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Economics Practice Exam Essay

The amount of deadweight loss as a result of the tax would be equal to a. $560. B. $420. C. $210. D. $980. E. $1,120. 5 Figure 8-6 21 . Refer to Figure 8-6. The reduction in consumer surplus caused by the tax would be a. $80. B. $60. C. $100. D. $70. Total revenue is less than its variable costs. B. The price of its product is less than its average variable cost. C. Its loss exceeds its fixed costs. D. All of the above are correct. 6 The figure below depicts a production function for a firm that produces cookies. Use the figure to answer the following questions. Figure 13-1 23.

Refer to Figure 13-1 . With regard to cookie production, the figure implies a. Increasing marginal product of workers. B. Decreasing cost of cookie production. C. Diminishing marginal product of workers. D. Diminishing marginal cost of cookie production. 24. When firms are neither entering nor exiting a perfectly competitive market, a. Average revenue must equal average total cost. B. Total cost must equal total revenue. C. Economic profits must be zero. 7 Table 14-3 Quantity Total Revenue Refer to Table 14-3.

If the firm finds that its marginal cost

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is $24, it should a. Reduce fixed costs by lowering production. B. Increase production to maximize profit. C. Maintain its current level of production to maximize profit. D. Decrease production to maximize profit. E. None of the above are correct. 26. For a monopolist, profit is determined by which of the following equations? A. Profit = (Price – Average Total Cost) 0 Quantity b. Profit = (Average Revenue – Average Total Cost) 0 Quantity c. Profit = Total Revenue – Total Cost 27. Assume that a college student purchases only coffee and Snickers.

The obstruction effect associated with a decrease in the price of a Snickers bar will result in a. An increase in the consumption of Snickers and a decrease in the consumption of coffee. B. A decrease in the consumption of Snickers and an increase in the consumption of coffee. C. An increase in the consumption of coffee only. D. A decrease in the consumption of coffee only. 28. The exit of existing firms from a competitive market will a. Decrease market supply and decrease market prices. B. Increase market supply and decrease market prices. C. Decrease market supply and increase market prices. 9.

In order to sell more of its product, a monopolist must a. Use its market power to force up the price of complementary products. B. Lower its price. C. Sell in international markets. D. Keep its price constant. E. Sell to the government. 30. When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit a. Is also zero. B. Is negative (accounting losses). C. Could be positive, negative or zero. D. Is positive. 31 . Which of the following must always be true as the quantity of output increases? A. Average variable cost must rise. B. Marginal cost must rise. C.

Average total cost must rise. D. Average fixed cost must fall. The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer the following questions. Figure 15-2 32. Refer to Figure 15-2. The average total cost curve for a monopoly firm is depicted by curve a. D c. C 33. An optimizing consumer will select the consumption bundle in which the a. Ratio of total utilities is equal to the relative price. B. Marginal rate of substitution is equal to the relative price. C. Ratio of income to price equals the marginal rate of substitution. . Marginal rate of substitution is equal to income. 34.

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