EXAMINATION QUESTIONS

Third Microeconomics Exam

Instructor: James Sondgeroth

For the essay and multiple choice parts of the exam, students will be allowed to use one sheet of paper (8.5 X 11) with handwritten notes on both sides of it. This information sheet must be turned in with the exam. Answers to the essay questions must be written in a Blue Book. Two of the following questions will be randomly drawn on the day of the exam; you will have to answer those two questions for the exam.

These questions are drawn from Chapters 9, 14, 16, 17, 10, and 11 of your textbook.

 

  1. Cost Curves of the Representative Competitive Firm
    1. Sketch a graph of the
      1. Average Variable Cost curve,
      2. the Average Total Cost curve,
      3. and the Marginal Cost Curve.
    2. Label the shut down point and the break-even point.
    3. Explain why these are the firm's shut down and the break-even points.
    4. On the above graph illustrate the firm’s supply curve.
    5. Explain why a firm will continue producing if the price of the product or service it is selling is less than the average total cost of producing it but is greater than the average variable cost of producing it.


  2. Market Supply Curve and Above Normal Profits
    1. Why does the industry supply curve shift to the right when positive economic profits appear?
    2. Illustrate by drawing the industry supply and demand curves and the representative firm's average cost, marginal cost, and marginal revenue curves starting with the situation where the representative firm is earning above normal profits.
    3. In what way does society benefit from having industries in long-run competitive equilibrium?










  3. The Factor Market
    1. What is meant by "derived demand"?
    2. Why does the demand curve for labor slope down and to the right?
    3. Assuming the product sells for $100 per unit, complete the following table.
      Quantity of Labor
      Total Product Per Week
      Marginal Physical Product
      Marginal Revenue Product
      0
      0
      Undefined
      Undefined
      1
      12
      ?
      ?
      2
      19
      ?
      ?
      3
      24
      ?
      ?
      4
      28
      ?
      ?
      5
      30
      ?
      ?
    4. How many workers would be hired if the going salary for this quality of labor is $400 per week?
    5. If the product’s price were to increase to $200 per unit, how many workers would be hired?


  4. The Supply of Labor
    1. Why does the supply curve for labor slope upward and to the right?
    2. What can cause the supply curve to shift?


  5. Why do wage rates differ? Explain both the demand side and supply side reasons.

  6. Interest Rates
    1. What are ‘interest rates’?
    2. How are they determined?
    3. Why does the return to capital and interest rates tend to equality?


  7. Rent
    1. What is ‘economic rent’?
    2. What is ‘pure economic rent’?
    3. What is the difference between ‘artificial rent’ and ‘real rent’?


  8. Profits
    1. What is the difference between ‘economic profits’ and ‘accounting profits’?
    2. How do profits play a role in allocating resources to where they are needed in a capitalist market economy?
    3. What are some of the different theories that have been advanced to answer the question of where profits come from?


  9. Income Distribution I
    1. Explain what is meant by “the marginal productivity theory” of income distribution.
    2. What normative implications does this theory have?


  10. Income Distribution II
    1. In 1998 what was the percentage of total income received  by the lowest, second, third, fourth, and highest fifth of household income groups in the economy?
    2. What money income did a family have to receive in order to be placed in each income group?
    3. Draw a Lorenz curve of the income distribution given in your answer above.


  11. Inequality and Poverty
    1. Why does income inequality exist?
    2. What is poverty?
    3. Who are the poor?


  12. Normative Standards of Income Distribution
    • List and discuss three of the better known normative standards of income distribution.


  13. Monopoly
    1. Define what a monopoly is.
    2. List several different barriers to entry that can lead to the formation of a monopoly.
    3. Name some monopolies that you know of at the national or local level.


  14. Monopoly vs. Perfect Competition
    1. Sketch a graph of the monopolist's demand curve, marginal revenue curve, and marginal cost curve.
    2. Show on the graph the output-price combination the monopolist will try to operate at.
    3. On the same graph show the output-price combination would prevail if the monopolist acted as if it were a perfectly competitive industry.


  15. Economists vs. Monopolies
    1. List and explain the reasons why economists object to monopolies.
    2. Draw a graph of a single price monopoly with the appropriate cost and revenue curves included and indicate on this graph the region that represents the "deadweight loss" to society of a monopoly.


  16. Monopolistic Competition
    1. List the characteristics of an industry that economists might label as Monopolistically Competitive.
    2. Name some examples of such industries.
    3. How is Monopolistic Competition like Perfect Competition? How is it different?
    4. How is Monopolistic Competition like Monopoly? How is it different?


  17. Oligopoly
    1. List the characteristics of an industry that economists might label as Oligopolistic.
    2. Name some examples of such industries.
    3. What is a cartel? What are some of the problems of forming an effective cartel and keeping it going?
All the questions above were answered in class lectures. I will give the pages in the textbook where you can also find the answers. If all or part of the answer can only be found in lecture notes or handouts I will indicate that too. The questions listed above can be answered by consulting the following sources:
  1. Pages 192-203, and 217-219.
    1. Pp. 192-203; see Exhibit 4, p. 218 also.
    2. Lecture, but also pp. 217-219.
    3. Pp. 217-219.
    4. Pp. 219-221.
    5. P. 219.
  2. Pages 223-226.
    1. Pp. 225-226.
    2. Lecture; and Exhibit 10, p. 226.
    3. Lecture; but also see p. 224, and especially pp. 223-225.
  3. Pages 328-333.
    1. P. 328.
    2. Pp. 328-329.
    3. Exhibit 1, page 329.
    4. Pp. 331-333.
    5. Pp. 331-333.
  4. Pages 338-339.
    1. Pp. 328-339.
    2. Pp. 339.
  5. Pages 339-340; Exhibit 11, p. 342.
  6. Pages 394-396.
    1. Pp. 394.
    2. Pp. 394-396.
    3. P. 396.
  7. Pages 403 and 406.
    1. P. 403.
    2. P. 403.
    3. P. 406.
  8. Pages 186, 187, 407-409.
    1. Pp. 186-187.
    2. P. 409 and Lecture.
    3. Pp. 407-408.
  9. Pages 344 and 382.
    1. P. 344.
    2. P. 382.
  10. Pages 370, 371, and 375.
    1. Pp. 370-371 or Handout. Or http://www.census.gov/prod/2002pubs/01statab/income.pdf, Table 670.
    2. Handout; Or http://www.census.gov/prod/2002pubs/01statab/income.pdf, Table 670.
    3. P. 375.
  11. Pages 378-382, 386, and 387.
    1. Pp. 387-382.
    2. P. 386.
    3. P. 387.
  12. Pages 382-385.
  13. Pages 240-241.
    1. Pp. 240.
    2. Pp. 240-241.
    3. Lecture.
  14. Pages 247 and 249.
    1. Exhibit 4, p. 247.
    2. Exhibit 4, p. 247.
    3. Lecture; but see also Exhibit 6, p. 249.
  15. Pages 250.
    1. Lecture and p. 250.
    2. Exhibit 7, p. 250.
  16. Pages 263-264.
    1. P. 263.
    2. Lecture.
    3. Lecture, but see similar characteristics, p.263, and profits, p. 264.
    4. Lecture, p. 263-demand.
  17. Pages 267, 270-272.
    1. P. 267.
    2. Lecture.
    3. Pp. 270-272.