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Question;Authors:Publisher:R. Glenn Hubbard and Anthony Patrick O?BrienPearson/Prentice Hall925 N. Spurgeon Street, Santa Ana, CA 92701 Phone: 714-547-9625 Fax: 714-547-577704/09BAM223PRINCIPLES OF ECONOMICSFinal ExaminationText:Essentials of Economics2nd Edition, 2009ISBN-13: 978-0-13-608623-9ISBN-10: 013-608623-3Final Examination1Principles of Economics1) Every society faces economic tradeoffs. This meansa. producing more of one good means less of another good can be produced.b. not everyone can have enough goods and services to survive.c. some people live better than others do.d. society?s output cannot be made available to all.2) Which of the following statements is false?a. Tradeoffs do not apply when consumers purchase a product for which there isexcess supply, such as a stock clearance sale.b. Every individual, no matter how rich or poor, is faced with making tradeoffs.c. Anytime you have to decide which action to take you are facing an economictradeoff.d. Economics is a social science that studies the tradeoffs we are forced tomake because of scarcity.3) Which of the following is not an example of an economic tradeoff that a firmhas to make?a. whether it should produce more of its product.b. whether it is cheaper to produce with more machines or with more workers.c. whether or not consumers will buy its products.d. whether to outsource the production of a good or service4) How are the fundamental economic decisions determined in Cuba?a. Primarily, the government decides because Cuba is a centrally plannedeconomy.b. These decisions are made by the country?s elders who have had much experi-ence in answering these questions.c. Individuals, firms, and the government interact in a market to make theseeconomic decisions.d. The United Nations decides because Cuba is a developing economy.5) Which of the following correctly describes the relationship between economicefficiency and economic equity?a. They are both automatically achieved in a free market economy.b. There is no conflict between the two goals.c. There is often a trade-off between the two.d. They always call for opposite outcomes.Multiple Choice Questions (Enter your answers on the enclosed answer sheet)2Final ExaminationPrinciples of Economics6) Which of the following statements best characterizes the disagreements be-tween Paul Samuelson and Jagdish Bhagwati in their debate about outsourc-ing?a. Their disagreements are grounded in normative economic analysis. They dis-agree over how to interpret the relevant economic statistics.b. Their disagreements are grounded in positive economic analysis. They dis-agree about the relevant economic statistics used in the model.c. Their disagreements are grounded in normative economic analysis. They dis-agree over the types of jobs lost to outsourcing.d. Their disagreements are grounded in positive economic analysis. They dis-agree about the model and the assumptions used in the model.7) Which of the following statements about profit is true?a. Profit refers to the revenue received from the sale of a quantity of goods.b. Profit is the difference between a firm?s revenue and its costs.c. Profit is calculated by multiplying price per unit by the number of units sold.d. The terms ?accounting profit? and ?economic profit? can be used inter-changeably.8) Which of the following is an example of an activity undertaken by an entre-preneur?a. holding a position as the president of a liberal arts collegeb. landscape design for your new homec. running for the president of the United Statesd. starting your own pet sitting business9) Suppose when the price of laptops falls, college students buy more laptops.This implies thata. there is a negative relationship between laptop prices and quantities pur-chased by college students.b. there is a one-to-one relationship between laptop prices and quantities pur-chased by college students.c. there is a direct relationship between laptop prices and quantities purchasedby college students.d. there is a positive relationship between laptop prices and quantities pur-chased by college students.Final Examination3Principles of EconomicsFigure 1-210) Refer to Figure 1-2. Calculate the area of the triangle A.a. $6.3 millionb. $3.15 millionc. $8.4 milliond. $2.1 million11) You explain to your friend Haslina, who runs a catering service called ?Mealsin a Zip,? about an economic theory that asserts that consumers will pur-chase less of a product at higher price than they will at lower prices. Shecontends that the theory is incorrect because over the past two years she hasraised the price of her catered meals and yet has seen a brisk increasein sales. How would you respond to Haslina?a. I will explain to her that there are some omitted variables that have contrib-uted to an increase in her sales such as changes in income.b. Haslina is making the mistake of assuming that correlation implies causation.c. I will explain to her that she confusing positive economic analysis with norma-tive economic analysis.d. Haslina is right, she has evidence to back her claim. The theory must befalse.12) In a production possibilities frontier model, a point inside the frontier isa. inefficient. Maximum output is not being obtained from available resources.b. allocatively efficient.c. allocatively inefficient.d. productively efficient4Final ExaminationPrinciples of Economics13) A production possibilities frontier with a bowed outward shape indicatesa. decreasing opportunity costs as more and more of one good is produced.b. constant opportunity costs as more and more of one good is produced.c. the possibility of inefficient production.d. increasing opportunity costs as more and more of one good is produced.Figure 2-314) Refer to Figure 2-3. Carlos Vanya grows tomatoes and strawberries on hisland. A portion of his land is more suitable for growing tomatoes and theother portion is better suited for strawberry cultivation. Which of the graphsin Figure 2-3 represent his production possibilities frontier?a. Graph Ab. Graph Bc. Graph Cd. either Graph A or Graph Be. either Graph B or Graph CFigure 2-4Final Examination5Principles of EconomicsFigure 2-4 shows various points on three different production possibilities frontiers for a nation.15) Refer to Figure 2-4. A movement from X to Ya. is the result of advancements in plastic production technology only, with nochange in food production technology.b. is the result of advancements in food production technology only, with nochange in the technology for plastic production.c. could occur because of an influx of immigrant labor.d. could be due to a change in consumers? tastes and preferences.Figure 2-6German auto producer BMW currently produces two types of automobiles, sports utility vehicles (SUVs) and coupes, in its U.S. plant. Since it opened in 1994, the company has made several strategic production decisions. Figure 2-6 shows changes to its production possibilities frontier in response to some of these production strategies.16) Refer to Figure 2-6. Between 1995 and 2003 worker productivity increasedso that the total number of vehicles produced increased as the companyadded more machinery and workers and changed the layout of its factory.This is best represented by thea. movement from G to H in Graph B.b. movement from L to K in Graph C.c. movement from J to H in Graph B.d. movement from E to F in Graph A.Table 2-2GeorgeJackLawns Mowed106Gardens Cultivated546Final ExaminationPrinciples of EconomicsTable 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens.17) Refer to Table 2-2. What is George?s opportunity cost of cultivating a garden?a. two lawns mowedb. one and a half lawns mowedc. two-thirds of a garden cultivatedd. one-half of a garden cultivatedTable 2-3Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea.18) Refer to Table 2-3. What is South Korea?s opportunity cost of producing onedigital camera?a. 25 pounds of wheatb. 20 pounds of wheatc. 0.05 pounds of wheatd. 60 pounds of wheat19) Refer to Table 2-3. China has a comparative advantage ina. both products.b. digital camera production.c. wheat production.d. neither product.20) Refer to Table 2-3. If the two countries specialize and trade, who shouldexport digital cameras?a. South Koreab. There is no basis for trade between the two countries.c. They should both be importing digital cameras.d. ChinaOne Digital CameraWheat (per pound)China100 hours4 hourssouth Korea60 hours3 hoursFinal Examination7Principles of EconomicsFigure 2-1021) Refer to Figure 2-10. The segment of the circular flow diagram in the Figureshows the flow of funds from market F to economic agents G. The funds rep-resent spending on goods and services. What is market F and who are eco-nomic agents G?a. F = factor markets, G = firmsb. F = factor markets, G = householdsc. F = product markets, G = firmsd. F = product markets, G = households22) Although it is a popular product, Apple makes little profit from each songdownloaded through iTunes. Why does Apple charge only $0.99 to downloada song?a. Although Apple makes a small amount of profit per song, total profit is largebecause the quantity sold is large.b. The low price makes it more likely that consumers will buy iPods, which arerelatively expensive.c. Apple plans to increase the price of downloading songs after it sells a largeenough number of iPods.d. Apple cannot raise the price above $0.99 per song because consumers candownload songs at even lower prices from Apple?s competitors.23) The income effect of a price change refers to the impact of a change ina. the price of a good on a consumer?s purchasing power.b. income on the price of a good.c. demand when income changes.d. the quantity demanded when income changes.8Final ExaminationPrinciples of Economics24) The Internet has created a new category in the book selling market, namely,the ?barely used? book. How does the availability of barely used books affectthe market for new books?a. the demand curve for new books shifts to the leftb. the demand curve for new books shifts to the rightc. the supply curve for new books shifts to the rightd. the supply curve for new books shifts to the left25) A supply schedulea. is a table that shows the relationship between the price of a product and thequantity of the product that producers and consumers are willing to ex-change.b. is a table that shows the relationship between the price of a product and thequantity of the product supplied.c. is a curve that shows the relationship between the price of a product and thequantity of the product supplied.d. is the relationship between the supply of a good and the cost of producing thegood.26) In October 2005, the U.S. Fish and Wildlife Service banned the importationof beluga caviar, the most prized of caviars, from the Caspian Sea. What hap-pened in the market for caviar in the U. S.?a. The demand curve shifted to the right.b. The demand curve shifted to the left.c. The supply curve shifted to the right.d. The supply curve shifted to the left.Figure 3-2Final Examination9Principles of Economics27) Refer to Figure 3-2. If the price is $25,a. there would be a shortage of 200 units.b. there would be a surplus of 300 units.c. there would be a shortage of 300 unitsd. there would be a surplus of 200 units.28) Assume there is a shortage in the market for digital music players. Which ofthe following statements correctly describes this situation?a. The shortage will cause an increase in the equilibrium price of digital musicplayers.b. The price of digital music players will rise in response to the shortage, as theprice rises the quantity demanded will increase and the quantity supplied willdecrease.c. Some consumers will be unable to obtain digital music players at the marketprice and will have an incentive to offer to buy the product at a higher price.d. The demand for digital music players is greater than the supply of digitalmusic players.29) Select the phrase that correctly completed the following statement. ?A posi-tive change in technology caused an increase in the supply of flat-screentelevisions. As a resulta. the price of flat-screen televisions decreased and the quantity demanded offlat-screen televisions increased.?b. the price of flat-screen televisions decreased. The lower price caused thesupply of flat-screen televisions to decrease.?c. the equilibrium quantity of flat-screen televisions decreased.?d. the price of flat-screen televisions decreased and the demand for flat-screentelevisions increased.?30) ?Because apples and oranges are substitutes, an increase in the price of or-anges will cause the demand for apples to increase. This initial shift indemand for apples results in a higher price for apples, this higher price willcause the demand curve for apples to shift to the right.? Which of the follow-ing correctly comments on this statement?a. The statement is false because a change in the price of apples would notchange the demand for apples.b. The statement is false because one cannot assume that apples and orangesare substitutes for all consumers.c. The statement will be true, if consumer tastes for apples and oranges do notchange.d. The statement is false because oranges are inferior goods, apples are normalgoods.10Final ExaminationPrinciples of Economics31) The demand for lobster is lower in the spring than in the summer. If theprice of lobster is higher in spring than in summer thena. there are more substitutes for lobster in summer than there are in spring.b. there is a shortage of lobster in spring and a surplus of lobster in summer.c. the supply of lobster is greater in summer than in spring.d. consumers? tastes for lobster are greater in spring than in summer.32) Suppliers will be willing to supply a product only ifa. the price received is less than the additional cost of producing the product.b. the price is higher than the average cost of producing the product.c. the price received is at least equal to the additional cost of producing theproduct.d. the price received is at least double the additional cost of producing the prod-uct.Table 4-3Table 4-3 shows the demand and supply schedules for the low-skilled labor market in the city of Westover.33) Refer to Table 4-3. If a minimum wage of $7.50 an hour is mandated, whatis the quantity of labor supplied?a. 370,000b. 380,000c. 390,000d. 340,000Hourly Wage(Dollars)Quantity of Labor SuppliedQuantity of Labor Demanded$6.00350,000390,0006.50360,000380,0007.00370,000370,0007.50380,000360,0008.00390,000350,0008.50400,000340,000Final Examination11Principles of EconomicsFigure 4-7Figure 4-7 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf.34) Refer to Figure 4-7. What is the area that represents producer surplus afterthe imposition of the price floor?a. B + E + Fb. B + C + D + Ec. A + B + Ed. B + E35) Which of the follow is not a result of imposing a rent ceiling?a. an increase in the quantity demanded of apartmentsb. a reduction in the quantity supplied of apartmentsc. the marginal benefit of the last apartment rented is greater than the marginalcost of supplying itd. some consumer surplus is converted to producer surplus36) If your neighbor burns auto tires in the yard and you can smell them and can-not see sunlight because of the black smoke, you are experiencinga. a positive externality.b. a private benefit.c. a private cost.d. a negative externality.12Final ExaminationPrinciples of Economics37) Vaccinating people against a communicable disease such as influenza notonly reduces the chances that the person vaccinated will catch the diseasebut also reduces the probability that an epidemic of the disease will occur.Which of the following statements is true?a. The benefits of the influenza vaccination outweigh the costs.b. Reducing the chances that the person vaccinated will catch the disease is aprivate benefit while reducing the probability of an influenza epidemic is asocial benefit.c. Vaccinating people against communicable diseases yields private benefits inexcess of social benefits.d. Reducing the chances that the person vaccinated will catch the disease isa private cost while reducing the probability of an influenza epidemic is asocial benefit.38) Which of the following conditions holds in an economically efficient competi-tive market equilibrium?a. The marginal benefit of the last unit produced and consumed is maximized.b. Producer and consumer surplus are exactly equal in size.c. There are no positive and no negative external effects from consumption andproduction.d. The deadweight loss is positive but at a minimum.Figure 4-14Figure 4-14 shows a market with a positive externality.Final Examination13Principles of Economics39) Refer to Figure 4-14. The deadweight loss due to the externality is repre-sented by the areaa. msn.b. nso.c. mso.d. mtn.Figure 4-15Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 4-15 illustrates this situation in the toilet paper market.40) Refer to Figure 4-15. The efficient output isa. Q3.b. Q1.c. Q2.d. Q4.41) How has organizing a successful firm in a market economy changed over thelast century?a. There has been no change over the last century.b. It has become easier as more and more firms discover how to do it.c. As government intervention has decreased, firms now have more freedom.d. It has become more difficult to organize an efficient and successful firm.14Final ExaminationPrinciples of Economics42) What is the relationship of the owners of a corporation to the corporation?a. The personal assets of the owners are part of the corporation?s assets.b. The owners of the corporation have a separate legal distinction from the cor-poration.c. The owners of the corporation have no separate legal distinction from thecorporation.d. None of the above describes the relationship.43) When you buy previously-issued shares of Google stock, this transaction takesplace in thea. secondary market.b. bond market.c. primary market.d. bear market.44) You have a bond that pays $60 per year in coupon payments. Which of thefollowing would result in an increase in the price of your bond?a. The price of a share of stock in the company falls.b. The likelihood that the firm issuing your bond will default on debt increases.c. Coupon payments on newly-issued bonds fall to $50 per year.d. Coupon payments on newly-issued bonds rise to $80 per year.45) In June 2007 General Motors (GM) posted a price-earnings ratio of 9.84. Ifthe price of the stock at that time was $36 per share, which of the followingmust have been true?a. GM?s earnings per share was 3.66.b. GM?s coupon payment was $35 per year.c. GM?s dividend yield for the year was 26%.d. GM?s revenues that month were $366 million.46) In 2007, the dividend yield on General Motors (GM) stock fell from 8.6% to4.4%. Which of the following would have generated that result?a. The price-earnings ratio rose.b. GM issued bonds with a coupon rate equal to 8%.c. GM announced a decrease in the dividend it would pay per share.d. The closing price of GM stock fell.Final Examination15Principles of Economics47) Which of the following is an example of an implicit cost a firm might incur?a. taxes owed to the state and federal governmentsb. the out-of-pocket expense to hire resourcesc. the revenue a firm generates in using its resourcesd. the rental value of the office space the company owns and uses for itself48) What is shown on a firm?s income statement?a. profitsb. revenuesc. costsd. All of these are shown on a firm?s income statement.49) In addition to requiring that CEO?s personally certify the accuracy of financialstatements, the Sarbanes-Oxley Act of 2002 also requires thata. corporations issue financial statements monthly rather than quarterly.b. firms raise funds for expansion through the sale of bonds only, not stocks.c. auditors disclose any potential conflicts of interest.d. CEOs conduct audits of their corporations themselves.50) Suppose your marginal utility from consuming a third slice of cake is zero,then your total utility from consuming cake isa. increasing.b. negative.c. decreasing.d. maximized.51) When the price of summer tank tops falls and you buy more them becausethey are relatively less expensive, this is calleda. the elasticity effect.b. the deadweight loss effect.c. the income effect.d. the substitution effect.52) Most film processing companies have a policy of printing every picture on aroll of film and allowing customers to request a refund for pictures that werenot clearly developed. The companies do this knowing that most customersdo not ask for refunds. This is an example of consumersa. not taking non-monetary opportunity costs into account.16Final ExaminationPrinciples of Economicsb. not making themselves aware of the policy regarding refunds.c. failing to ignore sunk costs.d. being overly optimistic about their future behavior.53) If demand is perfectly price elastic, the absolute value of the price elasticityof demand isa. less than one.b. more than one.c. infinity.d. equal to the absolute value of the slope of the demand curve.54) If the market for a product is broadly defined, thena. there are many substitutes for the product and the demand for the product isrelatively elastic.b. the good has many complements.c. there are few substitutes for the product and the demand for the product isrelatively inelastic.d. the expenditure on the good is likely to make up a large share of one?s bud-get.Figure 6-255) Refer to Figure 6-2. The inelastic segment of the demand curvea. lies above the midpoint of the curve.b. is coincident with the horizontal axis.c. lies below the midpoint of the curve.d. is coincident with the vertical axis.Final Examination17Principles of EconomicsTable 6-356) Refer to Table 6-3. Over what range of prices is the demand price elastic?a. over the entire range of pricesb. between $8 and $16c. between $12 and $16d. between $2 and $857) When a firm changes its price, the change in total revenuea. depends on the value of the price elasticity of demand and the direction ofthe price change.b. is zero.c. is negative.d. is positive.58) A characteristic of the long run isa. there are both fixed and variable inputsb. plant capacity cannot be increased or decreased.c. all inputs can be varied.d. there are fixed inputs.Price per pound(Dollars)Quantity Demanded of cheese (pounds)$16314412510687684921018Final ExaminationPrinciples of Economics59) Academic book publishers hire editors, designers, and production and mar-keting managers who help prepare books for publication. Because these em-ployees work on several books simultaneously, the number of people thecompany hires will not go up and down with the quantity of books the com-pany publishes during any particular year. The salaries and benefits of peoplein these job categories will be included ina. marginal cost and total cost but not fixed cost.b. fixed cost but not variable cost and total cost.c. fixed cost and marginal cost but not variable cost.d. fixed cost and total cost but not variable cost.60) If another worker adds 9 units of output to a group of workers who had anaverage product of 7 units then the average product of labora. will increase.b. will decrease.c. will remain the same.d. cannot be determined from the information given.Table 7-1Table 7-1 shows the technology of production at the Matsuko?s Mushroom Farm for the month of May 2007.Number of workersMushrooms per day (pounds)112230345450554656Final Examination19Principles of Economics61) Refer to Table 7-1. Diminishing returns set in when the ________ worker ishired.a. 2ndb. 3rdc. 4thd. None of the above, the production function displays increasing marginalreturns.62) If production displays economies of scale, the long run average cost curve isa. upward sloping.b. above the short run average total cost curve.c. below the long run marginal cost curve.d. downward-sloping.63) When a firm?s long-run average cost curve is horizontal for a range of output,then in that range production displaysa. constant average fixed costs.b. increasing returns to scale.c. constant returns to scale.d. decreasing returns to scale.64) The price of a seller?s product in perfect competition is determined bya. the individual seller.b. a few of the sellers.c. the average consumer.d. market demand and market supply.65) All of the following can be used to compute profit per unit excepta. price minus average total cost.b. total profit divided by quantity.c. average revenue minus average total costd. marginal profit minus marginal cost.66) Val Alvarado, an accountant, quit his $80,000-a-year job and bought anexisting laundry from its previous owner. The lease had five years remainingand required a monthly payment of $4,000. Val?s explicit costs are $3,000per month more than his revenue. Should Val continue operating his busi-ness?20Final ExaminationPrinciples of Economicsa. If Val?s marginal revenue is greater than or equal to his marginal cost, then heshould stay in business.b. Val should continue to run the laundry until his lease runs out.c. Val?s explicit cost exceeds his total revenue. He should shut down his laundry.d. cannot be determined without knowing his revenue67) A perfectly competitive market is in long-run equilibrium. At present there are100 identical firms each producing 5,000 units of output. The prevailingmarket price is $20. Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry?s productwhich causes the price of the good to rise to $24. Which of the followingdescribes the effect of this increase in demand on a typical firm in the indus-try?a. In the short run the typical firm increases its output and makes an abovenormal profit.b. In the short run the typical firm?s output remains the same but because of thehigher price its profit increases.c. In the short run the typical firm increases its output but its total cost alsorises. Hence, the effect on the firm?s profit cannot be determined withoutmore information.d. In the short run the typical firm increases its output but its total cost alsorises, resulting in no change in profit.68) Which of the following describes a situation in which every good or service isproduced up to the point where the last unit provides a marginal benefit toconsumers equal to the marginal cost of producing it?a. profit maximizationb. productive efficiencyc. allocative efficiencyd. marginal efficiency69) According to Craig Johnson, president of retail consulting group CustomerGrowth Partners ?Wal-Mart?s foray into organics should help to bring downprices for consumers.? Which of the following statements supports Mr. John-son?s argument?a. Wal-Mart has a reputation for deliberately lowering prices to force its competi-tors out of the market.b. Wal-Mart is large enough that it can successfully pressure the U.S. Depart-ment of Agriculture to force organic food farmers to lower their prices.Final Examination21Principles of Economicsc. By expanding the organic market, Wal-Mart would bring in economies of scalethat would, when added to a competitive market, drive down prices.d. Wal-Mart?s core customer base is the low-income consumer. Therefore, tocompete for this customer group organic food farmers will be compelled tolower prices.70) Which of following is the best example of a monopoly if we use a broaddefinition of monopoly?a. Cheap Gas, one of two gasoline stations in a large rural communityb. Spuds Mckenzie, a wealthy potato farmer in Idahoc. Zippie Rentals, a sports car rental service in downtown Bostond. Santos Tacos, the only taqueria in the small town of Santosville71) Microsoft thought that the initial Xbox was sufficiently different from PS2that it could charge a significantly higher price for the Xbox than Sony couldcharge for PS2. Which of the following statements is implied by Microsoft?sproduct positioning?a. Microsoft recognized that the PS2 was a substitute for the Xbox but believedthat the Microsoft name would be sufficient to draw customers away from thePS2 and that customers would be willing to pay a premium for Microsoft?sproduct.b. Microsoft believed that the PS2 would soon be phased out by Sony?s PS3,therefore, it could charge a high price for the Xbox because it had no closesubstitutes.c. Microsoft believed that the PS2 was a distant substitute for the Xbox andtherefore the demand curve for Xbox would be elastic. Charging a higher pricewould enable it to increase its profits.d. Microsoft believed that it had differentiated the Xbox sufficiently to insulateit from competition. Consequently, it would be able to charge a higher priceand increase its profits.72) Because a monopoly?s demand curve is the same as the market demandcurve for its product,a. the monopoly?s average total cost always falls as it increases its output.b. the monopoly is a price taker.c. the monopoly must lower its price to sell more of its product.d. the monopoly?s marginal revenue equals its price.Figure 9-1Figure 9-1 above shows the demand and cost curves facing a monopolist.22Final ExaminationPrinciples of EconomicsFigure 9-1Figure 9-1 above shows the demand and cost curves facing a monopolist.73) Refer to Figure 9-1. If the firm?s average total cost curve is ATC2 the firmwilla. make a profit.b. break even.c. suffer a loss.d. face competition.74) Which of the following statements applies to a monopolist but not to a per-fectly competitive firm at its profit-maximizing output?a. Price equals marginal cost.b. Marginal revenue is less than price.c. Marginal revenue equals marginal cost.d. Average revenue equals average cost.75) Natural monopolies in the United States are generally regulated bya. the Department of Commerce.b. the Department of Justice.c. local or state regulatory commissions.d. the Federal Trade Commission.Final Examination23Principles of Economics76) A major difference between monopolistic competition and perfect competi-tion is thata. there are barriers to entry in monopolistic competition. There are no barriersto entry in perfectly competitive markets.b. monopolistically competitive firms sell differentiated products. Perfectlycompetitive firms sell identical products.c. government regulation restricts the ability of monopolistically competitivefirms to change their prices. Perfectly competitive firms face no price regula-tion.d. the market demand curve in a monopolistically competitive market slopesdownward. The market demand curve in a perfectly competitive market ishorizontal.77) Which of the following firms does not operate in a monopolistically competi-tive market?a. supermarketsb. automobile producersc. makers of women?s clothingd. video storesTable 10-3QuantityPrice(Dollars)Total Revenue(Dollars)Total Variable Cost(Dollars)Total Cost(Dollars)0$22$0$0$5012020166621938318131854459541768591095168075125615909314371498112162813104140190912108180230101111023028024Final ExaminationPrinciples of EconomicsTable 10-3 shows the firm?s demand and cost schedules for a firm in monopolistic competition.78) Refer to Table 10-3. What is the best course of action for the firm in theshort run?a. It should shut down.b. It should increase its sales by lowering its price.c. It should stay in business because it covers some of its fixed cost.d. It should not cut its price but it should increase its sales by advertising.79) At the peak of its success in the mid-1980s to the early 1990s, Apple Com-puter had a 15 percent share of the personal computer market. In 2007Apple?s share of the growing personal computer market was estimated at 6percent. Which of the following best accounts for this decline in marketshare?a. The entry of rivals eliminated Apple?s product differentiation.b. Apple was not able to keep up with technological advancements in the per-sonal computer market.c. The entry of rivals revealed that Apple was producing sub-standard comput-ers.d. Rivals engaged in predatory pricing but Apple was not willing to engage in aprice war.80) If the painting firms in a city sign a contract outlining a pricing plan, they areinvolved ina. price competition.b. a legal form of business contract in the United States.c. price regulation.d. collusion.81) An example of business fixed investment spending isa. a purchase of a computer by an accounting firm.b. $200 million of unsold cars at a car dealership.c. a purchase of a bond by General Electric Corporation.d. a purchase of


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