ECON 528 FINAL EXAM QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
D. None of the above - (ANSWER)If the marginal product of labor is 2, the marginal product of capital is
4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm
should
. Increase output by hiring more labor, more capital, or both.
b. Hold output constant, but hire more labor and less capital.
c. Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both.
d. None of the above is correct.
diminishing marginal product. - (ANSWER)When adding another unit of labor leads to an increase in
output that is smaller than the increases in output that resulted from adding previous units of labor, the
firm is experiencing
a. diminishing labor.
b. diminishing output.
c. diminishing marginal product.
d. negative marginal product
gains from specialization of inputs - (ANSWER)Which of the following explains why long-run average cost
at first decreases as output increases?
a. diseconomies of scale
b. less-efficient use of inputs
c. fixed costs becoming spread out over more units of output
d. gains from specialization of inputs.
constant returns to scale because average total cost is constant as output rises. - (ANSWER)In the long
run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and
$1,600 when output is 40 beds. Firm A exhibits
As the size of the firm increases it becomes more difficult to coordinate the operations of its
manufacturing plants. - (ANSWER)Which of the following is a reason why a firm would experience
diseconomies of scale?
A) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of
stock.
,ECON 528 FINAL EXAM QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
B) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already
have operations.
C) As the size of the firm increases it becomes more difficult to coordinate the operations of its
manufacturing plants.
D) As the size of the firm increases, it must operate in other countries where differences in language,
customs and laws increase its average costs.
an increase in supply and an increase in demand greater than the increase in supply - (ANSWER)Which
of the following would cause an increase in the equilibrium price and an increase in the equilibrium
quantity of watermelons?
A) an increase in demand and an increase in supply
B) an increase in supply
C) an increase in supply and an increase in demand greater than the increase in supply
D) a decrease in demand and an increase in supply
Entry barriers into the industry are low. - (ANSWER)Which of the following characteristics is common to
monopolistic competition and perfect competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given.
will earn zero economic profit in the long run because of free entry, but competition will lead
restaurants to offer different versions of the same product. - (ANSWER)In a monopolistically competitive
market, a successful new restaurant
A) can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
B) will earn zero economic profit in the long run because of free entry, but competition will lead
restaurants to offer different versions of the same product.
C) will face high entry barriers because of health and safety regulations to which all restaurants are
subject.
D) must obtain a trademark to ensure that it will break even in the long run.
, ECON 528 FINAL EXAM QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
agree to a low cartel production level and then produce more than its quota. - (ANSWER)A member of a
cartel like OPEC has an incentive to
A) argue for larger production quotas for each member of the cartel.
B) agree to a low cartel production level and then produce more than its quota.
C) abide by its individual production quota.
D) support equal production quotas for each member.
Firms could increase profits by jointly reducing output. - (ANSWER)If firms are in Cournot equilibrium:
oligopoly. - (ANSWER)An industry has a 4-firm concentration ratio of 85. We would call this industry a:
A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides. -
(ANSWER)15) Which of the following is an example of bundling?
A)A shoe store doesn't sell shoes for just one foot; it sells shoes for the left foot and right foot packaged
together.
B)An automobile manufacturer includes Michelin tires on its new cars.
C)A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides.
D)HP includes a toner cartridge with the purchase of a new laser printer.
third-degree price discrimination - (ANSWER)Selling tickets in the orchestra region of the Metropolitan
Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes
which type of price discrimination
Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting. - (ANSWER)Mr. Leghorn lives
next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which
activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from
taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from
hunting, the socially optimal outcome is for:
I - (ANSWER)Which of the following statements is (are) TRUE?
I. Public goods tend to be underprovided.
II. One person's consumption of a public good diminishes its use to another person.
D. None of the above - (ANSWER)If the marginal product of labor is 2, the marginal product of capital is
4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm
should
. Increase output by hiring more labor, more capital, or both.
b. Hold output constant, but hire more labor and less capital.
c. Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both.
d. None of the above is correct.
diminishing marginal product. - (ANSWER)When adding another unit of labor leads to an increase in
output that is smaller than the increases in output that resulted from adding previous units of labor, the
firm is experiencing
a. diminishing labor.
b. diminishing output.
c. diminishing marginal product.
d. negative marginal product
gains from specialization of inputs - (ANSWER)Which of the following explains why long-run average cost
at first decreases as output increases?
a. diseconomies of scale
b. less-efficient use of inputs
c. fixed costs becoming spread out over more units of output
d. gains from specialization of inputs.
constant returns to scale because average total cost is constant as output rises. - (ANSWER)In the long
run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and
$1,600 when output is 40 beds. Firm A exhibits
As the size of the firm increases it becomes more difficult to coordinate the operations of its
manufacturing plants. - (ANSWER)Which of the following is a reason why a firm would experience
diseconomies of scale?
A) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of
stock.
,ECON 528 FINAL EXAM QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
B) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already
have operations.
C) As the size of the firm increases it becomes more difficult to coordinate the operations of its
manufacturing plants.
D) As the size of the firm increases, it must operate in other countries where differences in language,
customs and laws increase its average costs.
an increase in supply and an increase in demand greater than the increase in supply - (ANSWER)Which
of the following would cause an increase in the equilibrium price and an increase in the equilibrium
quantity of watermelons?
A) an increase in demand and an increase in supply
B) an increase in supply
C) an increase in supply and an increase in demand greater than the increase in supply
D) a decrease in demand and an increase in supply
Entry barriers into the industry are low. - (ANSWER)Which of the following characteristics is common to
monopolistic competition and perfect competition?
A) Firms produce identical products.
B) Entry barriers into the industry are low.
C) Each firm faces a downward -sloping demand curve.
D) Firms take market prices as given.
will earn zero economic profit in the long run because of free entry, but competition will lead
restaurants to offer different versions of the same product. - (ANSWER)In a monopolistically competitive
market, a successful new restaurant
A) can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
B) will earn zero economic profit in the long run because of free entry, but competition will lead
restaurants to offer different versions of the same product.
C) will face high entry barriers because of health and safety regulations to which all restaurants are
subject.
D) must obtain a trademark to ensure that it will break even in the long run.
, ECON 528 FINAL EXAM QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
agree to a low cartel production level and then produce more than its quota. - (ANSWER)A member of a
cartel like OPEC has an incentive to
A) argue for larger production quotas for each member of the cartel.
B) agree to a low cartel production level and then produce more than its quota.
C) abide by its individual production quota.
D) support equal production quotas for each member.
Firms could increase profits by jointly reducing output. - (ANSWER)If firms are in Cournot equilibrium:
oligopoly. - (ANSWER)An industry has a 4-firm concentration ratio of 85. We would call this industry a:
A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides. -
(ANSWER)15) Which of the following is an example of bundling?
A)A shoe store doesn't sell shoes for just one foot; it sells shoes for the left foot and right foot packaged
together.
B)An automobile manufacturer includes Michelin tires on its new cars.
C)A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides.
D)HP includes a toner cartridge with the purchase of a new laser printer.
third-degree price discrimination - (ANSWER)Selling tickets in the orchestra region of the Metropolitan
Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes
which type of price discrimination
Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting. - (ANSWER)Mr. Leghorn lives
next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which
activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from
taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from
hunting, the socially optimal outcome is for:
I - (ANSWER)Which of the following statements is (are) TRUE?
I. Public goods tend to be underprovided.
II. One person's consumption of a public good diminishes its use to another person.
