ECO202 MICROECON EXAM 2

If a firm is hiring a certain type of labor under purely competitive conditions: A) its labor demand curve will be perfectly elastic at the market-determined wage rate. B) the labor supply curve will lie above the marginal labor cost curve. C) the labor supply and marginal labor (resource) cost curves will coincide and be upsloping. D) the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.

D) the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.

The Herfindahl index for a pure monopolist is: A) 100. B) 10,000. C) 100,000. D) 10.

B) 10,000.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be: A) 100. B) 160. C) 180. D) 210.

B) 160 : where MR =MC

If the four-firm concentration ratio in an oligopolistic industry is 100 percent and each firm has an equal percentage of sales, the Herfindahl index is: A) 10,000. B) 2,500. C) 3,750. D) 1,000.

B) 2,500.

Refer to the given data. In maximizing its profit, this firm will employ: A) 2 units of labor. B) 3 units of labor. C) 4 units of labor. D) 5 units of labor.

B) 3 units of labor.

The pizza analogy of income distribution would be most closely associated with which one of the following questions? A) If resources are used to make pizza, what other goods and services must be given up to do this? B) If cutting a pizza in more equal slices shrinks the pizza, how much shrinkage will society tolerate? C) If pizza workers were paid more money, would they become more productive workers for society? D) If pizza sales increase, would pizza companies redistribute the profits to their employees?

B) If cutting a pizza in more equal slices shrinks the pizza, how much shrinkage will society tolerate?

Refer to the diagram. Assuming no union or relevant minimum wage, the firm represented will hire: A) Q2 workers and pay a W4 wage rate. B) Q2 workers and pay a W1 wage rate. C) Q3 workers and pay a W2 wage rate. D) Q4 workers and pay a W1 wage rate.

B) Q2 workers and pay a W1 wage rate.

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the: A) Opportunity cost of the capital good B) Rate of return on the investment C) Length of the investment D) Treasury bill rate

B) Rate of return on the investment

Which of the following is not a basic characteristic of monopolistic competition? A) The use of trademarks and brand names. B) Recognized mutual interdependence. C) Product differentiation. D) A relatively large number of sellers.

B) Recognized mutual interdependence.

A breakdown in price leadership leading to successive rounds of price cuts is known as: A) limit pricing. B) a price war. C) informal pricing. D) price discrimination.

B) a price war.

Cartels are difficult to maintain in the long run because: A) they are illegal in all industrialized countries. B) individual members may find it profitable to cheat on agreements. C) it is more profitable for the industry to charge a lower price and produce more output. D) entry barriers are insignificant in oligopolistic industries.

B) individual members may find it profitable to cheat on agreements.

The MRP curve for labor: A) intersects the firm's labor demand curve from above. B) is the firm's labor demand curve. C) lies below the firm's labor demand curve. D) lies above the firm's labor demand curve.

B) is the firm's labor demand curve.

Real wages in the United States are: A) the highest in the world. B) relatively high, but not as high as in some other industrially advanced nations. C) much higher than output per worker. D) higher than nominal wages.

B) relatively high, but not as high as in some other industrially advanced nations.

The demand for a resource depends primarily on: A) the supply of that resource. B) the demand for the product or service that it helps produce. C) the price of that input. D) the elasticity of supply of substitute inputs.

B) the demand for the product or service that it helps produce.

Marginal resource cost is: A) the increase in total resource cost associated with the production of one more unit of output. B) the increase in total resource cost associated with the hire of one more unit of the resource. C) total resource cost divided by the number of inputs employed. D) the change in total revenue associated with the employment of one more unit of the resource.

B) the increase in total resource cost associated with the hire of one more unit of the resource.

A monopsonist's wage cost in hiring an additional worker is the: A) worker's wage rate. B) worker's wage rate plus the wage increases paid to all workers already employed. C) worker's wage rate adjusted for the lower price that must be charged for the extra output. D) marginal wage cost less the wage rate.

B) worker's wage rate plus the wage increases paid to all workers already employed.

Refer to the given data. At the profit-maximizing level of employment, this firm's total revenue will be: A) $16. B) $32. C) $24. D) $30.

C) $24.

Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is: A) $6. B) $12. C) $36. D) $72.

C) $36.

Answer the question on the basis of the following information. A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. Refer to the given information. What is the farmer's profit-maximizing output? A) 20. B) 32. C) 37. D) 40.

C) 37.

In the table below, a monopsonist has the marginal-revenue-product schedule for labor given in columns 1 and 2, and the supply schedule for labor is given by columns 1 and 3. Refer to the above table and information. For maximum profits, how many labor-units will the monopsonist hire and what will be the wage rate paid? A) 2 and $10 B) 3 and $11 C) 4 and $12 D) 5 and $13

C) 4 and $12

Which factor will decrease the demand for loanable funds? A) A change in the tax law to exempt savings from taxation B) Expansion of social insurance to cover more fully the cost of retirement C) A general business recession that produces high rates of unemployment D) A technological advance that increases returns on investments

C) A general business recession that produces high rates of unemployment

The 2010 Health Care Reform Law, also known as "Obamacare", includes a part known as universal coverage which requires everyone to have health insurance. One reason for this is to address the problem of: A) Moral hazard B) Externalities C) Adverse selection D) Public goods

C) Adverse selection

The moral hazard problem arises primarily because of: A) Individual bargaining B) Negative externalities C) Asymmetric information D) Poorly defined property rights

C) Asymmetric information

Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects. The marginal cost and the marginal benefits of each of the four projects are given in the table. Refer to the above table and information. What project should the government select to achieve the maximum net benefit? A) A B) B C) C D) D

C) C

The debate over income distribution focuses on the tradeoff between: A) Unemployment and economic freedom B) Equality and economic freedom C) Economic efficiency and equality D) Unemployment and economic growth

C) Economic efficiency and equality

A decrease in the supply of loanable funds and an increase in the demand for loanable funds will: A) Increase the interest rate and the quantity of funds loaned B) Decrease the interest rate and the quantity of funds loaned C) Increase the interest rate, but the quantity of funds loaned may either increase or decrease D) Decrease the interest rate, but the quantity of funds loaned may either increase or decrease

C) Increase the interest rate, but the quantity of funds loaned may either increase or decrease

The price paid for the use of money is called: A) Commission B) Royalty C) Interest D) Rent

C) Interest

When taxes and transfer payments are taken into account, the distribution of income in the United States: A) Is unchanged B) Is less equally distributed C) Is more equally distributed D) Becomes more beneficial for the wealthy

C) Is more equally distributed

A profit-maximizing firm employs resources to the point where: A) MRC = MP. B) resource price equals product price. C) MRP = MRC. D) MP = product price.

C) MRP = MRC.

The amount of revenues that sellers actually receive over and above the minimum acceptable amount that they are willing to receive for selling a product is called: A) Production costs B) Producers' supply C) Producer surplus D) Surplus production

C) Producer surplus

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be: A) Taxed B) Prohibited C) Subsidized D) Left alone

C) Subsidized

The equilibrium point in the market is where S and D curve intersect. Refer to the graph above. At equilibrium, consumer surplus would be represented by the area: A) a + b B) a + b + c C) a D) b + c

C) a

In the short run, a profit-maximizing monopolistically competitive firm sets it price: A) equal to marginal revenue. B) equal to marginal cost. C) above marginal cost. D) below marginal cost.

C) above marginal cost.

The mutual interdependence that characterizes oligopoly arises because: A) the products of various firms are homogeneous. B) the products of various firms are differentiated. C) each firm in an oligopoly depends on its own pricing strategy and that of its rivals. D) the demand curves of firms are kinked at the prevailing price.

C) each firm in an oligopoly depends on its own pricing strategy and that of its rivals.

The general rule for hiring any input (say, labor) in the profit-maximizing amount is MRC = MRP. This rule takes the special form W = MRP (where W is the wage rate) when the: A) labor supply curve is upsloping. B) supply of labor is inelastic. C) firm is hiring labor under purely competitive conditions. D) firm is hiring labor under imperfectly competitive conditions.

C) firm is hiring labor under purely competitive conditions.

The monopolistic competition model assumes that: A) allocative efficiency will be achieved. B) productive efficiency will be achieved. C) firms will engage in nonprice competition. D) firms will realize economic profits in the long run.

C) firms will engage in nonprice competition.

A significant difference between a monopolistically competitive firm and a purely competitive firm is that the: A) former does not seek to maximize profits. B) latter recognizes that price must be reduced to sell more output. C) former sells similar, although not identical, products. D) former's demand curve is perfectly inelastic.

C) former sells similar, although not identical, products.

Monopolistic competition is characterized by a: A) few dominant firms and low entry barriers. B) large number of firms and substantial entry barriers. C) large number of firms and low entry barriers. D) few dominant firms and substantial entry barriers.

C) large number of firms and low entry barriers.

Deadweight losses occur when the quantity of an output produced is: A) less than, but not when it is greater than, the competitive equilibrium quantity B) greater than, but not when it is less than, the competitive equilibrium quantity C) less than or greater than the competitive equilibrium quantity D) such that the marginal benefit of the output is just equal to the marginal cost

C) less than or greater than the competitive equilibrium quantity

Over the long run, real earnings per worker can increase only at about the same rate as the economy's rate of growth of: A) total output. B) stock of capital. C) output per worker. D) international trade.

C) output per worker.

In an oligopolistic market: A) one firm is always dominant. B) products may be standardized or differentiated. C) the four largest firms account for 20 percent or less of total sales. D) the industry is monopolistically competitive.

C) the four largest firms account for 20 percent or less of total sales.

If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes: A) the likelihood of realizing economic profits in the long run would be enhanced. B) individual firms would now be operating at outputs where their average total costs would be higher. C) the industry would more closely approximate pure competition. D) the likelihood of collusive pricing would increase.

C) the industry would more closely approximate pure competition.

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is A) $19. B) $0.90. C) $90. D) $1.

D) $1.

A firm operating in a purely competitive labor market has the following marginal revenue product schedule. If the wage rate decreases from $17 to $13, by how much will the firm expand employment? A) 5 workers B) 4 workers C) 3 workers D) 2 workers

D) 2 workers

Refer to the given data. If the firm is hiring workers under purely competitive conditions at a wage rate of $10, it will employ: A) 2 workers. B) 3 workers. C) 4 workers. D) 5 workers.

D) 5 workers. :where it costs the least amount for the most amount of revenue

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the: A) Buyer and the government B) Seller and the government C) Taxpayer and the government D) Buyer and the seller

D) Buyer and the seller

Interest rates of various loans vary over a wide range due to differences in all of the following, except: A) Borrower characteristics B) Maturity of the loan C) Loan size D) Lender characteristics

D) Lender characteristics

When producers (say, of roads) are not able to make all consumers pay for enjoying their product (i.e., the roads), they tend to see a: A) Marginal cost of production that is too low, and there is a supply-side market failure B) Marginal benefit of production that is too high, and there is a demand-side market failure C) Marginal cost of production that is too high, and there is a supply-side market failure D) Marginal benefit of production that is too low, and there is a demand-side market failure

D) Marginal benefit of production that is too low, and there is a demand-side market failure

A market for pollution rights can be expected to: A) Eliminate all pollution B) Produce a shortage of pollution C) Encourage potential polluters to increase emissions D) Provide potential polluters with a monetary incentive to reduce emissions

D) Provide potential polluters with a monetary incentive to reduce emissions

One effect of a usury law is that it will: A) Benefit lenders B) Penalize borrowers C) Increase the efficiency of investment D) Subsidize borrowers with high incomes

D) Subsidize borrowers with high incomes

A competitive market can produce economically efficient outcomes if these conditions are met, except: A) The market produces only units for which benefits are at least equal to cost B) The market demand curve reflects the buyers' full willingness to pay C) The market supply curve reflects all costs of production D) The market produces only units for which costs are at least equal to benefits

D) The market produces only units for which costs are at least equal to benefits

In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because: A) Too few resources will be allocated towards producing the good B) Firms will shut down until costs are reduced C) Costs of production will, on average, be too high D) Too many resources will be allocated towards producing the good

D) Too many resources will be allocated towards producing the good

Collusive agreements between two firms are most likely to be honored when the game: A) is a one-time game with the opportunity for a prisoner's dilemma. B) has a Nash equilibrium that differs from the outcome that maximizes the payoffs to the two firms. C) is a zero-sum game. D) is repeated and both firms offer credible threats if the other violates the agreement.

D) is repeated and both firms offer credible threats if the other violates the agreement.

Resource pricing is important because: A) resource prices are a major determinant of money incomes. B) resource prices allocate scarce resources among alternative uses. C) resource prices, along with resource productivity, are important to firms in minimizing their costs. D) of all of these reasons.

D) of all of these reasons.

Refer to the payoff matrix. Suppose that Speedy Bike and Power Bike are the only two bicycle manufacturing firms serving the market. Both can choose large or small advertising budgets. If this is a one-time, simultaneous game, which cell represents the final outcome we would expect to occur? A) A. B) B. C) C. D) D.

A) A. Where both firms use large budget

Which of the following has not been a major factor contributing to the high productivity of labor in the United States? A) High wage rates B) Technological advancement C) Education and training of workers D) High levels of capital investment

A) High wage rates

The degree of inequality in the distribution of income in an economy is depicted in a(n): A) Lorenz curve B) Phillips curve C) Engels curve D) Indifference curve

A) Lorenz curve

Refer to the market for loanable funds, as shown in the above graph. Suppose investors who borrow money in the loanable funds market become quite nervous and pessimistic about the economy in general, and expected returns on investments in particular. We would expect to see a(n): A) Lower equilibrium interest rate B) Rightward shift of the supply curve C) Rightward shift of the demand curve D) Increase in the equilibrium quantity of loanable funds

A) Lower equilibrium interest rate

Since 1975, the distribution of household income in the United States has: A) Moved toward greater inequality B) Moved toward greater equality C) Remained about the same D) Fluctuated considerably

A) Moved toward greater inequality

What are the two characteristics that differentiate private goods from public goods? A) Rivalry and excludability B) Negative externality and positive externality C) Marginal cost and marginal benefit D) Ownership and usage

A) Rivalry and excludability

For the music industry, the rise of Internet file-sharing of music has: A) Worsened the free-rider problem B) Diminished or alleviated the free-rider problem C) Reduced the options for musicians to have their music heard D) Eliminated the problem of digital piracy

A) Worsened the free-rider problem

The individual firm in a purely competitive labor market faces: A) a perfectly elastic labor supply curve and a downsloping labor demand curve. B) a perfectly elastic labor demand curve and an upsloping labor supply curve. C) labor demand and labor supply curves both of which are perfectly elastic. D) a downsloping labor demand curve and an upsloping labor supply curve.

A) a perfectly elastic labor supply curve and a downsloping labor demand curve.

Excess capacity refers to the: A) amount by which actual production falls short of the minimum ATC output. B) fact that entry barriers artificially reduce the number of firms in an industry. C) differential between price and marginal costs that characterizes monopolistically competitive firms. D) fact that most monopolistically competitive firms encounter diseconomies of scale.

A) amount by which actual production falls short of the minimum ATC output.

Other things equal, the monopsonistic employer will pay a: A) lower wage rate and hire fewer workers than will a purely competitive employer. B) higher wage rate but hire fewer workers than will a purely competitive employer. C) lower wage rate but hire a larger number of workers than will a purely competitive employer. D) higher wage rate and hire a larger number of workers than will a purely competitive employer.

A) lower wage rate and hire fewer workers than will a purely competitive employer.

The economic term for a firm that is the sole buyer in a market is: A) monopsonist. B) monopolist. C) bilateral competitor. D) bilateral monopolist.

A) monopsonist.