Microeconomics and Behavior Exam 2
Which of the following is likely to increase the elasticity of demand for a good? A. A decrease in the availability of close substitutes. B. A longer period of time. C. A smaller share of income designated for the good in question. D. A decrease in the price.
B) A long period of time
Average fixed cost A. is a horizontal line. B. increases steadily as output increases. C. decreases steadily as output increases. D. exhibits diminishing returns.
C. decreases steadily as output increases.
The MC curve slopes upward due to A. increasing returns to scale. B. decreasing returns to scale. C. diminishing returns. D. constant returns to scale.
C. diminishing returns
At one unit of output AVC is A. zero. B. infinite. C. equal to marginal cost. D. less than marginal cost.
C. equal to marginal cost.
The nineteenth-century British economist Thomas Malthus argued that the law of diminishing returns implied that A. capital would increase relative to labor. B. technological change would grow at an increasing pace. C. eventual misery would befall the human race. D. raw materials would eventually run out.
C. eventual misery would befall the human race
The vertical distance between the total variable cost and total cost curves A. is everywhere equal to zero. B. is everywhere equal to marginal cost. C. is everywhere equal to total fixed cost. D. increases at a decreasing rate.
C. is everywhere equal to total fixed cost.
The total fixed cost curve A. varies with the level of output. B. is negatively sloped. C. is simply a horizontal line. D. is simply a vertical line.
C. is simply a horizontal line.
For a given firm, whenever the ratio of marginal product to input price differs across inputs, A. the market will adjust the price of the higher priced input. B. it will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions). C. it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio. D. the market will adjust the price of the lower priced input.
C. it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio.
If the variable cost curve is a straight line, then the A. marginal cost curve will be U-shaped. B. marginal cost curve may be U-shaped. C. marginal cost curve will be horizontal. D. marginal cost curve is upward sloping.
C. marginal cost curve will be horizontal.
In order to divide a given production quota between two production processes in such a way as to produce the quota at the lowest possible cost, one should produce the output where A. average costs are equal for both processes. B. average cost is equal to marginal cost for both processes. C. marginal costs are equal in both processes. D. marginal costs are at least equal to ATC in each process.
C. marginal costs are equal in both processes.
Markets characterized by declining long-run average costs are often referred to as A. perfect competition. B. diseconomies of scale. C. natural monopolies. D. nonprofit organizations.
C. natural monopolies.
The formula for elasticity is given by A. ΔQ/Q/ΔP/P. B. (Q/P)(slope). C. (P/Q)(slope). D. (Q/P)(1/slope).
A
Suppose the price of public transportation increases. You know that the income effect of this increase is 5, the substitution effect is 10, but you do not know the signs. The total effect of the increase in the price of public transport could be either A. 15 or 5. B. 5 or -5. C. -15 or 15. D. 5 or -15.
A) 15 or 5
Using the point method the price elasticity of demand for the demand curve P = 20 - 2Q, when P = 30 is A. 3. B. 12. C. 0.33. D. 0.08.
A) 3
The income consumption curve A. always goes through the origin. B. is always a straight line. C. has income on the vertical axis. D. is the same as the Engle curve.
A) Always goes through the origin
Which of the following goods are likely to have a positive cross-price elasticity? A. Butter and margarine B. Tires and automobiles C. Pepsi and pizza D. Peanut butter and jelly
A) Butter and Margarine
The point on a linear demand curve where revenue is maximized is where A. elasticity equals -1. B. elasticity equals 0. C. elasticity equals infinity. D. the price is the highest.
A) Elasticity equals -1
For a Giffin good, the income effect is A. greater than the substitution effect. B. less than the substitution effect. C. in the same direction of the substitution effect. D. the same as the substitution effect.
A) Greater than the substitution effect
One aggregates individual demand curves by adding A. horizontally. B. vertically. C. horizontally and subtracting vertically. D. vertically and subtracting horizontally.
A) Horizontally
If the demand for widgets is inelastic, revenues will ______ if the price of widgets increases. A. increase B. fall C. remain the same D. one cannot tell what will happen to revenues without specific elasticity numbers
A) Increase
Say a study reveals that price elasticity of demand for teenage smoking was -0.5. If the government imposed a tax on cigarettes the total expenditure teenagers spend on buying cigarettes would A. increase. B. decrease. C. stay the same. D. we can't answer with the information given.
A) Increase
Say you own a kiosk where you sell T-shirts to other students. After conducting a quick survey you find that at the current price the price elasticity of demand for your T-shirts is inelastic. Knowing this, if you wanted to increase the total revenue from selling T-shirts you should A. increase the price. B. lower the price. C. leave the price as it is. D. sell more T-shirt.
A) Increase the price
Which of the following two goods is likely to have a negative cross-price elasticity of demand? A. Left and right shoes B. Margarine and butter C. Coke and Pepsi D. Peanut butter and tuna fish
A) Left and Right Shoes
Which of the following goods is likely to have the lowest elasticity of demand? A. Milk B. Diamonds C. Furniture D. Automobile
A) Milk
Price elasticity of demand is the A. percentage change in quantity demanded divided by the percentage change in price. B. change in price divided by the change in quantity. C. change in quantity divided by the change in price. D. percent change in price divided by the change in quantity.
A) Percentage change in quantity demanded divided by the percentage change in price
A horizontal demand curve is A. perfectly elastic. B. perfectly inelastic. C. unit elastic. D. has elasticity of zero.
A) Perfectly elastic
The demand curve for a Giffen good A. slopes upward. B. slopes downward. C. is a straight line. D. is convex.
A) Slopes upward
The price consumption curve shows us A. whether we spend more or less on a commodity when its price changes. B. the changes in nominal income that occur for a price change of a good. C. the substitution effect of a price change. D. the total effect of a price change.
A) Whether we spend more or less on a commodity when its price changes.
Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period? A. Y1(1+r)+Y2 B. Y2(1+r)+Y1 C. Y1/(1+r)+Y2 D. Y2/(1+r)+Y1
A) Y1(1+r)+Y2
For demand function P = 24 - 6Q, demand A. is elastic at price 16. B. is elastic at price 12. C. is elastic at price 2. D. has unitary elasticity at all points on the function.
A) is elastic at price 16
The short run is defined as that period of time during which A. one or more inputs cannot be freely varied. B. all inputs are variable. C. all inputs are fixed. D. labor is counted as a fixed input.
A) one or more inputs cannot be freely varied
Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output? A. $200 B. $33 C. $25 D. $85
A. $200
Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. What is the average variable cost of output when one worker is hired? A. 1 B. 20 C. 24.50 D. None of these is the correct AVC.
A. 1
Say you own a Mexican place that produces, among other things, Mexican burritos. The marginal product of your last worker was 5. If the marginal rate of technical substitution between capital and labor is 0.5, then marginal product of capital is A. 10. B. 5. C. 1. D. we can't say with the information given
A. 10
The isoquant mapping for perfect complements in production is A. L-shaped. B. a straight line. C. a ray passing through the origin. D. concave.
A. L-shaped
When the marginal product curve lies below the average product curve, A. the average product curve must be falling. B. the total product curve must be falling. C. the average product curve must be rising. D. the marginal product curve must be rising.
A. The average product curve must be falling
In conceptual production functions, technological change is A. treated like an addition to the capital stock. B. treated as a movement upward along a given production function. C. a factor that eliminates diminishing returns to a production function. D. not considered and is therefore assumed to be constant in all deliberations.
A. Treated like an addition to capital stock
The AFC curve A. always slopes downward. B. is U-shaped. C. is a horizontal line. D. is the same as the total fixed cost curve.
A. always slopes downward
Suppose you have the following values for a short-run production process: Q = 20, VC = 100, FC = 600 and MC = 40. Given this, we know that the A. average cost curve must be increasing. B. average cost curve must be decreasing. C. marginal cost curve must be increasing. D. marginal cost curve must be decreasing.
A. average cost curve must be increasing.
Suppose you are using 10 units of labor in your short-run production process. At this point, the average product of your labor is 10, and the marginal product of the last unit of labor was 14. Given this, we know that the A. average product of labor must be increasing. B. average product of labor must be decreasing. C. marginal product of labor must be increasing. D. marginal product of labor must be decreasing.
A. average product of labor must be increasing
When marginal cost is greater than average total cost, A. average total cost must be increasing with output. B. average variable cost must be decreasing with output. C. average fixed cost must be increasing with output. D. marginal cost must be increasing with output.
A. average total cost must be increasing with output.
The total fixed cost function A. is horizontal. B. is U-shaped. C. is an upward sloping line. D. is a downward sloping line.
A. is horizontal
Geometrically, the average product A. is the slope of the line joining the origin to the specified point on the total product curve. B. at any point is the slope of the total product curve at that point. C. is that point at which the total product curve exhibits diminishing returns. D. falls at low levels of input use and rises at high levels of input use.
A. is the slope of the line joining the origin to the specified point on the total product curve
The minimum efficient scale of production is the level of production required for the A. long run average curve to reach its minimum. B. variable cost curve to reach its minimum. C. marginal cost curve to reach its minimum. D. average cost curve to reach its minimum.
A. long run average curve to reach its minimum.
Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run production output and the sixth laborer adds 20 units to the total output and the firm can hire all the labor it wants at the going wage we can be sure that A. marginal cost is increasing. B. average total cost is increasing. C. average variable cost is increasing. D. None of these is correct because all the costs listed are decreasing.
A. marginal cost is increasing.
Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. If at the current level of production the marginal product of labor is 4 while the marginal product of capital is 2, then in order to minimize your costs of production you should use A. more capital and less labor. B. more labor and less capital. C. more of both inputs. D. the same amount of both inputs.
A. more capital and less labor
From an isoquant map, one can illustrate diminishing returns to production by A. observing the slope of the isoquant as one moves outward on the labor axis but stays at the same point on the capital axis. B. following the curvature of an individual isoquant. C. moving from isoquant to isoquant along a ray from the origin. D. constructing a positively sloped isoquant.
A. observing the slope of the isoquant as one. moves outward on the labor axis but stays at the same point on the. capital axis
In a short-run production function before diminishing returns set in, both MPL and APL will have A. positive slopes and MPL will lie above APL. B. positive slopes and APL will lie above MPL. C. negative slopes and MPL will lie above APL. D. negative slopes and APL will lie above MPL.
A. positive slopes and MPL will lie above APL
A firm that is trying to produce a given level of output Q0 at the lowest possible cost will A. select the input combination at which an isocost line is tangent to the Q0 isoquant. B. select the input combination at which an isocost line is above the Q0 isoquant. C. select the input combination at which an isocost line is below the Q0 isoquant. D. choose to produce at a level where variable costs are less than or equal to fixed costs.
A. select the input combination at which an isocost line is tangent to the Q0 isoquant.
If the contribution to output of an additional unit of the variable input EXCEEDS the average contribution of the variable inputs used, A. the average contribution must rise. B. the average contribution must fall. C. the total product will begin to decline. D. the average product will be at its minimum.
A. the average contribution must rise
If the owner of an ice-cream stand told a student looking for summer work that he would not hire him even if he worked for nothing, we can infer that A. the marginal product of the labor is zero or less. B. the average product of labor is rising. C. the marginal product of labor is rising. D. the owner is producing at the lowest cost.
A. the marginal product of labor is zero or less
Whenever the ratio of marginal products to input prices differs across inputs, A. the marginal products of inputs will adjust as input combinations change to correct for the inefficiency. B. no change will necessarily follow because the process could still be at peak efficiency. C. a firm's costs could be reduced by shifting input usage toward the input with the lower marginal product to price ratio. D. the costs of the inputs adjust to bring the marginal product ratios and cost ratios together
A. the marginal products of inputs will adjust as input combinations change to correct for the inefficiency.
Average variable cost is A. the ratio of total variable cost to the quantity of output produced. B. the ratio of variable cost to total cost. C. the ratio of variable cost to fixed cost. D. the difference between variable and fixed cost.
A. the ratio of total variable cost to the quantity of output produced.
If the total variable cost curve is a straight line then the A. total cost curve will also be a straight line. B. total cost curve may or may not be a straight line. C. marginal cost function is downward sloping. D. marginal cost function is upward sloping.
A. total cost curve will also be a straight line.
MC equals A. ΔTC/ΔQ. B. ΔVC/ΔQ. C. FC/Q. D. VC/Q.
A. ΔTC/ΔQ.
If the opportunity cost of a unit of current consumption is exactly 1 unit of future consumption then you must sacrifice $10 of current consumption to finance A. $9 of future consumption. B. $10 of future consumption. C. $11 of future consumption. D. $1 of future consumption.
B) $10 of future consumption
Your income rises from $1,000 a year to $10,000 and your purchases of beer increase from 10 to 20. What number below most closely approximates your income elasticity over this range? A. 4 B. 0.4 C. 2.5 D. 1
B) 0.4
If an educational voucher system were adopted where parents could spend their share of education tax dollars at any school of their choice, then we could expect families to A. choose less education than before because the public schools would get better. B. choose more education because they do not need to pay double for private education. C. make no changes in their education choices because the relative price of private and public education has not changed. D. make choices that cannot be predicted by economic theory.
B) Choose more education because they do not need to pay double for private education
Say the demand curve for cigarettes was given by Q = 164 - 0.38P. When P = 20, a further increase in the price will A. increase total revenue. B. decrease total revenue. C. leave total revenue the same. D. we can't answer with the information given.
B) Decrease total revenue
Comparing the income effects between salt and housing, the A. income effect for salt will be greater. B. income effect for housing will be greater. C. two income effects will be about the same. D. two income effects will be in the opposite direction.
B) Income effect for housing will be greater
The income elasticity of a Giffen good A. is positive. B. is negative. C. is zero. D. cannot be specified without more information.
B) Is negative
The cross-price elasticity of demand for complements is A. positive. B. negative. C. zero. D. cannot be specified without more information
B) Negative
The income elasticity of demand for an inferior good could be A. positive. B. negative. C. zero. D. anyone of these depending on the other factors involved.
B) Negative
A vertical demand curve is A. perfectly elastic. B. perfectly inelastic. C. unit elastic. D. has elasticity of zero.
B) Perfectly inelastic
As one moves southeast on a linear demand curve A. demand becomes more elastic. B. demand becomes more inelastic. C. elasticity stays the same. D. one cannot tell what happens to elasticity unless the slope of demand is known.
B) The demand becomes more inelastic
If you buy food which then is put on special at half price just after you paid, A. you will be disappointed and be worse off. B. you will be better off because you will go back to get some more food at bargain prices. C. your welfare will not change since you just finished your shopping. D. logic cannot lead to an answer to this question even if you have a typical preference pattern.
B) You will be better off because you will go back to get some more food at bargain prices
An Engel curve A. always slopes up for an inferior good. B. always slopes down for an inferior good. C. may slope up or down for a normal good. D. does not relate to the normal or inferior good concepts.
B) always slopes down for an inferior good
The Engel curve for a Giffen good A. slopes upward. B. slopes downward. C. is a straight line. D. is convex. b. slopes downward
B) slopes downward
Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. What would be the minimum costs of producing 10 units of output? A. $40 B. $20 C. $10 D. It is impossible to say with the information given
B. $20
Let the TC curve be given by the equation TC(Q) = 10 + 5Q. The average variable cost can be expressed as A. 10. B. (10/Q) + 5. C. 10+(5/Q). D. It cannot be determined
B. (10/Q) + 5.
Let the TC curve be given by the equation TC(Q) = 5 + Q. The ATC curve can be expressed as A. (1/Q)+5. B. (5/Q) + 1. C. 5. D. Q.
B. (5/Q) + 1.
Let TC(Q) = 10 + Q; MC equals A. 10. B. 1. C. 11. D. It cannot be determined from the information given
B. 1
Output for a simple production process is given by Q = KL, where K denotes capital and L denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit. Suppose at the current level of production the firm is minimizing costs and the marginal product of labor is 10. Given this you know that the marginal product of capital must be A. 5. B. 2. C. 10. D. It is impossible to say with the information given
B. 2
Say you own a Mexican place that produces, among other things, Mexican burritos. Your production of burritos is given by the equation Q = 6KL2, where Q is the amount of burritos, K is the amount of capital and L is the amount of labor. How many workers would you need to use in order to minimize the cost of producing 100 burritos when the capital is, K, is 20? A. 1 B. 2 C. 4 D. 0
B. 2
Suppose that at a firm's current level of production the marginal product of capital is equal to 10 units, while the marginal rate of technical substitution between capital and labor is 2. Given this, we know the marginal product of labor must be A. 5. B. 20. C. 10. D. It is not possible to say with the information given in the problem
B. 20
With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is A. horizontal. B. a straight line. C. U-shaped. D. zero.
B. A straight line
Producing an additional unit whose marginal cost exceeds the average total cost incurred thus far has the effect of pulling the A. fixed cost up. B. average cost up. C. average cost down. D. total cost down.
B. Average cost up
Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of output. Subsequent hires add 5 units less to production than the previous worker. Thus the second worker adds 15, the third adds 10 etc. Which of the following is a true statement? A. At an output of 20 the total cost is $20. B. Average total cost at an output of 50 is 11. C. Average fixed cost is 10 when output is 45. D. Marginal cost keeps falling as the number of laborers hired increases. b. average total cost at an output of 50 is 11.
B. Average total cost at an output of 50 is 11.
Karl has a home business that consists of only himself and his computer. If he were to analyze his operations in the form of a long run production function his isoquants would A. be straight lines with a negative slope. B. be L shaped. C. be concave from above. D. be straight lines with a positive slope.
B. Be L-shaped
In a value added production function like the one used in the text, raw materials are A. counted as inputs in a production process. B. called intermediate goods. C. are counted in the final product of any production process as part of the value of output. D. called final goods.
B. Called intermediate goods
In the production of bicycles an increase of 2 percent in the level of capital and labor respectively will generate an increase of 1 percent in the production of bicycles. From this information we know that the production of bicycles exhibits A. diminishing marginal returns. B. decreasing returns to scale. C. increasing returns to scale. D. constant returns to scale.
B. Decreasing returns to scale
The short-run output expansion path is __________ in the relevant area. A. a ray B. horizontal C. U-shaped D. upward sloping
B. Horizontal
On an isoquant, the MRTS is defined as A. delta K / delta L B. MPK/MPL at the relevant point on the isoquant. C. MPL * MPK. D. MP + MPL.
B. MPK/MPL at the relevant point on the isoquant
The general rule for allocating a productive resource efficiently across different production activities of the same product, like fishing boats in the text case example, is to choose the allocation for which the A. average product of the resource is the same in every activity. B. marginal product of the resource is the same in every activity. C. total product of the resource is the same in every activity. D. average product is equal to the marginal product in every activity.
B. Marginal product of the resource is the same in every activity
Geometrically, the marginal product A. is the slope of the line joining the origin to the corresponding point on the total product curve. B. at any point is the slope of the total product curve at that point. C. is that point at which the total product curve exhibits diminishing returns. D. is the slope of the average product curve.
B. at any point is the slope of the total product curve at that point
The vertical distance between the average total cost and the average variable cost curves at any level of output will always be A. variable cost. B. average fixed cost. C. fixed cost less variable cost. D. total cost less fixed cost.
B. average fixed cost.
The slope of a ray from the origin to a point on the total cost curve is the A. average fixed cost of producing the corresponding level of output. B. average total cost of producing the corresponding level of output. C. marginal cost of producing the corresponding level of output. D. variable cost of producing the corresponding level of output.
B. average total cost of producing the corresponding level of output.
Say at the current output level marginal costs = $20 and the average total cost = $10. From this information we know that the A. marginal costs are increasing. B. average total costs are increasing. C. average total costs are decreasing. D. marginal costs are decreasing.
B. average total costs are increasing.
A fixed input is an input that A. can never be varied. B. cannot be varied in the short-run. C. is fixed only for some quantities of output. D. can never be moved from one location to the next.
B. cannot be varied in the short-run
The law of diminishing returns to an input says that if other inputs are fixed A. output eventually will decrease with increases of the variable input. B. change in output will eventually decrease with increases in the variable input. C. revenue will eventually decrease with increases in the variable input. D. the variable input will eventually decrease with more output.
B. change in output will eventually decrease with increases in the variable unit
When Thomas Malthus argued that the prospects for human flourishing were gloomy and that starvation would eventually become the normal human condition, he was assuming that A. diseconomies of scale will become more commonplace. B. diminishing returns to production will become more apparent. C. epidemics will overpower the many technological advances that he expected. D. self-interest will become more intense and religion will cease to be an influential force in society.
B. diminishing returns to production will become more apparent
The short run total cost of zero output is equal to A. variable cost. B. fixed cost. C. zero. D. variable cost plus fixed cost.
B. fixed cost.
Once we enter the region of diminishing returns, total variable cost A. increases at a decreasing rate. B. increases at an increasing rate. C. decreases at a decreasing rate. D. decreases at an increasing rate.
B. increases at an increasing rate.
In a typical short-run production function, before diminishing returns set in, the slope of the total product curve A. is decreasing. B. is increasing. C. rises and then falls before diminishing returns sets in. D. falls and then rises before diminishing returns sets in.
B. is increasing
If climate change starts creating earthquakes, storms, droughts and all manner of obstacles to production operations, the effects can be shown on effected production function graphs by A. eliminating the increasing returns portion of the short run production function. B. lowering the short run production function and reducing the numbers on each isoquant. C. changing the curves of the isoquants to straight lines. D. eliminating long run production functions because they are irrelevant.
B. lowering the short run production function and reducing the numbers on each isoquant.
For production functions with decreasing returns to scale, a proportional increase in output A. requires a less-than-proportional growth in all inputs. B. requires a more-than-proportional growth in all inputs. C. exhibits diminishing returns. D. requires proportional growth in all inputs.
B. requires a more than proportional growth in all inputs
ay you are the owner of a Pizza place. You know that when you produce 10 pizzas, the average product of each of your workers is 10, and the marginal product of your last worker is 15. From this information you know that A. the marginal product is increasing. B. the average product is increasing. C. the average product is decreasing. D. the marginal product is decreasing.
B. the average product is increasing
The rate at which one input can be exchanged for another without altering output is called A. the slope of the total product curve. B. the marginal rate of technical substitution. C. the slope of the marginal product of labor. D. the law of diminishing returns of labor.
B. the marginal rate of technical substitution
Suppose labor and capital are both used to produce output. In the long run, if the wage rate rises while the rental rate on capital remains unchanged, A. the process will become more labor intensive. B. the process will become more capital intensive. C. market forces will come into play to bring the prices back to their earlier relationship. D. the marginal product of capital will rise and the marginal product of labor will fall.
B. the process will become more capital intensive.
Marginal cost is defined as A. the rate at which average cost changes with output. B. the rate at which total variable cost changes with output. C. the rate at which fixed cost changes with output. D. total cost minus variable cost.
B. the rate at which total variable cost changes with output.
On this chapter quiz for this course you can study for up to four hours. If you don't study at all you will get a 70. One hour would give you an 80, the second hour increased your score to 89, the third to 92. If you studied the fourth hour your score would be 87. In which hour did diminishing returns set in? A. The first because the score was the lowest of the studying options. B. The second because your gain is less than the previous hour. C. The third because your score peaked there. D. The fourth because you had a drop in points in this hour.
B. the second because your gain is less than the previous hour
Which of the following statements about isoquant maps is true? A. They can illustrate diminishing returns to production only when they have numerical values attached. B. They cannot illustrate economies of scale unless some numerical values are attached. C. They always have positive slope. D. They always have negative slope
B. they cannot illustrate economies of scale unless some numerical values are attached
In a diagram, consumer surplus is always represented by the area
Between the. upper demand curve and the price
If a chef and her equipment transform $50 worth of raw foodstuff into a meal with a total value of $150, the resulting output would be A. measured as the $150 total value. B. referred to as an intermediate product. C. measured as the $100 of value added. D. measured as $200 of value added.
C. measured as the $100 of value added
Suppose a bank will pay you a 10% interest rate on your deposits for 1 period. In this case you must sacrifice $10 of current consumption to finance A. $9 of future consumption. B. $10 of future consumption. C. $11 of future consumption. D. $1 of future consumption.
C) $11 dollars of future consumption
A linear demand curve A. can have constant elasticity if its slope is more than one. B. will have an ever rising total revenue function. C. becomes less elastic as price falls. D. always has a constant elasticity.
C) Becomes less elastic as price falls
If the price consumption curve of good X, which is on the horizontal axis, slopes downward, we can be sure that consumers spend A. less money on X even though they buy more of it. B. the same proportion of their budget on X. C. more money on X but they get more of X. D. more money on X but they get less of X.
C) More money on X but they get more X
The substitution effect of a Giffen good is: A. positive. B. positive or negative. C. negative. D. zero.
C) Negative
For the demand function P = 50 - 5Q, A. a producer would do well to price at 50. B. a producer could give away only 20. C. the total revenue is the same whether the price is 20 or 30. D. a producer would do well to price at 40.
C) The total revenue is the same whether the price is 20 or 30
What is the cross-price elasticity between beef and vegetables for a strict vegan when the price of vegetables increases? A. Negative B. Positive C. Zero D. Either zero or negative depending on whether the vegan eats less vegetables.
C) Zero
If markets for addictive drugs have a more elastic demand curve than is often thought, and if addicts tend to be unstable people with low incomes, we might speculate that the most likely reason for the surprising elasticity estimates is that A. the substitution effect is smaller than expected because addicts aren't as addicted as we thought. B. the income effect has a more constraining effect than we had anticipated. C. addictive drugs are inferior goods. D. the income and substitution effects work in opposite directions.
C) addictive drugs are inferior goods
Other things equal, which of the following goods would have the most inelastic price elasticity of demand? A. A t-shirt from The Gap (a famous American retail store). B. All red t-shirt sold in the U.S. C. All shirts, of any color, sold in the U.S. D. A red t-shirt from Macy's (a large department store).
C) all shirts, any color, sold in the U.S.
The consumer price index overestimates inflation because it A. compares prices of what consumers actually buy rather than a fixed basket of goods. B. allows consumers to move along a given indifference curve from one year to the next. C. measures the cost of a market basket in the second year that has too many units of the most inflated items. D. uses the second year's market basket as the base rather than the first year's basket.
C) measures the cost of a market basket in the second year that has too many unites of the most inflated items
The local golf course has upgraded seven of its 18 holes and raised its rates from 20 to 24 dollars. It would be correct to say that A. the true inflation rate for golf is more than 20%. B. the true inflation rate for golf is 20%. C. the true inflation rate for golf is less than 20%. D. more information is needed to answer this question.
C) the true inflation rate for golf is less than 20%
ATC equals A. AVC-AFC. B. FC/Q. C. (TFC+TVC)/Q. D. MC+AFC.
C. (TFC+TVC)/Q.
Let the TC curve be given by the equation TC(Q) = 6Q. The FC curve can be expressed as A. 6. B. 6Q. C. 0. D. It cannot be determined with the information given
C. 0
Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be expressed as A. 20+5Q. B. 20. C. 5Q. D. 5.
C. 5Q
If capital and labor are perfect substitutes in a production function, the isoquants for this function will be A. concave from above. B. convex from above. C. a straight line. D. any one of these depending on the particular combination of labor and capital employed.
C. A straight line
In a typical production function, the relevant factors of production are land, labor, capital, and A. raw materials. B. technology. C. entrepreneurship. D. resources.
C. Entrepreneurship
What will happen to a typical isoquant if robots become increasingly good at doing manual and mental labor? A. Isoquants will become much steeper. B. Isoquants will not change but movement will occur upward on the curve. C. Isoquants will become much flatter. D. Isoquants will become a negatively sloped straight line.
C. Isoquants will become much flatter
The marginal product of a variable input is A. zero at the point of diminishing returns. B. the change in the average product that occurs when the variable input is increased one unit. C. the change in the total product that occurs in response to a unit change in the variable input. D. the second derivative of the total product function.
C. The change in the total product that occurs in response to a unit change in the variable
The variable cost of zero units of output is equal to A. total cost. B. total fixed cost. C. zero. D. one.
C. Zero
Diminishing returns begin to occur when the A. slope of the ray from the origin reaches a maximum. B. total product curve reaches a maximum. C. slope of the total product curve reaches a maximum. D. marginal product curve intersects the average product curve.
C. slope of the total product curve reaches a maximum
When the marginal product curve lies above the average product curve A. the average product curve must be falling. B. the total product curve must be falling. C. the average product curve must be rising. D. the marginal product curve must be rising.
C. the average product curve must be rising
When costs are at a minimum, A. the ratio of the MPL/MPK < Price L/Price K. B. MPL = MPK. C. the extra output we get from the last dollar spent on an input must be the same for all inputs. D. Price L = Price K.
C. the extra output we get from the last dollar spent on an input must be the same for all
In a graph of short run cost curves, which starts rising first? A. The average variable cost curve B. The average total cost curve C. The marginal cost curve D. The average fixed cost curve
C. the marginal cost curve
Geometrically, marginal cost at any level of output may be interpreted as the slope of A. a ray to the total cost curve at that level of output. B. the average variable cost curve at that level of output. C. the total cost curve at that level of output. D. the isoquant at that level of output.
C. the total cost curve at that level of output.
Returns to scale refers to A. what happens to output when at least one input is fixed and one is varied. B. what happens to output when all inputs are held fixed. C. what happens to output when all inputs are varied in some proportion. D. the law of diminishing returns.
C. what happens to output when all the inputs are varied in some proportion
The long-run total cost of zero output is equal to A. variable cost. B. fixed cost. C. zero. D. the marginal revenue product of labor.
C. zero
If I get 10 units of pleasure from my first ice cream cone and 2 less units than before from each succeeding cone, I will buy ____ cones and gain _____ units of consumer surplus if the price of a cone = to 5 units of pleasure. A. 4;28 B. 6;30 C. 2;18 D. 3;9
D) 3;9
A demand curve which has unit elasticity is A. horizontal. B. vertical. C. linear. D. concave from above.
D) Concave from above
A demand function that has a unitary elasticity at every point will A. be a horizontal line. B. be negatively sloped and a straight line. C. have a positive slope when price is low. D. have a declining slope as price falls.
D) Have a declining slope as price falls
The income effect A. moves in the opposite direction from the substitution effect for an inferior good. B. moves in the same direction as the substitution effect for an inferior good. C. relates to increases in nominal rather than real income. D. is always greater than the substitution effect.
D) Is always greater than the substitution effect
An income compensated demand curve A. is steeper than an ordinary demand curve for a normal good. B. is flatter than an ordinary demand curve for an inferior good. C. of a Giffin good will be negatively sloped. D. is described accurately by all of these statements.
D) Is described accurately by all of these statements
There has been much discussion over whether marijuana should be legalized. Assume that if it becomes legal the price will be cut in half. Given your text estimate of -1.0 price elasticity for marijuana, what would you expect to be the change in marijuana usage? A. It will be cut in half. B. It will not change. C. It will double. D. It will increase by 50%.
D) It will increase by 50%
A war in the Middle-East increases the price of oil. Suppose that the price hike holds. Over what period of time would you expect the largest change in quantity? A. 1 day B. 1 week C. 1month D. 1 year
D) One year
The substitution effect is A. always greater than the income effect. B. always less than the income effect. C. never greater than the income effect. D. sometimes less than the income effect.
D) Sometimes less than the income effect
If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer's welfare it would A. raise the tax on alcohol until demand for alcohol became elastic. B. need to know the substitution effect but not the income effect of a tax hike. C. need to know the income effect but not the substitution effect of a tax hike. D. tax until the income effect of the price increase, which would be refunded, is exactly equal to the revenue gained from the tax.
D) Tax until the income effect of the price increase, which would be refunded exactly equal the the revenue gained from the tax
As one moves southeast on a downward sloping demand curve A. demand becomes more elastic. B. demand becomes more inelastic. C. elasticity stays the same. D. one cannot tell what happens to elasticity unless the demand curve is linear.
D) one cannot tell what happens to elasticity unless the demand curve is linear
Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total cost of producing 80 units of output? A. $525 B. $200 C. $233 D. $225
D. $225
A production function for which proportional changes in all inputs leads to a more-than proportional change in output is said to exhibit A. diminishing returns. B. decreasing returns to scale. C. constant returns to scale. D. increasing returns to scale.
D. Increasing returns to scale
The average product of a variable input A. decreases at an increasing rate. B. constantly rises over the relevant range of production. C. is the change in the total product that occurs when the variable input increases one unit. D. is defined as the total product divided by the quantity of the variable input.
D. Is defined as the total product divided by the quantity of the variable input
Which statement is false? A. Short-run cost assumes a fixed capital size, while long-run cost includes all possible capital levels in determining cost. B. Short-run total cost can never be less than long-run total cost at any given output level. C. Long-run marginal cost never intersects long-run average cost as long as increasing returns to scale are present. D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve. D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve.
D. Short run ATC and long run ATC are never equal except at the minimum point on the long run ATC curve.
In the long run A. all inputs are fixed. B. only capital inputs are fixed. C. all intermediate goods are fixed. D. all inputs are variable.
D. all inputs are variable
If some inputs of production do not vary with the level of output we call them fixed inputs which when multiplied by their price become fixed cost. Which of the following items typically fit this category? A. Property taxes B. Insurance payments C. Interest on loans D. All of these are fixed costs
D. all of these are fixed costs
When marginal cost is less than average total cost, ______ as output increases. A. average total cost must be increasing B. average variable cost must be decreasing C. average fixed cost must be increasing D. average total cost must be decreasing
D. average total cost must be decreasing
For any constant returns production function, the isoquants for Q = 1, Q = 2, Q = 3, etc. will A. all be inversely proportional to the inputs. B. exhibit diminishing returns in the long run. C. be straight lines. D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc.
D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc.
The vertical distance between the average variable cost and average total cost curves A. is everywhere equal to total fixed costs. B. is everywhere equal to marginal cost. C. increases at a decreasing rate. D. decreases as quantity increases.
D. decreases as quantity increases.
f equal amounts of a variable input are sequentially added to the fixed input in a typical production function, A. the increments to output will decrease first and then increase. B. the additions to output will be constant. C. increments to output will increase indefinitely. D. increments to output will first increase at an increasing rate and then at a decreasing rate.
D. increments to output will first increase at an increasing rate and then at a decreasing rate
The total cost curve A. is a horizontal line. B. increases at a decreasing rate due to diminishing returns. C. is parallel to the total fixed cost curve. D. is parallel to and above the total variable cost curve.
D. is parallel to and above the total variable cost curve.
Gravel is made by hand in Nepal, but by machine in the U.S. because A. the marginal product of labor is higher in Nepal than in the U.S. B. capital is much more expensive in the U.S. than in Nepal. C. of consumer preferences. D. the relative prices of labor and capital differ so dramatically in the two countries.
D. the relative prices of labor and capital differ so dramatically in the two countries.
Total cost is broken down into two components: A. average cost and marginal cost. B. average cost and fixed cost. C. variable cost and marginal cost. D. variable cost and fixed cost.
D. variable cost and fixed cost.
Upon what is your current consumption dependent according to Milton Friedman?
The present value of your lifetime income
Differences in time preferences depend on
Uncertainty regarding the future
If you had a windfall of $5,000 in the present time period and you save some of it, your saving behavior would likely be due to the fact that
Your marginal utility of present income falls as your income goes up
Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the variable cost of producing 80 units of output? A. $200 B. $33 C. $25 D. $85
c. $25
Given input prices and the usual strategy of a profit-maximizing firm, efficient production occurs at A. the highest isoquant Q for a given isocost C. B. the lowest isoquant Q for a given isocost C. C. the highest isocost C for a given isoquant Q. D. the lowest isocost C for a given isoquant Q.
d. the lowest isocost C for a given isoquant Q.
The horizontal intercept of the intertemporal budget constraint is referred to as
the present value of lifetime income
which of the following would be but best item for the local government to tax
water supply
