TEST MICROECONOMICS

A firm hiring from a purely competitive labor market sells its output for $5 and pays a wage of $12. Its marginal resource cost is:

$12.

A firm can hire 10 workers at a wage rate of $12 per hour but must pay $13 to all of its employees to attract an 11th worker. The marginal resource (labor) cost of the 11th worker is:

$23.

A firm hiring from a purely competitive labor market sells its output for $5 and pays a wage of $12. Its marginal resource cost is:

$23.

Suppose hiring an extra worker increases a firm's output from 90 to 100 units per hour. If the firm has to reduce its price from $1 to $.99 to sell the additional output, the marginal revenue product of the last worker is:

$9.00.

In an oligopolistic industry:

) firms behave strategically.

A particular industry consists of three firms whose market shares are 50%, 30%, and 20%. The Herfindahl index for the industry is:

3800.

Which of the following best exemplifies the creation of human capital?

A nurse attends a continuing education seminar

Which best exemplifies the principal-agent problem as it arises in the employer-employee relationship?

A worker books his next business trip on United Airlines so she can obtain frequent-flier miles, even though Southwest Airlines would cost her employer less money

Which of the following is a characteristic of equilibrium in long-run competitive markets?

Combined consumer and producer surplus is maximized

Which of the following market characteristics suggests that purely competitive firms have only weak incentives to innovate?

Freedom of new firms to enter the industry

Which two models are most similar in their effects on labor markets?

Occupational licensure and exclusive unionism

Which of the following is an example of an innovation?

Pierre Omidyar uses the code to create the internet auction site eBay

Under what circumstances might an increase in the minimum wage increase employment in a low-wage market?

The firm has substantial monopsony power

Suppose a decrease in product demand occurs in a decreasing-cost industry. Compared to the original equilibrium the new long-run competitive equilibrium will entail:

a higher price and a lower total output.

In the long run, competitive markets achieve:

allocative efficiency because P = MC and productive efficiency because P = min ATC.

At a monopolist's current output, ATC = $10, P = $11, MC = $8 and MR = $7. This firm is realizing:

an economic profit that could be increased by producing less output.

An increasing cost industry is characterized by:

an upsloping long-run supply curve.

A firm anticipates that a particular R&D expenditure of $40 million will generate a one-time profit of $43 million one year later. The firm will undertake this expenditure if its interest-rate-cost of borrowing is:

at most 7.5%.

Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:

demand is more inelastic.

According to the marginal productivity theory of income distribution, each resource owner receives income:

equal to the value of her contribution to total output.

Compared to a competitive firm, a monopolistically competitive firm:

faces a less elastic demand curve.

All else equal, the demand for labor will be most elastic when labor and capital are:

highly substitutable and product demand is elastic.

The long-run industry supply curve will be horizontal:

if resource prices remain constant as industry demand rises or falls.

Combined consumer and producer surplus is maximized in a competitive market:

if the market price exceeds minimum average total cost.

As embodied in product innovation, technological advance will:

improve allocative efficiency provided the innovation does not give rise to monopoly power.

The "derived demand" concept suggests that an increase in the demand for computers will:

increase the demand for computer design engineers.

Suppose a newly approved treaty expands the number of countries that promise to actively reduce the extent of piracy and copyright infringement within their borders. This will:

increase the expected rate of return on R&D expenditures.

Assume a candle manufacturer is employing two resources L and C in such quantities that the MRPs are $20 and $15, respectively. The prices of the resources are $16 and $12, respectively. This firm:

is using the least-cost combination of resources to produce its output but should use more of both.

Consumers will purchase a newly introduced product if:

its marginal utility per dollar exceeds that of existing products.

If a firm profitably replaces its aging assembly equipment with more productive equipment:

its total product curve will shift upward and its average total cost curve will shift downward.

Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles:

monopolistic competition.

To find the amount by which the production of an additional worker increases a purely competitive firm's total revenue:

multiply marginal product by product price.

Compared to an otherwise identical firm selling its output competitively, a firm with monopoly power:

must lower its price to sell additional output, so MRP declines faster than MP.

An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of:

oligopoly.

The inverted-U of R&D theory suggests that the industry structure best suited to technological advance is:

oligopoly.

The allocative inefficiency of nondiscriminating monopoly arises from the fact that:

price exceeds marginal cost.

Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes:

price leadership.

In long run equilibrium, both competitive firms and a monopolistic firms that maximize profits:

produce the output at which marginal revenue equals marginal cost.

Allocative efficiency in the production of wheat requires:

producing every unit of wheat whose marginal benefit equals or exceeds its marginal cost.

For a firm that both sells its output and buys its inputs in purely competitive markets, the labor demand curve:

slopes downward and the labor supply curve is perfectly elastic.

Suppose all workers are identical, but there are fewer prospects for advancement at firm X than at firm Y. In all other aspects, the firms offer the same job characteristics. We would expect:

starting wages at X to exceed those at Y.

If an oligopolist's demand curve is kinked at the going price:

the loss in revenue from reducing output by one unit exceeds the gain in revenue from expanding output by one unit.

"Creative destruction" refers to:

the process by which old industries or technologies are replaced by newer ones.

Benchmark Capital provided $6.5 million in start-up funds to internet auction site eBay in exchange for shares of stock in the company. These start-up funds are known as:

venture capital.

The economic profits of firms in long-run competitive equilibrium are:

zero.