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 this
information to answer the following question(s).
Output
1
2
3
4
5

TVC
$36
$57
$73
$94
$120

Refer 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 a
specific 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 a
basic ingredient in the production of bread and that potatoes are a consumer substitute for
bread, 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 result
from:
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 to
reduce 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 F
b. Both F and G.
c. Combination G
d. Combinations A or E

7. 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 of
the 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 of
the 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 budget
constraint, 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 the
following 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 4
percent.
D) a 10 percent fall in the price of gasoline will increase the amount purchased by 40

percent.
13. Tiny State University raises tuition for the purpose of increasing its revenue so that more
faculty 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 constant
because:
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 a
purely competitive market at $20 per unit. Its total fixed costs are $1000 and its average variable
cost 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 q
and 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 and
monopoly. It is correct to say that the competitive element results from:
A) a relatively large number of firms and the monopolistic element from product
differentiation.
B) product differentiation and the monopolistic element from high entry barriers.
C) a perfectly elastic demand curve and the monopolistic element from low entry
barriers.
D) a highly inelastic demand curve and the monopolistic element from advertising and
product promotion

19. 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 $600
20. 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 another
candidate proposes a $10 billion budget, when the average voter preference is for a $9 billion
budget and the median voter preference is $8 billion. Assuming candidates desire the maximum
number 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 labor
supply 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 workers
already 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 reduces
discriminatory outcomes by:
A) making it relatively more costly for employers to exercise their tastes for
discrimination.
B) boosting the African-American-white and female-male productivity differential, thus
increasing 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, and
therefore 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 of
Units of
Workers
Output
0
0
1
45
2
100
3
141
4
170
5
190
6
210
27. Refer to the above data. Diminishing marginal product of labor becomes evident with the
addition 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 increase
b) the price of corn will decrease
c) the price of corn will either increase or decrease
d) the price of corn will not change
29. Suppose we observe that as a firm decreases its price, its total revenue increases, what do we
know about the firms demand?
a) demand is price inelastic
b) demand is price elastic
c) demand is unitary elastic
d) demand is perfectly price inelastic

30. If consumers have a long time to respond to an increase in electricity prices their demand is
likely to be________ than if they are only given a short time.
a) no different
b) higher
c) more elastic
d) less elastic.
31. If you know that fixed cost is $200, variable cost is $1,000, and total product is
5 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 production
b) price is equal to the minimum of the average variable cost of production
c) price is equal to the average fixed cost of production
d) 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 revenue
b) maximized marginal revenue
c) minimized total cost
d) equated marginal cost and marginal revenue.
34. The concept of diminishing marginal utility is that increases in the consumption
of a good lead to
a) 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 risk
of illness of injury. This is an example of:
a) public information
b) perfect information
c) a thick market
d) an adverse selection problem.
36. If workers become more productive the labor________ curve shifts
to the _________.
a) demand; left
b) demand; right
c) supply; left
d) supply; right
37. In the event of a minimum wage above the equilibrium wage, wages will_____
and total employment will_______.
a) fall; fall
b) fall; rise
35.

c) rise; fall
d) rise; rise
38. If the price of output decreases, the marginal revenue product curve will
shift________ 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 shifts
to the _________.
a) demand; left
b) demand; right
c) supply; left
d) supply; right
40. One reason that college graduates earn higher wages than non-graduates is
because:
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 their
skills are technology-specific.
41. Suppose that a new innovation in steel manufacture makes steel-working a less
dangerous 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 the
relative cost of labor is known as the _______________effect.
a) input-substitution
b) price elasticity
c) output
d) derived demand
Table 1
Number of Workers
Units of Output
2
100
3
160
4
210
5
250
6
280
7
300
8
310
43.

Refer to Table 1 above. The marginal product of the 3 rd unit of labor is:
a) 30
b) 53.33

c) 60
d) 160
44. An appeal to peoples sense of civic or moral responsibility will_______
The free rider problem and lead to a_____________ level of contribution to the public
good.
a) increase; smaller
b) increase; larger
c) reduce: smaller
d) reduce; larger
45. 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 externality
b) asymmetric information.
c) moral hazard.
d) a public goods problem.
47. Buyers in the market for used guitars are getting more pessimistic about the possibility
of
getting a good guitar. This will cause the price of used guitars to ____________ and
the percentage of good used guitars to __________.
a) Increase; increase
b) Increase; decrease
c) Decrease; decrease
d) Decrease; increase
48. In a___________ market there are few high-quality goods for sale while in
a_________ market there are many high-quality goods for sale.
a) thin; thicker
b) thicker; thin
c) inefficient; efficient
d) weak; strong
49. 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 . To
xx
yy
maximize 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 FOLLOWS

YOU MUST ANSWER SIX OUT OF THE TEN ESSAY QUESTIONS. IF
YOU ANSWER MORE THAN SIX ESSAY QUESTIONS, ONLY THE
FIRST SIX WILL BE GRADED!

ESSAY SECTION Part TWO of EXAM (60 POINTSEACH question is worth 10 points
total). Pick any 6.
1. A firms demand function is defined as Q = 30 – 2P. a) Use this demand function to calculate
total revenue when price is equal to 10 and when price is equal to 11. b) What is marginal revenue
equal to between P=10 and P=11?
2. A grocery store notices that the cross-price elasticity between ice cream and chocolate syrup
is -.3. The store is advertising a sale with ice cream prices reduced by 20%. By how much should
they expect chocolate syrup sales to increase?
3. Brian and Kim own a business employing 8 workers to produce commemorative t-shirts for
campus organizations and events. They are currently producing 2000 shirts per month with
average 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 cost
b) total fixed cost
c) total cost
4. Briefly explain why, in economic terms, when the wage rate increases we sometimes see the
number 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 of
Labor
0
1
2
3
4
5
6

Total
Product
0
15
28
39
48
56
60

Product
Price
$2.20
$2.00
$1.80
$1.60
$1.40
$1.20
$1.10

5. How much is added to the firms total revenue if the firm hires the 4th worker? What is the
economic term for this number?

Q6. If the market equilibrium wage rate is $8, how many workers will the firm choose to
employ? 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 will
be 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 that
the equilibrium quantity changes from that in the diagram to an equilibrium quantity
of 200. What is the elasticity of demand along the above demand curve as you move
from 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 this
region? Briefly explain.
c) Based upon your previous answer, does the total revenue for producers in the market
increase 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 a
related market as indicated by diagram (A). What is the relationship between the goods
of these two markets?
a) Based upon your previous answer, we now know something about one type of elasticity
for the good in diagram (D). What type of elasticity is it, and what is its sign? (Positive
or negative?) Briefly explain.
Q10. Refer to the diagram below for questions 10 This diagram represents the cost structure
for 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 correct
choice 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 loss
4
(indicate the correct choice)? What will happen to the number of firms in this industry in the
long run (indicate the correct choice)?
10.a. Q = _____
10.b. PROFIT LOSS NEITHER
10.c. INCREASE DECREASE REMAIN THE SAME

Click here to have a similar paper done for you by one of our writers within the set deadline at a discounted…