ECON Final Exam

An e✏uent fee is imposed on a steel firm to reduce the amount of waste materials that it dumps in a river. Consider the following two statements and select the correct answer:

I. The more easily factors of production can be substituted for one another (for example, capital can be used to reduce waste water), the more effective the fee will be in reducing effluent.

II. The greater the degree of substitution of capital for waste water, the less the firm will pay in effluent fees.

Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just released its latest hit film, Ernest Goes to the Hamptons, on DVD. The retail price of the DVD is $25, and the elasticity of demand for this DVD is -2. Has the studio selected the profit-maximizing retail price for this DVD?

The cost-output elasticity equals 1.4. This implies that:

When an industry’s raw material costs increase, other things remaining the same,

Use the following two statements to answer this question:

I. “Decreasing returns to scale” and “diminishing returns to a factor of production” are two phrases that mean the same thing.

II. Diminishing returns to all factors of production implies decreasing returns to scale.

Marginal profit is negative when:

The demand curve facing a perfectly competitive firm is

A plant uses machinery and waste water to produce steel. The owner of the plant wants to maintain an output of 10,000 tons a day, even though the government has just imposed a $100 per gallon tax on using waste water. The reduction in the amount of waste water that results from the imposition of this tax depends on

Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now earns $25,000 per year while he is still building the new business. What is the economic cost to Jim of the time he contributes to the new business?

If current output is less than the profit-maximizing output, then the next unit produced

At the optimum combination of two inputs,

Short-run supply curves for perfectly competitive firms tend to be upward sloping because:

If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:

The ______ elastic a firm’s demand curve, the greater its ________.

A production function defines the output that can be produced

The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. For 100 cookies, the average total cost is

Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle’s by $500,000 yearly. If Fizzle & Sizzle sell the same output at the same price and are otherwise identical, Fizzle’s profit will be

Consider the demand curve of the form Q=a-bP . If a is a positive real number, and b=0, then demand is:

The more elastic the demand facing a firm,

At the profit-maximizing level of output, what is true of the total revenue (TR) and total cost (TC) curves?

Does it make sense to consider the returns to scale of a production function in the short run?

Which of the following is NOT true regarding monopoly?

A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true?

For a monopolist, changes in demand will lead to changes in

Along any downward sloping straight-line demand curve:

The short run is

We observe that both the price and quantity sold of golf balls are rising over time. This is due to:

Assume that a firm’s marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firm’s profit maximizing price is approximately

The total cost of producing a given level of output is

The law of diminishing returns assumes that

A firm’s marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

Which of the following is true at the output level where P=MC?

A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that

In long-run competitive equilibrium, a firm that owns factors of production will have an

Which of the following pairs of goods are most likely to have a negative cross price elasticity of demand?

What happens to an incumbent firm’s demand curve in monopolistic competition as new firms enter?

Which always increase(s) as output increases?

When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that

Bette’s Breakfast, a perfectly competitive eatery, sells its “Breakfast Special” (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should

Suppose the demand for gourmet coffee can be represented by a linear demand curve. At the prevailing market price the income elasticity of demand for gourmet coffee is 2. When income rises the demand curve for gourmet coffee:

DVDs can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing its last two major films on DVDs. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two DVDs?

At the current level of output, long-run marginal cost is $50 and long-run average cost is $75. This implies that:

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect:

At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you

The supply curve for a competitive firm is

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the

Several years ago, Alcoa was e↵ectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the

Which of the following would shift the demand curve for new textbooks to the right?

At the profit-maximizing level of output, demand is