Microeconomic Final Exam

Suppose that the labor market for construction workers in a city has one employer and 10,000 workers. The model that best fits this situation is

monopsony.

The provision of specific goods and services to poor people is

noncash assistance.

To maximize profits, a monopoly

produces less output than a competitive firm.

In a perfectly competitive industry where firms are making economic losses,

some firms in the industry may exit the industry.

The Lorenz curve shows

the income distribution of a country.

The backward-bending portion of the labor supply curve indicates that

the income effect is stronger than the substitution effect.

The marginal product of labor is

the increase in the amount of output from an additional unit of labor.

Compared with perfect competition, a monopolistically competitive industry in long-run equilibrium results in

a higher price and lower output.

One factor that has been associated with the increase in income inequality in the United States is

a larger gap between the wages of skilled and unskilled workers.

The reaction of a firm to an increase in the price of its output is illustrated by

a rightward shift of its labor demand curve.

Which of the following has contributed the most to the increased inequality of the distribution of income?

a rising demand for skilled labor and a falling demand for unskilled labor

Refer to the above diagram of pollution abatement (curve A) and emissions (curve B). If the level of emissions is S, then the marginal cost of:

abatement is zero.

Economic profit equals

accounting profit - implicit cost.

Product differentiation occurs as a result of (Check all correct answers)

advertising. brand loyalty

Bob the builder is currently producing 20 bookshelves at a cost of $2000, but could produce 21 at a cost of $2100. Bob's average cost curve is

at or very near its minimum point.

When marginal cost is greater than average cost,

average cost is rising.

Average total cost is equal to marginal cost when

average total cost is at its minimum.

Because fixed costs are fixed, as output expands,

average variable and average total cost curves get closer together.

A firm in which workers must belong to a union before they can gain employment is a(n):

closed shop.

Reducing pollution by regulating what firms can produce is an example of

command and control.

Refer to the above payoff matrix for two firms. Firm X has a dominant strategy of:

competing

Josie's Pussycats is an emo grunge band. Their accountant has discoverd that they're suffering economic losses playing 10 concerts per month. She runs down the figures:

continue to play 10 concerts per month

In the long run within a perfectly competitive market, owners of firms

do not benefit

Which of the following will most likely to be produced by a natural monopoly?

electricity

If everyone in a country has the same income, then the Gini coefficient equals

0

Refer to the above diagram of pollution. An efficient solution takes place at a unit price of $ 1 and a quantity of 2 emissions per day.

7, 60

Which of the following is the best example of a price taker?

A burger company has no choice in what the market price of burgers are, they just charge whatever price the market dictates.

Which of the following most accurately describes how airlines practice price discrimination?

Airlines offer different fares at different times. They also charge different fares for first class, business class, and coach.

Suppose a firm is operating at the minimum point of its short-run average total cost curve, so that marginal cost equals average total cost. Under which of the following circumstances would choosing to alter the size of its plant be most beneficial to its goal?

Another scale of operation produces even lower average costs.

Suppose a common but unfounded belief held that people with blue eyes were not as smart as people with brown eyes. What would we expect to happen to the relative wages of the two groups?

Blue-eyed people would earn a lower relative wage.

Bob the builder is currently producing 20 bookshelves at a cost of $2,000 but could produce 21 at a cost of $2,100.

Bob's current average cost of production is $100, and his current marginal cost of production is $100.

Which of the following firms has a dominant strategy of expanding advertising?

Both Firm A and Firm B have a dominant strategy of expanding advertising.

Which of the following are common reasons that firms pollute?

Converting to green technology raises costs, allowing competitors that do pollute to beat them. The profit gained from polluting is more than the profit lost by polluting.

Drew raises a hog that he plans to sell in the fall. Cleaning the hog's pen costs Drew $20 each week; he often fails to clean the hog's pen. Unfortunately, the smell bothers his next-door neighbor Keisha, imposing $15 of costs on her each week. If Keisha has the property right (perhaps because of an ordinance requiring a thorough cleanup for livestock owners), then the Coase theorem suggests

Drew will pay Keisha to ignore the smell and will continue to neglect cleanup.

Which of the following are possible sources of discrimination against black workers?

Employers prefer not to hire black workers. White workers prefer not to work with black workers. Consumers do not want to buy from black employees.

Determine whether each of the following examples are fixed costs or variable costs.

Fuel cost to operate a truck-variable Price paid for a piece of land-fixed Wages for factory workers-variable Rent for an office-fixed

Which of the following is true of a monopoly? (Check all correct answers.)

High barriers to entry exist. The firm has market power. There are no close substitutes for its product.

Suppose the government were to impose an annual license fee on a monopolist that just happened to be equal to its economic profits for a particular year. How would such a fee most likely affect the firm's output and price?

It would affect neither price nor output.

Assuming two factors of production, labor (L) and capital (K), a firm will minimize the cost of producing a given level of output when which of the following is true?

MPL/PL = MPK/PK

Which of the following is the benefit of having a natural monopoly?

Natural monopolies generally use resources efficiently to provide the consumer with the lowest price.

Which of the following demographic groups in the United States has the highest poverty rate?

People aged 18 to 64 who did not work at least a week

Which of the following are required for a firm to be considered a monopoly? Select all that apply.

The market being monopolized must have barriers to entry into the industry. The firm that holds a monopoly must produce a good or service for which there are no close substitutes.

Oligopoly is an industry characterized by

a few sellers.

Monopsony is the _______ counterpart of _______.

buyer's; monopoly

The quantity of the services of a resource that can be consumed in any one period without reducing the stock of the resource in subsequent periods is its

carrying capacity.

It is generally agreed that since World War II, the distribution of income in the United States has

changed first toward greater equality and then, after the late 1960, toward greater inequality.

In general, if the level of pollution is reduced to zero, then

economic efficiency is not achieved.

Emissions taxes are an example of the ________ approach to correcting pollution problems.

incentive

Affirmative action attempts to eliminate discrimination by

increasing the demand for specific groups of labor.

In any urban area, which people are most likely to be exposed to high levels of pollution?

low-income individuals

The demand curve for emissions is a curve of emissions'

marginal benefit.

Efforts made to influence the choices of people by appealing to their sense of values are called

moral suasion.

In determining the official poverty rate in the United States,

only cash income is counted.

When discrimination exists, the economy

operates inside its production possibilities curve

Greener technologies generally cost more to implement, and have an associated ,,,,. This means that a business gains a competitive edge in a market if it is one of the last firms to convert to greener technology.

opportunity cost

The economist Gary Becker concluded that discrimination occurs because of people's

preferences

A resource whose services can be consumed without permanently reducing the stock of the resource is a(n)

renewable natural resource.

Josie has her resume rejected for a job at the local warehouse loading 100-pound bags of flour onto trucks. "Women just aren't strong enough for that," the supervisor says, not realizing that Josie actually qualified for the Olympic weightlifting competition. The supervisor is practicing

statistical discrimination

This type of discrimination is the most likely to disappear in an intensely competitive market.

taste-based discrimination

If a Lorenz curve lies closer to the 45-degree line,

the distribution of income is more equal.

An advantage of marketable pollution permits is that

they provide incentives for firms to develop less polluting technologies.

Which of the following are reasons that the income distribution in the United States has become more unequal in the last several decades? Select all that apply.

tournament markets globalization

Pollution imposes a cost in an economic sense if it damages plants or animals

valued by people.

Refer to the above graph of a profit-maximizing firm in monopolistic competition. For this firm, the quantity of output is , the price is $ , and the amount of profit is $ .

100, 12, 400

Which of the following best explains what is meant by the phrase "There are no fixed costs in the long run"?

All factors are variable; hence, all costs are variable in the long run.

Suppose that an industry has a four-firm concentration ratio of 75%. Which of the following most accurately explains what this means?

The four largest firms in the industry account for 75% of total output.

Which curve passes through the minimum point of the average total cost curve?

The marginal cost curve

A monopoly firm is free to charge any price it wishes. Which of the following is most likely to dictate its choice of a price?

The price must be on the demand curve, and it dictates the quantity they produce.

Suppose a particular state were to ban the advertising of prices charged by firms that provide laser eye surgery. According to the text, which of the following is the most likely effect this would have on the price of laser eye surgeries?

The price would most likely go up.

Some professors grade students on the basis of an absolute percentage of the highest score earned on each test given during the semester. Which of the following is the most likely reason that students do not collaborate in such a way as to keep the high score in the class equal to a very low total?

The students lack a way to punish those who do not comply. They have no way to prevent anyone from breaking this agreement for personal gain. It would only take a few students to ruin everyone's grade, so an oligopoly is not possible.

The demand for labor depends on (Check all correct answers)

marginal product of labor. demand for the product it produces.

A firm maximizes its profits when

marginal revenue equals marginal cost.

A monopoly maximizes profits by producing the output level at which

marginal revenue equals marginal cost.

To maximize profits, a firm increases its output as long as

marginal revenue is greater than marginal cost.

For a profit-maximizing perfectly competitive firm, the labor demand curve is the same as the

marginal revenue product curve.

The change in total revenue due to one more unit of labor hired is called

marginal revenue product.

For a firm in a perfectly competitive market, marginal revenue is always equal to

market price.

All other things equal, when firms enter a perfectly competitive market,

market supply increases and market price decreases.

A monopsony firm in the labor market

must pay a higher wage to hire more labor.

A cartel most likely occurs in

oligopoly

An industry in which there are a few firms and each of them reacts to the other firms' moves is called

oligopoly.

A production function relates

output to inputs.

The marginal factor cost curve for a monopsony firm is

positively sloped.

Marginal revenue lies below the demand curve because

price declines as the firm lowers price to raise output.

The Coase theorem works to provide efficient resolution of external costs if (Check all correct answers)

property rights are well defined.

If long-run industry supply has a positive slope, firms will likely experience

rising production costs as the industry expands.

In the long run, if price is greater than average total cost in an industry, then

some new firms enter the industry.

Indicate whether the following statement is true or false: "We still use the model with the understanding that the assumptions of perfect competition are not likely to be met in the real world."

t

Products may be differentiated in all of the following ways EXCEPT

the amount of production.

Marginal cost equals

the change in total cost given a one-unit change in output.

The most widely used regulatory approach to environmental pollution is

the command-and-control approach.

In a perfectly competitive market, which of the following groups benefit the most in the long-run from an event that lowers production costs for firms?

the consumer

An upward-sloping labor supply curve means that

the substitution effect exceeds the income effect of given a wage change.

Match each term to its formula:

Average Fixed Cost= fixed cost / qty produced Marginal Cost= change in total cost/change in qty produced Average Product of Labor=qty produced/labor input average total cost=avg fixed cost+avg variable cost

Which of the following is at its minimum point when a perfectly competitive market is at the long-run equilibrium?

Average total cost

Which of the following typically has a U-shaped curve? (Check all correct answers)

Average total cost Average variable cost

Which of the following is a characteristic of a natural monopoly? (Check all correct answers)

Average total cost declines over the entire range of production Relatively high sunk costs

Which of the following is a source of monopoly power? (Check all correct answers)

Barriers to entry Restricted ownership of production inputs Sunk costs

Which of the following is true about an oligopolistic industry? Select all that apply.

Each firm ignores its competitors, or works together with them. Oligopolies are lead by just a few large firms.

Which of the following is (are) correct about firms? (Check all correct answers)

Firms seek to minimize costs given its factors of production. Firms seek to maximize profits. Firms are organizations that produce goods and services.

Barry Bonds' career home run average in his first 15 years in major league baseball (through 1997) was 33 home runs per season. In 2001, he hit 73 home runs. Which of the following is most likely true about his career average?

His average increased.

Suppose a city experiences substantial population growth. Which of the following is most likely to happen to profits in the in the long run in the market for haircuts, a monopolistically competitive industry?

It will attract entry in the long run, driving profits for a typical firm back down to zero.

Choose the best response: At the long-run perfectly competitive equilibrium,

P = MR = AC = minimum(AC)

Which of the following is true for a perfectly competitive firm in the long run? (Check all correct answers)

Price equals minimum average total cost. Profits are maximized. Price equals marginal cost.

In the model of monopolistic competition, it is said that there is product differentiation. Which of the following most correctly defines product differentiation?

Product differentiation means that consumers perceive the goods produced by competing firms as different in quality.

Which of the following is the difference between short-run demand and long-run demand for a firm in monopolistic competition?

Short-run demand might result in profits or losses, whereas long-run demand results in no economic profit or loss.

Which of the following best explains what is meant by the phrase "A monopolist will never produce so much output as to operate in the inelastic portion of the demand curve"?

Since marginal cost is positive for all levels of output, the firm will produce only where marginal revenue is also positive.

Which of the following most correctly explains how each of the assumptions of perfect competition contributes to the fact that all decision makers in perfect competition are price takers?

The existence of a large number of sellers ensures that no one firm will have any control over price.

There was an unprecedented wave of immigration to the United States during the latter third of the nineteenth century. Wages, however, rose at a rapid rate throughout the period. Which of the following is the most probable explanation behind this?

The fact that wages rose suggests that demand was rising even more rapidly

Refer to the above payoff matrix for two firms. If the game is played only once, then

both firms will choose to compete.

As a firm increases its use of capital relative to labor, it becomes more

capital intensive.

Typically, as a firm hires additional workers, the marginal product of labor

decreases, and the marginal revenue product of labor decreases.

When hiring one additional worker raises output by less than the last worker hired, the firm experiences

decreasing marginal returns

Unions may attempt to raise wages by

decreasing the supply of labor.

To effectively practice price discrimination, a firm must face

different price elasticities of demand among buyers.

The short-run average total cost curve gets its U-shape as a result of

diminishing marginal returns.

A perfectly competitive firm reaches its long-run equilibrium when market price

equals the minimum of ATC.

Collusion will most likely occur when

firms interact over a long period of time.

An individual seller in a perfectly competitive market

has control over the quantity it sells but no control over the price.

A profit-maximizing firm will

hire labor up to the point where MRPL = MFC.

Bob the Builder hires workers and rents tools. The marginal product of another worker is 12 units of output, while the marginal product of another tool is 20 units of output. If workers cost $8 per hour to hire, while tools cost $18, then Bob can increase his profits by

hiring more workers and renting fewer tools.

In a competitive industry, a firm's demand curve is

horizontal.

A profit-maximizing monopolist will never produce

in the inelastic region of the demand curve where marginal revenue is negative

Suppose that for a monopoly average total cost is $35, marginal cost is $30, and marginal revenue is $35 with a selling price of $40. To maximize profits, the monopoly should

increase output but decrease price.

A competitive firm's supply curve is

its marginal cost curve.

Economists typically consider the alternative to work as

leisure

A firm's supply curve slopes upward as its

marginal cost curve slopes upward.