C. coincides with the demand curve

EXAM IN MICROECONOMICS

(February, 2009)

RETAKE

VARIANT 1

SOLUTIONS

Section 1. Multiple choice questions

You have 60 minutes to do this part of the exam.

Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if the answer has not been given.

1. The fundamental reason the production possibilities curve has a downward slope is

1. workers are inefficient
2. resources are of low quality
3. resources are fixed and therefore tradeoffs must be made
4. it has empirical support but why it is so is still a mystery
5. companies are reluctant to fully exhaust their resources

2. If Lemonade and Cola are substitutes, a decrease in the price of Lemonade will cause:

A. the equilibrium price of Cola to increase and the quantity to decrease;

B. the equilibrium price of Cola to decrease and the quantity to increase;

C. both the equilibrium price and quantity of Cola to decrease;

D. both the equilibrium price and quantity of Cola to increase;

E. none of the above.

3. If the income elasticity of demand for candy bars is 1.5, then candy bars are a ____ good and a 2% decrease in income will cause a______ decrease in the quantity demanded:

A. normal; 1.333%;

B. luxury; 3%;

C. inferior; 3%;

D. Giffen; 3%

E. inferior; 1.333%.

4. If the price of watches falls by 3% and the quantity demanded of clocks increases by 2%, then the cross-price elasticity of demand for clocks with respect to the price of watches is ____ and clocks and watches are_______:

A. 1,5; substitutes;

B. 0,67; complements;

C. -1,5; substitutes;

D. - 0,67; complements;

E. none of the above.

5. Under perfect competition, the long run equilibrium occurs where firms:

I. have no motives for entry or exit

II. receive normal profits

III. produce where P=LMC=LAC

A. I only

B. II only

C. III only

D. I, II and III

E. I and III only

6. A competitive firm’s profit-maximizing level of output generates a total revenue of $2000. The firm’s costs are as follows: total cost =$4000, total variable cost =$1500. In the short run the firm should:

A. decrease output

B. shut down

C. leave output at its current level

D. increase output

E. not enough information to answer the question.

7. If producer surplus is unaffected by the imposition of a per unit tax, this means that:

1. demand is perfectly inelastic
2. supply is perfectly elastic
3. demand is perfectly elastic
4. supply is perfectly inelastic
5. either (A) or (B) are true

8. Which of the following is not a feature of the pure monopoly?

1. downward sloping demand curve
2. elastic demand at the optimal output level
3. barriers to entry
4. profit in the long run
5. none of the above; all are the features of the pure monopoly.

9. For a perfectly discriminating monopoly, the marginal revenue curve

A. lies below the demand curve

B. lies above the demand curve

C. coincides with the demand curve

D. crosses the demand curve

E. there is not enough information to draw a conclusion about the marginal revenue curve and the demand curve

10. Industry’s demand for labour is

1. Vertical summation of the MVPL of individual firms in this industry
2. Horizontal summation of their MVPL
3. Vertical summation of their MRPL
4. Horizontal summation of their MRPL
5. None of the above

11. What will be an example of monopolistic competition:

1. OPEC countries
2. Big steel producers
3. Restaurants
4. Small farmers
5. None of the above

12. Which of the statements is correct

I) Minimum wage law can never increase employment.

II) Prohibiting an ecologically unfriendly production can reduce economic efficiency (social welfare).

1. I
2. II
3. Both
4. None

13. To which market structure we can apply a “Prisoner’s Dilemma”

1. to oligopoly
2. to any monopoly
3. to natural monopoly only
4. to monopolistic competition
5. to perfect competition

14. In case of monopolistic competition firms have market power because of:

1. barriers to entry
2. downward sloping demand curve for each company
3. downward sloping demand curve for the whole industry
4. upward sloping supply curve for each company
5. upward sloping supply curve for the whole industry

15. Assume that the current date is December 31, 2008. The rental rate for 2009 is $1000, and the rental rate for 2010 is $1100. The rental payments are due on the first day of the year. The nominal interest rate is 10% and in 2 years the machine will become obsolete and worthless. At which price a firm should consider buying a machine today?

1. Less than or equal to $22 100
2. Less than or equal to $2100
3. Less than or equal to $2000
4. Less than or equal to $2210
5. None of the above.

16. A payoff matrix is used to show

1. the payoff to being a monopolist relative to a competitive firm
2. the demand curve faced by two competing firms
3. each player’s payoffs in each possible combination of strategies
4. the sequence of strategies played in a game over time
5. the different pairings of players in a game

17. In the matrix above,

A. Sasha has a dominant strategy, but Masha does not

B. Masha has a dominant strategy, but Sasha does not

C. both Sasha and Masha have the same dominant strategy

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