1. In a competitive market the price is $7, and typical firms in the market has ATC = $7.50 and AVC = $7.15.
a. In the long run the market will cease to exist.
b. In the short run firms will shut down, and in the long run firms will leave the market.
c. In the short run firms will produce, but in the long run firms will leave the market.
d. New firms will likely enter this market to capture any remaining economic profits.
Figure 15-6
2. Refer to Figure 15-6. To maximize total surplus, a benevolent social planner would choose a. 150 units of output and a price of $10 per unit
b. 150 units of output and a price of $15 per unit c. 100 units of output and a price of $10 per unit d. 200 units of output and a price of $10 per unit
3. Refer to Figure 15-6. To maximize its profit, a monopolist would choose a. 100 units of output and a price of $20 per unit
b. 200 units of output and a price of $20 per unit c. 100 units of output and a price of $10 per unit d. 150 units of output and a price of $15 per unit
4. The negative relationship between price and quantity demanded a. applies to most goods in the economy.
b. is represented by a downward-sloping demand curve.
c. is referred to as the law of demand.
d. All of the above are correct.
Figure 14-4: A typical firm in a COMPETITIVE market
5. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area a. (P5 - P4) × Q3.
b. P5 × Q3.
c. When market price is P5 there are no profits.
d. (P5 - P3) × Q2.
6. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds a. P2.
b. P3. c. P1.
d. None of the above is correct.
7. During the last few decades, sunscreen sales have increased while the price of sunscreen has risen and the variety of sunscreen products offered has increased. What’s the most likely explanation?
a. Sunscreen producers increased production out of concern for the public’s health.
b. Government officials ordered sunscreen producers to produce more sunscreen.
c. Cancer activists successfully lobbied to obtain government subsidies for sunscreen use.
d. Health-conscious consumers heeded health warnings and decided to buy more sunscreen.
8. A good reason why the local gas distribution company is subject to price regulation rather than being broken up through antitrust, is because the gas company is a
a. revenue-maximizing monopoly.
b. natural monopoly.
c. producer of externalities.
d. profit-maximizing monopoly.
Econ201 Final Exam, Fall 2007, Version C Douglas
Figure 13-6
9. Refer to Figure 13-6. Which of the curves is most likely to represent average total cost?
a. A b. B c. C d. D Table 15-1
Quantity Price
Total Revenue
Average Revenue
Marginal Revenue
1 35 35
2 64 32 29
3 29
4 17
5 23 11
6 120
7 17 -1
10. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 23 b. 87 c. 29 d. 7.67
11. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell?
a. 6 b. 5 c. 7 d. 4
12. Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge Neons (an inferior good) to increase?
a. gas mileage of SUVs and mid-size sedans increases.
b. wages of auto workers fall.
c. an increase in consumer income
Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by maximizing revenue.
13. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it wants to maximize its profit?
a. $80 b. $60 c. $40 d. $100
14. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?
a. 9,000
16. When a firm in a competitive market decides to triple the amount of output it sells, as a result a. the price in the market falls.
b. the price in the market rises.
c. its total revenue triples.
d. its profit must increase.
17. When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a
a. perfectly competitive oligopoly.
b. cartel.
c. monopolistically competitive oligopoly.
d. Nash arrangement.
18. If a surplus currently exists in a market we know that the current price is
a. above equilibrium price and quantity demanded is greater than quantity supplied.
b. above equilibrium price and quantity supplied is greater than quantity demanded.
c. below equilibrium price and quantity demanded is greater than quantity supplied.
d. below equilibrium price and quantity supplied is greater than quantity demanded.
Econ201 Final Exam, Fall 2007, Version C Douglas
19. As a group, oligopolists would always earn the highest profit if they would a. produce more than the perfectly competitive quantity of output.
b. operate according to their own individual self-interests.
c. produce the perfectly competitive quantity of output.
d. charge the same price that a monopolist would charge if the market were a monopoly.
20. A competitive firm's short-run supply curve is part of which of the following curves?
a. Marginal cost
21. Refer to Table 7-1. If the table represents the willingness to pay of four buyers and the price of the product is
$28, then their total consumer surplus is a. $46.
b. $24.
c. $26.
d. $56.
22. When determining whether to shutdown in the short run, a competitive firm should a. ignore fixed costs.
a. Travis has an absolute advantage over Ricardo in mowing lawns.
b. Ricardo has a comparative advantage over Travis in trimming trees.
c. Travis has a comparative advantage over Ricardo in mowing lawns.
d. All of the above are correct.
24. The lowest points of the average variable cost and average total cost curves occur where a. the marginal cost curve intersects those curves.
b. the marginal cost curve lies below both curves.
c. the average variable cost and average total cost curves intersect.
d. average total cost is below average variable cost.
25. When a country allows trade and becomes an exporter of a good, a. everyone in the country benefits.
b. the gains of the winners exceed the losses of the losers.
c. everyone in the country loses.
d. the losses of the losers exceed the gains of the winners.
Table 13-8: Costs of Gigaplot Production
26. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $20 b. $12 c. $25
d. More information is needed.
27. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. More information is needed.
b. $16 c. $14 d. $15
28. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $20 b. $70 c. $45 d. $17 Figure 15-3
29. Refer to Figure 15-3. Profit will be maximized by charging a price equal to a. P0.
b. P3. c. P1. d. P2.
Econ201 Final Exam, Fall 2007, Version C Douglas
30. Refer to Figure 15-3. The marginal revenue curve for a monopoly firm is depicted by curve a. A.
b. B.
c. C.
d. D.
31. Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to a. (P3 - P0) × Q4.
b. P3 × Q2. c. (P1 - P0) × Q2. d. (P3 - P0) × Q2.
32. A monopolist can make large positive economic profits in the long run only if the monopolist a. produces the amount of output where average variable cost is at a minimum.
b. is protected by barriers to entry.
c. operates as a price taker rather than a price maker.
d. produces the amount of output where average total cost is at a minimum.
33. The defining characteristic of a natural monopoly is
a. constant returns to scale over the relevant range of output.
b. constant marginal cost over the relevant range of output.
c. diseconomies of scale over the relevant range of output.
d. economies of scale over the relevant range of output.
34. For a profit-maximizing monopolist, a. P > MR = MC.
b. MR < MC < P.
c. P = MR = MC.
d. P > MR > MC.
35. Which of the following events will definitely cause equilibrium quantity to fall?
a. demand decreases and supply increases b. demand and supply both decrease c. demand and supply both increase d. demand increases and supply decreases
36. When a country allows trade and becomes an importer of a good,
a. domestic producers become better off, and domestic consumers become worse off.
b. both domestic producers and domestic consumers become better off.
c. both domestic producers and domestic consumers become worse off.
d. domestic producers become worse off, and domestic consumers become better off.
Figure 13-8
37. Refer to Figure 13-8. At levels of output below M the firm experiences a. accounting profit.
b. diseconomies of scale.
c. economies of scale.
d. economic profit.
38. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the average total cost curves?
a. ATCC only.
b. ATCA only.
c. ATCB only.
d. ATCD between M and N.
39. Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per tire is $40 at the profit-maximizing output level, then in the long run
a. some firms will exit from the market, and the price will rise.
b. more firms will exit from the market, and the price will fall.
c. more firms will enter the market, and the price will rise.
d. more firms will enter the market, and the price will fall.
40. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It decreases.
b. It will not change consumer surplus; only producer surplus changes.
c. It may either increase or decrease.
d. It increases.
41. A market structure with only a few sellers, offering similar or identical products, is known as a. perfect competition.
b. monopoly.
c. oligopoly.
d. monopolistic competition.
42. If a competitive firm sees that its marginal cost exceeds its marginal revenue, then a. the firm is definitely losing money.
b. it can increase its profit by decreasing its output.
c. the firm is definitely earning a positive profit.
d. it can increase its profit by increasing its output.
Econ201 Final Exam, Fall 2007, Version C Douglas
43. Which of the following changes would not shift the demand curve for Monty Python videos?
a. a change in expectations about the future price of Monty Python videos b. a change in the price of Mr. Bean videos, a substitute good
c. a change in the price of Monty Python videos d. a change in consumer income
44. The firm will make the most profits if it produces the quantity of output at which a. profit per unit is greatest.
b. marginal cost equals average cost.
c. marginal revenue equals marginal cost.
d. marginal revenue equals total revenue.
45. When an oligopoly market reaches a Nash equilibrium, a. each firm will not have tried to maximize its profit.
b. each firm will have chosen its own best strategy, given what the other firms are doing.
c. the market price will be different for each firm.
d. firms will not be concerned about the strategies of competing firms.
46. The inner and outer loops in the circular-flow diagram represent a. (i) the flow of goods and (ii) the flow of services.
b. (i) inputs into production processes and (ii) outputs from production processes.
c. (i) the flow of dollars and (ii) other financial flows.
d. (i) the flows of inputs and outputs and (ii) the flow of dollars.
47. The U.S. market for locomotives is divided between two producers: General Electric has 70 percent of the market and General Motors has 30 percent. This market is an example of
a. a cartel.
b. an oligopoly, or duopoly.
c. monopolistic competition.
d. a collusive monopoly.
48. The main argument for splitting up monopolies through antitrust action is based on the notion that a. small firms have lower costs.
b. consumers prefer dealing with small firms.
c. competition is more efficient than monopoly.
d. greedy monopolies should be punished.
49. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing an efficient combination of goods.
b. the nation is producing beyond its capacity, and inflation will occur.
c. there will be a large opportunity cost if the nation tries to increase production.
d. the nation is not using all available resources or is using inferior technology or both.
50. Because there is diminishing marginal product of labor, as the number of workers increases a. the additional cost of an additional unit of output falls.
b. the additional cost of hiring an additional worker rises.
c. the additional output added by one additional worker declines.
d. the additional output added by one additional worker rises.
51. Kelly and David are both able to repair cars and cook meals. Which of the following is not possible?
a. Kelly has an absolute advantage in both repairing cars and in cooking meals.
b. Kelly has comparative advantage in car repair and David has comparative advantage in cooking.
c. Kelly has absolute advantage in car repair and David has absolute advantage in cooking.
52. Susan could work as a telemarketer, earning $25,000 per year. Instead, she has her own catering business. The
$25,000 possible telemarketing income is part of her catering business’s a. explicit costs.
b. total revenue.
c. implicit costs.
d. marginal costs.
53. What will happen to the equilibrium price and quantity of legal music downloads if iPods become cheaper, it becomes more difficult to download or share music illegally, and payments to musicians by recording companies fall?
a. Quantity will fall and the effect on price is ambiguous.
b. Price will fall and the effect on quantity is ambiguous.
c. Price will rise and the effect on quantity is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
54. Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries, a. the smaller is the response of the quantity supplied of french fries to the tax.
b. the larger is the deadweight loss of the tax.
c. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
d. All of the above are correct.
55. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their prices are higher than Wal-Mart’s. This demonstrates that
a. there are economies of scale in retail sales.
b. consumers are angry at local retailers because of their high prices.
c. the greed of large sellers like Wal-Mart hurts consumers, especially low-income consumers.
d. there are diseconomies of scale in retail sales.
ID: C
44. ANS: C MSC: Interpretive 45. ANS: B MSC: Interpretive 46. ANS: D MSC: Interpretive 47. ANS: B MSC: Interpretive 48. ANS: C MSC: Interpretive 49. ANS: D MSC: Interpretive 50. ANS: C MSC: Interpretive 51. ANS: D MSC: Interpretive 52. ANS: C MSC: Interpretive 53. ANS: D MSC: Analytical 54. ANS: B MSC: Applicative 55. ANS: A MSC: Interpretive
Douglas, Fall 2007 Version D Special Codes 00000
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________ PRINT NAME: __________________________________
Econ 201 Final Exam
1. Suppose a tax of $1 per unit is imposed on french fries. The more elastic the supply of french fries, a. the larger is the tax burden on french fry sellers relative to the tax burden on buyers.
b. the larger is the deadweight loss of the tax.
c. the smaller is the response of the quantity supplied of french fries to the tax.
d. All of the above are correct.
2. When a firm in a competitive market decides to triple the amount of output it sells, as a result a. the price in the market falls.
b. its total revenue triples.
c. the price in the market rises.
d. its profit must increase.
3. The firm will make the most profits if it produces the quantity of output at which a. profit per unit is greatest.
b. marginal revenue equals marginal cost.
c. marginal cost equals average cost.
d. marginal revenue equals total revenue.
Table 13-8: Costs of Gigaplot Production Quantity
4. Refer to Table 13-8. What is the marginal cost of the 3rd gigaplot?
a. $20 b. $17 c. $70 d. $45
5. Refer to Table 13-8. What is the average variable cost of producing 3 gigaplots?
a. $16 b. $14 c. $15
d. More information is needed.
6. Refer to Table 13-8. What is the fixed cost of producing 3 gigaplots?
a. $12 b. $20 c. $25
d. More information is needed.
7. When a country allows trade and becomes an importer of a good,
a. domestic producers become better off, and domestic consumers become worse off.
b. both domestic producers and domestic consumers become worse off.
c. domestic producers become worse off, and domestic consumers become better off.
d. both domestic producers and domestic consumers become better off.
8. If the price of oak lumber increases, what happens to consumer surplus in the market for oak cabinets?
a. It increases.
b. It decreases.
c. It will not change consumer surplus; only producer surplus changes.
d. It may either increase or decrease.
9. Wal-Mart has low costs in part because it is very large. Local retailers often go out of business because their prices are higher than Wal-Mart’s. This demonstrates that
a. consumers are angry at local retailers because of their high prices.
b. there are diseconomies of scale in retail sales.
c. there are economies of scale in retail sales.
d. the greed of large sellers like Wal-Mart hurts consumers, especially low-income consumers.
10. A competitive firm's short-run supply curve is part of which of the following curves?
a. Average variable cost b. Marginal cost
c. Marginal revenue d. Average total cost
11. The negative relationship between price and quantity demanded a. is referred to as the law of demand.
b. applies to most goods in the economy.
c. is represented by a downward-sloping demand curve.
d. All of the above are correct.
12. Which of the following events will definitely cause equilibrium quantity to fall?
a. demand increases and supply decreases b. demand and supply both decrease c. demand and supply both increase d. demand decreases and supply increases
13. A good reason why the local gas distribution company is subject to price regulation rather than being broken up through antitrust, is because the gas company is a
a. profit-maximizing monopoly.
b. natural monopoly.
c. producer of externalities.
d. revenue-maximizing monopoly.
Econ201 Final Exam, Fall 2007, Version D Douglas
14. Refer to Table 15-1. If the monopolist wants to maximize its revenue, how many units of its product should it sell?
a. 7 b. 4 c. 6 d. 5
15. Refer to Table 15-1. What is the marginal revenue for the monopolist for the third unit sold?
a. 87 b. 23 c. 29 d. 7.67 Table 16-3
The information in the table below shows the total demand for cable TV subscriptions in Laramie, WY.
Assume that the variable cost of providing the service is zero, so the firm will maximize profits by maximizing revenue.
16. Refer to Table 16-3. If there is only one cable TV company in Laramie, what price would it charge if it wants to maximize its profit?
a. $80 b. $100 c. $40 d. $60
17. Refer to Table 16-3. Assume that there are two profit-maximizing digital cable TV companies operating in Laramie, and they initially collude and agree to split the market equally. How many cable TV subscriptions will be sold altogether when this market reaches a Nash equilibrium?
a. 6,000
Figure 14-4: A typical firm in a COMPETITIVE market
18. Refer to Figure 14-4. When market price is P5, a profit-maximizing firm's profit is the area a. P5 × Q3.
b. When market price is P5 there are no profits.
c. (P5 - P3) × Q2. d. (P5 - P4) × Q3.
19. Refer to Figure 14-4. Firms would want to enter this market anytime the price exceeds a. P1.
b. P3. c. P2.
d. None of the above is correct.
Figure 13-8
20. Refer to Figure 13-8. At levels of output below M the firm experiences a. diseconomies of scale.
b. economic profit.
c. accounting profit.
d. economies of scale.
Econ201 Final Exam, Fall 2007, Version D Douglas
21. Refer to Figure 13-8. In long run competitive market equilibrium, firms might operate on which of the average total cost curves?
a. ATCB only.
b. ATCA only.
c. ATCC only.
d. ATCD between M and N.
22. If a competitive firm sees that its marginal cost exceeds its marginal revenue, then a. it can increase its profit by increasing its output.
b. the firm is definitely losing money.
c. the firm is definitely earning a positive profit.
d. it can increase its profit by decreasing its output.
23. Which of the following events would cause both the equilibrium price and equilibrium quantity of Dodge Neons (an inferior good) to increase?
a. gas mileage of SUVs and mid-size sedans increases.
b. an increase in consumer income c. wages of auto workers fall.
d. a decrease in consumer income 24. The Social Security tax is a tax on
a. labor.
b. consumption expenditures.
c. earnings during retirement.
d. capital.
25. When firms have agreements among themselves on the quantity to produce and the price at which to sell
25. When firms have agreements among themselves on the quantity to produce and the price at which to sell