Final Exam Econ 301 -- Muhammad

Assume that the price *elasticity of demand is -2* for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:

A. Decrease

When a *one percent change in price* causes a change in quantity demanded greater than one percent, demand for the product is

A. Relatively Elastic

A price *elasticity of zero* corresponds to a demand curve that is:

C. Vertical

A Herfindahl index of 0 suggests

C. perfect competition

In the short run, the marginal cost of producing a good *increases* as output flow *increases* because

d. the marginal product of the *variable inputs decreases* as the amounts used increase.

A firm using two inputs *(call them "capital" and "labor")* has an efficient combination of capital and labor levels when

d. the ratio of the marginal product of capital *over the price of capital* equals the ratio of the marginal product of labor over the price of labor.

Suppose the demand for a product is *QXd = 10 - lnPX* then product X is

C. Unitary Elastic

In a competitive industry with *identical firms*, long run equilibrium is characterized by

d. All of the statements associated with this question are correct

The *source(s) of monopoly power* for a monopoly may be:

d. All of the statements associated with this question are correct

An electronic company purchases a food company. This is an example of:

d. Conglomerate integration

Which of the following are measures of *industry concentration*?

d. Four-firm concentration ratio and HHI index

There is *no market supply curve* in a

d. Monopolistically competitive *and* monopolistic markets

Firms have *market power* in:

d. Monopolistically competitive markets *and* monopolistic markets

Differentiated goods are *not a feature* of a

d. Perfectly competitive market *and* monopolistic market

Cost complementary exits in a *multiproduct* cost function when

d. The *marginal cost* of producing one output is *reduced* when the output of another product is increased

Which of the following conditions is true when a producer *minimizes the cost of producing* a given level of output?

d. The MRTS is equal to the ratio of input prices and the *marginal product per dollar* spent on all inputs is equal

Which of the following features is *common to both* perfectly competitive markets and monopolistically competitive markets?

d. There is free entry and long run profits are zero

The main difference between perfect competition and monopolistic competition is

d. the degree of *product differentiation.*

If the cross-price elasticity between *good A & B is negative*, we know the goods are:

B. Complements

In the long-run, monopolistically competitive firms:

B. Have excess capacity

A frozen food company buys a fresh food company. This takeover is an example of:

B. Horizontal Integration

Which of the following is a *correct representation* of the profit maximization condition for a monopoly?

B. MC = MR

If a firm decreases the price of its product and finds its *total revenue flow also decreases*, then

B. the demand for this product is *price inelastic*

At the output flow level where MC = MR,

B. total profit is maximized

Suppose the production function is given by *Q = 3K + 4L*. What is the *average product* of capital when 10 units of capital and 10 units of labor are employed?

C. 7

Suppose the production function is *Q = min {K, 2L}*. How much output is produced when 4 units of labor and 9 units of capital are employed?

C. 8

Demand is perfectly elastic when the *absolute value of the own price* elasticity of demand is:

C. Infinite

The demand for good X has been estimated by *QXd =12 - 3PX + 4PY*. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.

D. -0.6

For the cost function *C(Q) = 100 + 2Q + 3Q2*, the marginal cost of producing 2 units of output is

D. 14

If a firm's production function is *Leontief* and the *wage rate goes up* the

D. Cost minimizing combination of capital and labor *does not change*.

The own-price elasticity of demand for *apples is -1.2*. If the price of apples falls by 5%, what will happen to the quantity of apples demanded?

D. It will increase 6%

The primary difference between Monopolistic Competition and Perfect Competition is

D. None of the statements associated with this question are correct

In the long-run, monopolistically competitive firms produce a level of output such that

D. all of the statements associated with this question are correct

A Lerner index of 0 suggests

D. perfect competition

An *unregulated* industry has a Lerner index of *zero*. These numbers:

c. Are consistent with the industry being *perfectly competitive*

Economies of scope exist when

c. C(Q1) *+* C(Q2) *>* C(Q1,Q2)

A Herfindahl index of 10,000 suggests

c. Monopoly

A perfectly competitive firm faces a:

a. *Perfectly elastic* demand function

If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits the firm will

a. *Reduce* output and *increase* price

An industry is *comprised of 20 firms*, each with an equal market share. What is the 4-firm concentration ratio of this industry?

a. 0.20

As a general rule of thumb, industries with a Herfindahl index below ______ are considered to be competitive, while those above ______ are considered non-competitive.

a. 1,000, 1,800

Economies of scale exist whenever:

a. Average total costs *decline* as output increases

As the usage of an input increases, marginal product

a. Initially increases then begins to *decline*

An electronic company *takes over* one of its original suppliers in a merger. This is an example of:

a. Vertical integration

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

b. 0.50

Which of the following integration types *exploits* economies of scope?

b. Horizontal integration

Which of the following is true under monopoly?

b. P *>* MC

*You are an efficiency expert* hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm:

c. Should use *more L* and *less K* to cost minimize

"Monopolistic competition is literally a kind of competition. Hence, there is no deadweight loss in a monopolistically competitive market."

c. The statement is incorrect

A student figured out that the HHI for an industry was 15,000. What is the proper conclusion?

c. The student made some *computational errors*

If firms are earning *positive economic profit* in a monopolistically competitive market, which of the following is most likely to happen in the long run?

c. new firms will *enter* the market, driving economic profit to zero

Which of the following is true?

d. In the *short run* a monopoly will shutdown if P < AVC

A firm has a marginal cost of $18 and charges a price of $27. The Lerner index for this firm is:

A. 0.33

Which of the following is *true for a price-maker seller* (a monopolist or a member of an oligopoly or monopolistic competition) that is maximizing its profit or minimizing its loss?

C. P *>* MR

Assume a firm employs *10 workers* and pays each $15 per hour. Also assume that the marginal product of an *11th worker* would be 5 additional units of output per hour and that the price the firm receives for its good is $4 per unit. In the short run,

a. the firm should *hire* at least one additional worker.

Which of the following market structures would you expect to *yield the greatest product variety*?

b. Monopolistic Competition

*Differentiated goods* are a feature of a:

b. Monopolistically competitive market

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use

b. More labor and less capital

Which of the following is true under monopoly?

b. P > minimum of ATC

The industry elasticity of *demand for gadgets* is -2, while the elasticity of demand for an individual gadget manufacturer's product is -2. Based on the Rothschild approach to measuring market power, we conclude that

b. There is *significant monopoly* power in this industry

Assume a firm in a perfectly competitive market has the short-run total cost function TC = 100 + 160Q + 3Q2. If the market price is $196, what should it do?

b. produce 6 units per time period.

Which of the following statements concerning monopoly is NOT true?

c. A monopoly is always undesirable

In the long-run, perfectly competitive firms produce a level of output such that:

c. P = MC *and* P = minimum of AC

In the long-run, monopolistically competitive firms charge prices

d. *Above* the minimum of average total cost

The production function for a competitive firm is *Q = K.5L.5*. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at 25 units. The profit-maximizing quantity of labor is

d. *None* of the statements associated with this question are correct

Which of the following is (are) *basic feature(s)* of a perfectly competitive industry?

d. All of the statement associated with this question are correct