Download past final exam with answers

ECO 102: FINAL EXAM
For questions 1-4 use the table below:
L
0
1
2
3
4
NAME _______________________
K
3
3
3
3
3
Q
0
16
30
42
50
Also assume that the price of the output is 5 dollars per unit and the cost of a unit of labor is 40 dollars.
Also assume that the rental cost of capital is 50 dollars per unit of capital per day.
1)
What is the APL when we hire 3 workers?
a)
4
b)
10
c)
14
d)
15
e)
20
2)
What is the marginal product of labor realized from hiring the second worker?
a)
4
b)
10
c)
14
d)
15
e)
20
3)
What is the marginal cost when only 4 workers are hired?
a)
5
b)
8
c)
1.25
d)
0
4)
What is the average fixed cost when the firm hires 2 workers?
a)
3
b)
5
c)
50
d)
80
e)
150
5)
How many workers should this firm hire if the objective is profit maximization?
a)
0
b)
1
c)
2
d)
4
6)
What is the average variable cost when only one worker is hired?
a)
2.5
b)
3.0
c)
3.5
7)
Which of the following statements is incorrect?
a)
In the long-run the firm is not subject to any constraint
b)
In the short-run the firm can vary its capital stock only
c)
d)
8)
In the short-run the firm can change labor but not capital
The long-run can be viewed as a planning horizon
Profits are maximized when
a)
marginal cost = marginal revenue
b)
marginal cost > marginal revenue
c)
marginal cost < marginal revenue
d)
the relationship between marginal cost and marginal revenue cannot be used to
determine the profit maximizing level of output
For questions 9-10 use the following scenario:
At present the firm hires 3 workers (the minimum needed to operate) with the total labor cost of
$10,000/month. The firm also has a rental agreement on a facility that it uses with the monthly rental cost
to the firm of $2000. The rental agreement is due to expire in seven months. Given these input levels, the
firm is capable of producing 500 units of output each month.
9) What is the break-even price?
a)
4
b)
20
c)
24
d)
25
e)
28
10) What is the shut-down price?
a)
4
b)
20
c)
24
d)
25
e)
28
11) Which of the following will shift the supply function of a competitive firm in the short-run?
a)
an increase in the wage rate paid to workers
b)
an increase in the rental cost of capital
c)
an increase in the interest rate on borrowed financial capital (borrowed to
purchase the capital stock)
d)
none of the above
12) Which of the following statements is false?
a)
the marginal cost function is equal to the average cost function at the
minimum level of the average cost (average total cost)
b)
the marginal cost function is equal to the average variable cost function at
the minimum level of the average variable cost
c)
the marginal cost function is equal to the average fixed cost function
at the minimum level of the average fixed cost
d)
none of the above
13)
Which of the following statements is true
a)
economic profits are likely to be less than or equal to the accounting profits
b)
economic profits are likely to be always equal to the accounting profits
c)
economic profits are likely to be greater than or equal to the accounting profits
d)
none of the above
14)
a)
b)
c)
Which of the following statements is correct?
In the long-run the firm is subject to a constraint
In the short-run the firm can vary its capital stock only
In the short-run the firm can change both labor and capital
d)
e)
The short-run can be viewed as a planning horizon
None of the above statements are correct
15) In which of the following types of firms will the Principal – Agent problem be expected to play a
larger role?
a) sole proprietorships
b) partnerships
c) corporations
d) the Principal-Agent problem does not apply to private firms
16) Assume that the price of X decreases and as a result of that the demand for Y decreases while the
demand for Z increases. From this we can conclude that
a) goods X and Z are substitutes in consumption
b) goods X and Z are complements in consumption
c) goods Y and Z are complements in consumption
d) goods X and Y are unrelated in consumption
17) If we assume the following scenario: as the average income of the consumer increases the demand
for “fast” food decreases, then we can assume that “fast” food is
a) An inferior good
b) A normal good
c) none of the above
18) In which scenario both, the equilibrium price and quantity will decrease at the same time?
a) If the supply increases
b) If both, the supply and demand decrease
c) If the demand decreases
d) If both, the supply and the demand increase
e) None of the above
19) If the supply decreases while the demand increases,
a) the equilibrium price will definitely increase
b) the equilibrium quantity will definitely increase
c) the equilibrium price will definitely decrease
d) the equilibrium quantity will definitely decrease
20) Two goods can be considered to be in the same market if
a) the consumer considers them as complements in consumption
b) the consumer considers them as close substitutes in consumption
c) they are not related in the consumption decision
d) none of the above
21) Which of the following statements best describes most modern economies?
a) most modern economies use a mixed economic system, where elements of socialism
are intermixed with capitalism
b) most modern economies use a pure capitalist model
c) most modern economies use a pure socialistic model
d) none of the above
22) The IMPLICIT cost of taking this class is
a) the tuition cost
b) the cost of the textbook and other materials needed for the class plus the cost of the
tuition
c) the value of your time allocated to this class
d) none of the above
23) Microeconomics is best defined as
a) the branch of economics that studies the economy as a whole
b) the branch of economics that studies the behavior of individual economic entities,
such as firms, consumers…
c) all of the above
d) none of the above
24) The title of our class this semester was
a) Principles of Microeconomics
b) Principles of Macroeconomics
c) Principles of General Economics
d) none of the above
25) Economics is primarily concerned with
a) Efficiency
b) Financial gains
c) Functions of government
d) None of the above
26) Which of the following demand curves will be perfectly inelastic?
a) horizontal
b) vertical
c) downward sloped
d) upward sloped
e) none of the above
27) Under which conditions should we expect a cost increase NOT to increase the price of the
product?
a) if the demand is vertical
b) if the demand is horizontal
c) if the demand is downward sloped
d) if the demand is upward sloped
e) none of the above
28) Assume that the production of good X results in a negative externality, then (assuming the law of
demand and the law of supply hold) which of the following statements will be correct?
a) the level of output of good X is below the socially optimal level
b) the market price of good X is higher than the socially optimal price
c) the level of output of good X is at the socially optimal level
d) the market price of good X is below the socially optimal price
e) none of the above
29) Which of the following statements is incorrect?
a) a profit maximizing firm would never choose to operate in the inelastic range of the
demand
b) a profit maximizing firm would never choose to operate in the elastic range of the
demand
c) total revenues of the firm are maximized at the price level corresponding to the unit
elastic point on the demand
d) elasticity measures price sensitivity of the demand
30) Assume the following scenario, eBay reduces the insertion fees on their auctions by 10% on a
given day, and as a result of that there are 4% more listings listed on that day. What can we
conclude about the value of the elasticity of demand for eBay services by sellers on eBay?
a) the elasticity is about -0.4
b) the elasticity is about -2.5
c) the elasticity is about -0.6
d) none of the above
31) In the previous setup (question 30), we can conclude that at present, given the current value of the
fees charged, eBay is operating in (at) the
a) inelastic range of the demand
b) elastic range of the demand
c) unit elastic point on the demand
d) not enough information is provided
32) Given the setup in question 30, and if the objective of eBay is to increase the profits generated
from the sale of its services to sellers on eBay, would you recommend that eBay
a) increase the fee
b) decrease the fee
c) maintain the same level of the fee
d) not enough information is provided to make the decision
33) Product differentiation can
a) make the demand relatively less elastic
b) make the demand relatively more elastic
c) none of the above
34) Which of the following will make the demand for Delta’s service between Atlanta and Buffalo
less elastic?
a) an entry into this market of another passenger airline carrier
b) an exit from this market of another passenger airline carrier
c) a reduction in the cost of gasoline, and hence the cost of driving between Atlanta and
Buffalo
d) none of the above
35) If a sales tax is imposed on a product with a perfectly inelastic demand, then the burden of the tax
will
a) Entirely fall onto the consumer
b) Entirely fall onto the seller
c) Will be shared equally by the consumer and the seller
d) Mostly be paid by the seller
36) If the cross-price elasticity of demand between two goods is zero, then we can conclude that these
goods are
a) substitutes in consumption
b) complements in consumption
c) unrelated in consumption
37) Medicare and Medicaid programs have relatively (relative to private insurance programs) low copays. In fact, Medicaid has none. Then we can argue that for the recipients of these programs the
demand for healthcare becomes
a) Less elastic, and in the case of Medicaid can become perfectly inelastic
b) More elastic, and in the case of Medicaid can become perfectly elastic
c) None of the above, as these programs are unable to affect the price elasticity of demand
38) In a used car market, asymmetry of information problem helps sellers of cars with
a)
b)
c)
d)
lower quality
higher quality
average quality
none of the above
39) If the demand for a given product has a constant slope and is consistent with the law of demand,
then
a) that demand has a constant elasticity of demand
b) the elasticity of demand ranges from negative infinity to zero
c) the elasticity of demand is one
d) none of the above
40) A change in the price of a product will create
a) an income effect
b) a substitution effect
c) both, income effect and substitution effect
d) none of the above
41) Assume the following: the last gallon of milk that I purchased I valued twice as much as the last
bottle of Coca-Cola. Also assume that the price of milk is 3/gallon, while the price of the bottle of
Coca-Cola is only one dollar. What should I do to maximize my utility?
a) Spend more money on milk and reduce my spending on Coca-Cola
b) Spend more money on Coca-Cola and reduce my spending on milk
c) Do nothing, as I am maximizing my utility already
d) None of the above
42) Which of the following is not a characteristic of a pure public good?
a) in the absence of government provision it will be underprovided
b) provision of the good to one consumer (group) does not diminish the amount available
for other consumers
c) provision of the good to one consumer (group) makes it difficult to exclude another
consumer (group)
d) consumption by one consumer (group) reduces the availability of the good to
another consumer (group)
e) none of the above
For questions 43-45 use the table below. Also, assume that the consumer has 85 dollars and the prices are:
Px = 10 and Py = 5
X
Q
0
1
2
3
4
5
6
7
8
TU X
0
200
375
525
650
750
810
820
820
Q
0
1
2
3
4
5
6
7
8
Y
TU Y
0
50
95
135
170
200
220
230
220
43) Do the preferences above satisfy the law of diminishing marginal utility?
a) Yes in X and No in Y
b) No in X and yes in Y
c) Yes in both goods
d) No in both goods
44) What consumption allocation will maximize the total utility?
a) 5 X and 7 Y
b) 8 X and 0 Y
c) 6 X and 5 Y
d) none of the above
45) Do these preferences exhibit any addictive behavior?
a) yes, in X only
b) yes, in Y only
c) yes, in both goods
d) no
46) Which of the following functions captures the PERFECT COMPLEMENTS in consumption?
a) (X^a)*(Y^b)
b) min [ a*X, b*Y ]
c) a*X + b*Y
d) none of the above
47) If the value of the elasticity of demand is estimated to be – 3, we can conclude that?
a) For every one percent increase in the price we will lose three percent in quantity
sold
b) For every three percent increase in the price we will lose one percent in quantity sold
c) For every one dollar increase in the price the quantity sold will decline by three units
d) None of the above
48) Natural monopolies are characterized by?
a) extreme economies of scale
b) diseconomies of scale
c) a rising LRAC function
d) constant returns to scale
49) Perfect competition results in
a) zero economic profits in the long-run
b) MC being the supply function of the firm
c) Marginal cost pricing (P = MC)
d) All of the above
e) None of the above
50) A profit-maximizing monopoly will set its price to be
a) Equal to the marginal cost
b) Greater than the marginal cost
c) Lower than the marginal cost
Enjoy the rest of your summer!