Economics 165 Final Exam
Fall
1996
- 1. "A compassionate welfare program should have a higher
priority than strong defense." This statement is an example of
- a. the ceteris paribus fallacy
- * b. a normative economic statement
- c. a positive economic statement
- d. the fallacy of composition
- 2. In economics, capital is best defined as:
- * a. produced goods which are used as productive
resources
- b. private property
- c. money needed to run a business
- d. the primary factor in productivity
- 3. Opportunity cost along a production possibilities
frontier is
- a. zero
- b. the amount by which the production of guns increases when
the production of
butter increases
- c. how much of each good is produced
- * d. the sacrifice of one good required to produce one
more unit of another good
- e. all of the above
- 4. A production possibilities frontier will shift out when:
- a. the production of investment goods decreases
- * b. the quantity and/or productivity of resources
(factors of production)
increases
- c. unemployment is decreased
- d. the labor force decreases
- 5. Demand shows the relationship between
- a. income and quantity needed per unit of time
- b. price of a good and the available quantity of that good
per unit of time
- * c. the price of a good and the quantity consumers are
willing and able to buy
in a given time period
- d. income and quantity demanded per unit of time
- 6. The statement that oatmeal is an inferior good, as
economists use the term
- a. means that as the price of oatmeal falls, the quantity
demanded of oatmeal
falls
- b. means that there is no real income effect when the price
of oatmeal changes
- c. is an example of a normative statement
- * d. means that as the average level of income falls, the
demand for oatmeal
rises
- e. means that the supply of oatmeal is perfectly inelastic
- 7. The income effect of a price change arises because
- * a. as price falls or rises there is an effect similar
to an income increase or
decrease
- b. the effect of taxes on government revenues
- c. higher or lower prices affect suppliers incomes
- d. as the price of a good rises or falls buyers feel their
incomes have fallen
due to inability to recall the previous price and a suspicion
regarding all
price changes
- 8. An increase in demand accompanied by a simultaneous
decrease in supply will result
in
- a. a change in equilibrium quantity
- b. a decrease in equilibrium quantity
- c. a decrease in equilibrium price
- * d. an increase in equilibrium price
- e. an increase in equilibrium quantity
- 9. A price ceiling will not cause a shortage if the
government
- a. enters the market and purchases the excess
- b. always has perfect information
- * c. does not enforce the ceiling price
- d. sets the ceiling price below the equilibrium price
- 10. When the price of a certain good increases by 30%,
quantity demanded decreases by
2%. What is the price elasticity of demand?
- a. 15
- b. 30
- * c. 1/15
- d. 2
- 11. If goods R and K have a cross elasticity of -5 and goods
R and S have a cross
elasticity of 5,
- a. R and K are substitutes; R and S are complements
- * b. R and K are complements; R and S are substitutes
- c. K is price inelastic
- d. S is price inelastic
- e. R and K are normal goods; R and S are inferior goods
- 12. In the theory of utility, it is assumed that marginal
utility
- a. is zero as consumption of a product increases
- * b. diminishes beyond some point as consumption of a
product increases
- c. increases as consumption of a product increases
- d. increases as consumption of a product remains constant
- e. remains constant as consumption of a product increases
- 13. If George gets 100 units of utility from watching the
show "Family Ties" one time
and 150 units of utility from watching the same show twice, his
marginal utility
from watching the second time is
- a. 250
- b. -50
- * c. 50
- d. 150
- 14. If the equilibrium dollar price of Dutch guilders is 40
cents, but for some reason
the market opens at 30 cents, it is likely that
- a. an excess supply of guilders will force a decline in the
dollar price of
guilders
- b. the U.S. demand for Dutch guilders will increase
- c. the Dutch demand for U.S. goods will increase, moving the
dollar price of
guilders toward equilibrium
- * d. an excess demand for guilders will force a rise in
the dollar price of
guilders
- 15. Imposition of a U.S. tariff on imported shoes:
- a. harms foreign consumers of shoes by decreasing the amount
of shoes available
for their consumption
- b. harms U.S. shoe workers who now face a more hectic
production schedule
- c. benefits consumers in the United States by guaranteeing
a high-quality
product
- * d. benefits domestic shoe producers by eliminating
competitors
- 16. The short run is a period of time
- a. during which all inputs are fixed
- b. that is just long enough to permit entry and exit
- c. that is always less than one year
- * d. during which at least one input is fixed
- e. during which all inputs can be varied
- 17. Which of the following is true concerning short-run total
costs?
- a. total costs are minimized when average total costs are
minimized
- b. total costs are at a maximum when the average physical
product of labor is
at its maximum value
- c. at zero output, total costs equal zero
- * d. total costs equal total variable costs plus total
fixed costs
- 18. At its minimum point, the average total cost curve is
intersected by the
- a. total fixed cost curve
- b. total variable cost curve
- c. average fixed cost curve
- d. average variable cost curve
- * e. marginal cost curve
- 19. A. Rock operates the Telly Savalas Lolli-Pop Factory in
Springfield, Mo. At the
present level of output, he finds that his average fixed costs =
$40, average
variable costs = $60 and total costs = $9000. Given this
information, what is the
quantity being produced?
- a. 225 units of output
- * b. 90 units of output
- c. insufficient information is given to determine the
quantity being produced
- d. 150 units of output
- e. 450 units of output
- 20. If a firm's long-run average costs remain constant
as production increases, then
we say that the firm has
- a. quasi-returns to scale
- * b. constant returns to scale
- c. economies of scale
- d. diseconomies scale
- 21. Suppose a firm can sell as much or as little as it wants
at a price of $5. This
firm
- a. can make infinitely large profits
- * b. has constant marginal revenue
- c. is likely to be a monopolist
- d. is likely to be a oligopolist
- 22. The additional revenue a firm receives from selling an
extra unit of output is
- a. average revenue
- b. marginal profit
- c. total revenue
- * d. marginal revenue
- e. price
Use the graph below to answer question number 23
![](165-F961.gif)
- 23. According to the graph above, at a price
of OA this profit maximizing firm
will realize:
- a. an economic profit of ACFH
- * b. an economic profit of ABGH
- c. a loss equal to BCFG
- d. a loss equal to ACFH
- e. economic profits of zero
- 24. Assume that marginal revenue equals marginal cost at 100
units of output. At this
output level, a profit-maximizing firm's total fixed cost is $600
and its total
variable cost is $400. The price of the product is $5 per unit . In
the short run
the firm should produce
- * a. 100 units of output
- b. more than 100 units of output
- c. 0 units of output
- d. less than 100 units of output
- 25. Which of the following is NOT true of perfectly
competitive firms in the long run?
- a. Price is equal to minimum ATC
- * b. Firms can make profits or losses
- c. Economic profits are zero
- d. Price is equal to marginal cost
- 26. In a perfectly competitive, constant cost, industry
- * a. the long-run market supply curve will be perfectly
elastic
- b. the long run market demand curve will be perfectly
inelastic
- c. the long-run market demand curve will be positively
sloped
- d. the long-run market demand curve will be perfectly
elastic
- 27. For a non-discriminating monopolist who is maximizing
profits, which of the
following cannot be true?
- a. marginal revenue equals average total cost
- b. price equals average total cost
- c. marginal revenue equals marginal cost
- d. average total cost equals marginal cost
- * e. price equals marginal revenue
- 28. If a monopolist lowers price and, as a result, its total
revenue rises, then
- a. its price must be less than its marginal revenue
- b. there must be no close substitutes for the monopolist's
product
- c. the monopolist must be in the inelastic region of its
demand curve
- * d. its marginal revenue must be positive
- 29. If additional firms enter a monopolistically competitive
industry
- a. the price would most likely increase
- * b. the demand facing an existing firm would decrease
- c. the demand facing an existing firm would increase
- d. the profits of an existing firm would increase
- 30. When a monopolistically competitive firm is in long-run
equilibrium, it is:
- a. making a zero economic profit
- b. allocatively inefficient since it produces where its
price exceeds its
marginal cost
- c. technologically (productively) inefficient since it
produces an output
smaller than the one which would minimize its average costs of
production
- * d. all of the above are true
- 31. "Mutual Interdependence" means a situation in which each
firm
- * a. considers the reactions of its rivals when it
determines its price policy
- b. faces a perfectly elastic demand for its product
- c. produces a product similar but not identical to the
products of its rivals
- d. produces a product identical to the products produced by
its rivals
Use the graph below to answer question number 32
![](165-s962.gif)
- 32. The cost and revenue curves of a certain firm
are shown in the graph above.
When maximizing its profit, the firm will realize:
- a. a loss of GH per unit
- b. an economic profit of ACGJ
- c. a loss equal to ABHJ
- d. a loss of JH per unit
- * e. an economic profit of ABHJ
- 33. According to the kinked demand curve model, which of the
following is generally
true with respect to firms in oligopolistic industries?
- a. in recent decades they have tended to eliminate rivals
through merger or
predatory practices until a single monopoly firm remains in the
industry
- b. market conditions force the firms to be allocatively
efficient
- * c. they tend to be reluctant to change price but will
use non-price competition
to increase sales
- d. they engage in vigorous price competition
Use the graph below to answer question number 34
![](165-F962.gif)
- 34. Suppose that you own and operate a movie
theater: the demand (and marginal revenue)
for theater tickets is drawn in the graph above. The unique
feature of this
business is that all costs are fixed. (If you must pay $50 to rent
a film that can
be shown only once, your costs are $50 whether you have 1 or 100
customers).
- Question: What are the number of tickets you should
sell in order to maximize
profits? What price should you charge? $ (Hint: draw the
appropriate MC curve in
the diagram below)
- a. 150, $1
- b. 200, $.50
- c. 50, $3
- * d. 100, $2
- 35. The marginal revenue product is the
- a. change in revenue associated with a change in the product
price
- * b. extra revenue associated with hiring an additional
unit of the input
- c. change in revenue associated with a change in factor
price
- d. total revenue divided by the quantity hired of the
resource
- e. extra revenue associated with selling an additional unit
of the good
- 36. The marginal revenue product of labor is expected to
decrease as more labor is
employed because:
- * a. of the law of diminishing marginal productivity
- b. of the law of diminishing marginal utility
- c. the supply of labor is positively sloped
- d. the supply of labor is backward bending
- e. labor quality declines as the employment of labor
increases
- 37. In a perfectly competitive output market, the marginal
revenue product is equal to
the
- a. marginal physical product
- * b. price of the product times the marginal product
- c. price of the product
- d. price of the input
- 38. If a firm hires an insignificant fraction of unskilled
labor in its community, then
the wage rate that it must offer in order to employ workers
probably
- * a. does not change as the firm hires more workers
- b. is very high
- c. rises as the firm hires more workers
- d. falls as the firm hires more workers
Use the graph below to answer question number 39
![](165-F963.gif)
- 39. According to the above graph, this
monopsony firm will hire a quantity of
labor equal to
- a. 0-L4
- b. 0-L3
- * c. 0-L2
- d. 0-L1
- 40. A profit-maximizing monopsonist will hire additional
units of labor as long as its:
- a. marginal revenue product exceeds labor supply
- * b. marginal revenue product exceeds marginal factor
cost
- c. marginal factor cost curve is horizontal
- d. marginal revenue product curve is declining
- e. marginal factor cost exceeds the marginal revenue product
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