B) 5 units; $10

(C) 10 units; $5

(D) 10 units; $7

(E) 5 units; $5

15. According to the diagram, the loss of consumer surplus from being a monopoly market rather than a competitive market is (assuming that MC and the Demand curves are linear)

(A) 22.5;

(B) 12.5;

(C) 15;

(D) 7.5;

(E) 10.

16. Which of the following will result when a monopoly firm operating under conditions of declining unit cost sells its output at a uniform price equal to marginal cost?

(A) The monopoly will make economic profits.

(B) The monopoly will have to be subsidized to continue operating.

(C) The monopoly will realize a rate of profit equal to that of a competitive return.

(D) The monopoly will hire inputs above the level at which the value of their marginal product equals the marginal factor cost.

(E) The monopoly will hire inputs below the level at which the value of their marginal product equals the marginal factor cost.

19.It costs a lot of money to become an electricity supplier. However, it is extremely cheap to run the business afterwards. Such a firm is likely to:

I. exhibit economies of scale

II. have constant marginal cost as output rises

III. become a monopoly

(A) I only

(B) II only

(C) III only

(D) I and III

(E) II and III

D

20.A monopolist can maximize profits by:

(A) producing where MR=MC and setting price according to the demand curve

(B) setting the price as high as possible

(C) setting the price where the difference between price and marginal cost is the highest

(D) producing where marginal cost equal the price of the good

(E) producing where the price elasticity of demand is equal to one.

A

21.In the game described by the payoffs matrix below the dominant strategy:

(A) is to produce high output for each firm

(B) is to produce low output for each firm

(C) for one firm depends on the strategy taken by the other firm

(D) exists only for firm 1

(E) does not exist for either firm.

A

22.Given a downward sloping demand curve, a market that moves from competition to a multiplant monopoly will:

I. produce a deadweight loss (pure waste)

II. see a decrease in total surplus

III. see a decrease in producer surplus

(A) I only

(B) II only

(C) III only

(D) I, II and III

(E) I and II only

E

23.If a single firm can produce industry output at a lower cost than any other number of firms using the same technology, this is called:

(A) a natural monopoly

(B) the marginal output rule

(C) diseconomies of scale

(D) more than one answer is correct

(E) none of the above

A

24.Assuming that marginal costs are zero, the equilibrium point in a profit-maximizing monopoly occurs where:

(A) demand is inelastic

(B) demand is elastic

(C) demand is unit elastic

(D) marginal revenue is highest

(E) cannot tell from the information given

C

25.Given the downward sloping demand and the upward sloping marginal cost curves, if a per unit tax is imposed on a monopoly, a monopoly will ___________the price of its good and the total revenue (including the tax) will __________:

(A) decrease; decrease

(B) decrease; increase

(C) increase; increase

(D) increase; decrease

(E) cannot tell from the information given

D

26.In the long run, the monopoly and monopolistically competitive equilibrium are the same in that:

(A) price is greater than marginal cost

(B) price is greater than average cost

(C) marginal revenue is greater than marginal cost

(D) firms always earn normal profit

(E) more than one answer is correct

A

26.In the long run, the perfectly competitive equilibrium and monopolistically competitive equilibrium are the same in that:

(A) price is greater than marginal cost

(B) price is greater than average cost

(C) marginal revenue is greater than marginal cost

(D) firms always earn normal profit

(E) more than one answer is correct

D

27.According to the oligopoly kinked demand curve, with the P* being the price in the kink:

I. if one firm attempts to set the price below the P* level, its rivals will not change their prices

II. if one firm attempts to set the price below the P* level, its rivals will do the same

III. if one firm attempts to set the price above the P* level, its rivals will not change their prices

(A) I only

(B) II only

(C) III only

(D) II and III only

(E) I and III only

D

28.When suppliers jointly act like a monopolist by restricting output and raising price, they are said to form:

(A) monopolistic competition

(B) a monopsony

(C) a natural monopoly

(D) a cartel

(E) none of the above

D

29.Which of the following best explains why the demand curve for a factor of production such as labor slopes downward?

(A) The law of diminishing returns

(B) The law of comparative advantage

(C) Economies of scale

(D) The superior bargaining position of workers compared to employers

(E) The poor bargaining position of workers compared to employers

A

30. A firm finds that the slope of the marginal product of labour curve for the corresponding amount of labour used is zero. It follows that in the short run:

I. hiring additional workers will increase output

II. hiring additional workers will decrease output

III. decreasing the number of workers will decrease output

(A) I only

(B) II only

(C) III only

(D) I and III only

(E) II and III only

B

31.Which of the following factors will shift the demand curve for labour to the right?

(A) the demand for the product of labour declines

(B) the price of substitute input falls

(C) the productivity of labour increases

(D) the minimum wage increases

(E) none of the above.

C

32. Mandating fringe benefits (such as health insurance) for all workers would most likely:

(A) increase both labor supply and demand.

(B) decrease both labor supply and demand.

(C) increase labor supply and decrease labor demand.

(D) increase labor supply and have no impact on labor demand.

(E) decrease labor demand and have no impact on labor supply

C

33. Assume that the government imposes a minimum wage in a perfectly competitive labor market where the equilibrium wage was below the new minimum. Which of the following will be the expected effect on employment and total wage payments?

Employment Total Wage Payments

(A) Decrease Increase

(B) Decrease Decrease

(C) Decrease Might either increase or decrease

(D) Increase Increase

(E) Increase Might either increase or decrease

C

34. A backward-bending labor supply curve would mean that:

(A) the income effect dominates the substitution effect.

(B) the substitution effect dominates the income effect.

(C) both effects are negative.

(D) Both effects are positive.

(E) none of the above.

A

35. A firm that produces good X and sells it in the perfectly competitive market and maximizing should

(A) hire labour as long as its marginal product is above its wage under imperfect competition in the labour market

(B) hire labour as long as its marginal product is above its wage under perfect competition in the labour market

(C) hire labour as long as its marginal product multiplied by price of X is above its marginal cost of labour under imperfect competition in the labour market

(D) hire labour as long as its marginal product multiplied by price of X is above its wage under perfect competition in the labour market

(E) more than one answer is correct

D

36. A firm uses two resource inputs, the prices of which are the same. In order to minimize costs the firm should use

(A) equal amounts of the inputs

(B) amounts of the inputs such that the marginal physical product of each is maximized

(C) amounts of the inputs such that the total product of each is maximized

(D) amounts of the inputs such that their marginal physical products are equal

(E) any one of the inputs

D

37. The firm is considering investment which will cost it $100 today, but will bring revenues of $50 at the end of the first year, $50 at the end of the second year, and can be sold for $50 in the end of the 2^nd year. Given that the market rate of interest of 30% the firm

(A) should undertake this investment

(B) should undertake this investment only if it has $ 100 readily available and does not have to borrow this money from the bank

(C) should not undertake this investment

(D) should undertake this investment only if it can reinvest the revenue

(E) not enough information to answer the question

C

(проверить числа)

38.A change in which of the following will NOT cause a shift in the demand curve for a factor of production?

(A) Demand for the goods produced by the factor

(B) Prices of the goods produced by the factor

(C) Prices of substitute factors

(D) Supply of the factor

(E) Supply of substitute factors

D

C

40. Demand for capital is downward sloping because

(A) the marginal productivity of labor increases with the quantity of capital

(B) the substitution effect is greater than the income effect

(C) the marginal productivity of capital declines with the quantity of capital

(D) the level of output associated with any quantity of capital declines with the quantity of labor employed

(E) none of the above

C

41. Investment will bring $160 in a year time in current prices. Bank interest rate is 15%. Inflation rate is 10%. Producer should undertake the investment if its price is not bigger then:

A) $150

B) $145

C) $130

D) Producer should not invest with such a high interest rate;

E) Not enough information

A

42. A supply of capital goods:

A) In the short-run is absolutely elastic for an industry and absolutely inelastic for a small firm;

B) In the short-run is absolutely inelastic for an industry and absolutely elastic for a small firm;

C) In the long-run it is less elastic for any firm then in the short-run because its quantity is decreasing due to depreciation;

D) Doesn’t change from short to long –run.

E) B) and C) are both correct

B

43.A decrease in the supply of capital goods of an industry is done by:

A) converting the existing capital goods for other purposes;

B) selling capital goods abroad;

C) letting capital goods to depreciate

D) it is impossible to decrease supply of capital goods of an industry

E) more than one answer is correct.

C

44. A firm has a production function of the following form Q = K + 2L Where Q is output, K is the capital input and L is the labor input per time period. The wage rate and the rental rate on capital is £ 1 per unit. The cost-minimizing output

A) is achieved by producing at any point along the isoquant

B) is achieved by using labor input only.

C) is achieved by using the capital input only.

D) is achieved by using both inputs.

E) none of the above.

B

45. Efficiency is defined as:

A) not being able to produce more of one good without giving up another while all means of production are fully employed;

B) not being able to produce more of one good without giving up another while unemployment is equally distributed among all means of production;

C) not being able to produce more of one good without giving up another while at least one mean of production is fully employed;

D) not being able to produce more of one good without giving up another.

A

46. Which of the following statements is true?

A) Social cost = private cost – external cost of pollution

B) Social cost = private cost + external cost of pollution

C) Social cost = cost of pollution

D) Social cost + cost of pollution = private cost

E) Social cost + private cost = Supply

B

47. Output of a good is economically efficient if

A) marginal social benefit equals the marginal social cost;

B) marginal social benefit equals the marginal private cost;

C) marginal social cost equals the marginal private cost;

D) marginal private benefit equals the marginal private cost;

E) none of the above

A

48. Raising taxes and increasing welfare payments to poor individuals:

A) proves that there is such a thing as a free lunch;

B) reduces market power;

C) may improve efficiency at the expense of equity;

D) may improve equity at the expense of efficiency;

E) none of the above.

D

49. Producing less then the market’s equilibrium quantity of diet sodas (a good with no external effects) means that:

A) resources must have had a higher valued alternative use producing something else;

B) consumer surplus will be higher then otherwise would be the case;

C) producer surplus will be higher then otherwise would be the case;

D) an additional unit of diet sodas would add more to society’s benefit that to it cost;

E) none of the above.

D

50. Free market allocation tends to be Pareto efficient unless:

A) market failure occurs;

B) externalities exist;

C) government sets prices to make them more fair;

D) a few firms dominate those markets;

E) all of the above.

E

51. Which of the following products would be least capable of producing an externality?

A) cigarettes;

B) stereo equipment;

C) vaccination against an epidemic disease;

D) education;

E) food.

E

52. A firm engaged in producing a certain good has private marginal costs which are greater then social marginal costs. Which of the following steps could the government take in increase economic welfare?

A) tax the firm;

B) subsidize the firm;

C) set a price ceiling for the good;

D) set a price floor for the good;

E) the government should not do anything.

B

53.If the last unit of output produced at a paper mill has a value to society of $10 and a social cost of $15, but the private cost to the company is $10, and the current price is $10, then the:

A) market is in equilibrium, but a lower output would make society better off;

B) market is in equilibrium, but a higher output would make society better off;

C) output and price are too low for equilibrium;

D) output is too low, and price is too high for equilibrium;

E) output is too high, and price is too low for equilibrium;

A

54. Imposing a tax on producers of which good is more preferable in terms of efficiency:

A) Demand for this good is elastic;

B) Demand for this good is inelastic;

C) There is a positive externality in production;

D) The equilibrium price of this good is very high.

E) The equilibrium price of this good is very low.

A

Free response:

The “Best Water Inc.” company is the sole water supplier of country Hochland. The management of the company insists that this monopoly position naturally stems from the fact that the LAC curve of this company slopes downward for all ranges of water demand and thus, no government intervention should be exercised in respect of the water supply industry.

(a) Is the management’s position grounded?

(b) All government’s experts insist that the water supply industry with a sole supplier is socially inefficient and thus, should be regulated. The “optimists” insist that due to price regulation the socially efficient outcome can be reached at no budget cost, while the “pessimists” consider this to be impossible and, hence, recommend applying price regulation in the way as to leave the “Best Water Inc.” company with just normal profits.

(i) Is the “optimists” position grounded?

(ii) Is the “pessimists” position grounded?