# Professor: Houman Mortazavi Econ 101 Fall Sample Questions

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1 Sample Questions 1) Guy has an income (Y) of \$70 with which he can purchase DVDs (D) at \$15 each and haircuts (H) at \$10 each. Which one of the following represents Guy's budget line? A) Y = 10QD - 20QH B) 50 = QD + QH C) Y = 50 + QD + QH D) 20Y = QD + 10QH E) 70 = 15QD + 10QH 2) Suppose all prices double and income also doubles. Which statement is true? A) The budget line does not change. B) The slope of the budget line increases. C) The slope of the budget line decreases. D) The budget line shifts rightward. E) The budget line shifts leftward. 3) The budget line depends on A) income only. B) prices only. C) income and prices. D) preferences only. E) preferences and prices. 4) A change in the price of the good measured on the horizontal axis changes of the budget line. A) the slope and y-intercept B) the slope and x-intercept C) the x- and y-intercepts but not the slope D) only the slope E) only the y-intercept 5) In general, (1) opportunity cost is greater than accounting cost. (2) opportunity cost is less than accounting cost. (3) economic profit is greater than accounting profit. (4) economic profit is less than accounting profit. A) 1 only B) 1 and 3 C) 1 and 4 D) 2 and 3 E) 2 and 4 1

2 Use figure 1 to answer question 6. Figure 1 6) Refer to Figure 1. Which budget line shows the lowest real income in terms of compact discs? A) AD B) BD C) CD D) Real income is equal for all three budget lines. E) Cannot be determined without studying the indifference curves. Use figure 2 to answer question 7. Figure 2 7) Which of the graphs in Figure 2 shows perfect substitute? A) (a) B) (b) C) (c) D) (d) E) (c) and (d) 2

3 Use the information provided in Fact 1 below to answer question 8. Fact 1 Consider the following three methods of preparing your tax return. Method A uses a personal computer (cost equal to \$1,000) and 1 hour of your time. Method B uses a calculator (cost equal to \$30) and 12 hours of your time. Method C uses pen and paper (cost equal to \$1) and 2 days (16 hours) of your time. 8) Consider Fact 1. Choose the best statement. A) When your wage rate is \$5 per hour, the economically efficient method is method C. B) When your wage rate is \$50 per hour, the economically efficient method is method B. C) When your wage rate is \$500 per hour, the economically efficient method is method A. D) all of the above E) B and C only Use table 1 to answer question 9. Table 1 9) Refer to Table 1, which shows three methods for making photon torpedoes. Which method is technologically efficient? A) 1 only B) 2 only C) 3 only D) all of the methods E) 1 and 3 only 10) One difference between oligopoly and monopolistic competition is A) there is a smaller number of firms in a monopolistically competitive market than in an oligopoly. B) in oligopolies firms make slightly different products whereas in monopolistic competition the products are identical. C) monopolistic competition has barriers to entry, whereas oligopoly has none. D) fewer firms compete in an oligopoly than in a monopolistically competitive market. E) in oligopolies, firms are typically smaller in size. 3

4 11) In a perfectly competitive market, the four-firm concentration ratio is A) almost zero. B) 50 percent. C) 100 percent. D) 75 percent. E) 25 percent. 12) Choose the correct statement. A) The long run is a period of time in which the quantity of at least one input is fixed. B) The short run is a period of time in which the firm has sufficient time to change all its inputs. C) The long run is a time frame that lasts for 10 years. D) In the short run, the firm's plant is fixed. E) A firm always has plenty of time to make decisions about changing its inputs no matter if it is in a short run or long run position. 13) Which one of the following statements is true? A) The highest value of average product occurs where average product is greater than marginal product. B) When the average product curve is rising, marginal product is less than average product. C) When the average product curve is falling, marginal product is greater than average product. D) The maximum total product occurs at minimum marginal product. E) The highest value of average product occurs where average product equals marginal product. 14) If energy (E) is the only input used to produce output (Q), what is the formula for marginal product of energy? A) Q*E B) Q/E C) Q/ E D) E/ Q E) E/Q 15) Economies of scale are present when A) the LRAC curve slopes downward. B) average total cost remains constant as input increases. C) average total cost rises as output increases. D) the LRAC curve is horizontal. E) total fixed cost increases. 4

5 Use table 2 to answer question 16. Table 2 16) Refer to Table 2, which gives Tania's total cost schedule. The average fixed cost of producing 9 teapots per day is A) \$2.22. B) \$1.25. C) \$ D) \$1.11. E) \$ ) Assume that the leather market is a perfectly competitive market. The market demand curve for leather is and each individual leather producer's demand curve is. A) vertical; downward sloping B) downward sloping; horizontal C) downward sloping; vertical D) horizontal; horizontal E) horizontal; downward sloping 18) A firm maximizes profit by producing the output at which marginal cost equals A) marginal revenue. B) average total cost. C) average variable cost. D) average fixed cost. E) total revenue. 5

6 Use figure 3 to answer question 19. Figure 3 19) Refer to Figure 3, which illustrates the short-run average and marginal cost curves. The average variable cost curve is curve A) A. B) B. C) C. D) D. E) none of the above. 20) A single-price monopoly is a firm that each unit of its output. A monopoly sells different units of a good or service for different prices. A) produces; at a constant cost; discriminatory B) must sell; for the same price to all its customers; price-discriminating C) produces; at a constant cost; price-discriminating D) must sell; for the same price to all its customers; discriminatory E) must sell; at the same price as a perfectly competitive firm; price-discriminating 21) A monopoly arises for two key reasons, which are. A) barriers to entry and no close substitutes B) franchises and barriers to entry C) barriers to entry and close substitutes D) close substitutes and no barriers to entry E) natural and legal 6

7 Use figure 4 to answer question 22. Figure 4 22) Refer to Figure 4 which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive industry, The firm is A) making an economic profit. B) incurring an economic loss. C) breaking even. D) not maximizing economic profit. E) going to close down temporarily. 23) If some firms in the industry make an economic profit, then A) the industry cannot be perfectly competitive. B) the industry must be monopolistically competitive. C) rival firms will enter if there are no barriers to entry. D) the firms must practice product differentiation. E) the industry must be an oligopoly. 7

8 Use figure 6 to answer questions 24 and 25. Figure 6 24) Consider Figure 6. Consider a perfectly competitive market. If the light grey area shows the consumer surplus, and the dark grey area shows the producer surplus, which graph correctly represents this market? A) (a) B) (b) C) (c) D) (d) E) (b) and (d) 25) Consider Figure 6. Consider a single-price monopoly. If the light grey area shows the consumer surplus, and the dark grey area shows the producer surplus, which graph correctly represents this firm? A) (a) B) (b) C) (c) D) (d) E) (b) and (c) 8

9 Use figure 5 to answer question 26. Figure 5 26) Refer to Figure 5. This single-price monopoly produces units per day and charges a price of \$ per unit. A) zero; 0 B) 20; 75 C) 40; 50 D) 20; 50 E) 20; 20 Use figure 7 to answer question 27. Figure 7 9

10 27) Refer to Figure 7. The outcome is efficient if A) the monopoly is able to perfectly price discriminate. B) the price consumers pay is equal to average total cost. C) the price consumers pay exceeds minimum average variable cost. D) the quantity produced is 80 units. E) the quantity produced is 20 units. Use figure 8 to answer question Figure 8 28) Refer to Figure 8. If this firm is in monopolistic competition, it will produce an output level A) of 40 units. B) of 60 units. C) of 80 units. D) that is impossible to determine without information concerning the rival firms. E) that is less than 40 units. 29) Refer to Figure 8. If this firm is in monopolistic competition, then it will charge a price A) of \$20 a unit. B) of \$50 a unit. C) of \$40 a unit. D) of \$30 a unit. E) that is impossible to determine without information concerning the behaviour of the rival firms. 10

11 30) Refer to Figure 8. This firm in monopolistic competition will A) make an economic profit in the short run. B) make zero economic profit in the short run. C) incur an economic loss. D) make an economic profit in the long run. E) incur an economic loss in the long run. 11