Micro Test 2 review
I'M A Big Corp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6.To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'M A Big Corp.'s average fixed cost to produce the 7,000 can openers was
$2.43
Complete the following table. Assume that the only cost that this business incurs is the wages paid to workers at a rate of $10 per worker. If you chose to hire up to 3 workers, what is the marginal cost to the business for each unit produced by the 3rd worker?
$5
Alex has $18 per week in his entertainment budget. He splits his time between going to the movies and renting video games. Each movie costs $6 while each video game rental costs $3. The measured total utility of each of his activities is shown in the table below. What is Alex's utility maximizing point?
1 movie, 4 video game rentals
Kim has $24 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $3. The total utility from each of these activities is set out in the table below. What is Kim's total utility maximizing point?
1 movie, 5 yoga classes
Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
3
For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:
3 salads, 6 veg burgers
Complete the following table and identify with which worker does the "Law of Diminishing Returns" begin
3rd worker
Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?
4.25
The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal
5 units
The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following are correct?
A = 42, E = 12
Mindy's company manufactures rubber balls used by elementary schools for playground activities. The table below sets out her firm's production cost information. Some values are missing. Which of the following are correct?
A= 20, E= 5
Refer to the budget line shown in the diagram below. At point U,
P1/P2 = MU1/MU2
Examine the graph below to answer the following question regarding the effect of changes in income on consumer choices. The utility-maximizing choice on the original budget constraint line is shown as point "M" on the graph. Next assume that this individual's budget increases (i.e. budget constraint line shifts outwards to the right since he/she has more income to spend on these two items). Point "N" suggests that for this individual concert tickets and overnight stays are considered:
concert tickets are inferior and overnight stays are normal goods
When demand is inelastic
consumers are not very responsive to changes in price
A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:
cross-price elasticity of demand for soda is -3
The graph below illustrates the total cost function for Goodie Cookie Co. How are the company's fixed costs represented in this graph?
as the point where the total cost curve touches the vertical axis
in order to determine ________, the firm's total costs must be divided by the quantity of its output.
average cost
Refer to the diagram below. In this instance:
all of the above and the consumer can choose any point on or below the budget constraint line BC
The term _________ describes a situation where the quantity of output rises, but the average cost of production falls
economies of scale
A price cut will increase the total revenue a firm receives if the demand for its product is
elastic
Demand is said to be _______ when the quantity demanded is very responsive to changes in price
elastic
Supply is said to be _____ when the quantity supplied is very responsive to changes in price
elastic
If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to______. Hint: it might help for you to draw a graph to better see the answer.
fall and the equilibrium quantity to stay the same
A firm's ________ consist of expenditures that must be made before production starts that typically, over the short run, ________ regardless of the level of production.
fixed costs; do ont change
A perfectly elastic supply curve is
horizontal
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.
income effect; higher price
When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as
inelastic
Refer to figure (graph) B below to answer this question. Graph B represents a demand curve that is relatively _____. Total revenue _____ as the price decreases from $10 to $5.
inelastic, decreases
When Marietta chooses to only purchase a combination of goods that lie within her budget line, she:
is maximizing her utility
Refer to the table below. If the firm produces and sells 5 units at a price of $30 each, then the marginal unit produced
is subtracting from profits
The term _________ is used to describe the additional cost of producing one more unit.
marginal cost
The term _________________ refers to the additional utility provided by one additional unit of consumpt
marginal utility
________ include all spending on labor, machinery, tools, and supplies purchased from other firms
total costs
A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:
total rev will decrease
Garth inherited $25,000. He needs to decide how much to spend now and how much to save for later. If he saves the money, then he can earn 15% interest on the total before he spends it. Using the information about his marginal utility in the table below, Garth should:
spend nothing now and $28,750 in the future
The marginal cost curve is generally _________, because diminishing marginal returns implies that additional units are _________.
upward-sloping; more costly to produce
if a paper mill shuts down its operations for three months so that it produces nothing, its ________ will be reduced to zero?
variable costs
Given the following linear demand function P =16 - 2Q, find the point elasticity of demand when the quantity is 2. Hint: We need to have a point (P, Q) so first find the "P" when "Q" is 2 in our demand function. Also, review the excel I have provided in the blackboard entitled "Elasticity Computations Chpt 5" for details on how to solve this type of elasticity problem
|-3 |
The elasticity of supply is defined as the ________ change in quantity supplied divided by the _____ change in price
percentage, percentage
Examine the graph below to answer the following question regarding the effect of changes in price on consumer choices. The utility-maximizing choice on the original budget constraint line is shown as point "M" on the graph. Next assume that the price of one good (in this case baseball bats) rise such that the budget constraint line rotates clockwise. A common response to higher prices is that an individual elects to consume less of the product with the higher price (in this case, less baseball bats). Identify the points on the graph that supports this view.
points H, J,
As a general rule, utility-maximizing choices between consumption goods occur where the:
price ratio and marginal utilities ratio of two goods is equal
Refer to the table below to answer the following: If this information were used to create a total cost graph, the curve should
reflect all of the above
the price elasticity of demand measures the:
responsiveness of quantity demanded to a change in pri
Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?
the marginal utility per dollar is the same for both goods
Which of the following occurs simultaneously with an income effect?
substitution effect
Examine the graph below to answer the following question regarding "substitution and income effects" on consumer choices. The graph depicts these effects in response to a fall in the market price for oranges. The line "BL1" represents our original budget constraint line and "IC1" shows our original indifference curve. Next we see a counter-clockwise rotation in the budget constraint line to account for the drop in the market price of oranges which results in a new budget constraint line shown as "BL2" and a new indifference curve "IC2". Identify the points on the graph that capture the "substitution effect" and the points that capture the "income effect", respectively.
substitution effect from A to B; income effect from B to C
Economists are able to determine total utility by:
summing up the marginal utilities of each unit consumed.
Complete the following table and identify the marginal product of the 4th worker.
2 pizzas
Refer to the graph. Based on the information illustrated in the graph, which of the following is correct?
Producing a marginal unit increasers average costs for all units produced
_________ occur when the marginal gain in output diminishes as each additional unit of input is added
diminishing marginal returns
f the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to
rise and the equilibrium quantity to stay the same
The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
substitution beffect