AP Microeconomics Final Exam

Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium?

profit equals zero

Consumer surplus is defined as

the difference between the value that consumers place on a good and the price they pay

The graph below shows the supply and demand curves for a particular brand of computers. In 1988, 10,000 computers were sold for $1,000 each, but in 1989, 9,000 computers were sold for $1,000 each. Which of the following changes in the supply and demand curves could most likely have caused this change?

Demand curve - shift left; Supply curve - shift left

The graph below shows the cost curves for a competitive firm that produces 20 units of output. What are the total cost and the total fixed cost of producing 20 units of output?

Total Cost - $120; Total Fixed Cost - $20

Refer to the diagram below, which shows the cost and revenue curves of a natural monopolist. When the monopolist produces the socially optimal level of output, it is

Incurring economic losses and it requires a subsidy to continue in business

Let W denote the nominal wage, P the output price, and MP L the marginal product of labor. Which of the following relationships correctly estimates the marginal cost (MC) of production for a perfectly competitive firm in the short run?

(D) MC = W/MPL

Which of the following is a source of monopoly power?

Barriers to entry

Refer to the table below, which shows the short-run production function of a perfectly competitive firm that produces potatoes using one variable input, labor. After which worker does diminishing marginal product first occur?

6th

The government is considering imposing a 3 percent tax on either good A or good B. In order to generate the largest revenue, the tax should be impose on the good for which

Demand is perfectly inelastic

If a firm's long-run average total cost increases as output increases, the firm is experiencing

diseconomies of scale

Refer to the diagram below, which shows the cost and revenue conditions of a monopolist. If the monopolist chooses to maximize total revenue rather than total profit, it will choose which combination of price and output?

P=P3 output=Q3

Suppose that the license paid by each business to operate in a city Increase from $400 per year to $500 per year. What effect will this Increase have on a firm's short-run costs?

No effect increase no effect

Assume that a consumer spends all of her income on the purchase of two goods. If the consumer's income doubles and the prices of the two goods also double, the quantity of the two goods purchased will

Not change

Individuals in any society must make choices regarding the types of goods and services to be produced because

resources are scarce and human wants are unlimited

A profit-maximizing monopolist selects its output level in the

Elastic region of its demand curve

Suppose that the two biggest producers of gold, Bmine and Gmine, form a cartel to set price. However, each has the option to cheat or to not cheat on the agreement. The table below shows the payoffs from these strategies, with the first entry in each cell representing the payoff to Bmine and the second representing the payoff to Gmine.

Gmine's dominant strategy is to not cheat; Bmine's dominant strategy is to cheat.

Problems faced by all economic systems include which of the following?

I. How to allocate scarce resources among unlimited wants

II. How to decentralize markets

III. How to decide what to produce, how to produce, and for whom to produce

IV. How to set government production quotas

I and III only

A pure public good is a good that is

nonrivalrous and nonexcludable in consumption

Assume that both input and product markets are competitive. If the product price rises, in the short run firms will increase production by increasing

Labor input until the marginal revenue product of labor equals the wage rate

In the short run, which of the following is true of a firm's average total cost production?

It is equal to average fixed cost plus average variable cost.

A student who attends college would pay $10,000 annually for tuition, books, and fees. If the student's next best alternative is to work and earn $15,000 a year, the opportunity cost of a year in college would be equal to

$25,000, representing the sum of tuition, books, fees, and forgone income

A left-ward shift in the supply curve of watches could be cause by

an increase in wages paid to workers who produce watches

Suppose that the market for low-wage labor is perfectly competitive and initially in equilibrium. If the government establishes an effective minimum wage, which of the following will occur?

Employment of low-wage workers will decrease and unemployment will increase.

A firm's demand for labor is known as a derived demand because

The amount of labor hired depends upon how much output the firm can sell

In the United States, the federal government redistributes income primarily by

taxing different income levels at different rates

Suppose that a firm is producing the profit-maximizing output under the conditions of diminishing returns. Its output price is $45, and its marginal cost of production at its current output level is $25. Based on this information it can be concluded that this firm must

Be a perfectly competitive firm

Which of the following is most likely to increase the supply of soldiers for an all-volunteer army?

A decrease in the average wage rate in civilian employment

Which of the following is true of the substitution effect of an increase in the price of a normal good?

It reinforces the income effect.

Assume that the price elasticity of demand for good X is constant and equal to -0.5 and the price elasticity of demand for good Y is constant and equal to -2. Assume that goods X and U have identical upward-sloping elastic supply curves. If a per-unit excise tax of the same amount is levied on good X and good Y, which of the following would be true?

The tax share paid by consumers of good X would be relatively higher than that paid by consumers of good Y.

The typical firm in a monopolistically competitive industry earns zero profit in long-run equilibrium because

there are no restrictions on entering or exiting from the industry

Suppose that a family buys all its clothing from a discount store and treats these items as inferior goods. Under such circumstances the is family's consumption of discount store clothing will necessarily

decrease when a family member experiences an increase in income

The table below which lists the total output of workers in Greta's Jacket Shop. Which of the following is the marginal product of the fourth worker?

6

Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?

Price - Increase; Quantity - Decrease

Which of the following is true when the production of a good results in negative externalities?

The private market prices will be too low

Assume that the price of good X decreases from $10 to $9 per unit and that the quantity demanded of good X increases from 25 to 30 units. In this price range, the demand for good X is

Elastic

Assume that the last worker a firm hired produces 60 additional units of output per hour and the last machine rented produces 6,000 units of output per hour. A worker's hourly wage rate is $12, and the rental cost of a machine is $1,000 per hour. In order to maximize the cost of its current output, the firm should

increase the use of capital and decrease the use of labor

The primary purpose of antitrust laws is to

prevent firms from monopolizing trade and to promote competition

In a perfectly competitive labor market for nurses, all of the following statements are true

EXCEPT:

An increase in the supply of nurses will create unemployment and leave wages unchanged.

Which of the following statements has to be true in a perfectly competitive market?

A firm's marginal revenue equals price.

If positive externalities exist in the market for flu shots, which of the following is true?

Subsidizing flu shots will lead to the socially efficient level.

The graph below shows the marginal revenue product curve and supply_ curve of labor for a firm. The introduction of new management techniques dramatically increases worker productivity. Which of the following changes is most likely to occur?

the marginal revenue product curve will shift to the right, increasing the wage rate.

Which of the following statements best describes the graph below?

Economic losses are incurred, and exit of firms from the market will cause prices to increase in the long run.

Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that

price is greater than MC

Which of the following enables a seller to capture the entire consumer surplus in a market?

Perfect price discrimination

Which of the following is the defining characteristic of a capitalistic economy?

Private ownership and protection of property rights

If a firm's average total cost decreases as the firm increases its output, the firm's marginal cost must be

Less than the average total cost

When total utility is at its maximum, marginal utility is

equal to zero

Which of the following statements is true of perfectly competitive firms in long-run equilibrium?

Average total cost is at a minimum

The cartel model of oligopoly predicts that

All the firms in an industry act in unison to set a monopoly price.

Assume that a monopolist is producing in the inelastic portion of the demand curve. Which of the following will occur if the monopolist decreases its price?

both total revenue and profits will decrease

A firm doubles all of its inputs and finds that it has more than doubled its output. This situation is an example of

increasing return to scale

Which of the following is most likely to reduce inequality in a country's distribution of income?

Strengthening laws to prevent wage discrimination.

A leftward shift in the supply curve of corn would result from

an increase in the labor costs of producing corn

The diagram below shows the production possibilities curves for two countries, Country X and Country Y. Assume that both countries use equal amounts of resources in production. If the two countries engage in trade, both would be better off under which of the following conditions?

Country Y specialized in the production of cars, because it has a comparative advantage in the production of cars.

Refer to the diagram below, which shows the cost and revenue curves of a natural monopolist. If the government wants to regulate this monopoly to produce the socially optimum level of output, it should set a price equal to

P2

Refer to the graph below. When the market is in equilibrium, the total economic surplus is equal to area

f+g+h+i+j+k

The graph below shows the market demand for good X. A movement from point A to point B would most likely be caused by

a decrease in production costs for good X

Assume that both the product and labor markets are perfectly competitive. It would be profitable for a firm to hire additional labor if the ratio of the wage to the marginal product of labor is

less than output price

Karen works part-time at a local convenience store and earns $10 per hour. She wants to spend next Saturday afternoon attending a music concert. The full price of a concert ticket is $75, but Karen was able to get a discounted price of $50 from a friend who purchased the ticket but has become unable to attend. If Karen took 4 hours off from her job to attend the concert, what was her opportunity cost of attending the concert?

$90

Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market form a cartel and act as a profit maximizing monopoly?

Price- increase Quantity- decrease

The short-run supply curve for a firm in a perfectly competitive industry is

its marginal cost curve above the minimum point of its average variable cost curve

JC pizzeria has a year remaining on an unbreakable lease on its building, requiring a payment of $20,000 a year. If JC operates over the next year, it estimates that its revenues will be $200,000 and that its expenses, in addition to the lease will be $190,000. Which of the following statements is true?

JC should operate, since its loss is less than its fixed cost.

If an industry ignores the external costs it generates in its production, which of the

following will be true at the competitive market equilibrium output?

Price will be less than the marginal social cost

Which of the following is most likely to reduce inequality in a country's distribution of income?

Job training for low-skill workers

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium?

P=ATC

which of the following statements about a monopolistically competitive firm in long-run equilibrium is true?

It has excess capacity and its output price exceeds its marginal cost, even though its long-run profit is zero.

Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increases?

The demand for wheat is price inelastic

If the firm can sell as many potatoes as it wants for $2 per pound and has to pay each worker $5 per hour, how many workers should the firm employ to maximize profits?

Three

If labor is the only variable input and it costs $15 per hour and if the marginal product of labor is 3 units per hour, the short-run marginal cost of I unit of output is approximately

$5.00

Assume that an electric power company owns two plants And that, on a particular Day, 10,000k kilowatts of electricity are demanded by the public. In order to minimize the total cost of providing the 10,000 kilowatts The company should allocate production so that

marginal costs are the same for both plants

In the US, federal gov distributes income primarily by..

taxing different income levels at different rates

A supply in a competitive labor market increases, the equilibrium wage rate and employment will change in which of the following ways?

Wage rate- decrease Employment- increase

The graph below shows the marginal revenue product curve and supply_ curve of labor for a firm. The introduction of new management techniques dramatically increases worker productivity. Which of the following changes is most likely to occur?

The marginal revenue product curve will shift to the right, increasing the wage rate.

A leftward shift in the supply curve of corn would result from

Increase in labor costs producing corn

The figure below shows cost and revenue curves for a public regulated power company and three possible prices for its output. Which of the following statements about those prices is most accurate?

P3 would maximize consumer welfare, but a public subsidy would be needed to keep the company in business.