Econ2Z03 Sample Exam Questions_Ch8,9,10
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1. A city is considering a proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. As the single supplier of cable television services, the company faces the following demand and marginal cost functions:
P = 28 - 0.0008Q
MC = 0.0012Q,
where Q = the number of cable subscribers and P = the price of basic monthly cable service. What quantity would be expected?
A) 12,000 B) 14,000 C) 10,000 D) 11,000
2. Which of following is an example of a homogeneous product?
A) Gasoline
B) Copper
C) Personal computers
D) Winter parkas
E) both A and B
3. At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?
A) They must be tangent to each other.
B) They must have the same slope.
C) They must intersect, with TC cutting TR from above.
D) They must intersect, with TC cutting TR from below.
E) They cannot be tangent to each other.
4. The demand curve facing a perfectly competitive firm is
A) the same as its average revenue curve, but not the same as its marginal revenue curve.
B) not defined in terms of average or marginal revenue.
C) the same as its average revenue curve and its marginal revenue curve.
D) not the same as either its marginal revenue curve or its average revenue curve.
E) the same as its marginal revenue curve, but not its average revenue curve.
Consider the following diagram where a perfectly competitive firm faces a price of $40.
Figure 8.1
5. Refer to Figure 8.1. At the profit-maximizing level of output, ATC is
A) $31. B) $30. C) $44. D) $40. E) $26.
6. Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for
$5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should
A) raise her prices above the perfectly competitive level.
B) continue producing in the short and long run.
C) lower her output.
D) close her doors immediately.
E) continue producing in the short run, but plan to go out of business in the long run.
7. Consider the following statements when answering this question
I. Increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price.
II. Increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price.
A) I is false, and II is true. B) I and II are true.
C) I is true, and II is false. D) I and II are false.
Figure 8.2
8. Refer to Figure 8.2. If the firm expects $80 to be the long-run price, how many units of output will it plan to produce in the long run?
A) 34 B) 22 C) 64 D) 50 E) 38
9. In long-run competitive equilibrium, a firm that owns factors of production will have an
A) economic profit = $0 and accounting profit > $0.
B) economic and accounting profit can take any value.
C) economic and accounting profit > $0.
D) economic and accounting profit = $0.
E) economic profit > $0 and accounting profit = $0.
Figure 9.2
10. Refer to Figure 9.2. At price 0H and quantity Q1, consumer surplus is the area
A) 0FGQ1.
B) HFGB.
C) EFC.
D) EDGF.
E) none of the above
11. Under a binding price ceiling, what does the change in consumer surplus represent?
A) The loss in surplus for those buyers who previously purchased some units of the good at the higher price, but these units are no longer produced at the lower price.
B) The gain in surplus for those buyers who can still purchase the product at the lower price.
C) The loss in surplus for those buyers who would like the purchase the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.
12. Having seen the quantity of drugs supplied by pharmaceutical companies in a competitive market, a
government decides to force companies to sell exactly the same quantity of drugs at prevailing market prices. The government then forbids additional drug sales and allows doctors to prescribe the drugs at no cost to patients in need. This government scheme is
A) efficient as the quantity of drugs traded is the same as under a free market.
B) efficient as consumer surplus is maximized.
C) likely to be inefficient as doctors are unlikely to prescribe drugs to the consumers who are willing to pay the most for the drugs.
D) likely to be inefficient as drug producers have a captive buyer.
E) efficient as the price of drugs paid by the government is the same as under a free market.
13. The market supply curve for music downloads is Q = 135(P-1) where Q is millions of downloads and P is the price in dollars per track. If the current price is $1.20 per download, what is the change in producer surplus if the price increases by $0.20 per track?
A) $10.8 million B) $5.4 million C) $27 million D) $8.1 million
Figure 9.4
14. Suppose the market in Figure 9.4 is currently in equilibrium. If the government establishes a price floor of $40, consumer surplus will
A) fall by $350.
B) remain the same.
C) fall by $50.
D) rise by $50.
E) rise by $350.
Figure 9.7
15. Refer to Figure 9.7. Because of the policy, consumer surplus fell by
A) $45,000. B) $10. C) $12,500. D) $25,000. E) $20.
16. A specific tax will be imposed on a good. The supply and demand curves for the good are shown in the diagram below. Given this information, the burden of the tax:
A) falls mostly on consumers.
B) is shared about evenly between consumers and producers.
C) falls mostly on producers.
D) cannot be determined without more information on the price elasticities of supply and demand.
17. What is the welfare impact of a subsidy policy?
A) Producer surplus increases, consumer surplus declines, and total welfare increases due to the subsidy program.
B) Producer and consumer surplus increase, and these gains are smaller than the government cost.
C) Producer and consumer surplus increase, and these gains are larger than the government cost.
D) Producer surplus increases, consumer surplus declines, and total welfare declines.
18. When the demand curve is downward sloping, marginal revenue is
A) equal to price. B) more than price.
C) equal to average revenue. D) less than price.
19. For the monopolist shown below, the profit maximizing level of output is:
A) Q3. B) Q2. C) Q5. D) Q1. E) Q4.
20. Which of the following is NOT true regarding monopoly?
A) Monopoly price is determined from the demand curve.
B) Monopolist can charge as high a price as it likes.
C) Monopoly is the sole producer in the market.
D) Monopoly demand curve is downward sloping.
21. Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a
price and sell a quantity.
A) higher; smaller
B) lower; larger
C) higher; larger
D) lower; smaller
E) none of these
22. Suppose that a firm can produce its output at either of two plants. If profits are maximized, which of the following statements is true?
A) The marginal cost at the two plants must be equal.
B) The marginal cost at the second plant must equal marginal revenue.
C) The marginal cost at the first plant must equal marginal revenue.
D) all of the above
E) none of the above
23. A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's profit maximizing price is approximately:
A) $0
B) $40
C) $20
D) $10
E) This problem cannot be answered without knowing the marginal cost.
24. For a monopolist, at the profit-maximizing level of output, demand is
A) unit elastic.
B) elastic, but not infinitely elastic.
C) infinitely elastic.
D) completely inelastic.
E) inelastic, but not completely inelastic.
25. The demand curve for red herrings is: Q = 250 - 5P What level of output maximizes revenue?
A) 85 B) 45 C) 125 D) 0 E) 245
26. The more elastic the demand facing a firm,
A) the higher the value of the Lerner index. B) the higher its profit.
C) the lower the value of the Lerner index. D) the more monopoly power it has.
27. Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just
releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25, and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD?
A) No, the retail price is too low
B) No, the retail price is too high
C) Yes
D) We do not have enough information to answer this question.
28. A manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the
market. This action by the firm maybe an example of using a to reduce the number of firms in the
market and to maintain a relatively inelastic demand for its products.
A) positive externality B) natural monopoly
C) barrier to entry D) subsidy
29. Unlike a competitive buyer,
A) a monopsonist pays a different price for each unit purchased.
B) a monopsonist pays a price that depends on the number of units purchased.
C) a monopsonist faces an upward-sloping industry supply curve.
D) a monopsonist sets marginal value equal to marginal expenditure.
Figure 10.5.1
The marginal value curve and expenditure curves in the diagram above are those of a monopsony.
30. Refer to Figure 10.5.1. What quantity will be purchased in a competitive market?
A) Q1
B) Q2
C) Q3
D) Q4
E) none of the above