ECON 101 Practice Exam 3

Corrine is offered a job with a salary of $70,000, which she turns down to start her own business. She uses $20,000 of her own savings to help start the business, savings that had been providing her a return of $1,000 per year. Over her first year in business, Corrine collects total revenue of $180,000 and must cover explicit costs of $105,000. During her first year in business, Corrine's accounting profit is ________, and her economic profit is _______.

$75,000; $4,000

If a company engages in perfect price discrimination, it is attempting to

charge each customer their reservation price

Which of the following would shift the labor supply curve?

The government increases its provision of childcare services

What happens in the labor market for biologists when wages in other, similar occupations fall?

There is a rightward shift of the supply curve

Which of the following is FALSE? -If an industry is profitable, new entrants will be attracted to it -If an industry has losses, competition will decline as sellers exit -When sellers exit an industry, market power will fall for the remaining sellers -When sellers enter an industry, market price will fall

When sellers exit an industry, market power will fall for the remaining sellers

In which of the following situations would Maria's Doughnut Shop have the LEAST market power? -Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries -There are two rival doughnut shops within three miles but no other bakeries -The closest doughnut shop is 10 miles away, but there is a bakery with breakfast pastries two miles away -The closest doughnut shop or bakery is 25 miles away from Maria's shop

Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries

Under what type of strategy will a player cooperate if other players have cooperated in all previous rounds but defect if any player ever defects?

a Grim Trigger strategy

A formal agreement to limit production and raises prices leads to:

a cartel

The average income of actresses may not be indicative of an aspiring actress's expected earning because:

a few superstars with extremely high earnings may skew the average income much higher than all but a few can hope to earn

An efficiency wage is a:

a higher wage paid to encourage greater worker productivity

What is the dominant factor determining market price in the long run (assuming the industry has unrestricted entry)?

average costs

How does marginal revenue compare to price for a seller with market power?

Beyond the first unit sold, marginal revenue is below price

Which of the following statements is FALSE regarding a Nash equilibrium? -Each player's expectation of the other player's strategy is correct -Cooperation between the players could not improve the outcome -All players choose their best response to the strategy they expect the other player will choose -No player can do better by unilaterally changing his or her choice

Cooperation between players could not improve the outcome

The negative outcomes of market power include all of the following EXCEPT -smaller quantity -higher costs -larger profits -lower prices

lower prices

Marginal revenue product is the

marginal revenue from hiring an additional worker

A seller's demand curve summarizes its _______, and its marginal revenue curve measures its _______.

market power; incentive to increase production

A preconceived bias against a group that's not based on reason or experience is known as:

prejudice

Employers use educational background and degrees obtained to indicate an applicant's:

productivity and certain traits

Your landscaping company uses labor and shovels. The price of shovels falls, and this _____ your demand for labor because labor and shovels are _____.

raises; complements

The degree of a seller's market power has an impact on the

seller's demand curve

When the government requires that a person have a license to work in a particular occupation, then in the labor market for that occupation:

supply decreases

The cost of working one more hour is

the hour of leisure that is given up

Average cost equals:

total cost divided by output

When companies exercise market power, ________ occurs. _______ can partially solve this problem.

underproduction; price discrimination

When an employer makes decisions based on statistical discrimination, it is:

using observations about the average characteristics of a group to make inferences about an individual

When segmenting your market demand into groups, base them on _______ and ________ characteristics.

verifiable; difficult-to-change

Price discrimination through group pricing works when the basis for segmenting the consumers is _______, is ________, and separates consumers based on their _______.

verifiable; hard to change; reservation price for the product

The Rational Rule for Sellers is that sellers should choose the quantity _______ and choose the price ________.

where marginal revenue equals marginal cost; that is on the seller's demand curve for that quantity

When market leaders produce on a mass scale, economies of scale mean that new entrants:

have a hard time competing

In a perfectly competitive labor market, the manager's hiring decision is about

how many workers to hire

When a retailer varies price on items in ways that require buyers to spend extra time or effort to get a lower price, the retailer is using which of the following strategies to price discriminate?

hurdle method

The output in a market with market power is

inefficient because the marginal benefit to society of extra output exceeds the marginal cost

Almira is a chocolatier with a small chocolate shop. There are three other chocolatiers in her city. Almira should be concerned that new companies will enter her city's chocolate market and take away some of her customers if the average chocolatier in her city:

is earning economic profits

Sellers who are in ________ markets face a less extreme trade-off between higher prices and higher quantity than sellers in perfect competition. As a result of this, they can ______.

imperfectly competitive; earn higher profits

A compensating differential is an:

difference in wages that offsets the desirable or undesirable aspects of the job

What is the impact of higher wages on labor supply according to the income effect?

Leisure is more attractive

Market power determines the shape of a firm's

demand curve

Free entry into a market tends to cause _____ to disappear.

desirable opportunities