1

ASSIGNMENT 6
1. (Figure: A Market with a Tax) Look at the figure A Market
with a Tax. The transfer of consumer surplus to the government
is equal to:
-F
-D
-C
-B

2. Figure and Table: The Market for Taxi Rides

(Figure and Table: The Market for Taxi Rides) Look at the
figure and table The Market for Taxi Rides. The figure
represents a competitive market for taxi rides. If the
government imposes an excise tax of $2 per ride (causing
the supply curve to shift upward by that amount), then the
government will collect tax revenues of ________, but there
will be a deadweight loss to society of ________ caused by
this tax.
- $16 million; $2 million
- $8 million; $1 million
- $24 million; $4.5 million
- $48 million; $6 million

3. Figure and Table: The Market for Taxi Rides

(Figure and Table: The Market for Taxi Rides)
Look at the figure and table The Market for Taxi
Rides. If the government imposes an excise
tax of $1 per ride (causing the supply curve to
shift upward by that amount), then people who
ride taxis will pay ________ of each $1 tax.
- $0.25
- $0.50
- $0.00
- $1

4. The burden of a tax that is imposed on a good is said to fall completely on the
consumers if the:
- price paid by consumers for the good increases by the amount of the tax.
- price paid by consumers does not change.
- price paid by consumers for the good declines by the amount of the tax.
- wages received by workers who produce the good increase by the amount of the tax.
 2

5. Tax incidence refers to:

- who really pays the tax.
- the total revenue that the government collects from the tax.
- who writes the cheque to the government.
- the deadweight loss from the tax.

6. The deadweight loss from an excise tax comes about because:

- the number of transactions in the market is reduced and some mutually beneficial
transactions do not take place.
- a quota rent exists.
- the number of transactions in the market is reduced.
- some mutually beneficial transactions do not take place.

7. The Premier of Manitoba wants to impose a $1 excise tax on some good—he doesn't
care which—but he does want to minimize the deadweight loss. The deadweight loss will be
least when:
- the demand is inelastic and supply is elastic.
- the demand is elastic and supply is inelastic.
- both demand and supply are inelastic.
- both demand and supply curves are elastic.

8. Which of the following statements about the effects of an excise tax is incorrect?
- An excise tax is inefficient because it distorts incentives at the margin for both
consumers and producers.
- The lower the elasticity of supply relative to the elasticity of demand, the lower the
burden of the tax borne by suppliers.
- An excise tax drives a wedge between the price paid by consumers and the price
received by producers.
- An excise tax causes a deadweight loss because consumer and producer surpluses
are reduced by more than the revenue the government collects.

9. Given any upward-sloping supply curve for a good, the more elastic the demand curve,
the ________ equilibrium output will fall and the ________ will be the deadweight loss when the
government imposes an excise tax.
- more; smaller - less; smaller
- less; larger - more; larger

10. Figure: The Market for Hamburgers

(Figure: The Market for Hamburgers) Look at the figure
The Market for Hamburgers. If the market is originally in
equilibrium and the government imposes an excise tax of
$0.80 per unit of the good sold, consumer surplus will be
reduced by:
- $90.
- $240.
- $105.
- $175.
 3

11. (Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of $0.80 per
unit of the good sold, the deadweight loss associated with the tax will be:
- $240. - $90.
- $105. - $40.

12. (Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of $0.80 per
unit of the good sold, the government's revenue from the tax will be:
- $175. - $105.
- $240. - $90.

13. Which of the following situations provides an example of the benefits principle?
- Employed workers pay taxes that are used to fund technical training programs.
- Revenue from the federal tax on gasoline is used to maintain and improve the Trans-
Canada Highway.
- Taxes on cigarettes are used to pay provincial employees' salaries.
- Revenue from property taxes is used to fund public projects. The taxes are paid by all
homeowners.

14. The benefits principle says that:

- the amount of tax paid depends on the measure of value.
- those who benefit from public spending should bear the burden of the tax that pays for
that spending.
- those with greater ability to pay should pay more tax.
- those who benefit from the tax should pay the same percentage of the tax base as
those who do not benefit.

15. If an excise tax is imposed on beer and collected from the producers, the ________
curve will shift ________ by the amount of the tax.
- demand; downward - demand; upward
- supply; upward - supply; downward

16. The ability-to-pay principle says that:

- those who benefit from public spending should bear the burden of the tax that pays for
that spending.
- those who benefit from the tax should pay the same percentage of the tax base as
those who do not benefit.
- the amount of tax paid depends on the measure of value.
- those with greater ability to pay should pay more tax.

17. If an excise tax is imposed on automobiles and collected from consumers,

- the supply curve will shift upward by the amount of the tax.
- the equilibrium quantity demanded will increase relative to the pre-tax level.
- the equilibrium quantity supplied will increase relative to the pre-tax level.
- the demand curve will shift downward by the amount of the tax.
 4

18. Suppose the price elasticity of demand for luxury cars equals 4.04, while the price
elasticity of supply for luxury cars equals 0.22. If the federal government reinstates a luxury tax
on premium vehicles, who will pay more of the tax?
- Luxury car builders and buyers will pay equally.
- Luxury car buyers will pay more.
- It’s impossible to tell without additional information.
- Luxury car builders will pay more.

19. Which of the following is an example of an excise tax?

- a one-time government tax of $50
- a tax of 12.4% of your wages
- a tax of $0.41 per litre of gas
- a tax on the value of your property

20. As part of an anti-obesity program, the government levies an excise tax on high-fat
foods. We would expect consumers to pay almost all of this tax if demand is:
- elastic and supply is inelastic.
- inelastic and supply is inelastic.
- inelastic and supply is elastic.
- elastic and supply is elastic.

21. If Canada removed all excise taxes on cigarettes, which of the following would not
occur?
- Producer surplus for Canadian cigarette suppliers would decrease.
- Producer surplus for Canadian cigarettes suppliers would increase.
- Consumer surplus for Canadian cigarette consumers would increase.
- Total surplus in the Canadian cigarette market would increase.

22. Figure: The Market for Yachts

(Figure: The Market for Yachts) Look at the figure The
Market for Yachts. If the government imposes a $30
000 tax on yachts (collected from the producers), the
price of yachts will rise to ________ and the
government will collect tax revenue equal to ________.
- $100 000; $120 million
- $120 000; $90 million
- $160 000; $120 million
- $140 000; $90 million
 5

23. Figure: Tax Incidence

(Figure: Tax Incidence) Look at the
figure Tax Incidence. Producers are
likely to bear more of the burden of an
excise tax in the situations illustrated by
panels:
- A and B.
- A and C.
- B and D.
- B and C.

24. Suppose price elasticity of demand is relatively inelastic for good X. If the price elasticity
of supply for good X is elastic, and an excise tax is imposed on good X, who will bear the
greater burden of the tax?
- government
- consumers
- both consumers and producers equally
- producers

25. (Table: Johnson's Income and

Expenditures) Look again at the table
Johnson's Income and Expenditures.
Johnson's income elasticity of demand
for movies is:
- 0.
- –1.
- 1.
- infinite.

 6

ASSIGNMENT 7
1. The percentage of an increase in income that is taxed is:
- the marginal tax rate. - a regressive tax.
- after tax. - a flat tax.

2. The richest 20% of families in Canada pay a much ________ share of total income taxes
collected and a ________ share of government transfers received than their share of total
income.
- lower; higher - higher; lower
- higher; higher - lower; lower

3. Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1000 in taxes
each year, but Brianna earns $20 000 and Jess earns $10 000. From this information, you can
infer that the tax system is:
- equitable. - progressive.
- regressive. - proportional.

4. Suppose a government imposes an income tax that taxes 0% of the first $1000, 10% of
the next $10 000, and 20% of the remainder of earnings. This type of tax can be described as:
- equitable - progressive.
- regressive. - proportional.

5. A tax that takes a fixed percentage of income, regardless of the level of income, is a:
- regressive tax. - benefits tax.
- proportional tax. - progressive tax.

6. If total utility is rising as more salsa is consumed, we can definitely say that marginal
utility is:
- falling. - rising.
- greater than zero. - constant.

7. The slope of a(n) ________ curve shows the rate at which two goods can be exchanged
________ the consumer's ________.
- indifference; without affecting; budget
- iso-utility; without affecting; budget
- indifference; without affecting; total utility
- marginal utility; by increasing; marginal utility
8. Two points on a standard indifference curve are 8 cookies and 2 brownies, and 6
cookies and 4 brownies. Which of the following combinations of cookies and brownies could lie
on this indifference curve?
- 4 cookies and 8 brownies
- 7 cookies and 6 brownies
- 6 cookies and 10 brownies
- 4 cookies and 4 brownies

9. For most goods, as we move down an indifference curve:

- the slope gets flatter. - the slope stays the same.
- the slope gets steeper. - total utility decreases.
 7

10. Indifference curves that are convex to the origin imply which of the following?
- diminishing marginal rate of substitution
- constant prices of goods
- increasing marginal utility
- As we move down an indifference curve, the slope gets steeper.

11. If Coke and Pepsi are perfect substitutes for Lynn, her indifference curves are:
- downward-sloping straight lines. - vertical lines.
- right angles. - concave from the origin.

12. Mr. Black always consumes coffee and cream in fixed proportions: 8 ounces of coffee to
1 ounce of cream. This implies that for Mr. Black:
- coffee and cream are perfect substitutes.
- 8 ounces of coffee and 2 ounces of cream yield more utility than 8 ounces of coffee and
1 ounce of cream.
- coffee and cream are perfect complements.
- the indifference curves for coffee and cream are tangent.

13. The relationship between an individual's consumption bundle and utility is called a:
- demand function. - utility function.
- consumption function. - production function.

14. To say that you can't have too much of a good thing means that for any good that you
enjoy (for example, pizza):
- it is valid to measure utility in utils.
- higher consumption will increase utility, but only up to a point; after that utility will start
to decrease.
- higher consumption will always lead to higher utility.
- higher consumption will cause utility to decrease at an increasing rate.

15. Utility is most closely related to:

- satisfaction. - usefulness.
- necessity. - requirement.

16. An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two
slices of pizza. The principle of diminishing marginal utility implies that the total utility from three
slices of pizza will be:
- exactly 12 units of utility.
- more than 14 units of utility.
- less than 9 units of utility.
- less than 13 units of utility.
 8

17. (Table: Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. The marginal
utility for the second roll is:
- 35. - 10.
- 5. - 15.

18. (Table: Utility of Pecan Rolls) Look at the table The Utility of Pecan Rolls. Marginal utility
first becomes negative at the ________ roll.
- fifth - second
- first - sixth

19. (Table: Exercise and Utility) Look at the table

Exercise and Total Utility. The table shows Marta's total utility
from hours of exercise at the gym. The principle of diminishing
marginal utility is seen:
- immediately, when Marta exercises from the very first hour
and beyond.
- nowhere, as marginal utility is always increasing.
- when Marta exercises between the first and second hours.
- when Marta exercises more than two hours.

20. If a consumer moves downward along an indifference curve, his or her total utility:
- first decreases, then increases. - decreases.
- first increases, then decreases. - remains constant.

21. In terms of indifference curves, higher total utility is represented by:

- a lower indifference curve.
- movement leftward along an indifference curve.
- a higher indifference curve.
- movement rightward along an indifference curve.
 9

22. (Figure: Indifference Curve Map I) Look at the figure Indifference Curve Map I. Keisha
can choose between combinations of eBooks and
cell phone apps. The figure shows an indifference
curve map that identifies several bundles of e-Books
and cell phone apps. Given this information, it can be
said that:
- bundle A is preferred to bundle B.
- bundles B and D provide Keisha with the same
level of utility.
- bundle C provides Keisha with the highest level of
utility.
- bundle D is preferred to bundle C, which is
preferred to bundles A and B.

23. (Figure: Indifference Curve Map I) Look at

the figure Indifference Curve Map I. Keisha can choose between combinations of e-Books and
cell phone apps. The figure shows an indifference curve map that identifies several bundles of
eBooks and cell phone apps. Given this information, it can be said that:
- utility is diminishing on I1, constant on I2, and increasing on I3.
- at point D utility is higher than it is at point A.
- at point A utility is higher than it is at point B.
- the marginal utility of eBooks is positive, while the marginal utility of cell phone apps is
negative.

24. LaToya sees honey and sugar as perfect substitutes. She is always willing to substitute 1
teaspoon of honey for 2 teaspoons of sugar. The marginal rate of substitution of sugar for honey
is equal to:
- 1. - 0.5.
- 2. - undefined

25. The marginal rate of substitution shows how a consumer can substitute between two
goods to:
- maintain the same income.
- maintain the same marginal utility.
- increase total utility.
- maintain the same level of total utility.

26. (Table: Food and Clothing

Bundles) Teddy enjoys consuming
food and clothing. The table shows
five bundles of food and clothing
that all provide Teddy with the
same amount of utility. The
marginal rate of substitution of food
for clothing as Teddy moves from
bundle D to bundle E is equal to:
- –14. - –5.
- 1. - –2.8.
 10

ASSIGNMENT 8
1. Tom is trying to decide how to allocate his $50 budget for music downloads and online
movie streaming when the price of a music download is $1 and the price of a movie is $5.
Reference: Ref 10-6
(Scenario: Tom's Budget Constraint) Look at the scenario Tom's Budget Constraint. Which of the
following combinations of music downloads and movies lies on Tom's budget line?
- 50 music downloads and 10 movies
- 50 music downloads and 0 movies
- 0 music downloads and 5 movies
- 100 music downloads and 5 movies

2. An increase in a consumer's income will do all of the following except:

- change the slope of the budget line.
- shift the budget line away from the origin.
- increase the vertical intercept.
- increase the horizontal intercept.

3. Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The
price of a book is $5 and the price of a pencil is $0.50. The equation for Adam's daily budget
constraint can be written as:
- 0.50(B) + 20(P) ≤ 5 - 0.50(B) + 5(P) ≤ 20
- 5(B) + 0.50(P) ≤ 20 - 20(B) + 0.50(P) ≤ 5

4. The price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you
have $5 to spend on both goods. The maximum number of boxes of popcorn that you can
purchase is:
- 10. - 5.
- 40. - 20.

5. (Table: Optimal Choice of Milk and

Honey) Hal's total utility from
consuming milk and honey is given in
the table. The price of milk is $2 per
litre, and the price of honey is $4 per
jar. Hal's income is $16. If he spends all
of his income on milk, the most he can
buy is _______ litres, and his total
utility will be________.
- 4; 104
- 8; 144
- 8; 4
- 6; 12

6. Suzy knows she has maximized her utility, because she is on her budget constraint and:
- MUCameras = MUCoffee.
- her consumption of cameras equals her consumption of coffee.
- what she spends on cameras equals what she spends on coffee.
- MUCameras/PCameras = MUCoffee/PCoffee.
 11

7. Tori devotes all of her income to the consumption of two goods, peanut butter and jelly.
She has just discovered that at her current level of consumption the marginal utility of a jar of
peanut butter is 5 and the marginal utility of a jar of jelly is 7. Which of the following statements
is true?
- There is not enough information provided to justify a change in Tori's current level of
consumption.
- In order to maximize her total utility, Tori would consume more of both goods.
- In order to maximize her total utility, Tori would consume less of both goods.
- In order to maximize her total utility, Tori would consume more peanut butter and less
jelly.

8. (Table: Marginal Utility per Dollar)

Look at the table Marginal Utility per
Dollar. If Damian has $9 to spend on
potatoes and clams, then the utility-
maximizing combination is ________ of
clams and ________of potatoes.
- 2 kilograms; 2 kilograms
- 1 kilogram; 6 kilograms
- 2 kilograms; 3 kilograms
- 0 kilograms; 9 kilograms

9. The substitution effect always involves a change in consumption in the ________ the
________ change.
- opposite direction to; budget - same direction as; budget
- same direction as; price - opposite direction to; price

10. (Figure: Indifference Curves and

Consumption Bundles) Let MUP = marginal
utility of pizza, MUH = marginal utility of hot
dogs, PP = price of a slice of pizza, PH = price
of a hot dog. In the figure, the absolute value
of the slope of an indifference curve is equal
to:
- MUH/MUP.
- PP/PH.
- PH/PP.
- MUP/MUH.
 12

11. A consumer maximizes a utility function with standard indifference curves when she
chooses a consumption bundle whose:
- marginal rate of substitution is highest.
- marginal utility of each good is equal.
- marginal utility of each good is highest.
- highest indifference curve is tangent to the budget line.

12. If the price of a ticket to a Calgary Flames hockey game equals $60 and the price of a
snow shovel equals $40, the relative price of the hockey ticket equals:
- 40 shovels. - 6 shovels.
- 23 shovels. - 1.5 shovels

13. The optimal consumption rule says that, at the optimal consumption bundle, the marginal
rate of substitution between two goods must be equal to their relative price. This is equivalent to
saying that:
- the marginal utility of each good consumed must be the same.
- goods should be consumed in the same ratio as their relative price.
- the marginal utility per dollar is the same for both goods.
- the <i>MRS</i> is not equal to the ratio of marginal utilities.

14. Joseph chooses a combination of apples and oranges along his budget line. The
marginal rate of substitution of apples in place of oranges is 2, the price of an apple is $0.50,
and the price of an orange is $0.50. Joseph:
- is maximizing total utility.
- should consume fewer apples and more oranges to maximize total utility.
- may or may not be maximizing total utility.
- should consume more apples and fewer oranges to maximize total utility.

15. Mario sees popcorn and pretzels as perfect substitutes. He is always willing to substitute
3 cups of popcorn for 1 cup of pretzels. If the price of a cup of popcorn is $3 and the price of a
cup of pretzels is $1, Mario will eat:
- only popcorn. - The answer is impossible to determine.
- only pretzels. - mostly pretzels.

16. (Figure: A Changing Budget Constraint for

Strawberries and Shortcake) Look at the figure A
Changing Budget Constraint for Strawberries and
Shortcake. Seb's original budget line is given by BL1 and
his original indifference curve is given by I1. Which of the
following would have caused his budget line to move to
BL2?
- Seb’s income decreased.
- The price of strawberries decreased.
- The price of strawberries increased.
- The price of shortcake increased.
 13

17. Suppose potatoes are an inferior good and the price of potatoes decreases. Then:
- the income effect will cause an increase in the consumption of potatoes.
- the substitution effect will cause a decrease in the consumption of potatoes and the
income effect will cause a decrease in the consumption of potatoes.
- the income effect will cause a decrease in the consumption of potatoes.
- the substitution effect will cause a decrease in the consumption of potatoes.

18. Suppose ramen is a Giffen good and the price of ramen decreases. Then the:
- demand curve for ramen will still be downward-sloping.
- substitution effect will cause a decrease in the consumption of ramen.
- income effect will cause a decrease in the consumption of ramen.
- income effect will reinforce the substitution effect, and the consumption of ramen will
decrease.

19. A demand curve is generated from indifference curves by changing:

- utility.
- the price of one good.
- the price of both goods simultaneously.
- income.

20. (Figure: Income and Substitution Effects)

Look at the figure Income and Substitution
Effects. Carlos is originally consuming his
optimal consumption bundle at point A in the
figure when the price of gasoline falls. As Carlos
moves to his new optimal consumption bundle,
we observe that gasoline:
- and good L are complements.
- is a normal good.
- is an inferior good.
- is not an ordinary good.

21. (Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure
when the price of gasoline falls. The dashed line tangent to I1 shows a hypothetical budget line
reflecting:
- the original income, original price of cell phone minutes, and the new price of gasoline.
- the new relative prices of gasoline in terms of cell phone minutes and a change in
income to allow Carlos to reach an indifference curve higher than I1.
- the income and substitution effects.
- the new relative prices of gasoline in terms of cell phone minutes and a change in
income to keep Carlos on the original indifference curve.
 14

22. (Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure
when the price of gasoline falls. The movement from K1 to K2 reflects:
- the income effect of the price decrease of gasoline and the substitution effect of the
price decrease of gasoline.
- the income effect of the price decrease of gasoline.
- the substitution effect of the price decrease of gasoline.
- the total change in quantity demanded due to the decrease in the price of gasoline.

23. (Figure: Income and Substitution Effects) Look at the figure Income and Substitution
Effects. Carlos is originally consuming his optimal consumption bundle at point A in the figure
when the price of gasoline falls. The movement from K2 to K3 reflects:
- the total change in quantity demanded due to the decrease in the price of gasoline.
- the income effect of the price decrease of gasoline.
- the substitution effect of the price decrease of gasoline.
- the income effect of the price decrease of gasoline and the substitution effect of the
price decrease of gasoline.

 15

ASSIGNMENT 9
1. The total product curve:
- will become flatter as output increases if there are diminishing returns to the variable
input.
- will become horizontal when the marginal product of the variable input is constant.
- will be downward sloping if there are diminishing returns to the variable input.
- shows the relation between output and the quantity of a variable input for varying levels
of the fixed input.

2. (Figure: The Marginal

Product of Labour) Look at the
figure The Marginal Product of
Labour. The total product of
labour for eight workers is:
- 35 bushels.
- 96 bushels.
- 75 bushels.
- 40 bushels.

3. (Total Product and Marginal Product) Look at the table Total Product and Marginal
Product. The marginal product of the second worker is:
- 20. - 15.
- 10. - 30.

4. You own a small deli that produces sandwiches, soups, and other items for customers in
your town. Which of the following is a fixed input for the production function at your deli?
- the employees hired to help make the food
- the cans of tomato sauce used to make soups
- the dining room where customers eat their meals
- the loaves of bread used to make sandwiches

5. (Table: Production of Bagels) Look at the table Production

of Bagels. The marginal product of the fifth worker is ________
bagels.
- 5000.
- 10 000.
- 12 000.
- 9000.
 16

6. The total cost curve for a snowmobile dealership shows how ________ cost depends on
the quantity of ________.
- marginal; output - average; variable
- total; output - total; fixed inputs

7. Buford Bus Manufacturing installs a new assembly line. As a result, the output produced
per worker increases. The marginal cost of output at Buford:
- will be unchanged.
- will increase (the MC curve will shift up).
- will decrease (the MC curve will shift down).
- is at its maximum.

8. In the short run, the average total cost curve slopes upward because of:
- diseconomies of scale.
- diminishing returns.
- increasing returns.
- economies of scale.

9. If an eyeglass business produces 10 pairs of eyeglasses and incurs $30 in average

variable cost and $35 in average total cost, then total fixed cost is:
- $300. - $35.
- $50. - $3.

10. When marginal cost is below average variable cost, average variable cost must be:
- at its maximum.
- falling.
- at its minimum.
- rising.

11. (Figure and Table: Variable, Fixed, and Total Costs)

Look at the figure and table Variable, Fixed, and Total
Costs. In the figure, the marginal cost when increasing
production from 51 to 64 bushels of wheat is:
- $12.50. - $18.75.
- $15.38 - $16.
 17

12. (Table: Cost Data) Look at the table

Cost Data, which shows data for a designer
purse factory. The average variable cost of
producing 5 purses is:
- $190
- $10
- $48
- $38

13. If average total cost is declining, marginal cost cannot be increasing.

- True
- False

14. (Table: Costs of Birthday Cakes) Annie has

a bakery that specializes in birthday cakes, and her
variable costs of producing cakes are shown in the
table Costs of Birthday Cakes. Assume that her fixed
costs are $10. What is the average fixed cost of 4
cakes?
- $2.50
- $5
- $10
- $48

15. Perfect competition is characterized by:

- widely recognized brands.
- rivalry in advertising.
- fierce quality competition.
- the inability of any one firm to influence price.

16. The perfectly competitive model assumes all of the following except:
- that firms attempt to maximize their total revenue.
- a great number of buyers.
- easy entry into and easy exit from the market.
- complete information on the part of buyers and sellers.

17. If a perfectly competitive firm increases production from 10 units to 11 units and the
market price is $20 per unit, total revenue for 10 units is:
- $210.
- $200.
- $10.
- $20.
 18

18. If a perfectly competitive firm sells 10 units of output at a price of $30 per unit, its
marginal revenue is:
- less than $30. - $300.
- $30. - $10.

19. If a perfectly competitive firm is producing a quantity where P > MC, then profit:
- can be decreased by increasing the price.
- can be decreased by increasing production.
- can be increased by decreasing the price.
- can be increased by increasing production.

20. If all firms in an industry are price-takers, then:

- each firm takes the market price as given for its current output level, recognizing that
the price will change if it alters its output significantly.
- each firm can sell at the price it wants to charge, provided it is not too different from the
prices other firms are charging.
- the market sets the price, and each firm can take it or leave it (by setting a different
price).
- an individual firm cannot alter the market price even if it doubles its output.

21. In a perfectly competitive industry, each firm:

- produces a standardized product.
- produces about half of the total industry output.
- produces a differentiated product.
- is a price-maker.

22. A firm's total output times the price at which it sells that output is:
- total revenue. - average revenue.
- net revenue. - marginal revenue.

23. The difference between total revenue and total cost is:
- economic profit or loss. - average revenue.
- nominal revenue. - marginal revenue.

24. Marginal revenue:

- is the price divided by the change in quantity.
- is the change in quantity divided by the change in total revenue.
- is the slope of the average revenue curve.
- equals the market price in perfect competition.

25. The slope of the total revenue curve is:

- net revenue.
- varying under perfect competition.
- marginal cost.
- constant under perfect competition.

26. A perfectly competitive firm maximizes profit by producing the quantity at which:
- TR = TC. - P > AVC.
- q × (P – ATC) = 0. - MR = MC.
 19

ASSIGNMENT 10
1. A perfectly competitive firm will earn a profit and will continue producing the profit-
maximizing quantity of output in the short run if the price is:
- greater than average variable cost, but less than average total cost.
- greater than average total cost.
- greater than the average fixed cost.
- less than marginal cost.

2. If the price is consistently below average total cost, then in the short run a perfectly
competitive firm should:
- There is not enough information given to answer this question.
- raise the price.
- shut down.
- continue to produce to minimize losses.

3. If the price is greater than the average variable cost and less than the average total cost
at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
- produce at an economic loss.
- produce at an economic profit.
- shut down production.
- produce more than the profit-maximizing quantity.

4. In the short run, if P < AVC, a perfectly competitive firm:

- produces output and incurs an economic loss.
- does not produce output and incurs an economic loss.
- produces output and earns an economic profit.
- does not produce output and earns an economic profit.

5. (Figure: Total Cost for Tomato Producers) Look at

the figure Total Cost for Tomato Producers. The market
for tomatoes is perfectly competitive, and an individual
tomato farmer faces the cost curves shown in the figure.
The market price of a bushel of tomatoes is $14. The
farmer's total cost at the profit-maximizing number of
bushels is:
- $14.00.
- $56.00.
- $3.50.
- $72.00.

6. (Figure: A Perfectly Competitive Firm in the Short

Run) Look at the figure A Perfectly Competitive Firm in
the Short Run. The firm will produce in the short run if the
price is:
- greater than point E. - at least as high as point P.
- greater than point N. - at least as high as point F.
 20

7. If firms are experiencing economic losses in the short run, firms will leave the industry,
industry output will ________, and economic losses will ________ in the long run.
- rise; rise - fall; rise
- fall; fall - rise; fall

8. Which of the following is most likely to cause firms to exit a perfectly competitive
industry?
- The price of a key variable input falls.
- Consumer income falls.
- A technological advance allows all firms to produce more efficiently.
- Consumer tastes and preferences for this product get stronger.

9. Suppose that some firms in a perfectly competitive industry are earning positive
economic profits. In the long run, the:
- number of firms in the industry will increase.
- number of firms in the industry will not change.
- industry supply curve will shift to the left.
- industry is in long-run equilibrium.

10. A perfectly competitive industry is said to be efficient because the:

- marginal cost of production of the last unit of output is minimized.
- market price of the good is equal to economic profit for all firms in the industry.
- product is standardized across firms in the industry.
- average total cost of production of the industry's output is minimized.

11. (Table: Total Cost and Output) Look at the table

Total Cost and Output. The table describes Sergei's total
costs for his perfectly competitive all-natural ice cream firm. If
the market price of a 10-litre tub of ice cream is $50, how
much is Sergei's profit at the profit-maximizing output?
- $40
- $330
- $680
- $150

12. (Table: Variable Costs for Lots) Look

at the table Variable Costs for Lots. During the
winter, Alexa runs a snow-clearing service, and
snow clearing is a perfectly competitive
industry. The table provided shows her
variable costs for snow clearing and number of
lots cleared. Her only fixed cost is $1000 for a
snowplow. Her variable costs include fuel, her
time, and hot coffee. If the price to clear a lot is
$30, how many lots should Alexa clear?
- 40
- 20
- 30
- 50
 21

ASSIGNMENT 11
1. A monopoly is an industry structure characterized by:
- a product with many close substitutes.
- a large number of small firms.
- a single buyer and several sellers.
- barriers to entry and exit.

2. One of the major differences between a monopolist and a purely competitive firm is that
the monopolist has a ________ demand curve, while the purely competitive firm has a
________ demand curve.
- downward-sloping; perfectly elastic
- perfectly elastic; downward-sloping
- perfectly inelastic; perfectly elastic
- downward-sloping; perfectly inelastic

3. The demand curve facing a monopolist is:

- vertical, the same as that facing a perfectly competitive firm.
- perfectly inelastic, the same as that facing a perfectly competitive firm.
- upward sloping, the same as that facing a perfectly competitive firm.
- downward sloping, like the industry demand curve in perfect competition.

4. A monopoly responds to a decrease in marginal cost by ________ price and ________

output.
- increasing; decreasing
- decreasing; decreasing
- decreasing; increasing
- increasing; increasing

5. (Figure: Short-Run Monopoly) Look at the

figure Short-Run Monopoly. The profit-maximizing
price is price:
- P.
- O.
- N.
- Q.
 22

6. (Figure: A Profit-Maximizing
Monopoly Firm) Look at the figure A Profit-
Maximizing Monopoly Firm. The firm in
this figure will produce ________ units of
output per week.
- 300
- 250
- 160
- 220

7. (Figure: Monopoly Model)

Look at the figure Monopoly
Model. When the firm is in
equilibrium (that is, maximizing its
economic profit), its total revenue
is the area of rectangle:
- IPDH.
- 0SBJ.
- 0PDJ.
- SPDB.

8. (Table: Prices and Demand) Look at the table Prices and

Demand. The Toronto Blue Jays have a monopoly on Jays
logo baseball hats. The Jays sell at most one hat to each
customer, and the table shows each customer's willingness to
pay. The marginal cost of producing a hat is $18. If the Jays
increase the number of hats they sell from 4 to 5, the quantity
effect is a(n):
- decrease in total revenue of $20
- increase in total revenue of $20
- increase in total revenue of $8.
- decrease in total revenue of $8
 23

9. (Table: Prices and Demand) Look at the table Prices and Demand. The Toronto Blue
Jays have a monopoly on Jays logo baseball hats. The Jays sell at most one hat to each
customer, and the table shows each customer's willingness to pay. The marginal cost of
producing a hat is $18. If the Jays were a perfectly competitive firm in a perfectly competitive
industry, deadweight loss would be:
- $18.
- $12.
- $0.
- $24.

10. At the profit-maximizing level of production, a perfectly competitive industry will produce
an ________ level of production, and a monopolist produces an ________ level of production.
- inefficient; inefficient
- inefficient; efficient
- efficient; inefficient
- efficient; efficient

11. (Figure: The Monopolist III) Look at the

figure The Monopolist III. If this monopolist profit-
maximizes, it will produce ________units and charge
a price equal to ________. Its producer surplus will
be equal to ________, its consumer surplus will
equal ________, and the deadweight loss is equal to
________.
- 35; $65; $1225; $612.50; $612.50
- 70; $35; $1225; $615.50; $615.50
- 100; $65; $1500; $615.50; $1000
- 50; $30; $1200; $600; $100

12. (Figure: The Profit-Maximizing Output and

Price) Look at the figure The Profit-Maximizing
Output and Price. Assume there are no fixed
costs and AC = MC. At the profit-maximizing
quantity of production for the monopolist, total
revenue is ________, total cost is ________,
and profit is ________.
- $4800; $1600; $3200
- $600; $200; $400
- $1600; $3200; $1600
- $4800; $3200; $1600

13. (Figure: The Profit-Maximizing Output and

Price) Look at the figure The Profit-Maximizing
Output and Price. A perfect competitor would produce at a price of ________ and output of
________.
- $200; 8 units - $600; 8 units
- $200; 16 units - $600; 16 units
 24

14. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. The
profit-maximizing output for a monopolist is:
- 0. - 20.
- 8. - 16.

15. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. The
profit-maximizing price for a monopolist is:
- $200. - $600.
- $1000. - $800.

16. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the
profit-maximizing output and price for a monopolist, consumer surplus is:
- $1000 - $600.
- $1600. - $0.

17. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the
profit-maximizing output and price for a monopolist, producer surplus is:
- $3200. - $6400.
- $1000. - $1600.

18. (Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-
Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the
profit-maximizing output and price for a monopolist, deadweight loss is:
- $6400. - $1600.
- $1000. - $3200.

19. When a firm finds that its ATC of production decreases as it increases production, this
firm is said to be experiencing:
- economies of scale.
- a barrier to entry.
- profit maximization.
- economic profit.

20. (Figure: The Monopolist III) Look at the figure The Monopolist III. If this monopolist
perfectly price-discriminates, then it will produce ________ units. This will lead to consumer
surplus equal to ________, producer surplus equal to ________, and a deadweight loss equal
to ________.
- 100; $1500; $612.50; $612.50
- 50; $1225; $0; $0
- 70; $2450; $0; $0
- 35; $1225; $612.50; $612.50