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ECONOMICS 10-8

ECON 10-8: FINAL EXAM 12/16/00 PROF. WILDE

1. In microeconomics, we typically assume that producers are attempting to maximize profits, which can be measured by:

a) total costs - total revenues

b) (P - ATC) Q

c) (Q-ATC) P

d) PQ - ATC

e) P(ATC) - Q

2. In microeconomics, we refer to the short run as a time interval during which a producer is able to select:

a) the output quantity

b) the quantity of workers

c) the quantity of capital

d) all of the above

e) only a and b

3. Which of the following are characteristics of a perfectly competitive market?

a) firms in this market produce a homogeneous product

b) individual firms are "price-makers" in that they realistically choose both the price and the quantity of their goods

c) all firms in this market make positive economic profits in the long run

d) price will equal the minimum LRATC in the long run

e) both a and d

4. Consider the curves for a perfectly competitive firm in Figure X. At a price of $20, this firm will choose an output of :

a) 50 c) 60 e) 90

b) 55 d) 80

5. In a short run perfectly competitive market in Figure XI, the supply curve is reflective of the cost situations facing ______ firms. The various points along the market supply curve result in ______ economic profits for the firms involved.

a) many; positive

b) few; zero or positive

c) many; positive, zero or negative

d) few; zero

e) one; zero

6. If other firms in Figure XI are making positive economic profits, the firm in Figure X will:

a) leave the industry because there is no way for it to keep up with its competitors

b) expect to see new firms enter the industry

c) simply increase its output in order to raise profits to match theirs

d) buy fewer inputs in order to reduce costs

e) pray for a recount of profits

7. If competitive firms face an increase in worker wage rates, we can expect them to witness a ______ shift in their ______ curve(s).

a) upward; MC and AVC

b) downward; demand

c) upward; MC, AFC and ATC

d) downward; AFC

e) both a and d

8. An increase in worker wage rates in a competitive industry will likely result in __________ by the time the industry gets to a new long-run equilibrium.

a) less employment d) all of the above

b) fewer firms e) only b and c

c) higher prices

9. A monopolist finds its profit-maximizing quantity where:

a) MC=ATC d) MR=MC

b) P=ATC e) both c and d

c) P=MC

10. Figure XII represents the short run situation of a monopoly. We know that it is NOT a perfectly competitive firm because:

a) the marginal revenue curve is not above the demand curve

b) the marginal cost curve is u-shaped

c) the demand curve is downward-sloping

d) of the profit outcome

e) there is no average fixed cost curve

11. When the Figure XII firm is maximizing profits, it will have ______ economic profits and will _______ in the short run.

a) negative; choose to produce

b) positive; choose to produce

c) zero; shut down

d) negative; leave the industry

e) negative; shut down

12. If preferences change for the product depicted in Figure XII such that the product becomes more attractive to consumers, we can expect that:

a) the demand curve will shift to the right

b) the profit-maximizing output will increase

c) the profit-maximizing price will increase

d) economic profits will increase

e) all of the above

13. In the long run the Figure XII firm will likely:

a) down-size if that will reduce ATC

b) adopt a more sophisticated technology which raises ATC

c) adopt a new technology if it lowers ATC

d) leave the industry if costs cannot be lowered

e) any of a, c, or d

14. If Figure XII applies to a firm in a monopolistically competitive industry, the long run implications for the industry include:

a) a reduction in the number of firms

b) an increase in the profits of surviving firms

c) a decrease in the prices of surviving firms

d) all of the above

e) only a and b above

15. Pharmaceutical companies, such as Glaxo, could be labelled "natural monopolies" because:

a) they have very large fixed costs in the form of research, development, and