ECON 101 Practice Test 2

54. For the Texas beef industry to be considered perfectly competitive, ranchers in Texas must have _____ on prices, and beef must be a _____ product. a. no noticeable effect; standardized b. a huge effect; standardized c. a huge effect; differentiated d. no noticeable effect; differentiated

a. no noticeable effect; standardized

19. The income elasticity of demand for fresh flowers has been estimated to be 0.67. If income grows by 12% in a given period, demand will: a. increase by more than 12%. b. increase by about 8%. c. decrease by more than 7%. d. decrease by less than 6%.

b. increase by about 8%.

25. (Table: Marginal Cost of Sweaters) Use Table: Marginal Cost of Sweaters. The marginal cost of producing sweaters is an example of _____ marginal costs. Table: Marginal Cost of Sweaters Quantity of sweaters Total cost 0 $0 1 9 2 20 3 33 4 48 5 65 a. decreasing b. increasing c. constant d. random

b. increasing

29. As you consume more avocado relative to potato chips, the _____ of avocado eventually decreases. a. price b. usefulness c. marginal utility d. demand

c. marginal utility

43. The Mile End Deli serves traditional delicatessen food in Brooklyn, New York. Which decision is most likely to be made over the long run at the deli? a. order more smoked meat b. order more cabbage to make coleslaw next week c. renovate the adjacent space to increase the size of the dining room d. advertise for line cooks

c. renovate the adjacent space to increase the size of the dining room

63. (Figure: Prices, Cost Curves, and Profits for Brianna's Best Brie) Use Figure: Prices, Cost Curves, and Profits for Brianna's Best Brie. Brianna owns Brianna's Best Brie, a perfectly competitive firm that produces artisanal cheeses. If the price of brie is P1, and the firm is profit-maximizing, then the firm: a. is earning economic losses. b. is earning economic profits. c. should shut down. d. should lower price to P1.

c. should shut down.

When economists refer to a decision made at the margin, they mean a decision that is based on: a. the value of an unimportant, or marginal, activity. b. a value entered as an explanatory item in the margin of a balance sheet or other accounts. c. the value of one more unit of a good or activity. d. a value that is most appropriately identified in a footnote.

c. the value of one more unit of a good or activity.

21. A perfectly inelastic supply curve is: a. horizontal. b. downward sloping. c. upward sloping. d. vertical.

d. vertical.

(Table: Optimal Choice of Yogurt and Cheese) Use Table: Optimal Choice of Yogurt and Cheese. The price of yogurt is $2 per unit, and the price of cheese is $4 per pound. Hailey's income is $16. If she spends all of her income on cheese, the most she can buy is _____ pounds of cheese, and her total utility will be _____. Table: Utility from Yogurt and Cheese Number of yogurts Total utility for yogurt Pounds of cheese Total utility for cheese 0 0 0 0 1 32 1 44 2 60 2 84 3 84 3 120 4 104 4 152 5 120 5 180 6 132 6 204 7 140 7 224 8 144 8 240 a. 4; 152 b. 4; 22 c. 6; 204 d. 8; 240

a. 4;

33. (Figure: Optimal Selection of Cola (c) and Sushi Rolls (r)) Use Figure: Optimal Selection of Cola (c) and Sushi Rolls (r). If the consumer is at point A, what should the consumer do to maximize utility? a. Consume more rolls and less cola. b. Consume fewer rolls and more cola. c. Consume fewer rolls and less cola. d. Nothing, since utility is already maximized.

a. Consume more rolls and less cola.

70. Nikos' lawn-mowing service is a profit-maximizing, competitive firm. If Nikos mows ten lawns per day at a price of $27 per lawn and has a total cost of $280, of which $30 is a fixed cost, what should Nikos do in the long run? a. Leave the industry, since he is not covering his fixed costs b. Continue operating, since he is covering part of his fixed costs and all his variable costs c. Raise the price, so that he can cover his fixed costs d. Lower his fixed costs to become more competitive

a. Leave the industry, since he is not covering his fixed costs

68. (Table: Variable Costs for Garden Maintenance) Use Table: Variable Costs for Garden Maintenance. During the summer, Emma runs a gardening service in a perfectly competitive industry. Assume that costs are constant in each interval; so, for example, the marginal cost of clearing weeds from each of the gardens 1 through 10 is $20. Also assume that she can only tend to the number of gardens given in the table (and not numbers in between). Her only fixed cost is $1,000 for a weeding machine. Her variable costs include fuel, her time, and hot coffee. At what price does Emma's short-run supply curve start? Table: Variable Costs for Garden Maintenance Quantity of Lots Variable Costs 0 $0 10 200 20 300 30 500 40 750 50 1,100 60 2,100 a. $200 b. $15 c. $50 d. $42

b. $15

52. Suppose the average total cost of producing 9 surgical masks is $6, while the average total cost of producing 10 surgical masks is $7. What is the marginal cost of producing the 10th surgical mask? a. $7.00 b. $16.00 c. $0.20 d. $5.00

b. $16.00

62. (Figure: Prices, Cost Curves, and Profits for Brianna's Best Brie) Use Figure: Prices, Cost Curves, and Profits for Brianna's Best Brie. Brianna owns Brianna's Best Brie, a perfectly competitive firm that produces artisanal cheeses. If the price of brie is P2, and the firm is profit-maximizing, then the firm's profit is: a. (fg) × Q3. b. (de) × Q2. c. (fg) × Q2. d. (de) × P2.

b. (de) × Q2.

30. Ahmed spends all of his income on chimichangas and prickly pear margaritas. His income is $100, the price of chimichangas is $10, and the price of prickly pear margaritas is $2. Put chimichangas on the horizontal axis and prickly pear margaritas on the vertical axis. The horizontal intercept for Ahmed's budget line is _____ chimichangas. a. 50 b. 10 c. 5 d. 100

b. 10

42. Amelia's farm can produce 1,000 bushels of eggplant per year with two workers and 1,300 bushels of eggplant per year with three workers. The marginal product of the third worker is _____ bushels. a. 100 b. 300 c. 1,300 d. 2,300

b. 300

38. A _____ is an organization that produces goods or services for sale. a. production function b. firm c. variable input d. fixed input

b. firm

41. An input whose quantity CANNOT be changed in the short run is: a. marginal. b. fixed. c. incremental. d. variable.

b. fixed.

17. Milk is an inexpensive good that most would consider a necessity. You would therefore expect its demand to be: a. elastic. b. inelastic. c. unit-elastic. d. driven by the supply price.

b. inelastic.

16. In general, the long-run price elasticity of demand for a good tends to be _____ the short-run price elasticity of demand for it. a. less than b. larger than c. equal to d. not comparable to

b. larger than

Suppose you own a small café that sells sandwiches, salads, and fancy coffees. Which factor is an implicit cost of the business? a. the salaries paid to part-time employees b. the job offer you did not accept at a hotel restaurant c. bread, meat, vegetables, and supplies used to produce the items on your menu d. your monthly electricity bill

b. the job offer you did not accept at a hotel restaurant

64. (Figure: Profit-Maximization for Fabulous Finn's Flower Firm in the Short Run) Use Figure: Profit-Maximization for Fabulous Finn's Flower Firm in the Short Run. If the market price is P4: a. firms will leave the industry, and the price will fall in the long run. b. there will be economic profits, and firms will enter the industry in the long run. c. the market supply curve will shift to the left, and price will fall in the long run. d. the firm will produce q4.

b. there will be economic profits, and firms will enter the industry in the long run.

69. During the summer, Rhonda runs a perfectly competitive dog grooming service. In the short run, Rhonda will shut down if her: a. total revenue does not cover her fixed costs. b. total revenue does not cover her variable costs. c. total revenue does not cover her total costs. d. price exceeds her average total cost.

b. total revenue does not cover her variable costs.

Gino's Pizza has a special offer: one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. The marginal cost of the third slice is: a. $4.50. b. $10. c. $1. d. $2.

c. $1.

Gennaro is a blogger living in Italy who could work for la Repubblica (a newspaper in Rome) as a food critic for $50,000 a year but instead runs the blogging business online through advertising, making revenues of $80,000 a year. His only business expenses are $2,000 for supplies and $18,000 in rent for his office space. What is Gennaro's economic profit from working as a freelance writer? a. $20,000 b. $68,000 c. $10,000 d. $30,000

c. $10,000

Waterworks Irrigation was a startup that was open for only one year of operation. During that year, it collected $175,000 in revenue and spent $50,000 on trucks, irrigation supplies, employees, and utilities. The owner of the firm, Cosmo, spent $100,000 of his own money to buy an office building and set up the office (instead of buying bonds and earning a 10% annual rate of return), which he later sold at the end of the year for $100,000. The firm's economic profit is: a. $35,000. b. $125,000. c. $115,000. d. $25,000.

c. $115,000.

22. The Bellagio Hotel in Las Vegas has a fixed capacity of 3,950 rooms in the short run. Which statement BEST describes the short-run elasticity of supply for rooms at this hotel? a. The supply is elastic at quantities above 3,950 rooms but inelastic at quantities below 100 rooms. b. The elasticity of supply is equal to 1 in the short run but infinitely large in the long run. c. The elasticity of supply is zero in the short run because the short-run supply curve is vertical. d. The supply is infinitely elastic in the short run but perfectly inelastic in the long run.

c. The elasticity of supply is zero in the short run because the short-run supply curve is vertical.

66. A perfectly competitive industry is said to be efficient because the: a. marginal cost is zero at the efficient output. b. long-run industry supply curve slopes downward. c. average total cost of production of the industry's output is minimized in the long run. d. market price of the good is equal to economic profit for all firms in the industry.

c. average total cost of production of the industry's output is minimized in the long run.

Lionel Hall is a freshman dormitory at Harvard University. From an economic perspective, we would consider Lionel Hall part of the university's: a. land. b. labor. c. capital. d. explicit costs

c. capital.

20. If the income elasticity of electric cars is positive: a. there are many substitutes for electric cars. b. there are few substitutes for electric cars. c. electric cars are a normal good. d. electric cars are an inferior good.

c. electric cars are a normal good.

Lou's Shirts Direct, a shirt manufacturer, sold 10 dozen shirts per day at $4 per shirt but sold 15 dozen shirts per day at $3 per shirt. The price elasticity of demand, obtained using the midpoint method, is: a. greater than zero but less than 1. b. equal to 1. c. greater than 1 but less than 3. d. greater than 3

c. greater than 1 but less than 3.

31. A consumer's spending is restricted because of: a. marginal utility. b. total utility. c. his or her budget constraint. d. utility maximization.

c. his or her budget constraint.

Costs that do not require a monetary outlay but instead reflect the dollar value of benefits forgone are: a. outlay costs. b. accounting profits. c. implicit costs. d. economic profits.

c. implicit costs.

48. (Figure: The Cost Curves for Charlie's Cookie Confections) Use Figure: The Cost Curves for Charlie's Cookie Confections. The curve labeled V represents the firm's _____ cost curve. a. total b. average total c. marginal d. average variable

c. marginal

Jacques Torres Chocolate in New York City is the only producer of golden Easter bunnies in the world. Jacques recently expanded his production capacity from 1,000 to 2,000 bunnies per Easter season. If the price elasticity of demand for golden Easter bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)? a. 2.5% b. 25% c. 125% d. 20%

d. 20%

57. The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where _____ equals _____. a. marginal cost; marginal price b. marginal revenue; price c. total revenue; total cost d. average revenue; marginal cost

d. average revenue; marginal cost

50. (Figure: The Cost Curves for Charlie's Cookie Confections) Use Figure: The Cost Curves for Charlie's Cookie Confections. The curve labeled X represents the firm's _____ cost curve. a. marginal b. average total c. average fixed d. average variable

d. average variable

56. The marginal revenue received by a firm in a perfectly competitive market: a. is unrelated to the market price. b. is less than the market price. c. is greater than the market price. d. is the change in total revenue divided by the change in output.

d. is the change in total revenue divided by the change in output.

When price rises, quantity demanded falls. The price elasticity of demand measures: a. the percentage fall in price. b. how much the equilibrium price rises. c. the responsiveness of an income change to a price change. d. the responsiveness of a quantity change to a price change.

d. the responsiveness of a quantity change to a price change.

15. (Figure: Demand for High End Cell Phones) Use Figure: The Demand for High End Cell Phones. Total revenue at point V equals the: a. area 0TVN. b. area 0PSVN. c. distance 0T. d. distance NV.

a. area 0TVN.

23. Money that is paid for the use of factors of production such as labor and capital is an: a. explicit cost. b. accounting profit. c. implicit cost. d. economic profit.

a. explicit cost.

67. (Table: Variable Costs for Garden Maintenance) Use Table: Variable Costs for Garden Maintenance. During the summer, Emma runs a gardening service in a perfectly competitive industry. Assume that costs are constant in each interval; so, for example, the marginal cost of clearing weeds from each of the gardens 1 through 10 is $20. Also assume that she can only tend to the number of gardens given in the table (and not numbers in between). Her only fixed cost is $1,000 for a weeding machine. Her variable costs include fuel, her time, and hot coffee. If the price to clear a garden is $30, how many lots should Emma clear? Table: Variable Costs for Garden Maintenance Quantity of Lots Variable Costs 0 $0 10 200 20 300 30 500 40 750 50 1,100 60 2,100 a. 50 b. 40 c. 30 d. 0

b. 40

61. The LOWEST point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the ____ curve. a. ATC b. AVC c. AFC d. MC

b. AVC

35. Which statement is TRUE? a. A budget constraint limits what a poor consumer can spend, but there is no similar constraint on rich people. b. Utility maximization requires seeking the most utility from a given budget. c. In consumer choice theory, we assume all goods and services are inferior. d. The slope of the budget constraint depends on how much of each good is consumed.

b. Utility maximization requires seeking the most utility from a given budget.

49. (Figure: The Cost Curves for Charlie's Cookie Confections) Use Figure: The Cost Curves for Charlie's Cookie Confections. The curve labeled W represents the firm's _____ cost curve. a. average fixed b. average total c. average variable d. total variable

b. average total

51. A firm's long-run average cost curve will be upward-sloping over the range of output at which the firm has: a. economies of scale. b. diseconomies of scale. c. constant returns to scale. d. diminishing returns.

b. diseconomies of scale.

45. When a firm has diminishing marginal returns, its: a. output is falling. b. marginal product is falling but is likely still positive. c. total product is falling because the marginal product is falling and positive. d. marginal product is negative.

b. marginal product is falling but is likely still positive.

65. Kevin sells books in a perfectly competitive market. If Kevin is making positive economic profits in the short run, then in the long run: a. the short-run industry supply curve will shift leftward. b. new firms will enter the industry. c. industry output will rise, and the price will rise. d. firms will leave the industry.

b. new firms will enter the industry.

Suppose the price of heating oil increases by 10%, and the quantity of heating oil demanded in Montauk drops by 5% per day. The demand for heating oil in Montauk is: a. price elastic. b. price inelastic. c. price unit-elastic. d. perfectly price inelastic.

b. price inelastic.

18. Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.13. This means that apple sauce and avocados are _____, while soda and oranges are _____. a. complements; substitutes b. substitutes; complements c. inelastic goods; elastic goods d. elastic goods; complements

b. substitutes; complements

53. If a Florida orange stand operates in a perfectly competitive market, that stand's owner will be a price: a. maker. b. taker. c. discriminator. d. maximizer.

b. taker.

47. Bernard's total fixed cost is $3,600 a month in making 100,000 brownies at his cupcake bakery. Bernard employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Bernard's total cost per month in making 100,000 brownies? a. $3,600 b. $1,200 c. $15,600 d. $12,000

c. $15,600

(Table: Marginal Benefit of Sweaters) Use Table: Marginal Benefit of Sweaters. The marginal benefit of producing the second sweater is: Table: Marginal Benefit of Sweaters Quantity of sweaters Total benefit 0 $0 1 16 2 31 3 45 4 58 5 70 a. $31. b. $16. c. $15. d. $14.

c. $15.

44. Which cost concept is CORRECTLY defined? a. MC = ∆TC/∆FC b. ATC = VC + FC c. ATC = AVC + AFC d. TC = AVC + AFC

c. ATC = AVC + AFC

If the price of mangoes increases by 15% and the quantity demanded of mangoes decreases by 20%, then the price elasticity of demand is equal to: a. 0.75. b. approximately 0.33. c. approximately 1.33. d. 1.

c. approximately 1.33.

26. Economists refer to the satisfaction a person derives from the consumption of goods and services as: a. happiness. b. usefulness. c. utility. d. pleasure.

c. utility.

46. (Figure: The Average Total Cost Curve for Shoes) Use Figure: The Average Total Cost Curve for Shoes. The total cost of producing 10 pairs of shoes is approximately: a. $13. b. $54. c. $131. d. $1,308

d. $1,308

55. If a perfectly competitive firm increases production from 100 units to 110 units, and the market price is $20 per unit, the firm's total revenue will be: a. $100. b. $200. c. $2,000. d. $2,200.

d. $2,200.

24. Until recently, Davina worked as an insurance claims adjuster, earning $30,000 annually. Then she inherited a piece of commercial real estate that had rented for $12,000 annually. Davina decided to leave her job and operate an Italian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is: a. $230,000. b. $30,000. c. $0. d. -$12,000.

d. -$12,000.

Eve has a monthly income of $20 that can be spent on brie (B) and plums (P). The price of a wheel of brie is $5, and the price of a plum is $0.50. Which bundle of brie and plums is affordable for Eve but does not use all her income? a. 1 wheel of brie and 30 plums b. no brie and 40 plums c. 2 wheels of brie and 20 plums d. 1 wheel of brie and 22 plums

d. 1 wheel of brie and 22 plums

58. (Figure: Total Revenue and Total Cost in the Steel Market) Use Figure: Total Revenue and Total Cost in the Steel Market. The MOST profitable level of output occurs at quantity: a. F. b. K. c. L. d. M.

d. M.

39. The _____ is the increase in output that is produced when a firm hires an additional worker. a. average product b. total product c. marginal product d. marginal cost

c. marginal product

36. Anita believes that spending one hour studying statistics will increase her statistics exam score by 20 points. Studying for a second hour will increase her score by 10 points. She also believes that studying political science for an hour will increase her political science exam score by 15 points, but spending a second hour will increase her score by only 5 points. Anita has two hours to study. If Anita wants to maximize the sum total of her scores, what should she do? a. Study statistics for 1 hour, and study political science for 1 hour. b. Study statistics for 2 hours, and study political science for 0 hours. c. Study statistics for 0 hours, and study political science for 2 hours. d. Study statistics for 1 hour, and study political science for 0 hours.

a. Study statistics for 1 hour, and study political science for 1 hour.

If the price elasticity of demand for air travel is 2: a. a 20% decrease in the price of air travel will increase quantity demanded by 40%. b. the demand for air travel is inelastic. c. a 10% increase in the price of air travel will increase quantity demanded by 30%. d. a 20% increase in the price of air travel will increase quantity demanded by 80%.

a. a 20% decrease in the price of air travel will increase quantity demanded by 40%.

60. Alana, the owner of Alana's Confectionary, determines that at her optimal level of production in the short run, P< ATCand P> AVC.In the short run, Alana should: a. continue to operate, even though she is taking an economic loss. b. continue to operate, as she is making an economic profit. c. shut down immediately, as she is taking an economic loss. d. raise the price until she has maximized her profits.

a. continue to operate, even though she is taking an economic loss.

Dresden always tries to maximize his utility in consuming candy corn and tacos. Both goods are subject to diminishing marginal utility. Suppose the prices of these goods, along with Dresden's budget (and spending) for these items, stay the same, but Dresden decides to decrease his consumption of candy corn. Holding everything else constant, this means that Dresden must _____ his consumption of tacos, and his marginal utility per dollar spent on candy corn will be _____ than it used to be. a. increase; greater b. decrease; greater c. increase; less d. decrease; less

a. increase; greater

40. (Figure: Marginal Product of Labor for Quinoa Production) Use Figure: Marginal Product of Labor for Quinoa Production. The total product, given six workers, is _____ bushels. a. 84 b. 35 c. 96 d. 75 41. An input whose quantity CANNOT be changed in the short run is: a. marginal. b. fixed. c. incremental. d. variable. 42. Amelia's farm can produce 1,000 bushels of eggplant per year with two workers and 1,300 bushels of eggplant per year with three workers. The marginal product of the third worker is _____ bushels. a. 100 b. 300 c. 1,300 d. 2,300

a. marginal.

28. Alexandra notices that the marginal utility of working with a tutor seems to fall with each hour the tutor helps her study. If Alexandra keeps the tutor until her grade actually begins to fall, her marginal utility for the last hour of tutoring will be: a. negative. b. positive, but rising more slowly. c. 0. d. immeasurable.

a. negative.

59. In the short run, if P = ATC, a perfectly competitive firm: a. produces the optimal quantity of output and earns zero economic profit. b. produces the optimal quantity of output and earns an economic profit. c. produces the optimal quantity of output and incurs an economic loss. d. does not produce output and incurs an economic loss.

a. produces the optimal quantity of output and earns zero economic profit.

The marginal utility of matcha tea consumption for Alannah is the change in _____ generated by consuming an additional cup of matcha tea. a. total utility b. total consumption c. total demand d. price

a. total utility