1). The DeBeers company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, the price of diamonds will:
• Exceed the marginal cost of diamonds but equal to the average total cost of diamonds.
• Exceed both the marginal cost and the average total cost of diamonds.
• Be equal to the marginal cost of diamonds.
• Be equal to the average total cost of diamonds.
2). Using 100 workers and 10 machines, a firm can produce 10,000 units of output; using 250 workers and 25 machines, the firm produces 21,000 units of output. These facts are best explained by:
• Economies of scope
• ...view middle of the document...
The theory that quantity supplied and price are positively related, other things constant, is referred to as the law of:
• profit maximization
• opportunity cost
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7). A reduction in the supply of labor will cause wages to:
• Decrease and employment to decrease.
• Increase and employment to increase.
• Decrease and employment to increase.
• Increase and employment to decrease.
8). Other things held constant in a competitive labor market, if workers negotiate a contract in which the employer agrees to pay an hourly of $17.85 while the market equilibrium hour rate is $16.50, the:
• Quantity of workers demanded will exceed the quantity of workers supplied.
• Quantity of workers supplied will exceed the quantity of workers demanded.
• Supply of labor will decrease until the equilibrium wage rate is $17.85.
• Demand for labor will increase until the equilibrium wage rate is $17.85.
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9). Alex is playing his music at full volume in his dorm room. The other people living on his floor found this to be a nuisance, but Alex doesn’t care. Alex’s music playing is an example of:
• Pareto externality
• Positive externality
• Negative externality
• Normative externality
10). Oligopoly is probably the best market for technological change because:
• The typical oligopoly has the funds to carry out research and development and believe that its competitors are innovating, which motivates it to conduct research and development.
• The typical oligopoly lacks the funds to carry out research and development and therefore will use basic research from universities.
• Research and development occurs only if government subsidizes such activity, and government tends to subsidize oligopolies.
• The typical oligopoly keeps price very close to average total cost because it fears the entry of new rivals if its profits are excessively high.
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11). A perfectly competitive firm facing a price of $50 decides to produce 500 widgets. Its marginal cost of producing the last widget is $50. If the firm’s goal is to maximize profit, it should:
• Produce more widgets
• Produce fewer widgets
• Continue producing 500 widgets
• Shut down
12). Graphically, a change in price causes:
• the demand curve to shift.
• both supply and demand to shift.
• a movement along a given supply curve, not a shift.
• the supply curve to shift.
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13). In 1997, the federal government reinstated a 10 percent excise tax on airline tickets. The industry tried to pass on the full 10 percent ticket tax to consumers but was able to boost fares by only 4 percent. From this you can conclude that the:
• Supply of airline tickets is perfectly inelastic.
• Supply elasticity of airline tickets is...