New School of Architecture Econ 281 Final Exam Name __________ 1) Externalities A) can be either benefits or costs. B) always create extra social costs. C) always make society better off. D) cannot be expressed in dollar amounts. E) are always part of private costs or private benefits. 2) A cost that arises from the production or consumption that falls on someone other than the producer or consumer is called A) a negative benefit. B) a public choice impact. C) a positive externality. D) a negative externality. E) a private good. 3) Evidence of external costs in the production of a product is present if A) the price of the product is higher than it should be. B) the production cost increases because of an increase in the minimum wage. C) non-buyers and/or non-producers of the product experience a loss for which they are not compensated. D) buyers refuse to purchase the product. E) producers pay all of the costs of producing the good or service. 4) Marginal private cost A) is always zero if there is an external cost. B) equals the marginal social cost only if the marginal external cost is positive. C) is the cost of producing an additional unit of a good or service that is paid by the producer of that good or service. D) the cost of producing an additional unit of a good or service that falls on people other than the producer of that good or service. E) the cost of producing an additional unit of a good or service that is paid by the entire society. 5) A private cost is a cost of production that is A) borne by the producer of a good. B) measured in marginal terms. C) borne by someone other than the producer of a good. D) measured in total terms. E) the same as an external cost. 6) The difference between private cost and social cost is that A) social cost only considers the external cost borne by society. B) social cost only considers the cost borne by people other than the producer. C) private cost only considers the cost borne by producers of the good. D) social cost also includes any external benefit whereas private cost excludes all external benefits. E) there is no difference; the terms refer to the same cost. 7) Harry, the owner of a beauty salon, hires a new hair stylist. The wages paid to the new stylist are A) a private cost and not an external cost. B) an external cost and not a private cost. C) both a private cost and an external cost. D) neither a private cost nor an external cost. E) only a private benefit because people want their hair styled. 8 The cost of producing an additional unit of a good or service that falls on people other than the producer is the marginal A) external cost. B) private cost. C) social cost. D) social benefit. E) None of the above answers is correct. 9) A firm dumps dioxin in a river, thereby severely polluting the river. The cost of the water pollution is i. zero for the firm. ii. an external cost. iii. part of the marginal social cost A) i only B) ii only C) iii only D) ii and iii E) i, ...

1. New School of Architecture
Econ 281
Final Exam Name __________
1) Externalities
A) can be either benefits or costs.
B) always create extra social costs.
C) always make society better off.
D) cannot be expressed in dollar amounts.
E) are always part of private costs or private benefits.
2) A cost that arises from the production or consumption that
falls on someone other than the producer or consumer is called
A) a negative benefit.
B) a public choice impact.
C) a positive externality.
D) a negative externality.
E) a private good.
3) Evidence of external costs in the production of a product is
present if
A) the price of the product is higher than it should be.
B) the production cost increases because of an increase in the
minimum wage.
C) non-buyers and/or non-producers of the product experience a
loss for which they are not compensated.
D) buyers refuse to purchase the product.
E) producers pay all of the costs of producing the good or
service.
4) Marginal private cost
A) is always zero if there is an external cost.

2. B) equals the marginal social cost only if the marginal external
cost is positive.
C) is the cost of producing an additional unit of a good or
service that is paid by the producer of that good or service.
D) the cost of producing an additional unit of a good or service
that falls on people other than the producer of that good or
service.
E) the cost of producing an additional unit of a good or service
that is paid by the entire society.
5) A private cost is a cost of production that is
A) borne by the producer of a good.
B) measured in marginal terms.
C) borne by someone other than the producer of a good.
D) measured in total terms.
E) the same as an external cost.
6) The difference between private cost and social cost is that
A) social cost only considers the external cost borne by society.
B) social cost only considers the cost borne by people other
than the producer.
C) private cost only considers the cost borne by producers of
the good.
D) social cost also includes any external benefit whereas private
cost excludes all external benefits.
E) there is no difference; the terms refer to the same cost.
7) Harry, the owner of a beauty salon, hires a new hair stylist.
The wages paid to the new stylist are
A) a private cost and not an external cost.
B) an external cost and not a private cost.
C) both a private cost and an external cost.
D) neither a private cost nor an external cost.

3. E) only a private benefit because people want their hair styled.
8 The cost of producing an additional unit of a good or service
that falls on people other than the producer is the marginal
A) external cost.
B) private cost.
C) social cost.
D) social benefit.
E) None of the above answers is correct.
9) A firm dumps dioxin in a river, thereby severely polluting
the river. The cost of the water pollution is
i. zero for the firm.
ii. an external cost.
iii. part of the marginal social cost
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
10) The marginal cost incurred by the entire society to produce
a good or service is the
A) marginal external cost.
B) marginal private cost.
C) marginal social cost.
D) marginal social benefit.
E) marginal private benefit.
11) Marginal social cost is equal to
A) the amount people who buy a product pay for another unit.
B) whatever producers have to pay to produce output.
C) the sum of marginal private cost and the marginal external
cost.
D) the average of marginal private cost and the marginal
external cost.

4. E) None of the above answers is correct.
12) If a product has zero external costs, then
A) marginal social cost equals marginal private cost.
B) marginal social cost is greater than marginal private cost.
C) marginal social cost is less than marginal private cost.
D) marginal social cost equals zero.
E) We need more information to determine the relationship
between marginal private cost and marginal social cost.
13) A good is nonexcludable if
A) only the government can produce it.
B) nobody can be excluded from enjoying the benefits of the
good.
C) when you pay for the good, you are guaranteed to be the sole
consumer.
D) when you consume a unit, that means there is no less for
someone else.
E) it is also nonrival.
14) If you can prevent someone from consuming a good, that
good is called
A) rival.
B) nonrival.
C) excludable.
D) nonexcludable.
E) a public good.
15) The fact that technology prevents Sam in Nevada from using
the email account of Samantha in Virginia means that email is
an example of
A) a good that is nonexcludable.
B) a good that is excludable.
C) a public good.
D) the free-rider problem.
E) the tragedy of the commons.

5. 16) A good is rival if
A) it has substitutes.
B) it can be consumed by many people simultaneously.
C) it is excludable.
D) consumption by one person decreases the quantity available
for another person.
E) it has no complements.
17) A good is nonrival if
A) only the government can produce it.
B) nobody can be excluded from enjoying the benefits of the
good.
C) when you pay for the good, you are guaranteed to be the sole
consumer.
D) when you consume a unit, you have not decreased the
amount left for consumption by other people.
E) anybody can be excluded from enjoying the benefits of the
good.
18) A basketball game aired as a pay-per-view show by your
local cable network and to which you can invite your friends to
watch is a ________ good.
A) rival
B) nonrival
C) nonexcludable
D) rival and nonexcludable
E) quasi public/quasi private
19) A private good is
A) nonexcludable and nonrival.
B) excludable and rival.
C) excludable and nonrival.
D) nonrival and excludable.
E) subject to the free-riding problem.

6. 20) One important feature that distinguishes a private good from
a public good is that
A) only the government can produce private goods.
B) nobody can be excluded from enjoying the benefits of a
private good.
C) a private good is excludable and a public good is
nonexcludable.
D) if you consume a unit of a private, that means there is no
less for someone else.
E) a private good is nonrival and a public good is rival.
21) A good or resource that is both nonrival and nonexcludable
is
A) a good that is impossible to produce.
B) a private good.
C) a common resource.
D) a public good.
E) nonexistent because it is impossible for a good or resource to
be both nonrival and nonexcludable.
22) An example of a common resource is
A) a bridge.
B) a non-crowded movie theater.
C) a tuna in the ocean.
D) national defense.
E) All of the above answers are correct.
23) When use of a good decreases the quantity available for
someone else, the good is
A) rival.
B) nonrival.
C) excludable.
D) nonexcludable.
E) a public good.

7. 24) Which of the following is the best example of a public
good?
A) national defense
B) a Ford Thunderbird
C) Yosemite National Park
D) a Mountain Dew
E) satellite radio
25) Adverse selection is created by
A) incentives to change behavior after two parties have reached
an agreement.
B) risk.
C) signaling.
D) taxes.
E) private information.
26) A budget line shows the
A) quantities of goods a buyer can purchase with given income
and prices.
B) relationship between price and quantity demanded.
C) total utility a consumer realizes from consuming different
quantities of a good.
D) quantities of consumption that maximizes marginal utility.
E) the prices of the two goods a buyer can purchase.
27 A consumption point inside the budget line
A) is unaffordable.
B) is possible to afford but has some unspent income.
C) shows that the consumer has chosen to spend all of his or her
income on both products.
D) shows that the consumer spends income on only one of the
goods.
E) is affordable and, because it is inside the budget line, means
that all the person's budget has been spent.
28) If a consumer has $30 to spend on apples and bananas,

8. where on the apple axis would the consumer's budget line
intersect if the price of apples is $3 a pound?
A) 30 pounds
B) 10 pounds
C) 3 pounds
D) 0 pounds
E) It is impossible to determine with the given information.
29) Susan can watch movies or attend plays. The table above
gives combinations of movies and plays that are on her budget
line. If the price of a movie is $10, then her budget for movies
and plays is
A) $10 per month.
B) $50 per month.
C) $60 per month.
D) $120 per month.
E) unknown from the information.
30) The figure above shows Sarah's budget line. Sarah earns
$500 per week selling baskets made out of tree vines. With this
money she buys sushi and rose bushes. Each piece of sushi costs
$1 and each rose bush costs $10. Sarah will be at what point on
her budget line if she spends $200 per week on sushi?
A) Point a
B) Point b
C) Point c
D) Point d
E) Point f
31) The figure above shows Sarah's budget line. Sarah earns
$500 per week selling baskets made out of tree vines. With this
money she buys sushi and rose bushes. Each piece of sushi costs
$1 and each rose bush costs $10. Sarah will be at what point on

9. her budget line if she spends $500 per week on rose bushes?
A) Point a
B) Point b
C) Point c
D) Point f
E) Point e
32) If the price of the good measured on the x-axis becomes
relatively cheaper, the budget line will
A) become vertical.
B) become steeper.
C) become flatter.
D) become horizontal.
E) shift rightward and not change its slope.
33) Nadir and Nina consume the same goods. If Nadir has more
income than Nina, then Nina's budget line will
A) lie to the left of Nadir's budget line.
B) be steeper than Nadir's budget line.
C) lie to the right of Nadir's budget line.
D) be flatter than Nadir's budget line.
E) More information is needed to determine how Nina's and
Nadir's budget lines compare.
34) Which of the following describes what happens to a
consumer's budget line if that consumer's budget increases?
A) The budget line becomes steeper.
B) The budget line becomes more horizontal.
C) The budget line shifts farther away from the origin of the
graph.
D) The budget line shifts closer to the origin of the graph.
E) The budget line does not change.
35) When a consumer's budget increases, the budget line
A) becomes steeper.
B) becomes flatter.

10. C) shifts outward.
D) shifts inward.
E) does not change.
36) Sue consumes oysters and clams. Pounds of oysters are
measured on the y-axis and pounds of clams on the x-axis. If the
slope of Sue's budget line is 5 pounds of oysters per pound of
clams, Sue must
A) give up 5 pounds of clams to obtain 1 pound of oysters.
B) give up 5 pounds of oysters to obtain 1 pound of clams.
C) pay $5 for a pound of clams only.
D) pay $5 for a pound of oysters only.
E) pay $5 for a pound of clams and pay $5 for a pound of
oysters.
37) When the price of one good changes while another good's
price does not change, then there has been a change in the
A) relative price.
B) marginal utility price.
C) absolute price.
D) marginal price.
E) utility price.
38) A budget line shows the
A) limits to production possibilities.
B) limits to production opportunities.
C) slope of the demand curve.
D) limits to consumption possibilities.
E) way the demand curve shifts if the consumer's budget
changes.
39) The primary goal of a business firm is to
A) promote fairness.
B) make a quality product.
C) promote workforce job satisfaction.

11. D) maximize profit.
E) increase its production.
40) Lauren runs a chili restaurant in San Francisco. Her total
revenue last year equaled $111,000. The rent on her restaurant
totaled $48,000. Her labor costs totaled $43,000. Her materials,
food and other variable costs totaled $19,000. To Lauren's
accountant, Lauren
A) incurred a loss of $1,000.
B) earned a profit of $1,000.
C) incurred a loss of $111,000.
D) earned a profit of $111,000.
E) had a total cost equal to $91,000.
41) Moving along the total product curve, which of the
following is held constant?
A) quantity of labor
B) total product
C) technology
D) total cost
E) None of the above answers is correct.
42) Which of the following statements correctly describes a
total product curve?
A) Points above the total produce curve are efficient.
B) The curve shows that output always increases as labor
employed increases.
C) The curve separates attainable outputs from unattainable
outputs.
D) The curve shows minimum levels of output.
E) The curve first falls, reaches a minimum, and then rises.
43) The marginal product of labor equals the change in
________ from a one-unit increase in the quantity of labor.
A) total product
B) average product

12. C) total cost
D) the slope of the average product curve
E) the wage rate
44) Jill runs a factory that makes lie detectors in Little Rock,
Arkansas. This month, Jill's 34 workers produced 690 machines.
Suppose Jill adds one more worker and, as a result, her factory's
output increases to 700. Jill's marginal product of labor from
the last worker hired equals ________.
A) 10
B) 20
C) 690
D) 700
E) None of the above answers is correct.
45) If 9 workers can produce 1,550 units of output and 10
workers can produce 1,700 units of output, then the marginal
product of the 10th worker is
A) 1,700 units.
B) 1,550 units.
C) 150 units.
D) 170 units.
E) 155 units.
46) Increasing marginal returns always occurs when the
A) marginal product of an additional worker exceeds the
marginal product of the previous worker.
B) average product of an additional worker exceeds the average
product of the previous worker.
C) marginal product of an additional worker is less than the
marginal product of the previous worker.
D) average product of an additional worker is less than the
average product of the previous worker.
E) marginal product of an additional worker exceeds the
average product of the previous worker.

13. 47) When the marginal product of an additional worker is less
than the marginal product of the previous worker, there are
________ returns to labor.
A) increasing total
B) decreasing total
C) increasing marginal
D) decreasing marginal
E) constant average
48) The short run is a time period during which
A) some of the firm's resources are fixed.
B) all of the firm's resources are fixed.
C) all of the firm's resources are variable.
D) the fixed cost equals zero.
E) the firm cannot increase its output.
49) Which of the following is correct?
A) The short run for a firm can be longer than the long run for
the same firm.
B) The short run is the same for all firms.
C) The long run is the time frame in which the quantities of all
resources can be varied.
D) The long run is the time frame in which all resources are
fixed.
E) The long run does not exist for some firms.
50) Marginal product equals
A) the total product produced by a certain amount of labor.
B) the change in total product that results from a one-unit
increase in the quantity of labor employed.
C) total product divided by the quantity of labor.
D) the amount of labor needed to produce an increase in
production.
E) total product minus the quantity of labor.
51) If 6 workers can wash 42 cars a day and 7 workers can wash

14. 50 cars a day, then the marginal product of the 7th worker
equals
A) 7.1 cars a day.
B) 7 cars a day.
C) 42 cars a day.
D) 50 cars a day.
E) 8 cars a day.
52) Increasing marginal returns occur when the
A) average product of an additional worker is less than the
average product of the previous worker.
B) marginal product of an additional worker exceeds the
marginal product of the previous worker.
C) marginal product of labor is less than the average product of
labor.
D) total output of the firm is at its maximum.
E) total product curve is horizontal.
53) Total cost includes
A) the cost of variable resources only.
B) the cost of fixed resources only.
C) the cost of both variable and fixed resources.
D) the cost of neither variable nor fixed resources.
E) all explicit costs and all the implicit costs that actually must
be paid using money.
54 A market with a large number of sellers
A) can only be a perfectly competitive market.
B) might be an oligopoly or a perfectly competitive market.
C) might be a monopolistically competitive or a perfectly
competitive market.
D) might be a perfectly competitive, monopolistically
competitive, oligopoly, or monopoly market.
E) can only be a monopolistically competitive market.
55) What is the difference between perfect competition and

15. monopolistic competition?
A) Perfect competition has a large number of small firms while
monopolistic competition does not.
B) Perfect competition has barriers to entry while monopolistic
competition does not.
C) Perfect competition has no barriers to entry, while
monopolistic competition does.
D) In perfect competition, firms produce identical goods, while
in monopolistic competition, firms produce slightly different
goods.
E) In monopolistic competition, firms produce identical goods,
while in perfect competition, firms produce slightly different
goods.
56) In which market structure do firms exist in very large
numbers, each firm produces an identical product, and there is
freedom of entry and exit?
A) monopoly
B) oligopoly
C) only perfect competition
D) only monopolistic competition
E) both perfect competition and monopolistic competition
57) Each firm in a perfectly competitive industry
A) produces a good that is slightly different from that of the
other firms.
B) produces a good that is identical to that of the other firms.
C) attains economies of scale so that its efficient size is large
compared to the market as a whole.
D) has control over at least one unique resource to separate
themselves from their competitors.
E) has an important influence on the market price of the good or
service being produced.
58) A monopoly occurs when
A) each of many firms produces a product that is slightly

16. different from that of the other firms.
B) one firm sells a good that has no close substitutes and a
barrier blocks entry for other firms.
C) there are many firms producing the same product.
D) a few firms control the market.
E) one firm is larger than the many other firms that make an
identical product.
59) When one firm sells a good or service that has no close
substitutes and a barrier blocks the entry of new firms, what
type of market is this?
A) perfect competition
B) only monopoly
C) oligopoly
D) only monopolistic competition
E) either monopoly or monopolistic competition
60) A market is classified as monopolistically competitive when
A) there is a barrier that blocks entry by other firms.
B) a small number of firms compete.
C) many firms produce the same product.
D) many firms produce a slightly differentiated product.
E) there is one firm that sells a good or service with no close
substitutes.
61) A market is ________ when a small number of firms
compete.
A) a monopoly
B) perfectly competitive
C) monopolistically competitive
D) an oligopoly
E) either monopolistically competitive or an oligopoly
62) The firm's over-riding objective is to
A) earn a normal profit.
B) maximize normal profit.

17. C) maximize economic profit.
D) maximize total revenue.
E) avoid an economic loss.
63) A perfectly competitive firm can
A) sell all of its output at the prevailing market price.
B) set a higher price to customers who are willing to pay more.
C) raise its price in order to increase its total revenue.
D) sell additional output only by lowering its price.
E) usually not sell all the output it produces, but still "over-
produces" because there are some periods when it can sell the
extra output at very profitable prices.
64) A firm in perfect competition is a price taker because
A) there are no good substitutes for its good.
B) many other firms produce identical products.
C) it is very large.
D) its demand curves are downward sloping.
E) its demand curve is vertical at the profit-maximizing
quantity.
65) A large number of sellers all selling an identical product
implies which of the following?
A) market chaos
B) the inability of any seller to change the price of the product
C) large losses incurred by all sellers
D) horizontal market supply curves
E) vertical market supply curves
66) We know that a perfectly competitive firm is a price taker
because
A) its MC curve slopes upward.
B) its ATC curve is U-shaped.
C) its demand curve is horizontal.
D) MC and ATC are equal at the profit-maximizing amount of
output.

18. E) it has no supply curve.
67 Suppose Pat's Paints is a perfectly competitive firm. If Pat's
Paints' marginal revenue equals $5 per can, and Pat decides to
sell 100 cans of paint, Pat's total revenue equals
A) $5.
B) $100.
C) $500.
D) $20.
E) Information on the price of a can of paint is needed to
answer the question.
68) The above figure illustrates a perfectly competitive firm. If
the market price is $40 a unit, to maximize its profit (or
minimize its loss) the firm should
A) shut down.
B) produce more than 10 and less than 30 units.
C) produce 30 units.
D) produce more than 30 units and less than 40 units..
E) produce 40 units.
69 The four market types are
A) perfect competition, imperfect competition, monopoly, and
oligopoly.
B) oligopoly, monopsony, monopoly, and imperfect
competition.
C) perfect competition, monopoly, monopolistic competition,
and oligopoly.
D) oligopoly, oligopolistic competition, monopoly, and perfect
competition.
E) perfect competition, imperfect competition, monopoly, and
duopoly.
70) If it does not shut down, a perfectly competitive firm
produces where marginal cost is equal to the marginal revenue
A) only in the short run.

19. B) only in the long run.
C) always to maximize its profit.
D) only if it is not possible to produce where price equals
average variable cost.
E) only if it is not possible to produce where price is greater
than average total cost.
71) If firms in a perfectly competitive industry are earning an
economic profit and new firms enter the industry, then
A) consumer surplus decreases.
B) the existing firms' economic profit decreases.
C) there must be external benefits to consumption of the good.
D) the new firms must incur an economic loss.
E) Both answers A and B are correct.
72) A monopoly is a market with
A) many suppliers each producing an identical product.
B) no barriers to entry.
C) many substitutes.
D) one supplier.
E) many suppliers each producing a slightly different product.
73) The good produced by a monopoly
A) has perfect substitutes.
B) has no substitutes at all.
C) has no close substitutes.
D) can be easily duplicated.
E) must be unable to be resold.
74) We define a monopoly as a market with
A) one supplier and no barriers to entry.
B) one supplier with barriers to entry.
C) many suppliers with no barriers to entry.
D) many suppliers with barriers to entry.
E) a few suppliers and barriers to entry.
75) An example of a monopoly would be

20. A) one of many U.S. wheat farmers.
B) one of the few U.S. auto makers.
C) AT&T cell phone service.
D) the local water company.
E) Taco Bell
76) Which of the following describes a barrier to entry?
A) something that establishes a barrier to expanding output
B) anything that protects a firm from the arrival of new
competitors
C) a government regulation that bars a monopoly from earning
an economic profit
D) firms already in the market incurring economic losses so that
no new firm wants to enter the market
E) Firms are legally prohibited from exiting the market in order
to enter another market.
77) A natural monopoly exists when
A) diseconomies of scale exist in an industry.
B) one firm can supply an entire market at a lower average total
cost than can two or more firms.
C) a firm can engage in price discrimination.
D) the producers in an industry have formed a cartel.
E) a monopoly firm faces a horizontal demand curve.
78) Patents
A) are a legal barrier to entry.
B) remove legal barriers to entry.
C) create economies of scale.
D) decrease the incentive to innovate.
E) are prohibited in the United States.
79) Two types of barriers to entry are called ________ barriers
to entry and ________ barriers to entry.
A) legal; illegal
B) natural; legal

21. C) natural; illegal
D) natural; rent seeking
E) ownership; rent seeking
80) Compared to a perfectly competitive market, a single-price
monopoly sets
A) a lower price.
B) the same price.
C) a higher price.
D) a price that might be higher, lower, or the same depending
on whether the monopoly's marginal revenue curve lies above,
below, or on its demand curve.
E) a price that might be higher, lower, or the same depending on
whether the monopoly's marginal cost curve lies above, below,
or on its marginal revenue curve.
81) An industry with a large number of firms, differentiated
products, and free entry and exit is called
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
E) monopolistic oligopoly.
82) A firm faces a small number of competitors. This firm is
competing in
A) a monopoly.
B) monopolistic competition.
C) an oligopoly.
D) perfect competition.
E) a perfect multi-firm monopoly.
83) Firms in an oligopoly
i. are independent of each other's actions.
ii. can each influence the market price.
iii. charge a price equal to marginal revenue.

22. A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
84) In an oligopoly, there are
A) many firms and barriers to entry.
B) many firms and no barriers to entry.
C) few firms and barriers to entry.
D) few firms and no barriers to entry.
E) barriers to entry and only one firm.
85) A cartel is
A) a market structure with a small number of large firms.
B) a market structure with a large number of small firms.
C) a group of firms acting together to raise price, decrease
output, and increase economic profit.
D) a market with only two firms.
E) another name for an oligopoly.
86) "Duopoly" is
A) another name for monopoly.
B) a special type of monopolistic competition.
C) a two-firm oligopoly.
D) a game with three players.
E) the situation when a firm sets a duo (two) of different prices
for its customers.
87) When a city licenses only 3 taxi firms to serve the market,
the city has created a
A) cartel.
B) legal monopoly.
C) monopolistically competitive market.
D) legal oligopoly.
E) natural oligopoly.

23. 88) The fact that firms in oligopoly are interdependent means
that
A) there are barriers to entry.
B) one firm's profits are affected by other firms' actions.
C) they can produce either identical or differentiated goods.
D) there are too many of them for any one firm to influence
price.
E) they definitely compete with each other so that the price is
driven down to the monopoly level.
89) Collusion results when a group of firms
i. act separately to limit output, lower prices, and decrease
economic profits.
ii. act together to limit output, raise prices, and increase
economic profits.
iii. in the United States legally fix prices.
A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii
90) When oligopolies seek to operate as a single-price
monopoly, the firms produce at the point where
A) P = MC.
B) MR = MC.
C) P < ATC.
D) P = MR.
E) MC = ATC.
91) The four factors of production that produce goods and
services are
A) labor, money, machinery, and land.
B) labor, capital, money, and entrepreneurship.
C) labor, capital, land, and entrepreneurship.
D) labor, investment capital, machinery, and land.

24. E) labor, stocks, money, and bonds.
92) In the labor market,
A) households demand labor.
B) firms demand labor.
C) firms supply labor.
D) wage are determined only by firms alone.
E) None of the above answers is correct.
93) If the demand for a good increases, the demand for the
factors used to produce the good
A) increases.
B) decreases.
C) stays the same.
D) could increase, decrease, or stay the same depending on
whether the demand for the good is elastic, inelastic, or unit
elastic.
E) None of the above answers is correct.
94) The value of marginal product is equal to the
A) additional revenue from selling one more unit of the product.
B) change in total revenue from selling one more unit of
product.
C) additional cost of hiring one more unit of a factor of
production.
D) change in revenue from hiring one more unit of a factor of
production.
E) change in total cost when one more unit of the product is
produced.
95) The total output of candles in Nick's Wicks candle shop
increases from 20 per hour to 30 per hour as he hires the second
worker. The price of each candle is $2. The
A) marginal product of the second worker is 20 candles.
B) marginal product of the second worker is 30 candles.
C) value of marginal product of the second worker is $20.

25. D) value of marginal product of the second worker is $30.
E) value of marginal product of the second worker is $60.
96) The value of marginal product of labor
A) always increases as more labor is hired.
B) is constant as long as each worker is paid the same wage
rate.
C) declines only if each worker is paid more than the previous
worker.
D) at some point declines as more workers are hired.
E) at first decreases and then increases as more workers are
hired.
97) Suppose Mongo runs a glue factory in Knuckle, North
Dakota. Mongo wants to fire his cousin Beevo for not working
very hard at making glue. If firing Beevo would save Mongo
$6.11 per hour in wages and the value of Beevo's marginal
product equals $7.29 per hour, to maximize his profit, Mongo
should
A) fire Beevo.
B) keep Beevo employed.
C) add another worker, Teevo, Beevo's sister, whose value of
the marginal product would be $4.83 per hour and whose wage
would be $6.11 per hour.
D) increase the wage he pays Beevo to $7.29 per hour.
E) There is not enough information given to determine what
Mongo should do.
98) If a firm finds itself at the point where the value of
marginal product of labor is greater than its wage rate, then the
firm
A) stops hiring more workers but does not fire any because the
firm is maximizing its profit.
B) decreases the number of workers it has hired in order to
increase its profit.
C) increases the number of workers it hires in order to increase

26. its profit.
D) increases sales to keep its employees busy.
E) changes its employment of workers and maximizes its profit
by hiring the number of workers that makes the difference
between the value of the marginal product and the wage rate as
large as possible.
99) If the value of marginal product of the 10th worker is $60,
then the
A) quantity of labor demanded when the wage rate is $60 will
be 10 workers.
B) wage rate of the 10th worker will be $6.
C) firm will not hire the worker if the wage rate is less than
$60.
D) marginal cost of the 10th worker will be $6.
E) quantity of labor demanded when the wage rate is $6 will be
10 workers.
100) The demand curve for labor is the same as the firm's
A) marginal revenue curve.
B) marginal cost curve.
C) value of marginal product of labor curve.
D) wage rate curve.
E) supply of output curve.
1
CSTS-SEU-KSA
Quantitative Methods-(STAT-201)
Assignment-2 / Weeks: 5 - 7
2nd Semester 2017-2018
Due date:

27. Student’s Name
Student’s ID
CRN
Location
Marking Scheme
Question
Score
Q-1
/3
Q-2
/3
Q-3
/3
Q-4
/3
Q-5
/3
Q-6
/3
Total
/18
Note: You are required to fill your full name, ID and CRN.
Solve the following questions.
1. Students in a management science class have just received
their grades on the first test. The instructor has provided

28. information about the first test grades () in some previous
classes as well as the final average () for the same students.
Some of these grades have been sampled and are as follows:
Students
A
B
C
D
E
F
First Test Grade (x)
97
77
88
80
95
61
Final average (y)
92
78
83
73
84
64
a. Develop a regression model that could be used to predict the
final average in the course based on the first test grade.
b. Predict the final average of a student who made an 83 on the
first test.
2. Using the data in problem-1, compute the SST, SSE, SSR and
r2 with the help of QM for windows. Interpret the value of r2 in
context of this problem.
You can download QM for windows from the following link.

29. (http://wps.prenhall.com/bp_taylor_introms_11/220/56508/1446
6195.cw/content/).
3. A university cafeteria line in the student center is a self-serve
facility in which students select the food items they want and
they form a single line to pay the cashier. Student arrive at
cashier at the rate of about four per minute according to a
Possion distribution. The single cashier ringing up sales takes
about 12 seconds per customers, following an exponential
distribution.
a. What is the probability that the system is empty?
b. What is the expected number of student in the queue?
c. How long will the average student have to wait before
reaching the cashier?
4. Automobiles arrive at the drive-through window at post
office at the rate of 4 every 10 minutes. The average service
time is 2 minutes. The Poisson distribution is appropriate for
the arrival rate and service time are exponentially distributed.
a. What is the average time a car in the system?
b. What is the average time a car spend waiting to receive
service?
c. What is the average number of car in the system?
5. The Saudi Furniture Corporation manufactures two products,
chairs and tables. The firm has two resources: its carpenters
(Labor force) and a supply of redwood for use in the furniture.
In the next production cycle, 1,200 hours of labor are available
under the agreement. The firm also has a stock of 3,500 board
feet of good-quality redwood. Each chair requires 4 labor hours
and 10 board feet of redwood: each table takes 6 labor hours
and 35 board feet of redwood. Completed chairs will yield a
profit of $9 each, and tables will result in a profit of $20 each.
Formulate the LPP for largest profit from the combination of
chair and table that Saudi Furniture Corporation manufactures
can produce.

30. 6. Solve the following LPP using the corner point graphical
method.
Subject to
2