Economics 2010 – Microeconomics
Practice Exam – 3
Dr. Goodman – Sections 007 – 012
1.
When a tax is levied on a good
a. neither buyers nor sellers are worse off.
b. sellers are worse off but not buyers.
c. buyers are worse off but not sellers.
d. both buyers and sellers are worse off.
2.
When evaluating the size of the deadweight loss due to a tax we know that the
a. greater the elasticities of supply and demand, the greater the deadweight loss.
b. smaller the elasticities of supply and demand, the greater the deadweight loss.
c. smaller the decrease in both quantity demanded and quantity supplied, the greater the
deadweight loss.
d. primary factor that determines the size of the deadweight loss in the percentage the tax
is of price.
3.
According to the graph, after the tax is levied, consumer surplus is represented by area
a. A.
b. A + B + C.
c. D + E + F.
d. F.
Joe wants to start his own business. The business he wants to start will require that he purchase a
factory that costs $300,000. To finance this purchase, he will use $100,000 of his own money, on
which he has been earning 10 percent interest. In addition, he will borrow $200,000, and he will
pay 12 percent interest on that loan.
4.
For the first year of operation, what is the opportunity cost of purchasing the factory?
a. $10,000
b. $20,000
c. $24,000
d. $34,000
5.
The marginal product of labor is equal to the
a. incremental cost associated with a one unit increase in labor.
b. incremental profit associated with a one unit increase in labor.
c. increase in labor necessary to generate a one unit increase in output.
d. increase in output obtained from a one unit increase in labor.
6.
When a firm is making a profit-maximizing production decision, which of the following
principles of economics is likely to be most important to the firm’s decision?
a. The cost of something is what you give up to get it.
b. A country's standard of living depends on its ability to produce goods and services.
c. Prices rise when the government prints too much money.
d. Governments can sometimes improve market outcomes.
7.
Fixed costs can be defined as costs that
a. vary inversely with production.
b. vary in proportion with production.
c. are incurred only when production is large enough.
d. are incurred even if nothing is produced.
8.
Average total cost is very high when a small amount of output is produced because
a. average variable cost is high.
b. average fixed cost is high.
c. marginal cost is high.
d. All of the above are correct.
9.
Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
Measures of Cost for ABC Inc. Widget Factory
Quantity Variable
of Widgets Costs
0
1
$1
2
$3
3
$6
4
$10
5
6
$21
Total
Costs
Fixed
Costs
$10
$13
$16
$25
$10
10.
What is the variable cost of producing five widgets?
a. $13.00
b. $14.00
c. $15.00
d. It can't be determined from the information given.
11.
Consider the following information about bread production at Beth’s Bakery:
Worker
Marginal Product
1
5
2
7
3
10
4
11
5
8
6
6
7
4
Beth pays all her workers the same wage and labor is her only variable cost. From this
information we can conclude that Beth’s marginal cost
a. declines as output increases from 0 to 33, but increases after that.
b. declines as output increases from 0 to 11, but increases after that.
c. increases as output increases from 0 to 11, but declines after that.
d. continually increases as output rises.
12.
Long-run average total cost curves are often U-shaped
a. for the same reasons that average total cost curves are often U-shaped.
b. because of constant returns to scale.
c. because of increasing coordination problems at low levels of production and increasing
specialization of workers at high levels of production.
d. because of increasing specialization of workers at low levels of production and
increasing coordination problems at high levels of production.
13.
Because the goods offered for sale in a competitive market are largely the same,
a. there will be few sellers in the market.
b. there will be few buyers in the market.
c. buyers will have market power.
d. sellers will have little reason to charge less than the going market price.
14.
The efficient scale of the firm is the quantity of output that
a. maximizes marginal product.
b. maximizes profit.
c. minimizes average total cost.
d. minimizes average variable cost.
15.
Which of the following expressions is correct for a competitive firm?
a. Profit = Total revenue – Total cost.
b. Marginal revenue = (Change in total revenue)/(Change in quantity of output).
c. Average revenue = Total revenue/Quantity of output.
d. All of the above are correct.
16.
When price rises from P2 to P3, the firm finds that
a. marginal cost exceeds marginal revenue at a production level of Q2.
b. if it produces at output level Q3 it will earn a positive profit.
c. expanding output to Q4 would leave the firm with losses.
d. All of the above are correct.
17.
When a profit-maximizing firm in a competitive market is unable to generate enough
revenue to pay all of its fixed costs it should, in the short run,
a. shut down and incur a loss equal to its fixed costs.
b. shut down until it is able to produce where average revenue exceeds average fixed cost.
c. continue to produce as long as marginal cost is less than average revenue.
d. continue to produce as long as total revenue exceeds variable costs.
18.
If a competitive firm is currently producing a level of output at which marginal revenue
exceeds marginal cost, then
a. a one-unit increase in output will increase the firm’s profit.
b. a one-unit decrease in output will increase the firm’s profit.
c. total revenue exceeds total cost.
d. total cost exceeds total revenue.
19.
Suppose you bought a ticket to a football game for $30, and that you place a $35 value on
seeing the game. If you lose the ticket, then what is the maximum price you should pay for
another ticket?
a. $30
b. $35
c. $60
d. $65
20.
In a market that allows free entry and exit, the process of entry and exit ends when, for the
typical firm in the market,
a. profit is zero.
b. total revenue is equal to average total cost.
c. average revenue exceeds marginal cost.
d. All of the above are correct.
21.
Regardless of the cost structure of firms in a competitive market, in the long run
a. firms will experience rising demand for their products.
b. the marginal firm will earn zero economic profit.
c. firms will experience a less competitive market environment.
d. exit and entry is likely to lead to a horizontal long-run supply curve.
22. The widget industry has three types of firms. The cost structure for each type is as follows:
Output
0
1
2
3
4
5
Total Cost
Type A Type B
$5
$5
$10
$12
$12
$14
$15
$18
$24
$30
$40
$50
Type C
$5
$8
$10
$12
$20
$30
If this is a competitive market and it is in long-run equilibrium, what must the price be if all
three types of firms are producing?
a.
$4
b. $5
c. $6
d. $7
23.
A monopoly’s marginal cost will
a. be less than its average fixed cost.
b. be less than the price per unit of its product.
c. exceed its marginal revenue.
d. equal its average total cost.
24.
Assume that Jack is the sole owner of all the wells in town. He decides to move to a more
suitable climate and sells the wells to a couple of dozen different town residents.
a. The town residents will likely be better off.
b. The price of water is likely to fall.
c. The individual water sellers will not have as much pricing power as Jack had.
d. All of the above are correct.
25.
A benefit to society of the patent and copyright laws is that those laws
a. help to keep prices down.
b. help to prevent a single firm from acquiring ownership of a key resource.
c. encourage creative activity.
d. discourage excessive amounts of output of certain products.
26.
A profit-maximizing monopolist will produce the level of output at which
a. average revenue is equal to average total cost.
b. average revenue is equal to marginal cost.
c. marginal revenue is equal to marginal cost.
d. total revenue is equal to opportunity cost.
27.
The demand curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
28.
For a monopoly firm, the shape and position of the demand curve play a role in
determining
(i) the profit-maximizing price.
(ii) the shape and position of the marginal cost curve.
(iii) the shape and position of the marginal revenue curve.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
29.
What is the monopolist's profit under the following conditions? The profit-maximizing
price charged for goods produced is $16. The intersection of the marginal revenue and
marginal cost curves occurs where output is 10 units and marginal cost is $8. Average total
cost for 10 units of output is $6.
a. $20
b. $80
c. $100
d. $160
30.
Let P = price; MR = marginal revenue; and MC = marginal cost. For a profit-maximizing
monopolist,
a. P = MR = MC.
b. P = MR < MC.
c. P = MR > MC.
d. P > MR = MC.
ANSWER: d.
both buyers and sellers are worse off.
TYPE: M SECTION: 1 DIFFICULTY: 2
1
ANSWER: a.
greater the elasticities of supply and demand, the greater the deadweight loss.
TYPE: M SECTION: 1 DIFFICULTY: 2
2
ANSWER: a.
A.
TYPE: M SECTION: 1 DIFFICULTY: 2
3
ANSWER: d.
$34,000
TYPE: M DIFFICULTY: 2 SECTION: 13.1
4
ANSWER: d.
increase in output obtained from a one unit increase in labor.
TYPE: M DIFFICULTY: 1 SECTION: 13.2
5
ANSWER: a.
The cost of something is what you give up to get it.
TYPE: M DIFFICULTY: 2 SECTION: 13.1
6
ANSWER: d.
are incurred even if nothing is produced.
TYPE: M DIFFICULTY: 1 SECTION: 13.3
7
ANSWER: b.
average fixed cost is high.
TYPE: M DIFFICULTY: 2 SECTION: 13.3
8
ANSWER: b.
B
TYPE: M DIFFICULTY: 2 SECTION: 13.3
9
ANSWER: c. $15.00
TYPE: M DIFFICULTY: 2 SECTION: 13.3
10
ANSWER: a. declines as output increases from 0 to 33, but increases after that.
TYPE: M DIFFICULTY: 3 SECTION: 13.3
11
because of increasing specialization of workers at low levels of production and increasing
coordination problems at high levels of production.
TYPE: M DIFFICULTY: 3 SECTION: 13.4
12
ANSWER: d.
ANSWER: d. sellers will have little reason to charge less than the going market price.
TYPE: M DIFFICULTY: 1 SECTION: 14.1
13
ANSWER: c. minimizes average total cost.
TYPE: M DIFFICULTY: 1 SECTION: 13.3
14
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 14.1
15
ANSWER: c. expanding output to Q4 would leave the firm with losses.
TYPE: M DIFFICULTY: 2 SECTION: 14.2
16
ANSWER: d. continue to produce as long as total revenue exceeds variable costs.
TYPE: M DIFFICULTY: 2 SECTION: 14.2
17
ANSWER: a. a one-unit increase in output will increase the firm’s profit.
TYPE: M DIFFICULTY: 2 SECTION: 14.2
18
ANSWER: b. $35
TYPE: M DIFFICULTY: 2 SECTION: 14.2
19
ANSWER: a. profit is zero.
TYPE: M DIFFICULTY: 2 SECTION: 14.3
20
ANSWER: b. the marginal firm will earn zero economic profit.
TYPE: M DIFFICULTY: 2 SECTION: 14.3
21
ANSWER: c. $6
TYPE: M DIFFICULTY: 3 SECTION: 14.3
22
ANSWER: b. be less than the price per unit of its product.
TYPE: M DIFFICULTY: 2 SECTION: 15.1
23
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 15.1
24
ANSWER: c. encourage creative activity.
TYPE: M DIFFICULTY: 1 SECTION: 15.1
25
ANSWER: c. marginal revenue is equal to marginal cost.
TYPE: M DIFFICULTY: 2 SECTION: 15.2
26
ANSWER: a. A.
TYPE: M DIFFICULTY: 1 SECTION: 15.2
27
ANSWER: c. (i) and (iii)
TYPE: M DIFFICULTY: 2 SECTION: 15.2
28
ANSWER: c. $100
TYPE: M DIFFICULTY: 2 SECTION: 15.2
29
ANSWER: d. P > MR = MC.
TYPE: M DIFFICULTY: 2 SECTION: 15.2
30