ECON 528 FINAL EXAM
ASSESSMENT QUESTIONS
AND CORRECT ANSWERS
GRADED A+ 2025-2026
D. None of the above - ANS-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. - ANS-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 - ANS-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. - ANS-
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. - ANS-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.
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 -
ANS-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. - ANS-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. - ANS-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.
agree to a low cartel production level and then produce more than its quota. - ANS-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. - ANS-If firms are in Cournot
equilibrium:
oligopoly. - ANS-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. - ANS-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.
ASSESSMENT QUESTIONS
AND CORRECT ANSWERS
GRADED A+ 2025-2026
D. None of the above - ANS-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. - ANS-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 - ANS-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. - ANS-
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. - ANS-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.
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 -
ANS-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. - ANS-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. - ANS-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.
agree to a low cartel production level and then produce more than its quota. - ANS-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. - ANS-If firms are in Cournot
equilibrium:
oligopoly. - ANS-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. - ANS-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.
