Micro2 - ©Prep101 www.prep101.com/freestuff Micro Practice...

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Unformatted text preview: ©Prep101 www.prep101.com/freestuff Micro Practice Exam 2 Q1. Kyle is a recent graduate of a high school. He faces two options: attend a local college or start working at the local gas station. The pay at the gas station is $12,000 a year. The cost of tuition at the college is $5,000, the cost of textbooks is $200, and the cost of meals is $2,400 a year. What is Kyle’s opportunity cost of attending a college? a) b) c) d) e) $17,200 $19,600 $5,200 $7,600 $12,000 Q2. Jerry and Susan both can produce goods A and B. Jerry must reduce production of good A by 2 units to produce a unit of good B. Susan must reduce production of good A by 3 units to produce a unit of good B. Which of the following statements is true? a) b) c) d) e) Jerry has a comparative advantage in the production of good A Susan has a comparative advantage in the production of good B Jerry has an absolute advantage in the production of good B Jerry has a comparative advantage in the production of good B Susan has an absolute advantage in the production of good B Use the following information on the quantities demanded and supplied in equilibrium, before and after a pest problem strikes barley farmers, to answer question 3: North South Barley before after 200 60 20 10 Beef before after 100 40 8 100 Oatmeal before after 20 100 100 120 Q3. If barley and oatmeal are substitutes in consumption, in the North there is a) b) c) d) e) An increase in supply of oatmeal An increase in demand for oatmeal An increase in the quantity of oatmeal supplied A decrease in the quantity of oatmeal supplied b) and c) Page 1 of 23 ©Prep101 www.prep101.com/freestuff Tony and Martha both can produce good A and B. Use the following information to answer question 4: Good A Good A 200 200 150 150 100 100 Tony 50 50 50 100 150 200 Good B Martha 50 100 150 200 Q4. Tony and Martha would be better off by trading at a relative price of good A ranging a) b) c) d) e) Between 1/3 and 2 units of good B per unit of good A Between 2 and 3 units of good B per unit of good A Between 1/2 and 3 units of good B per unit of good A Between 1 and 2 units of good B per unit of good A Between 1 and 3 units of good B per unit of good A Page 2 of 23 Good B ©Prep101 www.prep101.com/freestuff Use the following information to answer question 5: Price ($) of good A Quantity Demanded of good A Quantity supplied of good A 10 20 30 40 50 60 65 60 55 50 45 40 45 50 55 60 65 70 Q5. Assume there is a sudden pessimism among consumers and demand for good A decreases by 10 units at each price. At the same time, good A’s production costs rise and supply of good A decreases by 20 units at each price. What are the new equilibrium price and the new equilibrium quantity? a) b) c) d) e) $30; 45 $50; 55 $60; 50 $40; 40 $20; 50 Q6. If the price of good X increases and the quantity of good X sold decreases, a) The supply of good X must have decreased and the demand for good X could have increased, decreased or remained unchanged b) The supply of good X must have decreased and the demand for good X must have remained unchanged c) The supply of good X must have decreased and the demand for good X must have increased d) The supply of good X must have decreased and the demand for good X must have decreased e) The supply of good X must have increased and the demand for good X could have increased, decreased or remained unchanged Page 3 of 23 ©Prep101 www.prep101.com/freestuff Use the following graph for good A to answer question 7: Price I Marginal Cost E A F B C G H D Marginal Benefit Marginal Revenue Q1 Q2 Quantity of good A Q7. Assume initially Q2 units of good are produced. What will happen to the producer surplus if the production is reduced from Q2 to Q1 units? a) b) c) d) e) The producer surplus will increase by AEFB, but will decrease by FGH The producer surplus will decrease by FGH The producer surplus will increase by AEFB The producer surplus will decrease by EHG The producer surplus will decrease by EFG Use the following graph of a competitive market for good Z to answer questions 8 and 9: Price ($) 10 S 8 7 6 4 D 5 11 14 17 Quantity of Z Q8. Which one of the following is true, if price is $6? a) b) c) d) e) The equilibrium quantity is 5 Marginal cost exceeds marginal benefit There is no consumer surplus There is no producer surplus None of the above Page 4 of 23 ©Prep101 www.prep101.com/freestuff Q9. What is the deadweight loss if only 5 units of good Z are produced? a) b) c) d) e) $18 $36 $30 $6 $66 Q10. Suppose oil producing countries increase the supply of oil and as a result their oil revenues decrease. Which of the following statements is correct? a) b) c) d) e) Demand for oil is price inelastic Demand for oil is price elastic Demand for oil is perfectly elastic Demand for oil is perfectly inelastic Demand for oil is unit elastic Q11. Jim’s monthly income has just risen from $3,900 to $4,100. As a result he decides to increase the number of movies he attends each month by 4 percent. Jim’s demand for movies is a) b) c) d) e) Income inelastic Income elastic Price elastic. Price inelastic. Unpredictable Q12. Suppose the quantity demanded of good Z decreases by 10 percent. If the price elasticity of demand for good Z is 2, the price for good Z a) b) c) d) e) Must have increased by 10 percent Must have increased by 20 percent Must have decreased by 10 percent Must have increased by 5 percent Must have decreased by 20 percent Q13. A perfectly elastic supply curve is ___ and a perfectly inelastic supply curve is ___. a) b) c) d) e) Horizontal; vertical Vertical; horizontal Downward sloping; upward sloping Upward sloping; downward sloping None of the above Page 5 of 23 ©Prep101 www.prep101.com/freestuff Q14. A local bakery store selling cheesecake increased its monthly revenue from $1,800 to $2,200 when it raised the price of cheesecake from $9 to $11 per pound. What is the price elasticity of demand for cheesecake? a) b) c) d) e) 0.2 2 0 2 3 Jessica has an annual income of $19,000 and consumes 10 pounds of bologna and 3 pounds of steak. When Jessica’s income increases to $21,000, she starts consuming 6 pounds of bologna and 5 pounds of steak. Use this information to answer questions 15 and 16: Q15. Steak is ___ and bologna is ___. a) b) c) d) e) An inferior good; a normal good A normal good; an inferior good An inferior good; an inferior good A normal good; a normal good; A substitute good; a complementary good Q16. Bologna has an income elasticity of ___ and steak has an income elasticity of___. a) b) c) d) e) 1.5; -1.5 1.0; -1.0 -1.0; 1.0 -0.5; 0.5 -5.0; 5.0 Page 6 of 23 ©Prep101 www.prep101.com/freestuff Suppose the market for good A is regulated and there is a strictly enforced price ceiling at $25 per unit. Use the following graph to answer question 17: Price ($) S 45 35 25 D 20 40 60 Quantity of good A Q17. Which of the following statements is true about the market for good A? a) b) c) d) e) 20 units of good A are sold at a price of $25 per unit 60 units of good A are sold at a price of $25 per unit 20 units of good A are sold at a price of $45 per unit 40 units of good A are sold at a price of $35 per unit 60 units of good A are sold at a price of $45 per unit Use the following table to answer questions 18: Wage (dollars per hour) 11 10 9 8 Labour supplied (hours per week) 5000 4000 3000 2000 Labour Demanded (hours per week) 2000 2500 3000 3500 Q18. Suppose the labour market is regulated and there is a minimum wage set at $10 per hour. If demand for labour increases by 1,500 hours per week at each wage level, unemployment _____ and the wage _____ . a) b) c) d) e) Will increase by 1,500 hours; will remain at $10 an hour Of 1,000 hours will be eliminated; will increase to $10 an hour Of 1,500 hours will be eliminated; will remain at $10 an hour Will increase by 1,000 hours; will remain at $10 an hour Will not affected; will decrease to $9 an hour Page 7 of 23 ©Prep101 www.prep101.com/freestuff Suppose good X is a prohibited good. Use the following table to answer question 19: Price of good X ($) Quantity of good X Demanded Quantity of good X supplied 11 5000 3000 12 4000 4000 13 3000 5000 14 2000 6000 15 1000 7000 Q19. Which of the following is true if a $1-per-unit cost of breaking the law is imposed on both the buyers and sellers? a) b) c) d) e) 4000 units will be sold at $12 per unit 3000 units will be sold at $12 per unit 3000 units will be sold at $13 per unit 4000 units will be sold at $11 per unit 5000 units will be sold at $13 per unit Use the following graph to answer question 20: Wage ($ per hour) S 9 8 7 6 5 D 50 100 150 200 250 Labour (hours) Q20. Suppose initially the minimum wage is set at $9 per hour. What will happen to the level of unemployment if the minimum wage is lowered to $6 per hour? a) b) c) d) e) Unemployment of 200 hours will be eliminated Unemployment will decrease by 100 hours Unemployment will increase by 100 hours Unemployment will increase by 200 hours Unemployment level will not be affected Page 8 of 23 ©Prep101 www.prep101.com/freestuff Use the following graph to answer question 21: Price Quota 7 S 6 5 4 3 D 5 10 15 20 25 Quantity Q21. If a regulatory agency restricts the production of an agricultural product to 10 units, a) b) c) d) e) There will be a surplus of 5 There will be a deadweight loss of 10 There will be a deadweight loss of 5 There will be a surplus of 10 There will be a deadweight loss of 25 Q22. Charlie likes oranges and grapes. Oranges sell for $1.50 per pound and grapes sell for $2.50 per pound. Currently Charlie is in consumer equilibrium. If the price of oranges rises to $2.50 per pound, which of the following statements is true about the new consumer equilibrium? a) b) c) d) e) The marginal utility of oranges will be equal to the marginal utility of grapes The marginal utility of oranges will be greater than the marginal utility of grapes The marginal utility of grapes will be greater than the marginal utility of oranges Both b) and c) are possible None of the above Page 9 of 23 ©Prep101 www.prep101.com/freestuff Suppose there are three consumers in the market. Use the following charts to answer question 23: P P P Demand (Steve) 4 4 2 Demand (Jan) Demand (George) 2 1 2 3 4 Quantity 4 2 1 2 3 4 Quantity 1 2 3 4 5 6 Quantity Q23. What will happen to the quantity demanded in the market if the price increases from 2 to 4? a) b) c) d) e) The quantity demanded in the market will increase by 4 The quantity demanded in the market will decrease by 2 The quantity demanded in the market will increase by 2 The quantity demanded in the market will decrease by 4 The quantity demanded in the market will not change Q24. A change in _____ changes the slope of the budget line; a change in ____ changes the position of the budget line. a) b) c) d) e) Real income; the relative price The relative price; real income Preferences; real income The relative price; preferences Both a) and c) are possible Q25. Sandra consumes apples (measured on the x-axis) and peaches (measured on the yaxis). Suppose the price of apples increases 2-fold and the price of peaches remain unchanged. If Sandra’s income increases 2-fold, her budget line will a) b) c) d) e) Shift left but not change slope Not shift but become flatter Shift right but not change slope Shift right and become steeper Shift right and become flatter Page 10 of 23 ©Prep101 www.prep101.com/freestuff Q26. Suppose Firm A can produce a unit of output with 12 hours of labour and 6 units of material. Firm B can produce a unit of output with 10 hours of labour and 8 units of material. Firm C can produce a unit of out put with 12 hours of labour and 8 units of material. If the prices of labour and material are $15 and $8 a unit respectively, which firm(s) is (are) not technologically efficient? a) b) c) d) e) Firm C Firm A Firm B Firms C and B All firms are technologically efficient. Use the following information to answer question 27: Steel Industry Firm Sales A 200 B 180 C 150 D 120 The rest of the industry 350 Coal Industry Firm E F G H I J The rest of the industry Q27. What is the four-firm concentration ratio for the steel industry? a) b) c) d) e) 35 percent 65 percent 20 percent 38 percent 40 percent Use the following table to answer question 28: Method A B C Quantity of Labour 10 15 20 Quantity of Capital 15 12 10 Page 11 of 23 Sales 200 160 140 100 60 40 100 ©Prep101 www.prep101.com/freestuff Q28. Which of the threes methods of production is (are) technologically efficient? a) b) c) d) e) Method A Method B Methods B and C Methods A and B Methods A, B, and C Suppose there are only 4 firms in the Steel industry and 5 firms in the Coal industry. Use the following information to answer question 29: Steel Industry Firm A B C D Coal Industry Firm E F G H I Sales 350 300 250 100 Q29. The Herfindahl-Hirschman Index shows that a) b) c) d) e) The coal industry is more concentrated than the steel industry The steel industry is not highly concentrated The steel industry is more concentrated than the coal industry The coal industry is not highly concentrated None of the above Page 12 of 23 Sales 300 250 200 150 100 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 30: MC P rice and Cost ATC 7 5 15 Quantity Q30. Suppose, in the short run, the market price of a good is $5. A firm operating in a perfectly competitive market will produce ____units of output and make an economic____. a) b) c) d) e) Less than 15 units; loss of less than $30 Less than 15 units; profit of more than $30 More than 15 units; profit of less than $30 More than 15 units; loss of more than $30 12 units; loss of $20 Q31. If a profit-maximizing firm in perfect competition is incurring economic losses, but is not shutting down, then it must be producing a level of output where a) b) c) d) e) Marginal cost is below average variable cost Marginal cost is greater than average total cost Marginal cost is greater than average variable cost, but is below average total cost Marginal cost is greater than average total cost, but is below average variable cost Marginal cost exceeds marginal revenue Page 13 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 32: Price A B MC E G F C D H I MR Q1 Q2 D Quantity Q32. What is the redistribution of surplus from consumer to the producer under singleprice monopoly, as compared to perfect competition? a) b) c) d) e) BEGC BEHI CGHD BEFC BEHD Q33. Suppose a single-price monopoly makes no economic profit. If the monopoly sells 100 units and incurs $900 in variable costs and $400 in fixed costs, what is the equilibrium price? a) b) c) d) e) $9 $4 $5 $13 Cannot be determined with given information Page 14 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 34: Price MC 200 180 170 160 140 ATC D2 110 MR2 D1 80 60 MR1 40 20 50 250 350 400 500 550 650 Quantity Q34. Assume in monopolistic competition, a profit maximising firm faces demand curve D1. Firm’s excess capacity is a) b) c) d) e) 100 250 500 0 125 Page 15 of 23 ©Prep101 www.prep101.com/freestuff Suppose a firm produce Q* units of output at charges price P*. Use the following figure to answer question 35: Price MC2 MC1 P* MR2 MR1 D Q* Quantity Q35. Suppose a firm’s marginal cost curve is given by MC1. What will happen if firm’s variable cost increases? a) If marginal cost remains below MC2, the firm will continue producing Q*, but will increase its price b) If marginal cost remains below MC2, the firm will continue producing Q*, but will lower its price c) If marginal cost remains below MC2, the firm will continue producing Q* and the price will remain at P* d) The firm will decrease production and produce less than Q* e) The firm will increase production and produce more than Q* Page 16 of 23 ©Prep101 www.prep101.com/freestuff Use the following information on per unit prices and game payoffs to answer question 36: Firm B $3 per unit $2 per unit $3 per unit A: $300 B: $300 A: $800 B: $100 $2 per unit A: $800 B: $100 A: $400 B: $400 Firm A Q36. What is the most likely outcome? a) b) c) d) e) Firm A charges $3 and firm B charges $2 Firm A charges $2 and firm B charges $3 A cycle of $2, then $3, etc. Both firms charge $3 Both firms charge $2 Q37. Suppose there are two firms in the industry, firm A and firm B. The firms enter into a collusive agreement to share the market equally. If either firm cheats, the one that cheats makes a profit of $300, while the complier loses $100. If neither firm cheats, each makes $200 profit. Suppose the game is played repeatedly. What is the cooperative equilibrium? a) b) c) d) e) Each firm makes $300 in each period Each firm loses $100 in each period Each firm makes $200 in each period Each firm makes $0 in each period Cooperative equilibrium is not possible between these firms Q38. A pizza shop is considering buying some new ovens. Each oven costs $3,000, and is expected to last for 2 years before is wears out. The ovens will generate an annual MRP of $1,815 for the first oven, $1,694 for the second oven and $1,500 for the third oven. Assume all revenues are earned at the end of the year. If the rate of interest is 10 percent, how many ovens will the pizza shop buy? a) b) c) d) e) none 1 2 3 Cannot be determined with given information Page 17 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 39: Wage rate S 20 16 12 8 4 D 1 2 3 4 5 Labour Q39. Suppose the goods market is competitive and the price of a unit of output is $4. The marginal product of the last unit of labour hired is ________. If the reservation wage rate is $4, labourers’ economic rent is ______and opportunity cost is ______. a) b) c) d) e) 3 units of output; $12; $24 4 units of output; $12; $24 3 units of output; $24; $12 5 units of output; $36; $0 2 units of output; $0; $36 Use the following figure to answer question 40: Wage rate (S per hour) MCL S $12 $10 $8 MRP 10 15 16 20 Labour Q40. Suppose this labour market is controlled by a monopsony. If a minimum wage low is passed and now the employer is required to pay at least $10 an hour, a) b) c) d) e) 10 units of labour will be hired 15 units of labour will be hired 16 units of labour will be hired 20 units of labour will be hired None of the above Page 18 of 23 ©Prep101 www.prep101.com/freestuff Q41. Suppose a family earns zero income and receives a monthly transfer payment of $2,000 from the government. If the family earns $500 in a month, the government payment drops to $1,500. What is the marginal tax rate in this case? a) b) c) d) e) 20 % 25% 50% 75% 100% Use the following figure of markets for high-skilled and low-skilled labour to answer questions 42 and 43: Wage rate 15 SH 12 SL 9 DH 6 DL 3 10 20 30 40 50 Labour Q42. What is the marginal revenue product of skill? a) b) c) d) e) 12 9 7.5 6 3 Q43. What is the compensation for cost of acquiring skill? a) b) c) d) e) 12 9 6 4.5 3 Page 19 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure to answer questions 44 and 45: S + tax Price $ 50 S 40 30 D2 20 D1 10 20 40 50 60 70 Quantity Q44. Suppose the supply curve of a commodity is given by S. If an excise tax is imposed at the rate of $15 a unit, which of the following statements is correct? a) Sellers will pay most of the tax b) Sellers and buyers will share the tax burden equally c) Sellers will pay most of the tax if demand curve is given by D2, and buyers will pay most of the tax if the demand curve is given by D1 d) Sellers will pay most of the tax if demand curve is given by D1, and buyers will pay most of the tax if the demand curve is given by D2 e) None of the above Q45. The ____the demand curve, the ____ the deadweight loss from an excise tax a) b) c) d) e) More inelastic; bigger More elastic; smaller More elastic; bigger Steeper; bigger None of the above Page 20 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure of a natural monopoly to answer question 46: Price ($) 15 12 ATC (inflated ) 10 9 ATC 6 MC 3 MR 10 20 30 D 40 Quantity Q46. If the regulator is able to correctly assess the monopoly’s average total cost curve, the deadweight loss arising from rate of return regulation is a) b) c) d) e) $60 $40 $30 $15 $0 Use the following figure of a Crown Corporation to answer question 47: Price ($) 24 20 16 ATC (inflated) 12 ATC 8 MC 4 D 10 20 30 40 50 Quantity Q47. Suppose a budget maximizing Crown Corporation that obeys the marginal cost pricing rule inflates its costs so that ATC (inflated) equals $17. How much output will be produced? a) b) c) d) e) 40 30 20 10 0 Page 21 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 48: Price ($/unit) Marginal social cost 18 Marginal private cost 15 12 9 Demand 40 60 80 Quantity Q48. In order to promote an efficient allocation of resources, the government could impose an excise tax equal to a) b) c) d) e) $15 $12 $9 $6 $3 Page 22 of 23 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 49: Cost & benefit ($) MSC 12 10 MPC 8 6 4 D=MB 0 50 70 Quantity Q49. Suppose the government wants to use marketable permits to enforce the efficient level of output. If one permit allows a firm to produce one unit of output, the government should sell ____ permits which will trade at a price of ____each. a) b) c) d) e) 50; $4 50; $6 50; $8 20; $6 20; $4 Use the following figure to answer question 50: $ S = MC 5 4 3 MSB 2 1 MB = D 5 10 15 20 25 Quantity Q50. Under public provision, a deadweight loss equal to ___ associated with the externality will be eliminated. a) $20 b) $15 c) $10 d) $5 e) $0 Page 23 of 23 ...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

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