ECON 306 Exam/ ECON 306 Exam (100% Solution) - 94455

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Question 1. Which of the following constitutes an implicit cost to the Johnston Manufacturing Company? a. Payments of wages to its office workers. b. Rent paid for the use of equipment owned by the Schultz Machinery Company. c. Use of savings to pay operating expenses instead of generating interest income. d. Economic profits resulting from current production. 2.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. 3. Which of the following is a short-run adjustment? a. A local bakery hires two additional bakers. b. Six new firms enter the plastics industry. c. The number of farms in the United States declines by 5 percent. d. BMW constructs a new assembly plant in South Carolina. 4. The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that: a. marginal product of the third worker is 9. b. the third worker has to work with poorer-quality tools and raw materials. c. the firm will not want to hire more than three workers. d. the first worker puts forth more effort than the second and third workers. 5. In the diagram, the range of diminishing marginal returns is: a. 0Q3. b. 0Q2. c. Q1Q2. D . Q1Q3. 6. If you operated a small bakery, which of the following would be a variable cost in the short run? a. Baking ovens. b. Interest on business loans. c. Annual lease payment for use of the building. d. Baking supplies (flour, salt, etc.). 7. Economists would describe the U.S. automobile industry as: a. purely competitive. b. an oligopoly. c. monopolistically competitive. d. a pure monopoly. 8. In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the information. For a purely competitive firm: a. marginal revenue will graph as an upsloping line. b. the demand curve will lie above the marginal revenue curve. c. the marginal revenue curve will lie above the demand curve. d. the demand and marginal revenue curves will coincide. 9. Refer to the short-run data. The profit-maximizing output for this firm is: a. above 440 units. b. 440 units. c. 320 units. d. 100 units. 10. Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run? a. Price must be at least equal to average total cost. b. Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run. c. Price may be equal to, greater than, or less than average total cost. d. Price must be equal to or greater than minimum average variable cost for the firm to continue producing. 11. On a per unit basis, economic profit can be determined as the difference between: a. marginal revenue and product price. b. product price and average total cost. c. marginal revenue and marginal cost. d. average fixed cost and product price. 12. Refer to the diagram. This firm will earn only a normal profit if product price is: a.P1. b.P2. c.P3. d. P4. 13. 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. 14. We would expect an industry to expand if firms in that industry are: a. earning normal profits. b. earning economic profits. c. breaking even. d. earning accounting profits. 15. A purely competitive firm: a. must earn a normal profit in the short run. b. cannot earn economic profit in the long run. c. may realize either economic profit or losses in the long run. d. cannot earn economic profit in the short run. 16. A purely competitive firm is precluded from making economic profits in the long run because: a. it is a "price taker." b. its demand curve is perfectly elastic. c. of unimpeded entry to the industry. d. it produces a differentiated product. 17. Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is: a. a constant-cost industry. b. a decreasing-cost industry. c. an increasing-cost industry. d. encountering X-inefficiency. 18. Refer to the diagram. Line (1) reflects a situation where resource prices: a. decline as industry output expands. b. increase as industry output expands. c. remain constant as industry output expands. d. are unaffected by the level of output in the industry. 19. Pure monopolists may obtain economic profits in the long run because: a. of advertising. b. marginal revenue is constant as sales increase. c. of barriers to entry. d. of rising average fixed costs. 20. Refer to the diagram. If price is reduced fromP1toP2, total revenue will: a. increase by A - C. b. increase by C - A. c. decrease by A - C. d. decrease by C - A. 21. With respect to the pure monopolist's demand curve, it can be said that: a. the stronger the barriers to entry, the more elastic is the monopolist's demand curve. b. price exceeds marginal revenue at all outputs greater than 1. c. demand is perfectly inelastic. d. marginal revenue equals price at all outputs. 22. A nondiscriminating profit-maximizing monopolist: a. will never produce in the output range where marginal revenue is positive. b. will never produce in the output range where demand is inelastic. c. will never produce in the output range where demand is elastic. d. may produce where demand is either elastic or inelastic, depending on the level of production costs. 23. A pure monopolist is selling six units at a price of $12. If the marginal revenue of the seventh unit is $5, then the: a. price of the seventh unit is $10. b. price of the seventh unit is $11. c. price of the seventh unit is greater than $12. d. firm's demand curve is perfectly elastic. 24. The MR = MC rule: a. applies only to pure competition. b. applies only to pure monopoly. c. does not apply to pure monopoly because price exceeds marginal revenue. d. applies both to pure monopoly and pure competition. 25. Monopolistic competition resembles pure competition because: a. both industries emphasize nonprice competition. b. in both instances firms will operate at the minimum point on their long-run average total cost curves. c. both industries entail the production of differentiated products. d. barriers to entry are either weak or nonexistent. 26. The larger the number of firms and the smaller the degree of product differentiation the: a. greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm. b. larger will be the monopolistically competitive firm's fixed costs. c. less elastic is the monopolistically competitive firm's demand curve. d. more elastic is the monopolistically competitive firm's demand curve. 27. Which of the following is correct for a monopolistically competitive firm in long-run equilibrium? a. MC = ATC. b. MC exceeds MR. c. P exceeds minimum ATC. d. P = MC. 28. For a monopolistically competitive firm in long-run equilibrium: a. price will equal marginal cost. b. price will equal average total cost. c. marginal revenue will exceed marginal cost. d. economic profits will be some positive amount. 29. Product variety is likely to be greater in: a. monopolistic competition than in pure competition. b. pure competition than in monopolistic competition. c. homogeneous oligopoly than in monopolistic competition. d. homogeneous oligopoly than in differentiated oligopoly. 30. The copper, aluminum, cement, and industrial alcohol industries are examples of: a. interproduct competition. b. homogeneous oligopoly. c. monopolistic competition. d. differentiated oligopoly. 31. As a general rule, oligopoly exists when the four-firm concentration ratio: a. exceeds the Herfindahl index. b. is less than the Herfindahl index. c. is 40 percent or more. d. is 15 percent or more. 32. Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is: a. 2,000. b. 1,600. c. 2,200. d. 80. 33. Which of the following statements best illustrates the concept of derived demand? a. As income goes up, the demand for farm products will increase by a smaller relative amount. b. A decline in the price of margarine will reduce the demand for butter. c. A decline in the demand for shoes will cause the demand for leather to decline. d. When the price of gasoline goes up, the demand for motor oil will decline. 34. A firm will find it profitable to hire workers up to the point at which their: a. marginal resource cost equals their wage rate. b. wage rate equals product price. c. MP is equal to their MRP. d. marginal resource cost is equal to their MRP. 35. Other things equal, the resource demand curve of an imperfectly competitive seller will: a. lie below its marginal revenue product curve. b. be subject to increasing marginal productivity. c. be less elastic than that of a purely competitive seller. d. be more elastic than that of a purely competitive seller. 36. Refer to the graph. A move from b to a along labor demand curveD1would result from: a. a decrease in the price of a substitute resource, assuming that the substitution effect exceeds the output effect. b. an increase in the wage rate. c. a decrease in the wage rate. d. an increase in the demand for the product that this labor is helping to produce. 37. If resources A and B are complementary and employed in fixed proportions: a. a change in the price of A will have no effect on the quantity of B employed. b. an increase in the price of A may either increase or decrease the demand for B. c. an increase in the price of A will increase the demand for B. d. an increase in the price of A will decrease the demand for B. 38. Refer to the given data. For the $16 to $14 range of wage rates, labor demand is: a. perfectly elastic. b. elastic. c. perfectly inelastic. d. inelastic. 39. A firm is hiring resources X, Y, and Z in the profit-maximizing amounts when: a. MRPx/Px equals MRPy/Py equals MRPz/Pz equals 1. b. the sum of the MRPs of the three resources is at a minimum. c. the marginal revenue productivity of all three resources is the same. d. the marginal revenue product of the last dollar spent on each of the three resources is the same. 40. Answer the question on the basis of the following information: Suppose a firm hires both labor (L) and capital (C) under purely competitive conditions. The price of labor is PL and that of capital is PC. The marginal product of labor is MPL and that of capital is MPC. The firm sells its product competitively at a price of PX. Refer to the given information. If MPC/PC> MPL/PL, the firm: a. may be maximizing profits, but it is not minimizing costs. b. may be minimizing costs, but it is not maximizing profits. c. is neither minimizing costs nor maximizing profits. d. is minimizing costs and maximizing profits.
Solution Description

Question

1. Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

a. Payments of wages to its office workers.

b. Rent paid for the use of equipment owned by the Schultz Machinery Company.

c. Use of savings to pay operating expenses instead of generating interest income.

d. Economic profits resulting from current production.

2.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.

3. Which of the following is a short-run adjustment?

a. A local bakery hires two additional bakers.

b. Six new firms enter the plastics industry.

c. The number of farms in the United States declines by 5 percent.

d. BMW constructs a new assembly plant in South Carolina.

4. The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:

a. marginal product of the third worker is 9.

b. the third worker has to work with poorer-quality tools and raw materials.

c. the firm will not want to hire more than three workers.

d. the first worker puts forth more effort than the second and third workers.

5. In the diagram, the range of diminishing marginal returns is:

a. 0Q3.

b. 0Q2.

c. Q1Q2.

D . Q1Q3.

6. If you operated a small bakery, which of the following would be a variable cost in the short run?

a. Baking ovens.

b. Interest on business loans.

c. Annual lease payment for use of the building.

d. Baking supplies (flour, salt, etc.).

7. Economists would describe the U.S. automobile industry as:

a. purely competitive.

b. an oligopoly.

c. monopolistically competitive.

d. a pure monopoly.

8. In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.
Refer to the information. For a purely competitive firm:

a. marginal revenue will graph as an upsloping line.

b. the demand curve will lie above the marginal

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