ECON 102 Final Exam
12. The MR = MC rule can be restated for a purely competitive seller as P = MC because: A. each additional unit of output adds exactly its price to total revenue. B. the firm's average revenue curve is downsloping. C. the market demand curve is downsloping. D. the firm's marginal revenue and total revenue curves will coincide.
A
21. Which of the following statements is correct? A. Economic profits induce firms to enter an industry; losses encourage firms to leave. B. Economic profits induce firms to leave an industry; profits encourage firms to leave. C. Economic profits and losses have no significant impact on the growth or decline of an industry. D. Normal profits will cause an industry to expand.
A
22. Which of the following statements is correct? A. The long-run supply curve for a purely competitive increasing-cost industry will be upsloping. B. The long-run supply curve for a purely competitive increasing-cost industry will be perfectly elastic. C. The long-run supply curve for a purely competitive industry will be less elastic than the industry's short-run supply curve. D. The long-run supply curve for a purely competitive decreasing-cost industry will be upsloping.
A
35. A natural monopoly occurs when: A. long-run average costs decline continuously through the range of demand. B. a firm owns or controls some resource essential to production. C. long-run average costs rise continuously as output is increased. D. economies of scale are obtained at relatively low levels of output.
A
36. Large minimum efficient scale of plant combined with limited market demand may lead to: A. natural monopoly. B. patent monopoly. C. government franchise monopoly. D. shared monopoly.
A
47. Which of the following conditions is not required for price discrimination? A. Buyer with different elasticities must be physically separate from each other. B. The good or service cannot be profitably resold by original buyers. C. The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand. D. The seller must possess some degree of monopoly power.
A
48. Other things equal, in which of the following cases would economic profit be the greatest? A. an unregulated monopolist which is able to engage in price discrimination B. an unregulated, nondiscriminating monopolist C. a regulated monopolist charging a price equal to average total cost D. a regulated monopolist charging a price equal to marginal cost
A
52. If a regulatory commission wants to establish a socially optimal price for a natural monopoly, it should select a price: A. at which the marginal cost curve intersects the demand curve. B. at which marginal revenue is zero. C. at which the average total cost curve intersects the demand curve. D. which corresponds with the equality of marginal cost and marginal revenue.
A
54. A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from: A. a relatively large number of firms and the monopolistic element from product differentiation. B. product differentiation and the monopolistic element from high entry barriers. C. a perfectly elastic demand curve and the monopolistic element from low entry barriers. D. a highly inelastic demand curve and the monopolistic element from advertising and product promotion.
A
6. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exit of firms C. a standardized or homogeneous product D. a large number of buyers and sellers
A
66. Which of the following is a unique feature of oligopoly? A. mutual interdependence B. advertising expenditures C. product differentiation D. nonprice competition
A
70. Game theory: A. is the analysis of how people (or firms) behave in strategic situations. B. is best suited for analyzing purely competitive markets. C. reveals that mergers between rival firms are self-defeating. D. reveals that price-fixing among firms reduces profits.
A
73. The kinked-demand curve of an oligopolist is based on the assumption that: A. competitors will follow a price cut but ignore a price increase. B. competitors will match both price cuts and price increases. C. competitors will ignore a price cut but follow a price increase. D. there is no product differentiation.
A
86. Marginal revenue product measures the: A. amount by which the extra production of one more worker increases a firm's total revenue. B. decline in product price that a firm must accept to sell the extra output of one more worker. C. increase in total resource cost resulting from the hire of one extra unit of a resource. D. increase in total revenue resulting from the production of one more unit of a product.
A
94. Bilateral monopoly occurs where: A. a monopsonistic employer bargains with an inclusive union. B. a monopsonistic employer bargains with an exclusive union. C. a craft union bargains with a purely competitive employer. D. an industrial union bargains with a purely competitive employer.
A
98. Human capital is best defined as: A. the productive skills and knowledge that workers acquire from education and training. B. the substitution of labor for machinery in the production process. C. any piece of machinery that must be combined with labor to be productive. D. the exchange of money for real assets.
A
14. A purely competitive firm's short-run supply curve is: A. perfectly elastic at the minimum average total cost. B. upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve. C. upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve. D. upsloping only when the industry has constant costs.
B
23. Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed product price will be: A. lower, but total output will be larger than originally. B. higher and total output will be larger than originally. C. lower and total output will be smaller than originally. D. higher, but total output will be smaller than originally.
B
33. A purely monopolistic firm: A. has no entry barriers. B. faces a downsloping demand curve. C. produces a product or service for which there are many close substitutes. D. earns only a normal profit in the long run.
B
38. In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to: A. average total cost. B. marginal revenue. C. average variable cost. D. average cost.
B
45. Refer to the above diagrams. The price will be _______ and the quantity will be _______ with the industry structure represented by diagram (B) compared to the one represented in (A). A. higher; higher B. higher; lower C. lower; lower D. lower; higher
B
49. If a monopolist engages in price discrimination, it will: A. realize a smaller profit. B. charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic. C. produce a smaller output than when it did not discriminate. D. charge a competitive price to all its customers.
B
65. The copper, aluminum, cement, and industrial alcohol industries are examples of: A. interproduct competition. B. homogeneous oligopoly. C. monopolistic competition. D. differentiated oligopoly.
B
77. Cartels are difficult to maintain in the long run because: A. they are illegal in all industrialized countries. B. individual members may find it profitable to cheat on agreements. C. it is more profitable for the industry to charge a lower price and produce more output. D. entry barriers are insignificant in oligopolistic industries.
B
78. In the United States cartels are: A. quite common in industries that produce nondurable goods. B. in violation of the antitrust laws. C. concentrated in monopolistically competitive industries. D. encouraged by government policy so firms can achieve economies of scale.
B
79. If the several oligopolistic firms that comprise an industry behave collusively, the resulting price and output will most likely resemble those of: A. bilateral monopoly. B. pure monopoly. C. monopolistic competition. D. pure competition.
B
80. A breakdown in price leadership leading to successive rounds of price cuts is known as: A. limit pricing B. a price war C. informal pricing D. price discrimination
B
81. (Consider This) The prisoner's dilemma is generally demonstrated through: A. the kinked-demand model. B. game theory. C. monopolistic competition. D. a tightly knit cartel.
B
85. The demand for a resource depends primarily on: A. the supply of that resource. B. the demand for the product or service that it helps produce. C. the price of that input. D. the elasticity of supply of substitute inputs.
B
87. 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 productivity. C. is perfectly elastic at the going wage rate. D. slopes downward because of diminishing marginal utility.
B
89. The marginal productivity theory of income distribution suggests that: A. government should subsidize the most productive workers through a system of transfer payments. B. each individual should receive income based on his contribution to total output. C. resource owners should receive income based on the idea of "from each according to his ability, to each according to his wants." D. resource owners should receive income based upon their needs.
B
9. The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____. A. perfectly inelastic, perfectly elastic B. downsloping, perfectly elastic C. downsloping, perfectly inelastic D. perfectly elastic, downsloping
B
91. Increases in the productivity of labor result partly from: A. the law of diminishing returns. B. improvements in technology. C. reductions in wage rates. D. increases in the quantity of labor.
B
95. Many economists are critical of the minimum wage because they believe that it: A. hurts the efforts of labor unions. B. reduces the number of available job opportunities. C. conflicts with policies designed to equalize the distribution of income. D. causes labor shortages in affected markets.
B
97. The concept of investment in human capital indicates that: A. union workers are better educated and more productive than nonunion workers. B. expenditures on education can be explained in essentially the same way as expenditures on machinery and equipment. C. worker productivity correlates negatively with annual earnings. D. the level of education is unrelated to the level of one's income.
B
10. A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating: A. price and average total cost. B. price and average fixed cost. C. marginal revenue and marginal cost. D. price and marginal revenue.
C
100. The idea of efficiency wages is that: A. the wages of each type of labor must be proportionate to their marginal products. B. 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. D. workers are more diligent when paid below-equilibrium wages.
C
20. Which of the following is true concerning purely competitive industries? A. There will be economic losses in the long run because of cut-throat competition. B. Economic profits will persist in the long run if consumer demand is strong and stable. C. In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits. D. There are economic profits in the long run, but not in the short run.
C
27. Resources are efficiently allocated when production occurs where: A. marginal cost equals average variable cost. B. price is equal to average revenue. C. price is equal to marginal cost. D. price is equal to average variable cost.
C
28. The term productive efficiency refers to: A. any short-run equilibrium position of a competitive firm. B. the production of the product-mix most desired by consumers. C. the production of a good at the lowest average total cost. D. fulfilling the condition P = MC.
C
29. The term allocative efficiency refers to: A. the level of output that coincides with the intersection of the MC and AVC curves. B. minimization of the AFC in the production of any good. C. the production of the product-mix most desired by consumers. D. the production of a good at the lowest average total cost.
C
32. Pure monopoly refers to: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C. a single firm producing a product for which there are no close substitutes. D. a large number of firms producing a differentiated product.
C
34. Pure monopolists may obtain economic profits in the long run because: A. of advertising. B. marginal revenue is constant as sales increase. C. of barriers to entry. D. of rising average fixed costs.
C
37. For a pure monopolist marginal revenue is less than price because: A. the monopolist's demand curve is perfectly elastic. B. the monopolist's demand curve is perfectly inelastic. C. when a monopolist lowers price to sell more output, the lower price applies to all units sold. D. the monopolist's total revenue curve is linear and slopes upward to the right.
C
55. The monopolistic competition model assumes that: A. allocative efficiency will be achieved. B. productive efficiency will be achieved. C. firms will engage in nonprice competition. D. firms will realize economic profits in the long run.
C
56. The demand curve of a monopolistically competitive producer is: A. less elastic than that of either a pure monopolist or a pure competitor. B. less elastic than that of a pure monopolist, but more elastic than that of a pure competitor. C. more elastic than that of a pure monopolist, but less elastic than that of a pure competitor. D. more elastic than that of either a pure monopolist or a pure competitor.
C
57. A monopolistically competitive firm's marginal revenue curve: A. is downsloping and coincides with the demand curve. B. coincides with the demand curve and is parallel to the horizontal axis. C. is downsloping and lies below the demand curve. D. does not exist because the firm is a "price maker."
C
63. A significant benefit of monopolistic competition compared with pure competition is: A. less likelihood of X-inefficiency. B. improved resource allocation. C. greater product variety. D. stronger incentives to achieve economies of scale.
C
67. Concentration ratios measure the: A. geographic location of the largest corporations in each industry. B. degree to which product price exceeds marginal cost in various industries. C. percentage of total industry sales accounted for by the largest firms in the industry. D. number of firms in an industry.
C
68. As a general rule, oligopoly exists when the four-firm concentration ratio: A. exceeds the Herfindahl index. B. is less than the Herfindahl index. C. is 40 percent or more. D. is 15 percent or more.
C
7. Price is constant or given to the individual firm selling in a purely competitive market because: A. the firm's demand curve is downsloping. B. of product differentiation reinforced by extensive advertising. C. each seller supplies a negligible fraction of total supply. D. there are no good substitutes for its product.
C
74. The kinked-demand curve model of oligopoly is useful in explaining: A. the way that collusion works. B. why oligopolistic prices and outputs are extremely sensitive to changes in marginal cost. C. why oligopolistic prices might change only infrequently. D. the process by which oligopolists merge with one another.
C
84. Which of the following statements best illustrates the concept of derived demand? A. As income goes up the demand for farm products will increase by a smaller relative amount. B. A decline in the price of margarine will reduce the demand for butter. 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
88. A profit-maximizing firm employs resources to the point where: A. MRC = MP. B. Resource price equals product price. C. MRP = MRC. D. MP = product price.
C
93. On the basis of the above information we: A. can say that the labor supply curve facing the firm is upsloping. B. cannot say whether the firm's product market is purely or imperfectly competitive. C. can say that the firm is selling its product in a purely competitive market. D. can say that the firm is selling its product in an imperfectly competitive market.
C
26. Suppose that an industry's long-run supply curve is downsloping. This suggests that: A. it is an increasing-cost industry. B. relevant inputs have become more expensive as the industry has expanded. C. technology has become less efficient as a result of the industry's expansion. D. it is a decreasing-cost industry.
D
31. The process by which new firms and new products replace existing dominant firms and products is called: A. monopolistic competition. B. mergers and acquisitions. C. process innovation. D. creative destruction.
D
43. The supply curve for a monopolist is: A. perfectly elastic. B. upsloping. C. that portion of the marginal cost curve lying above minimum average variable cost. D. nonexistent.
D
46. X-inefficiency refers to a situation in which a firm: A. is not as technologically progressive as it might be. B. encounters diseconomies of scale. C. fails to realize all existing economies of scale. D. fails to achieve the minimum average total costs attainable at each level of output.
D
51. A dilemma of regulation is that: A. the regulated price that achieves allocative efficiency is also likely to result in persistent economic profits. B. the regulated price that results in a "fair return" restricts output by more than would unregulated monopoly. C. regulated pricing always conflicts with the "due process" provision of the Constitution. D. the regulated price that achieves allocative efficiency is also likely to result in losses.
D
53. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. Which of the following conditions of price discrimination explain why this occurs? A. The seller must have some monopoly power; that is, it must be able to set the product price. B. The seller must be able to identify buyers by group characteristics such as age or income. C. Groups must have different elasticities of demand for the product. D. The items cannot be bought by people in the low-price group and transferred to members of the high-price group.
D
58. 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
62. When a monopolistically competitive firm is in long-run equilibrium: A. P = MC = ATC. B. MR = MC and minimum ATC > P. C. MR > MC and P = minimum ATC. D. MR = MC and P > minimum ATC.
D
64. The automobile, household appliance, and automobile tire industries are all illustrations of: A. homogeneous oligopoly. B. monopolistic competition. C. pure monopoly. D. differentiated oligopoly.
D
8. For a purely competitive firm total revenue: A. is price times quantity sold. B. increases by a constant absolute amount as output expands. C. graphs as a straight upsloping line from the origin. D. has all of these characteristics.
D
82. (Consider This) The prisoner's dilemma reveals that: A. collusive agreements will always fail. B. the price leadership model does not work. C. nonprice competition is more profitable than price competition. D. sometimes when individuals act independently in their own self-interest, everyone is worse off than if they had cooperated.
D
83. Resource pricing is important because: A. resource prices are a major determinant of money incomes. B. resource prices allocate scarce resources among alternative uses. C. resource prices, along with resource productivity, are important to firms in minimizing their costs. D. of all of these reasons.
D
90. The labor demand curve of a purely competitive seller: A. slopes downward because the firm must lower price to sell more output. B. slopes downward because labor productivity increases as successive workers are hired. C. is perfectly elastic because the firm is hiring an insignificant portion of the total labor supply. D. slopes downward because the marginal product of successive workers declines.
D
92. 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. increase in total cost resulting from the production of one more unit of output. D. amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.
D
96. Wage differentials may result from all the following except: A. differences in the nonmonetary aspects of various occupations. B. differences in the education and skills of workers. C. geographic and sociological immobilities of workers. D. the tendency of qualified workers to move from lower pay jobs to higher pay jobs.
D
99. The principal-agent problem arises primarily because: A. principals and agents share a common interest, leading to free-rider problems. B. principals and agents are in an adversarial role, sharing no common interests. C. principals pursue some of their own objectives that may conflict with the objectives of the agents. D. agents pursue some of their own objectives that may conflict with the objectives of the principals.
D
1. Which of the following industries most closely approximates pure competition? A. agriculture B. farm implements C. clothing D. steel
a
4. Which of the following statements applies to a purely competitive producer? A. It will not advertise its product. B. In long-run equilibrium it will earn an economic profit. C. Its product will have a brand name. D. Its product is slightly different from those of its competitors.
a
3. An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.
b
5. A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker."
c
2. An industry comprised of a very large number of sellers producing a standardized product is known as: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.
d