Question 36

The economy is in long-run equilibrium but has been experiencing a high inflation rate. The central bank decides to reduce the rate of money supply growth to achieve price level stability. If the central bank’s policy change is announced and credible, which of the following outcomes is least likely?

A)    Wage earners will revise their inflation expectations downward.

B)   Aggregate demand will increase less than it would have if the policy change were unannounced or not credible.

C)   Real output will equal potential GDP in the short run.

D)   Aggregate supply will decrease less than it would have if the policy change was unannounced or not credible.

Question 37

For a firm with labor as its only variable input, as labor input increases from the level where marginal product is at its maximum to the level where average product is at its maximum, what are the most likely directions of changes in short-run marginal cost (MC) and short-run average variable cost (AVC)?

       MC
            AVC

A)    Increasing    Increasing

B)   Increasing    Decreasing

C)   Decreasing  Increasing

D)   Decreasing  Decreasing

Question 38

In the inelastic range of a straight-line demand curve, a higher price will:

A)    not ordinarily change total revenue.

B)   always increase total revenue.

C)   generally decrease total revenue.

D)   always decrease total revenue.

Question 39

In an oligopolistic market:

A)    a firm will consider the potential response of its rivals when making business decisions.

B)   a firm will seldom use quality to differentiate its product.

C)   a firm will have many rivals.

D)   barriers to entry are low.

Question 40

A firm is operating in a market with perfectly elastic demand curve. Assume that the price is greater than average variable cost (AVC) but lower than average total cost (ATC). Which of the following statements is most accurate?

A)    If the firm thinks the price eventually will exceed ATC, it should shut down its operations temporarily until price exceeds ATC.

B)   If the firm thinks the price eventually will exceed ATC, it should continue to produce and sell its product.

C)   The firm should increase its price so as to recover its total costs.

D)   The firm should decrease its quantity produced so that the price will increase and it will break even or make a positive profit.

[此贴子已经被作者于2008-11-8 18:02:02编辑过]

Question 36

The economy is in long-run equilibrium but has been experiencing a high inflation rate. The central bank decides to reduce the rate of money supply growth to achieve price level stability. If the central bank’s policy change is announced and credible, which of the following outcomes is least likely?

A)    Wage earners will revise their inflation expectations downward.

B)   Aggregate demand will increase less than it would have if the policy change were unannounced or not credible.

C)   Real output will equal potential GDP in the short run.

D)   Aggregate supply will decrease less than it would have if the policy change was unannounced or not credible.

The correct answer was B) Aggregate demand will increase less than it would have if the policy change were unannounced or not credible.

The slower rate of growth in the money supply will have the same effect on aggregate demand whether or not the policy is announced and credible. The difference is in the effect on aggregate supply. If the policy change is announced and credible, wage earners will revise their inflation expectations downward, so aggregate supply will decrease less than it would have if the policy change was unannounced or not credible. As a result, the inflation rate can be reduced without real output falling below potential GDP in the short run.

This question tested from Session 6, Reading 28, LOS d

Question 37

For a firm with labor as its only variable input, as labor input increases from the level where marginal product is at its maximum to the level where average product is at its maximum, what are the most likely directions of changes in short-run marginal cost (MC) and short-run average variable cost (AVC)?

       MC         AVC

A)    Increasing    Increasing

B)   Increasing    Decreasing

C)   Decreasing  Increasing

D)   Decreasing  Decreasing

The correct answer was B)  Increasing  Decreasing

At the level of labor input where marginal product is greatest, marginal cost is at its minimum. Marginal cost then increases as more labor input is added. Up to the point where average product is greatest, average variable cost decreases as labor input increases.

This question tested from Session 4, Reading 17, LOS c

Question 38

In the inelastic range of a straight-line demand curve, a higher price will:

A)    not ordinarily change total revenue.

B)   always increase total revenue.

C)   generally decrease total revenue.

D)   always decrease total revenue.

The correct answer was B) always increase total revenue.

Inelastic demand implies that the percentage decrease in quantity demanded will be smaller than the percentage increase in price, so total revenue will increase.

This question tested from Session 4, Reading 13, LOS b, (Part 1)

Question 39

In an oligopolistic market:

A)    a firm will consider the potential response of its rivals when making business decisions.

B)   a firm will seldom use quality to differentiate its product.

C)   a firm will have many rivals.

D)   barriers to entry are low.

The correct answer was A) a firm will consider the potential response of its rivals when making business decisions.

Oligopolists are highly dependent upon the actions of their rivals when making business decisions. The actions of one producer have a large impact on the others. In oligopolies, the number of sellers is small, barriers to entry are high, products may be similar or differentiated, and firms will use product quality to attempt to differentiate their products.

This question tested from Session 5, Reading 20, LOS a

Question 40

A firm is operating in a market with perfectly elastic demand curve. Assume that the price is greater than average variable cost (AVC) but lower than average total cost (ATC). Which of the following statements is most accurate?

A)    If the firm thinks the price eventually will exceed ATC, it should shut down its operations temporarily until price exceeds ATC.

B)   If the firm thinks the price eventually will exceed ATC, it should continue to produce and sell its product.

C)   The firm should increase its price so as to recover its total costs.

D)   The firm should decrease its quantity produced so that the price will increase and it will break even or make a positive profit.

The correct answer was B)

If the firm thinks that eventually price will exceed ATC, it should continue to produce and sell its product. Because the price exceeds the average variable cost, each item sold covers part of the firm's fixed cost. If the firm shuts down temporarily, the costs incurred (fixed costs) will not be recovered partially. Because the firm believes that eventually price will exceed ATC, the firm should become profitable. Since the firm is a price taker, increasing the price will not benefit the firm. Reducing the quantity will also have no effect on the demand curve since each firm is small relative to the market.

This question tested from Session 5, Reading 18, LOS b

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