1999 Economics Challenge Play-off
MICROECONOMICS
Round II

1. Average Cost is lower in the long run than in the short run because
   1. prices often fall, allowing savings on purchases.
   2. inputs can be combined more efficiently in the long run.
   3. competition decreases in the long run.
   4. Average Variable Cost falls with output over all ranges of output.

   

   Figure 1

    

2. For a firm at equilibrium, at point A in Figure 1
   1. the price of labor is high relative to the price of machines.
   2. the Marginal Physical Product of labor is greater than the MPP of machines.
   3. the Marginal Physical Product of labor is less than at point B.
   4. output is higher than at point B.

    

3. In the short run, fixed cost is to variable cost as
   1. small is to large.
   2. unavoidable is to avoidable.
   3. important is to unimportant.
   4. diminishing returns are to scale economies.
   5. average cost is to marginal cost.

    

4. Allie's Donuts produces about 600 dozen doughnuts per day. Due to bad weather, there is a shortage of wheat and the price of flour has risen 20 percent. Which of the following curves does NOT shift up?
   1. marginal cost
   2. average total cost
   3. average variable cost
   4. average fixed cost

    

5. For which of the following pairs is the cross-elasticity negative?
   1. college/textbooks.
   2. air travel/train travel.
   3. natural gas/coal
   4. theater tickets/movie tickets.
   5. e. structural steel/structural aluminum.

   

   Figure 2

    

6. According to the demand curve in Figure 2, demand is inelastic for a price change from P₁ to P₂ provided that
   1. P₁ - P₂ = Q₁ - Q₂.
   2. P₁ x Q₁ < P₂ x Q₂.
   3. P₁ x Q₁ = P₂ x Q₂.
   4. P₁ x Q₁ > P₂ x Q₂.

    

7. The management of Allie's Donuts estimates that a price increase of $1 (from $3 to $4) would reduce sales from 550 dozen per day to 350 dozen per day. The price elasticity of demand for Allie's at this point on the demand curve is about
   1. 1.57.
   2. 0.64.
   3. 0.16.
   4. 0.72.

    

8. Price ceilings likely
   1. result in the accumulation of surpluses.
   2. increase production as producers respond to higher consumer demand at the low ceiling price.
   3. result in the development of black markets.
   4. None of the above.

   

   Figure 3

    

9. If the government has stated that it will pay whatever it must to obtain 1,000 units of good X, then which demand curve in Figure 3 is appropriate?
   1. 1
   2. 2
   3. 3
   4. 4

   

   Figure 4

    

10. If there are many empty seats at the university basketball game when the price per ticket is P*, then this situation can best be represented by which graph in Figure 4?
    1. 1
    2. 2
    3. 3
    4. 4

     

11. In which of the following cases does the supply and demand model predict a lower equilibrium price and a greater equilibrium quantity?
    1. Consumers learn that apples have been sprayed with a carcinogenic substance, some of which remains in the apple juice and applesauce favored by young children.
    2. A new growth hormone for dairy cows dramatically increases milk production.
    3. A chicken virus drastically reduces the supply of eggs.
    4. Research discovers that oat bran reduces blood cholesterol and reduces the risk of heart disease.

     

12. When economies of scale are present,
    1. costs per unit decline as output expands.
    2. the government feels responsible for breaking up the firm.
    3. firms always make handsome profits.
    4. costs fall as the size of the product is increased.
    5. All of the above are correct.

     

13. When a profit-maximizing monopolist produces an output where marginal revenue is less than marginal cost, the firm is
    1. making a profit.
    2. producing too little.
    3. breaking even.
    4. producing too much.

     

14. A pure monopoly occurs when
    1. all firms sell homogeneous goods.
    2. a firm produces only one good.
    3. a single firm produces a good that is similar in use to goods produced by other industries.
    4. a few firms produce a good for which other industries offer no substitutes.
    5. a single firm produces a product with no close substitutes.

     

15. Which of the following is a unique feature of oligopoly?
    1. mutual interdependence
    2. advertising expenditures
    3. product differentiation
    4. nonprice competition

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