EXAM IN MICROECONOMICS

(January, 2008)

Section 1. Multiple Choice Questions

Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if the answer has not been given.

1)In the perfectly competitive environment demand for a product of a single firm is:

1. Upward sloping

2. Downward sloping

3. Inelastic

4. Infinitely elastic

5. Unit elastic

2) In the perfectly competitive environment demand for a product of a whole industry is:

A) Upward sloping

B) Downward sloping

C) Inelastic

4. Infinitely elastic

5. Unit elastic

3) All of the following are the conditions for the existence of the perfectly competitive market except:

1. Product of different firms is identical

2. Producers are identical

3. Perfect information

4. No barriers to enter the market

5. Size of a single firm is small comparative to the market size

4) For a perfectly competitive firm the marginal revenue is:

1. Increasing with quantity produced

2. Decreasing with quantity produced

3. Constant

4. Equal to MC

5. Bigger then MC

5) The cost function of one of the identical firms in a competitive industry is the following:

Q	Cost
1	20
2	30
3	35
4	40
5	55

How much will this firm produce in the LR equilibrium? Assume that the good is indivisible.

1. Not enough information

2. 2

3. 3

4. 4

5. 5

6) Which statement is true for a perfectly competitive equilibrium in the short run:

1. All firms in the industry earn zero economic profits

2. All firms in the industry earn zero accounting profits

3. Some firms can earn economic profits

4. If a firm earns economic profit it is a monopoly

5. None of the above

7) Long run supply function of a perfectly competitive industry:

1. Can have a positive slope

2. Is always horizontal

3. Is a sum of MC curves of individual producers

4. Does not exist

5. More than one answer is correct

8) Which industry is most likely to be perfectly competitive:

1. Hairdressers in Moscow

2. Crude oil producers

3. Crude milk producers

4. Electronic goods

5. Aircraft manufacturers

9) Demand curve for a monopolist is

1. Upward sloping

2. Downward sloping

3. Inelastic

4. Infinitely elastic

5. Unit elastic

10) Supply curve for a multiplant monopolist

1. Is the same as the supply curve of a competitive industry

2. Is bellow the supply curve of a corresponding competitive industry

3. Is above the supply curve of a corresponding competitive industry

4. Has a positive slope

5. None of the above

11) Marginal revenue curve of a monopolist lies below the demand curve for its product because:

1. The equilibrium quantity produced is less then in perfectly competitive environment

2. His MC curve is upward sloping.

3. His MC differs from perfectly competitive producers

4. He incurs high fixed costs to became a monopolist

5. None of the above

12) Profit maximizing monopolist produces only on the following part of his demand curve

1. Elastic

2. Inelastic

3. Elastic or inelastic, depending on the quantity he wants to produce

4. Demand which monopolist faces has constant unit elasticity

5. None of the above

13) What is true about a price discriminating monopolist

1. In equilibrium he produces less then a non-discriminating monopolist

2. In equilibrium he produces more then a non-discriminating monopolist

3. In equilibrium he sets a higher price

4. In equilibrium he sets a lower price

5. In equilibrium consumer surplus is larger

14) The cost and demand structure of a monopolist is the following:

Q	P	Total cost
1	20	15
2	15	20
3	10	30
4	5	40

How much he is going to produce if he is a profit maximizer (assume that the good is indivisible?

1. 1

2. 2

3. 3

4. 4

5. Nothing

6. None of the above

15) Which of the following can reduce a deadweight loss created by a monopolist:

1. A per unit tax

2. An ability of the monopolist to discriminate among customers

3. A profit tax

4. More than one answer is correct.

5. None of the above.

16) All the following is generally true about a natural monopoly except

1. It has a large fixed cost.

2. Its average cost is falling for all the relevant range of demand

3. Its MC is lower then AC for all the relevant range of demand

4. More than one answer is correct

5. None of the above: A), B) and C) are all true for a natural monopoly.

17) In order to induce a natural monopoly to produce at the socially efficient level of output the government can:

1. Fix the price equal to the marginal cost

2. Fix the price equal to the average cost

3. Introduce a per-unit tax in order to raise the private marginal cost to the level of social marginal cost

4. Introduce a two-part tariff in order to cover monopoly’s average costs

5. Natural monopoly can not produce at the socially efficient level whatever the government does.

18) Which of the following is the assumption of the perfect competition model, but not the assumption of the monopolistic competition model:

A) Large number of producers

B) Homogeneous output

C) Free exit and entry

D) Zero profit in the long run

E) none of the above

19) Which of the following firms is the most likely operating in monopolistically competitive environment?

A) Aircraft manufacturer

B) Public transportation system

C) Electricity producer

D) Teenager clothes producer

E) Milk producer

20. Which of the following statements are TRUE?

I) If production of a good creates a negative externality then monopoly may be more efficient than competitive market because monopoly output is lower.

II) Taxes that do not lead to the stop of polluting production are not efficient because pollution still exists.

1. I only

2. II only

3. I and II

4. None

21) In the figure above the firm is in the short-run equilibrium. Which of the following market structures is incompatible with the figure?

A) Perfect competition

B) Monopolistic competition

C) Oligopoly

D) Monopoly

E) It is compatible with all of the above market structures

22) Which of the following statements are FALSE?

I) Unlike the supply of labor for a particular industry which is upward sloping, the long run supply of labor of the entire economy is vertical.

II) An improvement in the labor productivity will decrease employment because fewer people are needed to do the same work.

III) If a firm gains substantial power on the product market but remains a price taker on the labor market then the wage rate and the number of workers employed by the firm remains unchanged

1. I only

2. I and III only

3. II and III only

4. I, II and III

5. All statements are true

23) Which of the following is not taken into consideration when a competitive firm chooses its level of output and the number of workers in the short run?

A) Price of the product

B) Wage rate

C) Marginal product of labor

D) Marginal product of capital

E) All of the above is taken into consideration

24) Suppose there are only two firms employing workers in a certain area. Firms compete for workers and sell their output in different markets. If instead of competition firms coordinate their activities on the labor market then the likely outcome would be:

A) An increase in the wage rate and an increase in the number of workers employed

B) A decrease in the wage rate and an increase in the number of workers employed

C) An increase in the wage rate and a decrease in the number of workers employed

D) A decrease in the wage rate and a decrease in the number of workers employed

E) They should not cooperate as they sell output in different markets

25) The prisoners’ dilemma refers to a game in which:

I) there is no Nash equilibrium

II) If players cooperate then each of them can get a higher payoff

III) If each player maximizes other player’s payoff, then each of them receives more than if they maximize own payoff