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)