The influence of labour unions on wages has been hotly debated over the last decades.

| November 24, 2016

· The test statistic used to test the hypothesis of whether a single regression coefficient is significantly different from zero, holding all other independent variables constant, is called a(n):

A.

F-test.

B.

autocorrelation test.

C.

multicollinearity test.

D.

t-test

· Assume a firm is currently employing 20 units of capital and 100 units of labor in its production process. Assume also that the marginal product of the 20th unit of capital is 40 units of output, the marginal product of the 100th unit of labor is 10 units of output and the per unit prices of capital and labor are $20 and $10, respectively. In this case, in order to minimize its costs of production the firm should:

A.

hire more capital and less labor.

B.

hire more labor and less capital.

C.

hire less capital and less labor.

D.

hire more capital and more labor.

· Greater consumer confidence, wealth, available consumer credit, and disposable income ________ personal consumption expenditures.

A.

increase

B.

decrease

C.

have no effect on

D.

none of the above

· Which of the following is not a characteristic of perfect competition?

A.

Large number of firms in the industry.

B.

Outputs of the firms are perfect substitutes for one another.

C.

Firms face downward-sloping demand functions.

D.

No barriers to entry or exit.

· Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that:

A.

the firm is incurring an economic loss.

B.

implicit costs are $25,000.

C.

the total economic costs are $100,000.

D.

the individual is earning an economic profit of $25,000.

· 6. For the firm in Figure 8.1, the profit-maximizing (loss-minimizing) price and level of output are:

· 7 The firm depicted in Figure 8.1 is:

·

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A.

earning a positive economic profit.

B.

incurring an economic loss and should shut down.

C.

incurring an economic loss but it should continue to operate in the short run so long as price exceeds average variable costs.

D.

earning a zero economic profit.

· 8 Which of the following is not considered a factor that influences supply?

A.

Technology.

B.

Production taxes and subsidies.

C.

The number of buyers.

D.

Resource prices.

· 9 Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium?

A.

The firms’ demand curves will become less elastic.

B.

The demand curves faced by firms in the market will shift to the right.

C.

More close substitutes will appear in the market.

D.

Some firms will exit the market if they can’t cover all of their fixed and variable costs.

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A.

P2 and Q2.

B.

P1 and Q1.

C.

P4 and Q1.

D.

P3 and Q1.

· 10 It is frequently observed that when a city is located next to a major highway, gas stations located close to the highway charge higher prices than gas stations located farther away. This is an example of:

A.

first-degree price discrimination.

B.

second-degree price discrimination.

C.

third-degree price discrimination.

D.

illegal price discrimination.

· 11 You have the following demand equation for a pack of cigarettes: Q = 200 – 0.30P with the average quantity 3 packs and average price $3.00 per pack. What is the price elasticity?

A.

0.30

B.

-0.30

C.

1.0

D.

-1.0

· 12 Which of the following is an example of price discrimination?

A.

Increasing the price of a product when demand for the product increases.

B.

Charging different prices for a product in different regions of the country due to differences in transportation costs.

C.

Bundling complementary products to attract additional sales.

D.

Reducing the price of a product to reduce excess inventory.

· 13 The situation in which a firm is able to charge the maximum price consumers are willing to pay for each unit of output the firm sells is referred to as:

A.

first-degree price discrimination.

B.

second-degree price discrimination.

C.

third-degree price discrimination.

D.

fourth-degree price discrimination

· 14 Which of the following would make it easier to maintain an effective collusive agreement in a cartel?

A.

An increase in the number of potential entrants into the industry.

B.

A decrease in the elasticity of demand for the cartel’s product.

C.

An increase in the number of substitutes for the product produced by the cartel.

D.

A new method of pricing that makes it more difficult for each firm to monitor the prices that the other firms in the cartel are charging.

· 15 Which of the following statements regarding a monopolist is false?

A.

The marginal revenue curve lies below the demand curve for the monopolist’s output.

B.

Unlike a perfectly competitive firm, a monopolist faces little or no competition.

C.

The monopolist sets price equal to marginal cost to maximize profits.

D.

The monopolist may or may not earn positive economic profits.

· 16 An increase in taxes would shift the:

A.

aggregate demand curve rightward.

B.

aggregate demand curve leftward.

C.

aggregate supply curve rightward.

D.

aggregate supply curve leftward.

· 17 Many people consider hot dogs to be an inferiorgood. For such people, all else held constant, a decrease in income would cause their demand for hot dogs to:

A.

increase.

B.

stay the same.

C.

decrease.

D.

cannot be determined with the information given

· 18 The reserve requirement is 0.20. What is the simple deposit multiplier?

A.

1

B.

5

C.

0.10

D.

100

· 19 Assume a perfectly competitive firm is producing a level of output at which MR < MC. What should the firm do to maximize its profits?

A.

The firm should do nothing — it wants to maximize the difference between MR and MC in order to maximize its profits.

B.

The firm should decrease output.

C.

The firm should increase price.

D.

The firm should increase output.

· 20 Assume a perfectly competitive firm is producing 300 units of output, P = $10, ATC of the 300th unit is $8, marginal cost of the 300th unit = $10, and AVC of the 300th unit = $6. Based on this information, the firm is:

A.

earning an economic profit of $600.

B.

earning an economic profit of $1,200.

C.

incurring a loss of $600.

D.

incurring a loss of $1,200.

· 21 Which of the following best illustrates the mutual interdependence among firms in the airline industry?

A.

The considerable efforts made by the various competitors to coordinate fare increases.

B.

The unwillingness of individual firms to match increased amenities offered by other firms.

C.

The substantial profits airlines have earned over the past several years.

D.

The virtual absence of control over costs by any of the firms operating in the industry.

· 22 When calculating the price elasticity of demand, which of the following conditions must be satisfied?

A.

All other factors that influence demand must be held constant.

B.

Prices of related goods must be held constant but all other factors must be allowed to vary.

C.

Prices of related goods must be allowed to vary but all other factors must be held constant.

D.

All other factors that influence demand must be allowed to vary.

· 23Scenario 1: The following is a hypothetical short-run production function:

Hours of Total Marginal

Labor Output Product

0 ___ ___

1 100 100

2 ___ 80

3 240 ___

Refer to Scenario 1. What is the average product of the first three hours of labor?

A.

60

B.

80

C.

100

D.

240

· 24 The coefficient of determination will range between what values?

o

0 and 1

o

-1 and +1

o

-3 and +3

o

none of the above

· 25 For the U.S. economy, the largest expenditure category is:

A.

government expenditures.

B.

net export expenditures.

C.

personal consumption expenditures.

D.

investment expenditures.

· 26 An increase in government expenditure would shift the:

A.

aggregate demand curve rightward.

B.

aggregate demand curve leftward.

C.

aggregate supply curve rightward.

D.

aggregate supply curve leftward

· 27 In an open economy, injections and leakages are related as:

A.

I + G = S + T.

B.

I + G + X = S + T + M.

C.

X + G = T + M.

D.

none of the above

· 28 A home theater system and an HD television would be considered an example of:

A.

substitute goods.

B.

giffen goods.

C.

inferior goods.

D.

complementary goods.

· 29 If a market is perfectly competitive and is in long-run equilibrium, which of the following conditions does not hold?

A.

Price is equal to the minimum long-run average cost of production.

B.

Economic profit equals zero.

C.

The value of the last unit of output produced is equal to the value of the resources used to produce it.

D.

There is an incentive for additional firms to enter the market because existing firms are earning revenues in excess of the explicit costs of production.

· 30 The ratio of the regression coefficient to its standard error is called:

A.

t-statistic.

B.

F-statistic.

C.

partial F-statistic.

D.

coefficient of determination.

· 31 The positively-sloped part of the long-run average total cost curve is due to which of the following?

A.

Diseconomies of scale.

B.

Diminishing returns.

C.

The firm being able to take advantage of large-scale production techniques as it expands its output.

D.

The increase in productivity that results from specialization

· 32 The assumption that rival firms will match a firm's price decreases but not its price increases is a basic feature of:

A.

model of limit pricing.

B.

the kinked demand curve model.

C.

the predatory pricing model.

D.

cartel theory.

· 33 Higher expected profits and business confidence ________ investment spending.

A.

decrease

B.

increase

C.

do not affect

D.

none of the above.

· 34 If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is:

A.

elastic.

B.

unit elastic.

C.

inelastic.

D.

perfectly elastic.

· 35 Appreciation of the U.S. dollar will ________ exports and ________ imports, other things equal.

A.

increase; increase

B.

increase; decrease

C.

decrease; decrease

D.

decrease; increase

· 36 The range of values in which we can be confident that the true regression coefficient lies within a given degree of probability is called a:

A.

prediction interval.

B.

confidence interval.

C.

logistic regression.

D.

none of the above.

· 37 Assume the demand for a good is price inelastic, i.e., ed < 1 (in absolute value). This means that if price decreases by 50 percent, quantity demanded will:

A.

increase by more than 50 percent.

B.

decrease by more than 50 percent.

C.

increase by less than 50 percent.

D.

decrease by less than 50 percent.

· 38 An increase in the reserve requirement would:

A.

decrease excess reserves and reflect an expansionary monetary policy.

B.

decrease excess reserves and reflect a contractionary monetary policy.

C.

increase excess reserves and reflect an expansionary monetary policy.

D.

increase excess reserves and reflect a contractionary monetary policy

· 39 Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound) and filet mignon (which sells for about $20 per pound), respectively. Considering the different determinants of the price elasticity of demand and assuming the consumers in both markets have approximately the same incomes, we would expect the coefficient of price elasticity of demand in absolute value to be:

A.

larger for hamburger than for filet mignon.

B.

larger for filet mignon than for hamburger.

C.

approximately the same for both hamburger and filet mignon.

D.

none of the above because different determinants would have opposing effects on the two estimates.

· 40 In February 2002, the euro/dollar exchange rate was 1.20, and in May 2002, the euro/dollar exchange rate was 1.10. What happened to the exchange rate during this period?

A.

Euro appreciated against the dollar.

B.

Euro depreciated against the dollar.

C.

Dollar appreciated against the euro.

D.

Both B and C.

· 41 "Demand" is best defined as the relationship between:

A.

the price of a good and the quantity consumers are willing and able to buy at each price level.

B.

the current price of a good and the quantity demanded at that price.

C.

the quantity supplied and the price people are willing to pay for a good.

D.

the amount of income someone has and the price he is willing to pay for a good.

· 42 Which of the following statements regarding cartels is not correct?

A.

Cartels are sometimes difficult to maintain because a member can cheat by raising its price above the agreed price.

B.

Cartels restrict industry output in order to raise price.

C.

Cartels are inherently stable, because oligopolistic firms rarely change price.

D.

are easier to establish and maintain when the cost functions of the individual members are more similar to one another.

· 43 An increase in foreign real income would shift the:

A.

aggregate demand curve rightward.

B.

aggregate demand curve leftward.

C.

aggregate supply curve rightward.

D.

aggregate supply curve leftward.

· 44 If movies on DVD for home rental and movies seen at a theater are substitutes, and the price of movies seen at a theater increases, the demand for movies on DVD will:

A.

increase.

B.

stay the same.

C.

decrease.

D.

cannot be determined.

· 45 The interest rate that commercial banks charge each other for loans of reserves to meet their minimum reserve requirements is called:

A.

treasury bill rate.

B.

federal funds rate.

C.

prime interest rate.

D.

none of the above.

· 46 Assume a firm produces 500 units of a good by using two inputs, capital and labor, whose per unit prices are $10 and $4. Assume also that the marginal physical product of the last unit of capital is 30 and the marginal physical product of the last unit of labor is 10. Is this firm minimizing its costs of producing 500 units of output?

A.

No, because the marginal products of the two inputs are not equal.

B.

No, because the marginal product to price ratio for the two inputs are not equal.

C.

No, because the prices of the two inputs are not equal.

D.

The answer cannot be determined without more information

· 47 Diminishing marginal returns occur when:

A.

units of a variable input are added to a fixed input and total product falls.

B.

units of a variable input are added to a fixed input and marginal product falls.

C.

the size of the plant is increased in the long run.

D.

the quantity of the fixed input is increased and returns to the variable input fall

· 48 Open market purchase will result in:

A.

increase in bank reserves and a decrease in the federal funds rate.

B.

increase in bank reserves and an increase in the federal funds rate.

C.

decrease in bank reserves and a decrease in the federal funds rate.

D.

decrease in bank reserves and an increase in the federal funds rate.

· 49 The following is a hypothetical short-run production function:

Hours of Total Marginal

Labor Output Product

0 ___ ___

1 100 100

2 ___ 80

3 240 ___

Refer to Scenario 1. What is the marginal product of the third hour of labor?

A.

60

B.

80

C.

100

D.

240

· 50 Features of the U.S. federal government expenditure and taxation programs that tend to automatically slow the economy during times of high economic activity and boost the economy during periods of recession are called:

A.

discretionary expenditures.

B.

automatic stabilizers.

C.

non-automatic stabilizers.

D.

none of the above.

· 51 Much of the empirical evidence on the behavior of costs for real-world firms suggests that:

A.

average costs functions are V-shaped as suggested by economic theory.

B.

for most firms, marginal costs are declining in the range in which the firms operate.

C.

for many firms, marginal and average variable costs are constant over wide ranges of output.

D.

there is no relationship between the marginal and average variable costs of production.

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