January 2007

Microeconomics Exam

Part I. Multiple-Choice Questions.

1. Which of the following are characteristics of a perfectly competitive industry?

1. New firms can enter the industry easily.

2. The industry's demand curve is perfectly elastic.

3. The supply curve of an individual firm in the industry is perfectly elastic.

1. I only

2. I and II only

3. I and III only

4. II and III only

5. I, II, and III

2. What characteristic implies that a firm is not selling its output in a perfectly competitive market?

1. the firm makes zero profit

2. The firm faces an inelastic demand curve

3. the firm must pay the going market price for its inputs

4. average cost is falling over a range of output

5. none of the above

3. Which of the following is NOT true in an industry characterized by perfect competition?

1. There is ease of entry and exit

2. There are many buyers and sellers

3. The firm's demand curve is horizontal

4. A single firm can influence price

5. The marginal revenue curve is horizontal

4. The total costs of a typical firm in a competitive industry are:

Units produced (per day) 1 2 3 4 5 6 7

Total Costs 40 60 72 80 130 270 525

The daily demand function for the industry’s output is: Q=2500- 30p. If the good is non-divisible the number of firms in the industry in the long run would be equal to:

1. 425;

2. 450;

3. 475;

4. 500;

5. More information is needed to answer the question.

проверить

5. Consider a competitive industry composed of firms employing only the labor of their owners as inputs. Let this industry face a downward-sloping demand curve, and let the output price exceed the personal opportunity cost of the labor required to produce the marginal unit of output by the typical firm owner. What should the expected movement of price and market output be in the long run?

1. Price up and quantity down.

2. Price up and quantity up.

3. Price down and quantity down.

4. Price down and quantity up.

5. Price and quantity may remain unchanged.

6. A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should

1. increase production until the new price equals average revenue

2. increase production to offset the fall in price

3. discontinue production if the new price is less than marginal revenue

4. continue to produce only if the new price covers average fixed costs

5. continue to produce only if the new price covers average variable costs

7. The question is based on the following information:

The ABC company has:

minimum ATC = $16

P=MR=MC = $11

minimum AVC = $10

The ABC company:

1. gets economic profit;

2. has to stop the production immediately;

3. has economic losses;

4. is in the break-even point.

5. gets zero economic profit

8. In most cases the supply curve for a perfectly competitive industry can be described as which of the following?

1. More elastic in the short run than in the long run

2. More elastic in the long run than in the short run

3. Downward sloping in the short run

4. Perfectly inelastic in the long run

5. Perfectly elastic in the short run

9. In a competitive market with a downward sloping demand curve, a tax that increases the fixed cost of every firm will

1. reduce the number of firms supporting long run equilibrium

2. reduce the long run equilibrium price

3. not cause the number of firms supporting long run equil­ibrium to change

4. increase the number of firms supporting long run equilibrium

5. not cause the long run equilibrium price to change because marginal costs do not change when fixed costs increase

10. Which of the following is true of a monopoly that is producing a level of output such that marginal revenue is negative?