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Final

Practice Questions for Final Exam.doc

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Department
Economics
Course
EC120
Professor
Olivia Mesta
Semester
Fall

Description
Practice Questions for Final Exam 5. Which of the following would be considered a common resource good? a. cable television b. bottled natural mineral water c. uncongested toll roads d. fish in the ocean e. all of the above ____ 6. On hot summer days, electric-generating capacity is sometimes stretched to the limit. At these times, electric companies sometimes ask people to voluntarily cut back on their use of electricity. An economist might say that a. every customer has an incentive to prevent the system from overloading, so this voluntary approach is the most efficient. b. it would be more efficient if the electric company raised its rates for electricity at peak times. c. it would be more efficient to have a lottery to decide who had to cut back their use of electricity at peak times. d. it would be more efficient to force everyone to cut their usage of electricity by the same amount. ____ 7. Assuming that Ron's Bicycle Shop operates in a perfectly-competitive market for bicycles, which of the following statements is(are) true? (i) He chooses the price at which he sells his bicycles. (ii) He chooses the quantity of bicycles that he sells. (iii) His market is characterized by one or more barriers to entry. a. (i) only b. (ii) only c. (i) and (ii) only d. (ii) and (iii) only ____ 8. For a monopolist, marginal revenue is a. positive when the demand effect is greater than the supply effect. b. positive when the monopoly effect is greater than the competitive effect. c. negative when the price effect is greater than the output effect. d. negative when the output effect is greater than the price effect. e. negative for the quantity on the elastic portion of its demand curve. ____ 9. Which of the following statements is true? (i) When a perfectly-competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii) ____ 10. What is the monopolist's profit under the following conditions? The profit-maximizing price charged for goods produced is $16. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $8. Average total cost for 10 units of output is $6. a. $20 b. $80 c. $100 d. $160 e. $180 ____ 11. For a monopoly firm, the level of output at which marginal revenue equals zero is also the level of output at which a. average revenue is zero. b. profit is maximized. c. total revenue is maximized. d. marginal cost is zero. e. average fixed cost is a minimum. ____ 12. A reduction in a monopolist's fixed costs would a. decrease the profit-maximizing price and increase the profit-maximizing quantity produced. b. increase the profit-maximizing price and decrease the profit-maximizing quantity produced. c. not affect the profit-maximizing price or quantity. d. possibly increase, decrease or not affect profit-maximizing price and quantity, depending on the elasticity of demand. ____ 13. Which of the following statements is correct? a. The benefits that accrue to a monopoly firm's owners are equal to the costs that are incurred by consumers of that firm's product. b. The deadweight loss that arises in monopoly stems from the fact that the profit- maximizing monopoly firm produces a quantity of output that exceeds the socially- efficient quantity. c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. d. The main social problem caused by monopoly is monopoly profit. Refer to the diagram below to answer the following questions. Figure 15-6 ____ 14. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose which of the following outcomes? a. 100 units of output and a price of $10 per unit b. 100 units of output and a price of $20 per unit c. 150 units of output and a price of $10 per unit d. 150 units of output and a price of $15 per unit e. 200 units of output and a price of $10 per unit ____ 15. Refer to Figure 15-6. To maximize its profit, a monopolist would choose which of the following outcomes? a. 100 units of output and a price of $10 per unit b. 100 units of output and a price of $20 per unit c. 150 units of output and a price of $15 per unit d. 200 units of output and a price of $20 per unit ____ 16. Refer to Figure 15-6. The deadweight loss caused by a profit-maximizing monopoly amounts to a. $150. b. $200. c. $250. d. $300. e. $500. ____ 17. A monopolist faces the following demand curve: Price Quantity Demanded $8 300 $7 400 $6 500 $5 600 $4 700 $3 800 $2 900 $1 1000 The monopolist has fixed costs of $1000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? a. 400 b. 500 c. 700 d. 800 e. 900 ____ 18. As the number of firms in an oligopoly increases, a. each seller starts to have a larger impact on the market price. b. the output effect decreases. c. the quantity of output becomes closer to the socially efficient quantity. d. All of the above are correct. ____ 19. Suppose that a firm in a monopolistically competitive industry produces an output level at which MR = MC = ATC. The profits of the firm are ___ and firms will ___the industry. a) zero neither enter nor exit b) positive enter c) zero exit a. Zero; neither enter nor exit d. negative; exit b. Postive; enter e. zero; enter c. zero; exit ____ 20. What happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market? (i) The firms may well reach the monopoly outcome. (ii) The firms may well reach the competitive outcome. (iii) Buyers of the oligopolists' product will likely be worse off as a result. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct. ____ 21. In a monopolistically competitive industry, price is a. equal to marginal cost since each firm is a price taker. b. below marginal cost since each firm is a price taker. c. above marginal cost since each firm is a price setter. d. always a fraction of marginal cost since each firm is a price setter. ____ 22. A monopolistically competitive firm chooses a. the quantity of output to produce, but not the price at which it will sell its output. b. the price, but competition in the market determines the quantity. c. price, but output is determined by a cartel production quota. d. the quantity of output to produce and the price at which it will sell its output. Figure 17-4 ____ 23. Refer to Figure 17-4. Which of the panels shown could characterize long-run equilibrium for a firm in a monopolistically competitive market? a. panel a b. panel b c. panel c d. panel d ____ 24. When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium, a. the demand curve will be perfectly elastic. b. price exceeds marginal cost. c. marginal cost is falling. d. marginal revenue exceeds marginal cost. ____ 25. "In a long-run equilibrium, price is equal to average total cost." This statement applies to a. perfectly-competitive markets, but not to monopolistically competitive markets or monopolies. b. perfectly-competitive and monopolistically competitive markets, but not to monopolies. c. perfectly-competitive and monopolistically competitive markets and to monopolies. d. None of the above are correct. A monopolistically competitive firm faces the following demand curve for its product: Price ($) 10 9 8 7 6 5 4 3 2 1 Quantity 2 4 6 9 10 12 14 16 18 20 ____ 26. The firm has total fixed costs of $20 and a constant marginal cost of $5 per unit. The firm will a. produce two units; firms will exit the market in the long run. b. produce four units; firms will exit the market in the long run. c. produce six units; firms will exit the market in the long run. d. produce eight units; firms will enter the market in the long run. e. produce twelve units; firms will enter the market in the long run. ____ 27. The firm has total fixed costs of $40 and a constant marginal cost of $2 per unit. We can conclude that a. firms will exit this market. b. firms will enter this market. c. this market is in long-run equilibrium. d. this firm is operating at efficient scale. ____ 28. For a perfectly-competitive firm, the value of the marginal product (i) increases when the price of output decreases. (ii) changes when marginal product changes. (iii) diminishes as the number of workers rises. a. (i) and (ii) b. (i) and (iii) c. (ii) and (iii) d. All of the above are correct. ____ 29. When labour is the only input a firm uses, the marginal cost of a unit of output can be defined as the a. marginal revenue minus the wage. b. marginal product of labour minus the wage. c. wage divided by marginal product of labour. d. marginal product of labour divided by wage. ____ 30. Charles owns one of many bakeries in New York City. Which of the following events will lead to a decrease in Charles's demand for the services of bakers? a. Hollywood glamorization of a new movie about a baker leads hundreds of high-school students in New York City to apply for a job at Dan's. b. The price of baked goods falls. c. The local bakers form a union. d. All of the above are correct. ____ 31. Aurora Custom Cabinets produces and sells custom kitchen cabinets. The firm has determined that if it hires 10 workers, it can produce 4 sets of cabinets per day. Alternatively, if it hires 11 workers, it can produce 4.2 sets of cabinets per day. It sells each set of cabinets for $2,000, and it pays each of its workers $200 per day. a. For the 11th worker, the value of the marginal product of labour is $500. b. For the 11th worker, the marginal revenue product is $400. c. The firm is maximizing its profit. d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers. ____ 32. If the price of airline tickets falls, what will happen to the demand curve for flight attendants? a. It will shift upward. b. It will shift to downward c. It will remain unchanged; price changes do not shift demand curves. d. None of the above are correct. ____ 33. Which of the following statements is correct?
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