Econ1021 Final Exam Practice Questions PDF

Practice Questions for Econ1021 Final Exam 1) The implicit rental rate to a firm of owning a building is A) the sum of economic depreciation and forgone interest. B) economic depreciation only. C) forgone interest only. D) the cost of using an alternative building. E) the rent paid on the building....

Practice Questions for Econ1021 Final Exam 1) The implicit rental rate to a firm of owning a building is A) the sum of economic depreciation and forgone interest. B) economic depreciation only. C) forgone interest only. D) the cost of using an alternative building. E) the rent paid on the building. Answer: A 2) Gerald is a freelance writer who could work for a newspaper at $25,000 a year but instead runs his own business making revenue of $40,000 a year. His only business expenses are $1,000 for writing materials and $12,000 for rent. What is Gerald's economic profit from working as a freelance writer? A) $2,000 B) $28,000 C) $15,000 D) $25,000 E) $27,000 Answer: A 3) The long run is a timeframe in which A) the firm can hire all the workers it wants to employ, but it does not have sufficient time to buy more equipment. B) the firm is able to maximize revenue. C) the firm may want to build a bigger plant, but cannot do so. D) economic efficiency is achieved. E) the quantities of all factors of production can be varied. Answer: E 4) Marginal product A) is always negative. B) equals the slope of the total product curve. C) is always zero. D) lies between zero and one. E) equals average product minus total product. Answer: B Refer to the table below to answer the following questions. Table 10.2.1 Labour Output (workers per day) (teapots per day) 0 0 1 3 2 12 3 19 4 23 5 25 5) Refer to Table 10.2.1 which gives Tania's Teapots' total product schedule. The marginal product when Tania's increases the number of workers from 3 to 4 per day is A) 6 teapots. B) 2 teapots. C) 9 teapots. D) 7 teapots. E) 4 teapots. Answer: E 6) Refer to Table 10.2.1 which gives Tania's Teapots' total product schedule. The average product when Tania's hires two workers is A) 3 teapots per worker. B) 6 teapots per worker. C) 7 teapots per worker. D) 9 teapots per worker. E) 12 teapots per worker. Answer: B 7) Refer to Table 10.2.1 which gives Tania's Teapots' total product schedule. Marginal product of labour reaches its maximum when the number of workers increases from A) 0 to 1. B) 1 to 2. C) 2 to 3. D) 3 to 4. E) 4 to 5 Answer: B 8) The law of diminishing marginal returns refers to the tendency for the ________ to eventually decrease as more labour is employed, everything else remaining the same. A) average total cost B) marginal cost C) total product D) marginal product of labour E) average product of labour Answer: D Use the table below to answer the following questions. Table 10.3.1 9) Refer to Table 10.3.1, which gives Tania's Teapots' total cost schedule. The average total cost of producing 16 teapots per day is A) $2. B) $5. C) $3.33. D) $7.50. E) $5.51. Answer: D 10) Refer to Table 10.3.1, which gives Tania's Teapots' total cost schedule. When output increases from 4 to 9 teapots, the marginal cost of one of the 5 teapots is A) $4.25. B) $4. C) $25. D) $6.25. E) $5. Answer: E 11) When the marginal product of labour is less than the average product of labour A) the average product of labour is increasing. B) the marginal product of labour is increasing. C) the total product curve is negatively sloped. D) the firm is experiencing diminishing marginal returns. E) the average product of labour is at its maximum. Answer: D 12) Which one of the following statements is false? A) Average total cost is total cost per unit of output. B) Average fixed cost plus average variable cost equals average total cost. C) Marginal cost is the increase in total cost resulting from a one-unit increase in output. D) Total cost equals fixed cost plus average cost. E) Marginal cost depends on the amount of labour hired. Answer: D 13) Economies of scale are present when A) the LRAC curve slopes downward. B) average total cost remains constant as input increases. C) average total cost rises as output increases. D) the LRAC curve is horizontal. E) total fixed cost increases. Answer: A 14) The minimum efficient scale is the smallest quantity of output at which A) the long-run average cost curve reaches its lowest level. B) the average total cost curve reaches its lowest level. C) the average fixed cost curve reaches its lowest level. D) economies of scale begin. E) diminishing returns begin. Answer: A 15) A price-taking firm faces a A) perfectly inelastic demand. B) downward-sloping marginal revenue curve. C) downward-sloping supply curve. D) perfectly elastic demand. E) downward-sloping demand curve. Answer: D 16) A perfectly competitive market is characterized by A) firms that are price setters. B) firms that each face a downward-sloping demand curve. C) firms that each sell a unique good or service. D) buyers who are unaware of the price charged by each firm. E) no restrictions on entry into the market. Answer: E 17) The shutdown point occurs at the point of minimum A) marginal cost. B) average variable cost. C) average fixed cost. D) total cost. E) average total cost. Answer: B 18) A perfectly competitive firm is maximizing profit or minimizing loss if it is producing the quantity at which A) marginal cost equals price and price is not below minimum average variable cost. B) marginal cost equals price and price is not below minimum average fixed cost. C) total revenue is at a maximum. D) average variable cost is at a minimum. E) average total cost is at a minimum. Answer: A 19) If MR>MC A) the revenue from selling one more unit exceeds the total cost of producing it B) a profit-maximizing firm will decrease output C) total revenue exceeds total cost D) the last worker hired should be paid more E) marginal revenue exceeds average total cost Answer: A 20) If a profit-maximizing firm in a perfectly competitive market is incurring an economic loss, then it must be producing a level of output where A) price is greater than marginal cost. B) price is greater than marginal revenue. C) marginal cost is greater than marginal revenue. D) average total cost is greater than marginal cost. E) average total cost is less than marginal cost. Answer: D Use the figure below to answer the following questions. Figure 11.4.2 21) Refer to Figure 11.4.2, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market A) demand will increase. B) demand will decrease. C) supply will increase. D) supply will decrease. E) supply and market demand will decrease. Answer: C 22) When a perfectly competitive market is in long-run equilibrium A) at least one firm makes an economic profit. B) all firms make zero economic profit. C) firms enter the market if other firms are making an economic profit. D) firms exit the market if other firms are incurring an economic loss. E) marginal revenue equals minimum average variable cost. Answer: B 23) A decrease in demand brings all of the following except A) a lower equilibrium price. B) economic losses in the short run. C) exit in the long run. D) a decrease in the equilibrium quantity. E) inefficiency. Answer: E 24) In a natural monopoly, the long-run average cost curve A) is downward sloping in the relevant range of output levels. B) is horizontal in the relevant range of output levels. C) is upward sloping in the relevant range of output levels. D) may be either upward sloping or downward sloping in the relevant range of output levels. E) lies below the marginal cost curve. Answer: A Use the figure below to answer the following question. Figure 12.2.1 25) Refer to Figure 12.2.1. This single-price monopoly produces ________ units per day and charges a price of $________ per unit. A) zero; 0 B) 20; 75 C) 30; 62.50 D) 20; 50 E) 30; 75 Answer: B 26) A single-price monopolist's demand curve A) is its marginal revenue curve. B) shows that demand for the good is perfectly elastic. C) is the same as the market demand curve. D) shows that demand for the good is perfectly inelastic. E) is horizontal. Answer: C 27) The marginal revenue curve for a single-price monopoly A) is below its demand curve. B) is the same as the demand curve. C) lies above its demand curve. D) is horizontal. E) has a slope equal to the slope of the demand curve. Answer: A 28) If marginal revenue equals zero, then demand at this level of output is A) perfectly inelastic. B) inelastic. C) unit elastic. D) elastic. E) perfectly elastic. Answer: C 29) The pursuit of wealth by capturing economic rent A) is rent seeking. B) is illegal in Canada. C) is price discrimination. D) creates a legal monopoly. E) creates a natural monopoly. Answer: A 30) Which of the following markets will have the largest deadweight loss? A) a single-price monopoly B) a perfectly competitive market C) a perfectly price discriminating monopoly D) a monopoly that discriminates among groups of buyers E) a monopoly that discriminates among units of a good Answer: A Use the figure below to answer the following questions. Figure 12.3.3 31) Consider Figure 12.3.3. Which area indicates the deadweight loss from a single-price monopoly? A) EACF B) ACD C) ABD D) BCD E) EADCF Answer: B 32) Consider Figure 12.3.3. In a single-price monopoly, which area indicates producer surplus? A) IHD B) KHD C) KEA D) IEAC E) IFC Answer: D 33) In the prisoners' dilemma with players Art and Bob, each prisoner would be best off if A) both prisoners confess. B) both prisoners deny. C) Art denies and Bob confesses. D) Bob denies and Art confesses. E) they announce the collaboration of a third accomplice. Answer: B Refer to the table below to answer the following questions. Table 14.2.8 34) Refer to Table 14.2.8. Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Smith's strategy given what Dr. Jones may do? A) Dr. Smith advertises no matter what Dr. Jones does. B) Dr. Smith does not advertise no matter what Dr. Jones does. C) Dr. Smith advertises only if Dr. Jones doesn't advertise. D) Dr. Smith advertises only if Dr. Jones advertises. E) Dr. Smith does not advertise if Dr. Jones advertises. Answer: A 35) Refer to Table 14.2.8. Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly describes Dr. Jones' strategy given what Dr. Smith may do? A) Dr. Jones advertises no matter what Dr. Smith does. B) Dr. Jones does not advertise no matter what Dr. Smith does. C) Dr. Jones advertises only if Dr. Smith doesn't advertise. D) Dr. Jones advertises only if Dr. Smith advertises. E) Dr. Jones does not advertise if Dr. Smith advertises. Answer: A 36) Refer to Table 14.2.8. Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements correctly categorizes the Nash equilibrium for the game? A) The game has a Nash equilibrium in which both optometrists advertise. B) The game has a Nash equilibrium in which both optometrists do not advertise. C) The game has a Nash equilibrium in which Dr. Smith advertises and Dr. Jones does not advertise. D) The game has a Nash equilibrium in which Dr. Smith does not advertise and Dr. Jones does advertise. E) The game has no Nash equilibrium. Answer: A 37) In the prisoners' dilemma, with players Art and Bob, the dominant strategy equilibrium is that A) both prisoners confess. B) neither prisoner confesses. C) Art denies and Bob confesses. D) Art denies if Bob denies, and Art confesses if Bob confesses. E) Bob denies and Art confesses. Answer: A 38) Which is not a characteristic of oligopoly? A) Each firm faces a downward-sloping demand curve. B) Firms are profit-maximizers. C) The sales of one firm will not have a significant effect on other firms. D) There is more than one firm in the industry. E) Firms set prices. Answer: C 39) Consider a "prisoners' dilemma" game consisting of two firms in collusion to maximize profit. The game is repeated indefinitely and each player employs a tit-for-tat strategy. The equilibrium when the two firms share the monopoly profit is called a A) credible strategy equilibrium. B) dominant player equilibrium. C) duopoly equilibrium. D) trigger strategy equilibrium. E) cooperative equilibrium. Answer: E 40) To maximize profit, a firm hires the quantity of labour at which A) there is no more labour available at the market wage rate. B) they can sell that labour for no more than what they paid for it. C) the wage rate paid to the labour equals the marginal cost of production. D) the additional benefit of hiring the labour is equal to the additional revenue the labour generates. E) the value of marginal product of labour equals the wage rate. Answer: E 41) If marginal product of a restaurant employee is 10 customers per hour, and the price of a meal is $15, the restaurant employee's value of marginal product is A) $15. B) $7.5. C) $12.5. D) $10. E) $150. Answer: E Use the table below to answer the following questions. Table 17.2.1 Labour Output (workers) (units) 0 0 1 5 2 11 3 18 4 26 5 32 6 37 7 41 8 44 9 46 10 47 42) Refer to Table 17.2.1. If the firm can sell all the output it wants for the price of $4 a unit, what is the profit-maximizing number of workers if the wage rate is $12? A) zero B) 10 C) 4 D) 8 E) 6 Answer: D 43) The income effect of a higher wage is A) the increased income workers must be paid to be willing to work more. B) the increased prices of consumer goods that result from increased worker incomes. C) the increased demand for leisure that results from increased worker incomes. D) the increased workers' purchasing power that results from increased worker incomes. E) the desire for workers to purchase more normal goods and fewer inferior goods as income rises. Answer: C