Economics 165 Final Exam
Spring 1997

1. Factors of production (resources) include
a. land, capital, and interest
b. land, interest, and rent
* c. labor, land, and capital
d. labor, capital, and profits
e. wages, rent, and interest
2. If Seymour can paint 1 room for every 200 cakes he bakes, the opportunity cost of a cake for Seymour is painting
* a. 1/200 of a room
b. 1/2 of a room
c. 1 room
d. 1/100 of a room
3. Unemployment and technological inefficiency can:
a. exist at any point on a production possibilities frontier
b. cause the production possibilities frontier to shift inward
* c. both be illustrated by a point inside the production possibilities frontier
d. both be illustrated by a point outside the production possibilities frontier

Use the following graph to answer question 4

 

4. Assume that an economy is producing only two goods: apples and butter. Suppose that a new fertilizer is invented which greatly increases the productivity of apple trees. From the figures above, choose the one which best illustrates the change in the production possibilities caused by this increased productivity, all other things unchanged.
* a. (C)
b. (D)
c. (A)
d. (B)
e. (E)
5. Which one of the following will cause the demand curve for gasoline to shift to the right?
* a. a fall in the price of cars
b. an increase in the supply of gasoline
c. a fall in the price of gasoline
d. a rise in the price of cars
6. An improvement in a competitive seller's technology is likely to result in:
a. an increase in the quantity offered for sale at each price
b. an increase in his supply
c. a shift of his supply curve to the right
* d. all of the above
7. Suppose the price of good 'X' has decreased; which in turn, leads to an increase in the demand for good 'Y'. Economic analysis states that the goods (X and Y) must be:
a. substitute goods
* b. complementary goods
c. normal goods
d. inferior goods
e. durable goods
8. This month, the Fritter Firm finds that it can sell 200 fritters at a price of $1 per fritter. The previous month, the firm was able to sell only 150 fritters at $1 per fritter. What most likely happened over the month?
a. supply decreased
b. quantity supplied decreased
* c. demand increased
d. demand decreased
9. Price ceilings and price floors are usually intended to benefit:
a. government by increasing government revenue
* b. buyers (ceilings) and sellers (floors)
c. buyers
d. sellers
10. If a price decrease from $50 to $40 results in a decrease in quantity supplied from 14 units to 10 units, the price elasticity of supply is
a. 1.00
* b. 1.50
c. .40
d. .67
e. 2.50
11. The price elasticity of demand, for a given product, indicates:
a. the extent to which a demand curve shifts as incomes change
* b. consumer responsiveness to price changes
c. how far businessmen can stretch their fixed costs
d. the degree of competition in a market
12. Assume that Mr. Consumer spent all of his budget to purchase 8 units of good S and 3 units of good T when the price of good S was $2 per unit and the price of good T was $3 per unit. Assume also that the marginal utility of the eighth unit of S was 16 and the marginal utility of the third unit of T was 18. If S and T are the only goods available and Dr. Consumer is rational, one can conclude that Dr. Consumer
a. should have purchased more of good T and less of good S
b. should have purchased less of both goods
c. maximized utility
* d. should have purchased more of good S and less of good T
13. Marginal utility is
a. the utility per unit associated with the last unit of a good consumed
b. the total utility associated with consuming a good
c. equal to the price of the good
d. the usefulness of the last or next unit of a good consumed
* e. the change in total utility associated with consuming an additional unit of a good
14. When U.S. residents demand German marks:
a. they plan to spend those marks on American produced goods
b. they can only use those marks to purchase gold from the German Central Bank
* c. U.S. residents at the same time supply dollars to German residents
d. U.S. residents at the same time demand U.S. dollars from German residents
15. Tariffs tend to reduce the volume of imports by:
a. reducing the price of domestically produced goods
b. placing quality requirements on imported goods
c. limiting the quantity of a good which can be imported during a specified time period
* d. increasing the price of the item to domestic consumers
16. The long-run is a
a. period long enough to allow firms to make economic decisions
b. period which affects larger rather than smaller firms
c. period of 3 years or longer
* d. period long enough to allow firms to vary all resources
17. A young chef is considering opening his own restaurant. To do so, he would have to quit his current job at $20,000 a year and take over a store building he owns that currently rents for $6,000 a year. His expenses at the restaurant would be $50,000 for food and $2,000 for gas and electricity. What are his implicit costs?
a. $78,000
b. $52,000
* c. $26,000
d. $60,000
e. $72,000
18. Economic goods and services produced by business firms are called
a. innovations
b. productivity
c. inputs
* d. outputs
e. technological progress
19. When production is subject to the influence of the law of diminishing marginal productivity (but it is still possible to increase total output) then, in order to obtain successive increases in output of 1 extra unit
* a. greater and greater amounts of the variable input will be needed
b. the marginal contribution must be negative
c. smaller and smaller amounts of the variable input will be needed
d. adding more of the variable input will do more harm than good, because it must diminish total output instead of increasing it
20. A U-shaped long-run average cost curve represents
* a. economies and diseconomies of scale
b. average fixed costs and average variable costs
c. increasing and decreasing marginal product
d. fixed costs and variable costs
21. The model of perfect competition is more useful for analyzing situations in which firms
a. engage in price wars in order to secure a position in the market
b. differentiate their products
* c. are price takers
d. engage in advertising and other forms of nonprice competition
22. A perfectly competitive firm can exert no control over price because
* a. the firm's production is insignificant relative to production in the industry
b. the firm's marginal revenue curve is downward sloping
c. the firm's demand curve is downward sloping
d. of a lack of substitutes for the product
23. For the perfectly competitive firm, the profit maximizing level of output is where
a. marginal revenue equals price
* b. marginal revenue equals marginal cost
c. price equals average total cost
d. price equals average variable cost
24. The short-run supply curve for a perfectly competitive industry is equal to the horizontal summation of the individual firms'
a. marginal cost curves
* b. marginal cost curves above their respective average variable cost curves
c. average total cost curves
d. average variable cost curves
25. If firms in a perfectly competitive industry are incurring average total costs that are less than the prices they are charging, the firms:
a. will enjoy long-run economic profit
b. must be colluding
c. will enjoy short-run economic profits that will be offset by long-run economic losses
* d. will face new competition in the long-run which will drive price down to the average cost of production
26. In the long run, if a firm is incurring an economic loss, then the firm
a. has some long-run fixed costs
* b. is likely to leave the industry
c. is earning greater than normal profit but not an economic profit
d. will maximize opportunity costs by staying in business
e. will produce as long as total revenue exceeds total fixed cost
27. A firm might become a monopolist because:
a. it has exclusive legal rights to make a certain product or to use a particular process
b. significant economies of scale exist in the industry
c. it uses business practices, such as price cutting, to drive competitors from the market
* d. all of the above are true
28. Given the same cost curves, a monopoly will charge
* a. a higher price and produce a smaller output than a perfectly competitive firm
b. a higher price and produce a larger output than a perfectly competitive firm
c. a lower price and produce a larger output than a perfectly competitive firm
d. a lower price and produce a smaller output than a perfectly competitive firm
e. the same price and produce the same output as a perfectly competitive firm
29. If a monopolistically competitive firm is in long-run equilibrium, then
a. demand equals average revenue and average revenue equals marginal revenue
b. average total cost equals marginal revenue
c. price equals average total costs and marginal cost
* d. price equals average total costs but is greater than marginal cost
30. In monopolistic competition there are
a. many firms each producing a homogeneous product
b. a few firms each producing a differentiated product
* c. many firms each producing a differentiated product
d. a few firms each producing a homogeneous product
31. The kinked demand curve model
* a. assumes that oligopolistic rivals will ignore a price increase on the part of a rival and match a price decrease
b. assumes that oligopolistic rivals will match both a price decrease and a price increase
c. requires a collusive oligopoly
d. assumes that oligopoly pricing is flexible upward and downward
e. assumes product differentiation
32. When firms make pricing and output decisions jointly they are said to be
a. arbitrating
b. arbitraging
c. dumping
* d. colluding
33. For imperfectly competitive firms (monopoly, monopolistic competition, and oligopoly firms)
a. price is the same as marginal revenue at all output levels
b. price is either less than marginal revenue at particular output levels or the same as marginal revenue
c. price is less than marginal revenue at all or most output levels
* d. price is greater than marginal revenue at all or most output levels
34. For price discrimination to be possible between different buyers, the seller must, among other things,
* a. prevent resale of the commodity
b. rely on the ignorance of one consumer about what other consumers are paying
c. produce at decreasing cost
d. face an inelastic demand
35. An increase in the market demand for labor will cause:
a. the supply of labor to rise
* b. the wage rate to rise and the quantity of labor employed to rise
c. the level of employment to fall
d. the wage rate to fall
36. In which of the following cases should a firm use less labor in order to increase profits?
* a. marginal revenue product is less than marginal factor cost
b. marginal physical product is less than marginal factor cost
c. marginal revenue product exceeds marginal factor cost
d. marginal revenue product equals marginal factor cost
37. A firm which is perfectly competitive in both its output and labor market should hire an additional worker if
a. marginal product would be decreased
b. marginal product would be increased
c. total revenue is less than total cost
d. marginal revenue product is less than the wage rate
* e. marginal revenue product is more than the wage rate
38. An increase in a perfectly competitive firm's demand for labor could be caused by
a. a fall in the market price of the product that the firm produces
* b. an increase in the market price of the product that the firm produces
c. a fall in the wage rate
d. a decrease in the marginal product of labor
39. Compared to a perfectly competitive labor market, the monopsonist would hire
a. more labor and pay a higher wage
b. more labor and pay a lower wage
c. less labor and pay a higher wage
* d. less labor and pay a lower wage

Use the graph below to answer question number 40

40. The firm in the diagram above is:
* a. perfectly competitive in the product market and a monopsonist in the labor market
b. a monopolist in the product market and perfectly competitive in the labor market
c. perfectly competitive in the product market and the labor market
d. a monopolist in the product market and a monopsonist in the labor market
 

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