ECO 561 Final Exam: ECO 561 - If a firm in a purely competitive industry

ECO 561 Final 

Exam 

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1) Suppose that in the clothing market, 

production costs have fallen, but the 

equilibrium price and quantity purchased 

have both increased. Based on this 

information you can conclude that 

A. the supply of clothing has grown faster 

than the demand for clothing 

B. demand for clothing has grown faster than 

the supply of clothing 

C. the supply of and demand for clothing have 

grown by the same proportion 

D. there is no way to determine what has 

happened to supply and demand with this 

information 

2) Camille's Creations and Julia's Jewels 

both sell beads in a competitive market. 

If at the market price of $5, both are 

running out of beads to sell (they can't 

keep up with the quantity demanded at 

that price), then we would expect both 

Camille's and Julia's to: 

A. raise their price and reduce their quantity 

supplied 

B. raise their price and increase their 

quantity supplied 

C. lower their price and reduce their 


D. lower their price and increase their 



3) In which of the following industries are 

economies of scale exhausted at relatively 

low levels of output? 

A. Aircraft production 

B. Automobile manufacturing 

C. Concrete mixing 

D. Newspaper printing 

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4) The average cost curves (AVC and ATC) 

should be minimized 

A. where MC = ATC and MC = AVC 

B. where FC = ATC and FC = AVC 

C. where TC starts to increase at a faster rate 

D. where ATC = AVC 


5) If the wage rate increases, 

A. a purely competitive producer 

will hire less labour, but an 

imperfectly competitive producer 

will not 

B. an imperfectly competitive 

producer will hire less labour, but 

a purely competitive producer 

will not 

C. a purely competitive and an 

imperfectly competitive producer 

will both hire less labour 

D. an imperfectly competitive 

producer may find it profitable to 

hire either more or less labour 

6) The real wage will rise if the 

nominal wage 

A. falls more rapidly than the general 

price level 

B. increases at the same rate as labor 

productivity 

C. increases more rapidly than the 

general price level 

D. falls at the same rate as the general 

price level 


1 

7) Construction workers frequently 

sponsor political lobbying in support 

of greater public spending on 

highways and public buildings. One 

reason they do this is to 

A. restrict the supply of construction 

workers 

B. increase the elasticity of demand for 

construction workers 

C. increase the demand for construction 

workers 

D. increase the price of substitute inputs 

8) Paying an above-equilibrium 

wage rate might reduce unit 

labour costs by 

A. permitting the firm to attract 

lower-quality labour 

B. increasing the cost to workers of 

being fired for shirking 

C. increasing voluntary worker 

turnover 

D. increasing the supply of labour 


9) A good real-world example of 

monopolistic competition is 

A. lawyers 

B. gas stations 

C. Time Warner Cable 

D. groceries store 

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10) An industry comprising a 

small number of firms, each of 

which considers the potential 

reactions of its rivals in making 

price-output decisions, is called 

A. monopolistic competition 

B. oligopoly 

C. pure monopoly 

D. pure competition 


11) Price is constant or given 

to the individual firm selling 

in a purely competitive 

market because 

A. the firm's demand curve is 

downward sloping 

B. of product differentiation 

reinforced by extensive 

advertising 

C. each seller supplies a 

negligible fraction of total 

supply 

D. there are no good substitutes 

for its product 

12) The most important pricing 

strategy for a perfectly competitive 

firm is 

A. minimizing cost 

B. maximizing sales 

C. product differentiation 

D. advertising 


13) Which of the following is a nonprice 

barrier of entry? 

A. Huge sunk cost 

B. Discounts 

C. Product differentiation 

D. Advertising 


eco 561 final exam 2013 

14) A third-degree price 

discrimination can be applied to 

which of the following market 

structures? 

A. A monopoly 

B. An oligopoly 

C. A monopolistic competition 

D. A perfect competition 


15) Investing in R&D is more likely to 

occur in markets where 

A. firms have monopoly power protected by 

regulatory barriers 

B. markets are closely competitive markets 

with close to zero economic profits 

C. markets are oligopoly markets with strong 

collusion agreements 

D. markets are monopolistic competitive 

markets 

16) All economies of scale are achieved 

at the minimum of 

A. average total cost 

B. total cost 

C. average variable cost 

D. average fixed cost 


17) Inflation is undesirable because 

it 

A. arbitrarily redistributes real 

income and wealth 

B. invariably leads to hyperinflation 

C. usually is accompanied by 

declining real GDP 

D. reduces everyone’s standard of 

living in the same proportion 

18) An economy’s aggregate 

demand curve shifts leftward or 

rightward by more than changes 

in initial spending because of the 

A. net export effect 

B. wealth effect 

C. real-balances effect 

D. multiplier effect 

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19) Suppose productivity rises in a 

particular economy, but wages stay 

the same. Other things equal, 

A. the demand curve will shift leftward 

B. the supply curve will shift rightward 

C. the supply curve will shift leftward 

D. expenditures curve will shift 

rightward 

20) If personal taxes were 

decreased and resource 

productivity increased 

simultaneously, the equilibrium 

A. output would rise 

B. output would fall 

C. price level would necessarily 

fall 

D. price level would necessarily 

rise 


21) Expansionary fiscal policy is so 

named because it 

A. involves an expansion of the nation's 

money supply 

B. can only be attained by expanding 

government consumption 

C. is aimed at achieving greater price 

stability 

D. can motivate an expansion of real 

GDP 

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22) Suppose the price level is fixed, 

the MPC is .5, and the GDP gap is a 

negative$100 billion. To achieve fullemployment 

output (exactly), 

government should 

A. increase government expenditures by 

$100 billion 

B. increase government expenditures by 

$50 billion 

C. reduce taxes by $50 billion 

D. reduce taxes by $200 billion 


23) GDP understates the value of 

output produced by an economy 

because it 

A. includes transactions that do not 

take place in organized markets, such 

as home cooked meals 

B. includes environmental degradation 

caused by increased output production 

C. excludes value added from the 

underground economy, such as tips 

taken under the table 

D. excludes the value of the wages 

and benefits of government employee 

24) Other things equal, a 

decrease in the real interest rate 

will 

A. shift the investment demand 

curve to the right 

B. shift the investment demand 

curve to the left 

C. move the economy upward 

along its existing investment 

demand curve 

D. move the economy downward 

along its existing investment 

demand curve 


25) Other things equal, a decrease in 

corporate income taxes will 

A. decrease the market price of real 

capital goods 

B. have no effect on the location of the 

investment demand curve 

C. shift the investment demand curve to 

the right 

D. shift the investment demand curve to 

the left 

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26) Inflation in U.S. prices will cause 

A. an increase in the demand for U.S. 

dollars and an appreciation in the 

exchange rate 

B. an increase in the supply of U.S. 

dollars and a depreciation in the 

exchange rate 

C. a decrease in the demand for U.S. 

dollars and a depreciation in the 

exchange rate 

D. a decrease in the supply of U.S. 

dollars and an appreciation in the 

exchange rate 


27) The quantity theory of money 

states that 

A. the money supply divided by the 

velocity of money equals the price level 

divided by real output 

B. the money supply times the velocity 

of money equals the price level times 

real output 

C. the money supply times the price level 

equals real output divided by the velocity 

of money 

D. the money supply times the price level 

equals real output times the velocity of 

money 

28) Suppose that U.S. prices rise 

4% over the next year while 

prices in Mexicorise 6%. 

According to the purchasing 

power parity theory of exchange 

rates,what should happen to the 

exchange rate between the dollar 

and the peso? 

A. The dollar should depreciate. 

B. The peso should appreciate. 

C. The peso should depreciate. 

D. The dollar will be revalued. 


29) A rise in the domestic interest rate 

leads to capital 

A. outflows and exchange rate 

appreciation 

B. outflows and exchange rate 

depreciation 

C. inflows and exchange rate depreciation 

D. inflows and exchange rate appreciation 


eco 561 final exam answers for free 

30) A firm under monopolistic 

competition will earn 

A. a positive economic profit as it 

has some monopoly power 

B. zero economic profit as it sets P = 

MC 

C. zero economic profit as its P = 

ATC 

D. a positive economic profit as it 

sets MC = MR 


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ECO 561 Final Exam: ECO 561 - If a firm in a purely competitive industry

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