econ 101 exam 2

Suppose that avocados are an inferior good. If consumers' incomes fall and, at the same time, California wildfires damage a large portion of the avocado harvest, then what will happen to the equilibrium price and quantity of avocados?

price will rise, but you cannot determine what will happen to quantity

If the firms in a perfectly competitive market are earning positive economic profit, then in the long run the market ______ curve will shift to the ______.

supply; right

If the price elasticity of demand for milk is 0.5, then if the price of milk increases by 2 percent, the quantity of milk demanded will fall by

1 percent

Liza works as a personal trainer at the local gym earning $50,000 a year. She is considering quitting this job and starting her own Pilates studio. She found an unoccupied space that she could use for the studio, and she could rent it for $20,000 a year, including utilities. She estimates to spend $2,000 on advertising of the studio and $3,000 on equipment. In order to earn more with the new business, Liza's total revenue at the Pilates studio must be at least _______ per year.

75,000

A monopolist producer notices that, at her current level of output, her marginal revenue is $4.50 whilst her marginal cost is $3.50. Which ONE of the following should she do, in order to maximise her profits?

Decrease price and increase output

The monopolist optimally operates at the point where demand is unit-elastic. What does it imply about the marginal cost that the monopolist faces?

MC=0

Suppose that at Mandy's current level of consumption, her marginal utility from buying an additional comic book is 8 utils and her marginal utility from buying an additional novel is 6 utils. If the price of a comic book is $6 and the price of a novel is $4, is Mandy maximizing her utility?

No. She should shift his spending away from comic books and towards novels.

Which of the following is the profit of a perfectly competitive firm in the short run?

Q*(P-AC)

Monopoly is a market structure characterized by all of the following features except

The firm is the price taker

If the demand for a good is inelastic, then a 10 percent decrease in price will be associated with:

a less than 10 percent increase in quantity demanded

Suppose Alex is always willing to give up 2 mangos for 4 avocados, no matter how many avocados and mangos he eats. Then Alex's indifference curves between mangos and avocados:

are straight lines with negative slope

Albert's total utility from consuming 1 banana is 10 utils, while his total utility from consuming 3 bananas is 20 utils. Suppose he has diminishing marginal utility from consuming bananas. Albert's marginal utility from consuming the second banana is

between 5 and 10 utils

Consider a market in which the equilibrium quantity varies considerably over time, but the equilibrium price is relatively stable. All else equal, this suggests that:

both supply and demand are relatively elastic

Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. As a result of the increase in the price of corn, farmers who were already growing corn will earn an:

economic profit in the short run

When Misha eats one taco for lunch, his total utility is 24, and when he eats two tacos for lunch, his total utility is 43. Assuming that Misha's marginal utility from eating tacos is always positive, we can infer that his total utility from eating three tacos at lunch is:

greater than 43 and less than 62

In a perfectly competitive market, in the short run, if the total revenue of a representative firm is lower than the total cost, then the firm

is earning negative economic profit

A fixed factor of production

is fixed only in the short run

Suppose the elasticity of demand is less than 1. What happens to the total expenditure as the price of good decreases?

it decreases

If the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she

keeps the price of her lemonade the same and increases her output

Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. In the long run, this increase in the demand for corn is likely to ______ the price of soy beans

lead to an increase in

Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require

more than 30 additional employee-hours

The price elasticity of demand for a good is a measure of the responsiveness of:

quantity demanded to a 1 percent change in price of that good

If a consumer buys two different goods, the rational spending rule requires that the:

ratio of marginal utility to price be equal for the two goods

A monopolist will shut down in the long run if

total profit is negative

A perfectly competitive firm will shut down in the short run if

total revenue is less than the cost of variable factors of production