Mid_Term_MCs

Mid_Term_MCs - MULTIPLE CHOICE. Choose the one alternative...

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Unformatted text preview: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question and write your answer on the solution sheet. 1) The strategy that is best no matter what other players do is called a A) payoff. B) Nash equilibrium. C) dominant strategy. D) profit-maximizing strategy. E) prisoners dilemma. Use the figure for the questions below. 2) The figure above shows marginal revenue and cost curves for a perfectly competitive firm. If the price of the product falls to $7.50, which of the following statements is TRUE? A) The marginal cost curve will shift to reflect the new price. B) The firm will shut down. C) The firm will continue to produce the same level of output. D) Minimum average total cost will change. E) The firm will make an economic profit of zero. 3) If the firm is maximizing per unit profit, how much profit will it make? A) $500 B) $0 C) $125 D) $187.50 E) $150 4) When incomes rise, A) many demanders drop out of the market. B) the demand for normal goods drop. C) the demand for normal goods rise. D) expectations of future price changes improve. E) there is no effect on the demand for normal goods. 5) In economics, the long run is A) a time period in which no inputs can be varied. B) a time period in which there is at least one fixed input. C) five years. D) a time period in which all inputs can be varied. E) one year. Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 1 | P a g e 6) A key problem with centrally planned economies is that they A) are based on the principle of entropy. B) never reach an unemployment level of zero. C) tend to face inflationary pressures. D) grow too fast for the government to control adequately. E) do not create the right incentives for firms to meet consumer desires and for workers to work hard. 7) If a firm shuts down in the short run, its profit will be equal to A) FC B) -VC C) zero D) It depends on the firm and the market. E) (FC + VC) 8) Consider the following statements about perfectly competitive markets. I. It is unlikely that firms in competitive markets have extensive economies of scale. II. Firms in competitive markets can enter and exit freely. III. Firms in competitive markets have no fixed costs. A) I is true; II and III are false. B) All three statements are false. C) I and III are true; II is false. D) All three statements are true. E) I and II are true; III is false. 9) A perfectly elastic demand curve is one where buyers are so A) insensitive to price that quantity demanded cannot be calculated. B) sensitive to price that quantity demanded becomes infinity for even the smallest increase in price. C) insensitive to price that quantity demanded becomes infinity for even the smallest increase in price. D) sensitive to price that quantity demanded becomes zero for even the smallest increase in price. E) insensitive to price that quantity demanded becomes zero for even the smallest increase in price. Use the table for the question below. 10) The table above gives marginal cost data for a perfectly competitive firm. The current equilibrium price of the product is $25. What is the profit-maximizing output? A) 2 B) 7 C) 5 D) 6 E) 0 Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 2 | P a g e Use the figure for the question below. 11) Which of the following statements is true? A) The United States should import chicken from Argentina in exchange for beef. B) The United States should not export chicken to Argentina in exchange for beef. C) Trade would cause the consumption possibilities frontiers of both countries to be inside their respective production possibilities frontiers. D) The United States should export chicken to Argentina in exchange for beef. E) Given these particular production possibilities frontiers, trade would benefit the United States only. 12) Jeff consumes onion rings and orange soda. Holding Jeffs utility constant, as he gives up more onion rings to get soda, the marginal utility that he gets from soda ________, and his marginal rate of substitution (of onion rings for soda) ________. A) increases; decreases B) decreases; decreases C) remains constant; decreases D) decreases; increases E) increases; increases Use the figure for the question below. 13) The figure above shows a monopolist. The profit-maximizing price and output for this monopolist are $95 and 50, respectively. The deadweight loss due to monopoly is A) $1875. B) $1000. C) $3750. D) $5625. E) $1375. Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 3 | P a g e 14) Governments allow natural monopolies to be the only firm in the market because A) the firm has spent resources on rent-seeking. B) scale economies make it more efficient to have a single firm in the market. C) they wish to be able to tax large firms. D) natural monopolies encourage innovation. E) licensing can keep undesirable firms out of local markets. Use the figure for the questions below. 15) Sam buys widgets and gadgets with his income of $500. Widgets cost $10 each, and gadgets cost $5, and Sam is currently maximizing utility at point D. According to the graph, what will happen if Sams income falls to $250? A) Sams budget line is now , and he will buy fewer widgets and gadgets. B) Sams budget line is now , and he will buy more widgets and gadgets. C) Sams budget line is now , and he will buy fewer widgets and gadgets. D) Sams budget line is now , and he will buy fewer widgets and more gadgets. E) Sams budget line is now , and he will buy more widgets and gadgets. 16) Sam buys widgets and gadgets with his income of $500. Widgets cost $10 each, and gadgets cost $5. Identify his current utility-maximizing point on the figure above. A) A B) B C) C D) D E) E 17) The figure above shows the demand curve and marginal revenue for a monopolist. Suppose that the firm is currently charging a price of $75. What is the marginal revenue from lowering the price to $74? A) < $75 B) $1,950 C) $100 D) $26 E) $1,875 Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 4 | P a g e 18) Use the figure below for the following question. The graph above shows a consumers utility-maximizing choice of goods X and Y at two different income levels. Based on the graph, good X is a(n) ________ good, and good Y is a(n) ________ good. A) inferior; inferior B) normal; inferior C) normal; normal D) inferior; normal E) The type of goods cannot be determined without further information. 19) Use of the midpoint formula solves the problem that A) the more common method of calculating percent changes requires more computations. B) price increases tend to have greater elasticities than price decreases. C) percent increases equal percent decreases over the same range of numbers. D) price increases yield positive elasticities while price decreases yield negative elasticities. E) price increases yield inelastic results while price decreases yield elastic results. 20) One reason why high prices are associated with a high quantity supplied is that A) higher output levels lead to higher transportation costs. B) suppliers need to be compensated for higher production costs of higher output levels. C) suppliers are reluctant to offer quantity discounts unless pressured to do so. D) consumers expect higher prices for greater quantities. E) quality is higher as more goods are produced because of the learning curve so consumers are willing to pay more. Use the table for the question below. The price of cola is $1 and the price of pizza is $3 21) Suppose that with an income of $17, the consumer chooses to buy five slices of pizza and three colas. Which of the following is a correct statement about this choice? A) This is not a utility-maximizing choice; at the current income level, the consumer should buy more pizza and less cola. B) This is utility-maximizing choice at this income level. C) This is not a utility-maximizing choice; at the current income level, the consumer should buy more cola and less pizza. D) This is not a utility-maximizing choice; at current income, the consumer cannot afford to buy this many goods. E) This is not a utility-maximizing choice; at current income, the consumer can buy more of both goods. Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 5 | P a g e 22) Currently, average product of labor is 20 units per worker. If an additional worker is hired and produces 10 units, which of the following statements must be true? A) The average product of labor is decreasing. B) The next worker hired will only produce 5 units. C) The firm will be able to pay the last worker less than previous workers D) Total product is decreasing. E) The last worker is less productive and should not have been hired. 23) Adding the 5th worker causes the output of the firm to rise from 90 to 125 units, and causes average productivity to rise to 25. Which of the following is a TRUE statement? A) Adding one more worker will cause total output to fall. B) The average product of labor was 20 when there were only 4 workers. C) There are diminishing returns to labor at this point. D) The marginal product of the 4th worker was less than 25. E) The average product of labor was less than 25 when there were only 3 workers. 24) Which pair comes from an elastic demand curve? A) A three percent increase in price leads to a half percent decrease in quantity demanded. B) A one percent increase in price leads to a one percent decrease in quantity demanded. C) A six percent decrease in price leads to a one percent increase in quantity demanded. D) A six percent increase in price leads to a one percent increase in quantity supplied. E) A one percent increase in price leads to a five percent decrease in quantity demanded. 25) Suppose the elasticity of demand for a seasonal allergy medicine is 2.3 in Arizona and 1.2 in Colorado. If the price of the medicine were originally $1 in both locations, we can conclude that A) the revenue effects cannot be compared for such disparate geographic locations. B) a $0.50 increase in price will cause an equal percentage drop in quantity demanded in both areas. C) a $0.50 increase in price will cause a smaller percentage drop in quantity demanded in Arizona than in Colorado. D) a $0.50 decrease in price will cause decreases in quantity demanded in both Arizona and in Colorado E) a $0.50 increase in price will cause a larger percentage drop in quantity demanded in Arizona than in Colorado. Use the table for the question below. 26) Suppose both Mexico and the United States produce 20 footballs each. If Mexico decides to specialize in candy-making and the United States specializes in football production, then A) total football production would rise from 40 to 80. B) both countries would have more available to consume. C) total candy production would rise from 70 pieces to 80 pieces. D) both countries would have opportunities for mutually beneficial trade. E) All of the above are correct. 27) The Hirfindahl-Hirschman Index (HHI) is calculated by A) adding the profits of the top four firms in the industry. B) dividing the profits of the top four firms by total profits. C) multiplying the market shares of the top four firms in the industry. D) adding the squared market shares of all firms in the industry. E) adding the market shares of the top four firms in the industry. Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 6 | P a g e Use the figure for the question below. 28) The figure above shows a monopolistically competitive firm. Given the demand curve, what is the lowest price at which this firm will produce in the short run? A) $140 B) $80 C) $75 D) $100 E) $130 Use the figure for the question below. 29) Given Paulas and Jaimes demand, total market demand at $10 is A) 15 units. B) 8 units. C) 7 units. D) 19 units. E) 9 units. 30) The reason taxes impose a burden on demanders is that taxes A) lower the price paid and increase quantity demanded, causing a loss in consumer surplus. B) raise the price paid and decrease quantity demanded, causing a loss in consumer surplus. C) raise the price paid and increase quantity demanded, causing a gain in consumer surplus. D) raise the price paid and decrease quantity demanded, causing a gain in consumer surplus. E) lower the price paid and decrease quantity demanded, causing a loss in producer surplus. Principles of Economics Spring 2008 S. Gulati MidTerm Exam March 12, 2008 7 | P a g e ...
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