Study Set Practice questions #1 econ

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be:

inelastic.

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic.

Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________.

inelastic; elastic.

A fixed factor of production:

is fixed only in the short run.

A profit-maximizing firm will only produce a positive amount of output if:

its total revenue is greater than or equal to its variable cost.

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

keeps the price of her lemonade the same and increases the output.

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively:

larger and larger quantities of the variable factors of production.

The Cost-Benefit Principle tells us that a firm should continue to expand production as long as:

price of the good is greater than its marginal cost.

When more firms enter an industry:

the industry supply curve will shift right.

Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?

The size of the seating area.

If demand is elastic, then total revenue will decrease when price increases, and total revenue will increase when price decreases.

......

Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.

0.8, inelastic

Refer to the figure below. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ______ and for D2 the price elasticity of demand is _____.

1;4

Which of the following is a defining characteristic of all perfectly competitive markets? Each firm in the market faces a perfectly inelastic demand curve. The market demand curve is perfectly elastic. All firms sell the same standardized product. Consumers display strong brand loyalty.

All firms sell the same standardized product.

Which of the following will cause a decrease the supply of jeans? An increase in the wages paid to workers who make jeans. A decrease in the demand for jeans. A decrease in the price of jeans. A decrease in the expected future price of jeans.

An increase in the wages paid to workers who make jeans.

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost.

If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:

decrease by 3%.

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:

elastic

To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:

experiencing diminishing returns.

If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the:

extra benefit of the last unit produced is greater than the extra cost.

Refer to the figure below. If P = $6, then the price elasticity of supply is:

greater than 1

The most important challenge facing a firm in a perfectly competitive market is deciding:

how much to produce.

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

if the firm increases its price above the market price, it will earn zero revenue.

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared to the supply at a pizza restaurant that does not serve calzones.

more price elastic

A profit-maximizing perfectly competitive firm must decide:

only how much to produce, taking price as fixed.

A decrease in the price a firm receives for its output will lead the firm to:

reduce output.

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:

the demand for her large pizzas is elastic with respect to price.

One reason that variable factors of production tend to show diminishing returns in the short run is that:

there is only so much that can be produced using additional variable inputs when some factors of production are fixed.

If the price elasticity of demand for a good equals one, then the demand for that good is:

unit elastic.

Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If Sarah's fixed costs double, then in the short run, her profit-maximizing level of output:

will not change.