Microeconomics Chapter 6&9

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: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.

$200,000 and its economic profits were zero.

Production costs to an economist: A. consist only of explicit costs. B. reflect opportunity costs. C. never reflect monetary outlays. D. always reflect monetary outlays.

reflect opportunity costs.

The supply curve of antique reproductions is: A. relatively elastic. B. relatively inelastic. C. perfectly inelastic. D. unit elastic.

relatively elastic.

Compared to coffee, we would expect the cross elasticity of demand for: A. tea to be negative, but positive for cream. B. tea to be positive, but negative for cream. C. both tea and cream to be negative. D. both tea and cream to be positive.

tea to be positive, but negative for cream.

The long run is characterized by: A. the relevance of the law of diminishing returns. B. at least one fixed input. C. insufficient time for firms to enter or leave the industry. D. the ability of the firm to change its plant size.

the ability of the firm to change its plant size.

Which of the following is a short-run adjustment? A. A local bakery hires two additional bakers. B. Six new firms enter the plastics industry. C. The number of farms in the United States declines by 5 percent. D. BMW constructs a new assembly plant in South Carolina.

A local bakery hires two additional bakers.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A. None are either implicit or explicit costs. B. All are opportunity costs. C. All are implicit costs. D. All are explicit costs.

All are opportunity costs.

Which of the following definitions is correct? A. Accounting profit + economic profit = normal profit. B. Economic profit - accounting profit = explicit costs. C. Economic profit = accounting profit - implicit costs. D. Economic profit - implicit costs = accounting profits.

Economic profit = accounting profit - implicit costs.

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? A. Dinner at a nice restaurant (+1.8) B. Chicken purchased at the grocery store for preparation at home (+0.25) C. Facial tissue (+0.6) D. Plasma screen and LCD TVs (+4.2)

Plasma screen and LCD TVs (+4.2)

Which of the following represents a long-run adjustment? A. a farmer uses an extra dose of fertilizer on his corn crop B. unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants C. a steel manufacturer cuts back on its purchases of coke and iron ore D. a supermarket hires four additional clerks

unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants

Which of the following goods will least likely suffer a decline in demand during a recession? A. Dinner at a nice restaurant B. iPods C. Toothpaste D. Plasma screen and LCD TVs

Toothpaste

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. B. a 10 percent increase in income will increase the purchase of toys by 2 percent. C. a 10 percent increase in income will decrease the purchase of toys by 2 percent. D. toys are an inferior good.

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

An explicit cost is: A. omitted when accounting profits are calculated. B. a money payment made for resources not owned by the firm itself. C. an implicit cost to the resource owner who receives that payment. D. always in excess of a resource's opportunity cost.

a money payment made for resources not owned by the firm itself.

The law of diminishing returns results in: A. an eventually rising marginal product curve. B. a total product curve that eventually increases at a decreasing rate. C. an eventually falling marginal cost curve. D. a total product curve that rises indefinitely.

a total product curve that eventually increases at a decreasing rate.

Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that: A. an increase in the minimum wage would increase the total incomes of teenage workers as a group. B. an increase in the minimum wage would decrease the total incomes of teenage workers as a group. C. the unemployment effect of an increase in the minimum wage would be relatively large. D. the cross elasticity of demand between teenage and adult workers is positive and very large.

an increase in the minimum wage would increase the total incomes of teenage workers as a group.

Fixed cost is: A. the cost of producing one more unit of capital, for example, machinery. B. any cost which does not change when the firm changes its output. C. average cost multiplied by the firm's output. D. usually zero in the short run.

any cost which does not change when the firm changes its output.

The basic difference between the short run and the long run is that: A. all costs are fixed in the short run, but all costs are variable in the long run. B. the law of diminishing returns applies in the long run, but not in the short run. C. at least one resource is fixed in the short run, while all resources are variable in the long run. D. economies of scale may be present in the short run, but not in the long run.

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

If you operated a small bakery, which of the following would be a variable cost in the short run? A. baking ovens B. interest on business loans C. annual lease payment for use of the building D. baking supplies (flour, salt, etc.)

baking supplies (flour, salt, etc.)

Economic profits are calculated by subtracting: A. explicit costs from total revenue. B. implicit costs from total revenue. C. implicit costs from normal profits. D. explicit and implicit costs from total revenue.

explicit and implicit costs from total revenue.

To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

explicit and implicit costs, including a normal profit.

The short run is characterized by: A. plenty of time for firms to either enter or leave the industry. B. increasing, but not diminishing returns. C. fixed plant capacity. D. zero fixed costs.

fixed plant capacity.

Accounting profits are typically: A. greater than economic profits because the former do not take explicit costs into account. B. equal to economic profits because accounting costs include all opportunity costs. C. smaller than economic profits because the former do not take implicit costs into account. D. greater than economic profits because the former do not take implicit costs into account.

greater than economic profits because the former do not take implicit costs into account.

The larger the positive cross elasticity coefficient of demand between products X and Y, the: A. stronger their complementariness. B. greater their substitutability. C. smaller the price elasticity of demand for both products. D. the less sensitive purchases of each are to increases in income.

greater their substitutability.

To economists, the main difference between the short run and the long run is that: A. the law of diminishing returns applies in the long run, but not in the short run. B. in the long run all resources are variable, while in the short run at least one resource is fixed. C. fixed costs are more important to decision making in the long run than they are in the short run. D. in the short run all resources are fixed, while in the long run all resources are variable.

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

If the income elasticity of demand for lard is -3.00, this means that: A. lard is a substitute for butter. B. lard is a normal good. C. lard is an inferior good. D. more lard will be purchased when its price falls.

lard is an inferior good.

If in the short run a firm's total product is increasing, then its: A. marginal product must also be increasing. B. marginal product must be decreasing. C. marginal product could be either increasing or decreasing. D. average product must also be increasing.

marginal product could be either increasing or decreasing.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that: A. marginal product of the third worker is 9. B. the third worker has to work with poorer quality tools and raw materials. C. firm will not want to hire more than three workers. D. first worker puts forth more effort than the second and third workers.

marginal product of the third worker is 9.

sume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good.

negative and therefore X is an inferior good.

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A. negative and therefore these goods are substitutes. B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements.

negative and therefore these goods are complements.

We would expect the cross elasticity of demand between dress shirts and ties to be: A. positive, indicating normal goods. B. positive, indicating complementary goods. C. negative, indicating substitute goods. D. negative, indicating complementary goods.

negative, indicating complementary goods.

Economic cost can best be defined as: A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. any contractual obligation to labor or material suppliers. C. payments that must be accounted for to obtain and retain the services of a resource. D. all costs exclusive of payments to fixed factors of production.

payments that must be accounted for to obtain and retain the services of a resource.

The supply curve of a one-of-a-kind original painting is: A. relatively elastic. B. relatively inelastic. C. perfectly inelastic. D. perfectly elastic.

perfectly inelastic.

The supply of known Monet paintings is: A. perfectly elastic. B. perfectly inelastic. C. relatively elastic. D. relatively inelastic.

perfectly inelastic.

When total product is increasing at a decreasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.

positive and decreasing.

When total product is increasing at an increasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.

positive and increasing.

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good.

positive and therefore X is a normal good.

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A. negative and therefore these goods are substitutes. B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements.

positive and therefore these goods are substitutes.

We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods.

positive, indicating substitute goods.

Studies show that the demand for gasoline is: A. price inelastic in the short run, but elastic in the long run. B. price inelastic in both the short and long run. C. price elastic in the short run, but inelastic in the long run. D. price elastic in both the short and long run.

price inelastic in both the short and long run.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: A. profits were $100,000 and its economic profits were zero. B. losses were $500,000 and its economic losses were zero. C. profits were $500,000 and its economic profits were $1 million. D. profits were zero and its economic losses were $500,000.

profits were zero and its economic losses were $500,000.

Which of the following is most likely to be a fixed cost? A. shipping charges B. property insurance premiums C. wages for unskilled labor D. expenditures for raw materials

property insurance premiums

The formula for cross elasticity of demand is percentage change in: A. quantity demanded of X/percentage change in price of X. B. quantity demanded of X/percentage change in income. C. quantity demanded of X/percentage change in price of Y. D. price of X/percentage change in quantity demanded of Y.

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

The basic characteristic of the short run is that: A. barriers to entry prevent new firms from entering the industry. B. the firm does not have sufficient time to change the size of its plant. C. the firm does not have sufficient time to cut its rate of output to zero. D. a firm does not have sufficient time to change the amounts of any of the resources it employs.

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

Implicit and explicit costs are different in that: A. explicit costs are opportunity costs; implicit costs are not. B. implicit costs are opportunity costs; explicit costs are not. C. the latter refer to non-expenditure costs and the former to monetary payments. D. the former refer to non-expenditure costs and the latter to monetary payments.

the former refer to non-expenditure costs and the latter to monetary payments.

Marginal product is: A. the increase in total output attributable to the employment of one more worker. B. the increase in total revenue attributable to the employment of one more worker. C. the increase in total cost attributable to the employment of one more worker. D. total product divided by the number of workers employed.

the increase in total output attributable to the employment of one more worker.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes: A. economies and diseconomies of scale. B. X-inefficiency. C. the law of diminishing returns. D. the law of diminishing marginal utility.

the law of diminishing returns.

An increase in demand will increase equilibrium price to a greater extent: A. if the product is a normal good. B. if the product is an inferior good. C. the less elastic the supply curve. D. the more elastic the supply curve.

the less elastic the supply curve.

Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that: A. farm products are normal goods. B. farm products are inferior goods. C. the price elasticity of demand for farm products is less than 1. D. the price elasticity of demand for farm products is greater than 1.

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

Normal profit is: A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.

the return to the entrepreneur when economic profits are zero.

The price of old baseball cards rises rapidly with increases in demand because: A. the supply of old baseball cards is price inelastic. B. the supply of old baseball cards is price elastic. C. the demand for old baseball cards is price inelastic. D. the demand for old baseball cards is price elastic.

the supply of old baseball cards is price inelastic.

Accounting profits equal total revenue minus: A. total explicit costs. B. total implicit costs. C. total economic costs. D. economic profits.

total explicit costs.