Final Exam
Economics 101
Fall 2003 Wallace
Final Exam (Version 1) Answers
1.
The marginal revenue product equals
A) total revenue divided by total product (output).
B) marginal revenue divided by marginal product.
C) total revenue multiplied by total product (output).
D) marginal revenue multiplied by marginal product.
Answer: D

Quantity of labor Total revenue
(workers)
(dollars)
0
1
2
3
4
5

0
20
36
48
56
60

Total product
(units of output) 0
5
9
12
14
15

2.

In the table above, if the wage rate is $8.00 per hour, the profit-maximizing number of workers is
A) 1.
B) 2.
C) 4.
D) 5.
Answer: C
3.

A firm in a competitive labor market will hire labor until the marginal revenue product of labor equals
A) the firm’s marginal revenue.
B) the firm’s marginal cost.
C) the firm’s average cost.
D) the wage rate.
Answer: D
4.
A)
B)
C)
D)

The present value of $100 to be received in the year 2008 is less than the present value of $100 to be received in 2009. greater than the present value of $100 to be received in 2009. the same as the present value of $100 to be received in 2009. greater than the present value of $100 to be received in 2009 if the interest rate in 2009 exceeds that in 2008; otherwise, it is less.
Answer: B

5.
A fall in the interest rate
A) shifts a firm’s demand curve for capital leftward.
B) shifts a firm’s demand curve for capital rightward.
C) results in a movement to the right and downward along a firm’s demand curve for capital.
D) results in a movement to the left and upward along a firm’s demand curve for capital.
Answer: C
6.
A monopoly is best defined as
A) an industry with only one firm and in which the good produced has no close substitutes.
B) a firm that purchases its resources from only one supplier.
C) an industry that sells all its output to one buyer.
D) a firm that sells all its output to one buyer.
Answer: A
Use the following information to solve the next 4 questions about a monopolistic market.
The demand for a good is given by: P = 10 – Q. A monopolist’s costs are given by: TC = 2 + 4Q.
7.

Suppose a single price monopolist controls the market for this good. The monopolist’s optimal price and quantity choice is:
A) PM = $7, QM = 3.
B) PM = $6, QM = 4
C) PM = $5, QM = 5.
D) PM = $4, QM = 6.
Answer: A
8.
Using your answer from the previous question, the single price monopolist’s profit is:
A) $3.
B) $7.
C) $10.
D) $13.
Answer: B
9.
The deadweight loss from the monopoly is:
A) $6.
B) $4.5
C) $8.
D) $12.
Answer: B
10.

Now suppose that the market for this good is controlled by a perfectly price discriminating monopolist. What are the perfectly price discriminating monopolist’s profits?
A) $14.
B) $16.
C) $18.
D) $20
Answer: B

11.

A major difference between a single-price monopolist and a perfectly competitive firm is that A) the monopolist can maximize profit by setting the price of the output with marginal cost.
B) the monopolist can always increase its profits by increasing the price of its output.
C) the monopolist’s marginal revenue is less than price.
D) the monopolist is guaranteed to earn an economic profit.
Answer: C
12. If a monopolist lowers its price and its demand is inelastic, then its
A) total revenue increases.
B) total revenue decreases.
C) total revenue does not change.
D) total revenue is negative.
Answer: B
13.
A)
B)
C)
D)

Which of the following is true for BOTH monopoly and perfect competition?
The demand for the individual firm’s product is perfectly elastic.
Economic profits can be sustained indefinitely over time.
Marginal revenue is horizontal at the industry equilibrium price.
Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost.
Answer: D

Price and costs (dollars per unit)

50

a

40
30
20
10

b

MC

c

j

e

h

d
MR

f
0

g
1

m

D

2
3
5
6
4
Quantity (thousands of units per week)

14.

In the above figure, a single-price monopolist charges a price of ___ , resulting in total revenue equal to area ____.
A) $10;