Exam 2 (Part 1)

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. What must be true for this conusmer? A. The marginal utility of CD's per dollar spent is equal to the marginal utility of DVD's per dollar spent B. The marginal utility of CD's is less than the marginal utility of DVD's C. The marginal utility of CD's is greater than the marginal utility of DVD's D. The marginal utility of CD's is equal to the marginal utility of DVD's

A

As Al's Radiator Company adds workers while keeping the same amount of machinery (i.e. fixed capital), some workers may be underutilized because they have little work to do while waiting in line to use the machinery (i.e. less output from each worker due to this fixed amount of machinery). When this occurs, Al's Radiator Company encounters A. diminishing marginal returns. B. diseconomies of scale. C. increasing marginal returns. D. economies of scale.

A

Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When selling the 100th widget, the firm will always receive A. less marginal revenue on the 100th widget than it received on the 99th widget. B. a lower average cost per unit at 100 units output than at 99 units of output. C. less total revenue on the 100 widgets than it received on the first 99 widgets. D. more average revenue on the 100th widget than it received on the 99th widget.

A

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Which of the following statements is correct regarding Katherine's profits from selling flowers? A. Katherine's accounting profits are $100, and her economic profits are $75. B. Katherine's accounting profits are $100, and her economic profits are $25. C. Katherine's accounting profits are $25, and her economic profits are $100. D. Katherine's accounting profits are $75, and her economic profits are $125.

B

Why does a firm in a competitive industry charge the market price? A. the firm is a price taker B. All of the answers are correct. C. If a firm charges less than the market price, it loses potential revenue. D. If a firm charges more than the market price, it loses all its customers to other firms.

B

Consider two goods, books and hamburgers. The slope of the consumer's budget constraint is measured by the A. consumer's income divided by the price of hamburgers. B. number of books purchased divided by the number of hamburgers purchased. C. relative price of books and hamburgers. D. consumer's marginal rate of substitution.

C

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of A. paper cups. B. the wages paid to her hourly workers. C. All of the answers are correct. D. lemons and sugar.

C

Use Table 1: Alyson's pet sitting service experiences diminishing marginal productivity with the addition of the

C

A monopolistically competitive firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can infer that A. firms are likely to leave this market in the long run. B. the profits of the firm are negative. C. the firm is currently maximizing its profit. D. All of the answers are correct.

D

Diminishing marginal product suggests that A. the firm is at full capacity. B. adding additional workers will lower total cost. C. additional units of output become less costly as more output is produced. D. marginal cost is upward sloping.

D

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month for a monthly total revenue of $5,000. The marginal cost for each wedding cake is constant at $200. In order to maximize profits, Laura should A. make fewer than 20 wedding cakes per month. B. continue to make 20 wedding cakes per month. C. We do not have enough information with which to answer the question. D. make more than 20 wedding cakes per month.

D

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that A. there are diminishing returns to producing and selling retail goods. B. there are diseconomies of scale in retail sales. C. consumers do not react to changing prices. D. there are economies of scale in retail sales.

D