Econ Final

pg. 227 If this firm were producing at point A, it is A) maximizing profits. B) minimizing the cost of producing Qo. C) in a short-run equilibrium. D) in a long-run equilibrium. E) not employing an efficient combination of capital and labor to produce Qo.

B) If this firm were producing at point A, it is minimizing the cost of producing Qo. pg. 233 #18

Which of the following characteristics of an industry is most conducive to competitive behavior by firms? A) A large number of firms exist in the industry. B) Individual firms can sell more by reducing price. C) A firm can affect its profits only by changing its own output or costs. D) All firms in the industry produce an identical product. E) All of the above.

B) Individual firms can sell more by reducing price.

If two goods have a negative cross-price elasticity of demand, we know that A) they are both inferior goods. B) they are substitutes. C) they are both normal goods. D) they are complementary goods. E) one is inferior and the other is normal, but we can't determine which is which.

D) If two goods have a negative cross-price elasticity of demand, we know that they are complementary goods.

When price falls along a straight-line demand curve, the (absolute value of) elasticity A) first rises and then falls. B) is the same at all prices. C) first falls and then rises. D) continually rises as price falls. E) continually falls as price falls.

E) When price falls along a straight-line demand curve, the (absolute value of) elasticity continually falls as price falls.

Bjorn is a student with a monthly budget of $500, which he allocates between transportation services and "all other goods." Suppose the price of transportation is $5 per unit, and the price of "all other goods" is $20 per unit. The marginal utility he currently receives from his consumption of transportation services is 60. What is his marginal utility from the consumption of "all other goods" if he is maximizing his utility? A) 240 B) 5 C) 20 D) 200 E) 25

A) 240

A firm that faces a perfectly elastic demand curve has a A) linear total revenue curve with a slope equal to the market price. B) horizontal total revenue curve. C) constant total revenue regardless of the level of output. D) total revenue curve shaped like an inverted U. E) negatively sloped total revenue curve.

A) A firm that faces a perfectly elastic demand curve has a linear total revenue curve with a slope equal to the market price.

According to utility theory, a consumer will maximize total utility when goods A and B are consumed in quantities such that MUa/MUb A) equals the ratio of the price of A to the price of B. B) equals the ratio of total utility of A to that of B. C) equals the ratio of the price of B to the price of A. D) equals the ratio of the quantities demanded. E) always equals unity.

A) According to utility theory, a consumer will maximize total utility when goods A and B are consumed in quantities such that MUa/MUb equals the ratio of the price of A to the price of B.

An increase in the price of the fixed factor will, in the short run, shift A) the ATC curve. B) the AVC curve. C) the MC curve. D) both the MC and AVC curves. E) both the ATC and MC curves.

A) An increase in the price of the fixed factor will, in the short run, shift the ATC curve. pg. 191 #16

pg. 93 As price increases from $4 to $6 and Quantity Offered for Sale goes from 300 to 350, the elasticity of supply is A) 1.0 B) 50 C) .5 D) 5.0 E) 2.0

A) As price increases from $4 to $6 and Quantity Offered for Sale goes from 300 to 350, the elasticity of supply is 1.0

Consider a firm in the short run. If the AP curve is rising, then the MP curve A) must lie above the average-product curve over this range. B) must lie above the average-product curve over this range and must also be rising. C) can be either above or below the average-product curve, although it must be rising over the entire range. D) must be falling. E) must lie below the average-product curve over this range.

A) Consider a firm in the short run. If the AP curve is rising, then the MP curve must lie above the average-product curve over this range.

If Monique's marginal utility is positive but decreases as more of a commodity is consumed, her total utility A) is increasing. B) is also decreasing. C) is constant. D) may be increasing, decreasing, or constant. E) increases at the same rate.

A) If Monique's marginal utility is positive but decreases as more of a commodity is consumed, her total utility is increasing.

If a 10 percent increase in the price of ski lift tickets causes a 5 percent decrease in total expenditure on lift tickets, then demand is A) elastic. B) inelastic. C) perfectly inelastic. D) normal. E) inferior.

A) If a 10 percent increase in the price of ski lift tickets causes a 5 percent decrease in total expenditure on lift tickets, then demand is elastic.

If average product is falling, marginal product A) is less than average product. B) is equal to average product. C) is greater than average product. D) can be greater than, equal to, or less than average product. E) is negative.

A) If average product is falling, marginal product is less than average product.

Implicit costs generally have to be estimated because A) they are not paid through a market transaction. B) most of firm's costs are monetary costs. C) many labor contracts include fringe benefits. D) the firm uses many different types of inputs. E) revenues are sometimes unknown.

A) Implicit costs generally have to be estimated because they are not paid through a market transaction.

In a free-market economy, the rationing of scarce goods is done primarily by A) the price mechanism. B) the government. C) business firms. D) consumers. E) marketing firms.

A) In a free-market economy, the rationing of scarce goods is done primarily by the price mechanism.

In the short run, a shift in demand will generally cause A) the price to overshoot its long-run equilibrium value. B) the price to undershoot its long-run equilibrium value. C) the quantity exchanged to overshoot its long-run equilibrium value. D) both price and quantity exchanged to overshoot their long-run equilibrium values. E) None of the above.

A) In the short run, a shift in demand will generally cause the price to overshoot its long-run equilibrium value.

Which of the following situations could occur in a short-run equilibrium but not in a long-run equilibrium? A) P = ATC B) P = MC C) P = SRATC D) P = LRAC E) MR = MC

A) P = ATC

Pizza and hamburgers are likely to have A) a positive cross-elasticity of demand. B) positive income elasticities of demand. C) a negative cross elasticity of demand. D) price elasticities of demand greater than one. E) a cross elasticity of demand equal to zero.

A) Pizza and hamburgers are likely to have a positive cross-elasticity of demand. Since the two fast foods are substitutes in consumption, an increase in the price of one will increase demand for the other. Since price and demand both move in the same direction, the ratio of their percentage changes is a positive number. The cross elasticities of demand between pizzas and hamburgers, therefore, are positive.

Sally is allocating her expenditure between movies and cappuccinos in such a way that she is maximizing her utility. If the price of admission to the movies increases, Dally will reallocate her expenditure such that A) the marginal utility of a movie will increase. B) her movie attendance will increase. C) her cappuccino consumption will decrease. D) the marginal utility of cappuccino will increase. E) the marginal utility per dollar spent on movies will exceed that for cappuccinos.

A) Sally is allocating her expenditure between movies and cappuccinos in such a way that she is maximizing her utility. If the price of admission to the movies increases, Dally will reallocate her expenditure such that the marginal utility of a movie will increase.

Should it decide to produce a positive output, any profit-maximizing firm should produce the output level for which A) the incremental change in revenue equals the incremental change in costs. B) total revenue exceeds total costs. C) average costs are minimized. D) average costs are minimized. E) total revenue equals total costs.

A) Should it decide to produce a positive output, any profit-maximizing firm should produce the output level for which the incremental change in revenue equals the incremental change in costs.

Suppose Liam is maximizing utility by allocating his expenditure between CDs and movies. If the price of movies increases, the resulting substitution effect will cause Liam to react so that A) marginal utility of movies will increase and his marginal utility of CDs will decrease. B) marginal utility of movies will decrease and his marginal utility of CDs will increase. C) marginal utility of both movies and CDs will decrease. D) total utility of both goods increases. E) consumption of both goods decreases.

A) Suppose Liam is maximizing utility by allocating his expenditure between CDs and movies. If the price of movies increases, the resulting substitution effect will cause Liam to react so that marginal utility of movies will increase and his marginal utility of CDs will decrease. The principle of diminishing marginal utility says that MU falls as more is consumed, hence MU rises as less is consumed. The substitution effect, responding to the increase in the relative price of movies, reduces the quantity of CDs demanded (thereby decreasing the MU of CDs). Restricting the question to the substitution effects rules out any other response.

Suppose that the short-run demand for a good is relatively more inelastic than its long-run demand. A given rightward shift in the supply curve will lead to a A) smaller decrease in price in the long run than in the short run. B) smaller increase in the long run than in the short run. C) larger decrease in price in the long run than in the short run. D) smaller decrease in both price and quantity in the long run than in the short run. E) larger decrease in both price and quantity in the long run than the short run.

A) Suppose that the short-run demand for a good is relatively more inelastic than its long-run demand. A given rightward shift in the supply curve will lead to a smaller decrease in price in the long run than in the short run.

The change in output that results when another unit of the variable factor is employed is referred to as the A) marginal product. B) average product. C) average fixed product. D) total product. E) average total product.

A) The change in output that results when another unit of the variable factor is employed is referred to as the marginal product.

If X and Y are complementary goods, which of the following best represents a "feedback effect" resulting from a fall in the price of X? A) The demand for X falls because the price of Y increases. B) The demand for Y increases because the price of C falls. C) The quantity of X demanded increases because the price of X falls. D) The demand for Y increases because purchasing power is increased by the fall in the price of X. E) Both (b) and (d); they both affect the market for Y through the fall in the price of X.

A) The demand for X falls because the price of Y increases best represents a "feedback effect." The fall in the price of X increases quantity demanded of X (a movement along the D curve for X) and the demand for Y (a rightward shift in the curve for Y). The increase in demand for Y increases the price of Y which, because they are complementary goods, "feeds back" into the market for X by reducing the demand for X (an inward shift in D curve for X). Answers (b), (d), and (e) are wrong because they are effects of the change in the market for X on the market for Y, not feedback effects from Y to X caused by the initial change in X. Answer (c) is wrong because it looks only at the market for X-i.e., it is a movement along the demand curve for X, not a feedback effect from the change in the market for Y (which would shift the D curve for X) caused by the initial change in the market for X.

pg. 204 The firm is currently producing at point B. An increase in its capital may be represented by A) a movement to A. B) staying at point B. C) a movement to C. D) an upward shift in the LRAC curve. E) None of the above.

A) The firm is currently producing at point B. An increase in its capital may be represented by a movement to A. pg. 211 #18

Suppose that as the price of some product increases from $4 to $5 per unit the quantity supplied rises from 500 to 1000 units per unit month. The price elasticity of supply for this product is A) 3.0 B) 2.0 C) .33 D) 2.5 E) 1.0

A) The price elasticity of supply for this product is 3.0

pg. 126 The value to consumers of the mth unit of output is A) bm. B) fm. C) bf. D) ace. E) hbfj.

A) The value to consumers of the mth unit of output is bm.

Suppose that the following data are observed for a perfectly competitive firm: output = 5000 units, market price = $1, fixed costs = $2000, variable costs = $1000, and marginal cost = $1.25. To maximize profits the firm should A) reduce output. B) expand output. C) shut down. D) increase the market price. E) not change output.

A) To maximize profits the firm should reduce output. pg. 232 #13

When price rises along a straight-line demand curve, total expenditure on the commodity A) first rises and then falls. B) is the same at all prices. C) first falls and then rises. D) continually rises as price falls. E) continually falls as price falls.

A) When price rises along a straight-line demand curve, total expenditure on the commodity first rises and then falls.

A firm's long-run average cost curve depicts A) what costs will be attainable with technological improvement. B) the lowest attainable unit costs when all factors are variable. C) a firm's proft-maximizing output choices. D) the lowest attainable average cost when all factor prices vary. E) the lowest attainable average cost when all factor prices vary.

B) A firm's long-run average cost curve depicts the lowest attainable unit costs when all factors are variable.

Allocation by sellers' preferences can best be done at no loss to the seller when A) there is a disequilibrium price. B) quantity supplied is less than quantity demanded. C) there is a binding price floor. D) there s excess supply. E) the controlled price is set above the equilibrium price.

B) Allocation by sellers' preferences can best be done at no loss to the seller when quantity supplied is less than quantity demanded.

An example of an intermediate product is A) asparagus. B) bricks. C) a middle manager. D) the output of a clothing manufacturer. E) unskilled labor.

B) An example of an intermediate product is bricks.

Demand curves for normal goods slope downward because A) the substitution effect of a price change is greater than the income effect. B) substitution and income effects work in the same direction. C) the income effect is always greater than the substitution effect. D) the income effect is always less than the substitution effect. E) None of the above, because demand curves for normal goods slope upward.

B) Demand curves for normal goods slope downward because substitution and income effects work in the same direction. pg. 165 #15

Economic profit is defined as the difference between A) accounting profit and explicit costs. B) total revenue and opportunity costs. C) total revenue and the monetary costs of hiring resources for current use. D) net income before and after taxes. E) total revenue and implicit costs.

B) Economic profit is defined as the difference between total revenue and opportunity costs.

Given that elasticity of supply changes over time, in the short run an increase in demand will generally cause A) supply to change. B) the price to rise above its long-run equilibrium value. C) the quantity exchanged to rise above its long-run equilibrium. D) the price to rise to a level below its long-run equilibrium value. E) both price and quantity exchanged to rise above their long-run equilibrium values.

B) Given that elasticity of supply changes over time, in the short run an increase in demand will generally cause the price to rise above its long-run equilibrium value.

pg. 224 If all fixed costs were sunk costs, this firm would shut down production if the market price were below A) $5. B) $3. C) marginal cost. D) average total cost. E) Indeterminable with data provided.

B) If all fixed costs were sunk costs, this firm would shut down production if the market price were below $3. If all fixed costs are sunk costs, they cannot be recovered. As long as the firm's total revenues are no less than its total variable costs, its losses are no greater than they would be if it stopped producing. The lowest price at which it can cover variable costs is $3.

If it is worthwhile for a perfectly competitive firm to produce a positive output, the level of output at which it maximizes short-run profits is where A) price equals average total cost. B) price equals short-run marginal cost. C) short-run marginal cost equals average total cost. D) marginal revenue equals average variable cost. E) price equals average variable cost.

B) If it is worthwhile for a perfectly competitive firm to produce a positive output, the level of output at which it maximizes short-run profits is where price equals short-run marginal cost.

If the marginal utility from consuming more of a good is zero, total utility is A) also zero. B) constant. C) negative. D) decreasing. E) increasing.

B) If the marginal utility from consuming more of a good is zero, total utility is constant.

pg. 202 If the ratio of the price of capital to the price of labor (Pk/Pl) is 2, this firm will employ combination A) A. B) B. C) C. D) D. E) Either C or D.

B) If the ratio of the price of capital to the price of labor (Pk/Pl) is 2, this firm will employ combination B. pg. 210 #3

pg. 204 If this firm is producing at point B, we could say that it A) is maximizing its profits. B) is minimizing the cost of producing Qo. C) can increase its profits by moving to point A. D) can lower its costs by moving to point A. E) would minimize total costs by moving to point E.

B) If this firm is producing at point B, we could say that it is minimizing the cost of producing Qo. pg. 211 #16

Minimum efficient scale is A) the minimum output that can be produced with a given capital stock. B) the smallest output at which LRAC reaches its minimum. C) the minimum combination of inputs required to produce a given level of output. D) the output at which the marginal product per dollar spend is equal for all inputs. E) any point of technical efficiency.

B) Minimum efficient scale is the smallest output at which LRAC reaches its minimum.

Quotas that lead to higher profits in some industry will in the long run A) result in more producers in the industry. B) make it more costly to enter this industry. C) result in a larger output for each producer. D) help individuals who are just entering this industry. E) reduce the price of the industry's product.

B) Quotas that lead to higher profits in some industry will in the long run make it more costly to enter this industry. pg. 135 #20

Which of the following is the main reason why the adverse effects of rent controls are greater in the long run than in the short run? A) Governments can reduce excess demand in the long run by building more public housing. B) Rates of return on investment are greater in other markets. C) Demand for rental apartments is more elastic in the long run than in the short run. D) Rent controls give existing tenants a greater incentive to move to home ownership when their incomes increase. E) Governments are better able to eliminate black markets in the long run than in the short run.

B) Rates of return on investment are greater in other markets are the main reason why the adverse effects of rent controls are greater in the long run than in the short run

pg. 124 Suppose that the government decides Pe is too high an therefore imposes a price ceiling equal to P2. Further suppose that a black market develops in which all output is sold at the highest attainable price. The black market price is A) equal to Pe. B) greater than Pe. C) greater than P2 but less than Pe. D) equal to P2. E) less than P2.

B) The black market price is greater than Pe.

The cost-minimizing factor mix is obtained when A) the marginal products of all factors are equalized. B) the marginal product per dollar expended on each factor is equalized. C) the marginal product of each factor divided by total expenditure on that factor is equalized across all factors. D) the cost of employing an additional unit of each factor is equalized across all factors. E) each factor's marginal cost is equalized.

B) The cost-minimizing factor mix is obtained when the marginal product per dollar expended on each factor is equalized.

If a perfectly competitive firm is producing where price equals average total cost and average total cost is greater than marginal cost, the firm should A) reduce output. B) expand output. C) shut down. D) increase the market price. E) not change output.

B) The firm should expand output. pg. 232 #15

The income effect refers to the change in quantity demanded that results from a change in A) money income. B) purchasing power. C) total utility. D) marginal utility. E) wages.

B) The income effect refers to the change in quantity demanded that results from a change in purchasing power.

The law of diminishing returns implies A) eventually decreasing average variable costs. B) eventually increasing marginal costs. C) eventually decreasing marginal revenue. D) eventually increasing average fixed costs. E) eventually decreasing average fixed costs.

B) The law of diminishing returns implies eventually increasing marginal costs. pg. 190 #15

The law of diminishing returns refers to A) the effects of increases in factor costs. B) the division of labor. C) the range of output over which average product is rising. D) the eventual effect of applying more and more labor to a fixed amount of capital. E) the effect of not immediately adopting a new technology.

B) The law of diminishing returns refers to the division of labor.

The market demand curve of a good is found by A) adding the utilities of each consumer buying the good. B) horizontally summing the demand curves of individual consumers. C) adding the prices that each consumer is willing to pay for the good. D) relating quantity demanded to the sum of the incomes of all individual demanders. E) measuring how total demand changes when the price of a substitute good changes.

B) The market demand curve of a good is found by horizontally summing the demand curves of individual consumers.

Which of the following characteristics is true of a perfectly competitive industry that is subject to continuous technological change? A) Only plants of recent vintage and thus greater efficiency will operate. B) The market price equals the minimum average total cost of the most efficient plants. C) The market price equals the minimum average total cost of the least efficient plant still in use. D) Plants with older technology will continue to produce if all fixed costs are non-sunk costs. E) Any plant without the most recent and efficient technology will be closed.

B) The market price equals equals the minimum average total cost of the most efficient plants. pg. 232 #10

The price elasticity of demand for a good will be greater A) the less available are suitable substitutes for this good. B) the longer the time period considered. C) for a group of related goods as opposed to an element of that group. D) the greater is income. E) All of the above are correct.

B) The price elasticity of demand for a good will be greater the longer the time period considered.

Assume that there is a fixed amount of land suitable for growing vegetables and the demand for squash increases while the demand for carrots remains unchanged. Which of the following is most likely to occur? A) The price of squash increases, and the price of carrots falls. B) The prices of squash and carrots both increase. C) Farmers produce more carrots to compensate for a lower price of carrots. D) The demand for carrots will eventually increase because carrots and squash are complements in consumption. E) The price of squash will remain unchanged while the price of carrots falls.

B) The prices of squash and carrots both increase.

pg. 224 The short-run supply curve for this firm (assuming all fixed costs are sunk costs) is its A) marginal cost curve. B) marginal cost curve at or above $3. C) marginal cost curve at or above $5. D) ATC curve at or above $5. E) AVC curve at or above $3.

B) The short-run supply curve for this firm (assuming all fixed costs are sunk costs) is its marginal cost curve at or above $3. pg. 232 #7

The time period to which quantity demanded refers when constructing demand curves is A) a moment in time. B) any specified time period. C) a long period of time. D) a period shorter than one year. E) one year.

B) The time period to which quantity demanded refers when constructing demand curves is any specified time period.

Suppose that the marginal product of capital in a particular firm is 5, the marginal product of labor is 10, the price of capital is $2, and the price of labor is $1. To minimize costs, this firm will A) substitute more capital for less labor. B) substitute more labor for less capital. C) not alter its factor mix. D) hire more capital and keep labor constant. E) reduce labor employment.

B) To minimize costs, this firm will substitute more labor for less capital. 2

When two goods are complements in production, A) a fall in the price of one will increase demand for the other. B) an increase in the price of one will increase the supply of the other. C) an increase in the production of one must be offset by a decrease in production of the other. D) they have identical supply curves. E) they must also be complements in consumption.

B) When two goods are complements in production, an increase in the price of one will increase the supply of the other.

At first the city's fixed supply of water was sold at the market equilibrium price per liter. It then passed a law requiring that the water be provided free. This law A) ensures that only households with the highest marginal values will consume water. B) ensures that all households will consume equal quantities of water. C) is likely to result in some households with a low marginal value of water getting water while other with a higher marginal value do without. D) ensures that all households can always consume water until the marginal value of water is zero. E) would increase the total consumption value of water.

C) At first the city's fixed supply of water was sold at the market equilibrium price per liter. It then passed a law requiring that the water be provided free. This law is likely to result in some households with a low marginal value of water getting water while other with a higher marginal value do without. pg. 164 #12

Constant long-run average costs for a firm means that A) there are greater advantages to small than to large plants. B) an unlimited amount of output will be produced. C) any scale of production costs the same per unit as any other. D) total cost is independent of the level of output. E) marginal cost equals zero.

C) Constant long-run average costs for a firm means that any scale of production costs the same per unit as any other. pg. 210 #5

Diamonds have a higher price than water because A) the total value placed on the consumption of diamonds is greater than that of water. B) the total consumption value of water is greater than that of diamonds. C) the marginal consumption value of diamonds is greater than that of water. D) households are willing to pay more in total for diamonds than for water. E) all necessities of life have a high marginal value in consumption.

C) Diamonds have a higher price than water because the marginal consumption value of diamonds is greater than that of water. pg. 164 #11

Economic surplus from a given unit of output arises because A) firms make extra profit on that unit of output. B) average costs of production fall as output increases. C) resources of a lower value are transformed into a good with a higher value. D) the value of resources used in its production exceeds its value to consumers. E) its price is equal to the extra costs of producing that unit.

C) Economic surplus from a given unit of output arises because resources of a lower value are transformed into a good with a higher value.

pg. 126 Economic surplus on the mth unit of output is A) bm. B) fm. C) bf. D) bcf. E) abfj.

C) Economic surplus on the mth unit of output is bf.

If all utility-maximizing consumers face identical prices, they will have identical A) marginal utilities for each good. B) total utilities for each good. C) ratios of marginal utilities for each good. D) ratios of total utilities for each good. E) preferences.

C) If all utility-maximizing consumers face identical prices, they will have identical ratios of marginal utilities for each good. Different people have different marginal utilities for the same good, and to maximize utility they will buy goods to the point where per dollar returns in terms of extra utility are equal. That is, each person maximizes utility when relative prices (Px/Py=2) equals the ratio of marginal utilities (MUx/MUy=2). This happens when the levels of MUx/MUy are 4/2, 180/98, 6000/3000, etc.

If an individual allocates $200 as monthly expenditure on compact discs and decides to spend no more and no less regardless of price, this individual's demand for compact discs is A) perfectly inelastic. B) perfectly elastic. C) of unit elasticity. D) less than one but greater than zero. E) of zero elasticity.

C) If an individual allocates $200 as monthly expenditure on compact discs and decides to spend no more and no less regardless of price, this individual's demand for compact discs is of unit elasticity.

If economic profit is zero for all firms in an industry, then A) firms will shift resources toward alternative investments. B) revenues equal the monetary costs of operation. C) industry resources are earning a rate of return equal to the rate available elsewhere. D) firms will cease production immediately. E) firms will exit the industry.

C) If economic profit is zero for all firms in an industry, then industry resources are earning a rate of return equal to the rate available elsewhere.

If goods A and B are complements, an increase in the price of good A will lead to A) an increase in the price of good B. B) a decrease in the quantity demanded of good B. C) a decrease in the demand for good B. D) no change in demand for good B because A and B are not substitutes. E) a rightward shift in the demand for good B.

C) If goods A and B are complements, an increase in the price of good A will lead to a decrease in the demand for good B.

If the demand for some commodity has an elasticity of unity, a decrease in price A) causes a 1 percent decrease in quantity demanded. B) induces no change in quantity demanded. C) results in no change in total expenditure. D) is matched by a unit increase in quantity demanded. E) Both (a) and (c) are correct.

C) If the demand for some commodity has an elasticity of unity, a decrease in price results in no change in total expenditure. With unit elasticity, the percentage increase/decrease in price equals the percentage decrease/increase in quantity demanded, so total spending on the good is unchanged - e.g. any reduction in spending attributable to the lower price is exactly offset by the increase in spending attributable to the increase amount demanded (so (b) is wrong). To have unit elasticity with a 1 percent decrease in quantity (answer (a)) would require both an increase in price (whereas the question says price falls) and the price increase to be by 1 percent ( which the question does not specify), so (a) is wrong for two reasons (hence (e) is also wrong). Finally, elasticity requires comparing percentage changes, not unit changes so (d) is wrong.

If the difference between ATC and AVC at 100 units of output is $1, at 200 units of output the difference between ATC and AVC must be A) $2. B) $1. C) 50 cents. D) $1.50. E) zero.

C) If the difference between ATC and AVC at 100 units of output is $1, at 200 units of output the difference between ATC and AVC must be 50 cents.

pg. 183 If the level of production is 50 units, TFC is A) $350. B) $7. C) $500. D) $10. E) Indeterminable with data provided.

C) If the level of production is 50 units, TFC is $500.

If total utility is increasing, marginal utility is A) increasing. B) decreasing. C) positive. D) negative. E) constant.

C) If total utility is increasing, marginal utility is positive.

Imposing an output quota below the competitive equilibrium level of output creates market inefficiency A) because the price paid by consumers increases. B) because the price received by producers increases. C) because some extra units of output in excess of the quota have a higher value to consumers than the value of resources needed for their production. D) in a market where demand is inelastic because total consumer expenditure on the good increases, but not in a market where demand is elastic and total consumer expenditure on the good falls. E) Both (a) and (d) since consumers are adversely affected in each case.

C) Imposing an output quota below the competitive equilibrium level of output creates market inefficiency because some extra units of output in excess of the quota have a higher value to consumers than the value of resources needed for their production. The reduction in output (to less than at the intersection of the D and S curves) creates the deadweight loss in economic surplus to which answer (c) refers. This would occur regardless of whether demand is elastic or inelastic (so answers (d) and (e) are wrong). And although the quota will increase the price paid by consumers and received by producers, it is the reduction in quantity, not the increase in price, that causes the deadweight loss (so answers (a) and (b) are wrong). Indeed, the deadweight loss would be created even if the quota were combined with a binding price ceiling that reduced the price paid by consumers and received by producers.

In addition to choosing the level of output, a firm in the long run must also select A) the appropriate technology. B) the amount of overtime for its labor force. C) the cost-minimizing combination of inputs. D) the proft-maximizing quantity of labor to employ with its fixed plant. E) All of the above.

C) In addition to choosing the level of output, a firm in the long run must also select the cost-minimizing combination of inputs.

In perfect competition, marginal revenue is A) the last dollar needed to make zero economic profit. B) the last dollar needed to make maximum profit. C) the change in revenue from selling an additional unit of output. D) the extra revenue generated by a $1 change in price. E) the revenue in excess of what can be earned in the next-best alternative.

C) In perfect competition, marginal revenue is the change in revenue from selling an additional unit of output.

Refer to graph on pg. 6 of Midterm. Suppose the government imposes a rent-controlled price of $600 per month on apartments in the city. In the short run we can except the shortage of apartments to be _____ units. A) 0 B) 1000 C) 300 D) 800 E) 200

C) In the short run we can except the shortage of apartments to be 300 units.

Total cost is $30 at 10 units of output and $32 at 11 units of output. In this range of output, marginal cost is A) equal to average total cost. B) greater than average total cost. C) less than average total cost. D) less than average fixed cost. E) indeterminable with the information provided.

C) In this range of output, marginal cost is less than average total cost. Total cost rises from $30 to $32, so the MC of the eleventh unit of output is $2. ATC = TC/Q = $30/10 = $3 and $32/11 = $2.91. Thus the MC of $2 is less than ATC.

The "paradox of value" arises from the fact that A) people can increase total utility by consuming more of a good with a negative marginal utility. B) some goods are essential for life. C) there is no necessary positive relationship between households' marginal and total values of consumption. D) the higher the price of a good, the greater is the total value of consumption. E) not all households behave as assumed in economic theory.

C) The "paradox of value" arises from the fact that there is no necessary positive relationship between households' marginal and total values of consumption.

The elasticity of supply for some product will tend to be larger A) the less time firms have to adjust to price changes. B) the higher is the elasticity of demand for the product. C) the easier it is for firms to shift from the production of this product to another. D) the lower is the elasticity of demand for the product. E) the harder it is for firms to shift from the production of this product to another.

C) The elasticity of supply for some product will tend to be larger the easier it is for firms to shift from the production of this product to another.

Refer to table on pg. 11 of Midterm. The implicit costs for this firm are A) $800. B) $30,800. C) $31,200. D) $30,400. E) $400.

C) The implicit costs for this firm are $31,200.

The law of diminishing returns states that A) as output increases, the rate of increase in costs will eventually decrease. B) as output increases, profits will eventually decline. C) the marginal product of a variable factor will eventually decrease. D) as more labor is employed, the wage rate will increase and thereby increase costs. E) as more labor is employed, the total product curve will eventually have a negative slope.

C) The law of diminishing returns states that the marginal product of a variable factor will eventually decrease.

The rental housing market is characterized by A) long-run and short-run supply elasticities of equal magnitude. B) perfectly inelastic demand in both the long run and the short run. C) short-run inelastic supply and long-run elastic supply. D) short-run elastic supply and long-run inelastic supply. E) elastic supply in both the short and long run.

C) The rental housing market is characterized by short-run inelastic supply and long-run elastic supply.

The substitution effect refers to the change in quantity demanded that results from a change in A) income. B) total utility. C) relative prices. D) the availability of substitute goods. E) marginal utility.

C) The substitution effect refers to the change in quantity demanded that results from a change in relative prices.

At its current level of output, a perfectly competitive firm's average variable cost is $8, average total cost is $10, and marginal cost is $9. If the market price is $10, this firm can increase profits by A) shutting down production. B) decreasing output. C) increasing output. D) increasing the market price. E) not changing output. This firm is at its profit-maximizing position.

C) This firm can increase profits by increasing output. pg. 232 #14

Suppose a firm doubles the amount of all of its factors of production and, as a result, output increases from 100 units to 300 units. This firm is operating under A) diseconomies of scale. B) long-run decreasing returns. C) decreasing costs. D) decreasing total cost. E) increasing cost.

C) This firm is operating under decreasing costs.

pg. 126 Total economic surplus on m units of output is A) bm. B) acfj. C) abfe. D) ack. E) jfm.

C) Total economic surplus on m units of output is abfe.

Which of the following is the best measure of productivity? A) Total output. B) Total output per hour. C) Total output per unit of resource input. D) Total output per dollar of revenue. E) Total profit per unit of output.

C) Total output per unit of resource input is the best measure of productivity.

When a firm uses its own funds to finance a project, A) the cost of these funds is zero because they are fixed costs. B) profits are greater because the firm does not have to borrow. C) the forgone interest that could have been earned by these funds is an implicit cost. D) future profits diminish when revenues are used to replace internal investment funds. E) profits are greater because they are not distributed to shareholders.

C) When a firm uses its own funds to finance a project, the forgone interest that could have been earned by these funds is an implicit cost. pg. 190 #1

With a downward-sloping straight-line demand curve, price elasticity of demand is A) increasing to the midpoint of the curve and then decreasing. B) decreasing continuously with price increases. C) rising continuously with price increases. D) constant everywhere on it. E) indeterminate.

C) With a downward-sloping straight-line demand curve, price elasticity of demand is rising continuously with price increases.

pg. 224 With a market price of $6, an output of 60 units could be the firm's long-run profit-maximizing output if A) the firm expected price to rise in the future. B) its long-run average cost curve is minimized at 55 units of output. C) other firms were barred from entering this industry. D) this firm could not exit the industry. E) the firm was experiencing decreasing returns to scale.

C) With a market price of $6, an output of 60 units could be the firm's long-run profit-maximizing output if other firms were barred from entering this industry. pg. 232 #8

Zero economic profit refers to A) what all firms, on average, obtain as a return on investment. B) the base used by Canada Revenue Agency to levy business taxes. C) revenue just equalling the owner's opportunity costs. D) the level of profits necessary to ensure that the firm covers its day-to-day operating expenses. E) a return to capital that is comparable to rates of return earned on bank deposits.

C) Zero economic profit refers to revenue just equalling the owner's opportunity costs.

According to utility theory, consumers will purchase successive units of each product until A) the MU of every good is the same. B) the average utility of every good is the same. C) the average utility of each goos equals its marginal utility. D) the marginal utility of the last dollar spent on each is the same. E) the ratio of total to marginal utility is the same for each good.

D) According to utility theory, consumers will purchase successive units of each product until the marginal utility of the last dollar spent on each is the same.

An increase in the price of a good and a decrease in total expenditure on this good are associated with A) inferior goods. B) substitute goods. C) normal goods. D) elastic demand. E) inelastic demand.

D) An increase in the price of a good and a decrease in total expenditure on this good are associated with elastic demand.

Which of the following would most likely explain why Arabella's demand curve for high-fashion dresses is upward-sloping? A) She prefers to give up more of other goods per dress than less of other goods. B) High-fashion dresses are a Giffen good. C) If she could pay less than the market price without other people knowing it, she would demand fewer dresses. D) A higher market price generates more units of admiration from other people. E) All of the above.

D) Arabella's demand curve for high-fashion dresses is upward-sloping because a higher market price generates more units of admiration from other people. pg. 165 #18

pg. 93 As price rises from $6(300) to $8(350) to $10 (400) per unit, the supply response is A) elastic. B) of unit elasticity. C) of zero elasticity. D) inelastic. E) infinitely elastic.

D) As price rises from $6(300) to $8(350) to $10 (400) per unit, the supply response is inelastic. The $4 price change is 50 percent of the average price of $8. The 100 increase in quantity supplied is 28.6 percent of the average of 350. So %∆QS/%∆P=28.6/50=.57 is less than 1, so supply is inelastic.

Which of the following commodities is most likely to have an elastic demand? A) Toothpicks B) Cigarettes C) Heart pacemakers D) Broccoli E) Vegetables

D) Broccoli

pg. 126 Economic surplus on the pth unit of output is A) pg minus dp. B) cdpn. C) dp plus gd. D) dp minus gp. E) gp.

D) Economic surplus on the pth unit of output is dp minus gp. The D curve lies below the S curve and so its production and consumption creates a deadweight loss. You still subtract the value of extra resources (dp) used in production fro the value to consumers (gp), but now you get a negative value (since gp>dp) for surplus on that unit-i.e., the amount by which production and consumption of this unit reduces total economic surplus.

Economists view an increase in economic surplus as improving market efficiency because A) consumers are made better off. B) producers and consumers are each made better off. C) government receives more tax revenue. D) gainers can, in principle, compensate losers and still be better off than before. E) gainers will, in practice, compensate losers and still be better off than before.

D) Economists view an increase in economic surplus as improving market efficiency because gainers can, in principle, compensate losers and still be better off than before.

pg. 227 If factor prices in this industry were constant and market price is initially P2, the long-run equilibrium will be A) at P3 and Qo. B) at P2 and Q1. C) at P1 and Q1. D) at Po and Q2. E) Indeterminate with the information provided.

D) If factor prices in this industry were constant and market price is initially P2, the long-run equilibrium will be at Po and Q2.

pg. 227 If factor prices were to decrease as industry output increased and market price were initially P2, the long-run equilibrium would be at A) P2 and Q1. B) P1 and Q1. C) Po and Q2. D) Some price greater than Po. E) Some price less than Po.

D) If factor prices were to decrease as industry output increased and market price were initially P2, the long-run equilibrium would be at some price greater than Po. pg. 233 #23

If labor is the variable factor, average product is defined as A) total product divided by total output. B) the quantity of labor divided by total product. C) the additional output produced by the last unit of labor. D) output per unit of labor. E) total product divided by capital.

D) If labor is the variable factor, average product is defined as output per unit of labor.

If marginal product is falling, marginal product A) is always less than average product. B) is always equal to average product. C) is always greater than average product. D) can be greater than, equal to, or less than average product. E) is negative.

D) If marginal product is falling, marginal product can be greater than, equal to, or less than average product. The fall in MP (when diminishing marginal productivity sets in) starts when MP>AP. As MP falls, AP continues to rise because MP>AP, until MP=AP. Further decline MP brings MP<AP, so AP now falls too.

If marginal utility is negative, total utility is A) negative. B) positive. C) increasing. D) decreasing. E) constant.

D) If marginal utility is negative, total utility is decreasing.

pg. 227 If market price were initially P2, this firm would eventually be in a long-run equilibrium at point A) A B) B C) C D) D E) None of the above.

D) If market price were initially P2, this firm would eventually be in a long-run equilibrium at point D. pg. 233 #20

If perfectly competitive firms are making losses in short-run equilibrium, the adjustment to long-run equilibrium A) is slower when it takes longer for capital to become obsolete. B) is faster in industries that do not require significant investment in capital. C) is faster if fixed costs are mainly non-sunk costs. D) All of the above. E) None of the above - the speed of exit will be the same in all industries making losses.

D) If perfectly competitive firms are making losses in short-run equilibrium, the adjustment to long-run equilibrium is slower when it takes longer for capital to become obsolete, is faster in industries that do not require significant investment in capital, and is faster if fixed costs are mainly non-sunk costs.

pg. 154 If the price were $8, this student's consumer surplus would be A) zero. B) $66. C) $18.50. D) $42. E) Cannot be determined with the information provided.

D) If the price were $8, this student's consumer surplus would be $42 At $8 four meals are demanded. Total expenditure is $8 * 4 = $32. Total value is $74. The difference, $74 - $32 = $42, is consumer surplus.

In the demand function for Good X, Q=400-.35Px + .01Pz -.001Y, where Pz is the price of another good and Y is average income, A) Good X and Z are normal goods. B) Good X is an inferior good, and Goods X and Z are complementary goods. C) Good X is a normal good, and Goods X and Z are substitute goods. D) Good X is an inferior good, and Goods X and Z are substitute goods. E) Good X is a normal good, and Goods X and Z are complementary goods.

D) In the demand function for Good X, Q=400-.35Px + .01Pz -.001Y, where Pz is the price of another good and Y is average income, Good X is an inferior good, and Goods X and Z are substitute goods. The minus sign on Y says that an increase in income reduces the demand for X (a negative or inverse relationship), so X is an inferior good. The plus sign on Pz says that an increase in the price of Z increases the demand for X (a positive or direct relationship), so X and Z are substitute goods.

In the market for a specific good, "economic surplus" measures A) the extent to which average costs of production fall as output rises. B) the degree of over-investment in the industry producing the good. C) the amount of excess supply at equilibrium. D) the net value to society of the amount produced. E) the proportion of total output produced that is actually sold.

D) In the market for a specific good, "economic surplus" measures the net value to society of the amount produced.

pg. 125 Assume that rents are controlled at price P*. Which of the following best describes the likely events if demand increases from D0 to D1? A) There will be no shortage of rental units in either the short run or the long run. B) Landlords will have less opportunity to discriminate among prospective tenants. C) The apartment shortage will be eliminated in the long run. D) Landlords will spend less on maintenance as well as new construction. E) All consumers will have access to more affordable housing.

D) Landlords will spend less on maintenance as well as new construction. pg. 134 #10

One possible explanation for economies of scale is A) invention and innovation. B) the introduction of new, better inputs. C) a decrease in a factor price. D) increased specialization of production tasks. E) technological improvement.

D) One possible explanation for economies of scale is increased specialization of production tasks.

Simultaneous increases in both demand and supply are predicted to result in A) increases in both equilibrium price and quantity. B) a higher equilibrium price but a smaller equilibrium quantity. C) a lower equilibrium price but a larger equilibrium quantity. D) a larger equilibrium quantity but no predictable change in price. E) a higher price, but no predictable change in equilibrium quantity.

D) Simultaneous increases in both demand and supply are predicted to result in a larger equilibrium quantity but no predictable change in price. pg. 69 #9

pg. 126 The deadweight loss from government imposing a minimum price of h dollars is A) bfc. B) the same as from imposing a maximum price of j dollars. C) the same as from imposing a quota of m units of output. D) All of the above. E) None of the above.

D) The deadweight loss from government imposing a minimum price of h dollars is bfc, the same as from imposing a maximum price of j dollars, and the same as from imposing a quota of m units of output. All three programs would result in an output of m units, resulting in the same deadweight los (bcf) and the same economic surplus (abfe).

The elasticity of supply for a product will tend to be larger A) the higher is the elasticity of demand for the product. B) the lower is the elasticity of demand for the product. C) the harder it is for firms to shift from the production of one product to another product. D) the easier it is for firms to shift from the production of one product to another product. E) the shorter the time period involved.

D) The elasticity of supply for a product will tend to be larger the easier it is for firms to shift from the production of one product to another product.

pg. 183 The firm's capacity is A) $10. B) 75 units of output. C) 200 units of output. D) 100 units of output. E) Indeterminable with information provided.

D) The firm's capacity is 100 units of output. "Capacity" output is defined in economics as the output level that gives the minimum average total cost of production.

The long-run average cost curve is determined by A) technology and tastes. B) long-run supply of output. C) population growth. D) technology and input prices. E) All of the above.

D) The long-run average cost curve is determined by technology and input prices.

The long-run time horizon A) is the same for all firms. B) allows the impact of new inventions to be felt. C) is defined as the minimum length of time it takes to vary output. D) is a length of time that is sufficient for all factors to be variable. E) allows for changes in only labor employment levels.

D) The long-run time horizon is a length of time that is sufficient for all factors to be variable.

The price elasticity of demand for snowmobiles is estimated to be 1.2; thus an increase in price A) always decrease quantity demanded by 12 percent. B) always decreases quantity demanded 1.2 percent. C) increases total expenditure. D) decreases total expenditure. E) decreases total expenditure by 1.2 percent.

D) The price elasticity of demand for snowmobiles is estimated to be 1.2; thus an increase in price decreases total expenditure. Because 1.2 exceeds unity, demand is elastic. An increase in price reduces total expenditure when demand is elastic, because the percentage fall in quantity demanded exceeds the percentage rise in price.

The price elasticity of demand is measured by the A) change in quantity demanded divided by the change in price. B) change in price divided by the change in quantity demanded. C) slope of the demand curve. D) percentage change in quantity demanded divided by the percentage change in price. E) average quantity demanded divided by the average price.

D) The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

pg. 93 The supply curve implied by the schedule is A) elastic for all price ranges. B) inelastic for all price ranges. C) of zero elasticity for all price ranges. D) of variable elasticity, depending on the initial price chosen. E) of constant elasticity.

D) The supply curve implied by the schedule is of variable elasticity, depending on the initial price chosen. The $2 reduction in price from $10 to $8 is 22 percent of the $9 average, and the resulting 50 fall in quantity supplied is 13 percent of the 375 average, for an elasticity of 13/22 = .59, which is less than 1 so supply is inelastic here (so answers (a) and (c) are wrong). The $2 reduction in price from $4 to $2 is 67 percent of the $3 average, and the resulting 150 fall in quantity supplied is 120 percent of the 125 average, for an elasticity of 120/67 = 1.8, which exceeds 1 so demand is elastic here (so answer (b) is wrong). Comparing the two price ranges, not only does the value of elasticity change (so answer (e) is wrong) but it varies between elastic and inelastic depending on the price range chosen (as answer (d) states).

If capital costs $8 per unit and labor costs $4 per unit, and a firm's marginal product of capital is 4 and the marginal product of labor is 8, this firm should A) employ more capital and labor. B) employ less capital and labor. C) employ more capital and less labor. D) employ less capital and more labor. E) not change its current factor use.

D) This firm should employ less capital and more labor. MPk/Pk = 4/8 = .5 and MPl/Pl = 8/4 = 2. Now MPk/Pk < MPl/Pl, so the firm should use less capital and more labor.

pg. 61 A change in equilibrium from A to D may be explained by A) an increase in Collegeville's student population. B) a decrease in the price of beef patties. C) a increase in the price of hot dogs coupled with an increase in the wages of restaurant employees. D) a technological improvement in the production of hamburgers coupled with consumer concern about mad cow disease. E) a decrease in the price of fries (a complement to hamburgers) coupled with a reduction in the wages of restaurant employees.

E) A change in equilibrium from A to D may be explained by a decrease in the price of fries (a complement to hamburgers) coupled with a reduction in the wages of restaurant employees. Only (a) and (e) have changes that increase demand (since a decrease in the price of beef patties increases quantity demanded, not demand). Only (d) and (e) have changes that increase supply. Since both demand and supply increase, the answer is (e).

A firm experiencing long-run increasing returns that decides to increase output should do so by A) substituting more labor and less capital. B) employing a new technology. C) employing less of each factor. D) building smaller plants. E) building larger plants.

E) A firm experiencing long-run increasing returns that decides to increase output should do so by building larger plants. pg. 210 #7

pg. 124 A price ceiling equal to P1 A) results in excess supply. B) results in excess demand. C) results in neither excess demand nor excess supply. D) can lead to a black market. E) has no effect.

E) A price ceiling equal to P1 has no effect.

pg. 204 A technological improvement can be characterized by A) a movement either from A to B or from C to D. B) a movement either from B to A or from D to C. C) a shift from SRATC1 to SRATC2. D) an upward shift in the LRAC curve. E) a downward shift in the LRAC curve.

E) A technological improvement can be characterized by a downward shift in the LRAC curve. pg. 211 #19

pg. 61 An increase in average student incomes and an increase in the number of hamburger firms can be depicted by a change in equilibrium from A) D to B. B) C to D. C) D to A. D) C to B. E) A to D or B to C, depending on whether hamburgers are a normal or an inferior goos, respectively.

E) An increase in average student incomes and an increase in the number of hamburger firms can be depicted by a change in equilibrium from A to D or B to C, depending on whether hamburgers are a normal or an inferior goos, respectively. pg. 70 #20

An increase in quantity demanded refers to A) rightward shifts in the demand curve only. B) a movement up along a demand curve. C) a greater willingness to purchase at each price. D) an increase in actual purchases. E) a movement down along a demand curve.

E) An increase in quantity demanded refers to a movement down along a demand curve.

For an inferior good, an increase in average incomes and simultaneous increase in production costs will A) increase equilibrium price and quantity. B) decrease equilibrium price and increase equilibrium quantity. C) increase equilibrium price but may increase or decrease equilibrium quantity. D) decrease equilibrium price but may increase or decrease equilibrium quantity. E) decrease equilibrium quantity but may increase or decrease equilibrium price.

E) For an inferior good, an increase in average incomes and simultaneous increase in production costs will decrease equilibrium quantity but may increase or decrease equilibrium price. pg. 70 #13

pg. 126 If area bf were equal to area cgd, total economic surplus on p units of output would be A) gd. B) bcf plus cgd. C) abfe minus cgd. D) the same as at equilibrium. E) the same as on m units of output.

E) If area bf were equal to area cgd, total economic surplus on p units of output would be the same as on m units of output.

If good B has to be jointly produced with good A ( e.g., as a byproduct of good A), market linkages will create pressure for A) an increase in demand for A to reduce the quantity demanded of B. B) an increase in demand for A to increase the price of B. C) a reduction in the supply of A to reduce the price of B. D) a reduction in the cost of producing A to reduce the supply of B. E) an increase in demand for A to increase the quantity demanded of B.

E) If good B has to be jointly produced with good A ( e.g., as a byproduct of good A), market linkages will create pressure for an increase in demand for A to increase the quantity demanded of B. If goods are complements in production, an increase in the output of one means more of the other is produced as well. An increase in demand for A increases the price of A, and producers react by producing more of A and more of its complement B. The increase in supply of B reduces the price of B, thereby increasing the quantity demanded (i.e., a movement along the demand curve for B).

pg. 227 If market price were P2, A) short-run profits would be maximized at point B. B) short-run profits would be zero. C) this firm will expand its capital. D) other firms will enter the industry. E) All of the above.

E) If market price were P2, short-run profits would be maximized at point B, short-run profits would be zero, this firm will expand its capital, and other firms will enter the industry. pg. 233 #21

If the government increased everyone's income tax rates to finance more generous benefits for seniors, the demand-and-supply model would predict (ceteris paribus) a change in equilibrium price and quantity for some commodities because of A) a change in supply. B) a change in quantity demanded by consumers. C) a change in average income with no change in the distribution of income. D) a change in demand caused by a change in average income changes. E) a change in the distribution of income with no change in average income.

E) If the government increased everyone's income tax rates to finance more generous benefits for seniors, the demand-and-supply model would predict (ceteris paribus) a change in equilibrium price and quantity for some commodities because of a change in the distribution of income with no change in average income.

In competitive markets, binding price floors and binding price ceilings lead to A) fairer prices for consumers and producers, and therefore are better for society as a whole. B) a maximization of economic surplus. C) an overall increase in economic surplus. D) a reduction in deadweight loss. E) an overall reduction in economic surplus, and therefore to market inefficiency.

E) In competitive markets, binding price floors and binding price ceilings lead to an overall reduction in economic surplus, and therefore to market inefficiency.

Assuming that labor is the only variable factor of production and the wage rate is constant, which of the following statements is true? A) If MP is rising, AVC must also be rising. B) If MP is falling, AVC must also be falling. C) If MC exceeds AVC, ATC must be rising. D) AFC falls as output rises in both the short run and the long run. E) None of the above.

E) None of the above. As rising MP gives a falling MC, and a falling MP gives a rising MC. But the implications for AVC in (a) and (b) depend on the level of MC compared to AVC (i.e., greater or less than), not on the direction of change in MC. This rules out (a) and (b)- neither must be happening. In (c), MC>AVC means AVC must be rising, but ATC may still be falling because of the effect of the falling AFC. Choice (d) is incorrect because fixed costs are zero in the long run.

Positive economic profit is A) the excess of revenues over explicit costs. B) the excess of revenues over implicit costs. C) the money income of the firm's owner. D) a signal for firms in other industries to expand their output. E) a signal for resources to enter the industry in the long run.

E) Positive economic profit is a signal for resources to enter the industry in the long run.

Since the goods and services tax is added to the price a consumer must pay for a commodity, the A) entire burden of the tax is borne by consumers. B) consumer price increases by the amount of the tax. C) seller price is unaffected. D) entire burden is borne by sellers who must collect the tax. E) distribution of the burden depends on the elasticities of demand and supply.

E) Since the goods and services tax is added to the price a consumer must pay for a commodity, the distribution of the burden depends on the elasticities of demand and supply.

The assumption that each firm in a perfectly competitive market is a price taker basically means that A) market price is independent of the level of industry output. B) each firm's supply curve is perfectly elastic. C) the industry supply curve is perfectly elastic. D) the firm can take any price it wants to choose and still sell all its output. E) changes in the output of an individual firm do not affect the market price.

E) The assumption that each firm in a perfectly competitive market is a price taker basically means that changes in the output of an individual firm do not affect the market price.

The assumptions of profit maximization and consistent decision making A) apply to single proprietorships only. B) apply to all forms of business organizations except transcontinental corporations. C) have been observed to be always true. D) imply that profit is the only factor that influences business decisions. E) allow theory to ignore the firm's internal and financial structures.

E) The assumptions of profit maximization and consistent decision making allow theory to ignore the firm's internal and financial structures.

The basic economic analysis of the effects of government intervention in a competitive market supports the conclusion that A) intervention should never be undertaken. B) intervention should be undertaken only if it does not reduce economic surplus. C) both positive and normative judgements argue for non-intervention. D) intervention should be undertaken only if it benefits consumers of that good. E) intervention can be desirable on grounds other than market efficiency.

E) The basic economic analysis of the effects of government intervention in a competitive market supports the conclusion that intervention can be desirable on grounds other than market efficiency.

The market demand curve for a conspicuous consumption good is ________ because ________. A) upward-sloping; lower prices reduce conspicuousness. B) upward-sloping; marginal utility per dress decreases with the number of dresses. C) downward-sloping; lower prices reduce conspicuousness. D) upward-sloping; higher prices create more consumer surplus for each individual consumer. E) downward-sloping; lower prices increase the number of consumers.

E) The market demand curve for a conspicuous consumption good is downward-sloping because lower prices increase the number of consumers. pg. 165 #19

The producers' share of the burden of a sales tax will be greater A) the more elastic is supply. B) the more inelastic is supply. C) the more elastic is demand. D) the more inelastic is demand. E) Both (b) and (c) are correct.

E) The producers' share of the burden of a sales tax will be greater the more inelastic is supply and the more elastic is demand. pg 104 #16

The total value Mr. Wimpy places on his consumption of hamburgers equals A) the amount he pays for them. B) price multiplied by marginal value. C) marginal value multiplied by quantity demanded. D) price multiplied by quantity demanded. E) his total expenditure on hamburgers plus his consumer surplus.

E) The total value Mr. Wimpy places on his consumption of hamburgers equals his total expenditure on hamburgers plus his consumer surplus.

When a firm increases employment of a variable input in the short run, it A) shifts the production possibility curve. B) shifts its total product curve upward. C) alters its production function. D) is making a long-run decision. E) moves along its total product curve.

E) When a firm increases employment of a variable input in the short run, it moves along its total product curve.

When a firm seeks to minimize the cost of producing a given output, it does not need to know A) the technically efficient input combinations. B) the economically efficient input combinations. C) its production function. D) the prices of inputs. E) the maximum level of profits.

E) When a firm seeks to minimize the cost of producing a given output, it does not need to know the maximum level of profits. pg. 210 #9

"Spreading overhead" refers to A) increasing capital to spread total costs. B) decreasing average fixed costs as output increases. C) increasing output to decrease average total costs. D) any decrease in total costs. E) increasing employment of the variable factor.

B) "Spreading overhead" refers to decreasing average fixed costs as output increases.

Refer to graph on pg. 9 on Midterm. Suppose the price of Y is $1 and the consumer's income is $10. Initially, the price of X is $2 and the consumer is buying 3 units of good X and 4 units of good Y. If the price of X then falls to $1, what quantities of X and Y will he/she now purchase in order to maximize total utility? A) 3 X and 7 Y. B) 6 X and 4 Y. C) 5 X and 5 Y. D) 2 X and 8 Y. E) 4 X and 6 Y.

B) 6 X and 4 Y.

A firm's capacity A) continuously declines as output increases. B) is the output level corresponding to minimum average total cost. C) is the size of its plant. D) varies with its labor employment. E) is the maximum output that can physically be produced with a given amount of capital.

B) A firm's capacity is the output level corresponding to minimum average total cost.

A decrease in the price of iPods will result in A) an increase in demand for iPods. B) a decrease in supply of iPods. C) an increase in the quantity demanded of iPods. D) a movement up along the demand curve for iPods. E) a rightward shift in the demand curve for iPods.

C) A decrease in the price of iPods will result in an increase in the quantity demanded of iPods.

A firm's capacity is defined as the level of output where A) average total cost is at its maximum. B) marginal cost equals average variable cost. C) short-run average total cost is at its minimum. D) the upper limit on what can be produced is reached. E) average fixed costs are at a minimum.

C) A firm's capacity is defined as the level of output where short-run average total cost is at its minimum.

A movement along a supply curve could be caused by A) an improvement in technology. B) a government subsidy to producers. C) a change in the price of the product. D) a change in the number of producers. E) a decrease in production costs.

C) A movement along a supply curve could be caused by a change in the price of the product.

An upward shift in the family of short-run cost curves as well as the long-run average cost curve could be explained by A) economies of scale. B) an increase in the fixed factor such as plant size. C) an increase in a factor price. D) a larger capital-labor ratio. E) technological improvement.

C) An upward shift in the family of short-run cost curves as well as the long-run average cost curve could be explained by an increase in a factor price. pg. 210 #8

Consumer surplus can be measured by the area between the demand curve and the A) quantity axis. B) supply curve. C) horizontal line at the market price. D) vertical line at the quantity demanded. E) price axis.

C) Consumer surplus can be measured by the area between the demand curve and the horizontal line at the market price.

Which of the following best describes "deadweight loss"? A) The difference between actual and equilibrium output. B) The difference between the actual price and the minimum that suppliers are willing to accept. C) The difference between actual price and the maximum that consumers are willing to pay. D) The potential economic surplus that is not created. E) All of the above; they all mean the same thing.

D) "Deadweight loss" is the potential economic surplus that is not created.

A firm's real capital refers to A) money borrowed from banks. B) the value of the firm's stocks. C) its start-up financing provided by the original owners. D) its plant and equipment. E) its undistributed profits.

D) A firm's real capital refers to its plant and equipment.

A long-run competitive equilibrium is impossible if A) there are no barriers to entry. B) all firms are producing where P = ATC. C) accounting profits are always positive. D) firms have downward-sloping LRAC curves at all levels of output. E) All firms have U-shaped (or saucer-shaped) LRAC curves.

D) A long-run competitive equilibrium is impossible if firms have downward-sloping LRAC curves at all levels of output. pg. 232 #17

A perfectly competitive market structure is best described by firms that A) allocate a substantial share of their budget to advertising. B) engage in cutthroat competition by denigrating each others' products. C) are subjected to government controls ensuring fair competition. D) do not actively advertise or undercut their competitor's prices. E) can override the market forces of demand and supply.

D) A perfectly competitive market structure is best described by firms that do not actively advertise or undercut their competitor's prices.

pg. 124 A price ceiling equal to P2 A) leads to a level of consumption that is greater than quantity supplied. B) results in a greater quantity produced than is actually sold. C) is often justified as a means of helping producers. D) may result in allocation by sellers' preferences. E) results in unsold stocks of output.

D) A price ceiling equal to P2 may result in allocation by sellers' preferences.

A production function in economics means A) any function performed by an employee when producing output. B) the various functions performed by all employees when producing output. C) the function performed by the person in charge of the production process. D) the relationship between inputs and output. E) All of the above.

D) A production function in economics means the relationship between inputs and output.

AVC is equal to A) MC + AFC. B) TVC per unit of labor. C) ATC + AFC. D) MC at the minimum point of AVC. E) ATC + MC.

D) AVC is equal to MC at the minimum point of AVC.

A change in the money price of a product, other things constant, is A) a change in its absolute price but not a change in its relative price. B) a change in its relative price but not a change in its absolute price. C) a change in both its relative price and its absolute price. D) a change in its opportunity cost. E) Both (c) and (d) are correct.

E) A change in the money price of a product, other things constant, is a change in its relative, absolute, and opportunity cost.