EC 201-Problem Set #2

Suppose that Joe sells pork in a purely competitive market. The market price of perl os $3 per pound. Joe's marginal revenue from selling the 12th pound would be what?

A-$3 B) 1 lb. C) 12 lbs. D) $36

Which case below best represents a case of price discrimination?

A-A major airline sells tickets to senior citizens at lower prices than to other passengers. B) A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants. C) A professional baseball team pays two players with identical batting averages different salaries. D) An insurance company offers discounts to safe drivers.

At any level of output...?

A-Average total cost will exceed average variable cost by the level of average fixed cost. B) Average variable cost will exceed average total cost in the short run. C) Average variable cost will exceed average fixed cost by the level of average total cost. D) Marginal cost will exceed average variable cost by the level of average fixed cost.

If the demand for product X is inelastic, a 4% increase in the price of X will...?

A-Decrease the quantity of X demanded by less than 4%. B) Increase the quantity of X demanded by more than 4%. C) Decrease the quantity of X demanded by more than 4%. D) Increase the quantity of X demanded by less than 4%.

Natural monopolies result from?

A-Extensive economies of sale in production. B) Patents and copyrights. C) Pricing strategies. D) Control over an essential natural resource.

A purely competitive firm can be identified by the fact that?

A-Its average revenue equals its marginal revenue. B) It experiences diminishing marginal returns. C) It is making only accounting profits in the short run. D) There are other firms in the industry producing similar products.

Which of the following is not an assumption of the theory of consumer behavior?

A-The consumer's tastes and preferences continually change within the period studied. B) The consumer has to make decisions within a given budget constraint. C) The consumer aims to get maximum total utility out of a given budget. D) The consumer experiences diminishing marginal utility from consuming goods.

The elasticity of supply of product X is unitary if the price of X rises by?

B-8% and quantity supplied rises by 8%. A) 5% and quantity supplied rises by 7%. C) 10% and quantity supplied stays the same. D) 7% and quantity supplied rises by 5%.

When compared with the purely competitive industry with identical costs of production, a monopolist will produce?

B-Less output and charge a higher price. A) More output and charge the same price. C) Less output and charge the same price. D) More output and charge a higher price.

The non-discriminating pure monopolist must decrease price on all units of a product does in order to sell more units. What does this explain?

B-Marginal revenue is less than average revenue. A) Total revenues are greater than total costs at the profit maximizing level of output. C) A monopoly has a perfectly elastic demand curve. D) There are barriers to entry in a pure monopoly.

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates what?

B-Marginal utility is positive for the fourth slice and negative for the fifth slice. A) Total utility for five pizza slices is negative. C) Marginal utility for four pizza slices is negative. D) Marginal utility for the fourth slice is the largest among all slices.

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect what?

B-New firms to enter causing the market price of soybeans to fall. A) Some firms to exist causing the market price of soybeans to fall. C) New firms to enter causing the market price of soybeans to rise. D) Some firms to exit causing the market price of soybeans to rise.

In which instances will total revenues decline?

B-Price rises and Ed equals -2.47. A) Price falls and demand is elastic. C) Price rises and Ed equals -0.41. D) Price rises and demand is of unit elasticity.

Assume, that a consumer purchases a combination of product A and product B such that the MUa/Pa=8 and MUb/Pb=6. To maximize utility without spending more money, the consumer should do what?

B-Purchase more of product A and less of product B. A) Purchase more of both product A and product B. C) Make no change in purchases of products A and B. D) Purchase less of product A and more of product B.

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3,000 units, selling them for $2 each. At this level of output, the average total cost is $2.50 and the average variable cost is $2.20. Based on this data, what should the firm do?

B-Shut down in the short run. A) Increase output to 3,500 units. C) Decrease output to 2,500 units. D) Continue to produce 3,000 units.

Economists distinguish among the immediate market period, the short run, and the long run by noting what?

B-Supply is most elastic in the long run and least elastic in the immediate market period. A) Supply is most elastic in the short run and least elastic in the long run. C) Demand is most elastic in the long run and least elastic in the immediate market period. D) Supply is most elastic in the short run and least elastic in the immediate market period.

Which is not characteristic of a product with relatively inelastic demand?

B-There are a large number of good substitutes for the good. A) Buyers spend a small percentage of their total income on the product. C) Consumers have had only a short time period to adjust to changes in price. D) The good is regarded by consumers as a necessity.

The price elasticity of demand for a popular sporting event is 2. If the price of a ticket to this event increase by 10%, the quantity of tickets demanded will decrease by how much?

C-20% A) 10% B) 0.2% D) 5%

If marginal cost is below average variable cost, then what?

C-Both average total cost and average variable cost are decreasing. A) Average total cost is increasing but average variable cost is decreasing. B) Both average total cost and average variable cost are increasing. D) Average variable cost is less than average fixed cost.

Accounting profits are typically what?

C-Greater than economic profits because the former do not take implicit costs into account. A) Greater than economic profits because the former do not take explicit costs into account. B) Smaller than economic profits because the former do not take implicit costs into account. D) Equal to economic profits because accounting costs include all opportunity costs.

If the price of product X rises, then the resulting decline in the amount purchased will?

C-Increase the marginal utility of the last unit consumed of this good. A) Reduce the marginal utility of the last unit consumed of this good. B) Increase the total utility from purchases of this good. D) Necessarily increase the consumer's total utility from his total purchases.

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the?

C-Marginal utility per dollar spent is the same for all goods. A) Marginal utility of each good is maximized. B) Marginal utility per dollar spent is maximized for each good. D) Total utility is the same for each good.

We would expect the cross elasticity of demand between Pepsi and Coke to be?

D- Positive, indicating substitute goods. A) Positive, indicating general goods. B) Negative, indicating substitute goods. C) Positive, indicating secondary goods.

Suppose that a monopolist calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. He or she could maximize profits or minimize losses by?

D-Increasing price and decreasing output. A) Decreasing price and leaving output unchanged. B) Decreasing price and increasing output. C) Decreasing output and leaving price unchanged.

When a bakery manager reports that productivity of the 15 workers at her bakery last month was 1,800 loaves per worker, she is referring to what?

D-The average product of labor. A) The marginal product of labor. B) The total product of labor. C) The total product of capital.

Which of the following best approximates a pure monopoly?

D-The only bank in a small town. A) The Kansas City Wheat Market B) The Soft Drink Market C) The Foreign Exchange Market

Which of the following statements is correct?

D-Total utility is the accumulation or summation of marginal utility. A) Total utility is the change in marginal utility as quantity consumed increases. B) Marginal utility is the accumulation or summation of total utility. C) Total utility is the product of multiplying price times marginal utility.

Which of the following statements is correct?

D-When marginal utility is positive, an increase in the quantity consumed will increase total utility. A) When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. B) When marginal utility is zero, an increase in the quantity consumed will make total utility zero. C) When marginal utility is positive, an increase in the quantity consumed will decrease total utility.