Econ 100A Final

2. If the cross-price elasticity of two goods is positive we can conclude that they are: a. compliments b. substitutes c. one is an inferior good the other a normal good d. none of the above

b

35. The Laspeyres price index tends to ________ the ideal cost-of-living index. a. be equal to b. be higher than c. zero faster than d. be lower than

b

36. John Brown's utility of income function is U = log(I+1), where I represents income. From this information you can say that: a. John Brown is risk loving. b. John Brown is risk averse. c. John Brown is risk neutral. d. We need more information before we can determine John Brown's preference for risk.

b

5. When there is a negative network externality for a good, the demand for that good: a. will be more elastic than it would have been without negative network externality b. will be less elastic than it would have been without the negative network externality c. may have a degree of elasticity that is more, less or the same as it would have without the negative network externality d.will be just as elastic as it would have been without the negative network externality

b

8. John's furniture company can produce 20 chairs when 10 hours of labor and 6 hours of machine hours are used. The company produces 40 chairs when John doubles both inputs. John's production function exhibits: a. Increasing returns to scale b. Constant returns to scale c. Economies of scale d. Diseconomies of scale

b

Suppose US government restricts import to 6.1 billion pounds, caused the U.S. price to go up by 10 cents to PUS 21. The loss in consumer surplus is a. A + B + C b. A + B + C + D c. C + D d. D

b

39. The value to Icarus Airlines of complete information is: a. $125 million. b. $115 million. c. $40 million. d. $90 million. e. $120 million.

c

14. Suppose the production function for cars is 𝑄 = 4𝐾(1/4)L^(3/4). The cost of capital is $10 per hour, and the wage for labor is $15 per hour. If the company wants to produce 1000 cars, what combination of capital and labor should it use: a. 50 units of capital, 25 units of labor b. 25 units of capital, 50 units of labor c. 12.9 units of capital, 58 .1units of labor d. 148.7 units of capita, 297.3 units of labor

d

27. What price will the monopolist charge? a. 40/9 ≈ 4.44 b. 40/7 ≈ 5.71 c. 75/16 ≈ 4.69 d. 56/9 ≈6.22

d

34. Pedro buys market basket A that includes 10 books at a price of $20 per book and 10 DVDs at a price of $10 per DVD. Market basket B contains 12 books and 12 DVDs. Based on this information, which of the following statements is NOT true? (Assume the standard axioms of consumer preference) a. If the prices change and Pedro chooses market basket C, which now costs the same as basket B, then basket C is preferred to basket A b. Pedro prefers market basket B to basket A c. Market basket B will cost more than basket A d. Revealed preference analysis implies that Pedro only prefers basket B to basket A if basket A is more expensive.

d

Questions 25-27 all relate to a market monopolized by a single firm with the following characteristics: The demand curve is given by 𝑄d = 40 − 5𝑃. The monopolist has a marginal cost given by 𝑀𝐶 =(1/2)𝑄. 25. What is the monopolist's marginal revenue function? a. 𝑀𝑅 = 8𝑄 − (1/5)𝑄^2 b. 𝑀𝑅 = 8𝑄 − (2/5)𝑄^2 c. 𝑀𝑅 = 8 − (1/5)𝑄 d. 𝑀𝑅 = 8 − (2/5)𝑄

d

Questions 31 and 32 refer to a market with the following information to be taken as given: 𝑀𝐶 = 3𝑄 𝑄^D =20−P 31. Calculate the producer surplus, assuming there is a monopoly supplier who is able to use first-degree price discrimination. a. 40 b. 42 c. 48 d. 50

d

24. Excluding the case when the government decides to create a legally-enforced monopoly, which answer below describes the condition under which a monopoly is likely to emerge through the growth of a single firm outcompeting its smaller rivals? a. When the market demand curve intersects with a downward sloping region of a single firm's average total cost curve. b. When the market demand curve intersects with an upward sloping region of a single firm's average total cost curve. c. When a single firm's marginal revenue curve intersects with that firm's marginal cost curve. d. When a single firm's marginal revenue curve intersects with that firm's average cost curve.

A

12. Suppose a company's production process exhibits constant returns to scale at all levels of input. The average cost of production a. is constant at all levels of output b. falls with output c. increasing with output d. is higher than the marginal cost

a

19. Suppose government pays subsidy to crop farmers to help them to lower the cost. Subsidy is $0.2 per unit. When the subsidy is granted, the competitive market price P0, dropped to P1. Are the consumers better off or worse off? (GRAPH) a. better off, consumers gain c + d + e b. better off, consumers gain d+ e c. better off, consumers gain e d. worse off, consumers lose $0.2* Q, where Q is the quantity sold

a

22. The gain to domestic producers is a. 1.3 billion dollars b. 3.3 billion dollars c. 8.3 billion dollars d. 6.3 billon dollar

a

26. What quantity will the monopolist choose to produce? a. 80/9 ≈ 8.89 b. 80/7 ≈ 11.43 c. 75/4 = 18.75 d. 75/2 = 37.5

a

38. Given that the two outcomes are equally likely, Icarus Airlines' expected profit under complete information would be: a. $115 million. b. $120 million. c. $125 million. d. $90 million. e. $40 million.

a

42. What is the difference between a price support and a price floor? a. Government buys the excess supply to maintain a price support, but not for a price floor. b. There is no difference between the two. c. A price support is above equilibrium; a price floor is below it. d. A price support is below equilibrium; a price floor is above it. e. Government buys the excess supply to maintain a price floor, but not a price support.

a

46. With respect to monopolies, deadweight loss refers to the: a. net loss in consumer and producer surplus due to a monopolist's pricing strategy/policy. b. lost consumer surplus from monopolistic pricing. c. socially unproductive amounts of money spent to obtain or protect a monopoly. d. none of the above

a

48. The marginal cost of a monopolist is constant and is $10. The demand curve and marginal revenue curves are given as follows: demand: Q = 100 - P marginal revenue: MR = 100 - 2Q The deadweight loss from monopoly power is: a. $1012.50. b. $1025.00. c. $1000.00. d. $1037.50. e. none of the above

a

49. The local cable TV company charges a "hook-up" fee of $30 per month. Customers can then watch programs on a "pay-per-view" basis (a fee is charged for every program watched). This is an example of: a. a two-part tariff. b. peak-load pricing. c. second-degree price discrimination. d. intertemporal price discrimination. e. none of the above

a

6. Which one of the following would NOT occur if the market price was above the market-clearing price? a. Consumers would bid up the price b. Producers would begin to lower their price to sell of excess inventory c. Producers would want to produce and sell more than consumers would want to buy d. There would be an excess supply (surplus)

a

7. Which one of the following would not cause the demand curve for Apple iPhones to shift? a. The cost of producing iPhones increases b. The price of Android phones increases c. Apple increases its advertising expenditures by 20% d. A new study finds that using mobile phones can lead to brain cancer

a

9. The production function for iPads is given by 𝑄 = 4(𝐾 + 𝐿)^(1/2). This function exhibits: a. Decreasing returns to scale b. Constant returns to scale c. Increasing returns to scale d. Economies of scale

a

1. Matt's utility function for food and clothing looks like: U(F,C) = 3C + 6F Matt currently has 5 pieces of clothing and 3 units of food. What is the maximum amount of clothing Matt is willing to trade for an extra unit of food? a.1/2 b.2 c.6 d.3

b

10. Suppose Blaze Pizza's cost of labor is $10 per hour and the machines cost $30 per hour. Given that the marginal product of machines is 10 and marginal product of labor is 5, which of the following statement is true a. Blaze Pizza is minimizing the cost of producing pizzas. b. Blaze Pizza can minimize the costs of production by increasing labor. c. Blaze pizza can minimize the costs of production by decreasing labor. d. Blaze pizza can minimize costs of production by decreasing both machines and labor.

b

17. Suppose a firm operating in a competitive market has the following cost curves: (GRAPH) If the market price is P3, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits.

b

23. Consider the the impact of a sale tax t in a market. (GRAPH) Pb is the price (including the tax) paid by buyers. Ps is the price that sellers receive, less the tax. Buyers lose _____ and sellers lose _____. The government earns_____ in tax revenue. The deadweight loss is _____. a. A + B , D + C, B + C. A + D b. A + B, D + C, A + D, B + C c. A + D, B + C, A + B, D + C d. A + D, A + B, B + C, D + C

b

33. Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis and good B is plotted along the vertical axis, a. the budget line will become flatter. b. the slope of the budget line will not change. c. the slope of the budget line will change, but in an indeterminate way. d. the budget line will become steeper.

b

𝑀𝐶 = 3𝑄 𝑄^D =20−P 32. Suppose the government forces the monopolist to charge a single price. It may set any price it wishes but it is now forbidden from engaging in price discrimination of any kind. The monopolist sets its new price that applies to everyone, which of the following will occur in the redistribution of social surplus? a. Producer surplus decreases by 8. b. Producer surplus decreases by 10. c. Consumer surplus increases by 4.5 d. Consumer surplus increases by 26.

b

11. In the production of televisions, the marginal rate of technical substitution of hours of labor for hours of capital is 0.8, and the company chooses 5 units of labor and 8 units of capital. If the marginal product of capital is 10 televisions per hour, what is the marginal product of labor? a. 0.08 b. 125 c. 8 d. 1.6

c

15. A firm uses labor and capital to produce output. Consider the iso-cost line of this firm and assume labor is on the x-axis and capital on the y-axis. If the wage rate increases, then the iso-cost line a. becomes flatter, and the firm decreases output. b. becomes steeper, and the firm increases output. c. becomes steeper, the firm uses less labor, and more capital. d. becomes flatter, the firm uses more capital, and less labor.

c

18. What is the effect of an output tax t on a competitive firm's output (GRAPH) a. The output tax will increase the output from the market b. An output tax decrease the firm's marginal cost curve by the amount of the tax c. The firm will reduce its output from q1 to q2 at which the marginal cost plus the tax is equal to the price of the product d. The firm will increase its output from q2 to q1 at which the marginal cost plus the tax is equal to the price of the product

c

28. You work for a cellphone company. Your boss is asking you to estimate the profit-maximizing price for cell phone service, accounting for the fact that some of your customers will switch to your competitors if your company raises its price. Currently, your company charges $70 per month for unlimited data per cellphones. The marginal cost of providing this service is $40 per phone per month. From previous experience with your company's price changes and studies of the industry, you believe the elasticity of demand faced by your company is -3 (a 1% increase in price will lead to 3% of your customers switching to a competitor). What do you recommend to your boss? a. The current price is too low. We should increase it. b. The current price is just right. We should keep it where it is. c. The current price is too high. We should reduce it. d. Not enough information to say

c

41. Higher input prices result in: a. downward shifts of MC and reductions in output. b. downward shifts of MC and increases in output. c. upward shifts of MC and reductions in output. d. increased demand for the output that the input is used for. e. upward shifts of MC and increases in output.

c

43. Where Es is the elasticity of supply and Ed is the own price elasticity of demand, the fraction of the tax passed on to consumers in the form of higher prices is: a. Ed/(Ed-Es). b. Es/(Ed-Es). c. Es/(Es-Ed). d. Ed/(Es-Ed). e. Ed/Es.

c

44. Use the following two statements to answer this question: I. A firm can exert monopoly power if and only if it is the sole producer of a good. II. The degree of monopoly power a firm possesses can be measured using the following formula: 𝐿 = (𝑃 − 𝐴𝐶)/𝐴𝐶 a. I is false, and II is true. b. Both I and II are true. c. Both I and II are false. d. I is true, and II is false.

c

45. Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms? a. When there are many firms in the market and the demand curve faced by each firm is relatively elastic b. When there are many firms in the market and the demand curve faced by each firm is relatively inelastic c. When there are few firms in the market and the demand curve faced by each firm is relatively inelastic d. When there are few firms in the market and the demand curve faced by each firm is relatively elastic

c

Use the following information for questions 37-39 Risk-neutral Icarus Airlines must commit now to leasing 1, 2, or 3 new airplanes. It knows with certainty that on the basis of business travel alone, it will need at least 1 airplane. The marketing division says that there is a 50% chance that tourism will be big enough for a second plane only. Otherwise, tourism will be big enough for a third plane. This, plus revenue information, yields the following table: Planes Tourism Revenue Expected Leased Light Heavy Profit 2 $90 million $30 million $60 million 3 $10 million $140 million $75 million 37. Without additional information, Icarus Airlines would: a. lease 3 airplanes because $140 million is greater than $90 million. b. lease 2 airplanes in order to guarantee it avoids the worst outcome, $10 million. c. lease 3 airplanes because $75 million is greater than $60 million. d. lease only the one airplane it is sure it can use. e. lease 3 airplanes because heavy tourism is more likely than light tourism

c

13. Which of the following statements is true: (i) Marginal cost curve crosses the average variable cost curve at its minimum point. (ii) Marginal cost curve crosses the average total cost curve at its minimum point. (iii) Average total cost is decreasing when marginal cost is less than average total cost. a. (i) only. b. (i) and (ii) only. c. (ii) and (iii) only. d. (i), (ii) and (iii).

d

16. Why does a firm in a competitive industry charge the market price? a. If a firm charges less than the market price, it loses potential revenue. b. If a firm charges more than the market price, it loses all its customers to other firms. c. The firm can not influence over market price because it is too small. d. All of the above are correct.

d

3. Sarah's utility function for movies and books is as follows: U(M,B) = 3MB + B + 2M she chooses an optimal basket of 3 Movies and 2 Books, which of the following prices are possible: a.Movies cost $8 Books cost $10 b.Movies cost $10 Books cost $8 c.Movies cost $32 Books cost $40 d.Both a and c

d

30. Because of the rise of digital distribution of video games, video game developers are now able to directly control the retail price of their products, rather than retail prices being set by many competing stores like Best Buy and Game Stop. A common pricing strategy for video game developers is to sell a game at a high price when a new game is first released; some time later (usually a year or more after release), they will offer the same game at a discount. This is an example of: a. A two-part tariff, which is a form of second-degree price discrimination. b. A two-part tariff, which is a form of third-degree price discrimination. c. Intertemporal Price Discrimination, which is a form of second-degree price discrimination. d. Intertemporal Price Discrimination, which is a form of third-degree price discrimination.

d

4. Leah says she is indifferent between receiving 18 dollars and playing the following lottery: Probability Payout 2/6 24 3/6 12 1/6 48 Leah's risk premium is and she is _____: a. $6 , Risk neutral b. $4, Risk loving c. $6, Risk averse d. None of the Above

d

47. Deadweight loss from monopoly power is expressed on a graph as the area: a. above the competitive price line and below the monopoly price line, bounded by zero output and the output chosen by the monopolist. b. above the competitive price and below the average revenue curve, bounded by the quantities produced by the competitive and monopoly markets. c. below competitive price line and above the marginal cost curve, bounded by the quantities produced by competitive and monopoly markets. d. below the average revenue curve and above the marginal cost curve, bounded by the quantities produced by competitive and monopoly markets.

d

50. A firm sells an identical product to two groups of consumers, A and b. The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits? a. PA = PB = MC. b. (MRA - MRB) = (1 - MC) c. MRA = MRB d. MRA = MRB = MC.

d

For Question 20-22, please consider the following information: By restricting imports, the U.S. government protects the domestic sugar industry, which would virtually be put out of business if it had to compete with low-cost foreign producers. This policy has been good for U.S. sugar producers. US Supply Qs = - 8.95 + 0.99 P US Demand Qd = 31.2 - 0.27 P The following figure shows the US Supply and Demand. (GRAPH) 20. Assume the world sugar price is Pw=17 cents per pound. At the 17 cent world price, U.S. production would have been about ___ billion pounds and U.S. consumption about ____ billion pounds, of which _____ billion pounds would have been imported. a. 8, 22. 7, 14.7 b. 18, 26.7, 8.7 c. 18, 22. 7, 4.7 d. 8, 26.7, 18.7

d

The following graph only applies to Question 29. (GRAPH) 29. Consider a small, isolated island with a luxury resort that is the only employer for local residents who permanently live on the island. The island's government is concerned that the resort has a monopsony in the labor market of the island. What would happen to this market if the island's government implemented a minimum wage set at the level indicated in the diagram above, and why? a. Fewer workers will be hired. The resort's demand for labor will contract (shift down and to the left) in response to the minimum wage. b. Fewer workers will be hired. The resort will choose the quantity of labor where the minimum wage intersects its marginal expenditure on labor curve. c. There will be no change in the number of workers hired. This minimum wage is not binding. d. More workers will be hired. The resort will cut some openings for jobs that went unfilled under the old wage, but more workers will choose to work at the new wage.

d

40. If current output is less than the profit-maximizing output, which must be true? a. Average revenue is greater than average cost. b. Average revenue is less than average cost. c. Marginal revenue is less than marginal cost. d. Total revenue is less than total cost. e. Marginal revenue is greater than marginal cost.

e