Name: ________________________ Class: ___________________ Date: __________ ID: A

Commerce College Joint Economics Exam 109-1

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 1. The following table shows the private value, private cost, and social value for a market with a
positive externality.

Quantity Private Value Private Cost Social Value

1 27 6 34
2 24 10 31
3 21 14 28
4 18 18 25
5 15 22 22
6 12 26 19

How large would a subsidy need to be in this market to move the market from the equilibrium
level of output to the socially-optimal level of output?
a. $3
b. $5
c. $7
d. $9
____ 2. Suppose that the demand curve is linear and downward sloping. Which of the following
statement is true?
a. Price elasticity of demand is constant, because the slope of demand curve is
constant.
b. At the point with high price and low quantity, demand is inelastic.
c. Price elasticity of demand is always positive, since demand curve is downward
sloping.
d. At the point with low price and high quantity, demand is inelastic.
____ 3. Along a linear demand curve, slope
a. and elasticity are both constant.
b. changes but elasticity is constant.
c. and elasticity both change.
d. is constant but elasticity changes.
____ 4. Which of the following is a disadvantage of government provision of a public good such as
national defense?
(i)The government does not know the exact willingness of consumers to pay for the public good.
(ii)The free-rider problem is more likely to occur when the government provides a public good
than when the private sector provides a public good.
(iii)Taxpayers do not agree on the optimal quantity of the public good that the government
should provide.
a. (i) only
b. (i) and (ii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)

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Name: ________________________ ID: A

____ 5. Refer to the accompanying table, which represents the costs and production for a monopolist:
Price Quantity Fixed Cost Variable Cost

$15 0 $5 $0
$13 1 $5 $4
$11 2 $5 $9
$9 3 $5 $14
$7 4 $5 $20
$5 5 $5 $29

The profit-maximizing quantity for this firm is ?

a. 1.
b. 3.
c. 4.
d. 5.
____ 6. The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are
considered to be normal goods by a majority of consumers. Suppose that a large income tax
increase decreases the demand for both goods by 10%. The change in equilibrium price will be
a. greater in the aged cheddar cheese market than in the bread market.
b. greater in the bread market than in the aged cheddar cheese market.
c. the same in the aged cheddar cheese and bread markets.
d. Any of the above could be correct.
____ 7. In the long run,
a. monopolistically competitive firms earn a higher profit than perfectly competitive
firms because monopolistically competitive firms have some monopoly power.
b. monopolistically competitive firms produce a higher output than perfectly
competitive firms because competition drives the perfectly competitive firms’
output down.
c. both monopolistically competitive and perfectly competitive firms produce where
P = MC.
d. both monopolistically competitive and perfectly competitive firms produce where
P = ATC.
____ 8. Suppose only two goods, X and Y, in the market. John's optimal consumption choice for Good X
and Y is (4, 3) when the market prices of two goods are both $4. Which of the following is
correct?
a. MRS at (4,3) is 1.
b. MRS at (4,3) is 3/4.
c. MRS at (4,3) is 4/3.
d. MRS could be 3/4 or 4/3, depending on which good is on the X-axis.
____ 9. When a firm is experiencing economies of scale, long-run
a. average total cost is minimized.
b. average total cost is greater than long-run marginal cost.
c. average total cost is less than long-run marginal cost.
d. marginal cost is minimized.

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Name: ________________________ ID: A

____ 10. Consider a profit-maximizing monopoly pricing under the following conditions. The
profit-maximizing quantity is 40 units, the profit-maximizing price is $160, and the marginal cost
of the 40th unit is $120. If the good were produced in a perfectly competitive market, the
equilibrium quantity would be 50, and the equilibrium price would be $150. The demand curve
and marginal cost curves are linear. What is the value of the deadweight loss created by the
monopolist?
a. $40
b. $100
c. $200
d. $400
____ 11. Suppose the government has imposed a price ceiling on laptop computers. Which of the
following events could transform the price ceiling from one that is not binding into one that is
binding?
a. Improvements in production technology reduce the costs of producing laptop
computers.
b. The number of firms selling laptop computers decreases.
c. Consumers' income decreases, and laptop computers are a normal good.
d. The number of consumers buying laptop computers decreases.
____ 12. Which of the following statements is correct?
a. If marginal cost is rising, then average total cost is rising.
b. If marginal cost is rising, then average variable cost is rising.
c. If average variable cost is rising, then marginal cost is minimized.
d. If average total cost is rising, then marginal cost is greater than average total cost.
____ 13. One firm has an average variable cost of $1.50 and a marginal cost of $2 when it produces 50
units of output. We can conclude that the average variable cost of producing 51 units of output is
a. higher than $1.50.
b. lower than $1.50.
c. equal to $1.50.
d. either higher or lower than $1.50 depending on the direction of the marginal cost
curve.
____ 14.
Supply Curve A Supply Curve B Supply Curve C
Price $1.00 $2.00 $1.00 $3.00 $2.00 $5.00
Quantity Supplied 500 600 600 900 400 700

Along which of the supply curves does quantity supplied move proportionately more than the
price?
a. along supply curve B only
b. along supply curves B and C
c. along all three supply curves
d. None. Quantity supplied moves proportionately less than the price along all of the
three supply curves.

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Name: ________________________ ID: A

____ 15. A monopolistically competitive firm is currently producing 10 units of output. At this level of
output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal
cost equal to $6, and has average total cost equal to $ 12. From this information we can infer that
a. the firm is currently maximizing its profit.
b. the profits of the firm are negative.
c. firms are likely to leave this market in the long run.
d. All of the above are correct.
____ 16. The Tragedy of the Commons occurs because
a. government property is most heavily used by the wealthy.
b. everyone deserves an equal share of government property.
c. social and private incentives differ.
d. established property rights create competition.
____ 17. Which of the following descriptions best depicts the substitution effect?
a. the change in consumption resulting from a change in the consumer's income,
holding the prices of the goods constant
b. the change in consumption resulting from a change in the consumer's income,
holding the consumer's level of satisfaction constant
c. the change in consumption resulting from a change in the price of one good,
holding the consumer's level of satisfaction constant
d. the change in consumption resulting from a change in the price of one good,
allowing the consumer's level of satisfaction to change
____ 18. Florida Marlins, a team in Major league baseball (MLB), released a Taiwanese pitcher, Wei-Yin
Chen, before 2020 season started. Although he does not play any game at MLB in 2020, Marlins
still pays Chen $22 million. In terms of production (competition in a baseball game in this
context), Marlins’ payment to Chen is characterized as
a. sunk cost
b. opportunity cost
c. variable cost
d. marginal cost
____ 19. Consider the market of Good A currently has a shortage. Which of the following reduces this
shortage?
a. A consumption tax.
b. A production tax.
c. The prices of the complements of Good A decrease.
d. The prices of the substitutes of Good A increase.

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Name: ________________________ ID: A

____ 20. A monopolist faces the following demand curve:

Price Quantity
$51 1
$47 2
$42 3
$36 4
$29 5
$21 6
$12 7

The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the
profit-maximizing price?
a. $4
b. $39
c. $36
d. $42
____ 21. Competitive firms differ from monopolies in which of the following ways?
(i)Competitive firms do not have to worry about the price effect lowering their total revenue.
(ii)Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly
is less than the price it is able to charge.
(iii)Monopolies must lower their price in order to sell more of their product, while competitive
firms do not.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
____ 22. In an oligopoly, the total output produced in the market is
a. higher than the total output that would be produced if the market were a
monopoly and higher than the total output that would be produced if the market
were perfectly competitive
b. higher than the total output that would be produced if the market were a
monopoly but lower than the total output that would be produced if the market
were perfectly competitive
c. lower than the total output that would be produced if the market were a monopoly
but higher than the total output that would be produced if the market were
perfectly competitive
d. lower than the total output that would be produced if the market were a monopoly
and lower than the total output that would be produced if the market were
perfectly competitive
____ 23. Suppose only two goods, X and Y, in the market. If the price of Good X increases, which of the
following statements is always correct?
a. The substitution effect reduces the consumption of Good Y.
b. The income effect decreases the consumption of Good X.
c. The income effect increases the consumption of Good X.
d. None of the above.

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Name: ________________________ ID: A

____ 24.
Quantity 0 1 2 3 4 5 6 7
Total Cost 8 14 17 18 21 27 33 41
Total Revenue 0 8 16 24 32 40 48 56

The above table is for firm A. According to the table, which of the following is wrong?
a. Firm A is a price taker.
b. Firm A will choose to produce at Q=7.
c. Firm A's marginal cost curve is U shape.
d. In the short run, Firm A will choose to shut down.
____ 25. Suppose that electricity producers create a negative externality equal to $6 per unit. Further
suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship
between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be
produced?
a. They are equal.
b. The after-tax equilibrium quantity is greater than the socially optimal quantity.
c. The after-tax equilibrium quantity is less than the socially optimal quantity.
d. There is not enough information to answer the question.
____ 26. The market for bubble gum is competitive with a current price of 50 cents and quantity of
100,000 units. Which of the following events would lead to a new equilibrium price of 60 cents
and quantity of 90,000 units?
a. a decrease in the number of young people in the population
b. an agreement by workers in the bubble gum industry to work for lower wages
c. an increase in the price of other kinds of gum and candy
d. an increase in the price of the ingredients used to make bubble gum

____ 27.

Refer to the figure. When the price of X is $80, the price of Y is $20, and the consumer's income
is $160, the consumer's optimal choice is D. Then the price of X decreases to $20. The income
effect can be illustrated as the movement from
a. D to E.
b. D to C.
c. C to E.
d. E to D.

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Name: ________________________ ID: A

____ 28. Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has
decided to reduce the pollution and from now on will require a pollution permit for each ton of
pollution emitted into the air. The government gives each firm 40 pollution permits, which it can
either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates
before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it
eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from
each other, we would expect that Firm A will emit
a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of
pollution into the air.
b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of
pollution into the air.
c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of
pollution into the air.
d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of
pollution into the air.
____ 29.

Which of the graphs shown would be consistent with a profit maximizing firm in a
monopolistically competitive market that is earning a positive profit?
a. panel a
b. panel b
c. panel c
d. panel d

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Name: ________________________ ID: A

____ 30.
In order to maximize profit, the firm will charge a price of
a. $16.
b. $24.
c. $32.
d. $36.
____ 31. Economists claim that a resale price maintenance agreement is not anti-competitive because
a. suppliers are never able to exercise noncompetitive market power.
b. if a supplier has market power, it will be likely to exert that power through
wholesale price rather than retail price.
c. retail markets are inherently noncompetitive.
d. retail cartel agreements cannot increase retail profits.
____ 32. Which of the following statements is correct?
a. Monopolistic competition is similar to monopoly because both market structures
are characterized by firms being price makers rather than price takers.
b. Monopolistic competition is similar to perfect competition because both market
structures are characterized by differentiated products.
c. Monopolistic competition is similar to oligopoly because both market structures
are characterized by strategic interaction between firms in the market.
d. Monopolistic competition is similar to perfect competition because both market
structures are characterized by perfectly elastic demand curves for firms.
____ 33. Suppose in Country A, the price elasticity of land supply is perfectly inelastic, and its quantity
supplied is 50 units. If the government imposes a $5 per-unit tax on purchasing land, which of
the following is correct?
a. The tax incidence is the consumer.
b. The total tax burden on the landowner is $250.
c. The taxation leads to a deadweight loss.
d. The consumer surplus decreases.
____ 34. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero.
When the firm hires 6 workers it produces 90 units of output. Fixed cost of production is $6 and
the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4.
Given this information, what is the total cost of production when the firm hires 7 workers?
a. $66
b. $76
c. $906
d. $946

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Name: ________________________ ID: A

____ 35. Jacqui decides to open her own business and earns $50,000 in accounting profit the first year.
When deciding to open her own business, she withdrew $20,000 from her savings, which earned
5 percent interest. She also turned down three separate job offers with annual salaries of $30,000,
$40,000, and $45,000. What is Jacqui's economic profit from running her own business?
a. $-56,000
b. $-6,000
c. $4,000
d. $19,000
____ 36. Which of the following does not characterize a perfectly competitive firm that has shut down in
the short run?
a. fixed costs are zero
b. fixed costs are positive
c. total revenue equals zero
d. variable costs equal zero
____ 37. When will a labor supply curve bend backward?
a. Leisure is an inferior good.
b. Leisure is an inferior good, and its income effect is larger than the substitution
effect.
c. Leisure is a normal good.
d. Leisure is a normal good, and its income effect is larger than the substitution
effect.
____ 38. Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand
curve. When selling the 100th widget, the firm will always receive
a. less marginal revenue on the 100th widget than it received on the 99th widget.
b. more average revenue on the 100th widget than it received on the 99th widget.
c. more total revenue on the 100 widgets than it received on the first 99 widgets.
d. a lower average cost per unit at 100 units of output than at 99 units of output.
____ 39. In some cases, selling pollution permits is a better method for reducing pollution than imposing a
corrective tax because
a. it is hard to estimate the market demand curve and thus charge the "right"
corrective tax.
b. selling pollution permits create a net increase in pollution.
c. Corrective taxes distort incentives.
d. Corrective taxes provide greater flexibility to firms that can reduce pollution at a
low cost.
____ 40. Assume that a local restaurant sells two items, salads and steaks. The restaurant’ s only two
customers on a particular day are Mr. Meaty and Ms. Veggie. Mr. Meaty is willing to pay $20 for
a steak and $7 for a salad. Ms. Veggie is willing to pay only $8 for a steak, but is willing to pay
$12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost.
How much additional profit does the restaurant make if it stops offering the items separately and,
instead, to sell them only as a combo meal?
a. $4
b. $6
c. $8
d. $10

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Name: ________________________ ID: A

____ 41. Using the midpoint method, the price elasticity of demand for a good is computed to be
approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the
quantity of the good demanded?
a. a 7.5 increase in the price of the good
b. a 13.33 percent increase in the price of the good
c. an increase in the price of the good from $7.50 to $10
d. an increase in the price of the good from $10 to $17.50
____ 42. Which of the following is only true for a firm to maximize its profit in a Perfectly Competitive
Market?
a. MR=MC
b. P=AR
c. P=MC
d. all of them
____ 43. A textbook is a
a. private good and the knowledge that one gains from reading the book is a
common resource.
b. private good and the knowledge that one gains from reading the book is a public
good.
c. common resource and the knowledge that one gains from reading the book is a
public good.
d. common resource and the knowledge that one gains from reading the book is a
private good.
____ 44. Suppose only two goods, X and Y, in the market. John feels (3,4) and (5,5) give him the same
level of satisfaction. John's indifferent curves
a. violate the property that indifference curves are downward-sloping.
b. violate the property that indifference curves do not cross.
c. violate the properties higher indifference curves are preferred to lower ones.
d. obey all the properties of well-behaved indifference curves.
____ 45. The revenue of a firm that maximizes its profit in a perfectly competitive market is $500. Its
marginal cost is increasing, and the current marginal cost is $10. Also, its fixed cost is $5. What
is the current output quantity of the firm?
a. 49.5.
b. 0
c. 50
d. 45
____ 46. Which of the following best describes the idea of excess capacity in monopolistic competition?
a. Firms produce more output than is socially desirable.
b. The output produced by a typical firm is less than what would occur at the
minimum point on its ATC curve.
c. Due to product differentiation, firms choose output levels where P > ATC.
d. Firms keep some surplus output on hand in case there is a shift in the demand for
their product.

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Name: ________________________ ID: A

____ 47. The Hound Dog Bus Company contemplates expanding its New Mexico operations by offering
service from Raton to Milk-of-Magnesia. The total cost of the trip would be $400, of which $150
is fixed cost, which it has already paid. The firm expects to earn $275 in revenue from the trip.
The Hound Dog Bus Co. should
a. offer this service because the revenue exceeds fixed cost
b. offer this service because the added revenue exceeds the added cost of this service
c. offer this service because it will earn a positive economic profit
d. not offer this service because the total cost exceeds the total revenue
____ 48. Randy is a minor-league baseball player. His current cumulative batting average is 0.270. Randy
believes that if he can raise his cumulative batting average to 0.300, he will have a chance to play
in the major leagues. Which of the following statements is correct?
a. If Randy gets between 27 and 30 hits out of his next 100 at bats, he will be able to
raise his cumulative batting average to 0.300.
b. If Randy gets 30 hits out of his next 100 at bats, he will be able to raise his
cumulative batting average to 0.300.
c. Randy must get more than 30 hits out of his next 100 at bats in order to raise his
cumulative batting average to 0.300.
d. Either b or c could be correct.
____ 49. There are only two goods, X and Y, in the market. Suppose John's optimal consumption choice
for good X and Y is (4, 3) when the market prices of two goods are both $4. Which of the
following is probably true?
a. John prefers (7,0) to (4,3).
b. John prefers (6,2) to (4,3).
c. John prefers (6,1) to (4,3).
d. John prefers (3,3) to (4,3).
____ 50. If the income elasticity of demand for good X is negative and the cross-price elasticity of demand
between good X and good Y is negative, which of the following must be true of good X?
a. X is a normal good and is a substitute for Y.
b. X is a normal good and is a complement to Y.
c. X is an inferior good and is a substitute for Y.
d. X is an inferior good and is a complement to Y.

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Commerce College Joint Economics Exam 109-1

Answer Section

MULTIPLE CHOICE

1. ANS: C LOC: 109-1 TOP: 7. 公共 財與外部性

2. ANS: D LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析
3. ANS: D LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析
4. ANS: C LOC: 109-1 TOP: 7. 公共 財與外部性
5. ANS: B LOC: 109-1 TOP: 6-1.獨 占
6. ANS: A LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析
7. ANS: D LOC: 109-1 TOP: 6-3.獨 占性競爭
8. ANS: A LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )
9. ANS: B LOC: 109-1 TOP: 4.生產理論與成本分析
10. ANS: C LOC: 109-1 TOP: 6-1.獨 占
11. ANS: B LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析
12. ANS: D LOC: 109-1 TOP: 4.生產理論與成本分析
13. ANS: A LOC: 109-1 TOP: 4.生產理論與成本分析
14. ANS: D LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析
15. ANS: D LOC: 109-1 TOP: 6-3.獨 占性競爭
16. ANS: C LOC: 109-1 TOP: 7. 公共 財與外部性
17. ANS: C LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )
18. ANS: A LOC: 109-1 TOP: 4.生產理論與成本分析
19. ANS: A LOC: 109-1 TOP: 1. 需求 、 供給與均衡
20. ANS: C LOC: 109-1 TOP: 6-1.獨 占
21. ANS: D LOC: 109-1 TOP: 6-1.獨 占
22. ANS: B LOC: 109-1 TOP: 6-2.寡占
23. ANS: D LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )
24. ANS: D LOC: 109-1 TOP: 5.完全競爭市場
25. ANS: C LOC: 109-1 TOP: 7. 公共 財與外部性
26. ANS: D LOC: 109-1 TOP: 1. 需求 、 供給與均衡
27. ANS: C LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )
28. ANS: A LOC: 109-1 TOP: 7. 公共 財與外部性
29. ANS: C LOC: 109-1 TOP: 6-3.獨 占性競爭
30. ANS: D LOC: 109-1 TOP: 6-3.獨 占性競爭
31. ANS: B LOC: 109-1 TOP: 6-2.寡占
32. ANS: A LOC: 109-1 TOP: 6-3.獨 占性競爭
33. ANS: B LOC: 109-1 TOP: 1. 需求 、 供給與均衡
34. ANS: B LOC: 109-1 TOP: 4.生產理論與成本分析
35. ANS: C LOC: 109-1 TOP: 4.生產理論與成本分析
36. ANS: A LOC: 109-1 TOP: 5.完全競爭市場
37. ANS: D LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )
38. ANS: A LOC: 109-1 TOP: 6-1.獨 占
39. ANS: A LOC: 109-1 TOP: 7. 公共 財與外部性
40. ANS: B LOC: 109-1 TOP: 6-2.寡占
41. ANS: B LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析
42. ANS: C LOC: 109-1 TOP: 5.完全競爭市場
43. ANS: B LOC: 109-1 TOP: 7. 公共 財與外部性
44. ANS: A LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )

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45. ANS: C LOC: 109-1 TOP: 5.完全競爭市場

46. ANS: B LOC: 109-1 TOP: 6-3.獨 占性競爭
47. ANS: B LOC: 109-1 TOP: 5.完全競爭市場
48. ANS: C LOC: 109-1 TOP: 4.生產理論與成本分析
49. ANS: B LOC: 109-1 TOP: 3.消費 者選擇(與需求 曲線的導出 )
50. ANS: D LOC: 109-1 TOP: 2. 供需彈性與比較靜 態 分析