Chapter 07 - Utility Maximization_Quiz_sc

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

$230,000

The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

$6 and $4

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18. Refer to the above data. What quantities of X and Y should be purchased to maximize utility? A. 2 of X and 1 of Y B. 4 of X and 5 of Y C. 2 of X and 5 of Y D. 2 of X and 6 of Y

2 of X and 5 of Y

14. Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000: A. its implicit costs, including a normal profit, would exceed its explicit costs. B. it would earn a normal profit but not an economic profit. C. it would suffer an economic loss. D. its accounting profit would fall to zero.

B. it would earn a normal profit but not an economic profit.

15. Refer to the above data. The marginal product of the sixth worker is: A. 180 units of output. B. 30 units of output. C. 15 units of output. D. negative.

C. 15 units of output.

Creamy Crisp's economic profit is: A. $150,000. B. $80,000. C. $230,000. D. $94,000.

D. $94,000.

Which is a dimension or assumption of the marginal-utility theory of consumer behavior?

Goods and services carry a price tag.

If a rational consumer is in equilibrium, which of the following conditions will hold true?

The marginal utility of the last dollar spent on each good purchased will be the same.

A purely competitive seller is:

a "price taker."

An explicit cost is:

a money payment made for resources not owned by the firm itself

Fixed cost is:

any cost which does not change when the firm changes its output.

A purely competitive firm:

cannot earn economic profit in the long run.

3. Marginal utility is the

change in total utility obtained by consuming one more unit of a good.

Suppose you find that the price of your product is less than minimum AVC. You should:

close down because, by producing, your losses will exceed your total fixed costs.

The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____.

downsloping, perfectly elastic

The primary force encouraging the entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry

Refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect:

firms to leave the industry, market supply to fall, and product price to rise

The MR = MC rule applies:

in both the short run and the long run.

To economists, the main difference between the short run and the long run is that:

in the long run all resources are variable, while in the short run at least one resource is fixed

If a firm decides to produce no output in the short run, its costs will be:

its fixed costs.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

marginal revenue and marginal cost.

A consumer's demand curve for a product is down sloping because:

marginal utility diminishes as more of a product is consumed.

A consumer's demand curve for a product is downsloping because:

marginal utility diminishes as more of a product is consumed.

To maximize utility a consumer should allocate money income so that the:

marginal utility obtained from the last dollar spent on each product is the same

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the.

marginal utility per dollar spent is the same for all goods.

When a firm is maximizing profit it will necessarily be:

maximizing the difference between total revenue and total cost.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:

new firms will enter this market

1. Marginal utility can be:

positive, negative, or zero.

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:

price and minimum average variable cost.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

produce because the resulting loss is less than its TFC

Long-run competitive equilibrium:

results in zero economic profits

A product has utility if it:

satisfies consumer wants.

The price ratio of the two products is the

slope of the budget line

The total utility of a product is calculated by:

summing the marginal utilities for each successive unit of the

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that:

the LCD television industry is a decreasing-cost industry

9. Suppose that Steve heads to the local hamburger shop with $3, expecting to spend $2 for his favorite burger and $1 for French fries. When he gets there he discovers that his favorite burger is on sale for $1, so he buys two burgers and one order of French fries. Steve's consumption behavior is best explained by?

the income effect.

A downward sloping demand curve can be derived for a normal product by decreasing its price in the consumer-behavior model and noting.

the increase in the utility-maximizing quantity of that product demanded.

Creative destruction is:

the process by which new firms and new products replace existing dominant firms and products

Where total utility is at a maximum, marginal utility is:

zero