ECON 206 EXAM #2
Beth spent all her budget on area rugs and curtains. Each area rug costs $100. At Beth's optimal choice, her marginal utility from the last area rug purchased is 200 and her marginal utility from the last curtain purchased is 300. This means that each curtain must cost:
$150
Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $8. At the utility maximizing point, he gets 200 utils from the last burger he eats. He also gets 50 utils from the last french fries he eats. If Rick is maximizing based on the rational consumer choice, what is the price of french fries? utility is:
$2
I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was
$2.43
In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost:
$50
For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When she maximizes her utility based on the utility maximization theory, the last salad gives her 100 utils. Based on the information, how much utility does she get from her last burger?
50 utils
john has $25 to spend on hot chocolate and cheesecake. Price of a hot chocolate is $3 and price of a slice of cheesecake is $2. Which of the following combination can he not buy?
6 hot chocolate and 4 slices and cheesecake
Katie has $24 to spend on muffins and milk shake. Price of a muffin is $2 and price of a slice of a milk shake is $4. Which of the following combination can she not buy?
8 muffins and 3 milk shakes.
____________ tells a firm whether it can earn profits given the price in the market.
Average cost
_____________________ occur when the marginal gain in output diminishes as each additional unit of input is added
Diminishing marginal returns
Total utility decreases when marginal utility decreases.
False
The term _________________ refers to the additional utility provided by one additional unit of consumption.
Marginal Utility
A budget constraint shows you all possible combinations of goods that you can afford.
True
Total utility increases as long as marginal utility is positive.
True
While deciding which good to purchase we compare marginal utility per dollar for each good and purchase the one that has a higher marginal utility per dollar.
True
______________ include all of the costs of production that increase with the quantity produced.
Variable costs
In economics, a firm that faces no competitors is referred to as _________________.
a monopoly
Which of the following is usually not considered as variable cost?
costs of research and development
In order to determine ____________, the firm's total costs must be divided by the quantity of its output.
average cost
The effect of doubling your income can be the same as the effect of
decreasing all prices by half.
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.
decreasing returns to scale
The more apples you eat the less satisfaction you get from each apple. This illustrates the idea of
diminishing marginal utility
The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.
diminishing marginal utility
Substitution and income effects of a change in price of a good may be used to explain the:
direct relationship between income and demand.
When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.
economies of scale; a larger factory can produce at a lower average cost than a smaller company.
In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity.
either total cost or variable cost
The term "constant returns to scale" describes a situation where
expanding all inputs does not change the average cost of production.
A firm's ___________ consist of expenditures that are usually made before production starts and over the short run, _______________ regardless of the level of production.
fixed costs; do not change,
When the price of a good increases, the purchasing power of money decreases. This is best explained by
income effect
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.
income effect; higher price
The term _____________ is used to describe the additional cost of producing one more unit.
marginal cost
The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,
marginal utility falls.
The step-by-step process of finding the choice with highest total utility involves a comparison of the:
marginal utility gained and lost from different choices along the budget constraint
The step-by-step process of finding the choice with highest total utility involves a comparison of the:
marginal utility gained and lost from different choices along the budget constraint.
Fixed costs are important because, at least in the ___________, the firm _______________.
short run; cannot alter them
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.
total revenue
If we sum up the marginal utility of each of the units purchased, we get
total utility
The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,
total utility rises, but marginal utility falls.
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
physical space for the gallery
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?
the marginal utility per dollar is the same for both goods
In order to determine the average variable cost, the firm's variable costs are divided by _______________________.
the quantity of output
____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total Revenue
The term _____________ describes a situation where a ________________of a good causes an increase demand for substitute goods.
substitution effect; higher price
Economists are able to determine total utility by:
summing up the marginal utilities of each unit consumed.
Which of the following may not be correct based on the statements below? John gets 240 utils of satisfaction when using a laptop, and gets 80 utils of satisfaction when he uses a tablet.
John equally likes having a laptop or having three tablets.
Which of the following may not be correct based on the statements below? John gets 20 utils of satisfaction when watching a horror movie, and gets 10 utils of satisfaction when watching an action movie. He gets 5 utils of satisfaction when he eats the first banana.
John equally likes watching a horror movie and eating 4 bananas.
Individuals make consumption decisions by comparing
Marginal utility per dollar received from each good