1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B) plant. C) firm. D) multinational.

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1 Miami Dade College ECO 2023 Principles of Microeconomics Summer B 2014 Practice Test #3 1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B) plant. C) firm. D) multinational. 2. The characteristic of a corporation that most encourages investors to invest large amounts of money in it is: A) double taxation. B) limited liability. C) diffusion of ownership. D) access to international markets. 3. Jim Delaney sold his pizza firm to an investor who then sold stock to the public. Jim now earns a salary of $5,000 a month, and all the profits are distributed to the stockholders. This firm is an example of a: A) sole proprietorship. B) partnership because Jim Delaney partnered with an investor. C) corporation. D) nonprofit corporation. Use the following to answer question 4: Production in the Short Run Labor Total Product

2 4. (Table) According to the table, diminishing returns occur when hiring which worker? A) the first. B) the second. C) the third. D) the fourth. Use the following to answer question 5: Workers Output MP AP (Table) In the table, what is the MP of the third worker? A) 7 B) 8 C) 9 D) 10 2

3 Use the following to answer question 6: Figure: Determining Marginal Returns Workers Output MP AP (Figure: Determining Marginal Returns) Referring to both the table and the figure, adding a third worker leads to: A) increasing marginal returns. B) diminishing marginal returns. C) constant marginal returns. D) negative marginal returns. 3

4 Use the following to answer question 7: Production Data for Baseball Bat Company Number of Total Output Workers (number of bats) (Table) In the table, the marginal product of the eighth worker is bats. A) 10 B) 8 C) 23 D) 14 Use the following to answer question 8: Output Variable Cost 0 $25 1 $40 2 $55 3 $70 4 $85 8. (Table) Referring to the table, suppose the coffee plant experiences fixed costs of $35, then, at 2 units of production, the firm would have total costs of: A) $60. B) $20. C) $90. D) $55. 4

5 Use the following to answer question 9: Workers Output MP AP FC VC TC ATC AVC AFC MC , , ,800 2, ,250 2, ,700 3, ,150 3, ,600 4, ,050 4, ,500 5, (Table) Referring to the table, is the total cost when producing 21 units. A) $850 B) $1,850 C) 2,050 D) There is not enough information to answer this question. Use the following to answer question 10: Q FC VC , , , , , , , (Table) In the table, the total cost of producing 54 units of output is: A) 1,250. B) 500. C) 2,000. D) 1,750. 5

6 11. Market structure analysis allows economists to: A) predict the behavior of firms. B) create the conditions of competition. C) eliminate economic profits. D) remodel the economy. 12. Han and Micah have just started their own business: a food truck that sits on city streets and sells specialty Vietnamese food. The start-up costs were low, and there are lots of other Vietnamese food trucks in the city, but Han's cooking is very special. People come from all over the city to buy their food, so they can charge a slightly higher price than their competitors. What type of market structure do they face? A) perfect competition B) monopolistic competition C) oligopoly D) monopoly 13. Which market structures share the characteristic of many buyers and sellers? A) perfect competition and monopolistic competition B) perfect competition and oligopoly C) perfect competition and monopoly D) Perfect competition is the only market structure with many buyers and sellers 14. Marginal revenue equals: A) the change in price divided by change in total revenue. B) the change in total revenue divided by the change in quantity. C) total revenue divided by quantity. D) total revenue divided by price. 15. A perfectly competitive firm should continue to produce until: A) MC = TC. B) MC = P. C) ATC is at a minimum. D) MC is at a minimum. 6

7 Use the following to answer question 16: Output Marginal Total Cost Revenue 5 1,200 7, ,300 9, ,400 10, ,500 12, ,600 13, (Table) In the table, what is the shape of the demand curve that faces John's Tricycle Company? A) downward sloping B) horizontal C) vertical D) upward sloping 7

8 Use the following to answer question 17: Figure: Interpreting MC and Price Curves 17. (Figure: Interpreting MC and Price Curves) The profit-maximizing output is units. A) 12 B) 31 C) 54 D) 57 8

9 Use the following to answer question 18: Figure: Unicycle Production Costs 18. (Figure: Unicycle Production Costs) At a price of $20, how many unicycles will John produce? A) 40 B) 42 C) 44 D) (Figure: Unicycle Production Costs) If the price is $17, in the long run some unicycle producers: A) leave the industry. B) enter the industry. C) begin to advertise. D) become monopolies. 9

10 20. Which sequence describes the long-run adjustment to short-run economic profits in a competitive market? A) new firms enter, industry supply increases, market price falls B) new firms enter, industry demand increases, market price rises C) new firms enter, industry supply decreases, market price falls D) new firms enter, industry supply increases, market price rises 21. Market power means the ability to: A) earn a normal profit. B) earn an economic profit. C) have some control over price. D) eliminate competition. 22. A price maker is a firm that: A) can influence market price by adjusting its level of output. B) can choose any price it wishes to sell at, whether or not it is on the demand curve. C) makes a profit by selling at the highest price possible. D) makes a loss if it charges a low price. 23. For both the monopolist and the perfectly competitive firm: A) the profit-maximizing output occurs where P = MC. B) the profit-maximizing output occurs where P = MR. C) the profit-maximizing output occurs where MR = MC. D) profits are not maximized. 10

11 Use the following to answer question 24: Figure: Effects of Monopolies on Markets 24. (Figure: Effects of Monopolies on Markets) In the graph, which area represents the inefficiencies caused by a monopoly? A) e B) f C) g D) h 25. An example of x-inefficiency is: A) an executive cutting wages of workers in an economic downtown. B) an executive paying a manager a bonus for increasing profits 20%. C) money spent on advertising. D) an executive, at corporate expense, hiring a limousine to travel one block. whenever it is raining. 11

12 26. A monopolist participates in price discrimination when they charge: A) a higher price to consumers whose demand is more elastic. B) a higher price when their marginal cost is lower. C) a lower price to consumers whose demand is more elastic. D) the same price to all of their consumers. 27. A monopolist has four distinct groups of customers. Group A has an elasticity of demand of 0.2, B has an elasticity of demand of 0.8, C has an elasticity of demand of 1.0, and D has an elasticity of demand of 2.0. The group paying the highest price for the product will be: A) A. B) B. C) C. D) D. 28. When Ford offers a car rental agency lower prices if it buys a fleet of new vehicles, it is practicing: A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) perfect price discrimination. 29. The top eight firms in an industry control, respectively, 15%, 10%, 9%, 8%, 7%, 6%, 5%, and 4%. What is the four-firm concentration ratio? A) 15 B) 42 C) 64 D) Contestable markets are markets in which: A) entry costs are so high that the sheer threat of entry keeps prices high. B) entry is extremely difficult. C) potential competition doesn't exist. D) entry costs are so low that the sheer threat of entry keeps prices low. 31. Monopolistic competition is like perfect competition in that they both: A) have numerous competitors. B) put labels on their products. C) erect barriers to entry. D) make zero economic profit in the short run. 12

13 Use the following to answer question 32: Figure: Monopolistic Competition 32. (Figure: Monopolistic Competition) Under monopolistic competition, the price for this good or service in the graph will be: A) e. B) f. C) g. D) d. 33. Murphy's Gas Station constantly watches the price of unleaded gas at Johnson's Gas Station. If Johnson's lowers the price of gas, so will Murphy's. This is an example of: A) network effects. B) rent-seeking behavior. C) mutual interdependence. D) monopoly. 13

14 34. When oligopolies act jointly as a monopoly, they are acting as a: A) contestable market. B) competitive market. C) cartel. D) monopsony. 35. When firms collude, they are looking to operate as a monopoly by: A) raising price and output in the market. B) lowering price and output in the market. C) raising price and reducing output in the market. D) determining output where price equals marginal cost. 36. Game theory is: A) the study of strategy and strategic behavior. B) focused on competition between two distinct rivals. C) a methodology to accomplish winning results in games of chance. D) a strategy that requires cooperation when multiple parties are involved. 37. A Nash equilibrium occurs when: A) no optimal strategies are possible. B) each player takes the best possible action, given the actions of the other players. C) players select the worst strategy, given the actions of the other players. D) supply intersects demand. Use the following to answer question 38: 38. (Table) In this game table, the dominant strategies are: A) Jesse plays Up and Katy plays Left. B) Jesse plays Up and Katy plays Right. C) Jesse plays Down and Katy plays Left. D) Jesse plays Down and Katy plays Right. 14

15 39. In the Prisoner's Dilemma, if the prisoners could collude: A) both prisoners would be better off confessing. B) the best outcome for both prisoners occurs if one confesses and the other does not. C) both prisoners would be better off not confessing. D) their prison sentences would be maximized. Use the following to answer question 40: JetBlue High Low Delta High 700, , 200 Low 550, , (Table) In this game table representing airfare pricing between Delta and JetBlue, what is the Nash equilibrium? A) Delta = high; JetBlue = high B) Delta = high; JetBlue = low C) Delta = low; JetBlue = high D) Delta = low; JetBlue = low 15

16 ANSWER KEY ECO 2023 Principles of Microeconomics Practice Test #3 1. C 2. B 3. C 4. C 5. C 6. A 7. D 8. C 9. B 10. D 11. A 12. B 13. A 14. B 15. B 16. B 17. C 18. C 19. A 20. A 21. C 22. A 23. C 24. D 25. D 26. C 27. A 28. B 29. B 30. D 31. A 32. B 33. C 34. C 35. C 36. A 37. B 38. C 39. C 40. B 16