CHAPTER 5
- If a business in a perfectly competitive industry is receiving a price of $5 for its product, its marginal revenue:
A) may be either greater or less than $5
B) will also be $5
C) will be less than $5, but a positive number
D) will be greater than $5
E) will be negative - The profit-maximizing output rule applies:
A) only to monopolistically competitive businesses
B) only when the business is a "price-taker"
C) only to monopolies
D) only to perfectly competitive businesses
E) to businesses in all types of industries - In view of our COVID-19 situation, in the long run, we should expect:
A) businesses to enter the industry, market supply to increase, and product price to fall
B) businesses to leave the industry, market supply to decrease, and product price to rise
C) businesses to leave the industry, market supply to increase, and product price to rise
D) no change in the number of businesses in this industry
E) businesses to enter the industry, market supply to decrease, and product price to rise - Refer to the diagram on the previous page for a perfectly competitive producer. The business will produce at a loss at all prices.
A) above P1
B) above P3
C) above P4
D) between P2 and P3
E) between P1 and P2 - If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, we can say that the marginal revenue product of:
A) each worker is $25
B) the first worker is $25
C) the first worker is $20
D) the second worker is $30
E) the second worker is $20 - A business will find it profitable to hire workers up to the point at which:
A) marginal resource cost equals the wage rate
B) the wage rate equals product price
C) marginal product equals marginal revenue product
D) marginal resource cost is equal to their marginal revenue product
E) marginal resource cost exceeds the wage rate by the largest amount - A perfectly competitive business's average revenue equals:
A) its total revenue
B) its marginal revenue divided by price
C) total revenue divided by price
D) its marginal revenue
E) its price divided by total revenue - When a business is maximizing profits it will necessarily be:
A) maximizing profit per unit of output
B) maximizing the difference between total revenue and total cost
C) minimizing total cost
D) maximizing total revenue
E) maximizing average revenue - Consider the situation of an oligopoly firm that manufactures and sells laser printers ink cartridges. Assume that there are only four firms (Firm A, B, C, and D) of this nature in Toronto. They are all selling the standard replacement cartridges for $20 each. Assume that Firm D decides to sell the cartridge for $25. This will impact the market in a number of ways.
Which of the following is correct?
A) The sale of Firm D’s cartridge will increase as consumers will believe that D’s
cartridges are of better quality
B) Firms A, B and C will raise the price to $25
C) Firms A, B and C will lower their price to take advantage of the change in D’s price
D) Firms A, B and C will not raise their price and their share of the market will increase
CHAPTER 6
- Monopolistic competition and oligopoly are alike in that:
A) the number of businesses is approximately the same in each
B) a kinked demand curve is typical for both
C) strong mutual interdependence exists among businesses in each
D) non-price competition is common to both
E) barriers to entry are significant in both - The mutual interdependence that characterizes an oligopoly arises because:
A) the products of various businesses are standardized
B) the products of various businesses are differentiated
C) there is only one business in the market
D) entry barriers are insignificant
E) a small number of businesses make up the market - If Toyota establishes prices for new cars each year, and General Motors and Ford model their prices on General Motors' prices, this is known as:
A) predatory pricing
B) a cartel
C) competitive pricing
D) price leadership
E) monopoly pricing
A manufacturing firm is the sole seller of a specialized machine. The demand schedule for this product is shown in the table below.
Price $700 000 $600 000 $500 000 $400 000 $300 000 $200 000 $100 000
Quantity Demanded 0 1 2 3 4 5 6
- For this firm, the marginal revenue of the third machine is:
A) $600 000
B) $400 000
C) $200 000
D) $0
E) -$200 000 - A monopolist will maximize profits by producing that output at which marginal cost is equal to:
A) average cost
B) average revenue
C) average variable cost
D) average fixed cost
E) marginal revenue - Under the 1986 Competition Act, the Competition Tribunal can prohibit a merger of two companies into one only if:
A) they result in an unacceptable lessening of competition
B) they are in the same industry
C) they result in more than half the industry's output being controlled by one company
D) the companies are controlled by non-residents
E) the companies are government-owned - Refer to the figure above. If this industry is composed of only one seller, the profit-maximizing price and quantity will be:
A) P3 and Q3
B) P1 and Q1
C) P2 and Q2
D) P1 and Q3
E) indeterminate on the basis of the information given - A monopolistic competitor maximizes short-run profits by:
A) setting price equal to marginal cost
B) equating demand and average revenue
C) finding the price that equates average revenue to marginal cost
D) finding the quantity of output that equates marginal revenue and marginal cost
E) setting price equal to average cost - An industry composed of 40 firms, none of which has more than 3 percent of the total market for a differentiated product, can best be described as:
A) monopolistic competition
B) a monopoly
C) an oligopoly
D) perfect competition
E) competitive monopoly - What is the four-firm calculate the concentration ratio for an industry with these firms in the industry.
(2 marks)
Company Percentage of Sales
Company A: 15
Company B: 11
Company C: 8
Company D: 6
Company E. 24
Company F. 2
Company G. 16
Company H. 4
Company I. 1
Company J. 13
A) 34
B) 40
C) 66
D) 77
E) none of the above
CHAPTER 8
- GDP may be defined as:
A) the monetary value of all final goods and services produced within a nation in a given year
B) the monetary value of the capital stock used in the production of a year's output
C) the monetary value of all goods and services, both final and intermediate, produced in a given year
D) the total monetary earnings of households supplying resources in the Canadian economy - The amount of after-tax income received by households is measured by:
A) GDP
B) personal consumption expenditures
C) GDP plus transfer payments
D) disposable income - The term "final products" refers to:
A) products that are unsold and, therefore, added to inventories
B) products whose value has been adjusted for inflation
C) products to be purchased by ultimate users that are not intended for resale or further processing
D) consumer products, as opposed to investment products
E) investment products, as opposed to consumer products - If depreciation exceeds gross investment, it can be concluded that:
A) GDP has not changed
B) net investment is negative
C) the economy is importing more than it is exporting
D) the economy's capital stock is expanding - Which of the following is not considered to be part of gross investment?
A) the purchase of a lathe by the Ajax Manufacturing Company
B) the purchase of 100 shares of BMO by a retired business executive
C) the construction of a suburban housing project
D) the building of a nursery school
E) the increase in inventories by an auto company - Professor Shields grows tomatoes in her garden for her family and friends. This activity is:
A) excluded from GDP because it is not a productive activity
B) excluded from GDP to avoid double counting
C) excluded from GDP because an intermediate product is involved
D) included in GDP because it reflects production
E) excluded from GDP because no money changes hands - The growth of GDP may understate economic well-being if the:
A) distribution of income becomes increasingly unequal
B) quality of products and services improves
C) environment deteriorates because of air pollution
D) population increases
E) amount of leisure decreases
CHAPTER 9
- A country's consumer price index was 124.0 at the end of year 1 and 130.7 at the end of year 2. Therefore, the rate of inflation during year 2 was about:
A) 6.7 percent
B) 5.4 percent
C) 3.2 percent
D) 113.6 percent
E) 15.4 percent - The rate of inflation can be found by subtracting:
A) real income from nominal income
B) last year's price index from this year's price index
C) this year's price index from last year's price index, and dividing the difference by this year's price index
D) last year's price index from this year's price index, and dividing the difference by last year's price index
E) this year's price index from last year's price index, and dividing the difference by last year's rice index - If the consumer price index rises from 300 to 333 in a particular year, the rate of inflation in that year is:
A) 11 percent
B) 33 percent
C) 91 percent
D) 10 percent
E) 99 percent - Suppose that a person's nominal income rises by 5 percent and the consumer price index rises from 125 to 130. The person's real income will:
A) fall by about 1 percent
B) remain constant
C) rise by about 4 percent
D) fall by about 4 percent
E) rise by about 1 percent - To be officially unemployed, a person must:
A) be in the labour force
B) be 21 years of age or older
C) have just lost a job
D) be waiting to be called back from a layoff
E) be collecting Employment Insurance - Assuming that the total population is 100 million, the labour force is 50 million, and 3 million workers in the labour force are unemployed, the unemployment rate:
A) is 3 percent
B) is 6 percent
C) is 9 percent
D) is 12 percent
E) cannot be determined from the information given - Daisy Ming works in her own home as a full-time caregiver and homemaker. Officially, she is considered
A) unemployed
B) employed
C) not in the labour force
D) in the labour force
E) unemployed - Suppose that there are 1 million unemployed workers seeking jobs. After a period of time, 100,000 of them become discouraged over their job prospects and cease looking for work. As a result, the official unemployment rate would:
A) increase in the short run, but eventually decrease
B) increase
C) decrease
D) remain unchanged - Kimberly voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand, she is now searching for a position in management. At present, Kimberly is:
A) cyclically unemployed
B) structurally unemployed
C) frictionally unemployed
D) seasonally unemployed
E) not a member of the labour force - Assume that Sharma has lost his job as the company had to shut down as consumers were no longer buying the CDs that the company produced for data storage. Instead, consumers were buying USBs to store data. Sharma is considered to be:
A) cyclically unemployed
B) seasonally unemployed
C) structurally unemployed
D) employed
E) frictionally unemployed - The type of unemployment associated with downturns in the economy is called:
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) seasonal unemployment
E) secular unemployment - Consider the following data:
Full-time employed = 80
Part-time employed = 25
Unemployed = 15
Discouraged workers = 5
Consumer Price Index = 110
The unemployment rate is:
A) 18.8 percent
B) 12.5 percent
C) 16.7 percent
D) 22.3 percent
E) 25.0 percent