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Burgers Produced per Hour:17 33 48 62 .72 80 Teenagers Employed: 1 2 3 4 5 6

Wage Rate Paid: $1 $2 $3 $4 35 $6

If burgers sell for 500 each how many teenagers would Fallen Arches hire? (a) I (b) 2 (c) 3 (d) 4 (e) 5.

100. In the question above, the amount of exploitation is: (a)$0 (b)$2.50 (c)$1.50 (d)$1.00 (e) none ofthe above.

101. Suppose fining drunk drivers $500 or putting them in jail for two days has exacdy the same deterrent effect on the amount of drunk driving. In this case the efficient method of controlling this crime would be:

(a) either one because they have the same effect

(b) probably jail because it costs less than $500 per day to put someone in jail for a day (c) probably jail because it costs less than $250 per day to put someone in jail for a day (d) the fine because its less costly (e) the fine because its more cosdy.

102. The term kinked demand refers to: economists inability to draw straight lines (b) the demand for x-rated movies (c) a situation where competitors match price decreases but not price increases

(d) industries with unlimited economies of scale

(e) an aspect of the monopolisdc compedtion model.

103. The elasdcity of demand is greater than one whenever: (a) average revenue is greater than zero (b) marginal revenue is decreasing (c) marginal revenue is greater than zero (d) average revenue is greater than price (e) marginal revenue is less than zero.

104. Acme Yo-yo Corporation enjoys a patent monopoly on yo-yos. Acme produces with a constant average total cost of $1 per yo-yo, making a profit of $5,000 and leaving a consumer su lus of $2,500. If the yo-yo industry were competitive, the output of yoyos would be 8,000 per week. Consumer surplus would then be: (a) $7,000 (b) $8,500 (c) $10,000 (d) $11,500 (e) $13,000.

105. Last year, a monopolist producer of widgets raised his price and his total revenue prompdy rose. With this information we may conclude that: (a) profit increased (b) profit decreased (c) profit remained unchanged (d) nothing - knowledge of marginal cost is needed to evaluate the impact on profit (e) noth-

ing - knowledge of average total cost is needed to - uate the impact on profits.

106. If a monopolist facing typical "U" shaped cost curves were a revenue maximizer instead of a profit maximizer, he would do all of the following except;

(a) produce where elasticity of demand equals one

(b) always make at least some profit (c) produce more than a profit maximizer (d) produce where marginal revenue is zero (e) charge a lower price than a profit maximizer

107. A downward sloping average total cost curve ac some level of a firms output necessarily implies: (a) the firm is a natural monopolist (b) total fixed costs are greater than zero (c) marginal cost must, at some point, be less than total fixed cost (d) marginal cost must, at some point, be less than average total cost (e) total cost must, at some level of output, be decreasing.

108(H). A perfectly compedtive firm faces a market price equal to $4.50. At its current output, its AVC = $4.00 and its MC = $5.00. This firm should: (a) reduce its output (b) shut down in order to minimize its losses (c) reduce its output in order to minimize its losses (d) make no changes (e) acquire more information because not enough is given to resolve this question.

109. If the of producing 5 units is equal to $20 and the of producing 6 units is $21, then the MC of die 6di unit is: (a) $1 (b) $21 (c) $26 (d) $22 (e) none of the above.

110. The part of the total variable cost curve that is increasing at a decreasing rate is most associated with: (a) decreasing returns to scale (b) loss minimization

(c) gains from specialization (d) gains from trade (e) diseconomies of scale.

111. If MC is falling, then: (a) TC is increasing at an increasing rate (b) TC is decreasing at a decreasing rate (c) TC is increasing at a decreasing rate

(d) TC is decreasing at a decrea.sing rate (e) none of the above.

112. The profit maximizing monopolist will operate where: (a) marginal cost equals price (b) marginal cost equals marginal benefit (c) marginal benefit is greater than price (d) marginal cost is greater than marginal benefit (e) marginal benefit is greater than marginal cost.

113. If a monopsonist currently employs 20 individuals at a wage of $5.00 per hour, what will be the marginal factor cost of the twentv-first employee if he is hired at a wage of $5.50 per hour? (a) $5.50 (b) $10.50 (c) $15.50 (d) $20.50 (e) $25.50.

114. If IBM faces a kinked demand curve for its new Peanut computer, we would expect: (a) an increase in its price to be matched by an increase in the price of competitors (b) an increase in its price to be followed by a decrease in the price of competitors (c) a decrease in its price to cause no changes in competitors prices (d) an increase in its price to cause no changes in competitors prices (e) an increase in its price to cause an increase in the prices of competitors.

115. Which of the following characterizes a firms long run equilibrium under monopolistic competition? (a) marginal cost equals price (b) production at the point of minimum average total cost (c) a horizontal demand curve (d) zero economic profit (e) none of the above.

116. If drilling a new oil well in an exisdng field reduces output on adjacent wells, then: (a) existing wells have negatively sloped marginal cost curves (b) existing wells and new wells must be owned by different people (c) existing wells and new wells must be owned by the same people (d) private costs exceed social costs (e) social costs exceed prite costs.

117. Long-run profits are possible in the kixdced demand oligopoly model primarily because: (a) firms can always set the profit maximizing price and output (b) oligopolistic firms tend to use the most efficient production methods (c) prices are quite rigid (d) entry of new firms is difficult or impossible (e) prices are quite variable.

118. Which of the following would riot facilitate labor union strength? (a) an inabilit) of the firm to readily subsdtute capital for labor (b) an inelasdc demand for the final product (c) labor costs constituting a small percentage of total costs (d) a product price ceiling (e) high prices for non-union labor

119. In the early seventies Schering Company, a major American pharmaceutical firm, began reporting animal tests on its new experimental drug, flu-tamide. Shortly thereafter, a. French company, Rouscell-Uclaff, took out a patent on a closely related

molecule showing similar pharmaceutical properties. This suggests that: (a) Rouscell-Uclaff is fi-ee riding on Scherings research (b) drug research may be under-supplied by the market (c) the marginal social benefits of drug research may exceed marginal private benefits (d) positive externalities exist in drug research (e) all of the above.

120. A firm is currendy producing 50 units at an average fixed cost of $4. If total cost is $400, then average variable cost is: (a) $1 (b) $2 (c) $3 (d) $4 (e) $396

121. If (starting from long run equilibrium) demand increases in a competitive industiy where all firms have identical cost curves, then output per firm in the new long run equilibrium will be: (a) higher (b) lower (c) the same (d) higher only ifthe market demand is inelastic (e) higher only if the market demand is elastic.

122. If a monopolist produces water with no variable costs, then the profit maximizing output will be: (a) in the elastic portion of the demand curve (b) in the inelastic portion of the demand curve (c) where demand is unit elastic (d) where demand is perfecdy elastic (e) none of the above. ..

123. A competitive firm currently produces an output vAere AVC is risuig, but is falling. Assuming this firm is behaving rationally, we know that (a) it is earning a normal profit (b) it is earning a super-normal profit (c) the firm is suffering a loss (d) the furm will want to expand ui the long run (e) none of the above.

124. Old man Smith always drives ten miles per hour below the speed limit because he feels its safer His behavion (a) imposes an externality on drivers who wish to drive at the speed limit (b) is beneficial to all drivers regardless of their speed (c) should be encouraged (d) does not affect other drivers (e) all of the above.

125. Which of the following would cause a higher than efficient level of output? (a) a monopolistic market (b) a monopsonistic labor market (c) a market in which the social marginal cost of production exceeds the private marginal cost (d) a market where the social marginal benefit exceeds the private marginal benefit (c) a market with an excise tax.

126. In long run competitive equilibrium: (a) all firms make super-normal profits (b) some firms make super-normal profits (c) all firms make zero profit (d) industry demand must be elastic (e) none of the abo\e.

] 27. Which of the following features do monopolies and compedtive firms have in common? (a) marginal revenue equal to the price (b) a perfectly elastic demand curve (c) price equal to average revenue when a single price is charged (d) price-taking behavior (e) none of the above.

128. If the supply of labor to a certain labor market is perfecdy elasdc and an increase in demand for the final product occurs, then: (a) both employment and wage rates will rise (b) employment will decrease and the wage will increase (c) employment will increase and wages will decrease (d) both employment and wages will increase (e) none of the above.

129. The wage rate in the domesdc car industry \vill tend to rise if: (a) the price of foreign cars rises (b) the price of foreign cars falls (c) import restrictions on foreign cars are lifted (d) an excess supply of foreign cars occurs (e) none of the above.

130. News item (1984): The great free-trader in the White House has recendy negotiated an agreement with Japanese car companies limiting the number of cars they can sell in this country. This will cause the profits of these companies to rise if: (a) the demand for Japanese cars is inelastic provided the supply is perfecdy elastic (b) the demand for Japanese cars is elasdc regardless of the supply elasdcity (c) the demand for Japanese cars is inelastic regardless of the supply elasticity (d) the supply of Japanese cars is elastic provided the demand is elasdc (e) the supply is elastic regardless ofthe elasticity of demand.

131. The last boat used by the Amity Fishing Company has a marginal physical product of twenty tons of fish and rents for $100,000 per month. If the rental cost of the last net is $5,000 per month and the firm is behaving rationally, then the marginal physical product of the last net must be: (a) one-half ton of fish (b) one ton of fish (c) two tons of fish (d) five tons of fish (e) one hundred tons of fish.

132(H). In the tree industry, average total cost is constant. If planting trees causes an external benefit of $20 per tree and if consumers demand five more trees

for every one cent reduction in the price, then compared to the optimal outcome, the welfare loss under competition would be: (a) $100,000 (b) $200,000 (c) $400,000 (d) $600,000, (e) $1,600,000.

133(H). Producers in the cement industry are accused of organizing a cartel in a current antitrust case. If they have succeeded in raising the price to general contractors by $5 per barrel, then how much of this price increase will be passed on to the State of California through its purchases of cement for highway construction, assuming contracting is a constant cost industry? (a) $5 (b) $0 (c) more dian $5 (d) between 0 and $5 (e) a negative amount.

134. Two firms (whove sworn us to secrecy for legal reasons) have confessed to organizing a joint profit maximizing cartel. Their market demand and costs are as follows:

14 13 12

I 2 3

q I 2

TC 5 11

q 1 2

TC 4 9


What is the price of their product? (a) $6 (b) $8 (c)$IO (d)$I2 (e)$14.

135. A certain firm faces the following marginal revenue product and labor supply schedules:

MRP$20 $18 $16 $14 $12 $10 S8 $6 N1 2345678 w $8 $9 $10 $11 $12 $13 $14 $15

What will be the equilibrium wage? (a) $11 (b) $12 (c)$15 (d)$8 (e)$13.

136. A firm in a perfectly competitive market has the following costs:

AVC (S/q) 10.009.50 9.00 9.25 9.50 9.75 10.00

AFC (S/q) 10 5.00 3.33 2.50 2.00 1.67 1,43

q 1 2 3 4 5 6 7

The lowest price at which the firm would be just willing to produce and the price at which profits will

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