Econ 2106 Principles of Microeconomics
Sample Exam 3
Use the information below to answer the following questions.
Two discount superstores (Ultimate Saver and SuperDuper Saver) in a growing urban area are interested in
expanding their market share. Both are interested in expanding the size of their store and parking lot to
accommodate potential growth in their customer base. The following game depicts the strategic outcomes that
result from the game. Growth-related profits of the two discount superstores under two scenarios are reflected in
the table below.
Table 16-5
Ultimate
Saver
Increase the size
of store and
parking lot
Do not increase
the size of store
and parking lot
SuperDuper Saver
Increase the size of store
and parking lot
Do not increase the size of
store and parking lot
SuperDuper Saver = $50
Ultimate Saver = $65
SuperDuper Saver = $25
Ultimate Saver = $275
SuperDuper Saver = $250
Ultimate Saver = $35
SuperDuper Saver = $85
Ultimate Saver = $135
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1. Refer to Table 16-5. The dominant strategy is to increase the size of its store and parking lot for
a. SuperDuper Saver, but not for Ultimate Saver.
b. Ultimate Saver, but not for SuperDuper Saver.
c. both stores.
d. neither store.
____
2. Refer to Table 16-5. If both stores follow a dominant strategy, Ultimate Saver's growth-related profits will be
a. $35.
b. $65.
c. $135.
d. $275.
____
3. Refer to Table 16-5. The owners of SuperDuper Saver and Ultimate Saver meet for a friendly game of golf one
afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to
a. increase their store and parking lot sizes.
b. refrain from increasing their store and parking lot sizes.
c. be more competitive in capturing market share.
d. share the context of their conversation with the Federal Trade Commission.
____
4. Individual profit earned by Dave, the oligopolist, depends on which of the following?
(i)
the quantity of output that Dave produces
(ii)
the quantities of output that the other firms in the market produce
(iii)
the extent of collusion between Dave and the other firms in the market
a.
b.
c.
d.
(i) and (ii)
(ii) and (iii)
(iii) only
All of the above are correct.
1
____
5. Which of the following statements are true of the prisoners' dilemma?
(i)
Rational self-interest leads neither party to confess.
(ii)
Cooperation between the prisoners is difficult to maintain.
(iii)
Cooperation between the prisoners is individually rational.
a.
b.
c.
d.
(ii) only
(ii) and (iii)
(i) and (iii)
All of the above are correct.
____
6. A lack of cooperation by oligopolists trying to maintain monopoly profits
a. is desirable for society as a whole.
b. is not desirable for society as a whole.
c. may or may not be desirable for society as a whole.
d. is not a concern due to antitrust laws.
____
7. The practice of tying is illegal on the grounds that
a. it allows firms to expand their market power.
b. it allows firms to form collusive arrangements.
c. it prevents firms from forming collusive agreements.
d. the Sherman Act explicitly prohibited such agreements.
Use the figures below to answer the following questions.
Figure 17-1
____
8. Refer to Figure 17-1. Which of the graphs would most likely represent a profit-maximizing firm in a
monopolistically competitive market?
a. panel a
b. panel b
c. panel c
d. panel d
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Lines in the figures below reflect the potential effect of entry and exit in a monopolistically competitive market on
the demand and/or marginal cost curves of incumbent firms. Use these figures to answer the following
questions.
Figure 17-3
____
9. Refer to Figure 17-3. Panel d in the set of figures shown depicts the effect on incumbent firms of
a. long-run economic losses.
b. a decrease in the diversity of products offered in the market.
c. new entrants in the market.
d. existing firms exiting the market.
____
10. In monopolistically competitive markets, economic losses
a. signal some incumbent firms to exit the market.
b. signal new firms to enter the market.
c. are maintained through government-imposed barriers to exit.
d. are never possible.
____
11. The free entry and exit of firms in a monopolistically competitive market guarantees that
a. both economic profits and economic losses can persist into the long run.
b. both economic profits and economic losses disappear in the long run.
c. economic profits can persist into the long run, but not economic losses.
d. economic losses can persist into the long run, but not economic profits.
Use the figures below to answer the following questions.
Figure 17-4
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____
12. Refer to Figure 17-4. Panel (a) shows a profit-maximizing monopolistically competitive firm that is
a. earning a zero profit.
b. in long-run equilibrium.
c. charging a price that is equal to average total cost.
d. All of the above are correct.
____
13. In the long run, a profit-maximizing firm in a monopolistically competitive market operates at
a. efficient scale.
b. a level of output at which average total cost is rising.
c. a level of output at which average total cost is falling.
d. the level of output at which total revenue is maximized.
____
14. Because a monopolistically competitive firm has some market power, in the long-run the price of its good exceeds
its
a. average revenue.
b. average total cost.
c. marginal cost.
d. profit per unit.
____
15. In both perfect competition and monopolistic competition,
a. each firm is, in many ways, like a monopoly.
b. each firm sells a product that is at least slightly different from those of other firms.
c. each firm faces a downward-sloping demand curve.
d. there are many sellers.
____
16. Among the following situations, the one that is least likely to apply to a monopolistically competitive firm is that
in which
a. profit is positive in the short run.
b. total cost exceeds total revenue in the short run.
c. profit is positive in the long run.
d. total revenue equals total cost in the long run.
____
17. Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition
from this initial situation to a long-run equilibrium,
a. the number of firms in the market decreases.
b. each incumbent firm experiences a decrease in demand for its product.
c. each incumbent firm experiences a rightward shift of its marginal revenue curve.
d. All of the above are correct.
18. Advertisements that appear to convey no information at all
a. are usually associated with "infomercials."
b. are mostly useless to consumers, but valuable to firms.
c. are mostly useless to firms, but valuable to consumers for their entertainment quality
alone.
d. may convey information to consumers by providing them with a signal that firms are
willing to spend significant amounts of money to advertise.
____
____
19. If a firm in a monopolistically competitive market successfully uses advertising to decrease elasticity of demand
for its product,
a. the firm will be able to increase its markup over marginal cost.
b. the firm will eventually have to lower price to remain competitive.
c. it will increase the well-being of society.
d. it will reduce average total cost.
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____
20. On a vacation to Cancun, Mexico, you find yourself eating every meal at the local McDonald's rather than having
a hamburger from one of the street vendors. Your traveling companion claims that you are irrational, since you
never eat McDonald's hamburgers when you are home and McDonald's hamburgers cost more than those
prepared and sold by Cancun's street vendors. An economist would most likely explain your behavior by
suggesting that
a. your behavior is rational, but your friend's behavior is clearly irrational.
b. you are clearly irrational.
c. the McDonald's brand name guarantees consistent quality.
d. the advertising by McDonalds in Cancun is more persuasive than the advertising by
McDonalds in your home town.
____
21. Factor markets are different from product markets in an important way, because
a. equilibrium is the exception, and not the rule, in factor markets.
b. the demand for a factor of production is a derived demand.
c. the demand for a factor of production is likely to be upward sloping, in violation of the
law of demand.
d. All of the above are correct.
____
22. Diminishing marginal product serves to have what effect on the shape of the production function?
a. The slope of the production function decreases as the quantity of input increases.
b. The production function becomes steeper as the quantity of input increases.
c. The production function slopes downward.
d. The production function is horizontal beyond a certain quantity of input.
____
23. What is the shape of the curve that represents the value of the marginal product of labor?
a. U-shaped
b. flat
c. downward sloping
d. upward sloping
____
24. If one observes a profit-maximizing firm starting with 25 employees and then decreasing employment, it is
possible to infer that, when 25 employees are hired, the
a. firm is losing market share.
b. firm is not likely to be minimizing losses.
c. wage exceeds the value of the marginal product of labor.
d. value of the marginal product of labor exceeds the wage.
____
25. For a competitive firm, the value of the marginal product
(i)
increases when the price of output decreases.
(ii)
changes when marginal product changes.
(iii)
diminishes as the number of workers rises.
a.
b.
c.
d.
(i) and (ii)
(i) and (iii)
(ii) and (iii)
All of the above are correct.
Use the following information to answer the following questions.
Scenario 18-2
Jerry has two jobs, one for the winter and one for the summer. In the winter, he workers as a lift attendant at a ski
resort where he earns $10 per hour. During the summer, Jerry drives a tour bus around the ski resort, earning $12
per hour.
5
____
26. Refer to Scenario 18-2. Assume that Jerry has an upward-sloping labor supply curve. If the opportunity cost of
Jerry's leisure time increases, he will respond by working
a. more hours.
b. fewer hours.
c. an equal number of hours.
d. All of the above are correct.
____
27. The labor supply curve is fundamentally a representation of the trade-off people face between which of the
following?
a. work and wage
b. work and leisure
c. wage and productivity
d. technology and wage
Use the following information to answer the following questions.
Scenario 18-3
In 1997, Albania experienced a civil war. The civil unrest sent thousands of refugees across the Adriatic Sea to
Italy where they sought relief from the fighting.
____
28. Refer to Scenario 18-3. The Italian government started to patrol the Adriatic Sea and had a policy of returning all
refugees to Albania. This policy would contribute to
a. an increase in the supply of labor in Italy.
b. an increase in the demand labor in Italy.
c. a decrease in the demand for labor in Italy.
d. prevention of an increase in the supply of labor in Italy.
____
29. Refer to Scenario 18-3. When a labor market experiences a surplus of labor, there is downward pressure on
a. the marginal productivity of labor.
b. final product price.
c. wages.
d. the demand for labor.
____
30. Which of the following events could decrease the demand for labor?
a. an increase in migrant workers
b. an increase in the marginal productivity of workers
c. a decrease in demand for the final product produced by labor
d. a decrease in the labor supply
Refer to the diagram below to answer the following questions.
Figure 18-3
____
31. Refer to Figure 18-3. The shift of the labor supply curve from S1 to S2 could possibly be explained by
a. technological progress.
b. a change in the price of firms' output.
c. a change in workers' attitudes toward the work-leisure tradeoff.
d. All of the above are correct.
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Refer to the diagram below to answer the following questions.
Figure 18-4
____
32. Refer to Figure 18-4. The shift of the labor demand curve from D1 to D2 could possibly be explained by
a. a change in workers' attitudes toward the work-leisure tradeoff.
b. decreases in wages in other labor markets.
c. an increase in the price of firms' output.
d. All of the above are correct.
____
33. Both theory and history point to a close relationship between increases in
a. labor demand and increases in labor supply.
b. labor demand and decreases in real wages.
c. the productivity of labor and increases in real wages.
d. interest rates and decreases in real wages.
____
34. The owners of capital resources are compensated according to the
a. purchase price of the capital stock.
b. marginal product of capital.
c. value of the marginal product of capital.
d. absolute level of production of final goods and services.
____
35. A change in supply of one factor of production
a. will not change either the marginal productivities or the prices of other factors.
b. will not change the prices of other factors, but it may change their marginal productivities.
c. will not change the marginal productivities of other factors, but it may change their prices.
d. changes the marginal productivities and the prices of other factors.
____
36. If unskilled labor is relatively plentiful and cheap in many foreign countries, then as the United States expands its
trade with these foreign countries, the domestic demand for
a. unskilled labor will rise and skilled labor will fall.
b. skilled labor will rise and unskilled labor will fall.
c. both skilled and unskilled labor will rise proportionately.
d. both skilled and unskilled labor will be unaffected, assuming no barriers to free trade.
____
37. The term "compensating differential" always refers to
a. the fact that workers that do similar work should be paid the same wage.
b. the fact that some workers live further from their jobs than do other workers.
c. a wage difference that is distinguishable on the basis of monetary characteristics.
d. a wage difference that arises from nonmonetary characteristics of different jobs.
____
38. Technology is an important factor in explaining the high incomes of superstars because
a. technology accounts for differences in incomes within all occupations.
b. technology makes it possible for the best producer to supply every customer at low cost.
c. technology which can limit access to the superstars is available.
d. only technologically literate superstars can earn super incomes.
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____
39. A signaling theory of education suggests that
a. people who attend college are more likely to capture a "beauty premium."
b. education is a signal of social status.
c. education does not necessarily increase productivity.
d. education will sever the link between innate ability and compensation.
____
40. Why is a plumber never likely to be as rich as a movie star?
a. Compensating differential creates a higher wage in the movie business.
b. There haven't been any decent technological advances in the plumbing industry.
c. Productivity levels are low in the plumbing industry due to low worker morale.
d. A plumber can provide his services to only a limited number of customers.
____
41. Which theory explains the fact that some firms may choose to pay their employees more then they would earn as
determined by equilibrium in the labor market?
a. the theory of efficiency wages
b. the marginal-productivity theory
c. human-capital theory
d. signaling theory
____
42. When economists study wages, they relate a worker's wage to those variables that are most subject to
measurement. Which of the following are most likely to be unmeasurable?
a. years of schooling, age, and years of experience
b. job characteristics, gender, and race
c. ability, effort, and chance
d. gender, race, and geographic location
____
43. The "technology" hypothesis has been advanced as an explanation for the widening earnings gap between skilled
and unskilled workers. This hypothesis emphasizes the likelihood that technological advances have
a. increased the supply of skilled workers and increased the supply of unskilled workers.
b. increased the supply of skilled workers and decreased the supply of unskilled workers.
c. increased the demand for skilled workers and decreased the demand for unskilled
workers.
d. decreased the demand for skilled workers and decreased the demand for unskilled
workers.
____
44. Economists generally agree that
a. human capital theory provides the best explanation of discriminatory practices.
b. differences in average wages do not by themselves provide conclusive evidence about the
magnitude of discrimination effects in labor markets.
c. discrimination is exclusively an economic, rather than political, phenomenon.
d. much of the wage differential observed in the economy is due to discrimination.
____
45. Business owners who care only about making money are
a. likely to discriminate against certain groups of workers.
b. likely to be replaced by discriminating businesses.
c. very interested in the color of their employees' skin.
d. at an advantage when competing against those who practice discrimination.
____
46. If employers are profit-maximizers, then
a. competition will always eventually eliminate employment discrimination.
b. employment discrimination may persist if consumers discriminate.
c. employment discrimination will persist because it is always profitable.
d. compensating differentials will not exist.
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____
47. The income distribution in a society is largely
a. determined by the government's policies.
b. determined by business decisions.
c. determined by factors that determine wages.
d. independent of market allocations of resources.
____
48. In general, the invisible hand of the marketplace acts to allocate resources
a. neither efficiently nor fairly.
b. fairly, but not necessarily efficiently.
c. efficiently and fairly.
d. efficiently, but not necessarily fairly.
____
49. When a government enacts policies that redistribute income, all of the following will occur EXCEPT:
a. the government will distort incentives.
b. a fair distribution of income will be ensured.
c. people will alter their market behavior.
d. markets will become less efficient at allocating resources to their highest valued use.
____
50. A government's policy of redistributing income makes the income distribution more equitable,
a. distorts incentives and makes the allocation of resources more efficient.
b. alters behavior and makes the allocation of resources more efficient.
c. distorts incentives and alters behavior.
d. distorts incentives and makes the allocation of resources less efficient.
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C
B
B
D
A
A
A
A
C
A
B
D
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