Econ Midterm 3 Test Prep

The marginal product of labor measures which of these? the additional wages per additional unit of input the additional output per additional unit of labor the additional revenue per additional unit of output the additional input per additional unit of revenue

the additional output per additional unit of labor

Suppose that if the market for pencils were a monopoly, profits would be maximized by producing 7,000 cases of pencils. If, instead, that market were a duopoly, then which of the following outcomes would indicate successful collusion? 7,000 cases of pencils are produced by each duopolist. 3,000 cases of pencils are produced by one duopolist and 4,000 cases of pencils are produced by the other. 5,000 cases of pencils are produced by each duopolist. 10,000 cases of pencils are produced by one duopolist and 4,000 cases of pencils are produced by the other.

3,000 cases of pencils are produced by one duopolist and 4,000 cases of pencils are produced by the other. (duopoly divides output bt them w/o producing more)

A consumer's preferences for bicycle tires and bicycle frames can be represented by indifference curves that are perfect complements. True False

true

If Jake's indifference curves intersect, his preferences would contradict the assumption that a consumer always prefers more of both goods to less. True False

true

If an indifference curve is bowed inward, the marginal rate of substitution varies along it. True False

true

The concentration ratio for breakfast cereal market is 60% 20% 80% 40%

80%

Suppose Samantha is planning for two periods in her life: (1) young and working, and (2) old and retired. When the interest rate rises from 5 percent to 10 percent, Samantha plans to consume more in period (1) due to the higher interest rate. For Samantha, the income effect is greater than the substitution effect. True False

True

After Alicia wins $20 million in the multi-state lottery, she retires from her job as a college professor and volunteers at a local animal shelter. We can assume that for Alicia, the income effect is greater than the substitution effect. True False

True

It is possible to have positive accounting profit and zero economic profit for a firm. True False

True

Which condition would shift the labor supply curve to the left in the market for manicurists? A decrease in the value of leisure time among manicurists. A decrease in the wages paid to manicurists. A decrease in the population through emigration. A decrease in the wages paid to pedicurists.

A decrease in the population through emigration.

Suppose a country experiences a decrease in the equilibrium quantity of labor and an increase in the equilibrium wage. What could have caused this change? A decrease in the retirement age. An increase in labor productivity An increase in immigration A decrease in inflation

A decrease in the retirement age. more people leave earlier - left shift in labor supply

In a monopoly market, which of these occurs when marginal revenue equals zero? Total revenue is maximized. Marginal cost is negative. Profit is maximized. Average revenue is zero.

Total revenue is maximized.

Suppose a country experiences an increase in the equilibrium quantity of labor and a decrease in the equilibrium wage. What could have caused this change? A decrease in the retirement age. An increase in labor productivity An increase in immigration A decrease in inflation

An increase in immigration

Which of the following statements is true? Average revenue is the same as price for both competitive and monopoly firms. Competitive firms and monopolies are subject to the price effect. When a monopoly firm sells an additional unit of output, its revenue increases by an amount equal to the price. When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.

Average revenue is the same as price for both competitive and monopoly firms.

Suppose Samantha is planning for two periods in her life: (1) young and working, and (2) old and retired. When the interest rate rises from 5 percent to 10 percent, Samantha plans to consume less in period (1) due to the higher interest rate. For Samantha, the income effect is greater than the substitution effect. True False

False

A shortage in the availability of frying pans will have which of these effects on the labor market for short-order cooks? Both equilibrium wages and equilibrium employment will decrease. Equilibrium wages will increase and the demand for labor will decrease. Both equilibrium wages and equilibrium employment will increase. Equilibrium wages will decrease and the demand for labor will increase.

Both equilibrium wages and equilibrium employment will decrease. With a shortage of frying pans, the demand for labor will decrease, resulting in a decrease in wages and employment at the same time.

Which legislation was passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits? Morgan Act Clayton Act 5th Amendment Sherman Act

Clayton Act 1914 2nd

What happens when a monopolist increases the price of its good? Consumers buy the same amount. Consumers may buy more or less, depending on the price elasticity of demand. Consumers buy more. Consumers buy less.

Consumers buy less.

If both players in a repeated prisoner's dilemma game use the tit-for-tat strategy, what happens? Cooperation will be maintained indefinitely. The game will start cooperatively, but cooperation will quickly breakdown. One of the players will change to a dominant strategy almost immediately. A Nash equilibrium will occur that gives both players a worse outcome than if they had used their dominant strategy.

Cooperation will be maintained indefinitely.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, which of the following is not true? The regulated monopoly may rely on a government subsidy to remain in business. The regulated monopoly will experience a loss. Deadweight loss still remains in this market. The regulated monopoly will experience a price below average total cost.

Deadweight loss still remains in this market. If the regulated price for a natural monopolist equals marginal cost, the monopoly suffers from an economic loss because price is below average total cost. Often times the regulated monopoly will rely on a government subsidy to remain in business because of this profit loss. Because the monopolist's price reflects the marginal cost of producing the good, deadweight loss no longer exists in this market.

A decrease in population size can be expected to do which of the following? Increase the rental price of land Decrease the marginal product of land Increase the demand for land Decrease the availability of land

Decrease the marginal product of land

Which of these resulted from the Black Death in fourteenth-century Europe? Economic hardship for surviving peasants An increase in rental prices for land Economic hardship for surviving landowners A decrease in average wages

Economic hardship for surviving landowners decrease in population = decrease in MP of land

fter Olivia receives a raise and promotion at work, she works even more hours than she did before she received the raise. We can assume that for Olivia, the income effect is greater than the substitution effect. True False

False

DeeDee uses her entire income to purchase books and wine. At any two points A and B on DeeDee's budget constraint, DeeDee experiences the same level of happiness. True False

False BC only shows cost not happiness

Firms with identical cost structures in a competitive market will have an upward sloping market long-run supply curve. True False

False horizontal long run supply curve

Suppose that the two firms in a duopoly have formed an agreement to maximize their joint profits by colluding together. Each firm is also maximizing their individual profit. True False

False - incentive to break

Which of the following correctly describes profits in the long run for a monopolistically competitive firm? Firms maximize profits when price is equal to marginal cost and average total cost. Firms maximize profits when marginal revenue is equal to marginal cost and demand is equal to average total cost. Firms maximize profits when marginal revenue is equal to price and demand is equal to average total cost. Firms maximize profits when marginal revenue is equal to price and average total cost.

Firms maximize profits when marginal revenue is equal to marginal cost and demand is equal to average total cost.

Which of these statements about the labor market is true? Firms hire new workers until the value of the marginal product of labor is maximized. Employment levels and wages are largely random. If the equilibrium wage in a market has changed, the value of the marginal product of labor has changed as well. A decrease in the supply of labor increases both wages and output.

If the equilibrium wage in a market has changed, the value of the marginal product of labor has changed as well.

A change in the supply of labor has which of these effects on land and capital? It changes the marginal productivities of land and capital but not their prices. It has no effect on either land or capital. It changes both the marginal productivities and the price of land and capital. It changes the price of land and capital but not their marginal productivities.

It changes both the marginal productivities and the price of land and capital.

Which of the following explains why, from society's standpoint, cooperation among oligopolists is undesirable? It leads to output levels that are too high and prices that are too low. It increases the variety of products for consumers. It leads to output levels that are too low and prices that are too high. It increases competition to an undesirable level.

It leads to output levels that are too low and prices that are too high. Q below competitive, P is above competitive

Consider the market for community college graduates. Suppose community college attendance becomes free for students who are enrolling for the first time, and that it takes two years to graduate from community college. If everything else remains the same, what will happen to the equilibrium wage for community college graduates two years from now? It will decrease. It will stay the same. It will increase. It cannot be determined from the information given.

It will decrease. When opportunity costs for any choice decrease, more people are likely to make that choice, so more people will go to community college. At the end of two years, these graduating students will increase the supply of labor, which reduces the wage rate.

Suppose that a severe drought hit California, resulting in 50,000 farm workers relocating to Texas from California. Which of these would occur? Rents for California landowners would increase. Wages for farm workers in California would decrease. Rents for Texas landowners would increase. Wages for farm workers in Texas would increase.

Rents for Texas landowners would increase. the marginal product of land would increase because there are more workers to work the land, so the demand for renting land would increase, pushing rents up.

Which legislation was passed by Congress in 1890 in order to reduce the market power of large and powerful "trusts?" Clayton Act Sherman Act 14th Amendment. Morgan Act

Sherman Act 1890 First antitrust law

Which of the following statements is NOT correct? The combined output of duopolists who successfully collude equals the output that would be produced by a monopolist The incentives faced by duopolists result in their joint production being more than the monopoly level, but not as high as the competitive level. The incentives faced by duopolists result in them undercutting each other's price, but not to the point where their prices equal the competitive price. Successful collusion requires direct communication.

Successful collusion requires direct communication.

The rental price of capital is most similar to which of the following? The marginal cost of production The equilibrium wage The marginal product of labor The equilibrium output

The equilibrium wage

Which of these situations produces the lowest profits for oligopolists? The firms reach a Nash equilibrium. The firms reach the competitive outcome. The firms reach the monopoly outcome. The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

The firms reach the competitive outcome.

Three grocery stores mail weekly flyers to area residents with prices for products on sale this week. The flyers also include the stores' locations and hours. Which of the following statements is not an argument defenders of advertising would make regarding these flyers? The flyers convey information to consumers. The flyers foster brand loyalty. The advertisements make the grocery market in this town more competitive. The advertisements allow consumers to make better choices

The flyers foster brand loyalty. (critics argument)

Suppose a country goes to war and mobilizes a large part of the working-age population to serve in the military. Which of these occurs in that country? Profit-maximizing firms increase employment. The equilibrium wage decreases. The marginal product of labor increases. Total output increases.

The marginal product of labor increases.

Which of these occurs when a worker's wage decreases from $15 per hour to $12 per hour? The worker's opportunity cost for an hour of leisure decreases by $3 per hour. The worker's opportunity cost for an hour of leisure increases by $3 per hour.

The worker's opportunity cost for an hour of leisure decreases by $3 per hour.

Monopoly pricing prevents some mutually beneficial trades from taking place. Which of the following is not true about those unrealized, mutually beneficial trade? They are offset by the higher profits earned by a monopolist. They are not a concern if a market is perfectly competitive. They are a function of a reduction in the quantity produced by a monopolist in comparison to a competitive market. They represent a deadweight loss to society.

They are offset by the higher profits earned by a monopolist.

If a firm in a competitive market doubles the quantity of units sold, total revenue will exactly double. True False

True Doubling units sold for a firm in a competitive market will exactly double total revenue. Since marginal revenue is equal to price for a firm in a competitive market, doubling the amount of output will double total revenue.

Suppose that restoration of the Everglades reduces the availability of farmland in Florida. What would happen to the wages earned by workers and rents earned by landowners? Wages would increase, and rents would decrease. Both wages and rents would increase. Wages would decrease, and rents would increase. Both wages and rents would decrease.

Wages would decrease, and rents would increase. Less land to farm, demand for farm workers decreases. Supply of land decreases, increased rent.

If a firm has increasing quantity, but the same price, does the demand represented mean it's a competitive market?

Yes Competitive markets face horizontal demand curves. Price does not depend on quantity produced.

Markets where firms typically spend between 10 to 20 percent of revenue on advertising sell a good produced internationally. a differentiated product. a homogenous product. a good produced domestically.

a differentiated product.

A firm has to be most concerned about the price effect when the market is a monopoly an oligopoly other than a duopoly a duopoly competitive

a monopoly

Excess capacity describes a situation where average total cost is increasing. the firm is operating in the long run. the firm is operating in the short run. average total cost is decreasing.

average total cost is decreasing.

When indifference curves are __________, consumers are more inclined to trade __________. straight lines; away goods of which they have little right angles; away goods of which they have little bowed out; away goods that they have in abundance bowed in; away goods that they have in abundance

bowed in; away goods that they have in abundance

How is the value of marginal product of labor determined? by calculating the revenue earned from selling one more unit of product by calculating the cost of hiring one more worker at the equilibrium wage rate by calculating the revenue earned from hiring one more worker at the equilibrium wage rate by calculating the output a firm would produce after hiring one more worker

by calculating the revenue earned from hiring one more worker at the equilibrium wage rate

How can the economic efficiency of a monopolist not be measured? by the monopolist's profit by deadweight loss by the area above marginal cost but beneath demand from the monopoly output to the socially-efficient output by the value of the unrealized trades that could be made if the monopolist produced the socially-efficient output

by the monopolist's profit

If marginal revenue is currently less than marginal cost at the current level of output, then increasing output by one unit will have no effect on profits for the firm. decreasing output by one unit will decrease profits for the firm. increasing output by one unit will increase profits for the firm. decreasing output by one unit will increase profits for the firm.

decreasing output by one unit will increase profits for the firm.

Which of the following statements is not correct? Monopolies are socially inefficient because they do not maximize the market's total surplus. charge a price above marginal cost. earn profits at the expense of consumers. produce too little.

earn profits at the expense of consumers.

If neither player in a game has a dominant strategy, there is no Nash equilibrium. True False

false - DS is not required for Nash

A budget constraint shows the maximum utility that a consumer can receive for a given level of income. True False

false - bundles afford

Which of the following describes why the market long-run supply curve would be upward sloping? entry of new firms does not change the cost structure of existing firms in the market all inputs and resources are available in unlimited quantities firms have different cost structures. consumers have more market power than producers

firms have different cost structures. If firms with higher costs enter the market, the price in the market must raise to make entry profitable. This can result in an upward sloping market long-run supply curve.

In the long run market supply will be horizontal if firms have identical cost structures. firms have different cost structures. inputs are only available in limited quantities. the cost of production for firms increases as new firms enter the market.

firms have identical cost structures. Each identical firm will operate where price is equal to the minimum of long-run average total cost.

A monopolistically competitive firm observes a downward-sloping demand curve because firms produce a nearly identical product. there are only a few firms in the market. firms produce a differentiated product. there are many firms in the market.

firms produce a differentiated product.

A monopolistically competitive firm is efficient because price is greater than marginal cost. inefficient because price is greater than marginal cost. inefficient because marginal revenue is greater than average revenue. efficient because marginal revenue is greater than average revenue.

inefficient because price is greater than marginal cost.

When Elmer's income is $1,000, he consumes 30 units of good X and 10 units of good Y. When his income decreases to $800, he consumes 32 units of good X and 8 units of good Y. For Elmer, good X is a(n) normal good, and good Y is an inferior good. inferior good, and good Y is an inferior good. inferior good, and good Y is a normal good. normal good, and good Y is a normal good.

inferior good, and good Y is a normal good.

Suppose an advertisement uses a group of well-known celebrities having a good time while consuming a new product. Defenders of advertising would argue that the advertisement informs consumers about the existence of a new product. is more psychological than informative. creates a desire that might otherwise not exist. fosters brand loyalty.

informs consumers about the existence of a new product.

Suppose a firm has a monopoly on the sale of boomerangs and faces a downward-sloping demand curve. When selling the 20th boomerang, the firm will always receive ________ on the 20th boomerang then it received on the 19th boomerang. more total revenue more marginal revenue more average revenue less marginal revenue

less marginal revenue MR is always less than P - downward sloping demand curve - always receive less MR for each additional output

Competitive firms have more/ less elastic supply curves in the long run.

long run S is more elastic than short run supply (enter and exit more easily in long run than in short run)

At an optimal choice point, the ratio of the __________ equals the ratio of the __________. marginal utilities; prices opportunity cost; marginal rates of substitution budget constraints; prices demand curve; supply curve

marginal utilities; prices

Suppose that Ariana consumes two goods, Ramen noodles and gasoline. Ramen noodles are an inferior good, and gasoline is a normal good. Suppose the price of gasoline decreases, while the price of Ramen noodles remains unchanged. The substitution effect by itself suggests that Ariana will consume less gasoline and fewer Ramen noodles. more gasoline, and the effect on Ramen noodle consumption is ambiguous. more gasoline and fewer Ramen noodles. more gasoline and more Ramen noodles.

more gasoline and fewer Ramen noodles. (normal/inferior doesn't change sub effect)

Which of the following market structures charge a price equal to marginal cost when maximizing profits? monopoly perfect competition duopoly monopolistic competition

perfect competition

Which of the following markets is likely to be monopolistically competitive? mobile phone service pizza eggs tablets

pizza (large number of firms, product diff, free entry/exit) NOT mobile phone or tablet bc small number of firms offering similar/identical products NOT eggs bc large number of firms selling identical product

If the decision by the firms in a duopoly to set prices high or low creates payoffs like the prisoner's dilemma, then the cooperative outcome is good for the two firms and good for society. the Nash equilibrium is good for the two firms and good for society. the cooperative outcome is good for the two firms but bad for society. the Nash equilibrium is good for the two firms but bad for society.

the cooperative outcome is good for the two firms but bad for society.

If use of a common resource by two people creates payoffs like the prisoner's dilemma, then the cooperative outcome is good for the two people and good for society. the Nash equilibrium is good for the two people and good for society. the cooperative outcome is good for the two people but bad for society. the Nash equilibrium is good for the two people but bad for society.

the cooperative outcome is good for the two people and good for society. (In the case of a common resource, because the cooperative outcome leads to less overuse, the cooperative outcome is also good for society.)

The marginal productivity of capital is reflected in the supply curve for capital neither the demand curve nor the supply curve for capital the demand curve for capital both the demand curve and the supply curve for capital

the demand curve for capital

One explanation for why the market long-run supply curve slopes upward is because firms in a competitive market cannot freely enter or exit. firms have identical cost structures. prices to adjust efficiently in competitive markets. the inputs in production are only available in limited quantities.

the inputs in production are only available in limited quantities. As producers are required to use more available resources, the cost of production will increase allowing the market long-run supply curve to slope upward.

In the standard prisoners' dilemma game, if one prisoner remains silent the other prisoner will remain silent too the game is no longer a prisoners' dilemma the other prisoner will confess the other prisoner's actions cannot be determined

the other prisoner will confess DS is always to confess

As the number of firms in an oligopoly increases, the price effect decreases, giving firms more of an incentive to increase output. the output effect increases, giving firms less of an incentive to increase output. the price effect decreases, giving firms less of an incentive to increase output. the output effect increases, giving firms more of an incentive to increase output.

the price effect decreases, giving firms more of an incentive to increase output. (more and more firms together begin to look like competitive market, where price effect is 0)

The difficulty of cooperating is exemplified by the prisoners' dilemma game dominant strategies game theory the tit-for-tat strategy

the prisoners' dilemma game

Which of the following is a likely effect from firms entering into a competitive market? the demand for the product should increase. the market supply curve will shift left the profits for existing firms will decline. the market price for the product should increase

the profits for existing firms will decline. As firms enter into a competitive market, market price will decline and profits for existing firms will be reduced.