Econ 101(6) Practice Final Exam

Econ 101(6) Practice Final Exam

Fall 2006

1.A market that involves only one seller of a good or service is known as

a. / a monopoly
b. / perfect competition
c. / monopolistic competition
d. / an oligopoly
e. / perfect monopolistic competition

2.Copyrights and patents are examples of barriers to entry.

a. / True
b. / False

3.A natural monopoly is based on

a. / diseconomies of scale
b. / diseconomies of scope
c. / external diseconomies
d. / economic freedom
e. / economies of scale

4.Monopolies are characterized by all of the following,except one. Which is the exception?

a. / a downward-sloping demand curve
b. / potential for long-run profits
c. / a perfectly elastic demand curve
d. / barriers to entry
e. / no close substitutes for the good produced

5.Patents and copyrights

a. / are illegal in the United States
b. / reduce barriers to entry in markets
c. / protect small firms from large firms
d. / lead to increased output and decreased prices
e. / provide incentives for firms to engage in research and development

6.For a monopolist, there is no difference between the market demand curve and the demand curve the monopolist uses when making output decisions.

a. / True
b. / False

7.If a monopoly wants to sell more output, it must

a. / raise its price
b. / lower its price
c. / increase barriers to entry
d. / obtain government permission
e. / negate its patent protection

8.Figure 9-17 shows a single-price monopolist. In order to maximize its economic profit in the short run, the firm should produce

a. / the output level associated with point F
b. / the output level associated with point G
c. / the output level associated with point H
d. / the output level associated with point I
e. / zero

9.Consider the monopolist in Figure 9-20. With which of the three AVC curves would the monopolist choose to shut down in the short run?

a. / AVC(2) only
b. / AVC(1) and AVC(2)
c. / AVC(2) and AVC(3)
d. / AVC(1) only
e. / AVC(3) only

10.The monopoly represented in Figure 9-26 has constant marginal cost and no fixed costs. If the firm is a perfect price discriminator, it will produce

a. / Q** units
b. / Q* units
c. / between 0 and Q* units
d. / between Q* and Q** units
e. / more than Q** units

11.The monopoly represented in Figure 9-26 has constant marginal cost and no fixed costs. If the firm is a perfect price discriminator, economic profit will equal

a. / the area PABP'
b. / the area PACP'
c. / the area TCQ**0
d. / the area TCP'
e. / zero

12.All of the following, except one, are characteristics of monopolistic competition. Which is the exception?

a. / There is a large number of sellers.
b. / Each seller faces a horizontal demand curve for its product.
c. / There are no significant barriers to entry or exit.
d. / Sellers produce differentiated products.
e. / There is a large number of buyers.

13.Firms in a monopolistically competitive market follow the same MR = MC profit maximization rule used by firms in other market structures.

a. / True
b. / False

14.Consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in Figure 10-1. Which of the following statements is correct in the short run?

a. / The firm will produce 100 units and suffer a loss of $400 per week.
b. / The firm will produce 100 units and suffer a loss of $300 per week.
c. / The firm will produce 100 units and suffer a loss of $1,000 per week.
d. / The firm will produce 100 units and suffer a loss of $100 per week.
e. / The firm will produce zero units and suffer a loss of $300 per week.

15.Given the environment illustrated in Figure 10-3, the best outcome the firm can achieve in the short run is

a. / both c and e
b. / an economic profit
c. / to shut down to minimize short-run loss
d. / a break-even outcome
e. / an economic loss

16.The profit-maximizing, or loss-minimizing, output for the firm in Figure 10-3 is

a. / zero units
b. / 50 units
c. / 70 units
d. / 75 units
e. / 83 units

17.At the profit-maximizing, or loss-minimizing, level of output for the firm in Figure 10-3, total revenue is approximately

a. / $10,500
b. / $11,000
c. / $5,600
d. / $8,250
e. / zero because the firm should shut down immediately

18.At the profit-maximizing, or loss-minimizing, level of output in Figure 10-3, the firm's total cost is approximately

a. / $14,000
b. / $12,750
c. / $9,100
d. / $16,185
e. / $8,400

19.Which of the following is a distinguishing characteristic of oligopolies?

a. / a standardized product
b. / the goal of profit maximization
c. / the interdependence among firms
d. / downward-sloping demand curves faced by firms
e. / a downward-sloping market demand curve

20.Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure 10-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct?

a. / Matt's dominant strategy is to charge a low price.
b. / Brian's dominant strategy is to charge a high price.
c. / The dominant strategy for both Brian and Matt is to charge a low price.
d. / Matt's dominant strategy is to charge a high price.
e. / Neither Brian nor Matt has a dominant strategy.

21.Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for repair work and a high price. The yearly economic profits from each strategy are indicated in Figure 10-12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits. Which of the following statements is correct for a one-trial game?

a. / The market equilibrium price is the high price.
b. / A market equilibrium price cannot be established unless Brian and Matt collude.
c. / A market equilibrium price cannot be established unless Brian or Matt engages in tit-for-tat strategy.
d. / A market equilibrium price cannot be established without repeated trials.
e. / The market equilibrium price is the low price.

22.In factor markets, firms ______and households ______.

a. / demand resources; supply resources
b. / supply resources; demand resources
c. / demand resources; demand goods
d. / supply resources; demand goods
e. / supply resources; supply goods

23.Which of the following would prevent a labor market from being classified as perfectly competitive?

a. / It is difficult for new workers to enter the market.
b. / The similarities between workers are more important than their differences.
c. / Exiting the market is easy for workers who are currently in the market.
d. / Both buyers and sellers of labor are well-informed about market conditions.
e. / Each firm hires only a tiny fraction of the total labor in the market.

24.A firm that sells its output and hires its labor in perfectly competitive markets

a. / controls the price of its output, but accepts the wage rate it pays as given
b. / controls both the price of its output and the wage rate it pays
c. / controls the rate it pays, but accepts the price of its output as given
d. / accepts both the price of its output and the wage rate it pays as given
e. / controls the price of its output, the wage rate it pays, and its own output level

25.If eight workers can manufacture 70 tables per day and nine workers can manufacture 90 tables per day,

a. / the marginal product of hiring the ninth worker is 20 tables
b. / the marginal product of hiring the ninth worker is 10 tables
c. / the marginal revenue associated with the ninth worker is $90 if nine tables sell for $10 each
d. / there are diminishing marginal returns to labor, starting with the ninth worker
e. / average revenue is rising
Figure 11-4
Quantity / Number of
of / Calculators
Labor / per Day
1 / 60
2 / 160
3 / 240
4 / 280
5 / 300

26.Figure 11-4 shows the number of calculators that can be assembled each day by various numbers of workers. If calculators sell in a perfectly competitive market where the price per calculator is $20, what is the marginal revenue product (MRP) of hiring the second worker?

a. / $20
b. / $2,000
c. / $100
d. / $1,600
e. / $3,200

27.If the number of firms hiring in a labor market decreases, the

a. / wage rate will rise
b. / market demand for labor will rise
c. / demand for a firm's output will fall
d. / market supply of labor will fall
e. / market demand for labor will fall

28.If the federal government initiated a program through which individuals could receive a tax break for acquiring additional training in selected fields, the

a. / supply curve for labor in those fields would shift to the left
b. / demand curve for labor in those fields would shift to the left
c. / demand for the product produced in those fields would shift to the left
d. / quantity of labor supplied would rise in response to wages
e. / supply curve for labor in those fields would shift to the right

29.Assume that the labor market for auto mechanics is initially in equilibrium. Which of the following would lead to an increase in both the wage rate and employment for auto mechanics?

a. / a decrease in the price of a substitutable input
b. / a decrease in the price of a complementary input
c. / an increase in training costs for auto mechanics
d. / a decrease in wages in an alternate labor market
e. / a decrease in demand for the output of firms employing auto mechanics

30.Which of the following changes would increase the present value of a future payment?

a. / a decrease in the size of the payment
b. / a decrease in the certainty of the payment actually being received
c. / an increase in the amount of time that elapses before receiving the payment
d. / a decrease in the interest rate
e. / none of the above

31.If the interest rate is 5 percent (0.05) per year, what is the present value of $3,000 to be received two years from now?

a. / $2,850.00
b. / $3,000.00
c. / $2,707.50
d. / $2,721.09
e. / $2,857.14

32.You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: Receive $2,000 five years from now. The interest rate is 15 percent (0.15) per year. Rank these three options from highest present value to lowest present value.

a. / Option 1, Option 2, Option 3
b. / Option 3, Option 2, Option 1
c. / Option 2, Option 3, Option 1
d. / Option 3, Option 1, Option 2
e. / Option 1, Option 3, Option 2

33.A higher interest rate will lead a firm to purchase less capital because the higher interest rate

a. / lowers the marginal product of capital goods
b. / causes technological change to cease
c. / lowers the present value of capital goods
d. / causes economies of scale to be exhausted
e. / causes the capital market become monopolized

34.Human capital that is useful to many firms is called ______, whereas human capital that is primarily useful to just one firm is called ______.

a. / broad; narrow
b. / superior; inferior
c. / generic; particular
d. / general; specific
e. / public; private

35.Microsoft issues a 2-year bond with a face value of $5,000. In addition to the principal paid at maturity, the bond has 2 annual coupon payments of $500 each, to be received at the end of the first and second year respectively. If the interest rate is 10 percent (0.10) per year, what is the value of the newly issued bond?

a. / $5,000.00
b. / $6,000.00
c. / $5,886.68
d. / $4,901.48
e. / $41.32

36.Economic efficiency is achieved

a. / when all resources are fairly allocated
b. / when an economy is producing the maximum possible amount of goods and services
c. / when production or allocation of goods cannot be rearranged to make one person better off while harming no one else.
d. / if production or allocation of goods cannot be rearranged to make at least one person better off
e. / if production or allocation of goods cannot be rearranged in a way the benefits more people than it harms

37.A government program would impose a 25-cent tax on each pack of cigarettes in order to fund welfare programs. Such a policy

a. / is not a Pareto improvement
b. / is an example of an economically inefficient economy
c. / would clearly not increase tax revenues
d. / is a Pareto improvement
e. / could only occur in a fair economy

38.Pollution is a form of market failure called a negative externality.

a. / True
b. / False

39.Pure private good has two characteristics: rivalry and excludability. Rivalry suggests that a private market, rather than the public sector, should produce the good, and excludability suggests a private market will provide it.

a. / True
b. / False

40.A pure public good is one that is

a. / rival and excludable
b. / rival and nonexcludable
c. / nonrival but excludable
d. / nonrival and nonexcludable
e. / provided by a government agency

Answer Keys to Practice Final Exam