AGEC 1113 Final Exam
Firms that operate in non-competitive industries that can exercise market power should always be allowed to do what is in their best interest because the benefits of "big business" always outweigh the costs.
False
When MVP > MFC there is no incentive for producers to change behavior.
False
When firms in an industry have the potential to exercise market power because there are a few large firms in the industry, it is never the best solution for society to break the industry up into more smaller firms.
False
When the price of wheat increases dramatically relative to the price of corn, profit maximizing grain farmers should plant the same amount of wheat as before.
False
At the equilibrium price:
Qs = Qd
Zero economic profit for an industry as a whole means that:
Resources in the industry are earning exactly what they are worth
If MC is 8 and the price of the output is 10 and ATC is 8 and MC is increasing as more output is being produced:
The profit maximizing producer should increase output
Suppose that the own price elasticity of demand is -5. If price decreases 2 percent, then quantity demanded will:
increase 10 percent
Suppose that the price elasticity of demand is equal to -2. If the price decreases 2 percent, then the quantity demanded will:
increase 4 percent
A major point to remember about perfect competition is that:
prices are given so individual participants are price takers
The individual firm supply curve gets its shape because:
producers make decisions based on marginal costs and marginal revenues
Economic decisions are made based on:
relative prices
In a market economy, resources are allocated by:
relative prices
A firm attempting to find the profit-maximizing combination of two outputs should:
set the slope of the PPF equal to the slope of the isorevenue line
A firm attempting to find the profit-maximizing combination of two inputs should:
set the slope of the isoquant equal to the slope of the isocost line
Improvements in production technology
shift the MC curve down and to the right, and shift the supply curve down and to the right
Improvements in production technology:
shift the MC curve down and to the right, and shift the supply curve down and to the right
If a law were passed that capped gasoline prices at a price well below current market levels:
shortages would develop and rationing would be necessary
An increase in the minimum wage will cause businesses to:
substitute capital for labor
If the price of Snickers bars increases by 2 percent, and the elasticity of supply of Snickers bars is equal to 3, then:
supply increases 6 percent
For many years, the price of most ag commodities steadily fell in real terms because:
technology improvements outpaced demand growth
Rational economic behavior means:
that economic participants are purposeful and consistent in their behavior
Individual Firm Supply Curve
the MC curve above the minimum AVC
Marginal Cost (MC) is:
the additional cost associated with producing one more unit of output
Which of the following is always true for standard production and cost relationships:
the average chases the marginal
If the price of beef increases, then
the demand curve for chicken will shift right
If the price of chicken decreases, ceteris paribus, then:
the demand for beef will likely shift left
if the price of gasoline is widely expected to increase tomorrow, then:
the demand for gasoline will increase today
The law of diminishing marginal utility implies that:
the first unit of a good consumed gives the most satisfaction
the market supply curve is
the horizontal summation of all individual MC curves above minimum AVC, the horizontal summation of all individual firm supply curves, and a market relationship between price and the quantity supplied
If both the supply curve and the demand curve simultaneously shift to the right, but the demand curve shifts more:
the new equilibrium will be a higher quantity and a higher price
The "Law of Demand" suggests that:
the price of a good and the quantity demanded are inversely related, and when graphed with P on the vertical axis and Q on the horizontal axis, demand curves slope down
The "Law of Supply" states that:
the price of a good and the quantity supplied have a positive relationship
All of following could shift the demand for hamburger except:
the price of hamburger
All of the following could change the supply of sirloin steak except:
the price of sirloin steak
If the price of red apples increases relative to yellow apples
the quantity demanded for red apples will decrease and the demand for yellow apples will increase
If the price of bananas increases
there is a decrease in the quantity demanded of bananas
If the price of red roses increases:
there is a movement along the demand curve for red roses
We would expect the demand for gasoline measured over a 5 year period to be more elastic than the demand for gasoline measured over a 3 month time period:
true
When a market is in equilibrium, there is no incentive for market participants to change behavior.
true
Artificially high price supports for a particular product (imposed by the government for example):
usually makes consumers and the general public worse off
The Law of Demand holds for:
water, steak, medical care -->all of the above
In order to maximize profits, farmers should:
weight the benefits vs. the costs of input use decisions
The "rule" about decision maker's response to prices is:
when the relative price of a product is higher, producers want to produce more and consumers want to buy less
In a command economy, resources are allocated by:
whoever is in charge
The "invisible hand of free markets":
will help markets gravitate toward equilibrium
A farmer who is earning negative economic profits in the short run:
will want to continue to produce as long as prices are above minimum AVC
If you look at a level of input use on an APP - MPP graph and MPP > APP:
APP will be increasing as you add more variable input
which is always true for standard costs curves ?
ATC>AVC
The opportunity cost of attending college includes:
B. all out of pocket costs and the wage that you could be earning if you chose to work instead
If producer A has an "absolute" advantage in the production of all goods relative to producer B, then:
Both producers can still be made better off by trading with each other based on comparative advantage
If market forces are allowed to work, surpluses will:
correct themselves by decreasing prices
If market forces are allowed to work, shortages will:
correct themselves with increasing prices
Capital intensive production agriculture is most likely to occur in:
countries where capital is relatively inexpensive
If the number of cars purchased per week changes from 100 to 90 when the price of cares increases one percent, then the price elasticity of demand for cars is:
elastic
Relative prices determine:
how much of a good is produced, and how much of a good consumers want to purchase
Under what circumstances will MR and MRP be the same:
if it takes exactly one unit of input to produce a unit of output
Removing trade barriers and promoting more free trade between countries will:
improve standards of living in all countries involved
The slope of an Isoquant is:
Marginal Rate of Technical Substitution
Sustained growth in the Chinese economy over the next several years will benefit which of the following?
Oklahoma beef producers, and Oklahoma grain growers
Firms operating in market structures that are not competitive:
A. can influence prices by their own quantity decisions B. maximize profits by setting MR = MC C. may be able to exercise "market power" D. all of the above answer all of the above
The "weight the benefits vs. costs" criteria applies to:
A. deciding on the profit maximizing level of a single output to produce B. deciding on the profit maximizing combination of variable inputs to use C. deciding on the profit maximizing combination of outputs or products to produce D. all of the above all of the above
If the supply of corn is unitary elastic, and the price of corn increases one percent:
A. the quantity supplied of corn will increase by more than one percent B. the quantity supplied of corn will increase by less than one percent 1/1=1 C. the supply of corn will increase by more than one percent D. none of the other answers answer D should equal 1
If the price of live cattle increases by two percent, and as a result the quantity supplied of live cattle increases by one percent, then the price elasticity of supply of live cattle is:
Inelastic
When very few substitutes are available - the own price elasticity of demand tends to be:
Inelastic
The quantity that an individual firm supplies is found where:
MR=MC above minimum AVC, MRP=MFC, and the revenue from producing another unit of output exactly equals the cost of producing another unit
If the price of bananas increases:
There is an decrease in the quantity demanded of bananas
From the standpoint of the final solution (amount of input used and the resulting amount of output produced), setting MRP = MFC results in the same outcome as setting MR = MC.
True
We would expect the demand for gasoline measured over a 5 year period to be more elastic than the demand for gasoline measured over a 3 month time period.
True
When a market is in equilibrium, there is no incentive for market participants to change behavior:
True
Every point along an indifference curve has a constant level of:
Utility
Ceteris Paribus, when the price of wheat goes down:
Wheat producers should use less inputs and produce less wheat
Under what circumstance will MC = MFC
When using one unit of variable input results in exactly one unit of output
Which of the following causes a "change in demand" for oranges?
a change in income
"Since Free Trade can make everyone better off economically, society should never restrict trade with anyone" is an example of:
a normative statement
Diminishing Marginal Returns to Input Usage is:
a physical relationship that is common for all production processes
technology developed by Monsanto that increases crop yields results in:
a shift in supply
Biotechnology developed by OSU agronomists that increases crop yields in Oklahoma results in:
a shift in supply and a change in the quantity demanded
The severe freeze this spring in wheat producing regions will result in:
a shift to the left in the supply of wheat
The law of diminishing marginal returns means that:
additional incremental units of input result in less marginal output.
The law of diminishing marginal utility suggests that:
additional satisfaction declines as more and more of a good is consumed
An economist would advise cattle producers in Oklahoma to:
adopt cost reducing technology early
An isoquant is:
all combinations of two inputs that produce the same level of output
A production possibility frontier is:
all combinations of two outputs that can be produced with a fixed level of inputs
Suppose that Fred buys fewer polyester shirts when he gets an increase in wages. For Fred, polyester shirts are:
an inferior good
rice is an example of
an inferior good
In the Short Run:
at least one input is variable, but most inputs are fixed
If the price of an input graphed on the vertical axis increases, the iso-cost line will:
become less steep
The total economic cost of attending college includes:
both the accounting costs, and the opportunity cost such what else the student could be doing
Which of the following are complements in consumption?
bread and butter
If the price of chicken increases 2 percent, resulting in an increase in the demand for applesauce of 4 percent, then:
chicken and applesauce are substitutes in consumption
In order to maximize profits, a beef producer should:
consider the benefits and costs of input use, input mix, and output mix decisions
If the price of live cattle increases by two percent, and as a result the quantity supplied of live cattle increases by one percent, then the price elasticity of supply of live cattle is:
inelastic
The aggregate demand for most ag products is very inelastic, meaning:
it takes a fairly large price incentive to stimulate much of a consumption change
The aggregate demand for most agricultural products is very inelastic, meaning:
it takes a fairly large price incentive to stimulate much of a consumption change
The demand for air travel tickets purchased the day before a flight is:
less elastic than the demand for tickets bought two weeks in advance
The demand for air travel tickets purchased the day before the flight is:
less elastic than the demand for tickets bought two weeks in advance
If income increases from 100 to 120 dollars per week, and the demand for Mac and Cheese decreases from 20 to 10 boxes per week, then:
mac and cheese is an inferior good
