Reference no: EM13247814

Question 1

 

ceiling price of $15 would cause

Select one:

a. A surplus of 800

b. A shortage of 800

c. A surplus of 600

d. A shortage of 600

 

Question 2

A firm estimated its short-run costs using an average variable cost function of the form

AVC = a + bQ = cQ2 and obtained the following results. Total fixed cost is$1,500.

 

If the firm produces 20 units of output, what is estimated AVC?

Select one:

a. $48.05

b. $74.05

c. $230.05

d. $242.05

 

Question 3

A firm estimated it’s short-run costs using an average variable cost function of the form AVC = a + bQ + cQ2 and obtained the following results. Total fixed cost is $1,500

 

If the firm produces 20 units of output, what is estimated total cost?

Select one:

a. $1,500

b. $1,481

c. $2,981

d. $6,341

 

Question 4

A firm estimates its long-run production function to be Q = -0.0050 K3L3 + 15 K2L2

Suppose the firm employs 10 units of capital.

At ___________ units of labor, average product of labor begins to dimish.

Select one:

a. 66.67

b. 100

c. 150

d. 350

e. 1500

 

Question 5

 

A firm is producing two goods ( X and Y ) that are related in consumption. The demand function for X is: Qd = 80 – 2PX – 12PY

Which of the following pairs of goods might the firm be producing?

Select one:

a. cola and diet cola

b. golf shoes and golf gloves

c. magazines and tennis rackets

d. bran cereal and sugar-frosted corn flakes

e. both A and D

 

Question 6

A manufacturer has two plants – one in Ohio and one in Tennessee. At the current allocation of total output between the two plants, the last unit of output produced in the Ohio plant added $10 to total cost, while the last unit of output produced in the Tennessee plant added $8 to total cost.

In order to decrease total costs, the firm should…

Select one:

a. Keep all the allocation between plants unchanged

b. Produce all its output in the Tennessee plant

c. Produce all its output in the Ohio plant

d. Switch some output from the Ohio to the Tennessee plant

e. Switch some output from the Tennessee to the Ohio plant

 

Question 7

A monopolistic competitor is similar to a monopolist in that:

Select one:

a. both earn positive economic profit in the long run.

b. both have market power.

c. both produce the output at which long-run average cost is a minimum

d. A and B.

e. all of the above.

 

Question 8

A newspaper offers students a discount on the regular subscription rate. The total number f subscriptions is optimal and, at the current prices, the marginal revenue from the last subscription sold to a student is $8, while the marginal revenue from the last subscription sold to a regular customer is $12.

If the magazine sells one more subscription to a regular customer and one less subscription to a student:

Select one:

a. profit will increase $4

b. profit will increase $12

c. profit will decrease $8

d. profit will decrease $12

e. none of the above

 

Question 9

A radio manufacturer is experiencing theft problems at its warehouse and has decided to hire security guards to reduce the thefts. The firm wants to minimize the net cost of warehouse thefts.

 

If the cost of a stolen radio us $25, what is the MOST the firm would be willing to pay to hire the first security guard?

Select one:

a. $700

b. $500

c. $250

d. $200

e. None of the above

 

Question 10

 

An underallocation of resources occurs when…

Select one:

a. a positive externality in consumption exists

b. a negative externality in production exists

c. marginal private benefit exceeds marginal social benefit

d. All of these will lead to underallocation of resources

 

Question 11

As a policy option for regulating natural monopoly, marginal cost pricing is desirable because…

Select one:

a. allocative efficiency is achieved

b. price is set equal to the minimum value of long-run average cost

c. consumers pay the lowest possible price that will generate sufficient revenue to cover the costs of the natural monopolist.

d. all of the above

 

Question 12

Demand: Qd = 600 – 30P Supply: Qs = -300 + 120P Equilibrium price and output are

Select one:

a. P = $2 and Q = 540

b. P = $10 and Q = 300

c. P = $6 and Q = 420

d. P = $3.33 and Q = 500

e. None of the above

 

Question 13

Economies of scale can arise because

Select one:

a. there is usually a qualitative change in the type of capital equipment employed as the scale of operation increase.

b. common or shared resources can be employed as the scale of operation increases, up to the minimum efficient scale (MES).

c. the cost of purchasing and installing larger machines is usually proportionately LESS than for smaller machines

d. both A and C

e. both B and C

 

Question 14

 

If a firm is producing a given level of output in an economically-efficient manner, then it must be the case that…

Select one:

a. it is choosing the lowest-cost method of producing that output

b. this output level is the most that can be produced with the given level of inputs

c. each input is producing its maximum marginal product

d. both A and B

e. both A and C.

 

Question 15

If the own-price elasticity of demand for a good is -0.6 and quantity demanded decreases by 30%, price must have…

Select one:

a. Decreased by 0.6%

b. Decreases by 18%

c. Increased by 20%

d. Increase by 50%

e. None of the above

 

Question 16

 

If the price of a good increases, the income effect

Select one:

a. reinforces the substitution effect if the good is normal

b. offsets the substitution effect if the good is inferior

c. shows the change in the quantity demanded of the good, income held constant

d. A and B

e. None of the above

 

Question 17

In long-run perfectly competitive equilibrium, economic efficiency is achieved because

Select one:

a. Price equals long-run marginal cost for every firm in the industry.

b. Price equals minimum long-run average cost for every firm in the industry.

c. Price equals average fixed cost for every firm in the industry

d. Both A and B

e. All of the above

 

Question 18

In the long run…

Select one:

a. a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio

b. the expansion path shows how the input marginal products change as the firm’s output level changes

c. all inputs are fixed

d. both A and B

e. both B and C.

 

Question 19

Marginal utility is the

Select one:

a. relative value of two goods when a utility-maximizing decision has been made

b. change in total utility that results from increasing the amount of a good consumed by one unit.

c. utility obtained from the consumption of all but the last unit of a good

d. change in the amount of a good consumed that increases total utility by one unit

e. none of the above

 

Question 20

Payoff table

 

Which cell in the payoff table represents the likely outcome of this advertising game?

Select one:

a. Cell A (Low, Low)

b. Cell C (Low, High)

c. Cell I (High, High)

d. Cell E (Medium, Medium)

e. Cell H (High, Medium)

 

Question 21

 

Price leadership…

Select one:

a. is not useful to a dominant firm if it could eliminate all its rivals through a price war

b. is an arrangement in which one firm in the market sets a price that the other firms match

c. occurs when a group of firms agree to limit competitive forces in the market

d. is when a firm makes a non-cooperative decision to raise its price

e. None of the above

 

Question 22

Private provision of public goods fails to achieve economic efficiency because…

Select one:

a. the free rider problem prevents collection of sufficient revenue

b. the free rider problem causes overproduction of the good

c. the price of the privately supplied public good must exceed zero in order to be allocatively efficient

d. both A and C

e. both B and C

 

Question 23

Stonebuilt Concrete produces a specialty cement used in construction of roads. Stonebuilt is a price-setting firm and estimates the demand for its cement by the state department of transportation using a demand function in the nonlinear form: Q = a Pb Mc P dR

Where Q = yards of cement demanded monthly, P = the price of Stonebuilt’s cement per yard, M = state tax revenues per capita, and PR = the price of asphalt per yard. The manager at Stonebuilt transforms the nonlinear relation for estimation. The estimation results are presented below:

 

If the price of asphalt (PR) decreases 15%, the estimated quantity of cement demanded will:

Select one:

a. increase 11.8%

b. decrease 11.8%

c. increase 5.2%

d. decrease 5.2%

e. increase 1.18%

 

Question 24

Suppose Dave, the owner-manager of Dave’s Golf Academy, earned $200,000 in revenue last year. Dave’s explicit costs of operation totaled $130,000. Dave has a Bachelor of Science degree in civil engineering and could be earning $60,000 annually as a civil engineer.

Select one:

a. Dave’s implicit cost of using owner-supplied resources is $130,000

b. Dave’s economic profit is $70,000

c. Dave’s implicit cost of using owner-supplied resources is $60,000

d. Dave’s economic profit is $10,000

e. Both C and D

 

Question 25

Suppose that the manager of a firm operating in a perfectly competitive market has estimated the average variable cost function to be:

AVC = 4.0 – 0.0024Q + 0.000006Q2

Fixed costs are $500.

The marginal cost function is:

Select one:

a. MC = 4.0 – 0.0048Q + 0.000018Q2

b. MC = 4.0Q – 0.0024Q2 + 0.000012Q3

c. MC = 4.0 – 0.0012Q + 0.000002Q2

d. None of the above

 

Question 26

Suppose you operate a sandwich shop and currently have two employees. If you hire a third employee, your output of sandwiches per day rises from 75 to 90. If you hire a fourth employee, output rises to 110 per day. A fifth and sixth employee would cause output to rise to 120 and 125 per day, respectively. Choose the correct statement:

Select one:

a. Diminishing returns set have not yet set in because output is still increases

b. Diminishing returns set in with the hiring of the fourth worker

c. Diminishing returns set in with the hiring of the fifth worker

d. Diminishing returns set in with the hiring of the sixth worker

 

Question 27

Table showing a demand schedule:

 

As output increases from 2,100 to 2,700 what is marginal revenue?

Select one:

a. $25

b. $50

c. -$25

d. -$300

e. $75

 

Question 28

Table showing a demand schedule:

If price falls from $250 to $200, what is the elasticity of demand over this range?

Select one:

a. -0.67

b. -1.0

c. -0.08

d. -1.5

e. -2.0

 

Question 29

Table showing the probability distribution of payoffs from an activity.

 

What is the expected value?

Select one:

a. 21

b. 36.5

c. 40

d. 42.5

e. 46.5

 

Question 30

The equation for demand is…

Select one:

a. P = 6,000 – 60Q

b. P = 60 – 100Q

c. Q = 60 – 0.01P

d. Q = 6,000 – 60P

e. None of the above

 

Question 31

The estimated demand for a good is

Q = 3,600 – 12P + 0.6M – 2.5PR

Where Q is the quantity demanded of the good, P is the price of the good, M is income, and PR is the price of related good R.

If the price of the good decrease by $10, all else constant, the quantity demanded will ______ by _____ units.

Select one:

a. Increase; 12

b. Increase; 120

c. Increase; 250

d. Decrease; 1.2

 

Question 32

The estimated demand for a good is

Q = 3,600 – 12P + 0.6M – 2.5PR

Where Q is the quantity demanded of the good, P is the price of the good, M is income, and PR is the price of related good R.

The good is…

Select one:

a. an inferior good since the coefficient on PR is negative

b. a normal good since the coefficient on P is negative

c. a normal good since the coefficient on M is positive

d. an inferior good since the coefficient on M is less than one (1).

 

Question 33

The figure below, which shows the linear demand and constant cost conditions facing a firm with a high barrier to entry.

 

If the entry barrier is removed consumers will be better off because…

Select one:

a. competition will eliminate the shortage caused by the entry barrier

b. productive efficiency will be restored

c. consumers will enjoy greater consumer surplus

d. none of the above

 

Question 34

The figure shows the demand and cost curves facing a monopoly in the short run.

The firm will sell its output at a price of…

Select one:

a. $2

b. $3

c. $3.75

d. $5

e. $6

 

Question 35

The following graph shows the marginal and average product curves for labor, the firm’s only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000.

 

What is the AVC at its minimum?

Select one:

a. $15

b. $25

c. $40

d. $80

e. $100

 

Question 36

The following payoff matrix shows the various profit outcomes for 3 projects, A, B, and C, under 2 possible states of nature: the product price is $15 or the product price is $25.

 

Using the maximax rule, the decision maker would choose…

Select one:

a. Project A

b. Project B

c. Project C

d. Impossible to say from the information given

 

Question 37

The graph on the left shows long-run average and marginal cost for a typical firm in a perfectly competitive industry. The graph on the right shows demand and long-run supply for an increasing-cost industry.

If this were instead a constant cost industry, what would be the price when the industry get to long-run competitive equilibrium?

Select one:

a. $4

b. below $4

c. between $7 and $4

d. $7

e. above $7

 

Question 38

The graph shows marginal benefits (MB) and marginal cost (MC) of activity A.

 

If the decision maker is choosing 100 units of activity A,

Select one:

a. the level maximizes net benefits

b. the activity could be increased by one unit and net benefits will increase by $20

c. the activity could be increased by one unit and the net benefits will decrease by $20

d. the activity could be increased by one unit and the net benefits will increase by $30

e. the activity could be increased by one unit and the net benefits will decrease by $30

 

Question 39

The graph shows the demand and marginal revenue in two markets, 1 and 2, for a price discriminating firm along with total marginal revenue, MRT, and marginal cost.

What total output should the firm produce?

Select one:

a. 200 units

b. 300 units

c. 400 units

d. 450 units

e. 850 units

 

Question 40

The market demand for a monopoly firm is estimated to be:

Qd = 80,000 – 400P + 3M + 2000PR

Where Q is output, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $60,000 and $15, respectively, in 2011.

For 2011, the marginal revenue function is…

Select one:

a. MR = 80 – 0.002P

b. MR = 800 – 0.008Q

c. MR = 725 – 0.0025Q

d. MR = 725 – 0.005Q

 

Question 41

The price of capital (r) is $50.

What combination of labor (L) and capital (K) can produce 3,000 units of output as the lowest cost?

Select one:

a. 10K, 110L

b. 42K, 52L

c. 60K, 20L

d. 90K, 60L

e. 110K, 10L

 

Question 42

The price of X is $30 and the price of Y is $60.

How many units of Y will the consumer choose if point A is the utility-maximizing choice?

Select one:

a. 8

b. 12

c. 16

d. 24

e. None of the above

 

Question 43

The principal-agent problem arises when…

Select one:

a. The principal and the agent have different objectives

b. The principal cannot decide whether the firm should seek to maximize the expected future profits of the firm or maximize the price for which the firm can be sold

c. The principal cannot enforce the contract with the agent or finds it too costly to monitor the agent.

d. Both A and C.

e. None of the above

 

Question 44

These are the cost curves for a perfectly competitive firm.

 

If market price is $50, how much output will the firm produce?

Select one:

a. 0 Units

b. 100 Units

c. 300 Units

d. 400 Units

 

Question 45

To maximize profit a price discriminating firm should …

Select one:

a. allocate the output so that marginal revenue is the same in each market.

b. allocate the optimal output so the elasticity is the same in each market

c. produce the ouput at which total marginal revenue equals marginal cost

d. both A and C

e. both B and C

 

Question 46

Using the following marginal benefit and marginal cost functions for activity A:

MB = 100 – 0.05A

MC = 80 + 0.05A

The optimal level of A is…

Select one:

a. 1000

b. 2000

c. 600

d. 200

e. 100

 

Question 47

When there is negative externality in production,

Select one:

a. Marginal social benefit exceeds marginal private benefit

b. Marginal social cost exceeds marginal private cost

c. Marginal private cost exceeds marginal social cost

d. Marginal private benefit exceeds marginal social benefit

 

Question 48

Which of the following is a characteristic of a perfectly-competitive market?

Select one:

a. The firms are price-setters

b. All firms produce and sell a standardized or undifferentiated product

c. It is difficult for new firms to enter the market due to barriers to entry

d. The output sold by a particular firm may be quite different from the output sold by the other firms in the market

 

Question 49

Which of the following would decrease the supply of wheat?

Select one:

a. A decrease in the price of pesticides

b. An increase in the demand for wheat.

c. A rise in the price of wheat

d. An increase in the price of corn

e. None of the above

 

Question 50

Which of the following would lead to an INCREASE in the demand for golf balls?

Select one:

a. A decrease in the price of golf balls

b. An increase in the price of golf clubs

c. A decrease in the cost of producing golf balls

d. An increase in average household income when golf balls are a normal good

e. None of the above