ECON FINAL
10. What happens to the price and quantity sold of a drug when its patent runs out? a. The price will fall. b. The quantity sold will fall. c. The marginal cost of producing the drug will rise. a. (i) only b. (i) and (ii) only c. (ii) and (iii) only (i), (ii), and (iii
A
11. Sam loves cookies. She receives 200 utils for one cookie, 360 for two cookies, 480 for the third, 560 for four cookies, and 600 for five cookies. The marginal utility of the third cookie is A) 120 B) 480 C) 80 D) unable to determine
A
12. An oligopoly is a market in which a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b. firms are price takers. c. the actions of one seller in the market have no impact on the other sellers' profits. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.
A
14. Economic analysis is a tool that A) aids all decision making. B) helps us understand why people make mistakes. C) helps us forgive selfish people. D) complicates decision making.
A
14. In the above table, Bob experiences diminishing marginal utility after consuming how many pieces of pizza? A) 1 B) 2 C) 3 D) 4
A
17. The law of demand includes the statement "other things being equal." These other things include all of the following EXCEPT A) the price of that good in the law of demand. B) consumers' income. C) consumers' tastes and preferences. D) the number of potential buyers.
A
2. The price elasticity of demand measures A) the consumers' sensitivity to a price change. B) the producers' sensitivity to a price change. C) how much the market price changes in response to a change in demand. D) how much the demand changes in response to a change in income
A
20. Market demand is A) the total quantities demanded of all consumers of a particular item at given prices. B) a movement along the demand curve in response to the market. C) total equilibrium demand for the market. D) the demand for and supply of a good or service.
A
21. Suppose that during a given time period the implicit cost for a business was $1,500 and that the explicit cost was $6,000. Also suppose that the firm sold 1,000 units of its products at $7 per item. We can conclude that the firm's A) accounting profit was $1,000, and its economic profit was -$500. B) accounting and economic profits were both $1000. C) accounting profit was -$500, and economic profit was $1,000. D) accounting profit was $1000, and economic profit was -$1,500.
A
22. A firm is considering three projects. Each costs $1 million now. Project A will yield $400,000 a year for three years, beginning one year from now. Project B will yield $1.25 million three years from now, and Project C will yield $600,000 for two years, beginning two years from now. If the interest rate is 8 percent, which of these projects should the firm undertake? A) Project A. B) Project B. C) Project C. D) None of these.
A
23. Refer to Scenario 2. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is a natural monopoly. (iii) PPCo would experience higher profits if it were government-run. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)
A
23. Use the above figure. The TFC at output level 10 is A) $10. B) $3. C) $2. D) $1.
A
5. Price elasticities are calculated for four goods, and the values are: 4.1; 3.7; 1.0; 0.002. Which price elasticity is most elastic? A) 4.1 B) 3.7 C) 1.0 D) 0.002
A
6. A firm could lower prices and still increase revenue if A) demand is elastic. B) elasticity of demand is equal to unity. C) demand is inelastic. D) elasticity of demand is equal to zero.
A
7. When the price of a textbook is $100, 60 copies are demanded; and when the price of that textbook goes up to $120, 30 copies are demanded. In the price range between $100 and $120, the demand for the textbook is A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.
A
8. Amanda inherited the only local cable TV/Internet company in town after her father passed away. The company has a local monopoly on the delivery of high-speed Internet service. The company is completely unregulated by the government and is therefore free to operate as it wishes. Assume that Amanda understands the true power of her new monopoly. Which of the following statements is (are) correct? a. She will be able to set the price of high-speed Internet service at whatever level she wishes. b. The customers will be forced to purchase high-speed Internet service at whatever price she wants to set. c. She will be able to achieve any profit level that she desires. a. (i) only b. (ii) only c. (i), (ii), and (iii) d. None of the above
A
8. Inelastic demand implies A) that a one percent increase in price results in a smaller than one percent decrease in quantity demanded. B) that a one percent increase in price results in a larger than one percent decrease in quantity demanded. C) that a one percent cut in price results in a larger than one percent increase in quantity demanded. D) that a one percent decrease or increase in price induces no change in total revenue.
A
9. Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the 100th widget, the firm will always receive a. less marginal revenue on the 100th widget than it received on the 99th widget. b. more average revenue on the 100th widget than it received on the 99th widget. c. more total revenue on the 100 widgets than it received on the first 99 widgets. d. a lower average cost per unit at 100 units of output than at 99 units of output.
A
9. Suppose that Usher derives 45 utils of total utility from eating 6 hotdogs and 55 utils of total utility from eating 7 hotdogs. What is Usher's marginal utility from eating the 7th hotdog? A) 10 B) 45 C) 55 D) 100
A
5. A consumer is willing and able to buy 1,000 units of a good at $10, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is A) horizontal and is perfectly inelastic. B) horizontal and is perfectly elastic. C) vertical and is perfectly elastic. D) downward sloping from higher prices down to $10 and then horizontal.
B
Scenario 1 Consider a transportation corporation named Reading's that has just completed the development of a new light rail system in Minneapolis. Currently, there are plenty of seats on the train, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of Reading's experienced incredibly high rates of return on their investment due to the profitability of the corporation. 6. Refer to above Scenario Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than Reading's currently has. (ii) Reading's is a natural monopoly. (iii) Reading's is most likely experiencing increasing average total cost. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)
A
11. Name brand drugs are able to continue capitalizing on their market power even after generic drugs enter the market because a. almost all people fear the generic drug companies are devoting too few resources to research and development. b. some people fear that generic drugs are inferior. c. some people are loyal to the name brand. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)
B
11. The government raises gasoline taxes as part of the price of gasoline and receives more tax revenues. However, after five years, the government discovers that revenues from the gasoline tax have declined. This situation would be most likely to occur if A) the long-run elasticity of supply was much greater than the long-run elasticity of demand. B) the demand for gasoline was inelastic in the short run, but elastic in the long run. C) the long-run elasticity of demand was greater than the long-run elasticity of supply. D) the demand for gasoline was perfectly inelastic in both the short run and the long run.
B
12. A certain athlete loves donuts. He receives 100 units of utility for the first donut, an additional 80 for the second, an additional 60 for the third, another 40 for the fourth, and another 20 for the fifth. The marginal utility of the fourth donut is ________ and the total utility from consuming four donuts is ________. A) 40; 40 B) 40; 280 C) 140; 280 D) 280; 100
B
13. If the prices of computer tablets rise, we would expect the number of tablet covers purchased to A) increase. B) decrease. C) be equal to ten. D) be equal to one.
B
15. In the above table, Bob experiences diminishing marginal utility after consuming how many beers? A) 1 B) 2 C) 3 D) 4
B
16. Refer to Table 1. Which industry is the most competitive? a. Industry J b. Industry K c. Industry L d. Industry M
B
17. In the above table, how much beer and pizza will Bob consume if the price of a piece of pizza is $2.00 and the price of a beer is $2.00? A) 1 piece of pizza and 3 beers B) 2 pieces of pizza and 2 beers C) 2 pieces of pizza and 3 beers D) 3 pieces of pizza and 1 beer
B
17. One key difference between an oligopoly market and a competitive market is that oligopolistic firms a. are price takers while competitive firms are not. b. can affect the profit of other firms in the market by the choices they make. c. sell completely unrelated products while competitive firms do not. d. sell their product at a price equal to marginal cost while competitive firms do not.
B
19. Refer to Table 2. What is the profitmaximizing output for Beatrice's Birthday Cakes? a. 3 cakes b. 4 cakes c. 5 cakes d. 6 cakes
B
19. The only variable that can affect a movement along the demand curve is A) income levels. B) the price of the good itself. C) the number of buyers. D) the number of substitutes.
B
2. A perfectly competitive market a. may not be in the best interests of society, whereas a monopoly market promotes general economic well-being b. promotes general economic well-being, whereas a monopoly market may not be in the best interests of society. c. and a monopoly market are equally likely to promote general economic well-being. d. is less likely to promote general economic well-being than a monopoly market.
B
2. According to the above table, what is the absolute price elasticity of demand if price falls from $8.00 to $7.50? A) 4.00 B) 2.82 C) 1.80 D) 1.21
B
24. Refer to Scenario 2. PPCo will continue to be a monopolist in the electricity industry only if a. population growth leads to an increased demand for electricity. b. there are no new entrants to the market. c. the price of natural gas decreases. d. All of the above are correct.
B
25. When a firm is operating at an output rate at which total revenue equal total costs, this is called A) its shutdown point. B) its breakeven point. C) a short-run profit. D) a loss.
B
26. If four firms comprise the entire golf club industry, the market would be a. competitive. b. characterized by interdependence of firms. c. a duopoly. d. a monopoly.
B
27. Refer to Table 3. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, what price will they charge? a. $25 b. $30 c. $35 d. $40
B
27. Refer to the above figure. Profits for this firm are equal to zero A) only for all points less than B. B) only at points B and C. C) for points between B and C. D) for all points less than B and greater than C.
B
29. In a 50-firm industry, two of the smallest firms merge. Yet the 4-firm concentration ratio and the 8-firm concentration ratio did not change. All things considered, we can say that the industry has A) moved closer to pure competition because the number of firms decreased. B) moved farther away from competition because the number of firms decreased. C) experienced no change in competition even though the number of firms decreased. D) to be identified first; otherwise there is no way to tell.
B
3. If price decreases by 10 percent and quantity demanded increases by 30 percent, the price elasticity of demand will be A) 0.333. B) 3. C) 30. D) 300.
B
26. Refer to the above figure. Profits for this firm are positive A) only for all points less than B. B) only at points B and C. C) for points between B and C. D) for all points less than B and greater than C.
C
6. If the demand curve for a product is horizontal, then A) the demand for the product is perfectly inelastic. B) the demand for the product is perfectly elastic. C) only a certain amount of the product will be consumed regardless of price. D) the price elasticity of the product approaches zero.
B
7. Suppose that the demand for pizza is inelastic. If a pizzeria decided to lower the price of pizza, total revenue would A) increase. B) decrease. C) stay the same. D) be maximized.
B
9. When total revenue and price are directly related, demand is A) unit-elastic. B) inelastic. C) elastic. D) not related.
B
1. A competitive firm a. and a monopolist are price takers. b. and a monopolist are price makers. c. is a price taker, whereas a monopolist is a price maker. d. is a price maker, whereas a monopolist is a price taker.
C
1. Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate price elasticity of demand for milk? A) 0.05 B) 0.2 C) 0.5 D) 2.0
C
1. The quantity of raspberries sold at a local store increases from 100 pints to 1,500 pints when the price is reduced from $4.00 to $1.00. In this situation, the price elasticity of demand for raspberries is approximately A) 0.69. B) 6.7. C) 1.46. D) 4.3.
C
10. If total utility is unchanged, then marginal utility is A) negative. B) positive. C) zero. D) increasing.
C
10. One of the most important determinants of a good's price elasticity of demand is A) the profits of suppliers. B) the numbers of buyers in the market. C) the ease with which consumers can substitute other goods for that product. D) the cost of producing the good.
C
13. Newspaper vending machines are often built so that customers can pay to lift a door and take a paper off a pile of daily newspapers. Newspaper distributors are not concerned about customers taking the whole stack of papers because A) the total utility of a daily newspaper is zero. B) the marginal utility of any one daily newspaper is zero. C) the marginal utility of a second daily newspaper is zero. D) the price of a daily newspaper is relatively low.
C
13. The breakfast cereal industry, with its concentration ratio of 80%, would best be described as a(n) a. perfectly competitive market. b. monopolistically competitive market. c. oligopoly. d. monopoly.
C
14. Refer to Table 1. What is the concentration ratio for Industry J? a. about 14% b. about 48% c. about 74% d. about 80%
C
15. Refer to Table 1. Which industry has the highest concentration ratio? a. Industry J b. Industry K c. Industry L d. Industry M
C
16. In the above table, how much total utility does Bob get from consuming 4 beers? A) 10 utils B) 45 utils C) 125 utils D) 115 utils
C
18. Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry. a. natural monopoly b. perfectly competition c. monopolistic competition d. monopoly
C
19. John is currently spending all of his income. For the last unit of Good A consumed John gets 20 utils and for the last unit of Good B consumed he gets 10 utils. The price of Good A is $4. The price of Good B is $1. If John wants to maximize his utility he should A) continue to purchase the same amount of Good A and Good B. B) increase the consumption of Good A and decrease the consumption of Good B. C) decrease the consumption of Good A and increase the consumption of Good B. D) decrease the consumption of Good A and decrease the consumption of Good B
C
20. An individual would willingly give a concert for $2,000. If she is paid $5,000 for the concert, she is A) receiving $3,000 to cover her opportunity cost. B) not being paid her full opportunity cost. C) receiving $3,000 of economic rent. D) certainly being paid more than warranted by the level of demand.
C
20. Refer to Table 2. When maximizing profit, what price does Beatrice's charge for a cake? a. $24 b. $30 c. $36 d. $42
C
21. Refer to Table 2. At the profitmaximizing quantity, what is Beatrice's total profit? a. $43 b. $89 c. $101 d. $144
C
22. Refer to Scenario 2. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is most likely experiencing rising marginal cost. (iii) PPCo is a natural monopoly. (iv) PPCo is most likely experiencing declining average total cost. a. (i) and (ii) only b. (i), (ii), and (iii) only c. (i), (iii) and (iv) only d. (i), (ii), (iii), and (iv)
C
22. Refer to the above table. What is the market quantity demanded of DVDs at a price of $14? A) 6 B) 9 C) 16 D) 24
C
23. Refer to the above table. Suppose Buyer 3 leaves the market. What is the new market quantity of DVDs demanded at a price of $10? A) 33 B) 25 C) 22 D) 8
C
24. Malfeasance at Enron, a Houston-based energy firm, led to overstatement of revenues by almost $92 billion. As Enron closed its operations, U.S. energy prices remained stable. This may have been evidence that A) Enron could charge whatever price it wanted to for energy. B) there was lack of any competition, so Enron was the winner. C) there is a competitive market in energy distribution in the United States. D) the accounting profession needs to review its policies quickly.
C
24. Which of the following will cause a rightward shift of the demand curve? A) a decrease in the cost of production B) a decrease in the price of the good C) an increase in the expected future price of the good D) all of the above
C
25. In an oligopoly, each firm knows that its profits a. depend only on how much output it produces. b. depend only on how much output its rival firms produce. c. depend on both how much output it produces and how much output its rival firms produce. d. will be zero in the long run because of free entry.
C
25. In the above figure, when the price of Good B increases, the result can be shown by A) the movement from D1 to D2 in Graph A. B) the movement from D2 to D1 in Graph A. C) the movement along D0 from P1 to P2. D) the movement along D0 from P2 to P1.
C
28. Refer to Table 3. If Rochelle and Alec operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold? a. 0 b. 500 c. 600 d. 1,200
C
29. In perfect competition, suppose that at the current level of output, price = $10, MC = $4, AVC = $7, and ATC = $11. Which of the following is true? A) The firm should decrease output. B) The firm should shut down. C) The firm should increase output. D) The firm should maintain the current level of output.
C
3. According to the above table, what is the absolute price elasticity of demand when price rises from $5.50 to $6? A) 4.00 B) 2.23 C) 1.21 D) 0.50
C
3. Which of the following is not a characteristic of a monopoly? a. barriers to entry b. one seller c. one buyer d. a product without close substitutes
C
30. Collusion always involves firms engaging in a A) vertical merger. B) horizontal merger. C) cooperative game. D) noncooperative game.
C
4. When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the absolute price elasticity of demand for soft drinks was approximately equal to A) 0.15. B) 0.60. C) 0.73. D) 1.67.
C
12. When two goods are substitutes for each other, the cross price elasticity of demand A) will be negative. B) will be zero. C) may be either positive or negative. D) will be positive.
D
15. In economics, items that are used to produce goods and services are known as A) wants. B) aggregates. C) factors of need. D) resources.
D
16. The law of demand states that A) consumers have unlimited demands for a good. B) a higher price will lead to increased sales. C) the price can never be too high for some consumers. D) quantity demanded will vary inversely with the price of the good.
D
18. In economics, "demand" refers to A) the intensity of desire for a good. B) the amount of a good people need rather than the amount they want. C) the satisfaction a good will provide a person. D) the quantities of a good that people will buy at various prices.
D
21. In economic terminology, an inferior good is a good A) that no one will purchase. B) that doesn't work properly. C) that has no monetary value. D) for which demand increases as income decreases.
D
28. Refer to the above figure. Profits for this firm are negative A) only for all points less than B. B) only at points B and C. C) for points between B and C. D) for all points less than B and greater than C.
D
30. In the above figure, the firm will shut down if price falls below A) F. B) I. C) H. D) E.
D
4. A perfectly horizontal demand curve has A) zero elasticity. B) some positive finite elasticity. C) negative elasticity. D) perfect elasticity.
D
4. Which of the following would be most likely to have monopoly power? a. a national florist b. an online bookstore c. a local restaurant d. a local electrical cooperative
D
5. Allowing an inventor to have the exclusive rights to market her new invention will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) desirable behavior in the sense that inventors are encouraged to invent. (iii) higher profits for the inventor. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)
D
7. When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a a. resource industry. b. exclusive industry. c. government monopoly. d. natural monopoly.
D
8. If the government places a $0.50 tax on an item for which demand is perfectly elastic A) the entire tax will be paid by the consumer. B) the tax will be split equally between the consumer and producer, with each paying exactly $0.25. C) most of the tax will be paid by the consumer. D) the entire tax will be paid by the producer.
D
