Microeconomics Final Exam questions
If the average variable cost of producing five units of a product is $100 and the average variable cost of producing six units is $125, then the marginal cost of producing the sixth unit is
$250
The total variable cost of producing five units of output is
$30
Which of the following statements best reflects the law of diminishing marginal utility?
"I couldn't eat another doughnut if you paid me."
(unit 4) Derived demand is
demand for an input used to produce a product
A firm's short-run marginal cost curve will eventually increase because of
diminishing marginal returns
As its output increases, a firm's short-run marginal cost will eventually increase because of
diminishing returns
According to graph above, if the firm is producing any quantity greater than Q2, the firm is experiencing
diseconomies of scale
Advocates of higher minimum wages for unskilled labor defend their position by arguing that
low-income workers deserve to earn incomes above the poverty level
According to the graph above, if the firm is producing at Q, the firm is
making normal profits because the price just covers average total cost
For a perfectly competitive firm, if the market price is $8, then
marginal revenue is equal to $8
A profit-maximizing firm should hire an input as long as the
marginal revenue product of the input is at least as much as the cost of hiring the input
The shapes of the marginal product curve and the total product curve are best explained by the
law of diminishing returns
Assume that the firm in the graph is an unregulated monopolist. It will earn long-run profits of
$300
The marginal cost of producing the fourth unit of output is
$4
In the short run, the firm will stop production when the price falls below
0D
If the price of a good decreases by 3% and total revenue increases, the elasticity of demand for the good could possibly be
1.3
Assume that the firm in the graph above is an unregulated monopolist. It will produce
100 units at a price of $8
If the price per pizza is $10 and if each chef receives $20 an hour, how many chefs will the owner hire to maximize profits?
5
The marginal productivity of the third chef is
6 pizzas
Which of the following will not change the demand for oranges?
A change in the price of oranges
Which of the following will not cause the demand curve for athletic shoes to shift?
A decrease in the price of athletic shoes
Assume that the demand for apples is downward sloping. If the price of apples falls from $.80 to $.65 per pound, which of the following will occur?
A larger quantity of apples will be demanded
At the price 0A, economic profits are
ABKH
Consumer surplus for this profit-maximizing monopolist will be represented by area
ACP4
Which of the following is always true of the relationship between average and marginal costs?
Average variable costs are increasing when marginal costs are higher than average variable costs.
Based on the payoffs above, which of the following statements is true?
Brewer's has a dominant strategy to concentrate on fries
What is the Nash Equilibrium in this game?
Brewer's should choose to concentrate on fries, and Royal's should choose to concentrate on burgers.
What are the dominant strategies for Bright and Sparkle, respectively?
Bright- no dominant strategy; Sparkle-strategy 1
Brooke is spending all of her income consuming products X and Y. If MUx/Px=10 and MUy/Py=6, what should Brooke do to maximize her satisfaction?
Buy more X and less Y
On the graph above, what area represents consumer surplus when the price is $10?
C
Under the usual regulated monopoly, the price that allows fair return (where all costs are covered and includes a normal rate of return) is
C
If an excise tax is imposed on a product, comsumer surplus and producer surplus for this good will most likely change in which of the following ways?
Consumer Surplus decrease, Producer Surplus decrease
If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the consumer surplus, producer surplus, and deadweight loss after the imposition of the tax?
Consumer surplus- A; Producer surplus- G; Deadweight loss- D+E
Under the usual regulated monopoly, the socially optimal regulated price is
D
The demand for labor will decrease in response to which of the following?
Decreased demand for goods and services produced by labor
A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for concert tickets?
Demand is inelastic
If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true?
Firms are earning a return on investment that is equal to their opportunity costs.
The law of diminishing marginal returns occurs after hiring which chef?
First
The deadweight loss created by the tax is equal to
GKI
(unit 1) Scarcity is correctly described by which of the following statements? I. Scarcity exists if there are more uses for resources than can be satisfied at one time. II. Scarcity exists if decisions must be made about alternative uses for resources. III. Scarcity would not exist in a society in which people wanted to help others instead of themselves.
I and II only
Which of the following would determine the marginal revenue product of an input used in a perfectly competive output market? I. Dividing the change in total revenue by the change in the input. II. Dividing the change in marginal revenue by the change in the output. III. Multiplying the marginal revenue product by the marginal revenue of the output. IV. Multiplying marginal revenue by the price of the output
I and III only
Compare with 2000 and 2001. Which of the following statements is (are) true? I. Demand has increased II. Quantity demanded has increased III. Supply has increased IV. Quantity supplied has increased V. Supply has decreased
I and IV only
Allocative and productive efficiency are possible in which of the following unregulated market structures? I. Perfectly competitive II. Pure monopoly III. Oligopoly IV. Monopolistically competitive
I only
Characteristics of an oligopoly, which can be demonstrated by game theory, include which of the following? I. Collusion can increase oligopolists' profits II. Oligopolistic firms are interdependent III. Independent price decision making leads to lower returns
I, II, and III
(unit 2) A downward sloping demand curve can be explained by I. diminishing marginal utility II. diminishing marginal returns III. the substitution effect IV. the income effect
I, III, and IV only
Which of the following statements about a firm production function are true? I. When the total product is at its maximum, marginal product is zero II. When total product rises, marginal product is rising III. When marginal product is greater than average product, average product is rising IV. When marginal product is less than average product, average product is falling
I, III, and IV only
(unit 3) True statements about the theory of the firm in the short run and long run include which of the following? I. All input costs are fixed in the long run II. All input costs are variable in the long run III. At least one input price is fixed in the short run
II and III only
Characteristics of an oligopolistic market include which of the following? I. Easy entry and exit of firms II. Few firms III. Interdependence among firms
II and III only
A perfectly competitive producer of steel rods and steel beams employs 100 workers with identical skills. If steel rods and steel beams sell for the same price, which of the following rules should the producer always follow to use the 100 workers efficiently? I. Allocate workers so that the average cost of producing beams equals the average cost of producing rods II. Allocate workers so that the marginal product of labor is the same in both rod production and beam production. III. Allocate half the workers to rod production and half the workers to beam production.
II only
According to the graphs above, in which of the following ways are the industry supply curve and the equilibrium price most likely to change in the long run?
Industry Supply decrease, Equilibrium Price increase
Which of the following is true of a pure monopolist's demand curve?
It lies above its marginal revenue curve
For a firm hiring labor in a perfectly competitive labor market, the marginal revenue product curve slopes downward after some point because as more of a factor is employed, which of the following declines?
Marginal product
If the marginal cost curve of a monopolist shifts up, which of the following will occur to the monopolist's price and output?
Price increase; Output decrease
What happens to a monopolist's price, profits and output if its fixed costs decrease?
Price no change, Profits increase, Output no change
If the firms in a perfectly competitive industry have been dumping toxic waste free of charge into a river, government action to ensure a more efficicient use of resources would have which of the following effects on the industry's output and product price?
Output decrease; Price increase
The total amount of tax collected by the government is equal to
P1,G,I,P2
The price the monopolist charges at the profit-maximizing level of output will be
P3
Total revenue will be maximized when price is equal to
P3
For the firm in the graph--an unregulated monopolist--the price elasticity of demand is unit elastic at a price and an output of
P3 and Q2
At which price will this perfectly competitive firm make an economic profit?
P4
The profit-maximizing price for this firm is
P4
Which of the following represents the correct relationship between the demand curve for a perfectly competitive industry and the demand curve for a perfectly competitive firm?
PC Industry Demand downward slope to the right, PC Firm Demand perfectly elastic
The profit per unit will be
PP3
On the graph above, the onset of diminishing marginal returns occurs beyond
Point C
Which price-quantity combination represents long-run equilibrium for this perfectly competitive firm?
Point D
Which of the following statements about price controls is true?
Price ceilings and price floors result in a misallocation of resources
A market is clearly NOT perfectly competitive if which of the following is true in equillibrium?
Price exceeds marginal cost.
If the cost of producing automobiles increases, equilibrium quantity and consumer surplus will most likely change in which of the following ways?
Price increase, Quantity decrease, Consumer Surplus decrease
If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged?
Price increase, Quantity increase
Based on the information in the table above, which product(s) is/are inferior?
Product B and D only
To maximize profit, this monopolist should produce at which of the following levels of output?
Q1
If the firm is in short-run equilibrium at a price of P4, a perfectly competitive firm will maximize profits by producing at which of the following levels of output?
Q4
According to the graph above, which of the following will occur if a legal price ceiling is imposed at price X?
Shortages will occur
Assume a consumer finds his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?
The consumer's demand for compact discs is unit price elastic
Which of the following bears the total tax burden?
The consumers and the producers each bear a part of it.
A Lorenz curve can be used to evaluate which of the following economic issues?
The degree of equity in income distribution.
During a football game, it starts to rain and the temperature drops. The senior class, which runs the concession stand and is studying economics, reaises the price of coffee from 50 cents to 75 cents a cup. They sell more than ever before. Which answer explains this?
The demand for coffee increased.
If the price of paperback books increases and consumer expenditures on paperback books also increase, which of the following is necessarily true?
The demand for paperback books is inelastic
Which of the following will occur if a legal price floor is placed on a good below its free-market equilibrium?
The equilibrium price will ration the good
Which of the following explains why the marginal revenue product of an input in a perfectly competitive market decreases as a firm increases the quantity of an input used?
The law of diminishing marginal returns
Assume that coal is a normal good. If the price of coal increases and the quantity sold increases, which of the following is consistent with these observations?
The price of oil increased, oil and coal being substitutes
Which of the following situations would necessarily lead to an increase in the price of peaches?
The wage paid to peach farm workers rises at the same time that medical researchers find that eating peaches reduces the chances of a person's developing cancer.
Which of the following is true of monopolists who practice price discrimination?
They charge customers different prices according to different elasticities of demand
An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?
To the left, because gasoline and tires are complements
If hot dogs are an inferior good, an increase in income will result in
a decrease in demand for hot dogs
Producer surplus is the
amount the seller is paid less the cost of production
Average fixed cost is shown as the distance between
average variable cost and average total cost
The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from P1 to P2 if
consumers' incomes increased
During the 1990s, the price of VCRs fell by about 30%, and quantity sold decreased by the same amount. The demand for VCRs must
have shifted to the left
The profit-maximizing level of output for this firm is
impossible to determine from the information given.
Assumer that a perfectly competitive firm is operating where marginal revenue is greater than amrginal costs. To increase profits, the firm should
increase production
If price is P1, the firm will
produce Q1 units and earn a normal profit
If price is P2, the firm will
produce Q2 units and earn an economic profit
The substitution effect causes a consumer to buy less of a product when the price increases because the
product is now more expensive compared to similar products
Assume that in the short run at the profit-maximizing output, the price is lower than average variable cost. The perfectly competitive firm should
shut down
A firm hiring inputs in a perfectly competitive market will hire up to the point where
the price of the input equals the marginal revenue product of the input
If all of the firms in an oligopoly could, without cost, form an industry-wide cartel to jointly maximize profits, the demand curve facing the cartel would be
the same as the industry demand curve
From the point of view of economic efficiency, a monopolist produces
too little of a good and charges too high a price
If the price of a lunch at thee school cafeteria increases and cafeteria revenue remains constant, the elasticity of demand for a school lunch must be
unit elastic
In the long run, a monopolistically competitive firm will make
zero economic profit
