Econ 201 Fall 2004
Douglas
Final Exam
1
Econ 201 Final Exam
1. When new firms have an incentive to enter a competitive market, their entry will
a. increase the price of the product.
b. drive down profits of existing firms in the market.
c. shift the market supply curve to the left.
d. All of the above are correct.
Table 14-2
Quantity
3
4
5
6
7
8
Total Revenue
Total Cost
27
36
45
54
63
72
25
32
40
49
59
70
2. Refer to Table 14-2. The maximum profit available to this firm is
a. $3.
b. $2.
c. $4.
d. $5.
3. Refer to Table 14-2. To maximize profit, the firm will produce an amount such that its marginal cost equals
a. 9.
b. 6.
c. 8.
d. 7.
Table 3-3
Montana
Missouri
Hours Needed to Make One:
Basket
Birdhouse
6 hrs
4 hrs
9 hrs
3 hrs
4. Refer to Table 3-3. The opportunity cost of 1 basket for Montana is
a. 1.5 birdhouses.
b. 2/3 birdhouse.
c. 4 birdhouses.
d. 1 birdhouse.
5. Refer to Table 3-3. Montana has a comparative advantage in
a. baskets and Missouri has a comparative advantage in birdhouses.
b. neither good and Missouri has a comparative advantage in both goods.
c. birdhouses and Missouri has a comparative advantage in baskets.
d. both goods and Missouri has a comparative advantage in neither good.
6. Susan used to earn $25,000 per year as a telemarketer. She gave up that job to start a catering business. The
$25,000 income that she gave up is counted as part of the catering firm's
a. implicit costs.
b. variable costs.
c. explicit costs.
d. total revenue.
Econ 201 Fall 2004
Douglas
Final Exam
2
7. Economics is defined as the study of
a. government regulation.
b. how society manages its scarce resources.
c. central planning.
d. business.
8. Both public goods and common resources are
a. nonrival.
b. rival.
c. nonexcludable.
d. excludable.
9. When supply and demand both increase, equilibrium
a. price will definitely increase.
b. price may increase, decrease, or remain unchanged.
c. quantity may increase, decrease, or remain unchanged.
d. price will definitely decrease.
10. For a competitive market, which of the following is true?
a. A seller often charges less than the market price to increase sales and profit.
b. A seller can increase her profit by charging more than the market price.
c. A buyer can influence the price of the product by purchasing from several sellers.
d. If a seller charges more than the market price, she will sell nothing.
Table 13-1
Measures of Cost for ABC Inc. Widget Factory
Quantity
Variable
Total
Fixed
of Widgets
Costs
Costs
Costs
0
1
2
3
$10
$ 1
$ 3
$13
$16
11. Refer to Table 13-1. The average fixed cost of producing two widgets is
a. $2.00.
b. $5.00.
c. $10.00.
d. $3.33.
12. Refer to Table 13-1. What is the variable cost of producing three widgets?
a. $10.00
b. $2.00
c. $16.00
d. $6.00
13. Refer to Table 13-1. What is the marginal cost of producing the first widget?
a. It can't be determined from the information given.
b. $11.00
c. $1.00
d. $10.00
Econ 201 Fall 2004
Douglas
Final Exam
3
14. Suppose that a firm employing 12 workers produces 122 units of output per hour. It hires an additional
15.
16.
17.
18.
19.
20.
21.
22.
23.
worker, and its output rises to 130 units per hour. The marginal product of the 13th worker is
a. 10.
b. 8.
c. 122.
d. 130.
Mallory decides to spend 3 hours working overtime rather than watching a video with her friends. She earns
$8 an hour. Her opportunity cost of working is
a. the $24 minus the enjoyment she would have received from watching the video.
b. the $24 she earns working.
c. nothing, since she would have received less than $24 of enjoyment from the video.
d. the enjoyment she would have received had she watched the video.
Suppose that a tax is placed on books. If the buyer pays the majority of the tax we know that the
a. government has placed the tax on the seller.
b. supply curve is more inelastic than the demand curve.
c. demand curve is more inelastic than the supply curve.
d. government has placed the tax on the buyer.
A price ceiling will only be binding if it is set
a. equal to equilibrium price.
b. A price ceiling is never binding in a market system.
c. above equilibrium price.
d. below equilibrium price.
Which of the following is NOT a characteristic of a perfectly competitive market?
a. numerous sellers
b. similar products
c. market power
d. numerous buyers
Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will
a. increase, and producer surplus in the industry will increase.
b. decrease, and producer surplus in the industry will increase.
c. increase, and producer surplus in the industry will decrease.
d. decrease, and producer surplus in the industry will decrease.
Most 4th of July fireworks shows are financed by government instead of the market because
a. fireworks shows are not valued by society.
b. of the free-rider problem.
c. private business lacks sufficient patriotism.
d. it is wrong to charge admission to a fireworks show.
Additional firms often do not try to compete with a natural monopoly because
a. they know they cannot achieve the same low costs that the monopolist enjoys.
b. they fear retaliation from the natural monopolist.
c. they are unsure of the size of the market in general.
d. the natural monopoly doesn't make a huge profit.
Monopoly pricing prevents some mutually beneficial trades from taking place, which is
a. a sunk cost to society.
b. also true in competitive markets.
c. a deadweight loss to society.
d. of little concern to society.
Trade is based on
Econ 201 Fall 2004
Douglas
Final Exam
4
a.
b.
c.
d.
relative dollar prices.
production costs.
comparative advantage.
absolute advantage.
24. If marginal cost exceeds marginal revenue, the firm
a. must be experiencing losses.
b. should decrease the level of production to maximize its profit.
c. is most likely to be at a profit-maximizing level of output.
d. should increase the level of production to maximize its profit.
25. Marginal cost is equal to average total cost when
a. marginal cost is at its minimum.
b. average fixed cost is rising.
c. average total cost is at its minimum.
d. average variable cost is falling.
Figure 10-3: A Typical Firm in a Competitive Market
26. Refer to Figure 10-3. Firms would enter this market if and only if price exceeds
a. P3.
b. P4.
c. P1.
d. P2.
27. Refer to Figure 10-3. When price is P5, the firm’s maximum profits can be represented by the area
a. (P5 - P3) Q2.
b. (P5 - P4) Q3.
c. P5 Q3.
d. When market price is P5 there are no profits.
28. If there is a negative externality, the market will produce
a. less than the profit-maximizing amount. .
b. more than is socially desirable.
c. less than is socially desirable.
d. more than the profit-maximizing amount.
Econ 201 Fall 2004
Douglas
Final Exam
Figure 13-7
29. Refer to Figure 13-7. This firm experiences diseconomies of scale at what output levels?
a. output levels above N
b. output levels between M and N
c. output levels below M
d. All of the above are correct, if the firm is operating in the long run.
30. If the demand for a product decreases, we would expect equilibrium price
a. and equilibrium quantity to both decrease.
b. and equilibrium quantity to both increase.
c. to decrease and equilibrium quantity to increase.
d. to increase and equilibrium quantity to decrease.
Figure 9-5
31. Refer to Figure 9-5. Compared to a free trade situation, imposing a $2 tariff on carnations
a. reduces imports by 400.
b. increases imports by 100.
c. reduces imports by 200.
d. increases imports by 200.
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Econ 201 Fall 2004
Douglas
Final Exam
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32. If the price elasticity of demand for a good is .25, then a 10 percent increase in price would result in a
a. 40 percent decrease in the quantity demanded.
b. 4 percent decrease in the quantity demanded.
c. 2.5 percent decrease in the quantity demanded.
d. 25 percent decrease in the quantity demanded.
Figure 15-3: A Monopolist
33. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. (P3 - P0) Q4.
b. P2 Q4.
c. (P3 - P0) Q2.
d. P3 Q2.
34. Suppose there is an increase in broccoli farm workers’ wages. What happens to consumer surplus in the
market for broccoli?
It increases.
It is not affected by this change in market forces.
It decreases.
It increases very briefly then decreases.
a.
b.
c.
d.
Figure 4-1
Econ 201 Fall 2004
Douglas
Final Exam
7
35. Refer to Figure 4-1. Buyers pay how much of the tax?
a. $6.
b. $14.
c. $16.
d. $8.
36. Which of the following would NOT shift the demand curve for shoes?
a. a change in the price of shoes
b. a change in the price of sandals
c. a change in consumer income
d. a change in expectations about the price of shoes
37. New cars are made partly from steel. What will happen to the equilibrium price and quantity of new cars if the
price of gasoline rises and the price of steel rises?
a. Quantity may rise, fall or stay the same.
b. Quantity will definitely rise.
c. Price will definitely stay exactly the same.
d. Quantity will definitely fall.
38. In a competitive market, the output decisions of any single seller will generally
a. have no noticeable impact on the market price.
b. adversely affect the profitability of all other firms in the market.
c. have no noticeable effect on overall production but will strongly affect product price.
d. cause noticeable changes in both overall production and product price.
39. Economists normally assume that the goal of a firm is to
a. minimize its total cost.
b. maximize its profit.
c. minimize its explicit costs.
d. maximize its total revenue.
40. New firms enter a competitive market when existing firms in that market have
a. a price that exceeds average total cost.
b. total revenue that exceeds total variable costs.
c. total revenue that exceeds fixed costs.
d. average total cost that exceeds marginal revenue.
Figure 7-5
41. Refer to Figure 7-5. If the tax is in effect, producer surplus is represented by area
a. D + E + F.
b. A + B + C.
c. F.
d. A.
Econ 201 Fall 2004
Douglas
Final Exam
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42. Refer to Figure 7-5. The deadweight loss in total welfare due to the tax is represented by area
a. A + B + C.
b. D + E + F.
c. A + B + D + F.
d. C + E.
43. As a monopolist increases the quantity of output it sells, the price at which it can sell that output
a. is unaffected.
b. There is not enough information given in answer the question.
c. decreases.
d. increases.
44. Which of the following states how the private market can efficiently deal with externalities?
a. the law of diminishing social returns
b. the "invisible hand"
c. technology policy
d. the Coase theorem
Figure 15-5: A Monopolist
45. Refer to Figure 15-5. Which of the following areas represents the deadweight loss due to monopoly pricing?
a. rectangle acdb
b. rectangle cfgd
c. triangle bde
d. triangle bge
Econ 201 Fall 2004
Douglas
Final Exam
Figure 4-8
46. Refer to Figure 4-8. If price in this market is currently $12, there would be a
a. surplus of 10 units and price would tend to fall.
b. shortage of 10 units and price would tend to fall.
c. surplus of 20 units and price would tend to fall.
d. shortage of 20 units and price would tend to fall.
Figure 3-6
47. Refer to Figure 3-6. Which of the curves is most likely to represent marginal cost?
a. C
b. B
c. D
d. A
48. Refer to Figure 3-6. Which of the curves is most likely to represent average variable cost?
a. C
b. B
c. D
d. A
49. If a good is a necessity, demand for the good would tend to be
a. elastic.
b. inelastic.
c. unit elastic.
d. horizontal.
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Econ 201 Fall 2004
Douglas
Final Exam
10
50. State and local governments receive the largest portion of their tax revenues from
a. sales taxes and income taxes.
b. payroll taxes and income taxes.
c. income taxes and property taxes.
d. property taxes and sales taxes.
51. Lead is an input in the production of crystal. If the price of lead decreases, we would expect
a. the supply of lead to decrease.
b. the supply of crystal to decrease.
c. the supply of crystal to be unaffected.
d. the supply of crystal to increase.
52. The practice of selling the same goods to different customers at different prices is known as
a. price segregation.
b. monopoly pricing.
c. price discrimination.
d. arbitrage.
53. What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple
54.
55.
56.
57.
58.
tables rises, and the price of oak wood rises?
a. Price will rise and the effect on quantity is ambiguous.
b. Quantity will fall and the effect on price is ambiguous.
c. Quantity will rise and the effect on price is ambiguous.
d. Price will fall and the effect on quantity is ambiguous.
When a country allows trade and becomes an exporter of a good, which of the following would NOT be true?
a. The gains of domestic producers exceed the losses of domestic consumers.
b. The losses of domestic consumers exceed the gains of domestic producers.
c. The price paid by domestic consumers of the good increases.
d. The price received by domestic producers of the good increases.
A profit-maximizing monopolist will produce the level of output at which
a. total revenue is equal to opportunity cost.
b. average revenue is equal to marginal cost.
c. average revenue is equal to average total cost.
d. marginal revenue is equal to marginal cost.
In long-run equilibrium of a competitive market, price equals
a. sunk cost.
b. the minimum value of average variable cost.
c. the minimum value of average total cost.
d. the maximum value of marginal cost.
Marginal cost is the
a. amount by which total cost rises when labor is increased by one unit.
b. value of all resources used in a production process.
c. marginal increment to profitability when price is constant.
d. amount by which total cost rises when output is increased by one unit.
A free-trading country that imposes a tariff on imports will experience
a. an increase in consumer surplus in the market.
b. a decrease in producer surplus in the market.
c. a decrease in total surplus in the market.
d. a decrease in revenue to the government.
Econ 201 Fall 2004
Douglas
Final Exam
59. A firm's supply curve is part of its
a. average variable cost curve.
b. average total cost curve.
c. marginal revenue curve.
d. marginal cost curve.
60. Firms that shut down in the short run still have to pay their
a. variable costs.
b. fixed costs.
c. total cost.
d. All of the above are correct.
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Econ 201 Fall 2004
Douglas
Econ 201 Final Exam
Answer Section
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Final Exam
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Econ 201 Fall 2004
Douglas
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Final Exam
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