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Unformatted text preview: Name Test Form A Economics 1 Final Exam December 8, 2009 True-False Questions: Fill in Bubble A for True, Bubble B for False. 1. A monopoly must sell at the same price to all buyers and faces a downward-sloping demand curve. If it is currently selling at least one unit, then its marginal revenue from selling one more unit will be less than the price at which the additional unit is sold. 2. If a monopolist is able to practice third-degree price discrimination and it charges a higher price in one market than in another, the demand in the market with the higher price is more elastic than the demand in the market with the lower price. 3. If a monopolist must charge the same price to all buyers and if the demand for its product is inelastic, it can increase its profits by decreasing the quantity it sells. 4. In the short run, a firm with a U-shaped average variable cost curve should produce the output that minimizes its average variable cost. 5. Assume that the only input a firm can vary in the short run is the number of workers it hires and that the wage it pays a worker does not depend on how many workers it hires. If the average product of labor falls as the number of workers it hires rises, the firms average variable cost falls as its output increases. 6. A competitive equilibrium results in the largest possible number of transactions in which both buyers and sellers make a profit. 7. Assume the supply curve for a good shifts out (more supplied at every price) and the demand curve for the good does not change. If the total revenue of suppliers increases as a result of this shift, the demand for the good is inelastic. 8. Suppose that the supply curve for a good is perfectly inelastic, and when there is no tax the equilibrium price for this good is $50. In competitive equilibrium, if the government introduces a sales tax of $20 per unit which is collected from buyers, the profits of suppliers will fall and the total consumers surplus of demanders will be unchanged. Economics 1 2 9. To maximize its profits, a firm should hire the number of workers that maximizes the marginal value product of labor. 10. If the production of a good causes a positive externality, a competitive equilibrium in the market for that good may be inefficient. Multiple Choice Questions 11. A monopolist can sell fifty units of a good for a price of $500 per unit. To sell fifty-one units, it would have to lower its price to $495 per unit. What is the marginal revenue of the fifty-first unit? (a) $500 (b) $495 (c) $245 (d) $359 (e)- $250 12. The demand curve for Econ 1 textbooks is given by the equation P = 100- Q, where P is the price of the book and Q is the number of books sold. The variable cost of producing and selling a textbook is constant at $20 per book. The fixed cost is zero. What price would a profit-maximizing monopolist charge for the book?...
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This note was uploaded on 03/20/2010 for the course ECON 1 taught by Professor Bergstrom during the Spring '07 term at UCSB.
- Spring '07