ECON 528 Final Exam Questions With Correct
Answers
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. |- |CORRECT |ANSWER✔✔-D. |None |of |the |above
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 |- |CORRECT |ANSWER✔✔-diminishing |marginal |product.
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. |- |CORRECT |ANSWER✔✔-gains |from |specialization |of |
inputs
,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 |- |CORRECT |
ANSWER✔✔-constant |returns |to |scale |because |average |total |cost |is |constant |as |output |rises.
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. |- |CORRECT |ANSWER✔✔-As |the |size |of |
the |firm |increases |it |becomes |more |difficult |to |coordinate |the |operations |of |its |manufacturing |
plants.
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 |- |CORRECT |ANSWER✔✔-an |increase |in |
supply |and |an |increase |in |demand |greater |than |the |increase |in |supply
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. |- |CORRECT |ANSWER✔✔-Entry |barriers |into |the |industry |
are |low.
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. |- |CORRECT |
ANSWER✔✔-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.
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. |- |CORRECT |ANSWER✔✔-agree |to |a |low
|cartel |production |level |and |then |produce |more |than |its |quota.
If |firms |are |in |Cournot |equilibrium: |- |CORRECT |ANSWER✔✔-Firms |could |increase |profits |by |
jointly |reducing |output.
An |industry |has |a |4-firm |concentration |ratio |of |85. |We |would |call |this |industry |a: |- |CORRECT |
ANSWER✔✔-oligopoly.
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. |- |CORRECT |
ANSWER✔✔-A |$95 |ticket |to |the |Magic |Kingdom |gives |you |entrance |to |the |park |and |free |
access |to |all |the |rides.
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 |- |CORRECT |ANSWER✔✔-third-degree |price |discrimination
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:
|- |CORRECT |ANSWER✔✔-Mr. |Fudd |to |pay |Mr. |Leghorn |between |$500 |and |$900 |to |continue |
hunting.
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.
III. |The |marginal |cost |of |providing |a |public |good |to |another |consumer |is |infinite. |- |CORRECT |
ANSWER✔✔-I
Which |of |the |following |is |a |source |of |market |failure?
A) |unforeseen |circumstances |which |leads |to |the |bankruptcy |of |many |firms |
B) |a |lack |of |government |intervention |in |a |market
C) |incomplete |property |rights |or |inability |to |enforce |property |rights
Answers
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. |- |CORRECT |ANSWER✔✔-D. |None |of |the |above
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 |- |CORRECT |ANSWER✔✔-diminishing |marginal |product.
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. |- |CORRECT |ANSWER✔✔-gains |from |specialization |of |
inputs
,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 |- |CORRECT |
ANSWER✔✔-constant |returns |to |scale |because |average |total |cost |is |constant |as |output |rises.
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. |- |CORRECT |ANSWER✔✔-As |the |size |of |
the |firm |increases |it |becomes |more |difficult |to |coordinate |the |operations |of |its |manufacturing |
plants.
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 |- |CORRECT |ANSWER✔✔-an |increase |in |
supply |and |an |increase |in |demand |greater |than |the |increase |in |supply
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. |- |CORRECT |ANSWER✔✔-Entry |barriers |into |the |industry |
are |low.
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. |- |CORRECT |
ANSWER✔✔-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.
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. |- |CORRECT |ANSWER✔✔-agree |to |a |low
|cartel |production |level |and |then |produce |more |than |its |quota.
If |firms |are |in |Cournot |equilibrium: |- |CORRECT |ANSWER✔✔-Firms |could |increase |profits |by |
jointly |reducing |output.
An |industry |has |a |4-firm |concentration |ratio |of |85. |We |would |call |this |industry |a: |- |CORRECT |
ANSWER✔✔-oligopoly.
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. |- |CORRECT |
ANSWER✔✔-A |$95 |ticket |to |the |Magic |Kingdom |gives |you |entrance |to |the |park |and |free |
access |to |all |the |rides.
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 |- |CORRECT |ANSWER✔✔-third-degree |price |discrimination
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:
|- |CORRECT |ANSWER✔✔-Mr. |Fudd |to |pay |Mr. |Leghorn |between |$500 |and |$900 |to |continue |
hunting.
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.
III. |The |marginal |cost |of |providing |a |public |good |to |another |consumer |is |infinite. |- |CORRECT |
ANSWER✔✔-I
Which |of |the |following |is |a |source |of |market |failure?
A) |unforeseen |circumstances |which |leads |to |the |bankruptcy |of |many |firms |
B) |a |lack |of |government |intervention |in |a |market
C) |incomplete |property |rights |or |inability |to |enforce |property |rights
