Question 1

The less accurate consumer information is about product quality,

Accepted Answer

A)  the greater will be the loss of social surplus due to productive inefficiency. 
B)  the smaller will be the loss of social surplus due to productive inefficiency. 
C)  the greater will be the loss of social surplus due to allocative inefficiency. 
D)  the smaller will be the loss of social surplus due to allocative inefficiency. 
A)  the greater will be the loss of social surplus due to productive inefficiency. 
B)  the smaller will be the loss of social surplus due to productive inefficiency. 
C)  the greater will be the loss of social surplus due to allocative inefficiency. 
D)  the smaller will be the loss of social surplus due to allocative inefficiency. C

Question 2

For Questions   refer to the following information:
A municipal water utility employs quasi-fixed capital inputs-are the water treatment plant and distribution lines to homes-to supply water to 20,000 households in the community it serves. The figure below shows the cost structure of this utility for various levels of water service. Quantity of water consumption is measured in 1,000-gallon units per month. AQFC is the average quasi-fixed cost curve, and LAC is long-run average cost. Long-run marginal cost, LMC, is constant and equal to $4 per 1,000-gallon unit. The inverse demand equation is $$P = 24 - 0.0004 Q _ { d }$$ .  
-If the Public Service Commission undertakes second-best pricing, the price and output of water are __________ and _________, respectively.

Accepted Answer

A)  $2.00; 55,000 
B)  $9.00; 50,000 
C)  $2.50; 27,500 
D)  $9.50; 55,000 
E)  none of the above 
A)  $2.00; 55,000 
B)  $9.00; 50,000 
C)  $2.50; 27,500 
D)  $9.50; 55,000 
E)  none of the above E

Question 3

Firms with market power

Accepted Answer

A)  face downward sloping average cost curves. 
B)  face downward sloping marginal cost curves. 
C)  will produce where P = MR=MC. 
D)  will maximize profit but fail to maximize social surplus. 
A)  face downward sloping average cost curves. 
B)  face downward sloping marginal cost curves. 
C)  will produce where P = MR=MC. 
D)  will maximize profit but fail to maximize social surplus. D

Question 4

Private provision of public goods fails to achieve economic efficiency because

Accepted Answer

A)  the free rider problem causes overproduction of the good. 
B)  the free rider problem prevents collection of sufficient revenue. 
C)  the price of the privately supplied public good must exceed zero. 
D)  both a and c 
E)  both b and c 
A)  the free rider problem causes overproduction of the good. 
B)  the free rider problem prevents collection of sufficient revenue. 
C)  the price of the privately supplied public good must exceed zero. 
D)  both a and c 
E)  both b and c

Question 5

For Questions   refer to the following information:
A municipal water utility employs quasi-fixed capital inputs-are the water treatment plant and distribution lines to homes-to supply water to 20,000 households in the community it serves. The figure below shows the cost structure of this utility for various levels of water service. Quantity of water consumption is measured in 1,000-gallon units per month. AQFC is the average quasi-fixed cost curve, and LAC is long-run average cost. Long-run marginal cost, LMC, is constant and equal to $4 per 1,000-gallon unit. The inverse demand equation is $$P = 24 - 0.0004 Q _ { d }$$ .  
-The value in blank d in the figure is ____.

Accepted Answer

A)  6.50 
B)  7.50 
C)  8.00 
D)  9.50 
E)  none of the above 
A)  6.50 
B)  7.50 
C)  8.00 
D)  9.50 
E)  none of the above

Question 6

Social economic efficiency means that the market is achieving

Accepted Answer

A)  productive efficiency. 
B)  allocative efficiency. 
C)  maximum possible consumer surplus. 
D)  both a or b 
E)  all of the above 
A)  productive efficiency. 
B)  allocative efficiency. 
C)  maximum possible consumer surplus. 
D)  both a or b 
E)  all of the above

Question 7

The figure below shows the marginal damage and marginal abatement cost curves for sulfur dioxide emissions in North Zulch. EPA officials have imposed an emissions tax of $100 per ton of sulfur dioxide.  
-With the $100 per ton emission tax enforced in North Zulch, residents of North Zulch incur total damages from sulfur dioxide emissions of $____________.

Accepted Answer

A)  $2,000 
B)  $2,500 
C)  $3,000 
D)  $5,500 
E)  $6,000 
A)  $2,000 
B)  $2,500 
C)  $3,000 
D)  $5,500 
E)  $6,000

Question 8

The figure below shows the result of a price fixing scheme that raised price above competitive levels at point C to a price of $15 at point M. Answer Questions   using this figure  
-When antitrust enforcement agents break up this price-fixing cartel, consumers will gain $__________ of consumer surplus.

Accepted Answer

A)  $5,000 
B)  $15,000 
C)  $20,000 
D)  $31,250 
A)  $5,000 
B)  $15,000 
C)  $20,000 
D)  $31,250

Question 9

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions  .  
-If the entry barrier is removed consumers will be better off because

Accepted Answer

A)  consumers will enjoy greater consumer surplus. 
B)  productive efficiency will be restored. 
C)  competition will eliminate the shortage caused by the entry barrier. 
D)  all of the above 
A)  consumers will enjoy greater consumer surplus. 
B)  productive efficiency will be restored. 
C)  competition will eliminate the shortage caused by the entry barrier. 
D)  all of the above

Question 10

When we say that market prices allocate goods to the highest-valued users, we mean that

Accepted Answer

A)  Only consumers with higher incomes will get any of the good, while lower income consumers get none of the good. 
B)  Only consumers who value the good more than the market price of the good will choose to buy the good. 
C)  Government allocation of the good is warranted because government can make sure that the good gets consumed by deserving individuals. 
D)  Consumer surplus is maximized. 
E)  both a and d 
A)  Only consumers with higher incomes will get any of the good, while lower income consumers get none of the good. 
B)  Only consumers who value the good more than the market price of the good will choose to buy the good. 
C)  Government allocation of the good is warranted because government can make sure that the good gets consumed by deserving individuals. 
D)  Consumer surplus is maximized. 
E)  both a and d

Question 11

The figure below shows the result of a price fixing scheme that raised price above competitive levels at point C to a price of $15 at point M. Answer Questions   using this figure  
-When antitrust enforcement agents break up this price-fixing cartel, producers will lose $__________ of producer surplus.

Accepted Answer

A)  $5,000 
B)  $15,000 
C)  $20,000 
D)  $31,250 
A)  $5,000 
B)  $15,000 
C)  $20,000 
D)  $31,250

Question 12

For Questions   refer to the following information:
A municipal water utility employs quasi-fixed capital inputs-are the water treatment plant and distribution lines to homes-to supply water to 20,000 households in the community it serves. The figure below shows the cost structure of this utility for various levels of water service. Quantity of water consumption is measured in 1,000-gallon units per month. AQFC is the average quasi-fixed cost curve, and LAC is long-run average cost. Long-run marginal cost, LMC, is constant and equal to $4 per 1,000-gallon unit. The inverse demand equation is $$P = 24 - 0.0004 Q _ { d }$$ .  
-The value in blank c in the figure is ____.

Accepted Answer

A)  $4.65 
B)  $4.75 
C)  $4.80 
D)  $5.50 
E)  none of the above 
A)  $4.65 
B)  $4.75 
C)  $4.80 
D)  $5.50 
E)  none of the above

Question 13

An underallocation of resources occurs when

Accepted Answer

A)  marginal private benefit exceeds marginal social benefit. 
B)  a negative externality in production exists. 
C)  a positive externality in consumption exists. 
D)  All of these will lead to underallocation of resources. 
A)  marginal private benefit exceeds marginal social benefit. 
B)  a negative externality in production exists. 
C)  a positive externality in consumption exists. 
D)  All of these will lead to underallocation of resources.

Question 14

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions  .  
-The firm will earn economic profit of $______.

Accepted Answer

A)  $500,000 
B)  $750,000 
C)  $1,000,000 
D)  $1,250,000 
A)  $500,000 
B)  $750,000 
C)  $1,000,000 
D)  $1,250,000

Question 15

When a competitively produced product is subject to negative externalities in production, the industry will

Accepted Answer

A)  overproduce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium. 
B)  overproduce the good because marginal private cost is less than marginal private benefit in competitive equilibrium. 
C)  underproduce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium. 
D)  underproduce the good because marginal private social cost is less than marginal private benefit in competitive equilibrium in competitive equilibrium. 
A)  overproduce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium. 
B)  overproduce the good because marginal private cost is less than marginal private benefit in competitive equilibrium. 
C)  underproduce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium. 
D)  underproduce the good because marginal private social cost is less than marginal private benefit in competitive equilibrium in competitive equilibrium.

Question 16

For Questions   refer to the following information:
A municipal water utility employs quasi-fixed capital inputs-are the water treatment plant and distribution lines to homes-to supply water to 20,000 households in the community it serves. The figure below shows the cost structure of this utility for various levels of water service. Quantity of water consumption is measured in 1,000-gallon units per month. AQFC is the average quasi-fixed cost curve, and LAC is long-run average cost. Long-run marginal cost, LMC, is constant and equal to $4 per 1,000-gallon unit. The inverse demand equation is $$P = 24 - 0.0004 Q _ { d }$$ .  
-If the Public Service Commission implements an optimal two-part pricing plan, the usage fee is set at $_____ per 1,000-gallon units per month and the fixed monthly access charge must then be $_____ per household.

Accepted Answer

A)  $4.00; $12.00 
B)  $4.00; $12.50 
C)  $5.00; $12.00 
D)  $5.00; $12.50 
A)  $4.00; $12.00 
B)  $4.00; $12.50 
C)  $5.00; $12.00 
D)  $5.00; $12.50

Question 17

The cost and demand conditions for residential water consumption are shown below. If there are 450,000 residential water customers, then develop an optimal two-part pricing scheme and answer Questions .
  
-At the optimal user fee in the previous question, the water utility company will lose _______ per month.

Accepted Answer

A)  $0 
B)  $1,440,000 
C)  $1,680,000 
D)  $2,400,000 
E)  $3,242,500 
A)  $0 
B)  $1,440,000 
C)  $1,680,000 
D)  $2,400,000 
E)  $3,242,500

Question 18

In long-run perfectly competitive equilibrium, economic efficiency is achieved because

Accepted Answer

A)  price equals long-run marginal cost for every firm in the industry. 
B)  price equals average fixed cost for every firm in the industry. 
C)  price equals minimum long-run average cost for every firm in the industry. 
D)  both a and c 
A)  price equals long-run marginal cost for every firm in the industry. 
B)  price equals average fixed cost for every firm in the industry. 
C)  price equals minimum long-run average cost for every firm in the industry. 
D)  both a and c

Question 19

When there is negative externality in production,

Accepted Answer

A)  Marginal social benefit exceeds marginal private benefit. 
B)  Marginal private benefit exceeds marginal social benefit. 
C)  Marginal social cost exceeds marginal private cost. 
D)  Marginal private cost exceeds marginal social cost. 
A)  Marginal social benefit exceeds marginal private benefit. 
B)  Marginal private benefit exceeds marginal social benefit. 
C)  Marginal social cost exceeds marginal private cost. 
D)  Marginal private cost exceeds marginal social cost.

Question 20

The figure below shows the marginal damage and marginal abatement cost curves for sulfur dioxide emissions in North Zulch. EPA officials have imposed an emissions tax of $100 per ton of sulfur dioxide.  
-With the $100 per ton emission tax enforced in North Zulch, firms will pay total abatement costs of $____________.

Accepted Answer

A)  $2,000 
B)  $2,500 
C)  $3,000 
D)  $5,500 
E)  $6,000 
A)  $2,000 
B)  $2,500 
C)  $3,000 
D)  $5,500 
E)  $6,000

The less accurate consumer information is about product quality,

Firms with market power

Private provision of public goods fails to achieve economic efficiency because

Social economic efficiency means that the market is achieving

The figure below shows the result of a price fixing scheme that raised price above competitive levels at point C to a price of $15 at point M. Answer Questions using this figure -When antitrust enforcement agents break up this price-fixing cartel, consumers will gain $__________ of consumer surplus.

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions . -If the entry barrier is removed consumers will be better off because

When we say that market prices allocate goods to the highest-valued users, we mean that

The figure below shows the result of a price fixing scheme that raised price above competitive levels at point C to a price of $15 at point M. Answer Questions using this figure -When antitrust enforcement agents break up this price-fixing cartel, producers will lose $__________ of producer surplus.

An underallocation of resources occurs when

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions . -The firm will earn economic profit of $______.

When a competitively produced product is subject to negative externalities in production, the industry will

In long-run perfectly competitive equilibrium, economic efficiency is achieved because

When there is negative externality in production,

Managers, Profits, and Markets

Demand, Supply, and Market Equilibrium

Marginal Analysis for Optimal Decisions

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Strategic Decision Making in Oligopoly Markets

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Filters

Exam 16: Government Regulation of Business

The less accurate consumer information is about product quality,

Firms with market power

Private provision of public goods fails to achieve economic efficiency because

Social economic efficiency means that the market is achieving

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions . -If the entry barrier is removed consumers will be better off because

When we say that market prices allocate goods to the highest-valued users, we mean that

An underallocation of resources occurs when

Use the figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry, to answer Questions . -The firm will earn economic profit of $______.

When a competitively produced product is subject to negative externalities in production, the industry will

In long-run perfectly competitive equilibrium, economic efficiency is achieved because

When there is negative externality in production,

Managers, Profits, and Markets

Demand, Supply, and Market Equilibrium

Marginal Analysis for Optimal Decisions

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Strategic Decision Making in Oligopoly Markets

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Filters