Micro Econ Finals

Four workers produce 150 units of output and five workers produce 182. The marginal
product of the fifth worker is
a. 32 units of output
b. 4 units of output
c. 20 units of output
d. 36 units of output

a. 32 units of output

The return on investment that is just sufficient to satisfy the owners of a business is called
a. Normal profit
b. Marginal profit
c. Economic profit
d. Excess profit

a. Normal profit

The law of diminishing returns
a. Applies in the short run but not in the long run
b. Requires that all factors of production must diminish in equal proportions
c. Requires that all factors of production must diminish in unequal proportions
d. States that marginal product must always be less than average product

a. Applies in the short run but not in the long run

The demand curve faced by a perfectly competitive firm is
a. Always downward
b. Horizontal
c. Perfectly inelastic
d. Downward sloping if the law of demand applies

b. Horizontal

The short run is a period of time during with
a. All resources are fixed
b. All resources are variable
c. The scale of production is fixed
d. The scale of production is variable

c. The scale of production is fixed

If diminishing returns have set in, a firm that doubles the number of workers will see total
production
a. Decrease

b. Less than double
c. More than double
d. Decrease by 50%

b. Less than double

Andy increases the amount of capital his workers use. The average product of labor
will---- and the marginal product of labor will-----
a. Increase; increase
b. Decrease: decrease
c. Increase: decrease
d. Decrease; increase

a. Increase; increase

Which of the following is most likely to reach the long run soonest
a. An ice cream vendor
b. An aircraft manufacturer
c. A private college
d. A state university

a. An ice cream vendor

Use the table below to answer the next two questions (9 and 10)
Number of Workers Marginal Product
1 19
2 26
3 24
4 20
5 18
9. Total product, if four workers are employed, is
a. 20 units of output
b. 107 units of output
c. 89 unites of output
d. 69 unit of output

c. 89 unites of output

Average product, if there are three workers employed, is
a. 24 units
b. 23 units
c. 26 units
d. 8 units

b. 23 units

Each of the following is decision that must be made by a perfectly competitive firm
except
a. Which price level to set for its output

b. How much of each input to demand
c. How to produce its output
d. How much output to supply

a. Which price level to set for its output

In the short run which of the following is incorrect
a. Existing firms cannot leave the industry
b. New firms cannot enter the industry
c. The firm is operating under a fixed scale of production
d. Firms have no variable factors of production

d. Firms have no variable factors of production

When marginal product is zero, total product is---- and average product is ----
a. Maximized; maximized
b. Maximized; decreasing
c. Decreasing; maximized
d. Decreasing; decreasing

b. Maximized; decreasing

The perfectly competitive firm has no choice regarding
a. The price that may be charged
b. How much output to produced
c. The choice of technology
d. How much of each input to hire

a. The price that may be charged

Ms. Prudence Juris decides to open a law office. She quits her job as an assistant district
attorney where she earned an annual salary of $ 25,000. She borrows $ 50,000 at 10%
annual interest, hires a secretary at $20,000 per year and rents office space at $55,000 per
year. During her first year, she receives revenues of $100,000. What is her economic
profit?
a. $ 20,000
b. Zero, but she earns a normal or accounting profit
c. - $5000
d. -$50,000

c. - $5000

Because of the law of diminishing returns, the general appearance of the production
function graph is that
a. Increases at an increasing rate
b. Increases at a decreasing rate
c. Decreases at an increasing rate
d. Decreases at a decreasing rate

b. Increases at a decreasing rate

Use the information below to answer the next two questions (17 and 18)
Russell plans on opening a car wash. He finds four distinct methods of production that
produce the same result.
Technology Units of capital Units of labor
A 2 20
B 4 15
C 6 11
D 8 8
17. If the hourly price of a unit of capital is $60 and the hourly wage is $ 6, which production
technology should Russell choose in order to minimize costs?
a. A
b. B
c. C
d. D

a. A

Which is the most labor-intensive method of production?
a. A
b. B
c. C
d. D

a. A

Which of the following statements is true about fixed cost
a. Fixed costs increases as time goes by
b. Average fixed cost graphs have a U- Shape curve
c. Fixed costs are zero in the long run
d. Fixed cost are zero when the firm decides to produce no output

c. Fixed costs are zero in the long run

Of the following, which is most likely to be a variable cost
a. The wage of a security guard
b. The firm’s rent on its factory building
c. The firm’s electricity bill
d. The firm’s interest payment on a bank loan

c. The firm’s electricity bill

The TVC of 11 units is $100. The TVC of 12 units is $120. The marginal cost of the
twelfth unit is
a. $ 60
b. $10
c. $120
d. $20

d. $20

The short run supply curve for a perfectly competitive firm is upward sloping because, as production increases,
a. The form must pay higher hourly wages
b. Total fixed costs increases
c. The firm is able to assign its workforce to specialized tasks
d. The marginal productivity of additional workers decreases

d. The marginal productivity of additional workers decreases

In the short run, which of the following is possible?
a. AFC may be greater than ATC
b. MC may intersect ATC when ATC is decreasing
c. AFC may be greater than AVC
d. TFC falls as output rises

c. AFC may be greater than AVC

ABC Corporation and XYZ Corporation have identical total variable costs. ABC’s total
fixed costs are $10,000 per month higher that XYZ’s are. ABC’s MC curve
a. Is identical to that of XYZ
b. Has the same shape, but is higher than that of XYZ
c. Has the same shape, but is lower than that of XYZ
d. Is higher than that of XYZ, and need not have the same shape

a. Is identical to that of XYZ

The firm is at the output level where marginal cost intersects average variable cost. We
can infer that
a. Average variable cost is rising
b. Average variable cost is falling
c. Average total cost is failing
d. Average total cost is rising

c. Average total cost is failing

The firm’s total curve is a straight line sloping up to the right. The marginal cost curve is
a. Upward sloping as output increases
b. Downward sloping as output increases
c. Horizontal
d. Horizontal and equal to zero

c. Horizontal

In the short run, profits will be maximized at the output level where
a. Price is equal to marginal revenue
b. Marginal cost is equal to average variable cost (which is when AVC is minimized)
c. Average total cost is minimized (and is equal to marginal cost)
d. Marginal cost is equal to price (which is equal to marginal revenue)

d. Marginal cost is equal to price (which is equal to marginal revenue)

At the current of production level, ATC is increasing. Of the following situations, we
should consider increasing production if

a. Price is less than average total cost
b. Price is greater than average total cost
c. Price exceeds average variable cost, but less than average cost
d. Price is equal to average total cost.

b. Price is greater than average total cost

In the short run, profits will be maximized at that output level where
a. Total revenues are maximized
b. Total costs are minimized
c. Marginal costs marginal revenues are equalized
d. Variable costs are minimized

c. Marginal costs marginal revenues are equalized

HAL Corporation, a perfectly competitive firm is currently producing 20 units. The price
is $10 per unit, total fixed costs are $ 10, and average variable costs are $3. The firm
a. Is making a total profit of $130
b. Is maximizing profit
c. Is making a loss of $3 per unit
d. Is making a profit of $7 per unit

a. Is making a total profit of $130

ABC Corp. cuts usage of all inputs by 50%. Production falls by more than 50 %. This
firm is experiencing
a. External economies of scale
b. External diseconomies of scale
c. Increasing returns to scale
d. Decreasing returns to scale

c. Increasing returns to scale

In the short run, a perfectly competitive firm incurring losses should still produce if it can
cover its
a. Average costs
b. Variable costs
c. Fixed costs
d. Economic costs

b. Variable costs

An industry has external economies of scale. In the long run, an increase in demand will
a. A decrease price
b. Increase price
c. Not change price
d. Cause an indeterminate change in price

a. A decrease price

Suddenly there is an increase in the demand for Frisbees. The most likely result would be
a. Higher prices in the short run, followed by an increase in production in the long
run that would cause prices to decline somewhat

b. Higher prices in the short run, followed by larger long-run price increases as the stock
of Frisbees is depleted
c. Higher prices in the short run because of greater sales volume, and even higher prices
later on as plant sizes are increased.
d. Lower prices in the short run because of higher sales, but higher prices in the long run
as the stock of Frisbees is depleted

a. Higher prices in the short run, followed by an increase in production in the long
run that would cause prices to decline somewhat

In the short- run perfectly competitive equilibrium, each of the following conditions will
hold, except
a. P= MR
b. P= SRMC
c. LRAC is minimized
d. SRMC is minimized

d. SRMC is minimized

An increasing-cost industry experiences external----- of scale and had an------ long-run
industry supply curve
a. Economies; upward sloping
b. Economies; downward sloping
c. Diseconomies; upward sloping
d. Diseconomies; downward sloping

c. Diseconomies; upward sloping

A perfectly competitive decreasing-cost industry in long-run equilibrium experiences a
permanent decrease in market demand. When the industry reaches its new long-run
equilibrium, the equilibrium price of its good will be--- than before and the equilibrium
industry will be--- than before
a. Higher; higher
b. Higher; lower
c. Lower; higher
d. Lower; lower

b. Higher; lower

A firm will not produce where MR=MC when
a. It is earning positive economic profit
b. It is making an operating loss
c. It is earning negative economic profits
d. It is making an operating profit

b. It is making an operating loss

Jenny’s Gemstones is making an operating loss. It should---- in the long run and ---- in
the long run
a. Shut down; leave the industry
b. Leave the industry; shut down

c. Increase its price; leave the industry
d. Increase its price; reduce production

a. Shut down; leave the industry

Jenny’s Gemstones is making an operating loss. The industry supply curve will shift ---
in the ---
a. A right; short run
b. Right; long run
c. Left; short run
d. Left; long run

d. Left; long run

Economic profits are calculated by subtracting
a. explicit costs from total revenue.
b. implicit costs from total revenue.
c. implicit costs from normal profits.
d. explicit and implicit costs from total revenue.

d. explicit and implicit costs from total revenue.

The long run is characterized by
a. the relevance of the law of diminishing returns.
b. at least one fixed input.
c. insufficient time for firms to enter or leave the industry.
d. the ability of the firm to change its plant size.

d. the ability of the firm to change its plant size.

Economists would describe the U.S. automobile industry as
a. purely competitive.
b. an oligopoly.
c. monopolistically competitive.
d. a pure monopoly.

b. an oligopoly.

Which of the following statements applies to a purely competitive producer?
a. It will not advertise its product.
b. In long-run equilibrium it will earn an economic profit.
c. Its product will have a brand name.
d. Its product is slightly different from those of its competitors

a. It will not advertise its product.

Which of the following is a characteristic of pure monopoly?
a. Close substitute products
b. Barriers to entry
c. The absence of market power
d. “Price taking”

b. Barriers to entry

Confronted with the same unit cost data, a monopolistic producer will charge
a. the same price and produce the same output as a competitive firm.
b. a higher price and produce a larger output than a competitive firm.
c. a higher price and produce a smaller output than a competitive firm.
d. a lower price and produce a smaller output than a competitive firm.

c. a higher price and produce a smaller output than a competitive firm.

The restaurant, legal assistance, and clothing industries are each illustrations of
a. countervailing power.
b. homogeneous oligopoly.
c. monopolistic competition.
d. pure monopoly.

c. monopolistic competition.

The term oligopoly indicates
a. a one-firm industry.
b. many producers of a differentiated product.
c. a few firms producing either a differentiated or a homogeneous product.
d. an industry whose four-firm concentration ratio is low

c. a few firms producing either a differentiated or a homogeneous product.

Use your basic knowledge and your understanding of market structures to answer this
question. Which of the following companies most closely approximates a differentiated
oligopolist in a highly concentrated industry?
a. Subway Sandwiches
b. Pittsburgh Plate Glass
c. Ford Motor Company
d. Kaiser Aluminum

c. Ford Motor Company

An industry having a four-firm concentration ratio of 85%
a. approximates pure competition.
b. is monopolistically competitive.
c. is a pure monopoly.
d. is an oligopoly.

d. is an oligopoly.

Which of the following is not a criterion for judging the result of an economic policy
a. Stability
b. Employment
c. Efficiency
d. Equity

b. Employment

Economics is the study of how
a. Scarce resources are used to satisfy unlimited wants
b. Human choose to use unlimited resources
c. Limitless resources are used to satisfy scarce wants
d. Society has no choices

a. Scarce resources are used to satisfy unlimited wants

The opportunity cost of choice X can be defined as
a. The cheapest alternative to choice X
b. The most highly valued alternative to choice X
c. The price paid to obtain X
d. The most highly price alternative to choice X

b. The most highly valued alternative to choice X

Carlo discovers when he studies for his macroeconomics tests at the bar, he earns better grades. He advises all students to study at the bar for similar results. Carlo is guilty of
committing
a. The fallacy of composition
b. Fallacy of post hoc, ergo propter hoc
c. Fallacy of correlation and causation
d. Ceteris paribus

a. The fallacy of composition

Households are
a. Suppliers in the input market
b. Demanders in the labor market
c. Suppliers in the product markets
d. Demanders in the input market

a. Suppliers in the input market

The price of Good C increases and as a result, the demand for good D increases. The two goods are
a. Complement
b. Substitutes
c. Normal
d. inferior

b. Substitutes

Because the nation N is operating at a point inside its PPF, it
a. Has full employment
b. Has unemployed or inefficiently employed resources
c. Must cut output of one good to increase the production of another
d. Will be unable to experience economic growth

b. Has unemployed or inefficiently employed resources

A production possibility frontier diagram illustrates all of the following concepts except
a. Scarcity

b. Unlimited wants
c. Constrained choice
d. the marginal rate of transformation

b. Unlimited wants

Which of the following is not one of the basic economic questions?
a. what will be produced
b. how will it be produced
c. where would it be produced
d. for whom will it be produced

c. where would it be produced

Jean &co has an increasing cost production possibility frontier. Its slope must be
a. Positive and increasing
b. Positive and decreasing
c. Negative and increasing
d. Negative and decreasing

c. Negative and increasing

Each of the following is a basic concern of any economic system except
a. The allocation of scarce resources among producers
b. The mix of different types of output
c. The distribution of output among customers
d. The quality of resources allocated among customers

d. The quality of resources allocated among customers

For Jill to have a comparative advantage in the production of pins means that, relative to Jack, with the same resources
a. Jill is relatively better at producing pin than at producing needles
b. Jill is relatively better at producing both pins and needles
c. Jill can produce fewer needles than Jack can produce
d. Jill can produce more pins than jack can produce

a. Jill is relatively better at producing pin than at producing needles

Along a given supply curve for eggs,
a. Supply increases as price increases
b. Supplies increases as technology improves
c. Quantity supplied increases as price increases
d. Quantity supplied increases as technology improves

c. Quantity supplied increases as price increases

Consumers expect their income to rise. For a normal good, this would result in an
increase in
a. Quantity demanded and a fall in price
b. Demand in fall in price
c. Quantity demanded in rise in price
d. Demand and a rise in price

d. Demand and a rise in price

A rightward shift in the supply of U.S. cars might be due to
a. An increase in the price of steel
b. A reduction in foreign competition
c. The introduction of cost-saving robots
d. Increased popularity of foreign cars

c. The introduction of cost-saving robots

If the market is in equilibrium, a technological improvement will cause price to------------
and quantity demanded to --------------
a. Fall; fall
b. Rise; rise
c. Fall; rise
d. Rise; fal

c. Fall; rise

Generic aspirin is an inferior good. As Julie’s income decreases we would expect
a. a decrease in Julie’s demand for generic aspirin
b. an increase in Julie’s quantity demanded of generic aspirin
c. an increase in the Julie’s demand for generic aspirin
d. a decrease in Julie’s quantity demanded of generic aspirin

c. an increase in the Julie’s demand for generic aspirin

Among a given demand curve for corn, which of the following is not held constant
a. the price of corn
b. the income of corn farmers
c. the income of corn demanders
d. the price of wheat

a. the price of corn

The demand curve is best illustrated by
a. the price of pepsi rises leading customers to buy more coke
b. increase purchases of coke as the price of coke decreases
c. an increase in income, which results in reduced purchases of soft drinks
d. an increase in income, which results in n increased purchases of coke

b. increase purchases of coke as the price of coke decreases

Union introduced new costly regulations in the tuna market to protect workers. We would
expect the equilibrium cost of tuna to---------- and the equilibrium quantity of tuna to------
a. Increase; increase
b. Increase; decrease
c. Decrease; increase
d. Decrease; decrease

b. Increase; decrease