Micro Final Questions

Which of the following is true if a perfectly competitive market is in long-run equilibrium?

Marginal revenue is equal to average total cost.

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?

Marginal revenue is equal to marginal cost, and price is equal to average total cost.

Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output?

Marginal revenue is equal to marginal cost.

According to the theory of consumer behavior, which of the following decreases first as additional units of a product are consumed?

Marginal utility

In most cases the supply curve for a perfectly competitive industry can be described as which of the following?

More elastic in the long run than in the short run

Which of the following is NOT a characteristic of monopolistically competitive markets?

Relatively easy market entry

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

ShortRunPrice-Decrease SRIndustOutput-Decrease MovementFirms-Exit

A change in which of the following will NOT cause a shift in the demand curve for a factor of production?

Supply of the factor

Which of the following is true of a price floor?

The intention of the government in creating the price floor is to assist the producers of the good.

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?

There will be a shortage in the market.

When labor supply in a competitive labor market increases, the equilibrium wage rate and employment will change in which of the following ways?

Wage Rate-Decrease Employment-Increase

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?

Wage-Increase Employment-Decrease

A merger of two firms may increase economic efficiency by

decreasing average total cost through an increase in economies of scale

Price discrimination occurs when

differences in a product's price do not reflect differences in costs of production

As its output increases, a firm's short-run marginal cost will eventually increase because of

diminishing returns

To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is

inelastic

Game theory is a useful model to explain the behavior of firms in a market when the firms are

interdependent

An individual's labor supply curve is derived from that person's preferences about the trade-off between income and

leisure

A single-price monopolist's marginal revenue is

less than its price

The basic economic problem of all countries is the existence of

limited resources and unlimited wants

Economies of scale exist when

long-run average total cost decreases as output increases

A firm's demand curve for labor is equal to a segment of its

marginal revenue product curve

The additional satisfaction received from consuming an additional unit of a good is called the

marginal utility

Assume that a consumer spends all her income on the purchase of two goods. If the consumer's income doubles and the prices of the two goods also double, the quantity of the two goods purchased will

not change

Interdependence among firms is a characteristic primarily associated with

oligopoly

In the short run, a decrease in production costs of a product will shift

only the supply curve to the right

Monopolistically competitive firms are inefficient because they

produce a lower level of output at a higher average cost than do perfectly competitive firms

If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is

producing too little output

An outward shift in the production possibilities curve of an economy can be caused be an increase in

the labor force

Opportunity cost is defined as

the value of the next best alternative that is forgone when an activity is pursued

From the point of view of economic efficiency, a monopolist produces

too little of a good and charges too high a price

Which of the following is most likely to increase the supply of soldiers for an all-volunteer army?

A decrease in the average wage rate in civilian employment

Which of the following tends to increase the gap in earnings between skilled and unskilled workers over time?

A decrease in the demand for unskilled workers relative to skilled workers

Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases?

A decrease in the supply and an increase in the equilibrium price

In microeconomics, the short run is defined as which of the following?

A period during which some inputs in a firm's production process cannot be changed

An increase in which of the following will most likely result in a long-run surplus of a product?

A price is set by law above the equilibrium price

Economic growth can be depicted using a production possibilities curve by which of the following?

A rightward shift of the curve

If bologna is an inferior good, which of the following must be true?

An increase in consumer income will decrease the demand of bologna.

Which of the following is most likely to shift the demand for aircraft mechanics to the right?

An increase in the demand for air travel

Which of the following events will cause the demand curve for hamburgers to shift to the right?

An increase in the price of pizza, a substitute for hamburgers

Which of the following will decrease the demand for beef?

An increase in the price of potatoes, if potatoes and beef are complementary goods

In a perfectly competitive labor market for nurses, all of the following statements are true EXCEPT:

An increase in the supply of nurses will create unemployment and leave wages unchanged.

Which of the following is always true of the relationship between average and marginal costs?

Average variable costs are increasing when marginal costs are higher than average variable costs.

For a firm hiring labor in a perfectly competitive labor market, the marginal revenue product curve slopes downward after some point because as more of a factor is employed, which of the following declines?

Marginal product

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?

Both total revenue and profits will decrease.

If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?

Consumers will bear most of the burden of the tax.

Suppose that a consumer purchases two goods X and Y and that the marginal utility of X is MUx, the total utility of X is TUx, the marginal utility of Y is MUy, and the total utility of Y is TUy. If the prices of X and Y are Px and Py, respectively, which of the following expressions defines consumer equilibrium?

MUx/Px = MUy/Py

Which of the following is true if a monopolist's marginal revenue is negative at the current level of output?

Demand for its product is price inelastic.

If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true?

Firms are earning a return on investment that is equal to their opportunity costs.

Scarcity is correctly described by which of the following statements? I. Scarcity exists if there are more uses for resources than can be satisfied at one time. II. Scarcity exists if decisions must be made about alternative uses for resources. III. Scarcity would not exist in a society in which people wanted to help others instead of themselves.

I and II only

The demand curve for a normal good slopes down for which of the following reasons? I. An increase in the price of the good induces consumers to purchase substitute products. II. An increase in the price of the goods reduces consumers' purchasing power. III. An increase in the price of the good increases consumers' utility from consuming that good.

I and II only

Which of the following are characteristics of a perfectly competitive industry? I. New firms can enter the industry easily. II. There is no product differentiation. III. The industry's demand curve is perfectly elastic. IV. The supply curve of an individual firm in the industry is perfectly elastic.

I and II only

Which of the following best describes a perfectly competitive market?

Many small firms producing a homogeneous product and facing no significant barriers to entry

A perfectly competitive producer of steel rods and steel beams employs 100 workers with identical skills. If steel rods and steel beams sell for the same price, which of the following rules should the producer always follow to use the 100 workers efficiently? I. Allocate workers so that the average cost of producing beams equals the average cost of producing rods. II. Allocate workers so that the marginal product of labor is the same in both rod production and beam production. III. Allocate half the workers to rod production and half the workers to beam production.

II only

The opportunity cost of owning a business is equal to which of the following? I. The economic profits earned in the business II. The accounting profits earned in the business III. The profits that could be earned in another business using the same amount of resources

III only

At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency?

Increasing the production of good X

Which of the following is true for a perfectly competitive firm in long-run equilibrium?

It is allocatively efficient.

A collusive agreement to fix prices among firms in an oligopolistic industry is most likely to be broken under which of the following conditions?

It is easy for new firms to enter into the industry.

Which of the following is true about a firm's average variable cost?

It will equal average total cost when fixed costs are zero.

If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?

It will not be able to sell any output.

Assume a firm uses only two inputs, capital (K) and labor (L), to produce its output. Let the marginal product of capital be MPK , the marginal product of labor be MPL , the price of capital be PK , and the price of labor be PL . The least-cost combination of capital and labor needed to produce a given level of output is given by which of the following?

MPL /PL = MPK /PK

Suppose that a large number of unskilled workers enter a nation's labor market. If the labor market is competitive, the number of unskilled workers hired and the wage rate will most likely change in which of the following ways?

NumberOfHires-Increase WageRate-Decrease

At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?

P = MR < MC

Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers' incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the following ways?

Potatoes Price-Decrease Quantity-Decrease Rice Price-Increase Quantity-Increase

A market is clearly NOT perfectly competitive if which of the following is true in equilibrium?

Price exceeds marginal cost.

Which of the following statements is true for a monopolist at the profit-maximizing output level?

Price exceeds marginal revenue.

A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?

Price-Decrease Quantity-Increase

If the marginal cost curve of a monopolist shifts up, which of the following will occur to the monopolist's price and output?

Price-Increase Output-Increase

Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?

Price-Increase Quantity-Decrease

If a perfectly competitive industry were monopolized without any changes in cost conditions, the price and quantity produced would change in which of the following ways?

Price-Increase Quantity-Decrease

A change in which of the following will cause a change in the supply of personal computers (PC's) in the short run?

Technology

The study of economics is primarily concerned with which of the following?

The allocation of scarce resources, given unlimited wants

Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?

The consumer's demand for compact discs is unit price elastic.

Assume that a firm is hiring labor in a perfectly competitive labor market. If the marginal revenue product of labor is greater than the wage rate, which of the following will be true?

The firm should employ more workers.

Which of the following is true in the elastic range of a firm's demand curve?

The firm should expand output to increase economic profits.

Which of the following statements is true about a firm that sells its output in a perfectly competitive market?

The firm will earn zero economic profits in long-run equilibrium.

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

The firm's marginal costs will increase at each level of output.

Which of the following would cause the equilibrium price of good X to increase?

The price of an essential input in the production of good X increases.

A constant-cost, perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, which of the following will occur in the long run?

The price will remain unchanged.

Assume that a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur?

The quantity of output produced will increase.

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?

There is a price floor on the product.

If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will be

above the marginal cost of production

Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result in

an increase in his opportunity cost of producing tables

The supply curve for automobiles will shift to the left in response to

an increse in wages in the automobile industry

One characteristic of perfectly competitive markets is that individual firms

are free to enter or exit an industry in the long run

Beyond a certain level of output, the short-run marginal cost will rise because

at least one input is fixed and eventually diminishing returns will occur

Marginal cost is defined as the

change in total cost resulting from producing an additional unit of output

Marginal revenue product is defined as the

change in total revenue that occurs when one additional unit of an input is employed

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will

charge a price greater than the marginal cost

If the increase in the price of one good decreases the demand for another, then the two goods are

complementary goods

A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should

continue to produce only if the new price covers average variable costs

The long-run average cost curve will be sloping downward if a firm experiences

economies of scale

The condition for allocative efficiency is violated when

firms are price makers( price searchers)

The profit-maximizing output level produced by an unregulated monopoly is

greater than the socially optimal level, since the firm's marginal cost exceeds its marginal revenue

If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be

horizontal and identical for every firm

A production possibilities curve is bowed out, indicating increasing opportunity cost because of

imperfect adaptability of resources to alternative uses

A decrease in the supply of oranges raised the price of oranges in the market. The substitution effect of the price increase will motivate consumers to

increase the quantity of other fruits demanded and decrease the quantity of oranges demanded

When a perfectly competitive firm sells additional units of output, its total revenue will

increasing at a constant rate

The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure date rather than on the day of departure. This pricing strategy is based on the assumption that

travelers' demand becomes less elastic as the departure date approaches

A perfectly competitive profit-maximizing firm will continue to hire additional units of an input as long as the

value of the marginal product of the input exceeds the price of the input