Practice Final Exam
Practice Final Exam
Name:
1. The market structure where there are so few sellers that each one needs to watch what the others
are doing is referred to as ...
a) perfect competition.
b) pure monopoly.
c) monopsony.
d) oligopoly.
5. Suppose that the graph above represents the market situation for a monopolist. What will be the
equilibrium price and quantity?
a) Oligopoly
b) Pure monopoly
c) Natural monopoly
d) Perfect competition
A B
low profit loss
A
low profit high profit
9. Suppose the table above represents the payoff matrix for two firms in duopoly, who are
“noncooperative.” Which one of the following statements is true?
11. If two noncooperative firms face a “prisoner's dilemma”-type duopoly situation in regard to setting
their prices high or low, which of the following is true?
a) The companies will end up colluding, pricing high to keep profits up.
b) The companies will end up at a situation that is worse for them, than what they could
reach if they were able to communicate and cooperate.
c) One company will gain large profits while the other suffers from low profits.
d) Both companies will end up with high profits.
e) None of the above.
12. A price war is most likely to occur in which of the following market structures?
a) Perfect competition
b) Oligopoly
c) Pure monopoly
d) Natural monopoly
a) Point A
b) Point B
c) Point C
d) Point D
e) Point E
15. In the graph above, the firm loses the most money at what quantity of production?
a) Point A
b) Point B
c) Point C
d) Point D
e) Point E
16. In the graph above, the firm makes zero profits at which two points?
a) Points A and B
b) Points B and C
c) Points C and E
d) Points A and E
e) Points B and E
17. When a firm sets marginal cost equal to marginal revenue, it ...
a) maximizes net social benefits.
b) maximizes externalities.
c) minimizes costs.
d) maximizes economic profits.
e) minimizes net social benefits.
18. A firm should continue to operate in the short-run as long as its revenues cover at least its …
a) total costs.
b) marginal costs
c) fixed costs
d) variable costs
e) transaction costs.
Use the following graph to answer Questions 19-22. The graph illustrates the cost structure of an
idealized perfectly competitive seed-producing firm.
2
1.8
1.6
Marginal
Cost and Price ($)
1.4
Cost
1.20
1.2
0.2
0
0 20 40 60 80 100 120
19. If the market-determined price of seed packets is currently $1.20, which of the following is true?
a) The firm will be considered “highly competitive” by economists, since it is able to command
a good price for its output.
b) The market for seed packets is in long-run competitive equilibrium.
c) We would expect new firms to enter this market, in order to take advantage of the
economic profits.
d) We would expect prices in this market to rise in the future, as the exit of firms decreases
market supply.
e) None of the above.
20. If the market-determined price of seed packets is currently $0.60, which of the following is true?
21. When the market is in long run competitive equilibrium, this firm will produce …
22. When the market is in long run competitive equilibrium, the price of seed packets will be …
a) $0.60
b) Anywhere between $0.60 and $0.90
c) $0.90
d) Anywhere between $0.90 and $1.20
e) $1.20
a) monopolist.
b) monopsonist.
c) price taker.
d) price maker.
e) None of the above
24. The difference between economic and accounting costs is the inclusion of …
a) private costs.
b) external costs.
c) labor costs.
d) opportunity costs.
e) depreciation costs.
25. Economics defines the “long run” as a time period where ...
a) fixed costs must be paid.
b) all but one input are variable.
c) all inputs are fixed.
d) output is variable.
e) all inputs are variable.
26. The relationship between a firm’s level of maximum output and level of inputs is given by ...
27. Which one of the graphs below could represent a total product curve with constant returns to scale?
a) Graph a
b) Graph b
c) Graph c
d) Graph d
e) Graph e
Use the following table to answer Questions 28 – 29. The table represents the MPG
corporation's costs of making quarts of gasoline additive. Note that MPG has total fixed
costs of $7. Assume that the company can only produce whole numbers of output.
7 ---
0
16 9
1
24
2 (B)
7
3 (A)
39 8
4
49 10
5
61 12
6
75 14
7
28. In the above table, the number that should replace (A) is
a) 26
b) 27
c) 29
d) 31
e) 34
29. In the above table, the number that should replace (B) is
a) 2
b) 8
c) 8.5
d) 12
e) 24
30. Economics has traditionally assumed that a consumer’s problem is to maximize his or
her …
a) income.
b) profits.
c) consumption.
d) utility.
e) aspirations.
For Questions 31 and 32, refer to the graph below.
8
Quantity of Movie Tickets
0 1 2
Quantity of Books
31. Suppose the solid line in the graph above illustrates Michaela’s budget line. We can conclude
that …
32. If Michael’s budget line changes from the dashed line to the solid line in the above graph, this
could be caused by …
a) the more money a consumer spends, the less is available to purchase other goods.
b) money should transferred from wealthy people to poor people.
c) utility cannot be compared across different people.
d) additional units of consumption produce less additional utility than previous units.
e) utility always increases through additional consumption.
34. The term “comparative advantage” means that ...
a) one alternative in a comparison has a clear advantage over the other alternative.
b) trading benefits one party more than another.
c) one economic actor can produce something with a lower opportunity cost.
d) trading reduces society’s production possibilities frontier.
e) cost-cutting measures should be pursued as long as the marginal benefits exceed the
marginal costs.
a) you should specialize in producing goods for which your opportunity costs are relatively low.
b) you should specialize only if you can produce something at a lower cost than other
economic actors.
c) you should compare prices before you buy a good or service.
d) trading is generally prohibited by high transactions costs.
e) you should specialize only to the point where the marginal benefits equal the marginal
costs.
36. Every evening, Carol and John have to wash the dishes and put two children to bed. They
have found that the quickest way to complete these tasks is to have Carol wash the dishes and
John put the children to bed. Which of the following statements is false?
a) marginal costs.
b) total costs.
c) marginal benefits.
d) social welfare.
e) profits.
39. Refer to the figure above that shows the production-possibilities frontier of
countries X and Y. The points on each axis represent the maximum quantities that
each country could produce if they specialized entirely in one of the goods. Which
country has the absolute advantage at producing rice?
a) Country X
b) Country Y
c) Both X and Y
d) Neither X nor Y
e) There is not enough information to answer the question.
40. If the demand for coffee beans is inelastic, then a rise in the price of those beans will
cause the coffee farmers’ total revenues to …
a) rise.
b) fall.
c) stay the same.
d) fluctuate wildly, driving farmers into bankruptcy.
e) none of these.
41. Suppose we know that the price elasticity of demand for organic carrots is 1.5. If a grocer
decreases the price of organic carrots by 12%, what would we expect to happen to the quantity of
organic carrots purchased?
a) Decrease by 18%
b) Decrease by 6%
c) Increase by 6%
d) Increase by 8%
e) Increase by 18%
42. If apples are a normal good, then...
a. b. c.
New
price price price
Supply
Supply Supply Supply
New Supply
Demand
Demand Demand
New Demand New Demand
quantity quantity quantity
price d. price e.
New Supply
Supply Supply
New Supply
quantity quantity
43. Which graph illustrates a case in with the equilibrium price and quantity both clearly fall?
a) a
b) b
c) c
d) d
e) e
44. Which graph illustrates a pattern of shifts where the equilibrium price clearly rises but the
change in equilibrium quantity might not be predictable?
a) a
b) b
c) c
d) d
e) e
45. Rapid forest growth makes paper less expensive AND electronic books become more popular
with readers. Which graph describes the effect on the market for hardcopy books?
a) a
b) b
c) c
d) d
e) e
46. Because their debts are rising severely, many more consumers decide that their old cell phones
are good enough to serve their needs. Which graph describes the effect on the market for new cell
phones?
a) a
b) b
c) c
d) d
e) e
47. Suppose there are technological advances in cattle ranching AND growing fears of ringworm and
other parasites makes walking barefoot less popular. Which graph describes the effect on the
market for leather shoes?
a) a
b) b
c) c
d) d
e) e
48. Suppose there is a bad cotton harvest AND global warming makes the wearing of cotton clothing
more popular. Which graph describes the effect on the market for cotton clothing?
a) a
b) b
c) c
d) d
e) e
49. Potential buyers AND potential sellers of corporate stocks begin to expect that stock prices will
rise in the future. Which graph describes the effect on the market for corporate stocks?
a) a
b) b
c) c
d) d
e) e
50. Due to a bad harvest, wheat supplies fall, causing the supplies of flour used in making bread to
fall. Which graph describes the effect on the market for bread?
a) a
b) b
c) c
d) d
e) e
Marginal Profit
Selling Total Cost
Price Total Marginal Cost
Quantity of Revenue Revenue ($)
Scooters ($) ($) ($) ($) ($)
0 1000 --
1 1700 1600
2 1400 2000
3 1100 2500
4 800 3100
0 20
1 20 15
2 20 25
3 20 37
4 20 52
C) If the market price is $2.25 per loaf, is there a surplus or shortage and how much?