Student name:__________
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or
answers the question.
1) The accompanying figure shows the demand curve, marginal revenue curve, marginal cost
curve, and average total cost curve for a monopolist.
At this monopolist’s profit-maximizing level of output, it
A) earns an economic profit of $16 per day.
B) incurs an economic loss of $16 per day.
C) earns an economic profit of $64 per day.
D) incurs an economic loss of $64 per day.
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2) Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small
resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes
has no fixed costs. Each day Island Bikes has six potential customers, whose reservations
prices are listed in the accompanying table.
Customer
Reservation Price
($/Rental)
A
22
B
16
C
12
D
8
E
6
F
4
Suppose Island Bikes knows that customers whose reservation prices are at least $10 always
rent bikes before noon, while those whose reservation prices are below $10 never do so. If
Island bikes can charge a different price in the morning and in the afternoon, then in the
morning, it will rent out _______ bike(s) and charge _______ per bike.
A) 1; $22
B) 2; $16
C) 3; $12
D) 4; $8
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3) Two firms, Industrio and Capitalista, have access to five production processes, each of which
has a different cost and gives off a different amount of pollution. The daily costs of the
processes and the corresponding number of tons of smoke emitted are shown in the
accompanying table. Both firms currently use process A, and each emits 4 tons of smoke per
day. The government is considering two plans to reduce pollution: requiring both firms to
reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the
owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted.
Process
(smoke/day)
A (4
B (3
C (2
D (1
tons/day) tons/day) tons/day) tons/day)
E (0
tons/day)
Cost to
Industrio
($/day)
$
350
$
400
$
500
$
700
$
1,000
Cost to
Capitalista
($/day)
225
250
290
400
600
Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution. The
government starts the bidding with an opening price of $30. What happens next?
A) A total of five permits will be demanded, forcing the government to lower the price.
B) Industrio will purchase all available permits at $30.
C) Industrio will demand 3 permits and Capitalista will demand 3 permits.
D) A total of seven permits will be demanded, forcing the government to raise the price.
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4) Paper Pushers Incorporated hires workers in a competitive labor market. Apart from labor,
the company has no other variable inputs. The company’s hourly output varies with the
number of workers hired, as shown in the accompanying table.
Workers
Pages/hour
0
0
1
40
2
75
3
105
4
125
5
140
6
150
7
155
If each page sells for $2 and the market wage is $15 per hour, then this firm will hire ______
workers per hour.
A) 4
B) 5
C) 6
D) 7
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