ECON2000 Test 3 Sample Questions

8. The demand curve faced by a monopolistically competitive firm is A. Downward-sloping. B. Flat. C. Kinked. D. Upward-sloping.

A. Downward-sloping.

3. As more hours are worked, the marginal utility of leisure time tends to A. Increase. B. Decrease. C. Stay the same. D. Decrease initially, but then increase.

A. Increase.

8. If the MPP of an additional unit of labor is 4 units per hour, product price is constant at $5 per unit, and the wage rate is $19 per hour, then A. The additional unit of labor should be employed. B. The additional unit of labor should not be employed because it costs more than it is worth. C. The employer should lower wages and accept less employment of labor. D. Product price must be reduced if profits are to be made.

A. The additional unit of labor should be employed.

5. Oligopolists consider the possible responses of rivals when making decisions. A. True B. False

A. True

6. If the elasticity of labor is 0.60, a 15 percent increase in the wage rate will induce a... A. 9.0 percent decrease in the quantity of labor supplied. B. 9.0 percent increase in the quantity of labor supplied. C. 4.0 percent decrease in the quantity of labor supplied. D. 4.0 percent increase in the quantity of labor supplied.

B. 9.0 percent increase in the quantity of labor supplied.

7. When the MPP of labor is zero, ceteris paribus, A. Employment can be increased only by offering a higher wage rate. B. No further increases in output can be achieved by using additional units of labor. C. MRP is at a maximum. D. Additional units of labor must be employed because other factors of production are being wasted.

B. No further increases in output can be achieved by using additional units of labor.

7. A concentration ratio measures the A. Proportion of industry output produced by all firms. B. Proportion of industry output produced by the largest firms. C. Dollar value of total industry output produced by all firms. D. Dollar value of total industry output produced by the largest firms.

B. Proportion of industry output produced by the largest firms.

13. Refer to Figure 26.3 for a monopolistically competitive firm. The allocatively efficient output for this firm is A. Q1. B. Q2. C. Q3. D. Zero. The firm should shut down because it is not earning an economic profit.

B. Q2.

5. The labor supply curve will be positively sloped if the substitution effect of wages is A. Equal to the income effect of wages. B. Stronger than the income effect of wages. C. Weaker than the income effect of wages. D. Negative.

B. Stronger than the income effect of wages.

10. When new firms enter a monopolistically competitive industry, the market A. Supply curve shifts to the left. B. Supply curve shifts to the right. C. Demand curve shifts to the left. D. Demand curve shifts to the right.

B. Supply curve shifts to the right.

1. Game theory is A. The study of price-fixing and collusion. B. The study of how decisions are made when interdependence exists between firms. C. An explanation of how oligopolists become monopolists. D. Practiced by perfectly competitive firms.

B. The study of how decisions are made when interdependence exists between firms.

9. Which of the following is similar for oligopoly and monopolistic competition? A. Both have many firms. B. Both have low concentration ratios. C. Both have market power. D. Both make independent production decisions.

C. Both have market power.

3. Refer to Figure 25.1 for an oligopoly firm. Assume that the existing price and quantity are $10 and 2,000 units. Which of the following statements is most likely correct? A. Demand curves D1 and D2 both assume that rivals will not match any price changes. B. Demand curves D1 and D2 both assume that rivals match any price changes. C. Demand curve D1 assumes that rivals match any price changes. D. Demand curve D2 assumes that rivals match any price changes.

C. Demand curve D1 assumes that rivals match any price changes.

11. If new firms enter a monopolistically competitive market, the demand curves for the existing firms will shift to the A. Left and become more price-inelastic. B. Left, and there will be no change in price elasticity. C. Left and become more price-elastic. D. Right, and there will be no change in price elasticity.

C. Left and become more price-elastic.

6. Which of the following characterizes monopolistic competition? A. Many interdependent firms sell a homogeneous product. B. A few firms produce a particular type of product. C. Many firms produce a particular type of product, but each maintains some independent control over its own price. D. A few firms produce all of the market supply of a good.

C. Many firms produce a particular type of product, but each maintains some independent control over its own price.

2. If regulation of the firm called for it to earn only a normal profit or rate of return in Figure 27.1, the regulatory agency should set the price at A. P1. B. P2. C. P3. D. P0.

C. P3.

10. In Figure 30.2, a minimum wage of $20 will result in a A. Shortage of 160 workers. B. Shortage of 180 hours. C. Surplus of 32 workers. D. Surplus of 20 workers.

C. Surplus of 32 workers.

4. The substitution effect of wages states that a decreased wage rate A. Encourages people to consume less leisure. B. Will shift the labor supply curve rightward. C. Will lead to a movement up along the existing supply curve. D. Encourages people to work less hours.

D. Encourages people to work less hours.

12. Marginal cost pricing means that A. Goods are offered for sale at prices equal to average total cost. B. Firms produce where marginal cost equals marginal revenue. C. Firms produce where marginal cost equals zero. D. Goods are offered for sale at prices equal to marginal cost.

D. Goods are offered for sale at prices equal to marginal cost.

2. If oligopolists start cutting prices to capture a larger market share, the result will be A. Lower prices, decreased output, and larger profits. B. Higher prices, increased output, and larger profits. C. Lower prices, increased output, and larger profits. D. Lower prices, increased output, and smaller profits.

D. Lower prices, increased output, and smaller profits.

9. All of the following are true at the equilibrium wage in a competitive market except A. MRP equals the wage rate. B. The ratio of the MPP to the factor's price is the same for all factors. C. The market demand curve for labor intersects the market supply curve of labor. D. MRP is less than MPP.

D. MRP is less than MPP.

1. In the absence of a subsidy, production efficiency by a natural monopolist will A. Be achieved if price is set equal to average total cost. B. Be achieved if marginal revenue is set equal to marginal cost. C. Be achieved if price is set equal to marginal cost. D. Never be achieved.

D. Never be achieved.

4. AT&T will argue that the merger should be approved by antitrust officials because A. It will result in higher prices for consumers. B. There are many wireless providers available for consumer. C. AT&T will gain additional wireless towers from T-Mobile. D. The merger will lead to efficiencies because a larger firm can enjoy economies of scale and can keep prices low.

D. The merger will lead to efficiencies because a larger firm can enjoy economies of scale and can keep prices low.