Exam 1

Answer the question on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10. The total cost of producing 4 units of output is

$31.

Answer the question on the basis of the following cost data. The total cost of four units of output is

$310

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total variable costs are.

$5000

The sole proprietor of the Milwaukee Machine Company receives all accounting profits earned by her firm. She has a standing salary offer of $35,000 a year to work for a large corporation. If she had invested her capital outside her own company, she estimates that would have returned $22,000 this year. If accounting profits for the year were $50,000, then her economic profits were (based solely on the given figures)

$−7,000.

The law of supply suggests that the price-elasticity of supply is

always less than 1.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by

an increase in incomes if the product is a normal good.

Refer to the graph. Suppose you had tastes as described by the indifference curves above. If your income was $90, Px = 30, and Py = 10, which combination of X and Y would maximize your utility?

0X and 9Y

Use the following data to answer the question. The letters A, B, and C designate three successively larger plant sizes. In the long run, the firm should use plant size "C" for

10 to 30 units of output.

(Advanced analysis) The demand for commodity X is represented by the equation P = 100 − 2Q and supply by the equation P = 10 + 4Q. The equilibrium quantity is

15

The question is based on the following table, which provides information on the production of a product that requires one variable input. With the addition of the second unit of input, the marginal product is

15 and the average product is 10.

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18. If the price of X decreases to $2, then the utility-maximizing combination of the two products is

2 of X and 5 of Y.

When the price of a product is increased 8 percent, the quantity demanded decreases 20 percent. The price-elasticity of demand coefficient for this product is

2.5

Answer the question based on the table below showing the marginal utility schedules for product X and product Y for a hypothetical consumer. The price of product X is $4, and the price of product Y is $2. The income of the consumer is $20. If the consumer buys both product X and product Y, how much will the consumer buy of each in order to maximize utility?

3X and 4Y

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

4

Refer to the data. The value for Y is

45

Which of the following statements is not correct?

A reduction in money income will shift the budget line to the right. An increase in product prices will shift the budget line to the left. A reduction in money income accompanied by an increase in product prices will necessarily shift the budget line to the left. An increase in money income will shift the budget line to the right.

Refer to the diagrams. The case of complementary goods is represented by figure

C

If price changes and total revenue changes in the opposite direction, demand is relatively elastic.

False

The demand for cocaine among addicts is relatively elastic.

False

Refer to the graphs above. Which one shows a perfectly elastic demand?

Graph A

(Advanced analysis) The equation for the supply curve in the diagram shown is approximately

P = 4 + 0.3Q.

Refer to the provided graph. If the firm is producing at Q1, the area BADE represents

total fixed costs.

Answer the question on the basis of the following information. TFC = Total Fixed Cost Q = Quantity of Output MC = Marginal Cost P = Product Price TVC = Total Variable Cost Average total cost is _______.

TFC + TVC / Q

Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.

True

In a competitive market, every consumer willing to pay the market price can buy a product and every producer willing to sell the product at that price can sell it.

True

Marginal product is highest where marginal cost is lowest.

True

The short-run marginal-cost curve is upward-sloping because of the law of diminishing marginal returns.

True

With a fixed money income, an increase in the price of one good and a decrease in the price of the other will cause the new budget line to intersect the original budget line.

True

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.

Which would cause an increase in the supply curve of cell-phone services?

a decrease in the wages of cell-phone company workers

If long-run average total cost decreases as output increases, this is due to

economies of scale.

The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for

economies of scale.

For a linear demand curve,

demand is elastic at relatively high prices.

If the long-run average total cost curve for a firm is horizontal in the relevant range of production, then it indicates that there

are constant returns to scale.

The marginal rate of substitution measures the

consumer's willingness to substitute one product for another so that total utility will remain constant

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; Good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from Good A to

decrease and total revenues from Good B to decrease.

Refer to the table. In relation to column (3), a change from column (5) to column (4) would indicate a(n)

decrease in supply.

Total fixed costs of production in the short run

increase as the firm produces more output.

Suppose the price elasticity of demand for beef is about 0.6. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to

increase by approximately 12 percent.

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects

increasing returns, followed by diminishing returns.

If government set a maximum price of $45 in the market,

it would create neither a shortage nor a surplus.

If the short-run average variable cost of production for a firm is decreasing, then it follows that

marginal cost must be below average variable cost.

Refer to the provided graph. At which point is marginal product (MP) at its maximum?

point A

We would expect the cross elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods.

The law of supply indicates that, other things equal,

producers will offer more of a product at high prices than at low prices.

Other things equal, if the price of a key resource used to produce product X falls, the

supply curve of product X will shift to the right.

Economic cost can best be defined as

the income the firm must provide to resource suppliers to attract resources from alternative uses.

An increase in the price of product X causes a decrease in the quantity demanded for product X. One basic explanation for this is

the law of diminishing marginal utility.

The basic difference between the short run and the long run is that

the law of diminishing returns applies in the long run but not in the short run.

If the law of diminishing returns applies to study time,

the tenth hour of study will likely be less productive than the third.

The ability of a good or service to satisfy wants is called

utility