Practice Exam - Final (Chapters 1 - 13, 16)

Student: ___________________________________________________________________________ 1. For economists, the word "utility" means: A. versatility and flexibility. B. rationality. C. pleasure or satisfaction. D. purposefulness. 2. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of: A. opportunity costs. B. marginal benefits that exceed marginal costs. C. imperfect information. D. normative economics. 3. The assertion that "There is no free lunch" means that: A. there are always tradeoffs between economic goals. B. all production involves the use of scarce resources and thus the sacrifice of alternative goods. C. marginal analysis is not used in economic reasoning. D. choices need not be made if behavior is rational. 4. The budget line shows: A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. the minimum amount of two goods that a consumer can purchase with a given money income. D. all possible combinations of two goods that yield the same level of utility to the consumer.

5. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the: A. prices of C and D cannot be determined. B. price of C is $2 and the price of D is $4. C. consumer can obtain a combination of 5 units of both C and D. D. price of C is $4 and the price of D is $2.

6. Any point inside the production possibilities curve indicates: A. the presence of technological change. B. that resources are imperfectly substitutable among alternative uses. C. the presence of inflationary pressures. D. that more output could be produced with available resources. 7. Command systems are also known as: A. market systems. B. pure capitalism. C. laissez-faire capitalism. D. communism. 8. The two basic markets shown by the simple circular flow model are: A. capital goods and consumer goods. B. free and controlled. C. product and resource. D. household and business. 9. The law of demand states that, other things equal: A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices. 10. The income and substitution effects account for: A. the upward sloping supply curve. B. the downward sloping demand curve. C. movements along a given supply curve. D. shifts in the demand curve. 11. Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers 12. If the demand curve for product B shifts to the right as the price of product A declines, then: A. both A and B are inferior goods. B. A is a superior good and B is an inferior good. C. A is an inferior good and B is a superior good. D. A and B are complementary goods. 13. If X is a normal good, a rise in money income will shift the: A. supply curve for X to the left. B. supply curve for X to the right. C. demand curve for X to the left. D. demand curve for X to the right.

14. A decrease in the price of digital cameras will: A. cause the demand curve for memory cards to become vertical. B. shift the demand curve for memory cards to the right. C. shift the demand curve for memory cards to the left. D. not affect the demand for memory cards. 15. Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75: A. a smaller quantity of C will be demanded. B. a larger quantity of C will be demanded. C. the demand for C will increase. D. the demand for C will decrease. 16. A leftward shift of a product supply curve might be caused by: A. an improvement in the relevant technique of production. B. a decline in the prices of needed inputs. C. an increase in consumer incomes. D. some firms leaving an industry. 17. A government subsidy to the producers of a product: A. reduces product supply. B. increases product supply. C. reduces product demand. D. increases product demand. 18. Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect: A. the supply of ethanol, a corn-based product, to increase. B. consumer demand for wheat to fall. C. the supply to increase as farmers plant more corn. D. the supply to fall as farmers plant more of other crops.

19. Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: A. $10 and 60 units. B. $9 and 50 units. C. $8 and 60 units. D. $7 and 50 units.

20. Refer to the above table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9, A. the market would clear. B. a surplus of 20 units would occur. C. a shortage of 20 units would occur. D. demand would change from columns (3) and (2) to columns (3) and (1).

21. Refer to the above diagram. The equilibrium price and quantity in this market will be: A. $1.00 and 200. B. $1.60 and 130. C. $0.50 and 130. D. $1.60 and 290. 22. Refer to the above diagram. A surplus of 160 units would be encountered if the price was: A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $0.50. 23. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $0.50. 24. If there is a surplus of a product, its price: A. is below the equilibrium level. B. is above the equilibrium level. C. will rise in the near future. D. is in equilibrium.

25. Refer to the above diagram. A price of $60 in this market will result in: A. equilibrium. B. a shortage of 50 units. C. a surplus of 50 units. D. a surplus of 100 units. 26. Refer to the above diagram. A price of $20 in this market will result in a: A. shortage of 50 units. B. surplus of 50 units. C. surplus of 100 units. D. shortage of 100 units. 27. Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will: A. decrease, quantity demanded will decrease, and quantity supplied will increase. B. decrease and quantity demanded and quantity supplied will both decrease. C. increase, quantity demanded will increase, and quantity supplied will decrease. D. increase, quantity demanded will decrease, and quantity supplied will increase. 28. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent. 29. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A. 4.00. B. 2.09. C. 1.37. D. 3.94. 30. The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic, but does not change at various points on the curve. C. inelastic, but does not change at various points on the curve. D. 1 at all points on the curve.

31. The price elasticity of demand is generally: A. negative, but the minus sign is ignored. B. positive, but the plus sign is ignored. C. positive for normal goods and negative for inferior goods. D. positive because price and quantity demanded are inversely related. 32. If a demand for a product is elastic, the value of the price elasticity coefficient is: A. zero. B. greater than one. C. equal to one. D. less than one.

33. Refer to the above diagram. Between prices of $5.70 and $6.30: A. D1 is more elastic than D2. B. D2 is an inferior good and D1 is a normal good. C. D1 and D2 have identical elasticities. D. D2 is more elastic than D1. 34. Refer to the above diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would: A. decrease if demand were D1 only. B. decrease if demand were D2 only. C. decrease if demand were either D1 or D2. D. increase if demand were either D1 or D2. 35. Refer to the above diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be: A. 0.8. B. 1.0. C. 1.2. D. 2.0. 36. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: A. 0.8. B. 1.2. C. 1.6. D. 8.0

37. A firm can sell as much as it wants at a constant price. Demand is thus: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic. 38. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of: A. W and Y. B. Y and Z. C. X and Z. D. Z and W. 39. If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then: A. the demand for the product is elastic in the $6-$5 price range. B. the demand for the product must have increased. C. elasticity of demand is 0.74. D. the demand for the product is inelastic in the $6-$5 price range. 40. Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by: A. 2 percent and total expenditures on bread will rise. B. 2 percent and total expenditures on bread will fall. C. 20 percent and total expenditures on bread will fall. D. 20 percent and total expenditures on bread will rise. 41. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: A. decreasing. B. relatively elastic. C. perfectly elastic. D. relatively inelastic. 42. Suppose the income elasticity of demand for toys is +2.00. This means that: A. a 10 percent increase in income will increase the purchase of toys by 20 percent. B. a 10 percent increase in income will increase the purchase of toys by 2 percent. C. a 10 percent increase in income will decrease the purchase of toys by 2 percent. D. toys are an inferior good. 43. We would expect the cross elasticity of demand between dress shirts and ties to be: A. positive, indicating normal goods. B. positive, indicating complementary goods. C. negative, indicating substitute goods. D. negative, indicating complementary goods.

44. We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods. 45. Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good. 46. The two main characteristics of a public good are: A. production at constant marginal cost and rising demand. B. nonexcludability and production at rising marginal cost. C. nonrivalry and nonexcludability. D. nonrivalry and large negative externalities. 47. Unlike a private good, a public good: A. has no opportunity costs. B. has benefits available to all, including nonpayers. C. produces no positive or negative externalities. D. is characterized by rivalry and excludability. 48. Nonexcludability describes a condition where: A. one person's consumption of a good does not prevent consumption of the good by others. B. there is no effective way to keep people from using a good once it comes into being. C. sellers can withhold the benefits of a good from those unwilling to pay for it. D. there is no potential for free-riding behavior. 49. At the optimal quantity of a public good: A. marginal benefit exceeds marginal cost by the greatest amount. B. total benefit equals total cost. C. marginal benefit equals marginal cost. D. marginal benefit is zero. 50. The ability of a good or service to satisfy wants is called: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility. 51. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

52. To maximize utility a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same. Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18.

53. Refer to the above data. How many units of the two products will the rational consumer purchase? A. 3 of L and none of M B. 4 of L and 2 of M C. 3 of L and 5 of M D. 2 of L and 3 of M 54. Refer to the above data. What level of total utility does the rational consumer realize in equilibrium? A. 87 utils B. 104 utils C. 51 utils D. 58 utils 55. Diminishing marginal utility explains why: A. the income effect exceeds the substitution effect. B. the substitution effect exceeds the income effect. C. supply curves are upsloping. D. demand curves are downsloping. 56. Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately? A. Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero. B. MU/P is greater at all-you-can-eat restaurants. C. People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility. D. Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food. 57. To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

58. Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 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. 59. The basic difference between the short run and the long run is that: A. all costs are fixed in the short run, but all costs are variable in the long run. B. the law of diminishing returns applies in the long run, but not in the short run. C. at least one resource is fixed in the short run, while all resources are variable in the long run. D. economies of scale may be present in the short run, but not in the long run. Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.

60. Refer to the above data. Diminishing marginal returns become evident with the addition of the: A. sixth worker. B. fourth worker. C. third worker. D. second worker. 61. Refer to the above data. The marginal product of the sixth worker is: A. 180 units of output. B. 30 units of output. C. 15 units of output. D. negative. Use the following data to answer the question:

62. Refer to the above data. The average product (AP) when two units of labor are hired is: A. 8. B. 9. C. 10. D. 18. 63. Refer to the above data. Diminishing returns begin to occur with the hiring of the _________ unit of labor. A. first B. second

C. third D. seventh 64. Refer to the above data. Marginal product becomes negative with the hiring of the __________ unit of labor. A. third B. fourth C. sixth D. seventh Answer the question on the basis of the following cost data:

65. Refer to the above data. Total fixed cost is: A. $6.25. B. $100.00. C. $150.00. D. $50.00. 66. Refer to the above data. The average total cost of five units of output is: A. $69. B. $78. C. $3. D. $10. 67. Refer to the above data. The total cost of four units of output is: A. $260. B. $77.50. C. $310. D. $215. 68. Refer to the above data. If the firm closed down in the short run and produced zero units of output, its total cost would be: A. zero. B. $50. C. $150. D. $100. 69. Refer to the above data. The marginal cost of the fifth unit of output is: A. $3. B. $62. C. $80. D. $78.

70. In which of the following market structures is there clear-cut mutual interdependence with respect to priceoutput policies? A. pure monopoly B. oligopoly C. monopolistic competition D. pure competition 71. An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition. 72. An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition. 73. A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker." 74. For a purely competitive seller, price equals: A. average revenue. B. marginal revenue. C. total revenue divided by output. D. all of these.

75. Refer to the above short-run data. The profit-maximizing output for this firm is: A. above 440 units. B. 440 units. C. 320 units. D. 100 units.

76. In the short run the individual competitive firm's supply curve is that segment of the: A. average variable cost curve lying below the marginal cost curve. B. marginal cost curve lying above the average variable cost curve. C. marginal revenue curve lying below the demand curve. D. marginal cost curve lying between the average total cost and average variable cost curves. 77. Suppose you find that the price of your product is less than minimum AVC. You should: A. minimize your losses by producing where P = MC. B. maximize your profits by producing where P = MC. C. close down because, by producing, your losses will exceed your total fixed costs. D. close down because total revenue exceeds total variable cost. Answer the question on the basis of the following data confronting a firm:

78. Refer to the above data. This firm is selling its output in a(n): A. monopolistically competitive market. B. monopolistic market. C. purely competitive market. D. oligopolistic market. 79. Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be: A. 2. B. 3. C. 4. D. 5. 80. Refer to the above data. At the profit-maximizing output the firm's total revenue is: A. $48. B. $32. C. $80. D. $64. 81. Refer to the above data. Assuming total fixed costs equal to zero, the firm's: A. economic profit is $12. B. economic profit is $16. C. loss is $14. D. economic profit is $3.

82. A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should: A. shut down in the short run. B. produce because the resulting loss is less than its TFC. C. produce because it will realize an economic profit. D. liquidate its assets and go out of business.

83. Refer to the above diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is: A. P1. B. P2. C. P3. D. P4. 84. Refer to the above diagram for a purely competitive producer. The firm will produce at a loss at all prices: A. above P1. B. above P3. C. above P4. D. between P2 and P3. 85. Refer to the above diagram for a purely competitive producer. If product price is P3: A. the firm will maximize profit at point d. B. the firm will earn an economic profit. C. economic profits will be zero. D. new firms will enter this industry.

Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market:

86. Refer to the above data. If the market price for the firm's product is $12, the competitive firm will produce: A. 4 units at a loss of $109. B. 4 units at an economic profit of $31.75. C. 8 units at a loss of $48.80. D. zero units at a loss of $100. 87. Refer to the above data. If the market price for the firm's product is $32, the competitive firm will produce: A. 8 units at an economic profit of $16. B. 6 units at an economic profit of $7.98. C. 10 units at an economic profit of $4. D. 7 units at an economic profit of $41.50. 88. Refer to the above data. If the market price for the firm's product is $28, the competitive firm will: A. produce 4 units at a loss of $17.40. B. produce 7 units at a loss of $14.00. C. shut down in the short run. D. produce 6 units at a loss of $23.80. 89. In a purely competitive industry: A. there will be no economic profits in either the short run or the long run. B. economic profits may persist in the long run if consumer demand is strong and stable. C. there may be economic profits in the short run, but not in the long run. D. there may be economic profits in the long run, but not in the short run. 90. If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to: A. increase, output to increase, price to decrease, and profits to decrease. B. increase, output to increase, price to increase, and profits to decrease. C. decrease, output to decrease, price to increase, and profits to increase. D. increase, output to decrease, price to decrease, and profits to decrease. 91. Which of the following conditions is true for a purely competitive firm in long-run equilibrium? A. P > MC = minimum ATC. B. P > MC > minimum ATC. C. P = MC = minimum ATC. D. P < MC < minimum ATC.

92. Which of the following is correct? A. Both purely competitive and monopolistic firms are "price takers." B. Both purely competitive and monopolistic firms are "price makers." C. A purely competitive firm is a "price taker," while a monopolist is a "price maker." D. A purely competitive firm is a "price maker," while a monopolist is a "price taker." 93. Which of the following is a characteristic of pure monopoly? A. close substitute products B. barriers to entry C. the absence of market power D. "price taking" Answer the question on the basis of the demand schedule shown below:

94. Refer to the above data. The marginal revenue obtained from selling the third unit of output is: A. $6. B. $1. C. $3. D. $5. 95. Which of the following is characteristic of a pure monopolist's demand curve? A. Average revenue is less than price. B. Its elasticity coefficient is 1 at all levels of output. C. Price and marginal revenue are equal at all levels of output. D. It is the same as the market demand curve. 96. Because the monopolist's demand curve is downsloping: A. MR will equal price. B. price must be lowered to sell more output. C. the elasticity coefficient will increase as price is lowered. D. its supply curve will also be downsloping. 97. An unregulated pure monopolist will maximize profits by producing that output at which: A. P = MC. B. P = ATC. C. MR = MC. D. MC = AC.

98. Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is: A. $4 or less. B. $3.90 or less. C. $3.50 or less. D. $3.40 or less. 99. A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing: A. a loss that could be reduced by producing more output. B. a loss that could be reduced by producing less output. C. an economic profit that could be increased by producing more output. D. an economic profit that could be increased by producing less output.

100. Refer to the above diagram. To maximize profits or minimize losses this firm should produce: A. E units and charge price C. B. E units and charge price A. C. M units and charge price N. D. L units and charge price LK. 101. Refer to the above diagram. At the profit-maximizing level of output, total revenue will be: A. NM times 0M. B. 0AJE. C. 0EGC. D. 0EHB. 102. Refer to the above diagram. At the profit-maximizing level of output, total cost will be: A. NM times 0M. B. 0AJE. C. 0CGC. D. 0BHE. 103. Refer to the above diagram. At the profit-maximizing level of output, the firm will realize: A. an economic profit of ABHJ. B. an economic profit of ACGJ. C. a loss of GH per unit. D. a loss of JH per unit.

104. If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and to pure competition? A. MC = P B. MC = ATC C. MR = MC D. P = MR

105. Refer to the above diagram for a pure monopolist. Monopoly price will be: A. e. B. c. C. b. D. a. 106. Refer to the above diagram for a pure monopolist. Monopoly output will be: A. between f and g. B. h. C. g. D. f.

107. Refer to the above diagram. If this industry is comprised of only one seller, the profit-maximizing price and quantity will be: A. P3 and Q3. B. P1 and Q3. C. P2 and Q2. D. indeterminate on the basis of the information given.

108. Which of the following statements is correct? A. The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero. B. In seeking the profit-maximizing output the pure monopolist underallocates resources to its production. C. The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest. D. Purely monopolistic sellers earn only normal profits in the long run. 109. When economists say that the demand for labor is a derived demand, they mean that it is: A. dependent on government expenditures for public goods and services. B. related to the demand for the product or service labor is producing. C. based on the desire of businesses to exploit labor by paying below equilibrium wage rates. D. based on the assumption that workers are trying to maximize their money incomes. 110. Marginal product is: A. the output of the least skilled worker. B. a worker's output multiplied by the price at which each unit can be sold. C. the amount an additional worker adds to the firm's total output. D. the amount any given worker contributes to the firm's total revenue. 111. Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is: A. $6. B. $12. C. $36. D. $72. 112. If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the: A. marginal revenue product of each worker is $25. B. marginal revenue product of the first worker is $20. C. marginal revenue product of the second worker is $20. D. data given do not permit the determination of the marginal revenue product of either worker.

Answer the question on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.

113. Refer to the above data. How many units of output are produced when 2 workers are employed? A. 4 B. 16 C. 24 D. 10 114. Refer to the above data. What is the marginal product of the sixth worker? A. 2 units B. 3 units C. 4 units D. 5 units 115. Refer to the above data. At what price does each shoe shine sell? A. $1 B. $2 C. $3 D. $2.50 116. Refer to the above data. If the wage rate is $11, how many workers will Manfred hire to maximize profits? A. 1 B. 2 C. 3 D. 5 117. Refer to the above data. If the wage rate is $11 and Manfred's only fixed input is capital, the total cost of which is $30, then what will be his economic profit? A. $62 B. $42 C. $28 D. $32 118. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that: A. profits will be increased by hiring additional workers. B. profits will be increased by hiring fewer workers. C. marginal revenue product must exceed average revenue product. D. the restaurant is maximizing profits.

Answer the question on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.

119. Refer to the above data. If the wage rate is $20, how many workers will the firm choose to employ? A. 5 B. 4 C. 3 D. 2 120. Refer to the above data. If the wage rate is $11, how many workers will the firm choose to employ? A. 5 B. 4 C. 3 D. 2 121. If the nominal wages of carpenters rose by 5 percent in 2010 and the price level increased by 3 percent, then the real wages of carpenters: A. decreased by 2 percent. B. increased by 2 percent. C. increased by 3 percent. D. increased by 8 percent. 122. If the nominal wage rises by 4 percent, and the price level rises by 7 percent, the real wage will: A. be unaffected. B. rise by 3 percent. C. fall by 3 percent. D. rise by 11 percent.

123. Refer to the above diagram. Assuming no union or relevant minimum wage, the firm represented will hire: A. Q2 workers and pay a W4 wage rate. B. Q2 workers and pay a W1 wage rate. C. Q3 workers and pay a W2 wage rate. D. Q4 workers and pay a W1 wage rate. 124. A progressive tax is such that: A. tax rates are higher the greater one's income. B. the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. C. entrepreneurial income is exempt from taxation. D. the revenues it yields are spent on transfer payments. The following data represent a personal income tax schedule. Answer the question on the basis of this information.

125. Refer to the above table. If your taxable income is $8,000, your average tax rate is: A. 25 percent and the marginal rate on additional income is also 25 percent. B. 25 percent and the marginal rate on additional income is 40 percent. C. 25 percent and the marginal rate on additional income cannot be determined from the information given. D. 20 percent and the marginal rate on additional income is 30 percent. 126. Which of the following best reflects the ability-to-pay philosophy of taxation? A. a tax on residential property B. a progressive income tax C. an excise tax on gasoline D. an excise tax on coffee 127. The incidence of a tax pertains to: A. the degree to which it alters the distribution of income. B. how easy it is to evade the tax. C. who actually bears the burden of a tax. D. the progressiveness or regressiveness of tax rates.

Practice Exam - Final Key

1. For economists, the word "utility" means: A. versatility and flexibility. B. rationality. C. pleasure or satisfaction. D. purposefulness. 2. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of: A. opportunity costs. B. marginal benefits that exceed marginal costs. C. imperfect information. D. normative economics. 3. The assertion that "There is no free lunch" means that: A. there are always tradeoffs between economic goals. B. all production involves the use of scarce resources and thus the sacrifice of alternative goods. C. marginal analysis is not used in economic reasoning. D. choices need not be made if behavior is rational. 4. The budget line shows: A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. the minimum amount of two goods that a consumer can purchase with a given money income. D. all possible combinations of two goods that yield the same level of utility to the consumer.

5. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the: A. prices of C and D cannot be determined. B. price of C is $2 and the price of D is $4. C. consumer can obtain a combination of 5 units of both C and D. D. price of C is $4 and the price of D is $2. 6. Any point inside the production possibilities curve indicates: A. the presence of technological change. B. that resources are imperfectly substitutable among alternative uses. C. the presence of inflationary pressures.

D. that more output could be produced with available resources.

7. Command systems are also known as: A. market systems. B. pure capitalism. C. laissez-faire capitalism. D. communism. 8. The two basic markets shown by the simple circular flow model are: A. capital goods and consumer goods. B. free and controlled. C. product and resource. D. household and business. 9. The law of demand states that, other things equal: A. price and quantity demanded are inversely related. B. the larger the number of buyers in a market, the lower will be product price. C. price and quantity demanded are directly related. D. consumers will buy more of a product at high prices than at low prices. 10. The income and substitution effects account for: A. the upward sloping supply curve. B. the downward sloping demand curve. C. movements along a given supply curve. D. shifts in the demand curve. 11. Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers 12. If the demand curve for product B shifts to the right as the price of product A declines, then: A. both A and B are inferior goods. B. A is a superior good and B is an inferior good. C. A is an inferior good and B is a superior good. D. A and B are complementary goods. 13. If X is a normal good, a rise in money income will shift the: A. supply curve for X to the left. B. supply curve for X to the right. C. demand curve for X to the left. D. demand curve for X to the right. 14. A decrease in the price of digital cameras will: A. cause the demand curve for memory cards to become vertical. B. shift the demand curve for memory cards to the right. C. shift the demand curve for memory cards to the left. D. not affect the demand for memory cards.

15. Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75: A. a smaller quantity of C will be demanded. B. a larger quantity of C will be demanded. C. the demand for C will increase. D. the demand for C will decrease. 16. A leftward shift of a product supply curve might be caused by: A. an improvement in the relevant technique of production. B. a decline in the prices of needed inputs. C. an increase in consumer incomes. D. some firms leaving an industry. 17. A government subsidy to the producers of a product: A. reduces product supply. B. increases product supply. C. reduces product demand. D. increases product demand. 18. Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect: A. the supply of ethanol, a corn-based product, to increase. B. consumer demand for wheat to fall. C. the supply to increase as farmers plant more corn. D. the supply to fall as farmers plant more of other crops.

19. Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: A. $10 and 60 units. B. $9 and 50 units. C. $8 and 60 units. D. $7 and 50 units. 20. Refer to the above table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9, A. the market would clear. B. a surplus of 20 units would occur. C. a shortage of 20 units would occur. D. demand would change from columns (3) and (2) to columns (3) and (1).

21. Refer to the above diagram. The equilibrium price and quantity in this market will be: A. $1.00 and 200. B. $1.60 and 130. C. $0.50 and 130. D. $1.60 and 290. 22. Refer to the above diagram. A surplus of 160 units would be encountered if the price was: A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $0.50. 23. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50. B. $1.60. C. $1.00. D. $0.50. 24. If there is a surplus of a product, its price: A. is below the equilibrium level. B. is above the equilibrium level. C. will rise in the near future. D. is in equilibrium.

25. Refer to the above diagram. A price of $60 in this market will result in: A. equilibrium. B. a shortage of 50 units. C. a surplus of 50 units. D. a surplus of 100 units.

26. Refer to the above diagram. A price of $20 in this market will result in a: A. shortage of 50 units. B. surplus of 50 units. C. surplus of 100 units. D. shortage of 100 units. 27. Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will: A. decrease, quantity demanded will decrease, and quantity supplied will increase. B. decrease and quantity demanded and quantity supplied will both decrease. C. increase, quantity demanded will increase, and quantity supplied will decrease. D. increase, quantity demanded will decrease, and quantity supplied will increase. 28. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent.

29. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A. 4.00. B. 2.09. C. 1.37. D. 3.94. 30. The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic, but does not change at various points on the curve. C. inelastic, but does not change at various points on the curve. D. 1 at all points on the curve. 31. The price elasticity of demand is generally: A. negative, but the minus sign is ignored. B. positive, but the plus sign is ignored. C. positive for normal goods and negative for inferior goods. D. positive because price and quantity demanded are inversely related. 32. If a demand for a product is elastic, the value of the price elasticity coefficient is: A. zero. B. greater than one. C. equal to one. D. less than one.

33. Refer to the above diagram. Between prices of $5.70 and $6.30: A. D1 is more elastic than D2. B. D2 is an inferior good and D1 is a normal good. C. D1 and D2 have identical elasticities. D. D2 is more elastic than D1. 34. Refer to the above diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would: A. decrease if demand were D1 only. B. decrease if demand were D2 only. C. decrease if demand were either D1 or D2. D. increase if demand were either D1 or D2.

35. Refer to the above diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be: A. 0.8. B. 1.0. C. 1.2. D. 2.0.

36. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: A. 0.8. B. 1.2. C. 1.6. D. 8.0 37. A firm can sell as much as it wants at a constant price. Demand is thus: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic. 38. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of: A. W and Y. B. Y and Z. C. X and Z. D. Z and W. 39. If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then: A. the demand for the product is elastic in the $6-$5 price range. B. the demand for the product must have increased. C. elasticity of demand is 0.74. D. the demand for the product is inelastic in the $6-$5 price range. 40. Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by: A. 2 percent and total expenditures on bread will rise. B. 2 percent and total expenditures on bread will fall. C. 20 percent and total expenditures on bread will fall. D. 20 percent and total expenditures on bread will rise. 41. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: A. decreasing. B. relatively elastic. C. perfectly elastic. D. relatively inelastic. 42. Suppose the income elasticity of demand for toys is +2.00. This means that: A. a 10 percent increase in income will increase the purchase of toys by 20 percent. B. a 10 percent increase in income will increase the purchase of toys by 2 percent. C. a 10 percent increase in income will decrease the purchase of toys by 2 percent. D. toys are an inferior good.

43. We would expect the cross elasticity of demand between dress shirts and ties to be: A. positive, indicating normal goods. B. positive, indicating complementary goods. C. negative, indicating substitute goods. D. negative, indicating complementary goods. 44. We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods. 45. Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good. 46. The two main characteristics of a public good are: A. production at constant marginal cost and rising demand. B. nonexcludability and production at rising marginal cost. C. nonrivalry and nonexcludability. D. nonrivalry and large negative externalities. 47. Unlike a private good, a public good: A. has no opportunity costs. B. has benefits available to all, including nonpayers. C. produces no positive or negative externalities. D. is characterized by rivalry and excludability. 48. Nonexcludability describes a condition where: A. one person's consumption of a good does not prevent consumption of the good by others. B. there is no effective way to keep people from using a good once it comes into being. C. sellers can withhold the benefits of a good from those unwilling to pay for it. D. there is no potential for free-riding behavior. 49. At the optimal quantity of a public good: A. marginal benefit exceeds marginal cost by the greatest amount. B. total benefit equals total cost. C. marginal benefit equals marginal cost. D. marginal benefit is zero. 50. The ability of a good or service to satisfy wants is called: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility.

51. Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

52. To maximize utility a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same. Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18.

53. Refer to the above data. How many units of the two products will the rational consumer purchase? A. 3 of L and none of M B. 4 of L and 2 of M C. 3 of L and 5 of M D. 2 of L and 3 of M 54. Refer to the above data. What level of total utility does the rational consumer realize in equilibrium? A. 87 utils B. 104 utils C. 51 utils D. 58 utils 55. Diminishing marginal utility explains why: A. the income effect exceeds the substitution effect. B. the substitution effect exceeds the income effect. C. supply curves are upsloping. D. demand curves are downsloping. 56. Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately? A. Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero. B. MU/P is greater at all-you-can-eat restaurants. C. People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility. D. Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food. 57. To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

58. Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 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. 59. The basic difference between the short run and the long run is that: A. all costs are fixed in the short run, but all costs are variable in the long run. B. the law of diminishing returns applies in the long run, but not in the short run. C. at least one resource is fixed in the short run, while all resources are variable in the long run. D. economies of scale may be present in the short run, but not in the long run. Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed.

60. Refer to the above data. Diminishing marginal returns become evident with the addition of the: A. sixth worker. B. fourth worker. C. third worker. D. second worker. 61. Refer to the above data. The marginal product of the sixth worker is: A. 180 units of output. B. 30 units of output. C. 15 units of output. D. negative. Use the following data to answer the question:

62. Refer to the above data. The average product (AP) when two units of labor are hired is: A. 8. B. 9. C. 10. D. 18.

63. Refer to the above data. Diminishing returns begin to occur with the hiring of the _________ unit of labor. A. first B. second C. third D. seventh 64. Refer to the above data. Marginal product becomes negative with the hiring of the __________ unit of labor. A. third B. fourth C. sixth D. seventh Answer the question on the basis of the following cost data:

65. Refer to the above data. Total fixed cost is: A. $6.25. B. $100.00. C. $150.00. D. $50.00. 66. Refer to the above data. The average total cost of five units of output is: A. $69. B. $78. C. $3. D. $10. 67. Refer to the above data. The total cost of four units of output is: A. $260. B. $77.50. C. $310. D. $215. 68. Refer to the above data. If the firm closed down in the short run and produced zero units of output, its total cost would be: A. zero. B. $50. C. $150. D. $100.

69. Refer to the above data. The marginal cost of the fifth unit of output is: A. $3. B. $62. C. $80. D. $78. 70. In which of the following market structures is there clear-cut mutual interdependence with respect to priceoutput policies? A. pure monopoly B. oligopoly C. monopolistic competition D. pure competition 71. An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition.

72. An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition. 73. A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker." 74. For a purely competitive seller, price equals: A. average revenue. B. marginal revenue. C. total revenue divided by output. D. all of these.

75. Refer to the above short-run data. The profit-maximizing output for this firm is: A. above 440 units. B. 440 units. C. 320 units. D. 100 units.

76. In the short run the individual competitive firm's supply curve is that segment of the: A. average variable cost curve lying below the marginal cost curve. B. marginal cost curve lying above the average variable cost curve. C. marginal revenue curve lying below the demand curve. D. marginal cost curve lying between the average total cost and average variable cost curves. 77. Suppose you find that the price of your product is less than minimum AVC. You should: A. minimize your losses by producing where P = MC. B. maximize your profits by producing where P = MC. C. close down because, by producing, your losses will exceed your total fixed costs. D. close down because total revenue exceeds total variable cost.

Answer the question on the basis of the following data confronting a firm:

78. Refer to the above data. This firm is selling its output in a(n): A. monopolistically competitive market. B. monopolistic market. C. purely competitive market. D. oligopolistic market. 79. Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be: A. 2. B. 3. C. 4. D. 5. 80. Refer to the above data. At the profit-maximizing output the firm's total revenue is: A. $48. B. $32. C. $80. D. $64. 81. Refer to the above data. Assuming total fixed costs equal to zero, the firm's: A. economic profit is $12. B. economic profit is $16. C. loss is $14. D. economic profit is $3. 82. A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should: A. shut down in the short run. B. produce because the resulting loss is less than its TFC. C. produce because it will realize an economic profit. D. liquidate its assets and go out of business.

83. Refer to the above diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is: A. P1. B. P2. C. P3. D. P4. 84. Refer to the above diagram for a purely competitive producer. The firm will produce at a loss at all prices: A. above P1. B. above P3. C. above P4. D. between P2 and P3. 85. Refer to the above diagram for a purely competitive producer. If product price is P3: A. the firm will maximize profit at point d. B. the firm will earn an economic profit. C. economic profits will be zero. D. new firms will enter this industry. Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market:

86. Refer to the above data. If the market price for the firm's product is $12, the competitive firm will produce: A. 4 units at a loss of $109. B. 4 units at an economic profit of $31.75. C. 8 units at a loss of $48.80. D. zero units at a loss of $100. 87. Refer to the above data. If the market price for the firm's product is $32, the competitive firm will produce: A. 8 units at an economic profit of $16. B. 6 units at an economic profit of $7.98. C. 10 units at an economic profit of $4. D. 7 units at an economic profit of $41.50. 88. Refer to the above data. If the market price for the firm's product is $28, the competitive firm will: A. produce 4 units at a loss of $17.40. B. produce 7 units at a loss of $14.00. C. shut down in the short run. D. produce 6 units at a loss of $23.80.

89. In a purely competitive industry: A. there will be no economic profits in either the short run or the long run. B. economic profits may persist in the long run if consumer demand is strong and stable. C. there may be economic profits in the short run, but not in the long run. D. there may be economic profits in the long run, but not in the short run. 90. If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to: A. increase, output to increase, price to decrease, and profits to decrease. B. increase, output to increase, price to increase, and profits to decrease. C. decrease, output to decrease, price to increase, and profits to increase. D. increase, output to decrease, price to decrease, and profits to decrease. 91. Which of the following conditions is true for a purely competitive firm in long-run equilibrium? A. P > MC = minimum ATC. B. P > MC > minimum ATC. C. P = MC = minimum ATC. D. P < MC < minimum ATC. 92. Which of the following is correct? A. Both purely competitive and monopolistic firms are "price takers." B. Both purely competitive and monopolistic firms are "price makers." C. A purely competitive firm is a "price taker," while a monopolist is a "price maker." D. A purely competitive firm is a "price maker," while a monopolist is a "price taker." 93. Which of the following is a characteristic of pure monopoly? A. close substitute products B. barriers to entry C. the absence of market power D. "price taking" Answer the question on the basis of the demand schedule shown below:

94. Refer to the above data. The marginal revenue obtained from selling the third unit of output is: A. $6. B. $1. C. $3. D. $5.

95. Which of the following is characteristic of a pure monopolist's demand curve? A. Average revenue is less than price. B. Its elasticity coefficient is 1 at all levels of output. C. Price and marginal revenue are equal at all levels of output. D. It is the same as the market demand curve. 96. Because the monopolist's demand curve is downsloping: A. MR will equal price. B. price must be lowered to sell more output. C. the elasticity coefficient will increase as price is lowered. D. its supply curve will also be downsloping. 97. An unregulated pure monopolist will maximize profits by producing that output at which: A. P = MC. B. P = ATC. C. MR = MC. D. MC = AC. 98. Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is: A. $4 or less. B. $3.90 or less. C. $3.50 or less. D. $3.40 or less. 99. A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing: A. a loss that could be reduced by producing more output. B. a loss that could be reduced by producing less output. C. an economic profit that could be increased by producing more output. D. an economic profit that could be increased by producing less output.

100. Refer to the above diagram. To maximize profits or minimize losses this firm should produce: A. E units and charge price C. B. E units and charge price A. C. M units and charge price N. D. L units and charge price LK.

101. Refer to the above diagram. At the profit-maximizing level of output, total revenue will be: A. NM times 0M. B. 0AJE. C. 0EGC. D. 0EHB. 102. Refer to the above diagram. At the profit-maximizing level of output, total cost will be: A. NM times 0M. B. 0AJE. C. 0CGC. D. 0BHE. 103. Refer to the above diagram. At the profit-maximizing level of output, the firm will realize: A. an economic profit of ABHJ. B. an economic profit of ACGJ. C. a loss of GH per unit. D. a loss of JH per unit. 104. If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and to pure competition? A. MC = P B. MC = ATC C. MR = MC D. P = MR

105. Refer to the above diagram for a pure monopolist. Monopoly price will be: A. e. B. c. C. b. D. a. 106. Refer to the above diagram for a pure monopolist. Monopoly output will be: A. between f and g. B. h. C. g. D. f.

107. Refer to the above diagram. If this industry is comprised of only one seller, the profit-maximizing price and quantity will be: A. P3 and Q3. B. P1 and Q3. C. P2 and Q2. D. indeterminate on the basis of the information given. 108. Which of the following statements is correct? A. The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero. B. In seeking the profit-maximizing output the pure monopolist underallocates resources to its production. C. The pure monopolist maximizes profits by producing that output at which the differential between price and average cost is the greatest. D. Purely monopolistic sellers earn only normal profits in the long run. 109. When economists say that the demand for labor is a derived demand, they mean that it is: A. dependent on government expenditures for public goods and services. B. related to the demand for the product or service labor is producing. C. based on the desire of businesses to exploit labor by paying below equilibrium wage rates. D. based on the assumption that workers are trying to maximize their money incomes. 110. Marginal product is: A. the output of the least skilled worker. B. a worker's output multiplied by the price at which each unit can be sold. C. the amount an additional worker adds to the firm's total output. D. the amount any given worker contributes to the firm's total revenue. 111. Assume labor is the only variable input and that an additional input of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of this additional worker is: A. $6. B. $12. C. $36. D. $72. 112. If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the: A. marginal revenue product of each worker is $25. B. marginal revenue product of the first worker is $20. C. marginal revenue product of the second worker is $20. D. data given do not permit the determination of the marginal revenue product of either worker.

Answer the question on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.

113. Refer to the above data. How many units of output are produced when 2 workers are employed? A. 4 B. 16 C. 24 D. 10 114. Refer to the above data. What is the marginal product of the sixth worker? A. 2 units B. 3 units C. 4 units D. 5 units 115. Refer to the above data. At what price does each shoe shine sell? A. $1 B. $2 C. $3 D. $2.50 116. Refer to the above data. If the wage rate is $11, how many workers will Manfred hire to maximize profits? A. 1 B. 2 C. 3 D. 5 117. Refer to the above data. If the wage rate is $11 and Manfred's only fixed input is capital, the total cost of which is $30, then what will be his economic profit? A. $62 B. $42 C. $28 D. $32 118. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that: A. profits will be increased by hiring additional workers. B. profits will be increased by hiring fewer workers. C. marginal revenue product must exceed average revenue product. D. the restaurant is maximizing profits.

Answer the question on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.

119. Refer to the above data. If the wage rate is $20, how many workers will the firm choose to employ? A. 5 B. 4 C. 3 D. 2 120. Refer to the above data. If the wage rate is $11, how many workers will the firm choose to employ? A. 5 B. 4 C. 3 D. 2 121. If the nominal wages of carpenters rose by 5 percent in 2010 and the price level increased by 3 percent, then the real wages of carpenters: A. decreased by 2 percent. B. increased by 2 percent. C. increased by 3 percent. D. increased by 8 percent. 122. If the nominal wage rises by 4 percent, and the price level rises by 7 percent, the real wage will: A. be unaffected. B. rise by 3 percent. C. fall by 3 percent. D. rise by 11 percent.

123. Refer to the above diagram. Assuming no union or relevant minimum wage, the firm represented will hire: A. Q2 workers and pay a W4 wage rate. B. Q2 workers and pay a W1 wage rate. C. Q3 workers and pay a W2 wage rate. D. Q4 workers and pay a W1 wage rate.

124. A progressive tax is such that: A. tax rates are higher the greater one's income. B. the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. C. entrepreneurial income is exempt from taxation. D. the revenues it yields are spent on transfer payments. The following data represent a personal income tax schedule. Answer the question on the basis of this information.

125. Refer to the above table. If your taxable income is $8,000, your average tax rate is: A. 25 percent and the marginal rate on additional income is also 25 percent. B. 25 percent and the marginal rate on additional income is 40 percent. C. 25 percent and the marginal rate on additional income cannot be determined from the information given. D. 20 percent and the marginal rate on additional income is 30 percent. 126. Which of the following best reflects the ability-to-pay philosophy of taxation? A. a tax on residential property B. a progressive income tax C. an excise tax on gasoline D. an excise tax on coffee 127. The incidence of a tax pertains to: A. the degree to which it alters the distribution of income. B. how easy it is to evade the tax. C. who actually bears the burden of a tax. D. the progressiveness or regressiveness of tax rates.