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1 Extra Credit Student: 1. A glass company making windows for houses also makes windows for other things (cars, boats, planes, etc.). We would expect its supply curve for house windows to be: A. Dependent on the demand for boat and plane windows B. No different than that of firms which only make those windows C. Relatively more elastic than those of firms which only make house windows D. Relatively more inelastic than those of firms which only make house windows 2. (Consider This) An unprofitable motel will stay open in the short-run if: A. price (average nightly room rate) exceeds average variable cost. B. marginal revenue exceeds marginal cost. C. price (average nightly room rate) exceeds average fixed cost. D. marginal revenue exceeds price. 3. The following cost data are for a firm in the short run: What is the firm's average variable cost at an output of 5 units? A. $30 B. $60 C. $120 D. $ The long-run supply curve under pure competition will be: A. Downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry B. Horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry C. Vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry D. Upward-sloping in an increasing-cost industry and vertical in a constant-cost industry 5. As a result of a fall in the price of gasoline, consumers can afford to take more driving trips. This is an illustration of: A. The income effect B. The substitution effect C. Diminishing marginal utility D. The rationing function of prices 6. The price elasticity of demand is a measure of the: A. Steepness or slope of a demand curve B. Absolute changes in quantity demanded and price C. Responsiveness of quantity demanded to a change in price D. Sensitivity of price to changes in demand 7. For a purely competitive seller, price equals: A. average revenue. B. marginal revenue. C. total revenue divided by output. D. all of these.

2 8. Which of the following is considered as an economic resource? A. The ice cream that kids buy at the ice cream parlor B. The TV sets in people's homes C. The land that are designated as national parks by the government D. The shoppers at the mall 9. What is a major opportunity cost of going to college on a full-time basis? A. The cost of transportation to college instead of to a job B. The cost of living expenses (room and board) to attend college C. The foregone income that could be earned working full-time job D. The greater income that will be earned from having a college degree 10. In monopolistic competition, product differentiation and variety tends to: A. Raise costs and increase demand for the firm's product B. Raise costs and decrease demand for the firm's product C. Lower costs and increase demand for the firm's product D. Lower costs and decrease demand for the firm's product 11. Successful price discrimination requires that: A. Buyers with inelastic demand be charged higher prices than buyers with elastic demand B. Buyers with inelastic demand be charged lower prices than buyers with elastic demand C. All buyers be charged the same price regardless of their elasticity of demand D. All buyers have the same price elasticity of demand 12. Refer to the above graphs for a competitive market in the short run. What will happen in the long run to industry supply and the equilibrium price of the product? A. S will decrease,pwill decrease B. S will increase,pwill decrease C. S will decrease,pwill increase D. S will increase,pwill increase Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion 13. Refer to the above table and information. What will total profits be at the profit-maximizing output and price? A. $65 B. $85 C. $90 D. $110

3 14. When a purely competitive industry is in long-run equilibrium, which statement is true? A. Average total cost is less than marginal cost B. Price and average total cost are equal C. Marginal cost is at its maximum level D. Marginal revenue is greater than price 15. The individual demand curve that is implied by the budget constraints and indifference curves above will be: A. Perfectly elastic B. Relatively elastic C. Perfectly inelastic D. Relatively inelastic 16. An industry is producing at the least-cost rate of production when: A. Marginal cost is greater than average total cost B. Marginal revenue is greater than price C. Price and the minimum average cost are equal D. Price and marginal revenue are equal 17. Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will: A. Increase the unit prices of their products B. Reduce the unit sizes of their products C. Produce more units of their products D. Buy more flour for their products 18. Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $1/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be: A. $1/unit B. Less than $1/unit C. Greater than $2/unit D. Greater than $1/unit but less than $2/unit 19. In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic? A. "The different brands are almost identical. I always buy the cheapest" B. "I use so little of that product that when I do buy it, I don't pay much attention to the price" C. "The brand I buy is so superior to other available brands that I hardly consider the others" D."I pinch pennies in buying other products, but like most people I feel I owe it to myself to get the best brand of this product"

4 20. In a competitive market illustrated by the diagram above, a price floor of $25 per unit will result in: A. A shortage of 200 units B. A surplus of 200 units C. A surplus of 250 units D. A shortage of 250 units 21. The market system automatically corrects a surplus condition in a competitive market by: A. Raising the price of the commodity in question while increasing the quantity demanded B. Raising the price of the commodity in question while decreasing the quantity demanded C. Reducing the price of the commodity in question while increasing the quantity demanded D. Reducing the price of the commodity in question while decreasing the quantity demanded 22. Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation: A. should close down in the short run. B. is maximizing its profits. C. is realizing a loss of $60. D. is realizing an economic profit of $ The production possibility curve: A. Is convex to the origin B. Is based on the law of diminishing returns C. Is the boundary between attainable and unattainable outputs D. Reflects the mixed economy found with most economic systems 24. Refer to the above graph for a profit-maximizing monopolist. The firm will set its price at: A. 0J B. 0G C. 0K D. 0H

5 25. What happens in a decreasing-cost industry when some firms leave and the industry's output contracts? A. The average cost will increase B. The average cost will decrease C. The total cost will increase D. The product price will decrease 26. If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total variable costs are: A. $104 B. $930 C. $1,040 D. $1, A unique feature of an oligopolistic industry is: A. Low barriers to entry B. Standardized products C. Diminishing marginal returns D. Mutual interdependence Assume that the graphs show a competitive market for the product stated in the question. 28. Select the graph above that best shows the change in the market specified in the following situation: In the market for digital cameras, when the productivity of workers in the digital camera industry increases. A. Graph A B. Graph B C. Graph C D. Graph D

6 29. Refer to the above diagram, which shows three demand curves for coffee. Which of the following would cause a shift in coffee demand fromd 1 tod 2? A. A decrease in the price of tea B. An increase in consumer incomes C. An increase in the prices of cream and sugar D. A decrease in the price of coffee 30. One major barrier to entry under pure monopoly arises from: A. The availability of close substitutes for a product B. Ownership of essential resources C. The price taking ability of the firm D. Diseconomies of scale (The following economy produces two products.) 31. Refer to the above table. According to the production possibilities schedule, a combination of four tanks and 650 autos is: A. Attainable, and involves an efficient use of society's resources B. Attainable, but would not be in the best interests of a strong national defense C. Not attainable because it is not listed in the schedule D. Not attainable because society does not have sufficient resources

7 32. In a market with supply and demand curves as shown above, a legal price ceiling of $2.50 will result in: A. A surplus of 10 units B. A shortage of 10 units C. No shortage or surplus D. A black market price greater than $ The Herfindahl index is a measure of: A. Profitability in an industry B. The price level in an industry C. The costs in an industry D. Market power in an industry 34. Refer to the above table. At what consumption level for this product does diminishing marginal utility set in? A. 4 units B. 5 units C. 6 units D. 7 units 35. Refer to the above graph. Consider a situation where price decreases fromp 2 top 1. In this price range, demand is relatively: A.Inelastic because the loss in total revenue (areas D + G + I + J) is greater than the gain in total revenue (areas C + F + H) B. Elastic because the loss in total revenue (areas C + F + H) is greater than the gain in total revenue (area J) C. Elastic because the loss in total revenue (area J) is less than the gain in total revenue (areas C + F + H) D. Inelastic because the gain in total revenue (area J) is less than the loss in total revenue (areas C + F + H) 36. A monopoly is most likely to emerge and be sustained when: A. Output demand is relatively elastic B. Firms have U-shaped, average-total-cost curves C. Fixed capital costs are small relative to total costs D. Economies of scale are large relative to market demand

8 37. Which question is an example of a macroeconomic question? A. What is the level of industrial concentration in the US automobile industry? B. What economic incentives can be used to reduce the cost of health care in the nation? C. What policies would be recommended for stimulating national economic growth? D. What market conditions are expected for milk in the nation this year? 38. Economists would describe the U.S. automobile industry as: A. purely competitive. B. an oligopoly. C. monopolistically competitive. D. a pure monopoly. 39. Over the range of positive, but diminishing, marginal returns for an input, the total product curve: A. Falls B. Rises at a constant rate C. Rises at a decreasing rate D. Rises at an increasing rate Answer the question based on the following payoff matrix for a duopoly in which the numbers indicate the profit from following either an international strategy or a national strategy. 40. Refer to the above table. When this game reaches a Nash equilibrium, the payoffs will be A. $3M for both firms B. $17M for both firms C. $15 for firm A and $5 for firm B D. $5 for firm A and $15 for firm B 41. The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by: A. Recently considered information B. Their childhood memories C. Irrelevant data always D. Relevant information solely 42. In which instances will total revenues decline? A. Price rises ande d equals.41 B. Price rises and demand is of unit elasticity C. Price falls and demand is elastic D. Price rises ande d equals 2.47

9 43. "The bigger the volume, the lower the cost, and we pass these savings on to you" is a familiar slogan. It implies the situation shown in the above graph: A. A B. B C. C D. D Assume that the graphs show a competitive market for the product stated in the question. 44. Select the graph above that best shows the change in the market specified in the following situation: In the market for Florida oranges, when a major frost damages the orange crop in California. A. Graph A B. Graph B C. Graph C D. Graph D

10 45. Refer to the above diagram. The firm will produce at a loss if price is: A. less thanp 1. B. P 2. C. P 3. D. P Refer to the total revenue graph above. Demand is price-elastic between points: A. A andb B. D ande C. F andg D. G andh 47. Refer to the above graph for a pure monopoly. A profit-maximizing monopolist would set what price and quantity levels in the short run? A. P 1 andq 1 B. P 2 andq 3 C. P 3 andq 2 D. P 4 andq Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an: A. Increase in the demand for A and an increase in the quantity of B demanded B. Increase in the demand for A and a decrease in the quantity of B demanded C. Increase in the quantity of A demanded and a decrease in the demand for B D. Increase in the demand for goods A and B The table below shows the hypothetical utility schedule for a consumer of chocolate candy bars.

11 49. Refer to the above table. Based on the data in the above table you can conclude that the: A. Marginal utility of the fourth unit is 7 B. Marginal utility of the third unit is 18 C. Total utility of 5 units is 30 D. Total utility of 3 units is Estimates of the income elasticity of demand for health care indicate that it is about 1. These estimates suggest that spending on health care would: A. Increase proportionately with income B. Increase faster than income C. Increase less than income D. Not increase or decrease

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