SOA Microeconomics c2
Terms
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If a retail firm plans to increase the price of a product it sells, the firm must believe that
(A) the good is an inferior good
(B) the price of complements will also increase
(C) the price of substitutes will decrease
(D) demand - x
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If it were possible to increase the output of both military goods and consumption goods, which of the following statements about the economy would be true?
(A) The economy is inefficient and inside the production possibilities curve.
(B) The - x
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Which of the following would necessarily cause a decrease in the price of a product?
(A) An increase in the number of buyers and a decrease in the price of an input
(B) An increase in the number of buyers and a decrease in the number of firms - x
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Agricultural price supports will most likely result in
(A) shortages of products if the price supports are above the equilibrium price
(B) shortages of products if the price supports are at the equilibrium price
(C) surpluses of product - x
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The market equilibrium price of home heating oil is $1.50 per gallon. If a price ceiling of $1.00 per gallon is imposed, which of the following will occur in the market for home heating oil?
I. Quantity supplied will increase.
II. Quantity de - x
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Assume that a consumer finds that her total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this consumer over the price range?
(A) Compact discs are inferior goods.
(B - x
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An improvement in production technology for a certain good leads to
(A) an increase in demand for the good
(B) an increase in the supply of the good
(C) an increase in the price of the good
(D) a shortage of the good
(E) a s - x
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If the demand for a product is price elastic, which of the following is true?
(A) An increase in the product price will have no effect on the firm’s total revenue.
(B) An increase in the product price will increase the firm’s total revenue - x
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If an increase in the price of good X causes a decrease in the demand for good Y, good Y is
(A) an inferior good
(B) a luxury good
(C) a necessary good
(D) a substitute for good X
(E) a complement to good X - x
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Questions 15–17 are based on the table below, which shows a firm’s total cost for different levels of output. Output Total Cost
0 $24
1 33
2 41
3 48
4 54
5 61
6 69
Which of the following is the firm’s - x
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Questions 15–17 are based on the table below, which shows a firm’s total cost for different levels of output.
Output Total Cost
0 $24
1 33
2 41
3 48
4 54
5 61
6 69
Which of the following is - x
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Marginal revenue is the change in revenue that results from a one-unit increase in the
(A) variable input
(B) variable input price
(C) output level
(D) output price
(E) fixed cost - x
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In the short run, if the product price of a perfectly competitive firm is less than the minimum average variable cost, the firm will
(A) raise its price
(B) increase its output
(C) decrease its output slightly but increase its pro - x
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Suppose that the license paid by each business to operate in a city increases from $400 per year to $500 per year. What effect will this increase have on a firm’s short-run costs?
Marginal Average Average
Cost Total Cost Variable Cost
- x
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Which of the following statements is true of perfectly competitive firms in long-run equilibrium?
(A) Firm revenues will decrease if production is increased.
(B) Total firm revenues are at a maximum.
(C) Average fixed cost equals margin - x
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If an industry has been dumping its toxic waste free of charge into a river, government action to ensure a more efficient use of resources would have which of the following effects on the industry’s output and product price?
Output Price
(A - x
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Assume that a perfectly competitive industry is in long-run equilibrium. A permanent increase in demand will eventually result in
(A) a decrease in demand because the price will increase and people will buy less of the output
(B) a decrease i - x
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Economists are critical of monopolies principally because monopolies
(A) gain too much political influence
(B) are able to avoid paying their fair share of taxes
(C) are unfair to low-income consumers
(D) lead to an inefficient us - x
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Which of the following statements must be true in a perfectly competitive market?
(A) A firm’s marginal revenue equals price.
(B) A firm’s average total cost is above price in the long run.
(C) A firm’s average fixed cost rises in - x
- A perfectly competitive firm produces in an industry whose product sells at a market price of $100. At the firm’s current rate of production, marginal cost is increasing and is equal to $110. To maximize its profi ts, the firm should change its output
- x
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The typical firm in a monopolistically competitive industry earns zero profit in long-run equilibrium because
(A) advertising costs make monopolistic competition a high-cost market structure rather than a low-cost market structure
(B) there a - x
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In the long run, compared with a perfectly competitive firm, a monopolistically competitive firm with the same costs will have
(A) a higher price and higher output
(B) a higher price and lower output
(C) a lower price and higher output - x
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Which of the following describes what will happen to market price and quantity if firms in a perfectly competitive market form a cartel?
Price Quantity
(A) Decrease Decrease
(B) Decrease Increase
(C) Increase Increase
(D) In - x
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The diagram above depicts cost and revenue curves for a firm. What are the firm’s profit-maximizing output and price?
Output Price
(A) 0S 0D
(B) 0R 0E
(C) 0Q 0F
(D) 0Q 0B - x
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Imperfectly competitive firms may be allocatively inefficient because they produce at a level of output such that
(A) average cost is at a minimum
(B) marginal revenue is greater than marginal cost
(C) price equals marginal revenue
- x
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In a market economy, public goods are unlikely to be provided in sufficient quantity by the private sector because
(A) private firms are less efficient at producing public goods than is the government
(B) the use of public goods cannot be wit - x
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Assume that both input and product markets are competitive. If capital is fixed and the product
price increases, in the short run firms will increase production by increasing
(A) capital until marginal revenue equals the product price
( - x
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In which of the following ways does the United States government currently intervene in the working of the market economy?
I. It produces certain goods and services.
II. It regulates the private sector in an effort to achieve a more efficient - x
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If hiring an additional worker would increase a firm’s total cost by less than it would increase its total revenue, the firm should
(A) not hire that worker
(B) hire that worker
(C) hire that worker only if another worker leaves or is - x
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If a firm wants to produce a given amount of output at the lowest possible cost, it should use resources in such a manner that
(A) it uses relatively more of the less expensive resource
(B) it uses relatively more of the resource with the hig - x
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If the firms in an industry pollute the environment and are not charged for the pollution, which of the following is true from the standpoint of the efficient use of resources?
(A) Too much of the industry’s product is produced, and the price of - x
- Using equal amounts of resources, Country A can produce either 30 tons of mangoes or 10 tons of bananas, and Country B can produce either 10 tons of mangoes or 6 tons of bananas. Which of the following relationships is consistent with the information abo
- x
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The graph above shows the market for chocolates. Suppose that the government imposes a price floor equal to 0H. After the implementation of the price floor, consumer surplus in this market will be equal to
(A) ABH
(B) ACI
(C) AE0
- x
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A firm in monopolistic competition CANNOT do which of the following?
(A) Earn short-run profits.
(B) Advertise its product.
(C) Prevent new firms from entering the market.
(D) Compete by its choice of location.
(E) Set the p - x
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Which of the following is a necessary condition for a firm to engage in price discrimination?
(A) The firm faces a highly elastic demand.
(B) The firm is able to set its own price.
(C) The firm is maximizing its revenue.
(D) Buyer - x
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Which of the following is true if total utility is maximized?
(A) Marginal utility is equal to zero.
(B) Marginal utility is positive.
(C) Marginal utility is negative.
(D) Average utility is maximized.
(E) Average utility i - x
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If the cross-price elasticity of demand between good A and good B is negative, then good A and good B are
(A) substitutes
(B) complements
(C) unrelated
(D) in high demand
(E) in low demand - x
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Assume that a firm in a certain industry hires its workers in a perfectly competitive labor market. As the firm hires additional workers, the marginal factor cost is
(A) decreasing steadily
(B) increasing steadily
(C) constant
(D) - x
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A profit-maximizing monopolist will hire an input up to the point at which
(A) marginal factor cost equals marginal
revenue product
(B) marginal factor cost equals marginal revenue
(C) average factor cost equals average revenue pr - x
- The pay-off matrix above gives the profits associated with the strategic choices of two oligopolistic firms. The first entry in each cell is the profit to Firm A and the second to Firm B. Suppose that Firm A and Firm B agree to restrict output, but have
- x
- Suppose that the natural monopolist whose cost and revenue curves are depicted above is subject to government regulation. If the government’s objective is to make this monopoly produce the socially optimal level of output, it should set price equal to
- x
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A production possibilities curve can be used to show which of the following?
(A) Absence of trade-offs in the production of goods
(B) The limits on production due to scarcity of resources
(C) The amount of investment spending necessary - x
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The total cost of producing 200 mangoes is $2,400, and the total variable cost is $1,400. The average fixed cost of producing 200 mangoes is
(A) $1,200
(B) $1,000
(C) $12
(D) $7
(E) $5 - x
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Which of the following will cause the supply of chocolate to increase?
(A) An increase in the price of cocoa butter, a product that is jointly produced with chocolate
(B) An increase in the price of chocolate
(C) An increase in the pric - x
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In long-run equilibrium, the price charged by a monopolistically competitive fi rm is
(A) greater than its average total cost but equal to its marginal cost
(B) less than its average total cost but equal to its marginal cost
(C) equal t - x
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Economists call a firm’s demand for labor a derived demand because
(A) the number of workers hired depends mainly on the demand for the product the workers produce
(B) workers must be at least sixteen years old before they are considered pa - x
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The imposition of an excise tax by the government caused the shift of supply curve shown in the diagram above. Which area on the diagram represents the deadweight loss caused by the tax?
(A) UWX
(B) VWX
(C) RSXW
(D) STUV
(E) - x
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Which of the following causes an increase in the demand for labor?
(A) An increase in the wage rate
(B) An increase in the price of the good that labor is producing
(C) A decrease in the marginal product of labor
(D) A decrease in - x
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According to the law of demand, which of the following increases as the price of a good decreases?
(A) The quantity demanded of the good
(B) The demand for the good
(C) The quantity demanded of a substitute good
(D) The demand for - x
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Which of the following is true of a pure public good?
(A) The government provides it at a zero cost.
(B) Nonpaying users can be excluded from consuming it.
(C) People willingly reveal their true preference for it.
(D) It is diffic - x
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Average total cost is equal to the sum of
(A) total fixed cost and total variable cost
(B) marginal cost and average fi xed cost
(C) average fixed cost and average variable cost
(D) marginal cost and average variable cost
(E - x
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Compared to a perfectly competitive industry, a profit-maximizing monopoly with identical costs of production will produce
(A) a lower quantity of output and charge a higher price
(B) a higher quantity of output and charge a lower price
- x
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A production possibilities curve is typically bowed outward because of the
(A) law of demand
(B) law of increasing opportunity costs
(C) substitution effect
(D) income effect
(E) principle of comparative advantage - x
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A firm is currently producing a level of output at which marginal cost is increasing and greater than average variable cost and marginal revenue is greater than marginal cost. To maximize profits, this firm should
(A) decrease output
(B) incr - x