Eco 561 Final Exam

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ECO/561

1) If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

A. will be greater than $5

B. will also be $5

C. will be less than $5

D. may be either greater or less than $5

2) A firm that is motivated by self interest should:

A. always use large amounts of cheap inputs and small amounts of expensive inputs in producing its output

B. hire each input so the productivity of each is equal at the margin

C. always use large amounts of the most productive inputs and small amounts of the least productive inputs in producing its output

D. employ the combination of resources that will produce the profit-maximizing output at the minimum cost

3) If price is above the equilibrium level, competition among sellers to reduce the resulting:

A. shortage will increase quantity demanded and decrease quantity supplied

B. surplus will increase quantity demanded and decrease quantity supplied

C. surplus will decrease quantity demanded and increase quantity supplied

D. shortage will decrease quantity demanded and increase quantity supplied

4) Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to:

A. lower their price and increase their quantity supplied

B. raise their price and reduce their quantity supplied

C. lower their price and reduce their quantity supplied

D. raise their price and increase their quantity supplied

5) Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement:

A. constitutes an exception to the law of supply in that they suggest a downward sloping supply curve

B. suggests that the supply of DVD players has increased

C. constitutes an exception to the law of demand in that they suggest an upward sloping demand curve

D. suggests that the demand for DVD players has increased

6) In a market economy the distribution of output will be determined primarily by:

A. a social consensus as to what distribution of income is most equitable

B. consumer needs and preferences

C. government regulations that provide a minimum income for all

D. the quantities and prices of the resources that households supply

7) In a competitive market economy firms will select the least-cost production technique because:

A. "dollar voting" by consumers mandates such a choice

B. such choices will result in the full employment of available resources

C. this will prevent new firms from entering the industry

D. to do so will maximize the firms' profits

8) Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:

A. no inference can be made as to the elasticity of demand for peanuts

B. the demand for peanuts is elastic

C. the demand curve for peanuts has shifted to the right

D. the demand for peanuts is inelastic

9) If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use:

A. less labor as a consequence of the output effect

B. more labor as a consequence of the output effect

C. less labor as a consequence of the substitution effect

D. more labor as a consequence of the substitution effect

10) In which of the following industries are economies of scale exhausted at relatively low levels of output?

A. newspaper printing

B. automobile manufacturing                   

C. concrete mixing

D. aircraft production

11) If a firm decides to produce no output in the short run, its costs will be:

A. zero

B. its fixed plus its variable costs

C. its fixed costs...
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