Microeconomics Exam 3 IUPUI
Over the last few years the price of high definition TVs have fallen substantially while at the same time the number sold increased significantly. Which of the following possibilities is consistent with this observation? A) The supply increased and there was movement downward along the demand curve B) The demand increased and there was movement upward along the supply curve C) The demand decreased and there was movement downward along the supply curve D) The supply decreased and there was movement upward along the the demand curve
A) The supply increased and there was movement downward along the demand curve
"Squids for Kids" is a competitive firm that hires workers in a competitive labor market. In order to maximize profits such a firm will hire workers A) as long as the value of marginal product of labor is greater than the wage rate and will continue to hire until the value of marginal product of labor equals the wage rate B) until the quantity demanded of labor is equal to the quantity supplied of labor C) as long as the average revenue product of labor is greater than the wage rate and will continue to hire until the average revenue product of labor equals the wage rate D) where price is equal to marginal cost
A) as long as the value of marginal product of labor is greater than the wage rate and will continue to hire until the value of marginal product of labor equals the wage rate
American Idle sells hammocks in a perfectly competitive market. This year, the price of hammocks has fallen to $27, and Simon Cowbell, the manager of American Idle, is trying to decide what to do. He discovers that his average variable cost (AVC) is $25, average total cost (ATC) is $30, and marginal cost is $27 and rising. What should he do? A) stay open because price > AVC B) shut down because p < ATC and the firm is making losses C) increase production until ATC falls below $27 D) lower the fixed cost so that ATC falls below $27 E) decrease production so that MC falls below $27
A) stay open because price > AVC
Due to the increased demand for ethanol and other bio-fuel energy alternatives, the United States Department of Agriculture (USDA) has predicted that American farmers are likely to receive 55 percent more for a bushel of corn in the 2006/2007 growing season than they recelved in the 2005/2006 growing season. Annual prices are expected to increase from $2.00 per bushel to about $3.10 per bushel. Which of the following explanations is consistent with the changes in the market for corn? A) there has been a shift to the right of the demand curve and an upward movement along the supply curve B) here has been a shift to the left of the demand curve and an upward movement along the supply curve C) there has been a shift to the left of the demand curve and a downward movement along the supply curve D) there has been a shift to the right of the demand curve and a downward movement along the supply curve E) there has been a shift to the right of the demand curve as well as a shift to the loft of the supply curve.
A) there has been a shift to the right of the demand curve and an upward movement along the supply curve
A bank increased its fees for processing personal checks from 18 cents to 24 cents per check. In a statement released a year later, the bank announced that total revenues from check processing fees increased during this period. This statement implies that A) Most account holders are highly responsive to the cheek writing fee, that is, their demand for checks are clastie. B) Account holders are relatively unresponsive to the check writing fec, that is, their demand for checks are inclastic. C) Some account holders have a unit-clastic demand for check writing. D) Account holders are indifferent to the check writing fee. E) Total revenues from check processing fees will always increase If the fees are increased.
B) Account holders are relatively unresponsive to the check writing fec, that is, their demand for checks are inclastic.
Durabattery Company has a plant located on the White River. It produces batteries and sells in the perfectly competitive market for batteries. If the production of these batteries cause negative externalities for downstream users of White River, and these costs are not part of the Durabattery's costs of production, the Durabattery will produce A) Less than the efficient output level B) More than the efficient output level C) Exactly the efficient level of output D) The efficient level of output if the industry is a competitive industry E) An output that would be hard to compare the efficient output as we do not know the efficient output level
B) More than the efficient output level
Suppose the United States imposed tariffs on imported Chinese clothing. As a result A) Prices of the clothes would fall in the United States, consumers would be better off, and the total surplus would increase B) Prices of clothing would increase in the United States, consumers would be worse off, and the total surplus would decrease C) Prices of clothing would increase in the United States, but consumers would be better off, and the total surplus would increase D) Prices of clothing would increase in the United States, but because producers would be better off, it would increase the total surplus E) The net effect on consumers and producers would be difficult to predict, but the United States would certainly be better off than before
B) Prices of clothing would increase in the United States, consumers would be worse off, and the total surplus would decrease
Suppose that in the construction industry that market equilibrium wage rate is $5 per hour. The government imposes a minimum wage of $6 per hour. Then A) the value of the marginal product would exceed the wage rate, and firms would hire more workers B) the firms would hire fewer workers at the minimum wage rate but the quantity supplied of labor will increase leading to unemployment (that is a surplus of workers) C) the firms would increase their prices to keep the marginal revenue product equal to the wage rate D) the firms would hire fewer workers at the minimum wage rate and the supply of labor would decrease causing the labor market to clear E) The firms would hire fewer workers as the value of the marginal products of the workers now has to be at least as much as $6 an hour
B) the firms would hire fewer workers at the minimum wage rate but the quantity supplied of labor will increase leading to unemployment (that is a surplus of workers)
Henry sells tomatoes in the perfectly competitive Italian Market in Philadelphia. The market price for tomatoes is $2.75 per pound. In order to sell tomatoes, he has to buy them from the wholesaler and store them, until the market opens. Henry can buy the tomatoes from a wholesaler at $1.50 a pound but has found that the marginal cost of storing the tomatoes increases at the rate of 5 cents per pound (that is, the marginal cost of storing 1 pound of tomatoes is 5 cents, the marginal cost of storing 2 pounds is 10 cents, and so on) In order to maximize profits Henry should sell A) As many tomatoes as he can since the wholesale price is less than the market price B) The amount that has the lowest average cost after computing his total cost of buying and storing tomatoes C) 25 pounds of tomatoes because at this quantity, the price = marginal cost, and marginal cost is increasing D) At a price like $2.50 per pound since at such a price he will surely sell his entire stock of tomatoes as it is less than the market price
C) 25 pounds of tomatoes because at this quantity, the price = marginal cost, and marginal cost is increasing
Quantity (Millions of Marginal Private Benefit Marginal external patients treated) (thousands of dollars) Benefit (thousands of dollars) 1 21 6 2 19 5 3 17 4 4 15 3 5 13 2 6 11 1 HIV drugs provide both private benefits and external benefits. The table provides information on the marginal private benefits and the marginal external benefit (measured in dollars per year) from being treated with the HIV drugs. If the marginal cost is $15,000 a year, then the efficient number if patients treated is A) 4 million, which is the same as the competitive equilibrium output of 4 million B) 5 million, which is greater than the competitive equilibrium output of 3 million C) 5 million, which is greater than the competitive equilibrium amount of 4 million D) 4 million, which is less than the competitive equilibrium output of 5 million E) 5 million, which is the same as the competitive equilibrium of 5 million
C) 5 million, which is greater than the competitive equilibrium amount of 4 million
Thai producers supply a large share of the US shrimp market. Suppose the U.S. government imposes a quota restricting, shrimp imports from Thailand to fifty percent of current imports. This would cause A) The quantity of shrimp produced in the U.S. to increase and there would be NO deadweight losses. B) The quantity of shrimp produced in the U.S. to increase and the consumer surplus will Increase. C) The quantity of shrimp produced in the U, S. lo increase but consumer surplus will facading to a deadweight loss. D) The quantity of shrimp produced in the U.S. to increase and even though the consumer surplus falls there are NO deadweight losses. E) The quantity of shrimp produced in the S. to increase and as a result the total surplus will increase.
C) The quantity of shrimp produced in the U, S. lo increase but consumer surplus will facading to a deadweight loss.
In the Fall of 2020, the equilibrium price of milk approached $1.25/gallon. If the government had enacted a price floor (that is a minimum price below which the price is not allowed to fall) of $2.50/gallon, the likely result would have been A) no charge in the market price B) a severe shortage of milk as quantity demanded would have exceeded quantity supplied C) a significant surplus of milk as quantity supplied would have exceeded quantity demanded D) a dramatic increase in the demand (that is a shift rightwards of the demand curve) for milk E) an initial decrease in the price of milk followed by an increase as the market adjusts
C) a significant surplus of milk as quantity supplied would have exceeded quantity demanded
Which of the following would shift the demand curve for new textbooks to the right (that is increase demand)? A) a decrease in the price of paper B) a fall in the price of used textbooks C) an increase in college enrollments D) a fall in the price of new textbooks E) an improvement in printing technology
C) an increase in college enrollments
Figure 2 shows the demand and the cost curves of a natural monopoly. Compared with the unregulated price, if the government set a maximum price at P2, the deadweight loss would be and the monopolist would LOOK AT NUMBER 5 A) smaller; earn a smaller economic profit B) greater; earn an economic loss C) smaller, break even D) zero; break even E) zero; earn an economic profit.
C) smaller, break even
In order to boost enrollment and improve retention at IUPUI, the City of Indianapolis is considering imposing a price ceiling of $500 for a one-bedroom apartment in the apartment complexes close to IUPUI. The monthly rental rate for a 1-bedroom in these apartment complexes is currently $700 per month. If the apartment rental market is currently in equilibrium, we can expect that this price ceiling A) would decrease the supply of apartments which would lead to shortage B) would increase the demand for apartments which would lead to shortage C) would increase the quantity demanded of apartments and decrease the quantity supplied of apartments which would lead to a shortage D) would increase the demand for apartments which would cause the supply to increase and thus there would be no shortages E) would have no impact on the market
C) would increase the quantity demanded of apartments and decrease the quantity supplied of apartments which would lead to a shortage
The price of a bus ticket for IndyGo was raised from $1.00 to $1.50 and as a result the number of passengers per day fell from 20,000 to 19,000. This indicates that the price elasticity of demand for IndyGo bus rides is A) +1.28 and is elastic B) -1.28 and is inelastic C) +0.128 and is inelastic D) -0.128 and is inelastic E) -0.128 and is elastic
D) -0.128 and is inelastic
If there is an increase in supply (that is, a firm's supply curve shifts to the right), but input prices are unchanged, this could be the result of A) An increase in the price of the product. B) An expectation of higher prices in the future. C) Increased demand for the firm's product. D) An improvement in the technology. E) This cannot happen None This cannot happen because a firm's supply curve cannot shift without a change in input prices.
D) An improvement in the technology.
Joe Garcia has opened a coffee shop that sells gourmet coffee and sandwiches. He employs two individuals on a part time basis and manages the shop himself. The wages for the two employees come to a total of $30,000 every year. He spends another $30,000 on materials for the shop. He borrowed $20,000 to renovate the space for the coffee shop which he rents for $12,000 a year. He earned $120,000 in revenue last year. Joe Garcia worked as an accountant before he started the coffee shop and made an annual salary of $50,000. If the rate of interest on savings is 5%, Joe A) Made an economic profit of $48,000 B) Made an economic profit of $47,000 because the opportunity cost of the $20,000 he spent on renovations is part of the economic cost C) Made an economic profit of -$2,000 since the opportunity cost of his time and effort is $50,000 D) Made an economic profit of -$3,000 since the opportunity cost of the $20,000 spent on renovations as well as the opportunity cost of his time is part of the economic cost E) Made an accounting profit of $47,000 and, therefore, also made an economic profit of $47,000
D) Made an economic profit of -$3,000 since the opportunity cost of the $20,000 spent on renovations as well as the opportunity cost of his time is part of the economic cost
A shift in the production possibilities frontier from AC to BC in the figure 1 above could be due to LOOK AT 3 IMAGE A) a technological improvement in the production of ice cream B) a reduction in the rate of unemployment C) a rise in the rate of unemployment D) a technological improvement in the production of frozen yogurt E) a fall in the demand for frozen yogurt
D) a technological improvement in the production of frozen yogurt
The inefficiency of a monopoly results because A) of the lack of competition to drive down the cost B) a monopoly sets its price at an unfairly high level C) of excessive size that makes it difficult to manage effectively D) it produces at a point at which price is greater than marginal cost, so that its output is LESS than the efficient output at which price = marginal cost E) it produces at a point at which price = marginal cost, so that its output is LESS than the efficient output at which price is greater than marginal cost
D) it produces at a point at which price is greater than marginal cost, so that its output is LESS than the efficient output at which price = marginal cost
The short run supply curve of the competitive firm is A) the average total cost curve above the minimum point B) the average variable cost cure above the minimum point C) independent of the cost curves D) the marginal cost curve above the minimum point of the average variable cost curve E) the marginal cost curve above the minimum point of the average total cost curve
D) the marginal cost curve above the minimum point of the average variable cost curve
Suppose the output per worker for soybeans and peaches in Indiana and California as as shown in the table below Soybeans (in bushels) Peaches (in pounds) Indiana 200 50 California 200 100 This would indicate A) Indiana has ab absolute advantage in producing soybeans B)California has an absolute advantage in producing soybeans C) None has a comparative advantage in producing any of the goods D) California has a comparative advantage in producing soybeans and Indiana has a comparative advantage in producing peaches, and the two would benefit from trade, if each specialized in producing the good in which they have a comparative advantage E) California has a comparative advantage in producing peaches and Indiana has a comparative in producing soybeans, and the two would benefit from trade, if each specialized in producing the good in which they have a comparative advantage
E) California has a comparative advantage in producing peaches and Indiana has a comparative in producing soybeans, and the two would benefit from trade, if each specialized in producing the good in which they have a comparative advantage
Suppose the dairy industry is perfectly competitive and the market price for milk is $3.00 per gallon. The marginal cost of milk production at Dana's Dairy, at its current output, is $2.50 per gallon and is greater than the average variable cost. Dana's Dairy has the usual U-shaped marginal cost and average cost curves and it knows that its marginal cost will rise if it increases the output. Dana's Dairy A) is making an economic profit of $0.50 per gallon B) should charge $3.00 per gallon but continue to produce at its current level of output, since it is making a profit C) Should charge $2.50 per gallon to maximize profits D) should reduce its output of milk to where the average cost is at its minimum E) should increase its output of milk to the output at which the marginal cost is $3.00 to maximize profits
E) should increase its output of milk to the output at which the marginal cost is $3.00 to maximize profits
RAM inc. is the sole producer of ca special kind of microprocessor chip that is widely used in specialized digital cameras. The weekly demand for RAM's chips is given in the table below. If the marginal cost is $30 and RAM can produce a maximum of 13 chips per week, the RAM inc. Price Quantity $70 6 $65 7 $60 8 $55 9 $50 10 $45 11 $40 12 $35 13 A) will produce 13 chips in a week since this is the maximum number of chips that can be produced and the price of $35 exceeds the marginal cost of $30 B) will produce and sell only 12 chips every week as the marginal revenue from the 12 chips is equal to the marginal cost of $30 C) will produce 11 chips in a week since the marginal revenue of $45 is greater than the marginal cost of $30 D) will produce 6 chips in a week since costs are maximized at this quantity E) will produce 7 chips in a week since profits are maximized at this quantity
E) will produce 7 chips in a week since profits are maximized at this quantity