Principles of Economics Final Exam
Monopolists have no incentive to innovate as patents expire after a while.
False
Economic profit always exceeds accounting profit.
False
A country has a comparative advantage in the production of DVD players if it can produce DVD players at a lower opportunity cost than others.
True
A welfare loss occurs when a monopolist chooses not to produce units of output that are of greater marginal value to consumers than the marginal cost of producing them.
True
An economic profit of zero indicates a satisfactory situation for a firm.
True
An economy that has many unemployed workers and idle factories is not operating efficiently.
True
Diseconomies of scale occur when firms cannot handle the complexities of large-scale management.
True
If Xavier gives up a job in which he earns $23,000 per year in order to go to college full time, his foregone income is part of the opportunity cost of going to college.
True
Marginal cost refers to the change in total cost for a one-unit change in output and also to the change in total variable cost for a one-unit change in output
True
If price is less than the average variable cost, firms that seek to maximize profit should shut down.
True
The long-run average total cost curve is less U-shaped than the short-run average total cost curve
True
Figure 10-1 shows shifts in the market labor supply curves. Which of the following situations is illustrated by Case A?
a. People willing to work more hours at a given wage rate
Figure 3-2 shows the shifts in the demand curve for a good. A change from Point A to Point E represents a(n):
a. decrease in demand
Figure 3-2 shows the shifts in the demand curve for a good. A change from Point A to Point C represents a(n):
a. decrease in the price of the good.
Table 3-3 shows the market demand and market supply schedules for large pepperoni pizzas. In the given illustration, the equilibrium price per large pepperoni pizza is:
a. $7.
Which of the following is true of a monopolist?
a. A monopolist has to reduce price on all units when it wants to expand output.
Figure 2-2 shows the production possibilities curve of an economy in the production of consumption goods and capital goods. A movement from Point ____ to Point ____ will result in an increase in the quantity of both capital and consumption goods produced in the economy.
a. B; A
Bill says, "The imposition of a tax on tequila will increase its price." Bob says, "Taxes should be imposed on tequila because college students drink too much."
a. Bill's statement is positive, and Bob's statement is normative
Which of the following is true of a perfectly competitive firm?
a. In a perfectly competitive market, producers and consumers have complete knowledge of the market.
Ceteris paribus, an increase in both equilibrium price and quantity is a consequence of
a. an increase in demand.
In a graph showing the demand and supply curves of a good, the triangular area under the demand curve for the good and above the market price of the good is:
a. consumer surplus.
If the supply curve of a good is vertical, then the elasticity of supply is:
a. equal to zero.
Along the supply curve of a good, the:
a. quantity supplied of the good changes as its price changes.
Fixed costs are costs:
a. that do not vary with the level of output.
A university offers a free shuttle service around campus. The opportunity cost of the shuttle service to the university is equal to:
a. the highest valued alternative uses of all the resources devoted to the shuttle program.
Jamie and Danny both attend the same college and incur the same expenses for tuition, books, and school supplies. Jamie gave up a lucrative job modeling in Paris to attend school full-time, and Danny gave up a part-time job as a sales clerk in a department store. It follows that:
a. the opportunity cost of attending college is likely greater for Jamie than for Danny.
Airlines that restrict the use of frequent flyer miles during the holiday season likely do so because:
a. the opportunity cost to the airlines of filling seats with frequent flyers is higher at these times.
The Book Nook reduces prices by 20 percent. If the dollar value of The Book Nook's sales remains constant, it indicates that:
a. the quantity of books sold increases by 20 percent.
If a perfectly competitive industry uses a large proportion of the available inputs in a resource market, then the long-run market supply curve for the industry will most likely be:
a. upward sloping.
Because of scarcity, _____.
a. we must sacrifice valuable alternatives to obtain more of the goods and services we desire
A monopolist can sell 20 units a week at a price of $10 per unit. To sell 21 units a week, it would have to lower its price to $9 per unit. The marginal revenue of the 21st unit would be:
a. −$11.
The table below shows the number of oranges picked by different pickers. Based on the table, the total output of labor diminishes with the addition of the _____ picker.
b. ninth
If the average total cost of producing 20 units of output is $15 and the average total cost of 21 units of output equals $15, then the marginal cost of the 21st unit is _____.
b. $15
The table below shows a portion of the demand schedule faced by a monopoly firm. Based on the table, the marginal revenue of the third unit of output equals _____.
b. $8
The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the profit-maximizing monopolist's socially efficient level of output is _____.
b. 0Q2
Figure 7-6 shows a firm in a perfectly competitive market in the long run. Which of the following is most likely to happen in the given market?
b. Existing firms would be likely to exit, increasing the market price.
Figure 7-8 shows a firm in a perfectly competitive market. Which of the following is most likely to happen in the given market?
b. Firms would neither enter nor exit, and the market price would remain unchanged.
Figure 2-1 shows the production possibilities curve of an economy that produces bread and wine. Currently, it is not possible to produce at:
b. Point E.
Figure 2-2 shows the production possibilities curve of an economy in the production of consumption goods and capital goods. Considering only points on the frontier, the economy will experience the least amount of economic growth over time, ceteris paribus, if it chooses to produce at:
b. Point F.
Which of the following is true about producer surplus?
b. Producer surplus is the difference between what a producer is paid for a good and the cost of producing that unit of the good.
A natural gas monopoly currently sells 100 cubic feet of gas at $1.10 per cubic foot. To sell one more cubic foot, the natural gas company must lower the price of gas to $1.09. Which of the following best describes the marginal revenue of the 101st cubic foot of natural gas?
b. The marginal revenue is less than $1.09.
A decrease in demand for a good could be caused by:
b. a decrease in the price of a substitute of the good.
Scarcity is:
b. a problem that necessitates tradeoffs
If additional units of output could be produced at constant opportunity cost, the production possibilities curve would be:
b. a straight line with a negative slope.
Perfect competition describes:
b. an industry in which numerous price-taking firms produce identical products.
n explicit cost is:
b. an out-of-pocket expense
Economic growth can be illustrated by:
b. an outward shift of the production possibilities curve.
Producer surplus for a particular unit of a good is the:
b. difference between the market price and the seller's cost of producing that unit.
If a profit-maximizing monopolist is currently operating on the inelastic region of its demand curve, it should:
b. increase price and decrease output.
Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. Graph A shows that as the price decreases from $20 to $10, total revenue _____ and quantity demanded _____.
b. increases; increases
Figure 7-4 shows the relationship between the various costs of a perfectly competitive firm. In the figure, when the market price equals $105 and the firm sells 675 units of output, the firm:
b. is earning positive economic profit.
A perfectly competitive firm looking to maximize its profits would want to maximize the difference between:
b. its total revenue and its total cost.
If a price-taking firm selling in a competitive market raises the price of its product above the market-clearing price, it will:
b. not be able to sell any of its output.
Table 3-3 shows the market demand and market supply schedules for large pepperoni pizzas. At a price of $4, there is a _____ of _____ pizzas.
b. shortage; 4,500
Marginal revenue is:
b. the addition to total revenue from selling one more unit of output.
The shape of the long-run industry supply curve in a perfectly competitive industry is largely determined by:
b. the price of inputs as the industry expands.
For nondurable goods, _____.
b. the short-run demand curve is less elastic than the long-run demand curve
Brad worked as a contractor for a year, earned revenues of $120,000, and incurred an explicit cost of $70,000. If he could have earned $80,000 working for a computer company, his economic profit as a contractor would be_____.
b. −$30,000
The demand for a good is said to be _____ when quantity demanded changes proportionately to price changes.
b. unit elastic
When the Blue Ocean Surfboard Company lowered the price of surfboards by 20 percent, it sold 10 percent more surfboards. The price elasticity coefficient for surfboards is _____.
c. 0.5
Figure 3-4 represents the market for butter. If the current price of butter equals $5 per pound, then:
c. the market is not in equilibrium and the quantity supplied is greater than the quantity demanded.
Figure 7-3 shows the demand, marginal cost, and average cost curves of a perfectly competitive firm. How many units of output per day should the firm produce if it wants to maximize its profits (or minimize its losses)?
c. 100
The figure below shows how the quantity of bicycles produced per week varies with the number of workers employed per week. Based on the figure, the marginal product of the fifth worker hired each week is _____.
c. 15 bicycles
Which of the following statements is true?
c. A monopolist earns positive economic profits, while a perfectly competitive firm earns zero economic profits in the long run.
The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, welfare loss due to monopoly is indicated by the area _____.
c. DFH
The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, the monopolist will produce ______.
c. Q1 units of output
Which of the following is true for a monopoly?
c. The marginal revenue curve lies below the demand curve and is steeper than the demand curve.
Economists believe that individuals:
c. are motivated by self-interest and rational behavior
A decrease in the price of corn signals to consumers and producers that:
c. corn is relatively more abundant than before.
The figure below shows the revenue and cost curves for a profit-maximizing monopolist. Based on the figure, in perfect competition, producer surplus is indicated by the area denoted by _____.
c. d + e
If the demand for a good is perfectly elastic, the price elasticity of demand is equal to _____ and the demand curve is _____.
c. infinity; horizontal
U.S. public utilities are often:
c. regulated natural monopolies.
If new entry occurs in a perfectly competitive industry, the demand curve for each existing firm will:
c. shift down.
Graph A below shows an elastic demand curve, and Graph B shows an inelastic demand curve. With reference to Graph A, at a price of $20, total revenue equals _____.
d. $200
A city in which 320,000 persons are employed has a labor force of 359,500 persons. The unemployment rate for the city is:
d. 11.0 percent.
Table 2-2 shows the marginal benefit to a consumer of DVD rentals. If the price of a DVD rental is $4, a consumer following the rule of rational choice will rent:
d. 5 DVDs per month.
There are two tables below. The first one shows a monopoly's costs of producing different units of canned iced coffee. The second table shows the demand schedule for canned coffee. Based on the table, the monopolist's profit-maximizing level of output will be _____.
d. 5 cans of iced coffee
The figure below shows the relationship between the quantity of output produced and the cost per unit. Based on the figure, Y represents _____.
d. Total variable cost
A decrease in government purchases, other things constant, would:
d. increase unemployment in an economy in the short run
If roses are currently selling for $30 per dozen but the equilibrium price of roses is $20 per dozen, then a:
d. surplus exists and the market price of roses is likely to decrease.
An example of an implicit cost of production is:
d. the cost of space in someone's home that is used as his or her home office
Figure 13-10 shows the short-run macroeconomic equilibrium of an economy. Suppose the economy is currently at Point A. As the economy adjusts from short-run equilibrium to long-run equilibrium, _____.
d. the price level would fall and real GDP would rise
The figure below shows the long-run average cost curve of a firm. Based on the figure, the region y shows _____.
d. the range of output over which the firm attains constant returns to scale
Rachel bought a sandwich maker. The shopkeeper assured her that it was a very good and useful product. After using the sandwich maker for two months, Rachel found that using it was time consuming and that it also consumed a lot of electricity. So, she stopped using it. Therefore, Rachel has incurred a(n) _____ in buying the sandwich maker
e. sunk cost
Milk at a local grocery store is priced at one gallon for $4.00 or two gallons for $6.00. The marginal cost of buying a second gallon of milk is equal to _____.
e. $2.00
Lydia enjoys going to the theater to watch Broadway musicals. The following table shows Lydia's willingness to pay for theater tickets in a year. If the price of tickets to Broadway musicals equals $50, Lydia's consumer surplus will be _____.
e. $200
If average total cost is $40 and average variable cost is $20 at 10 units of output and the marginal cost of the 11th unit is $30, what is the average total cost of 11 units?
e. $39.09
At Bailey's Barber Shop, a 5 percent increase in the price of haircuts results in a 15 percent decrease in the number of haircuts per day. Which of the following is the price elasticity of demand of haircuts?
e. 3.0
The table below shows how total cost varies with output in a factory producing bicycles. Based on the table, the level of output (in thousands) at which average total cost is minimized is _____.
e. 4
Which of the following would cause the quantity of wheat bread demanded to increase, but not the demand for wheat?
e. An increase in the number of farmers growing wheat
Which of the following is true of price discrimination?
e. Customers need to differ in their willingness to pay for price discrimination to occur.
The figure below contains information on the cost and revenue curves facing a regulated monopoly. Based on the figure, the price and output combination preferred by the monopolist is _____.
e. P2 and Q2
A leading game console manufacturer reduces the price of its flagship product by 10 percent. Holding other things such as income and preferences constant, which of the following is the most likely group behavior prediction?
e. The price reduction will increase the quantity of game consoles demanded.
Refer to Figure 7-1. Graphs A and B together demonstrate the effect that a change in market demand has on the demand curve faced by an individual firm. In this case, the firm is:
e. a price taker.
Figure 7-5 shows cost and revenue curves for a perfectly competitive firm. If P represents the market price for a price-taking firm, the best course of action in the short run for the firm is to:
e. continue operating because price exceeds average variable cost.
A decrease in quantity demanded:
e. is illustrated by a movement upward and to the left along a demand curve.
If the market demand curve in a perfectly competitive industry shifts right, the demand curve for each existing firm will:
e. shift up.
A bank's capital is:
e. the difference between its assets and liabilities.
According to the rule of rational choice, an individual will undertake an activity as long as:
e. the expected marginal benefits are greater than the expected marginal costs.
Normative statements are:
prescriptive, whereas positive statements are descriptive.
