ECON B-251 Final Exam Study Guide with Complete Solutions, Exams of Advanced Education

Download ECON B-251 Final Exam Study Guide with Complete Solutions and more Exams Advanced Education in PDF only on Docsity! ECON B-251 Final Exam Study Guide with Complete Solutions A firm will expand the amount of output it produces as long as its (average total revenue, marginal cost, marginal revenue) exceeds its (marginal revenue, average total cost, average variable cost, marginal cost). - ANSWER-marginal revenue; marginal cost A game in which any gains within the group are exactly offset by equal losses by the end of the game is called a ____________ game. - ANSWER-zero-sum A moral hazard is a situation where a person or business _____ A) don't have the same aligned goals B) might alter their behavior because they won't have to deal with the negative consequence C) All of the answers are correct. D) has a tendency to take risks they wouldn't normally take - ANSWER-C) All of the answers are correct. A movie shown on a pay-per-view cable station is an example of __________ good. A) a nonexcludable and nonrival B) a nonexcludable and rival C) an excludable and rival D) an excludable and nonrival - ANSWER-D) an excludable and nonrival A single-price monopolist will find when it produces its profit-maximizing amount of output that A) marginal revenue equals marginal cost. B) All of other options occur at the profit-maximizing output level. C) price exceeds marginal cost. D) price exceeds marginal revenue. - ANSWER- A single-price monopoly charges the same price A) even if the demand curve shifts. B) even if its cost curves shift. C) to all customers. D) at all times and that price equals the firm's marginal revenue. - ANSWER-C) to all customers. A subsidy can eliminate the deadweight loss and lead to an efficient outcome if the value of the subsidy equals the ________ of the good. A) marginal social cost B) marginal private benefit C) marginal external benefit D) marginal social benefit - ANSWER-C) marginal external benefit Aisha had an exam score of 70%. There is an extra credit assignment Aisha can complete that will raise her exam score by 18%. Aisha has determined the extra credit will take 4 hours of her time. Aisha will complete the assignment if she values the ______ more than ________ A) 88%; the 4 hours of her time B) 18%; the 4 hours of her time C) higher score of 88%; the 760 percentage points D) 4 hours of her time; the 18% - ANSWER-B) 18%; the 4 hours of her time Allocative efficiency occurs when A) we cannot produce more of any one good without giving up some other good B) marginal benefit is less than marginal cost C) we cannot produce more of any good without giving up some other good that we value more highly D) opportunity costs are decreasing - ANSWER-C) we cannot produce more of any good without giving up some other good we value more highly An example of a variable resource in the short run is A) a building. B) land. C) capital equipment. D) an employee. - ANSWER-D) an employee An implicit cost is an opportunity cost that A) is measured by the amount of cash the firm actually pays out. B) requires no actual payment of cash. C) is actually part of the firm's normal profit. D) is adjusted for the rate of inflation. - ANSWER-B) requires no actual payment of cash. An increase in the nation's human capital (education) will A) shift the PPC outward B) cause a movement along the PPC upward and leftward C) cause a movement along the PPC downward and rightward During the summer you have made the decision to attend summer school, which prevents you from working at your usual summer job in which you normally earn $4,500 for the summer. Your tuition cost is $1,700 and books and supplies cost $700. In terms of dollars, the opportunity cost of attending summer school is A) $4,500 B) $1,700 C) $2,400 D) $6,900 - ANSWER-D) $6,900 Economics is best defined as the study of how people, businesses, governments, and societies A) make choices to cope with scarcity B) use their infinite resources C) interact in markets D) choose abundance over scarcity - ANSWER-A) make choices to cope with scarcity Farmer Washington knows the marginal cost to producer a bushel of apples is $5 per bushel. He also knows a consumer is willing to pay a maximum of $12 per bushel. The price of the bushel is $9 and Farmer Washington sells his bushel for $9. On this bushel, Farmer Washington minimum supply price is A) $5 B) $4 C) $12 D) $9 - ANSWER-A) $5 For a single-price monopoly, marginal revenue is (positive, negative) when demand is elastic and is (positive, negative) when demand is inelastic. - ANSWER-positive; negative Four people have a different willingness to pay for one unit of a good: Dev will pay $25, Laquisha will pay $23, Tom will pay $17, and Cesar will pay $12. If price is equal to $16 per unit then the quantity demanded in the market will be __________ and the consumer surplus for this unit will be __________ A) 2; $16 B) 4; $12 C) 3; $65 D) 3; $17 - ANSWER-D) 3; $17 Having equal amount of information is known as ___________ information. - ANSWER- symmetric Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food, etc. Heidi's economic profit for the year $________ - ANSWER--10,000 If a country that has an absolute advantage in producing all goods, then it will A) have a comparative advantage in all goods B) have a comparative advantage in some goods but not all goods C) not gain from specialization and trade D) produce all goods at lowest opportunity cost - ANSWER-B) have a comparative advantage in some goods but not all goods If production of a good produces an external benefit, then in order for the marginal social cost to equal the marginal social benefit A) the good should be subsidized B) the government needs to take no action C) permits should be required to purchase the good D) the good should be taxed - ANSWER-A) the good should be subsidized If the price elasticity of demand for hats is 1.25, then a _________ percent increase in the price of hats leads to a(n) _________ in the quantity demanded A) 1; 125% increase B) 1; 1.25% decrease C) 10; 25% decrease D) 1; 1.25% increase - ANSWER-B) 1; 1.25% decrease If the price of a soda increases from $0.75 to $1.00 and as a result the quantity demanded of sodas decreases from 10 to 8 per week, the price elasticity of demand for sodas equals A) 8.00 B) 0.78 C) 1.29 D) 0.13 - ANSWER-B) 0.78 If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 11,000 per year, there is a ________ in the market and the price will ________. A) shortage; increase B) shortage; decrease C) surplus; increase D) surplus; decrease - ANSWER-A) shortage; increase In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a _____________ equilibrium. A) Pareto B) Cooperative C) Nash D) Simultaneous - ANSWER-B) Cooperative In comparison with a perfect competition, a single-price monopolist with the same costs creates a (smaller, larger) consumer surplus and earns a (smaller, larger) economic profit. - ANSWER-smaller; larger In one day, Liesha can either produce 30 pizzas or 75 salads. In one day, Jose can either produce 45 pizzas or 90 salads. Liesha and Joe can A) exchange, but only Liesha will gain from the exchange B) gain from exchange if Liesha specializes in pizzas and Jose specializes in salads C) exchange, but only Jose will gain from the exchange D) gain from exchange if Liesha specializes in salads and Jose specializes in pizzas - ANSWER-D) gain from exchange if Liesha specializes in salads and Jose specializes in pizzas In perfect competition, each individual firm faces ________ demand curve. A) an inelastic B) an upward sloping C) a downward sloping D) a perfectly elastic - ANSWER-D) a perfectly elastic In perfect competition, restrictions on entry into an industry A) apply to labor but not to capital. B) do not exist. C) apply to both capital and labor. D) apply to capital but not to labor. - ANSWER-B) do not exist. In perfect competition, the marginal revenue of an individual firm A) is positive but less than the price of the product. B) is zero. C) equals the price of the product. D) exceeds the price of the product. - ANSWER-C) equals the price of the product. In the above figure, after the second worker is hired, the marginal product of labor is A) how B) when C) for whom D) where - ANSWER-C) for whom Perfectly competitive markets are (efficient, inefficient) because (profit, deadweight loss, total surplus, consumer surplus) is maximized and firms produce at the lowest possible (marginal, total, average variable, average total) cost - ANSWER-efficient; total surplus; average total Rent seeking by a monopolist (increases, decreases) the social (cost, benefit) of a monopoly and (increases, decreases, does not change) its (average variable cost, average total cost, marginal cost, marginal revenue). - ANSWER-increases; cost; increases; average total cost Shantal consumes shoes and sandals. Shoes and sandals are substitutes. According to marginal utility theory, if the price of a pair of sandals increases, then there will be a _________ Shantal's demand curve for sandals and a _________ Shantal's demand curve for shoes. A) movement along; leftward shift of B) movement along; rightward shift of C) rightward shift of; leftward shift of D) leftward shift of; movement along - ANSWER-B) movement along; rightward shift of Sue quit her $43,466 per year job and opened a coffee shop that she calls Top Brew. In the first year, Top Brew earned $232,955 in revenue. For the same year, Top Brew paid $83,335 to employees in wages, spent $39,175 on ingredients such as coffee beans, $12,012 rent for the building to house Top Brew. Sue also used $52,605 of her personal savings to purchase equipment for Top Brew, which she was earning $4,291 in interest each year. Assuming no depreciation in the value of the equipment, Sue's economic profit from Top Brew for the year is $___________ - ANSWER-50,676 Suppose the price elasticity of demand for apples is 0.8. If more people eat more apples, then the equilibrium price of apples will __________ and the apple farmers' total revenue will _________ A) increase; decrease B) decrease; decrease C) increase; increase D) decrease; increase - ANSWER-C) increase; increase Suppose there are four firms that are each willing to sell one unit of a good. Each firm has a different minimum price that they are willing to sell for: Alpha $4, Beta $6, Gamma $9, and Delta $12. If the market price is $10, then the total producer surplus is A) $19 B) $11 C) $9 D) $13 - ANSWER-B) $11 The "law of demand" means, all other things remaining the same, when the price of a good increases A) there is a movement down along the demand curve to a larger quantity demanded B) the demand curve shifts rightward C) there is a movement up along the demand curve to a smaller quantity demanded D) the demand curve shifts leftward - ANSWER-C) there is a movement up along the demand curve to a smaller quantity demanded The above graph illustrates which of the following? A) Increasing returns to labor B) Diminishing returns to labor C) Diminishing returns to capital D) Diminishing marginal utility - ANSWER-B) Diminishing returns to labor The above table gives the demand schedule and the supply schedule for housing in Anytown, U.S.A. If a rent ceiling of $500 was imposed in the housing market, then A) the supply of housing would increase B) there would be a shortage of apartments C) the market would reach equilibrium at the quantity of 40 housing units D) there would be a surplus of apartments - ANSWER-C) the market would reach equilibrium at the quantity of 40 housing units The above table shows the total cost of producing pizzas. The market for pizzas is perfectly competitive. The equilibrium market price of a pizzas is $______. Given this information, the profit maximizing output is pizzas, total revenue is $______, total cost is $_________, and the firm's economic profit is $_________. - ANSWER-4; 84; 70; 14 The above table shows the total cost of producing pizzas. The market for pizzas is perfectly competitive. The equilibrium market price of a pizzas is $16.07. Given this information, the profit maximizing output is ______ pizzas. A) 4 B) 3 C) 6 D) 2 - ANSWER-B) 3 The above table shows the total product of producing pizzas. Diminishing returns begins when the pizzeria hires the __________ worker. - ANSWER-fifth The above table shows the total product of producing pizzas. The marginal product of the 3rd worker is equal to _____ pizzas. - ANSWER-8 The amount of tax paid by the sellers will be smaller the more _________ the demand and the more ________ the supply. A) elastic; inelastic B) elastic; elastic C) inelastic; elastic D) inelastic; inelastic - ANSWER-C) inelastic; elastic The catch of cod off the shores of California is regulated using quotas. If the quota is set correctly, then at this quantity, the marginal social cost _________ the marginal social benefit A) is not comparable to B) is greater than C) equals D) is less than - ANSWER-C) equals The Coase Theorem points out externality problems can be eliminated if the number of parties involved is small and if property rights are A) eliminated B) granted solely to consumers C) granted to either consumers or producers and transactions costs are low D) granted solely to producers - ANSWER-C) granted to either consumers or producers and transactions costs are low The demand for a good is more price elastic A) if less substitutes are available B) if the good is a necessity rather than a luxury C) in the short run than the long run D) if the share of the good in the average consumer's budget is larger - ANSWER-D) if the share of the good in the average consumer's budget is larger The demand for corn from Hoosier farms is perfectly elastic because corn from Hoosier farms is A) a normal good B) an inferior good. C) a perfect substitute for corn from other farms. A) principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principal's goals. B) principals and agents will never have the same goals. C) principals and agents always have the same goals. D) principals and agents are more likely to have the same goals if the principal gives the agent flexibility to make his own decisions. - ANSWER-A) principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principal's goals. The profit maximizing level of output for the perfectly competitive firm occurs where A) total revenue = total cost B) marginal revenue = average total cost C) price = marginal revenue D) price = marginal cost - ANSWER-D) price = marginal cost The profit maximizing single price monopolist produces along the (elastic, inelastic, unit elastic) portion of its demand curve. - ANSWER-elastic The quantity supplied of a good or service is the quantity that a producer __________ at a particular price during a given time period. A) is willing to buy B) should sell C) actually sells D) is willing to sell - ANSWER-D) is willing to sell The short run is a period of time in which A) factor of production prices are fixed. B) the quantity used of at least one factor of production is fixed. C)the quantities used of all factors of production are fixed. D) the market prices of goods and services are fixed. - ANSWER-B) the quantity used of at least one factor of production is fixed. The table above displays the possible outcomes for Bob and Joe, who have been arrested for armed robbery and car theft. Which of the following is true? A) If Joe confesses, Bob should not confess. B) If Joe does not confess, Bob should not confess. C) The dominant equilibrium is that Joe and Bob both serve 2 years. D) If Bob confesses, Joe should confess. - ANSWER-D) If Bob confesses, Joe should confess. The table above lists six points on the production possibilities frontier for grain and cars. What is the opportunity cost of one ton of grain moving from point B to point 3? ______ car(s) per ton of grain. A) 0.33 B) 3.00 C) 18.00 D) 6.00 - ANSWER-B) 3.00 The table above shows the demand for a monopolist's output. If the pizzeria is a single- price monopoly and the marginal cost of a pizza is $6, then the firm's profit maximizing output is ________ pizzas. At that amount the firm charges a price of $________ and its total revenue is $_______. - ANSWER-4; 12; 48 The table above shows the demand for a monopolist's output. The marginal revenue of increasing production from 2 to 3 units is $_________ - ANSWER-10 The table above shows the payoff matrix for a prisoners' dilemma game. The dominant strategy for Player A is to (confess; don't confess) and for Player B is to (confess; don't confess). - ANSWER-confess; confess The table above shows the payoff matrix for a prisoners' dilemma game. When both players behave in their own self-interest, the outcome is Player A receives _____ years in jail and Player B receives _____ years in jail. - ANSWER-3; 3 The tax on producing cookies decreases simultaneously as peoples income increases and cookies are a normal good. As a result, the equilibrium price of cookies ________ and the equilibrium quantity of cookies ________ A) might increase, decrease, or stay the same; increases B) decreases; might increase, decrease, or stay the same C) increases; might increase, decrease, or stay the same D) might increase, decrease, or stay the same; decreases - ANSWER-A) might increase, decrease, or stay the same; increases Using the data in the above table, the single-price profit maximizing monopolist will earn total revenue of $____, total cost of $______, and total economic profit of $______. - ANSWER-72; 49; 23 Using the data in the above table, the single-price profit maximizing monopolist will produce ____ units. - ANSWER-4 What are the three features of game theory? - ANSWER-Players, strategies, and payoffs When [ Select ] ["Marginal revenue", "Marginal cost", "Marginal profit"] is above [ Select ] ["Average revenue", "Average total cost", "Average variable cost, but below average total cost"] , both the average total cost and average variable cost are [ Select ] ["decreasing", "increasing"] . A) marginal cost; average total cost; increasing B) marginal revenue; average total cost; decreasing C) marginal profit; average revenue; increasing D) marginal cost; average variable cost, but below average total cost; increasing - ANSWER-A) marginal cost; average total cost; increasing When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it is willing to sell the identical pizza to a student who lives a block away from the campus, the pizza firm is practicing ___________ __________________ . - ANSWER-price discrimination When long-run average costs decrease as output increases, there are A) constant marginal costs. B) constant returns to scale. C) diseconomies of scale. D) economies of scale. - ANSWER-D) economies of scale When long-run average total costs decrease as output increases, this is known as ___________ . This can be observed as the ___________ of the _________ average cost curve. A) economies of scale; upwards sloping part; short-run B) constant returns to scale; minimal point; short-run C) economies of scale; downwards sloping part; long-run D) diseconomies of scale; upwards sloping part; long-run - ANSWER-C) economies of scale; downwards sloping part; long-run When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner, A) will shut down in the short run. B) is taking a loss. C) will boost output. D) makes an income equal to his best alternative forgone income. - ANSWER-D) makes an income equal to his best alternative forgone income. When the production of a good has an external cost, the A) marginal social benefit curve lies above the marginal private benefit curve B) marginal social cost curve lies below the marginal private cost curve D) States should require all drivers not to use their phones while driving to decrease driving accidents - ANSWER-D) States should require all drivers not to use their phones while driving to decrease driving accidents Which of the following is characteristic of oligopoly, but NOT of monopolistic competition? A) There is more than one firm in the industry. B) Firms are profit-maximizers. C) The choices made by one firm have a significant effect on other firms. D) Each firm faces a downward-sloping demand curve. - ANSWER-C) The choices made by one firm have a significant effect on other firms. Which of the following is NOT a factor of production? The A) wages paid to workers B) efforts of farmers raising cattle C) water used to cool a nuclear power plant D) management skill of a small business owner - ANSWER-A) wages paid to workers Which of the following is NOT a potential impact of imposing a rent ceiling set below the equilibrium rent? A) a deadweight loss B) an increase in search activity C) a shortage D) an increase in total surplus - ANSWER-D) an increase in total surplus Which of the following is true for BOTH a monopoly and a perfectly competitive firm? A) Marginal revenue equals price. B) The profit maximizing output level occurs where marginal revenue is equal to marginal cost. C) The demand for the individual firm's product is perfectly elastic. D) Firms earn positive economic profit in the long run. - ANSWER-B) The profit maximizing output level occurs where marginal revenue is equal to marginal cost. Which of the following questions is a macroeconomic issue? A) What effect would a vaccine for Covid have on the market for pharmaceuticals? B) How many more pounds of candy will a consumer purchase if the price of candy decreases? C) What is the future inflation rate for an economy? D) How much capital should the owner of a business use? - ANSWER-C) What is the future inflation rate for an economy? Which of the following statements about a monopoly is FALSE? A) Monopolies have no barriers to entry or exit. B) The good produced by a monopoly has no close substitutes. C) A monopoly is the only producer of the good. D) None of the other options are true statements about a monopoly. - ANSWER-A) Monopolies have no barriers to entry or exit. With a day's labor, Jia can producer 12 cakes or 4 cookies; Tyrel can produce 20 cakes or 6 cookies. Tyrel's opportunity cost of producing 1 cake is _______ cookies per cake and he should specialize in the production of _________ A) 6; cakes B) 0.33; cookies C) 0.30; cakes D) 3.33; cookies - ANSWER-C) 0.30; cakes You observe in the market for coffee the equilibrium price of coffee increased and the equilibrium quantity of coffee decreased. These observations can be the result of a(n) A) decrease in the price of coffee beans used to produce coffee B) decrease in the price of tea, which is a substitute in consumption C) new medical study finding the positive health benefits of drinking coffee D) new tax on coffee - ANSWER-D) new tax on coffee