# ECON 230-D2-002 Version 2. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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1 ECON 230-D2-002 Version 2 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The two largest auto manufacturers, Toyota and GM, have experimented with hydrogen powered cars in the past, and they are currently considering the decision to introduce a hydrogen powered car into the commercial automobile market. The payoffs from the possible actions are measured in millions of dollars per year, and the possible outcomes are summarized in the following game matrix: 1) GM produces GM does not produce Toyota produces -10, , 0 Toyota does not produce 0, 40 0, 0 If both firms enter the market simultaneously, what is the Nash equilibrium? A) Toyota produces and GM does not produce. B) There are two Nash equilibria - GM produces and Toyota does not produce, or Toyota produces and GM does not produce. C) GM produces and Toyota does not produce. D) There is no Nash equilibrium in this game. 2) Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power? A) Wage increases and employment declines. B) Employment increases and wage declines. C) Both decline. D) Both increase. 3) Suppose a competitive industry produces output, Q, using some input, i, where the price of the output is PQ and the input price is Pi. Efficient use of resources requires that A) MRPi = MPi PQ. B) MRPi = MPi. C) MRPi = Pi. D) MRPi = Mpi/PQ. 2) 3) 4) Other things being equal, the marginal revenue product (MRP) curve for a competitive seller 4) A) lies below the MRP curve for a monopolist. B) lies above the MRP curve for a monopolist. C) is upward sloping whereas a monopolist has a downward sloping MRP curve. D) is identical to the MRP curve for a monopolist. 5) For a monopsony buyer of an input, the marginal expenditure curve 5) A) lies below the input demand curve. B) lies above the average expenditure curve. C) lies below the average expenditure curve. D) is identical to the average expenditure curve. Version 2 1

2 6) Under an infinitely inelastic supply of land, the economic rents to land if the price of land doubles. A) double B) increase by more than 100% C) increase by less than 100% D) none of the above 6) 7) Which of the following is true at the exchange equilibrium between two individuals? 7) A) Their marginal rates of substitution are equal. B) Both individuals' marginal rates of substitution are equal to the ratio of the prices of the goods. C) The slopes of the individuals' indifference curves are equal. D) A and B only E) A, B, and C are all true. 8) What is the "Hotelling rule" for a monopolist? 8) A) Marginal revenue and marginal cost must be independent of the rate of interest. B) Price minus marginal cost must rise at exactly the rate of interest. C) Price plus marginal cost must rise at exactly the rate of interest. D) Marginal revenue minus marginal cost must rise at exactly the rate of interest. 9) A perpetual payment of \$10,000, offered for sale at \$125,000, is being offered at an effective yield of 9) A) 80%. B) 12.5%. C) 92%. D) 8%. E) 9.2% 10) Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power? A) Both increase. B) Both decline. C) Wage increases and employment declines. D) Employment increases and wage declines. 11) Suppose the labor market is perfectly competitive, but the output market is not. When the labor market is in equilibrium, the wage rate will: A) equal price times the marginal product of labor. B) be less than price times the marginal product of labor. C) be greater than price times the marginal product of labor. D) None of the above is necessarily correct. 12) If the factor supply curve facing a monopolist is the market supply curve, and if the market supply curve is an upward sloping straight line, the marginal expenditure curve A) lies below the market supply curve. B) is the market supply curve. C) crosses the market supply curve at the market wage rate. D) lies above the market supply curve. E) either A or B is possible. 10) 11) 12) Version 2 2

3 13) Which of the following statements correctly characterizes the problem with comparing production outcomes that are stocks and flows? A) Labor usage is always a flow, which makes it difficult to compare with stock inputs like capital. B) Business returns or profits may be equivalently viewed as stocks or flows, which makes it difficult to compare the returns with the input expenditures. C) Most capital inputs are flows, but economists treat these expenditures as stocks by using the opportunity or economic costs associated with these inputs. D) Most capital inputs are stocks, but the returns on these investments (profits) occur as a flow. 13) 14) All points within the utilities possibilities frontier are 14) A) unattainable. B) efficient. C) profitable. D) inefficient. 15) A \$130,000 investment in new equipment this year will increase your firm's profits by \$50,000 in each of the next 3 years. What is the net present value of this investment if your firm's opportunity cost of capital is 10 percent? A) 5,657 B) 124,343 C) -5,657 D) 128,850 15) Scenario 16.2: Sam and Sally are the only consumers in an economy where tee shirts and candy are the only commodities that are consumed. The marginal utility schedule for each appears below. Sam tee shirts MU(tee shirts) Candy MU(Candy) Sally tee shirts MU(tee shirts) Candy MU(Candy) There are 7 candies and 7 tee shirts total in the economy. Consider the case when the goods are redistributed such that Sam has 3 tee shirts and 3 candies. Sally has 4 tee shirts and 4 candies. 16) Refer to Scenario Is the current distribution Pareto optimal? 16) A) No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off. B) No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off. C) Without the prices of each commodity it is impossible to determine if this distribution is Pareto optimal. D) Yes. Version 2 3

4 17) You have won a contest and are allowed to choose between two prizes. One option is to receive \$200 today and another \$200 one year from now. The second option is \$100 today and an additional \$325 one year from now. At what interest rate (if any) is the present value of the two prizes identical? A) 10 percent B) 25 percent C) 5 percent D) 0 percent E) none of the above 17) 18) Which of the following is true? Partial equilibrium analysis will 18) A) overstate the impact of a tax for both substitutes and complements. B) understate the impact of a tax for substitutes and overstate the impact for complements. C) understate the impact of a tax for both substitutes and complements. D) understate the impact of a tax for complements and overstate the impact for substitutes. 19) An auction in which a seller begins by offering an item for sale at a relatively high price and then reduces the price by fixed amounts until receiving a bid is known as a: A) Dutch auction. B) sealed-bid auction. C) English auction. D) second-price auction. 19) 20) According to the economics of exhaustible resources, if the interest rate increases, 20) A) the period of time until an exhaustible resource is used up will not change. B) an exhaustible resource will be used up over a longer period of time. C) an exhaustible resource will be used up sooner. D) none of the above Version 2 4

5 Answer Key Testname: 230 WINTER MID-TERM 2 V2 1) B 2) B 3) C 4) B 5) B 6) A 7) E 8) D 9) D 10) C 11) B 12) D 13) D 14) D 15) C 16) D 17) B 18) B 19) A 20) C Version 2 5

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