ECO 202 Final Barati
Total utility is maximized in the consumption of two goods by a) reflects the desire by consumers to increase their income. b) refers to the limited amount of income available to consumers to spend on goods and services. c) represents the bundles of consumption that make a consumer equally happy. d) shows the prices that a consumer chooses to pay for products he consumes.
b) refers to the limited amount of income available to consumers to spend on goods and services.
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would a)be cut in half. b) remain constant. c) decrease by 50%. d) also double.
b) remain constant
If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are a) necessities. b) substitutes. c) complements. d) price-inelastic goods.
b) substitutes
Refer to Figure 13-4. What is the area that represents the loss made by the firm? a) the area P0acP2 b) the area P2cdP3 c) the area P0adP3 d) the area P1bcP2
b) the area P2cdP3
Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore a) salt is a normal good. b) the demand for salt is relatively inelastic. c) the demand for salt will be perfectly inelastic. d) the price elasticity of demand for salt is greater than 1 (in absolute value).
b) the demand for salt is relatively inelastic
Which of the following would result in a higher absolute value of the price elasticity of demand for a product? a) The good is a necessity. b) The expenditure on the good is small relative to one's budget. c) A wide variety of substitutes are available for the good. d) The time period under consideration is short.
c) a wide variety of substitutes are available for the good
We can derive the market demand curve for gold earrings a) only if the tastes of all gold earring consumers are similar. b) by adding the prices each gold earring consumer is willing to pay for each quantity. c) by adding horizontally the individual demand curves of each gold earring consumer. d) by adding vertically the quantity demanded of each gold earring consumed at each price.
c) by adding horizontally the individual demand curves of each gold earring consumer.
Both monopolistically competitive firms and perfectly competitive firms maximize profits a) by producing where marginal revenue equals average revenue. b) by producing where price equals average total cost. c) by producing where marginal revenue equals marginal cost. d) by producing where price equals average variable cost.
c) by producing where marginal revenue equals marginal cost.
Income elasticity measures how a good's quantity demanded responds to a) producers' incomes. b) change in the price of another good. c) change in buyers' incomes. d) change in the goods price.
c) changes in the buyers' income
If production displays increasing marginal returns, then a) the firm must be adding new capital to keep boosting productivity. b) total product rises by a constant amount throughout. c) each new worker hired adds more to output than previous hires. d) total product reaches a maximum sooner than if production displayed decreasing returns.
c) each new worker hired adds more to output than previous hires.
A firm has successfully adopted a positive technological change when a) it can pay its workers less yet increase its output. b) it produces less pollution in its production process. c) it can produce more output using the same inputs. d) it sees an increase in worker productivity.
c) it can produce more output using the same inputs.
For a perfectly competitive firm, at profit maximization a) total revenue is maximized. b) market price exceeds marginal cost. c) marginal revenue equals marginal cost. d) production must occur where average cost is minimized.
c) marginal revenue equals marginal cost.
Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss? a) $0 (it breaks even) b) loss of $1,000 c) profit of $440 d) loss of $440
c) profit of $440
Which of the following is an implicit cost of production? a) the utility bill paid to water, electricity, and natural gas companies b) interest paid on a loan to a bank c) rent that could have been earned on a building owned and used by the firm d) wages paid to labor plus the cost of carrying benefits for workers
c) rent that could have been earned on a building owned and used by the firm
The key characteristics of a monopolistically competitive market structure include a) high barriers to entry. b) sellers acting to maximize revenue. c) sellers selling similar but differentiated products. d) few sellers.
c) sellers selling similar but differentiated products.
If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm a) has covered its fixed cost. b) should produce in the short run. c) should shut down in the short run. d) is making short-run profits.
c) should shut down in the short run.
Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals a) the area A. b) the area (B + D - A). c) the area (A - D). d) the area (C - B).
c) the area (A - D).
A perfectly elastic supply curve is shown in
a horizontal line
Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy? a) 3 cups of soup and 4 sandwiches b) 1 cup of soup and 5 sandwiches c) 4 cups of soup and 3.5 sandwiches d) 6 cups of soup and 2 sandwiches
a) 3 cups of soup and 4 sandwiches
Table 10-7 shows Antonio's utility from beer and pizza. Refer to Table 10-7. Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice. How many of each good will he consume when he maximizes his utility? a) 3 glasses of beer, 2 slices of pizza b) 2 glasses of beer, 3 slices of pizza c) 4 glasses of beer, 5 slices of pizza d) 2 glasses of beer, 1 slice of pizza
a) 3 glasses of beer, 2 slices of pizza
If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is a) elastic b) perfectly elastic. c) inelastic. d) unit elastic.
a) elastic
Average fixed cost is equal to a) fixed cost divided by the quantity of output produced. b) fixed cost multiplied by the quantity of output produced. c) the amount of total cost that does not change as output changes in the short run. d) average total cost plus average variable cost.
a) fixed cost divided by the quantity of output produced.
If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at a) less than minimum efficient scale. b) minimum capacity. c) minimum efficient scale. d) more than minimum efficient scale.
a) less than minimum efficient scale.
The inelastic segment of the demand curve a) lies above the midpoint of the curve. b) is coincident with the horizontal axis. c) Correct lies below the midpoint of the curve. d) is coincident with the vertical axis.
a) lies above the midpoint of the curve
Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss? a) loss of $1,080 b) profit of $1,440 c) loss of $2,520 d) profit of $1,300
a) loss of $1,080
Long-run cost curves are U-shaped because a) of economies and diseconomies of scale. b) of the law of diminishing returns. c) of the law of supply. d) of the law of demand.
a) of economies and diseconomies of scale.
Which of the following is a fixed cost? a) payment to hire a security worker to guard the gate to the factory around the clock b) payments to an electric utility c) costs of raw materials d) wages to hire assembly line workers
a) payment to hire a security worker to guard the gate to the factory around the clock
If a firm shuts down in the short run it will a) suffer a loss equal to its fixed costs. b) break even. c) suffer a loss equal to its variable costs. d) declare bankruptcy.
a) suffer a loss equal to its fixed costs.
All of the following cost curves are U-shaped except one. Which curve is not U-shaped? a) the average fixed cost curve b) the marginal cost curve c) the average total cost curve d) the average variable cost curve
a) the average fixed cost curve
The long-run average cost curve shows a) the lowest average cost of producing every level of output in the long run. b) the average cost of producing where diminishing returns are not present. c) where the most profitable level of output occurs. d) the plant size or scale that the firm should build.
a) the lowest average cost of producing every level of output in the long run.
Refer to Figure 11-2. The curve labeled "E" is a) the marginal product curve. b) the average product curve. c) the output supply curve. d) the total product curve.
a) the marginal product curve.
Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay in business? a) No, it should shut down because it cannot cover its variable cost. b) Yes, because it is covering part of its fixed cost. c) No, it should shut down because it is making a loss. d) Yes, because it is making a profit.
b) Yes, because it is covering part of its fixed cost.
An explicit cost is defined as a) a nonmonetary accounting cost. b) a cost that involves spending money. c) a cost that does not change as output changes. d) a nonmonetary opportunity cost.
b) a cost that involves spending money.
If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm a) added an equal amount to both total revenue and total cost. b) added more to total revenue than it added to total cost. c) maximized its profits or minimized its losses. d) added more to total cost than it added to total revenue.
b) added more to total revenue than it added to total cost.
Minimum efficient scale is defined as the level of output at which a) diminishing returns affect average total cost. b) all economies of scale are exhausted. c) the maximum output is produced. d) the firm's long-run average total cost starts falling.
b) all economies of scale are exhausted.
A characteristic of the long run is a) there are both fixed and variable inputs b) all inputs can be varied. c) there are fixed inputs. d) plant capacity cannot be increased or decreased.
b) all inputs can be varied.
If a restaurant like Buffalo Wild Wings has higher costs than a comparable Hooters restaurant, the only way it can have higher profits is if a) it sells the quantity associated with its minimum average total cost. b) its marginal revenue is lower than the marginal revenue of Hooters. c) the demand for its food is higher than the demand for food at Hooters. d) it has more locations than Hooters.
c) the demand for its food is higher than the demand for food at Hooters.
Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this? a) Tomatoes are necessities. b) The cross-price elasticity between tomatoes and most other substitute vegetables is very low. c) The decrease in supply led to huge price increases. d) The demand for tomatoes is price inelastic.
d) the demand for tomatoes is price inelastic
Increases in the marginal product of labor result from a) hiring more efficient workers. b) increasing the usage of all inputs. c) the use of new technology. d) the division of labor and specialization.
d) the division of labor and specialization.
Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc a) the firm will not be operating efficiently. b) the firm would lower its average costs by reducing its scale of operation. c) the firm will not be able to earn a profit. d) the firm will be operating efficiently
d) the firm will be operating efficiently
A very large number of small sellers who sell identical products imply a) chaos in the market. b) a downward sloping demand curve for each seller's product. c) a multitude of vastly different selling prices. d) the inability of one seller to influence price.
d) the inability of one seller to influence price.
The minimum efficient scale is a) the level of output where diminishing returns have not set in yet. b) the plant size that yields the most profit. c) the smallest output level where the firm finally reaches productive efficiency. d) the level of operation where long-run average costs are lowest.
d) the level of operation where long-run average costs are lowest.
Total revenue is equal to a) the monetary value of the capital (for example, plant and equipment) a firm owns. b) the amount of funds earned by a firm minus its costs of production. c) the total quantity sold of a product over a given period of time. d) the price of a product multiplied by the number of units of the product sold.
d) the price of a product multiplied by the number of units of the product sold
How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry? a) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible. b) A firm in monopolistic competition will charge a price higher than the average cost of production but a firm in perfect competition charges a price equal to the average cost of production. c) A firm in monopolistic competition produces an allocatively efficient output level while a firm in perfect competition produces a productively efficient output level. d) A firm in monopolistic competition will earn economic profits but a firm in perfect competition earns zero profit.
a) A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.
Which of the following is a reason why a firm would experience diseconomies of scale? a) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants. b) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. c) As the size of the firm increases, it must operate in other countries where differences in language, customs, and laws increase its average costs. d) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock.
a) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.
Refer to Figure 13-18. Which of the following statements is true? a) Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor. b) Da represents the long-run supply curve in a perfectly competitive, constant-cost industry while Db depicts the long-run demand curve facing a monopolistic competitor in a decreasing-cost industry. c) Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the demand curve in the short run. d) Da represents the long-run demand curve facing a monopolistic competitor in a constant-cost industry while Db depicts the long-run demand curve in an increasing-cost industry.
a) Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor.
Which of the following statements explains the difference between diminishing returns and diseconomies of scale? a) Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run. b) Diminishing returns are the result of changes in explicit costs. Diseconomies of scale are the result of changes in explicit costs and implicit costs. c) Diminishing returns cause a firm's marginal cost curve to rise; diseconomies of scale cause a firm's marginal cost curve to fall. d) Diminishing returns refer to production while diseconomies of scale refer to costs.
a) Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run.
Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production? a) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. b) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37. c) In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. d) In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41.
a) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41.
Refer to Figure 12-14. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium? a) Panel A b) Panel B c) Panel C d) Panel D
a) Panel A
Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits? a) Panel A b) Panel B c) Panel C d) Panel A and Panel B
a) Panel A
Refer to Figure 12-17. The graphs depicts a short-run equilibrium. How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.) a) The firm's profit will be lower in the long run than in the short run. b) The price will be higher in the long run than in the short run. c) The market supply curve will be further to the left in the long run than in the short run. d) Fewer firms will be in the market in the long run than in the short run.
a) The firm's profit will be lower in the long run than in the short run.
Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity? a) a and b only b) c and d only c) e only d) a, b, and c only
a) a and b only
Refer to Figure 11-2. Diminishing returns to labor set in a) after L1. b) after L2. c) after L3. d) immediately.
a) after L1.
Refer to Figure 11-5. Curve G approaches curve F because a) average fixed cost falls as output rises. b) fixed cost falls as capacity rises. c) total cost falls as more and more is produced. d) marginal cost is above average variable costs.
a) average fixed cost falls as output rises.
Which of the following is a common mistake made by consumers? a) being overly optimistic about their future behavior b)being overly pessimistic about their future behavior c)taking into account the implicit costs of an activity d) ignoring sunk costs
a) being overly optimistic about their future behavior
If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because a) buyers of steel are more sensitive to a price change if they have more time to adjust to the price change. b) sales revenue in the building industry will fall sharply. c) profits will fall by a greater amount in the long run than in the short run. d) buyers of steel are less sensitive to a price change if they have more time to adjust to the price change.
a) buyers of steel are more sensitive to a price change if they have more time to adjust to the price change
Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is a) elastic. b) unit elastic. c) inelastic. d) perfectly inelastic.
a) elastic
Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore a) the marginal product of the 5th worker is negative. b) the total output of Gertrude Stork's Chocolate Shoppe is negative. c) the average product of the 5th worker is negative. d) the 5th worker should be hired only if he is willing to accept a wage lower than the wage paid to the other 4 workers.
a) the marginal product of the 5th worker is negative.
The production function shows a) the maximum output that can be produced from each possible quantity of inputs. b) the technology used to produce output. c) the total cost of producing a given quantity of output. d) the incremental output gained by improving the production process.
a) the maximum output that can be produced from each possible quantity of inputs.
Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price? a) The more elastic the supply curve, the smaller the price increase. b) There will be no increase in price if the supply curve is perfectly inelastic. c) The more elastic the supply curve, the greater the price increase. d) The increase in price is not affected by the elasticity of the supply curve.
a) the more elastic a supply curve, the smaller the price increase
Suppose a decrease in the supply of wheat results in an increase in revenue. This indicates that a) the resulting increase in price is proportionately greater than decrease in quantity sold. b) the demand curve for wheat must be vertical. c) the decrease in quantity sold is proportionately larger than the resulting change in price. d) the supply curve for wheat must be vertical.
a) the resulting increase in price is proportionately greater than decrease in quantity sold
In the long run, if price is less than average cost a) there is an incentive for firms to exit the market. b) there is profit incentive for firms to enter the market. c) there is no incentive for the number of firms in the market to change. d) the market must be in long-run equilibrium.
a) there is an incentive for firms to exit the market.
Average variable cost can be calculated using any of the formulas below except a) Δ(TC - FC)/ΔQ. b) (TC/Q) - AFC. c) TVC/Q. d) (TC - FC)/Q.
a) Δ(TC - FC)/ΔQ.
Refer to Figure 12-10. The total cost at the profit-maximizing output level equals a) $4,800. b) $3,300. c) $2,500. d) $1,800.
b) $3,300
Refer to Table 13-1. What is the marginal revenue of the 3rd unit? a) $6.50 b) $5.50 c) $1.83 d) $0.50
b) $5.50
Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of output? a) 5,000 picture frames b) 10,000 picture frames c) 20,000 picture frames d) 10,000 workers
b) 10,000 picture frames
Refer to Table 11-1. What is the average product of labor when the farm hires 5 workers? a) 4 pounds b) 10.8 bushels c) 38.2 pounds d) 54 pounds
b) 10.8 bushels
Refer to Table 11-1. Diminishing marginal returns sets in when the ________ worker is hired. a) 2nd b) 3rd c) 4th d) None of these; the production function displays increasing marginal returns.
b) 3rd
Refer to Figure 13-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production? a) At Qg, average cost exceeds marginal cost so the firm will actually make a loss. b) Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss. c) The firm's goal is to charge a high price and make a small profit rather than a low price and no profit. d) At Qg, marginal revenue is less than average revenue which will result in a loss for the firm.
b) Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
What is the trade-off that consumers face when buying the product of a monopolistically competitive firm? a) Consumers pay lower prices but have fewer choices. b) Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes. c) Consumers pay higher prices but the products are produced by highly efficient firms. d) Consumers pay higher prices but receive better quality goods compared to the output of perfectly competitive firms.
b) Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.
Refer to Figure 11-5. Identify the curves in the diagram. a) E = average fixed cost curve; F = variable cost curve; G = total cost curve, H = marginal cost curve b) E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve. c) E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost curve d) E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H = marginal cost curve
b) E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.
Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged? a) P = $55; Q = 5 cases b) P = $50; Q = 6 cases c) P = $45; Q = 7 cases d) P = $40; Q = 8 cases
b) P = $50; Q = 6 cases
Refer to Figure 13-13. What is the area that represents the firm's profit? a) profit = 0 b) P4edP2 c) P4eaP1 d) P3baP2
b) P4edP2
Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that a) an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good. b) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good. c) an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a luxury. d) a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.
b) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good
Sunk costs a) are costs that firms sink into marketing. b) are costs that have already been paid and cannot be recaptured in any significant way. c) are important for optimal decision making. d) are costs associated with repairing something you already own.
b) are costs that have already been paid and cannot be recaptured in any significant way.
If the marginal cost curve is below the average variable cost curve, then a) average variable cost is increasing. b) average variable cost is decreasing. c) marginal cost must be decreasing. d) average variable cost could either be increasing or decreasing.
b) average variable cost is decreasing.
Refer to Figure 12-9. Identify the short-run shut down point for the firm. a) a b) b c) c d) d
b) b
Marginal cost is equal to the a) change in average product divided by the change in output. b) change in total cost divided by the change in output. c) change in total product divided by the change in output. d) change in average total costs divided by the change in output.
b) change in total cost divided by the change in output.
Diminishing marginal product of labor occurs when adding another unit of labor a) increases output by an amount larger than the output added by the previous unit of labor. b) changes output by an amount smaller than the output added by the previous unit of labor. c) decreases output. d) decreases output by an amount smaller than the output added by the previous unit of labor.
b) changes output by an amount smaller than the output added by the previous unit of labor.
Refer to Figure 12-6. If Jason maximizes his profit he will produce the output rate indicated by point ________ and his average profit will equal ________. a) a; $3 b) d; $3 minus ATC at point d c) e; $3 minus ATC at point e d) b; $3 minus ATC at point b
b) d; $3 minus ATC at point d
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility a) is constant. b) declines. c) rises. d) fluctuates
b) declines
The demand curve for each seller's product in perfect competition is horizontal at the market price because a) all the demanders get together and set the price. b) each seller is too small to affect market price. c) the price is set by the government. d) all the sellers get together and set the price.
b) each seller is too small to affect market price.
Economic costs of production differ from accounting costs in that a) accounting costs include expenditures for hired resources while economic costs do not. b) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not. c) accounting costs are always larger than economic cost. d) economic costs include expenditures for hired resources while accounting costs do not
b) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.
If, when a firm doubles all its inputs, its average cost of production decreases, then production displays a) diminishing returns. b) economies of scale. c) diseconomies of scale. d) declining fixed costs.
b) economies of scale.
For a firm in a perfectly competitive market, price is a) less than both average revenue and marginal revenue. b) equal to both average revenue and marginal revenue. c) greater than marginal revenue but less than average revenue. d) equal to average revenue but greater than marginal revenue.
b) equal to both average revenue and marginal revenue.
The average total cost of production a) equals the explicit cost of production. b) equals total cost of production divided by the level of output. c) is the extra cost required to produce one more unit. d) equals total cost of production multiplied by the level of output.
b) equals total cost of production divided by the level of output.
An item has utility for a consumer if it a) is scarce. b) generates enjoyment or satisfaction. c) has a high price. d) is something everyone else wants.
b) generates enjoyment or satisfaction.
Suppose Alexander is successful in establishing a profitable market for his vegan bakery in what is a monopolistically competitive industry. In the long run, Alexander will most likely find it ________ to remain profitable as he faces ________ competition in the vegan bakery market. a) harder; less b) harder; more c) easier; more d) easier; less
b) harder; more
The average product of the 4th worker a) is 68. b) is 17. c) is 11. d) cannot be determined.
b) is 17
The price a perfectly competitive firm receives for its output a) is determined by the interaction of the firm and all of the consumers who buy from the firm. b) is determined by the interaction of all sellers and all buyers in the firm's market. c) will not change in response to changes in market demand and supply because the firm is a price taker. d) will be lowered by the firm in order to sell more output.
b) is determined by the interaction of all sellers and all buyers in the firm's market.
If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises? a) It rises by 1.62 percent. b) It falls. c)It falls by 162 percent. d) It rises.
b) it falls
The price elasticity of an upward-sloping supply curve is always a) greater than one. b) positive. c) impossible to determine. d) negative.
b) positive
The entry and exit of firms in a monopolistically competitive market guarantee that a) marginal revenue equals marginal cost and average total cost is minimized. b) price equals average total cost in the long run. c) firms can earn economic profits in the long run. d) firms can earn economic profits in the short run.
b) price equals average total cost in the long run.
If the demand for cell phone service is inelastic, then a)the quantity demanded does not change in response to changes in price. b) the percentage change in quantity demanded is less than the percentage change in price (in absolute value). c) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). d) the percentage change in quantity demanded is equal to the percentage change in price.
b) the percentage change in quantity demanded is less than the percentage change in price (in absolute value)
What is the endowment effect? a) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency b) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. c) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services d) the tendency of firms to use celebrities endowed with good looks to promote their products
b) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing
What is the profit-maximizing rule for a monopolistically competitive firm? a) to produce a quantity such that price equals marginal cost b) to produce a quantity such that marginal revenue equals marginal cost c) to produce a quantity that maximizes market share d) to produce a quantity that maximizes total revenue
b) to produce a quantity such that marginal revenue equals marginal cost
Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects a) work in the same direction to increase quantity demanded. b) work in the same direction to decrease quantity demanded. c) work in opposite directions and quantity demanded increases. d) work in opposite directions and quantity demanded decreases.
b) work in the same direction to decrease quantity demanded.
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers? a) $100 b) $124.40 c) $220 d) $240
c) $220
Suppose a monopolistically competitive firm sells 25 units at a price of $10. Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9. a) $270 b) $20 c) $4 d) $2.50
c) $4
If the market price is $40, the average revenue of selling five units is a) $8. b) $20. c) $40. d) $200.
c) $40
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. a) 0.17 b) 0.62 c) 1.62 d) 5
c) 1.62
Refer to Figure 11-1. The marginal product of the 3rd worker is a) 57. b) 19. c) 15. d) 11.
c) 15
Which of the following characteristics is common to monopolistic competition and perfect competition? a) Firms produce identical products. b) Each firm faces a downward-sloping demand curve. c) Entry barriers into the industry are low. d) Firms take market prices as given.
c) Entry barriers into the industry are low.
Refer to Figure 11-2. Short run output is maximized at a) L1. b) L2. c) L3 d) insufficient evidence to determine
c) L3
Refer to Figure 13-5. The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa. Is this candy store maximizing its profit and if it is not, what would you recommend to the firm? a) No, it is not; since its marginal cost is constant, it should produce and sell as much candy as it can. It should sell Qd units at a price of Pd. b) No, it is not; it should lower its price to Pc and sell Qc units. c) No, it is not; it should lower its price to Pb and sell Qb units. d) Yes, it is maximizing its profit by charging the highest price possible.
c) No, it is not; it should lower its price to Pb and sell Qb units.
Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged? a) P0 b) P1 c) P2 d) P3
c) P2
Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation? a) Sunk costs have a higher opportunity cost than costs that can be recovered. b) Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value. c) People measure the value of a good in terms of its purchase price. d) If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
c) People measure the value of a good in terms of its purchase price.
The formula for total fixed cost is a) TFC = TC/TVC. b) TFC = TVC - TC. c) TFC = TC - TVC. d) TFC = TC + TVC.
c) TFC = TC - TVC.
Which of the following statements is true? a) The average product of labor tells us how much output changes as the quantity of workers hired changes. b) The average product of labor is at its minimum when the average product of labor equals the marginal product of labor. c) The average product of labor is at its maximum when the average product of labor equals the marginal product of labor. d) Whenever the marginal product of labor is greater than the average product of labor the average product of labor must be decreasing.
c) The average product of labor is at its maximum when the average product of labor equals the marginal product of labor.
What is always true at the quantity where a firm's average total cost equals average revenue? a) The firm's profit is maximized. b) The firm's revenue is maximized. c) The firm breaks even. d) Marginal cost equals marginal revenue.
c) The firm breaks even.
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is a) the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant. b) when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant. c) the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant. d) eventually total utility falls as more of a good is consumed, other things constant.
c) the extra satisfaction from consuming a food decrease as more of a good is consumed, other things constant
The substitution effect of an increase in the price of Raisin Bran refers to a) the decrease in the demand for Raisin Bran when its price rises. b) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. c) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran. d) the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant.
c) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran.
Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to a) the price and output effects. b) the law of diminishing marginal utility. c) the income and substitution effects. d) the fact that marginal willingness to pay falls.
c) the income and substitution effects.
Refer to Figure 12-9. Identify the firm's short-run supply curve. a) the marginal cost curve b) the marginal cost curve from a and above c) the marginal cost curve from b and above d) the marginal cost curve from d and above
c) the marginal cost curve from b and above
In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change a) the price of a close substitute and hold everything else constant. b) tastes and preferences and hold everything else constant. c) the price of the product and hold everything else constant. d) income and hold everything else constant.
c) the price of the product and hold everything else constant.
Behavioral economics refers to the study of situations a) where consumers and firms disobey the laws of demand and supply. b) where consumers and firms appear to value fairness when they make choices. c) where consumers and firms do not appear to be making choices that are economically rational. d) where consumers and firms appear to make choices that are appropriate to reach their goals.
c) where consumers and firms do not appear to be making choices that are economically rational.
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers? a) $0 b) $2 c) $60 d) $120
d) $120
When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is a) $41.43. b) $134.29. c) $135. d) $145.
d) $145.
Refer to Table 12-1. The firm will not produce in the short run if the output price falls below a) $8. b) $4. c) $3.20. d) $2.80.
d) $2.80.
Refer to Figure 12-4. If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost? a) $7,200 b) $6,480 c) $5,400 d) $3,960
d) $3,960
Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is a) $1,200. b) $2,500. c) $4,800. d) $6,000.
d) $6,000
Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. Refer to Table 10-2. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now? a) 5 cups of soup and 5 sandwiches b) 6 cups of soup and 5 sandwiches c) 5 cups of soup and 4 sandwiches d) 4 cups of soup and 5 sandwiches
d) 4 cups of soup and 5 sandwiches
Refer to Table 11-1. What is the marginal product of the 4th worker? a) 137 pounds b) 50 pounds c) 12.5 pounds d) 5 pounds
d) 5 pounds
If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is a) 60 units. b) 54 units. c) 48 units. d) 5 units.
d) 5 units.
When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is a) impossible to determine with the information given. b) 12,800. c) 784. d) 50.
d) 50
Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run? a) The firm's demand curve will shift to the right if it stays in business in the long run. b) The firm will break even if its stays in business in the long run. c) The firm will exit the industry if it continues to suffer economic losses. d) In the long run the firm will be able to charge a price that is greater than its average total cost.
d) In the long run the firm will be able to charge a price that is greater than its average total cost.
Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units? a) It is equal to the vertical distance g to Q2. b) It is equal to the vertical distance c to Q2. c) It is equal to the vertical distance c to g multiplied by Q2 units. d) It is equal to the vertical distance c to g.
d) It is equal to the vertical distance c to g.
Refer to Figure 13-13. What is the profit maximizing output level? a) Q1 units b) Q2 units c) Q3 units d) Q4 units
d) Q4 units
Refer to Figure 13-12. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run? a) Inefficient firms will exit the market and new cost-efficient firms will enter the market. b) The firms that are making losses will be purchased by their more successful rivals. c) Firms will have to raise their prices to cover costs of production. d) Some firms will exit the market causing the demand to increase for firms remaining in the market.
d) Some firms will exit the market causing the demand to increase for firms remaining in the market.
Which of the following is the best example of a perfectly competitive firm? a) a Taco Bell restaurant b) the Ford Motor Company c) United Parcel Service (UPS) d) a corn farmer in Illinois
d) a corn farmer in Illinois
A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is a) a minimum efficient scale curve. b) a long-run marginal cost curve. c) a long-run production function. d) a long-run average total cost curve.
d) a long-run average total cost curve.
The income effect due to a price decrease will result in an increase in the quantity demanded for a)an inferior good. b) a public good. c) a Giffen good. d) a normal good.
d) a normal good.
Which of the following items is likely to have the highest income elasticity of demand? a) a bus ride b) a tank of gasoline c) a meal at Taco Bell d) a vacation home in the Swiss Alps
d) a vacation home in the Swiss Alps
Which of the following products comes closest to having a perfectly inelastic demand? a) bus rides b) gasoline c) iPhones d) cholesterol medication in general
d) cholesterol medication in general
Refer to Table 11-8. Elegant Settings experiences a) economies of scale up to an output level of 400. b) diminishing returns up to an output level of 400. c) increasing returns beyond an output level of 400. d) economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.
d) economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.
Marginal utility is the a) satisfaction achieved when a consumer has had enough of a product. b) average satisfaction received from consuming a product. c) total satisfaction received from consuming a given number of units of a product. d) extra satisfaction received from consuming one more unit of a product.
d) extra satisfaction received from consuming one more unit of a product
Average fixed costs of production a) will rise at a fixed rate as more is produced. b) graph as a U-shaped curve. c) remain constant. d) fall as long as output is increased.
d) fall as long as output is increased.
Which of the following statements is true? a) If the price of a good is raised and total revenue does not change, demand is perfectly elastic. b) If the price of a good is lowered and total revenue increases, demand is inelastic. c) If the price of a good is lowered and total revenue decreases, demand is elastic. d) If the price of a good is raised and total revenue increases, demand is inelastic.
d) if the price of a good is raised and total revenue increases, demand is inelastic
Refer to Figure 13-18. The diagram demonstrates that a) in the short run, the monopolistic competitor produces an output Qb but in the long run after it adjusts its capacity, it will produce the allocatively efficient output, Qa. b) in the long run, the monopolistic competitor produces the minimum-cost output level, Qa, but in the short run its output of Qb is not cost minimizing. c) it is possible for a monopolistic competitor to produce the productively efficient output level, Qa, if it is willing to lower its price from Pb to Pa. d) it is not possible for a monopolist
d) it is not possible for a monopolist
The demand for all carbonated beverages as a whole is likely to be ________ the demand for Dr. Pepper. a) perfectly elastic compared to b) more elastic than c) perfectly inelastic compared to d) less elastic than
d) less elastic than
Economists assume that the goal of consumers is to a) do as little work as possible to survive. b) spend all their income. c) consume as much as possible. d) make themselves as well off as possible.
d) make themselves as well off as possible
In the short run, if marginal product is at its maximum, then a) average variable cost is at its minimum. b) average cost is at its minimum. c) total cost is at its maximum. d) marginal cost is at its minimum.
d) marginal cost is at its minimum.
If marginal product is greater than average product, then a) marginal product must be increasing. b) marginal product must be decreasing. c) average product must be decreasing. d) marginal product could either be increasing or decreasing.
d) marginal product could either be increasing or decreasing.
A firm's total profit can be calculated as all of the following except a) total revenue minus total cost. b) (price minus average total cost) times quantity sold. c) average profit per unit times quantity sold. d) marginal profit times quantity sold.
d) marginal profit times quantity sold.
Marginal utility can be a) negative. b) zero. c) positive. d) positive, negative, or zero.
d) positive, negative, or zero.
If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she a) is maximizing total utility and does not want to change her consumption of ankle socks or bandanas. b) wants to consume less of both ankle sock and bandanas. c) wants to consume more bandanas and fewer ankle socks. d) wants to consume more ankle socks and fewer bandanas.
d) wants to consume more ankle socks and fewer bandanas.
A perfectly inelastic demand curve is shown in
vertical line