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Dr. Westerhold
Econ 232
Topic Outline and Review Questions for Final Exam
Final exam is Wednesday, December 15th at 10am (NOT 11AM!!)
The final exam has two components: “new material” and “comprehensive material”. The new material will
constitute approximately 85% of the final exam points.
New Material:
Chapter 10: Production, Costs, Revenues
Short Run Production (total product, marginal product, average product) and shapes of these curves
Short Run Costs (total fixed costs, total variable costs, total cost, marginal cost, average fixed cost, average
variable cost, average total cost)
Fill in charts with short run costs, prices, quantity, total revenue, marginal revenue and profits.
Charts with economics profits, losses, breakeven, and application of shut down rule.
Chapter 11: Perfect Competition
Characteristics of Perfect Competition
Implications for industry demand vs. firm demand, relationship between price and marginal revenue, profit
maximization, short run profitability and graphs, long run breakeven and graphs, efficiency, etc.
Chapter 14: Monopoly
Characteristics of Monopoly
Implications for industry demand vs. firm demand, relationship between price and marginal revenue, profit
maximization, short run profitability, long run profitability, table comparing perfect competition to monopoly
and graphing, discussion of efficiency.
Comprehensive Material: Worth approximately 15 points on exam.
Chapter 3: Demand and Supply (Worth 10 points on exam—probably 2 graphs)
Basic graphs showing current equilibrium price and quantity and then shifting either demand or supply in
response to some underlying change in the market. Predict the direction (increase or decrease) in the
equilibrium price and equilibrium quantity.
Chapter 6: Price Elasticity of Demand and Taxes (worth 5 points on exam).
You will have one short answer “essay” (a paragraph or two) on this material. There are no graphs and no
calculations. You should understand the relationship between elastic demand vs. inelastic demand and what
happens when the government implements a tax in each case including: (a) in which case the government will
raise more tax revenue and why and (b) economic agent bears the burden of the tax and why.
Review Questions:
Use the following chart to answer questions 1-11
Labor
Total Product
Marginal Product Average Product
0
0
--------1
15
A
15
2
40
25
B
3
C
D
20
4
70
E
F
5
G
-2
H
1.
2.
3.
4.
5.
6.
7.
8
9.
10.
11.
What is the value of A?
What is the value of B?
What is the value of C?
What is the value of D?
What is the value of E?
What is the value of F?
What is the value of G?
What is the value of H?
At what labor interval is stage I?
At what labor interval is stage II?
At what labor interval is Stage III?
12) Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually
fell. Which of the following statements is true?
A) The marginal product of the sixth worker must be negative.
B) The average product of the sixth worker is negative.
C) The sixth worker is not as skilled as the fifth worker.
D) The total product becomes negative.
13. A firm's total fixed cost (TFC) is defined as a cost that
A. is dependent on marginal cost.
B. does not change over time.
C. does not change as output changes.
D. All of the above.
Use the following information to answer questions 14-17
Quantity
TC
0
110
1
135
2
175
3
225
4
300
14. What is the value of fixed costs for this firm?
15. What is the value of marginal cost for output level 3?
16. What is the value of TVC for output level 4?
17. What is the value of AFC for output level 2?
18) Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro
is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day.
Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers?
A) $2.00
B) $2.40
C) $4.40
D) $6.80
19) Suppose the total cost of producing 40,000 flash drives is $120,000, and the fixed cost is $30,000.
a. What is the variable cost?
b. When output is 40,000, what are the average variable cost and the average fixed cost?
20. Which of the following is a factor of production that generally is fixed in the short run?
A) raw materials
B) labor
C) a factory building
D) water
21) Which of the following is an example of a long run adjustment?
A) Your university offers Saturday morning classes next fall.
B) Ford Motor Company lays off 2,000 assembly line workers.
C) A soybean farmer turns on the irrigation system after a month long dry spell.
D) Wal-Mart builds another Supercenter.
22) Economic costs of production differ from accounting costs in that
A) economic costs include expenditures for hired resources while accounting costs do not.
B) economic costs add the opportunity costs of a firm using its own resources while accounting costs
do not.
C) accounting costs include expenditures for hired resources while economic costs do not.
D) accounting costs are always larger than economic cost.
23) Which of the following is an implicit cost of production?
A) interest paid on a loan to a bank
B) wages paid to labor plus the cost of carrying benefits for workers
C) the utility bill paid to water, electricity, and natural gas companies
D) rent that could have been earned on a building owned and used by the firm
Henry decides to quit his job (earning $50,000 per year), take his $60,000 in savings, and open a dry
cleaning store. Figure H-1 shows the revenues and expenditures for his first year of operation.
Suppose that Henry could have earned $3,000 in interest on the money used to open the store.
24. His accounting profit would have been:_______________________
25. His economic profit would have been: ________________________
26.
A.
B.
C.
D.
E.
Which of the following statements is false with regard to a monopoly?
monopolists have a downward sloping demand curve
monopolists are efficient
there are significant barriers to entry
monopolists provide a product with no close substitutes
all of the above are true.
27.
A.
B.
C.
D.
E.
Which of the following statements is true regarding a monopoly?
monopolies charge a higher price and produce more than perfect competition.
monopolies charge a lower price and produce less than perfect competition.
monopolies charge a lower price and produce more than perfect competition.
monopolies charge a higher price and produce less than perfect competition.
monopolies charge a higher price and produce the same amount as perfect competition.
28. A monopolist will set the output level where
P = MC
A
.
B. P = MR
C. TR = TC
D. MR = MC
E. P = ATC
29 . Suppose that a monopolist lowers its price from $75 to $70 in order to sell more output. Marginal revenue
will
A. equal $75
B. equal $70
C. be between $75 and $70
D. be less than $70
E. be greater than $75
Price
$100
$ 90
$ 80
$ 70
$ 60
$ 50
Quantity
1
2
3
4
5
6
Figure 9-3
Total Marginal revenue
Total
revenue
Cost
$150
$180
$220
$300
$400
$550
Marginal Cost
30.What is the profit-maximizing level of output for the monopolist in Figure 9-3?
a. 1 unit
b. 2 units
c. 3 units
d. 4 units
e. 5 units
profit
31. The profit-maximizing monopoly in Figure 9-6 will produce (YOU CAN IGNORE LRAC CURVE)
a. 0 units
b. 225 units
c. 350 units
d. 500 units
e. none of these
32. The profit-maximizing monopoly in Figure 9-6 will charge a price of
a. $2.50
b. $3.50
c. $5.00
d. $5.75
e. $3.00
33. Use the following chart to determine the profit maximizing price, output level and profits for perfect
competition vs. monopoly. Show graphically.
P
Q
TR
MR
TC
MC
Profit
120
0
10
100
1
80
80
2
130
60
3
170
40
4
212
20
5
235
Review materials for comprehensive section of final—as mentioned on the topic outline the supply and
demand information you will probably be graphing on your own so make sure you can draw graphs for each
of these questions.
Shifts in Demand and Supply: You should draw each of these out in the space provided. You are more likely to
have these as open ended questions on your exam so be able to draw these!
34. The American Association of Health determines that coffee is good for your health, and
coffee becomes more popular. We would expect to observe that in the market for coffee there is
A. an increase in equilibrium price and quantity.
B. an increase in equilibrium price and a decrease in quantity.
C. a decrease in equilibrium price and quantity.
D. a decrease in equilibrium price and an increase in quantity.
35 If supply decreases and the demand curve does not shift, then the equilibrium price will ______ and the
equilibrium quantity will ____________.
A. rise; rise
B. rise; fall
C. fall; fall
D. fall; rise
36. Apples and oranges are substitute goods. A freeze in Florida destroys a good portion of the
orange crop. All else being held constant
A. There will be a decrease in the quantity supplied of oranges and an increase in demand for apples.
B. There will be a decrease in the supply of oranges, and an increase in the demand for apples.
C. There will be a decrease in the supply of oranges and an increase in the quantity demanded for apples.
D. There will be a decrease in the quantity supplied of oranges and a decrease in the demand for apples.
37. If there a decrease in labor costs within the auto industry, we would expect to see
A. an increase in the quantity supplied of cars.
B. a decrease in the quantity supplied of cars.
C. an increase in the supply of cars.
D. a decrease in the demand for cars.
Price elasticity of demand and taxes: As indicated on the topic outline, this material will be a general essay
question so make sure you can relate this material in an open-ended format. The specifics are provided on the
topic outline.
38. If the government places a tax on a relatively inelastic good compared to an elastic good then
A. total tax revenue will be higher.
B. total tax revenue will be lower
C. the consumer will bear the burden of the tax.
D. both A and C
E. both b and C
39. If the government places a tax on a relatively elastic good compared to an inelastic good then
A. total tax revenue will be higher.
B. total tax revenue will be lower
C. the consumer will bear the burden of the tax (consumer pays more than seller)
D. both A and C
E. both b and C
Answer Key:
1.
15
2.
25
3.
60
4.
20
5.
10
6.
17.5
7.
68
8.
13.6
9.
L0-L2
10. L3-L4
11. L5
12. A
13. C
14. 110
15. 50
16. 190
17. 55
18. B
19. a. Variable cost = total cost - fixed cost. So, $90,000 = $120,000 - $30,000.
b. AVC = VC/Q = $90,000/40,000 = $2.25. AFC = FC/Q = $30,000/40,000 = $0.75
20. C
21. D
22. B
23. D
24. 40,000
25. -13,000
26. B
27.D
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
D
D
C
C
C
monopoly would produce 2 units at a price of$80 each with profits of $30. perfect competition would
produce 3 units at a price of $60 each and profits of $10.
A
B
B
C
D
B