Final Exam Instructor: Jin Luo Multiple Choice (2 *30 = 60) Identify the letter of the choice that best completes the statement or answers the question. 1. Price takers refer to buyers and sellers in a. a perfectly competitive market. b. a monopolisticly competitive market. c. an oligopolistic market. d. a monopolistic market. 2. Each of the following are determinants of demand EXCEPT a. tastes. b. technology. c. income. d. the price of related goods. The table shows individual demand schedules for a market. Table 4-1 Price of the Good Aaron Angela Austin Alyssa $0.00 20 16 10 8 0.50 18 12 6 6 1.00 14 10 2 5 1.50 12 8 0 4 2.00 6 6 0 2 2.50 0 4 0 0 3. Refer to Table 4-1. When the price of the good is $1.00, the quantity demanded in this market would be a. 42 units. b. 31 units. c. 24 units. d. 14 units. 4. Refer to Table 4-1. If the price increases from $1.00 to $1.50, a. the market demand increases by 20 units. b. the quantity demanded in the market decreases by 2 units. c. individual demands will increase. d. the quantity demanded in the market decreases by 7 units. 5. If a car manufacturer purchases new labor-saving technology for its assembly line, we would NOT expect a. less labor to be used. b. the supply of cars produced to increase. c. costs to the firm to fall. d. the price of cars to be increased by the firm.
6. Which of the following would definitely result in a higher price in the market for Snickers? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase 7. Which of the following will definitely cause equilibrium quantity to fall? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase Figure 5-2 8. Refer to Figure 5-2. The elasticity of demand from point A to point B, using the midpoint method would be a. 1. b. 1.5. c. 2. d. 2.5. 9. Refer to Figure 5-2. If the price decreased from $18 to $6, what would happen to total revenue? a. Total revenue would increase by $1200 and demand would be elastic. b. Total revenue would increase by $800 and demand would be elastic. c. Total revenue would decrease by $1200 and demand would be inelastic. d. Total revenue would decrease by $800 and demand would be inelastic. 10. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly a. elastic and will be horizontal. b. inelastic and will be horizontal. c. elastic and will be vertical. d. inelastic and will be vertical.
Table 5-1 Income Quantity of Good X Purchased Quantity of Good Y Purchased $30,000 2 20 $40,000 5 10 11. Refer to Table 5-1. Using the midpoint method, what is the income elasticity of good Y? a. -3.33 b. -2.33 c. 1.33 d. 2.33 12. Refer to Table 5-1. Good X is a. very price elastic. b. an inferior good. c. underpriced. d. a normal good. Figure 9-1 13. Refer to Figure 9-1. With free trade, consumer surplus would be a. $45. b. $80. c. $210. d. $245. 14. Refer to Figure 9-1. With free trade, producer surplus would be a. $80. b. $210. c. $245.50. d. $472.50. 15. Refer to Figure 9-1. With trade, total surplus increases by a. $80. b. $97.50. c. $162.50. d. $495.50.
Use the following information to answer the following questions. Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has leased computer equipment that costs $480 a month. Table 13-3 Output (Instructiona l Modules per Month) 0 Fixed Costs Variabl e Costs Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Margina l Cost 1,08 0 1,08 0 400 1,480 400 1 2 965 450 3 1,350 2,430 4 1,900 475 5 2,500 216 6 4,280 700 7 4,100 8 5,400 135 9 7,300 10 10,880 980 16. Refer to Table 13-3. How many instructional modules are produced when marginal cost is $1,300? a. 4 b. 5 c. 7 d. 8 17. Refer to Table 13-3. What is the average fixed cost for the month if nine instructional modules are produced? a. $108 b. $120 c. $150 d. $811.11
Figure 13-8 18. Refer to Figure 13-8. The three average total cost curves on the diagram correspond to three different a. time horizons. b. products. c. firms. d. factory sizes. 19. Refer to Figure 13-8. The firm experiences economies of scale if it changes its level of output a. from Q 1 to Q 2. b. from Q 2 to Q 3. c. from Q 3 to Q 4. d. from Q 4 to Q 5. Use the information for a competitive firm in the table below to answer the following questions. Table 14-2 Quantity Total Revenue Total Cost 0 $0 $10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70 9 81 82 20. Refer to Table 14-2. At a production level of 4 units which of the following is true? a. Marginal cost is $6. b. Total revenue is greater than variable cost. c. Marginal revenue is less than marginal cost. d. All of the above are correct. 21. Refer to Table 14-2. If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to a. 6. b. 7. c. 8. d. 9.
The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer the following questions. Figure 15-3 22. Refer to Figure 15-3. A profit-maximizing monopoly's total revenue is equal to a. P 3 Q 2. b. P 2 Q 4. c. (P 3 - P 0 ) Q 2. d. (P 3 - P 0 ) Q 4. 23. Refer to Figure 15-3. A profit-maximizing monopoly's total cost is equal to a. (P 1 - P 0 ) Q 2. b. P 0 Q 1. c. P 0 Q 2. d. P 0 Q 3. 24. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to a. P 3 Q 2. b. P 2 Q 4. c. (P 3 - P 0 ) Q 2. d. (P 3 - P 0 ) Q 4. 25. Refer to Figure 15-3. Profit on a typical unit sold for a profit-maximizing monopoly would equal a. P 2 - P 1. b. P 2 - P 0. c. P 3 - P 2. d. P 3 - P 0. 26. Refer to Figure 15-3. At the profit-maximizing level of output, a. marginal revenue is equal to P 3. b. marginal cost is equal to P 3. c. average revenue is equal to P 3. d. None of the above are correct.
Figure 21-2 27. Refer to Figure 21-2. Which of the graphs in the figure reflects a decrease in the price of good X only? a. graph (a) b. graph (b) c. graph (c) d. graph (d)
Figure 21-7 28. Refer to Figure 21-7. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $4. This consumer will choose a consumption bundle where the marginal rate of substitution is a. 2. b. 2/3. c. 1/2. d. 1/3. 29. Refer to Figure 21-7. Assume that the consumer depicted in the figure has an income of $20. The price of Skittles is $2 and the price of M&M's is $2. This consumer will choose to optimize by consuming a. bundle A. b. bundle B. c. bundle C. d. bundle D.
Figure 21-5 30. Refer to Figure 21-5. Which of the graphs shown represent indifference curves for perfect substitutes? a. graph (a) b. graph (b) c. graph (c) d. All of the above are correct.
True/False (3 *5 = 15) Indicate whether the sentence or statement is true or false. Mark A. for True, or B. for False. 42. The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves. 43. Economists normally assume that people start their own businesses to help society maximize its income. 44. A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin. 45. The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost curve. 46. The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale. Short Answer (12.5 *2 = 25) 1. Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. The first is the existence of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the marginal cost curve is linear. (Hint: The second reason relates to average fixed cost) 2. Using the graph, assume that the government imposes a $1 tariff on hammers. Answer the following questions given this information. a. What is the domestic price and quantity demanded of hammers after the tariff is imposed? b. What is the quantity of hammers imported before the tariff? c. What is the quantity of hammers imported after the tariff? d. What would be the amount of consumer surplus before the tariff? e. What would be the amount of consumer surplus after the tariff? f. What would be the amount of producer surplus before the tariff? g. What would be the amount of producer surplus after the tariff? h. What would be the amount of government revenue because of the tariff? i. What would be the total amount of deadweight loss due to the tariff?