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Macroeconomics

In economic analysis, any amount of profit earned above zero is considered "above normal" because..

a. normally firms are supposed to earn zero profit.
b. this would indicate that the firm's revenue exceeded both its
accounting and opportunity cost.
c. this would indicate that the firm was at least earning a profit equal to
its opportunity cost.
d. this would indicate that the firm's revenue exceeded its accounting
cost.

Assume you are the manager of a perfectly competitive firm whose short run cost is TC = 100 + 160Q + 3Q2. If the market price is $196, what should you do?

a. produce 5 units and continue operating
b. produce 6 units and continue operating
c. produce zero units (i.e., shut down)
d. Cannot be determined from the above information.

Assume a profit maximizing firm's short-run cost is TC = 700 + 60Q. If its demand curve is P = 300 - 15Q, what should it do in the short run?

a. shut down
b. continue operating in the short run even though it is losing money
c. continue operating because it is earning an economic profit
d. Cannot be determined from the above information.

If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run? (Points :2)

a. Some firms will leave the market.Firms will join together to keep others
from entering.
b. Firms will join together to keep others from entering.
c. New firms will enter the market, thereby eliminating the economic profit.
d. Firms will continue to earn economic profit

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should:

a. increase tax rates and reduce government spending.
b. discourage personal saving by reducing the interest rate on
government bonds.
c. increase government expenditures.
d. encourage private investment by reducing corporate income taxes.

Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a $500 increase in taxes once all the rounds of the multiplier process are complete? (Points :2)

a. An increase of $500 in taxes causes equilibrium output to decrease by
1000.
b. An increase of $500 in taxes causes equilibrium output to decrease by
2000.
c. An increase of $500 in taxes causes equilibrium output to increase by
2000.
d. An increase of $500 in taxes causes equilibrium output to decrease by
400.
e. An increase of $500 in taxes causes equilibrium output to increase by
400.

Suppose the Value of French Franc in terms of the dollar is 40 on October 12 and 45 on October 17. By how much has the Franc appreciated or depreciated against the dollar?

a. The Franc has depreciated by 12.5%.
b. The Franc has remained constant relative to the dollar
c. The Franc has appreciated by 45%
d. The Franc has depreciated by 45%
e. The dollar has depreciated by 12.5%

In calculating this year's GDP, national income accountants:

a. exclude the price paid for a used computer by a college student
b. include any increase in stock values
c. include an estimate for income from illegal activities
d. exclude the value of any repairs made on existing property
e. exclude pollution control equipment as nonproductive

Assume you deplete your savings to buy a new sofa and some government bonds and then take a vacation in a foreign country. Which of the following is true?
a. consumption will increase
b. net exports will increase
c. government purchases will increase
d. investment will increase
e. all of the above

We can expect the IS-curve to get steeper, as :

a. money demand becomes less sensitive to changes in the interest rate
b. the marginal propensity to save increases
c. investment becomes more sensitive to changes in the interest rate
d. the income tax rate decreases
e. the expenditure multiplier increases

Solution Preview

In economic analysis, any amount of profit earned above zero is considered "above normal" because..

a. normally firms are supposed to earn zero profit.

Rationale: Economic Profit equals Accounting Profit less Opportunity Cost. It is what is left after all opportunity costs are taken out of the accounting profit. Profit is revenue after costs are removed.

Assume you are the manager of a perfectly competitive firm whose short run cost is TC = 100 + 160Q + 3Q2. If the market price is $196, what should you do?

b. produce 6 units and continue operating

Rationale:
We are looking for the point where P = MC. MC is the derivative of TC, which is 160 + 6Q. This gives us the equation 196 = 160 + 6Q. Solving for Q we find that Q =6.

Assume a profit maximizing firm's short-run cost is TC = 700 + 60Q. If its demand curve is P = 300 - 15Q, what should it do in the short run?

a. shut down

Rationale:
The demand curve intersects the TC curve at
700 + 60Q = 300 - 15Q
75Q = -400
Q = -5.3
Since this is a ...

Solution Summary

Questions relating to profit, monopolistic competition, and the multiplier effect

$2.19