Microeconomics Exam 2 9,10, & 12 Study Guide

21. Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the second sweatshirt is: A) $31. B) $16. C) $15. D) $14.

C) $15.

22. Look at the table Marginal Benefit of Sweatshirts. The marginal benefit of producing the third sweatshirt is: A) $31. B) $16. C) $15. D) $14.

C) $15.

46. Chuck spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. If the price of each good doubles and Chuck's income doubles: A) Chuck's budget line will be unaffected. B) Chuck's budget line will shift out. C) Chuck's budget line will shift in. D) Chuck will be able to buy more of both goods.

A) Chuck's budget line will be unaffected.

47. A line representing all possible combinations of two commodities that a consumer can purchase at a particular time, given the market prices of the commodities and the consumer's income, is: A) a budget line. B) a consumption line. C) an income consumption curve. D) an indifference curve.

A) a budget line

6. Suppose Eastland College does not have a summer program and could rent out the campus to various summer sports camps for $100,000. The potential revenue of the summer camps represents: A) an implicit cost of capital. B) an explicit cost. C) a total cost. D) a sunk cost.

A) an implicit cost of capital

4. Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs. A) $86,004; implicit B) $43,002; implicit C) $43,002; explicit D) $86,004; explicit

A) $86,004; implicit

7. In making an "either-or" decision: A) choose the activity that results in the greater economic profit. B) choose the activity that results in the greater accounting profit. C) continue in an activity as long as the marginal cost is greater than the marginal benefit. D) continue in an activity as long as the marginal cost is less than the marginal benefit.

A) choose the activity that results in the greater economic profit.

33. To say that you can't have too much of a good thing means that for any good that you enjoy (for example, pizza): A) higher consumption will always lead to higher utility. B) higher consumption will cause utility to decrease at an increasing rate. C) higher consumption will increase utility, but only up to a point; after that utility will start to decrease. D) it is valid to measure utility in utils.

A) higher consumption will always lead to higher utility.

34. The utility of a good is determined by how much _____ a particular consumer obtains from it. A) satisfaction B) usefulness C) cost D) need fulfillment

A) satisfaction

26. In economics, the assumption is that consumers and firms will make choices that maximize the _____ of each activity. A) total profit B) total benefit C) sum of total benefit and total cost D) product of total benefit and total cost

A) total profit

24. While eating pizza, you discover that the marginal benefit of eating one more slice is greater than the marginal cost of that slice. You conclude that: A) you will be better off if you eat one more slice. B) you will be no better off and no worse off if you eat one more slice. C) you will be worse off if you eat one more slice. D) the total cost of eating the pizza will be more than the total benefit of eating the pizza.

A) you will be better off if you eat one more slice.

45. Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. Put tacos on the horizontal axis and milkshakes on the vertical axis. The slope of Faruq's budget line is equal to: A) -1/5. B) -5. C) 1/5. D) 5.

B) -5.

40. Look at the table The Utility of Macaroni and Cheese. Carmen loves macaroni and cheese for Thanksgiving. The marginal utility she derives from the second serving she eats is: A) 35. B) 15. C) 10. D) 5.

B) 15.

14. For which of the following decisions would marginal analysis be relevant? A) spending $1,000 on a summer vacation or on painting your house B) deciding how much to spend on a summer vacation C) buying a new car or a second-hand car D) eating dinner at home or going out to a restaurant for dinner

B) deciding how much to spend on a summer vacation

20. Marginal benefit: A) is the subsidiary benefit from an activity; for example, the main benefit from weight training is an increase in muscle mass, and the subsidiary or marginal benefit might be a reduction in cholesterol. B) is the addition to total benefit due to undertaking one more unit of an activity. C) must be increasing if total benefit is increasing. D) normally increases as more of an activity is undertaken.

B) is the addition to total benefit due to undertaking

39. When an individual continues to eat more turkey, if the principle of diminishing marginal utility applies, each additional serving yields: A) more marginal utility. B) less marginal utility. C) the same amount of marginal utility. D) total utility at a maximum while the marginal utility is still increasing.

B) less marginal utility.

35. An individual gets 5 units of utility from one slice of pizza and 9 units of utility from two slices of pizza. The principle of diminishing marginal utility implies that the total utility from three slices of pizza will be _____ units of utility. A) exactly 12 B) less than 13 C) less than 9 D) more than 14

B) less than 13

25. Pauli's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Sal orders two slices. From this we know that Sal's marginal benefit from the second slice must be at least ___ and the marginal benefit from the third slice must be less than _____. A) $3.50; $4.50 B) $3.50; $1.00 C) $1.50; $1.00 D) $1.50; $4.50

C) $1.50; $1.00

Use the following to answer questions 10-11: Scenario: Accounting and Economic Profit Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year, Tommy Wang quit his job, which paid $60,000 per year, and started Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for advertising. Instead of using the capital for his own business, he could rent it to a rival firm and earn $5,000 a year. In his 1st year, his revenue was $150,000. 10. Look at the scenario Accounting and Economic Profit. The implicit cost of capital for Wicker's Furniture Store is: A) $0. B) $2,000. C) $5,000. D) $50,000.

C) $5,000.

28. Look at the table Marginal and Total Benefit. Sed is deciding how many football games he wants to attend this year. If the games are free, how many games should he attend? A) 1 B) 5 C) 7 D) 8

C) 7

2. Accountants use only _____ costs in their computations. A) opportunity B) implicit C) explicit D) variable

C) explicit

41. Look at the table The Utility of Macaroni and Cheese. Carmen loves macaroni and cheese for Thanksgiving. Carmen's total utility is maximized when she eats the _____ serving. A) first B) second C) fifth D) sixth

C) fifth

31. A person who is risk averse: A) always makes irrational decisions. B) always makes rational decisions. C) is willing to pay to avoid economic loss. D) enjoys taking risks.

C) is willing to pay to avoid economic loss.

37. The principle of diminishing marginal utility means that when Sarah eats pizza, her satisfaction from the second slice of pizza is probably _____ that from the first. A) greater than B) equal to C) less than D) not comparable to

C) less than

23. In general, when marginal benefit is greater than marginal cost, the decision maker should do __ of the activity. A) less B) that exact amount C) more D) none

C) more

36. Which of the following best describes the principle of diminishing marginal utility? As an individual consumes more of a good: A) the total utility obtained will eventually fall. B) the total utility obtained will eventually become negative. C) the addition to total utility obtained from the nth unit of the good will be less than that obtained from the immediately preceding unit of the good. D) the marginal utility will eventually become negative.

C) the addition to total utility obtained from the nth unit of the good will be less than that obtained from the immediately preceding unit of the good.

3. The implicit cost of capital is: A) the expense associated with leasing machines. B) the expense associated with buying machines. C) the opportunity cost of capital used by a business. D) irrelevant for determining economic profit.

C) the opportunity cost of capital used by a business.

13. In economic analysis, the principle of marginal analysis refers to: A) dividing large problems into smaller, more manageable ones. B) the notion that a group's problems can be effectively analyzed by focusing on only a small subsample of the group. C) the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost. D) the result that the optimal quantity of an activity is that at which the net benefit of the representative, or marginal, individual is maximized.

C) the result that the optimal quantity of an activity is that at which marginal benefit is equal to marginal cost.

1. Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college? A) tuition B) textbooks C) the salary that she could have earned working full-time D) computer lab fees

C) the salary that she could have earned working full-time

12. In economics, a marginal value refers to: A) the value associated with an unimportant, or marginal, activity. B) a value entered as an explanatory item in the margin of a balance sheet or other accounts. C) the value associated with one more unit of an activity. D) a value that is most appropriately identified in a footnote.

C) the value associated with one more unit of an activity.

29. Denaro pays $8,000 per month in rent to operate a health club in Memphis. He also pays $17,000 per month in wages, $3,000 per month in food and supplies, and $1,000 per month in insurance. All of his costs of production except his insurance and rent can change if he makes different decisions about his health club production. Denaro's monthly sunk costs equal: A) $20,000. B) $11,000. C) $29,000. D) $9,000.

D) $9,000.

9. Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $230,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is: A) $230,000. B) $30,000. C) $0. D) -$12,000.

D) -$12,000.

11. Look at the scenario Accounting and Economic Profit. The economic profit of Wang's Wicker Furniture Store is: A) $67,000. B) $0. C) -$20,000. D) -$35,000.

D) -$35,000.

27. Look at the table Marginal and Total Benefit. Sed is deciding how many football games he wants to attend this year. If tickets to each football game cost $10, then he should attend _____ game(s). A) 0 B) 1 C) 2 D) 5

D) 5

8. Which of the following is an "either-or" decision? A) Allen must decide how many courses to take this semester. B) Sally must decide how many hours to spend studying for each of the four courses that she is taking this semester. C) Chris must decide how many hours to work each week at his part-time job. D) Dylan must decide whether to major in economics or finance.

D) Dylan must decide whether to major in economics or finance.

30. Economists' and psychologists' attempts to understand and explain why people make decisions that appear to be irrational is the field of study called _____ economics A) international B) irrational C) rational D) behavioral

D) behavioral

5. Accounting profit differs from economic profit because: A) of differences in the manner in which revenue is calculated. B) economic costs include explicit costs, while accounting costs do not. C) accounting costs are generally higher than economic costs because accounting costs include explicit and implicit costs, while economic costs include only explicit costs. D) economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

D) economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

38. The amount by which total utility changes when an additional unit of a good is consumed is called__ utility. A) average B) additional C) maximum D) marginal

D) marginal

32. The relation between an individual's consumption bundle and her satisfaction is called a _____ function. A) demand B) production C) consumption D) utility

D) utility