Econ 101 Exam 2

Assume that Jill is consuming at the utility-maximizing point. If the utility from the last soda she consumes is 40 and its price is $2, and the utility from the last bucket of popcorn is 20, then we know that the price of the bucket of popcorn is ____.

$1

If the price of a hot dog is $2 and your willingness to pay is $3, then your consumer surplus is _____.

$1

Frank is willing to pay $1,000 for the first class he takes this semester, $850 for the second, $700 for the third and $500 for the fourth. If the price of a class is $750, how many classes will he take?

2

Assume Anna is consuming two goods, movies and books, and at her current level of consumption, the marginal utility of the last movie is 60 and the marginal utility of the last book is 30. The price of a movie is $12 and the price of a book is $4. In order to maximise her utility, what should Anna do?

Decrease her consumption of movies and increase her consumption of books

Rank the following from the least elastic (most inelastic) to most elastic.

Demand for food Demand for dessert Demand for cookies Demand for Oreos

Given that water is essential to life and diamonds are not, why are diamonds so much more expensive than water (in most parts of the world)?

Diamonds are more expensive than water because they are harder to find unlike water where it is more accessible (in most parts of the world).

If the price of a good changes, why does an income effect exist?

The price change causes a change in real income

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. The variable cost of producing 1,000 units of output per week is equal to _____.

$16,000

If labor is the only variable input a firm owner uses and the wage rate is $200 per week, what is the firm owner's variable cost per week if she hires 12 workers?

$2,400

Juan wants to increase production at his confection shop. If he hires one more worker, he can increase output by 100 candies per week. A confection worker's weekly wage is $200. Juan's marginal cost of increasing output by 100 candies per week is ______.

$2.00

Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week, she would have to spend $6,100 per week. The marginal cost per hat is ______.

$20

At 600 units of output, total fixed cost is equal to $1,000 and total variable cost is equal to $12,000. Total cost is equal to _______.

$21.67

If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm's economic profit is _______

$3 million

eter can produce 50 lunches per hour for $1,250. If he hires one more cook for $15 an hour, he can produce 55 lunches per hour. The marginal cost of expanding hourly lunch production from 50 to 55 is _____

$3.00

Using the graph, if the price increases from $1 to $1.50, consumer surplus will decrease by _____. ​[Figure description: The graph has price of ice cream cone on the vertical axis and quantity of ice cream on the horizontal axis. The demand curve is a downward sloping straight line. Starting at $3.00 with zero demand, with every $0.25 decrease in price, the quantity demanded of ice cream increases by 1. When price is $0.50, the quantity demanded is 10. ] ​[Table description: the table shows price (column 1) and the corresponding quantity demanded (column 2).]

$3.50

Suppose Gail is willing to pay $89 for a new pair of shoes and Karen is willing to pay $60. What is the gain in total consumer surplus if the price of the shoes falls from $70 to $50?

$30

Frank is willing to pay $1,000 for the first class he takes this semester, $850 for the second, $700 for the third and $500 for the fourth. If the price of a class is $750, using the information above, what is Frank's consumer surplus?

$350

The following table contains some numbers for a firm's total fixed cost (TFC), total variable cost (TVC) , and total cost (TC) for various output levels (q). Total cost at q = 30 is

$5200

The following table contains some numbers for a firm's total fixed cost (TFC), total variable cost (TVC), and total cost (TC) for various output levels (q). Total cost per day at q = 50 is

$7200

A government may impose a price ceiling if which of the following is true?

- Consumers can persuade legislators that lower prices are needed

If the income elasticity of a good is 0.8, what do we know about the good?

- It is a normal good.

The slope of a firm's production function will ______ as the amount of a variable input used increases if the input experiences diminishing marginal productivity.

- decrease

Prices should be ___________ (increased/decreased/not changed) in the winter and ___________ (increased/decreased/not changed) in the summer. ​[Image description: The two tables below show the demand (prices and quantities) for movie tickets in the winter and summer.]

- increased; decreased

Use the information from the table. If the weekly wage is $200, the marginal cost of increasing weekly production from 10 to 22 scarves per week is ______________ than the marginal cost of increasing weekly production from 40 to 46 scarves per week because the marginal product of the second worker is ______________ than the fifth worker.

- lower, higher

When will a minimum wage be an effective price control? When it is a _________.

- minimum "price" that is above equilibrium price

If Bill spends all his money on apples that cost $3 per pound and Bill has $31 to spend, how many whole pounds can he buy?

10

At 1,000 units of output, the fixed cost of production is $12,500 per week. Total cost of producing 1,000 units per week is $28,500 per week. If labor is the only variable input and the weekly wage is $1,600, how much labor is being used to produce 1,000 units of output?

10.0

If the average product of labor is seven units of output per worker per day, the total output of 15 workers will be ______________ units per day.

105

Using the graph, if the price of an ice cream cone is $2.00, consumer surplus will equal ______. ​[Figure description: The graph has price of ice cream cone on the vertical axis and quantity of ice cream on the horizontal axis. The demand curve is a downward sloping straight line. Starting at $3.00 with zero demand, with every $0.25 decrease in price, the quantity demanded of ice cream increases by 1. When price is $0.50, the quantity demanded is 10. ] ​[Table description: the table shows price (column 1) and the corresponding quantity demanded (column 2).]

2

The production of 12,000 candy bars per day requires 60 workers. The average product of each worker is ______________ candy bars per day.

200

If apples cost $3 per pound and bananas cost $5 per pound, how many whole pounds of apples should Bill buy if he wants to maximize his utility and he has $31 to spend?

3

If apples cost $3 per pound, how much marginal utility per dollar is Bill getting with the 4 pound of apples?

3

How many whole pounds of bananas should Bill buy if he wants to maximize his utility from consuming the two goods and he has $23 to spend?

4

If apples cost $3 per pound and bananas cost $5 per pound, how many whole pounds of bananas should Bill buy if he wants to maximize his utility and he has $31 to spend?

5

Marcus has four employees. The four employees produce 55 floral arrangements in a day. Marcus hires a fifth employee. The five employees produce 60 floral arrangements in a day. The fifth employee's marginal product is ____

5 floral arrangements in a day

If Bill spends all his money on bananas that cost $5 per pound and Bill has $31 to spend, how many whole pounds can he buy?

6

Using the graph, if the price of an ice cream cone is $1, consumer surplus will equal ______. ​[Figure description: The graph has price of ice cream cone on the vertical axis and quantity of ice cream on the horizontal axis. The demand curve is a downward sloping straight line. Starting at $3.00 with zero demand, with every $0.25 decrease in price, the quantity demanded of ice cream increases by 1. When price is $0.50, the quantity demanded is 10. ] ​[Table description: the table shows price (column 1) and the corresponding quantity demanded (column 2).]

8

Using the table below, calculate the average cost of producing 80, 120, and 160 computers per month.

A = 197.50 , B = 150.00 , C = 128.13

A change in supply will have a (greater, lesser, the same) effect on quantity for a relatively more elastic demand curve than a relatively less elastic one.

A greater

Which of the following statements about the effects of a government setting maximum prices is true?

A maximum price will cause a shortage of a good to be produced only if the maximum price is below the equilibrium price.

If the government imposes an effective price ceiling in a market, what will be the result?

A shortage

Rank the following in order from the least elastic demand to most elastic.

Allergy medicine that is prescribed by a physician Any over-the-counter allergy medicine Sudafed Cold and Allergy Medicine

If population increases in a city with effective rent controls (and nothing else changes), which of the following describes what will happen in the market for rental housing?

An increase in demand, but no change in quantity supplied.

What does diminishing marginal productivity mean?

As you increase the amount of a variable input, its marginal product eventually gets smaller.

If every worker brought into a production process is identical, why does marginal productivity generally decrease?

Because if everyone had the same product it wouldn't be a rare item to have anymore making it less desirable, meaning that the marginal productivity would decrease.

If the government is trying to raise as much revenue as possible, which of the following goods would be the most likely to be subject to a government-imposed tax?

Bottles of alcohol, such as whiskey and gin

Suppose that the price of a pizza is $10 and the price of a video game is $30. Currently, Aaron is consuming such that the ratio of his marginal utility of pizza to marginal utility of video games is ¼. If he wants to maximize his utility, what should he do?

Buy fewer pizzas and more video games

What are two of the reasons that average cost tends to have a "bowl" shape?

Fixed costs tend to dominate low levels of output and variable costs tend to dominate high levels of output

When a firm earns zero economic profits, it does which of the following?

Has a positive accounting profit

A consumer is maximizing her satisfaction and currently consuming three goods. If her tastes change so that the marginal utility she gains from movies increases, what will happen to her consumption of the other two goods - hamburgers and football games?

Her consumption will decrease because the ratio of their marginal utilities to their prices is now less than the ratio of the marginal utility of movies to the price of a movie.

Fred just ate a hamburger and received total utility of 15 from consuming it. If he eats another one, which of the following will be true?

His total utility will likely increase

Describe in your own words what the relationship is between prices and marginal utilities when a consumer is considering how much to consume.

If the price is high than the marginal utility is most likely going to be high as well, often times more expensive things are more rare and special, especially if the price is high it is common that you would only be able to consume the product maybe once every couple weeks// year etc. For example concert tickets. It is a high price to pay but you have a high marginal utility because you get so much satisfaction from it. and it is expensive so you wouldn't be able to have a diminishing marginal utility because it would stay at a low availability rate.

Assume you spend all of your income on two goods: peanuts and chips. Also assume that you are consuming the combination of peanuts and chips that maximizes your utility. Which of the following statements is true?

If the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal.

Which of the following is a cause of diminishing marginal productivity?

In the short run, labor runs out of available capital as more labor gets added to the production process.

Explain why the marginal utility of water may be quite high at low levels of consumption, but eventually diminish as you increase your consumption.

Just like all other goods, the less you consume a product such as water in this case, it has a high satisfaction rate when you barely drink it, it seems "rare/ special" and is therefore more satisfactory when you consume it. On the other hand, the marginal utility diminishes when you have so much of that product that it no longer feels special or rare, thus, the satisfaction level diminishes.

Accountants tell a franchise owner that she earned $30,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits in comparable franchises. Which of the following is true? Her firm earned an economic __________.

Loss of $40,000

If you were selling a product with an elasticity of 1.6 and you wanted to increase your revenue, what should you do to the price?

Lower price

A utility-maximizing consumer will consume a good or service until the point at which: A utility-maximizing consumer will consume a good or service until the point at which:

MU/price of the good is on par with MU/price of other goods

Will a change in fixed costs change marginal cost?

No

Is it possible for marginal cost to be falling and average cost to be rising?

No because according the material we've learned: if marginal cost is greater than average cost would rise

A firm has a choice of raising or lowering its price. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do?

Raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold.

List some things that influence how sensitive you are to changes in the prices of goods and services you purchase.

Some things that influence how sensitive I am to change would most likely be how much money I have at the time and how much I am willing to spend, I would also be sensitive to purchases when I really weigh out if I need that product at that given time or not.

Who is likely to be in favor of a price ceiling on a good?

The consumers of the good who can still purchase it after the ceiling is imposed

Compare the likely elasticity of demand for a college education with the likely elasticity of demand for a degree at one specific institution.

The demand for a college degree in general would more more elastic while the more specific degree would have less substitutions or other options so it would have less elasticity.

A production function can best be described as which of the following?

The relationship between the quantity of inputs and quantity of outputs produced in a given amount of time

If demand were elastic, an increase of 10 percent in the price might cause a 20 percent decrease in quantity demanded. What would happen to the total revenue in this case?

The total revenue would decrease

How does consumption benefit consumers if the marginal cost just equals the marginal benefit?

There is not really a benefit to the consumer when they are paying a price that does not satifsy them

Sometimes consumers purchase goods because of "conspicuous consumption"; i.e., they want others to know that they can afford to buy the goods. There are many examples of these goods, such as Rolex watches, Coach purses, and flying first class. What would you expect the income elasticity of demand to be for these goods?

These are luxury goods, so income elasticity would be greater than 1.

Marginal product is the change in a firm's output divided by the change in the amount of an input (like capital or labor) used.

True

Working from the table, suppose that Patricia is currently producing 450 web pages per month. If her landlord increases her rent such that her fixed costs rise from $5,000 per month to $6,000 per month, calculate her new ___

Variable cost matches $12¸000 Total cost matches $18¸000 Average cost matches $40 Marginal cost matches $30

Working from the table, suppose that the wage of web page designers increases from $3,000 per month to $3,250 per month. If Patricia produces 450 web pages per month, calculate her new _____.

Variable cost matches $13¸000 Total cost matches $18¸000 Average cost matches $40 Marginal cost matches $32.5

Use the concepts of opportunity cost and marginal utility to explain how rational consumers compare marginal costs and marginal benefits when deciding how much of a good to purchase.

When deciding how much of a good to purchase the consumer would think of how high is their marginal utility, how much the product is, how much of it they can afford.

How does diminishing marginal utility affect the decision about how much of a good to purchase compared to another good at the same price?

When purchasing another good a person would want to look at how "special" the product is, aka, how often can I get this, is it sold other places and a person would most likely, (after deciding that it is a rare find) would get more of the product. If there was a diminishing marginal utility factor behind it, like apples if I ate 5 apples a day and no longer found them to be interesting, I could be able to want it less but buy a small quantity just if there's a good deal on it.

Explain in your own words what it means for demand to be elastic or inelastic.

When the demand is elastic it is when the percentage in the quantity demanded is greater than the percent change in the price while inelastic is the opposite, rather than the first being greater than the second it is less than.

Will a change in fixed costs change average cost?

Yes

Are marginal utilities of all goods consumed equal if consumers are maximizing their satisfaction? Explain why or why not.

Yes because they are maximizing they're satisfaction of both products to their fullest extend and are therefore equal

A business should ___________ (increase/decrease) the price of a good with an elastic demand if it wants to increase revenues.

decrease

Assuming a fixed budget, when the price of good X increases, consumers will adjust their consumption patterns in a way that the marginal utilities of all other goods will _________.

decrease, but the marginal utility of good X will increase.

If the price of a normal good increases, the income effect ______________ the quantity demanded of that good.

decreases

Suppose Frank chooses to buy hot dogs at their current price. When the price of hot dogs increases, Frank's consumer surplus ________.

decreases

The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost.

decreasing; increasing

Assume that the elasticity of demand is 1.6. Is demand elastic or inelastic?

elastic

Which product is more likely to have an elastic supply: ice cream or diamonds?

ice cream

A business should ___________ (increase/decrease) the price of a good with an inelastic demand if it wants to increase revenues.

increase

If a consumer is currently maximizing her satisfaction, what will happen to the marginal utility of a good when its price increases and the consumer adjusts consumption accordingly? The marginal utility will __________.

increase, because the consumer will decrease her consumption of the good.

An increase in an effective minimum legal price will do what to prices and quantities actually sold in a market? Prices will __________ and the quantities actually sold will ___________.

increase; decrease

A utility-maximizing consumer of coffee also enjoys consuming tea. A utility-maximizing consumer of coffee also enjoys consuming tea. Coffee prices rise, while tea prices do not change. This consumers consumes only these two goods and all else remains the same. For this consumer, consumption of tea will ______________, and marginal utility of coffee will ______________.

increase; increase

In the short run, an increase in the price of one of the fixed inputs will cause average cost to ______________ and marginal cost to ________

increase; not change

If the price of a normal good decreases, the substitution effect ______________ the quantity demanded of that good.

increases

If orange prices increase, consumers maximizing satisfaction will change their consumption patterns If orange prices increase, consumers maximizing satisfaction will change their consumption patterns in such a way that the marginal utility of oranges ______________ and the marginal utility of all other goods ______________

increases; decreases

If a good is provided for free, it is likely to have a marginal utility that is relatively ______________ and ______________ the marginal utility that could be gained from consuming some other good which must be paid for.

low; less than

If David buys more coffee and less ice cream, the ______________ of coffee will ______________ , and the ___ of ice cream will ______________.

marginal utility; fall; marginal utility; rise

A consumer's marginal utility of a luxury good with a price of $100 is 100 utils. A consumer faces the following situation. Her marginal utility of a luxury good with a price of $100 is 100 utils. An alternative good has a marginal utility of 75 utils and a price of $50. What should she do if she wishes to increase her total utility?

purchase fewer of the luxury goods and more of the alternative goods

Currently, Frank has 10 employees. The marginal product of the 10 worker is 25 units per week. The average product of the 10 workers is 20 units per week. If Frank hires one more worker, the marginal product of the 11 worker will be 24 units per week. The average product of labor will ______________.

rise

Currently, the marginal product of labor is 45 units per week. The average product of labor at the current level of output is 32 units per week. If the employer hires one more worker, the marginal product of labor will be 47 units per week. The average product of labor will _____________

rise

Variable cost ______________ while fixed cost ______________ as output ______________ in the short run.

rises; stays the same; increases

What would happen to the store's total revenue with this 10 percent price increase if quantity falls by 5 percent?

the demand would be inelastic and the revenue percentage would be greater than the percentage of decrease in quantity