Supplemental Instruction for Econ 2106 | Just another ...



ECON 2106 TEST REVIEW #3

11/11/10

(By the way, this is not a guarantee of everything that could be on the test.)

|1. |A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with four workers. The |

| |marginal product of the fourth worker is: |

|A) |100 bushels. |

|B) |300 bushels. |

|C) |1,300 bushels. |

|D) |150 bushels. |

|2. |Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run |

| |equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal |

| |and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the |

| |information given, we can conclude that in the long run we will observe: |

|A) |firms leaving the industry. |

|B) |firms entering the industry. |

|C) |some firms entering and some firms leaving. |

|D) |neither entry nor exit from the industry. |

Use the following to answer question 3:

[pic]

|3. |(Table: Production of Cabinets) The table shows how many cabinets your firm can make with a variable quantity of labor hired. |

| |After which worker does the firm begin to experience diminishing returns to labor? |

|A) |first |

|B) |second |

|C) |third |

|D) |fourth |

Use the following to answer questions 4-5:

Figure: Firms in Monopolistic Competition

[pic]

|4. |(Figure: Firms in Monopolistic Competition) Long-run equilibrium is illustrated at the profit-maximizing price ________ in panel|

| |________. |

|A) |F; A |

|B) |G; A |

|C) |H; B |

|D) |I; C |

|5. |(Figure: Firms in Monopolistic Competition) In panel C, the profit-maximizing quantity of output is generated by the |

| |intersection at point: |

|A) |U. |

|B) |V. |

|C) |W. |

|D) |X. |

Use the following to answer question 6:

[pic]

|6. |(Table: Two Rival Gas Stations) There are only two gas stations in a small town, Swifty Gas and Speedy Gas. Each firm can set |

| |either a high price or a low price, and customers view these two firms as nearly perfect substitutes. The table shows the payoff|

| |matrix of daily profits that each firm would receive from their pricing decision, given the pricing decision of their rival. |

| |Profits in each cell of the payoff matrix are given as (Swifty, Speedy). Which of the following choices describes a dominant |

| |strategy? |

|A) |Swifty will always set a low price, no matter Speedy's choice. |

|B) |Swifty will always set a high price, no matter Speedy's choice. |

|C) |Swifty will set a low price when Speedy sets a high price, but Swifty will set a high price when Speedy sets a low price. |

|D) |Swifty will set a high price when Speedy sets a high price, but Swifty will set a low price when Speedy sets a low price. |

Use the following to answer question 7:

Figure: A Gadget Monopoly

[pic]

|7. |(Figure: A Gadget Monopoly) The graph shows a monopoly firm that sells gadgets. If the firm is regulated such that the firm |

| |earns zero economic profit, the firm will sell ________ units at a price of ________ per unit. |

|A) |Q1; P1 |

|B) |Q2; P1 |

|C) |Q4; P3 |

|D) |Q3; P2 |

Use the following to answer question 8:

[pic]

|8. |(Table: Costs of Producing Bagels) Average total cost reaches its minimum value for the ________ bagel. |

|A) |first |

|B) |third |

|C) |fourth |

|D) |fifth |

|9. |Suppose Prof. Dumbledorr's magic hat monopoly is broken up and the magic hat industry becomes perfectly competitive. We would |

| |expect the ________ to increase from the breakup and ________ to decrease from the breakup. |

|A) |producer surplus; consumer surplus and total surplus |

|B) |consumer surplus; producer surplus and total surplus |

|C) |consumer surplus and total surplus; producer surplus |

|D) |producer surplus and total surplus; consumer surplus |

|10. |The largest HHI possible is in the case of ________ and the index is ________ . |

|A) |monopoly; 10 |

|B) |monopoly; 10,000 |

|C) |monopoly; 100,000 |

|D) |oligopoly; 100,000 |

|11. |In general, oligopolists find it easier to engage in collusive behavior when the industry is characterized by ________ behavior.|

|A) |Cournot |

|B) |Bertrand |

|C) |noncooperative |

|D) |interdependent |

|12. |If the toothpaste market is monopolistically competitive, product differentiation will take place in which of the following |

| |forms? |

|A) |different varieties of toothpaste—including whitening agents |

|B) |differentiation in the locations where certain toothpastes are available |

|C) |quality differences among the various brands |

|D) |all of these forms |

Use the following to answer question 13:

[pic]

|13. |(Table: Soybean Cost) The costs of production of a perfectly competitive soybean farmer are given in the table. If the market |

| |price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit? |

|A) |4 |

|B) |5 |

|C) |3 |

|D) |7 |

Use the following to answer question 14:

Figure: A Firm's Cost Curves

[pic]

|14. |(Figure: A Firm's Cost Curves) The curve labeled V represents the firm's ________ curve. |

|A) |total cost |

|B) |average total cost |

|C) |marginal cost |

|D) |average variable cost |

|15. |Suppose the price elasticity of demand for coffee at the CoffeeBarn equals 1.71 for women and 0.55 for men. A successful price |

| |discrimination strategy would lead to: |

|A) |lower prices for men and women. |

|B) |lower prices for men and higher prices for women. |

|C) |lower prices for men and higher prices for women, as long as the CoffeeBarn could prevent men from reselling drinks to |

| |women. |

|D) |higher prices for men and lower prices for women, as long as the CoffeeBarn could prevent women from reselling drinks to |

| |men. |

|16. |Toby operates a small deli downtown. The deli industry is monopolistically competitive. Toby tells you that his and every other |

| |deli in town is producing the quantity that minimizes their average total cost. Assuming the delis are maximizing profits, you |

| |know that the: |

|A) |number of delis will soon decrease. |

|B) |number of delis will soon increase. |

|C) |delis' prices equal their average total costs. |

|D) |delis have excess capacity. |

Use the following to answer question 17:

Figure: Profit Maximizing

[pic]

|17. |(Figure: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. Which of the |

| |following statements is true? |

|A) |AFC is represented in this figure by the vertical distance between Curve M and Curve N at any level of output. |

|B) |AFC is represented in this figure by the vertical distance between Curve N and Curve O at any level of output. |

|C) |This figure illustrates the long run because all costs are variable. |

|D) |Quantity q2 is to the left of the shut-down point. |

Helpful tools:

- Dr Frost’s and Andy’s office hours listed in the syllabus! They make the test! I don’t!

- iTunes U episodes

- Practice tests, past quizzes and book (Chapters 12-16)

- SI worksheets and study guides!

o econ2106si

- Stuff in “review materials” folder

- Dr. Frost’s past exams in “Exams” folder

- Past clicker questions from class. Look in “CPS” folder to find out where to look.

- Utilize the discussion board on ULearn

- SI session with me Tuesday 11/16 for last minute questions in LN 518

o (No session after class on Tuesday)

Next: Chapter 17: Externalities!

Thursday 11/18

Answer Key

|1. |D |

|2. |A |

|3. |B |

|4. |C |

|5. |D |

|6. |A |

|7. |C |

|8. |C |

|9. |C |

|10. |B |

|11. |A |

|12. |D |

|13. |B |

|14. |C |

|15. |D |

|16. |B |

|17. |B |

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