Download Pdx - Portland State University

PORTLAND STATE UNIVERSITY
EC 201 - PRINCIPLES OF MICROECONOMICS
EXAM THREE -- SPRING 2003
Jack Richards, Instructor
Name: ____________________
OPEN BOOKS AND OPEN NOTES
1. The entry of firms into a competitive market:
a. pushes the equilibrium price upward.
b. reduces profits of existing firms in the market.
c. shifts the market supply curve to the right.
d. Both "b" and "c" are correct.
e. All of the above are correct.
2. Which of the following is/are true for a perfectly competitive market:
a. the market has a downward sloping demand curve.
b. the firm has large economies of scale or size.
c. the firm has a downward sloping demand curve.
d. the firm competes in a market with many good substitutes.
e. Both "a" and "d" are correct.
3. Which of the following is not a characteristic of a perfectly competitive firm:
a. MR declines faster than demand. b. easy entry.
c. no control over price.
d. homogenous product.
e. None of the above are correct
4. Assume that the TWT Cable TV Company has accurately determined that the price elasticity of demand
for cable hookups is -4.0 and that for the monthly service charge it is -0.5. If this firm increases its
monthly service charge by 40% and reduces its hookup charge by 30%, it should expect which of the
following:
a. 20% increase in the number of customers it serves each month.
b. 20% decrease in the number of customers it serves each month.
c. No change in the number of customers it serves each month.
d. 100% increase in the number of customers it serves each month.
e. None of the above are correct.
5. Which, if any, of the following are correct:
a. The long run average total cost curve reflects diminishing returns.
b. The short run average total cost curve reflects economies of size or scale.
c. Economies of size or scale results when larger firms (or plants) have lower production costs compared to
smaller facilities.
d. Short run average total cost curves always reflect investment decisions while longer run average total cost
curves reflect production decisions.
e. Both "a" and "c" are correct.
USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS 6 THRU 18 FOR A FIRM THAT
CONSTRUCTS BARGES FOR MOVING PRODUCTS ON SMALLER RIVERS IN THE PACIFIC
NORTHWEST. ASSUME THAT THE FIRM INITIALLY SELLS THESE BARGES IN A COMPETITIVE
MARKET FOR $36(000) EACH. ALL COST AND REVENUE INFORMATION IS IN THOUSANDS OF
DOLLARS AND ARE MONTHLY DATA.
MONTHLY BARGE
PRODUCTION
0 1 2 3 4 5 6 7 8
9 10 11 12
TOTAL COSTS(000) 10 8 17 28 42 60 85 115 150 200 275 400 550
6. The marginal cost of the eleventh barge constructed each month is:
a. $50,000
b. $125,000
c. $35,000
d. $135,000
e. None of the above are correct.
7.
a.
d.
e.
The average fixed cost when four barges are constructed is:
$2,500
b. $6,125
c. $6,125
Fixed costs cannot be determined with only this information.
None of the above are correct.
8. How high would the market price have to be for this firm to produce nine pole barns each month:
a. above $50,000
b. above $125,000
c. above $75,000
d. Answer can not be determined with only this information.
e. None of the above are correct.
9. If the firm maximizes profit and sells only in its competitive market, it will produce and sell how many pole
barns each month?
a. 5
b. 6
c. 7
d. 8
e. None of the above are correct.
10. If the firm maximizes profit and sells only in its competitive market, its profit each month will be:
a. $138,000 b. $120,000
c. $125,820
d. $240,000
e. None of the above are correct.
FOR QUESTIONS 11 TO 18 ASSUME THAT THIS FIRM HAS ALSO DEVELOPED A UNIQUE STYLE
BARGE THAT IT PATENTS AND CAN SELL ONE BARGE EACH MONTH FOR $100,000 BUT MUST
REDUCE ITS PRICE BY $10,000 FOR EACH ADDITIONAL BARGE IT SELLS EACH MONTH. THE
COST OF THE UNIQUE STYLE BARGE IS THE SAME AS THE COST WHEN IT PRODUCES FOR ITS
COMPETITIVE MARKET (see above). ALL COSTS ARE THOUSANDS OF DOLLARS.
11. If the firm maximizes profit and sells only in its monopoly market, it will produce and sell how many
barges each month?
a. 5
b. 6
c. 7
d. 8
e. None of the above are correct.
12. If this firm sells only in its monopoly market, it can expect to earn a net profit of:
a. $48,000 b. $110,000
c. $125,820
d. $240,000
e. None of the above are correct.
13. If this firm is able to use price discrimination where the current price in its competitive market is $36(000),
it will sell what quantity in its competitive market:
a. two
b. three
c. four
d. five
e. None of the above are correct.
14. If this firm is able to use price discrimination, it will sell what quantity in its monopoly market:
a. four
b. five
c. six
d. seven
e. None of the above are correct.
15. If this firm is able to use price discrimination, how much profit can it expect to earn monthly:
a. $80,000
b. $274,000
c. $248,000 d. $144,000
e. None of the above are correct.
16. If this firm is able to use price discrimination, the average variable cost for each barge it produces is:
a. $2,500
b. $6,125
c. $17,500
d. $30,000
e. None of the above are correct.
17. What is the marginal revenue for the third unit sold in the monopoly market when the firm uses price
discrimination?
a. $60,000 b. $50,000
c. $36,000
d. $30,000
e. None of the above are correct.
18. What is the marginal revenue for the third unit sold in the competitive market when the firm uses price
discrimination?
a. $60,000 b. $50,000
c. $36,000
d. $30,000
e. None of the above are correct.
19. If the price elasticity of demand for rutabagas is - 0.25, then a 4% increase in the price of rutabagas will
result in a decline in sales (i.e. quantity sold) of:
a. 1%
b. 4%
c. 2%
d.25%
e. None of the above are correct.
20. Suppose that when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30.
Using this information we can say that the:
a. firm's ATC is $35. b. firm's total cost is $270.
c. firm's ATC is $57. d. Both "a" and "c" are correct.
e. None of the above are correct.
21. If pork is a good substitute for beef, an increase in the supply of pork is most likely to cause the:
a. demand for beef to shift to the left.
b. demand for beef to shift to the right.
c. supply of beef to shift to the left.
d. supply of beef to shift to the right.
e. Both "a" and "c" are correct.
22. If beef producers reduce their prices to compete with lower prices for pork (see question 21), this is most
likely to cause:
a. Demand for beef to shift to the left.
b. Demand for beef to shift to the right.
c. Supply of beef to shift to the left.
d. Supply of beef to shift to the right.
e. None of the above are correct.
23. If a firm can use price discrimination, it will:
a. Charge the higher price in the market that is most elastic.
b. Charge the lower price in the market that is the most elastic.
c. Charge the higher price in the market that is the most inelastic.
d. Both "b" and "c" are correct.
e. None of the above are correct.
24. The demand for peaches would be:
a. more elastic than the demand for all types of fruit.
b. less elastic than the demand for all types of fruit.
c. would have the same elasticity as the demand for all fruit.
d. could be either more or less elastic than the demand for all types of fruit.
e. None of the above are correct.