Directions: There is one best answer to each question, after reading all answers; remember that a multiple choice question is just a series of T-F questions in which one of the responses is true.

1) Points outside (to the northeast) the production possibility frontier are
a. inefficient
b. inferior
c. normative
d. unattainable
e. marginal

2) People always face tradeoffs because
a. resources are scarce.
b. there is no such thing as free lunch.
c. wants are unlimited but the means to achieve them are limited.
d. there is an opportunity cost involved for each course of action.
e. all of the above.

3) A possible unintended consequence of government welfare programs is that they:
a. reduce income inequality.
b. discourage recipients from looking for jobs.
c. support poor families only.
d. enable many hard-working Americans to survive unexpected financial difficulties.
e. all of the above are unintended consequences of government welfare programs.

4) Suppose your parents have given you $25. If you choose to spend the $25 by going to a basketball game, your opportunity cost of going to the game is:
a. nothing, because you didn't work to earn the $25.
b. $25.
c. $25 plus the value of the time spent at the game.
d. $25 plus the value of the time spent at the game, plus the cost of soda and hamburger you consumed at the game that you would have consumed whether you went to the game or not.
e. none of the above

5) If an increase in the supply of good A increases the demand for good B, then:
a. goods A and B must be substitutes.
b. goods A and B must be complements.
c. goods A and B are unrelated.
d. the quantity demanded of good A must equal the quantity supplied of good B.
e. the information given is not enough to decide on the relation between the two goods.

6) Which of the following is most likely to shift the demand curve for computer software to the right:
a. an increase in the price of wheat.
b. a new innovation that increases the supply of computer chips.
c. a decrease in the price of software.
d. an increase in the number of firms producing software.
e. none of the above.

7) A production innovation allows any given quantity of pizzas to be produced more cheaply, and at the same time it is discovered that lycopene (an antioxidant in tomato sauce) is found to be a powerful deterrent to prostate cancer in men. We would expect, not knowing the relative importance of these facts, that the pizza market would experience:
a. increases in the equilibrium price and in the equilibrium quantity.
b. decreases in the equilibrium price but increases the equilibrium quantity.
c. increases in the equilibrium quantity but an ambiguous effect on equilibrium price.
d. decreases in the equilibrium price but an ambiguous effect on equilibrium quantity.
e. the changes described only affect "quantities supplied or demanded," and don't shift either curve, hence nothing will change in the pizza market.

8) Which of the following events shifts the demand curve for minivans to the right:
a. People decide to have more children.
b. A strike by steelworkers raises the price of steel.
c. engineers develop new, lower-cost, automated minivan-producing machinery.
d. a stockmarket crash lowers people's wealth.
e. both the events in a. and c.

9) A goods for which demand increases by 8% when income increases by 10% is called a:
a. normal good.
b. inferior good.
c. necessary good.
d. luxury good.
e. none of the above.

10) If the price elasticity of demand for pizza is one, then a tax that raises the pizza price by 10% leads to:
a. no changes in the quantity demanded.
b. only 0.1% drop in the quantity demanded.
c. a 1% drop in the quantity demanded.
d. a 10% drop in the quatity demanded.
e. a 50% drop in the quantity demanded.

11) If a 5% increase in the price of beef leads to a 15% increase in the quantity of beef supplied, then the
a. price elasticity of demand for beef is 3.
b. price elasticity of beef supply is 3.
c. price elasticity of demand for beef is 0.333.
d. price elasticity of beef supply is 0.333.
e. income elasticity of demand for beef is 7.5.

12) If Dave always spends 30% of his income on skiing (regardless of what his income is), then his income elasticity of demand for skiing is:
a. 0.30.
b. 1.00.
c. 3.00.
d. 30.0.
e. indeterminate from the information given.

13) The Jones family buys 4 pounds of lamb each week regardless of the price of lamb. If you know that the Jones family earns $3000 per month, which of the following statements is correct:
a. the Jones' income elasticity of demand for lamb is 750.
b. the Jones' price elasticity of demand for lamb is 0.
c. the Jones' income elasticity of demand for lamb is 4.
d. the Jones' price elasticity of demand for lamb is 4.
e. both c. and d. are correct.

14) A $5 recycling fee imposed by the government on the buyer whenever a new tire is sold would most likely have which of the following effects:
a. move the demand curve down by $5.
b. move the demand curve up by $5.
c. move the supply curve up by $5.
d. move the supply curve down by $5.
e. move the demand curve and the supply curve each by $5.

15) Fred is considering renting an apartment. A one-bedroom apartment rents for $400, and a two-bedroom apartment can be had for $500. The $100 difference is:
a. The opportunity cost of the two-bedroom apartment.
b. The marginal cost of the second bedroom.
c. A sunk cost.
d. The marginal cost of an apartment.
e. None of the above.

16) The individual demand curve for a good or service:
a. Gives the quantity of the good or service the individual would purchase at each price.
b. Gives the equilibrium price in the market.
c. Shows which other goods and services will be substituted for the good if the good's price rises.
d. All of the above.
e. A and C.

17) If the market price is below equilibrium:
a. There is excess demand (a shortage).
b. There is excess supply (a surplus).
c. Consumers will want to raise the price.
d. Firms will want to lower the price.
e. A and D.

18) A diamond sells for a higher price than a gallon of water because:
a. Luxuries always have higher prices than necessities.
b. Only a few people demand diamonds, but everyone needs water.
c. The total use value of diamonds exceeds the total value of water.
d. The total cost of diamond production exceeds the total cost of water production.
e. None of the above.

19) An increase in the price of treadmills due to cost increases will:
a. Increase the demand for stair-stepper machines.
b. Increase the price of stair-stepper machines.
c. Increase the quantity of stair-stepper machine sales.
d. All of the above.
e. None of the above.

20) A recent regulation requires tuna fishing companies to use nets that allow dolphins to escape. These nets also allow some tuna to escape. This regulation causes:
a. The supply of tuna to shift to the left.
b. The demand for tuna to shift to the left.
c. The supply of tuna to shift to the right.
d. A decrease in the quantity demanded of tuna.
e. A and D.

21) Suppose that the price elasticity of demand is 1.5. If price falls, total revenue will:
a. Remain the same.
b. Fall.
c. Rise.
d. Double.
e. C and D.

22) Consumers tend to bear more of a tax burden in the short run when the demand curve is:
a. Relatively inelastic.
b. Unitary elastic.
c. Relatively elastic.
d. Flat.
e. None of the above.

23) Which of the following is (are) true of pure public goods such as national defense?
a. The marginal cost of an additional individual using the good is zero.
b. It is impossible to exclude people from receiving benefits from the good.
c. They are efficiently provided through the interaction of supply and demand.
d. A and B.
e. All of the above.

24) Diminishing marginal utility means that:
a. The usefulness of the good is limited.
b. The willingness to pay for an extra unit decreases as more of a good is consumed.
c. The good is less scarce.
d. The market price of the good decreases as more of the good is consumed.
e. None of the above.

25) Ernie spends all of his income on burgers and cokes. His marginal utility for another burger is 6 utils and the price of a burger is $3. His marginal utility for another coke is 2 utils and the price of a coke is $0.50. To maximize his utility Ernie should:
a. Buy more cokes and fewer burgers.
b. Buy more burgers and fewer cokes.
c. Buy more of both burgers and cokes.
d. Buy fewer of both burgers and cokes.
 

ANSWERS:
1) d
2) e
3) b
4) c
5) b
6) b
7) c
8) a
9) a
10) d
11) b
12) b
13) b
14) a
15) b
16) a
17) a
18) e (not wild about this question, though)
19) d
20) e
21) c
22) a
23) d
24) b
25) a

Summer, 1998
Principles of Microeconomics
Phil Graves
U. of Colorado, EC2010
Second Midterm

Directions: There is one best answer to each question, after reading all answers; remember that a multiple choice question is just a series of T-F questions in which one of the responses is true.

1) The US market for wheat can be described as perfectly competitive because:
a. there are many sellers and buyers of wheat
b. wheat is cheap to produce
c. there are no close substitutes for wheat
d. the US produces large quantities of wheat
e. all of the above

2) The long-run elasticity of supply is greater than the short-run elasticity of supply because:
a. In the long run, a firm can alter the stock of machines and buildings.
b. In the long run, new firms can enter or existing firms can exit the industry.
c. In the long run, customers can discover substitutes.
d. a and b.
e. All of the above.

3) According to the Law of Diminishing Returns:
a. As more of one input is added, the marginal product of the added input decreases.
b. As more of one input is added, holding other inputs unchanged, the marginal product of the added input diminishes.
c. As more of the output is produced, the cost of production diminishes.
d. As more of the output is produced, the marginal cost of production diminishes.
e. None of the above.

4) When the marginal cost curve is above the average cost curve:
a. The average cost curve is at its minimum.
b. The marginal cost curve is at its maximum.
c. The marginal cost curve is downward sloping.
d. The average cost curve is downward sloping.
e. The average cost curve is upward sloping.

5) Marginal revenue:
a. Is less than price for a competitive firm because as it sells more output, it must lower the price.
b. Equals price for a competitive firm.
c. Is the additional revenue that the firm receives for selling another unit of output.
d. Is the extra profit that the firm receives from selling another unit of output, after accounting for all opportunity costs.
e. b and c.

6) It is profitable for a new firm to enter a competitive market whenever:
a. The market price is greater than minimum average total cost at which the firm can produce.
b. The firm can earn revenues greater than any fixed costs.
c. Price is greater than the minimum of the average variable cost curve.
d. Price equals marginal cost.
e. Marginal revenue equals marginal cost.

7) The firm's economic costs include:
a. The opportunity cost of the time of the entrepreneur.
b. The revenue that could be earned in alternative uses by the assets that the firm owns.
c. The return on the equity invested in the firm by the owners.
d. Foregone rents on company-owned buildings and machinery.
e. All of the above.

8) If a firm has no fixed costs, then it shuts down whenever:
a. Price is higher than marginal cost.
b. Price is less than the minimum of the average total cost curve.
c. Economic profits fall below zero.
d. b and c.
e. All of the above.

9) "Marginal cost equals price" is the rule for maximizing profits for firms in which of the following market structures:
a. Perfect competition.
b. Monopolistic competition.
c. Monopoly.
d. Oligopoly.
e. All of the above.

10) The market demand curve is the same as the demand curve facing the firm when the market structure is:
a. Perfect competition.
b. Monopoly.
c. Oligopoly.
d. Monopolistic competition.
e. All of the above.

11) Barriers to entry:
a. Are factors that prevent new firms from entering the market.
b. Are illegal.
c. Allow firms in the industry to continue to earn economic profits.
d. Imply that marginal revenue is greater than marginal cost.
e. a and c.

12) A group of companies that act jointly to maximize profits is called:
a. A monopoly.
b. Monopolistic competition.
c. A cartel.
d. An antitrust.
e. None of the above.

13) Which of the following is true:
a. The demand curve facing the firm is downward sloping in perfect competition.
b. Compared to perfect competition, monopolies produce more but charge higher prices.
c. A competitive firm will shut down in the short run when price falls below minimum average total cost.
d. Price exceeds marginal cost for a profit-maximizing monopolist.
e. Total costs are the sum of average and marginal costs.

14) Assume the law of diminishing marginal returns holds. A perfectly competitive firm is currently producing a level of output with a marginal cost of $20. The firm's minimum average total cost is $25 and minimum average variable cost is $15. The market price for the the commodity produced by the firm is $23/unit. To maximize profit, the firm should:
a. Decrease production, and economic profit will be positive in the short run.
b. Decrease production, but it's not possible to conclude whether economic profits will be positive, negative, or zero.
c. Increase production, but economic profit will be negative in the short run, which means some firms in the industry will exit in the long run.
d. Increase production, but economic profit will be negative in the short run, which means the firm should shut down in the short run.
e. Decrease production, but economic profit will be negative in the short run, which means some firms in the industry will exit in the long run.

15) A competitive firm in long-run equilibrium will satisfy:
a. P=MC.
b. MR=MC.
c. P=ATC.
d. P=MR.
e. all of the above.

16) The supply curve of a single-price monopolist:
a. is the marginal cost curve above the minimum of average variable cost.
b. is the marginal-cost curve above the minimum of the average total cost.
c. is the average-total-cost curve.
d. is the positive portion of the marginal revenue curve.
e. is the single price-quantity point selected by the monopolist.

17) If a monopolist is to be regulated such that the price it charges equal its marginal cost, then:
a. the total amount produced by the monopolist must increase.
b. the monopolist makes zero economic profit.
c. society as a whole will be better off.
d. both a. and b. are correct.
e. both a. and c. are correct.

18) Which of the following is true:
a. marginal cost always equals average variable cost at the minimum of the average variable cost.
b. a firm's fixed costs can be zero in the long run.
c. the average fixed cost is always downward sloping.
d. the marginal-cost curve is below the average-total-cost curve when average total cost is falling.
e. all of the above.

19) In the short run, a profit-maximizing monopolist with a loss of $100 and fixed costs of $150, along with marginal revenue of $20 and marginal cost of $10, would want to:
a. shut down in the short-run, since profits are negative.
b. expand output and cut price.
c. expand output and raise price.
d. cut output and raise price.
e. do nothing--the data suggest the monopolist is already profit-maximizing.

20) A profit maximizing competitive firm will produce up to the point at which:
a. total revenue is maximized.
b. total cost is minimized.
c. marginal revenue is maximized.
d. average revenue = average total cost.
e. marginal revenue = marginal cost.

21) Which of the following is true about an unregulated single-price monopolist:
a. always operates in the elastic portion of the market demand curve it faces.
b. always operates in the inelastic portion of the market demand curve it faces.
c. always tries to maximize marginal revenue in order to maximize profit.
d. has no influence over the market price level.
e. none of the above.

22) In the long run under perfect competition, the equilibrium is best described as:
a. Each existing firm would earn positive economic profit, but not high enough to attract other firms to enter the industry.
b. Each firm would earn zero economic profit.
c. Each firm would suffer a loss, but the loss is less than the total fixed cost.
d. Some firms would earn positive economic profit, some suffer the loss and some earn zero economic profit, but the aggregate economic profit would be zero.
e. Each firm earns the same profits, positive or negative, that they did in the short run.

23) If market price is $70/unit, and a perfectly competitive firm maximizes its profit at an output level where total cost (TC)=$5000, total fixed cost (TFC)=$3000, and output=50. Then
a. it's MC=70.
b. it makes positive profit.
c. it would stay in the market in the short-run.
d. a, b and c are all correct.
e. only a and c are correct.

24) The following is the MR and MC of a monopolist at for various outputs,
Q(output), MR, MC:
800, 60, 40
1000, 50, 50
1200, 38, 63
If the present output is 800, then the firm would:
a. Increase the output to 1000 and set price equal to 50.
b. Decrease the output to less than 800 and set the price higher than 60.
c. Increase the output to 1000 and set the price higher than 50.
d. Increase the output to 1200 and set the price equal to 63.

25) Which of the following statements is correct:
a. When P>MC, competitive firms must have positive economic profits and could make more profits by increasing output.
b. When P>MC, the monopoly might not increase the output, but the price taker would as long as price is greater than average variable costs.
c. When P<MC, the some existing firms would exit the market in the long run.
d. When profit-maximizing, firms want to produce where MR exceeds MC by the largest amount.
e. None is correct.

ANSWERS:
1) a
2) d
3) b
4) e
5) e
6) a
7) e
8) d
9) a
10) b
11) e
12) c
13) d
14) c
15) e
16) e
17) e
18) e
19) b
20) e
21) a
22) b
23) e
24) c
25) b

Summer, 1998
Principles of Microeconomics
Phil Graves
U. of Colorado,EC2010
Final Exam

Directions: There is one best answer to each question, after reading all answers; remember that a multiple choice question is just a series of T-F questions in which one of the responses is true.

1) Because resources are scarce:
a. Questions must be answered.
b. Choices must be made.
c. All except the rich must make choices.
d. Governments must allocate resources.
e. Some individuals must be poor.

2) Suppose that price falls by 10% and the quantity demanded rises by 20%. The price elasticity of demand is:
a. 2.
b. 1.
c. 0.
d. ½.
e. None of the above.

3) Suppose the price of an input important in the production of insulin (a necessary medication for diabetics) doubles:
a. Price and quantity will increase.
b. Quantity will increase substantially, but price will remain nearly the same.
c. Price will increase considerably, but quantity will remain nearly the same.
d. Neither price nor quantity will increase.
e. Price will increase a little, but quantity will decrease a lot.

4) A price ceiling on insurance rates that is set below equilibrium price will:
a. Shift demand to the right.
b. Shift demand to the left.
c. Increase quantity demanded.
d. Decrease quantity demanded.
e. None of the above.

5) In general, the price elasticity of demand is greater when:
a. The good is inferior.
b. There are good, close substitutes available.
c. The good has few substitutes.
d. There are many complements available.
e. The income elasticity is high.

6) Compensating differentials are wage differences resulting from:
a. The fact that workers must search to find job offers and learn of alternative wages.
b. The fact that employers are unlikely to make offers to workers who currently earn low wages, inferring that these workers must be less productive.
c. Differences in job or location characteristics.
d. Wage differences that compensate for differences in productivity.
e. A and B.

7) When the social marginal cost of an activity exceeds its private marginal cost:
a. It could be subsidized to attain the efficient activity level.
b. It could be taxed to attain the efficient activity level.
c. It should be outlawed entirely.
d. A or B.
e. Any of the above.

8) In the marketable pollution permits system discussed in class:
a. Firms purchase permits in order to pollute.
b. Firms may buy permits from other firms.
c. Firms may sell unused permits to other firms.
d. Pollution reduction is accomplished more efficiently than if the government imposes the same pollution reduction on all firms.
e. All of the above.

9) The value to the firm of hiring one more worker is:
a. Equal to marginal cost.
b. Equal to marginal revenue.
c. Equal to the marginal product of labor.
d. Equal to the marginal product of labor multiplied by the product price.
e. Equal to the marginal product of labor multiplied by the wage.

10) The relationship between the marginal product of labor and the marginal cost of output is:
a. Marginal cost is the inverse of marginal product (1 divided by MP_L).
b. Marginal cost equals the wage divided by the marginal product.
c. Marginal cost is downward sloping when marginal product is downward sloping.
d. Marginal cost is constant, but marginal product is subject to diminishing returns.
e. B and D.

11) The marginal product of an input is:
a. The cost of producing one more unit of output.
b. The extra output that results from hiring one more unit of the input.
c. The cost required to hire one more unit of the input.
d. Output divided by the number of inputs used in the production process.
e. A and D.

12) If a monopolist is producing at the point where marginal revenue exceeds marginal cost by the greatest amount, then in order to maximize profit, the monopolist should:
a. make no change.
b. increase output and lower price.
c. decrease output and raise price.
d. increase both output and price.
e. decrease both output and price.

13) A firm should stop producing in the short run if it is not covering its:
a. fixed costs.
b. accounting costs.
c. economic costs.
d. variable costs.
e. average fixed cost.

14) A firm should stop producing in the long run if it is not covering its:
a. fixed costs.
b. accounting costs.
c. economic costs.
d. variable costs.
e. average fixed cost.

Suppose you are given the following data pertaining to some unspecified firm:
Quantity, Total revenue, Total cost
0, $0, $5
1, $5, $7
2, $10, $10
3, $15, $18
4, $20, $28
On the basis of this information answer the following four questions:

15) The data suggests that the firm is in which type of market structure:
a. monopoly.
b. monopolistic competition.
c. oligopoly.
d. perfect competition.
e. impossible to say from information given.

16) The average variable cost when two units are produced is:
a. $0.
b. $1.
c. $2.5.
d. $3.
e. $5.

17) The marginal cost of the third unit of output is:
a. $10.
b. $18.
c. $8.
d. $9.
e. none of the above.

18) The profit-maximizing output of the firm is:
a. 0.
b. 1.
c. 2.
d. 3.
e. 4.

19) Under perfect competition, a firm finds that at its present output level, the market price is higher than its MC, and it suffers a loss which is less than TFC, the firm should
a. produce but decrease the output to lower the loss.
b. produce and not change its output.
c. produce but increase the output to lower the loss.
d. exit this market right away to get rid of the loss it suffering.

20) Payments for a scarce resource in excess of the minimum required to keep that resource in its current use are called:
a. Compensating differentials.
b. Monopsony wages.
c. Excess profits.
d. Producer surplus.
e. Economic rents.

21) Profit-maximizing firms operating in competitive input and output markets adjust labor inputs until the wage rate equals the:
a. Average revenue from output.
b. Price from output.
c. Marginal utility of the good produced.
d. Value of the marginal product of labor.
e. Marginal factor price of capital (i.e., marginal rent).

22) If a firm can sell any amount of output at $20 per unit, and hiring an additional worker increases output by 2 units per hour:
a. The value of the marginal product of labor is $40.
b. In a competitive equilibrium, the wage rate will be $40 per hour.
c. Marginal revenue is $20.
d. b and c.
e. All of the above.

23) Suppose the income effect dominates the substitution effect in the labor market. Then:
a. Workers prefer leisure over added income at higher wages, and the labor supply curve is upward sloping.
b. Workers prefer leisure over added income at higher wages, and the labor supply curve is backward bending (i.e., downward sloping).
c. Workers prefer added income over leisure at higher wages, and the labor supply curve is upward sloping.
d. Workers prefer added income over leisure at higher wages, and the labor supply curve is backward bending (i.e., downward sloping).
e. Firms wish to hire only a fixed quantity of labor.

24) Which of the following is an example of statistical discrimination:
a. A Federal employee personally does not like minorities, but is nonetheless required by law to hire minorities for his staff.
b. Michael Jordan gets paid a lot more than a ping-pong player.
c. Union workers get paid higher wages than non-union workers.
d. An employer prescreens potential employees on the basis of SAT scores, and eliminates anyone with a score less than 1300.
e. All of the above are examples of statistical discrimination.

25) A competitive firm faces a price of $20, has a minimum average total cost (ATC)=18, and maximizes profit at an output level of 100. Then (this one is a bit hard--draw it!)
a) profit>0, and profit=200.
b) profit>0, and profit>200.
c) profit>0, and profit<200.
d) profit<0, and loss <TFC.

26) Which of the following is true?
a. AVC and ATC could be parallel (the vertical difference between them is constant).
b. MC is increasing at all output levels.
c. Firm's of every type produce at the output where MR=MC.
d. All of them are correct.
e. None of them is correct.

27) The difference between the monopoly and perfect competition is
a. For perfect competition, P=MC; For monopoly, P>MC
b. Perfect competitors are price takers; a monopolist is a price maker.
c. Perfect competition produce where MR=MC, monopoly produce where MR>MC.
d. a and b are correct.
e. b and c are correct.

28) If the price elasticity of supply for a given good is 0.1, a 20% increase in the price will lead to:
a. no change in the quantity supplied.
b. a 5% decrease in the quantity supplied.
c. a 5% increase in the quantity supplied.
d. a 2% decrease in the quantity supplied.
e. a 2% increase in the quantity supplied.

29) A price ceiling above the equilibrium is likely to:
a. cause a shortage.
b. shift the demand curve to the left.
c. cause a surplus.
d. shift the supply curve to the right.
e. none of the above.

30) An increase in demand for a given good would cause its supply to:
a. decrease (shift to the left).
b. increase (shift to the right).
c. first increase, then decrease over time.
d. either rise or fall, depending on whether the good is inferior or normal.
e. neither rise nor fall, although quantity supplied would increase.

31) Bars frequently offer "free" food during Happy Hour, because:
a. they feel charitable.
b. they get discounts on food from wholesalers.
c. they can increase the demand for drinks this way, because food and drinks are complementary goods.
d. food and drinks are substitute goods, so lowering the price of food increases the demand for drinks.
e. they only care about accounting profits, thereby forget to take account of the true opportunity cost of providing food.

32) If the price elasticity of demand for a good is 0.8, an increase in price will:
a. cause total consumer spending on the good to increase.
b. cause total consumer spending on the good to decrease.
c. cause both the demand curve and the quantity demanded of the good to decrease.
d. cause both the supply curve and the quantity supplied of the good to increase.
e. a and c are both correct.

33) Which of the following statements is true:
a. the demand for Conoco gasoline is more elastic than the demand for gasoline in general.
b. a good perceived by the consumer to be a necessity will tend to have an elastic demand.
c. an inferior good is characterized by a very low demand.
d. if price elasticity is zero, then any price change will also have a zero effect on total revenue.
e. a and d are both correct.

34) Which of the following statements is true:
a. diminishing marginal utility implies the demand curve is downward sloping.
b. eventually diminishing marginal product causes the supply curve of a perfectly competitive firm to eventually have an upward slope.
c. economic profits are typically higher than accounting profits.
d. average total cost for a perfectly competitive firm reaches a minimum where it intersects average variable cost.
e. a and b are both correct.

35) An increase in demand in a competitive industry, initially in long-run equilibrium, leads to:
a. higher prices and profit in the short run only.
b. higher prices and profit in the long run only.
c. higher prices and profit as long as demand remains high.
d. no change in either price or profit.
e. none of the above.

36) A perfectly competitive firm producing where MR=$2, MC=$4 and earning an economic profit of $2000. To maximize profit, the firm should:
a. expand output.
b. cutback on output.
c. raise the price to increase MR.
d. cut price and expand output.
e. do nothing, profit is currently at maximum.

37) In the long run a single price monopolist will always go out of business if:
a. it can't cover its total economic costs.
b. it can't perfectly price-discriminate.
c. it can only earn a zero economic profit.
d. prices are not high enough.
e. new firms enter the industry in the long run causing the price to fall.

38) A monopolist producing Q=5 with MR=$3, MC=$3, ATC=$2, and charging a price P=$4, is making a profit of:
a. - $5
b. $5
c. $10
d. $15
e. $20.

39) As the wage rate increases due to a decrease in the labor supply,
a. the value of the marginal product will fall.
b. the value of the marginal product will rise.
c. a shortage of labor will result.
d. a surplus of labor will result.
e. none of the above.

40) Your parents are in the process of paying off the mortgage of their home, a home they bought a long time ago for $36,000. Their monthly payments are $500. Their home is currently worth $480,000. If they can earn 10 percent on asset investments, their current monthly cost of occupying their home is:
a. $500, their mortgage payment.
b. zero, since they pay their mortgage whether they stay there or not on any night.
c. $300, the foregone interest on their original investment of $36,000.
d. $4,000, the foregone interest on its current value.
e. just $50 (10% of their old monthly payment).

ANSWERS:
1) b
2) a
3) c
4) c
5) b
6) c
7) b
8) e
9) d
10) b (too "techie" though, I think now)
11) b
12) b
13) d
14) c
15) d
16) c
17) c
18) c
19) c
20) e
21) d
22) e
23) b or d (b better, but d ok...depends on elasticity of backward bending supply)
24) d
25) c
26) c
27) d
28) e
29) e
30) e
31) c
32) a
33) a
34) e
35) a
36) b
37) a
38) c
39) b (but moving along the curve, as firms adjust by cutting back on labor)
40) d