GRAND ECN360 MIDTERM EXAM

GRAND ECN360 MIDTERM EXAM

ECN360 MIDTERM EXAM  Question  An inferior good has an income elasticity of demand that is

zero.

negative.

positive.

positive but less than 1.

2. In the above figure, when this monopolistically competitive firm produces its profit-maximizing output, it sets a per-unit price of

$10.

$13.

$8.

$11.

3. Refer to the above figure. The profit maximizing quantity for this firm is

Q2.

Q3.

Q1.

zero.

4. Refer to the above figure. Ajax and Greenco are oligopolists. Above you are given the payoff matrix for the two firms giving the payoff associated with different pricing strategies. What is the best strategy for Greenco if Ajax decides on charging a high price?

There is no best strategy.

High price

Low price

Not enough information is given to determine the best strategy.

5. In the above figure, the long-run cost curve between points A and B illustrates

diminishing marginal product.

diseconomies of scale.

economies of scale.

constant returns to scale.

6. The perfectly competitive firm cannot influence the market price because

its production is too small to affect the market.

it has market power.

its costs are too high.

it is a price maker.

7. In the above figure, what is the profit-maximizing output and price?

10, $8

12, $10

10, $10

8, $7

8. The demand curve faced by a monopolistically competitive firms is

horizontal.

vertical.

downward sloping.

unitary elastic.

9. In the above figure, the monopolistically competitive firm’s profit-maximizing output is

1,000 units.

300 units.

700 units.

900 units.

10. Which of the following will cause a shift in the demand curve of labor?

An increase or decrease in the productivity of labor.

An increase or decrease in the demand for the product labor produces.

A decline in the price of a complementary input .

all of the above

11. If the social costs of refining oil are greater than the private costs of oil refining, then

there is too much oil refining.

users of products that use refined oil are paying too much for the products.

the amount of oil refining needs to increase in order to bring social costs and private costs in line with each other.

the external costs of oil refining are greater than the social costs of oil refining.

12. Refer to the above figure. Which panel represents what happens in the U.S. job market in the short-run when U.S. firms substitute labor outside of the U.S. for labor inside the U.S.?

Panel A

Panel B

Panel C

Panel D

13. Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10 per unit. What is its profit-maximizing rate of production?

108 units

110 units

104 units

106 units

14. In the above table, the average physical product of the 3rd worker is

12.

3.

5.

4.

15. Industry X has four firms. The largest firm in Industry X has more than 90 percent of the market share. Industry Y also has four firms, but each of those four firms in Industry Y has 25 percent of the market share. The Herfindahl-Hirschman index will be

larger for Industry X than Industry Y, but the four-firm concentration will be the same.

larger for Industry Y than Industry X, but the four-firm concentration will be the same.

the same for both industries, but the four-firm concentration will be larger for Industry Y than Industry X.

the same for both industries, but the four-firm concentration will be larger for Industry X than Industry Y.

16. The perfectly competitive firm faces

a downward sloping demand curve.

constant marginal costs.

perfectly elastic demand.

a horizontal supply function.

17. If five firms of similar sizes join to form a cartel, then it is most likely that

all five firms will earn the same profits as before.

they will collectively produce less than before.

they will charge a common, lower market price.

all five firms as a group will have falling profits, but increased output.

18. If we add successive laborers to work a given amount of land on a wheat farm, eventually

the increases in wheat harvested will get larger and larger.

the increases in wheat harvested will get smaller and smaller.

the increases in wheat harvested will rise at a constant rate.

average total cost will fall to zero.

19. All of the following are characteristics of monopolistic competition EXCEPT

product differentiation.

many firms in the industry.

advertising.

a few firms dominate the industry.

20. For years, your neighbor insisted she had no desire to own a computer. Recently, however, she purchased one and says she did so because all her relatives have computers and she wants to exchange e-mail with them. Your neighbor’s behavior is an example of

a switching cost.

limited-pricing behavior.

the impact of negative market feedback.

a network effect.

21. In the above figure, the profit-maximizing output and price for this monopolistically competitive firm are

10,000 units at a price of $10 per unit.

12,000 units at a price of $8 per unit.

13,000 units at a price of $7 per unit.

10,000 units at a price of $5 per unit.

22. A monopolist engages in price discrimination

by charging a higher price to consumers whose demand is more inelastic.

by charging a lower price when marginal cost is higher.

by charging the same price to all consumers.

by charging a lower price to consumers whose demand is more inelastic.

23. Which of the following is a characteristic of a monopoly market?

easy entry

one firm

firm is a price taker

many firms

24. In the above table, the marginal physical product of the 3rd worker is

4.

12.

5.

3.

25. Suppose at the current level of labor used, MRP = $100 and MFC = $150. To maximize profits, the firm should

hire more labor.

reduce the level of labor.

expand production.

maintain the current level of labor.

26. Suppose that the demand for pizza is inelastic. If a pizzeria decided to lower the price of pizza, total revenue would

be maximized.

increase.

stay the same.

decrease.

27. When the costs of an action are not fully borne by the two parties engaged in a transaction, this is called a(n)

externality.

equilibrium.

internal cost.

property right.

28. Other things held constant, after some point hiring additional units of labor will cause the marginal physical product of labor to decline because

the wage rate increases when additional workers are hired.

the supply of labor is perfectly elastic.

of the law of diminishing marginal product.

the firm is a price taker.

29. Which of the following statements best defines private costs?

They are internal in the sense that the firm or household must explicitly take them into account.

They are synonymous with social costs.

They represent explicit costs incurred by business firms in the private sector.

They are costs borne by people other than those who commit the action.

30. In a market for emission permits, firms that emit below their allowed limits

will buy even more allowances through aTRADING SYSTEM.

receive a subsidy for the amount of emissions.

will sell their excess allowances through aTRADING SYSTEM.

are taxed by the government for the amount of emissions.

31. Suppose a monopolist’s costs and revenues are as follows: ATC = $45.00; MC = $35.00; MR = $35.00; P = $45.00. The firm should

increase output and decrease price.

shut down.

decrease output and increase price.

not change output or price.

32. Economists generally define the short run as being

that period of time in which at least one of the firm’s inputs, usually plant size, is fixed.

any period of time less than one year.

any period of time less than six months.

that period of time in which all inputs are variable.

33. The additional revenue earned from hiring one more worker is known as the

marginal factor cost of labor.

marginal revenue product of labor.

marginal physical product of labor.

marginal utility of labor.

34. Which of the following is NOT a barrier to entry that would allow a monopolist to keep potential competitors out of its market?

The market price of the product is too high.

The firm has government authorization to be a monopoly.

The firm has a patent on the good or control over some resource required for the production of the good.

Significant economies of scale exist

35. Which of the following methods could be used to correct for external costs?

Impose a tax or an effluent fee on the offenders.

Have the offender clean up the pollution it caused.

Require firms in the industry to install pollution control devices.

All of the above would be appropriate.

36. Which of the following is NOT a characteristic of oligopoly firms?

Perfectly elastic demand curves

Non-price competition, such as advertising and promotions

Product differentiation

Strategic dependence

37. Julie always purchases the soda with the lowest price. For Julie, the cross price elasticity of demand for brand X and brand Y will be

impossible to determine without more information.

equal to 0.

positive.

negative.

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