Show All your workings.

Plots of the yield curve can be useful for: a. Predicting the future course of inflation b. Predicting the future trends in international trade c. Predicting the future course of interest rates d. Prediction the future policy actions of the Federal Reserve System

6. An upward sloping yield curve means that, a. Short-term interest rates are expected to fall, so that long-term interest rates will be higher than short-term interest b. Short-term interest rates are expected to rise, so that short-term interest rates will be higher than long-term interest c. Short-term interest rates are expected to rise, so that long-term interest rates will be higher than short-term interest d. Short-term interest rates are expected to fall, so that short-term interest rates will be lower than long-term interest

7. Which of the following is NOT a stylized fact about the yield curve. a. The yield curve is generally upward sloping b. The yield curve is generally downward sloping c. The yield curve tends to shift over time d. The yield curve tends tend to predict future economic activity

8. If the Expectations Hypothesis holds true about long-term and short-term bonds being substitutes, then if the U.S. government decides to issue a large stock of long-term bonds, we could expect, a. The yield curve to become steeper b. The yield curve to become flatter c. The yield curve to shift down d. The yield curve to shift up

9. Suppose that businesses believe that the economy is about to expand, then we could expect, a. The yield curve to become steeper b. The yield curve to become flatter c. The yield curve to shift down d. The yield curve to shift up

10. Empirical evidence in US shows that when the spread between long term bonds and short-term bonds is negative (that is: the yield curve slopes downward or is inverted) then __________ is highly possible. a. Higher inflation b. Lower inflation c. A recession d. An economic expansion

11. According to the pure expectations theory of term structure, a flat yield curve is interpreted to mean that, a. Interest rates are expected to rise b. Interest rates are expected to fall c. Interest rates are expected to remain constant d. Interest rates are expected to rise and then to fall e. None of the above

12. Yield curves can be classified as: a. Upward sloping b. Downward sloping c. Flat d. All of the above e. Only (a) and (b)

13. Yield curves can be: a. Steeply upward sloping b. Moderately upward sloping c. Downward sloping d. All of the above e. Only (a) and (b)

14. Typically, yield curves are: a. Gently upward sloping b. Gently downward sloping c. Flat d. Bowl shaped e. Mound shaped

15. When yield curves are steeply upward sloping, a. Long-term interest rates are above short-term interest rates b. Short-term interest rates are above long-term interest rates c. Short-term interest rates are about the same as long-term interest rates d. Medium-term interest rates are above both short-term and long-term interest rates e. Medium-term interest rates are below both short-term and long-term interest rates

16. An inverted yield curve: a. Slopes up b. Is flat c. Slopes down d. Has a U shape e. Has an inverted U shape

17. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do not prefer bonds of one maturity over another c. Interest rates on bonds of different maturities move together over time d. All of the above e. Only (a) and (b)

18. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Interest rates on bonds of different maturities move together over time c. Buyers of bonds prefer short-term to long-term bonds d. All of the above e. Only (a) and (b)

19. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Buyers of bonds do not prefer bonds of one maturity over another d. All of the above e. Only (a) and (b)

20. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward d. All of the above e. Only (a) and (b)

21. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Yield curves should be as equally likely to slope downward as slope upward d. All of the above e. Only (a) and (b)

22. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do not prefer bonds of one maturity over another c. Yield curves should be as equally likely to slope downward as slope upward d. All of the above e. Only (a) and (b)

23. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do prefer short-term to long-term bonds c. Interest rates on bonds of different maturities do not move together over time d. All of the above

24. Assume that over the next two years, the expected path of 1-year interest rates is 4 percent and 1 percent. The expectations theory of the term structure predicts that the current interest rate on 2-year bond is: a. 1% b. 1.5% c. 2% d. 2.5% e. 4%

25. Assume that over the next two years, the expected path of 1-year interest rates is 1 percent and 4 percent. The expectations theory of the term structure predicts that the current interest rate on 2-year bond is: a. 1% b. 1.5% c. 2% d. 2.5% e. 4%

Assume that the current 1-year interest rate is 3 percent and the current 2-year interest rate is 2 percent. The expectations theory of the term structure predicts that the interest rate expected on 1-year bonds next year is: a. 1% b. 1.5% c. 2% d. 2.5% e. 4%

Problem 02.

1.) What is the main difference between a competitive firm and a monopoly?

a. A competitive firm owns a key resource, but a monopoly firm does not.

b. A competitive firm is a price taker, and a monopoly is a price maker.

c. A competitive firm produces output at a lower cost than a monopoly firm.

d. A competitive firm is subject to government regulations, but a monopoly firm is not.

2.) What is the main social problem caused by monopoly?

a. an inefficiently low quantity of output

b. an inefficiently high value of marginal cost

c. excessive monopoly profits

d. excessive producer surplus

3.) If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $5 per unit, what is the monopolist's profit?

a. $200

b. $300

c. $600

d. $800

4.) In a competitive market, a firm's supply curve dictates the amount it will supply. How does a monopoly market compare?

a. The supply curve dictates the amount it will supply.

b. The supply curve conceptually makes sense for price makers and price takers.

c. The supply curve will have limited predictive capacity.

d. The supply curve does not exist.

5.) When is it possible for a natural monopoly to evolve into a competitive market?

a. as a market expands

b. as patent and copyright laws change

c. as technological advances give rise to economies of scale

d. as new resources are discovered

6.) If one were to compare a competitive market to a monopoly that engages in perfect price discrimination, one could say that

a. in both cases, total social welfare is the same.

b. total social welfare is maximized in the competitive market, but not in the perfectly discriminating monopoly.

c. in both cases, some potentially mutually beneficial trades do not occur.

d. consumer surplus is the same in both cases.

7/) For a typical natural monopoly, what is the relationship between average total cost and marginal cost?

a. average total cost is falling, and marginal cost is above average total cost

b. average total cost is falling, and marginal cost is below average total cost

c. average total cost is rising, and marginal cost is below average total cost

d. average total cost is rising, and marginal cost is above average total cost

8.) For a firm to price discriminate, it must

a. be a natural monopoly.

b. be regulated by the government.

c. have some market power.

d. have large fixed costs.

9.) A monopoly firm can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201 units of output for $35.50 per unit. What is the marginal revenue of the 201st unit of output?

a. -$35.50

b. -$64.50

c. $64.50

d. $35.50

10.) Patent and copyright laws are major sources of

a. natural monopolies.

b. government-created monopolies.

c. resource monopolies.

d. product monopolies.

11.) Since natural monopolies have a declining average-cost curve, regulating natural monopolies by setting price equal to marginal cost would

a. cause the monopolist to operate at a loss.

b. result in a less than optimal total surplus.

c. maximize producer surplus.

d. encourage research in order to recoup lost profits.

12.) Why does inefficiency arise from a monopoly?

a. The monopoly firm earns an excessively large profit.

b. Some buyers will refrain from buying the good, due to the high price.

c. Some sellers will refrain from buying the good, due to the low price.

d. Consumers who buy the goods feel exploited.

13.) In what way does the profit-maximization problem for a monopolist differ from that of a competitive firm?

a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.

b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at a point where average revenue exceeds marginal cost.

c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output.

d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist

14.) Which of the following statements represents a monopoly firm?

a. A monopoly firm is a price taker and has no supply curve.

b. A monopoly firm is a price maker and has no supply curve.

c. A monopoly firm is a price taker and has a downward-sloping demand curve.

d. A monopoly firm is a price maker and has an upward-sloping supply curve.

15.) Which of the following is a perfectly price-discriminating monopolist able to do?

a. maximize profit, and produce a socially optimal level of output

b. maximize profit, but not produce a socially optimal level of output

c. produce a socially optimal level of output, but not maximize profit

d. produce a socially optimal level of output, and minimize the total cost

16.) For a monopoly firm, which of the following equalities holds?

a. price = marginal revenue

b. price = average revenue

c. marginal revenue = demand

d. marginal revenue = average revenue

17.) If a social planner were running a monopoly, that planner could achieve an efficient outcome by charging the price that is determined by

a. the minimum point on the average-total-cost curve.

b. the minimum point on the average-variable-cost curve.

c. the intersection of the marginal-cost curve and the demand curve.

d. the intersection of the marginal-cost curve and the marginal-revenue curve.

18.) In comparison to the price a competitive firm charges, monopoly pricing has the effect of causing

a. a higher level of output.

b. a higher price.

c. a larger consumer surplus.

d. smaller deadweight losses.

19.) In which of the following ways do patent and copyright laws benefit society?

a. These laws help to keep prices down.

b. These laws help to prevent a single firm from acquiring ownership of a key resource.

c. These laws encourage creative activity.

d. These laws discourage excessive amounts of output of certain products.

20.) What is generally the case for a monopolist's average revenue?

a. It is equal to marginal revenue.

b. It is less than marginal revenue.

c. It is equal to the price of its product.

d. It is less than the price of its product

21.) How do competitive firms and monopolists differ?

a. A competitive firm cannot choose its level of output; a monopolist chooses its level of output.

b. A competitive firm's short-run profit is always zero; a monopolist can have a positive short-run profit.

c. A competitive firm's marginal-revenue curve is horizontal; a monopolist's marginal-revenue curve is downward sloping.

d. A competitive firm sets price equal to marginal cost; a monopolist sets price equal to marginal revenue.

22.) What is one method used to control the ability of firms to capture monopoly profit in Canada?

a. government purchase of products produced by monopolists

b. government distribution of a monopolist's excess production

c. enforcement of antitrust laws

d. regulation of firms in highly competitive markets

23.) Supply curves tell us how much producers are willing to supply at any given price. What type of supply curves will monopoly firms have?

a. vertical supply curves

b. steeper supply curves than competitive firms

c. upward-sloping supply curves

d. no supply curves

24.) When will a monopolist choose to increase output?

a. when market price increases

b. when marginal revenue is positive

c. when marginal revenue exceeds marginal cost at the present level of output

d. when marginal revenue is less than marginal cost at the present level of output

25.) What is the typical market demand curve for a monopolist?

a. upward sloping

b. downward sloping

c. horizontal

d. vertical.

Part c.

D) less than marginal revenue because the firm cannot increase its total revenue when the demand curve is downward sloping. E) equal to zero because the firm is not a price taker. Price and cons (dollars per unit) 50.00 40.00 S=MC 30.00 10.00 19 03 MR 100 200 300 400 500 Quantity (units per hour] 23. In the above figure, the profit-maximizing output for this single-price monopoly is units and the price is A) 200; $10 B) 300; $20 C) 500; $50 D) 200; $30 E) 300; $30 24. Monopolies are inefficient because, at the profit-maximizing output level, A) MC = MR. B) MC does not equal MR. C) MB = MC. D) MB does not equal MC. E) P = ATC. 25. Which of the following statements is FALSE? A) A perfectly competitive market produces more output and charges a lower price than a monopoly. B) A perfectly competitive firm produces where MR = MC but a monopoly produces where MR > MC. C) In a perfectly competitive market, the price is equal to the marginal cost, but in a market with a single- price monopoly, price exceeds marginal cost. D) The consumer surplus is smaller for a market with a monopoly than for a perfectly competitive market. E) In the long run, a monopoly can earn a larger economic profit than can a perfectly competitive firm. 6