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ECON 312 ECON312 FINAL EXAM (2016)

Microeconomics- Final Examination


I. Multiple choice questions

1. Four workers produce 150 units of output and five workers produce 182. The marginal product of the fifth worker is

a. 32 units of output

b. 4 units of output

c. 20 units of output

d. 36 units of output


2. The return on investment that is just sufficient to satisfy the owners of a business is called

a. Normal profit

b. Marginal profit

c. Economic profit

d. Excess profit


3. The law of diminishing returns

a. Applies in the short run but not in the long run

b. Requires that all factors of production must diminish in equal proportions

c. Requires that all factors of production must diminish in unequal proportions

d. States that marginal product must always be less than average product


4. The demand curve faced by a perfectly competitive firm is

a. Always downward

b. Horizontal

c. Perfectly inelastic

d. Downward sloping if the law of demand applies


5. The short run is a period of time during with

a. All resources are fixed

b. All resources are variable

c. The scale of production is fixed

d. The scale of production is variable


6. If diminishing returns have set in, a firm that doubles the number of workers will see total production

a. Decrease

b. Less than double

c. More than double

d. Decrease by 50%


7. Andy increases the amount of capital his workers use. The average product of labor will---- and the marginal product of labor will-----

a. Increase; increase

b. Decrease: decrease

c. Increase: decrease

d. Decrease; increase


8. Which of the following is most likely to reach the long run soonest

a. An ice cream vendor

b. An aircraft manufacturer

c. A private college

d. A state university


Use the table below to answer the next two questions (9 and 10)

Number of WorkersMarginal Product

1 19

2 26

3 24

4 20

5 18


9. Total product, if four workers are employed, is

a. 20 units of output

b. 107 units of output

c. 89 unites of output

d. 69 unit of output


10. Average product, if there are three workers employed, is

a. 24 units

b. 23 units

c. 26 units

d. 8 units


11. Each of the following is decision that must be made by a perfectly competitive firm except

a. Which price level to set for its output

b. How much of each input to demand

c. How to produce its output

d. How much output to supply


12. In the short run which of the following is incorrect

a. Existing firms cannot leave the industry

b. New firms cannot enter the industry

c. The firm is operating under a fixed scale of production

d. Firms have no variable factors of production


13. When marginal product is zero, total product is---- and average product is ----

a. Maximized; maximized

b. Maximized;  decreasing

c. Decreasing; maximized

d. Decreasing; decreasing


14. The perfectly competitive firm has no choice regarding

a. The price that may be charged

b. How much output to produced

c. The choice of technology

d. How much of each input to hire


15. Ms. Prudence Juris decides to open a law office. She quits her job as an assistant district attorney where she earned an annual salary of $ 25,000. She borrows $ 50,000 at 10% annual interest, hires a secretary at $20,000 per year and rents office space at $55,000 per year. During her first year, she receives revenues of $100,000.  What is her economic profit?

a. $ 20,000

b. Zero, but she earns a normal or accounting profit

c. - $5000

d. -$50,000







16. Because of the law of diminishing returns, the general appearance of the production function graph is that

a. Increases at an increasing rate

b. Increases at a decreasing rate

c. Decreases at an increasing rate

d. Decreases at a decreasing rate


Use the information below to answer the next two questions (17 and 18)

Russell plans on opening a car wash. He finds four distinct methods of production that produce the same result.

Technology Units of capitalUnits of labor






17. If the hourly price of a unit of capital is $60 and the hourly wage is $ 6, which production technology should Russell choose in order to minimize costs?

a. A

b. B

c. C

d. D


18. Which is the most labor-intensive method of production?

a. A

b. B

c. C

d. D


19. Which of the following statements is true about fixed cost

a. Fixed costs increases as time goes by

b. Average fixed cost graphs have a U- Shape curve

c. Fixed costs are zero in the long run

d. Fixed cost are zero when the firm decides to produce no output


20. Of the following, which is most likely to be a variable cost

a. The wage of a security guard

b. The firm’s rent on its factory building

c. The firm’s electricity bill

d. The firm’s interest payment on a bank loan

21. The TVC of 11 units is $100. The TVC of 12 units is $120. The marginal cost of the twelfth unit is

a. $ 60

b. $10

c. $120

d. $20


22. The short run supply curve for a perfectly competitive firm is upward sloping because, as production increases,

a. The form must pay higher hourly wages

b. Total fixed costs increases

c. The firm is able to assign its workforce to specialized tasks

d. The marginal productivity of additional workers decreases


23. In the short run, which of the following is possible?

a. AFC may be greater than ATC

b. MC may intersect ATC when ATC is decreasing

c. AFC may be greater than AVC

d. TFC falls as output rises


24. ABC Corporation and XYZ Corporation have identical total variable costs. ABC’s total fixed costs are $10,000 per month higher that XYZ’s are. ABC’s MC curve

a. Is identical to that of  XYZ

b. Has the same shape, but is higher than that of XYZ

c. Has the same shape, but is lower than that of XYZ

d. Is higher than that of XYZ, and need not have the same shape


25. The firm is at the output level where marginal cost intersects average variable cost. We can infer that

a. Average variable cost is rising

b. Average variable cost is falling

c. Average total cost is failing

d. Average total cost is rising


26. The firm’s total curve is a straight line sloping up to the right. The marginal cost curve is

a. Upward sloping as output increases

b. Downward sloping as output increases

c. Horizontal

d. Horizontal and equal to zero


27. In the short run, profits will be maximized at the output level where

a. Price is equal to marginal revenue

b. Marginal cost is equal to average variable cost (which is when AVC is minimized)

c. Average total cost is minimized (and is equal to marginal cost)

d. Marginal cost is equal to price (which is equal to marginal revenue)


28. At the current of production level, ATC is increasing. Of the following situations, we should consider increasing production if

a. Price is less than average total cost

b. Price is greater than average total cost

c. Price exceeds average variable cost, but less than average cost

d. Price is equal to average total cost.


29. In the short run, profits will be maximized at that output level where

a. Total revenues are maximized

b. Total costs are minimized

c. Marginal costs marginal revenues are equalized

d. Variable costs are minimized


30. HAL Corporation, a perfectly competitive firm is currently producing 20 units. The price is $10 per unit, total fixed costs are $ 10, and average variable costs are $3. The firm

a. Is making a total profit of $130

b. Is maximizing profit

c. Is making a loss of $3 per unit

d. Is making a profit of $7 per unit


31. ABC Corp. cuts usage of all inputs by 50%. Production falls by more than 50 %. This firm is experiencing

a. External economies of scale

b. External diseconomies of scale

c. Increasing returns to scale

d. Decreasing returns to scale


32. In the short run, a perfectly competitive firm incurring losses should still produce if it can cover its

a. Average costs

b. Variable costs

c. Fixed costs

d. Economic costs


33. An industry has external economies of scale. In the long run, an increase in demand will

A decrease price

Increase price

Not change price

Cause an indeterminate change in price


34. Suddenly there is an increase in the demand for Frisbees. The most likely result would be

a. Higher prices in the short run, followed by an increase in production in the long run that would cause prices to decline somewhat

b. Higher prices in the short run, followed by larger long-run price increases as the stock of Frisbees is depleted

c. Higher prices in the short run because of greater sales volume, and even higher prices later on as plant sizes are increased.

d. Lower prices in the short run because of higher sales, but higher prices in the long run as the stock of Frisbees is depleted


35. In the short- run perfectly competitive equilibrium, each of the following conditions will hold, except 

a. P= MR

b. P= SRMC

c. LRAC is minimized

d. SRMC is minimized


36. An increasing-cost industry experiences external----- of scale and had an------ long-run industry supply curve

a. Economies; upward sloping

b. Economies; downward sloping

c. Diseconomies; upward sloping

d. Diseconomies; downward sloping


37. A perfectly competitive decreasing-cost industry in long-run equilibrium experiences a permanent decrease in market demand. When the industry reaches its new long-run equilibrium, the equilibrium price of its good will be--- than before and the equilibrium industry will be--- than before

a. Higher; higher

b. Higher; lower

c. Lower; higher

d. Lower; lower



38. A firm will not produce where MR=MC when

a. It is earning positive economic profit

b. It is making an operating loss

c. It is earning negative economic profits

d. It is making an operating profit


39. Jenny’s Gemstones is making an operating loss. It should---- in the long run and ---- in the long run

a. Shut down; leave the industry

b. Leave the industry; shut down

c. Increase its price; leave the industry

d. Increase its price; reduce production


40. Jenny’s Gemstones is making an operating loss. The industry supply curve will shift --- in the ---

A right; short run

Right; long run

Left; short run

Left; long run

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