1. An outward shift of a production possibilities curve can be caused by
(A) planting a more profitable farm crop
(B) improving technology
(C) using idle resources
(D) changing consumer preferences
(E) increasing the minimum wage
2. At a price of $10, the quantity demanded of pizzas is 100 and the quantity supplied is 150.Which of the following statements must be true?
(A) There is a shortage of pizza at a price of $10.
(B) The equilibrium price of pizza is below $10.
(C) The quantity of pizzas sold will be 150.
(D) At equilibrium, fewer than 100 pizzas will be sold.
(E) The pizza market is in equilibrium.
3. The diagram above shows Sally’s utility function for chocolate. Her utility function illustrates the principle of
(A) trade-offs when making choices
(B) diminishing marginal utility
(C) income and substitution effects
(D) increasing opportunity cost
(E) constrained utility maximization
4. At a perfectly competitive firm’s current output level, average total cost is $15, average variable cost is $10, and marginal cost is $8 and increasing. If the product price is $15, what should this firm do to maximize profits?
(A) Increase the quantity of output produced.
(B) Increase the product price.
(C) Decrease the product price to increase sales.
(D) Shut down immediately.
(E) Continue to produce at its current output level.
5. The government must provide public goods such as national defense because
(A) the production of public goods requires economies of scale that the private sector cannot achieve
(B) it is generally impossible to exclude individuals who value public goods but do not pay for them
(C) public goods cannot be produced in private competitive markets, since they have highly inelastic demand
(D) private producers charge a price that is substantially greater than marginal cost
(E) no single individual should have to pay for public goods, since they benefit society as a whole
6. Which of the following will increase the demand for pizza, a normal good?
(A) An increase in the cost of producing pizza
(B) A decrease in the price of pizza
(C) An increase in the price of a complementary product
(D) An increase in consumers’ income
(E) An increase in the number of restaurants selling pizza
1. Joyce owns a gas station and monopolizes gas sales along a remote stretch of road. In February, Joyce stayed open even though she earned negative economic profits.
(a) Draw a correctly labeled graph for Joyce’s gas station during February and show each of the following.
(i) The profit-maximizing output and price, labeled QJ and PJ
(ii) The average total cost curve, labeled ATC
(iii) Deadweight loss, completely shaded
(b) What must have been true for Joyce to continue operating during the month of February even though she earned negative economic profit?
(c) Assume that fixed costs for Joyce’s gas station decrease. Would Joyce’s profit-maximizing quantity increase, decrease, or stay the same in February? Explain.
(d) During the month of July, demand increases so that Joyce now earns a positive economic profit. However, she realizes her profits would have been higher if she had reduced the price of gasoline.
(i) At the quantity sold in July, was marginal revenue greater than, equal to, or less than marginal cost?
(ii) Would the price decrease cause quantity demanded to increase, decrease, or stay the same?
(iii) Would the price decrease cause the total revenue to increase, decrease, or stay the same? Explain.