ECO Exam 3

Marginal Product

change in quantity / change in labor

Average Total Cost (ATC)

total cost / quantity

A consumer is in equilibrium when: A) the addition to total utility per dollar is the same for every commodity. B) marginal utilities are equal. C) an equal amount is spent on every commodity. D) the same total utility is derived from each commodity.

A) the addition to total utility per dollar is the same for every commodity

Marginal utility: A) Is the change in total satisfaction derived from consuming one more unit of a good. B) Is the total satisfaction derived from the consumption of a given quantity of a good. C) Increases with the consumption of each additional good. D) Is the change in marginal satisfaction derived from consuming one more unit of a good.

A) Is the change in total satisfaction derived from consuming one or more unit of a good

Which statement is NOT a characteristic of a corporation? A) Its investors face unlimited liability B) It produces more value of goods and services than any other type of business structure C) It has the ability to issue stock to raise capital D) It usual consists of many owners (in some cases, tens of thousands of owners or more)

A) Its investors face unlimited liability

As an individual consumes slices of pizza, the _____ is the amount of satisfaction that he receives from each additional piece of pizza. A) Marginal utility B) Absolute utility C) Consumption availability D) Total utility

A) Marginal utility

All of these are explicit costs, EXCEPT: A) The salary an entrepreneur could have earned in a corporate job. B) Business taxes paid by an entrepreneur. C) Money paid for raw materials. D) Salaries paid to employees.

A) the salary an entrepreneur could have earned in a corporate job

Scruffie the cat has $15 to spend each month on cat toys, which cost $3 each, and cat treats, which costs $1.50 each. Which of the following shows a combination of each good that Scruffie can afford if she spends her entire budget on the two goods? A) One cat toy and eight cat treats B) Three cat toys and three cat treats C) Four cat toys and no cat treats D) Six cat toys and two cat treats

A) One cat toy and eight cat treats

Which of the inputs can be altered in the short run? A) The number of hours that existing employees work B) The amount of heavy machinery used in the plant C) The capacity of the plant D) The total number of plants in operation

A) The number of hours that existing employees work

Marginal utility is NOT: A) The same for all units of a commodity consumed. B) Measured in utils. C) A measure of satisfaction. D) Used to explain how consumers make decisions.

A) The same for all units of a commodity consumed

Which statement is true regarding the total product and marginal product curves? A) The total product curve reaches its peak when marginal product is zero B) The total product curve begins to fall when marginal product begins to fall C) The marginal product curve curve is upward sloping whenever total product is rising D) The total product and marginal product curves both reach their maximum point at the same level of labor

A) The total product curve reaches its peak when marginal product is zero

The calculation for economic profit is total revenue minus: A) Implicit and explicit costs. B) Explicit costs. C) Normal profits. D) Implicit costs.

A) implicit and explicit costs

Profits are equal to the difference between _____ and _____. A) total revenue; total costs B) total revenue; explicit costs C) marginal revenue; marginal costs D) total revenue; marginal costs

A) total revenue, total cost

If the total variable cost of producing three wickets is $30, while the average fixed cost of producing three wickets is $25, then the total cost of producing three wickets is: A) $55 B) $105 C) $115 D) $165

B) $105

AJ plans to attend a retreat on mindfulness. He paid a $500 nonrefundable registration fee, made a reservation at a hotel that costs $200, and budgeted $150 for gas and food. Two days before the retreat, he becomes ill. Assuming he is able to cancel the hotel without penalty, AJ's sunk costs equals; A) $150 B) $500 C) $650 D) $850

B) $500

David earns three hits in the first baseball game, one hit in the second game, and five hits in the third. What was his average number of hits based on these three games? A) 2 B) 3 C) 4 D) 5

B) 3

The Wonderful Gadget Company produces 500 gadgets per week with 50 employees. It hires an additional worker and output rises to 507 gadgets. The marginal product of the last worker hired is _____ gadget(s). A) 500 B) 7 C) 1 D) 507

B) 7

Why do price changes cause a budget line to pivot, while income changes cause a budget line to shift in a parallel manner? A) A change in income will cause the consumer to change the quantity purchased of one good. B) An increase or decrease in income will cause the consumer to change the quantity purchased of both goods. C) A change in price of one good will cause consumers to change the quantity purchased of both goods. D) A change in price of one good will cause consumers to only change the quantity purchased of the other good.

B) An increase or decrease in income will cause the consumer to change the quantity purchased of both goods.

If the variable cost for five shoes is $50 and the variable cost of six shoes is $80, which statement is true? A) The marginal cost for the sixth shoe is $80. B) Average variable cost for the fifth shoe is $10. C) Total costs for the sixth shoe is $130. D) Average variable cost of the sixth shoe is $10.

B) Average variable cost for the fifth shoe is $10

Mary started out in a consumer equilibrium. Later Mary discovers that her marginal utility per dollar spent on root beer is more than the marginal utility per dollar spent on gasoline. She knows then that the price of: A) Root beer must have increased. B) Gasoline must have increased or the price of root beer must have decreased. C) Gasoline must have decreased. D) Gasoline must have decreased or the price of root beer must have increased.

B) Gasoline must have increased or the price of root beer must have decreased

As a person consumes more of a particular good or service, the total level of utility derived from that consumption will: A) Increase at an increasing rate B) Increase at a decreasing rate C) Remain constant D) Increase at a constant rate

B) Increase at a decreasing rate

Should we consider sunk costs when making decisions about the present or the future? A) No, sunk costs have a non-monetary value; therefore, we should not consider the costs. B) No, sunk costs cannot be recovered. C) Yes, sunk costs are avoidable so we should consider the costs when making decisions. D) Yes, we should consider all costs when making decisions for the present and the future.

B) No, sunk costs cannot be recovered

Astrid currently consumes only milk and honey. She drinks four quarts of milk priced at $3 per quart and gets 30 utils for the last quart. She consumes thirteen jars of honey at a price of $0.75 per jar and gets 7.5 utils for the last jar. Is Astrid maximizing her utility? A) No. She should consume more milk. B) Yes. C) No. She should consume more honey. D) No. She should consume less milk

B) Yes.

Marginal cost (MC) will equal average total cost (ATC) at the point where the: A) average variable cost is the lowest. B) average total cost is the lowest. C) marginal cost is the lowest. D) fixed cost is the lowest

B) average total cost is the lowest

In economic terms, the short run is: A) No more than two years. B) The time over which at least one factor of production is fixed. C) The time period in which factors of production are variable. D) No more than six months.

B) the time over which at least one factor of production is fixed

A normal profit is equal to: A) explicit cost minus implicit cost. B) zero economic profit. C) revenue minus opportunity cost. D) revenue minus explicit cost.

B) zero economic profit

At 500 units of output, total cost is $50,000 and variable cost is $5,000. What does fixed cost equal at 500 units? A) $9,000 B) $5,000 C) $45,000 D) $50,000

C) $45,000

A wedding planner determines that one waiter can serve 30 guests, two waiters can serve 70 guests, three waiters can sere 120 guests, four waiters can serve 160 guests, and five waiters can serve 180 guests. The marginal product of the third waiter is _____ guests. A) 36 B) 40 C) 50 D) 120

C) 50

Marginal product is defined as the: A) Total output divided by the number of workers hired. B) Change in the number of workers divided by the change in output. C) Change in output from hiring an extra worker. D) Number of workers hired divided by the total output

C) Change in output from hiring an extra worker

Why do the prices of many goods and services end in 99 cents? A) The extra penny is considered a sunk cost. B) Businesses incur additional fees for selling goods outside of the 99 cents price range. C) Consumers believe a good ending in 99 cents is more affordable than a good rounded up to the nearest dollar. D) The penny does not make a difference to the organizations

C) Consumers believe a good ending in 99 cents is more affordable than a good rounded up to the nearest dollar

A typical total product curve goes through four stages. What is the correct order for these stages? A) Increases at a decreasing rate, increases at an increasing rate, reaches a maximum, decreases B) Increases at an increasing rate, reaches a maximum, increases at a decreasing rate, decreases C) Increases at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases D) Increases at an increasing rate, increases at a decreasing rate, decreases, reaches a maximum

C) Increases at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases

Which of the following explains why the marginal cost curve has a U-shape? A) Initially, the average product of labor rises, then falls B) Initially, the marginal product of labor falls, then rises C) Initially, the marginal product of labor rises, then falls D) Initially, the average cost of production rises, then falls

C) Initially, the marginal product of labor rises, then falls

Eric enjoys having sushi and sashimi for lunch every day. Suppose the marginal utility of the last roll of sushi Eric eats is 40 and the marginal utility of the last piece of sashimi Eric eats is 20. If the price of a roll of sushi is $8 and the price per piece of sashimi is $2, did Eric maximize his utility? A) No, the marginal utility of each good must be equal. B) Yes, Eric maximized his utility because the marginal utility per dollar spent is less than 100. C) No, the marginal utility per dollar spent on each good must be equal. D) Yes, Eric maximized his utility because the price of each good is reasonable

C) NO, the marginal utility per dollar spent on each good must be equal

The law of diminishing marginal utility states: A) Average utility increases as more of a product is consumed. B) Total utility increases at an increasing rate as more of a product is consumed. C) That as a consumer consumes more of a given product, the added utility from consuming an additional unit declines. D) Total utility falls as consumption of a good increases.

C) That as a consumer consumes more of a given product, the added utility from consuming an additional unit declines.

Which of the following is true? A) Total utility still increases if marginal utility is negative. B) Total utility is negative at the point where marginal utility is zero. C) Total utility can be positive even if marginal utility is negative. D) Total utility is positive only when marginal utility is positive.

C) Total utility can be positive even if marginal utility is negative

In the case of two goods, does a decrease in the price of one good allow someone to potentially consume more of both goods? Consider the budget line when answering this question. A) No, consumers will save the money or use it to purchase something else. B) No, consumers will not gain money from the decrease in price. C) Yes, a decrease in price increases the income of the consumer allowing the consumer to purchase more of both goods. D) Yes; however, the consumer can only purchase more of one good.

C) Yes, a decrease in price increases the income of the consumer allowing the consumer to purchase more of both goods.

Money that a firm spends on health care for employees is a(n): A) implicit cost. B) opportunity cost. C) explicit cost. D) surplus cost

C) explicit cost

Justin owns a home entertainment installation company. One employee can complete two installations per month; two employees can complete 5 installations, three employees can complete 9 installations, four employees can complete 12 installations, and five employees can complete 11 installations. Diminishing marginal returns begin with the _____ worker. A) second B) third C) fourth D) fifith

C) fourth

The marginal cost curve: A) intersects the average fixed cost curve at its minimum point. B) always declines. C) intersects the average total cost curve at its minimum point. D) disappears in the long run

C) intersects the average total cost curve at its minimum point

Which curve is NOT bowl-shaped (U-shaped) ? A) the average variable cost curve B) the short-run average cost curve C) the average fixed cost curve D) the long-run average cost curve

C) the average fixed cost curve

If the total cost of 3 units is $40 and the total cost of 4 units is $50, the marginal cost of the fourth unit is: A) $90 B) $50 C) $40 D) $10

D) $10

Dan's Car Wash produces $150,000 in revenues and incurs $120,000 in labor wages, materials, rent, and other explicit costs. Moreover, Dan gave up a $40,000-a-year job as a hotel valet to start his car wash business. Dan's economic profit is _____, and he _____ earning a normal profit. A) $30,000; is B) $30,000; is not C) -$10,000; is D) -$10,000; is not

D) -$10,000; is not

Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with three employees. She hires an additional worker and total output per week rises to 328 signs. The marginal product of the last worker is _____ signs. A) 82 B) 210 C) 378 D) 118

D) 118

Jeremy's level of satisfaction from consuming the first cookie was 25 utils. The second cookie increased the level of satisfaction by 20 utils. Jeremy's total level of satisfaction after three cookies was 60. Thus, the marginal utility for the third cookie is: A) 45 B) 60 C) 25 D) 15

D) 15

_____ is found by dividing total output by the number of workers employed to produce that output. A) Average cost B) Marginal cost C) Marginal product D) Average product

D) Average product

Utility maximization means the: A) Total utility per dollar spent is equal for all goods. B) Total utility for each good is equal. C) Marginal utility for each good is equal. D) Marginal utility per dollar spent is equal for all goods

D) Marginal utility per dollar spent is equal for all goods

Suppose the marginal utility for the last pencil you buy is 36 and each costs $1, whereas the marginal utility of the last pad of paper you buy is 300 and costs $2. Are you maximizing utility? A) Yes. B) No. You need to buy less paper and fewer pencils. C) No. You need to buy more pencils and less paper. D) No. You need to buy more paper and fewer pencils.

D) No. You need to buy more paper and fewer pencils

Marginal product is: A) The change in total costs, given a change in labor input. B) Total output divided by total input. C) Input divided by output. D) The change in total output, given a change in labor input

D) The change in total output, given a change in labor input

Which statement describes a situation in which negative returns to labor occur. A) The marginal product of labor begins to fall B) The total product of labor peaks C) The average product of labor begins to fall D) The marginal product of labor falls below zero

D) The marginal product of labor falls below zero

Marginal utility: A) is the sum of all the total utilities B) is always positive C) is the same for all units of a commodity consumed D) declines with each additional unit consumed

D) declines with each additional unit consumed

Utility measures: A) the market value of a product B) the productive efficiency of a good or service C) how easy it is for one good to substitute for another D) how much satisfaction is gained from the consumption of a good or service

D) how much satisfaction is gained from the consumption of a good or service

Amy decides to open a bakery that will specialize in delicious gourmet brownies. Her explicit costs would include all of these EXCEPT the: A) business taxes paid on her earnings B) monthly lease payment on the building C) health insurance premiums that she pays for her employees D) interest earnings Amy forgoes from selling her savings bonds to finance her store

D) interest earnings Amy forgoes from selling her savings bonds to finance her store

Walmart is able to order huge quantities of shovels and rakes at very low prices from many different factories in China as it opens more stores. This best represents: A) short run economies of scale B) long run diseconomies of scale C) economies of scale D) long run economies of scale

D) long run economies of scale

Suppose the MU/P for bottled water is greater than the MU/P for bags of chips. To maximize total utility, the consumer should buy: A) more of both goods B) more bags of chips and less bottled water C) less of both good D) more bottled water and fewer bags of chips

D) more bottled water and fewer bags of chips

Accounting costs

Only include explicit costs

Marginal Cost

change in total cost / change in quantity

Average Fixed Cost (AFC)

fixed cost / quantity (output)

Economic costs

include both explicit and implicit costs

Average product

quantity / labor

Average Variable Cost (AVC)

variable cost / quantity (output)