The explicit costs of the firm in the first year were

FINAL EXAM
SECTION 1. : Microeconomics. 2012, SPRING.

Dr. CHARLES A. BRIGGS.

Alex quit his job at State University where he
earned $45,000 a year. He figures his entrepreneurial talent or forgone
entrepreneurial income to be $5,000 a year. To start the business, he cashed
in $100,000 in bonds that earned 10 percent interest annually to buy a
software company, Extreme Gaming. In the first year, the firm sold 11,000
units of software at $75 for each unit. Of the $75 per unit, $55 goes for the
costs of production, packaging, marketing, employee wages and benefits, and
rent on a building.

1.

Refer to the above information. The explicit
costs of the firm in the first year were:

A. $655,000.

B. $150,000.

C. $825,000.

D. $605,000.

2.

Refer to the above information. The total
economic costs (explicit and implicit, including a normal profit) in the
first year were:

A.$665,000.

B. $825,000.

C.$60,000.

D.$150,000.

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3

Refer to the above table. The average total cost
of producing 3 units of output is:

A.$9.33.

B. $38.

C.$10.

D.$12.67.

4

Refer to the above table. The average fixed cost
for producing 3 units of output is:

A.$3.33.

B.$10.

C.$38.

D.$12.67.

5

Refer to the above table. The marginal cost of
producing the sixth unit of output is:

A.$98.

B $25.

C.$10.

D.$16.33.

6.

The phrase “don’t cry over spilt milk”
could be rephrased in economic terms by saying:

A.

“real resources have opportunity
costs.”

B.

“the law of diminishing returns applies
to everything.”

C.

“sunk costs are irrelevant to a
decision.”

D.

“there are economies and diseconomies of
scale.”

7.

Marginal cost can be defined as the:

A.

amount which one more unit of output adds to
total cost.

B.

change in fixed cost resulting from one more
unit of production.

C.

difference between price and average total
cost at the profit-maximizing level of output.

D.

difference between fixed and variable cost at
any level of output.

8.

In a purely competitive industry, each
firm:

A.

engages in forms of nonprice competition.

B.

produces a differentiated product.

C.

can easily enter or exit the industry.

D.

is a price maker.

9.

Which is a feature of a purely competitive
market?

A.

significant barriers to entry into the
industry

B.

price differences between firms producing the
same product

C.

products are standardized or homogeneous

D.

the industry’s demand curve is perfectly
elastic

10.

Which is not a required characteristic of a
purely competitive industry?

A.

Firms can enter or leave the industry.

B.

There are enough firms so that none can
influence market price.

C.

Consumers have no reason to prefer one firm’s
product to another because products are homogeneous.

D.

Industry demand is highly elastic.

11.

Competitive firms are assumed to:

A.

advertise.

B.

sell where marginal cost is minimized.

C.

confront demand curves that are perfectly
inelastic.

D.

be price takers.

12.

A purely competitive firm does not try to sell
more of its product by lowering its price below the market price
because:

A.

it can sell all it wants to at the market
price.

B.

its competitors would not permit it.

C.

its demand curve is inelastic, so total
revenue will decline.

D.

this would be considered unethical price
chiseling.

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13.

Refer to the above graph for a firm in pure
competition. Line B represents:

A.

average total cost.

B.

average fixed cost.

C.

marginal revenue.

D.

total revenue.

Answer the question based on the table below.

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14. At what point on the table would a purely
competitive firm cover all of its costs and earn only normal profits?

A.

Q = 20

B.

Q = 5

C.

Q = 15

D.

Q = 10

15.

Which is most characteristic of a pure
monopoly?

A.

There is a dominant firm in a multifirm
industry.

B.

The firm produces a good or a service for
which there are no close substitutes.

C.

The firm has considerable control over the
quantity of the output produced, but not over price.

D.

Exit from the industry is blocked but entry
into the industry is relatively easy.

16.

One feature of pure monopoly is that the
monopolist is:

A.

a price taker.

B.

a price maker.

C.

a producer of products with close substitutes.

D.

one of several producers of a product.

17.

One major barrier to entry under pure monopoly
arises from:

A.

the availability of close substitutes for a
product.

B.

diseconomies of scale.

C.

ownership of essential resources.

D.

the price taking ability of the firm.

18.

Many people believe that monopolies charge any
price they want to without affecting sales. Instead, the output level for a
profit-maximizing monopoly is determined by:

A.

marginal cost = marginal revenue.

B.

marginal cost = demand.

C.

marginal revenue = demand.

D.

average total cost = demand.

19.

A firm will earn economic profits
whenever:

A.

average revenue exceeds average variable
costs.

B.

marginal revenue exceeds variable costs.

C.

average revenue exceeds average total costs.

D.

marginal revenue exceeds marginal costs.

20.

A profit-maximizing firm should shut down in the
short run if the average revenue it receives is less than:

A.

average total cost.

B.

average fixed cost.

C.

average variable cost.

D.

marginal cost.

21.

Consider the purely competitive firm pictured
above. The firm is earning:

A.

economic profits, since its price is above
AVC.

B.

normal profits, since its price is above AVC.

C.

normal profits, since its price just covers
ATC.

D.

losses, since it is operating at the shutdown
point.

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22.

Refer to the above graph. This pure competitive
firm will not produce unless price equals at least:

A.

$7.

B.

$2.

C.

$5.

D.

$10.

23.

Refer to the above graph. At what price will the
firm make an economic profit?

A.

$5

B.

$10

C.

$2

D.

$7

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24.

Refer to the above graph. Which point is
definitely not on a competitive firm’s short-run supply curve?

A.

D

B.

A

C.

C

D.

B

The following table applies to questions 33 to 36

Output

Total cost

Total Variable Cost

Total Fix cost

Marginal Cost

0

$200

1

100

2

$450

25. When nothing is
produced, the firm’s total fixed cost and total variable cost are,
respectively:

a. Zero and $200.
b. $100 and $100
c. $200 and zero
d. $200 and $100

26. When one unit of output is produced, the firm” total cost and
total variable cost are
a. $150 and $150.
b. $200 and $100
c. $300 and $100
d. $325 and $100

27. The marginal cost of the second unit of output is

a. $100
b. $150
c. $250
d. $350

28. The average total cost when two units of output are produced
is

a. $150
b. $225
c. $325
d. $450

Use the following to answer
questions 29-34

Figure
6.3

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29.

Refer to Figure 6.3 for
a perfectly competitive firm. If price is $6, the profit-maximizing rate of
output is:

A) 32 units.

B) 38 units.

C) 43 units.

D) 48 units.

30.

Refer to Figure 6.3 for
a perfectly competitive firm. If price is $4, the profit-maximizing rate of
output is:

A) 43 units.

B) 38
units.
C) 32 units.

D) 25
units.

31.

Refer to Figure 6.3 for
a perfectly competitive firm. If price is $8, the firm is:

A)

Earning an economic
profit.

C)

Maximizing efficiency.

B)

In long run
equilibrium.

D)

All of the above.

32.

Refer to Figure 6.3 for
a perfectly competitive firm. If price is $6, the firm is:

A)

Earning zero economic
profit.

C)

Maximizing efficiency.

B)

In long run
equilibrium.

D)

All of the above.

33.

Refer to Figure 6.3 for
a perfectly competitive firm. If price is $4, the firm is:

A)

In long run
equilibrium.

C)

Maximizing efficiency.

B)

Earning an economic
loss.

D)

Earning an economic
profit.

34.

Refer to Figure 6.3 for
a perfectly competitive firm. If price is $10, the firm is:

A)

In long run equilibrium.

C)

Maximizing efficiency.

B)

Earning an economic
loss.

D)

Earning an economic
profit.

35.

Which of the following
is likely to be a monopolist?

A)

A small firm with a
patent granting it the exclusive right to produce a drug.

B)

A large firm, such as
HP, that produces a substantial portion of the printer market.

C)

Bell Helicopter which
is one of the largest producers of helicopters in the world.

D)

All of the above.

36.

For a monopolist, the
demand curve facing the firm is:

A)

Flatter or more
horizontal than in a competitive market.

B)

The same as the
market-demand curve.

C)

Always below MR.

D)

Used to determine the
output level to produce.

37.

For a monopolist,
marginal revenue is:

A)

Equal to price, just as
it is for a perfectly competitive firm.

B)

Constant up to the rate
of output that maximizes total revenues.

C)

Always less than price,
after the first unit.

D)

The same as the demand
curve.

38.

The marginal revenue of
a monopolist is:

A)

Less than price because
a monopolist is a price taker.

B)

Less than price because
to sell more output the firm must reduce the price on all units sold.

C)

Above price because the
firm is a price setter.

D)

Always equal to price.

39.

Suppose a monopoly firm
produces software and can sell 20 items per month at a price of $70 each. In
order to increase sales by one item per month, the monopolist must lower the
price of its software by $5 to $65. The marginal revenue of the 21st item is:

A) $5.

B)
-$5.
C) $35.
D) -$35.

40.

Suppose a monopoly
pharmaceutical company produces a drug and sells 100 prescriptions for $50
each. In order to sell 101 prescriptions, the monopolist must lower the price
to $48 per prescription. The marginal revenue of the 101st prescription is:

A) -$2.

B) $2.

C) -$152.

D)
$152.

41.
Total profit can be calculated as:

A)

ATC × Price.

B)

TR ÷ quantity
sold.

C)

(Price – ATC) ×
quantity sold.

D)

(ATC + Price) ×
quantity sold.

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42

. Refer to the above graph. Consider a
monopolist in short-run equilibrium. This monopolist has total fixed cost
equal to area:

A.

BEFC.

B.

ADFC.

C.

ABED.

D.

0CFQ.

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43.

Refer
to the above graph. The pure monopolist firm will charge a price of:

A.

P4.

B.

P3.

C.

P2.

D.

P1.

Use the following to answer
questions 44-45:

Figure 7.2

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44.

In Figure 7.2, the
profit-maximizing level of output for a monopolist is:

A) 3 units.

B) 4
units.
C)
Between 3 and 4 units.
D)
Between 4 and 5 units.

45.

In Figure 7.2, profit
per unit for a profit-maximizing monopolist is closest to:

A) $1.00.
B) $3.00.

C)
$7.50.
D)
$8.00.