If the Grout Company wishes to increase employment from 4 to 5 then the marginal factor cost of doing so would be: (a) $800 (b) $125 (c) $450 (d) $250 (e) $200.

25. A monopoly differs from a compedtive firm in that a monopolist: (a) has no supply curve (b) operates where demand is elasdc (c) is always profitable

(d) operates where average costs are declining

(e) operates where marginal costs are declining.

26. As a monopolistically compedtive industry moves from short run to long run equilibrium, its demand elasdcity increases because: (a) demand always becomes perfecdy elasdc over time (b) firms behave more and more as monopolists (c) advertising conveys less and less informadon (d) increasingly close substitutes to the good become available (c) none of the above.

27. If you were in possession of 1,000 pounds of tomatoes which must be sold immediately due to prohibitive storage costs, then you should: (a) sell all 1000 pounds at any price the market would bear (b) sell that quandty which maximizes average revenue (c) sell that quantity which maximizes total revenue less your cost of acquiring the tomatoes (d) sell that quandty which maximizes total revenue (e) not sell them unless you receive at least what you paid for them.

28. Monopolistic competition differs from perfect compedtion in that under monopolistic competition:

(a) suf>er-normal profits cannot be earned in the short run (b) supernormal profits can be earned in the long run (c) price is generally greater than marginal cost (d) marginal cost is generally less than marginal revenue (e) price does not equal average cost in the long run.

29. Price discrimination involves: (a) selling at a higher price in markets with inelastic demand and at a lower price in markets with an elastic demand

(b) selling at a lower price in markets with inelastic demand and at a higher price in markets with an elastic demand (c) equating marginal revenue in each market (d) both (a) and (r) (e) both (b) and (c).

30. Maximizing profits is equivalent to maximizing total revenue if: (a) total variable costs are zero (b) marginal cost is constant (c) marginal cost always

exceeds zero (d) total fixed costs are zero ginal revenue is constandy failing.

(e) mar-

31. If wages and employment are at their compeutive levels in a certain bilateral labor monopoly, a successful vrage claim will tend to: (a) increase emplov-ment (b) reduce employment (c) may increase employment or reduce employment (d) leave employment unchanged (e) lower the marginal revenue product of labor

32. The ability of a labor union to bargain successfully for increased wages will be reduced by: (a) a lack of close subsdtutes to the good being produced (b) a low proportion of labor costs in tolal costs (c) a high degree of substitutabiUty of other factors of production for labor (d) large financial resources on the part of the union (e) similar wage claims in indusuies producing substitute goods.

33. Subsidies to firms purchasing pollution control devices may be inefficient because: (a) pollution is not a problem (b) the only efficient solution is the eUmination, not the control of pollution (c) subsidies are inherendy inefficient (d) because pollution control devices are not necessarily the least cost means of reducing pollution (e) none of the above.

34(H). The marginal physical product of an individual worker is shown in the following table:

Hours worked:

12 34 56789 10 II Marginal physical product of labor (units of product): 10 9 8.5 7 6.5 6 4 3 2 1.5 1

If the wage were $10 per hour for the first eight hours and $15 per hour for each hour of overtime, and the price of output were $5 per unit, then a profit maximizing firm would employ this worker for: (a) 5 hours (b) 6 hours (c) 8 hours (d) 10 hours (e) 11 hours.

35. Which of the following statements is not alw a>s correct for a firm charging a single price? (a) average fixed cost equals total fixed cost divided by the level of output (b) profits equal average revenue multiplied by the level of output less average cost multiplied by the level of output (c) average fixed cost equals average total costs less average variable costs (d) short run marginal cost equals the change in total costs divided by a small change in output (e) average revenue equals marginal revenue.

36. Street lighting is unlikely to be provided efficiently by a compeddve market because: (a) die marginal social cost of provision is less than the marginal private cost (b) the marginal social cost of provision is greater than the marginal private cost (c) it is impossible to exclude people from benefidng and so people will not reveal their preferences in the market (d) the cost of installing street lighting is inherently prohibidve (e) none of the above.

37. Which of the following is inconsistent with a perfecdy competidve industry? (a) elastic- industry demand at the current price (b) inelasdc industry demand at the current price (c) rapid onset of diseconomies of scale (d) constandy falling average total costs (e) many firms in the industry.

38. Which of the following would reduce the socially optimal level of feed grain producdon? (a) an improvement in fertilizers (b) a spell of average weather (c) a decline in the demand for meat (d) lower wages in grain producdon (e) all of the above.

39. If a joint profit maximizing cartel is successfully organized: (a) the marginal cost of the last unit will vary among the cartelists (b) entry may erode the profits (c) economic profits will exceed those of a monopolist operating under the same demand and cost condidons (d) the supply curve of the cartel will be upward sloping (e) the cartel will produce the output at which the market marginal revenue curve strikes the verdcal sum of the members margmal cost curves.

40. The following demand condidons are faced by a single firm in its product market:

Price per unit ($/q) 20 Quandty per period 0

16 12 8 4 0 6 12 18 24 30

Which of the following market structures are consistent with these data? (a) monopoly, kinked demand curve oligopoly, monopolistic compeddon, and factor market monopsony (b) monopoly, kinked demand curve oligopoly, and factor market monopsony only (c) monopoly, monopolisdc competidon, and factor market monopsony only (d) monopoly, kinked demand oligopoly, monopolistic competition only (e) monopoly, monopolistic competition, and kinked demand oligopoly only.

41. If in a particular firm, average revenue decreases with output, it can be inferred that: (a) marginal

revenue must be equal to average revenue (b) the firm is a natural monopoly (c) economic profits are present (d) econom.ic profits are absent (e) the firm is a price-searcher or price-maker.

42. The chief reason why oligopoly is difficult to analyze is that: (a) the firms tend to be large and hence involve conflicung interest groups (b) the firms may not be interested in maximizing profits

(c) the firms marginal revenue curves may not be well defined (d) cost structures may differ widely among firms (e) too few practical instances of oligopoly exist to permit inferences.

43. The managing editor of the sole newspaper in Zilch, Arkansas, is informed that the elasticity of demand at the current price is 0.85 for the weekday edition and 1.26 for the Sunday edition. This being so, you would advise him to: (a) raise the price of the weekday edition (b) lower the price of the Sunday edition (c) raise the price of the Sunday edition

(d) lower the price of the weekday edition (e) advertise both editions more heavily.

44. Which of the following would be expected to raise both the level of industry employment and the aggregate amount of income paid to the work force in an otherwise competitive labor market? (a) an increase in the minimum wage when labor demsmd is inelastic (b) an increase in the minimum wage when labor demand is elastic (c) a decrease in the price of complements to the final product of the industiy (d) the formation of a union which practices collective baiining (e) the formation of a union which practices racial discrimmation.

45. In the long run profits tend to be greatest imder conditions of: (a) free entry and exit (b) mono[>-oly price discrimination (c) single price monopoly (d) perfect competition (e) monopolistic competition.

46. WThich of the following is an invalid assertion? (a) if the total cost curve is getting flatter as output uicreases, average total cost is rising (b) if average total cost is rising as output increases, marginal cost must be greater than average total cost (c) if average total cost is constant, marginal cost equals average total cost (d) if marginal cost is increasing as output increases, average total cost may be rising or falling (e) average fixed cost must constandy fall as output increases.

47. If marginal social benefits exceed marginal private benefits and if transactions costs are high, then: (a) the good is under-supplied (b) the good is produced in a noncompedtive market structure (c) the good is being subsidized (d) social costs exceed private costs (e) the good cannot be supplied indefinitely.

48. The miniwidget industry is characterized by open entry, but each firm characterizes its product as disdnct from its competitors. Which market structure is most consistent with this observation? (a) monopsony (b) monopoly (c) perfect competition

(d) monopolistic competition (e) a cartel.

49. If a competitive market contains both external costs and external benefits, the market m\\: (a) produce less than the socially optimal quandty (b) produce more than the socially optimal quantity (c) produce the socially optimal quantity (d) possibly produce too much or too Utde (e) result in price in excess of marginal social cost

50. In the long run, an owner will choose to close down operations of his firm when: (a) marginal cost is increasing (b) economic profits equal zero (c) price exceeds marginal cost (d) price falls belowmin-imum average total cost (a) marginal re\enue is decreasing and marginal cost is increasing.

51. Which of the following is true? (a) the supply curve of labor to a competitive buyer of labor is perfectly elasdc (b) a monopsonist can buy all the labor he vyrants at the prevailing wage rate (c) the supply curve of labor to a monopsonist is not defined (d) if the demand curve for labor is inelasdc, the supply curve will also be inelasdc (e) the supply curve of labor to an individual competitive buyer of labor is idendcal to the firms demand curve of labor.

52. In equilibrium no profit maximizing firm ever: (a) operates in an inelastic portion of its demand curve if it has one (b) operates where marginal cost is increasing (c) operates if price is below average total cost (d) operates where marginal revenue is zero

(e) operates where marginal revenue is decreasing.

53. Recently, the Attorney General of Cjdifornia filed an antitrust complaint against several California oil companies alleging, in effect, that they formed a joint profit maximizing cartel in the marketing of gaso-

line. \\ 1 of the following,would be evidence that the charge is false? (a) super-normal profits (b) the MC of production is different for each firm at their equilibrium outputs (c) the demand for gas is elastic at the prices charged by the defendants (d) "U" shaped cost curves (e) price exceeding the average total cost of production.

54. Public goods are: (a) those goods produced by the government (b) over-supplied by the private market because everyone gets about the same amount of the good (c) undersupplied because the supplier cannot readily make the beneficiaries pay for the good (d) never services (e) any good bought by the public rather than the government.

55. A recent California Supreme Court decision has apparendy made the University financially responsible for alcohol-related auto injuries to outsiders arising from fraternity and sorority parties. This decision:

(a) is efficient because victims should be compensated for such injuries and students are often unable to pay

(b) is inefficient because students who drink can prevent alcohol-related injuries at a lesser cost than can the University (c) is efficient because alcohol-related accidents are a serious problem (d) is inefficient because the social costs of drunken driving exceed the private costs (e) is efficient because the social costs of drunken driving exceed the private costs.

56. If total cost is increasing, then: (a) marginal cost is positive and average total cost is increasing (b) marginal cost is posidve and average total cost is decreasing (c) marginal cost is positive and average total cost is constant (d) marginal cost is positive and increasmg (e) marginal cost is posidve, but average total cost may be increasing or decreasing.

57. Econorrues of scale are said to exist in some region when long run: (a) marginal cost is increasing at an increasing rate (b) average total cost is below marginal cost in that region (c) average total cost is constant in that region (d) marginal cost is below average total cost in that region (e) marginal cost is constant.

58. If average variable cost is constant for all output levels, then: (a) total variable cost is constant (b) fixed costs must be zero (c) marginal cost is constant (d) average variable costs equal average total costs (e) none of the above.