MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Figure 14-5

1) Refer to Figure 14-5. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the A) area P1 P2 EF. B) area FGE. C) area FHE. D) area P1 P2 GF. 2) Refer to Figure 14-5. The deadweight loss due to a monopoly is represented by the area A) FQ1 Q2 E. B) GEH. C) FHE. D) FGE. Table 16-1 Quantity of labor 1 2 3 4 5 6 7 Output (units) 80 170 240 300 350 390 420

1)

2)

3) Refer to Table 16-1. Suppose the output price is $3. If the firm represented in the table is maximizing its profit by hiring six workers, what is the wage rate? A) $40 B) $65 C) $120 D) $390 E) $1170

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1

4) Suppose the following two events occur in the market for elementary school teachers: a. Overcrowded schools and education budget cuts have discouraged young college students from pursuing careers in teaching. b. With an increasing birth rate, the number of children entering the elementary school system is expected to increase significantly over the next ten years. What is likely to happen to the equilibrium wage and quantity of teachers as a result of these two events? A) The equilibrium quantity falls and the equilibrium wage of elementary school teachers rises. B) The equilibrium wage rises and the effect on the equilibrium quantity of elementary school teachers is indeterminate. C) The equilibrium quantity falls and the effect on the equilibrium wage of elementary school teachers is indeterminate. D) The equilibrium quantity and the equilibrium wage of elementary school teachers fall. Table 14-1 Price per unit $85 80 75 70 65 60 55 Quantity Demanded (Units) 10 11 12 13 14 15 16 Total Cost of Production (Dollars) $400 500 550 560 575 595 625

4)

A monopoly producer of a foreign language translation software faces a demand and cost structure as given in Table 14 -1. 5) Refer to Table 14-1. What is the firm s profit maximizing output and price? 5) A) P = $85; Q = 10 B) P = $65; Q = 14 C) P = $70; Q = 13 D) P = $75; Q = 12 E) None of the above are correct. 6) Refer to Table 14-1. What is the marginal revenue from the sale of the 12th unit? A) -$5 B) $75 C) $50 D) $20 E) None of the above are correct. 7) Refer to Table 14-1. Under profit maximization, how much profit does the firm earn? A) $880 B) $350 C) $910 D) $335 E) None of the above are correct. 6)

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8) Economic discrimination takes place when an employer ______. A) pays workers compensating wage differentials B) pays lower wages to workers who are not as productive as other workers C) pays workers different wages on the basis of some arbitrary characteristics of workers that are irrelevant to the job performed D) pays workers the lowest wage possible 9) What is the difference between a firm s marginal revenue and its marginal revenue product? A) There is no difference between the two terms. B) Marginal revenue is the increase in revenue when a firm raises its output price while marginal revenue product is the increase in marginal product when a firm hires an additional worker. C) Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the profit earned from hiring one more worker. D) Marginal revenue is the change in sales revenue from selling one more unit of output while marginal revenue product is the change in total revenue from hiring one more worker. Figure 16-1

8)

9)

Figure 16-1 shows the marginal revenue product for the Nelson Corporation. 10) Refer to Figure 16-1. If the wage rate is $40, how many workers should the Nelson Corporation hire? A) 5 workers B) 3 workers C) 4 workers D) 6 workers E) 7 workers 11) What is a network externality? A) It means lobbying to form a public enterprise. B) It refers to a product that requires connection to a network for it to be useful. C) It refers to a situation in which a product s usefulness increases with the number of people using it. D) It means having a network of suppliers and buyers for a good or service. 10)

11)

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Figure 13-3

Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its website. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs has expressed interest in bundling Rainbow Writer s product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 13.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game. 12) Refer to Figure 13-3. How will Rainbow Writer respond to Odeon s two possible offers? A) Rainbow Writer will only accept an offer of $40 per copy of the software package. B) Rainbow Writer will reject either offer. C) Rainbow Writer will only accept an offer of $30 per copy of the software package. D) Rainbow Writer will accept either offer. 13) Refer to Figure 13-3. What is the equilibrium outcome in this game? A) In the equilibrium, Odeon offers $30 per copy of the software package and is rejected. B) There is no equilibrium in this game. C) Odeon s offer of $40 per copy of the software package and is accepted. D) In the equilibrium, Odeon offers $40 per copy of the software package and is accepted. 14) Which of the following is an example of a compensating wage differential? A) In the market for lawyers, top graduates from the top programs earn starting salaries that are significantly higher than the starting salaries earned by lower-ranked graduates from the lower-ranked programs. B) Popular movie stars like George Clooney command much higher salaries than other talented but lesser known actors. C) Nurse anesthetists are paid less than anesthesiologists (who have medical degrees). D) Workers in a dynamite mine receive higher wages than if they worked in other jobs that require the same level of skills. 12)

13)

14)

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Figure 14-2

Figure 14-2 above shows the demand and cost curves facing a monopolist. 15) Refer to Figure 14-2. Suppose the monopolist represented in the diagram above produces positive output. What is the profit/loss per unit? A) loss of $21 per unit B) profit of $30 per unit C) loss of $7 per unit D) profit of $14 per unit 15)

5

Figure 15-3

16) Refer to Figure 15-3. Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price. What is the profit maximizing quantity produced and what is the price charged? A) Q = 560 units; P = $12 B) Q = 240 units; P = $28 C) Q = 480 units; P = $16 D) Q = 320 units; P = $24 E) None of the above are correct. 17) Refer to Figure 15-3. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed entry fee and a per-unit price equal to the competitive price. The firm will charge an entry fee of ______ and a per unit usage fee equal to ____. A) $ 5760; $24 B) $2560; $24 C) $5760; $12 D) $2560; $16 E) None of the above are correct

16)

17)

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Table 13-1

Alistair Luggage and Baine Baggage are the only firms selling window treatments in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 13-1 shows the payoff matrix for this advertising game. 18) Refer to Table 13-1. What is the Nash equilibrium in this game and is the equilibrium a prisoners dilemna? A) Both Alistair and Baine increase their advertising budgets; yes B) There is no Nash equilibrium; since there is no equilibrium we cannot determine if it is a prisoners dilemna. C) Alistair increases its advertising budget, but Baine does not; no D) Baine increases its advertising budget, but Alistair does not; no E) Both Alistair and Baine increase their advertising budgets; no 19) Refer to Table 13-1. If Alistair assumes that Baine would increase its advertising budget, what should it do? A) Being a duopolist, Alistair is not affected by Baine s choices because it has a secure 50 percent market share. B) Alistair should reduce its advertising spending. C) Alistair should also increase its advertising spending. D) Alistair should keep its own budget the same and allow Baine to incur the higher cost. 18)

19)

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Figure 15-1

20) Refer to Figure 15-1. With perfect price discrimination, the firm will produce and sell A) Q1 units. B) Q2 units. C) Q3 units. D) Q4 units. 21) An oligopolist differs from a perfect competitor in that A) firms in an oligopoly may not produce homogeneous products while firms in perfect competition always do. B) there is cutthroat competition in perfect competition but little competition in oligopoly because firms have significant market power. C) there are no entry barriers in perfect competition but there are entry barriers in oligopoly. D) the market demand curve for a perfectly competitive industry is perfectly elastic but it is downward-sloping in an oligopolistic industry. 22) What is a prisoners dilemma? A) a game in which players act in rational, self-interested ways that leave everyone worse off B) a game that involves no dominant strategies C) a game in which prisoners are stumped because they cannot communicate with each other D) a game in which players collude to outfox authorities 23) If Molly Bee increases her work hours when her wage increases, then __. A) the income effect of the wage increase is equal to the substitution effect for Molly B) the income effect of the wage increase outweighs the substitution effect for Molly C) leisure is an inferior good to Molly D) the substitution effect of the wage increase outweighs the income effect for Molly 24) A monopoly is characterized by all of the following except ____. A) the firm has market power B) there are no close substitutes to the firm s product C) entry barriers are high D) there are only a few sellers each selling a unique product

20)

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Table 13-5

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. The payoff matrix in Table 13 -5 shows the profits earned per day by each country. Low output corresponds to producing the OPEC assigned quota and high output corresponds to producing the maximum capacity beyond the assigned quota. 25) Refer to Table 13-5. What is the Nash equilibrium in this game? A) In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and earns $30 million. B) In the Nash equilibrium both Saudi Arabia produce a low output and earn a profit of $100 million and earns $20 million. C) There is no Nash equilibrium. D) In the Nash equilibrium both Saudi Arabia and Nigeria produce high output and earn a profit of $60 million and $20 million respectively. 26) Refer to Table 13-5. Is there a dominant strategy for Saudi Arabia and, if so, what is it? A) No, there is no dominant strategy. B) Yes, the dominant strategy is to produce a low output. C) Yes, the dominant strategy is to produce a high output. D) Yes, it has a dominant strategy depending on what Nigeria does. 27) The Sherman Act prohibited _____. A) collusive price agreements among rival sellers B) selling below average total cost C) setting price above marginal cost D) marginal cost pricing 28) What happens to the equilibrium wage and quantity of labor if the output price of the good rises? A) The equilibrium wage and the equilibrium quantity of labor rise. B) The equilibrium wage rises and the equilibrium quantity of labor falls. C) The equilibrium wage and the equilibrium quantity of labor fall. D) The equilibrium wage falls and the equilibrium quantity of labor rises. 25)

26)

27)

28)

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29) Arbitrage _____. A) is the act of buying an item at a low price and reselling the item at a higher price B) is any act of buying and selling that results in the seller earning an above normal profit C) is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price D) is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller s time 30) The income effect of a wage increase is observed when _______. A) the higher wage income causes workers to take more leisure and work less B) leisure s higher opportunity cost cause workers to take less leisure and work more C) leisure s higher opportunity cost cause workers to take more leisure and work less D) the higher wage income causes workers to take less leisure and work more 31) A monopolist faces ______. A) a perfectly inelastic demand curve C) a perfectly elastic demand curve 32) With perfect price discrimination there is A) no producer surplus B) no deadweight loss C) no consumer surplus D) one single price E) Both B and C are correct. Table 15-2 Quantity demanded in Middle Fall (tubes per week) 1 2 3 4 5 Price per tube $8 7 6 5 4 Quantity demanded in West Fall (tubes per week) 1 2 3 4 5 Price per tube $5.00 4.50 4.00 3.50 3.00

29)

30)

31) B) a horizontal demand curve D) a downward-sloping demand curve 32)

Neem Products sells its toothpaste in two completely isolated markets with demand schedules as shown in Table 15 -2. The average cost of production is constant at $2 per tube. 33) 33) Refer to Table 15-2. How many tubes of toothpaste will Neem sell in Middle Fall? and at what price? A) Q = 3 units; P = $6 B) Q = 2 units; P = $7 C) Q = 4 units; P = $5 D) Q = 5 units; P = $4 34) Refer to Table 15-2. Which of the following statements is true about the two markets? A) The demand curve for Middle Fall is more income elastic than the demand for West Fall. B) The demand curve for Middle Fall is more income elastic than the demand for West Fall. C) The demand curve for Middle Fall is less price elastic than the demand for West Fall. D) The demand curve for Middle Fall is more price elastic than the demand for West Fall. 34)

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35) Scenario: In academia, professors in some disciplines receive higher salaries than others. For example, professors teaching in business schools receive higher salaries than professors in the English department. Suppose in Unity College, assistant professors in the business school earn $W b while assistant professors in the English department earn $W e < Wb. Now suppose the government passes comparable worth legislation that requires academic institutions to pay all faculty the same salaries. Following the passage of comparable worth legislation, Unity College responds by placing salaries for all assistant professors at $Wb. Which of the following is the result of the legislation? A) There will be a surplus in the market for English professors and the market for business professors will not be affected. B) The demand for English professors decrease; the market for business professors is not affected. C) There will be a surplus in the market for English professors and a shortage in the market for business professors. D) The supply of English professors increase; the market for business professors is not affected.

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Answer Key Testname: ECON 202 EXAM 4 FALL 2008

1) A 2) C 3) C 4) B 5) C 6) D 7) B 8) C 9) D 10) B 11) C 12) A 13) D 14) D 15) C 16) D 17) E 18) A 19) C 20) C 21) C 22) A 23) D 24) D 25) A 26) B 27) A 28) A 29) A 30) A 31) D 32) E 33) C 34) C 35) A

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