Grand Canyon ECN360 midterm exam 2015

· A monopolist engages in price discrimination

o

by charging the same price to all consumers.

o

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

o

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

o

by charging a lower price when marginal cost is higher.

· Economists generally define the short run as being

o

that period of time in which all inputs are variable.

o

any period of time less than one year.

o

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

o

any period of time less than six months.

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

·

Enlarged View

o

$13.

o

$10.

o

$11.

o

$8.

· 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.?

·

Enlarged View

o

Panel A

o

Panel B

o

Panel C

o

Panel D

· The demand curve faced by a monopolistically competitive firms is

o

unitary elastic.

o

horizontal.

o

downward sloping.

o

vertical.

· 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?

·

Enlarged View

o

108 units

o

106 units

o

104 units

o

110 units

· 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

o

impossible to determine without more information.

o

negative.

o

equal to 0.

o

positive.

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

·

Enlarged View

o

4.

o

5.

o

3.

o

12.

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

o

are taxed by the government for the amount of emissions.

o

will sell their excess allowances through a trading system.

o

will buy even more allowances through a trading system.

o

receive a subsidy for the amount of emissions.

· Which of the following is a characteristic of a monopoly market?

o

one firm

o

easy entry

o

firm is a price taker

o

many firms

· Which of the following would NOT affect a good's price elasticity of demand?

o

The ease of substitution between goods

o

The cost of producing the good

o

The number of substitute goods available

o

The proportion of one's budget spent on an item

· An inferior good has an income elasticity of demand that is

o

positive.

o

positive but less than 1.

o

zero.

o

negative.

· Which of the following is NOT a characteristic of oligopoly firms?

o

Strategic dependence

o

Non-price competition, such as advertising and promotions

o

Product differentiation

o

Perfectly elastic demand curves

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

o

hire more labor.

o

expand production.

o

maintain the current level of labor.

o

reduce the level of labor.

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

o

the firm is a price taker.

o

the wage rate increases when additional workers are hired.

o

the supply of labor is perfectly elastic.

o

of the law of diminishing marginal product

· n the above figure, the long-run cost curve between points A and B illustrates

·

Enlarged View

o

constant returns to scale.

o

diminishing marginal product.

o

economies of scale.

o

diseconomies of scale.

· The perfectly competitive firm cannot influence the market price because

o

it is a price maker.

o

its costs are too high.

o

its production is too small to affect the market.

o

it has market power.

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

o

the increases in wheat harvested will get larger and larger.

o

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

o

the increases in wheat harvested will get smaller and smaller.

o

average total cost will fall to zero.

· Which of the following statements best defines private costs?

o

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

o

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

o

They are synonymous with social costs.

o

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

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

·

Enlarged View

o

Q3.

o

zero.

o

Q2.

o

Q1.

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

o

marginal revenue product of labor.

o

marginal physical product of labor.

o

marginal factor cost of labor.

o

marginal utility of labor.

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

o

The market price of the product is too high.

o

Significant economies of scale exist.

o

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

o

The firm has government authorization to be a monopoly.

· 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

o

a switching cost.

o

the impact of negative market feedback.

o

limited-pricing behavior.

o

a network effect.

· 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?

·

Enlarged View

o

There is no best strategy.

o

High price

o

Low price

o

Not enough information is given to determine the best strategy

· If the absolute value of the price elasticity of demand for good Y is 0.75, when there is a 30 percent increase in price, we can conclude that quantity demanded

A.

has fallen by 35.0 percent.

B.

has fallen by 10.4 percent.

C.

has fallen by 22.5 percent.

D.

has fallen by 40.0 percent.

· The profit-maximizing output for the perfectly competitive firm occurs at the point at which

o

TR - MR is at a maximum.

o

TR - ATC is at a maximum.

o

MR = MC.

o

TR - TC is at a minimum.

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

·

Enlarged View

o

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

o

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

o

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

o

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

· In the above figure, the monopolistically competitive firm's profit-maximizing output is

·

Enlarged View

o

700 units.

o

1,000 units.

o

300 units.

o

900 units.

· All of the following are characteristics of monopolistic competition EXCEPT

o

many firms in the industry.

o

advertising.

o

product differentiation.

o

a few firms dominate the industry.

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

o

externality.

o

equilibrium.

o

internal cost.

o

property right.

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

o

increase.

o

stay the same.

o

decrease.

o

be maximized.

· 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

o

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

o

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

o

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

o

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

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

·

Enlarged View

o

12.

o

5.

o

4.

o

3.

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

·

Enlarged View

o

10, $10

o

12, $10

o

10, $8

o

8, $7

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

o

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

o

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

o

there is too much oil refining.

o

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

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

o

An increase or decrease in the productivity of labor.

o

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

o

A decline in the price of a complementary input .

o

all of the above

· 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

o

shut down.

o

increase output and decrease price.

o

decrease output and increase price.

o

not change output or price.

· The perfectly competitive firm faces

o

constant marginal costs.

o

a downward sloping demand curve.

o

a horizontal supply function.

o

perfectly elastic demand.

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

o

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

o

they will charge a common, lower market price.

o

all five firms will earn the same profits as before.

o

they will collectively produce less than before.

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

o

Impose a tax or an effluent fee on the offenders.

o

Have the offender clean up the pollution it caused.

o

Require firms in the industry to install pollution control devices.

o

All of the above would be appropriate.