ECON 102 Exam 2

77. Refer to the above information. Average total cost is:

(TFC+TVC)/Q

68. Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

A. AP continues to rise so long as TP is rising

37. While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed, and would only receive 5 units of satisfaction from consuming a second slice. Based on this information we can conclude that:

A. Alex may have to lower the price to convince Kara to buy a second slice.

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of:

A. W and Y

The basic formula for the price elasticity of demand coefficient is:

percentage change in quantity demanded/percentage change in price.

. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range

D. is elastic.

89. The minimum efficient scale of a firm:

D. is the smallest level of output at which long-run average total cost is minimized.

39. Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:

D. more of X and less of Y.

In which of the following instances will total revenue decline?

D. price rises and demand is elastic

28. Refer to the above diagrams. The case of a normal good is represented by figure:

A

24. Suppose the income elasticity of demand for toys is +2.00. This means that:

A. a 10 percent increase in income will increase the purchase of toys by 20 percent

62. Economic profits are calculated by subtracting:

D. explicit and implicit costs from total revenue

Refer to the above diagram. If price falls from $10 to $2, total revenue:

D. falls from A + B to B + C and demand is inelastic

84. Which of the following is not a source of economies of scale?

D. inelastic resource supply curves

74. Refer to the above diagram. At output level Q total variable cost is:

A. 0BEQ.

75. Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:

A. $5,000.

67. The law of diminishing returns indicates that:

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

38. The theory of consumer behavior assumes that:

A. consumers behave rationally, attempting to maximize their satisfaction.

60. To the economist, total cost includes:

A. explicit and implicit costs, including a normal profit.

Price elasticity of demand is generally:

A. greater in the long run than in the short run.

An antidrug policy which reduces the supply of heroin might:

A. increase street crime because the addict's demand for heroin is highly inelastic

23. The supply curve of antique reproductions is:

A. relatively elastic.

26. Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

A. the price of some other product.

61. Accounting profits equal total revenue minus:

A. total explicit costs.

48. How did Apple overcome consumers' diminishing marginal utility for iPods?

B. Apple introduced new features to entice previous buyers to purchase new models

73. Which of the following is correct as it relates to cost curves?

B. Marginal cost intersects average total cost at the latter's minimum point.

64. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

B. $200,000 and its economic profits were zero.

90. When a firm does more of something, it gets better at it. This learning-by-doing is:

B. a source of economies of scale.

51. The budget line shows:

B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

The main determinant of elasticity of supply is the:

B. amount of time the producer has to adjust inputs in response to a price change

43. If MUa/Pa = 100/$35 = MUb/Pb = 300/? = MUc/Pc = 400/?, the prices of products b and c in consumer equilibrium:

B. are $105 and $140 respectively

34. The law of diminishing marginal utility states that:

B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

52. Increases in product prices shift the consumer's:

B. budget line to the left.

35. Marginal utility is the:

B. change in total utility obtained by consuming one more unit of a good.

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:

B. decrease by approximately 12 percent.

59. Refer to the above diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point A to point B. This means that the:

B. price of Y has decreased.

53. The slope of a budget line reflects the:

B. price ratio of the two products

36. Total utility may be determined by:

B. summing the marginal utilities of each unit consumed

66. The basic characteristic of the short run is that:

B. the firm does not have sufficient time to change the size of its plant.

49. The diamond-water paradox occurs because

B. the price of a product is related to its marginal utility, not its total utility.

71. Refer to the above data. When two workers are employed:

B. total product is 18.

29. Refer to the above diagrams. The case of complementary goods is represented by figure:

C

76. Refer to the above data. The total variable cost of producing 5 units is:

C. $37.

47. If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility this consumer should buy:

C. 1 units of X and 2 units of Y.

41. Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively?

C. 276 utils

30. (Last Word) Based on the concept of price elasticity of demand, which of the following cases is most likely to occur?

C. Colleges charging lower tuition for low-income students

50. Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements?

C. Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements

78. In the figure below, curves 1, 2, 3, and 4 represent the:

C. MC, ATC, AVC, and AFC curves respectively.

A supply curve that is a vertical straight line indicates that:

C. a change in price will have no effect on the quantity supplied

80. Refer to the above short-run production and cost data. In Figure A curve (1) is:

C. average product and curve (2) is marginal product.

87. Refer to the above diagram. Diseconomies of scale:

C. begin at output Q3.

The total-revenue test for elasticity:

C. does not apply to supply because price and quantity are directly related

27. We would expect the cross elasticity of demand between Pepsi and Coke to be:

C. positive, indicating substitute goods.

32. Marginal utility can be:

C. positive, negative, or zero.

25. The formula for cross elasticity of demand is percentage change in:

C. quantity demanded of X/percentage change in price of Y.

The demand for a necessity whose cost is a small portion of one's total income is:

C. relatively price inelastic

81. If marginal cost is

C. rising, then average total cost could be either falling or rising.

83. When diseconomies of scale occur:

C. the long-run average total cost curve rises.

22. Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that:

C. the price elasticity of demand for farm products is less than 1.

63. Normal profit is:

C. the return to the entrepreneur when economic profits are zero.

72. Refer to the above data. Diminishing returns begin to occur with the hiring of the _________ unit of labor.

C. third

44. Refer to the above data. How many units of the two products will the rational consumer purchase?

D. 2 of L and 3 of M

33. Refer to the above data. The value for Y is:

D. 45.

70. Which of the following is correct?

D. Marginal product rises faster than average product and also falls faster than average product

88. (Last Word) A cost that cannot be partly or fully recovered through any subsequent action is known as a:

D. are in evidence at all output levels.

42. Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:

D. should buy less B and more A.

The concept of price elasticity of demand measures:

D. the sensitivity of consumer purchases to price changes.

Which of the following is not characteristic of the demand for a commodity that is elastic?

The elasticity coefficient is less than one.

82. Economies and diseconomies of scale explain:

B. why the firm's long-run average total cost curve is U-shaped.

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be

. inelastic for price declines that increase quantity demanded from 6 units to 7 units.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU

. relatively inelastic.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is:

. relatively price elastic

65. To economists, the main difference between the short run and the long run is that:

B. in the long run all resources are variable, while in the short run at least one resource is fixed.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:

B. increase the amount demanded by more than 10 percent

54. Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line:

B. is 1/5.

56. An indifference curve:

B. is downsloping and convex to the origin

31. The utility of a good or service:

B. is the satisfaction or pleasure one gets from consuming it.

86. Refer to the above diagram. Economies of scale:

B. occur over the 0Q1 range of output

85. Diseconomies of scale arise primarily because:

B. of the difficulties involved in managing and coordinating a large business enterprise.

46. The theory of consumer behavior assumes that consumers attempt to maximize:

B. total utility.

40. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing:

C. 4 units of J and 5 units of K.

45. Refer to the above data. What level of total utility does the rational consumer realize in equilibrium?

C. 51 utils

Suppose the above total revenue curve is derived from a particular linear demand curve. That demand curve must be

D. elastic for price increases that reduce quantity demanded from 4 units to 3 units.

69. Refer to the above data. Diminishing marginal returns become evident with the addition of the:

C. third worker.

79. In the diagram below the curves 1, 2, and 3 represent:

C. total fixed cost, total variable cost, and total cost respectively

55. At each point on an indifference curve:

C. total utility is the same.

58. Assume a diagram in which a budget line is imposed on an indifference map. A consumer will maximize her utility:

C. where the budget line is tangent to an indifference curve.

57. An indifference map implies that:

D. curves farther from the origin yield higher levels of total utility.

. The price elasticity of demand coefficient measures:

buyer responsiveness to price changes.

If the demand for farm products is price inelastic, a good harvest will cause farm

decrease.