Study Guide Eco 561

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ECOP/561 Final Examination Study Guide

This study guide will prepare you for the Final Examination you will complete in the final week. It contains practice questions, which are related to each week’s objectives. In addition, refer to each week’s readings and your student guide as study references for the Final Examination.

Week One: Increasing Revenue

Objective: Choose methods to increase revenue in an organization.

1. In a market economy the distribution of output will be determined primarily by a. consumer needs and preferences
b. the quantities and prices of the resources that households supply c. government regulations that provide a minimum income for all d. social consensus as to what distribution of income is most equitable

2. In a competitive market, economy firms will select the least-cost production technique because a. such choices will result in the full employment of available resources b. doing so will maximize the firm’s profits

c. this will prevent new firms from entering the industry
d. dollar voting by consumers mandates such a choice

3. The advent of DVDs has virtually demolished the market for videocassettes. This is an example of a. creative destruction
b. derived demand
c. capital accumulation
d. the difference between normal and economic profits

Objective: Explain the market equilibrating process.

4. If price is above the equilibrium level, competition among sellers to reduce will result in a. a surplus which will increase quantity demanded and decrease quantity supplied. b. shortage which will decrease quantity demanded and increase quantity supplied. c. surplus which will decrease quantity demanded and increase quantity supplied. d. shortage which will increase quantity demanded and decrease quantity supplied.

5. Equilibrium is achieved when
a. supply equals demand
b. supply is greater than demand
c. demand is greater than supply
d. there is a surplus of market

6. Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements suggest a. that the demand for Mustangs decreased between 2007 and 2008 b. that the supply of Mustangs must have increased between 2007 and 2008 c. that the demand for Mustangs increased between 2007 and 2008 d. an upward-sloping demand curve, which constitutes an exception to the law of demand

Week Two: Cost Concepts

Objective: Identify production level to maximize profits.

7. If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25%, the firm should a. use more labor and less capital to produce larger output b. not change its output

c. reduce its output
d. increase its output

8. A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is a. producing more output than allocative efficiency requires b. producing less output than allocative efficiency requires c. achieving productive efficiency

d. producing an efficiency output, but one cannot say whether output should be increased or decreased

9. If a firm is selling in an imperfectly competitive product market, then a. average product will be less than marginal product for any number of workers hired b. the marginal products of successive workers must be sold at lower prices c. the marginal products of successive workers can be sold at higher prices d. the marginal products of successive workers can be sold at a constant price

Objective: Explain how to balance fixed and variable costs.

10. What do wages paid to blue-collar workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? a. None are either implicit or explicit costs.
b. All are opportunity costs
c. All are...
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