ECO 561 Final Exam / 100% correct answers

ECO 561 Final Exam / 100% correct answers

1) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:A. will be greater than $5B. will also be $5C. will be less than $5D. may be either greater or less than $52) A firm that is motivated by self interest should:A. always use large amounts of cheap inputs and small amounts of expensive inputs in producing its  outputB. hire each input so the productivity of each is equal at the marginC. always use large amounts of the most productive inputs and small amounts of the least productive inputs in producing its outputD. employ the combination of resources that will produce the profit-maximizing output at the minimum cost3) If price is above the equilibrium level, competition among sellers to reduce the resulting:A. shortage will increase quantity demanded and decrease quantity suppliedB. surplus will increase quantity demanded and decrease quantity suppliedC. surplus will decrease quantity demanded and increase quantity suppliedD. shortage will decrease quantity demanded and increase quantity supplied4) Camille’s Creations and Julia’s Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can’t keep up with the quantity demanded at that price), then we would expect both Camille’s and Julia’s to:A. lower their price and increase their quantity suppliedB. raise their price and reduce their quantity suppliedC. lower their price and reduce their quantity suppliedD. raise their price and increase their quantity supplied5) Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement:A. constitutes an exception to the law of supply in that they suggest a downward sloping supply curveB. suggests that the supply of DVD players has increasedC. constitutes an exception to the law of demand in that they suggest an upward sloping demand curveD. suggests that the demand for DVD players has increased6) In a market economy the distribution of output will be determined primarily by:A. a social consensus as to what distribution of income is most equitableB. consumer needs and preferencesC. government regulations that provide a minimum income for allD. the quantities and prices of the resources that households supply7) In a competitive market economy firms will select the least-cost production technique because:A. “dollar voting” by consumers mandates such a choiceB. such choices will result in the full employment of available resourcesC. this will prevent new firms from entering the industryD. to do so will maximize the firms’ profits8) Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:A. no inference can be made as to the elasticity of demand for peanutsB. the demand for peanuts is elasticC. the demand curve for peanuts has shifted to the rightD. the demand for peanuts is inelastic9) If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:A. less labor as a consequence of the output effectB. more labor as a consequence of the output effectC. less labor as a consequence of the substitution effectD. more labor as a consequence of the substitution effect10) In which of the following industries are economies of scale exhausted at relatively low levels of output?A. newspaper printingB. automobile manufacturing                   C. concrete mixingD. aircraft production11) If a firm decides to produce no output in the short run, its costs will be:A. zeroB. its fixed plus its variable costsC. its fixed costsD. its marginal costs12) Which of the following represents a long-run adjustment?A. a supermarket hires four additional clerksB. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plantsC. a steel manufacturer cuts back on its purchases of coke and iron oreD. a farmer uses an extra dose of fertilizer on his corn crop13) Paying an above-equilibrium wage rate might reduce unit labor costs by:A. increasing the supply of laborB. increasing the cost to workers of being fired for shirkingC. increasing voluntary worker turnoverD. permitting the firm to attract lower-quality labor14) A firm can hire six workers at a wage rate of $8 per hour but must pay $9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is:A. $21B. $10C. $15D. $915) Price exceeds marginal revenue for the pure monopolist because the:A. demand curve lies below the marginal revenue curveB. demand curve is downslopingC. monopolist produces a smaller output than would a purely competitive firmD. law of diminishing returns is inapplicable16) Oligopoly is difficult to analyze primarily because:A. neither allocative nor productive efficiency is achievedB. the price and output decisions of any one firm depend on the reactions of its rivalsC. output may be either homogenous or differentiatedD. the number of firms is too large to make collusion understandable17) A competitive firm will maximize profits at that output at which:A. the difference between marginal revenue and price is at a maximumB. total revenue and total cost are equalC. price exceeds average total cost by the largest amountD. total revenue exceeds total cost by the greatest amount18) Nonprice competition refers to:A. reductions in production costs that are not reflected in price reductionsB. price increases by a firm that are ignored by its rivalsC. advertising, product promotion, and changes in the real or perceived characteristics of a productD. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts19) Advertising can impede economic efficiency when it:A. increases consumer awareness of substitute productsB. enables firms to achieve substantial economies of scaleC. reduces brand loyaltyD. increases entry barriers20) Which of the following is not a possible source of natural monopoly?A. rent-seeking behaviorB. greater use of specialized inputsC. simultaneous consumptionD. large-scale network effects21) Suppose that an industry is characterized by a few firms and price leadership. We would expect that:A. marginal revenue would exceed marginal costB. price would exceed both marginal cost and average total costC. price would equal average total costD. price would equal marginal cost22) When economists view technological change as internal to the economy, they mean that it:A. arises mainly from government subsidiesB. arises deliberately from the profit motive and competitionC. occurs accidentallyD. occurs randomly23) Firm X develops a new product and gets a head start in its production. Other firms try to produce a similar product but discover they have higher average total costs than the existing firm. This situation illustrates:A. spillover costsB. learning-by-doingC. diminishing marginal returnsD. diseconomies of scale24) In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to:A. average costB. average variable costC. marginal revenueD. average total cost25) If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:A. price level would necessarily riseB. price level would necessarily fallC. output would fallD. output would rise26) Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:A. expenditures curve will shift downwardB. supply curve will shift leftwardC. supply curve will shift rightwardD. demand curve will shift leftward27) Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:A. reduce taxes by $200 billionB. reduce taxes by $50 billionC. increase government expenditures by $50 billion.D. increase government expenditures by $100 billion28) Expansionary fiscal policy is so named because it:A. is designed to expand real GDPB. involves an expansion of the nation’s money supplyC. is aimed at achieving greater price stabilityD. necessarily expands the size of government29) Stabilizing a nation’s price level and the purchasing power of its money can be achieved:A. with neither fiscal nor monetary policyB. only with fiscal policyC. with both fiscal and monetary policyD. only with monetary policy30) Suppose that US prices rise 4 percent over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso?A. The dollar will be revaluedB. The dollar should depreciateC. The peso should depreciateD. The peso should appreciate