ECO 561 Final Exam

ECO 561 Final Exam w/ corrected answers

1) Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information you can conclude that

A. the supply of clothing has grown faster than the demand for clothing

B. demand for clothing has grown faster than the supply of clothing

C. the supply of and demand for clothing have grown by the same proportion

D. there is no way to determine what has happened to supply and demand with this information

2) Camille’s Creations and Julia’s Jewels both sell beads in a competitive market.If at the market price of $5, both are running out of beads to sell (they can’t keep up with the quantity demanded at that price), then we would expect both Camille’s and Julia’s to:

A. raise their price and reduce their quantity supplied

B. raise their price and increase their quantity supplied

C. lower their price and reduce their quantity supplied

D. lower their price and increase their quantity supplied

3) In which of the following industries are economies of scale exhausted atrelatively low levels of output?

A. Aircraft production

B. Automobile manufacturing

C. Concrete mixing

D. Newspaper printing

4) The average cost curves (AVC and ATC) should be minimized

A. where MC = ATC and MC = AVC]

B. where FC = ATC and FC = AVC

C. where TC starts to increase at a faster rate

D. where ATC = AVC

5) If the wage rate increases,

A. a purely competitive producer will hire less labor, but an imperfectly competitive producerwill not

B. an imperfectly competitive producer will hire less labor, but a purely competitive producerwill not

C. a purely competitive and an imperfectly competitive producer will both hire less labor]

D. an imperfectly competitive producer may find it profitable to hire either more or less labor

6) The real wage will rise if the nominal wage

A. falls more rapidly than the general price level

B. increases at the same rate as labor productivity

C. increases more rapidly than the general price level

D. falls at the same rate as the general price level

7) Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason they do this is to

A. restrict the supply of construction workers

B. increase the elasticity of demand for construction workers[

C. increase the demand for construction workers

D. increase the price of substitute inputs

8) Paying an above-equilibrium wage rate might reduce unit labor costs by

A. permitting the firm to attract lower-quality labor[

B. increasing the cost to workers of being fired for shirking]

C. increasing voluntary worker turnover D. increasing the supply of labor

9) A good real-world example of monopolistic competition is

A. lawyers

B. gas stations C. Time Warner Cable D. groceries stores

10) An industry comprising a small number of firms, each of which considers thepotential reactions of its rivals in making price-output decisions, is called

A. monopolistic competition

B. oligopoly

C. pure monopoly

D. pure competition

11) Price is constant or given to the individual firm selling in a purelycompetitive market because

A. the firm’s demand curve is downward sloping

B. of product differentiation reinforced by extensive advertising[

C. each seller supplies a negligible fraction of total supply

D. there are no good substitutes for its product

12) The most important pricing strategy for a perfectly competitive firm is

A. minimizing cost

B. maximizing sales

C. product differentiation

D. advertising

13) Which of the following is a nonprice barrier of entry?

A. Huge sunk cost

B. Discounts

C. Product differentiation

D. Advertising

14) A third-degree price discrimination can be applied to which of the following market structures?

A. A monopoly

B. An oligopoly

C. A monopolistic competition

D. A perfect competition

15) Investing in R&D is more likely to occur in markets where

A. firms have monopoly power protected by regulatory barriers

B. markets are closely competitive markets with close to zero economic profits

C. markets are oligopoly markets with strong collusion agreements

D. markets are monopolistic competitive markets

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