Final Exam

question

If marginal cost is below average variable cost,

answer

both average total cost and average variable cost are decreasing

question

Refer to the provided table. The total fixed cost of production is

answer

$10.

question

Refer to the diagram. The per unit costs at output level Q that are both attainable and imply the least-cost production for this level of output

answer

are B.

question

The law of diminishing returns describes the

answer

relationship between resource inputs and product outputs in the short run

question

Which statement is correct?

answer

Marginal cost is the change in average cost when there is a change in output of 1 unit. WRONG

question

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

answer

false

question

The amount of calendar time associated with the long run

answer

varies from industry to industry.

question

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly-line basis?

answer

a switch in production to a redesigned and retooled facility

question

The basic difference between the short run and the long run is that

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

In the diagram it is assumed that

answer

all costs are variable.

question

At output level H in the provided graph, the area

answer

BCGF represents the firm's total fixed cost of production.

question

In the accompanying graph, at what level of output will the firm earn a maximum unit-profit margin (or profit per unit)?

answer

question

Which of the following is true for a purely competitive firm in short-run equilibrium?

answer

The firm's marginal revenue is equal to its marginal cost.

question

The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost of the fifth unit of output is

answer

$80.

question

If a firm has at least some control over the price of its product, then the firm cannot be in which market model?

answer

pure competition

question

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

answer

downward sloping.

question

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

answer

equal to the minimum price producers are willing to accept.

question

Which of the following statements is correct?

answer

The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.

question

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

answer

The diagrams portray short-run equilibrium but not long-run equilibrium.

question

Resources are efficiently allocated when production occurs at that output level where price

answer

equals marginal cost.

question

An unregulated pure monopolist will maximize profits by producing that output at which

answer

MR = MC.

question

Which of the diagrams correctly portrays the demand (D) and marginal revenue (MR) curves of a pure monopolist that is able to price discriminate by charging each customer his or her maximum willingness to pay?

answer

question

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

answer

produce more output and charge a lower price.

question

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

answer

true

question

Which of the following statements is true of price discrimination?

answer

Successful price discrimination will provide the firm with lower total profits than if it did not discriminate. WRONG

question

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

answer

product differentiation allows each firm some degree of monopoly power.

question

Monopolistically competitive industries are inefficient because

answer

they are overpopulated with firms whose plants are underutilized.

question

Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

answer

true

question

The economic inefficiencies of monopolistic competition may be offset by the fact that

answer

consumers have increased product variety.

question

Which of the following is correct?

answer

The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. WRONG

question

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

answer

Subway Sandwiches

question

As new firms enter a monopolistically competitive market, the demand curves facing existing firms will tend to shift left.

answer

true

question

Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from

answer

relatively easy entry.

question

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

answer

false

question

The four-firm concentration ratio cannot have a value above 1.0, or 100 percent.

answer

true

question

A game where players or firms select their optimal strategies for a single time period without regard for possible interactions in subsequent periods is called a

answer

simultaneous game. WRONG

question

In game theory, a credible threat of coercion by a dominant firm tends to

answer

reduce discipline among cartel members. WRONG

question

Refer to the diagram for a non-collusive oligopolist. We assume that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. If the firm's rivals will ignore any price increase but match any price reduction, the firm's marginal revenue curve will be (moving from left to right)

answer

MR2abMR1.

question

Refer to the diagram for a non-collusive oligopolist. Suppose that the firm is initially in equilibrium at point E, where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

answer

Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.

question

Oligopoly is more difficult to analyze than other market models because

answer

of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

question

In the payoff matrix shown,

answer

one firm has a dominant strategy to price high, the other to price low. WRONG

question

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

answer

It does not pay for the players to collude with each other.

question

The so-called first-mover advantage may be observed in

answer

sequential games.

question

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If the two firms collude to maximize joint profits, the total profits for the two firms will be

answer

$525 million.

question

Refer to the diagram. Equilibrium output is

answer

question

The table gives marginal product data for resources a and b. The output of these independent resources sells in a purely competitive market at $1 per unit. Assume that the prices of a and b are $15 and $20, respectively. To maximize profits, what combination of a and b should the employer hire?

answer

5 of a and 7 of b WRONG

question

The purely competitive employer of resource A will maximize the profits from A by equating the

answer

price of A with the MRP of A.

question

Refer to the table. Assume that the quantities of other resources employed by the firm remain constant. How many units of resource Y would the firm employ at a price of $50 per unit of Y?

answer

question

The labor demand curve of a purely competitive seller

answer

slopes downward because labor productivity increases as successive workers are hired. WRONG

question

Other things being the same, if the demand for labor is inelastic,

answer

increases in wage rates will result in greater payrolls.

question

An increase in the demand for HDTV sets leads to an increase in demand for LCD and LED TV screens. This situation arises because

answer

the demand for LCD and LED screens is a derived demand.

question

The labor demand curve of a firm that sells its product in a purely competitive market

answer

is downsloping and flatter than the labor demand curve of a firm that sells its product in an imperfectly competitive (or monopolistic) market.

question

Refer to the given data. If the prices of labor and capital are $9 and $15, respectively, and labor and capital are the only inputs, the firm's economic profits will be

answer

$102.

question

Holding revenues constant, cost minimization by firms is equivalent to

answer

profit maximization.

question

Which of the following will not shift the demand curve for labor?

answer

a change in the wage rate

question

Refer to the total product curve shown in the graph, and assume a competitive labor market. If the firm can sell widgets for $12, then what is the maximum amount it will pay the fourth worker each day?

answer

$24

question

Refer to the graph. If a monopsonist bargains with an inclusive union, as shown, the wage rate will be

answer

indeterminate in the graph.

question

If a minimum wage is set at W, what will happen to employment in the monopsonistic labor market shown in the diagram?

answer

Employment will increase.

question

Refer to the table. What is the marginal resource cost if the firm employs a 12th worker?

answer

$19

question

The economic term for a firm that is the sole buyer in a market is

answer

monopsonist.

question

(Last Word) Despite the fact that occupational licensing in many industries is unnecessary for the protection of consumers, these licensing requirements are implemented or increased because of

answer

the special-interest effect.

question

Productivity measures (such as output per worker-hour) and wage rates adjusted for inflation in the United States are

answer

directly and closely related.

question

Minimum wage laws have contributed to higher unemployment levels among teenagers and minorities.

answer

true

question

In a certain labor market, workers are required to have a certain skill-set. There are many workers who have the skill-set, but they can only find employment in one company. That one company is called a

answer

monopolistic competitor. WRONG

question

Noncompeting groups of workers are the result of geographic immobility.

answer

false

question

Labor's share of income earned by Americans is smaller than the share of capital.

answer

false

question

Unlike most demand curves, the demand curve for loanable funds is upsloping.

answer

false

question

The schedule shows various interest rates, the associated quantity demanded of loanable funds, and the quantity supplied of loanable funds in billions of dollars at those interest rates. If changes in tax laws made households save more by $140 billion at each interest rate, then the new equilibrium interest rate would be

answer

8 percent. WRONG

question

Which of the following statements best illustrates the time-value of money concept?

answer

Bob is willing to forgo receiving $100 today in order to receive $110 next month.

question

The interest rate is the price paid for the use of money.

answer

true

question

In time-value of money calculations, discounting is the reverse of compounding.

answer

true

question

Which of the following is not a major criticism of the single-tax movement?

answer

It is impractical because most income payments are a mixture of interest, rent, wages, and profits. WRONG

question

Which of the following was not a belief of Henry George and the single-tax movement?

answer

Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land.

question

Some countries have negative nominal interest rates. Which of the following statements about this situation is not true?

answer

Consumers are expected to save more and consume less.

question

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

answer

be undertaken because the rate of return is 5 percent greater than the interest rate.

question

The Americans with Disabilities Act of 1990 is an example of industrial regulation.

answer

true

question

Which antitrust act provided that injured parties could file suit and, if successful, collect triple damages from monopolistic violators?

answer

Clayton Act

question

The Herfindahl index measures the

answer

increase in economic concentration resulting from a conglomerate merger.

question

In the U.S. Steel case, the court ruled that

answer

only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act.

question

Which of the following U.S. Supreme Court cases ruled that only monopolies that "unreasonably restrain trade" are violating antitrust laws?

answer

U.S. Steel case of 1920

1 of 80

question

If marginal cost is below average variable cost,

answer

both average total cost and average variable cost are decreasing

question

Refer to the provided table. The total fixed cost of production is

answer

$10.

question

Refer to the diagram. The per unit costs at output level Q that are both attainable and imply the least-cost production for this level of output

answer

are B.

question

The law of diminishing returns describes the

answer

relationship between resource inputs and product outputs in the short run

question

Which statement is correct?

answer

Marginal cost is the change in average cost when there is a change in output of 1 unit. WRONG

question

If the minimum efficient scale in an industry were smaller than the size of the market of that industry, then we would have a natural-monopoly situation.

answer

false

question

The amount of calendar time associated with the long run

answer

varies from industry to industry.

question

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly-line basis?

answer

a switch in production to a redesigned and retooled facility

question

The basic difference between the short run and the long run is that

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

In the diagram it is assumed that

answer

all costs are variable.

question

At output level H in the provided graph, the area

answer

BCGF represents the firm's total fixed cost of production.

question

In the accompanying graph, at what level of output will the firm earn a maximum unit-profit margin (or profit per unit)?

answer

question

Which of the following is true for a purely competitive firm in short-run equilibrium?

answer

The firm's marginal revenue is equal to its marginal cost.

question

The accompanying table gives cost data for a firm that is selling in a purely competitive market. The marginal cost of the fifth unit of output is

answer

$80.

question

If a firm has at least some control over the price of its product, then the firm cannot be in which market model?

answer

pure competition

question

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is

answer

downward sloping.

question

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is

answer

equal to the minimum price producers are willing to accept.

question

Which of the following statements is correct?

answer

The long-run supply curve for a purely competitive increasing-cost industry will be upsloping.

question

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct?

answer

The diagrams portray short-run equilibrium but not long-run equilibrium.

question

Resources are efficiently allocated when production occurs at that output level where price

answer

equals marginal cost.

question

An unregulated pure monopolist will maximize profits by producing that output at which

answer

MR = MC.

question

answer

question

If the variable costs of a profit-maximizing pure monopolist decline, the firm should

answer

produce more output and charge a lower price.

question

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

answer

true

question

Which of the following statements is true of price discrimination?

answer

Successful price discrimination will provide the firm with lower total profits than if it did not discriminate. WRONG

question

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

answer

product differentiation allows each firm some degree of monopoly power.

question

Monopolistically competitive industries are inefficient because

answer

they are overpopulated with firms whose plants are underutilized.

question

Monopolistic competition entails a deadweight loss to society, even if the firms earn zero economic profits.

answer

true

question

The economic inefficiencies of monopolistic competition may be offset by the fact that

answer

consumers have increased product variety.

question

Which of the following is correct?

answer

The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve. WRONG

question

Use your basic knowledge and your understanding of market structures to answer this question. Which of the following companies most closely approximates a monopolistic competitor?

answer

Subway Sandwiches

question

As new firms enter a monopolistically competitive market, the demand curves facing existing firms will tend to shift left.

answer

true

question

Long-run equilibrium for a monopolistically competitive firm where economic profits are zero results from

answer

relatively easy entry.

question

If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic competition and do our best to eliminate it.

answer

false

question

The four-firm concentration ratio cannot have a value above 1.0, or 100 percent.

answer

true

question

A game where players or firms select their optimal strategies for a single time period without regard for possible interactions in subsequent periods is called a

answer

simultaneous game. WRONG

question

In game theory, a credible threat of coercion by a dominant firm tends to

answer

reduce discipline among cartel members. WRONG

question

answer

MR2abMR1.

question

answer

Demand curve D1 assumes that rivals will match any price change initiated by this oligopolist.

question

Oligopoly is more difficult to analyze than other market models because

answer

of mutual interdependence and the fact that oligopoly outcomes are less certain than in other market models.

question

In the payoff matrix shown,

answer

one firm has a dominant strategy to price high, the other to price low. WRONG

question

Which one of the following is not illustrated by the so-called Prisoner's Dilemma?

answer

It does not pay for the players to collude with each other.

question

The so-called first-mover advantage may be observed in

answer

sequential games.

question

answer

$525 million.

question

Refer to the diagram. Equilibrium output is

answer

question

answer

5 of a and 7 of b WRONG

question

The purely competitive employer of resource A will maximize the profits from A by equating the

answer

price of A with the MRP of A.

question

Refer to the table. Assume that the quantities of other resources employed by the firm remain constant. How many units of resource Y would the firm employ at a price of $50 per unit of Y?

answer

question

The labor demand curve of a purely competitive seller

answer

slopes downward because labor productivity increases as successive workers are hired. WRONG

question

Other things being the same, if the demand for labor is inelastic,

answer

increases in wage rates will result in greater payrolls.

question

An increase in the demand for HDTV sets leads to an increase in demand for LCD and LED TV screens. This situation arises because

answer

the demand for LCD and LED screens is a derived demand.

question

The labor demand curve of a firm that sells its product in a purely competitive market

answer

is downsloping and flatter than the labor demand curve of a firm that sells its product in an imperfectly competitive (or monopolistic) market.

question

Refer to the given data. If the prices of labor and capital are $9 and $15, respectively, and labor and capital are the only inputs, the firm's economic profits will be

answer

$102.

question

Holding revenues constant, cost minimization by firms is equivalent to

answer

profit maximization.

question

Which of the following will not shift the demand curve for labor?

answer

a change in the wage rate

question

answer

$24

question

Refer to the graph. If a monopsonist bargains with an inclusive union, as shown, the wage rate will be

answer

indeterminate in the graph.

question

If a minimum wage is set at W, what will happen to employment in the monopsonistic labor market shown in the diagram?

answer

Employment will increase.

question

Refer to the table. What is the marginal resource cost if the firm employs a 12th worker?

answer

$19

question

The economic term for a firm that is the sole buyer in a market is

answer

monopsonist.

question

(Last Word) Despite the fact that occupational licensing in many industries is unnecessary for the protection of consumers, these licensing requirements are implemented or increased because of

answer

the special-interest effect.

question

Productivity measures (such as output per worker-hour) and wage rates adjusted for inflation in the United States are

answer

directly and closely related.

question

Minimum wage laws have contributed to higher unemployment levels among teenagers and minorities.

answer

true

question

answer

monopolistic competitor. WRONG

question

Noncompeting groups of workers are the result of geographic immobility.

answer

false

question

Labor's share of income earned by Americans is smaller than the share of capital.

answer

false

question

Unlike most demand curves, the demand curve for loanable funds is upsloping.

answer

false

question

answer

8 percent. WRONG

question

Which of the following statements best illustrates the time-value of money concept?

answer

Bob is willing to forgo receiving $100 today in order to receive $110 next month.

question

The interest rate is the price paid for the use of money.

answer

true

question

In time-value of money calculations, discounting is the reverse of compounding.

answer

true

question

Which of the following is not a major criticism of the single-tax movement?

answer

It is impractical because most income payments are a mixture of interest, rent, wages, and profits. WRONG

question

Which of the following was not a belief of Henry George and the single-tax movement?

answer

Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land.

question

Some countries have negative nominal interest rates. Which of the following statements about this situation is not true?

answer

Consumers are expected to save more and consume less.

question

answer

be undertaken because the rate of return is 5 percent greater than the interest rate.

question

The Americans with Disabilities Act of 1990 is an example of industrial regulation.

answer

true

question

Which antitrust act provided that injured parties could file suit and, if successful, collect triple damages from monopolistic violators?

answer

Clayton Act

question

The Herfindahl index measures the

answer

increase in economic concentration resulting from a conglomerate merger.

question

In the U.S. Steel case, the court ruled that

answer

only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act.

question

Which of the following U.S. Supreme Court cases ruled that only monopolies that "unreasonably restrain trade" are violating antitrust laws?

answer

U.S. Steel case of 1920

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