Hird.Micro

Microeconomics – Final Examination
Note: The following exam was created for use with Hird, Working with Economics:
A Canadian Framework, Sixth Edition.
Part A Multiple Choice – Each question is worth 1 mark.
1. For most firms, property taxes are:

a. a variable cost
b. a fixed cost
c. a sunk cost
d. a marginal cost
2. Which of the following words is associated with an oligopoly?

a. cartel
b. opportunity cost
c. law of diminishing returns
d. predatory pricing
3. Which of the following statements is true?

a. Oligopolies are characterized by the easy entry of new firms.
b. The marginal cost curve slopes down to the right.
c. As the quantity produced increases, the ATC and the AVC curves get
closer.
d. If the price exceeds the marginal cost at the profit maximizing level of
output, the type of competition is perfect competition.
4. Which of the following will not cause the supply curve for peaches to
shift to the left?
a. an increase in the price of peaches
b. poor weather that destroys part of the peach crop
c. an increase in the cost of pesticides
d. an increase in the wage rate paid to workers who harvest peaches
5. When we say that there has been an increase in the demand for chicken,
we mean that:
a. the demand curve for chicken has shifted to the left
b. the price of chicken has decreased
c. the price of chicken has increased
d. the demand curve chicken has shifted to the right
6. The competitive situation characterized by only one seller is called:

a. an oligopoly
b. many differentiated sellers
c. a monopoly
d. perfect competition
7. If the market for theatre tickets is in equilibrium, and the demand for
theatre tickets increases:
a. the price of theatre tickets will decrease and the quantity demanded will
increase
b. the price of theatre tickets will increase and the quantity demanded will
increase
c. the price of theatre tickets will decrease and the quantity demanded will
decrease
d. the price of theatre tickets will increase and the quantity demanded will
decrease
8. The production function is:

a. the cost to produce a certain amount of output
b. the change in the amount of output when one more worker is hired
c. the increase in variable costs associated with an increase in output
d. the relationship between inputs into the production process and the
quantity of output
9. In the short run:

a. all costs are fixed
b. all costs are variable
c. the marginal cost curve intersects the average fixed cost curve at its
lowest point
d. at least one cost is fixed
10. The increase in total costs associated with producing one more unit of
output is called:
a. sunk costs
b. explicit costs
c. marginal cost
d. implicit costs
11. The addition to the total output obtained from hiring one more worker
is called:
a. marginal revenue
b. marginal product
c. diminishing returns
d. worker productivity
12. The decrease in long-run average costs resulting from the efficiencies
of large-scale production is called:
a. specialization
b. diminishing returns
c. economies of scale
d. minimum efficient scale
13. Fixed costs:
a. occur only in the short run
b. occur only in the long run
c. can never be greater than variable costs
d. are most closely associated with marginal costs
14. If marginal cost is decreasing but is less than average total cost,
average total cost is:
a. increasing
b. decreasing
c. decreasing in the short-run only
d. impossible to tell unless more is known about fixed costs
15. Which of the following terms is most closely associated with

economies of scale:
a. a fixed resource
b. a decrease in marginal product
c. more efficient capital equipment
d. a lack of union work restrictions
16. If all inputs in the production process were doubled and output less
than doubled in amount, it would be an example of:
a. economies of scale
b. diminishing returns
c. specialization
d. diseconomies of scale
17. If a firm in perfect competition wanted to increase profit, it would:

a. do nothing if it was producing where price equals marginal cost
b. lower the price to increase sales and take advantage of an elastic
demand curve
c. increase the price to take advantage of an inelastic demand curve
d. increase production until price exceeded the marginal cost
18. The supply curve for a perfectly competitive firm:

a. cannot be drawn until the reaction of competitors is known
b. is vertical
c. is horizontal
d. is the marginal cost curve above the AVC curve
19. The demand curve facing a firm in perfect competition:

a. represents the industry demand curve
b. cannot be drawn until the reaction of competitors is known
c. perfectly inelastic
d. perfectly elastic
20. Which of the following is not a characteristic of perfect competition?
a. few sellers
b. easy entry of new firms
c. identical products
d. no use of non-price competition
21. Which of the following statements is not correct?

a. a monopoly is guaranteed a profit
b. cartels are associated with oligopolies
c. predatory pricing is illegal in Canada
d. there is easy entry into industries characterized by many differentiated
sellers
22. Which of the following is not a barrier preventing new firms from
entering a monopoly?
a. government legislation
b. economies of scale
c. price discrimination
d. ownership of raw materials
23. The daily newspaper industry in any major Canadian city can best be
characterized as
a. a monopoly
b. perfect competition
c. an oligopoly
d. many differentiated sellers
24. Which of the following industries is the best example of many

differentiated sellers?
a. restaurants
b. telephone companies
c. tobacco companies
d. cable television
25. Which of the following competitive situations is most likely to be

associated with price discrimination?
a. perfect competition
b. monopoly
c. oligopoly
d. many differentiated sellers
Part B Short Answer Questions
Marks
(5) 1. (a) Using a graph in your answer, show the impact on the market for new
houses when construction workers obtain a significant increase in wages.
(Be sure to properly label your graph)
(5) 1.(b) Using a graph in your answer, show the impact on the market for small
cars when there is a large increase in the price of gasoline.
(Be sure to properly label your graph)
2. Ryan Water quit his $30,000 a year job as a bartender at the Sir O’Sis
Tavern to open up his own bartending school. He used $40,000 of his
savings, that was earning 6% interest per year, to start his school. At the
end of the first year of operating the school, tuition received was
$108,000. Expenses for the year were as follows:
Classroom Rent $12,000

Liquor for Classes $ 2,500
Notes and Paper for Students $ 1,600
Staff Salaries $48,000
Bar Equipment Rental $15,000
Other Expenses $ 3,500
(7) (a) Calculate Ryan’s economic profit or loss for the bartending school.
(3) (b) Should Ryan stay in business in the short run? Explain.
(2) 3. (a)
Price
Quantity
A B
Name the two lines in the above graph.
A. _________________________________________________
B. _________________________________________________
(3) 3. (b) Price

B
A
C
Quantity
Name the cost curves in the above graph.
A. ______________________________________________
B. _______________________________________________
C. _______________________________________________
(15) 4. Briefly describe each of the following terms. (Nb. 3 marks each)
a. law of diminishing returns
b. perfect competition
c. marginal revenue product
d. industry concentration
e. predatory pricing
(10) 5. Using a graph in your answer, explain the concept of the kinked demand
curve.
(10) 6. Explain the differences in the two approaches to the regulation of

monopoly pricing. Be sure to discuss the shortcomings of each approach.
(15) 7. Answer each of the following questions. Each answer is worth 3 marks.
a. Why do products that have many substitutes tend to have elastic

demand curves?
b. Why do firms in many differentiated sellers tend to break even in the

long run?
c. Why do labour market barriers result in wage-rate differentials between

occupations?
d. What are the two main ways by which oligopolies come about?
e. Why are workers who experience an inelastic demand curve for their
services more likely to get wage rate increases?

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Microeconomics – Final Examination

Part A Multiple Choice – Each question is worth 1 mark.

1. For most firms, property taxes are:

2. Which of the following words is associated with an oligopoly?

3. Which of the following statements is true?

6. The competitive situation characterized by only one seller is called:

8. The production function is:

9. In the short run:

15. Which of the following terms is most closely associated with

17. If a firm in perfect competition wanted to increase profit, it would:

18. The supply curve for a perfectly competitive firm:

19. The demand curve facing a firm in perfect competition:

21. Which of the following statements is not correct?

24. Which of the following industries is the best example of many

25. Which of the following competitive situations is most likely to be

Classroom Rent $12,000

Name the two lines in the above graph.

(3) 3. (b) Price

Name the cost curves in the above graph.

a. law of diminishing returns

c. marginal revenue product

(10) 6. Explain the differences in the two approaches to the regulation of

a. Why do products that have many substitutes tend to have elastic

b. Why do firms in many differentiated sellers tend to break even in the

c. Why do labour market barriers result in wage-rate differentials between

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