Miami Dade College
ECO 2023 Principles of Microeconomics - Summer B 2015
Practice Test #3
1. Which of the following is a characteristic of a monopoly firm?
A) easy entry and exit
B) barriers to entry
C) vertical individual demand curve
D) many buyers and sellers
2. Papabear Corporation is a single seller of Wonderstuff. There are two substitutes for
Wonderstuff. Given this situation, Papabear:
A) cannot be a monopoly because there are substitutes for Wonderstuff.
B) cannot be a monopoly because two substitutes make it a competitive market.
C) can still be a monopoly because it is unknown if the two substitutes are close
substitutes.
D) acts as if it were competitive and takes the price set in the market.
3. _____ in an industry can be so large that demand will support only one firm.
A) Economies of scope
B) Diseconomies of scale
C) Economies of scale
D) None of these can result in this outcome.
4. A very important difference between perfect competition and monopoly is:
A) the monopoly faces a downward-sloping demand curve, while the perfect competitor
faces a horizontal demand curve.
B) the monopoly faces an inelastic demand curve, while the perfect competitor faces an
elastic demand curve.
C) a monopoly is profitable, while a perfect competitor is only sometimes profitable.
D) a monopoly is not regulated by the market, while a perfect competitor is regulated by
the market.
5. An important difference between a perfectly competitive firm and a monopolist is:
A) the size of the industry.
B) the primary objective of the firms.
C) the price it charges to sell additional units of a good.
D) a monopolist only produces in the long run, while a perfect competitor only produces
in the short run.
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6. Which of the following statements is TRUE about the price that a monopolist charges?
A) Too much of the good is being produced in a competitive market and not enough is
being produced in a monopoly due to the way that prices are set.
B) The difference between the price charged by a monopolist and a perfect competitor
is due to differences in costs.
C) The value that society places on the last unit produced in a monopoly is greater than
its cost.
D) The price is the same as the price that would be charged if there were perfect
competition.
7. Which of the following is NOT an example of price discrimination?
A) Soup companies sending coupons to select buyers.
B) Retirees getting a discount at a local movie theater.
C) Drug companies charging people living in wealthier countries higher prices than for
the same drug in a poorer nation.
D) A novel printed in paperback selling for more than the same book in an electronic
format.
8. For a firm to price discriminate, it must:
A) sell to customers with identical price elasticities of demand.
B) produce a product or service that has a close substitute provided by other firms.
C) be able to prevent the resale of its product.
D) have different marginal costs for each of the different customers.
9. Which of the following is MOST likely to be a natural monopoly?
A) an ambulance service in a small town in Wyoming
B) Apple, Inc.
C) an automobile manufacturer with a national market
D) United Parcel Service
10. A regulatory agency has imposed marginal cost pricing on a natural monopolist. We
should expect that the natural:
A) monopolist's average total cost of production is rising over the relevant range of
production.
B) monopolist will eventually go out of business.
C) monopolist will earn economic profits.
D) monopolist will earn only a normal profit.
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11. 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. When Doritos brand tortilla chips spends money for television commercials, it intends to
shift the:
A) demand curve to the right and make demand more elastic.
B) supply curve to the right and make supply more elastic.
C) demand curve to the right and make demand less elastic.
D) supply curve to the right and make supply less elastic.
Use the following to answer question 13:
Figure: Monopolistic Competition
13. (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.
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14. Which of the following industries is MOST likely to be an oligopoly?
A) agriculture
B) steel
C) beer
D) ketchup
15. If a market has 20 competing firms and 20% of those firms produce 80% of the sales, then
the market structure would be described as:
A) competitive.
B) an oligopoly.
C) monopolistically competitive.
D) a monopoly.
Use the following to answer question 16:
Figure: Kinked Demand Curves and Oligopolies
16. (Figure: Kinked Demand Curves and Oligopolies) Using the graph, an oligopolistic firm
facing a kinked demand curve will NOT increase its price when its marginal cost
fluctuates between which two points?
A) points a and b
B) points a and c
C) points b and c
D) An oligopolistic firm will always change its price when the marginal cost fluctuates.
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17. If an individual's primary objective is to maximize his or her salary, then which of the
following actions would NOT be considered a rational decision?
A) accepting a miserable job that pays $60,000 per year over a fun job that pays $40,000
per year
B) accepting a fun job that pays $70,000 per year over a miserable job that pays $60,000
per year
C) accepting a miserable job that pays $95,000 per year over a fun job that pays $90,000
per year
D) accepting a fun job that pays $40,000 per year over a miserable job that pays $60,000
per year
Use the following to answer question 18:
Firm B's Price
$20
$15
$60,000
$20 $100,000
$100,000 $120,000
Firm A's Price
$80,000
$15 $120,000
$60,000
$80,000
18. (Table) Assume that oligopolists, Firm A and Firm B both charge $20 for the product and
face roughly the same costs. Firm A is considering a price decrease to $15. Profits for
each firm are given in the payoff matrix (A's profits, B's profits) shown in the table. How
will Firm B react?
A) Firm B will keep its price at $20 and earn $100,000.
B) Firm B will keep its price at $20 and earn $60,000.
C) Firm B will lower its price to $15 and earn $60,000.
D) Firm B will lower its price to $15 and earn $80,000.
19. The Prisoner's Dilemma is an example of a:
A) cooperative game.
B) multiplayer game.
C) repeated game.
D) noncooperative game.
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20. An example of a noncooperative game is:
A) a cartel.
B) a price-fixing model.
C) a joint-profit maximization model.
D) the Prisoner's Dilemma.
21. In a competitive labor market, if a new manufacturing plant seeks to build its labor force,
it is assumed that:
A) each applicant has a unique skill set.
B) the jobs available at the plant represent the best possible opportunity for each
applicant.
C) applicants have the ability to negotiate their wage based on their qualifications.
D) the quantity of workers available is greater than the quantity of workers that are
sought.
22. If Larry is given a $2-per-hour pay increase, and in response he decides to work less
overtime, then:
A) Larry's labor supply curve is flat.
B) Larry's labor supply curve is upward sloping.
C) for Larry, the income effect is dominating the substitution effect.
D) for Larry, the substitution effect is dominating the income effect.
Use the following to answer question 23:
Figure: Labor Supply Curve
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23. (Figure: Labor Supply Curve) Referring to the graph, we see that this person is willing to
supply _____ hours of labor at wage rate W1 than at W2 and _____ hours of labor at wage
rate W3 than at W2.
A) more; more
B) more; fewer
C) fewer; fewer
D) fewer; more
Use the following to answer question 24:
Labor Supply Schedule
Wage rate ($/hr.) Hours of work (per week)
10
26
15
32
25
36
35
40
45
41
50
38
24. (Table) In the table, at what wage rate does the supply curve bend backward?
A) after $25 per hour
B) after $15 per hour
C) after $35 per hour
D) after $45 per hour
25. Derived demand suggests that
A) labor demand is derived from demand for the product it produces.
B) labor demand will shift about in a random fashion.
C) labor demand is determined by the supply of labor.
D) the labor demand curve will be upward sloping.
26. The change in total output due to the change in one variable input, while holding all other
inputs constant, is the:
A) marginal physical product.
B) market demand curve for labor.
C) marginal revenue product.
D) derived demand for labor.
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Use the following to answer question 27:
Labor
0
1
2
3
4
5
Output
0
7
19
34
47
57
27. (Table) The amount of labor and corresponding output are provided in the table. The price
per unit of output is $11.50. The wage paid per day is $115. To maximize economic
profit, how many people should the firm hire?
A) 2
B) 3
C) 4
D) 5
28. Which union represents truck drivers?
A) AFT
B) PATCO
C) Teamsters
D) UAW
29. Collective bargaining:
A) is practiced in nonunion related disputes.
B) consists of negotiations between unions and management.
C) is illegal in many states.
D) has nothing to do with fringe benefits.
30. Which act prohibited unfair labor practices by employers?
A) Wagner Act
B) Civil Rights Act of 1964
C) Executive Order 11246
D) Taft-Hartley Act of 1947
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31. Externalities are the impacts:
A) that affect only the consumers in the private market.
B) that affect only the producers in the private market.
C) on the government.
D) on third parties.
32. The live band nearby makes it difficult for patrons of a restaurant to hold a conversation.
This is an example of:
A) a negative externality.
B) a positive externality.
C) the Coase theorem.
D) environmental mugging.
33. Alex pays Dale to fix his roof. Alex's neighbor, Chris, works at night and can't sleep
during the day because of the noise from the roof repair. This situation is an example of:
A) a common property resource.
B) market success.
C) an externality.
D) a public good.
34. If a negative externality exists in a market, the marginal:
A) private cost exceeds the marginal social cost.
B) social cost exceeds the marginal private cost.
C) private benefit exceeds the marginal social benefit.
D) social benefit exceeds the marginal private benefit.
35. All of the following are considered private goods, EXCEPT:
A) street lights.
B) an ice cream cone.
C) a car.
D) a house.
36. If air pollution comes from multiple sources and it causes many people to suffer, then an
efficient agreement among the parties is difficult to achieve because:
A) production costs would be high.
B) pollution costs are high.
C) transaction costs are high.
D) social costs are high.
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37. Amtrak exhibits ______, and a can of Budweiser is a ______ product.
A) excludability; rival
B) nonexcludability; rival
C) excludability; nonrival
D) nonexcludability; nonrival
38. ______ would be MOST likely to have a free rider problem.
A) Satellite TV
B) Public TV
C) A professional sporting event
D) A rock concert
39. If a plant that employs 1,500 workers is assessed a fee to pay for its effluent costs, the firm
will be likely to:
A) reduce its labor force because its cost of production has increased.
B) add to its labor force in order to perform cleanup tasks
C) reduce its product price as compensation for its environmental impact.
D) reduce its product price to increase its sales volume.
40. Which of the following is both finite and nonrenewable?
A) helium
B) gold
C) copper
D) Helium, gold, and copper are all finite and nonrenewable.
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ECO 2023 Principles of Microeconomics - Summer B 2015
Practice Test #3 - Answer Key
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