ECON-B 252 PRACTICE EXAM 1 QUESTIONS
1. Why would a monopolistically competitive firm advertise?
1. Consumers like advertising
2. All firms must keep a market presence
3. It's a necessary cost of business
4. To promote societal interest: To promote societal interest
2. What happens to monopolistically competitive firm's curves in the long run if
it earns positive economic profit?
1. The firm's supply curve increases
2. The firm's supply curve decreases
3. The firm's demand curve increases
4. The firm's demand curve decreases
5. The firm's marginal cost and marginal revenue curve decreases: The rm's demand
fi curve decreases
Explanation: the firm earns zero economic profit in the long-run. Therefore, the demand curve would decrease.
3. In the long run, perfect competitors and monopolistic competitors earn zero
economic profit. How are they different?
1. Perfectly competitive firms produce along the ATC curve, monopolistically
competiitve firms do not
2. Monopolistically competitive firms have excess capacity, perfectly competi-
tive firms do not
3. Perfectly competitive firms can enter or leave the market,
monopolistically competitive firms can not.
4. Monopolistically competitive firms mark up their products, perfectly compet-
,itive firms do not.
5. Monopolistically competitive firms can price discriminate, perfectly compet-
itive firms can not: Monopolistically competitive firms have excess capacity, perfectly competitive firms do not
4. Which of the following are characteristics of a monopolistically competitive
firm? Choose all that apply
1. monopolistically competitive firms collude (work together)
2. the firms produce identical products
3. monopolistically competitive firms advertise
,4. there are minimal barriers to entry: monopolistically competitive firms advertise, there are minimal
barriers to entry
5. Compared to the perfectly competiitve firm, in the long-run, the monopolis-
tically competitive firm
1. marks up the price
2. has excess capacity
3. produce at the minimum point of its long-run ATC curve: marks up the price, has excess
capacity
6. What is the formula for the unemployment rate? The unemployment rate
=: (unemployed/labor force)*100
7. What are the types of unemployment?: seasonal, frictional, structural, cyclical
8. What is the formula for a price index? The Current Price Index = (should be
current market basket)
1. Current Year Price * Base Year Quantity
2. Base Year Price * Base Year Quantity
3. Base Year Price * Current year Quantity
4. Current year Price * Current Year Quantity: Current Year Price * Base Year Quantity
9. In order to protect your nominal income from inflation, you should always
ask for a(n): COLA
10. According to the Circular Flow Model, in every exchange the buyer pays the
same amount than the seller receives.: True
11. What is the formula for measuring the expenditure approach to
measuring GDP (Y)?: Y = C + I + G + exports - imports
12. What is the formula for measuring the income approach to measuring GDP
(Y)? Y =: wages + rent + interest + profit + depreciation + indirect business taxes
13. Using prices and quantities, what is the formula for real Gross Domestic
, Product (GDP)? Real GDP =: Base Year Price * Current year Quantity
14. Long-run economic growth is typically associated with a country's
1. standard of living
2. short-run output
3. business cycle
4. total spending: standard of living
1. Why would a monopolistically competitive firm advertise?
1. Consumers like advertising
2. All firms must keep a market presence
3. It's a necessary cost of business
4. To promote societal interest: To promote societal interest
2. What happens to monopolistically competitive firm's curves in the long run if
it earns positive economic profit?
1. The firm's supply curve increases
2. The firm's supply curve decreases
3. The firm's demand curve increases
4. The firm's demand curve decreases
5. The firm's marginal cost and marginal revenue curve decreases: The rm's demand
fi curve decreases
Explanation: the firm earns zero economic profit in the long-run. Therefore, the demand curve would decrease.
3. In the long run, perfect competitors and monopolistic competitors earn zero
economic profit. How are they different?
1. Perfectly competitive firms produce along the ATC curve, monopolistically
competiitve firms do not
2. Monopolistically competitive firms have excess capacity, perfectly competi-
tive firms do not
3. Perfectly competitive firms can enter or leave the market,
monopolistically competitive firms can not.
4. Monopolistically competitive firms mark up their products, perfectly compet-
,itive firms do not.
5. Monopolistically competitive firms can price discriminate, perfectly compet-
itive firms can not: Monopolistically competitive firms have excess capacity, perfectly competitive firms do not
4. Which of the following are characteristics of a monopolistically competitive
firm? Choose all that apply
1. monopolistically competitive firms collude (work together)
2. the firms produce identical products
3. monopolistically competitive firms advertise
,4. there are minimal barriers to entry: monopolistically competitive firms advertise, there are minimal
barriers to entry
5. Compared to the perfectly competiitve firm, in the long-run, the monopolis-
tically competitive firm
1. marks up the price
2. has excess capacity
3. produce at the minimum point of its long-run ATC curve: marks up the price, has excess
capacity
6. What is the formula for the unemployment rate? The unemployment rate
=: (unemployed/labor force)*100
7. What are the types of unemployment?: seasonal, frictional, structural, cyclical
8. What is the formula for a price index? The Current Price Index = (should be
current market basket)
1. Current Year Price * Base Year Quantity
2. Base Year Price * Base Year Quantity
3. Base Year Price * Current year Quantity
4. Current year Price * Current Year Quantity: Current Year Price * Base Year Quantity
9. In order to protect your nominal income from inflation, you should always
ask for a(n): COLA
10. According to the Circular Flow Model, in every exchange the buyer pays the
same amount than the seller receives.: True
11. What is the formula for measuring the expenditure approach to
measuring GDP (Y)?: Y = C + I + G + exports - imports
12. What is the formula for measuring the income approach to measuring GDP
(Y)? Y =: wages + rent + interest + profit + depreciation + indirect business taxes
13. Using prices and quantities, what is the formula for real Gross Domestic
, Product (GDP)? Real GDP =: Base Year Price * Current year Quantity
14. Long-run economic growth is typically associated with a country's
1. standard of living
2. short-run output
3. business cycle
4. total spending: standard of living
