Microeconomics Final Exam
In firm X, labor costs are 85 percent of production costs, while in firm Y labor costs are 40 percent of production costs. A 20 percent increase in wages would increase production costs by:
17 percent in firm X and 8 percent in firm Y.
Which is an example of a change in the price of another resource that increases labor demand?
A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers.
In a purely competitive industry, which of the following could cause a firm's marginal revenue product for an economic resource to increase?
An increase in demand for the firm's product
Other things equal, in which of the following cases would economic profit be the greatest?
An unregulated monopolist who is able to engage in price discrimination.
If you operated a small bakery, which of the following would be a variable cost in the short run?
Baking Supplies(Flour,salt,etc)
The legal concept of limited liability is important in which of the following types of business organizations?
Corporations
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $3.00 and the market price is $2.50. What should the firm do?
Decrease output if the minimum possible average variable cost is $2.00.
Which of the following definitions is correct?
Economic profit = Accounting profit - Implicit costs.
Which is a barrier to entry in an industry?
Economies of scale
A Firm's economic profit is usually higher than than its accounting profit.
False
A monopsonist is the only seller of a good or service in a market area.
False
A price-discriminating monopolist will set a higher price when demand is more elastic and a lower price when demand is less elastic.
False
Competitive firms are price takers largely because of intensive advertising by their competitors.
False
Economic profit is the difference between total revenue and marginal revenue.
False
Equilibrium for the monopolist occurs where P > MR > MC > Average total cost.
False
Google is an example of a pure monopoly in the Internet search market.
False
If MR > MC for a competitive firm, it should raise its price and increase its level of output
False
If a firm must pay a daily wage of $35 to hire 11 workers and a daily wage of $40 to hire 12 workers, its marginal resource cost of hiring the 12th worker is $40.
False
If a purely competitive firm is producing a level of output greater than its profit-maximizing output, then marginal revenue is greater than marginal cost.
False
In short-run equilibrium, a competitive firm cannot earn economic profits.
False
Limited liability means all members of a partnership are liable for the debts incurred by one another.
False
OPEC is a classic example of a kinked-demand curve oligopoly.
False
On average, unionized workers realize wage rates 5 percent lower than those of comparable nonunion workers.
False
Patents and copyrights were established by the government to reduce oligopoly and monopoly power.
False
The long-run supply curve for a competitive, decreasing-cost industry is upsloping.
False
Which of the following industries would see firms reach their minimum efficient scale at relatively low levels of output?
Hair Salons
The best example of a craft union would be the:
International Brotherhood of Electrical Workers
Why is the demand for labor referred to as a "derived" demand?
It is based on the demand for the output labor produces.
Which industry would be considered to be monopolistically competitive?
Locally owned restaurants in large cities
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:
Marginal cost = Marginal revenue.
Which would be a qualification to the view that oligopoly is allocatively and productively inefficient?
Oligopolies may purposely keep prices below short-run profit-maximizing levels to bolster barriers to entry.
The steel and automobile industries would be examples of which market model?
Oligopoly
In long-run equilibrium in a monopolistically competitive industry:
P > minimum ATC.
Resources are efficiently allocated when production occurs at that output at which:
P equals MC.
Which is a likely characteristic of a differentiated oligopolistic market?
Price and output decisions of firms are interdependent.
Which is a feature of a purely competitive market?
Products are standardized or homogeneous.
What are the payoffs in the typical duopoly game?
Profits
Under which market model are the conditions of entry into the market easiest?
Pure competition
Which statement is correct?
Pure monopolists do not always realize economic profits.
Which is a characteristic of monopolistic competition?
Relatively easy entry
Which is an example of a differentiated oligopoly?
The beer industry
Which does not necessarily apply to a pure monopoly?
The firm must earn economic profits.
Which is true for a purely competitive firm in short-run equilibrium?
The firm's marginal revenue is equal to its marginal cost.
A vertically integrated firm is a group of plants each operating at different stages of production.
True
Annual design and model changes are a form of nonprice competition.
True
Average fixed costs diminish continuously as output increases.
True
If the price of labor increases relative to the price of capital, and as a result the quantity of capital hired decreases, the output effect of the price increase is greater than the substitution effect.
True
In a monopoly, price is greater than marginal cost.
True
In long-run equilibrium, a competitive firm produces where P = MR = MC = minimum ATC and earns normal economic profits.
True
In most cases, a monopolist practicing price discrimination will earn more economic profit.
True
In the short run, fixed costs are irrelevant in determining a firm's optimal level of output.
True
Increased resource productivity will, ceteris paribus, increase a firm's demand for an input.
True
One general policy option to deal with a monopoly that obtains its position through anticompetitive actions, exhibits economic inefficiency, and is long lasting is to break up the firm.
True
One of the economic effects of monopoly is income inequality.
True
The demand curve faced by a monopolistically competitive firm is more elastic than the monopolist's demand curve.
True
The demand curve of the monopolistic competitor is likely to be more elastic than the demand curve of the pure monopolist.
True
The general view of economists is that a pure monopoly will not be technologically progressive.
True
Unlike sole proprietorship and partnerships, the corporation has a life independent of its owners and officers.
True
When marginal costs decrease, a monopolist will usually lower its price and increase its level of output.
True
The best example of an industrial union is the:
United Auto Workers.
The principal agent problem in corporations arises from:
a conflict of interest between corporate executives who manage the firm and stockholders who own the firm.
The long-run supply curve would be downsloping in:
a decreasing-cost industry.
The characteristic most closely associated with oligopoly is:
a few large producers.
Diseconomies of scale mean that:
a firm's long-run average total cost curve is rising.
In a corporation, the interests of the owners, who seek to maximize profits, may differ from the interests of the managers, who seek prestige and high income. This divergence would be considered:
a principal-agent problem.
The law of diminishing returns results in:
a total product curve that eventually increases at a decreasing rate.
When the excess capacity problem under monopolistic competition becomes greater, there will be:
a wider range of consumer choice.
In the long
all costs are variable costs
The demand for labor would most likely become more elastic as a result of:
an increase in the proportion of labor costs to total costs.
Laws and government actions designed to prevent monopoly and promote competition are the focus of:
antitrust policy.
Fixed cost is:
any cost which does not change when the firm changes its output
If output is set at the kink of the kinked-demand model, then there:
are several prices at which marginal revenue equals marginal cost.
A profit-maximizing firm in the short run will expand output:
as long as marginal revenue is greater than marginal cost.
Monopolists are said to be allocatively inefficient because:
at the profit-maximizing output, the marginal benefit to society from increasing output is greater than the marginal cost to society
X-inefficiency is said to occur when a firm's:
average costs of producing any output are greater than the minimum possible average costs.
For most producing firms:
average total costs decline as output is carried to a certain level, and then begin to rise.
A potential negative effect of advertising for society is that it can:
be self-canceling and contribute to economic inefficiency.
A nondiscriminating pure monopolist is generally viewed as:
both productively and allocatively inefficient.
Successful price discrimination requires that:
buyers with inelastic demand be charged higher prices than buyers with elastic demand.
In a purely competitive industry, each firm:
can easily enter or exit the industry.
The reason that unskilled construction workers typically receive higher wages than retail sales clerks is best explained by:
compensating differences.
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:
continue producing 1000 units.
In a purely competitive industry, a decrease in a firm's marginal revenue product for an economic resource could result from a(n):
decrease in demand for the firm's final product.
Critics of the minimum wage contend that imposing a wage higher than the equilibrium wage in a competitive industry would:
decrease the number of workers employed in that industry.
In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally:
decrease the price it charges for its product.
The demand for labor will decrease in response to:
decreased demand in markets for consumer goods and services.
Exclusive unionism has the economic effect of:
decreasing the supply of labor.
The economic incentive for price discrimination depends on:
differences among buyers' demand elasticities.
In the short run, the monopolistically competitive firm will experience:
economic profits or losses, but in the long run only a normal profit.
The ability of Nike to spread product development costs over a larger number of units of output arises from:
economies of scale.
In long-run equilibrium a purely competitive firm will operate where price is:
equal to MR, MC, and minimum ATC
Economic profits are calculated by subtracting:
explicit and implicit costs from total revenue.
In an oligopolistic market there are:
few sellers.
If a purely competitive firm is in short-run equilibrium and its marginal cost exceeds its average total cost, we can conclude that:
firms will enter the industry in the long run.
The kinked-demand curve is based upon the assumption that an oligopolist's rivals will:
follow a price cut, but ignore a price increase.
If a factor of production has many close substitutes, we would expect that its price elasticity of demand would be:
greater than one.
Of the 10 fastest-growing occupations in percentage terms, it is estimated for 2016-2026 that five of the top ten will be related to:
health care.
According to proponents of human capital theory, education:
increases a worker's productivity.
In general, the amount of X-inefficiency in an industry
increases as the amount of competition decreases.
Other things being the same, if the demand for labor is inelastic:
increases in wage rates will result in greater payrolls.
Which statement is correct? The long-run supply curve for a purely competitive:
increasing-cost industry is upsloping.
The long run average total cost curve
is based on the assumption that all resources are variable.
A firm should always continue to operate at a loss in the short run if:
it can cover its variable costs and some of its fixed costs.
Supporters of the minimum wage contend that:
it helps workers receive a "living wage."
If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:
it is encountering constant returns to scale.
When a firm produces less output, it can reduce:
its variable costs but not its fixed costs
In the kinked-demand model of noncollusive oligopoly, each firm thinks the demand curve below the going price is:
less elastic than the demand curve above the going price.
When compared with the purely competitive industry with identical costs of production, a monopolist will produce:
less output and charge a higher price.
Price discrimination is more common in service industries because:
low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers.
An example of derived demand is the demand for:
machines by businesses.
The issue of the separation of ownership and control is concerned with the fact that:
major decisions in large corporations are generally made by professional managers rather than the owners of the corporation
Allocative efficiency occurs when the:
marginal cost equals the marginal benefit to society.
Equilibrium price differentials for productive resources:
may be caused by differences in the quality of those resources.
If monopolistically competitive firms in an industry are making an economic profit, then:
new firms will enter the industry and product demand will decrease for the existing firms.
The major reason that presidents of major corporations receive an average salary of over $1 million a year and truck drivers receive an average salary of about $55,000 a year can best be explained by:
noncompeting labor groups.
In the kinked-demand model of noncollusive oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to:
not change their prices.
Suppose a powerful labor union negotiates a wage for its members above the equilibrium wage rate in a previously nonunionized market. A likely result of this is that:
not everyone who wants to work at the new wage will be able to find jobs.
An exclusive right granted by government for a number of years to an inventor of a product is a:
patent.
If a firm is a price taker, then the demand curve for the firm's product is:
perfectly elastic.
When total product is increasing at a decreasing rate, marginal product is:
positive and decreasing.
When total product is increasing at an increasing rate, marginal product is:
positive and increasing.
An economy is producing at the least-cost rate of production when:
price and the minimum average cost are equal
The demand for a resource will increase if the:
price of the output the firm is producing increases.
If a monopolized industry should become purely competitive without any change in cost conditions:
price will decrease and quantity produced will increase.
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profit or minimize losses, the firm should:
produce less than 500 units.
Monopolistic competition is characterized by firms:
producing differentiated products.
Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:
profits were zero and its economic losses were $500,000.
Any activity designed to transfer income or wealth to a particular individual or firm at society's expense is called:
rent-seeking.
Other things being equal, a firm in a cartel will most likely cheat on a price-fixing agreement by:
secretly lowering price and increasing sales to a few customers.
Some firms in the technology sector have achieved economies of scale because costs have been reduced by:
simultaneous consumption.
Shares of ownership in corporations are referred to as:
stocks.
The demand for labor will most likely increase when the price of a:
substitute input decreases, provided the output effect is greater than the substitution effect.
A characteristic of monopolistically competitive industries is that:
the entry and exit of firms causes the representative firm to break even in the long run.
A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:
the firm should produce the level of output where marginal revenue equals marginal cost.
Marginal product is:
the increase in total output attributable to the employment of one more worker.
The demand curve confronting a nondiscriminating pure monopolist is:
the same as the industry's demand curve.
If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, it can be concluded that:
the substitution effect is greater than the output effect.
Firms in an industry cannot earn long-run economic profits if:
there is free entry and exit of firms in the industry.
Marginal revenue product is the increase in:
total revenue from the use of an additional unit of a resource.
One prediction about monopolistic competition is that firms:
will be inefficient in the long run.
When demand increases, in the short run the purely competitive firm:
will earn higher profits or experience smaller losses.
