ECON FINAL EXAM

If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is

$1.33

Suppose a monopoly firm produces bicycles and can sell 10 bicycles per month at a price of $700 per bicycle. In order to increase sales by one bicycle per month, the monopolist must lower theprice of its bicycles by $50 to $650 per bicycle. The marginal revenue of the 11th bicycle is

$150.

Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is

0.5

The marginal physical product of the third unit of labor in Figure 21.1 is

12.0 units per day

approximately how much of the worlds outcome does the United States produce

20 percent

The United States as roughly ow much of the worlds population

5 percent

Ceteris paribus, if buyers expect the price of airline tickets to fall in the future, then right now there should be

A decrease in the demand for airline tickets.

If bagels and doughnuts are substitutes, then a decrease in the price of doughnuts will result in

A decrease in the demand for bagels

Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume?

A decrease in the price of perfume.

the best definition of GPD is

A dollar measure of final output produced during a given time period

Diminishing returns occur because

A firm increases the amount of a variable input without changing a fixed input

In a competitive market where firms are earning economic losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

A higher price and fewer firms

The long run is

A period long enough for all inputs to be variable

Which of the following statements about the relationship between economic costs and accounting costs is true? A) Accounting costs must always equal economic costs. B) Accounting costs are equal to or greater than economic costs. C) Accounting costs are always greater than economic costs. D) Accounting costs are always less than or equal to economic costs.

Accounting costs are always less than or equal to economic costs

According to an In The News article titled "Major Airlines Match Southwest's Fare Cuts,"

Airlines often match their rivals' fares rather than risk losing price-sensitive passengers.

Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles?

An increase in consumers' income.

If demand is elastic, then

An increase in price will reduce total revenue

Ceteris paribus, which of the following is most likely to cause a decrease in the supply of skateboards?

An increase in the cost of materials used to produce skateboards

Peanut butter and jelly are complements. A decrease in the price of one will result

An increase in the demand for the other

The price charged by a profit-maximizing monopolist occurs

At a price on the demand curve above the intersection where MR = MC.

Which of the following is a determinant of market supply

Available technology

A monopoly

Charges higher prices than competitive firms, ceteris paribus

Which of the following is not an example of price discrimination by the only movie theater in town?

Charging one price at all times for all customers

The marginal revenue of a monopolist falls below price because the firm

Confronts a downward-sloping demand curve

Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of

Constant returns to scale

Assume milk is used to produce ice cream. Ceteris paribus, a decrease in the price of milk will cause the equilibrium price of ice cream to

Decrease and the equilibrium quantity of ice cream to increase.

Higher prices will increase total revenue if

Demand is inelastic.

One World View article is titled "Flat Panels, Thin Margins." New firms continue to enter the industry even though prices are falling because

Economic profits are being earned.

Reductions in minimum average costs that come about through increases in the size of plants and equipment are called

Economies of scale.

Which of the following is an investment decision in a competitive

Entry or exit.

The demand curve confronting a competitive firm

Equals the marginal revenue curve

Which of the following products will have elastic demand? A) Cigarettes. B) Gasoline. C) Alcohol. D) European travel.

European travel

Which of the following contains the two sectors whose percentage contribution to the real GDP has declined since 1900?

Farming and manufacturing

Which of the following is not characteristic of monopolistic competition?

Firms have zero control over price.

Ceteris paribus, if income increases and as a result, the demand for good X increases and thedemandforgoodYfalls

Good X is a normal good and good Y is an inferior good

In monopolistic competition, a firm

Has a downward-sloping demand curve

Differences in size of real GDP across countries are best explained by

Human capital

A competitive firm

Is a price taker

If a firm can raise market price by reducing its output, then

It faces a downward-sloping demand curve.

Which of the following is true about a competitive market supply curve? A) It is vertical. B) It is horizontal. C) It is downward-sloping to the right. D) It is the sum of the marginal cost curves of all firms.

It is the sum of the marginal cost curves of all firms.

The shape of the marginal cost curve reflects the

Law of diminishing returns

Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to

Lower his price to increase revenue.

If the marginal physical product (MPP) is falling, then the

Marginal cost of each unit of output is rising

In monopoly and perfect competition, a firm should expand production when

Marginal revenue is above marginal cost

`The correct ranking of degree of market power (from highest to lowest) is

Monopoly, oligopoly, monopolistic competition, perfect competition

The soft drink market is dominated by Coke, Pepsi, and very few other firms. The firms often start price wars. The market can best be classified as

Oligopoly.

Which market structure is characterized by a few interdependent firms

Oligopoly.

The most desired goods or services that are given up when a choice is made are called the

Opportunity cost

In which of the following cases would entry and exit cease?

P = long-run ATC.

For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one? A) P = MR. B) P = minimum ATC. C) P = MC. D) P =maximum ATC.

P =maximum ATC

Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at

Per capita GDP

Ceteris paribus, as the number of substitutes for a good increases, the

Price elasticity of demand should become larger.

A catfish farmer will shut down production when

Price falls below AVC

A firm experiencing economic losses will still continue to produce output in the short run as long as

Price is above average variable cost

IfDVD players and DVDs are complementary goods, an increase in the price ofDVDs will, ceteris paribus,

Reduce the demand for DVD players

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can

Sell an additional pound of walnuts at $4.99.

The current U.S. economy is based primarily on the production of

Services

The local baseball team owner hires you to help maximize the team's profits. You are told that costs are constant because enough help is always hired for a full stadium, so assume your taskis to maximize revenues from ticket sales. Your advice to the owner should be to

Set the price of tickets at the unitary elasticity price

If a firm finds that its marginal cost is greater than its price, it

Should reduce production.

The number of firms in an oligopoly must be

Small enough so that one firm's decisions have a significant impact on the decisions of the other firms in the industry.

When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore

Substitutes

Which of the following is not a determinant of the price elasticity of demand? A) The share of a consumer's budget. B) The number of substitute goods available. C) The amount of income the consumer has. D) The time frame-whether it is in the short run or long run.

The amount of income the consumer has

If catfish farmers expect catfish prices to fall in the future, then right now

The market supply curve for catfish will shift to the right

If the price of ricotta cheese, an ingredient in lasagna, increases, then

The market supply curve for lasagna will shift to the left

Market demand is determined by all of the following except A) Tastes. C) Expectations about future income. B) The number of potential sellers. D) Income.

The number of potential sellers

If the demand for a product is elastic, then

The percentage change in quantity demanded is greater than the percentage in price

Tickets to a sporting event go on sale and sell out almost instantly. This suggests that

The price for the tickets is below the equilibrium price

Suppose both the demand for and supply of salsa increase (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of salsa?

The quantity increases but the change in the price cannot be determined

Perfectly competitive firms cannot individually affect market price because

There are many firms, none of which has a significant share of total output.

In making an investment decision, an entrepreneur

Treats all costs as variable

Changes in short-run total costs result from changes in

Variable costs

Price-discriminating firms that sell in two markets will charge higher prices in the market, ceteris paribus,

With the more price-inelastic demand

a technological advance would be best represented by

a sift outward of the production possibilities curve

according to the law of increasing opportunity costs,

in order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

given that a resource is scarce

opportunity costs are experienced whenever choices are made

the production possibilities curve illustrates which two of the following essential principles

scare resources and opportunity costs

the opportunity cost of study for economics tests is

the activity that is best alternative use of your time

a point on a nation's production possibilities curve represents

the full employment of resources to achieve a particular combination of goods and services

Adam smiths invisible hand is now called

the market mechanism

The fundamental problem of economics is

the scarcity of resources relative to human wants

which of the following is an assumption under which the production possibility curve is drawn

the supply of resources is fixed

the market mechanism

works because prices serve as a means of communication between consumers and producers