Econ 315 Study Guide Multiple Choice - Custom Scholars
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# Econ 315 Study Guide Multiple Choice

question
When a firm has increasing marginal returns, its marginal costs ____. When a firm has decreasing returns to scale, its long-run average total cost ____.
a) decreases, increases
b) Stays the same, increases
c) Decreases, stays the same
d) Increases, decreases
a) decreases, increases
question
Long-run diseconomies of scale exist when the
a) Short Run Average Total Cost Curve Falls
b) Long-Run Marginal Cost Curve Rises
c) Short-Run Average Variable Cost Curve Rises
d) Long-Run Average Cost Curve Rises
d) Long-Run Average Cost Curve Rises
question
On a graph, the distance between the total variable cost curve and the total cost curve is defined by the...?
a) Total Variable Cost
b) Total Fixed Cost
c) Marginal Cost
d) Long Run Average Total Cost
b) Total Fixed Cost
question
The minimum points of the average total cost curve and the average variable cost curve is defined by the...?
a) Long Run Average Cost Curve
b) Total Cost Curve
c) Marginal Cost Curve
d) Average Variable Cost Curve
c) Marginal Cost Curve
question
Assume that in a given Linear K and L can produce 650 units of output. If K decreases and L increases, what quantity of output is now being produced?
a) 325 units
b) 650 units
c) 1300 units
d) Not enough information
b) 650 units, because all combinations total 650 units. Linear = isoquant, 1 quantity.
question
Which is not a similarity between Perfect Competition and Monopolistic Competition.
a) Many buyers and sellers
b) Easy entry and exit from the industry market
c) Economic profit is 0 in the long run
d) Produces Heterogeneous products
Produces Heterogeneous products
question
A contractor that builds homes needs workers for a project and hires 10 workers for a year with a written document that spells out all details of work, compensation, and policies. Which method of input procurement has the contractor used?
a) Contract
b) Horizontal Integration
c) Spot Exchange
d) Vertical Integration
a) Contract
question
If there is a potential for opportunism, Spot exchanges are not optimal
a) True
b) False
a) True
question
) An industry is comprised of six firms with annual sales as follows:
\$2,498,000,\$2,450,000, \$2,445,000, \$2,340,000, \$2,120,000, \$2,040,000 What is the C4 index?
a) .904
b) 1.2
c) .701
d) .006
c) .701
C4= Annual Sales of TOP 4 firms / Total sales of all firms
question
Assume that a horizontal merger is being considered between two firms. The current HHI is 2,100, and the new HHI after the merger will be 2,550. Which of the following statements is correct regarding the industry classification and the reaction of the DOJ?
a) Prior to the merger the industry was moderately concentrated. After the merger, the industry is moderately concentrated. The DOJ is likely to take no action
b) Prior to the merger the industry was moderately concentrated. After the merger, the industry is highly concentrated. The DOJ will investigate the
merger.
c) Prior to the merger the industry was highly concentrated. After the merger, the industry is moderately concentrated. The DOJ is likely to investigate the merger d)Prior to the merger, the industry was moderately concentrated. After the merger, the industry is highly concentrated. The DOJ will oppose the merger.
b) Prior to the merger the industry was moderately concentrated. After the merger, the industry is highly concentrated. The DOJ will investigate the
merger. (Larger HHI means more concentration)
HHI < 1500, Unconcentrated
1500 < HHI < 2500, Moderately Concentrated
HHI > 2500 Highly Concentrated
question
) An economist estimated that the cost function of a single-product firm is: C(Q)= 100 + 20Q + 15Q2+ 10Q3
Based on this information, determine:
The average fixed cost of producing 10 units of output.
The average variable cost of producing 10 units of output.
a) AFC=\$10, AVC=\$1170
b) AFC=\$15, AVC=\$1690
c) AFC=\$10, AVC=\$2015
d) AFC=\$18, AVC=\$1170
a) AFC=\$10, AVC=\$1170

AFC = TFC / Q - > 100 / 10 = 10

AVC = TVC / Q -> (20(10) + 15(10)^2 + 10(10)^3) / 10 = 1170
question
A manager hires labor and rents capital equipment in a very competitive market. Currently, the wage rate is \$12 per hour and capital is rented at \$17 per hour. If the marginal product of labor is 46 units of output per hour and the marginal product of capital of 63 units of output per hour, should the firm increase, decrease, or leave unchanged the amount of capital used in its production process?
a) The firm should increase the amount of capital used in its production process
b) The firm should increase the amount of labor used in its production process
c) The firm should leave unchanged the amount of capital used in its production process
b) The firm should increase the amount of labor used in its production process

MPL / W = 46 / 12 = 3.83

MPK / R = 63 / 17 = 3.71
question
An industry has a four-firm concentration ratio of 0.00016, and an HHI of 15. A representative firm has a Lerner index of 0.0011, and a Rothschild index of 0.0014. Which market structure is indicated by these statistics?
a) Perfect Competition
b) Monopolistic Competition
c) Oligopoly
d) Monopoly
a) Perfect Competition = close to zero, HHI max is 10,000.
question
This curve has a U-shape, made up of the lower portions of all Short Run ATC Curves a) Average Variable Cost Curve
b) Marginal Cost Curve
c) Long Run Average Total Cost Curve
d) Average Fixed Cost Curve
c) Long Run Average Total Cost Curve
question
A firm has a Lerner index of 0.75 and a marginal cost of \$30. What price should the firm charge?
a) \$120
b) \$96
c) \$170
d) \$85
a) \$120

Markup = 1 / (1-.75) = 4

4 x 30 = 120
question
The price elasticity of demand of the market in the utility industry is -1.3. If the price elasticity of demand for one firm is -2.1, what is the Rothschild index?
a) 0.23
b) 0.90
c) 2.21
d) 0.62
d) 0.62

Rothschild = Et / Ef -> -1.3 / -2.1 = .62
question
An industry of four firms with sales of \$310 million, \$460 million, \$250 million, \$650 million. What is the Herfindahl-Hirschman Index?
a) 2794
b) 2842
c) 2301
d) 2642
b) 2842

(310/1670)^2 + (460/1670)^2 + (250/1670)^2 + (650/1670)^2 x 10,000 = 2,842

Total: 310 + 460 + 250 +650 = 1670
question
Which of the following is not part of the culture of cooperation?
a) Stock ownership plan
b) Employee recognition
c) Mystery shopper
d) Profit-sharing plan
c) Mystery shopper
question
A monopolistic competitive firm is producing a level of output at which price is \$60, marginal revenue is \$25, the average total cost is \$80, marginal cost is \$20, and average fixed cost is \$10. In order to maximize profit the firm should __________. a. produce less
b. produce more
c. keep output the same
d. shut down
d. shut down

P > AVC?
AVC = ATC - AFC
=80-10 = 70
60 > 70
1 of 19
question
When a firm has increasing marginal returns, its marginal costs ____. When a firm has decreasing returns to scale, its long-run average total cost ____.
a) decreases, increases
b) Stays the same, increases
c) Decreases, stays the same
d) Increases, decreases
a) decreases, increases
question
Long-run diseconomies of scale exist when the
a) Short Run Average Total Cost Curve Falls
b) Long-Run Marginal Cost Curve Rises
c) Short-Run Average Variable Cost Curve Rises
d) Long-Run Average Cost Curve Rises
d) Long-Run Average Cost Curve Rises
question
On a graph, the distance between the total variable cost curve and the total cost curve is defined by the...?
a) Total Variable Cost
b) Total Fixed Cost
c) Marginal Cost
d) Long Run Average Total Cost
b) Total Fixed Cost
question
The minimum points of the average total cost curve and the average variable cost curve is defined by the...?
a) Long Run Average Cost Curve
b) Total Cost Curve
c) Marginal Cost Curve
d) Average Variable Cost Curve
c) Marginal Cost Curve
question
Assume that in a given Linear K and L can produce 650 units of output. If K decreases and L increases, what quantity of output is now being produced?
a) 325 units
b) 650 units
c) 1300 units
d) Not enough information
b) 650 units, because all combinations total 650 units. Linear = isoquant, 1 quantity.
question
Which is not a similarity between Perfect Competition and Monopolistic Competition.
a) Many buyers and sellers
b) Easy entry and exit from the industry market
c) Economic profit is 0 in the long run
d) Produces Heterogeneous products
Produces Heterogeneous products
question
A contractor that builds homes needs workers for a project and hires 10 workers for a year with a written document that spells out all details of work, compensation, and policies. Which method of input procurement has the contractor used?
a) Contract
b) Horizontal Integration
c) Spot Exchange
d) Vertical Integration
a) Contract
question
If there is a potential for opportunism, Spot exchanges are not optimal
a) True
b) False
a) True
question
) An industry is comprised of six firms with annual sales as follows:
\$2,498,000,\$2,450,000, \$2,445,000, \$2,340,000, \$2,120,000, \$2,040,000 What is the C4 index?
a) .904
b) 1.2
c) .701
d) .006
c) .701
C4= Annual Sales of TOP 4 firms / Total sales of all firms
question
Assume that a horizontal merger is being considered between two firms. The current HHI is 2,100, and the new HHI after the merger will be 2,550. Which of the following statements is correct regarding the industry classification and the reaction of the DOJ?
a) Prior to the merger the industry was moderately concentrated. After the merger, the industry is moderately concentrated. The DOJ is likely to take no action
b) Prior to the merger the industry was moderately concentrated. After the merger, the industry is highly concentrated. The DOJ will investigate the
merger.
c) Prior to the merger the industry was highly concentrated. After the merger, the industry is moderately concentrated. The DOJ is likely to investigate the merger d)Prior to the merger, the industry was moderately concentrated. After the merger, the industry is highly concentrated. The DOJ will oppose the merger.
b) Prior to the merger the industry was moderately concentrated. After the merger, the industry is highly concentrated. The DOJ will investigate the
merger. (Larger HHI means more concentration)
HHI < 1500, Unconcentrated
1500 < HHI < 2500, Moderately Concentrated
HHI > 2500 Highly Concentrated
question
) An economist estimated that the cost function of a single-product firm is: C(Q)= 100 + 20Q + 15Q2+ 10Q3
Based on this information, determine:
The average fixed cost of producing 10 units of output.
The average variable cost of producing 10 units of output.
a) AFC=\$10, AVC=\$1170
b) AFC=\$15, AVC=\$1690
c) AFC=\$10, AVC=\$2015
d) AFC=\$18, AVC=\$1170
a) AFC=\$10, AVC=\$1170

AFC = TFC / Q - > 100 / 10 = 10

AVC = TVC / Q -> (20(10) + 15(10)^2 + 10(10)^3) / 10 = 1170
question
A manager hires labor and rents capital equipment in a very competitive market. Currently, the wage rate is \$12 per hour and capital is rented at \$17 per hour. If the marginal product of labor is 46 units of output per hour and the marginal product of capital of 63 units of output per hour, should the firm increase, decrease, or leave unchanged the amount of capital used in its production process?
a) The firm should increase the amount of capital used in its production process
b) The firm should increase the amount of labor used in its production process
c) The firm should leave unchanged the amount of capital used in its production process
b) The firm should increase the amount of labor used in its production process

MPL / W = 46 / 12 = 3.83

MPK / R = 63 / 17 = 3.71
question
An industry has a four-firm concentration ratio of 0.00016, and an HHI of 15. A representative firm has a Lerner index of 0.0011, and a Rothschild index of 0.0014. Which market structure is indicated by these statistics?
a) Perfect Competition
b) Monopolistic Competition
c) Oligopoly
d) Monopoly
a) Perfect Competition = close to zero, HHI max is 10,000.
question
This curve has a U-shape, made up of the lower portions of all Short Run ATC Curves a) Average Variable Cost Curve
b) Marginal Cost Curve
c) Long Run Average Total Cost Curve
d) Average Fixed Cost Curve
c) Long Run Average Total Cost Curve
question
A firm has a Lerner index of 0.75 and a marginal cost of \$30. What price should the firm charge?
a) \$120
b) \$96
c) \$170
d) \$85
a) \$120

Markup = 1 / (1-.75) = 4

4 x 30 = 120
question
The price elasticity of demand of the market in the utility industry is -1.3. If the price elasticity of demand for one firm is -2.1, what is the Rothschild index?
a) 0.23
b) 0.90
c) 2.21
d) 0.62
d) 0.62

Rothschild = Et / Ef -> -1.3 / -2.1 = .62
question
An industry of four firms with sales of \$310 million, \$460 million, \$250 million, \$650 million. What is the Herfindahl-Hirschman Index?
a) 2794
b) 2842
c) 2301
d) 2642
b) 2842

(310/1670)^2 + (460/1670)^2 + (250/1670)^2 + (650/1670)^2 x 10,000 = 2,842

Total: 310 + 460 + 250 +650 = 1670
question
Which of the following is not part of the culture of cooperation?
a) Stock ownership plan
b) Employee recognition
c) Mystery shopper
d) Profit-sharing plan
c) Mystery shopper
question
A monopolistic competitive firm is producing a level of output at which price is \$60, marginal revenue is \$25, the average total cost is \$80, marginal cost is \$20, and average fixed cost is \$10. In order to maximize profit the firm should __________. a. produce less
b. produce more
c. keep output the same
d. shut down
d. shut down

P > AVC?
AVC = ATC - AFC
=80-10 = 70
60 > 70

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