $80

b. $90

c. $100

d. $110

3 points

Question 24

On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following must be true if the farmer faces diminishing marginal product of labor?

A. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.

B. The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers.

C. The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.

D. Any of the above could be correct.

3 points

Question 25

Marginal cost might be decreasing for small firms (those producing small quantities) because

A.Increasing the size of a small firm allows workers to specialize.

B. Marginal cost is the same as average fixed cost per unit sold, and a larger size means more units over which to spread the fixed cost.

C. Small firms are more efficient.

D. Marginal cost can never decrease.

3 points

Question 26

As the quantity produced by a firm increases, marginal cost eventually starts increasing because

A. of diminishing, or decreasing, marginal product of labor.

B. in the short run, the firm cannot add workers.

C. each additional unit is cheaper to produce.

D. marginal cost can never increase.

3 points

Question 27

Diminishing, or decreasing, marginal product of labor is more likely to appear when the firm is _______. The cause for diminishing marginal product of labor is that ________.

A. Small; as more workers are hired, the crowding out of labor due to fixed land/capital has a larger impact that the gains from specialization.

B. Small; as more workers are hired the crowding out of labor due to fixed land/capital has a smaller impact that the gains from specialization.

C. Large; as more workers are hired, the crowding out of labor due to fixed land/capital has a larger impact that the gains from specialization.

D. Large; as more workers are hired, the crowding out of labor due to fixed land/capital has a smaller impact that the gains from specialization.

4 points

Question 28

When marginal cost exceeds average total cost,

A. average fixed cost must be rising.

B. average total cost must be rising.

C. average total cost must be falling.

D. marginal cost must be falling.

3 points

Question 29

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

A. economies of scale.

B. constant returns to scale.

C. diseconomies of scale.

D. negative profits.

4 points

Question 30

Consider the figure below.

The three average total cost curves on the diagram labeled ATC1, ATC2, and ATC3 most likely correspond to three different

A. time horizons.

B. products.

C. firms.

D. factory sizes.

3 points

Question 31

Consider the figure with the ATC curves previously presented. The firm experiences economies of scale if it changes its level of output from

A. Q1 to Q2.

B. Q2 to Q3.

C. Q3 to Q4.

D. Q4 to Q5.

2 points

Question 32

Consider the figure with the ATC curves previously presented. The firm experiences diseconomies of scale if it changes its level of output from

A. Q1 to Q2.

B. Q2 to Q3.

C. Q3 to Q4.

D. Q4 to Q5.

Explanation / Answer

Question 1 D. A private good: excludable and rival

Question 2 B. A common resource (non-excludable and rival)

Question 3 C. a private good; a club good

Question 4 D. Goods for which the free-rider problem exists tend to be over provided relative to what would be optimal.

Question 5 D. government must either provide those goods or subsidize their production.

Question 6 C. Efficiency requires that the government provide or fund only the public goods that create more benefits than costs to society.

Question 7 A. In reality, it is very hard (if not impossible) to accurately estimate the benefits of providing a public good.

Question 8 D. a fireworks display.

Question 9 C. Cows are privately owned (private goods), whereas many endangered species are owned by no one (common resources).

Question 10 C. There are no private solutions to the management of common resources.

Question 11 D. Explicit + implicit costs; economic profit

Question 12 C. implicit costs do not require a direct monetary outlay, whereas explicit costs do.

Question 13 C. Economic Profit = Accounting Profit + Implicit Cost

Question 14 C. (i) only

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