Question 1

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 D

Question 2

overallocation of resources in an industry means that for the last unit produced,

Accepted Answer

A) economic profit is negative but rising. 
B) society places a higher value on the resources required to produce the last unit than the value society places on consuming the last unit. 
C) the demand price for the last unit exceeds the marginal cost of producing the last unit. 
D) the marginal cost of production is falling. 
E) the average cost is falling. 
A) economic profit is negative but rising. 
B) society places a higher value on the resources required to produce the last unit than the value society places on consuming the last unit. 
C) the demand price for the last unit exceeds the marginal cost of producing the last unit. 
D) the marginal cost of production is falling. 
E) the average cost is falling. B

Question 3

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 B

Question 4

Natural monopoly arises when

Accepted Answer

A) there is only one firm in the area. 
B) there are high barriers to entry. 
C) costs are subadditive. 
D) it is more cost efficient to have multiple firms. 
E) none of the above 
A) there is only one firm in the area. 
B) there are high barriers to entry. 
C) costs are subadditive. 
D) it is more cost efficient to have multiple firms. 
E) none of the above

Question 5

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 in order to be allocatively efficient. 
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 in order to be allocatively efficient. 
D) both a and c 
E) both b and c

Question 6

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 the question.   The optimal monthly access charge per household is _______ per residence per month).

Accepted Answer

A) $0.12 
B) $0.18 
C) $12 
D) $24 
E) $32 
A) $0.12 
B) $0.18 
C) $12 
D) $24 
E) $32

Question 7

The Golden Gate bridge is not a pure public good because

Accepted Answer

A) the bridge is not a non-depletable good. 
B) the bridge is non-depletable. 
C) the free rider problem could be solved by using tolls. 
D) the marginal cost of another car crossing the bridge is zero. 
A) the bridge is not a non-depletable good. 
B) the bridge is non-depletable. 
C) the free rider problem could be solved by using tolls. 
D) the marginal cost of another car crossing the bridge is zero.

Question 8

Common property resources lead to market failure because

Accepted Answer

A) poorly defined property rights result in too little of the resource being used by society. 
B) poorly defined property rights reduce production costs. 
C) poorly defined property rights create a deadweight loss. 
D) the resource is overexploited and undersupplied. 
A) poorly defined property rights result in too little of the resource being used by society. 
B) poorly defined property rights reduce production costs. 
C) poorly defined property rights create a deadweight loss. 
D) the resource is overexploited and undersupplied.

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 the question.   $_________ the deadweight loss is caused by the market power created by the high entry barrier

Accepted Answer

A) $625,000 
B) $1,000,000 
C) $1,500,000 
D) $2,000,000 
A) $625,000 
B) $1,000,000 
C) $1,500,000 
D) $2,000,000

Question 10

A municipal water utility employs quasi-fixed capital inputs-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   .   Regulators at the Public Service Commission are unlikely to choose the price in the previous question because

Accepted Answer

A) the water utility company will lose money at that price. 
B) the utility company will require a subsidy to continue operation in the long run. 
C) government failure is a common problem at Public Service Commissions. 
D) both a and b 
E) all of the above 
A) the water utility company will lose money at that price. 
B) the utility company will require a subsidy to continue operation in the long run. 
C) government failure is a common problem at Public Service Commissions. 
D) both a and b 
E) all of the above

Question 11

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 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 lead to underallocation of resources.

Question 12

Firms with market power

Accepted Answer

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

Question 13

A municipal water utility employs quasi-fixed capital inputs-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   .   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 14

A municipal water utility employs quasi-fixed capital inputs-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   .   Quasi-fixed capital inputs cost per month is $____.

Accepted Answer

A) 150,000 
B) 200,000 
C) 250,000 
D) 300,000 
E) 350,000 
A) 150,000 
B) 200,000 
C) 250,000 
D) 300,000 
E) 350,000

Question 15

A municipal water utility employs quasi-fixed capital inputs-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   .   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 16

Use the figure below,which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry,to answer the question.   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 17

A municipal water utility employs quasi-fixed capital inputs-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   .   The value in blank b in the figure is ____.

Accepted Answer

A) 22,500 
B) 25,000 
C) 27,500 
D) 30,000 
E) none of the above 
A) 22,500 
B) 25,000 
C) 27,500 
D) 30,000 
E) none of the above

Question 18

less information consumers have 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.

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

Which of the following is NOT a characteristic of natural monopoly?

Accepted Answer

A) Two or more firms experiencing economies of scale can produce the industry output at lower total cost than if a single firm produces the industry output. 
B) One firm can produce the industry output at a lower total cost than two or more firms. 
C) One firm is the technically efficient way to organize production. 
D) Production of the industry output is characterized by cost subadditivity. 
A) Two or more firms experiencing economies of scale can produce the industry output at lower total cost than if a single firm produces the industry output. 
B) One firm can produce the industry output at a lower total cost than two or more firms. 
C) One firm is the technically efficient way to organize production. 
D) Production of the industry output is characterized by cost subadditivity.

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

overallocation of resources in an industry means that for the last unit produced,

Natural monopoly arises when

Private provision of public goods fails to achieve economic efficiency because

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 the question. The optimal monthly access charge per household is _______ per residence per month).

The Golden Gate bridge is not a pure public good because

Common property resources lead to market failure because

Use the figure below,which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry,to answer the question. $_________ the deadweight loss is caused by the market power created by the high entry barrier

An underallocation of resources occurs when

Firms with market power

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

less information consumers have about product quality,

When there is negative externality in production,

Which of the following is NOT a characteristic of natural monopoly?

Managers, profits, and Markets

Demand, supply, and Market Equilibrium

Marginal Analysis for Optimal Decision Making

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

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

overallocation of resources in an industry means that for the last unit produced,

Natural monopoly arises when

Private provision of public goods fails to achieve economic efficiency because

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 the question. The optimal monthly access charge per household is _______ per residence per month).

The Golden Gate bridge is not a pure public good because

Common property resources lead to market failure because

Use the figure below,which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry,to answer the question. $_________ the deadweight loss is caused by the market power created by the high entry barrier

An underallocation of resources occurs when

Firms with market power

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

less information consumers have about product quality,

When there is negative externality in production,

Which of the following is NOT a characteristic of natural monopoly?

Managers, profits, and Markets

Demand, supply, and Market Equilibrium

Marginal Analysis for Optimal Decision Making

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