Exam 2

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Question #1

Suppose a market is initially a monopoly. Then, due to government intervention, the firm is unable to block hundreds of new entrants that compete with the original firm. As a result of what will happen to the market price and the quantity, the market will become more efficient and be better for consumers.

A TRUE

B FALSE

Question #2

If a firm produces only one good but has a monopoly for that good, the firm will always be profitable.

A FALSE

B TRUE

Question #3

Again, suppose the company Intel is making positive profits initially. It has a monopoly on microprocessors – what are used as the brain for a desktop and laptop.
As stated, due to the rise of smart phones and tablets, the tastes and preferences for microprocessors has been decreasing. In the long run, what happens to its profit?

A Unchanged

B Unclear

C Increases

D Decreases

Question #4

Suppose the company Intel is making positive profits initially. It has a monopoly on microprocessors – what are used as the brain for desktops and for laptops.
Due to the rise of smart phones and tablets, the tastes and preferences for microprocessors has been decreasing. In the long run, what happens to the P and q?

A P unclear; q decreases

B P and q both decrease

C P is unchanged; q is unchanged

D P increases; q decreases

Question #5

The diamond industry convinced men (and most women) it was essential to use a diamond to propose to a woman. Which of the following elasticities for diamonds demonstrates such a belief by men (and most women)?

A PED = -0.4

B PES = 1.5

C PED = -3.5

D PES = 0.1

Question #6

From the previous problem, suppose a competitive firm for hardwood floors is at a point where profits are zero. As stated, there is a sudden decrease in tastes and preferences for these floors.
In the long run, what happens to its profit (relative to the initial equilibrium)?

A Unchanged

B Increases

C Unclear

D Decreases

Question #7

Suppose a competitive firm for hardwood floors is at a point where economic profits are zero. Suddenly there is a decrease in tastes and preferences for these floors.
In the short run, what happens to the P and q?

A P unclear; q decreases

B P and q both decrease

C P increases; q decreases

D P is unchanged; q is unchanged

Question #8

Recall the company called Dallas M. Inc. that is selling a product known as “Sahand’s Giant Birthday Candles”. Again, the company has the following table:
q P TR TC Profit MR MC ∆Profit
0 12 4 — — —
1 11 7
2 10 8
3 9 3
4 8 5
5 7 29
What is the change in profit when q = 5?

A -5

B -2

C -7

D Not enough information

Question #9

In terms of which of the following is the competitive market NOT the exact opposite of a monopoly?

A The price charged

B The quantity produced in the market

C Degree of market power

D The production amount being where MR=MC

Question #10

Suppose the firm faces a horizontal demand curve. Which of the following is true?

A The firm is a competitive firm

B The firm is a monopoly

C The firm has too much market power

D None of the above

Question #11

According to this class, what is the main constraint on a monopoly?

A A monopoly has no constraints on its ability to charge higher prices

B The firm’s PES

C The market demand curve because it reflects the consumers’ willingness to pay

D The firm’s willingness to sell

Question #12

Which of the following equations will definitely apply for a monopoly and a competitive firm in terms of the quantity it chooses to produce?

A P=ATC

B MR=MC

C P=MC

D Both MR=MC and P=MC

Question #13

How many firms are there in a monopoly?

A 1000

B 1

C 100

D 50

Question #14

In a monopoly…

A A firm has annual profits of at least $500 million

B There is some barrier to entry

C Its prices do not adjust to changes in demand

D A firm has less ability to determine the market price than a firm in the competitive market

Question #15

Which of the following is true concerning the Prize Linked Savings Accounts (PLSAs)?

A PLSAs do not actually exist but were only made up by your instructor to bore you even more

B They are far worse than regular savings accounts in every possible way which explains why no one uses PLSAs

C They were often blocked by states which had a monopoly on lotteries

D They are legal in only one state in the US because of how damaging they are to a state’s poorer population

Question #16

Consider a firm in the competitive market. No matter whether the market’s demand curve shifts left or right, we know in the long run its economic profit will be 0.

A FALSE

B TRUE

Question #17

Using the numbers from the previous problem, we know which of the following?

A The firm will produce in the short run

B The firm will have a FC of zero in the short run

C The firm will have no sunk costs in the short run

D The firm will shut down even in the short run

Question #18

Suppose we have the following information for a firm in the competitive market:
P=$110; q=100;
TC=$10,000 for q=0;
AVC=$20 for q=100;

Which of the following is true for q=100?

A All firms will exit in the long run

B Firms will enter in the long run

C Some firms will exit in the long run

D The price above represents the long run equilibrium

Question #19

Which of the following might explain why a competitive market is considered more theoretical?

A A competitive market consists of many firms

B A competitive market is made up of identical firms

C A competitive market has barriers to entry

D A competitive market consists of only a few firms

Question #20

Suppose a firm in a competitive market is earning zero economic profits. As a result, what will it do in the long run?

A It will leave the market

B It will remain in the market but keep production unchanged

C It will boost its production

D It will not leave the market but will temporarily stop production

Question #21

Suppose a firm in the competitive market faces the following cost and revenue conditions: MC=$10; MR=$12. The firm should…

A increase output.

B increase price.

C change nothing.

D decrease output.

Question #22

Suppose we have a market where there are 100 firms and the economic profit to each firm is $10,000. If the market is competitive, what we do know will happen in the long run?

A There will be more than 100 firms in this market

B The quantity produced by each firm will not change

C The market price will increase

D Five firms will exit the market

Question #23

Again, suppose a company called Dallas M. Inc. is selling a product known as “Sahand’s Giant Birthday Candles”. As shown above, the company has the following table:
q P TR TC Profit MR MC ∆Profit
0 12 4 — — —
1 11 7
2 10 8
3 9 3
4 8 5
5 7 29
Given this information from the previous problem, what is the relevant market structure?

A Monopoly

B Robles-opoly

C Competitive

D Jennifer-opoly

Question #24

Suppose a company called Dallas M. Inc. is selling a product known as “Sahand’s Giant Birthday Candles”. The company has the following table:
q P TR TC Profit MR MC ∆Profit
0 12 4 — — —
1 11 7
2 10 8
3 9 3
4 8 5
5 7 29
What is the quantity produced?

A 0

B 4

C 2

D 5

Question #25

Assume FC=$11,900. Also, assume that when q=19 that AVC=$950 and when q=20 then ATC=$1,500. If the firm decides to make 20 units (q=20), what is the MR at q=20?

A $100

B $200

C $50

D Not enough information

Question #26

Consider the following information. Assume FC=$11,900. Also, assume when q=19 that AVC=$950 and when q=20 then ATC=$1,500.
What is MC for the 20th unit?

A $100

B $50

C $500

D $200

Question #27

Suppose AVC=$75, FC=$9,000 and TC=$39,000. What is the ATC?

A $75

B $40

C $25.25

D $97.50

Question #28

Behavioral Economics can be used to help push people into decisions that could be in their long run self-interest without depriving them of individual choice.

A FALSE

B TRUE

Question #29

According to what was said in class, which of the following is true concerning Behavioral Economics?

A It assumes people are rational

B It tries to explain how people are just plain silly and never make rational decisions

C Its supporters believe behavioral economics should completely replace traditional economics

D It shows certain situations where traditional economics is not realistic

Question #30

Your instructor was recently charged $20 for being late to pick up his sons from school. If asked why, he would admit he always underestimates how long it takes to get ready and drive to his sons’ school. What type of bias does your silly instructor suffer from?

A Overconfidence bias

B Availability bias

C Planning fallacy

D Framing bias

Question #31

Suppose you have another friend who has concluded that “Gay men are more financially successful than heterosexual men.” You try to tell your friend that several studies show that is not the case as only more affluent gays are willing to be open about their sexuality. Your friend pays no attention to your response. What cognitive bias might be relevant here?

A Confirmation bias

B Overconfidence bias

C Framing bias

D Availability bias

Question #32

Consider the following statement:
“Crime must be increasing. I just heard last month that a house down my street suffered a burglary. That has never happened before.”
This statement is an example of what flaw in human reasoning?

A Availability bias

B Framing bias

C Confirmation bias

D Planning fallacy

Question #33

Think about the following concerning your instructor. When I played video games a lot, I would have thought that I was an above average player. However, I did not have any data (like comparisons with other players’ stats) to back up my claim. My belief may be an example of what cognitive bias?

A Framing bias

B Overconfidence bias

C Availability bias

D Planning fallacy

Question #34

What is the definition of Behavioral Economics?

A The study of how any form of human behavior is due to being rational

B The branch of economics that incorporates psychology into economic models

C The study of how to maximize tax revenue in any situation

D The study of decision making of how to allocate scarce resources at the national level

Question #35

Suppose you have two unrelated goods: a flash drive and a dog collar. What would be the CPED for these two items?

A It equals zero

B It is greater than 100

C It is less than zero

D It is greater than zero

Question #36

Consider the following items: marijuana and crystal meth. Meth is a very dangerous drug while marijuana is not. One issue is whether people will take marijuana instead of meth. Suppose the CPED for these two items is -0.2. This statistic would be evidence for which argument?

A Marijuana should remain legal

B Marijuana should be used for the common cold

C Marijuana should not be legal

D Marijuana should not only remain legal but be encouraged

Question #37

Recall the market for cosmetics whose IED<0. If the economy goes through a recession (when incomes fall), what would happen to the demand curve for cosmetics?

A It would shift right

B It would shift left

C It would become a straight, vertical line

D It would become a straight, horizontal line

Question #38

Suppose this good’s demand became more inelastic. What effect would this change have on the effect of a tax applied on this market?

A Not enough information

B Increased tax burden on the sellers

C Increased tax burden on the buyers

D None of the above

Question #39

For the good Bassingers mentioned in the previous problem, suppose the PED is -2.90 and the PES is 0.5. If a tax was applied in this market, what could we say about the tax burden?

A The tax burden will fall completely on the sellers

B The tax burden will fall mostly on the buyers

C The tax burden will fall equally on the buyers and sellers

D The tax burden will fall mostly on the sellers

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