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Unformatted text preview: Practice questions for EC 301 Final MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If consumers view the output of any firm in a market to be identical to the output of any other 1) _______ firm in the market, the demand curve for the output of any given firm A) annot be determined from the information given. c B) ill be identical to the market demand curve. w C) ill be horizontal. w D) ill be vertical. w 2) A special license is required to operate a taxi in many cities. The number of licenses is restricted. 2) _______ More drivers want licenses than are issued. This describes a non-perfectly competitive market because A) axi services are very different. t B) he government generates revenue from the licenses. t C) irms cannot freely enter and exit the market. f D) ransaction costs are high. t 3) If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will 3) _______ A) hut down. s B) ncrease output. i C) ecrease output. d D) perate at a loss. o Figure 8.1 4) Figure 8.1 shows the cost curves for a competitive firm. If the firm is to operate in the short run, price must exceed (NOTE: the minimum AVC = $5) A) 0. $ B) 5. $ C) 11. $ D) 10. $ 4) _______ 5) Figure 8.1 shows the cost curves for a competitive firm. If the firm is to earn economic profit, price 5) _______ must exceed A) 10. $ B) 0. $ C) 11. $ D) 5. $ 6) A firm will shut down in the long run if A) otal revenue from operating would not cover variable costs. t B) otal revenue from operating would not cover fixed costs. t C) otal fixed costs are too high. t D) otal revenue from operating would not cover all costs. t 7) If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output? A) R > MC. M B) > MC. p C) ≥ AVC. p D) ll of the above. A 8) In the short run, the competitive firmʹs supply curve is equal to A) he portion of its marginal cost curve that lies above AC. t B) he portion of its marginal cost curve that lies above AFC. t C) he portion of its marginal cost curve that lies above AVC. t D) ts marginal cost curve. i 9) If a competitive firm is in short-run equilibrium, then A) n increase in its fixed cost will have no effect on output. a B) n increase in its fixed cost will have no effect on profit. a C) t will not operate at a loss. i D) rofits equal zero. p 10) If a firm is currently in short-run equilibrium earning a profit, what impact will a lump-sum tax have on its production decision? A) he firm will not change output but earn a lower profit. T B) he firm will decrease output to earn a higher profit. T C) he firm will increase output but earn a lower profit. T D) he firm will not change output and earn a higher profit. T 11) In the long run, profits will equal zero in a competitive market because of A) ree entry and exit. f B) dentical products being produced by all firms. i C) he availability of information. t D) onstant returns to scale. c 12) Sarahʹs demand curve for whiskey has the same slope as Peteʹs; however, it lies to the right of Peteʹs. An decrease in the price of whiskey will cause A) ete to incur a greater loss of consumer surplus than Sarah will. P B) arah to incur a greater loss of consumer surplus than Pete will. S C) arah to incur a greater gain of consumer surplus than Pete will. S D) ete to incur a greater gain of consumer surplus than Sarah will. P 13) Producer surplus is equal to A) he difference between price and average cost for all units sold. t B) he difference between price and marginal cost for all units sold. t C) he area under the supply curve. t D) he firmʹs profit when fixed costs exist. t 14) The difference between producer surplus and profit is always the associated A) ariable costs. v B) pportunity costs. o C) ixed costs. f D) otal costs. t 6) _______ 7) _______ 8) _______ 9) _______ 10) ______ 11) ______ 12) ______ 13) ______ 14) ______ 15) A competitive market maximizes social welfare because in a competitive market A) rice equals marginal cost of the last unit produced. p B) rice equals average cost of the last unit produced. p C) rofits are zero. p D) here is free entry and exit. t 16) Deadweight loss occurs when A) n inferior good is consumed. a B) roducer surplus is greater than consumer surplus. p C) he maximum level of total welfare is not achieved. t D) onsumer surplus is reduced. c 17) The services of real estate brokers are provided in a competitive market. If the state Board of Realtors enacts several requirements that limit the number of real estate brokers, then consumer surplus will most likely A) emain unchanged. r B) here is not enough information to answer. T C) ecrease. d D) ncrease. i 18) The total welfare associated with a market that includes a government sales tax equals A) he government tax revenue. t B) onsumer surplus plus producer surplus minus government tax revenue. c C) onsumer surplus plus producer surplus plus government tax revenue. c D) onsumer surplus plus producer surplus. c 18) ______ 17) ______ 16) ______ 15) ______ Figure 9.2 19) Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, the loss in social welfare equals A) + c. b B) . f C) + g. f D) . a 20) Figure 9.2 shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus decreases by A) . i B) . d C) + g. c D) + f. b 21) General equilibrium analysis is the study of A) ow an equilibrium is determined in all closely related markets. h B) ow an equilibrium is determined in all markets simultaneously. h C) he effects of a change in a market, and all spillover effects in all related markets. t D) ll of the above. A 22) The general equilibrium analysis of a minimum wage applied to only some sectors of the economy suggests that A) ome workers originally employed in the covered sectors will move to the uncovered s sectors, driving down wages in the uncovered sectors. B) ll workers will be worse off. a C) orkers in all sectors will face increased wages. w D) ome workers in the covered sectors will lose their jobs and remain unemployed. s 23) If a market produces a level of output that exceeds the competitive equilibrium output, then A) arginal cost will exceed price. m B) ocial welfare will be higher. s C) roducer surplus will be higher. p D) ll of the above. A 19) ______ 20) ______ 21) ______ 22) ______ 23) ______ Figure 10.1 24) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. The contract curve can be found by connecting points A) and d. b B) and d. c C) and c. a D) and b. a 24) ______ 25) If only two people are trading their endowments and no production is possible, then the equilibrium they reach will A) esult in unequal marginal rates of substitution for the two people. r B) e on their contract curve. b C) esult in one person being worse off than with his or her endowment. r D) ll of the above. A 26) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. Considering only the labeled points, point c is a possible equilibrium A) f either point a or b is the endowment. i B) nly if it is the endowment. o C) nly if point a is the endowment. o D) nly if point d is the endowment. o 27) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. If the endowment is at point a, and Al has no ability to bargain, the final allocation will be at point A) . a B) . b C) . c D) . d 28) Figure 10.1 depicts the Edgeworth box for two individuals, Al and Bruce. Point a is not Pareto efficient because A) lʹs indifference curve is not far enough away from the origin. A B) he point is not near the center of the box. t C) lʹs MRS exceeds Bruceʹs MRS. A D) ll of the above. A 29) Gains from trade will be possible as long as A) arginal rates of substitution are equal across individuals. m B) eople place different values on some goods. p C) xcess supply equals excess demand. e D) eople have different endowments. p 30) The First Theorem of Welfare Economics can be expressed as: A) he competitive equilibrium results only when no transactions costs exist. t B) he competitive equilibrium does not involve reallocation of endowments. t C) he competitive equilibrium is efficient. t D) ny efficient allocations can be achieved by competition. a 31) A competitive equilibrium is Pareto efficient because at the competitive equilibrium A) rices have been allowed to adjust. p B) ll members of society can be made better off. a C) here are no further gains from trade. t D) he final outcome is different from the original inefficient endowment. t 32) For a given set of prices, two consumers choose bundles that are off the contract curve. In a competitive market, A) rices will adjust until the consumers choose bundles that are on the contract curve. p B) o adjustments need to be made. n C) he contract curve will shift to connect these bundles. t D) he indifference curves will shift back to the contract curve. t 33) For a monopoly, marginal revenue is less than price because A) he firm has no supply curve. t B) he firm can sell all of its output at any price. t 33) ______ 32) ______ 31) ______ 30) ______ 29) ______ 28) ______ 27) ______ 26) ______ 25) ______ C) he demand for the firmʹs output is downward sloping. t D) he demand for the firmʹs output is perfectly elastic. t 34) One difference between a monopoly and a competitive firm is that A) nly a monopoly faces a downward sloping demand curve. o B) nly a monopoly maximizes profit by setting marginal revenue equal to marginal cost. o C) nly a monopoly is a price taker. o D) one of the above. N 35) The monopoly maximizes profit by setting A) arginal revenue equal to zero. m C) rice equal to marginal cost. p 35) ______ B) rice equal to marginal revenue. p D) arginal revenue equal to marginal cost. m 34) ______ Figure 11.1 36) Figure 11.1 shows the demand and cost curves facing a monopolist. The monopoly maximizes profit by setting price equal to A) 100. $ B) 400. $ C) 300. $ D) 200. $ 36) ______ 37) Figure 11.1 shows the demand and cost curves facing a monopoly. Maximum profit equals A) 100. $ B) 0. $ C) 2,500. $ D) 1,000. $ 38) A profit-maximizing monopolist will never operate in the portion of the demand curve with price elasticity equal to A) . 1 B) . 3 C) /3. 1 D) one of the abovethe price elasticity does not matter. N 38) ______ 37) ______ Figure 11.3 39) Figure 11.3 shows the demand and marginal cost curves for a monopoly. Under monopoly, consumer surplus equals A) + b. a B) + b + c + d + e + f. a C) + b + c. a D) one of the above. N 39) ______ 40) A marketʹs structure is described by A) he ability of firms to differentiate their product. t B) he number of firms in the market. t C) he ease with which firms can enter and exit the market. t D) ll of the above. A 40) ______ ...
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This note was uploaded on 02/22/2010 for the course EC EC 301 taught by Professor Dr.zhu during the Spring '10 term at Michigan State University.
- Spring '10