Question 1
A firm bought a pizza over for $13,500 and if it shut down now, could sell the oven for $9,500. Which of the following statements is TRUE?
A. The relevant cost of the oven when considering shutting down is $4,000.
B. The relevant cost of the oven when considering shutting down is $13,500.
C. The cost oven does not matter when deciding whether or not to shut down.
D. The relevant cost of the oven when considering shutting down is $9,500.
Question 2
If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 20 rand/US$, then
A. there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
B. there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop.
C. here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise.
D. there is no arbitrage opportunity.
Question 3
At the current price of a good Al's consumer surplus equals 8 and Ben's consumer surplus equals 15. By using two-part pricing a monopolist could increase his profit by
A. 30.
B. 8.
C. 15.
D. 16.
Question 4
If a manager is unsure what the entire profit function looks like, then she can
A. increase output slightly to see if profits increase.
B. decrease output slightly to see if profits increase.
C. Both A and B.
D. None of the above.
Question 5
Suppose a market were currently at equilibrium. A rightward shift of the demand curve would cause
A. a decrease in price but an increase in quantity.
B. an increase in both price and quantity.
C. an increase in price but a decrease in quantity.
D. a decrease in both price and quantity.
Question 6
Concerning an investment project which of the following is TRUE?
A. A risk-neutral individual is more likely to invest than a risk-loving individual.
B. A risk-neutral individual is more likely to invest than a risk-averse individual.
C. A risk-neutral individual is less likely to invest than a risk-averse individual.
D. Not enough information is given.
Question 7
If marginal revenue equals marginal cost, the firm is maximizing profits as long as
A. marginal cost exceeds marginal revenue for greater levels of output.
B. the resulting profits are positive.
C. the average cost curve lies above the demand curve.
D. All of the above are required.
Question 8
If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then profit maximization is achieved when the monopoly sets price equal to
A. 58.
B. 21.
C. 16.
D. 25.
Question 9
If Stock A sometimes increases and sometimes decreases in value when Stock B increases in value at the same time, they are
A. random bets.
B. positively correlated.
C. negatively correlated.
D. uncorrelated.
Question 10
The government forcing a monopoly telecommunications company to allow other firms to use its cables is an attempt to
A. decrease the monopoly market power by increasing competition.
B. regulate prices.
C. decrease the monopoly market power by eliminating a natural monopoly.
D. None of the above.
Question 11
In the market for used cars, if there is asymmetric information yet all cars sell for the same price
A. there is no efficiency problem and there are no equity implications.
B. there is an efficiency problem and there are equity implications.
C. there is no efficiency problem, but there are equity implications.
D. buyers of lemons win at the expense of buyers of good cars.
Question 12
The difference between producer surplus and profit is always the associated
A. variable costs.
B. opportunity costs.
C. total costs.
D. fixed costs.
Question 13
A change in a relevant factor other than the price of the good itself causes a ________ the demand curve, and a change in a good's own price causes a ________ the demand curve.
A. shift of; movement along
B. movement along; shift of
C. shift of; shift of
D. movement along; movement along
Question 14
A rival good
A. is one that rival firms are trying to obtain.
B. cannot be shared.
C. is one that is used up as it is consumed.
D. is exclusive.
Question 15
In the simplest version of the Cournot model, we assume
A. the firms are in a Nash equilibrium.
B. that the firms have identical costs.
C. the firms set price independently and simultaneously.
D. the firms set price independently and sequentially.
Question 16
One way to avoid the free rider problem is
A. to use social pressure.
B. for the government to provide the good or service.
C. through mandates.
D. All of the above.
Question 17
In a Bertrand model, market power is a function of
A. product differentiation.
B. marginal cost.
C. price elasticity of supply.
D. the number of firms.
Question 18
The marginal rate of transformation of y for x represents
A. the rate at which the consumer must give up x to get one more y.
B. the slope of the budget constraint.
C. - / .
D. All of the above.
Question 19
If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 10 rand/US$, then
A. there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in the U.S. will drop.
B. there is no arbitrage opportunity.
C. there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
D. Unable to determine, since France is in the eurozone and we would need exchange rates in euro terms.
Question 20
If the demand function for orange juice is expressed as Q = 2000 - 500p, where Q is quantity in gallons and p is price per gallon measured in dollars, then the demand for orange juice has a unitary elasticity when price equals
A. $2.
B. $1.
C. $4.
D. $0.
Question 21
When a prisoners' dilemma game is repeated a finite number of times (T)
A. cooperation continues until the T-2 round, where the players will switch to a non-cooperative Nash equilibrium.
B. cooperation unravels during the first round of the game, resulting in the static game Nash equilibrium.
C. firms cooperate and achieve the collusive Nash equilibrium for all rounds.
D. None of the above.
Question 22
If a firm traded on the New York Stock Exchange posts an accounting profit of $10 million, then the firm is making a positive economic profit
A. only if the firm's opportunity cost is less than $10 million.
B. only if the firm's management receives stock compensation.
C. only if the Securities and Exchange Commission (SEc. approves the accounting report.
D. only if the firm's opportunity benefit is more than $10 million.
Question 23
Which of the following is NOT a property of isoquants?
A. The closer they are to the origin, the higher the level of output.
B. They have a downward slope.
C. They are "thin."
D. They do not cross.
Question 24
Suppose that for each firm in the competitive market for potatoes, long-run average cost is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10,000/p. If the long-run supply curve is horizontal, then how much will consumers spend, in total, on potatoes?
A. $10,000
B. $0
C. $50,000
D. $500
Question 25
A market's structure is described by
A. the ability of firms to differentiate their product.
B. the number of firms in the market.
C. the ease with which firms can enter and exit the market.
D. All of the above.
Question 26
The imposition of a quota on an imported good
A. shifts the demand curve down for the good.
B. shifts the supply curve up for the good.
C. Both A and B.
D. Not enough information to determine.
Question 27
Firms in an oligopolistic market ________ because they are ________.
A. attempt to predict the behavior of other firms; strategically interdependent
B. advertise; unable to differentiate their products.
C. form cartels; unable to predict the behavior of other firms
D. ignore other firms' actions; strategically independent
Question 28
The t-statistic measures
A. the probability that the estimated coefficient is within the range of the standard error.
B. whether the estimated coefficient is large relative to the standard error.
C. whether the estimated coefficient is independent of the standard error.
D. the efficiency of the t-test relative to the standard z-test.
Question 29
In regression analysis, the dependent variable
A. is represented by the inverse demand function.
B. is always quantity demanded.
C. is the variable whose variation is to be explained.
D. is one of the factors that explains what is happening with demand.
Question 30
An example of a market where a Bertrand model would be not be plausible is the market for
A. motorcycles.
B. toothpicks.
C. pizza.
D. beer.
Question 31
If market price is greater than the minimum of AVC but below the minimum of AC, then
A. the firm will shut down.
B. revenue covers variable costs and some of the fixed costs, although profit is negative.
C. economic profit is zero.
D. revenue covers variable costs and some of the fixed costs and profit is positive.
Question 32
The percentage change in the quantity supplied in response to a percentage change in the price is known as the
A. slope of the supply curve.
B. price elasticity of supply.
C. excess supply.
D. All of the above.
Question 33
In the presence of asymmetric information, a fixed-fee contract
A. can lead to opportunistic behavior on the part of the agent.
B. is impossible to write.
C. will result in the principal earning all of the profit.
D. achieves production efficiency.
Question 34
If average cost is positive
A. marginal cost exceeds average cost.
B. marginal cost is less average cost.
C. marginal cost equals average cost.
D. Not enough information is given.
Question 35
A primary difference between rebates and coupons?
A. Coupons are legal and rebates are illegal.
B. Coupons allow individuals to sort themselves into the high-elasticity group after the sale.
C. Neither coupons or rebates are redeemed in high numbers.
D. Rebates allow individuals to sort themselves into the high-elasticity group after the sale.
Question 36
Which of the following will cause the average fixed cost curve of making cigarettes to shift?
A. a $5 million penalty charged to each cigarette maker
B. a $3 per hour wage increase
C. a $1 per pack tax on cigarettes
D. An increase in the demand for cigarettes.
Question 37
Which is a behavioral economics justification for limiting advertising directed towards children?
A. Children have no money.
B. Children have no memory.
C. Children pester their parents too much.
D. Children do not always have transitive preferences.
Question 38
Suppose the production of DVD players can be represented by the following production function: q = . Which of the following statements is TRUE?
A. The production function has constant returns to scale.
B. The production function has decreasing returns to scale.
C. Returns to scale vary with the level of output.
D. The production function has increasing returns to scale.
Question 39
Block pricing
A. can be either use increasing or decreasing prices for blocks purchased.
B. is a form of nonlinear price discrimination.
C. is pricing where one price is charged for the first block of units purchased, and different prices for subsequent blocks.
D. All of the above.
Question 40
A market failure occurs
A. when price equals marginal cost.
B. when deadweight loss is minimized.
C. when a firm shuts down.
D. when there is a non-optimal allocation that leads to an inefficient market.
Question 41
A firm becomes a multinational enterprise when
A. it lists its stock on a stock exchange other than the one in its home country.
B. it undertakes foreign portfolio investment.
C. it undertakes foreign direct investment.
D. Any of the above.
Question 42
If capital is fixed, but a firm varies labor
A. the firm's output will be dependent on the marginal rate of technical substitution.
B. the firm stays on the same isoquant.
C. the firm might move to a new isoquant, depending on how much labor is added.
D. the firm moves to a new isoquant.
Question 43
Einstein was quoted saying "Everything should be made as simple as possible, but not simpler." When it comes to economic models this means that
A. models shouldn't be too simple.
B. models should have a level of abstraction appropriate to the topic investigated.
C. models shouldn't be too complex.
D. All of the above.
Question 44
An interior solution to a consumer's utility maximization problem implies
A. consuming negative amounts of all goods.
B. consuming a positive amount of all goods.
C. consuming less than optimal amounts of all goods.
D. consuming more than an optimal amount of at least one good.
Question 45
If a firm is operating at an output level where losses are minimized the firm
A. is better of exiting the industry.
B. will shut down
C. is maximizing profits.
D. has no incentive to stay in the industry.
Question 46
A firm's managers are constrained by
A. government.
B. workers.
C. consumers.
D. All of the above.
Question 47
A microeconomic model CANNOT be used to
A. predict the impact of an increase in the minimum wage on unemployment.
B. evaluate the impact of a price change on a firm's revenue.
C. evaluate the fairness of a proposal to nationalize health insurance.
D. evaluate the effect of an increase in stadium size on the price of a sport team's tickets.
Question 48
If a person is risk neutral, then she
A. is indifferent about taking a fair bet.
B. has a horizontal utility function.
C. has zero marginal utility of wealth.
D. will pay a premium to avoid a fair bet.
Question 49
What is one way firms can enforce tie-in sales?
A. contractual arrangements
B. one of the goods has no close substitutes
C. information asymmetry
D. Any if the above.
Question 50
When there is a binding price floor
A. all potential producers are happy because they can sell the good at a higher price.
B. the government is helping consumers at the expense of producers.
C. there is no equilibrium.
D. the quantity demanded does not equal the quantity supplied.