SL 151������������������������������������������������������������������ Name
__________________________________________________ CM ______
Bremmer I����������������������������������������������������������� May
15, 2003
������������������������������������������������������������������������������ Third
In-Class Exam - - Chapters 7, 8, 11 - 14
Part I.� Multiple Choice (3
points each).� Indicate the best answer
for each question in the space provided.
___ 1.���� A pure monopolist would maximize total
revenue if it produced that output where:
A.��� P = MC.��������� ������� D.��� P = ATC.
B.��� MR = MC.������������ E.���� MC = ATC.
C.��� MR = 0.
___ 2.���� In the long run, a monopolist=s economic profit:
A.��� must be zero.�������� ������� C.��� must be negative.
B.��� must be positive.��������� D.��� may be
greater than or equal to zero.
___ 3.���� A pure monopolist should never produce in
the:
A.��� segment of its demand curve where the price
elasticity of demand is greater than one.
B.��� inelastic segment of its demand curve
because it can always increase total revenue by more than it increases total
cost by reducing price.
C.��� inelastic segment of its demand curve
because it can increase total revenue and reduce total cost by increasing
price.
D.��� elastic segment of its demand curve because
it can increase total revenue and reduce total cost by lowering price.
E.���� short run if price is less than average
total cost.
___ 4.���� In response to a cost-reducing
technological breakthrough in the production of its product, a
profit-maximizing monopolist will normally:
A.��� increase price and increase output.��������� D.��� decrease price and increase output.
B.��� decrease price and decrease output.��������������� E.���� charge the same initial price and
produce the same, initial output.
C.��� increase price and decrease output.
___ 5.���� Printers whose skills are no longer in
demand because of technological changes in typesetting and printing, and who
are unemployed as a result, are examples of:
A.��� seasonal unemployment.������������������� C.��� cyclical unemployment.
B.��� frictional unemployment.������������������� D.��� structural unemployment.
___ 6.���� If a number of workers who have been
looking for work for a long time give up their search, but they are still
willing and able to work , this:
A.��� reduces the size of the labor force.���������������������������������������������������������� D.��� Answers A, B, and C.
B.��� reduces the number of those considered to be
unemployed.�������������� ������� E.���� Only answers A and B.
C.��� unambiguously reduces the unemployment rate.
___ 7.���� If real GDP falls from one period to
another, we can conclude that:
A.��� deflation occurred.
B.��� inflation occurred.
C.��� nominal GDP fell.
D.��� None of the above necessarily occurred.
___ 8.���� If the consumer price index (CPI) rises
from 300 to 333 in a particular year, the rate of inflation in that year is:
A.��� 10 percent.������������ B.��� 91 percent.������������ C.��� 33 percent.������������ D.��� 11 percent.������������ E.���� 333 percent.
___ 9.���� The short-run supply curve for a perfectly
competitive firm is:
A.��� that portion of the MC curve above the ATC
curve.������������ D.��� the upward sloping section of the ATC curve.
B.��� that portion of the MC curve above the AVC
curve.������������ E.���� the upward sloping section of the AVC
curve.
C.��� the upward-sloping section of the MC curve.
___ 10.� If a competitive industry has a long-run
industry supply curve that is upward sloping, then:
A.��� it is a constant-cost industry.������������������� D.��� input prices remain constant as firms enter
the industry in the long-run.
B.��� it is a decreasing-cost industry.����������������������� E.���� Both A and D.
C.��� it is an increasing-cost industry.
___ 11.� Assume a decreasing-cost, perfectly
competitive industry is in long-run equilibrium.� Given an increase in demand:
A.��� the new long-run equilibrium price will be
greater than the initial long-run equilibrium price.
B.��� the new long-run equilibrium price will be
equal to the initial long-run equilibrium price.
C.��� the new long-run equilibrium price will be
less than the initial long-run equilibrium price.
D.��� firms would exit the industry in the long
run.
E.���� firms would incur losses in the short run.
___ 12.� If every firm in a perfectly competitive,
constant-cost industry are incurring short-run losses,
then in the long run:
A.��� the market demand curve will shift to the
right.��������������������� D.��� the short-run industry supply curve will
shift to the left.
B.��� the market demand curve will shift to the
left.���������������� ������� E.���� the ATC, AVC, and MC curves of the typical firm shift up.
C.��� the short-run industry supply curve will
shift to the right.
___ 13.� Everything else held constant, a decrease in
the price level will:
A.��� increase the demand
for loanable funds, causing an increase in the interest rate and an increase in
investment spending.
B.��� decrease the demand
for loanable funds, causing a decrease in the interest rate and a decrease in
investment spending.
C.��� increase the supply
of loanable funds, causing a decrease in the interest rate and an increase in
investment spending.
D.��� decrease the supply
of loanable funds, causing an increase in the interest rate and a decrease in
investment spending.
___ 14.� Holding everything else constant, an increase
in expected inflation will:
A.��� cause a decrease in
the demand for loanable funds.
B.��� cause an increase
in the supply of loanable funds.
C.��� cause a decrease in
the nominal interest rate.
D.��� All of the above are true.
E.���� None of the above are
true.
___ 15.� Holding everything else constant, an increase
in real GDP will cause:
A.��� the demand for loanable funds to increase.
B.��� the supply of loanable funds to increase.
C.��� the nominal interest rate to increase if the
shift in the demand for loanable funds is greater than the shift in the supply
of loanable funds.
D.��� All of the above are true.
E.���� None of the above are
true.
Part II.�
Short-answer questions (55 points total).� Give a concise, but complete answer for each
of the following questions.
1.���� Define the
four components of GDP.� (8 points)
2.���� Suppose a
decreasing-cost, perfectly competitive industry is in long-run equilibrium.� Using two graphs - - one showing market
demand and supply and the other showing the average cost curves of the typical
firm - - illustrate and describe how a decrease in the demand affects the
industry both in the short and long-run.� (10 points)
3.���� Using the
loanable funds market, illustrate and describe how an increase in the
government budget deficit affects the nominal interest
rate.� Using your diagram, explain the
concept of crowding out.� (10 points)
4.���� Table 1
below shows the demand curve and the cost curve for a pure monopolist.� (17 points)
Demand
Conditions |
Cost
Conditions |
|||||
Quantity Demanded |
Price |
Total Revenue |
Marginal Revenue |
Quantity |
Total Cost |
Marginal Cost |
0 |
$34 |
|
- - - |
0 |
$20 |
- - - |
1 |
32 |
|
|
1 |
36 |
|
2 |
30 |
|
|
2 |
46 |
|
3 |
28 |
|
|
3 |
50 |
|
4 |
26 |
|
|
4 |
54 |
|
5 |
24 |
|
|
5 |
56 |
|
6 |
22 |
|
|
6 |
64 |
|
7 |
20 |
|
|
7 |
80 |
|
8 |
18 |
|
|
8 |
100 |
|
9 |
16 |
|
|
9 |
128 |
|
A.��� Fill in the
values in Table 1 for the total revenue, marginal revenue, and marginal cost of
each output.� (9 points)
B.��� Using the
concepts of marginal revenue and marginal cost, determine the profit-maximizing
output and price.� Why Explain
your answer.� What are the firm=s profits?� (5
points)
C.��� Assume the
monopolist=s fixed cost increase from $20 to $90.� What would be the short-run profit-maximizing
price and output in this case?�
Everything else constant, what would happen in the long run?� (3 points)
5.���� If AVC
< P < ATC, a profit-maximizing (loss-minimizing), perfectly competitive
firm will produce in the short run even though it incurs a loss.� Using the short-run average cost curves of a
typical firm, illustrate and describe how such a situation would occur.� Using your diagram, explain why the
loss-minimizing, competitive firm wouldn=t shut down in the short run if AVC < P <
ATC.� (10 points)