ECON 2000 Final Exam: Previous Test Questions 2016
Suppose a monopoly firm produces bicycles and can sell 10 bicycles per moth at a price of $700 per bicycle. In order to increase sales by 1 bicycle per month, the monopolist must lower the price of its bicycles by $50 to $650 per bicycle. The marginal revenue of the 11th bicycle is A: $150 B: -$50 C: $50 D: $7,150
A: $150
Suppose the price of soccer shoes decreases by 7% and as a result, there is a 12% rise in the quantity of shin guards demanded. Th value of the cross-price elasticity of demand is? A: -1.71 B: -0.58 C: 1.71 D: -0.58
A: -1.71
Suppose the larger firm of a duopoly has sales of $900 million and the smallest firm has sales of $100 million the market share of the larger firm is A: 90% B: 80% C: 10% D: 20%
A: 90%
Which of the following is likely to be a monopolist? A: A drug firm that has a patent granting it the exclusive right to produce a drug B: A large firm like GM, which has a substantial portion of the car market C: The Boeing Company, which is one of the largest producers of airplanes D: An Indonesian restaurant in a large city
A: A drug firm that has a patent granting it the elusive right to produce a drug
A technological advance would best be represented by ... A: A shift outward of the PPC B: A shift inward of the PPC C: A movement from inside the PPC to a point on the PPC D: A movement from the PPC to a point inside the PPC
A: A shift outward of the PPC
Which of the following statements about the relationship between economic costs and accounting costs is true? A: Accounting costs are always less than or equal too economic costs B: Accounting costs must always equal economic costs C: Accounting costs are always greater than economic costs D: Accounting costs are equal to or greater than economic costs
A: Accounting costs are always less than or equal to economic costs
If consumers decide to buy fewer straw berries then the A: Demand for strawberry pickers will fall B: Demand for strawberry pickers will rise C: Quantity demanded of strawberry pickers will fall D: Quantity demanded of strawberry pickers will rise
A: Demand for strawberry pickers will fall
The kinked oligopoly demand curve does not describe the demand curve for monopolistic competition because in monopolistically competitive markets A: Firms are not as interdependent as oligopolistic firms B: Firms have no market power C: There is not as much product differentiation as in oligopoly D: There is no nonprime competition
A: Firms are not as interdependent as oligopolistic firms
Monopolistically competitive industries are characterized by all of the following except A: Homogenous products B: Low entry barriers C: Low concentration ratios D: Independent production decisions
A: Homogenous products
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
If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43 the company should? A: Increase the price of its coffee B: Decrease the price of its coffee C: Keep the price constant since a price increase or decrease will cause total revenue to fall D: Advertise since this is the only option that will increase total revenue
A: Increase the price of its coffee
The long run average total cost curve of a natural monopolist A: Is downward sloping in the relevant range of production B: Is U-shaped C: Reflects diseconomies of scale D: Is below the long run marginal cost curve in the relevant range of production
A: Is downward sloping in the relevant range of production
Profit regulation occurs when regulation requires the natural monopolist to set A: Price equal to average total cost B: Price equal to marginal cost C: Marginal revenue equal to average total cost D: Price equal to average variable cost
A: Price equal to average total cost
If the government wants a natural monopolist to achieve allocative efficiency, the government should A: Subsidize the firm and require marginal cost pricing B: Ensure that the firm produces at full capacity C: Regulate the firm so that is produces the output level at which economic profit is zero D: Use price ceilings so the firm will earn a normal profit
A: Subsidize the firm and require marginal cost pricing
Per capita GDP will definitely rise if A: The population falls and GDP does not fall B: The rate of economic growth is less than the rate of population growth C: The rate of economic growth is less than the rate of population growth D: There is a decrease in the size of the labor force
A: The population and GDP does not fall
When sellers price discriminate A: They are attempting to charge a price that is the maximum price each individual is willing to pay B: They are trying to pit one group of buyers against each other C: They are trying to find a minimum price the individual is willing to pay D: They are taking an illegal action
A: They are attempting to charge a price that is the maximum price each individual is willing to pay
Lashondra is the owner/operator of an interior design firm. Last year she earned $400,000 in total revenue. Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources). During the year she received offers to work for other design firms. One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year. Lashondra's economic profit is equal to A: -$50,000 B: $70,000 C: $0 D: $200,000
B: $70,000
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: A higher price and more firms B: A higher price and fewer firms C: A lower price and more firms D: A lower price and fewer firms
B: A higher price and fewer firms
Suppose income falls 5% in a year, and as a result, housing construction falls from 10 million to 5 million units annual. Based on this information, housing starts are? A: An inferior good B: A normal good C: Price-elastic D: Price-inelastic
B: A normal good
The marginal cost curve intersects the minimum of the curve representing A: TC B: ATC C: AFC D: MPP
B: ATC
Which of the following will increase the level of human capital in an economy? A: An increase in land mass B: An increase in literacy rates C: An increase in factory capacity D: A decrease in the population
B: An increase in literacy rates
Technological changes that increase productivity shift the A: Production function downward B: Average total cost curve downward C: Marginal cost curve upward D: Marginal physical product curve downward
B: Average total cost curve downward
Like a competitive industry, a monopoly must A: Practice marginal cost pricing B: Deal with the law of demand C: Confront a demand curve equal to its marginal revenue D: Earn only zero economic profit in the long run
B: Deal with the law of demand
Sam's surf shop has total costs of $2,000 when it is not producing any surfboards. This means that A: Variable costs are $2,000 B: Fixed costs are $2,000 C: The shop is very inefficient in its production D: Fixed costs are zero
B: Fixed costs are $2,000
Which of the following is an example of a public good? A: Carpooling with your friends B: Flood control C: Social Security payments D: None of the choices are correct
B: Flood control
The demand curve confronting a competitive firm is A: Horizontal, as is market demand B: Horizontal, while market demand is downward sloping C: Downward sloping, while market demand is flat D: Downward sloping, as is market demand
B: Horizontal, while market demand is downward sloping
If a monopolist is producing a level of output where MR exceeds MC, then it should A: Raise its price B: Increase its output C: Lower its output D: Shift its marginal cost curve upward
B: Increase its output
Sky-High Skywriters charges competitive prices for its skywriting services even though it has no competition. This is most likely because A: There are no economies of scale in this industry B: It operates in a contestable market C: It is a natural monopoly D: It cares more about customers' well being than its own well being
B: It operates in a contestable market
If a firm is producing at the kink in its demand curve and it decides to increase its price, according to the kinked demand curve model A: It will gain market share B: It will lose market share to the firms that do not follow the price increase C: Its market share will not be affected D: It will not gain market share but will definitely increase profits
B: It will lose market share to the firms that do not follow the price increase
If leisure activities become more attractive, there will be a A: Rightward shift of the labor supply curve B: Leftward shift of the labor supply curve C: Movement up the labor supply curve to the right D: Movement down the labor supply curve to the left
B: Leftward shift of the labor supply curve
Regulation is appropriate if A: Government failure exists B: Market failure exists and the benefits of regulation exceed the costs C: It improves market outcomes regardless of costs D: An economic profit is being earned
B: Market failure exists and the benefits of regulation exceed the costs
Which of the following may not characterize an oligopoly? A: A few firms B: No market power C: High barriers to entry D: Substantial control over price
B: No market power
Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint A: Costs B: Profits C: Revenues D: Market share
B: Profits
Suppose a firms has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to A: Experience $10,000 less in cost B: Receive $90,000 more in revenue C: Receive $10,000 more in revenue D: Do nothing since it already earns a normal profit
B: Receive $90,000 more in revenue
Rosa is willing to pay $200 for a new iPhone, but the actual price is $400. This means ...? A: Rosa will enjoy a consumer surplus of $200 if she buys the phone B: Rosa will not enjoy any consumer surplus if she purchases the phone C: Rosa will buy the phone D: The iPhone is overpriced
B: Rosa will not enjoy any consumer surplus from the purchase of the phone
If Reagan's substitution effects outweigh her income effects, her labor supply curve will A: Appear horizontal B: Slope backward C: Bend backward D: Appear vertical
B: Slope upward
In 2007 a company sold 35,000 MP3 players at $150 each. In 2008 the same company sold 40,000 MP3 players at $170 each. This information suggest that? A: The supply of MP3 players increased from 2007 and 2008 B: The demand for MP3 players increased from 2007 to 2008 C: The price of MP3 players increased because the cost of production increased from 2007 to 2008 D: From 2007 to 2008, the demand curve or MP3 players was upward-sloping because of improved technology
B: The demand for MP3 players increased from 2007 to 2008
Tickets to a sporting event go on sale and sell out almost instantly. This implies that? A: There are too many tickets to the event B: The price for the tickets is below the equilibrium price C: The tickets must be very expensive D: There is a surplus of tickets
B: The price for the tickets is below the equilibrium price
A firm cannot maintain above normal profits over the long run A: Without the existence of a cartel B: Unless barriers to entry exist C: Unless predatory pricing occurs D: Without retaliation occurring
B: Unless barriers to entry exist
If the price of "X" increases and you buy more "Y", then A: "X" and "Y" are compliments, and the price of "Y" will increase B: "X" and "Y" are compliments, and the price of "Y" will decrease C: "X" and "Y" are substitutes, and the price of "Y" will increase D: "X" and :Y: are substitutes, and the price of "Y" will decrease
C: "X" and "Y" are substitutes, and the price of "Y" will increase
For product X, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by ... A: 1% for each 3.5% decrease in price, ceteris paribus B: 1 unit for each $3.50 decrease in price, ceteris paribus C: 3.5% for each 1% decrease in price, ceteris paribus D: 3.5 units for each $1 decrease in price, ceteris paribus
C: 3.5% for each 1% decrease in price, ceteris paribus
Which of the following can the government use to alter both firm behavior and industry structure A: Deregulation B: Regulation C: Antitrust laws D: Tax policy
C: Antitrust laws
If a perfectly competitive firm is producing a rate of output at which MC exceeds price, then the firm A: Must have an economic loss B: Can increase its profits by increasing output C: Can increase its profit by decreasing output D: Is maximizing profit
C: Can increase its profit by decreasing output
Firms in Colorado dump waste in to the Colorado River and as a result, people in California and Mexico cannot use the water. What the of market failure is most likely involved? A: Inequity B: Public goods C: Externalities D: Market power
C: Externalities
A firm should hire an additional worker as long as the wage rate is A: Greater than the MRP B: Greater than the MPP C: Less than the MRP D: Less than the MPP
C: Less than the MRP
According to economists, which of the following is NOT a factor of production? A: Land B: Labor C: Money D: Entrepreneurship
C: Money
A monopolistically competitive firm can raise its price somewhat without fear of great change in unit sales because A: The demand for its product is typically very price elastic B: Its demand curve is horizontal C: Of product differentiation and brand loyalty D: Of the gap in its marginal revenue curve
C: Of product differentiation and brand loyalty
Which of the following is likely to be most capital-intensive? A: Farming in developing countries B: Production of apparel by the Chinese C: Oil refining in the US D: None of the choices are correct
C: Oil refining in the US
Competitive firms cannot individually affect market price because A: There is an infinite demand for their goods B: Demand is perfectly inelastic for their goods C: Their individual production is insignificant relative to the production of the industry D: The government exercises control over the market power of competitive firms
C: Their individual production is insignificant relative to the production of the industry
If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to A: Overproduce goods that yield external benefits and overproduce those that generate external costs B: Overproduce goods that yield external benefits and overproduce those that generate external costs C: Underproduce goods that yield external benefits and overproduce those that generate external costs D: Underproduce goods that yield external benefits and underproduce those that generate external costs
C: Underproduce goods that yield external benefits and overproduce those that generate external benefits
Firms in a monopolistically competitive market will A: Produce efficiently B: Make economic profits in the long run C: Use the profit maximizing rule MC = MR D: Produce at the minimum of ATC
C: Use the profit maximization rule MC = MR
Which of the following is a characteristic of a perfectly competitive market? A: A small number of firms B: Exit of small firms when profits are high for large firms C: Zero economic profit in the long run D: Marginal revenue lower than price for each firm
C: Zero economic profit in the long run
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35, 000 in inters costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual explicit costs for the firm? A: $450,000 B: $160,000 C: $90,000 D: $360,000
D: $360,000
A cartel is A: A type of market structure B: Not illegal in the US C: An organization intended to increase competition in an industry D: A public agreement between firms or countries to restrict production and raise prices
D: A public agreement between firms or countries to restrict production and raise prices
Which of the following would most likely have a price elasticity coefficient greater than 1? A: Cigarettes B: Gasoline in the short run C: Electricity D: Airline travel in the long run
D: Airline travel in the long run
Assume two goods are substitutes. Ceteris paribus, a decrease in the price of one good will cause the equilibrium costs of the other good to? A: Increase and the equilibrium quantity of the other good to increase B: Increase and the equilibrium quantity of the other good to decrease C: Decrease and the equilibrium quantity of the other good to increase D: Decrease and the equilibrium quantity of the other good to decrease
D: Decrease and the equilibrium quantity of the other good to decrease
Profit per unit is maximized when the firm produces the output where A: The ATC is minimized B: MR = MR C: The MC is minimized D: Demand = MC
D: Demand = MC
In the real world, the choice is between A: Perfect markets and perfect government intervention B: Perfect markets and imperfect government intervention C: Imperfect markets and perfect government intervention D: Imperfect markets and imperfect government intervention
D: Imperfect markets and imperfect government intervention
If a natural monopoly is forced to set a price consilient with price efficiency, it will A: Set price above marginal cost B: Earn a profit on every unit of output produced C: Set price equal to the ATC of production D: Incur a loss on every unit of output produced
D: Incur a loss on every unit of output produced
The change in total revenue associated with one additional unit of input measures A: Elasticity of labor supply B: Cost efficiency C: MPP D: MRP
D: MRP
The average total cost curve will be negatively sloped so long as A: Average variable cost is less tan average total cost B: Marginal cost is greater than average cost C: Average fixed cost is less than average total cost D: Marginal cost is less than average total cost
D: Marginal cost is less than average total cost
With respect to factors of production, which of the following statements is not true? A: Factors of production are also known as resources B: In order to produce any good or service, it is necessary to have factors of production C: Factors of production include land, labor, capital, and entrepreneurship D: Only those resources that are privately owned are counted as factors of production
D: Only those resources that are privately owned are counted as factors of production
In the long run, which of the following is likely to be a variable cost? A: Factory rental but not wage costs B: Wage costs but not costs for equipment C: Interest payments on borrows funds but not utilities D: Rent, wages, and all other costs are variable in the long run
D: Rent, wages, and all other costs are variable in the long run
If the marginal utility per dollar spent for candy bars is higher than the marginal utility per dollar spent for popcorn, you should buy more popcorn and fewer candy bars in order to receive maximum utility. True or False?
False
Monopolistic competition results in allocative efficiency. True or False
False
Utility maximization is always achieved where total revenue is maximized. True or False?
False
Government failure occurs when government intervention fails to improve economic outcomes or make them worse. True or False?
True
