University of the Philippines ‘SCHOOL OF ECONOMICS SETA Esonomics 11 Markets and the State Directions: On the answer sheet provided, shade the box corresponding to the best answer. Total utility tende to rise as the level of consumption rises. a True b. False 2. A commodity important tor welfare may sell for less in the market than one Less ‘tnportant a True b. False 3. marginal product is smaller than average product, then average product must be MP< AP talling as employment rises, a Tne b. False 4. MC is the same whether it ie computed from TVC or from TC. a True b, False ‘marginal cost is falling, then total cost is falling at an increasing rate. tee a True id “die b. Faire w 4 6. A competitive firm always WANTS to produce atthe point where average cost aes lowest Ke a True fer b. False 2 2. Yamonopolistic competition model, there are a fos firms selling slightly differentiated products, mam 4 True False 8. Ce eo, increasing output by one nit. a Tre wRP se . ® False Gaput es 9. Higher wages will tend to eliminate excess demand in labor markets 2. Tne b. False _ 10. According to the law of diminishing returns, the lower the capital stock the higher the rate of return to capital. The False” 11. At my equilibrium demand choives for goods 1 and 2 a MU=MU; bb. MU/QeMUYQ: . MU/P-MU; d PHP,8. none of the above Figure 1 12. In Figure 1, the drop in consumer surpius resulting from an increase in price from S to a ADC b. OBRC x CE da OBEH 2. CEGF 14. Ifa person only consumes pickles and peanut butter, he will consume peanut butfer up to the point wiiere the: Marginal uflity ofthe iast unit of pesnut butter consumed equals that ofthe Tast unit of pickles consumed, Total utility of peanut butter consumed equal the total utility of piekles consumed, ~c. Consumer surpins of peanut butior consumption equals cousumer surplus of pickles consumption, 2 Last dollar spent on peanut butter consumption provides the same marginal wility as the last dotlr spent ot pickle consumption +. Nene ofthe above 15, - Hf get ten nits of total utility from 2 oranges, 14 of TU from 3 oranges, and 17 of TU from 4 oranges, I obey the law of dimisishing marginal wility because /) a-MU falls as consumption mereases ow b. Ti as consumption increases ee e \ ec ome ie 3 4. MU>TU wr 4 e MU=TU 16, The marginal product of labor is the;, WMP, 2 Output which it could produce unaided by tnachinery or other factors of production, b. Extra revenue which ainm will get by selling the output of one additional worker, J Amount of extra output that is produced when one extra worker is added to e fixed amount of other factors, ‘4 Amount of extra output that is produced when one worker is ndc..d aad other factors of production are inereased proportionately. None of the above17, 19. 20. ‘Diminishing marginal returns occur because: 2 Increasing amounts of a factor are added to fixed amounts of other factors of production b. ‘The marginal utility of income just equals the marginal utility of leisure. . More workers employed in a plant will aik more and produce less. c. 4. Total product must eventually fall. e. . Returns to scale are diminishing. 00d? | a. ; . | Beast aly -.. — i Pm es oF . ‘Good 1 Figure 2 In Figure 2, 2 shift in the budget line from AC to BC represents: @ A decrease in income b. Aminerease in good 2°s price ©. Amincrease in good 1°s price dA decrease in good 2’s price e. A decrease in good 1's price ‘The law of diminishing returns is a. Total product of an input. >. Average product of an input. 2. Marginal product of an input. d Returns to scale of an input. 2. Broadest general productivity moasures only. ‘The short run is a period of time so short that: @ Output cannot be varied. b. At feast one input is fixed, c. All inputs are fixed. cd. All inputs are variable. e. None of the above. Consider an accounting firm which has workers to enter data into expressed in terms of an eventual decline in the: a.computer program. Which of the following would be considered a ehort nm decision? ‘The firm would i ‘The firm would like fo build its own facility. pose computer hardware as weil as extensive training for workers. 2. All of the above decisions could be made in the short run. Marginal cost isthe: a Total cost divided by the number of units produced. MC b. Fined eos divided by the nuubor of wits produced. FS ¢. Extra fixed cost of producing an additional unit of output 4. Extra average cost of producing an additional unit of output. 4. Extra cost of producing an additional unit of ouput. 3 10 hire ten more workers for a weekend shift. ‘The firm is considering an investment in additional computers, ‘The firm might purchase new computer software that would require some new is q26. 21, A fixed cost is: ‘2. ‘The cost of any input whose per uni price has been fixed, whether by long-term contract of by some similar ineans. b. A cost whose increases are exactly propostional to increases in output. ¢. Any component included in average cost which enters in AC as the same fixed per ‘mit amount, no matter what the level of plant output may be. d. Acost which the firm would incur even if its output were zero. 2. None of the above ‘Which of the following is true af the quantity of output where average has reached its sinimum ke AC= AFC 2 .. Output price = AVC Ifovtput rises and totai costs remained fixed, thea: a. AC will fall) - b. AC will rise fs ©. AC will eventually inerease aaa dy FC will eventually rise 2. VC will eventually become fixed at some maximum level IFAC exceeds MC at sonae output level, then AC is: a rising we b. constant \ rising or falling spose mero ‘A supplice ina perfectly competitive market is characterized by al but which of the following? ‘tcan influence the price of its product I produces such that MC equals price. it can sell all it wants to at the prevailing market price. It produces a positive amount in the short run if it ean recover variable costs. ‘None of the above are incorrect. geese igre? 28. Which of the following stalements is ecmrect in reference to Figure 37 a. Bis the shutdowwa point >. Bis the profit-meximizing point ©. Cis the breakeven point30. 31. 32. 33. 34. 35. 36. A is the shutdown point is the shutdown point 3, which of the following statements is correct? the shutdown point B is the breakeven point Ais the breakeven point B is the shutdown point D is the profit-maximizing point ‘The breakevEn point for a perfectly competitive firm occurs where the price equals the ‘minimum point ofthe: @ AVC curve b. AC curve ¢. MC curve a e ope rego RS AFC curve , ‘None of the above in long-run equilibrium, a firm in a perfectly competitive industry will produce at the point where: we ‘& Marginal cost equals average (otal cost. x b. Total reverue is maximized. ¢. Marginal cost equals average variable cost. Its opportunity cost is lowest. &. Price equals average fixed cost, ‘When an economy is in the position where no person can be made better off without making another person worse off, it: is al a perfectly competitive equilibrium exhibits allocative efficiency fhas maximized its social utility irrespective of any poitution thas eliminated all opportunity costs has distributed all opportunity cost a» equitably as possible perfect competitor’s output in the short ran is the quantity that: sets MC equal to MR =P sets AVC minimizes ATC sets ATC =P none of the above are correct fa firm’s demand curve is horicontal, then the firm’s marginal revenue is: lens than the price of the product equal to the price of the product +-——- ia ‘greater than the price of the product | greater, equal or less than the price of the product, depending on the particular circumstances not determinable from the above information te station of per SSptiion the roation botwoen markt price P and ‘marginal revenue MR for each supplying firm ia that: a Pis less than MR at all or most output levels b. Pis grester than MR at all or most out nt jovels ©. Pisthe same as MR at all output levels 4. Piseither less than MR at particular ow gut ievels or the same as MR. e. None of the above, since P is not related io MR. Falling marginal revenue facing an individeal firm is incompatible with: a growth of the firm b. perfect competition PO SRES R OTe E SE AP Te©. oligopoly d. barriers to entry e. none of the above 2XG i A MR Figure 37. Which of he following points in Figure 4 can be used to identify « monopolist’s production and the price it charges? a Q,PI b QP c. Q3,P3 d Q2, Pa e. Q2,P3 38. Oligopoly is 2 market situation with: the consumers” best interest at heart 16 competition single buyer only a few competing sellers only a fw competing buyers saeose40. aL 43, 46. “The imperfect competitor shown in Figure 5 should set a profit-maximizing level of output and price at: a Qland PL b. Q3 and P2 c. Qland Pa ad. Q2and P3 e. QimdPi ‘An imperfect competitor whose cost and demand relations shown in Figure 5 a. ismaking losses : . is making economic prafits is making no economic profits &. should shut down @. isnone of the above fn a pure monopoly situation, product price: and production are tie same a8 they woul be iu pertbct competition and production are hier than they would be in perfect competition js Jowor inl prodoction higher than they would bo ix perfect competition js higher and! production lower than they would be in perfect competition and production are lower tian they would be in perfect competition Which ofthe following is not «type of government intervention that is typically aimed at reducing the social losses cansed by imperfect competition? a Changes in (ax law. ‘The imposition of tariffs. Governunent ownership of ranopolies Antitrust polictes. All of the above. ‘A firm achieves least-cost in production by substituting factors uni their: a factor prices are equal opener pass b. marginal products are equal WAR es ¢. marginal products are each equal to their factor prices, RO me? ¢. none of the above are tue we a “The marginal revenue product is best described as the: mA = 6 a. selling price of the inst unit of output ne > MR b. increment of total cost resulting from the use of an additional uit of input ¢. marginal product divided by the unit price of the product. 4. marginal product times the marginal revenue recvived from the sale of an extra unit of output WP. MR 2. None of the above. ‘Market demend curves for inputs differ from market detnand curves for final goods in that: a. individual firm demand curve for inputs are added vertically to give market demand. ».. input demand curves are always more elastic ¢._ input demand curves are determined by derived demand. input demand curves are always more inelastic because inputs are les easily substituted for one mother than are Final goods. 2. None ofthe above explains the difference adequately Which of the following are elements that help define the supply of labor: size of the population ability ofthe labor foree rate of labor force participation standard numbers of hours worked per week poge na4B, 49. 2. all ofthe above “When wages are increased FS a. reductions in employment may occur ifthe demand for labor is elastic. t Tectuotions in employment ray oceur ifthe demand for labor is perfectly inalastic. ¢._ increases in employineut may oceur ifthe 2:amand for labor is elastic L_ increases in employwent may occur ifthe demand ior fabor is elastic. 2. None of the above. 2 Pure economic rent is the payment to factors of production which: ave relatively inelastic supplies and have positive marginal products. are depleted over time and have no external economies: have no substituies and are produced under perfoatiy compe hve fixed supplios and no alternative uses. have fixed supplies and may aileruabve soc8 tax on land reu's would be shified entirely back on to the landowners because the: noreased markt price will fead to afall in the quantity of tand demanded. supply of land is ited. q pr raarginal revenue produet of and is Gixed | 5 demand for land is totally elastic. 1 a Sak aupply of land is still perfectly elastic, “The Loren curve is used fo: show the curve of diminishing returns. represent consumption patiorms. represent production poscibilitioe of ex e20n95 iMlustrate the distribution of incoue and/or wealth None of the above. conditions. PROP er RS eR saore 4