ECO 211 FINAL EXAM COMPLETE QUESTIONS AND CORRECT ANSWERS

ECO 211 FINAL EXAM COMPLETE QUESTIONS AND CORRECT ANSWERS The Scarcity Principle implies that: a. having more of one thing generally means having less of another. b. trade-offs are necessary when making decisions. c. nothing, even if it is given to you, is ever really free. d. all of the above are implied by the Scarcity Principle. d. all of the above are implied by the Scarcity Principle. Suppose Tara chooses to engage in an activity that she values at $80 on a night in which she faced two alternatives, all of which do not or would not have cost her any more money. She values one alternative at $60 and another at $30. The opportunity cost to her of engaging in the activity is a. $90 b. $80 c. $60 d. $140 c. $60 Which of the following is an example of an implicit cost? a. salaries paid to owners who work for the firm b. interest on money borrowed to finance equipment purchases c. cash payments for raw materials d. foregone rent on office space owned and used by the firm d. foregone rent on office space owned and used by the firm In the short run, a firm incurs fixed costs a. only if it incurs variable costs. b. only if it produces no output. c. only if it produces a positive quantity of output. d. whether it produces output or not. d. whether it produces output or not. Which of the following is the best example of a variable cost? a. monthly wage payments for hired labor b. annual property tax payments for a building c. monthly rent payments for a warehouse d. annual insurance payments for a warehouse a. monthly wage payments for hired labor If a monopolist can practice perfect price discrimination, the monopolist will a. eliminate consumer surplus b. eliminate deadweight loss c. maximize profits d. all of the above d. all of the above One of the defining characteristics of a perfectly competitive market is a. a small number of sellers. b. a large number of buyers and a small number of sellers. c. a similar product. d. significant advertising by firms to promote their products. c. a similar product. Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? a. less than $2.50 b. more than $2.50 c. exactly $2.50 d. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm. c. exactly $2.50 Monopolies use their market power to a. charge prices that equal minimum average total cost. b. increase the quantity sold as they increase price. c. charge a price that is higher than marginal cost. d. dump excess supplies of their product on the market. c. charge a price that is higher than marginal cost. The deadweight loss associated with a monopoly occurs because the monopolist a. maximizes profits. b. produces an output level less than the socially optimal level. c. produces an output level greater than the socially optimal level. d. equates marginal revenue with marginal cost. b. produces an output level less than the socially optimal level. Average total cost (ATC) is calculated as follows: a. ATC = (change in total cost)/ (change in quantity of output). b. ATC = (change in total cost)/ (change in quantity of input). c. ATC = (total cost)/ (quantity of output). d. ATC = (total cost)/ (quantity of input). c. ATC = (total cost)/ (quantity of output). A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000, a. average fixed cost is 50 cents. b. average variable cost is $2. c. average total cost is $2.50. d. average total cost is 50 cents. d. average total cost is 50 cents. Which of the following is not a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market. c. There are many sellers in the market. d. Goods offered for sale are largely the same. b. Firms have difficulty entering the market. Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will a. experience losses but will continue to produce rubber bands. b. shut down. c. earn both economic and accounting profits. d. raise the price of its product. a. experience losses but will continue to produce rubber bands. In the long run, a profit-maximizing firm will choose to exit a market when a. average fixed cost is falling. b. variable costs exceed sunk costs. c. marginal cost exceeds marginal revenue at the current level of production. d. total revenue is less than total cost. d. total revenue is less than total cost. Profit is defined as a. net revenue minus depreciation. b. total revenue minus total cost. c. average revenue minus average total cost. d. marginal revenue minus marginal cost. b. total revenue minus total cost. Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner's time. d. Both b and c are correct. a. require an outlay of money by the firm. Which of the following statements is not correct? a. The competitive firm produces where P = MC. b. The monopolist produces where P = MC. c. The competitive firm produces where MR = MC. d. The monopolist produces where MR = MC. b. The monopolist produces where P = MC. At the profit-maximizing output, a monopoly's marginal cost will a. be less than its average fixed cost. b. be less than the price per unit of its product. c. exceed its marginal revenue. d. equal its average total cost. b. be less than the price per unit of its product. The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is a. an explicit cost. b. an accounting cost c. an implicit cost. d. forgone economic profit.