EXAM 2 ECON 211 Dan Yang

Accounting costs and economic costs differ because a. Economic costs include implicit costs and accounting costs do not. b. Accounting costs include implicit costs and economic costs do not. c. Accounting costs include explicit costs and economic costs do not. d. Economic costs include explicit costs and accounting costs do not.

a. Economic costs include implicit costs and accounting costs do not.

A competitive firm a. Is a price taker. b. Confronts a downward-sloping firm demand curve. c. Has the market power to compete effectively. d. Is large enough relative to the market to be taken into account by competitors.

a. Is a price taker.

The term transfer payments refers to a.Payments to individuals that are not in exchange for current goods and services being produced. b.Money that is transferred between savings and checking accounts. c.Federal income taxes. d.Additional profits transferred to monopolies as a result of their market power.

a. Payments to individuals that are not in exchange for current goods and services being produced.

The period in which at least one input is fixed in quantity is the a. Short run. b. Long run. c. Investment decision. d. Production run.

a. Short run.

Which of the following is always downward-sloping? a. The average total cost curve when it is above the marginal cost curve. b. The average total cost curve when it is below the marginal cost curve. c. The marginal cost curve when it is below the average total cost curve. d. The marginal cost curve when it is above the average total cost curve.

a. The average total cost curve when it is above the marginal cost curve

Table 21.1 Units of Labor Units of Output 0 0 1 15 2 35 3 45 4 52 What is the marginal physical product of the second unit of labor in Table 21.1? a.20. b.17. c.5. d.35.

a.20.

Table 19.2 Quantity Consumed Total Utility Marginal Utility 1 15 15 2 - 9 3 30 -- 4 -- 3 In Table 19.2, the marginal utility of the third unit is a.6. b.3. c.30. d.5.

a.6.

When the average total cost curve is rising, the marginal cost curve will be a.Above the average total cost curve. b.Falling with greater output. c.Below the average total cost curve. d.Below the average fixed cost curve.

a.Above the average total cost curve.

When technology improves, the firm's marginal cost curve shifts a.Downward, and supply increases. b.Upward, and supply decreases. c.Downward, and supply decreases. d.Upward, and supply increases.

a.Downward, and supply increases.

If Good X has social demand that is less than market demand, then Good X must be a a.Good with an external cost. b.Good suffering from the free-rider problem. c.Good with an external benefit. d.Public good.

a.Good with an external cost.

For perfectly competitive firms, price a.Is equal to marginal revenue. b.Is less than marginal revenue. c.Is greater than marginal revenue. d.And marginal revenue are not related.

a.Is equal to marginal revenue.

The perfectly competitive market structure includes all of the following except a.Large advertising budgets. b.Many firms. c.Low entry barriers. d.Identical products.

a.Large advertising budgets.

Economic profit is a.Less than accounting profit by the amount of implicit cost. b.Greater than accounting profit by the amount of explicit cost. c.Greater than accounting profit by the amount of implicit cost. d.Less than accounting profit by the amount of explicit cost.

a.Less than accounting profit by the amount of implicit cost.

A competitive firm should always continue to operate in the short run as long as a.MR > AVC. b.MR > MC. c.P<AVC. d.P < ATC.

a.MR > AVC.

Diminishing returns occur because a. Of the use of inferior factors of production. b. A firm increases the amount of a variable input without changing a fixed input. c. Of inefficiency in the production process. d. Of lower opportunity costs of the factors of production.

b. A firm increases the amount of a variable input without changing a fixed input.

A production function shows a. How total costs increase as labor is added. b. How a firm's production changes as quantity of labor and other inputs changes. c. How production changes as its unit costs go up. d. How a firm's costs of production increase as it produces more goods.

b. How a firm's production changes as quantity of labor and other inputs changes.

The long-run average total cost curve is constructed from the a. Minimum points of the short-run marginal cost curves. b. Lowest average total cost for producing each level of output. c. Minimum points of the long-run marginal cost curves. d. Minimum points of the short-run average variable cost curves.

b. Lowest average total cost for producing each level of output.

If the marginal physical product (MPP) is falling, then the a. Total cost of each unit of output is falling. b. Marginal cost of each unit of output is rising. c. Total cost of each unit of output is rising. d. Marginal cost of each unit of output is falling.

b. Marginal cost of each unit of output is rising.

Economies of scale are reductions in average a. Fixed cost resulting from improved technology and production efficiency. b. Total cost that result from using operations of larger size. c. Total cost that result from declining average fixed costs. d. Fixed cost that result from reducing the firm's scale of operations.

b. Total cost that result from using operations of larger size.

In the short run, when a firm produces zero output, variable cost equals a. Total cost. b. Zero. c. Fixed cost. d. Marginal cost.

b. Zero.

Table 21.4 Output (Units per Day) Total Cost (Dollars per Day) 0 16 1 30 2 42 3 58 4 78 At 4 units of output in Table 21.4, total fixed costs are a.$20.00. b.$16.00. c.$78.00. d.$19.50.

b.$16.00.

Table 19.2 Quantity Consumed Total Utility Marginal Utility 1 15 15 2 -- 9 3 30 -- 4 -- 3 In Table 19.2, the total utility when two units are consumed is a.6. b.24. c.15. d.9.

b.24.

If a product has a high marginal utility, then a.The demand curve will be downward-sloping. b.A consumer is willing to pay a high price for it. c.Consumers will not purchase any more of the good. d.Consumers will also have a low total utility.

b.A consumer is willing to pay a high price for it.

The marginal cost curve intersects the minimum of which of the following cost curves? a.AFC. b.ATC. c.MPP. d.TC.

b.ATC.

Which of the following produces external benefits? a.Garbage dumped in the Atlantic Ocean. b.College students getting vaccinated against the flu. c.Passive smoke in a public building. d.All of the choices are correct.

b.College students getting vaccinated against the flu.

In the short run, when a firm produces zero output, total cost equals a.Marginal costs. b.Fixed costs. c.Zero. d.Variable costs.

b.Fixed costs.

The supply curve is upward-sloping (i.e., it takes a higher price to induce greater production) because of a.The decreasing skill level of additional workers. b.Increasing marginal costs. c.Increasing total costs. d.Increasing fixed costs.

b.Increasing marginal costs.

A consumer maximizes total utility from a given amount of income when the a.Total utility obtained from each product is the same. b.Marginal utility per dollar obtained from the last unit of each good is the same. c.Marginal utility of the last unit of each good is the same. d.Amount spent for each product is the same.

b.Marginal utility per dollar obtained from the last unit of each good is the same.

When market failure occurs, the role of government is to a.Do nothing. b.Push market outcomes closer to the ideal. c.Eliminate markets. d.Create an alternative to markets.

b.Push market outcomes closer to the ideal.

Rosa is willing to pay $200 for the iPhone, but the actual price is $400. This means a.Rosa will enjoy a consumer surplus of $200 if she buys the iPhone. b.Rosa will not buy an iPhone. c.Rosa will buy this product but will not receive any consumer surplus. d.The iPhone is overpriced.

b.Rosa will not buy an iPhone.

Which of these examples is an example of price discrimination? a.Cereal manufacturers put discount coupons inside their cereal boxes. b.Seniors pay one price at the movie theater and adults pay more. c.Wholesale prices differ from retail prices. d.Goods are marked down on sale.

b.Seniors pay one price at the movie theater and adults pay more.

If the consumption of a good yields external benefits, then a.The social demand is less than the market demand. b.The social demand is greater than the market demand. c.There is neither social demand nor market demand for the good. d.The social demand is equal to the market demand.

b.The social demand is greater than the market demand.

Total utility is a.A function that always falls as a buyer enjoys more units of a good. b.The sum of the marginal utilities from the consumption of good. c.How much utility a seller gets from producing a good. d.The additional utility from consuming one more unit of a good.

b.The sum of the marginal utilities from the consumption of good.

The sum of fixed cost and variable cost at any rate of output is a.Average marginal cost. b.Total cost. c.Total variable cost. d.Average total cost.

b.Total cost.

Marginal revenue is the change in a.Average revenue when price is changed. b.Total revenue when output is changed. c.Total revenue when price is changed. d.Average revenue when output is changed.

b.Total revenue when output is changed.

Profit per unit is equal to a.TR - ATC. b.TR - TC. c.P - ATC. d.P - MR.

c. P - ATC.

An increase in production in the short run definitely results in an increase in a. Average total costs. b. Average fixed costs. c. Total costs. d. Marginal costs.

c. Total costs.

Table 21.4 Output (Units per Day) Total Cost (Dollars per Day) 0 16 1 30 2 42 3 58 4 78 The marginal cost of the fourth unit of output in Table 21.4 is a.$16.00. b.$4.00. c.$20.00. d.$19.50.

c.$20.00.

Explicit costs a.Are the total opportunity costs of resources used to produce a good. b.Include only payments to entrepreneurship. c.Are the sum of actual monetary payments made for the use of resources. d.Include the market value of all resources used to produce a good.

c.Are the sum of actual monetary payments made for the use of resources.

The demand curve confronting a competitive firm is a.Downward-sloping, while market demand is flat. b.Horizontal, as is market demand. c.Horizontal, while market demand is downward-sloping. d.Downward-sloping, as is market demand.

c.Horizontal, while market demand is downward-sloping.

Market failure implies that the market mechanism a.Leads the economy to a point outside the production possibilities curve. b.Causes government failure. c.Leads the economy to the wrong mix of output. d.Causes shortages or surpluses in the market.

c.Leads the economy to the wrong mix of output.

Suppose that if your income is $100,000, your tax is $20,000, but if your income is $200,000, your tax is $45,000. Such a tax is a.A flat tax. b.Proportional. c.Progressive. d.Regressive.

c.Progressive.

Market failure may lead to a.The absence of externalities. b.An equitable distribution of goods and services. c.Public goods being underproduced. d.Production possibilities.

c.Public goods being underproduced.

Which of the following explains what would likely happen if public goods were marketed like private goods? a.Public goods would be overproduced. b.Many consumers would want to buy the goods. c.Public goods would be underproduced. d.Government failure would result.

c.Public goods would be underproduced.

A perfectly competitive firm should expand output when a.P < ATC. b.P < MC. c.P > ATC. d.P > MC.

d. P > MC.

Perfect competition is a situation in which a. Every year, owners are likely to earn economic losses. b. There are many firms and several buyers or sellers have market power. c. Every year, owners are likely to earn economic profits. d. There are many firms and no buyer or seller has market power.

d. There are many firms and no buyer or seller has market power.

Economic profit is the difference between a. Accounting profits and external costs. b. Accounting profit and explicit costs. c. Total costs and total economic costs. d. Total revenues and total economic costs.

d. Total revenues and total economic costs.

Table 21.4 Output (Units per Day) Total Cost (Dollars per Day) 0 16 1 30 2 42 3 58 4 78 At 2 units of output in Table 21.4, the average variable cost is a.$21. b.$12. c.$6. d.$13.

d.$13.

See Figure 19.1. Lu's consumer surplus is equal to a.$200. b.$100. c.$300. d.$500.

d.$500.

Which of the following occurs if government intervention forces the economy inside the production possibilities curve? a.Externalities. b.Market failure. c.Income inequality. d.Government failure.

d.Government failure.

Which of the following explains why flood control is a public good? a.Flood control is paid for by taxpayers. b.There are external benefits associated with its consumption. c.The private sector usually produces flood control projects. d.It is not divisible and therefore cannot be kept from people who do not pay.

d.It is not divisible and therefore cannot be kept from people who do not pay.

The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of the a.Law of demand. b.Law of diminishing total utility. c.Total revenue rule. d.Law of diminishing marginal utility.

d.Law of diminishing marginal utility.

Short-run profits are maximized at the rate of output where a.Marginal revenue is zero. b.Total revenue is maximized. c.Average total costs are minimized. d.Marginal revenue is equal to marginal cost.

d.Marginal revenue is equal to marginal cost.

Using Figure 4.1, suppose that point B represents the optimal mix of output for a society. If market forces cause society to produce and consume at point C, then a.Points A and D are unattainable with the given resources and technology. b.The forces of supply and demand will return society to point B. c.There is government failure. d.There is market failure.

d.There is market failure.