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ECON 203 ECON203 FINAL EXAM ANSWERS (2018) - UMUC

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ECON 203 Principles of Microeconomics Final Exam Answers (2018)

1. When entry occurs in a monopolistically competitive industry,


2. The long term-result of entry and exit in a perfectly competitive market is that all firms end up selling at
the price level determined by the lowest point on the
3. CleanAir Motors Inc. wants to build electric cars with no emissions. However, electric motors require
innovative battery technology for adequate energy storage to meet basic daily commuting needs. The
company has several possibilities for alternative battery technology, along with estimates of how these
approaches would affect their costs of producing the cars and their sales of the cars. Based on these
estimates, the table below shows the value of R&D projects that provide at least a certain private rate of
return. Every investment would have an additional 2% social return: that is, an investment that pays at
least a 6% return to the car company will pay at least an 8% return for society as a whole.
If the opportunity cost of financial capital for CleanAir Motors Inc. is 10%, CleanAir Motors Inc. will invest
___ in R&D if it receives both the private and social benefits of this investment.
4. In a free market economy, firms operating in a perfectly competitive industry are said to have only one
major choice to make. Which of the following correctly sets out that choice?
5. If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?
6. Whenever there is a shortage at a particular price, the quantity sold at that price will equal:
7. Bob budgets $12 a week for entertainment. He splits his time between going to the movies and going to
the gym. Each movie costs $3 and each session at the gym also costs $3. The total utility from each of
these activities is shown in the table below. Bob’s utility maximizing point is:
8. Refer to the table below. The information pertains to the demand curve and the average cost curve for a
natural monopoly firm. What will the price be in this market?
9. Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the
price is $15. What is the price elasticity of Bobo's demand curve?
10. The presence of organized labor in the U.S. labor market creates a situation that resembles a
11. Once the U.S. government opened its domestic markets to international trade, the competition from
imported cars, steel, and other products caused demand for similar U.S. goods to
12. Which of the following arguments would most likely be presented by a critic of labor unions?
13. Union membership has ____________ in the United States because of _________________________.
14. Refer to Figure 4-3. A change from Point A to Point B represents a(n);
15. The key assumption that accompanies the use of numbers for measuring utility is that
16. If Congress voted every few years to redefine completely what poverty means
17. The concept of a poverty line raises a number of complex questions. Which of the following represents
such a question?
18. The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total
cost curve reflects this company's
19. Given the data provided in the table below, what will the amount of profit be for production at quantity (Q)
level 7?
20. Refer to Figure 7-1 With reference to Graph A, at a price of $10, total revenue equals:
21. What qualities would ideally suit a monopolistic firm with regard to barriers to entry?
22. The two primary factors determining monopoly market power are the firm's
23. I’MaGadgetCo. Produces and sells widgets. Last Year, it produced 9,000 widgets and each sold one for
$8. To produce the 9,000 widgets, the company incurred
24. When economists attempt to predict the spending patterns of U.S. households, they will typically view the
_____________________ as a primary determining factor that influences the individual consumption
choices that each will make.
25. refer to the diagram above. what is the significance of the point marked l1
26. Ideally, a patent should cover a long enough period of time for the inventor to _______________, but that
period should not be so long that it allows the inventor to
27. Which of the following is the most appropriate response of public policy to a negative externality like
pollution?
28. If this industry was monopolistic competitive, what price would the good sell for?
29. If they maximize their profits what will their profits equal
30. Firms operating under cost-plus regulation have an incentive to generate high costs by building huge
factories or employing lots of staff,
31. For the past two years, a cellphone manufacturer has been selling to a group of distributors, who then sell
the products to retailers to sell to the general public. The firm has now informed its distributors that each
of them must sell the cellphones for a minimum price the manufacturer has set. In these circumstances,
32. Based on this information, the Herfindahl-Hirschman Index is
33. Based on this information, the four-firm concentration ratio is
34. If the government decides to regulate this natural monopoly by forcing them to produce at the point where
the demand curve intersects average cost, then compared to the unregulated natural monopoly, the price
will ____ and the quantity will ____.
35. Marcella operates a small, but very successful art gallery. All but one of the following can be classified as
a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
36. Refer to TABLE 5-3; Suppose that D2 and S1 are the prevailing demand and supply curves for a product,
If the demand schedule changes from D2 to D1, then:
37. If you are highly asthmatic, then having high levels of industrial air pollutants waft over your house every
day
38. Which of the following is viewed as a fundamental building block of the U.S. economic way of thinking?
39. If an externality of pollution exists for all manufacturers in a given industry, then all related social costs
40. If a government wants to establish a marketable permit program, it must begin by determining
41. Which of the following will need to strike some balance between economic output and environmental
quality as a prominent climate change priority?
42. Which of the following would be classified as a situation where a third party benefits from a market
transaction by others?

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