UNIT 1

1. Which of the following would cause quantity demanded to change without shifting the demand curve?

A. A change in income

B. A change in the sales price of the good

C. A change in tastes and preferences

D. A change in the price of a substitute good

A. A change in income

B. A change in the sales price of the good

C. A change in tastes and preferences

D. A change in the price of a substitute good

2. An upward sloping supply curve implies that

A. quantity supplied increases when price decreases

B. quanity supplied increases when price increases

C. there is no relationship between price and quantity supplied

D. all of the above are incorrect

A. quantity supplied increases when price decreases

B. quanity supplied increases when price increases

C. there is no relationship between price and quantity supplied

D. all of the above are incorrect

3. If the law requires apartment building owners to lower rent, which of the following would most likely happen in the short run, other things constant:

A. the supply of apartment units will shift leftward.

B. the supply of apartment units will shift rightward.

C. the quantity of apartment units supplied will rise.

D. the quantity of apartment units supplied will fall.

A. the supply of apartment units will shift leftward.

B. the supply of apartment units will shift rightward.

C. the quantity of apartment units supplied will rise.

D. the quantity of apartment units supplied will fall.

4. The supply curve of leather jackets would be expected to shift outward as a result of:

A. a decrease in the cost of producing leather jackets.

B. a decrease in the price of leather jackets.

C. an increase in the popularity of leather jackets.

D. the expectation that consumers? income will rise in the future.

A. a decrease in the cost of producing leather jackets.

B. a decrease in the price of leather jackets.

C. an increase in the popularity of leather jackets.

D. the expectation that consumers income will rise in the future.

5. The more the current price excees the equilibrium price

A. the greater the resulting shortage will be

B. the smaller the resulting shortage will be

C. the greater the resulting surplus will be

D. the smaller the resulting surplus will be

A. the greater the resulting shortage will be

B. the smaller the resulting shortage will be

C. the greater the resulting surplus will be

D. the smaller the resulting surplus will be

6. In increase in price and decrease in equilibrium quantity is most likely caused by

A. a leftward shift in supply and a leftward shift in demand

B. a leftward shift in demand and no shift in supply

C. a leftward shift in supply and no shift in demand

D. a rightawrd shift in supply and a rightward shift in demand

A. a leftward shift in supply and a leftward shift in demand

B. a leftward shift in demand and no shift in supply

C. a leftward shift in supply and no shift in demand

D. a rightawrd shift in supply and a rightward shift in demand

7. If there is excess demand in a competitive market, we can expect that

A. prices will rise because some suppliers will find it in their interest to set higher prices

B. prices will fall because suppliers will find it in their interest to increase supply

C. prices will rise because firms will exploit consumers by decreasing supply

D. the supply curve will shift to the right to restore equilibrium

A. prices will rise because some suppliers will find it in their interest to set higher prices

B. prices will fall because suppliers will find it in their interest to increase supply

C. prices will rise because firms will exploit consumers by decreasing supply

D. the supply curve will shift to the right to restore equilibrium

8. When the wage rate paid to labor is below equilibrium

A. the supply of labor increases.

B. the demand of labor decreases.

C. the number of workers seeing jobs exceeds the number of jobs available.

D. the number of jobs available exceeds the number of workers seeking jobs.

A. the supply of labor increases.

B. the demand of labor decreases.

C. the number of workers seeing jobs exceeds the number of jobs available.

D. the number of jobs available exceeds the number of workers seeking jobs.

9. If Microsoft laptops and Sony laptops are substitutes and the price of Sony laptops decreases,

A. demand for Microsoft laptops increases

B. quantity demanded of Sony laptops decreases

C. demand for Microsoft laptops decreases

D. quantity demanded for Microsoft laptops increases

A. demand for Microsoft laptops increases

B. quantity demanded of Sony laptops decreases

C. demand for Microsoft laptops decreases

D. quantity demanded for Microsoft laptops increases

10. If the government enacts a subsidy to pay part of the production cost for bicycles manufactured in the US, what will likely happen?

A. The subsidy will generate a surplus.

B. The supply of bicycles manufactured in the US will increase.

C. The market price for bicycles manufactured in the US will increase.

D. The demand for bicycles manufactured in the US will increase.

A. The subsidy will generate a surplus.

B. The supply of bicycles manufactured in the US will increase.

C. The market price for bicycles manufactured in the US will increase.

D. The demand for bicycles manufactured in the US will increase.

11. If there is an inelastic demand curve, which of the following is true:

A. a seller can raise price to increase total revenue

B. a seller can lower price to increase total revenue

C. a seller cannot increase total revenue by changing price

D. a seller can increase total revenue by either raising or lowering the price.

A. a seller can raise price to increase total revenue

B. a seller can lower price to increase total revenue

C. a seller cannot increase total revenue by changing price

D. a seller can increase total revenue by either raising or lowering the price.

12. If consumers expect their incomes to significantly increase next month,

A. consumers do not change their consumption patterns now.

B. consumers begin consuming more inferior goods now.

C. consumers begin consuming more normal goods now.

D. consumers begin consuming more normal goods next month.

A. consumers do not change their consumption patterns now.

B. consumers begin consuming more inferior goods now.

C. consumers begin consuming more normal goods now.

D. consumers begin consuming more normal goods next month.

13. If consumers expect the price of apples to increase next month,

A. demand for apples increases now.

B. supply of apples increases

C. demand for apples remains unchanged

D. demand for apples falls now.

A. demand for apples increases now.

B. supply of apples increases

C. demand for apples remains unchanged

D. demand for apples falls now.

14. If new production technology that lowers the production costs of computers is introduced, then

A. supply decreases.

B. supply increases.

C. demand increases.

D. elasticity of demand increases.

A. supply decreases.

B. supply increases.

C. demand increases.

D. elasticity of demand increases.

15. If french fries and ketchup are complements and the price of ketchup increases, then

A. there will be a shortage of ketchup.

B. demand for French fries increases.

C. demand for French fries decreases.

D. supply of French fries increases.

A. there will be a shortage of ketchup.

B. demand for French fries increases.

C. demand for French fries decreases.

D. supply of French fries increases.

UNIT 2

1. Using indifference curve analysis, you can identify the point at which a consumer maximizes utility. This is where

A. the indifference curve is tangent to the budget constraint line.

B. the indifference curve intersects the budget constraint line.

C. the slope of the indifference curve is -1.

D. the slope of the indifference curve is twice the slope of the budget constraint line.

A. the indifference curve is tangent to the budget constraint line.

B. the indifference curve intersects the budget constraint line.

C. the slope of the indifference curve is -1.

D. the slope of the indifference curve is twice the slope of the budget constraint line.

2. Along an indifference curve:

A. income is held constant.

B. utility is held constant.

C. the prices of the two goods are held constant.

D. both (B) and (A).

A. income is held constant.

B. utility is held constant.

C. the prices of the two goods are held constant.

D. both (B) and (A).

3. According to diminishing marginal rate of substitution:

A. the indifference curves are straight lines.

B. the indifference curves cannot cross each other.

C. as you give up more and more of one good, you must receive less and less of the

substitute good in exchange to maintain the same amount of satisfaction.

D. as you give up more and more of one good, you must receive more and more of the

substitute good in exchange to maintain the same amount of satisfaction.

A. the indifference curves are straight lines.

B. the indifference curves cannot cross each other.

C. as you give up more and more of one good, you must receive less and less of the

substitute good in exchange to maintain the same amount of satisfaction.

D. as you give up more and more of one good, you must receive more and more of the

substitute good in exchange to maintain the same amount of satisfaction.

4. Which assumption is violated if indifference curves cross?

A. Nonsatiation (more is preferred to less)

B. Consumers try to maximize utility

C. Transitivity of preferences

D. Consumers are knowledgeable

A. Nonsatiation (more is preferred to less)

B. Consumers try to maximize utility

C. Transitivity of preferences

D. Consumers are knowledgeable

5. The slope of a budget constraint with combinations of apples which cost $1 each and orange which cost $0.50 each, with apple on the y-axis and orange on the x-axis is:

A. 0.5

B. 2

C. -2

D. -0.5

A. 0.5

B. 2

C. -2

D. -0.5

6. If we draw a budget line for apples and oranges, with oranges on the x-axis, and the price of oranges doubles. How will the budget line move?

A. It shifts out away from the origin.

B. It rotates along the x-axis away from the origin.

C. It rotates along the y-axis towards the origin.

D. It rotates along the x-axis towards the origin.

A. It shifts out away from the origin.

B. It rotates along the x-axis away from the origin.

C. It rotates along the y-axis towards the origin.

D. It rotates along the x-axis towards the origin.

7. When would the assumption of Marginal Rate of Substitution most likely be violated?

A. When two goods are perfect substitutes.

B. When one of the two goods is an inferior good and the other is a normal good.

C. When one good costs less than half the price of the other.

D. When you are asked to derive a Hicksian demand curve.

A. When two goods are perfect substitutes.

B. When one of the two goods is an inferior good and the other is a normal good.

C. When one good costs less than half the price of the other.

D. When you are asked to derive a Hicksian demand curve.

8. As a consumer moves along a budget constaint

A. income is held constant, but prices change

B. prices are held constant, but income changes.

C. prices and income are held constant, but utility changes.

D. utility is held constant, but prices and income change.

A. income is held constant, but prices change

B. prices are held constant, but income changes.

C. prices and income are held constant, but utility changes.

D. utility is held constant, but prices and income change.

9. If we draw an indifference map (the graph on which we draw indifference curves) for jeans and t-shirts and the price for each doubles,

A. then the indifference curve shifts out.

B. the budget line rotates counterclockwise.

C. the budget line rotates clockwise.

D. the budget line shifts inward towards the origin.

A. then the indifference curve shifts out.

B. the budget line rotates counterclockwise.

C. the budget line rotates clockwise.

D. the budget line shifts inward towards the origin.

10. Using indiffernce curve analysis for laptop computers (on the x-axis) and bicycles (on the y-axis), a demand curve for laptops is derived by

A. allowing the price of laptop computers to change, while holding the price of bicycles

and income constant.

B. allowing the prices of laptop computers and bicycles to change, while holding income

constant.

C. allowing the price of bicycles to change, while holding the price of laptop computers

and income constant.

D. allowing income to change, while holding the prices of both goods constant.

A. allowing the price of laptop computers to change, while holding the price of bicycles

and income constant.

B. allowing the prices of laptop computers and bicycles to change, while holding income

constant.

C. allowing the price of bicycles to change, while holding the price of laptop computers

and income constant.

D. allowing income to change, while holding the prices of both goods constant.

UNIT 3

1. If at least one input is fixed, the time period for which it is fixed is called the

A. short run.

B. long run.

C. planning horizon.

D. the production period.

A. short run.

B. long run.

C. planning horizon.

D. the production period.

2. If labor is the variable input and capital is the fixed input, then marginal product is

A. total quantity of output produced by labor and capital.

B. the change in total product divided by labor.

C. the change in total product divided by the change in labor

D. total product divided by labor.

A. total quantity of output produced by labor and capital.

B. the change in total product divided by labor.

C. the change in total product divided by the change in labor

D. total product divided by labor.

(Δ TP ÷ Δ L)

3. The relationship between average and marginal product is such that when

A. average product is less than marginal product, marginal product will increase.

B. marginal product is equal to average product, average product will increase.

C. marginal product is greater than average product, average product will increase.

D. average product is greater than marginal product, marginal product will increase.

A. average product is less than marginal product, marginal product will increase.

B. marginal product is equal to average product, average product will increase.

C. marginal product is greater than average product, average product will increase.

D. average product is greater than marginal product, marginal product will increase.

(MP > AP, AP↑)

4. Marginal product intersects average product where

A. marginal product is at its maximum.

B. average product is at its minimum.

C. marginal product reflects specialization of labor.

D. average product is at its maximum.

A. marginal product is at its maximum.

B. average product is at its minimum.

C. marginal product reflects specialization of labor.

D. average product is at its maximum.

5. Using table 1 on the supplementary worksheet, answer the following question. The marginal product of the 5th unit of labor is how many units of output?

A. 3

B. 5

C. 11

D. 55

(Was unable to upload table as a picture...Sorry!)

A. 3

B. 5

C. 11

D. 55

A. 30

B. 45

C. 52

D. 55

7. Referring to graph 1 answer the following questions. The range of employment 0-L(1) is the range of output where there is

A. marginal product is increasing.

B. marginal product is positive but diminishing.

C. marginal product is negative.

D. marginal product is constant.

(Couldn't upload the graph as a picture either)

A. marginal product is increasing.

B. marginal product is positive but diminishing.

C. marginal product is negative.

D. marginal product is constant.

8. Referring to graph 1 answer the following questions. The firm will begin to experience ( ) if it employs more than L(2) units of labor.

A. constant marginal product

B. positive but diminishing marginal product

C. increasing marginal product

D. negative marginal product

A. constant marginal product

B. positive but diminishing marginal product

C. increasing marginal product

D. negative marginal product

9. Duality states that the quantity of output where marginal product is maximized

A. average product is maximized.

B. marginal cost is minimized.

C. TVC is minimized.

D. TFC is minimized.

A. average product is maximized.

B. marginal cost is minimized.

C. TVC is minimized.

D. TFC is minimized.

10. Marginal cost intersects average total cost where

A. average total cost is at its minimum.

B. average fixed cost is minimized.

C. marginal product is maximized.

D. average total cost is negative.

A. average total cost is at its minimum.

B. average fixed cost is minimized.

C. marginal product is maximized.

D. average total cost is negative.

11. The cost that increases when output increases is

A. a fixed cost.

B. a sunk cost.

C. an opportunity cost.

D. a variable cost.

A. a fixed cost.

B. a sunk cost.

C. an opportunity cost.

D. a variable cost.

12. The time period when no input is fixed.

A. the short-run

B. an academic semester

C. the medium-run

D. the long-run

A. the short-run

B. an academic semester

C. the medium-run

D. the long-run

13. Over the range of output where specialization of labor generates increasing marginal product,

A. total product is increasing at a constant rate.

B. total product is increasing at an increasing rate.

C. total product is increasing at a decreasing rate.

D. total product is decreasing.

A. total product is increasing at a constant rate.

B. total product is increasing at an increasing rate.

C. total product is increasing at a decreasing rate.

D. total product is decreasing.

14. Over the range of output where specialization of labor generates increasing marginal product,

A. total cost is increasing at a decreasing rate.

B. total cost is increasing at an increasing rate.

C. total cost is increasing at a constant rate.

D. marginal cost is increasing.

A. total cost is increasing at a decreasing rate.

B. total cost is increasing at an increasing rate.

C. total cost is increasing at a constant rate.

D. marginal cost is increasing.

15. At the level of output where marginal cost is minimized,

A. total variable cost switches from increasing at a decreasing rate to increasing at an

increasing rate.

B. total variable cost switches from increasing at an increasing rate to increasing at a

decreasing rate.

C. total variable cost switches from increasing at a constant rate to increasing at a

decreasing rate.

D. total variable cost switches from increasing at a constant rate to increasing at an

increasing rate.

A. total variable cost switches from increasing at a decreasing rate to increasing at an

increasing rate.

B. total variable cost switches from increasing at an increasing rate to increasing at a

decreasing rate.

C. total variable cost switches from increasing at a constant rate to increasing at a

decreasing rate.

D. total variable cost switches from increasing at a constant rate to increasing at an

increasing rate.

16. Average variable cost is equal to

A. total cost divided by the total number of workers.

B. total cost divided by total output minus fixed costs.

C. total variable cost divided the total number of workers.

D. total variable cost divided by total output.

A. total cost divided by the total number of workers.

B. total cost divided by total output minus fixed costs.

C. total variable cost divided the total number of workers.

D. total variable cost divided by total output.

(TVC ÷ TO)

UNIT 4

1.The shutdown point for a firm in a perfectly competitive market is:

A. when the market price is equal to AVC at the profit maximizing level of output.

B. any level of output where MC exceeds MR.

C. a situation where the market price is above AVC but below ATC at the profit

maximizing level of output.

D. when the market price is equal to ATC at the profit maximizing level of output.

A. when the market price is equal to AVC at the profit maximizing level of output.

B. any level of output where MC exceeds MR.

C. a situation where the market price is above AVC but below ATC at the profit

maximizing level of output.

D. when the market price is equal to ATC at the profit maximizing level of output.

2.A firm in a perfectly competitive market will operate at a loss when

A. at the profit maximizing level of output total revenue is less than total fixed costs.

B. at the profit maximizing level of output marginal revenue is greater than AVC but

below ATC.

C. at the profit maximizing level of output total revenue is positive regardless of total

costs.

D. at the profit maximizing level of output total revenue exceeds total fixed costs.

A. at the profit maximizing level of output total revenue is less than total fixed costs.

B. at the profit maximizing level of output marginal revenue is greater than AVC but

below ATC.

C. at the profit maximizing level of output total revenue is positive regardless of total

costs.

D. at the profit maximizing level of output total revenue exceeds total fixed costs.

3.In long-run equilibrium the marginal revenue of a firm in a perfectly competitive market is

A. greater than the breakeven price.

B. equal to the market clearing price.

C. less than the market clearing price.

D. greater than the market clearing price.

A. greater than the breakeven price.

B. equal to the market clearing price.

C. less than the market clearing price.

D. greater than the market clearing price.

4.The marginal revenue of a firm in a perfectly competitive market is

A. increasing over the firm's possible range of output.

B. constant over the firm's possible range of output.

C. equal to the inverse of the firm's marginal cost times the wage paid to labor.

D. declining over the firm's possible range of output.

A. increasing over the firm's possible range of output.

B. constant over the firm's possible range of output.

C. equal to the inverse of the firm's marginal cost times the wage paid to labor.

D. declining over the firm's possible range of output.

5.In the long-run equilibrium of a perfectly competitive market, the zero profit condition exists because

A. barriers to entry arise in the long-run.

B. prices fall in the long-run.

C. firms can freely enter/exit the market in the long-run.

D. prices rise in the long-run.

A. barriers to entry arise in the long-run.

B. prices fall in the long-run.

C. firms can freely enter/exit the market in the long-run.

D. prices rise in the long-run.

6.Referring to graph 1 on the supplementary sheet, the firm's supply curve is:

A. the MC curve from C to A.

B. the MC curve from B to A.

C. the MC curve from D to A

D. the MC curve from C to B

(Couldn't upload the graph)

A. the MC curve from C to A.

B. the MC curve from B to A.

C. the MC curve from D to A

D. the MC curve from C to B

7.A profit maximizing firm producing bottled water in a perfectly competitive market sells 100 bottles of water per day at $1 each. Thus, we can with certainty conclude:

A. the ATC of producing 100 bottles is $1 per bottle.

B. MR of producing 100 bottles is less than $1 per bottle.

C. the AVC of producing 100 bottles is $1 per bottle.

D. the MC of producing 100 bottles is $1 per bottle.

A. the ATC of producing 100 bottles is $1 per bottle.

B. MR of producing 100 bottles is less than $1 per bottle.

C. the AVC of producing 100 bottles is $1 per bottle.

D. the MC of producing 100 bottles is $1 per bottle.

8.A firm's supply curve for a firm in a perfectly competitive market is taken from its

A. total cost curve.

B. marginal cost curve.

C. total variable cost curve.

D. average cost curve.

A. total cost curve.

B. marginal cost curve.

C. total variable cost curve.

D. average cost curve.

9.In long-run equilibrium for a perfectly competitive market, price will equal:

A. a firm's average total cost.

B. a firm's average sunk cost.

C. a firm's marginal fixed cost.

D. a firm's average fixed cost.

A. a firm's average total cost.

B. a firm's average sunk cost.

C. a firm's marginal fixed cost.

D. a firm's average fixed cost.

10.If the firms in an industry in perfect competition are earning negative profits, the market supply curve

A. could shift in or shift out.

B. will fall (shift left).

C. will increase (shift right).

D. will not shift but rotate.

A. could shift in or shift out.

B. will fall (shift left).

C. will increase (shift right).

D. will not shift but rotate.

11.Using graph 2 on the supplement sheet answer the following question. When the firm faces SMC(1) and SATC(1) how much is total cost at the profit maximizing level of output.

A. area BDQ(1)0

B. area CEQ(2)Q(1)

C. area ACQ(1)

D. area ACDB

(Graph not available here)

A. area BDQ(1)0

B. area CEQ(2)Q(1)

C. area ACQ(1)

D. area ACDB

12.Using graph 2 on the supplement sheet answer the following question. When the firm faces SMC(1) and SATC(1) how much profit is the firm earning at the profit maximizing level of output.

A. area CEQ(2)Q(1)

B. area ACDB

C. area ACQ(1)

D. area BDQ(1)O

A. area CEQ(2)Q(1)

B. area ACDB

C. area ACQ(1)

D. area BDQ(1)O

13.Using graph 2 on the supplement sheet answer the following question. When the firm faces SMC(1) and SATC(1) how much TR is the firm earning at the profit maximizing level of output.

A. area BDQ(1)O

B. area CEQ(2)Q(1)

C. area ACQ(1)

D. area ACDB

A. area BDQ(1)O

B. area CEQ(2)Q(1)

C. area ACQ(1)

D. area ACDB

14.Using graph 2 on the supplement sheet answer the following question. When the firm moves into the second short-run period how much profit will the firm earn at the profit maximizing level of output.

A. area AEQ(2)O

B. area AEFH

C. area CEQ(2)Q(1)

D. area BDQ(1)O

A. area AEQ(2)O

B. area AEFH

C. area CEQ(2)Q(1)

D. area BDQ(1)O

15.Using graph 2 on the supplement sheet answer the following question. When the firm moves into the second short-run period how much TC will the firm incur at the profit maximizing level of output.

A. area AEQ(2)O

B. area HFQ(2)O

C. area AEFH

D. area BDQ(1)O

A. area AEQ(2)O

B. area HFQ(2)O

C. area AEFH

D. area BDQ(1)O

16.Using graph 2 on the supplement sheet answer the following question. When the firm moves into the second short-run period how much TR will the firm incur at the profit maximizing level of output.

A. area BDQ(1)O

B. area HFQ(2)O

C. area AEFH

D. area AEQ(2)O

A. area BDQ(1)O

B. area HFQ(2)O

C. area AEFH

D. area AEQ(2)O

17.Using graph 2 on the supplement sheet answer the following question. Where is the long-run equilibrium point?

A. where SMC(1) intersects SATC(1)

B. Q(2)

C. point G

D. point E

. where SMC(1) intersects SATC(1)

B. Q(2)

C. point G

D. point E

UNIT 5

1.The shutdown point for a monopolist is:

A. when the market price is equal to AVC at the profit maximizing level of output.

B. any level of output where MC exceeds MR.

C. a situation where the market price is above AVC but below ATC at the profit

maximizing level of output.

D. when the market price is equal to ATC at the profit maximizing level of output.

A. when the market price is equal to AVC at the profit maximizing level of output.

B. any level of output where MC exceeds MR.

C. a situation where the market price is above AVC but below ATC at the profit

maximizing level of output.

D. when the market price is equal to ATC at the profit maximizing level of output.

2.A monopolist will operate at a loss when

A. at the profit maximizing level of output total revenue is less than total fixed costs.

B. at the profit maximizing level of output the selling price of output is greater than AVC

but less than ATC.

C. at the profit maximizing level of output total revenue is positive regardless of total

costs.

D. at the profit maximizing level of output total revenue exceeds total fixed costs.

A. at the profit maximizing level of output total revenue is less than total fixed costs.

B. at the profit maximizing level of output the selling price of output is greater than AVC

but less than ATC.

C. at the profit maximizing level of output total revenue is positive regardless of total

costs.

D. at the profit maximizing level of output total revenue exceeds total fixed costs.

3.The marginal revenue of a non-price discriminating monopolist is less than AR for all levels of output, except the first unit, because

A. the government imposes a MR schedule that declines at twice the rate of the D=AR

curve.

B. the monopolist must auction each unit off based on buyer's consumer surplus.

C. in order to sell another unit of output the monopolist must drop not only the price of

the next unit sold but also every previous unit sold.

D. the invisible hand of the market forces monopolists to sell their goods at a price below

the demand schedule or face new competition.

A. the government imposes a MR schedule that declines at twice the rate of the D=AR

curve.

B. the monopolist must auction each unit off based on buyer's consumer surplus.

C. in order to sell another unit of output the monopolist must drop not only the price of

the next unit sold but also every previous unit sold.

D. the invisible hand of the market forces monopolists to sell their goods at a price below

the demand schedule or face new competition.

4.Deadweight loss exists in monopoly markets because

A. the profit maximizing monopolist restricts output below the equilibrium level of

output observed in a perfectly competitive market.

B. the government excessively taxes consumers.

C. some mutually beneficial transactions never occur because of price ceilings.

D. some mutually beneficial transactions never occur because of price floors.

A. the profit maximizing monopolist restricts output below the equilibrium level of

output observed in a perfectly competitive market.

B. the government excessively taxes consumers.

C. some mutually beneficial transactions never occur because of price ceilings.

D. some mutually beneficial transactions never occur because of price floors.

5.A monopolist faces a

A. a downward sloping demand curve.

B. a perfectly elastic demand curve.

C. a backward bending supply curve.

D. a horizontal demand curve for its product(s).

A. a downward sloping demand curve.

B. a perfectly elastic demand curve.

C. a backward bending supply curve.

D. a horizontal demand curve for its product(s).

6.All of the following are barriers to entry that result in a monopoly except

A. governmental barriers such as licenses, trademarks, patents, etc.

B. markets where initial start-up, fixed costs are low.

C. markets where incumbant firms' products are viewed as superior to those of new

entrants.

D. markets that demonstrate absolute economies of scale (i.e. Larger firms always

produce more cheaply than smaller firms.).

A. governmental barriers such as licenses, trademarks, patents, etc.

B. markets where initial start-up, fixed costs are low.

C. markets where incumbant firms' products are viewed as superior to those of new

entrants.

D. markets that demonstrate absolute economies of scale (i.e. Larger firms always

produce more cheaply than smaller firms.).

7.If a monopolist is earning a positive economic profit, then

A. new firms will eventually surmount the barriers to entry and the supply curve will shift

to the right in the long-run.

B. no new firms will enter the market because of barriers to entry.

C. the monopolist is maximizing deadweight loss.

D. the government will necessarily intervene to reduce the firm's profits.

A. new firms will eventually surmount the barriers to entry and the supply curve will shift

to the right in the long-run.

B. no new firms will enter the market because of barriers to entry.

C. the monopolist is maximizing deadweight loss.

D. the government will necessarily intervene to reduce the firm's profits.

8.The ultimate goal of monopoly regulation is

A. to increase consumer dead weight loss.

B. to increase quantity produced.

C. to avoid economic efficiency at all costs.

D. to destroy monopolies.

A. to increase consumer dead weight loss.

B. to increase quantity produced.

C. to avoid economic efficiency at all costs.

D. to destroy monopolies.

9.Which method of monopoly regulation results in all of the consumer surplus being capture by the producer.

A. price discrimination

B. MC pricing

C. fair rate of return

D. average cost pricing

A. price discrimination

B. MC pricing

C. fair rate of return

D. average cost pricing

10.Which method of monopoly regulation likely results in a reduction of deadweight loss and certainly ensures a break-even equilibrium.

A. price discrimination

B. average cost pricing

C. unfair rate of return

D. MC pricing

A. price discrimination

B. average cost pricing

C. unfair rate of return

D. MC pricing

11.Which method of monopoly regulation eliminates deadweight loss but often requires the government to nationalize the monopoly.

A. fair rate of return

B. average cost pricing

C. MC pricing

D. price discrimination

A. fair rate of return

B. average cost pricing

C. MC pricing

D. price discrimination

12.The a non-price discriminating monopolist charges

A. the maximum price the market will bear, as reflected by the demand curve.

B. a different price for each customer depending on each customer's personal valuation of

the product.

C. a different price for each unit sold.

D. a different price for each customer based on each customer's elasticity of demand.

A. the maximum price the market will bear, as reflected by the demand curve.

B. a different price for each customer depending on each customer's personal valuation of

the product.

C. a different price for each unit sold.

D. a different price for each customer based on each customer's elasticity of demand.

13.As the elasticity of demand increases,

A. deadweight loss decreases.

B. deadweight loss increases.

C. the equilibrium output in a monopoly market diverges from the equilibrium level of

output in a perfectly competitive market.

D. the marginal cost curve shifts up.

A. deadweight loss decreases.

B. deadweight loss increases.

C. the equilibrium output in a monopoly market diverges from the equilibrium level of

output in a perfectly competitive market.

D. the marginal cost curve shifts up.

14.Using graph 1 from the homework supplement sheet, what is the level of output under fair rate of return regulation?

A. Q(1)

B. Q(2)

C. between Q(1) and Q(2)

D. anywhere below Q(1)

(Graph is unavailable)

A. Q(1)

B. Q(2)

C. between Q(1) and Q(2)

D. anywhere below Q(1)

15.Using graph 1 from the homework supplement sheet, how much profit is the firm earning at the profit maximizing level of output?

A. area ACDB

B. area DEF

C. area ACQ(1)O

D. area BDQ(1)O

A. area ACDB

B. area DEF

C. area ACQ(1)O

D. area BDQ(1)O

Question 16 (1 point)

16.Using graph 1 from the homework supplement sheet, how much revenue is the firm earning under marginal cost pricing?

A. area B*EFQ(1)O

B. zero

C. area B*EQ(2)O

D. area ACQ(1)O

A. area B*EFQ(1)O

B. zero

C. area B*EQ(2)O

D. area ACQ(1)O

17.Using graph 1 from the homework supplement sheet, how much deadweight loss results when the monopolist chooses the profit maximizing level of output?

A. area CDE

B. area CEF

C. area ACIB*

D. area HEB

A. area CDE

B. area CEF

C. area ACIB*

D. area HEB

UNIT 6

1.A monopolistically competitive firm will shut down in the short run if it cannot cover

A. marginal costs.

B. fixed costs.

C. total costs.

D. variable costs.

A. marginal costs.

B. fixed costs.

C. total costs.

D. variable costs.

2.Monopolistic competition has all of the following characteristics except

A. high barriers to entry.

B. many firms.

C. advertising.

D. product differentiation.

A. high barriers to entry.

B. many firms.

C. advertising.

D. product differentiation.

3.The demand curve for a monopolistically competitively firm is __________ because _________.

A. perfectly inelastic, there are no close substitutes for its product.

B. inelastic, there are many close substitutes for its product.

C. highly elastic, there are many close substitutes for its product.

D. perfectly elastic, there are many close substitutes for its product.

A. perfectly inelastic, there are no close substitutes for its product.

B. inelastic, there are many close substitutes for its product.

C. highly elastic, there are many close substitutes for its product.

D. perfectly elastic, there are many close substitutes for its product.

4.A monopolistically competitive firm maximizes profits by producing to the point at which

A. marginal cost equals marginal revenue.

B. price equals average cost.

C. marginal cost equals price.

D. price equals marginal revenue.

A. marginal cost equals marginal revenue.

B. price equals average cost.

C. marginal cost equals price.

D. price equals marginal revenue.

5.If you observe firms entering a monopolistically competitive industry, you can conclude that the firms in that industry are making

A. economic profits.

B. normal profits.

C. economic losses.

D. zero profits.

A. economic profits.

B. normal profits.

C. economic losses.

D. zero profits.

6.A monopolistically competitive firm in long run equilibrium charges a price that is __________ than and produces an output that is __________ than the efficient price and output.

A. lower; less

B. higher; greater

C. lower; greater

D. higher; less

A. lower; less

B. higher; greater

C. lower; greater

D. higher; less

7.Monopolistic competition has all of the following characteristics except

A. product differentiation.

B. homogenous products.

C. advertising.

D. many firms.

A. product differentiation.

B. homogenous products.

C. advertising.

D. many firms.

8.When a monopolistically competitive firm maximizes profits, price is

A. less than marginal cost.

B. equal to marginal cost.

C. equal to marginal revenue.

D. greater than marginal cost.

A. less than marginal cost.

B. equal to marginal cost.

C. equal to marginal revenue.

D. greater than marginal cost.

9.In long-run equilibrium a monopolistically competitive firm will set a price that is equal to

A. marginal revenue.

B. marginal cost.

C. average cost.

D. minimum average cost.

A. marginal revenue.

B. marginal cost.

C. average cost.

D. minimum average cost.

10.If in the short-run monopolistically competitive firms are earning an economic profit, then new firms will enter the market and

A. the demand curves for incumbent firms decrease only.

B. the demand curves for incumbent firms decrease and become more elastic.

C. the demand curves for incumbent firms decrease and become more inelastic.

D. the demand curves for incumbent firms become more elastic but do not decrease.

A. the demand curves for incumbent firms decrease only.

B. the demand curves for incumbent firms decrease and become more elastic.

C. the demand curves for incumbent firms decrease and become more inelastic.

D. the demand curves for incumbent firms become more elastic but do not decrease.

11.The deadweight loss we see in the long-run equilibrium of monopolistically competitive markets

A. represent an efficient use of resources for differentiated products.

B. is the price that is paid for the diversity of choices offered.

C. is due to the fact that marginal cost exceeds price.

D. can be attributed to the fact that price is greater than average cost.

A. represent an efficient use of resources for differentiated products.

B. is the price that is paid for the diversity of choices offered.

C. is due to the fact that marginal cost exceeds price.

D. can be attributed to the fact that price is greater than average cost.

12.Using the graphs on the supplementary sheet, which of the following firms is earning an economic profit?

A. firm B

B. firm A

C. firm D

D. firm C

(Graph not available)

A. firm B

B. firm A

C. firm D

D. firm C

13.Using the graphs on the supplementary sheet, which of the following firms is suffering a loss?

A. firm D

B. firm C

C. firm B

D. firm A

A. firm D

B. firm C

C. firm B

D. firm A

14.Using the graphs on the supplementary sheet, which monopolistically competitive firm is making zero economic profit?

A. firm D

B. firm A

C. firm B

D. firm C

A. firm D

B. firm A

C. firm B

D. firm C

15.All of the following mechanisms ensure product differentiation except

A. a market with few buyers and sellers.

B. copyright laws.

C. advertising.

D. patent laws.

A. a market with few buyers and sellers.

B. copyright laws.

C. advertising.

D. patent laws.

EXTRA MATERIAL TAKEN FROM FINAL REVIEW ON D2L

What is the formula to find MP?

ΔTP

ΔLabor

TP

Labor

ΔTC

ΔTP

TFC

TP

ATC

TP

AVC + AFC 

or

TC

TP

One-to-one functional mapping between cost curves; When max MP is found, min MC is found too.

MC↓ , MP↑

MC↑ , MP↓

1. Firms' goal is to maximize profit. The firm want to make the most money possible, so they will produce to the point where MR=MC.
2.   All firms in a specific market have identical products, so the deamnd for a good is PERFECTLY ELASTIC.
3. Changes in an individual firm will not affect the market. Firms are "price-takers".
4. Firms are aware of changes in technology, prices, or anything that could increase revenues.
5. Minimal barriers of entry and/or exit 

1. All factors can be varied. There are no fixed inputs
2. Economies of Scale - Decline in LRAC curve occurs when a firm increases all inputs and expands its scale
3. In case of constant returning to scale, the LRAC curve is horizontal
4. Diseconomies of Scale - Incline in LRAC curve occurs when a firm CANNOT produce the same quantity of output as another related process

1. The increase in output obtained by hiring an additional worker is known as:

A. the average product

B. the marginal product

C. the total product

D. value added

A. the average product

B. the marginal product

C. the total product

D. value added

2.Marginal product eventually:

A. declines because some inputs are fixed.

B. increases because some inputs are fixed.

C. declines because some inputs are variable.

D. increases because some inputs are variable.

A. declines because some inputs are fixed.

B. increases because some inputs are fixed.

C. declines because some inputs are variable.

D. increases because some inputs are variable.

3.In the long-run period:

A. no inputs can be varied and all are fixed

B. some inouts can be varied and some can be fixed

C. some inputs can be varied and none are fixed

D. all inputs can be varied and none are fixed

A. no inputs can be varied and all are fixed

B. some inouts can be varied and some can be fixed

C. some inputs can be varied and none are fixed

D. all inputs can be varied and none are fixed

4. eBay is a vast auction site that has some similarities and differences to a competive market. Which of the following describes how eBay reselmbes a competitive market?

A. It is easy to enter and leave eBay.

B. Sellers sometimes do not describe the product accurately on eBay.

C. There is a great variety of products on eBay

D. On eBay, large sellers dominate the market.

A. It is easy to enter and leave eBay.

B. Sellers sometimes do not describe the product accurately on eBay.

C. There is a great variety of products on eBay

D. On eBay, large sellers dominate the market.

5. In a perfectly competitive market, the demand curve faced by an individual firm is:

A. perfectly inelastic

B. relatively inelastic

C. perfectly elastic

D. relatively elastic

A. perfectly inelastic

B. relatively inelastic

C. perfectly elastic

D. relatively elastic

6. A perfectly competitive firm's marginal revenue (MR) is 

A. less than the selling price.

B. greater to the selling price.

C. equal to the selling price.

D. sometimes above or below the selling price.

A. less than the selling price.

B. greater to the selling price.

C. equal to the selling price.

D. sometimes above or below the selling price.

7. To maximize profits, a perfectly competitive firm should produce where marginal:

A. cost equals total revenue

B. cost exceeds marginal revenue

C. cost equals marginal revenue

D. revenue exceeds marginal cost

A. cost equals total revenue

B. cost exceeds marginal revenue

C. cost equals marginal revenue

D. revenue exceeds marginal cost