SAMPLE MICRO FINAL TEST

subjects may vary slightly due to the difference in textbooks used and the events of the year. formating and graphs did not transfer.

 *****formatting was lost in the transfer, and graphs did not transfer at all. ****

MULTIPLE CHOICE: 200 points total for this test. Answer all questions. For a statement to be true, the entire statement must be true, not just part of it.   Each is worth 5 points.  Everyone gets to miss one free.   Put your name or initials on each page, in case pages are separated. Circle the correct answer and put the letter/answer in the space before each number.

 

__________1. .  Assume that the price of peanut butter goes up due to an outbreak of food poisoning. Then we would expect an increase in the Demand for jelly (eg grape jelly) increased, everything else the same.

  1. true
  2. false

 

__________2..  If the Average Total Cost Curve for a firm decreases, everything else the same, we would expect to see an increase in :

 a. the equilibrium price

b. the firm’s revenue

c. the firm’s profit

d. all the above

 

__________3.   If the equilibrium quantity supplied and demanded of a good or service remains unchanged, this could be explained by an increase in demand, holding supply perfectly inelastic.

  1. true
  2. false

 

__________4 . An increase in efficiency is possible, if we increase the output in a monopolistic market toward the output level found in a comparable competitive industry, everything else the same.

  1. true
  2. false

 

__________5.   If we are operating out on the Production Possibilities Frontier for two goods beef and milk, we are by definition allocatively efficient, as long as we are consuming some of both goods.

  1. true
  2. false

 

__________6. Assume that that the local Refinery workers union negotiated a big increase in wage rates in a small town where the refinery is the major employer.  Is it possible that the result would be an increase in the equilibrium quantity, but that the equilibrium price could go up or down ---depending on the relative magnitude of the changes to supply and demand curves? [Drawing the graph, and stating your assumptions as to what changes will help you. I have even left you some space for that purpose]

  1. yes
  2. no

 

 

 

 

 

 

 

__________7.   Along the elastic range of a demand curve, a price change causes:

            a.     a change in total revenue in the opposite direction.

            b.    a change in total revenue in the same direction.

            c.     no change in total revenue.

            d.    an unpredictable change in the total revenue.

 

 

__________8. If the equilibrium price of unskilled labor is $5 per hour, and the minimum wage in increase from $6.50 to $7.25/hour, the result will be:

            a.    a surplus of labor.

            b.    a shortage of labor hours.

            c.    a black market for unskilled labor hours will eventually evolve.

            d.    the surplus of labor hours will increase.

 

 

__________9. Market structure is defined as the:

            a.     number of firms in each industry.

            b.    similarity of the product sold.

            c.     ease of entry into and exit from the market.

            d.    all of the above.

 

 

___________10.. We used the production possibilities curve to illustrate which of the following?

a. equilibrium

b. opportunity costs

c. productive efficiency

d. b and c, but not a

e. none of the above

 

 Supply and demand curves for computers

 

In the above diagram, we see that the Supply curve has moved in the direction of the arrow, and the Demand curve remains unchanged.

 

            ___________11. Which of the following could cause the computer price to fall from $3,000 to $2,000?     Remember this is the market for computers.

            a.    A whole bunch of computer makers went out of business.

            b.    The price of computer software goes down.

            c.    Higher prices for computer software.

            d.    The starting wage for science and technology graduates has fallen.

            e.     none of the above

.

 

 

___________ 12. If the income of the consumers in the market above goes down, could that explain the changes shown in the market for computers?

  1. true - yes
  2. false - no

 

___________ 13. If the price of Wheaties goes up and Wheaties are a substitute for Post Toasties;  then the Demand for Post Toasties  will decrease, everything else the same.

  1. true

b.   false

 

 

__________ 14. Suppose price of new homes has risen in the Houston area. We can conclude that:

            a.    the demand for new homes has risen, holding supply constant.

            b.    the law of demand has obviously been violated.

            c.    new firms must have entered the construction industry.

            d.    construction firms must be facing higher costs.

 

 

___________ 15. If you were a government official, and your goal was to lower the equilibrium price of milk in order to help promote health in infants, which of the following actions would be an efficient way to achieve that goal?

            a.    Have the government purchase milk in the market and store it in government storage.

            b.    Place a price ceiling on milk so that the price cannot rise above that level

            c.    Subsidize dairy equipment.

            d.    Both b and c are likely to reduce milk prices, but only c is an efficient way to achieve that goal. .

           

 

____________ 16. In a market economy, the key decisions of what to produce, how to produce it, and who gets it are determined by price.  Price, in turn, is determined by the forces of supply and demand.

  1. true
  2. false

 

 

Exhibit 1 Quantity and total revenue data for a firm

 

 

Quantity

Total Revenue

0

$   0

1

   62

2

 124

3

 186

 

            ____________ 17. Exhibit 1indicates that this firm is operating in which type of market structure?

            a.     Oligopoly

            b.    Unprofitable.

            c.     Perfect competition.

            d.    Monoply.

 

____________ 18. If the equilibrium price of gas is $2.50 and a price ceiling is imposed at $4, the result will be a (an):

            a.    accumulation of inventories of unsold gas.        

            b.    shortage.

            c.    an increase in the Supply of crude oil.

            d.    none of the above, the ceiling would be meaningless and ineffective.

 

 

 

Data on supply and demand curves

 

Price

Quantity

Demanded

Quantity

Supplied

$1.00

10

30

 1.50

15

15

 2.00

20

11

 2.50

25

10

 

___________ 19.        In the Exhibit above, the equilibrium price is:

            a.     $0.50

            b.     $1.50

            c.     $2.00

            d.     $1.00,

                

 

__________20.           In the Exhibit above, which of the following would occur at a price of $2.50?

            a.     Inventories would build to 20, putting downward pressure on price.

            b.     Quantity demanded exceeds quantity supplied, putting downward pressure on price.

            c.     There would be a shortage of 20 units, putting upward pressure on price.

            d.     There would be a surplus of 30 units, putting downward pressure on price

 

 

___________21.  In the Exhibit above, if the price were set by the government at $2.50, which of the following is false?

  1. there will be a surplus of 15 units
  2. there will be a shortage of 15 units
  3. there will be a ‘ceiling’ as a result of the government action
  4. the result will be inefficient

 

 

 

 

 

 

 

                                                             Production possibilities curve

 

____________ 22.      In the graph above, movement between which of the following points              represents an increase in efficiency?

            a.     A to D.

            b.    A to B.

            c.     A to C.

            d.    B to A.

            e.     B to C.

 

 

_____________23.  In the graph above, what is the opportunity cost of the first 50 CARS per year if the society were originally producing only GRAIN?

  1. 150 million tons of grain
  2. 50 million cars
  3. 50 million tons of grain
  4. one ton of grain for every car

 

 

 

 

____________24.  Assume that we have measured the price elasticity of demand as price went from $4 to $5 and it turned out to be 2.0 using the mid-point formula.   Which of the following statements are true?

  1. The demand curve is elastic in the area of the price change.
  2.  If the price increases from $4 to $5, the revenue of the firm will go down, everything else the same (we assume cost is fixed here.)
  3. We cannot make any statements about whether profit will increase or decrease if price goes from $4 to $5.
  4. A 10% increase in price will result in a 20% decrease in sales (number of units demanded).
  5. All the above are true
  6. None of the above are true.

 

_____________25. If the slope of the demand curve for Bacardi Rum is negative, that means that the relationship between the quantity demanded and the price change is elastic at each point on the demand curve.

  1. true
  2. false.

 

_____________26. Assume that the Demand curve for Bacardi Rum is relatively elastic.  Which of the following statements will then be false?

 

  1. Bacardi Rum has lots of substitutes
  2. Bacardi Rum is considered a necessity rather than a luxury.
  3. The number of satisfactory alternatives (substitutes) is limited.
  4. None of the above.

 

_____________27. If price of some good Z increases from $4 to $2, and consumers reduce their consumption from 12,000 Z to 18,000 Z, what is the elasticity of demand? 

a. 4

b. 0.4

c. 1

d. none of the above

 

Exhibit 2 Demand and cost curves for a monopolist

 

 

____________28.       As shown in Exhibit 2, in order to maximize its profit (or minimize its loss), how much output should the monopoly produce?

            a.     2 units per hour.

            b.    4 units per hour.

            c.     6 units per hour.

      d.    8 units per hour

 

______________29.  In Exhibit 2, what would be the ‘efficient’ level of output, if we could impose that level of output on the monopolist?

            a.2 units per hour.

            b.    4 units per hour.

            c.     6 units per hour.

      d.    8 units per hour a. 

 

 

______________30. In Exhibit 2 above, how do we know that this is not a competitive industry just by looking?

  1. The firm is earning a profit
  2. The price must go down if output is to increase
  3. The marginal revenue curve is not the same as price
  4. Both b and c are true
  5. all the above

 

_______________31.  The ‘kinked-demand’ curve is not the only model of oligopoly we have.

a..  true

b.   false

 

 

 

______________32.  What should a profit maximizing monopolist do if she is currently producing where
MC < MR?

            a.     Increase output until MC = MR.

            b.    Decrease output until MC = MR.

            c.     Shut down in the long run.

            d.    Keep producing at this level.

      e.    Operate only in the short run.

 

 

 

 

_______________33.  Unlike the competitive firm, a monopolist always charges the price that maximizes profit.

  1. true
  2. false

 

 

 

 

 

.   Demand and cost data for a monopolist

 

Price

Quantity

TR

MR

TC

Profit

$10

1

 

10

4

 

   9

2

 

 

8

 

   8

3

 

 

12

 

  7 

4

 

 

16

 

  6

5

 

 

20

 

  5 

6

 

 

24

 

  4

7

 

 

28

 

  3

8

 

 

32

 

  2

9

 

 

36

 

  1

10

 

 

40

 

 

 

 

 

_____________34.  Refer to Exhibit 5. The demand schedule and cost schedule for a monopolist are provided. Which output level maximizes profit?

            a.     2.

            b.    6.

            c.     4.

            d.    5.

            e.     7.

              

 

_______________35.  By calculating the data provided in Exhibit 5, how much is the profit if the firm decides to produce 7 units?

            a.     0.

            b.    24.

            c.     16.

            d.    12.

e.     6.

 

 

_____________36.  In Exhibit 5 above,  marginal revenue and price are always the same.

  1. true
  2. false

 

 

_______________37. If a competitive firm is operating at equilibrium, but it is operating at a loss, the market price will go up .

  1. The market price of a competitive market only changes if one of the non-price determinants of Supply or Demand Change.
  2. Yes, the price will go up when the firm is forced to close up and the output in that industry falls.
  3. The market price in a competitive industry never changes
  4. The market price will change depending on what that competitive firm thinks the other firms in the industry will do.

 

 

______________38.  The Demand curve for the Oligopolist is ‘kinked’ because it is assumed that other firms in the industry react differently to a price increase than they do to a price decrease.

  1. true
  2. false

 

 

 

Profit maximizing for a monopolist

 

 

 

 

 

 

________________39.           As shown in Exhibit 8, the profit‑maximizing price for the monopolist is:

            a.     OP1.

            b.    OP2.

            c.     OP3.

            d.    OP4.

            e.     OP5.

                 

 

________________40.           As shown in Exhibit 8, the monopolist's total cost is which of the following areas?

            a.     P1AEP5.

            b.    P2BDP4.

            c.     P3CDP5.

            d.    P4DEP5.

            e.     None of the above.