Micro Exam 2

Cross-price elasticity refers to a. how responsive consumers of one good are to a change in the price of another good b. how responsive consumers are to a change in price c. how responsive consumers are to a change in quantity demanded d. how responsive consumers are to a change in income

a. how responsive consumers of one good are to a change in the price of another good

The average total cost (ATC) curve a. is U-shaped as a result of diminishing returns b. starts low and increases consistently c. remains flat d. declines as long as output increases

a. is U-shaped as a result of diminishing returns

A competitive firm a. is a price taker b. confronts a downward-sloping firm demand curve c. has market power to compete effectively d. is large enough relative to the market to be taken into account by competitors

a. is a price taker

In the short run, which of the following is most likely a variable cost? a. labor and raw materials costs b. contractual lease payments c. interest payments on borrowed funds d. property taxes

a. labor and raw materials costs

The profit motive can encourage businesses to do all of the following except a. mistreat customers b. restrict competition c. pollute the environment d. provide unsafe working conditions

a. mistreat customers

Economists assume the principal motivation of producers is a. profit b. psychological gratification c. their preference for being "their own person" d. social status

a. profit

Marginal cost a. rises as a direct result of diminishing returns b. falls in the short run because some resources are fixed c. falls whenever marginal physical product decreases d. rises whenever marginal revenue product rises

a. rises as a direct result of diminishing returns

The period in which at least one input is fixed in quantity is the a. short run b. investment decision c. long run d. production run

a. short run

Which of the following products will have elastic demand? a. travel souvenirs b. cigarettes c. gasoline d. medicine

a. travel souvenirs

If income falls 4 percent for a year and as a result the quantity of new homes demanded falls by 14 percent for the year, the value of the income elasticity of demand for new homes is closest to a. 2.9 b. 3.5 c. 0.6 d. 1.8

b. 3.5

In the short run, the law of diminishing returns a. occurs for only a few economies b. can be observed in every production process c. can be overcome by using more variable inputs d. does not occur in command economies

b. can be observed in every production process

Refer to figure 22.3 for a perfectly competitive firm. If the market price is $15 a. The firm will have above normal profits b. profits will be zero c. the firm should produce 39 units d. the firm should shut down

b. profits will be zero

If demand is very elastic, a. the demand curve will completely straight up and down b. the demand curve will be mostly flat c. the demand curve will be very steep d. the demand curve is upward-sloping

b. the demand curve will be mostly flat

A firm maximizes profit when a. marginal costs are greater than marginal revenues b. total revenue exceeds total cost by the greatest amount c. total costs exceed total revenue by the largest amount d. total revenues are maximized

b. total revenue exceeds total cost by the greatest amount

Refer to figure 22.3 for a perfectly competitive firm. Thus fair should shut down at any price below a. $23 b. $4 c. $10 d. $15

c. $10

A small business notes that at a price of $15 consumers demand 6 units. At a price of $12 consumers demand 10 units. Use the information in the scenario above. What is the percent change in quantity? a. 0.667 b. 0.250 c. 0.500 d. 0.400

c. 0.500

A small business notes that at a price of $15 consumers demand 6 units. At a price of $12 consumers demand 10 units. Use the information in the scenario above. What is the price elasticity of demand? a. 0.44 b. 0.20 c. 2.25 d. none of the above are correct

c. 2.25

The productivity of workers will increase in response to a. lower wages b. higher resource costs c. an increase in the amount of physical capital per worker d. an increase in diminishing returns

c. an increase in the amount of physical capital per worker

Higher prices will increase total revenue if a. demand is elastic b. the price elasticity of demand is zero c. demand is inelastic d. demand is unitary elastic

c. demand is inelastic

If diminishing returns exist, then a. the total cost curve will be flat b. the total cost curve will be negatively sloped c. each unit produced will cost incrementally more to produce d. each unit produced will cost incrementally less to produce

c. each unit produced will cost incrementally more to produce

If a good is normal, its a. cross-price elasticity is positive b. price elasticity of demand is positive c. income elasticity of demand is positive d. income elasticity of demand is negative

c. income elasticity of demand is positive

For perfectly competitive firms, price a. and marginal revenue are not related b. is greater than marginal revenue c. is equal to marginal revenue d. is less than marginal revenue

c. is equal to marginal revenue

Smart phones and apps are complementary goods. The cross price elasticity of demand between smart phones and apps is expected to be. a. equal to zero b. positive c. negative d. undefined

c. negative

Which of the following is most likely a fixed cost? a. the material used to make jackets b. the electricity used to run packaging equipment c. the rent for a factory d. the labor on an automotive assembly line

c. the rent for a factory

A small business notes that at a price of $15 consumers demand 6 units. At a price of $12 consumers demand 10 units. Use the information in the scenario above. What is the percent change in price? a. 0.200 b. 0.250 c. 0.111 d. 0.222

d. 0.222

A perfectly competitive firm should expand output when a. P<MC b. P>ATC c. P<ATC d. P>MC

d. P>MC

Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of a. diseconomies of scale b. economies of scale c. diminishing returns d. constant returns to scale

d. constant returns to scale

If Baked Bread wants to increase total revenue and the price elasticity of demand is 1.43, the company should a. increase the price of its bread b. advertise since this is the only option that will increase total revenue c. keep the price constant since a price increase or decrease will cause total revenue to fall d. decrease the price of its bread

d. decrease the price of its bread

In defining economic costs, economists emphasize a. only explicit costs while accountants recognize explicit and implicit costs b. explicit and implicit costs while accountants recognize only implicit costs c. only explicit costs while accountants recognize only implicit costs d. explicit and implicit costs while accountants recognize only explicit costs

d. explicit and implicit costs while accountants recognize only explicit costs

Sam's surf shop has total costs of $2,000 when it is not producing any surfboards. This means that a. fixed costs are zero b. variable costs are $2000 c. the sop is very inefficient in its production d. fixed costs are $2000

d. fixed costs are $2000

A production function shows a. how production changes as its unit costs go up b. how a firms costs of production increase as it produces more goods c. how total costs increase as labor is added d. how a firms production changes as quantity of labor and other inputs changes

d. how a firms production changes as quantity of labor and other inputs changes

Elasticity of supply looks at a. the responsiveness of sellers to a change in consumers incomes b. how much quantity demanded changes with a change in price c. how responsive products are to a change in quantity demanded d. how responsive sellers are to a change in price

d. how responsive sellers are to a change in price

The market price for any good or service sold in a perfectly competitive market is determined by a. the largest firm in the industry b. government regulation c. strategic interaction d. supply and demand

d. supply and demand

If the price elasticity if demand for a good is 0.4, a. a 10 percent increase in price will cause quantity demanded to fall by 40 percent b. a 5 percent decrease in price will cause quantity demanded to rise by 10 percent c. the demand is elastic d. the demand is inelastic

d. the demand is inelastic

When demand is inelastic a. buyers are very sensitive to change in price b. the product in demand has many substitute goods c. the percentage change in quantity demanded is greater than the percentage change in price d. the percentage change in price is greater than the perchance change in quantity demanded

d. the percentage change in price is greater than the perchance change in quantity demanded

In economics, the long run is considered to be a. one year b. the time period when all costs are explicit c. more than two years d. the time period when all costs are variable

d. the time period when all costs are variable