Microecon Final Exam

Which of the following will NOT cause the demand for video games to change?

A change in the price of video games

Which of the following would cause an outward or rightward shift in the production possibilities curve?

A decrease in working-age population

In which way does a straight-line production possibilities curve differ from a concave production possibilities curve?

A straight-line production possibilities curve has a constant opportunity cost

Refer to Figure A. What would be the effect of a price floor at $60?

A surplus of 100

Which of the following is the best example of physical capital?

A truck for a delivery company

Refer to Figure C. At the price of 0A, economic profits are

ABKF

For the profit maximizing monopolist in Figure A consumer surplus is

AEB

If the average variable cost of producing 4 burritos is $20 and the average variable cost of producing 5 burritos is $25, then the marginal cost of increasing output from 4 to 5 burritos is

$5

Two competing AP tutoring firms, Cromie Corp and Clifford Incorporated, are studying potential locations for new stores in Springfield. Each firm must choose between a location to the west or east of the Twin Pines Mall. The payoff matrix is shown below, with the first entry in each cell indicating Cromie Corp's daily profit and the second entry indicating Clifford Inc.'s daily profit. If both firms know all of the information in the payoff matrix but do not cooperate, which of the following will be their daily profit?

$5,500, $5,500

Which of the following goods would be considered scarce? (bagels, gold, time)

All of the above

Societal attempts to "solve" the economic problem of scarcity have included which of the following

All of the above (tradition based, command based, market based resources allocation solutions, and mixtures of the above)

Which of the following would cause a leftward shift of the production possibilities curve?

An increase in inflation

Assume that tulip producers compete in a constant-cost, perfectly competitive industry that is currently in long-run equilibrium. Which of the following statements must be true?

An increase in the demand for tulips may lead to short-run economic profits but will cause no change in the long-run equilibrium price

Which of the following will cause the supply curve for doughnuts to shift to the right?

An increase in the number of firms producing doughnuts

Which of the following statements is correct?

An increase in the price of X will decrease the demand for complementary product Y

Which of the following events will cause the demand curve for hamburgers to shift to the right?

An increase in the price of pizza, a substitute for hamburgers

An increase in which of the following would cause an outward shift of the production possibilities curve for consumer goods and capital goods?

An increase in the resources to produce capital goods

Atlantis can produce either 2 tons of grain or 4 cars with 10 units of labor. Zoltar can produce either 5 tons of grain or 25 cars with 10 units of labor. Based on this information, which of the following is true.

Atlantis has a comparative advantage in the production of grain, while Zoltar has a comparative advantage in the production of cars

Lil' Clifford's Diaper Service is a profit-maximizing firm currently experiencing short-run economic losses. Under which of the following conditions should Lil' Clifford's Diaper Service shut down production?

Average revenue is less than average variable cost

Two competing guitar manufacturers, Bender and Jibson, agree to form a cartel to set price. However, each has the option to cheat on the agreement. The payoff matrix is shown below, with the first entry in each cell indicating Bender's daily profit and the second entry indicating Jibson's daily profit. Which of the following describes the dominant strategy of each firm?

Bender's dominant strategy is to cheat, Jibson's is not to cheat

Which of the following represents the daily profit for each firm?

Bender: $25,000 Jibson: $20,000

In the circular flow diagram, which of the following is true?

Businesses pay wages, rent, interest, and profits to households in return for use of factors of production

Refer to Graph 1. To maximize profit or minimize losses this firm will produce

C units at price H

Which of the following is not a characteristic of a free market economy?

Central planning committees organize free market initiatives

Which of the following is not a shifter of a production possibilities curve?

Change in consumer tastes and preferences

Claire is an economist who can earn $150 per hour. She is also an excellent chef who can cook three times as fast as the best chef in the area, whose hourly wage is $20 per hour. Which of the following is a correct economic statement?

Claire has a comparative advantage in economics so she should specialize in economics and hire the chef to cook for her

Refer to Figure C. In the short run, the firm will stop production when the price falls below

D

Chiquita produces bananas in constant-cost perfectly competitive industry that is currently in long-run equilibrium. If the demand for bananas decreases, Chiquita's profit-maximizing output will change in which of the following ways in the short-run and the long-run?

Decrease, Return to original level

Refer to Figure B. To maximize profits or minimize losses this firm will produce

E units and charge price A

At a firm's current rate of output, the marginal cost is $15, the average variable cost is $10, the average fixed cost is $5, and the product price is $15. Which of the following statements is true for the firm?

Economic profits are zero because price equals average total cost

Which of the following is true for all economies regardless of their economic system?

Every economy must determine what to produce and how it produces goods and services

Which of the following is true according to the circular flow model?

Firms are demanders in the resource markets and suppliers in the product markets

If a perfectly competitive industry is in long-run equilibrium, which of the following statements is most likely to be true?

Firms are earning a return on investment that is equal to their opportunity costs

Avogadro sells avocados in a perfectly competitive industry while purchasing his orchard equipment from Monoglom Hardware Congomerate, the only orchard equipment supplier in town. Coincidentally, both Avogadro and MHC face identical demand and cost curves. Compared to Avogadro, MHC's price and output will be which of the following?

Higher, lower

Which of the following statements is correct?

If demand decreases and supply increases, equilibrium price will rise

A patent of Fizzy Lifting Drink allows WonkaCorp to earn economic profits as its sole producer. Assuming WonkaCorp is a profit-maximizing producer, all of the following statements are true EXCEPT

In long-run equilibrium, WonkaCorp's demand curve is tangent to its average total cost curve

If the cost of producing automobiles increases, the price, equilibrium quantity and consumer surplus will most likely change in which of the following ways?

Increase, decrease, decrease

Suppose that the market supply curve for milk is upward sloping and the market demand curve is downward sloping. How will the passage of a subsidy for dairy farmers affect the consumer surplus, the producer surplus, and the total surplus?

Increase, increase, increase

Which of the following is true of the concept of increasing opportunity costs?

It suggests that the use of resources to produce a set of goods and services means that as more of one is produced, some of the other must be sacrificed

Which of the following statements applies to a purely competitive producer?

It will not advertise its product

If Mike can make 2 surfboards per hour or 10 bikes per hour and Joe can produce 4 surfboards per hour and 12 bikes. Which of the following is true?

Joe's opportunity cost for producing one surfboard is 3 bikes

Charles Montgomery Burns runs a nuclear power plant that supplies 100% of the electricity for Springfield. As this power plant is a regulated natural monopoly, which of the following is consistent with the conditions of typical natural monopolies within the range of market demand?

Long-run average total cost decreases as output increases

Which of the following would most likely result in an increase in the equilibrium price of avocados, a normal good?

New studies suggest that avocados contain traces of cancer-fighting substances

McDowell's is one of many fast food restaurants. The fast-food industry is monopolistically competitive and currently in long-run equilibrium. Which of the following is true McDowell's as it exists in long-run equilibrium?

Price equals average total cost but is greater than marginal cost

Citing the epidemic of obesity and type 2 diabetes in America, congress approves a new tax on producers of high fructose corn syrup, one of the key ingredients in soda pop. The price paid by consumers and the quantity of soda pops sold will most likely change in which of the following ways?

Price increase, Quantity decrease

The law of increasing opportunity cost is reflected in the shape of the

Production possibilities curve concave to the origin (bowed-out)

MotorCorp, Inc. is a multinational producer of automobiles that is currently experiencing constant returns to scale. Which of the following describes what happens as the firm increases its output?

Proportionate increases in inputs result in proportionate increases in output

Which of the following can be considered a leakage from the circular flow model of economic activity?

Saving

Refer to Figure A. At price $20, which of the following would occur?

Surplus of 50

According to the law of diminishing marginal utility, which of the following is true when consuming marshmallows?

The additional satisfaction received from consuming extra marshmallows decreases as consumption of the good increases

The table in Figure D gives the short-run total cost function for a typical firm in a perfectly competitive industry. If the price the firm receives for its product is $20, which of the following statements is true in the short-run?

The firm will produce 4 units and make a profit of $8

Which of the following best explains why many U.S. economists support free trade?

The long-run gains to consumers and some producers exceed the losses to other producers

The table in Figure D gives the short-run total cost function for a typical firm in a perfectly competitive industry. If the price the firm receives for its product is $20, which of the following statements is true in the long-run?

The number of firms in the industry will increase

Which of the following must be true if an individual's next best alternative to going to the beach is studying for an economics exam?

The opportunity cost of going to the beach is being better prepared for the exam

Which of the following is true if consuming one taco yields 50 utils and consuming a second taco increases satisfaction by 10 utils?

The total utility of consuming two tacos is 60

Assume that the frozen turkey dinner is monopolistically competitive and many firms within the industry are currently earning short-run economic profits. Which of the following describes what will happen to the typical firm as the industry adjusts to the long-run equilibrium?

The typical firm will experience a leftward shift of its demand curve and will earn normal profits

What do economies of scale, the ownership of raw materials, and patents have in common?

They are all barriers to entry

Considering chimichangas, delicious deep-fried burritos, which of the following best describes the law of demand?

When the price of chimichangas decreases, the quantity of chimichangas demanded increases

A point outside the production possibilities curve would represent

a combination that cannot be achieved due to scarcity

Confronted with the same unit cost data, a monopolistic producer will charge

a higher price and produce a smaller output than a competitive industry

GloboMart is the only seller of household cleaning supplies in a certain state and is currently earning economic profits. In order to increase those profits, GloboMart is investigating a policy of price discrimination. In order to implement this policy, Globomart must be

able to separate consumers into different groups based on demand elasticities

The crucial problem of economics is

allocating scarce productive resources to satisfy wants

Refer to Figure B. In equilibrium the firm will realize

an economic profit of ABHJ

A pure monopolist is

any one-firm industry with high barriers to entry

Pure monopolists may obtain economic profits in the long run because

barriers to entry keep other firms from entering the market

Assume that Jacob spends his entire income on the purchase of two goods, almonds and Cheezy Poofs. If his income and the prices of good almonds and Y all double, Jacob will

buy the same amounts of good almonds and Cheezy Poofs

Marginal revenue is the

change in total revenue associated with the sale of one more unit of output.

An economist for a computer company predicts that a rise in consumer incomes will increase the demand for computers. This prediction assumes that

computers are normal goods

Following a severe drought, the price of bottled water normally increases significantly. If cities had passed laws prohibiting price increases for bottled water, during severe droughts such laws would most likely

create a shortage of bottled water

Assume that consumers consider tea and coffee to be substitutes. A significant increase in the supply of tea will affect the coffee market by

decreasing the demand for coffee and therefore the price of coffee

Assuming Ramen noodles are an inferior good, a decrease in income will shift the

demand curve for Ramen noodles to the right

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____

direct, inverse

The demand curve in a purely competitive industry is _______, while the demand curve to a single firm in that industry is ______.

downward sloping, perfectly elastic

Refer to Graph 1. At the profit-maximizing output, the firm will realize

economic profit of HJEF

Refer to Figure C. Compared to inductry represented in (1), the price for the industry represented by diagram (2) will be ______ and the quantity will be ______.

higher, lower

Assume that Prescott Pharmaceuticals, which holds patents on Vaxadrin, Vaxadrine, and Vaxadrone is an unregulated monopolist. Its profit-maximizing quantity will always be

in the region of the demand curve where marginal revenue is positive

Assume that people like sauerkraut with their bratwurst. If the supply of bratwurst increases, the demand for sauerkraut will most likely

increase because bratwurst and sauerkraut are complements

The short run supply curve in a perfectly competitive industry is

its marginal cost curve above the minimum point of its average variable cost curve

According to the theory of comparative advantages, a good should be produced where

its opportunity costs are least

For a pure monopolist the relationship between total revenue and marginal revenue is such that

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing

A system with free markets but also some government intervention is known as

market economy

Economists are likely to disagree most often over

normative statements

It is most accurate to say

normative statements involve value judgments while positive statements focus on facts

When one decision is made, the next best alternative not selected is called

opportunity cost

In a typical circular flow diagram there are

product markets, resource markets, households, and firms

Other things equal, if the price of a key resource used to produce product X fails, the

product supply curve of X will shift to the right

If the production possibilities curve is concave from the origin (or bowed out) then economists say that

resources are not equally suited for the production of both goods

A constant-cost, perfectly competitive widget industry is in long-run equilibrium. A decrease in the price of gadgets, a substitute for widgets, will most likely result in

short-run losses for widget producers, followed by the exit of some firms

A leftward shift of a supply curve for avocados (a normal good) might be caused by

some avocado farmers leaving the market

When making a decision, the next best alternative is called

the opportunity cost

If Buyer's Max = $300, Seller's Min = $150, & Price = $350, then

there would be no exchange

Economists use the term imperfect competition to describe

those markets which are not purely competitive

Price (demand) exceeds marginal revenue for the pure monopolist because

to sell more the monopolist must lower its price

Promoters of a traveling circus know that if they charged $5 a ticket, 200 people would buy tickets for the circus, and if they charged $2 a ticket, 500 people would buy tickets. Over this price range, the demand for the tickets for the traveling circus is

unit elastic