MIcroecon AKG

Refer to figure 21-8. You have $300 to spend on good X good Y. If good X cost $30 and good Y costs 50, your budget constraint is a. AB b. BC c. CD d. DE

b. BC

By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production. T/F

False

The income effect of a price change is unaffected by whether the good is a normal or inferior good. T/F

False

Variable costs equal fixed costs when nothing is produced. T/F

False

When a firm experiences economies of scale. long-run average total cost falls as the quantity of output increases. T/F

False

Changes in one variable on a graph might be caused by the other variable or by a third omitted variable. T/F

True

The opportunity cost of working out for one hour is the value of the next-best activity that you could have done in that hour. T/F

True

all scientific models, including economic models, simplify reality in order to improve our understanding of it. T/F

True

Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. The firm experiences economies of scale at which output levels? a. Output levels less than K b. Output levels between K and L c. Output levels greater than L d. Output level greater than K

a. Output levels less than K

21. Refer to Figure 21-9. If the price of good X is $15, what is the price of good Y? a. $1.500 b. $50 c. $5 d. $0.50

b. $50

Scenario 21-1. Suppose the price of hot wings $10, the price of water is $1, and the consumer's income is $80. In addition, suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and water on the vertical axis. If the price of hot wings doubles to $20 then the a. budget constraint intersects the horizontal axis at 4 orders of hot wings. b. slope of the budget constraint rises to -9. c. slope of the budget constraint falls to -21. d. budget constraint shifts outwards in a parallel fashion.

a. budget constraint intersects the horizontal axis at 4 orders of hot wings.

A consumer chooses an optimal consumption point where the a. marginal rate of substitution equals the relative price ratio. b. slope of the indifference curve exceeds the slope of the budget constraint. c. ratios of all the marginal utilities are equal. d. All of the above are correct.

a. marginal rate of substitution equals the relative price ratio.

Economists view normative statements as a. perspective, making a claim about how the world ought to be. b. descriptive, making a claim about how the world is. c. statements about the normal condition of the world. d. pessimistic, putting the worst possible interpretation on things.

a. perspective, making a claim about how the world ought to be.

Refer to Figure 14-1. If the market price rises above $6.5, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

a. positive economic profits in the short run.

Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if a. the income effect is larger than the substitution effect. b. the substitution effect is larger than the income effect. c. neither the income effect nor the substitution effect apply to Harry's labor-leisure tradeoff. d. Jake views both labor and leisure as inferior goods.

a. the income effect is larger than the substitution effect.

Refer to figure 2-6. A movement from point H to point K could be caused by a. unemployment. b. a decrease in society's preference for pillows. c. fewer resources available for production of pillows. d. All of the above

a. unemployment.

19. Refer to Figure 21-20. Assume that the consumer has an income of $80. If the price of chocolate chips is $4 and the price of marshmallows is $4, the optimizing consumer would choose to purchase a. 9 marshmallows and 6 chocolate chips. b. 10 marshmallows and 10 chocolate chips. c. 5 marshmallows and 5 chocolate chips. d. 3 marshmallows and 9 chocolate chips.

b. 10 marshmallows and 10 chocolate chips.

Arianna withdrew $400,000 of her personal savings account and used it to start her new internet café. The saving account pays 3% interest per year. During the first year of her business, Arianna sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours of internet time, also at $2.50 per hour. During the first year, the business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Arianna's time. 14. Arianna's economic profit for the year was a. $-394,000 b. $-6,000 c. $3,000 d. $6,000

b. $-6,000

18. A decrease in income will cause a consumer's budget constraint to a. shift outward, parallel to its initial position. b. shift inward, parallel to its initial position. c. pivot along the horizontal axis. d. pivot along the vertical axis.

b. shift inward, parallel to its initial position.

The most likely explanation for economies of scale is a. coordination problems. b. specialization of labor. c. increasing marginal cost. d. decreasing marginal cost.

b. specialization of labor.

Refer to Table 13-7. What is the value of F? a. $50 b. $100 c. $150 d. $200

c. $150

Suppose a firm operating in a competitive market has the following cost curves Refer to Figure 14-2. If the market price is $10, what is the firm's total cost? a. $15 b. $30 c. $35 d. $50

c. $35

Scenario 14-2 Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. At Q=1,000, the firm's profits equal a. -$5,000 b. $2,500 c. $5,000 d. $10,000

c. $5,000

22. Jerry consumes two goods, hamburgers and ice cream sandwiches. He has maximized his utility given his income. Ice cream sandwiches costs $2, and he consumes them to the point where the marginal utility he receives is 6. Hamburgers cost $4, and the relationship between the marginal utility that Jerry gets from eating hamburgers and the number he eats per month is as follows: How many hamburgers does Jerry buy each month? a. 1 b. 2 c. 3 d. 4

c. 3

Suppose that a firm in a competitive market has the following cost curves: The firm's short-run supply curve is its marginal cost curve above a. S1. b. $3. c. 54.50. d. $6.30.

c. 54.50.

Jennifer is a junior in college. Her current cumulative grade point average (GPA) is 3.5 out of a 4.0 scale. Jennifer is hoping that by the time she graduates, she can raise her cumulative GPA to a 3.7. Which of the following statements is correct? a. If Jennifer earns between a 3.5 and a 3.7 GPA in her senior year, she will be able to raise her cumulative GPA to a 3.7. b. If Jennifer earns a 3.7 GPA in her senior year, she will be able to raise her cumulative GPA to a 3.7. c. Jennifer must earn above a 3.7 GPA in her senior year in order to raise her cumulative GPA to a 3.7. d. Either b or c could be correct.

c. Jennifer must earn above a 3.7 GPA in her senior year in order to raise her cumulative GPA to a 3.7.

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the a. production of the 100th unit of output increases the firm's profit by $3. b. production of the 100th unit of output increases the firm's average total cost by $7. c. firm's profit-maximizing level of output is less than 100 units. d. production of the 101st unit of output must increase the firm's profit by more than $3.

c. firm's profit-maximizing level of output is less than 100 units.

If marginal cost is rising a. marginal cost is above average variable cost. b. average fixed cost must be rising. c. marginal product must be failing. d. marginal product must be rising.

c. marginal product must be failing.

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves Refer to Figure 14-1. If the market price is $2.5, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

c. negative economic profits and shut down.

What is the most important factor that explains differences in living standards across countries? a. the quantity of money b. the level of unemployment c. productivity d. equality

c. productivity

23. If the interest rate rises, an individual could choose to a. increase consumption when young. b. increase consumption when old. c. decrease consumption when young. d. Any of the above could be correct.

d. Any of the above could be correct.

32. A Giffen good is a good for which a. an increase in the price raises the quantity demanded. b. the income effect outweighs the substitution effect. c. an increase in the price decreases the quantity demanded. d. Both a) and b) are correct.

d. Both a) and b) are correct.

Which of the following statements regarding these bundles is correct? a. The goods are perfect substitutes for this consumer. b. The goods are perfect complements for this consumer. c. Theses bundles illustrate the property that indifference curves are bowed inward. d. These bundles violate the property that indifference curves do not cross.

d. These bundles violate the property that indifference curves do not cross.

Scenario 14.4 The information below applies to a competitive firm that sells its output for $40 per unit. •When the firm produces and sells 150 units of output, its average total cost is $24.50. •When the firm produces and sells 151 units of output, its average total cost is $24.55. When the firm increases its output from 150 units to 151 units, its profit a. decreases by $5.75. b. decreases by $7.20. c. increases by $4.15. d. increases by $7.95.

d. increases by $7.95.