Microeconomics Final Exam Review
1). A hospital provides emergency-room medical care for local residents. suppose the hospital
currently provides this care for 15,000 patients per year at a total cost of $30,000,000. if the
hospital expands, it can provide emergency-room medical care for 20,000 patients per year
at a total cost of $70,000,000. if the hospital expands, will it be experiencing economies of
scale, diseconomies of scale, or constant returns to scale?
if the hospital expands, it will be experiencing
Ans: diseconomies of scale
2). Which of the following is a characteristic of a monopoly?
Ans: There is only one seller in the market.
3). Economies of scale occur when
Ans: when a firm's long-run average costs decrease with output.
4). For which of the following reason(s) may firms experience economies of scale?
Ans: A.
Large firms may be able to purchase inputs at lower costs than smaller competitors; they
can also borrow money at a lower interest rate.
B.
Firm's production may increase with a smaller proportional increase in at least one input.
C.
Both managers and workers may become more specialized and hence more productive
as output expands.
5). The figure to the right illustrates the long−run average cost curve for a firm that produces
picture frames. the graph also includes short−run average cost curves for three firm sizes:
atca, atcb and atcc.
the minimum efficient scale of output is reached at what rate of output?
Ans: 10,000 picture frames
6). Which of the following is the best example of a perfectly competitive industry?
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, Ans: the wheat market
7). In perfect competition
Ans: the market demand curve is downward sloping while demand for an individual
seller's product is perfectly elastic.
8). Both individual buyers and sellers in perfect competition
Ans: have to take the market price as a given.
9). Which of the following is not true for a firm in perfect competition?
Ans: Average revenue is greater than marginal revenue.
10). A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. the
price of each good is $10. calculate the firm's short run profit or loss.
Ans: loss of $6,000
11). Jason, a high−school student mows lawns for families in his neighborhood. the going rate
is $12 for each lawn−mowing service. jason would like to charge $20 because he believes
he has more experience mowing lawns than the many other teenagers who also offer the
same service. if the market for lawn mowing services is perfectly competitive, what would
happen if jason raised his price?
Ans: If Jason raises his price, he would lose all his customers.
12). Which of the following is not a characteristic of a perfectly competitive market structure?
Ans: There are restrictions on exit of firms.
13). What is the difference between "diminishing marginal returns" and "diseconomies of scale"?
Ans: Diminishing marginal returns which applies only in the short run, when at least
one factor is fixed, explains why marginal cost increases, while diseconomies of scale
which applies in the long run, when all factors are variable, explains why average cost
increases.
14). If the market price is $40, the average revenue of selling five units is
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1). A hospital provides emergency-room medical care for local residents. suppose the hospital
currently provides this care for 15,000 patients per year at a total cost of $30,000,000. if the
hospital expands, it can provide emergency-room medical care for 20,000 patients per year
at a total cost of $70,000,000. if the hospital expands, will it be experiencing economies of
scale, diseconomies of scale, or constant returns to scale?
if the hospital expands, it will be experiencing
Ans: diseconomies of scale
2). Which of the following is a characteristic of a monopoly?
Ans: There is only one seller in the market.
3). Economies of scale occur when
Ans: when a firm's long-run average costs decrease with output.
4). For which of the following reason(s) may firms experience economies of scale?
Ans: A.
Large firms may be able to purchase inputs at lower costs than smaller competitors; they
can also borrow money at a lower interest rate.
B.
Firm's production may increase with a smaller proportional increase in at least one input.
C.
Both managers and workers may become more specialized and hence more productive
as output expands.
5). The figure to the right illustrates the long−run average cost curve for a firm that produces
picture frames. the graph also includes short−run average cost curves for three firm sizes:
atca, atcb and atcc.
the minimum efficient scale of output is reached at what rate of output?
Ans: 10,000 picture frames
6). Which of the following is the best example of a perfectly competitive industry?
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, Ans: the wheat market
7). In perfect competition
Ans: the market demand curve is downward sloping while demand for an individual
seller's product is perfectly elastic.
8). Both individual buyers and sellers in perfect competition
Ans: have to take the market price as a given.
9). Which of the following is not true for a firm in perfect competition?
Ans: Average revenue is greater than marginal revenue.
10). A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. the
price of each good is $10. calculate the firm's short run profit or loss.
Ans: loss of $6,000
11). Jason, a high−school student mows lawns for families in his neighborhood. the going rate
is $12 for each lawn−mowing service. jason would like to charge $20 because he believes
he has more experience mowing lawns than the many other teenagers who also offer the
same service. if the market for lawn mowing services is perfectly competitive, what would
happen if jason raised his price?
Ans: If Jason raises his price, he would lose all his customers.
12). Which of the following is not a characteristic of a perfectly competitive market structure?
Ans: There are restrictions on exit of firms.
13). What is the difference between "diminishing marginal returns" and "diseconomies of scale"?
Ans: Diminishing marginal returns which applies only in the short run, when at least
one factor is fixed, explains why marginal cost increases, while diseconomies of scale
which applies in the long run, when all factors are variable, explains why average cost
increases.
14). If the market price is $40, the average revenue of selling five units is
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