SSN: - - (print last name first) PRINCIPLES OF MICROECONOMICS EXAM 3 Fall 1997 Mr. Rothstein Choose the one best answer. Time 75 minutes. Please turn in the test question sheet, the Scantron answer sheet, and your packet of work sheets. Fifteen minutes after the last exam is turned in, the exams will be graded. 1. Which of the following correctly completes this statement? A monopoly industry a) contains a single producer. b) produces a product for which there are fewer close substitutes. c) is characterized by significant barriers to entry. d) faces a downward-sloping demand curve. e) All of the above. 2. If the demand curve is linear for a price-searching firm, a) marginal revenue is one half the price. b) the marginal-revenue curve is twice as steep as the demand curve. c) P = MR. d) the demand curve is twice as steep as the marginal-revenue curve. e) marginal revenue is increasing. 3. Since a monopolist?s demand curve is downward-sloping, a) profit is maximized when the highest possible price is charged. b) price is less than marginal revenue. c) average revenue is less than price. d) marginal revenue is greater than price. e) None of the above. 4. Use Figure 1 to answer this question. In the profit-maximizing position, the firm a) makes a profit of $40. b) has a marginal cost of $3. c) has a marginal revenue of $3. d) produces 20 units of output. e) All of the above. Principles of Micro, Exam 3, Fall 1997, page 2. 5. Use Figure 1 to answer this question. In the profit-maximizing position, the firm has a total a) cost of $100. b) revenue of $100. c) revenue of $7. d) cost of $5. e) cost of $60. 6. Use Figure 1 to answer this question. In the profit-maximizing position, the firm has a) a marginal revenue of $20. b) a total cost of $5. c) an average revenue of $7. d) a profit of $3 where MC = MR. e) a profit of $80. 7. Which of the following is correct? A monopolist a) will sell less at a higher price. b) has a marginal revenue less than price. c) will produce where MR = MC. d) is a price searcher. e) All of the above. 8. In the long run, for a monopolistically competitive firm, a) price will equal average total cost. b) price will be greater than marginal costs. c) marginal revenue will equal marginal costs. d) the entry of firms will drive economic profits to zero. e) All of the above. 9. A monopolistically competitive industry is one in which a) The number of producers is large. b) a heterogeneous product is being produced. c) there is some (limited) price-searching ability. d) there are no barriers to entry. 10. Which of the following is NOT a condition of price discrimination? a) The seller is a price searcher. b) Price elasticities are the same in all markets. c) Sellers can distinguish between buyers. d) Buyers cannot resell the product. 11. Under perfect competition, each producer has the same marginal cost because a) there are no economic rents. b) each firm receives the same price and equates MC and price. c) every firm produces the same output. d) marginal cost is constant. e) MR is greater than MC. Principles of Micro, Exam 3, Fall 1997, page 3. 12. One difference between monopoly and competition is that a) competitive firms do not maximize profits. b) competitive firms cannot set marginal revenue equal to marginal costs. c) monopolists are guaranteed a profit by their control of the market. d) economic profits are impossible for competitive firms and are necessary for monopolies. e) for competitive firms, price equals marginal revenue whereas for monopolists, price is greater than marginal revenue. 13. Suppose that the chemical industry has marginal social costs exceeding marginal private costs. If there are no external benefits, a) competition will be efficient. b) the condition for efficiency is MR = MC. c) too little output will be produced under competition. d) the condition for efficiency is P = MC. e) too much output will be produced. 14. If an industry could be organized either perfectly competitively or as a monopoly, the monopoly would a) produce less output. b) produce where P > MC while the perfect competitor would produce where P = MC. c) charge higher prices. d) All of the above. 15. An example of an external cost is a) a firm paying a trucking firm to haul off its garbage. b) a firm payinag maintenance workers. c) the cost of buying steel from an external firm. d) the clean-up costs of abandoned hazardous waste sites. 16. In their role of advising policy-makers, economists frequently recommend policies that woulde equate price and marginal cost. The justification for this recommendation is a) that it would eliminate all monopoly profits. b) that the social cost of producing the last unit of the good is equal to the social benefit of the last unit produced. c) that external costs and benefits are frequently present in the production of many goods and price equals marginal cost is therefore the optimal decision-rule for production. d) that this recommendation is consistent witht he behavior of the profit-maximizing firms. 17. Mutual interdependence occurs when a) all firms in an industry are affected by the same general economic conditions, like interest rates, consumer expectations, and the unemployment rate. b) the actions of all firms together determine the profitability of the industry. c) the actions of one firm in an industry affect other firms in the industry and these interrelationships are recognized. d) monopolist recognize that they must face eventual competition in the very long run. e) All of the above. Principles of Micro, Exam 3, Fall 1997, page 4. 18. The concentration ratio may be an inaccurate guide to the extent of oligopoly because a) it does not show foreign competition b) it is difficult to define the relevant market. c) some markets are local or regional. d) All of the above. 19. The demand curve of an oligopolistic firm a) is the same as the demand curve of a monopolist. b) is known with certainty. c) depends upon the actions of rival firms. d) is the same as its marginal-revenue curve. e) lies above the demand curve of a perfectly competitive firm. 20. Which of thae following is correct? A cartel a) operates on the basis of conscious parrallelism. b) uses focal points to make economic decisions. c) operates best with a large number of member firms. d) is an arrangement that allows participating firms to operate the industry as a perfectly competitive industry. e) is an arrangement that allows the participating firms to earn monopoly profits. 21. The kinked-demand-curve model of an oligopoly firm assumes a) a stratight-line marginal-revenue curve. b) that oligopolists believe that price increases will not be matched but that price decreases will be matched by other olibopolists in the industry. c) that oligopolists believe that price increases will be matched but price decreases will not be matched by other oligopolists in the industry. d) that oligopolists increase prices with every increase in costs. e) the use of focal-point pricing. 22. The 4-firm concentration rato for an industry is a) the percentage of industry sales or shipments accounted for by the firms that account for the top 4 percent of industry output. b) the percentage of industry sales or shipments accounted for by the largest 4 firms. c) the dollar value of industry profits accounted for by the largest 4 firms. d) the number of firms concentrating in a cartel. 23. Profit-maximizing firms will optimize the amount of a given factor of prodution when a) marginal revenue equals marginal product. b) marginal cost equals variable cost. c) marginal factor cost equals marginal revenue product. d) marginal product is positive. e) marginal revenue product is positive. Principles of Micro, Exam 3, Fall 1997, page 5. 24. The marginal revenue product of a productive factor equals a) marginal revenue times the marginal physical product. b) the decrease in revenue generated by one more unit of the factor. c) its marginal physical product. d) the marginal revenue from the last unit of output produced by a factor. 25. Which of the following correctly completes this statement? Derived demand is a) the demand for a product that is derived from the factors that produce it. b) the demand for the factors of production that is derived from the demand for the products the factors produce. c) demand that results because people derive utility from the products they buy. d) one factor?s income that is derived from the income of other factors. Table 1: Production Schedule (for use with questions 26-29) LABOR OUTPUT 1 10 ________ ________ ________ 2 25 ________ ________ ________ 3 45 ________ ________ ________ 4 60 ________ ________ ________ 5 73 ________ ________ ________ 6 83 ________ ________ ________ 7 91 ________ ________ ________ 8 97 ________ ________ ________ 9 101 ________ ________ ________ 10 103 ________ ________ ________ 11 104 ________ ________ ________ 12 104 ________ ________ ________ 26. Table 1 shows this firm's production function. Assume the firm were operating in a barter economy, paying workers in bushels of output. If the supply of labor were perfectly elastic at a wage of 6 bushels, how many workers would be hired? a. 6 b. 7 c. 8 d. 9 e. 10 27. Assume the firm operates in a cash economy, the demand for its product is perfectly elastic at $5.00. If the supply of labor were perfectly elastic at a wage of $50, how much labor would be hired? a. 6 b. 7 c. 8 d. 9 e. 10 28. Assume the firm operates in a cash economy, the demand for its product is perfectly elastic at $5.00. If the supply of labor were perfectly elastic at a wage of $30, who much labor would be hired? a. 6 b. 7 c. 8 d. 9 e. 10 29. Assume the firm operates in a cash economy, the demand for its product is perfectly elastic at $10. If the supply of labor were perfectly elastic at a wage of $40, how much labor would be hired? a. 7 b. 8 c. 9 d. 10 e. 11 Principles of Micro, Exam 3, Fall 1997, page 6. 30. If the amount of a cooperating factor increases. a) the marginal physical product of the other factor should rise. b) the marginal revenue product of the other factor should rise. c) the price of the other factor should rise. d) All of the above. 31. Which of the following is correct? A monopsony a) faces an upward-sloping factor-supply curve. b) is a market in which there is only one buyer of the factor. c) pays a factor price that is less than the factor?s marginal revenue product. d) All of the above. 32. Which of the following is the best example of drived demand? a) Advertising creates a demand for a new product. b) Increased oil prices reduce the demand for large automobiles. c) A decrease in the demand for grapes reduces the demand for grape pickers. d) An increase in wages causes firms to substitute capital for labor. e) The market demand schedule is derived by summing all individual demand curves. 33. The theory of compensating wage differentials indicates that if workers are aware of health risks on the job, a) they will still be exploited by the firms. b) their wages will be higher to reflect the higher risks of the job. c) they will naot be paid their marginal revenue product. d) their wages will be lower than elsewhere. e) higher wages cannot comp[ensate them for the greater risk. 34. Wage differences between two groups of labor can exist in equilibrium if a) members of one group cannot compete for the jobs of the other group. b) one group is smaller than the other. c) the groups work for different business firms. d) one group is significantly largert than the other. e) people are all the same. 35. The major reason why some firms use internal labor markets to fill positions is that a) unions require this practice. b) this approach is an economical way to gain information on worker productivity. c) information on worker productivity is known for workers outside and inside the firm. d) firms know more about the potential labor productivity of workers outside the firm. e) the internal labor market isn?t subject to state or federal labor laws. 36. The labor-supply curve can be backward-bending because as wages rise beyond a certain point, a) the substitution effect dominates the income effect. b) the income effect dominates the substitution effect. c) the income effect disappears as people work less. d) people desire less leisure. e) the income and substitution effects are of equal but opposite magnitude. Principles of Micro, Exam 3, Fall 1997, page 7. 37. The pattern of average hours worked per week in the Untied States over the past 50 years a) shows that people always need more money. b) shows that higher real wages consistently call forth more hours of work. c) shows that declines in real wages call forth more hours worked. d) shows that hours worked are not affected by real wages. e) is consistent with the backward-bending labor-supply curve. 38. A consumer boycott of California lettuce will a) increase the wages of California lettuce workers (everying else equal). b) increase the demand for California lettuce workers. c) decrease the demand for California lettuce workers as the price of California lettuce falls. d) have no conceivable effect on the demand for California lettuce workers. 39. Employers often require college degrees for certain jobs even though qualified workers are available without such credientials because a) this is an economical means of gathering information of worker productivity. b) it is a device for screening out the low-productivity workers. c) information is costly. d) All of the above. 40. The labor-supply curve can be backward-bending because a) higher wages signify a lower price of leisure. b) consumption is a normal good. c) food is a normal good. d) leisure is a normal good. e) laborers have preferences for certain types of jobs. 41. The reason that average hours per work week have declined during the last century is a) maximum working hours have been set by the law. b) Social Security taxes have increased the cost of labor to the employers. c) the increase in real wages over time has shown that the income effect has been stronger than the substitution effect. d) workers are better educated today. e) women and teenagers have crowded into the labor market, thereby forcing a reduction in the number of hours. 42. The reason that real wages have risen over the long run is that a) minimum-wage levels have been increasing over time. b) the population has grown. c) the average number of hours worked per week has increased. d) nonpecuniary aspects of occupations have fallen in significance. e) labor productivity has been increasing, thereby increasing the damand for labor. Principles of Micro, Exam 3, Fall 1997, page 8. 43. According to the text, intermediaries specialize in a) providing information on product prices, quality, and location. b) making exchange arrangements between buyers and sellers. c) bringing buyers and sellers together. d) All of the above. 44. Which of the following correctly completes this statement? Profitable speculation causes a) consumption and prices to be more stable over time. b) prices to be higher than otherwise. c) consumption to be less stable and prices to be more stable. d) consumption to be more stable and prices to be less stable. 45. A grain elevator buys wheat from farmers at $4 per bushel. The elevator operator will hedge by a) selling the wheat on the spot market. b) buying a futures contract in wheat. c) selling a futures contract in some other commodity (such as corn or soybeans). d) selling a futures contract in wheat. e) buying wheat on the spot market. 46. Which of the following is correct? With futures contracts a) prices and quantities are set today for a transaction taking place in the future. b) people buy and sell at the same time. c) people buy tomorrow to obtain goods today. d) the seller always makes a profit. e) All of the above. ______________________________________ S.S.N. - - (print last Name first) PRINCIPLES OF MICROECONOMICS EXAM 3 August 1998 Mr. Rothstein Choose the one best answer. Time: 75 minutes. Table 1: For use with questions 1 through 3 PRODUCTION SCHEDULE FOR MEDIOCRE ACRES FARMS UNITS OF TOTAL LABOR PRODUCT 00 00 ____ ____ ____ ____ 01 10 ____ ____ ____ ____ 02 25 ____ ____ ____ ____ 03 45 ____ ____ ____ ____ 04 60 ____ ____ ____ ____ 05 72 ____ ____ ____ ____ 06 83 ____ ____ ____ ____ 07 93 ____ ____ ____ ____ 08 102 ____ ____ ____ ____ 09 110 ____ ____ ____ ____ 10 117 ____ ____ ____ ____ 11 123 ____ ____ ____ ____ 12 128 ____ ____ ____ ____ 13 132 ____ ____ ____ ____ Assume this firm operates in a market economy. 1. If the product sells for $10 and labor cost $70 per unit, how much labor will be used? a. 8 d. 11 b. 9 e. none of these c. 10 2. If the product sells for $10 and labor costs $80 per unit, how much labor would be used? a. 6 d. 9 b. 7 e. none of these c. 8 3. If the product sells for $20 and labor costs $120 per unit, how much labor would be used? a. 6 d. 9 b. 7 e. none of these c. 8 Figure 1 for use with questions 4 through 9 4. Use Figure 1 to answer this question. In the profit-maximizing position, the firm a. makes a profit of $40. d. produces 20 units of output. b. has a marginal cost of $3. e. All of the above. c. has a marginal revenue of $3. 5. Use Figure 1 to answer this question. In the profit-maximizing position, the firm has a total a. cost of $100 d. cost of $5 b. revenue of $100 e. cost of $60 c. revenue of $7 6. Use Figure 1 to answer this question. In the profit-maximizing position, the firm has a. marginal revenue of $20 d. a profit of $3 where MC = MR b. a total cost of $5 e. a profit of $80 c. an average revenue of $7 7. Use Figure 1 to answer this question. The firm?s profit-maximizing output is a. zero b. 20 units c. will produce where MR = MC d. 28 units e. found where average cost exceeds marginal revenue 8. What price would a traditional regulatory commission choose? a. $3.00 d. $7 b. $5.00 e. none of these c. $5.50 9. What price would an economist concerned with economic efficiency choose? _________ (Use answer choices of question 8). 10. If a profit-maximizing monopoly selects a price at which demand is inelastic, a. it can lower revenues by raising the price. b. it is maximizing profits. c. it is not maximizing profits. d. it should lower its price. e. its marginal revenue is positive. 11. A monopolistically competitive industry is one in which a. the number of producers is large. b. a heterogeneous product is being produced. c. there is some (limited) price-making ability. d. there are no barriers to entry. e. All of the above. Table 2: for use with questions 12 through 14. OUTPUT PRICE 1 $10 ______ ______ ______ ______ 2 9 ______ ______ ______ ______ 3 8 ______ ______ ______ ______ 4 7 ______ ______ ______ ______ 5 6 ______ ______ ______ ______ 6 5 ______ ______ ______ ______ 7 4 ______ ______ ______ ______ 12. Table 2 shows Unobtainium, Inc.?s demand curve. The marginal revenue. a. of the 7th unit of output is negative. b. of the 1st unit of output is $10. c. of the 6th unit of output is $0. d. of the 2nd unit of output is $8. e. All of the above. 13. Table 2 shows Unobtainium, Inc.?s demand curve. If the marginal cost is constant at $4, the firm should produce _____ units of output and sell them at a price of _____ each. a. 6; $5 d. 5; $6 b. 3; $8 e. 1; $10 c. 4; $7 14. Table 2 shows Unobtainium, Inc.?s demand curve. If, at the profit-maximizing level of output, the firm?s ATC is $3, the firm is a. incurring losses of $14. d. making profits of $20. b. incurring losses of $3. e. None of the above. c. Making profits of $16. 15. Which of the following is correct? A pure monopoly a. can earn economic profits that persist over time. b. produce where MC equals P. c. produce where MR equals P. d. charge a price where demand is inelastic. e. charge the highest possible price. 16. A monopolistically competitive firm a. produces that quantity of output at which P = MC. b. produces that quantity of output at which MR = MC. c. produces that quantity of output where P = ATC in the short run. d. produces that quantity of output at which P = AVC in the short run. e. All of the above. 17. The main difference between monopolistic competition and perfect competition in the long run is that the competitive firm a. makes zero economic print. b. produces where marginal revenue equals marginal cost. c. produces at the minimum point on the average-cost curve. d. charges a price equal to average cost. e. must leave the industry if it experiences an economic loss. 18. If a firm?s demand curve is downward-sloping, its marginal-revenue curve a. coincides with the demand curve. b. is half as steep as the demand curve. c. lies below the demand curve. d. shows that the elasticity of demand is constant. e. is positively-sloped. Table 3: For use with questions 19 through 21. TOTAL OUTPUT PRICE ______ ______ COST ______ ______ 0 $10 ______ ______ $00 ______ ______ 1 9 ______ ______ 5 ______ ______ 2 8 ______ ______ 10 ______ ______ 3 7 ______ ______ 15 ______ ______ 4 6 ______ ______ 20 ______ ______ 19. Table 3 shows a hypothetical firm?s demand and total cost curves. The firm?s a. ATC is constant for output levels of 1 through 4 units. b. MC equals ATC. c. AVC equals ATC. d. All of the above. 20. Table 3 shows a hypothetical firm?s demand and total cost curves. The firm?s maximum profit is a. $5 d. $3 b. $4 e. $6 c. $8 21. Table 3 shows a hypothetical firm?s demand and total cost curves. The firm?s fixed costs are a. impossible to determine from the given data. b. $15 when 3 units are produced. c. $5 whatever is the quantity produced in this example. d. $10 when 3 units are produced. e. zero 22. In long-run equilibrium, the product price of a monopolistically competitive firm a. equals average total cost, and marginal revenue equals marginal cost. b. equals marginal revenue, and marginal cost equals average total cost. c. exceeds average total cost and equals marginal cost. d. equals average total cost and equals marginal cost. e. equals average variable cost and equals marginal cost. 23. Under perfect competition, each producer has the same marginal cost because a. there are no economic rents. b. each firm receives the same price and equates MC and price. c. every firm produces the same output. d. marginal cost is constant. e. MR is greater than MC. 24. Which of the following is correct. If P > MC for some good. a. competitive firms are not maximizing profit. b. there is a social payoff to producing one more unit of the good. c. there is economic inefficiency. d. some individuals can be made better off and no one need be worse off. e. All of the above. 25. Which of the following is correct? If there are externalities a. price need not measure marginal social benefit. b. marginal cost need not measure marginal social cost. c. P = MC is not the condition for efficiency. d. perfect competition does not guarantee efficiency. e. All of the above. 26. A restaurant generates marginal social benefits greater than the marginal private benefits of its patrons because its wastes make pets healthier and happier. If there are no external costs. a. the conditions for efficiency is still P = MC. b. too much restaurant output will be produced. c. too little restaurant output will be produced. d. perfect competition is efficient. e. the condition of efficiency is P > MC. 27. In comparing monopoly and perfect competition, which of the following statements is true? a. Monopolies automatically earn profits; perfectly competitive firms do not. b. In the long run, both monopoly and perfect competition produce at minimum average cost. c. If monopoly were eliminated, the loss of consumer surplus would exceed the gain of the monopolist. d. In the short run, both monopoly and perfect competition attempt to minimize average fixed costs. e. Monopolists can earn economic profits in the long run if they can maintain entry barriers were as competitive firms earn zero economic profits. 28. Which of the following correctly completes this statement? Perfect competition is inefficient when a. there are external costs of benefits. b. there are external costs only. c. the distribution of income is unfair. d. there are external benefits only. e. Price equals marginal cost fr all competitive firms. 29. Which of the following is correct? Economists think that monopoly is bad because a. monopolists make too much money. b. resources are misallocated when prices exceed marginal costs. c. monopolies are achieved by predatory tactics. d. Adam Smith said monopoly is bad. e. All of the above. 30. Which of the following is correct? Social costs are a. implicit plus explicit costs. b. implicit plus external costs. c. accounting costs plus social costs. d. private costs plus external costs. e. private variable costs plus external benefits. 31. Which of the following correctly completes this statement? Derived demand is a. the demand for a product that is derived from the factors that produce it. b. the demand for the factors of production that is derived from the demand for the products the factors produce. c. demand that results because people derive utility from the products they buy. d. one factor?s income that is derived from the income of other factors. 32. According to the least-cost rule, the firm is producing at minimum cost only if a. factor prices are equal. b. marginal physical products are equal. c. marginal physical products divided by factor prices are the same for each input. d. the MPPs of cheap factors exceed the MPPs of expensive factors. e. total expenditures on all factors uses up the firm?s production budget. 33. The functional distribution of income is the distribution of income a. among families. b. among industries of the economy. c. between the haves and the have-nots. d. among productive factors. e. between households with similar production functions in the economy. Table 4: For use with questions 34 through 36 UNIT LABOR OUTPUT PRICE ______ ______ ______ 1 20 $3 ______ ______ ______ 2 35 3 ______ ______ ______ 3 45 3 ______ ______ ______ 4 50 3 ______ ______ ______ 34. Table 4 shows this firm?s production function. The marginal physical product for the fourth worker is a. 50 units d. 0 units b. 15 units e. 4 units c. 5 units 35. Assume that a firm can sell all the product it wants for $3 per unit. Table 4 shows this firm?s production function. The marginal revenue product of the fourth worker is a. $20 d. $15 b. $10 e. $3 c. $5 36. Assume that a firm can sell all the product it wants for $3 per unit. Table 4 shows the firm?s production function. When labor costs $25.00 per worker, the firm will hire a. 4 workers d. 1 worker b. 3 workers e. 0 workers c. 2 workers 37. The functional distribution of income is the distribution of income a. among families. b. among industries of the economy. c. between the haves and the have-nots. d. among productive factors. e. between households with similar production functions in the economy. 38. According to the marginal-productivity theory of wages. a. people will be paid, in wages, what they deserve. b. factor prices will tend to be equated tot he factor?s marginal revenue product. c. wages and rental payments will be the same. d. people will be paid 75 percent of all income. e. factor prices will equal the average revenue products of the factors. 39. Monopolists hire too few inputs from society?s viewpoint because a. they don?t have to worry about demand. b. they follow the P = MPP rule. c. they follow the P = MR rule d. the marginal revenue product is less than P x MPP e. of the existence of numerous close substitutes for their products. 40. A factor market is a market in which firms purchase a. labor d. management staff b. land e. All of the above c. capital 41. According to the text, intermediaries specialize in a. providing information on product prices, quality, and location. b. making exchange arrangements between buyers and sellers. c. bringing buyers and sellers together. d. All of the above. 42. Which of the following correctly completes this statement? People acquire more information when a. transaction costs are low. b. information costs are low. c. the marginal costs of gathering information are less than the marginal benefits. d. only when it is free. SSN - - (print last name first) PRINCIPLES OF MICROECONOMICS ECON 217-51 - EXAM 3 Summer IA, 1997 Mr. Rothstein Choose the one best answer. 1. A firm has chosen its profit-maximizing (loss-minimizing) level of output. At this level of output, its price is $20 and its average total cost is $25. The firm a. should shut down since it is losing money. b. has a loss of $20 per unit of output. c. has a profit of $5 per unit of output. d. should produce if average variable cost is less than $20. e. should produce if average fixed cost is less than $20. 2. In the short run, the profit-maximizing rules are a. P = minimum average cost and ATC = AVC. b. P = ATC and P = MC. c. P > ATC and P = MC. d. P > AVC and P = MC. e. P = AVC and P = MC. 3. In a perfectly competitive industry, if Firm A owns a superior resource, a. the resource earns a rent that enters into Firm A's costs. b. the return on that resource will fall to zero in the long run. c. Firm A will shift its resources to other industries. d. Firm A must have other resources that are inferior in order to offset its advantage. e. Firm A will earn an above-normal profit. 4. Economic profits are squeezed out of an increasing-cost industry in the long run by a. falling prices and upward-shifting cost curves. b. falling prices only. c. diseconomies of scale and falling prices. d. inefficiency and rising prices. e. rising prices and falling costs. 5. The characteristics of a perfectly competitive industry are a. price taking, homogeneous products, and significant barriers to entry. b. advertising and economies of scale. c. price taking, homogeneous products, and ease of entry. d. high fixed costs and low variable costs. 6. Which of the following is correct? A perfectly competitive firm a. equates MR and MC. b. equates P and MC. c. does not produce if P is less than AVC. d. produces if all variable costs and some fixed costs are covered. e. All of the above. 7. If a firm can sell all the output it wants at a price of $5, the marginal revenue of the firm is a. greater than $5. d. impossible to determine b. equal to $5. from this information. c. less than $5. 8. Which of the following is correct? For the perfectly competitive firm, a. price is greater than marginal revenue. b. price equals average total cost. c. price is less than marginal revenue. d. profits will be maximized when price equals average cost. e. None of the above. 9. As new firms enter a perfectly competitive market that is experiencing short-run positive economic profits, a. the demand curve will move up the supply curve, and prices will increase. b. the demand curve will move down the supply curve, and prices will fall. c. the supply curve will move to the right. d. the supply curve will move to the left. e. other firms will exit to maintain the equilibrium number of firms. 10. Which of the following correctly completes this statement? A monopoly industry a. contains a single producer. b. produces a product for which there are few close substitutes. c. is characterized by significant barriers to entry. d. faces a downward-sloping demand curve. e. All of the above. 11. If the demand curve is linear for a price-searching firm, a. marginal revenue is one half the price. b. the marginal-revenue curve is twice as steep as the demand curve. c. P = MR. d. the demand curve is twice as steep as the marginal-revenue curve. e. marginal revenue is increasing. 12. Which of the following is correct? A monopolist a. will sell less at a higher price. b. has a marginal revenue less than price. c. will produce where MR = MC. d. is a price searcher. e. All of the above. TABLE 1 FOR QUESTIONS 13 - 15 QUANT PRICE 1 $ 10 2 9 3 8 4 7 5 6 6 5 7 4 13. Table 1 shows Unobtainium, Inc.'s demand curve. The marginal revenue a. of the 7th unit of output is negative. b. of the 1st unit of output is $10. c. of the 6th unit of output is $0. d. of the 2nd unit of output is $8. e. All of the above. 14. Table 1 shows Unobtainium, Inc.'s demand curve. If the marginal cost is constant at $3, the firm should produce _____ units of output and sell them at a price of _____ each. a. 6; $5 d. 5; $6 b. 3; $8 e. 1; $10 c. 4; $7 15. Table 1 shows Unobtainium, Inc.'s demand curve. If, at the profit-maximizing level of output, the firm's ATC is $3, the firm is a. incurring losses of $14. b. incurring losses of $3. c. making profits of $16. d. making profits of $20. e. None of the above. 16. If a firm's demand curve is downward-sloping, its marginal-revenue curve a. coincides with the demand curve. b. is half as steep as the demand curve. c. lies below the demand curve. d. shows that the elasticity of demand is constant. e. is positively-sloped. 17. If a monopoly is earning an economic profit of $10 million, which of the following predictions is likely to (eventually) occur? a. Even with significant barriers to entry, these profits will be wiped out. b. In the very long run, these profits will be reduced or even wiped out by the development of new competitive products. c. In the long run, the price of the product must settle at the marginal cost of production. d. All of the above. 18. If a monopolist's demand is inelastic at the current price, a. the monopolist is not maximizing profit. b. the monopolist should raise price. c. the monopolist's marginal revenue is negative. d. more profit can be obtained by lowering the quantity produced. e. All of the above. 19. Which of the following will be true for both monopoly and monopolistic competition in the short run? a. Short-run profits are positive. b. Price is greater than marginal revenue. c. Price equals marginal cost. d. Price equals marginal revenue. 20. Under perfect competition, each producer has the same marginal cost because a. there are no economic rents. b. each firm receives the same price and equates MC and price. c. every firm produces the same output. d. marginal cost is constant. e. MR is greater than MC. 21. Which of the following is correct? If there are externalities, a. price need not measure marginal social benefit. b. marginal cost need not measure marginal social cost. c. P = MC is not the condition for efficiency. d. perfect competition does not guarantee efficiency. e. All of the above. 22. A restaurant generates marginal social benefits greater than the marginal private benefits of its patrons because its wastes make pets healthier and happier. If there are no external costs, a. the condition for efficiency is still P = MC. b. too much restaurant output will be produced. c. too little restaurant output will be produced. d. perfect competition is efficient. e. the condition for efficiency is P > MC. 23. A potential difficulty with perfect competition is that a. the distribution of income may not be fair. b. externalities may be present. c. it may not be conducive to technological progress. d. All of the above. 24. Which of the following correctly completes this statement? There is economic efficiency whenever a. a reallocation of resources that helps one person hurts somebody else. b. resources are adequate to meet society's needs. c. a reallocation of resources could in principle make everyone better off. d. a reallocation of resources can make someone better off without hurting someone else. e. resources are allocated to their lowest-valued uses. 25. Which of the following correctly completes this statement? Perfect competition is inefficient when a. there are external costs or benefits. b. there are external costs only. c. the distribution of income is unfair. d. there are external benefits only. e. price equals marginal cost for all competitive firms. 26. Which of the following is correct? Economists think that monopoly is bad because a. monopolists make too much money. b. resources are misallocated when prices exceed marginal costs. c. monopolies are achieved by predatory tactics. d. Adam Smith said monopoly is bad. e. All of the above. 27. Mutual interdependence occurs when a. all firms in an industry are affected by the same general economic conditions, like interest rates, consumer expectations, and the unemployment rate. b. the actions of all firms together determine the profitability of the industry. c. the actions of one firm in an industry affect other firms in the industry and these interrelationships are recognized. d. monopolists recognize that they must face eventual competition in the very long run. e. All of the above. 28. The demand curve of an oligopolistic firm a. is the same as the demand curve of a monopolist. b. is known with certainty. c. depends upon the actions of rival firms. d. is the same as its marginal-revenue curve. e. lies above the demand curve of a perfectly competitive firm. 29. The kinked-demand-curve model of an oligopoly firm assumes a. a straight-line marginal-revenue curve. b. that oligopolists believe that price increases will not be matched but that price decreases will be matched by other oligopolists in the industry. c. that oligopolists believe that price increases will be matched but price decreases will not be matched by other oligopolists in the industry. d. that oligopolists increase prices with every increase in costs. e. the use of focal-point pricing. 30. The 4-firm concentration ratio for an industry is a. the percentage of industry sales or shipments accounted for by the firms that account for the top 4 percent of industry output. b. the percentage of industry sales or shipments accounted for by the largest 4 firms. c. the dollar value of industry profits accounted for by the largest 4 firms. d. the number of firms concentrating in a cartel. TABLE 2 - PRODUCT SCHEDULE FOR LABOR, for use with questions 31-33 CAPITAL LABOR PRODUCT 1 1 3 1 2 7 1 3 12 1 4 16 1 5 19 1 6 21 1 7 22 1 8 22 1 9 21 1 10 19 31. Assume that the product price is $10 and the supply of labor is perfectly elastic at a wage of $30. The profit maximizing employment of labor is . a. 0 d. 5 b. 1 e. 7 c. 3 32. Assume that the product price is $10 and the supply of labor is perfectly elastic at a wage of $50. The profit maximizing employment of labor is . (Use answer choices of question 31). 33. Assume the product price rose to $20 and the supply of labor is perfectly elastic at a wage of $50. The profit maximizing employment of labor is . (Use answer choices of question 31) 34. Profit-maximizing firms will optimize the amount of a given factor of production when a. marginal revenue equals marginal product. b. marginal cost equals variable cost. c. marginal factor cost equals marginal revenue product. d. marginal revenue product is positive. 35. The marginal revenue product of a productive factor equals a. marginal revenue times the marginal physical product. b. the decrease in revenue generated by one more unit of the factor. c. its marginal physical product. d. the marginal revenue from the last unit of output produced by a factor. 36. Which of the following correctly completes this statement? Derived demand is a. the demand for a product that is derived from the factors that produce it. b. the demand for the factors of production that is derived from the demand for the products the factors produce. c. demand that results because people derive utility from the products they buy. d. one factor's income that is derived from the income of other factors. 37. According to the least-cost rule, the firm is producing at minimum cost only if a. factor prices are equal. b. marginal physical products are equal. c. marginal physical products divided by factor prices are the same for each input. d. the MPPs of cheap factors exceed the MPPs of expensive factors. e. total expenditures on all factors uses up the firm's production budget. 38. Which of the following is correct? A firm could be a a. price taker in both the product and factor markets. b. price searcher in both he product and factor markets. c. price taker in the product market and a price searcher in the factor market. d. price searcher in the product market and a price taker in the factor market. e. All of the above. 39. If the firm is a price taker in the factor market, a. marginal factor cost exceeds the factor price. b. the supply curve of the factor is upward-sloping. c. marginal factor cost equals the factor price. d. marginal revenue product is less than the price of output. e. marginal factor cost is less than the factor price. 40. If the supply curve of labor to a firm is upward-sloping, the marginal factor cost of labor a. equals the price of labor. b. exceeds the price of labor because the firm pays as much for previous units as for the last unit. c. is less than the price of labor because the margin is always less than the average in economics. d. is the change in the price of labor due to hiring one more unit. e. is constant at the equilibrium wage rate. 41. If the amount of a cooperating factor increases, a. the marginal physical product of the other factor should rise. b. the marginal revenue product of the other factor should rise. c. the price of the other factor should rise. d. All of the above. 42. Which of the following is correct? A monopsony a. faces an upward-sloping factor-supply curve. b. is a market in which there is only one buyer of the factor. c. pays a factor price that is less than the factor's marginal revenue product. d. All of the above. 43. According to the text, intermediaries specialize in a. providing information on product prices, quality, and location. b. making exchange arrangements between buyers and sellers. c. bringing buyers and sellers together. d. All of the above. 44. Which of the following correctly completes this statement? People acquire more information when a. transaction costs are low. b. information costs are low. c. the marginal costs of gathering information are less than the marginal benefits. d. only when it is free. 45. Which of the following correctly completes this statement? Profitable speculation causes a. consumption and prices to be more stable over time. b. prices to be higher than otherwise. c. consumption to be less stable and prices to be more stable. d. consumption to be more stable and prices to be less stable. 46. When speculation is unprofitable, speculators a. buy when prices are low and sell when they are high. b. shift supplies from abundant periods to scarce periods. c. shift supplies from scarce periods to abundant periods. d. stabilize consumption and destabilize prices. e. guess correctly about future supply conditions. 47. Modern economists argue that people gather information a. in a rational manner. b. more carefully for items that make up a large proportion of their budgets. c. as long as the marginal costs of gathering more information do not exceed the marginal benefits. d. All of the above. c:/wpdocs/sr/217x3sr.97 5:40 7:05 SSN - - (print last name first) PRINCIPLES OF MICROECONOMICS ECON 217 - SECTION - EXAM 3 MAY 1995 Mr. Rothstein Choose the one best answer. (chapt 10 - perfect competition) 1. (p. 554) #3 D 2. 5 D 3. 6 A 4. 9 A 5. 13 C 6. 17 E 7. (P. 563) 40 B 8. 56 E 9. 58 C (Ch 11 Monopoly & Monopolistic competition) 10. (P. 603) #1 E 11. 2 B 12. 8 E TABLE 1 FOR QUESTIONS 13 - 15 QUANT PRICE 1 $ 10 2 9 3 8 4 7 5 6 6 5 7 4 13. (P. 607) #15 E 14. 16 C 15. 17 C 16. 27 C 17. 36 B 18. 38 E 19. (P. 633) 105 B (Econ 217, May 1995, Exam 3, page ?) (ch 12 20. (p. 644) #1 B 21. 3 E 22. 4 C 23. (P. 646) 11 D 24. 17 A 25. (P. 648) 19 A 26. (P. 649) 21 B (CHAPTER 13 OLIGOPOLY) 27. (P. 668) #1 C 28. 6 C 29. 9 B 30. 11 B (LABOR) TABLE 2 - PRODUCT SCHEDULE FOR LABOR, for use with questions 30-32 CAPITAL LABOR PRODUCT 1 1 3 1 2 7 1 3 12 1 4 16 1 5 19 1 6 21 1 7 22 1 8 22 1 9 21 1 10 19 31. Assume that the product price is $10 and the supply of labor is perfectly elastic at a wage of $30. The profit maximizing employment of labor is . a. 0 d. 5 b. 1 e. 7 c. 3 32. Assume that the product price is $10 and the supply of labor is perfectly elastic at a wage of $50. The profit maximizing employment of labor is . (Use answer choices of question 31). (Econ 217, May 1995, Exam 3, page ?) 33. Assume the product price rose to $20 and the supply of labor is perfectly elastic at a wage of $50. The profit maximizing employment of labor is . (Use answer choices of question 31) 34. (p. 727) #3 C 35. 4 A 36. 5 B 37. 6 C 38. 10 E 39. (P. 732) 19 C 40. 26 B 41. 34 D 42. 39 D (INFORMATION) 43. (P. 713) #1 D 44. 2 C 45. 3 A 46. 4 C 47. 9 D c:/wpdocs/sr/217x3sr.97 ?? Principles of Microeconomics, Exam 3, August 1998 Econ 217, Summer IA, 1997, Exam 3