Douglas, Fall 2007
Version A
Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
PRINT NAME: __________________________________
Econ 201 Final Exam
1. For a profit-maximizing monopolist,
a. MR < MC < P.
b. P > MR > MC.
c. P = MR = MC.
d. P > MR = MC.
2. A market structure with only a few sellers, offering similar or identical products, is known as
a. monopoly.
b. oligopoly.
c. perfect competition.
d. monopolistic competition.
3. The main argument for splitting up monopolies through antitrust action is based on the notion that
a. small firms have lower costs.
b. competition is more efficient than monopoly.
c. greedy monopolies should be punished.
d. consumers prefer dealing with small firms.
Table 15-1
Quantity
1
2
3
4
5
6
7
Price
35
Total
Revenue
35
64
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
-1
4. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should
it sell?
a. 4
b. 7
c. 6
d. 5
5. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 7.67
b. 87
c. 29
d. 23
6. If a competitive firm sees that its marginal cost exceeds its marginal revenue, then
a. the firm is definitely earning a positive profit.
b. it can increase its profit by increasing its output.
c. the firm is definitely losing money.
d. it can increase its profit by decreasing its output.
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Econ201 Final Exam, Fall 2007, Version A
Douglas
Table 13-8: Costs of Gigaplot Production
Quantity
of
gigaplots
1
2
3
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
$70
7. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $70
b. $20
c. $17
d. $45
8. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. $15
b. $14
c. More information is needed.
d. $16
9. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $25
b. $12
c. $20
d. More information is needed.
10. When a firm in a competitive market decides to triple the amount of output it sells, as a result
a. its profit must increase.
b. the price in the market falls.
c. its total revenue triples.
d. the price in the market rises.
11. Which of the following events will definitely cause equilibrium quantity to fall?
a. demand and supply both decrease
b. demand decreases and supply increases
c. demand and supply both increase
d. demand increases and supply decreases
12. During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Sunscreen producers increased production out of concern for the public’s health.
b. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
c. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
d. Government officials ordered sunscreen producers to produce more sunscreen.
13. When a country allows trade and becomes an exporter of a good,
a. everyone in the country loses.
b. the losses of the losers exceed the gains of the winners.
c. the gains of the winners exceed the losses of the losers.
d. everyone in the country benefits.
2
Econ201 Final Exam, Fall 2007, Version A
Douglas
14. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download or share music illegally, and payments to musicians by recording
companies fall?
a. Quantity will fall and the effect on price is ambiguous.
b. Price will fall and the effect on quantity is ambiguous.
c. Quantity will rise and the effect on price is ambiguous.
d. Price will rise and the effect on quantity is ambiguous.
15. The lowest points of the average variable cost and average total cost curves occur where
a. the average variable cost and average total cost curves intersect.
b. the marginal cost curve intersects those curves.
c. the marginal cost curve lies below both curves.
d. average total cost is below average variable cost.
16. The defining characteristic of a natural monopoly is
a. diseconomies of scale over the relevant range of output.
b. constant marginal cost over the relevant range of output.
c. constant returns to scale over the relevant range of output.
d. economies of scale over the relevant range of output.
Figure 15-6
17. Refer to Figure 15-6. To maximize its profit, a monopolist would choose
a. 200 units of output and a price of $20 per unit
b. 100 units of output and a price of $20 per unit
c. 150 units of output and a price of $15 per unit
d. 100 units of output and a price of $10 per unit
18. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose
a. 200 units of output and a price of $10 per unit
b. 150 units of output and a price of $10 per unit
c. 150 units of output and a price of $15 per unit
d. 100 units of output and a price of $10 per unit
19. A competitive firm's short-run supply curve is part of which of the following curves?
a. Average total cost
b. Average variable cost
c. Marginal revenue
d. Marginal cost
3
Econ201 Final Exam, Fall 2007, Version A
Douglas
20. When an oligopoly market reaches a Nash equilibrium,
a. each firm will not have tried to maximize its profit.
b. firms will not be concerned about the strategies of competing firms.
c. each firm will have chosen its own best strategy, given what the other firms are doing.
d. the market price will be different for each firm.
21. The Social Security tax is a tax on
a. labor.
b. earnings during retirement.
c. capital.
d. consumption expenditures.
Figure 15-3
22. Refer to Figure 15-3. Profit will be maximized by charging a price equal to
a. P3.
b. P2.
c. P1.
d. P0.
23. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
24. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. (P3 - P0) × Q2.
b. P3 × Q2.
c. (P1 - P0) × Q2.
d. (P3 - P0) × Q4.
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Econ201 Final Exam, Fall 2007, Version A
Douglas
25. Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
26.
27.
28.
29.
tire is $40 at the profit-maximizing output level, then in the long run
a. some firms will exit from the market, and the price will rise.
b. more firms will enter the market, and the price will fall.
c. more firms will enter the market, and the price will rise.
d. more firms will exit from the market, and the price will fall.
The negative relationship between price and quantity demanded
a. is represented by a downward-sloping demand curve.
b. applies to most goods in the economy.
c. is referred to as the law of demand.
d. All of the above are correct.
In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. In the long run the market will cease to exist.
b. In the short run firms will shut down, and in the long run firms will leave the market.
c. New firms will likely enter this market to capture any remaining economic profits.
d. In the short run firms will produce, but in the long run firms will leave the market.
Because there is diminishing marginal product of labor, as the number of workers increases
a. the additional output added by one additional worker rises.
b. the additional cost of hiring an additional worker rises.
c. the additional output added by one additional worker declines.
d. the additional cost of an additional unit of output falls.
A monopolist can make large positive economic profits in the long run only if the monopolist
a. produces the amount of output where average variable cost is at a minimum.
b. is protected by barriers to entry.
c. produces the amount of output where average total cost is at a minimum.
d. operates as a price taker rather than a price maker.
Figure 13-8
30. Refer to Figure 13-8. At levels of output below M the firm experiences
a. economies of scale.
b. economic profit.
c. diseconomies of scale.
d. accounting profit.
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Econ201 Final Exam, Fall 2007, Version A
Douglas
31. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the
average total cost curves?
a. ATCC only.
b. ATCB only.
c. ATCA only.
d. ATCD between M and N.
32. Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn in three hours
or he can trim a tree in two hours.
a. Travis has a comparative advantage over Ricardo in mowing lawns.
b. Travis has an absolute advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
Figure 14-4: A typical firm in a COMPETITIVE market
33. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area
a. P5 × Q3.
b. (P5 - P3) × Q2.
c. (P5 - P4) × Q3.
d. When market price is P5 there are no profits.
34. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds
a. P2.
b. P1.
c. P3.
d. None of the above is correct.
35. When firms have agreements among themselves on the quantity to produce and the price at which to sell
output, we refer to their form of organization as a
a. monopolistically competitive oligopoly.
b. cartel.
c. Nash arrangement.
d. perfectly competitive oligopoly.
36. The inner and outer loops in the circular-flow diagram represent
a. (i) the flows of inputs and outputs and (ii) the flow of dollars.
b. (i) the flow of dollars and (ii) other financial flows.
c. (i) the flow of goods and (ii) the flow of services.
d. (i) inputs into production processes and (ii) outputs from production processes.
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Econ201 Final Exam, Fall 2007, Version A
Douglas
37. As a group, oligopolists would always earn the highest profit if they would
a. produce the perfectly competitive quantity of output.
b. charge the same price that a monopolist would charge if the market were a monopoly.
c. produce more than the perfectly competitive quantity of output.
d. operate according to their own individual self-interests.
38. When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs.
b. ignore variable costs.
c. ignore sunk costs.
d. Both a and c are correct
39. When a country allows trade and becomes an importer of a good,
a. domestic producers become worse off, and domestic consumers become better off.
b. both domestic producers and domestic consumers become worse off.
c. both domestic producers and domestic consumers become better off.
d. domestic producers become better off, and domestic consumers become worse off.
40. The firm will make the most profits if it produces the quantity of output at which
a. marginal revenue equals total revenue.
b. profit per unit is greatest.
c. marginal cost equals average cost.
d. marginal revenue equals marginal cost.
41. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
a. the nation is producing an efficient combination of goods.
b. there will be a large opportunity cost if the nation tries to increase production.
c. the nation is producing beyond its capacity, and inflation will occur.
d. the nation is not using all available resources or is using inferior technology or both.
Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by
maximizing revenue.
Quantity
Price (per month)
0
$120
3,000
$100
6,000
$ 80
9,000
$ 60
12,000
$ 40
15,000
$ 20
42. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in
Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions
will be sold altogether when this market reaches a Nash equilibrium?
a. 9,000
b. 12,000
c. 3,000
d. 6,000
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Econ201 Final Exam, Fall 2007, Version A
Douglas
43. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it
wants to maximize its profit?
a. $40
b. $60
c. $80
d. $100
44. If a surplus currently exists in a market we know that the current price is
a. above equilibrium price and quantity supplied is greater than quantity demanded.
b. below equilibrium price and quantity demanded is greater than quantity supplied.
c. below equilibrium price and quantity supplied is greater than quantity demanded.
d. above equilibrium price and quantity demanded is greater than quantity supplied.
45. Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries,
a. the larger is the deadweight loss of the tax.
b. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
c. the smaller is the response of the quantity supplied of french fries to the tax.
d. All of the above are correct.
46. Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
Neons (an inferior good) to increase?
a. a decrease in consumer income
b. an increase in consumer income
c. gas mileage of SUVs and mid-size sedans increases.
d. wages of auto workers fall.
Figure 13-6
47. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
48. The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the
market and General Motors has 30 percent. This market is an example of
a. an oligopoly, or duopoly.
b. monopolistic competition.
c. a collusive monopoly.
d. a cartel.
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Econ201 Final Exam, Fall 2007, Version A
Douglas
49. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It will not change consumer surplus; only producer surplus changes.
b. It may either increase or decrease.
c. It increases.
d. It decreases.
50. A good reason why the local gas distribution company is subject to price regulation rather than being broken
up through antitrust, is because the gas company is a
a. profit-maximizing monopoly.
b. producer of externalities.
c. revenue-maximizing monopoly.
d. natural monopoly.
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
51. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
$28, then their total consumer surplus is
a. $24.
b. $46.
c. $26.
d. $56.
52. Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in consumer income
b. a change in the price of Monty Python videos
c. a change in expectations about the future price of Monty Python videos
d. a change in the price of Mr. Bean videos, a substitute good
53. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their
prices are higher than Wal-Mart’s. This demonstrates that
a. the greed of large sellers like Wal-Mart hurts consumers, especially low-income
consumers.
b. consumers are angry at local retailers because of their high prices.
c. there are economies of scale in retail sales.
d. there are diseconomies of scale in retail sales.
54. Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s
a. total revenue.
b. explicit costs.
c. marginal costs.
d. implicit costs.
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Econ201 Final Exam, Fall 2007, Version A
Douglas
55. Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has an absolute advantage in both repairing cars and in cooking meals.
b. Kelly has comparative advantage in car repair and David has comparative advantage in
c.
d.
cooking.
Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
Kelly has a comparative advantage in both repairing cars and in cooking meals.
10
ID: A
Econ 201 Final Exam
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Douglas, Fall 2007
Version B
Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
PRINT NAME: __________________________________
Econ 201 Final Exam
Figure 15-3
1. Refer to Figure 15-3. Profit will be maximized by charging a price equal to
a. P1.
b. P3.
c. P0.
d. P2.
2. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. (P1 - P0) × Q2.
b. P3 × Q2.
c. (P3 - P0) × Q2.
d. (P3 - P0) × Q4.
3. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
4. The firm will make the most profits if it produces the quantity of output at which
a. marginal revenue equals total revenue.
b. marginal cost equals average cost.
c. marginal revenue equals marginal cost.
d. profit per unit is greatest.
1
Econ201 Final Exam, Fall 2007, Version B
Douglas
5. A competitive firm's short-run supply curve is part of which of the following curves?
a. Average variable cost
b. Average total cost
c. Marginal revenue
d. Marginal cost
6. During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
7.
8.
9.
10.
variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Government officials ordered sunscreen producers to produce more sunscreen.
b. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
c. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
d. Sunscreen producers increased production out of concern for the public’s health.
What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download or share music illegally, and payments to musicians by recording
companies fall?
a. Quantity will rise and the effect on price is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Price will fall and the effect on quantity is ambiguous.
As a group, oligopolists would always earn the highest profit if they would
a. produce more than the perfectly competitive quantity of output.
b. operate according to their own individual self-interests.
c. charge the same price that a monopolist would charge if the market were a monopoly.
d. produce the perfectly competitive quantity of output.
The negative relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
The inner and outer loops in the circular-flow diagram represent
a. (i) the flow of dollars and (ii) other financial flows.
b. (i) inputs into production processes and (ii) outputs from production processes.
c. (i) the flow of goods and (ii) the flow of services.
d. (i) the flows of inputs and outputs and (ii) the flow of dollars.
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
11. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
$28, then their total consumer surplus is
a. $56.
b. $46.
c. $26.
d. $24.
2
Econ201 Final Exam, Fall 2007, Version B
Douglas
Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by
maximizing revenue.
Quantity
Price (per month)
0
$120
3,000
$100
6,000
$ 80
9,000
$ 60
12,000
$ 40
15,000
$ 20
12. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in
Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions
will be sold altogether when this market reaches a Nash equilibrium?
a. 9,000
b. 6,000
c. 12,000
d. 3,000
13. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it
wants to maximize its profit?
a. $40
b. $100
c. $80
d. $60
14. When a country allows trade and becomes an exporter of a good,
a. the gains of the winners exceed the losses of the losers.
b. everyone in the country benefits.
c. the losses of the losers exceed the gains of the winners.
d. everyone in the country loses.
Table 13-8: Costs of Gigaplot Production
Quantity
of
gigaplots
1
2
3
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
$70
15. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $70
b. $17
c. $20
d. $45
3
Average
Total
Cost
Marginal
Cost
Econ201 Final Exam, Fall 2007, Version B
Douglas
16. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. $15
b. More information is needed.
c. $14
d. $16
17. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $12
b. $25
c. $20
d. More information is needed.
18. When an oligopoly market reaches a Nash equilibrium,
a. the market price will be different for each firm.
b. firms will not be concerned about the strategies of competing firms.
c. each firm will not have tried to maximize its profit.
d. each firm will have chosen its own best strategy, given what the other firms are doing.
Figure 13-8
19. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the
average total cost curves?
a. ATCA only.
b. ATCB only.
c. ATCC only.
d. ATCD between M and N.
20. Refer to Figure 13-8. At levels of output below M the firm experiences
a. diseconomies of scale.
b. economies of scale.
c. economic profit.
d. accounting profit.
4
Econ201 Final Exam, Fall 2007, Version B
Douglas
Table 15-1
Quantity
1
2
3
4
5
6
7
Price
35
Total
Revenue
35
64
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
-1
21. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 7.67
b. 29
c. 23
d. 87
22. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should
it sell?
a. 6
b. 5
c. 4
d. 7
23. When firms have agreements among themselves on the quantity to produce and the price at which to sell
output, we refer to their form of organization as a
a. monopolistically competitive oligopoly.
b. perfectly competitive oligopoly.
c. cartel.
d. Nash arrangement.
Figure 15-6
24. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose
a. 100 units of output and a price of $10 per unit
b. 150 units of output and a price of $15 per unit
c. 150 units of output and a price of $10 per unit
d. 200 units of output and a price of $10 per unit
5
Econ201 Final Exam, Fall 2007, Version B
Douglas
25. Refer to Figure 15-6. To maximize its profit, a monopolist would choose
a. 150 units of output and a price of $15 per unit
b. 100 units of output and a price of $10 per unit
c. 100 units of output and a price of $20 per unit
d. 200 units of output and a price of $20 per unit
26. The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the
27.
28.
29.
30.
31.
32.
33.
market and General Motors has 30 percent. This market is an example of
a. an oligopoly, or duopoly.
b. monopolistic competition.
c. a cartel.
d. a collusive monopoly.
Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries,
a. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
b. the larger is the deadweight loss of the tax.
c. the smaller is the response of the quantity supplied of french fries to the tax.
d. All of the above are correct.
Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
tire is $40 at the profit-maximizing output level, then in the long run
a. more firms will exit from the market, and the price will fall.
b. more firms will enter the market, and the price will fall.
c. some firms will exit from the market, and the price will rise.
d. more firms will enter the market, and the price will rise.
Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in the price of Monty Python videos
b. a change in the price of Mr. Bean videos, a substitute good
c. a change in expectations about the future price of Monty Python videos
d. a change in consumer income
A good reason why the local gas distribution company is subject to price regulation rather than being broken
up through antitrust, is because the gas company is a
a. producer of externalities.
b. natural monopoly.
c. profit-maximizing monopoly.
d. revenue-maximizing monopoly.
When a country allows trade and becomes an importer of a good,
a. domestic producers become worse off, and domestic consumers become better off.
b. both domestic producers and domestic consumers become worse off.
c. domestic producers become better off, and domestic consumers become worse off.
d. both domestic producers and domestic consumers become better off.
In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. In the long run the market will cease to exist.
b. New firms will likely enter this market to capture any remaining economic profits.
c. In the short run firms will produce, but in the long run firms will leave the market.
d. In the short run firms will shut down, and in the long run firms will leave the market.
For a profit-maximizing monopolist,
a. P > MR > MC.
b. P > MR = MC.
c. MR < MC < P.
d. P = MR = MC.
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Econ201 Final Exam, Fall 2007, Version B
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34. When a firm in a competitive market decides to triple the amount of output it sells, as a result
a. its profit must increase.
b. the price in the market falls.
c. its total revenue triples.
d. the price in the market rises.
35. Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn in three hours
or he can trim a tree in two hours.
a. Travis has a comparative advantage over Ricardo in mowing lawns.
b. Travis has an absolute advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
36. A market structure with only a few sellers, offering similar or identical products, is known as
a. monopolistic competition.
b. perfect competition.
c. oligopoly.
d. monopoly.
Figure 14-4: A typical firm in a COMPETITIVE market
37. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds
a. P3.
b. P2.
c. P1.
d. None of the above is correct.
38. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area
a. (P5 - P4) × Q3.
b. When market price is P5 there are no profits.
c. (P5 - P3) × Q2.
d. P5 × Q3.
39. The Social Security tax is a tax on
a. labor.
b. capital.
c. consumption expenditures.
d. earnings during retirement.
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Econ201 Final Exam, Fall 2007, Version B
Douglas
40. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their
41.
42.
43.
44.
45.
46.
47.
48.
prices are higher than Wal-Mart’s. This demonstrates that
a. there are diseconomies of scale in retail sales.
b. consumers are angry at local retailers because of their high prices.
c. there are economies of scale in retail sales.
d. the greed of large sellers like Wal-Mart hurts consumers, especially low-income
consumers.
If a surplus currently exists in a market we know that the current price is
a. below equilibrium price and quantity supplied is greater than quantity demanded.
b. above equilibrium price and quantity supplied is greater than quantity demanded.
c. below equilibrium price and quantity demanded is greater than quantity supplied.
d. above equilibrium price and quantity demanded is greater than quantity supplied.
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
a. the nation is producing an efficient combination of goods.
b. the nation is not using all available resources or is using inferior technology or both.
c. the nation is producing beyond its capacity, and inflation will occur.
d. there will be a large opportunity cost if the nation tries to increase production.
If a competitive firm sees that its marginal cost exceeds its marginal revenue, then
a. it can increase its profit by decreasing its output.
b. the firm is definitely earning a positive profit.
c. it can increase its profit by increasing its output.
d. the firm is definitely losing money.
Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s
a. marginal costs.
b. total revenue.
c. implicit costs.
d. explicit costs.
Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
Neons (an inferior good) to increase?
a. gas mileage of SUVs and mid-size sedans increases.
b. wages of auto workers fall.
c. a decrease in consumer income
d. an increase in consumer income
If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It increases.
b. It may either increase or decrease.
c. It will not change consumer surplus; only producer surplus changes.
d. It decreases.
Because there is diminishing marginal product of labor, as the number of workers increases
a. the additional cost of hiring an additional worker rises.
b. the additional cost of an additional unit of output falls.
c. the additional output added by one additional worker rises.
d. the additional output added by one additional worker declines.
The lowest points of the average variable cost and average total cost curves occur where
a. average total cost is below average variable cost.
b. the average variable cost and average total cost curves intersect.
c. the marginal cost curve lies below both curves.
d. the marginal cost curve intersects those curves.
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Econ201 Final Exam, Fall 2007, Version B
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49. The defining characteristic of a natural monopoly is
a. constant marginal cost over the relevant range of output.
b. diseconomies of scale over the relevant range of output.
c. economies of scale over the relevant range of output.
d. constant returns to scale over the relevant range of output.
50. The main argument for splitting up monopolies through antitrust action is based on the notion that
a. greedy monopolies should be punished.
b. consumers prefer dealing with small firms.
c. small firms have lower costs.
d. competition is more efficient than monopoly.
Figure 13-6
51. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
52. When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs.
b. ignore variable costs.
c. ignore sunk costs.
d. Both a and c are correct
53. Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has comparative advantage in car repair and David has comparative advantage in
cooking.
Kelly has a comparative advantage in both repairing cars and in cooking meals.
Kelly has an absolute advantage in both repairing cars and in cooking meals.
Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
54. A monopolist can make large positive economic profits in the long run only if the monopolist
a. operates as a price taker rather than a price maker.
b. produces the amount of output where average variable cost is at a minimum.
c. is protected by barriers to entry.
d. produces the amount of output where average total cost is at a minimum.
b.
c.
d.
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Econ201 Final Exam, Fall 2007, Version B
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55. Which of the following events will definitely cause equilibrium quantity to fall?
a. demand increases and supply decreases
b. demand and supply both increase
c. demand and supply both decrease
d. demand decreases and supply increases
10
ID: B
Econ 201 Final Exam
Answer Section
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Analytical
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Interpretive
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Interpretive
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Interpretive
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Interpretive
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Interpretive
Applicative
2
Douglas, Fall 2007
Version C
Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
PRINT NAME: __________________________________
Econ 201 Final Exam
1. In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. In the long run the market will cease to exist.
b. In the short run firms will shut down, and in the long run firms will leave the market.
c. In the short run firms will produce, but in the long run firms will leave the market.
d. New firms will likely enter this market to capture any remaining economic profits.
Figure 15-6
2. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose
a. 150 units of output and a price of $10 per unit
b. 150 units of output and a price of $15 per unit
c. 100 units of output and a price of $10 per unit
d. 200 units of output and a price of $10 per unit
3. Refer to Figure 15-6. To maximize its profit, a monopolist would choose
a. 100 units of output and a price of $20 per unit
b. 200 units of output and a price of $20 per unit
c. 100 units of output and a price of $10 per unit
d. 150 units of output and a price of $15 per unit
4. The negative relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
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Econ201 Final Exam, Fall 2007, Version C
Douglas
Figure 14-4: A typical firm in a COMPETITIVE market
5. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area
a. (P5 - P4) × Q3.
b. P5 × Q3.
c. When market price is P5 there are no profits.
d. (P5 - P3) × Q2.
6. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds
a. P2.
b. P3.
c. P1.
d. None of the above is correct.
7. During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Sunscreen producers increased production out of concern for the public’s health.
b. Government officials ordered sunscreen producers to produce more sunscreen.
c. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
d. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
8. A good reason why the local gas distribution company is subject to price regulation rather than being broken
up through antitrust, is because the gas company is a
a. revenue-maximizing monopoly.
b. natural monopoly.
c. producer of externalities.
d. profit-maximizing monopoly.
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Econ201 Final Exam, Fall 2007, Version C
Douglas
Figure 13-6
9. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
Table 15-1
Quantity
1
2
3
4
5
6
7
Price
35
Total
Revenue
35
64
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
-1
10. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 23
b. 87
c. 29
d. 7.67
11. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should
it sell?
a. 6
b. 5
c. 7
d. 4
12. Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
Neons (an inferior good) to increase?
a. gas mileage of SUVs and mid-size sedans increases.
b. wages of auto workers fall.
c. an increase in consumer income
d. a decrease in consumer income
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Econ201 Final Exam, Fall 2007, Version C
Douglas
Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by
maximizing revenue.
Quantity
Price (per month)
0
$120
3,000
$100
6,000
$ 80
9,000
$ 60
12,000
$ 40
15,000
$ 20
13. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it
14.
15.
16.
17.
18.
wants to maximize its profit?
a. $80
b. $60
c. $40
d. $100
Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in
Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions
will be sold altogether when this market reaches a Nash equilibrium?
a. 9,000
b. 12,000
c. 3,000
d. 6,000
The Social Security tax is a tax on
a. labor.
b. earnings during retirement.
c. capital.
d. consumption expenditures.
When a firm in a competitive market decides to triple the amount of output it sells, as a result
a. the price in the market falls.
b. the price in the market rises.
c. its total revenue triples.
d. its profit must increase.
When firms have agreements among themselves on the quantity to produce and the price at which to sell
output, we refer to their form of organization as a
a. perfectly competitive oligopoly.
b. cartel.
c. monopolistically competitive oligopoly.
d. Nash arrangement.
If a surplus currently exists in a market we know that the current price is
a. above equilibrium price and quantity demanded is greater than quantity supplied.
b. above equilibrium price and quantity supplied is greater than quantity demanded.
c. below equilibrium price and quantity demanded is greater than quantity supplied.
d. below equilibrium price and quantity supplied is greater than quantity demanded.
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Econ201 Final Exam, Fall 2007, Version C
Douglas
19. As a group, oligopolists would always earn the highest profit if they would
a. produce more than the perfectly competitive quantity of output.
b. operate according to their own individual self-interests.
c. produce the perfectly competitive quantity of output.
d. charge the same price that a monopolist would charge if the market were a monopoly.
20. A competitive firm's short-run supply curve is part of which of the following curves?
a. Marginal cost
b. Marginal revenue
c. Average variable cost
d. Average total cost
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
21. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
22.
23.
24.
25.
$28, then their total consumer surplus is
a. $46.
b. $24.
c. $26.
d. $56.
When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs.
b. ignore variable costs.
c. ignore sunk costs.
d. Both a and c are correct
Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn in three hours
or he can trim a tree in two hours.
a. Travis has an absolute advantage over Ricardo in mowing lawns.
b. Ricardo has a comparative advantage over Travis in trimming trees.
c. Travis has a comparative advantage over Ricardo in mowing lawns.
d. All of the above are correct.
The lowest points of the average variable cost and average total cost curves occur where
a. the marginal cost curve intersects those curves.
b. the marginal cost curve lies below both curves.
c. the average variable cost and average total cost curves intersect.
d. average total cost is below average variable cost.
When a country allows trade and becomes an exporter of a good,
a. everyone in the country benefits.
b. the gains of the winners exceed the losses of the losers.
c. everyone in the country loses.
d. the losses of the losers exceed the gains of the winners.
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Econ201 Final Exam, Fall 2007, Version C
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Table 13-8: Costs of Gigaplot Production
Quantity
of
gigaplots
1
2
3
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
$70
26. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $20
b. $12
c. $25
d. More information is needed.
27. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. More information is needed.
b. $16
c. $14
d. $15
28. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $20
b. $70
c. $45
d. $17
Figure 15-3
29. Refer to Figure 15-3. Profit will be maximized by charging a price equal to
a. P0.
b. P3.
c. P1.
d. P2.
6
Marginal
Cost
Econ201 Final Exam, Fall 2007, Version C
Douglas
30. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
31. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. (P3 - P0) × Q4.
b. P3 × Q2.
c. (P1 - P0) × Q2.
d. (P3 - P0) × Q2.
32. A monopolist can make large positive economic profits in the long run only if the monopolist
a. produces the amount of output where average variable cost is at a minimum.
b. is protected by barriers to entry.
c. operates as a price taker rather than a price maker.
d. produces the amount of output where average total cost is at a minimum.
33. The defining characteristic of a natural monopoly is
a. constant returns to scale over the relevant range of output.
b. constant marginal cost over the relevant range of output.
c. diseconomies of scale over the relevant range of output.
d. economies of scale over the relevant range of output.
34. For a profit-maximizing monopolist,
a. P > MR = MC.
b. MR < MC < P.
c. P = MR = MC.
d. P > MR > MC.
35. Which of the following events will definitely cause equilibrium quantity to fall?
a. demand decreases and supply increases
b. demand and supply both decrease
c. demand and supply both increase
d. demand increases and supply decreases
36. When a country allows trade and becomes an importer of a good,
a. domestic producers become better off, and domestic consumers become worse off.
b. both domestic producers and domestic consumers become better off.
c. both domestic producers and domestic consumers become worse off.
d. domestic producers become worse off, and domestic consumers become better off.
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Econ201 Final Exam, Fall 2007, Version C
Douglas
Figure 13-8
37. Refer to Figure 13-8. At levels of output below M the firm experiences
a. accounting profit.
b. diseconomies of scale.
c. economies of scale.
d. economic profit.
38. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the
39.
40.
41.
42.
average total cost curves?
a. ATCC only.
b. ATCA only.
c. ATCB only.
d. ATCD between M and N.
Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
tire is $40 at the profit-maximizing output level, then in the long run
a. some firms will exit from the market, and the price will rise.
b. more firms will exit from the market, and the price will fall.
c. more firms will enter the market, and the price will rise.
d. more firms will enter the market, and the price will fall.
If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It decreases.
b. It will not change consumer surplus; only producer surplus changes.
c. It may either increase or decrease.
d. It increases.
A market structure with only a few sellers, offering similar or identical products, is known as
a. perfect competition.
b. monopoly.
c. oligopoly.
d. monopolistic competition.
If a competitive firm sees that its marginal cost exceeds its marginal revenue, then
a. the firm is definitely losing money.
b. it can increase its profit by decreasing its output.
c. the firm is definitely earning a positive profit.
d. it can increase its profit by increasing its output.
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Econ201 Final Exam, Fall 2007, Version C
Douglas
43. Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in expectations about the future price of Monty Python videos
b. a change in the price of Mr. Bean videos, a substitute good
c. a change in the price of Monty Python videos
d. a change in consumer income
44. The firm will make the most profits if it produces the quantity of output at which
a. profit per unit is greatest.
b. marginal cost equals average cost.
c. marginal revenue equals marginal cost.
d. marginal revenue equals total revenue.
45. When an oligopoly market reaches a Nash equilibrium,
a. each firm will not have tried to maximize its profit.
b. each firm will have chosen its own best strategy, given what the other firms are doing.
c. the market price will be different for each firm.
d. firms will not be concerned about the strategies of competing firms.
46. The inner and outer loops in the circular-flow diagram represent
a. (i) the flow of goods and (ii) the flow of services.
b. (i) inputs into production processes and (ii) outputs from production processes.
c. (i) the flow of dollars and (ii) other financial flows.
d. (i) the flows of inputs and outputs and (ii) the flow of dollars.
47. The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the
48.
49.
50.
51.
market and General Motors has 30 percent. This market is an example of
a. a cartel.
b. an oligopoly, or duopoly.
c. monopolistic competition.
d. a collusive monopoly.
The main argument for splitting up monopolies through antitrust action is based on the notion that
a. small firms have lower costs.
b. consumers prefer dealing with small firms.
c. competition is more efficient than monopoly.
d. greedy monopolies should be punished.
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
a. the nation is producing an efficient combination of goods.
b. the nation is producing beyond its capacity, and inflation will occur.
c. there will be a large opportunity cost if the nation tries to increase production.
d. the nation is not using all available resources or is using inferior technology or both.
Because there is diminishing marginal product of labor, as the number of workers increases
a. the additional cost of an additional unit of output falls.
b. the additional cost of hiring an additional worker rises.
c. the additional output added by one additional worker declines.
d. the additional output added by one additional worker rises.
Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has an absolute advantage in both repairing cars and in cooking meals.
b. Kelly has comparative advantage in car repair and David has comparative advantage in
cooking.
c. Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
d. Kelly has a comparative advantage in both repairing cars and in cooking meals.
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Econ201 Final Exam, Fall 2007, Version C
Douglas
52. Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s
a. explicit costs.
b. total revenue.
c. implicit costs.
d. marginal costs.
53. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download or share music illegally, and payments to musicians by recording
companies fall?
a. Quantity will fall and the effect on price is ambiguous.
b. Price will fall and the effect on quantity is ambiguous.
c. Price will rise and the effect on quantity is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
54. Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries,
a. the smaller is the response of the quantity supplied of french fries to the tax.
b. the larger is the deadweight loss of the tax.
c. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
d. All of the above are correct.
55. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their
prices are higher than Wal-Mart’s. This demonstrates that
a. there are economies of scale in retail sales.
b. consumers are angry at local retailers because of their high prices.
c. the greed of large sellers like Wal-Mart hurts consumers, especially low-income
consumers.
d. there are diseconomies of scale in retail sales.
10
ID: C
Econ 201 Final Exam
Answer Section
MULTIPLE CHOICE
1.
2.
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B
B
A
D
A
B
D
B
B
A
A
D
B
B
A
C
B
B
D
A
B
D
A
A
B
C
D
D
B
B
D
B
D
A
B
D
C
D
D
A
C
B
C
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Applicative
Analytical
Analytical
Interpretive
Analytical
Analytical
Applicative
Interpretive
Analytical
Applicative
Applicative
Applicative
Applicative
Applicative
Interpretive
Analytical
Definitional
Applicative
Interpretive
Definitional
Applicative
Analytical
Applicative
Interpretive
Interpretive
Applicative
Applicative
Applicative
Analytical
Interpretive
Analytical
Interpretive
Definitional
Analytical
Applicative
Interpretive
Analytical
Analytical
Analytical
Applicative
Definitional
Analytical
Interpretive
1
ID: C
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
ANS:
ANS:
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C
B
D
B
C
D
C
D
C
D
B
A
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
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MSC:
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MSC:
MSC:
Interpretive
Interpretive
Interpretive
Interpretive
Interpretive
Interpretive
Interpretive
Interpretive
Interpretive
Analytical
Applicative
Interpretive
2
Douglas, Fall 2007
Version D
Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
PRINT NAME: __________________________________
Econ 201 Final Exam
1. Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries,
a. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
b. the larger is the deadweight loss of the tax.
c. the smaller is the response of the quantity supplied of french fries to the tax.
d. All of the above are correct.
2. When a firm in a competitive market decides to triple the amount of output it sells, as a result
a. the price in the market falls.
b. its total revenue triples.
c. the price in the market rises.
d. its profit must increase.
3. The firm will make the most profits if it produces the quantity of output at which
a. profit per unit is greatest.
b. marginal revenue equals marginal cost.
c. marginal cost equals average cost.
d. marginal revenue equals total revenue.
Table 13-8: Costs of Gigaplot Production
Quantity
of
gigaplots
1
2
3
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
$70
4. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $20
b. $17
c. $70
d. $45
5. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. $16
b. $14
c. $15
d. More information is needed.
6. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $12
b. $20
c. $25
d. More information is needed.
1
Marginal
Cost
Econ201 Final Exam, Fall 2007, Version D
Douglas
7. When a country allows trade and becomes an importer of a good,
a. domestic producers become better off, and domestic consumers become worse off.
b. both domestic producers and domestic consumers become worse off.
c. domestic producers become worse off, and domestic consumers become better off.
d. both domestic producers and domestic consumers become better off.
8. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It increases.
b. It decreases.
c. It will not change consumer surplus; only producer surplus changes.
d. It may either increase or decrease.
9. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their
10.
11.
12.
13.
prices are higher than Wal-Mart’s. This demonstrates that
a. consumers are angry at local retailers because of their high prices.
b. there are diseconomies of scale in retail sales.
c. there are economies of scale in retail sales.
d. the greed of large sellers like Wal-Mart hurts consumers, especially low-income
consumers.
A competitive firm's short-run supply curve is part of which of the following curves?
a. Average variable cost
b. Marginal cost
c. Marginal revenue
d. Average total cost
The negative relationship between price and quantity demanded
a. is referred to as the law of demand.
b. applies to most goods in the economy.
c. is represented by a downward-sloping demand curve.
d. All of the above are correct.
Which of the following events will definitely cause equilibrium quantity to fall?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand and supply both increase
d. demand decreases and supply increases
A good reason why the local gas distribution company is subject to price regulation rather than being broken
up through antitrust, is because the gas company is a
a. profit-maximizing monopoly.
b. natural monopoly.
c. producer of externalities.
d. revenue-maximizing monopoly.
2
Econ201 Final Exam, Fall 2007, Version D
Douglas
Table 15-1
Quantity
1
2
3
4
5
6
7
Price
35
Total
Revenue
35
64
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
-1
14. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should
it sell?
a. 7
b. 4
c. 6
d. 5
15. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 87
b. 23
c. 29
d. 7.67
Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by
maximizing revenue.
Quantity
Price (per month)
0
$120
3,000
$100
6,000
$ 80
9,000
$ 60
12,000
$ 40
15,000
$ 20
16. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it
wants to maximize its profit?
a. $80
b. $100
c. $40
d. $60
17. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in
Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions
will be sold altogether when this market reaches a Nash equilibrium?
a. 6,000
b. 9,000
c. 12,000
d. 3,000
3
Econ201 Final Exam, Fall 2007, Version D
Douglas
Figure 14-4: A typical firm in a COMPETITIVE market
18. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area
a. P5 × Q3.
b. When market price is P5 there are no profits.
c. (P5 - P3) × Q2.
d. (P5 - P4) × Q3.
19. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds
a. P1.
b. P3.
c. P2.
d. None of the above is correct.
Figure 13-8
20. Refer to Figure 13-8. At levels of output below M the firm experiences
a. diseconomies of scale.
b. economic profit.
c. accounting profit.
d. economies of scale.
4
Econ201 Final Exam, Fall 2007, Version D
Douglas
21. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the
22.
23.
24.
25.
26.
average total cost curves?
a. ATCB only.
b. ATCA only.
c. ATCC only.
d. ATCD between M and N.
If a competitive firm sees that its marginal cost exceeds its marginal revenue, then
a. it can increase its profit by increasing its output.
b. the firm is definitely losing money.
c. the firm is definitely earning a positive profit.
d. it can increase its profit by decreasing its output.
Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
Neons (an inferior good) to increase?
a. gas mileage of SUVs and mid-size sedans increases.
b. an increase in consumer income
c. wages of auto workers fall.
d. a decrease in consumer income
The Social Security tax is a tax on
a. labor.
b. consumption expenditures.
c. earnings during retirement.
d. capital.
When firms have agreements among themselves on the quantity to produce and the price at which to sell
output, we refer to their form of organization as a
a. Nash arrangement.
b. monopolistically competitive oligopoly.
c. perfectly competitive oligopoly.
d. cartel.
The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the
market and General Motors has 30 percent. This market is an example of
a. a cartel.
b. a collusive monopoly.
c. an oligopoly, or duopoly.
d. monopolistic competition.
5
Econ201 Final Exam, Fall 2007, Version D
Douglas
Figure 15-6
27. Refer to Figure 15-6. To maximize its profit, a monopolist would choose
a. 100 units of output and a price of $20 per unit
b. 100 units of output and a price of $10 per unit
c. 150 units of output and a price of $15 per unit
d. 200 units of output and a price of $20 per unit
28. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose
a. 150 units of output and a price of $10 per unit
b. 150 units of output and a price of $15 per unit
c. 200 units of output and a price of $10 per unit
d. 100 units of output and a price of $10 per unit
29. As a group, oligopolists would always earn the highest profit if they would
a. operate according to their own individual self-interests.
b. produce the perfectly competitive quantity of output.
c. charge the same price that a monopolist would charge if the market were a monopoly.
d. produce more than the perfectly competitive quantity of output.
30. Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
b. Kelly has an absolute advantage in both repairing cars and in cooking meals.
c. Kelly has comparative advantage in car repair and David has comparative advantage in
cooking.
Kelly has a comparative advantage in both repairing cars and in cooking meals.
31. The lowest points of the average variable cost and average total cost curves occur where
a. the marginal cost curve intersects those curves.
b. the marginal cost curve lies below both curves.
c. average total cost is below average variable cost.
d. the average variable cost and average total cost curves intersect.
32. During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
b. Sunscreen producers increased production out of concern for the public’s health.
c. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
d. Government officials ordered sunscreen producers to produce more sunscreen.
d.
6
Econ201 Final Exam, Fall 2007, Version D
Douglas
33. Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
tire is $40 at the profit-maximizing output level, then in the long run
a. more firms will enter the market, and the price will rise.
b. more firms will exit from the market, and the price will fall.
c. some firms will exit from the market, and the price will rise.
d. more firms will enter the market, and the price will fall.
Figure 15-3
34. Refer to Figure 15-3. Profit will be maximized by charging a price equal to
a. P3.
b. P2.
c. P0.
d. P1.
35. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. P3 × Q2.
b. (P1 - P0) × Q2.
c. (P3 - P0) × Q2.
d. (P3 - P0) × Q4.
36. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
37. When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs.
b. ignore variable costs.
c. ignore sunk costs.
d. Both a and c are correct
7
Econ201 Final Exam, Fall 2007, Version D
Douglas
38. When an oligopoly market reaches a Nash equilibrium,
a. each firm will have chosen its own best strategy, given what the other firms are doing.
b. the market price will be different for each firm.
c. firms will not be concerned about the strategies of competing firms.
d. each firm will not have tried to maximize its profit.
39. The main argument for splitting up monopolies through antitrust action is based on the notion that
a. small firms have lower costs.
b. consumers prefer dealing with small firms.
c. greedy monopolies should be punished.
d. competition is more efficient than monopoly.
40. A market structure with only a few sellers, offering similar or identical products, is known as
a. oligopoly.
b. monopoly.
c. perfect competition.
d. monopolistic competition.
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
41. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
$28, then their total consumer surplus is
a. $56.
b. $24.
c. $46.
d. $26.
42. If a surplus currently exists in a market we know that the current price is
a. below equilibrium price and quantity supplied is greater than quantity demanded.
b. below equilibrium price and quantity demanded is greater than quantity supplied.
c. above equilibrium price and quantity supplied is greater than quantity demanded.
d. above equilibrium price and quantity demanded is greater than quantity supplied.
43. The inner and outer loops in the circular-flow diagram represent
a. (i) inputs into production processes and (ii) outputs from production processes.
b. (i) the flow of goods and (ii) the flow of services.
c. (i) the flows of inputs and outputs and (ii) the flow of dollars.
d. (i) the flow of dollars and (ii) other financial flows.
44. Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn in three hours
or he can trim a tree in two hours.
a. Travis has a comparative advantage over Ricardo in mowing lawns.
b. Travis has an absolute advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
8
Econ201 Final Exam, Fall 2007, Version D
Douglas
45. Because there is diminishing marginal product of labor, as the number of workers increases
a. the additional cost of hiring an additional worker rises.
b. the additional output added by one additional worker rises.
c. the additional output added by one additional worker declines.
d. the additional cost of an additional unit of output falls.
46. The defining characteristic of a natural monopoly is
a. constant returns to scale over the relevant range of output.
b. constant marginal cost over the relevant range of output.
c. economies of scale over the relevant range of output.
d. diseconomies of scale over the relevant range of output.
47. In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. New firms will likely enter this market to capture any remaining economic profits.
b. In the long run the market will cease to exist.
c. In the short run firms will shut down, and in the long run firms will leave the market.
d. In the short run firms will produce, but in the long run firms will leave the market.
48. For a profit-maximizing monopolist,
a. MR < MC < P.
b. P > MR > MC.
c. P > MR = MC.
d. P = MR = MC.
49. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
a. the nation is producing beyond its capacity, and inflation will occur.
b. the nation is not using all available resources or is using inferior technology or both.
c. the nation is producing an efficient combination of goods.
d. there will be a large opportunity cost if the nation tries to increase production.
50. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download or share music illegally, and payments to musicians by recording
companies fall?
a. Price will fall and the effect on quantity is ambiguous.
b. Quantity will fall and the effect on price is ambiguous.
c. Price will rise and the effect on quantity is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
51. When a country allows trade and becomes an exporter of a good,
a. the losses of the losers exceed the gains of the winners.
b. everyone in the country benefits.
c. the gains of the winners exceed the losses of the losers.
d. everyone in the country loses.
52. A monopolist can make large positive economic profits in the long run only if the monopolist
a. produces the amount of output where average variable cost is at a minimum.
b. is protected by barriers to entry.
c. produces the amount of output where average total cost is at a minimum.
d. operates as a price taker rather than a price maker.
53. Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s
a. explicit costs.
b. implicit costs.
c. marginal costs.
d. total revenue.
9
Econ201 Final Exam, Fall 2007, Version D
Douglas
54. Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in consumer income
b. a change in expectations about the future price of Monty Python videos
c. a change in the price of Monty Python videos
d. a change in the price of Mr. Bean videos, a substitute good
Figure 13-6
55. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
10
ID: D
Econ 201 Final Exam
Answer Section
MULTIPLE CHOICE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
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B
B
B
B
C
C
C
B
C
B
D
B
B
C
B
D
C
D
B
D
D
D
D
A
D
C
A
B
C
D
A
A
D
A
C
B
D
A
D
A
B
C
C
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
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MSC:
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MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
Applicative
Analytical
Interpretive
Applicative
Applicative
Applicative
Interpretive
Applicative
Interpretive
Definitional
Interpretive
Applicative
Interpretive
Applicative
Applicative
Applicative
Applicative
Analytical
Analytical
Analytical
Analytical
Analytical
Applicative
Interpretive
Definitional
Interpretive
Analytical
Analytical
Interpretive
Interpretive
Interpretive
Applicative
Analytical
Analytical
Analytical
Interpretive
Analytical
Interpretive
Interpretive
Definitional
Applicative
Applicative
Interpretive
1
ID: D
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
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ANS:
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ANS:
ANS:
B
C
C
C
C
B
D
C
B
B
C
B
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
MSC:
Applicative
Interpretive
Definitional
Applicative
Analytical
Interpretive
Analytical
Interpretive
Interpretive
Interpretive
Interpretive
Analytical
2
Douglas, Fall 2007
Version E
Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
PRINT NAME: __________________________________
Econ 201 Final Exam
Figure 13-6
1. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
2. When an oligopoly market reaches a Nash equilibrium,
a. the market price will be different for each firm.
b. each firm will have chosen its own best strategy, given what the other firms are doing.
c. firms will not be concerned about the strategies of competing firms.
d. each firm will not have tried to maximize its profit.
3. The main argument for splitting up monopolies through antitrust action is based on the notion that
a. competition is more efficient than monopoly.
b. small firms have lower costs.
c. consumers prefer dealing with small firms.
d. greedy monopolies should be punished.
Table 13-8: Costs of Gigaplot Production
Quantity
of
gigaplots
1
2
3
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
$70
4. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. $15
b. $16
c. $14
d. More information is needed.
1
Marginal
Cost
Econ201 Final Exam, Fall 2007, Version E
Douglas
5. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $12
b. $25
c. $20
d. More information is needed.
6. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $45
b. $20
c. $70
d. $17
7. A good reason why the local gas distribution company is subject to price regulation rather than being broken
up through antitrust, is because the gas company is a
a. natural monopoly.
b. producer of externalities.
c. revenue-maximizing monopoly.
d. profit-maximizing monopoly.
Table 15-1
Quantity
1
2
3
4
5
6
7
Price
35
Total
Revenue
35
64
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
-1
8. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should
it sell?
a. 6
b. 7
c. 4
d. 5
9. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 29
b. 7.67
c. 23
d. 87
2
Econ201 Final Exam, Fall 2007, Version E
Douglas
Figure 14-4: A typical firm in a COMPETITIVE market
10. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds
a. P3.
b. P2.
c. P1.
d. None of the above is correct.
11. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area
a. (P5 - P4) × Q3.
b. P5 × Q3.
c. (P5 - P3) × Q2.
d. When market price is P5 there are no profits.
12. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their
prices are higher than Wal-Mart’s. This demonstrates that
a. there are diseconomies of scale in retail sales.
b. the greed of large sellers like Wal-Mart hurts consumers, especially low-income
consumers.
c. there are economies of scale in retail sales.
d. consumers are angry at local retailers because of their high prices.
13. Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries,
a. the larger is the deadweight loss of the tax.
b. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
c. the smaller is the response of the quantity supplied of french fries to the tax.
d. All of the above are correct.
14. The Social Security tax is a tax on
a. capital.
b. consumption expenditures.
c. labor.
d. earnings during retirement.
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Econ201 Final Exam, Fall 2007, Version E
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Figure 13-8
15. Refer to Figure 13-8. At levels of output below M the firm experiences
a. accounting profit.
b. economies of scale.
c. economic profit.
d. diseconomies of scale.
16. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the
average total cost curves?
a. ATCA only.
b. ATCC only.
c. ATCB only.
d. ATCD between M and N.
17. When a firm in a competitive market decides to triple the amount of output it sells, as a result
a. the price in the market falls.
b. its total revenue triples.
c. its profit must increase.
d. the price in the market rises.
18. During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Sunscreen producers increased production out of concern for the public’s health.
b. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
c. Government officials ordered sunscreen producers to produce more sunscreen.
d. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
19. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download or share music illegally, and payments to musicians by recording
companies fall?
a. Price will fall 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 rise and the effect on quantity is ambiguous.
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Econ201 Final Exam, Fall 2007, Version E
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20. A monopolist can make large positive economic profits in the long run only if the monopolist
a. operates as a price taker rather than a price maker.
b. produces the amount of output where average total cost is at a minimum.
c. is protected by barriers to entry.
d. produces the amount of output where average variable cost is at a minimum.
21. The negative relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is referred to as the law of demand.
c. is represented by a downward-sloping demand curve.
d. All of the above are correct.
22. A competitive firm's short-run supply curve is part of which of the following curves?
a. Marginal revenue
b. Average variable cost
c. Marginal cost
d. Average total cost
23. If a surplus currently exists in a market we know that the current price is
a. above equilibrium price and quantity demanded is greater than quantity supplied.
b. below equilibrium price and quantity supplied is greater than quantity demanded.
c. below equilibrium price and quantity demanded is greater than quantity supplied.
d. above equilibrium price and quantity supplied is greater than quantity demanded.
24. A market structure with only a few sellers, offering similar or identical products, is known as
a. monopoly.
b. oligopoly.
c. perfect competition.
d. monopolistic competition.
25. The defining characteristic of a natural monopoly is
a. diseconomies of scale over the relevant range of output.
b. constant marginal cost over the relevant range of output.
c. economies of scale over the relevant range of output.
d. constant returns to scale over the relevant range of output.
26. The firm will make the most profits if it produces the quantity of output at which
a. marginal revenue equals total revenue.
b. marginal cost equals average cost.
c. marginal revenue equals marginal cost.
d. profit per unit is greatest.
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Econ201 Final Exam, Fall 2007, Version E
Douglas
Figure 15-6
27. Refer to Figure 15-6. To maximize its profit, a monopolist would choose
a. 100 units of output and a price of $10 per unit
b. 200 units of output and a price of $20 per unit
c. 100 units of output and a price of $20 per unit
d. 150 units of output and a price of $15 per unit
28. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose
a. 100 units of output and a price of $10 per unit
b. 200 units of output and a price of $10 per unit
c. 150 units of output and a price of $15 per unit
d. 150 units of output and a price of $10 per unit
6
Econ201 Final Exam, Fall 2007, Version E
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Figure 15-3
29. Refer to Figure 15-3. Profit will be maximized by charging a price equal to
a. P3.
b. P1.
c. P2.
d. P0.
30. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. (P1 - P0) × Q2.
b. (P3 - P0) × Q2.
c. (P3 - P0) × Q4.
d. P3 × Q2.
31. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
32. If a competitive firm sees that its marginal cost exceeds its marginal revenue, then
a. it can increase its profit by decreasing its output.
b. it can increase its profit by increasing its output.
c. the firm is definitely earning a positive profit.
d. the firm is definitely losing money.
33. Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has an absolute advantage in both repairing cars and in cooking meals.
b. Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
c. Kelly has comparative advantage in car repair and David has comparative advantage in
d.
cooking.
Kelly has a comparative advantage in both repairing cars and in cooking meals.
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Econ201 Final Exam, Fall 2007, Version E
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34. Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
35.
36.
37.
38.
Neons (an inferior good) to increase?
a. a decrease in consumer income
b. an increase in consumer income
c. gas mileage of SUVs and mid-size sedans increases.
d. wages of auto workers fall.
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
a. the nation is not using all available resources or is using inferior technology or both.
b. the nation is producing an efficient combination of goods.
c. the nation is producing beyond its capacity, and inflation will occur.
d. there will be a large opportunity cost if the nation tries to increase production.
When a country allows trade and becomes an importer of a good,
a. both domestic producers and domestic consumers become worse off.
b. domestic producers become worse off, and domestic consumers become better off.
c. domestic producers become better off, and domestic consumers become worse off.
d. both domestic producers and domestic consumers become better off.
When firms have agreements among themselves on the quantity to produce and the price at which to sell
output, we refer to their form of organization as a
a. perfectly competitive oligopoly.
b. Nash arrangement.
c. cartel.
d. monopolistically competitive oligopoly.
When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs.
b. ignore variable costs.
c. ignore sunk costs.
d. Both a and c are correct
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
39. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
$28, then their total consumer surplus is
a. $46.
b. $24.
c. $56.
d. $26.
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Econ201 Final Exam, Fall 2007, Version E
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Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by
maximizing revenue.
Quantity
Price (per month)
0
$120
3,000
$100
6,000
$ 80
9,000
$ 60
12,000
$ 40
15,000
$ 20
40. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in
41.
42.
43.
44.
45.
Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions
will be sold altogether when this market reaches a Nash equilibrium?
a. 3,000
b. 6,000
c. 9,000
d. 12,000
Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it
wants to maximize its profit?
a. $40
b. $100
c. $80
d. $60
Because there is diminishing marginal product of labor, as the number of workers increases
a. the additional cost of hiring an additional worker rises.
b. the additional cost of an additional unit of output falls.
c. the additional output added by one additional worker declines.
d. the additional output added by one additional worker rises.
Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn in three hours
or he can trim a tree in two hours.
a. Travis has an absolute advantage over Ricardo in mowing lawns.
b. Travis has a comparative advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
As a group, oligopolists would always earn the highest profit if they would
a. charge the same price that a monopolist would charge if the market were a monopoly.
b. produce the perfectly competitive quantity of output.
c. produce more than the perfectly competitive quantity of output.
d. operate according to their own individual self-interests.
The lowest points of the average variable cost and average total cost curves occur where
a. the marginal cost curve lies below both curves.
b. the marginal cost curve intersects those curves.
c. the average variable cost and average total cost curves intersect.
d. average total cost is below average variable cost.
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Econ201 Final Exam, Fall 2007, Version E
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46. The inner and outer loops in the circular-flow diagram represent
a. (i) the flow of goods and (ii) the flow of services.
b. (i) the flow of dollars and (ii) other financial flows.
c. (i) inputs into production processes and (ii) outputs from production processes.
d. (i) the flows of inputs and outputs and (ii) the flow of dollars.
47. Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
48.
49.
50.
51.
52.
53.
54.
tire is $40 at the profit-maximizing output level, then in the long run
a. more firms will enter the market, and the price will fall.
b. more firms will enter the market, and the price will rise.
c. more firms will exit from the market, and the price will fall.
d. some firms will exit from the market, and the price will rise.
Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in consumer income
b. a change in the price of Mr. Bean videos, a substitute good
c. a change in expectations about the future price of Monty Python videos
d. a change in the price of Monty Python videos
For a profit-maximizing monopolist,
a. MR < MC < P.
b. P = MR = MC.
c. P > MR = MC.
d. P > MR > MC.
When a country allows trade and becomes an exporter of a good,
a. everyone in the country loses.
b. the losses of the losers exceed the gains of the winners.
c. everyone in the country benefits.
d. the gains of the winners exceed the losses of the losers.
Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s
a. total revenue.
b. implicit costs.
c. marginal costs.
d. explicit costs.
If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It increases.
b. It will not change consumer surplus; only producer surplus changes.
c. It decreases.
d. It may either increase or decrease.
Which of the following events will definitely cause equilibrium quantity to fall?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the
market and General Motors has 30 percent. This market is an example of
a. monopolistic competition.
b. an oligopoly, or duopoly.
c. a collusive monopoly.
d. a cartel.
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Econ201 Final Exam, Fall 2007, Version E
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55. In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. In the short run firms will shut down, and in the long run firms will leave the market.
b. In the long run the market will cease to exist.
c. New firms will likely enter this market to capture any remaining economic profits.
d. In the short run firms will produce, but in the long run firms will leave the market.
11
ID: E
Econ 201 Final Exam
Answer Section
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Analytical
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Applicative
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Analytical
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Interpretive
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ID: E
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2
Douglas, Fall 2007
Version F
Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________
PRINT NAME: __________________________________
Econ 201 Final Exam
Figure 14-4: A typical firm in a COMPETITIVE market
1. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds
a. P1.
b. P3.
c. P2.
d. None of the above is correct.
2. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area
a. P5 × Q3.
b. (P5 - P4) × Q3.
c. (P5 - P3) × Q2.
d. When market price is P5 there are no profits.
3. When a country allows trade and becomes an exporter of a good,
a. the losses of the losers exceed the gains of the winners.
b. everyone in the country benefits.
c. everyone in the country loses.
d. the gains of the winners exceed the losses of the losers.
4. Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s
a. implicit costs.
b. marginal costs.
c. explicit costs.
d. total revenue.
5. A monopolist can make large positive economic profits in the long run only if the monopolist
a. is protected by barriers to entry.
b. produces the amount of output where average variable cost is at a minimum.
c. operates as a price taker rather than a price maker.
d. produces the amount of output where average total cost is at a minimum.
1
Econ201 Final Exam, Fall 2007, Version F
Douglas
6. Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in the price of Monty Python videos
b. a change in consumer income
c. a change in the price of Mr. Bean videos, a substitute good
d. a change in expectations about the future price of Monty Python videos
Figure 13-6
7. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A
b. B
c. C
d. D
8. Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has a comparative advantage in both repairing cars and in cooking meals.
b. Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
c. Kelly has an absolute advantage in both repairing cars and in cooking meals.
d. Kelly has comparative advantage in car repair and David has comparative advantage in
cooking.
Figure 15-6
9. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose
a. 150 units of output and a price of $10 per unit
b. 200 units of output and a price of $10 per unit
c. 150 units of output and a price of $15 per unit
d. 100 units of output and a price of $10 per unit
2
Econ201 Final Exam, Fall 2007, Version F
Douglas
10. Refer to Figure 15-6. To maximize its profit, a monopolist would choose
a. 150 units of output and a price of $15 per unit
b. 100 units of output and a price of $20 per unit
c. 200 units of output and a price of $20 per unit
d. 100 units of output and a price of $10 per unit
11. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It will not change consumer surplus; only producer surplus changes.
b. It may either increase or decrease.
c. It decreases.
d. It increases.
12. A good reason why the local gas distribution company is subject to price regulation rather than being broken
up through antitrust, is because the gas company is a
a. natural monopoly.
b. revenue-maximizing monopoly.
c. profit-maximizing monopoly.
d. producer of externalities.
13. If a surplus currently exists in a market we know that the current price is
a. below equilibrium price and quantity supplied is greater than quantity demanded.
b. above equilibrium price and quantity demanded is greater than quantity supplied.
c. above equilibrium price and quantity supplied is greater than quantity demanded.
d. below equilibrium price and quantity demanded is greater than quantity supplied.
14. When firms have agreements among themselves on the quantity to produce and the price at which to sell
output, we refer to their form of organization as a
a. cartel.
b. perfectly competitive oligopoly.
c. monopolistically competitive oligopoly.
d. Nash arrangement.
Figure 13-8
15. Refer to Figure 13-8. At levels of output below M the firm experiences
a. economies of scale.
b. diseconomies of scale.
c. economic profit.
d. accounting profit.
3
Econ201 Final Exam, Fall 2007, Version F
Douglas
16. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the
average total cost curves?
a. ATCA only.
b. ATCC only.
c. ATCB only.
d. ATCD between M and N.
17. The negative relationship between price and quantity demanded
a. applies to most goods in the economy.
b. is referred to as the law of demand.
c. is represented by a downward-sloping demand curve.
d. All of the above are correct.
Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by
maximizing revenue.
Quantity
Price (per month)
0
$120
3,000
$100
6,000
$ 80
9,000
$ 60
12,000
$ 40
15,000
$ 20
18. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in
Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions
will be sold altogether when this market reaches a Nash equilibrium?
a. 12,000
b. 3,000
c. 9,000
d. 6,000
19. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it
wants to maximize its profit?
a. $60
b. $80
c. $100
d. $40
20. Which of the following events will definitely cause equilibrium quantity to fall?
a. demand increases and supply decreases
b. demand and supply both decrease
c. demand decreases and supply increases
d. demand and supply both increase
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Econ201 Final Exam, Fall 2007, Version F
Douglas
Table 15-1
Quantity
1
2
3
4
5
6
7
Total
Revenue
35
64
Price
35
Average
Revenue
Marginal
Revenue
32
29
29
17
11
23
120
17
-1
21. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should
it sell?
a. 6
b. 4
c. 5
d. 7
22. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 87
b. 23
c. 29
d. 7.67
Table 13-8: Costs of Gigaplot Production
Quantity
of
gigaplots
1
2
3
Fixed
Cost
Variable
Cost
Total
Cost
$13
$28
$38
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
$70
23. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. $16
b. $14
c. More information is needed.
d. $15
24. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $17
b. $70
c. $45
d. $20
25. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $25
b. $20
c. $12
d. More information is needed.
5
Marginal
Cost
Econ201 Final Exam, Fall 2007, Version F
Douglas
26. As a group, oligopolists would always earn the highest profit if they would
a. produce more than the perfectly competitive quantity of output.
b. operate according to their own individual self-interests.
c. produce the perfectly competitive quantity of output.
d. charge the same price that a monopolist would charge if the market were a monopoly.
27. The defining characteristic of a natural monopoly is
a. constant returns to scale over the relevant range of output.
b. diseconomies of scale over the relevant range of output.
c. constant marginal cost over the relevant range of output.
d. economies of scale over the relevant range of output.
28. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it
becomes more difficult to download or share music illegally, and payments to musicians by recording
companies fall?
a. Quantity will rise and the effect on price is ambiguous.
b. Price will fall and the effect on quantity is ambiguous.
c. Price will rise and the effect on quantity is ambiguous.
d. Quantity will fall and the effect on price is ambiguous.
Figure 15-3
29. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve
a. A.
b. B.
c. C.
d. D.
30. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to
a. (P3 - P0) × Q2.
b. P3 × Q2.
c. (P1 - P0) × Q2.
d. (P3 - P0) × Q4.
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Econ201 Final Exam, Fall 2007, Version F
Douglas
31. Refer to Figure 15-3. Profit will be maximized by charging a price equal to
a. P1.
b. P0.
c. P3.
d. P2.
32. If a competitive firm sees that its marginal cost exceeds its marginal revenue, then
a. the firm is definitely earning a positive profit.
b. it can increase its profit by increasing its output.
c. the firm is definitely losing money.
d. it can increase its profit by decreasing its output.
33. When a country allows trade and becomes an importer of a good,
a. domestic producers become worse off, and domestic consumers become better off.
b. both domestic producers and domestic consumers become worse off.
c. domestic producers become better off, and domestic consumers become worse off.
d. both domestic producers and domestic consumers become better off.
34. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their
35.
36.
37.
38.
prices are higher than Wal-Mart’s. This demonstrates that
a. there are diseconomies of scale in retail sales.
b. the greed of large sellers like Wal-Mart hurts consumers, especially low-income
consumers.
c. there are economies of scale in retail sales.
d. consumers are angry at local retailers because of their high prices.
Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn in three hours
or he can trim a tree in two hours.
a. Travis has a comparative advantage over Ricardo in mowing lawns.
b. Travis has an absolute advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
Because there is diminishing marginal product of labor, as the number of workers increases
a. the additional output added by one additional worker declines.
b. the additional output added by one additional worker rises.
c. the additional cost of hiring an additional worker rises.
d. the additional cost of an additional unit of output falls.
Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge
Neons (an inferior good) to increase?
a. gas mileage of SUVs and mid-size sedans increases.
b. wages of auto workers fall.
c. a decrease in consumer income
d. an increase in consumer income
A market structure with only a few sellers, offering similar or identical products, is known as
a. monopoly.
b. perfect competition.
c. oligopoly.
d. monopolistic competition.
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Econ201 Final Exam, Fall 2007, Version F
Douglas
39. The lowest points of the average variable cost and average total cost curves occur where
a. the marginal cost curve intersects those curves.
b. the marginal cost curve lies below both curves.
c. average total cost is below average variable cost.
d. the average variable cost and average total cost curves intersect.
40. Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per
41.
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tire is $40 at the profit-maximizing output level, then in the long run
a. more firms will enter the market, and the price will rise.
b. more firms will exit from the market, and the price will fall.
c. some firms will exit from the market, and the price will rise.
d. more firms will enter the market, and the price will fall.
In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. In the long run the market will cease to exist.
b. In the short run firms will shut down, and in the long run firms will leave the market.
c. New firms will likely enter this market to capture any remaining economic profits.
d. In the short run firms will produce, but in the long run firms will leave the market.
When an oligopoly market reaches a Nash equilibrium,
a. the market price will be different for each firm.
b. each firm will have chosen its own best strategy, given what the other firms are doing.
c. each firm will not have tried to maximize its profit.
d. firms will not be concerned about the strategies of competing firms.
Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries,
a. the larger is the deadweight loss of the tax.
b. the smaller is the response of the quantity supplied of french fries to the tax.
c. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
d. All of the above are correct.
When a firm in a competitive market decides to triple the amount of output it sells, as a result
a. its profit must increase.
b. the price in the market rises.
c. the price in the market falls.
d. its total revenue triples.
The inner and outer loops in the circular-flow diagram represent
a. (i) the flows of inputs and outputs and (ii) the flow of dollars.
b. (i) inputs into production processes and (ii) outputs from production processes.
c. (i) the flow of goods and (ii) the flow of services.
d. (i) the flow of dollars and (ii) other financial flows.
For a profit-maximizing monopolist,
a. MR < MC < P.
b. P > MR > MC.
c. P = MR = MC.
d. P > MR = MC.
The firm will make the most profits if it produces the quantity of output at which
a. marginal revenue equals total revenue.
b. profit per unit is greatest.
c. marginal cost equals average cost.
d. marginal revenue equals marginal cost.
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Econ201 Final Exam, Fall 2007, Version F
Douglas
48. The main argument for splitting up monopolies through antitrust action is based on the notion that
a. small firms have lower costs.
b. competition is more efficient than monopoly.
c. consumers prefer dealing with small firms.
d. greedy monopolies should be punished.
Table 7-1
BUYER
MIKE
SANDY
JONATHAN
HALEY
WILLINGNESS TO PAY
$50.00
$30.00
$20.00
$10.00
49. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
50.
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$28, then their total consumer surplus is
a. $56.
b. $46.
c. $24.
d. $26.
A competitive firm's short-run supply curve is part of which of the following curves?
a. Marginal revenue
b. Average total cost
c. Marginal cost
d. Average variable cost
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that
a. the nation is not using all available resources or is using inferior technology or both.
b. there will be a large opportunity cost if the nation tries to increase production.
c. the nation is producing an efficient combination of goods.
d. the nation is producing beyond its capacity, and inflation will occur.
When determining whether to shutdown in the short run, a competitive firm should
a. ignore fixed costs.
b. ignore variable costs.
c. ignore sunk costs.
d. Both a and c are correct
The Social Security tax is a tax on
a. earnings during retirement.
b. labor.
c. consumption expenditures.
d. capital.
During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the
variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
b. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
c. Sunscreen producers increased production out of concern for the public’s health.
d. Government officials ordered sunscreen producers to produce more sunscreen.
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Econ201 Final Exam, Fall 2007, Version F
Douglas
55. The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the
market and General Motors has 30 percent. This market is an example of
a. a cartel.
b. monopolistic competition.
c. a collusive monopoly.
d. an oligopoly, or duopoly.
10
ID: F
Econ 201 Final Exam
Answer Section
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