ECON 2302 320 Microeconomics Exam 4 Review
A monopsonistic employer A) faces a marginal resource (labor) cost that is less than the wage rate. B) has a perfectly elastic labor supply curve. C) faces a marginal resource (labor) cost that is greater than the wage rate. D) is necessarily a monopolist in the product market.
C) faces a marginal resource (labor) cost that is greater than the wage rate.
Occupational licensing has much the same effect as A) bilateral monopoly. B) monopsony. C) exclusive unionism. D) inclusive unionism.
C) exclusive unionism.
A firm can hire six workers at a wage rate of $8 per hour but must pay $9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is A) $15. B) $21. C) $9. D) $10.
A) $15.
Wage Rate Quantity Supplied $5 1 10 2 15 3 20 4 25 5 Refer to the given supply information facing a single firm in a particular labor market. The marginal resource (labor) cost of the third worker is A) $25. B) $45. C) $35. D) $15.
A) $25.
A profit-maximizing firm employs resources to the point where A) MRP = MRC. B) resource price equals product price. C) MP = product price. D) MRC = MP.
A) MRP = MRC.
Oligopolistic industries are characterized by A) a few dominant firms and substantial entry barriers. B) a large number of firms and low entry barriers. C) a few dominant firms and no barriers to entry. D) a few dominant firms and low entry barriers.
A) a few dominant firms and substantial entry barriers.
If two resources are highly substitutable for one another, A) an increase in the price of one will increase the demand for the other. B) a decrease in the price of one will increase unit costs of production. C) an increase in the price of one will reduce the demand for the other. D) a decrease in the price of one will increase the demand for the other.
A) an increase in the price of one will increase the demand for the other.
Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its A) demand curve as kinked, being steeper below the going price than above. B) demand curve as being of unit elasticity throughout. C) supply curve as kinked, being steeper below the going price than above. D) demand curve as kinked, being steeper above the going price than below.
A) demand curve as kinked, being steeper below the going price than above.
https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image008ch14a.png Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If both firms follow a high-price policy, A) each will realize a $20 million profit. B) Alpha will realize a $10 million profit and Beta a $30 million profit. C) each will realize a $15 million profit. D) Beta will realize a $10 million profit and Alpha a $30 million profit.
A) each will realize a $20 million profit.
The elasticity of resource demand will be greater the A) easier it is to substitute other resources in production. B) less the elasticity of demand for the product it is producing. C) smaller the portion of the product's total costs accounted for by the resource. D) less the elasticity of resource supply.
A) easier it is to substitute other resources in production.
The market supply curve for labor is upsloping because A) employers as a group must pay higher wage rates to obtain more workers. B) of diminishing returns. C) each employer is a "wage taker." D) of declining MRC.
A) employers as a group must pay higher wage rates to obtain more workers.
The concept of investment in human capital indicates that A) expenditures on education can be explained in essentially the same way as expenditures on machinery and equipment. B) the level of education is unrelated to the level of one's income. C) union workers are better educated and more productive than nonunion workers. D) worker productivity correlates negatively with annual earnings.
A) expenditures on education can be explained in essentially the same way as expenditures on machinery and equipment.
Increases in the productivity of labor result partly from A) improvements in technology. B) increases in the quantity of labor. C) reductions in wage rates. D) the law of diminishing returns.
A) improvements in technology.
Inclusive unionism is practiced mostly by A) industrial unions. B) craft unions. C) small unions consisting of skilled workers, such as the bricklayers. D) professional and semiprofessional employees.
A) industrial unions.
The monopolistically competitive seller maximizes profit by producing at the point where A) marginal revenue equals marginal cost. B) total revenue is at a maximum. C) average costs are at a minimum. D) price equals marginal revenue.
A) marginal revenue equals marginal cost.
A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until A) marginal revenue product equals marginal resource (labor) cost. B) marginal revenue product is zero. C) marginal revenue product exceeds marginal resource (labor) cost by the greatest amount. D) marginal resource cost is zero.
A) marginal revenue product equals marginal resource (labor) cost.
Monopolistically competitive firms A) may realize either profits or losses in the short run but realize normal profits in the long run. B) realize normal profits in the short run but losses in the long run. C) incur persistent losses in both the short run and long run. D) persistently realize economic profits in both the short run and long run.
A) may realize either profits or losses in the short run but realize normal profits in the long run.
Resource pricing is important because A) of all of these reasons. B) resource prices, along with resource productivity, are important to firms in minimizing their costs. C) resource prices are a major determinant of money incomes. D) resource prices allocate scarce resources among alternative uses.
A) of all of these reasons.
A craft union attempts to increase wage rates by A) shifting the labor supply curve to the left. B) equating the MRP and the MRC curves. C) shifting the labor supply curve to the right. D) shifting the MRP curve to the right.
A) shifting the labor supply curve to the left.
https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image006ch13a.png If all monopolistically competitive firms in the industry have profit circumstances similar to the firm shown, A) some firms will exit the industry. B) new firms will enter the industry. C) all firms will exit the industry. D) no firms will exit the industry.
A) some firms will exit the industry.
Unit of Labor Total Product Product Price 0 0 $2.20 1 15 2.00 2 28 1.80 3 39 1.60 4 48 1.40 5 55 1.20 6 60 1.10 The data in the table reveal that A) the firm is selling its product in an imperfectly competitive market. B) the firm is hiring labor in an imperfectly competitive market. C) the firm is selling its product in a purely competitive market. D) there is no level of output at which this firm can operate at a profit.
A) the firm is selling its product in an imperfectly competitive market.
Assume the price of capital falls relative to the price of labor and, as a result, the demand for labor increases. Therefore, A) the output effect is greater than the substitution effect. B) the substitution effect is greater than the output effect. C) the income effect is greater than the output effect. D) capital is very highly substitutable for labor.
A) the output effect is greater than the substitution effect.
The kinked-demand curve model of oligopoly is useful in explaining A) why oligopolistic prices might change infrequently. B) the process by which oligopolists merge with one another. C) why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. D) the way that collusion works.
A) why oligopolistic prices might change infrequently.
https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image008ch14a.png Refer to the diagram, where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell A) B. B) A. C) C. D) D.
B) A.
Which of the following best describes a Nash equilibrium? A) An outcome from which one or both competitors can improve their position by adopting an alternative strategy. B) An outcome that both competitors see as optimal, given the strategy of their rival. C) An outcome that is stable only because of credible threats. D) The unstable outcome of a repeated game.
B) An outcome that both competitors see as optimal, given the strategy of their rival.
https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image021ch14a.png Refer to the payoff matrix. Which of the following statements is true regarding the outcome of this game? A) Both firms will price low, but this outcome is not a prisoner's dilemma. B) Both firms will price low, and this outcome is a prisoner's dilemma. C) Both firms will price high, but this outcome is not a prisoner's dilemma. D) Both firms will price high, and this outcome is a prisoner's dilemma.
B) Both firms will price low, and this outcome is a prisoner's dilemma.
Unions might support a higher minimum wage because A) their constitutions obligate them to do so. B) a higher minimum wage makes less-skilled workers less substitutable for union workers. C) they feel a higher minimum wage will lower labor's tax payments for welfare programs. D) the minimum wage is better targeted than are alternative income-maintenance programs.
B) a higher minimum wage makes less-skilled workers less substitutable for union workers.
The principal-agent problem arises primarily because A) principals pursue some of their own objectives, which may conflict with the objectives of the agents. B) agents pursue some of their own objectives, which may conflict with the objectives of the principals. C) principals and agents share a common interest, leading to free-rider problems. D) principals and agents are in an adversarial role, sharing no common interests.
B) agents pursue some of their own objectives, which may conflict with the objectives of the principals.
The likelihood of a cartel being successful is greater when A) the economy is in the recession phase of the business cycle. B) cost and demand curves of various participants are very similar. C) firms are producing a differentiated, rather than a homogeneous, product. D) the number of firms involved is relatively large.
B) cost and demand curves of various participants are very similar.
The labor supply curve facing a purely competitive employer is __________, whereas the labor supply curve facing a monopsonist is ___________. A) vertical; upsloping B) horizontal; upsloping C) downsloping; vertical D) upsloping; horizontal
B) horizontal; upsloping
Marginal revenue product (MRP) of labor refers to the A) increase in total revenue resulting from selling an additional unit of output. B) increase in total revenue resulting from hiring one more unit of labor. C) price at which additional units of labor can be employed in a monopsonized labor market. D) amount by which a firm's total resource cost increases when it employs one more unit of labor.
B) increase in total revenue resulting from hiring one more unit of labor.
Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason for this is to A) restrict the supply of construction workers. B) increase the demand for construction workers. C) increase the elasticity of demand for construction workers. D) increase the price of substitute inputs.
B) increase the demand for construction workers.
An industry having a four-firm concentration ratio of 85 percent A) is monopolistically competitive. B) is an oligopoly. C) approximates pure competition. D) is a pure monopoly.
B) is an oligopoly.
The MRP curve for labor A) lies below the firm's labor demand curve. B) is the firm's labor demand curve. C) intersects the firm's labor demand curve from above. D) lies above the firm's labor demand curve.
B) is the firm's labor demand curve.
Which of the following tactics is most associated with the demand-enhancement union model? A) restricting the number of workers allowed to work in the industry B) lobbying for increases in public expenditures on the product it is producing C) increasing the price of products that are complements for the one it is producing D) reducing the price of inputs that are substitutes for union workers
B) lobbying for increases in public expenditures on the product it is producing
In a sequential game, the first mover into a new market A) always earns a greater payoff than the second mover. B) may discourage the second mover from entering that market. C) guarantees that a Nash equilibrium will result. D) only enters when there is a dominant strategy.
B) may discourage the second mover from entering that market.
The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because A) increased output due to persuasive advertising may perfectly offset the restriction of output caused by monopoly power. B) over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive. C) many oligopolists sell their products in monopolistically competitive or even purely competitive industries. D) industry price leaders often select a price equal to marginal cost.
B) over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
In monopolistic competition, if a firm advertises and effectively raises consumer awareness of its product, it tends to A) lower costs and increase demand for its product. B) raise costs and increase demand for its product. C) raise costs and decrease demand for its product. D) lower costs and decrease demand for its product.
B) raise costs and increase demand for its product.
Compensating differences in wages A) compensate workers for differences in their human capital. B) reward workers differently based on differences in the desirability of jobs. C) describe the tendency for the wages of all occupations to adjust to the median level. D) do not exist if jobs have different nonmonetary characteristics.
B) reward workers differently based on differences in the desirability of jobs.
An employer hiring in a competitive labor market should hire additional labor as long as A) the wage rate is less than MP. B) the MRP exceeds the wage rate. C) MC exceeds MR. D) average product exceeds MP.
B) the MRP exceeds the wage rate.
Units of Labor Wage Rate MRC (of Labor) MRP (of Labor) 1 $8 $8 $12 2 8 8 $10 3 8 8 8 4 8 8 6 5 8 8 4 Refer to the given data. If there is neither a union nor a minimum wage, we can conclude that this firm A) has a perfectly elastic labor demand curve. B) is a monopsonist. C) "purchases" labor in a purely competitive labor market. D) faces a perfectly inelastic labor supply curve.
C) "purchases" labor in a purely competitive labor market.
Quantity of Labor Total Product Total Revenue 1 4 $16 2 8 32 3 11 44 4 13 52 5 14 56 Refer to the given data. The marginal revenue product of the second worker is A) $8. B) $4. C) $16. D) $32.
C) $16.
https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/image002ch13a.png Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be A) $19. B) $13. C) $16. D) $10.
C) $16.
Labor Demand Data Labor Supply Data Employment Toatal Product Product Price Employment Wage Rate 0 0 $2.20 0 -- 1 15 2.00 1 $1.00 2 28 1.80 2 2.00 3 39 1.60 3 3.00 4 48 1.40 4 4.00 5 55 1.20 5 5.00 6 60 1.00 6 6.00 The table shows labor demand data on the left and labor supply data on the right. How many workers will this profit-maximizing firm choose to employ? A) 5 B) 6 C) 3 D) 4
C) 3
Which of the following statements best illustrates the concept of derived demand? A) A decline in the price of margarine will reduce the demand for butter. B) As income goes up, the demand for farm products will increase by a smaller relative amount. C) A decline in the demand for shoes will cause the demand for leather to decline. D) When the price of gasoline goes up, the demand for motor oil will decline.
C) A decline in the demand for shoes will cause the demand for leather to decline.
https://ezto.mheducation.com/extMedia/bne/McConnell%2021e/Figure14ach14aa.jpg The diagram shows the extensive form version of a strategic game between the two nationally dominant coffee sellers, Corporate Coffee and Jumbo Java, both of whom are considering opening coffee shops in a new town. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What is the solution to this extensive form game? A) Neither firm will open a new coffee shop in this town. B) Both firms will open a new coffee shop in this town. C) Corporate Coffee will open a new coffee shop in this town; Jumbo Java will not. D) Jumbo Java will open a new coffee shop in this town; Corporate Coffee will not.
C) Corporate Coffee will open a new coffee shop in this town; Jumbo Java will not.
Which of the following will not shift the demand curve for labor? A) the use of a larger stock of capital with the labor force B) the adoption of a more efficient method of combining labor and capital in the production process C) a change in the wage rate D) an increase in the price of the product that labor is helping to produce
C) a change in the wage rate
In the short run, a profit-maximizing monopolistically competitive firm sets it price A) equal to marginal cost. B) equal to marginal revenue. C) above marginal cost. D) below marginal cost.
C) above marginal cost.
Marginal resource cost refers to the A) increase in total revenue resulting from the sale of the extra output of one more worker. B) price at which additional units of a resource can be hired in an imperfectly competitive resource market. C) amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource. D) increase in total cost resulting from producing one more unit of output.
C) amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.
OPEC provides an example of A) a monopolistically competitive industry. B) noncollusive oligopoly. C) an international cartel. D) an unwritten, informal understanding.
C) an international cartel.
Which of the following is the best example of oligopoly? A) cotton farming B) restaurants C) automobile manufacturing D) women's dress manufacturing
C) automobile manufacturing
Three major means of collusion by oligopolists are A) cartels, kinked-demand pricing, and product differentiation. B) market sharing, mutual interdependence, and product differentiation. C) cartels, informal understandings, and price leadership. D) informal understandings, P = MC pricing, and mutual interdependence.
C) cartels, informal understandings, and price leadership.
Other things equal, we would expect the labor demand curve of a monopolistic seller to A) decline less rapidly than that of a purely competitive seller. B) decline at the same rate as that of a purely competitive seller. C) decline more rapidly than that of a purely competitive seller. D) be more elastic than that of a purely competitive seller.
C) decline more rapidly than that of a purely competitive seller.
The idea of efficiency wages is that A) workers are more diligent when paid below-equilibrium wages. B) the wages of each type of labor must be proportionate to their marginal products. C) firms might get greater work effort by paying above-equilibrium wage rates. D) the wages of each type of labor must be equal to their marginal products.
C) firms might get greater work effort by paying above-equilibrium wage rates.
A monopolistically competitive firm's marginal revenue curve A) is downsloping and coincides with the demand curve. B) does not exist because the firm is a "price maker." C) is downsloping and lies below the demand curve. D) coincides with the demand curve and is parallel to the horizontal axis.
C) is downsloping and lies below the demand curve.
The monopolistically competitive seller's demand curve will become more elastic the A) smaller the number of competitors. B) greater the degree of product differentiation. C) larger the number of competitors. D) more significant the barriers to entering the industry.
C) larger the number of competitors.
A monopolistically competitive industry combines elements of both competition and monopoly. The competition element results from A) product differentiation. B) the likelihood of collusion. C) low entry barriers. D) mutual interdependence in decision making.
C) low entry barriers.
In long-run equilibrium, a monopolistically competitive producer achieves A) productive efficiency but not allocative efficiency. B) allocative efficiency but not productive efficiency. C) neither productive efficiency nor allocative efficiency. D) both productive efficiency and allocative efficiency.
C) neither productive efficiency nor allocative efficiency.
The purely competitive employer of resource A will maximize the profits from A by equating the A) marginal productivity of A with the price of A. B) price of A with the MRC of A. C) price of A with the MRP of A. D) marginal productivity of A with the MRC of A.
C) price of A with the MRP of A.
The labor demand curve of a purely competitive seller A) slopes downward because the elasticity of demand is always less than unity. B) slopes downward because of diminishing marginal utility. C) slopes downward because of diminishing marginal productivity. D) is perfectly elastic at the going wage rate.
C) slopes downward because of diminishing marginal productivity.
Which of the following is most likely to be an example of monopsony? A) the market for card dealers in Las Vegas B) the market for retail sales clerks in a major city C) the market for Major League Baseball umpires D) the market for fast-food workers in a large summer resort town
C) the market for Major League Baseball umpires
Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million, respectively. We can conclude that A) firms in this industry likely collude with each other. B) this industry is an oligopoly. C) this industry is monopolistically competitive. D) the concentration ratio is 25 percent.
C) this industry is monopolistically competitive.
Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 80 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is A) $6. B) $80. C) $8. D) $48.
D) $48.
A firm is hiring resources X, Y, and Z in the profit-maximizing amounts when A) the marginal revenue productivity of all three resources is the same. B) the sum of the MRPs of the three resources is at a minimum. C) the marginal revenue product of the last dollar spent on each of the three resources is the same. D) MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1.
D) MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1.
If a single large employer bargains with an inclusive union, the resulting labor market model can best be described as A) countervailing power. B) an internal labor market. C) a cartel. D) a bilateral monopoly.
D) a bilateral monopoly.
The term oligopoly indicates A) many producers of a differentiated product. B) a one-firm industry. C) an industry whose four-firm concentration ratio is low. D) a few firms producing either a differentiated or a homogeneous product.
D) a few firms producing either a differentiated or a homogeneous product.
Marginal revenue product measures the A) decline in product price that a firm must accept to sell the extra output of one more worker. B) increase in total resource cost resulting from the hire of one extra unit of a resource. C) increase in total revenue resulting from the production of one more unit of a product. D) amount by which the addition of one more worker increases a firm's total revenue.
D) amount by which the addition of one more worker increases a firm's total revenue.
The economic inefficiencies of monopolistic competition may be offset by the fact that A) advertising expenditures shift the average cost curve upward. B) resources are optimally allocated to the production of the product. C) available capacity is fully utilized. D) consumers have increased product variety.
D) consumers have increased product variety.
If the price of a resource is greater than its marginal revenue product, the firm should A) make no change in the units of the resource used. B) charge a higher price for its product. C) increase the units of the resource used in order to increase profits. D) decrease the units of the resource used in order to increase profits.
D) decrease the units of the resource used in order to increase profits.
The marginal productivity theory of income distribution suggests that A) resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants." B) government should subsidize the most productive workers through a system of transfer payments. C) resource owners should receive income based upon their needs. D) each individual receives income based on his or her contribution to total output.
D) each individual receives income based on his or her contribution to total output.
Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. Harry should A) not hire the second barber, because he will diminish profits. B) hire the second barber because he will add $108 to profits. C) not hire the second barber, because he is less productive than the first barber. D) hire the second barber because he will add $28 to profits.
D) hire the second barber because he will add $28 to profits.
Advertising can impede economic efficiency when it A) reduces brand loyalty. B) enables firms to achieve substantial economies of scale. C) increases consumer awareness of substitute products. D) increases entry barriers.
D) increases entry barriers.
An industry having a four-firm concentration ratio of 30 percent A) approximates pure competition. B) is an oligopoly. C) is a pure monopoly. D) is monopolistically competitive.
D) is monopolistically competitive.
Game theory A) is best suited for analyzing purely competitive markets. B) reveals that price-fixing among firms reduces profits. C) reveals that mergers between rival firms are self-defeating. D) is the analysis of how people (or firms) behave in strategic situations.
D) is the analysis of how people (or firms) behave in strategic situations.
The economic term for a firm that is the sole buyer in a market is A) bilateral competitor. B) monopolist. C) bilateral monopolist. D) monopsonist.
D) monopsonist.
Under monopolistic competition, entry to the industry is A) more difficult than under pure monopoly. B) completely free of barriers. C) blocked. D) more difficult than under pure competition but not nearly as difficult as under pure monopoly.
D) more difficult than under pure competition but not nearly as difficult as under pure monopoly
Which of the following is a unique feature of oligopoly? A) product differentiation B) advertising expenditures C) nonprice competition D) mutual interdependence
D) mutual interdependence
Which of the following is not a basic characteristic of monopolistic competition? A) the use of trademarks and brand names B) product differentiation C) a relatively large number of sellers D) recognized mutual interdependence
D) recognized mutual interdependence
(Consider This) The prisoner's dilemma reveals that A) the price leadership model does not work. B) nonprice competition is more profitable than price competition. C) collusive agreements will always fail. D) sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
D) sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
Marginal resource cost is A) the increase in total resource cost associated with the production of one more unit of output. B) the change in total revenue associated with the employment of one more unit of the resource. C) total resource cost divided by the number of inputs employed. D) the increase in total resource cost associated with the hire of one more unit of the resource.
D) the increase in total resource cost associated with the hire of one more unit of the resource.
In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits A) must be less than ATC. B) must be more than ATC. C) may be either equal to ATC, less than ATC, or more than ATC. D) will be equal to ATC.
D) will be equal to ATC.
