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UMUC ECON 203 Multiple Choice and Essay Questions




Question;1.The Omnibus Corporation finds that its daily costs are $50 when it produces no output.Its total variable costs (TVC) change with output as shown in the accompanying table. Use thisinformation to answer the following question(s).Output12345TVC$36$57$73$94$120Refer to the above information. The marginal cost of the fourth unit of output is:A) $73.B) $94.C) $21.D) $23.50.E) $24.50.2. Suppose that a business incurred implicit costs of $500,000 and explicit costs of $6 million in aspecific year. If the firm sold 100,000 units of its output at $60 per unit, its accounting:A) profits were $100,000 and its economic profits were zero.B) losses were $500,000 and its economic losses were zero.C) profits were $500,000 and its economic profits were $1 million.D) profits were zero and its economic losses were $500,000.3. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is abasic ingredient in the production of bread and that potatoes are a consumer substitute forbread, we would expect the price of wheat to:A) rise, the supply of bread to increase, and the demand for potatoes to increase.B) rise, the supply of bread to decrease, and the demand for potatoes to increase.C) rise, the supply of bread to decrease, and the demand for potatoes to decrease.D) fall, the supply of bread to increase, and the demand for potatoes to increase.4. Differences in production efficiencies among nations in producing a particular good resultfrom:A) different endowments of fertile soil.B) different amounts of skilled labor.C) different levels of technological knowledge.D) all of the above.5. If price is above the equilibrium level in a competitive market, competition among sellers toreduce the resulting:A) surplus will increase quantity demanded and decrease quantity supplied.B) shortage will decrease quantity demanded and increase quantity supplied.C) surplus will decrease quantity demanded and increase quantity supplied.D) shortage will increase quantity demanded and decrease quantity supplied.6. Refer to the graph below. Which of the following combinations is inefficient?a. Combination Fb. Both F and G.c. Combination Gd. Combinations A or E7. When two goods are substitutes which of the following occurs?a. An increase in the price of one good leads to a decrease in the price of the other.b. An increase in the price of one good leads to a decrease in the quantity demanded ofthe other.c. An increase in the price of one good leads to an increase in the price of the other.d. An increase in the price of one good leads to an increase in the quantity demanded ofthe other.8. If a supply curve is close to perfectly elastic, then a very small increase in price generates:a. A decrease in quantity supplied.b. A proportionally larger increase in quantity supplied.c. A proportional increase in quantity supplied.d. A proportionally smaller increase in quantity supplied.9. Refer to the figure below. When trying to maximize utility subject to a budgetconstraint, the consumer would choose?a. Either point e or point j only.b. Point k only.c. Any one of points k, e, or j.d. Point e only.10. When a monopolistically competitive firm maximizes profits, which of thefollowing conditions exists?a. ATC = MC.b. MR > MC.c. P = MR.d. P > MC.11. The following data are for a series of increasingly extensive flood control projects:Refer to the above data. On the basis of cost-benefit analysis government should undertake:A) Plan A.B) Plan B.C) Plan C.D) Plan D.12. If the absolute value of price elasticity of demand for gasoline is 0.40:A) the demand for gasoline is linear.B) a rise in the price of gasoline will reduce total revenue.C) a 10 percent rise in the price of gasoline will decrease the amount purchased by 4percent.D) a 10 percent fall in the price of gasoline will increase the amount purchased by 40percent.13. Tiny State University raises tuition for the purpose of increasing its revenue so that morefaculty can be hired. TSU is assuming that the demand for university education at TSU is:A) decreasing.B) relatively elastic.C) perfectly elastic.D) relatively inelastic.14. An individual firm selling in a purely competitive market assumes price is given or constantbecause:A) the firm's demand curve is visibly downward sloping.B) of product differentiation reinforced by extensive advertising.C) each seller supplies a negligible fraction of total supply.D) there are no good substitutes for the product the firm produces.15. Assume the XYZ Corporation is producing 200 units of output. It is selling this output in apurely competitive market at $20 per unit. Its total fixed costs are $1000 and its average variablecost is $16 at 200 units of output. This corporation:A) should close down in the short run.B) is maximizing its profits.C) is realizing a loss of $200.D) is realizing an economic profit of $200.16. Refer to the above diagrams which pertain to a purely competitive firm producing output qand the industry in which it operates. In the long run we should expect:A) firms to enter the industry, market supply to rise, and product price to fall.B) firms to leave the industry, market supply to rise, and product price to fall.C) firms to leave the industry, market supply to fall, and product price to rise.D) no change in the number of firms in this industry.17. The above diagram indicates that the marginal revenue of the sixth unit of output is:A) -$1.B) $1.C) $4.D) $24.18. A monopolistically competitive industry combines elements of both competition andmonopoly. It is correct to say that the competitive element results from:A) a relatively large number of firms and the monopolistic element from productdifferentiation.B) product differentiation and the monopolistic element from high entry barriers.C) a perfectly elastic demand curve and the monopolistic element from low entrybarriers.D) a highly inelastic demand curve and the monopolistic element from advertising andproduct promotion19. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium.This firm will realize an economic:A) loss of $320.B) profit of $480.C) loss of $480.D) profit of $60020. Oligopoly is difficult to analyze primarily because:A) the number of firms is too large to make collusion understandable.B) the price and output decisions of any one firm depend on the reactions of its rivals.C) output may be either homogenous or differentiated.D) neither allocative nor productive efficiency is achieved.21. Suppose one candidate for election to public office proposes a $6 billion budget and anothercandidate proposes a $10 billion budget, when the average voter preference is for a $9 billionbudget and the median voter preference is $8 billion. Assuming candidates desire the maximumnumber of votes, the candidates are expected to move toward a budget position of:A) $8 billion.B) the smaller budget of $6 billion.C) $9 billion.D) the larger budget: $10 billion.22. Refer to the above diagram. The Marginal Resource Costs (MRC) curve lies above the laborsupply curve. This is most likely to occur when:A) any number of workers can be hired at the going equilibrium wage rate.B) the firm must lower product price to increase its sales.C) the higher wage needed to attract additional workers must also be paid to the workersalready employed.D) there is no relationship between wage rate and the amount of labor employed.23. Critics of unions point out that unions diminish efficiency and productivity by:A) engaging in featherbedding.B) precipitating strikes that reduce output.C) causing a misallocation of labor.D) doing all of the above.24. A strong, growing economy accompanied by a brisk expansion of labor demand reducesdiscriminatory outcomes by:A) making it relatively more costly for employers to exercise their tastes fordiscrimination.B) boosting the African-American-white and female-male productivity differential, thusincreasing the incentive of less-biased firms to hire African-Americans and women.C) increasing saving and investment.D) increasing the labor supply of women and minorities.25. Suppose a technological improvement increases the productivity of a firm's capital and,simultaneously, its workers' union negotiates a wage increase. Economists predict that:A) the firm will use relatively more capital and relatively less labor.B) the firm will use relatively more labor and relatively less capital.C) inputs of capital and labor will be unchanged.D) the firm's equilibrium output will necessarily increase in all cases.26. Fill in the blanks: Higher wages lead to higher output price, lower quantity demanded, andtherefore fewer workers hired. This effect is particularly strong when the products demand is___________ and labor costs are a ________ fraction of the costs.A) inelastic, large.B) elastic, large.C) inelastic, small.D) elastic, small.Use the following chart to answer question 40:Number ofUnits ofWorkersOutput001452100314141705190621027. Refer to the above data. Diminishing marginal product of labor becomes evident with theaddition of the:A) sixth worker.B) fourth worker.C) third worker.D) second worker.28. In the event of excess demand in the corn market,a) the price of corn will increaseb) the price of corn will decreasec) the price of corn will either increase or decreased) the price of corn will not change29. Suppose we observe that as a firm decreases its price, its total revenue increases, what do weknow about the firms demand?a) demand is price inelasticb) demand is price elasticc) demand is unitary elasticd) demand is perfectly price inelastic30. If consumers have a long time to respond to an increase in electricity prices their demand islikely to be________ than if they are only given a short time.a) no differentb) higherc) more elasticd) less elastic.31. If you know that fixed cost is $200, variable cost is $1,000, and total product is5 units, then:a) marginal cost is $50.b) average fixed cost is $100.c) average total cost is $240.d) average variable cost is $150.32. In the short-run, the firms shut down price is where:a) price is equal to the average total cost of productionb) price is equal to the minimum of the average variable cost of productionc) price is equal to the average fixed cost of productiond) price is equal to the marginal cost of production.33. If a monopolist is maximizing its profits, we know that it has:a) maximized total revenueb) maximized marginal revenuec) minimized total costd) equated marginal cost and marginal revenue.34. The concept of diminishing marginal utility is that increases in the consumptionof a good lead toa) a decrease in total utility.b) a decrease in marginal utility.c) an increase in marginal utility.d) no change in marginal utility.Suppose a health insurance company notes that almost all of their customers are at a high riskof illness of injury. This is an example of:a) public informationb) perfect informationc) a thick marketd) an adverse selection problem.36. If workers become more productive the labor________ curve shiftsto the _________.a) demand, leftb) demand, rightc) supply, leftd) supply, right37. In the event of a minimum wage above the equilibrium wage, wages will_____and total employment will_______.a) fall, fallb) fall, rise35.c) rise, falld) rise, rise38. If the price of output decreases, the marginal revenue product curve willshift________ and the profit maximizing quantity of labor demanded will___________.a) up, increase.b) up, decrease.c) down, increase.d) down, decrease.39. If workers become less productive, the labor________ curve shiftsto the _________.a) demand, leftb) demand, rightc) supply, leftd) supply, right40. One reason that college graduates earn higher wages than non-graduates isbecause:a) college attendance serves as a signal of the individuals productivity.b) there are no additional skills learned in college that increase productivity.c) college graduates are always less intelligent than non-college graduates.d) College graduates are less equipped to deal with technological change, as theirskills are technology-specific.41. Suppose that a new innovation in steel manufacture makes steel-working a lessdangerous job. What should happen?a) more steelworkers will be employed, at a lower wage.b) more steelworkers will be employed, at a higher wage.c) fewer steelworkers will be employed, at a lower wage.d) fewer steelworkers will be employed, at a higher wage.42. The change in the quantity of labor demanded resulting from a change in therelative cost of labor is known as the _______________effect.a) input-substitutionb) price elasticityc) outputd) derived demandTable 1Number of WorkersUnits of Output210031604210525062807300831043.Refer to Table 1 above. The marginal product of the 3 rd unit of labor is:a) 30b) 53.33c) 60d) 16044. An appeal to peoples sense of civic or moral responsibility will_______The free rider problem and lead to a_____________ level of contribution to the publicgood.a) increase, smallerb) increase, largerc) reduce: smallerd) reduce, larger45. A pollution tax:a) is a method used to internalize external costs.b) will not affect the price of the good being produced.c) does not affect the quantity of a good demanded.d) is a method used to externalize internal costs.46. If the seller known more about the good than the buyer know there exists:a) an externalityb) asymmetric information.c) moral hazard.d) a public goods problem.47. Buyers in the market for used guitars are getting more pessimistic about the possibilityofgetting a good guitar. This will cause the price of used guitars to ____________ andthe percentage of good used guitars to __________.a) Increase, increaseb) Increase, decreasec) Decrease, decreased) Decrease, increase48. In a___________ market there are few high-quality goods for sale while ina_________ market there are many high-quality goods for sale.a) thin, thickerb) thicker, thinc) inefficient, efficientd) weak, strong49. If a firm increases all of its inputs by 30 percent and its output increases by 30 percent, then:A) it is encountering diseconomies of scale.B) it is encountering economies of scale.C) it is encountering constant returns to scale.D) the marginal products of all inputs are falling.50. Suppose that MU /P (Marginal Utility per dollar spent on x) exceeds MU /P. Toxxyymaximize utility the consumer who is spending all her money income should buy:A) less of X only if its price rises.B) more of Y only if its price rises.C) more of Y and less of X.D) more of X and less of Y.ESSAY PART OF EXAM FOLLOWSYOU MUST ANSWER SIX OUT OF THE TEN ESSAY QUESTIONS. IFYOU ANSWER MORE THAN SIX ESSAY QUESTIONS, ONLY THEFIRST SIX WILL BE GRADED!ESSAY SECTION Part TWO of EXAM (60 POINTSEACH question is worth 10 pointstotal). Pick any 6.1. A firms demand function is defined as Q = 30 - 2P. a) Use this demand function to calculatetotal revenue when price is equal to 10 and when price is equal to 11. b) What is marginal revenueequal to between P=10 and P=11?2. A grocery store notices that the cross-price elasticity between ice cream and chocolate syrupis -.3. The store is advertising a sale with ice cream prices reduced by 20%. By how much shouldthey expect chocolate syrup sales to increase?3. Brian and Kim own a business employing 8 workers to produce commemorative t-shirts forcampus organizations and events. They are currently producing 2000 shirts per month withaverage total cost of $8.00, average fixed cost of $2.00, and marginal cost of $10.00.Calculate the following for Brian and Kims firm:a) average variable costb) total fixed costc) total cost4. Briefly explain why, in economic terms, when the wage rate increases we sometimes see thenumber of hours worked by individuals decrease.5. Answer the questions 5 AND 6 on the basis of the data contained in the following table.Assume that the firm is hiring labor in a purely competitive market.Units ofLabor0123456TotalProduct0152839485660ProductPrice$2.20$2.00$1.80$1.60$1.40$1.20$1.105. How much is added to the firms total revenue if the firm hires the 4th worker? What is theeconomic term for this number?Q6. If the market equilibrium wage rate is $8, how many workers will the firm choose toemploy? What is the rule that the firm uses for making this hiring decision?Q7. (Short Answer) Refer to the above diagram.a. If the price in the above market, prior to reaching equilibrium, is initially $20, what willbe the Quantity Supply and the Quantity Demanded?b. What is this out-of-equilibrium situation called?c. What will be the eventual Equilibrium Price and Quantity in the above market?Q8. (Short Answer) Refer to the above diagram for questions a, b, and c.a) Suppose a supply increase causes the equilibrium to shift from the one above so thatthe equilibrium quantity changes from that in the diagram to an equilibrium quantityof 200. What is the elasticity of demand along the above demand curve as you movefrom the original equilibrium point to a quantity of 200? (If you can show your work,partial credit is possible.)b) Based upon your previous answer, is the demand curve elastic or inelastic in thisregion? Briefly explain.c) Based upon your previous answer, does the total revenue for producers in the marketincrease or decrease as the quantity moves from the original equilibrium point to 200(assuming all goods are sold)? Briefly explain.Q9. (Short Answer) Use the above series of diagrams to answer questions a-b.a.) Suppose a shift in a market indicated by diagram (D) subsequently caused a shift in arelated market as indicated by diagram (A). What is the relationship between the goodsof these two markets?a) Based upon your previous answer, we now know something about one type of elasticityfor the good in diagram (D). What type of elasticity is it, and what is its sign? (Positiveor negative?) Briefly explain.Q10. Refer to the diagram below for questions 10 This diagram represents the cost structurefor a single perfectly competitive firm. When answering the questions on the answer sheet,please write in the correct answer. (NOTE: When answering question 10, put only the correctchoice in the answer sheet at the end of the quiz.)10. At Price P what amount will the firm produce? Will the firm be making a profit or a loss4(indicate the correct choice)? What will happen to the number of firms in this industry in thelong run (indicate the correct choice)?10.a. Q = _____10.b. PROFIT LOSS NEITHER10.c. INCREASE DECREASE REMAIN THE SAME


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