1. There are a
large number of firms in perfect competition. What is the
significance of that? a. Each firm has
great deal of discretion in setting prices. b. Whether there
are 100 or 101 firms in the industry, the market price will be the
same. c. That
automatically makes goods the same (homogenous). d. That makes
necessary a good deal of communication and coordination among
firms. Therefore there tend to be strong trade associations
in perfectly competitive industries. 2. In perfect
competition, the marginal revenue line is the same as the
_________, and is a _______ line. a. price
negative b. price
positive c. average cost
curve vertical line d. price
horizontal line 3. In short-run
equilibrium, a perfectly competitive firm produces 150 pencils at
an average cost of 12 cents each and receives $30 from selling
them. Which of the following statements is
INCORRECT?
a. The firm's
average revenue equals 20 cents.
b. The firm's
economic profit equals $12
c. The firm's price
is greater than its average cost.
d. The firm's total
cost equals $16. 4. Profits are
maximized where MR = MC. However, sometimes MR = MC shows
where losses are minimized.
a. true
b. false 5. A firm is
still in the increasing returns portion of its short-run marginal
cost curve. Therefore it has in this region a. an increasing
marginal cost curve. b. a decreasing
marginal cost curve. c. a constant
marginal cost curve. d. an inverted
average total cost curve. 6. In a pure
monopoly, there are
a. many firms
selling the same product.
b. barriers to
entry.
c. always economic
profits, even if no one wants the good.
d. all of the
above.
e. both b) and c)
are correct. 7. The marginal
revenue curve in monopoly is __________. The implication of
this is that ________.
a. constant
-- there are the possibility of economic profits
b. constant there
are no economic profits, only normal profits
c. downward sloping
-- there are the possibility of economic profits d. downward
sloping the monopoly industry will produce less than the
perfectly competitive industry 8. Imagine a
monopoly firm is making economic profits to start with. Then
the average total cost curve shifts upward, but the demand curve
does not shift. The cost curve shifts so far up that now
Price = Average Total Cost. Now the monopoly firm, which
still has barriers to entry a. is still
making an economic profit since it is a monopoly. b. is no longer
making an economic profit but is now making a normal profit c. is now a
perfectly competitive firm. d. both b) and
c) are correct. 9. In a famous
antitrust case, the government charged the DuPont Company with
attempting to monopolize the cellophane industry. The company
argues that, while it was the major producer of cellophane, it was
competing in the broader market of "Flexible packaging", a very
competitive industry. Waxed paper, glassine, and aluminum
foil all had sizable shares of the flexible packaging market.
To determine whether DuPont was, in fact, competing in the flexible
wrap industry, one would be interested in determining
a. evidence of
collusion between flexible wrap producers.
b. the per unit
cost as a function of output for cellophane.
c. the price
elasticity of demand for cellophane. d. whether other
potential flexible wraps were actually good substitutes for
cellophane. 10. A monopoly
a. allocates
resources in a socially optimal way.
b. encourages
greater income equality.
c. adheres to the
marginal cost equals price standard.
d. encourages
greater efficiency.
e. produces less
than if it adheres to the marginal cost equals price standard. 11. Firms shut down in the
short-run when the price cannot cover
a. fixed costs.
b. average variable
costs.
c. average total
cost.
d. total cost.
12. Gasoline stations are
generally considered to be monopolistic competitors rather than
perfect competitors because
a. gasoline is a
homogeneous good.
b. retail gasoline
stations are typically very small businesses.
c. consumers seem to
view stations as differentiated by the services they offer and
by
the brands of gasoline they sell.
d. the gasoline
station industry in most locations has little or no excess
capacity. 13. Which of the following
is NOT a characteristic of the monopolistic competition market
structure? a. many sellers,
each small in size relative to the overall market. b. few
sellers. c.
differentiated product. d. easy, low-cost
entry and exit. 14. The firm with external
costs will produce ________ goods for allocative efficiency in an
unfettered market. Once the externalities are internalized,
the firm will produce _______ goods at a ________ price.
a. too many less
lower
b. too fewless-
higher
c. too many
lesshigher
d. too many more
higher 15. Which of the following
is the best example of an external cost?
a. flu vaccines
b. public
schools
c. noise from your
next door neighbor
d. a privacy fence
built by your neighbor 16. John Stossel, the
commentator of the health care video said the delivery of health
care will be improved by ________ market based solutions.
a. more
b. less
c. about the same
as now 17. If insurance pays for
medical care, it creates an illusion to the consumer. Which
of the following describes the illusion?
a. Insurance hides
the fact that medical care, like any other good, is scarce.
b. Insurance only
works in the private sector, not the public
sector.
c. Insurance only
works if there is a perfectly inelastic demand for medical
care.
d. Both a) and b)
are correct.
18. The current employer
provided health insurance may be inefficient but two events help
explain the history. Which two? a. the U.S. tax
code and a misguided paper written about the benefits of it by two
economists in the 1950s b. an AMA
resolution to make health care delivery more efficient and a
statement by the President to make health care delivery more
equitable c. the U.S. tax
code and the need for getting around WWII wage controls d. a resolution
by economists to make the U.S. system more like the Canadian system
and the determination made by economists that health care has a
perfectly inelastic
demand 19. A plan is offered
through your employer for $200 year which guarantees two checkups a
year by a dentist and one by an M.D. It does not pay for
anything other than the checkups. Is this a good example of
insurance in the sense of socializing risk?
a.
yes
b. no
20. 20. A monopolist
faces the following demand curve:
Price
Quantity
$51 1 $47 2 $42 3 $36 4 $29 5 $21 6 $12 7 The monopolist has total fixed costs of $60 and has a CONSTANT
marginal cost of $15. What is the profit-maximizing level of
production? a. 2 units b. 3 units c. 4 units d. 5 units . 21. Which of the two
conditions combined would imply that the firm is producing the
allocatively efficient amount of a good where price equals marginal
cost?
a. no externalities
and imperfect competition
b. external
benefits and perfect competition
c. external costs
and pure monopoly
d. no externalities
and perfect competition 22. If externalities are
internalized, then a. more of the
good will be produced. b. less of the
good will be produced since externalities imply market failure. c. the optimal
portion of the good will be produced where marginal private costs
equals the price under conditions of perfect competition. d. a greater or
lower quantity of the good will be produced depending on whether
the externalities are respectively external benefits or external
costs.
For the following three questions, consider the
following:
John quits his job as a teacher, which paid $40,000 a year, in
order to start the XYZ firm. The firm has sales of $100,000
for the 1st year and rent on a building of $20,000. John also
puts 100,000 of his own savings into inventory and forgoes 3
percent annual interest. He also borrows 100,000 from his
uncle and pays him 3 percent annual interest on the money.
23. What is his economic
profit? a. $80,000 b. $77,000 c. $37,000 d. $34,000 24. What is his accounting
profit? a. $80,000 b. $77,000 c. $37,000 d. $34,000 25. John _______ be
financially better off by staying in business. This is
determined by looking at his _______ profit. a. will
economic b. will not
economic c. will
accounting d. will not
accounting
Go to
http://www.youtube.com/watch?v=cqGRIqFDo2w
for the next 3 questions:
26. Comparative advantage is the
ability of a country to produce a good at a ____________
opportunity cost relative to other countries. It ____ possible to
have a comparative advantage even if the country does not have an
absolute advantage in producing anything. a. higher // is b. lower // is c. equivalent // is
not d. higher // is
not
Use the following information for the next two questions:
the U.S. can produce 4 tons of potatoes per day or 2 tons of wheat
per day. Ireland can produce 3 tons of potatoes per day or
one ton of wheat.
27. The U.S. has an absolute
advantage in producing
a. potatoes.
b. wheat.
c. both.
d. neither. 28. The U.S. has a
comparative advantage on producing
a. potatoes.
b. wheat.
c. both.
d. neither.
The next four questions are based on
http://www.youtube.com/watch?v=rCq52IxGkBw
(This is the You Tube video on oligopoly
behavior)
29. The kinked demand curve,
which is associated with ________ shows that prices
______.
a. oligopoly
change very little
b. oligopoly are
constantly changing to meet the competitors price changes
c. monopoly
change very little
d. perfect
competition -- are constantly changing to meet the
competitors price
changes 30. OPEC is the Organization
of Oil Exporting Countries. They control a good deal of the
worlds oil production and attempt to set prices and output
quotas. They sound like they are
a. monopolistic
competitors.
b. perfect
competitiors.
c. a cartel.
d. both a) and c)
are correct. 31. Game theory shows an
industry would maximize profits if no one advertised. However
since one firm cannot trust the other not to advertise, then each
firm continues to advertise and profits are less.
a. true
b. false 32. The revenue maximizing
model
a. is associated
with perfect competition.
b. shows that
maximizing revenues is the same as maximizing profits.
c. is associated
with oligopoly.
d. all of the
above.
e. b) and c) are
correct. 33. Airlines generally
charge business travelers more than leisure travelers.
Therefore business travelers must have the more ________ demand and
quantity demanded changes _______ for a given percentage
price change compared to a leisure traveler. a. elastic
-- faster b.
inelasticmore slowly c. elasticmore
slowly d.
inelasticfaster 34. Since airlines have
these two distinct markets, they a. must be a
pure monopoly. b. can engage in
1
stdegree price discrimination. c. can engage in
3
rddegree price discrimination d. both a) and
c) are correct. e. both b) and
c) are correct. 35. In monopoly there is a
deadweight loss, which implies a. allocative
inefficiency. b. transfer of
some consumer surplus to the firms profits. c. transfer of
some consumer surplus to no one. d. all of the
above. e. a) and c),
but not b) are correct. 36. Which of the following
is true about the graphical model of monopolistic competition?
a. It does not have
U-shaped average cost curves.
b. It has a
negatively sloped marginal revenue curve, just like in perfect
competition.
c. It has a
negatively sloped marginal revenue curve, just like in pure
monopoly.
d. Price equals
marginal cost, just like in both perfect competition and
monopoly.
Below is a simple algebraic proof that in perfect
competition, Price equals Marginal Cost. Each blank
represents a justification of each step. Fill in the blanks
with the choices given after the proof.
37. In competition P = MR=AR
________ 38. It is also true that MC
= MR. _________ 39. Therefore P=MC.
__________ Choices (One is not used). a. profit
maximizing condition for all firms b.
characteristics of the perfectly competitive firms perfectly
elastic demand curve c.
characteristics of the perfectly competitive firms negatively
sloped demand curve. d. application
of algebraic transitive property: If a=b and b=c, then a=c.
The remaining multiple-choice questions are from
Heilbroners
Worldly Philosophers.
40. The story of the cloth
button makers in France is an example that shows the market
evolved
a. quickly since
markets are second-nature to all people.
b. slowly but
painlessly.
c. slowly, and some
paid a huge price for engaging in market activity. 41. Adam Smith a. invented
capitalism since before he published THE WEALTH OF NATIONS there
was no buying or selling. b. argued that
selfish behavior can lead to socially desirable results when there
is competition. c. both of
these. 42. According to
Heilbroners discussion of Francis Edgeworth, Edgeworths main
interest in economics was because it dealt with a. people. b.
mathematics. c.
socialism. d. making a
better world. 43. Veblen was a
of classical and
neoclassical economics.
a. supporter
b. critic
c. mathematical
interpreter
d. both a) and c)
are correct. 44. John Stuart Mill said
that it was possible to develop a new theory of
a.
distribution.
b. production. 45. The scissors analogy of
Alfred Marshall referred to
a. external and
internal costs
b. explicit and
implicit costs
c. supply and
demand
d. microeconomics
and macroeconomics
e. all of the
above 46. Find a recent newspaper
editorial that applies to the economics of health care (other than
the one your group turned in.) You need not turn in the
article, but give the title of the article and its source.
Then do the following: a. Take a
statement in the article that you consider a positive
statement. Reword in if, then form. The statement
should be no more than 15 words. b. Find one
normative statement in the article OR tell what you think are the
normative implications of the article . c. Do you think
the emphasis is more on efficiency in health care delivery or
equity? You may answer either by quoting a statement or two
in the article OR giving your own statement 47. Based on Clarkes
Zapping and Diminishing Marginal Utility answer in approximately
50 words why many people are constantly playing with the remote
control. There should be very little quoting from the article, and
any direct quote needs to be put in quotation marks. Must use the
following three terms in the answer and use them correctly: diminishing marginal utility marginal cost marginal benefit
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