Practice Questions from Chapters 9 -15
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) A duopoly is
A) an oligopoly with only two sellers.
B) an oligopoly with only two buyers.
C) a monopoly firm that has only two suppliers.
D) a monopolist that has two related products.
E) an oligopoly with only two products.
2)In recent years, business schools in Canada have begun charging tuition of close to $35 000 per year, whereas Arts
faculties charge much lower tuition. Students are prepared to pay the high tuition in a business school because
A) the marginal revenue product of a business degree is lower than the marginal revenue product of an Arts
B) they recognize that the investment in human capital is not worthwhile.
C) the cost of providing the business education is far higher than the cost of the Arts education.
D) the marginal cost of a business degree is less than the marginal benefit of a business degree.
E) the expected payoff in terms of higher future wages is large.
3)The concepts of stock and flow are involved in firms' demand for labour and for capital. Which of the following
statements is correct?
A) A firm hires a stock of labour services; and purchases a stock of physical capital, which provides a flow of
B) A firm hires a flow of labour services; and purchases a stock of physical capital, which provides a flow of
C) Labour and capital are both flow variables because their values change over time.
D) A firm's demand for both labour and capital is determined by the marginal value each provides to the stock
of labour and capital, respectively.
E) Labour and capital are both stock variables because they are providing service at any given moment in time.
The table below shows the market shares for the only firms in the domestic cement market.
Firm A 45%
Firm B 22%
Firm C 10%
Firm D 8%
Firm E 7%
Firm F 5%
Firm G 2%
Firm H 1%
TABLE 11 3-
4) Refer to Table -1 3. The f-ur firm concentration ratio in this industry is ________ percent.
A) 67 B) 45 C) 100 D) 85 E) 92
1 5) Under which of the following circumstances will a firm choose to own more capital, assuming that the purchase
price of the capital and the interest rate remain unchanged?
A) the lifespan of the capital is reduced
B) technological improvement has made the capital more productive
C) the stock of capital in the entire economy increases
D) competing firms are increasing their stock of capital
E) all of the above
6) Suppose the government decides, in the interest of "fairness", to impose a policy prohibiting factor- price
differentials. The likely result would be
A) a decrease in net factor demands.
B) a shortage of factors in uses with low net advantage.
C) a horizontal factor supply curve.
D) an increase in factor mobility.
E) all of the above.
7) One attempt to provide some minimum level of human capital forall citizens is a system of
A) compulsory and publicly financed education.
B) income taxation.
C) comparable worth.
D) minimum wages.
8) Price discrimination, if possible, allows a pri-esetting firm to increase its profits by
A) charging different prices according to the willingness to pay of each consumer.
B) charging different prices according to the different marginal cost on each unit.
C) raising the price above the competitive price.
D) shifting its cost curves downward.
E) reducing coststhrough a reduction in output.
9) If firms in a competitive industry are earning positive economic profits, in the long run we expect
A) the demand curve for the product will shift to the left, so that the price of the product will fall.
B) the government would intervene and force the firms to lower prices.
C) there would be no change in the industry as long as P = MC for the individual firms.
D) the individual firms will lower their price to discourage new firms from entering the industry.
E) the supply curve for the product will shift to the right as new firms enter the industry, causing industry
output to increase and price to fall.
10) Consider the economy's upward slo-ing supply of saving curve. An increase in the interest rate causes ________;
an increase in current income causes ________.
A) a movement upward along the curve; a movement downward along the curve.
B) a movement downward along the curve; a shift of the curve to the right.
C) a movement upward along the curve; ashift of the curve to the right.
D) a shift of the curve to the left; a movement downward along the curve.
E) a shift of the curve to the left; a movement upward along the curve.
2 11) If entry into a monopolistically competitive industry occurs because of positive profits earned by the existing firms,
A) demand curve for each existing firm will shift to the left.
B) demand curve for each existing firm will shift to the right.
C) demand curves for the existing firms will remain unchanged.
D) industry demand curve will shift to the right.
E) industry demand curve will shift to the left.
12) The "size distribution of income" refers to the distribution of income
A) among different households without reference to the source of the income.
B) among different households with reference to the source of the income.
C) to a particular factor of production in different time periods.
D) between capitalists and workers.
E) between capitalists and landowners.
13) A price-taking firm in the short run should not produce any level of output unless
A) average revenue equals or exceeds average total cost.
B) marginal revenue exceeds marginal cost.
C) it is earning positive profits.
D) marginal revenue equals average total cost.
E) average revenue equals or exceeds average variable cost.
14) Which of the following is the best example of a derived demand?