PRACTICE EXAM DECEMBER 2007 120 QUESTIONS ANSWER KEY AT THE END OF EXAMINATION. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Use the table below to answer the following question(s).

Table 33.3

Country Units of Labour per Unit of Food Output

Units of Labour per Unit of Cloth Output

Home 2 6Foreign 6 8

1) Refer to Table 33.3. In order for the home country to gain from trade, which product must it import from the foreign country? 1) _________ A) Food. B) Cloth. C) Neither product. D) Either product. E) Both products. Use the figure below to answer the following question(s).

Figure 33.1 Two countries, Partyland and Cowabunga, produce only beer and pizza and have the production possibilities frontiers shown below. 2) Refer to Figure 33.1. The opportunity cost of 1 unit of beer in Partyland is ________, and the opportunity cost of 1 unit of beer in Cowabunga is ________. 2) _________ A) 1 pizza; 1 pizza B) dependent on where on the PPF we measure it; dependent on where on the PPF we measure it C) 3 pizzas; 1 pizza D) 100 pizzas; 25 pizzas E) 1 pizza; 1/3 pizza

3) Refer to Figure 33.1. If trade occurs between Partyland and Cowabunga, 3) _________ A) Partyland will supply pizzas, and Cowabunga will supply beers. B) Cowabunga will supply both pizzas and beers, because they have a comparative advantage in both. C) Partyland will supply both pizzas and beers, because they have a comparative advantage in both. D) there will be a lot of drunk turtles. E) Partyland will supply beers, and Cowabunga will supply pizzas. 4) Complete the following sentence. A tariff is a 4) _________ A) tax on an imported good or service. B) restriction on the quantity of imported goods. C) subsidy on an imported good. D) tax on an exported good or service. E) subsidy on an exported good. 5) One goal of the General Agreement on Tariffs and Trade is to 5) _________ A) raise Canada's share of world trade. B) maximize the tariff revenue earned by governments. C) maximize the profit to producers by imposing quotas on manufactured goods. D) encourage bilateral trade agreements between countries. E) reduce tariff barriers to trade. 6) If Canada imposes a tariff on imported shoes, an increase in the domestic demand for shoes will result in 6) _________ A) a rise in the domestic price and no change in the quantity imported. B) no change in the domestic price or in the quantity imported. C) a rise in the domestic price and an uncertain change in the quantity imported. D) no change in the domestic price, but an increase in the quantity imported. E) a rise in the domestic price and in the quantity imported. 7) The key difference between a tariff and a quota is that 7) _________ A) the consumer gets hurt with tariffs, but not with quotas. B) quotas are illegal internationally. C) the government gets the added revenue with quotas, but the industry receives the added revenue with tariffs. D) the government gets the added revenue with tariffs, but the industry receives the added revenue with quotas. E) the consumer gets hurt with quotas, but not with tariffs. 8) If Canada imposes a tariff on imported shoes, a decrease in the domestic demand for shoes will result in 8) _________ A) no change in the domestic prices or in the quantity imported. B) a fall in the domestic prices and in the quantity imported. C) no change in the domestic prices, but an increase in the quantity imported. D) a fall in the domestic prices and an uncertain change in the quantity imported. E) a fall in the domestic prices and no change in the quantity imported. 9) Canada has import quota of 1 million pairs of shoes per year, and is currently importing this amount. An increase in the domestic demand for shoes will result in 9) _________ A) no change in the domestic price or in the quantity imported. B) a rise in the domestic price and an uncertain change in the quantity imported, depending on whether the increase in demand is greater than one million pairs or not. C) a rise in the domestic price and in the quantity imported. D) no change in the domestic price, but an increase in the quantity imported. E) a rise in the domestic price and no change in the quantity imported.

10) Some opponents of free trade argue that when we buy shoes from Brazil or shirts from Taiwan, Canadian workers lose their jobs. A good counter to this argument is that 10) _________ A) no Canadian worker has actually lost a job because of free trade. B) most jobs lost because of free trade pay salaries below the poverty line. C) imported goods create more handling and distributing jobs than they cost. D) the jobs lost are concentrated in restricted geographic areas. E) free trade creates export jobs, many of which pay more than the jobs lost. 11) When consumption is nonrivalrous and nonexclusive, the product is a 11) _________ A) regulated good. B) public good. C) private good. D) service. E) publicly provided good. 12) Public goods are those goods for which 12) _________ A) production is carried out by the government. B) the people who do not pay cannot be excluded from the consumption. C) the people who do not pay can be excluded from the consumption. D) consumers generally must pay a high price. E) consumers generally must pay a low price. 13) Complete the following sentence. Free riding 13) _________ A) is possible if the consumption of the good or service is characterized by nonexcludability. B) is possible if the consumption of the good or service is characterized by excludability. C) is possible if the consumption of the good or service is characterized by nonrivalry. D) is due to the government providing the good at no cost. E) is due to consumers paying excessively high prices for goods and services provided by the government. 14) An example of a public good is 14) _________ A) a Ford truck. B) national defence. C) a loaf of bread. D) a television. E) a home computer. 15) Public goods are provided by government since 15) _________ A) people value national defence very highly. B) governments are more efficient than private firms at producing public goods. C) private firms do not take into account the impact of external costs. D) free-rider problems result in an underproduction by private markets. E) private firms will make positive economic profits. 16) Private provision of public goods 16) _________ A) succeeds because public provision is often more costly. B) succeeds if consumers expect to obtain marginal benefits from the consumption of the public good. C) fails because private firms generally charge higher prices than public firms, and therefore lose customers. D) fails because the private firm will always go broke. E) fails because of the free-rider problem.

Use the table below to answer the following question(s).

Table 7.1

Units Consumed Jim's Utility Sally's Utility1 12 162 22 263 30 344 36 40

17) Table 7.1 gives total utilities for Jim and Sally. Which one of the following statements is true? 17) ______ A) For Sally, the marginal utility of the third unit consumed is 6. B) If Jim consumes 2 units, his total utility will be 34 units. C) Jim and Sally have identical marginal utilities from the third unit consumed. D) Jim has increasing marginal utility. E) If Sally consumes 2 units, her total utility will be 10 units. 18) The additional utility derived from the last unit of a good consumed is 18) _________ A) average utility. B) a unit of utility. C) marginal utility per dollar spent. D) marginal utility. E) total utility. 19) Utility is best defined as 19) _________ A) the additional satisfaction received from consuming another unit of a good. B) the benefit or satisfaction from consuming goods and services. C) equal to the price of a good. D) the practical usefulness of a good. E) the value of a good. 20) The fact that the fourth slice of pizza did not generate as much satisfaction as the third slice is an example of 20) _________ A) the law of demand. B) consumer surplus. C) diminishing marginal utility. D) the paradox of value. E) diminishing total utility. 21) A household's consumption choices are determined by: 21) _________ A) preferences. B) income. C) prices of goods and services. D) all of the above. E) A and B only. 22) Sarah can consume either pizzas or hamburgers. The price of a hamburger is $1 and the price of a pizza is $5. Let MUh be the marginal utility of hamburgers and MUp be the marginal utility of pizzas. In consumer equilibrium, what must the ratio MUh/MUp equal? 22) _________ A) 1/5. B) 1/6. C) 5/1. D) 1/1. E) Additional information is required.

23) If income is fully spent and the marginal utility-per-dollar spent is equal for all goods, then 23) _________ A) the number of units of each good must be equal. B) marginal utility is maximized. C) total utility is maximized. D) a consumer could not be better off even with more income. E) the proportion of income spent on each good must be equal. 24) Which one of the following is not true in consumer equilibrium? 24) _________ A) Given prices and her income, the consumer finds that any other choice of goods to consume would lower her utility. B) The marginal utility per dollar spent is equal for all goods. C) The consumer is maximizing utility, given her income and the prices of goods and services. D) The consumer will not change her choices unless prices or income change. E) The total utilities of all goods are equal. Use the table below to answer the following question(s).

Table 7.4

Bags of Popcorn

Marginal Utility

Bottles of Pop

Marginal Utility

1 120 1 1202 100 2 703 80 3 604 70 4 40

25) Refer to Table 7.4. What is the total utility if 3 bags of popcorn and 2 bottles of pop are consumed? 25) _________ A) 490. B) 310. C) Not determinable without knowing the prices. D) 660. E) 150. 26) Let MUA and MUB stand for the marginal utility of goods A and B, respectively. Let PA and PB stand for the price of goods A and B, respectively. Which statement must hold for consumer equilibrium? 26) _________ A) MUAPA = MUBPB. B) MUA = MUB and PA = PB. C) MUA/MUB = PA/PB. D) MUA = MUB. E) MUA/MUB = PB/PA. 27) Harold can consume either pens or milkshakes. Both pens and milkshakes sell for $1. Harold figures that when his income is spent, the marginal utility of pens will be 10 and his marginal utility of milkshakes will be 8. Harold could be better off 27) _________ A) by consuming more pens and more milkshakes. B) by consuming fewer pens and fewer milkshakes. C) by consuming fewer pens and more milkshakes. D) by consuming more pens and fewer milkshakes. E) only if he got more income.

Use the table below to answer the following question(s).

Table 7.6

Units of X Total Utility (X) Units of Y Total Utility (Y)0 0 0 01 9 1 492 17 2 903 24 3 1104 30 4 1185 35 5 1246 39 6 1297 42 7 1328 44 8 1339 45 9 13210 44 10 130

28) Refer to Table 7.6. Suppose the price of X is $1 and the price of Y is $1. How much of each should you purchase to maximize utility from a total expenditure of $11? 28) _________ A) 3 units of X and 9 units of Y. B) 5 units of X and 6 units of Y. C) 4 units of X and 7 units of Y. D) 7 units of X and 4 units of Y. E) 6 units of X and 5 units of Y. Use the table below to answer the following question(s).

Table 7.7

Quantity Marginal Utility of

Law Books Marginal Utility of

Miniskirts1 12 162 10 123 8 84 6 4

29) Suppose Ally spends her entire income of $10 on law books and miniskirts. Law books cost $2 and miniskirts cost $4. The marginal utility of each good is independent of the amount consumed of the other good, and is shown in Table 7.7. If Ally is maximizing her utility, how many miniskirts does she buy? 29) _________ A) 4. B) 0. C) 2. D) 3. E) 1. 30) Beverly is currently in consumer equilibrium. An increase in her income will 30) _________ A) increase her total utility. B) decrease her total utility. C) increase her marginal utility of all goods. D) increase her consumption of all goods. E) decrease her marginal utility of all goods.

31) Guy has an income (y) of $50 with which he can purchase records (R) at $10 per album and compact discs (C) at $20 per disc. Which one of the following best represents Guy's budget constraint? 31) _________ A) 50 = R + C. B) y = 50 + R + C. C) 20y = R + 10C. D) 50 = 10R + 20C. E) y = 10R + 20C. 32) The budget line depends on 32) _________ A) preferences only. B) preferences and prices. C) prices only. D) income and prices. E) income only. 33) If the price of the good measured on the vertical axis increases, the budget line will 33) _________ A) shift leftward and become steeper. B) become flatter. C) shift rightward but parallel to the original budget line. D) shift leftward but parallel to the original budget line. E) become steeper. Use the figure below to answer the following question(s).

Figure 8.4 34) Which of the indifference curves in Figure 8.4 violates the assumptions made about preferences? 34) _________ A) (a). B) (b) and (c). C) (c). D) (b). E) (a) and (c). 35) The slope of an indifference curve is defined as 35) _________ A) the relative price of good Y. B) the marginal rate of substitution. C) the marginal rate of transformation. D) the marginal propensity to substitute. E) the marginal propensity to consume. 36) What do all the different bundles represented by an indifference curve have in common? 36) _________ A) The same level of satisfaction. B) The slope of the indifference curve equals the slope of the budget line. C) The same quantity of both goods. D) The same marginal rate of substitution. E) Equal money expenditure.

37) At the best affordable point, what is the relationship between the indifference curve and the budget line? 37) _________ A) The slope of the indifference curve exceeds the slope of the budget line. B) The slope of the budget line exceeds the slope of the indifference curve. C) The level of the indifference curve equals the slope of the budget line. D) The level of the indifference curve equals the level of the budget line. E) The slope of the indifference curve equals the slope of the budget line. 38) Jay has an income of $10 and can buy either peanuts or popcorn. Peanuts cost $1 per bag and popcorn costs $2 per bag. He chooses to consume 5 bags of peanuts and 2 bags of popcorn. What can we say about this consumption choice? 38) _________ A) The consumption choice is outside the budget line. B) It is not optimal. He should consume more peanuts, more popcorn, or more of both. C) It is optimal and his marginal rate of substitution equals the slope of the budget line. D) The consumption choice is on the budget line. E) Both B and C. 39) In order to maximize profit, the firm must equate the 39) _________ A) wage rate to the marginal product of the labour. B) value of the marginal product of labour to wage. C) wage rate to the product price. D) marginal factor cost to the price of the output. E) marginal cost of the factor to the marginal product of the factor. Use the table below to answer the following question(s).

Table 14.1

Units of Labour Units of Output0 01 52 113 184 265 326 377 418 449 4610 47

40) Refer to Table 14.1. If the firm can sell all the output it wants for the price of $4, what is the profit-maximizing employment level of labour if the firm can hire all the labourers it wants for a wage rate of $12? 40) _________ A) At that wage rate, the firm would hire 6 labourers. B) At that wage rate, the firm would hire all 10 units of labour. C) At that wage rate, the firm would not want to hire any labourers. D) At that wage rate, the firm would hire 8 labourers. E) At that wage rate, the firm would hire 4 labourers.

Use the table below to answer the following question(s).

Table 14.2

Units of Labour Units of Output Price ($)0 0 --1 5 102 11 93 18 84 26 75 32 66 37 5

41) Refer to Table 14.2. It contains the production function that relates the level of employment to the level of output and the demand schedule that relates the level of sales to the price of the output. As long as this profit-maximizing firm must pay a positive wage for the labour it hires, the firm will never hire more than 41) _________ A) 3 units of labour. B) 1 unit of labour. C) 4 units of labour. D) 6 units of labour. E) none of the above. 42) Refer to Table 14.2. It contains the production function that relates the level of employment to the level of output and the demand schedule that relates the level of sales to the price of the output. If this optimal factor employment firm can hire all the labour it wants at a wage rate of $10 per unit, how many units will it hire? 42) _________ A) 4 units. B) 1 unit. C) 3 units. D) 5 units. E) None, as it would shut down under these circumstances. 43) The firm's demand curve for labour is 43) _________ A) the downward-sloping portion of the average revenue product curve. B) inelastic if it is a monopsonist. C) the downward-sloping portion of the marginal product curve. D) the downward-sloping portion of the value of the marginal product of labour curve. E) perfectly elastic if it can sell its output in a perfectly competitive market. 44) A shift in a firm's demand curve for labour can be caused by a change in the 44) _________ A) wage rate of labour. B) opportunity cost of labour. C) working-age population. D) marginal cost of labour. E) price of the output. 45) A technological change that causes an increase in the marginal product of labour will shift the labour 45) _________ A) supply curve leftward. B) demand curve leftward. C) demand curve rightward. D) supply curve rightward. E) B and D.

46) Suppose the interest rate is 5 percent per year. What is the present value of the $210 that will be received two years from today? 46) _________ A) $200. B) $190.48. C) $210. D) $231.53. E) $42. 47) The profit-maximizing firm will increase its capital stock until 47) _________ A) the additional revenue generated from an additional unit of capital is equal to the additional cost of that unit of capital. B) the present value of the total revenue generated from the capital is maximized. C) the total revenue generated from the capital stock is just equal to the total cost of acquiring that capital. D) the present value of the total cost generated from the capital is minimized. E) there is no more money remaining in the capital account. 48) A profit-maximizing firm will choose not to buy an extra unit of capital whenever 48) _________ A) the present value of expected future profit is greater than zero. B) its net VMPK is greater than zero. C) VMPK is less than the interest rate. D) its net present value is less than zero. E) the present value of expected future profit exceeds the market rate of interest. 49) Complete the following sentence. Physical capital is 49) _________ A) the change in gross investment. B) the net present value of a firm. C) stocks, bonds, and loans. D) the quantity of goods used to produce other goods. E) none of the above. 50) If firms in monopolistic competition have some degree of price-setting power, then 50) _________ A) all firms will earn positive economic profit. B) price will be lower than under perfect competition. C) the price will always be set above the marginal cost of production. D) production will always take place at minimum average total cost. E) the price will be set equal to marginal cost in order to achieve maximum profit. 51) When the economic profit is negative in an industry that is monopolistically competitive, then 51) _________ A) firms will exit the industry, and the demand will decrease for the firms that remain in the industry. B) firms will enter the industry and produce better products. C) the industry will eventually disappear. D) firms will exit the industry, and the demand will increase for the products of the firms that remain. E) firms will enter the industry, and the demand will increase for the firms that were originally in the industry. 52) A monopolistically competitive firm can determine what price to charge for its product because of 52) _________ A) barriers to entry. B) the fact there are many buyers. C) inelastic demand. D) economies of scale. E) product differentiation.

Use the figure below to answer the following question(s).

Figure 13.1 53) Refer to Figure 13.1. If this firm is in monopolistic competition, it will produce an output level 53) _________ A) of 40 units. B) of 60 units. C) of 80 units. D) that is lower than 40 units. E) impossible to determine without information concerning the rival firms. 54) Refer to Figure 13.1. This firm in monopolistic competition will earn 54) _________ A) negative economic profit. B) either a zero or a positive profit. C) zero economic profit. D) positive economic profit. E) economic profit that is impossible to determine without information concerning the behaviour of the rival firms. 55) Advertising by firms in monopolistic competition 55) _________ A) increases the marginal cost of production. B) is a waste of valuable resources because firms are forced by the entry of rival firms to be price takers. C) generates the perception among consumers that product differentiation exists. D) is allocatively inefficient. E) does not provide consumers with useful information. 56) Excess capacity in monopolistically competitive firms is described by the fact that 56) _________ A) each firm faces a demand that is perfectly elastic. B) each firm builds a huge plant. C) marginal cost is too high. D) the existence of slightly differentiated products, serving almost the same purpose, causes a waste of precious natural resources. E) firms produce at an output that is less than the output associated with their minimum average total cost.

57) Which one the following industries is the best example of an oligopoly? 57) _________ A) The market for wheat. B) The sugar industry. C) The clothing industry. D) The fast-food industry. E) The restaurant industry. 58) If firm X is producing in an oligopolistic industry, when it increases its price 58) _________ A) then rival firm Y will always increase its price. B) the market as a whole will become less profitable. C) then the behaviour of rival firm Y will have no impact on the market share of firm X. D) then rival firm Y will increase its market share if firm Y increases its price. E) the rival firm Y will increase its market share if firm Y keeps a constant price. 59) The kinked demand curve model 59) _________ A) suggests that price will remain constant even with fluctuations in demand. B) assumes that marginal revenue sometimes increases with output. C) assumes that competitors will match price cuts and ignore price increases. D) suggests how the current price is determined. E) is none of the above. 60) A weakness of the kinked demand curve theory of oligopoly is that it does not specify 60) _________ A) what happens if costs change. B) the technology of production. C) how average cost is determined. D) how equilibrium price is determined. E) how marginal cost is determined. 61) In the language of game theory, "prisoners' dilemma" describes a case where 61) _________ A) rivalry among a large number of rivals leads to lower overall profit. B) a prisoner has no incentive to confess to his crime, and hence stands a greater chance of not going to prison. C) rivalry of the participants leads to the worst solution from their point of view. D) collusion of the participants leads to the best solution from their point of view. E) one prisoner has no chance to be acquitted since there is no other prisoner to support his testimony.

Use the table below to answer the following question(s).

Table 13.1

Bob

Confess Don't Confess

Confess B: 10 yearsJ: 10 years

B: 20 yearsJ: 1 year

Joe Don't Confess

B: 1 yearJ: 20 years

B: Go freeJ: Go free

62) Refer to Table 13.1. This table includes the sentences that Bob and Joe will receive if convicted. They have been apprehended by the police under the suspicion of committing armed robbery. The two are immediately separated and questioned about the case. Which one of the following observations is correct? 62) _________ A) Bob would be smart to confess no matter what Joe does B) Both Bob and Joe would be better off "coming clean" and confessing to their crime. C) Both Bob and Joe have a dominant strategy of not confessing. D) Both Bob and Joe would be better off not confessing if they both do not confess. E) Joe would be smart not to confess no matter what Bob does. 63) In the prisoners' dilemma, with players Art and Bob, the dominant strategy equilibrium is that 63) _________ A) indeterminate. B) Bob denies and Art confesses. C) neither prisoner confesses. D) Art denies and Bob confesses. E) both prisoners confess. 64) A dominant strategy equilibrium occurs when 64) _________ A) each player complies with the collusive agreement. B) you cooperate until the other player cheats, and then you cheat forever. C) there is a clear strategy for each player independent of the other player's actions. D) each player takes the best possible action given the other player's action. E) none of the above. 65) A Nash equilibrium occurs when 65) _________ A) each player takes the best possible action given the other player's action. B) you cooperate until the other player cheats, and then you cheat forever. C) each player complies with the collusive agreement. D) there is a clear strategy for each player independent of the other player's actions. E) none of the above. 66) Once a cartel determines the profit-maximizing price, 66) _________ A) entry into the industry of rival firms will raise profits as long as they join the cartel. B) all members of the cartel have a strong incentive to abide by the agreed-upon price. C) each member will face the temptation to cheat on the cartel price in order to increase its sales and profit. D) entry into the industry of rival firms will have no impact on the profit of the cartel. E) changes in the output of any member firms will have no impact on the market price.

67) If there is a successful collusive agreement in a duopoly to maximize profit, 67) _________ A) the industry price will equal the average cost of production. B) the industry marginal revenue will equal the industry average cost of production. C) the industry price will equal the marginal cost of production. D) the price will be the monopoly price. E) the price will be the same as the competitive price. 68) Consider a duopoly with collusion. If the duopoly maximizes profit, 68) _________ A) industry marginal revenue will equal industry marginal cost at the level of total output. B) each firm will produce the same amount. C) total output will be greater than before collusion. D) industry demand will equal industry marginal cost at the level of total output. E) each firm will produce its maximum output possible. Use the table below to answer the following question(s).

Table 13.4

Bud Light Offer

New Ads Don't Offer New Ads

Offer New Ads

B: $100M: $100

B: $50M: $200

Miller Lite Don't Offer New Ads

B: $200M: $50

B: $120M: $120

69) Refer to Table 13.4 The marketers of Budweiser Light beer and Miller Lite beer must decide whether or not to offer new advertising campaigns promoting their products. The elements in the table are the dollar profits earned by Bud and Miller. Which one of the following observations is correct? 69) _________ A) This is not a game described as a prisoners' dilemma. B) If Miller offers a new advertising campaign, then Bud will be better off by not offering a new advertising campaign. C) Both Bud and Miller would be better off if they could collude and agree to coordinate their new advertising campaigns. D) If Bud offers a new advertising campaign and Miller does not, Bud will earn a $200 profit. E) Both Bud and Miller will be better off if they both offer a new advertising campaign. 70) A natural monopoly exists when 70) _________ A) production can take place with constant returns to scale. B) there are no rivals in the market. C) the average total cost curve is upward sloping. D) one firm can supply the entire market and be the most efficient plant size. E) the government protects the firm by granting an exclusive franchise. 71) The marginal revenue of the monopolist is 71) _________ A) the change in total revenue for the sale of an additional unit of output. B) usually greater than marginal cost. C) the profit the monopolist earns in excess of the profit earned by a firm in a competitive industry. D) usually greater than the price charged. E) the price the monopolist charges for the product.

72) For a monopolist, the change in total revenue for a change in the number of units sold per market period is always 72) _________ A) equal to the average total cost of production. B) equal to the price received for the product. C) less than the price received for the product. D) greater than the price received for the product. E) greater than the marginal cost. 73) The monopolist will maximize the profit of the firm by 73) _________ A) setting the price equal to the marginal cost of production. B) charging a price that is as high as the market can bear. C) producing the quantity where marginal revenue equals price. D) producing the quantity where the marginal cost equals the price charged. E) producing the quantity where the marginal revenue equals the marginal cost, and then selling that output for as high a price as the market can bear. Use the figure below to answer the following question(s).

Figure 12.2 74) Refer to Figure 12.2. What is the profit-maximizing output level for this monopolist? 74) _________ A) 3 units per day. B) 5 1/2 units per day. C) 1 1/2 units per day. D) 5 units per day. E) 4 units per day. 75) Refer to Figure 12.2. What price will the monopolist charge in order to maximize profit? 75) _________ A) $3. B) $7. C) $4. D) $6. E) $5.

76) Refer to Figure 12.2. The total profit for this monopolist is 76) _________ A) $9. B) $1. C) $3. D) $0. E) impossible to compute without more information concerning the fixed costs. 77) Refer to Figure 12.2. The monopolist would not shut down the firm since, at the profit-maximizing output, the price is greater than the 77) _________ A) average fixed cost. B) average variable cost. C) marginal revenue. D) marginal cost. E) average total cost. Use the figure below to answer the following question(s).

Figure 12.6 78) Consider Figure 12.6. Suppose we have a market with a single-price monopolist. If the slanted-barred area shows the consumer surplus, and the vertical-barred area shows the producer surplus, which graph(s) correctly represents this market? 78) _________ A) (a). B) (b). C) (c). D) (d). E) (b) and (c).

Use the figure below to answer the following question(s).

Figure 12.7 79) Consider the industry demand curve in Figure 12.7. If the industry operates under perfect competition, which area in the diagram indicates consumer surplus? 79) _________ A) dih. B) dhk. C) aek. D) dik. E) None of the above. 80) Consider the industry demand curve in Figure 12.7. If the industry operates under perfect competition, which area indicates the deadweight loss? 80) _________ A) adc. B) bcd. C) kdi. D) abd. E) None of the above. 81) In order for a monopolist to be able to practise price discrimination, 81) _________ A) the monopolist must be able to segment the market according to the different prices the consumers are willing to pay. B) the monopolist must be a price taker. C) the monopolist must have declining average variables costs of production. D) the monopolist must be able to shrink output. E) the monopolist must have different marginal costs of production for different output levels. 82) A competitive firm maximizes profit by producing the output at which marginal cost equals 82) _________ A) average total cost. B) average variable cost. C) average fixed cost. D) marginal revenue. E) none of the above.

Use the figure below to answer the following question(s).

Figure 11.4 83) Refer to Figure 11.4, which represents the curves necessary for a perfectly competitive firm to make its production decision. In the short run, if the market price of the product is $8, the firm will produce ________ units of output and make an economic __________ 83) _________ A) less than 10; loss of $120. B) 10; loss of $40. C) 10; loss of $80. D) 10; profit of $40. E) less than 10; loss of less than $40, but greater than $0. Use the figure below to answer the following question(s).

Figure 11.5

84) Refer to Figure 11.5, which represents the short-run production decision of a perfectly competitive firm. In the long run, market 84) _________ A) both supply and demand will decrease. B) demand will increase. C) supply will increase. D) demand will decrease. E) supply will decrease. 85) Long-run equilibrium occurs in a competitive industry when economic profits are 85) _________ A) positive. B) equal to the opportunity cost of the firm's owner. C) negative. D) zero. E) both A and B. Use the figure below to answer the following question(s).

Figure 11.7 86) Refer to Figure 11.7 which represents a perfectly competitive firm's short-run and long-run cost curves. What amount of output will the firm produce when the firm has reached its long-run equilibrium position? 86) _________ A) Q3. B) Q2. C) Q1. D) Q4. E) None of the above. 87) All of the following conditions hold in long-run equilibrium in a perfectly competitive industry except: 87) _________ A) SRAC = LRAC. B) P > MR C) MR = P. D) P = LRAC. E) P = AR.

88) The tax incidence on consumers will be greater the more (1) elastic is demand. (2) inelastic is demand. (3) elastic is supply. (4) inelastic is supply. 88) _________ A) (2) and (3). B) (2) and (4). C) (1) and (3). D) (2). E) (1) and (4). Use the figure below to answer the following question(s).

Figure 16.8 89) Refer to Figure 16.8. The tax is 89) _________ A) paid entirely by the sellers. B) paid mostly by the sellers but some is paid by the buyers. C) paid entirely by the buyers. D) shared by the buyers and the sellers. E) paid mostly by the buyers but some is paid by the sellers. 90) Refer to Figure 16.8. Pre-tax consumer surplus is equal to triangle 90) _________ A) gmc. B) mkc. C) gkc. D) dac. E) dbc. 91) Refer to Figure 16.8. Deadweight loss from the tax is equal to triangle 91) _________ A) dbc. B) abc. C) gdj. D) edc. E) dac. 92) Refer to Figure 16.8. Producer surplus lost from the tax (not including tax paid) is equal to triangle 92) _________ A) dij. B) dbc. C) gdi. D) abc. E) dac.

93) Which of the following statements is/are true? (1) The more elastic the demand curve, the bigger the deadweight loss from an excise tax. (2) The more inelastic the demand curve, the bigger the deadweight loss from an excise tax. (3) The more elastic the demand curve, the more tax revenue collected by an excise tax. (4) The more inelastic the demand curve, the more tax revenue collected by an excise tax. 93) _________ A) (1) and (3) B) (1) and (4) C) (1) only D) (2) and (3) E) (2) and (4) 94) Externalities are a problem because 94) _________ A) they are illegal. B) they are ignored by the decision makers who create them. C) of the free-rider problem. D) all of the above. E) none of the above. 95) An example of an externality might be that 95) _________ A) your neighbour grows her own food. B) the people in the apartment next to yours play loud music at 3 a.m. C) the local grocery store goes out of business. D) you buy groceries. E) your neighbour buys groceries. 96) Which one of the following illustrates an elastic demand curve? 96) _________ A) A price elasticity measure of 1.0. B) A price elasticity measure of zero. C) A price elasticity measure of 0.2. D) A 10 percent increase in price causes a 20 percent decrease in quantity demanded. E) A 10 percent increase in price causes a 5 percent decrease in quantity demanded. 97) Suppose a rise in the price of a good from $6.50 to $7.50 leads to a decrease in quantity demanded from 10,500 to 9,500 units. In this range of the demand curve, the price elasticity of demand is 97) _________ A) 14. B) 1. C) 7. D) 1,000. E) 0.7. 98) Which one of the following will yield a measured price elasticity of demand of 5.0? A 10 percent increase in the price results in a 98) _________ A) 5 percent decrease in quantity demanded. B) 50 percent decrease in quantity demanded. C) 2 percent decrease in quantity demanded. D) 10 percent decrease in quantity demanded. E) 0.5 percent decrease in quantity demanded. 99) For which one of the following is the demand curve likely to be the most inelastic? 99) _________ A) A new automobile. B) Travel. C) A compact disc player. D) Toothpicks. E) A new Toyota automobile.

100) If a 4 percent rise in the price of peanut butter causes total revenue to fall by 8 percent, then demand for peanut butter 100) ________ A) is elastic. B) has elasticity equal to 1/2 C) is unit elastic. D) has an elasticity equal to 2. E) is inelastic. Use the table below to answer the following question(s).

Table 4.2

Year Quantity Demanded Price ($) Income ($)2001 25,000 1 4,0002002 15,000 3 4,0002003 5,000 3 6,000

101) Consider the information in Table 4.2. Select the best statement. 101) ________ A) The income elasticity of demand is 3.33. B) The income elasticity of demand is -3.33. C) The income elasticity of demand is 2.5. D) The income elasticity of demand is -2.5. E) We cannot calculate the elasticity, since both income and price are changing at the same time. 102) To say turnips are inferior goods means that 102) ________ A) a large decrease in income will cause a small decrease in the quantity of turnips demanded at the current price. B) any increase in income will cause quantity demanded to decrease at the current price. C) any increase in income will cause quantity demanded to increase at the current price. D) a small decrease in income will cause a large decrease in the quantity of turnips demanded at the current price. E) turnips taste awful. 103) If the cross elasticity of demand between goods A and B is positive, then 103) ________ A) A and B are substitutes. B) A and B are complements. C) the demands for A and B are both price elastic. D) the demands for A and B are both price inelastic. E) none of the above. 104) Which one of the following concepts is not illustrated by a production possibility frontier? 104) ________ A) Monetary exchange. B) Attainable and unattainable points. C) Opportunity cost. D) Scarcity. E) The tradeoff between producing one good versus another. 105) If Harold can increase the production of good X without decreasing the production of any other good, then Harold 105) ________ A) is producing on his production possibility frontier. B) is producing outside his production possibility frontier. C) is producing inside his production possibility frontier. D) must prefer good X to any other good. E) must have a linear production possibility frontier.

106) Production efficiency is achieved when 106) ________ A) the production possibility frontier shifts outward at an even pace. B) all resources are equally productive in all activities. C) more of one good cannot be produced without producing less of another. D) there are no more tradeoffs. E) resources are not equally productive in all activities. 107) The bowed-out (concave) shape of a production possibility frontier 107) ________ A) is due to the equal usefulness of resources in all activities. B) reflects the existence of decreasing opportunity cost. C) is due to capital accumulation. D) reflects the existence of increasing opportunity cost. E) is due to technological change. Use the table below to answer the following question(s).

Table 2.2 Production Possibilities

Possibility Units of Butter Units of Gunsa 8 0b 6 1c 0 3

108) In moving from combination b to combination c, the opportunity cost of producing one additional unit of guns is 108) ________ A) 1/2 unit of butter. B) 3 units of butter. C) 1/6 unit of butter. D) 2 units of butter. E) 6 units of butter. Use the figure below to answer the following question(s).

Figure 10.1

109) Refer to Figure 10.1 illustrating Swanky's short-run total product curve. Marginal product reaches a maximum when you add which labourer? 109) ________ A) 4th labourer B) 1st labourer C) 2nd labourer D) 3rd labourer E) 5th labourer 110) Which one of the following statements is true? 110) ________ A) The highest average product occurs where average and marginal product are equal to each other. B) When the average product curve is rising, marginal product is below average product. C) The highest average product occurs where average product is above marginal product. D) When the average product curve is falling, marginal product is above average product. E) The maximum total product occurs at minimum marginal product. 111) When the marginal product of labour is greater than the average product of labour, 111) ________ A) the average product of labour is increasing. B) the total product curve is negatively sloped. C) the firm is experiencing diminishing marginal returns. D) the firm is experiencing constant returns. E) the marginal product of labour is increasing. Use the table below to answer the following question(s).

Table 10.4

Number of Labourers Total Product1 02 33 74 105 12

112) Refer to Table 10.4. A field of ripe corn is waiting to be harvested. Labour is the only variable input, and the total product (in hectolitres) of the various numbers of labourers is given. Diminishing marginal returns begin when you add which labourer? 112) ________ A) 3rd labourer. B) 1st labourer. C) 4th labourer. D) 2nd labourer. E) There are no diminishing marginal returns since total product always rises. 113) Which one of the following statements is false? 113) ________ A) Average total cost is total cost per unit of output. B) Marginal cost depends on the amount of labour hired. C) Total cost equals fixed cost plus average cost. D) Marginal cost is the increase in total cost resulting from a unit increase in output. E) Average fixed cost plus average variable cost equals average total cost. 114) Which one of the following statements concerning short-run costs is false? 114) ________ A) The gap between average total cost and average variable cost is marginal cost. B) The gap between average total cost and average variable cost narrows as output increases. C) Marginal cost cuts the average variable cost curve at its minimum point. D) Average total cost and average variable cost are U-shaped. E) Marginal cost cuts the average total cost curve at its minimum point.

Use the figure below to answer the following question(s).

Figure 10.5 115) Refer to Figure 10.5, which illustrates short-run average cost curves. Which one of the following statements is false? 115) ________ A) Average fixed cost decreases with output. B) The vertical gap between curves B and C is equal to average fixed cost. C) Curve D represents marginal cost. D) The vertical gap between curves B and C is equal to average variable cost. E) Line B comes closer to line C as output increases because of a decrease in average fixed costs. 116) If AFC is falling then MC must be 116) ________ A) falling. B) below AFC. C) rising. D) above AFC. E) none of the above. 117) The marginal cost curve slopes upward due to 117) ________ A) diminishing marginal utility. B) economic inefficiency. C) diminishing marginal returns. D) technological inefficiency. E) none of the above. 118) Suppose General Motors could triple its production of Cavaliers by tripling its production facility for those cars. This is an example of 118) ________ A) economies of scale. B) increasing returns to scale. C) decreasing returns to scale. D) the law of diminishing returns. E) constant returns to scale.

Use the figure below to answer the following question(s).

Figure 10.7 119) Refer to Figure 10.7, which illustrates the short-run average total cost curves for four different plant sizes. Which curve represents the average total cost for the largest of the four plant sizes? 119) ________ A) ATCa. B) ATCc. C) ATCd. D) ATCb. E) Either ATCc or ATCd. 120) There are decreasing returns to scale if an increase in production causes 120) ________ A) diminishing returns. B) a decrease in long-run average cost. C) market constraints. D) an increase in long-run average cost. E) an increase in long-run total cost.

ANSWER KEY *I did not check the answer key for errors. 1) B 2) E 3) A 4) A 5) E 6) E 7) D 8) B 9) E 10) E 11) B 12) B 13) A 14) B 15) D 16) E 17) C 18) D 19) B 20) C 21) D 22) A 23) C

24) E 25) A 26) C 27) D 28) B 29) E 30) A 31) D 32) D 33) B 34) D 35) B 36) A 37) E 38) B 39) B 40) D 41) A 42) D 43) D 44) E 45) C 46) B 47) A 48) D

49) D 50) C 51) D 52) E 53) A 54) D 55) C 56) E 57) B 58) E 59) C 60) D 61) C 62) D 63) E 64) C 65) A 66) C 67) D 68) A 69) D 70) D 71) A 72) C 73) E 74) A

75) B 76) C 77) B 78) B 79) B 80) E 81) A 82) D 83) E 84) C 85) D 86) A 87) B 88) A 89) E 90) C 91) E 92) D 93) B 94) B 95) B 96) D 97) E 98) B 99) D

100) A 101) D 102) B 103) A 104) A 105) C 106) C 107) D 108) B 109) C 110) A 111) A 112) A 113) C 114) A 115) D 116) E 117) C 118) E 119) C 120) D