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ECO 365 Final Exam
1). The DeBeers company is a profit-maximizing monopolist that exercises
monopoly power in the distribution of diamonds. If the company earns positive
economic profits this year, the price of diamonds will:
Exceed the marginal cost of diamonds but equal to the average total cost of
diamonds.
Exceed both the marginal cost and the average total cost of diamonds.
2). Using 100 workers and 10 machines, a firm can produce 10,000 units of output;
using 250 workers and 25 machines, the firm produces 21,000 units of output.
These facts are best explained by:
Economies of scope
Diseconomies of scale
Economies of scale
3). Suppose that college tuition is higher this year than last and that more students
are enrolled in college this year than last year. Based on this information, we can
best conclude that:
despite the increase in price, quantity demanded rose due to some other
factors changing
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There are many substitutes for a monopolists product whereas there are no
substitutes for a competitive firms product.
5). The best example of positive externality is:
Alcoholic beverages
Pollution
Education
6). The theory that quantity supplied and price are positively related, other things
constant, is referred to as the law of:
supply
profit maximization
opportunity cost
demand
8). Other things held constant in a competitive labor market, if workers negotiate a
contract in which the employer agrees to pay an hourly of $17.85 while the market
equilibrium hour rate is $16.50, the:
Supply of labor will decrease until the equilibrium wage rate is $17.85.
Demand for labor will increase until the equilibrium wage rate is $17.85.
9). Alex is playing his music at full volume in his dorm room. The other people
living on his floor found this to be a nuisance, but Alex doesnt care. Alexs music
playing is an example of:
Pareto externality
Positive externality
Negative externality
Normative externality
10). Oligopoly is probably the best market for technological change because:
The typical oligopoly has the funds to carry out research and development
and believe that its competitors are innovating, which motivates it to conduct
research and development.
The typical oligopoly lacks the funds to carry out research and development
and therefore will use basic research from universities.
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Research and development occurs only if government subsidizes such activity, and
government tends to subsidize oligopolies.
The typical oligopoly keeps price very close to average total cost because it fears
the entry of new rivals if its profits are excessively high.
11). A perfectly competitive firm facing a price of $50 decides to produce 500
widgets. Its marginal cost of producing the last widget is $50. If the firms goal is
to maximize profit, it should:
Shut down
13). In 1997, the federal government reinstated a 10 percent excise tax on airline
tickets. The industry tried to pass on the full 10 percent ticket tax to consumers but
was able to boost fares by only 4 percent. From this you can conclude that the:
Demand elasticity for airline tickets is greater than zero in absolute value.
14). In 2011, the Department of Justice sued AT&T to block its merger with the
cell phone service provider T-Mobile. To defend itself against the charge, AT&T
argued that the:
15). The law of diminishing marginal productivity implies that the marginal
product of a variable input:
Never declines
Always declines
Is constant
Eventually declines
16). Suppose OPEC announces it will increase production. Using supply and
demand analysis to predict the effect of increased production on equilibrium price
and quantity, the first step is to show the:
17). Many call centers that provide telephone customer services for U.S.
companies have been established in India, but few or none have been established in
China. Why?
Chinese labor lacks the specific language skills needed to make call centers
profitable in China.
18). Suppose people freely choose to spend 40 percent of their income on health
care, but then the government decides to tax 40 percent of that persons income to
provide the same level of coverage as before. What can be said about deadweight
loss in each case?
There is no difference because the total spending remains the same and the
health care purchased remains the same.
20). There are many restaurants in the city of Raleigh, each one offering food and
services that differ from those of its competitors. There is also free entry of sellers
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into the market, and each seller serves a very small fraction of the total number of
meals served each day. The restaurant industry in Raleigh is best characterized as:
Perfectly competitive.
Monopolistically competitive.
A pure monopoly.
An oligopoly.
21). Suppose foreign shrimp prices drop by 32 percent and importers gain a 90
percent market share. From this information, what would economists strongly
suspect about this industry?
The large sales of foreigners indicate they are better strategic business
bargainers than Americans are.
23). When Ross Perot ran for president as a third party candidate in 1992, he
argued that free trade with Mexico would result in massive job losses in the United
States because Mexican wages were so low. Which of the following is the best
explanation of why few economists agreed with Perot?
Although economics predicted that unemployment would rise, the increased
profits of corporations would raise stock prices enough to compensate for the lost
jobs.
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Economists did not believe any jobs would be lost in the United States.
Although economists believed that in some areas the United States would
lose jobs, they expected the United States would gain jobs in other areas.
24). Mr. Woodwards cabinet shop is experiencing rapid growth in sales. As sales
have increased, Mr. Woodward has found it necessary to hire more workers.
However, he has observed that doubling the number of workers has less than
doubled his output. What is the likely explanation?
Change in the price of a good divided by the change in the quantity of that
good demanded.
26). Which of the following statements is true about a downward-sloping demand
curve that is a straight line?
The slope remains the same, but elasticity falls as you move down the
demand curve.
The slope remains the same, but elasticity rises as you move down the demand
curve.
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The slope and the elasticity fall as you move down the demand curve.
Monopolistic markets.
Oligopolistic markets.
Competitive markets.
Virtually identical, though one is much more difficult than the other.
inflation
unemployment,
business cycles
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