Economics 185 Practice Final

Cash expenditures a firm makes to pay for resources are called:

Your answer:
implicit costs.
explicit costs.
normal profit.
opportunity costs.

If a firm's revenues just cover all its opportunity costs, then:

Your answer:
normal profit is zero.
economic profit is zero.
total revenues equal its explicit costs.
total revenues equal its implicit costs.

In the short run, output:

Your answer:
is absolutely fixed.
can vary as the result of using a fixed amount of plant and equipment more or less intensively.
may be altered by varying the size of plant and equipment which now exist in the industry.
can vary as the result of changing the size of existing plants and by new firms entering or leaving the industry.

The difference between the short run and the long run is that the short run can be characterized as a:

Your answer:
"variable" plant period while the long run is a "fixed" plant period.
"fixed" plant period while the long run is a "variable" plant period.
"fixed output" period while the long run is a "variable output" period.
"variable output" period while the long run is a "fixed output" period.

The law of diminishing returns implies:

Your answer:
the more hours you spend studying the less you will know.
your understanding will be increased by decreasing your marginal study time.
eventually, the more hours you spend studying per day, the less you will learn with each added hour.
the more hours you spend studying per day, the more you will learn with each added hour.

Refer to the above table. The total variable cost of producing 5 units is:

Your answer:
$10.
$14.60.
$63.
$73.

Refer to the above table. The average total cost of producing 3 units of output is:

Your answer:
$9.33.
$10.
$12.67.
$38.

Refer to the above table. The average fixed cost for producing 3 units of output is:

Your answer:
$3.33.
$10.
$12.67.
$38.

Refer to the above table. The marginal cost of producing the sixth unit of output is:

Your answer:
$10.
$16.33.
$25.
$98.

Refer to the above table. The average variable cost of producing the first unit of output is:

Your answer:
$10.
$20.
$30.
Unable to be determined from the information given.

Refer to the above graph. Total fixed cost is measured by:

Your answer:
0B.
AC.
CD.
DE.

At which point of the graph above is the MP the greatest?

Your answer:
point A
point B
point C
point D

In the diagram above LRTC = long-run total costs. The firm is experiencing:

Your answer:
economies of scale.
diseconomies of scale
constant returns to scale.
minimum efficient scale.

When a firm is experiencing economies of scale:

Your answer:
minimum efficient scale has been achieved.
long-run average total cost is decreasing.
an increase in long-run total cost is accompanied by a less-than-proportionate increase in output.
a given percentage increase in all resource inputs results in a less-than-proportionate increase in output.

There would be a unique product for which there are few close substitutes under which market model?

Your answer:
monopolistic competition
pure competition
pure monopoly
oligopoly

There would be some control over price within rather narrow limits in which market model?

Your answer:
monopolistic competition
pure competition
pure monopoly
oligopoly

Mutual interdependence would tend to limit control over price in which market model?

Your answer:
monopolistic competition
pure competition
pure monopoly
oligopoly

There is no control over price by firms in:

Your answer:
oligopoly.
pure monopoly.
pure competition.
monopolistic competition.

The production of agricultural products such as wheat or corn would best be described by which market model?

Your answer:
monopolistic competition
pure competition
pure monopoly
oligopoly

If the demand curve facing a firm is perfectly elastic, then:

Your answer:
its marginal revenue will equal price.
its marginal revenue schedule will decrease at an increasing rate.
its marginal revenue schedule decreases twice as fast as the demand curve.
it can increase its total revenue by lowering the price of its product.

Refer to the above graph for a firm in pure competition. Line A represents:

Your answer:
total revenue.
average revenue.
average total cost.
average fixed cost.

Refer to the above table. If the firm shuts down in the short run, the total cost will be:

Your answer:
$1,350.
$2,500.
$2,700.
$3,100.

Refer to the above graph. The level of output at which this firm will produce is:

Your answer:
0C.
0B.
0A.
0K

The representative firm in a purely competitive industry:

Your answer:
will always earn a profit in the short run.
may earn either an economic profit or a loss in the long run.
will always earn an economic profit in the long run.
will earn an economic profit of zero in the long run.

When a purely competitive firm is in long-run equilibrium, price is equal to:

Your answer:
marginal cost, but may be greater or less than average cost.
minimum average cost, and also to marginal cost.
minimum average cost, but may be greater or less than marginal cost.
marginal revenue, but may be greater or less than both average and marginal cost.

Which creates a problem for achieving efficiency in pure competition?

Your answer:
the goal of profit maximization
marginal revenue equalling product price
product price equalling minimum average total cost
the existence of a large number of small-scale producers.

Which one of the following is most characteristic of a pure monopoly?

Your answer:
There is a dominant firm in a multifirm industry.
The firm produces a good or a service for which there are no close substitutes.
The firm has considerable control over the quantity of the output produced, but not over price.
Exit from the industry is blocked but entry into the industry is relatively easy.

Which phrase would be most characteristic of pure monopoly?

Your answer:
close substitutes
efficient advertiser
price taker
single seller

Which is an example of a privately-owned monopoly?

Your answer:
DeBeers Consolidated Mines of South Africa
State of Utah Liquor Commission Stores
United States Postal Service
Nebraska State Lottery

One feature of pure monopoly is that the demand curve:

Your answer:
is vertical.
is horizontal.
slopes upward
slopes downward.

Under pure monopoly, a profit-maximizing firm will produce:

Your answer:
in the inelastic range of its demand curve.
in the elastic range of its demand curve.
only where total costs are zero.
only where marginal revenue is zero.

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:

Your answer:
marginal cost = demand.
marginal revenue = demand.
average total cost = demand.
marginal cost = marginal revenue.

The supply curve for a monopoly is:

Your answer:
the portion of the marginal cost curve that lies above the average variable cost curve.
the portion of the marginal cost curve that lies above the average total cost curve.
the portion of the marginal cost curve that lies above the average fixed cost curve.
nonexistent.

In the figure above:

Your answer:
triangle ABC represents the welfare loss to the society because of the monopoly in the market.
if the firm is producing an amount QC (point C ), it is maximizing profit because MC = AC at that point.
point B, where MR = MC, represents the point where the difference between total revenue and total cost is the largest.
point A, where MR = AC, represents the point where the difference between total revenue and total cost is the largest.

In the short run, a monopolist's profits:

Your answer:
may be positive, negative, or zero.
are positive because of the monopolist's market power.
are positive if the monopolist's elasticity of demand is less than 1.
are positive if the monopolist's selling price is above average variable cost.

Which is true of price discrimination?

Your answer:
Successful price discrimination will provide the firm with lower total profits than if it did not discriminate.
Successful price discrimination will provide the firm with higher total revenue than if it did not discriminate.
Price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly.
It exists when price differences depend critically on differences in the costs of production of serving different groups of buyers.

Consumers who clip and redeem discount coupons:

Your answer:
exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
exhibit more price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
exhibit less price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
cause total revenue to decrease for firms that issue coupons for their products.

With a natural monopoly, the fair return price:

Your answer:
is allocatively efficient; the socially optimal price is allocatively inefficient.
is allocatively inefficient; the socially optimal price is allocatively efficient.
and the socially optimal price are both allocatively inefficient.
and the socially optimal price are both allocatively efficient

Which of the following is a characteristic of monopolistic competition?

Your answer:
standardized product
a relatively small number of firms
absence of nonprice competition
relatively easy entry

In which industry is monopolistic competition most likely to be found?

Your answer:
utilities
agriculture
retail trade
mining

Monopolistically competitive firms have a:

Your answer:
horizontal demand curve.
perfectly inelastic demand curve.
perfectly elastic demand curve.
downward-sloping demand curve.

Refer to the above table. What output will the profit-maximizing monopolistic competitor produce?

Your answer:
3
4
5
6

Refer to the above table. What will be the economic profit or loss for this monopolistic competitor at the profit-maximizing level of output?

Your answer:
-$15
+$10
+$20
+$27

Refer to the above graph of a representative firm in monopolistic competition. What does line 1 represent?

Your answer:
demand
marginal cost
marginal revenue
average total cost

Refer to the above graph of a representative firm in monopolistic competition. What does line 2 represent?

Your answer:
demand
marginal cost
marginal revenue
average total cost

Refer to the above graph of a representative firm in monopolistic competition. What does line 3 represent?

Your answer:
demand
marginal cost
marginal revenue
average total cost

Refer to the above graph of a representative firm in monopolistic competition. What does line 4 represent?

Your answer:
demand
marginal cost
marginal revenue
average total cost

In the short-run, the monopolistically competitive firm will experience:

Your answer:
an economic profit, and also one in the long-run.
a normal profit, but in the long-run only an economic profit.
economic profits and losses, but in the long-run only a normal profit.
economic profits and losses, but in the long-run only an economic profit.

The long-run equilibrium for a monopolistically competitive firm is represented in the above panel by graph:

Your answer:
A.
B.
C.
D.

The characteristic most closely associated with oligopoly is:

Your answer:
easy entry into the industry.
a few large producers.
product standardization.
no control over price.

In which market model is there mutual interdependence?

Your answer:
monopolistic competition
pure competition
pure monopoly
oligopoly

A high concentration ratio indicates that:

Your answer:
the industry is not profitable.
the industry is highly competitive.
many firms produce most of the output in an industry.
few firms produce most of the output in an industry.

The Herfindahl index is a measure of

Your answer:
profitability in an industry.
the price level in an industry.
kinked demand in an industry.
market power in an industry.

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:

Your answer:
interindustry competition.
limit pricing.
price leadership.
collusion.

In the kinked demand model of noncollusive oligopoly, each firm thinks that the demand curve below the going price is:

Your answer:
more elastic than the demand curve above the going price.
less elastic than the demand curve above the going price.
more elastic than the marginal revenue curve above the going price.
less elastic than the marginal revenue curve above the going price.

On the above graph, if the oligopolist's MC curve shifts from MC1 to MC2 , the firm will charge:

Your answer:
a higher price and total revenue will increase.
the same price and sell more output; total revenue will increase.
the same price and sell the same amount of output; total revenue will remain the same.
a higher price and sell less output; it can't be determined whether total revenue will increase.

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models?

Your answer:
the kinked demand curve model of oligopoly
the price-leadership model of oligopoly
the pure monopoly model
the monopolistic competition model

A positive effect of advertising for society is that it:

Your answer:
increases market share for the dominant firm in the industry.
provides useful information to reduce search cost for consumers.
raises barriers to entry into the industry and protects existing firms.
creates price leadership and gives firms guidance in dealing with rivals.

In an oligopolistic market there is likely to be:

Your answer:
little consideration of the actions of rival firms.
price taking behavior on the part of firms.
homogeneous but not differentiated products.
neither allocative nor productive efficiency.

Which type of firms above would be expected to engage in advertising?

Your answer:
1 and 2
1 and 4
2 and 3
3 and 4

The demand for a productive resource is said to be "derived" because the demand for the factor:

Your answer:
depends on the demand for the product it is used to make.
depends on the demand for a complementary factor.
is derived from the state of the economy.
is derived from government policy.

If the marginal revenue product (MRP) of labor is less than the wage rate:

Your answer:
the firm is making profits.
the firm is incurring losses.
more labor should be employed.
less labor should be employed.

If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, it can be concluded that:

Your answer:
the substitution effect is greater than the output effect.
the output effect is greater than the substitution effect.
the income effect is greater than the output effect.
labor cannot be easily substituted for capital.

The profit-maximizing firm using two outputs, x and y will employ inputs so that:

Your answer:
P_x = P_y
MP_x = MP_y.
MRP_x = MRP_y.
MRP_x / P_x = MRP_y / P_y = 1.

Which statement is correct?

Your answer:
The percentage change in the nominal wage plus the percentage change in the price level equals the percentage change in the real wage.
The percentage change in the real wage minus the percentage change in the price level equals the percentage change in the nominal wage.
The percentage change in the price level minus the percentage change in the nominal wage equals the percentage change in the real wage.
The percentage change in the nominal wage minus the percentage change in the price level equals the percentage change in real wage.

Which would be an explanation for the stagnation in real wages in the past twenty years?

Your answer:
increased capital accumulation
a decline in the quality of education
a reduction in the quantity of labor
a rise in the demand for resources

Craft unions typically attempt to increase wage rates for their members by:

Your answer:
organizing all of the employees in a factory or industry.
restricting the supply of skilled workers through worker licensing and training requirements.
opposing increases in the minimum wage which benefit nonunion workers.
supporting regulations and policies which increase the price of complementary resources.

Imposing a minimum wage higher than the equilibrium wage in a competitive industry would:

Your answer:
increase the demand for labor in the industry.
increase the income of some workers already employed in that industry.
decrease the quantity of labor supplied to that industry.
increase employment in that industry.

Wage differentials occur for all the following reasons except:

Your answer:
homogeneous workers.
labor market imperfections.
noncompeting groups of workers.
compensating differences to offset nonmonetary differences in jobs.

Why do skilled workers generally earn more than unskilled workers?

Your answer:
The demand for unskilled labor is more inelastic than the demand for skilled labor.
Skilled labor has higher marginal revenue products than unskilled labor.
The demand for unskilled labor is greater than the demand for skilled labor.
The supply of skilled labor is greater than the supply of unskilled labor.

The price for an input with a perfectly inelastic supply schedule is known as

Your answer:
rent.
interest.
wage.
profit.

If the price paid for the use of a fixed amount of money falls,:

Your answer:
economic rent has fallen.
economic rent has risen.
the interest rate has risen.
the interest rate has fallen

If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?

Your answer:
$100
$10
10 percent
0 percent

Refer to the above graph of the supply and demand for loanable funds. Assume that the government sets a 10% limit on the interest rate that banks can charge to customers for credit card loans. In this case, the quantity of loanable funds:

Your answer:
demanded will exceed the quantity supplied by $150 billion.
demanded will exceed the quantity supplied by $100 billion.
demanded will exceed the quantity supplied by $50 billion.
supplied will exceed the quantity demanded by $50 billion.