Microeconomics Exam 2022

Section I: Multiple-Choice 1. Individuals and societies must make choices regarding which goods and services will be produced and consumed because (A) unlimited wants can only be satisfied by allocating resources efficiently (B) resources are insufficient to satisfy the unlimited wants of people (C) allocating scarce resources efficiently reduces the equitable distribution of goods (D) income is not equally distributed to ensure that everyone can participate in the market (E) a country cannot have a comparative advantage in the production of all goods 2022 2. The graph above shows the marginal benefit that a student receives and the marginal cost the student incurs from additional hours of study. Which of the following is true? (A) Beyond S2 hours of study, there is no further benefit from devoting additional hours to study. (B) At S1 hours of study, the extra marginal cost of study time exceeds the extra marginal benefit of study time. (C) The optimal number of hours that the student should study is S2 hours. (D) The rational individual should study S3 hours. (E) The marginal cost of studying decreases as more time is spent studying. 3. Which of the following occurs if the price of oranges is below the equilibrium price? (A) There is a surplus of oranges. (B) The quantity supplied of oranges is greater than the quantity demanded. (C) The quantity supplied of oranges is greater than the quantity sold. (D) The quantity purchased of oranges is greater than the quantity sold. (E) The quantity demanded of oranges is greater than the quantity supplied. 2022 Questions 4 and 5 refer to the graph below. 4. Total economic surplus will be maximized at which of the following price and quantity combinations? (A) P3 and Q3 (B) P3 and Q1 (C) P2 and Q2 (D) P1 and Q1 (E) P1 and Q3 5. Suppose the government sets a price floor at P3 in the market. The resulting consumer surplus, producer surplus, and deadweight loss will be which of the following? (A) Consumer Surplus B+E Producer Surplus C+F Deadweight Loss A+B (B) Consumer Surplus A+B Producer Surplus C+D Deadweight Loss E+F (C) Consumer Surplus A Producer Surplus C+D+F Deadweight Loss E (D) Consumer Surplus A+B+E Producer Surplus C+D+F Deadweight Loss 0 (E) Consumer Surplus A Producer Surplus B+C+D Deadweight Loss E+F 2022 6. Assume that a 2 percent increase in the price of bologna causes a 5 percent decrease in the quantity demanded of cheese. What is the cross-price elasticity of demand between these goods, and how are these goods related? (A) Cross-price elasticity of demand equals −0.4, and these goods are complements. (B) Cross-price elasticity of demand equals +0.4, and these goods are substitutes. (C) Cross-price elasticity of demand equals −2.5, and these goods are complements. (D) Cross-price elasticity of demand equals +2.5, and these goods are substitutes. (E) Cross-price elasticity of demand equals −0.4, and these goods are substitutes. 7. For a firm where labor is the only variable input, which of the following happens when diminishing returns set in? (A) Average variable cost begins to increase. (B) Average product of labor begins to decline. (C) Total product begins to decline. (D) Marginal cost begins to increase. (E) Average total cost begins to increase. 8. Which of the following indicates the presence of economies of scale as the quantity of output increases? (A) Short-run average variable cost decreases. (B) Long-run average total cost decreases. (C) Marginal cost decreases. (D) Average fixed cost decreases. (E) Marginal cost exceeds average total cost. 2022 9. For a perfectly competitive firm, assume the price equals a rising marginal cost at 200 units of output. At this output, average total cost is $8 and average variable cost is $5. If the price is $4, by how much can this firm reduce its losses by shutting down? (A) $800 (B) $600 (C) $400 (D) $200 (E) $100 10. Which of the following is true for a perfectly competitive firm? (A) The firm is a price taker. (B) The firm chooses its profit-maximizing quantity by equating price to average total cost. (C) The firm faces a downward-sloping demand curve for its product. (D) The firm’s short-run supply curve is the same as its average variable cost curve above the minimum of the marginal cost curve. (E) The firm can expect to earn positive economic profit in long-run equilibrium. 11. Which of the following is more likely to occur when there are high barriers to entry in an industry? (A) The firm(s) in the industry earn economic profits in the long run. (B) The industry will be characterized by diseconomies of scale. (C) The firm(s) in the industry are price takers. (D) The firm(s) in the industry will charge a price equal to average total cost. (E) The firm(s) will charge a price on the inelastic portion of the demand curve. 2022 12. What are the profit- and revenue-maximizing quantities for the monopolist whose revenue and cost conditions are described by the graph above? (A) Profit-Maximizing Q5 Revenue-Maximizing Q2 (B) Profit-Maximizing Q4 Revenue-Maximizing Q3 (C) Profit-Maximizing Q3 Revenue-Maximizing Q3 (D) Profit-Maximizing Q1 Revenue-Maximizing Q4 (E) Profit-Maximizing Q1 Revenue-Maximizing Q3 2022 13. In long-run equilibrium, at which of the following output levels will a monopolistically competitive firm operate? (A) Where long-run average total cost is at a minimum (B) Where price equals marginal revenue (C) Where price equals average total cost (D) Where marginal revenue equals average total cost (E) Where marginal revenue equals average revenue 14. The equilibrium quantity of labor used in the production of a good will be the largest under which of the following conditions? (A) When the labor market is monopsonistic and the output market is perfectly competitive (B) When the labor market is monopsonistic and the output market is a pure monopoly (C) When the labor market is perfectly competitive and the output market is a pure monopoly (D) When both the labor and output markets are perfectly competitive (E) When laborers are allowed to collude in setting a price 15. Which of the following is true if the production of a good imposes external costs? (A) The market supply curve lies above the marginal social cost curve. (B) An appropriate government policy would be to subsidize production of the good. (C) A competitive market would not provide the good at all. (D) A competitive market would produce more than the socially optimal amount. (E) A persistent market surplus would occur. 2022