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Questions of Principles of Microeconomics - Exam 2 | ECON 206, Exams of Microeconomics

Material Type: Exam; Class: Prin of Microeconomics; Subject: Economics; University: Shepherd University; Term: Unknown 1989;

Typology: Exams

Pre 2010

Uploaded on 08/18/2009

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SAMPLE SECOND EXAM
ECON 206 NAME______________________
PART I. MULTIPLE CHOICE. Please circle the letter of the best
answer.
1. Economists assume that the principal motivation of producers
is:
a. Psychological gratification.
b. Social status.
c. Profit.
d. Their preference for being "their own person."
2Accounting and economic costs differ because:
a. Accounting costs exceed economic costs whenever any
factor of production is not paid an explicit wage.
b. Accounting costs include implicit opportunity costs and
economic costs do not.
c. Economic costs include the opportunity costs of all
resources used while accounting costs include actual dollar
outlays.
d. Accounting costs include explicit costs and economic
costs do not.
3. Normal profit implies that:
a. economic profit is zero.
b. All factors employed are earning an amount equal to
their opportunity costs.
c. The factors employed are earning as much as they could
in their best alternative employment.
d. All of the above.
4. If a firm can change market prices by altering its output,
then:
a. it has market power.
b. it is a price taker.
c. its faces a horizontal demand curve.
d. it is a perfectly competitive firm.
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SAMPLE SECOND EXAM

ECON 206 NAME______________________

PART I. MULTIPLE CHOICE. Please circle the letter of the best answer.

  1. Economists assume that the principal motivation of producers is: a. Psychological gratification. b. Social status. c. Profit. d. Their preference for being "their own person." 2 Accounting and economic costs differ because: a. Accounting costs exceed economic costs whenever any factor of production is not paid an explicit wage. b. Accounting costs include implicit opportunity costs and economic costs do not. c. Economic costs include the opportunity costs of all resources used while accounting costs include actual dollar outlays. d. Accounting costs include explicit costs and economic costs do not.
  2. Normal profit implies that: a. economic profit is zero. b. All factors employed are earning an amount equal to their opportunity costs. c. The factors employed are earning as much as they could in their best alternative employment. d. All of the above.
  3. If a firm can change market prices by altering its output, then: a. it has market power. b. it is a price taker. c. its faces a horizontal demand curve. d. it is a perfectly competitive firm.
  1. Which of the following characterizes a perfectly competitive market? a. A downward-sloping demand curve facing the firm. b. A horizontal demand curve for the market. c. All the firms sell at the equilibrium price for the market. d. Each firm sets its own price.
  2. For the perfectly competitive firm , the marginal revenue is always: a. below the firm's demand curve. b. equal to the market price. c. equal to marginal cost. d. declining.
  3. If a perfectly competitive firm is producing a level of output for which price exceeds marginal cost and average variable cost , then it is definitely true that: a. the firm has an economic profit greater than zero. b. the firm earns economic profit less than zero. c. the firm can increase profit by increasing output. d. the firm can increase profit by decreasing output.
  4. Total profit equals: a. (TR - TC)/Q. b. (P - ATC) x Q. c. TFC x Q. d. All of the above.
  1. The marginal revenue of a pure monopolist: a. falls below price because a monopolist is a price taker. b. falls below price because to sell one more unit of output the firm must lower the price on all units of output sold. c. is above price because the demand curve facing the monopolist is inelastic. d. is equal to price.
  2. In 1993, the coffee-producing countries got together to hold coffee off the market so that its price would rise. What kind of pricing were they trying to achieve? a. Monopoly pricing. b. Competitive pricing. c. Price discrimination. d. All of the above.
  3. The ultimate restraint on the exercise of monopoly power imposed by the market is: a. the demand curve facing the monopolist. b. the monopolist's average total cost curve. c. Congress. d. barriers to entry.

Use the graph below for a monopolist to help you answer questions 15, 16, and 17. Costs and revenues ($) MC 6.00 ATC

1.50 Demand

MR . 0 5 10 15 20 25 35 40

  1. In the graph above, the profit-maximizing level of output is : a. 10 units. b. 20 units. c. 25 units. d. 35 units.
  2. According to the graph above, a profit-maximizing monopolist will charge a price of: a. $6.00. b. $3.50. c. $4.00. d. $5.00.

PART II. PROBLEMS AND SHORT ESSAYS.

  1. Consider a perfectly competitive market in the long-run , as graphed below: USE THE GRAPH ABOVE TO ANSWER PARTS a, b, AND c. a. Calculate the typical firm's TOTAL ECONOMIC PROFIT. SHOW WORK. (6 points)

LRATC

LRMC

$10 D=P=MR

10 15 q TYPICAL FIRM

P S

A

D

THE MARKET

b. Will new firms enter the industry or will firms exit the industry? Explain thoroughly referring to the graphs and/or your calculation in part a. SHOW WHAT HAPPENS IN THE GRAPHS ABOVE BY SHIFTING THE APPROPRIATE CURVE(S). (12 points) c. When the perfectly competitive market reaches its LONG- RUN EQUILIBRIUM , what will be the PRICE OF THE PRODUCT? Explain how you determined it. (6 points)

  1. There are two kinds of static economic efficiency: allocative efficiency (marginal cost pricing) and technical (productive) efficiency. For each type of efficiency: a. state the condition that has to be satisfied for its achievement. b. explain intuitively how achievement of the efficiency enhances society's economic welfare. c. explain briefly why perfectly competitive industries achieve it. (16 points)