Download Practice Final Exam

Final Practive Questions (New material only)
Econ 101-5
Spring 2002
The questions herein cover chapters 8, 9, and part of 10 (monopolistic competition is
excluded). The final examination will cover material primarily from these three chapters,
but everything covered in the class is fair game.
1. Which of the following is a characteristic of perfect competition?
a.
b.
c.
d.
e.
easy entry into or exit from the market
a small number of buyers
a high degree of government regulation
a differentiated product
a high degree of collusion
2. The model of perfect competition is most likely to apply to a market where
a. it is difficult for existing firms to exit the market
b. there are a few buyers, and they are uninformed about the degree of product
standardization
c. there are many existing sellers, but it is difficult for new sellers to enter the market
d. one dominant seller must negotiate with one dominant buyer
e. there are many sellers, and they produce a standardized product
3. In perfect competition, no individual producer can significantly affect the market price because
a.
b.
c.
d.
e.
the market is regulated by the government
each producer is ignorant of the market price
each producer provides a very small portion of the total market supply
strictly enforced collusion prevents any producer from acting independently
each firm's product is so different that there is no market price
4. For a perfectly competitive firm,
a.
b.
c.
d.
e.
marginal revenue equals total revenue
total revenue always exceeds total cost
price always exceeds average total cost
marginal cost equals average cost
the marginal revenue curve and the demand curve are the same
5. Suppose that a firm chose an output level where the total cost and total revenue curves intersect. At this
level of output,
a.
b.
c.
d.
e.
the firm is maximizing profits
the firm is minimizing losses
profit is zero
total revenue is maximized
total cost is minimized
6. If the firm's marginal revenue exceeds its marginal cost, it should
a.
b.
c.
d.
e.
raise its price
advertise more
lay off a few employees
cut back its overhead
increase its output
7. Figure I-2 shows the total revenue and total cost data for a perfectly competitive firm. At what output
level will the firm break even?
a.
b.
c.
d.
e.
1
2
3
4
5
8. Figure I-4 shows the marginal costs for a firm in a perfectly competitive market. Suppose that the market
price is $20. What is the profit-maximizing level of output?
a.
b.
c.
d.
e.
0
1
4
5
6
9. If average cost rises as a firm increases its output level,
a.
b.
c.
d.
e.
profits are not being maximized
marginal cost is greater than average cost
profits are maximized
marginal revenue is positive
total cost is minimized
10. If price equals average total cost at the profit-maximizing output level, then in the short run,
a.
b.
c.
d.
e.
profits are positive
profits are negative
the firm will go out of business
the firm will earn zero profit
the firm's supply curve is horizontal
11. In short-run equilibrium, the perfectly competitive firm of Figure I-8 will earn a total economic profit of
a.
b.
c.
d.
e.
zero
$950
$825
$1,425
$575
12. The portion of the marginal cost curve above the minimum point on the average variable cost curve is part
of the perfectly competitive firm's
a.
b.
c.
d.
e.
average revenue curve
effective demand curve
average variable cost curve
supply curve
total revenue curve
13. In a perfectly competitive market,
a.
b.
c.
d.
e.
no firm can earn an economic profit
it is possible for each firm to earn an economic profit in the short run
firms determine the market price and consumers determine the market quantity
consumers determine the market price, and firms decide how much to produce at that price
the market demand curve is a horizontal line at the market price
14. In a perfectly competitive market, firms will exit in the
a.
b.
c.
d.
e.
short run if they are suffering economic losses
short run if they are earning below-normal profit
short run if price exceeds average total cost
long run if they are earning above-normal profit
long run if they are suffering economic losses
15. In the long run, the entry of new firms into a competitive market is typically caused by
a.
b.
c.
d.
e.
government regulation
technological innovation
inflation
economic losses
economic profit
16. In the long-run equilibrium for a perfectly competitive market, firms will choose the level of output where
a.
b.
c.
d.
e.
profit is minimized
short-run average total cost is minimized
long-run average total cost is minimized
short-run profit is maximized
long-run average fixed cost is minimized
17. In long-run equilibrium, every perfectly competitive firm
a.
b.
c.
d.
e.
maximizes its output
chooses its plant size and output level to operate at minimum long-run marginal cost
chooses its plant size and output level to operate at minimum long-run average total cost
earns an economic profit
suffers an economic loss
18. The long-run supply curve is horizontal in a(n)
a.
b.
c.
d.
e.
increasing-cost industry
constant-cost industry
decreasing-cost industry
labor-intensive industry
capital-intensive industry
19. A monopoly is a
a.
b.
c.
d.
e.
price taker
single buyer of an input into production
firm facing a perfectly elastic demand curve
group of firms controlling the price and output for an industry
price setter
20. A monopoly exists because of
a.
b.
c.
d.
e.
barriers to entry
the large number of buyers and sellers
the absence of barriers to entry
collusion among the dominant firms
the absence of exclusive government franchises
21. If cost per unit is minimized when a single producer supplies the entire market, this indicates
a.
b.
c.
d.
e.
the presence of limit pricing
that the single producer is a perfect monopoly
the presence of substantial economies of scale
that the market has been narrowly defined
the existence of a single-price monopoly
22. Patents stimulate innovation by
a.
b.
c.
d.
e.
providing incentives to incur research and development costs
guaranteed profits for those who innovate
prosecuting anyone who purchases the good protected by the patent
providing tax breaks to investors
increasing the interest rate on borrowed funds
23. For the single-price monopoly, marginal revenue is
a.
b.
c.
d.
e.
more important than marginal cost
always more than marginal cost
always less than average cost
always less than the price of output
more significant than total revenue
24. For the monopolist in Figure J-2, which point corresponds to the profit-maximizing level of output?
a.
b.
c.
d.
e.
A
B
C
D
E
25. The profit-maximizing monopoly in Figure J-6 will produce
a.
b.
c.
d.
e.
0 units
225 units
350 units
500 units
none of these
26. The profit-maximizing monopoly in Figure J-6 will charge a price of
a.
b.
c.
d.
e.
$2.50
$3.50
$5.00
$5.75
$3.00
27. The single-price monopoly in Figure J-14 will have an economic profit of
a.
b.
c.
d.
e.
$612.50
$506.25
$250.00
$875.00
none of these
28. In Figure J-14, the total cost to the single price monopoly at the profit-maximizing output is
a.
b.
c.
d.
e.
$1,500.00
$1,137.50
$787.50
$875.00
none of these
29. Rent-seeking activity
a.
b.
c.
d.
e.
is any revenue associated with long-term leases
is any costly action a firm undertakes to acquire or maintain monopoly power
is an attempt to inflate costs and reduce tax liabilities
occurs when a monopoly leases out some of its assets
is any rational action a consumer undertakes in seeking the lowest rent
30. The firm depicted in Figure J-25 is a perfect price discriminator. What is its equilibrium price and output?
a.
b.
c.
d.
P' and Q'
P and Q
P' and Q
each consumer is charged the maximum price he or she is willing to pay, and the
equilibrium output is Q'
e. each consumer is charged the maximum price he or she is willing to pay, and the
equilibrium output is Q
31. Which of the following products would be most difficult to resell?
a.
b.
c.
d.
e.
Girl Scout cookies
suitcases
automobiles
pencils
medical exams
32. A monopoly will produce the same quantity of output as an otherwise similar perfectly competitive
market if
a.
b.
c.
d.
e.
it is a perfect price discriminator
it corners the market
barriers to entry are high enough
resource suppliers have market power too
price is greater than average total cost
33. An oligopoly is a market
a.
b.
c.
d.
e.
dominated by a single seller
dominated by a single buyer
dominated by a small number of strategically interdependent firms
with many buyers and sellers, no barriers to entry and differentiated products
with many buyers and sellers, no barriers to entry and a standardized product
34. An equilibrium occurs in a game when
a.
b.
c.
d.
e.
price equals marginal cost
quantity supplied equals quantity demanded
all independent strategies counterbalance all determinate strategies
all players follow a strategy that negates the strategies of at least one other player
all players follow a strategy that they have no incentive to change
35. Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for
repair work and a high price. The yearly economic profits from each strategy are indicated in Figure K12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits.
Which of the following statements is correct?
a.
b.
c.
d.
e.
Matt's dominant strategy is to charge a low price
Brian's dominant strategy is to charge a high price
the dominant strategy for both Brian and Matt is to charge a low price
Matt's dominant strategy is to charge a high price
neither Brian nor Matt has a dominant strategy
36. Brian and Matt own the only two bicycle repair shops in town. Each must choose between a low price for
repair work and a high price. The yearly economic profits from each strategy are indicated in Figure K12. The upper right side of each rectangle shows Brian's profits; the lower left side shows Matt's profits.
Which of the following statements is correct for a one-trial game?
a. the market equilibrium price is the high price
b. a market equilibrium price cannot be established unless Brian and Matt collude
c. a market equilibrium price cannot be established unless Brian or Matt engages in tit-for-tat
strategy
d. a market equilibrium price cannot be established without repeated trials
e. the market equilibrium price is the low price
37. When firms cooperate without an explicit agreement they are engaging in
a.
b.
c.
d.
e.
explicit collusion
tacit collusion
reverse collusion
inclusion
rent seeking
38. Which of the following types of markets would be the most likely to maintain a successful collusive
agreement?
a. a market with many sellers, many buyers, unstable market demand, and privately
negotiated prices
b. a market with few sellers, many buyers, stable market demand, and privately negotiated
prices
c. a market with few sellers, many buyers, stable market demand, and publicized prices
d. a market with many sellers, few buyers, stable market demand, and privately negotiated
prices
e. a market with few sellers, few buyers, unstable market demand, and publicized prices
Final Practice Questions
Answer Key
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A
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C
E
C
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B
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B
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A
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A
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B
C