Question 1

For the following, please answer "True" or "False" and explain why.
-An investment is profitable as long as its internal rate of return is equal to the rate of interest.

Accepted Answer

A) True 
 B)False  False

Question 2

In the long run,a competitive firm has a marginal product of labor,MPL = L⁻¹.The output price is $20 per unit and the wage is $7.25 per hour.The long-run labor demand curve for the firm is

Accepted Answer

A)  20 L⁻⁰.⁰⁵. 
B)  7.25L⁻⁰.⁰⁵. 
C)  20L⁻¹ 
D)  7.25L⁻¹. 
A)  20 L⁻⁰.⁰⁵. 
B)  7.25L⁻⁰.⁰⁵. 
C)  20L⁻¹ 
D)  7.25L⁻¹. C

Question 3

Suppose a perfectly competitive firm's production function is q = L⁰.²K⁰.⁶ and it takes the wage and price as given.Then the firm's long-run demand for labor as a function of K,w,and p is

Accepted Answer

A)  p5((0.2/w)²(0.6/r)³). 
B)  p5((0.2/w)⁴(0.6/r)⁵). 
C)  p5((0.2/w)⁵(0.6/r)⁴). 
D)  p5((0.2/w)³(0.6/r)²). 
A)  p5((0.2/w)²(0.6/r)³). 
B)  p5((0.2/w)⁴(0.6/r)⁵). 
C)  p5((0.2/w)⁵(0.6/r)⁴). 
D)  p5((0.2/w)³(0.6/r)²). A

Question 4

Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?

Accepted Answer

Because the resource is scarce

Question 5

If the market demand elasticity is constant at -3 and a monopolist's MPL = 1.2L⁻⁰.⁵,then the labor demand for the monopoly is

Accepted Answer

A)  0.8PL⁻⁰.⁵. 
B)  0.4PL⁻⁰.⁵. 
C)  0.8PL⁻². 
D)  0.4PL⁻². 
A)  0.8PL⁻⁰.⁵. 
B)  0.4PL⁻⁰.⁵. 
C)  0.8PL⁻². 
D)  0.4PL⁻².

Question 6

At age 40,Joe is considering quitting his job and going back for a college degree.He needs two more years full-time.Tuition is $10,000 per year.He earns $30,000 per year.A college degree would raise his annual income by $10,000 per year.He will retire at age 70.Which of the following makes it more likely that Joe will decide to go back to college full-time?

Accepted Answer

A)  The rate of interest increases. 
B)  The rate of interest decreases. 
C)  The government enacts mandatory retirement at age 60. 
D)  Tuition increases. 
A)  The rate of interest increases. 
B)  The rate of interest decreases. 
C)  The government enacts mandatory retirement at age 60. 
D)  Tuition increases.

Question 7

If the government wants to borrow money to build new highways; then the

Accepted Answer

A)  interest rate will be higher. 
B)  quantity of funds available in the market will increase. 
C)  private investment will decrease. 
D)  All of the above. 
A)  interest rate will be higher. 
B)  quantity of funds available in the market will increase. 
C)  private investment will decrease. 
D)  All of the above.

Question 8

If you place $100 in a bank account that pays 6% at the end of each year,and you leave your $100 and all your interest in the bank,how much will you have in the bank at the end of seven years with annual compounding?

Accepted Answer

A)  (106)⁷. 
B)  7 ∗ (106). 
C)  100 ∗ (1.60)⁷. 
D)  100 ∗ (1.06)⁷. 
A)  (106)⁷. 
B)  7 ∗ (106). 
C)  100 ∗ (1.60)⁷. 
D)  100 ∗ (1.06)⁷.

Question 9

Suppose that a mining company employs 80% of the available laborers in a town.Explain what will happen to the number of laborers hired and the wage rate paid by the mine if a minimum wage is set at the competitive level.

Accepted Answer

The mine was operating as a mo

Question 10

Explain how continuing technical progress may cause the price of scarce,exhaustible resources to fall over time.

Accepted Answer

Technical progress can lower the extract

Question 11

Suppose that your college offers you two payment plans for your last two years of college.You may either pay tuition of $20,000 per year at the beginning of each of the next two years,or pay just $38,000 before the start of freshman year.What would the interest rate have to be for you to be indifferent between these two deals? Explain.

Accepted Answer

One is indifferent when the future strea

Question 12

Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return

Accepted Answer

A)  equals zero. 
B)  equals the interest rate. 
C)  exceeds the interest rate. 
D)  is less than the interest rate. 
A)  equals zero. 
B)  equals the interest rate. 
C)  exceeds the interest rate. 
D)  is less than the interest rate.

Question 13

For the following, please answer "True" or "False" and explain why.
-If the price of a competitive firm's output increases,the firm responds in the short run by demanding more labor.

Accepted Answer

A) True 
 B)False

Question 14

Explain why a firm may rationally make an investment when its cash flow from the investment is not positive each year.

Accepted Answer

A firm will examine the net present valu

Question 15

With respect to events like global warming,some economists suggest using falling discount rates because

Accepted Answer

A)  exponential discounting virtually gives no weight to (large) costs incurred far into the future. 
B)  exponential discounting weights (large) costs incurred far into the future heavily. 
C)  events far in the future do not affect us. 
D)  we should not care about costs far in the future. 
A)  exponential discounting virtually gives no weight to (large) costs incurred far into the future. 
B)  exponential discounting weights (large) costs incurred far into the future heavily. 
C)  events far in the future do not affect us. 
D)  we should not care about costs far in the future.

Question 16

In the short run,the competitive firm will hire more labor if

Accepted Answer

A)  the wage rate increases. 
B)  the price the firm receives for the output increases. 
C)  the price the firm receives for the output decreases. 
D)  a specific tax is imposed on the output. 
A)  the wage rate increases. 
B)  the price the firm receives for the output increases. 
C)  the price the firm receives for the output decreases. 
D)  a specific tax is imposed on the output.

Question 17

Suppose a new cost-saving device will forever generate $1,000 net savings per year to a firm.The device costs $10,000.Using the Internal Rate of Return approach,will the firm make the investment?

Accepted Answer

A)  definitely 
B)  definitely not 
C)  if the interest rate exceeds 10% 
D)  if the interest rate is less than 10% 
A)  definitely 
B)  definitely not 
C)  if the interest rate exceeds 10% 
D)  if the interest rate is less than 10%

Question 18

For the following, please answer "True" or "False" and explain why.
-As in all other competitive markets price equals marginal cost in a market for a scarce,non-renewable resource that is traded in a competitive market.

Accepted Answer

A) True 
 B)False

Question 19

The profit maximizing condition for a firm selling its output in a competitive market and buying its resources in a competitive market is

Accepted Answer

A)  P = MC only. 
B)  MRP = wage only. 
C)  both A and B. 
D)  neither A nor B. 
A)  P = MC only. 
B)  MRP = wage only. 
C)  both A and B. 
D)  neither A nor B.

Question 20

In reality,according to the model developed in Section 15.5 of the textbook,prices of non-renewable resources have not increased continually because of

Accepted Answer

A)  abundance of the resource. 
B)  technological Progress changing marginal cost. 
C)  changing market power of producers. 
D)  All of the above. 
A)  abundance of the resource. 
B)  technological Progress changing marginal cost. 
C)  changing market power of producers. 
D)  All of the above.

For the following, please answer "True" or "False" and explain why. -An investment is profitable as long as its internal rate of return is equal to the rate of interest.

In the long run,a competitive firm has a marginal product of labor,MPL = L⁻¹.The output price is $20 per unit and the wage is $7.25 per hour.The long-run labor demand curve for the firm is

Suppose a perfectly competitive firm's production function is q = L⁰.²K⁰.⁶ and it takes the wage and price as given.Then the firm's long-run demand for labor as a function of K,w,and p is

Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?

If the market demand elasticity is constant at -3 and a monopolist's MPL = 1.2L⁻⁰.⁵,then the labor demand for the monopoly is

If the government wants to borrow money to build new highways; then the

If you place $100 in a bank account that pays 6% at the end of each year,and you leave your $100 and all your interest in the bank,how much will you have in the bank at the end of seven years with annual compounding?

Suppose that a mining company employs 80% of the available laborers in a town.Explain what will happen to the number of laborers hired and the wage rate paid by the mine if a minimum wage is set at the competitive level.

Explain how continuing technical progress may cause the price of scarce,exhaustible resources to fall over time.

Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return

For the following, please answer "True" or "False" and explain why. -If the price of a competitive firm's output increases,the firm responds in the short run by demanding more labor.

Explain why a firm may rationally make an investment when its cash flow from the investment is not positive each year.

With respect to events like global warming,some economists suggest using falling discount rates because

In the short run,the competitive firm will hire more labor if

Suppose a new cost-saving device will forever generate $1,000 net savings per year to a firm.The device costs $10,000.Using the Internal Rate of Return approach,will the firm make the investment?

For the following, please answer "True" or "False" and explain why. -As in all other competitive markets price equals marginal cost in a market for a scarce,non-renewable resource that is traded in a competitive market.

The profit maximizing condition for a firm selling its output in a competitive market and buying its resources in a competitive market is

In reality,according to the model developed in Section 15.5 of the textbook,prices of non-renewable resources have not increased continually because of

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 15: Factor Markets

For the following, please answer "True" or "False" and explain why. -An investment is profitable as long as its internal rate of return is equal to the rate of interest.

In the long run,a competitive firm has a marginal product of labor,MPL = L⁻¹.The output price is $20 per unit and the wage is $7.25 per hour.The long-run labor demand curve for the firm is

Suppose a perfectly competitive firm's production function is q = L⁰.²K⁰.⁶ and it takes the wage and price as given.Then the firm's long-run demand for labor as a function of K,w,and p is

Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?

If the market demand elasticity is constant at -3 and a monopolist's MPL = 1.2L⁻⁰.⁵,then the labor demand for the monopoly is

If the government wants to borrow money to build new highways; then the

If you place $100 in a bank account that pays 6% at the end of each year,and you leave your $100 and all your interest in the bank,how much will you have in the bank at the end of seven years with annual compounding?

Suppose that a mining company employs 80% of the available laborers in a town.Explain what will happen to the number of laborers hired and the wage rate paid by the mine if a minimum wage is set at the competitive level.

Explain how continuing technical progress may cause the price of scarce,exhaustible resources to fall over time.

Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return

For the following, please answer "True" or "False" and explain why. -If the price of a competitive firm's output increases,the firm responds in the short run by demanding more labor.

Explain why a firm may rationally make an investment when its cash flow from the investment is not positive each year.

With respect to events like global warming,some economists suggest using falling discount rates because

In the short run,the competitive firm will hire more labor if

Suppose a new cost-saving device will forever generate $1,000 net savings per year to a firm.The device costs $10,000.Using the Internal Rate of Return approach,will the firm make the investment?

For the following, please answer "True" or "False" and explain why. -As in all other competitive markets price equals marginal cost in a market for a scarce,non-renewable resource that is traded in a competitive market.

The profit maximizing condition for a firm selling its output in a competitive market and buying its resources in a competitive market is

In reality,according to the model developed in Section 15.5 of the textbook,prices of non-renewable resources have not increased continually because of

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters