1. I and II only

2. III only

3. II and III only

4. I only

5. None

26.Which of the following correctly explains the term “marginal cost of labor”?

1. Wage paid to the last hired worker

2. Average wage rate paid to all workers

3. Increase in the wage costs resulted from hiring the last worker

4. Increase in the total cost resulted from producing additional unit of output by hiring additional labor

5. Difference between the wage paid to the last worker and previously hired workers

27.Which of the following statements is true if an employer is allowed to pay different wages to different workers (assume that all workers have the same productivity)?

1. It will pay different wages only if it has market power on the labor market

2. The total number of employed may increase

3. Some workers will be paid less

1. I only

2. I and II only

3. II and III only

4. I and III only

5. I, II and III

28. An ICEF graduate considers two options: to enrol in the PhD program at LSE or to accept a job offer from McKinsey (London). What are the opportunity costs of going to the PhD program?

1. Expenditures on books and tuition fees at LSE.

2. The salary and bonuses at McKinsey

3. Expenditures on tickets to London, meals and rent in London.

1. 2 only

2. 1 plus 2 only

3. 2 plus 3 only

4. 1 plus 3 only

5. 1 plus 2 minus 3

29. The production possibilities frontier illustrates the following basic fact:

1. Diminishing marginal productivity

2. Non-increasing marginal productivity

3. If there are no unused resources, then in order to produce an additional unit of one good, one should sacrifice some units of the other

4. (B) and (C)

30. Which of the following will result in an outward shift of the production possibilities curve?

1. the reduction of unemployment

2. permanent increase of aggregate demand

3. last year increase in the birth rate

4. a new more efficient production technology

5. (C) and (D)

31. If a firm is earning only normal profit, then its production is such that

1. marginal costs are higher than the average costs

2. price equals marginal revenue

3. price is not less than average variable costs

4. marginal revenue is zero

5. average fixed costs are greater than marginal revenue

32. Marginal cost equals average total cost when

1. marginal revenue is zero

2. average variable cost is minimized

3. fixed costs are zero

4. more than one answer is correct

5. none of the above

33. A firm is considering a new market to enter. What may indicate that it is not perfectly competitive?

1. there is a substantial start-up cost to start a business

2. industry demand curve is not perfectly elastic

3. the product is a luxury good

4. the product is a differentiated good

1. 1 and 4 only

2. 1, 3 and 4only

3. 1, 2, and 4 only

4. 3 and 4 only

5. Everything

34. A perfectly competitive firm last week has a profit of $260 corresponding to its optimal output. Marginal costs are $13, average variable costs are $6, and average fixed costs are $3. Its output was:

1. 20

2. 26

3. 28

4. 65

5. none of the above

35. The current output of a firm is 153 units, average cost is $5, the price is $6. If the firm reduces the output to 150 units, its average cost will be higher by $0.3 and the price will increase by $0.5. Which of the following is true?

1. the firm should reduce its output to 150 units

2. the firm should stay at its current level of production

3. price cannot increase faster than the average cost

4. the firm does not operate in perfect competition

5. none of the above

36. Imagine the juice industry is currently in the long-run competitive equilibrium. The government wants to introduce a lump-sum tax (i.e., tax that does not depend on the output) on the juice firms. What of the following will happen?

1. output of juice will decrease in LR

2. output of juice will fall in SR and LR

3. the tax will have no effect on market equilibrium

4. output of juice will increase in SR in order to compensate for its fall in LR

5. there is not enough information to answer the question.

37. Which of the following statements is true?

1. monopoly always has a positive profit

2. monolopy’s output minimizes total costs

3. monopoly’marginal revenue is less than price

4. monopoly’s marginal cost curve coincides with the supply curve.

5. monopoly will produce regardless of the demand elasticity

38. Which of the following guarantees that it is profitable for the monopoly to decrease its output?

1. there are decreasing returns to scale

2. marginal revenue is greater than the average total cost

3. marginal revenue is negative

4. marginal cost is lower than than the average variable cost

(E) none of the above

39. Price discrimination by a monopolist

1. increases social welfare

2. increases the deadweight losses

3. never happens in reality

4. does not influence the gap between marginal revenue and price

5. minimizes its total cost

40. Compared to a perfectly competitive industry, which of the following about a monopolist in general will be true?

1. average costs are lower

2. output is lower

3. output is higher

4. price is higher

5. market demand is more elastic