Question 1

Suppose you are planning to open your own salon. Which statement is TRUE?

Accepted Answer

A) Workers are a variable cost. 
B) The building housing the salon is a variable cost in the short run. 
C) Shampoo and other hair care products are a fixed cost in the short run. 
D) Validation of parking is a fixed cost in the long run. 
A) Workers are a variable cost. 
B) The building housing the salon is a variable cost in the short run. 
C) Shampoo and other hair care products are a fixed cost in the short run. 
D) Validation of parking is a fixed cost in the long run. A

Question 2

Portia is graduating from dental school and has a job offer with a salary of $140,000 from a chain of dental clinics. However, she wants to set up her own dental practice instead. To do this, she would need to invest her own funds in new equipment that would cost $80,000-funds that have been earning her a return of 10% per year. Portia estimates that her practice would have revenue of $470,000 per year and annual explicit financial costs of $330,000. What would Portia's economic profit or loss be if she sets up her own practice?

Accepted Answer

A) a loss of $80,000 
B) a loss of $8,000 
C) a profit of $132,000 
D) a profit of $322,000 
A) a loss of $80,000 
B) a loss of $8,000 
C) a profit of $132,000 
D) a profit of $322,000 B

Question 3

You decide to quit your $70,000-per-year job as a hotel concierge to be an online hotel review blogger. At the end of the first year of blogging, you have earned $90,000. You also spent $10,000 for a high-end computer and wireless network. Your economic profit in the first year as an illustrator is:

Accepted Answer

A) $80,000. 
B) $90,000. 
C) $20,000. 
D) $10,000. 
A) $80,000. 
B) $90,000. 
C) $20,000. 
D) $10,000. D

Question 4

What attracts new sellers into a market?

Accepted Answer

A) A large number of sellers already in the market. 
B) A market that has not changed in several years. 
C) Fewer sellers in the market than a year previously. 
D) Existing sellers in the market earning economic profits. 
A) A large number of sellers already in the market. 
B) A market that has not changed in several years. 
C) Fewer sellers in the market than a year previously. 
D) Existing sellers in the market earning economic profits.

Question 5

How can a company's research and development expenditures create a barrier to entry into its market?

Accepted Answer

A) It increases switching costs, which means companies cannot change production techniques. 
B) It generates larger network effects for the product. 
C) It prevents learning by doing, which keeps consumers from learning about new options. 
D) It can result in new production technologies that reduce the cost of production. 
A) It increases switching costs, which means companies cannot change production techniques. 
B) It generates larger network effects for the product. 
C) It prevents learning by doing, which keeps consumers from learning about new options. 
D) It can result in new production technologies that reduce the cost of production.

Question 6

Which of the following is an example of a strategy that an entrepreneur might use to overcome barriers to entry to an established product market?

Accepted Answer

A) Duplicate the product of the most successful seller in the market. 
B) Push for strict licensing requirements for all sellers in the market. 
C) Maintain minimal cash reserves to keep costs low. 
D) Differentiate the product in ways that make it attractive to the goals of government regulators. 
A) Duplicate the product of the most successful seller in the market. 
B) Push for strict licensing requirements for all sellers in the market. 
C) Maintain minimal cash reserves to keep costs low. 
D) Differentiate the product in ways that make it attractive to the goals of government regulators.

Question 7

Suppose that the market for cab rides is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for cab rides. In the long run, cab drivers will _____ the market, driving the price of cab rides _____ and the profits of individual drivers _____.

Accepted Answer

A) enter; up; back to zero 
B) enter; down; back to zero 
C) leave; up; up 
D) leave; up; back to zero 
A) enter; up; back to zero 
B) enter; down; back to zero 
C) leave; up; up 
D) leave; up; back to zero

Question 8

The Rational Rule for Entry says that a seller should enter a market when:

Accepted Answer

A) price exceeds average cost. 
B) the number of sellers in the market is falling. 
C) marginal revenue is below average cost. 
D) average cost exceeds average revenue. 
A) price exceeds average cost. 
B) the number of sellers in the market is falling. 
C) marginal revenue is below average cost. 
D) average cost exceeds average revenue.

Question 9

Entry by firms into an industry is shown by:

Accepted Answer

A) a shift to the right of each individual firm's demand curve. 
B) a shift to the left of each individual firm's demand curve. 
C) an upward shift of each individual firm's ATC curve. 
D) a shift to the left of each individual firm's supply curve. 
A) a shift to the right of each individual firm's demand curve. 
B) a shift to the left of each individual firm's demand curve. 
C) an upward shift of each individual firm's ATC curve. 
D) a shift to the left of each individual firm's supply curve.

Question 10

(Figure: Average Cost Curve) Which curve below has the most common shape of an average cost curve?

Accepted Answer

A) Curve A 
B) Curve B 
C) Curve C 
D) Curve D 
A) Curve A 
B) Curve B 
C) Curve C 
D) Curve D

Question 11

The strong incentive of sellers to deter the entry of new sellers is a major reason that:

Accepted Answer

A) average costs are higher than necessary in the long run. 
B) product differentiation is rare. 
C) deterrence strategies are rarely used. 
D) most markets are imperfectly competitive. 
A) average costs are higher than necessary in the long run. 
B) product differentiation is rare. 
C) deterrence strategies are rarely used. 
D) most markets are imperfectly competitive.

Question 12

When one company produces several different versions of a product, the company is using _____ to _____.

Accepted Answer

A) brand proliferation; discourage new companies from entering the market 
B) product differentiation; increase freedom of entry 
C) product switching; confuse potential new entrants 
D) demand satisfaction; make the market more competitive 
A) brand proliferation; discourage new companies from entering the market 
B) product differentiation; increase freedom of entry 
C) product switching; confuse potential new entrants 
D) demand satisfaction; make the market more competitive

Question 13

Almira is a chocolatier with a small chocolate shop. There are three other chocolatiers in her city. Almira should be concerned that new companies will enter her city's chocolate market and take away some of her customers if the average chocolatier in her city:

Accepted Answer

A) has average revenue that is below average cost. 
B) has marginal revenue that is below price. 
C) is facing rising costs. 
D) is earning economic profits. 
A) has average revenue that is below average cost. 
B) has marginal revenue that is below price. 
C) is facing rising costs. 
D) is earning economic profits.

Question 14

Armand's accountant tells him that he made a profit of $21,300 running a pottery studio in Boston. Armand's wife, an economist, claims Armand lost $21,300 running his pottery studio. This means his wife is claiming that he incurred _____ in _____ costs.

Accepted Answer

A) $42,600; implicit opportunity 
B) $21,300; implicit opportunity 
C) $21,300; explicit financial 
D) $42,600; explicit financial 
A) $42,600; implicit opportunity 
B) $21,300; implicit opportunity 
C) $21,300; explicit financial 
D) $42,600; explicit financial

Question 15

The cost advantages of established, large-scale producers in a market might be overcome by a new entrant who can:

Accepted Answer

A) increase market demand. 
B) push the market price down. 
C) convince the government to stop issuing new patents. 
D) develop a new, low-cost, small-scale production technology. 
A) increase market demand. 
B) push the market price down. 
C) convince the government to stop issuing new patents. 
D) develop a new, low-cost, small-scale production technology.

Question 16

When there is free entry and exit in a market, in the long run, price will:

Accepted Answer

A) keep rising. 
B) keep falling. 
C) never change. 
D) equal average cost. 
A) keep rising. 
B) keep falling. 
C) never change. 
D) equal average cost.

Question 17

(Scenario: Jillian's Cupcake Shop) Use Scenario: Jillian's Cupcake Shop.
Scenario: Jillian's Cupcake Shop
Jillian runs a cupcake shop where she sells cupcakes for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Jillian $100,000 to come to work for them. She also knows she could sell her cupcake shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. Given the information provided, Jillian's implicit opportunity costs are:

Accepted Answer

A) her salary if she worked elsewhere and interest that she forgoes by not selling her shop and putting the money in the bank. 
B) the cost of labor, equipment, and raw materials. 
C) the revenue she receives from selling cupcakes plus the cost of labor, equipment, and raw materials. 
D) revenue she receives from selling her cupcakes and her labor costs. 
A) her salary if she worked elsewhere and interest that she forgoes by not selling her shop and putting the money in the bank. 
B) the cost of labor, equipment, and raw materials. 
C) the revenue she receives from selling cupcakes plus the cost of labor, equipment, and raw materials. 
D) revenue she receives from selling her cupcakes and her labor costs.

Question 18

If price is greater than average cost at the profit-maximizing quantity in the short run, a firm will:

Accepted Answer

A) continue to produce at a loss. 
B) produce at a profit. 
C) shut down production. 
D) reduce its fixed costs. 
A) continue to produce at a loss. 
B) produce at a profit. 
C) shut down production. 
D) reduce its fixed costs.

Question 19

What is the difference between brand proliferation and product differentiation?

Accepted Answer

The answer of What is the difference between brand proliferation...

Question 20

(Scenario: Jillian's Cupcake Shop) Use Scenario: Jillian's Cupcake Shop.
Scenario: Jillian's Cupcake Shop
Jillian runs a cupcake shop where she sells cupcakes for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Jillian $100,000 to come to work for them. She also knows she could sell her cupcake shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. Given the information provided, Jillian's should stop selling cookies if her:

Accepted Answer

A) economic profit is positive. 
B) explicit financial and implicit opportunity costs are less than her revenues. 
C) implicit opportunity costs are greater than her accounting profits. 
D) economic profit is equal to her accounting profit. 
A) economic profit is positive. 
B) explicit financial and implicit opportunity costs are less than her revenues. 
C) implicit opportunity costs are greater than her accounting profits. 
D) economic profit is equal to her accounting profit.

Exam 15: Entry, Exit, and Long-Run Profitability

Suppose you are planning to open your own salon. Which statement is TRUE?

What attracts new sellers into a market?

How can a company's research and development expenditures create a barrier to entry into its market?

Which of the following is an example of a strategy that an entrepreneur might use to overcome barriers to entry to an established product market?

Suppose that the market for cab rides is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for cab rides. In the long run, cab drivers will _____ the market, driving the price of cab rides _____ and the profits of individual drivers _____.

The Rational Rule for Entry says that a seller should enter a market when:

Entry by firms into an industry is shown by:

(Figure: Average Cost Curve) Which curve below has the most common shape of an average cost curve?

The strong incentive of sellers to deter the entry of new sellers is a major reason that:

When one company produces several different versions of a product, the company is using _____ to _____.

Almira is a chocolatier with a small chocolate shop. There are three other chocolatiers in her city. Almira should be concerned that new companies will enter her city's chocolate market and take away some of her customers if the average chocolatier in her city:

Armand's accountant tells him that he made a profit of $21,300 running a pottery studio in Boston. Armand's wife, an economist, claims Armand lost $21,300 running his pottery studio. This means his wife is claiming that he incurred _____ in _____ costs.

The cost advantages of established, large-scale producers in a market might be overcome by a new entrant who can:

When there is free entry and exit in a market, in the long run, price will:

If price is greater than average cost at the profit-maximizing quantity in the short run, a firm will:

What is the difference between brand proliferation and product differentiation?

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

Suppose that the market for cab rides is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for cab rides. In the long run, cab drivers will ___ the market, driving the price of cab rides _ and the profits of individual drivers ___.

When one company produces several different versions of a product, the company is using _ to _.

Armand's accountant tells him that he made a profit of $21,300 running a pottery studio in Boston. Armand's wife, an economist, claims Armand lost $21,300 running his pottery studio. This means his wife is claiming that he incurred _ in _ costs.