Microeconomics HW Questions Ch. 5-8
A demand curve reflects each of the following EXCEPT the Select one: a. willingness to pay of all buyers in the market. b. value each buyer in the market places on the good. c. highest price buyers are willing to pay for each quantity. d. ability of buyers to obtain the quantity they desire. e. benefits to the consumers.
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A profit-maximizing firm's primary goal is to maximize Select one: a. the difference between total revenues and total explicit costs. b. the ratio of total revenues to total costs. c. the difference between total implicit costs and total revenues. d. its total revenues in the short run. e. the difference between total revenues and total explicit and implicit costs.
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Assume the consumer is correctly applying the rational spending rule for goods X and Y. If the price of X falls, purchases of X and Y rise because Select one: a. the marginal utility of X decreases. b. the marginal utility of X increases. c. the marginal utility of Y decreases. d. combinations of X and Y that could not be considered before now become feasible. e. consumers income falls.
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At his current consumption level Cameron gets 3 times more marginal utility from an additional game of pinball than from an additional game of Spiderman. If the price of Spiderman games is $0.50, then he is maximizing utility if the price of a pinball game is Select one: a. $1.0 b. $1.5 c. $2.0 d. $2.5 e. $3.0
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Carsons marginal utility of playing air hockey is 6 after playing 5 games. His marginal utility for Laser Tag is 15 after 3 games. If air hockey costs $1 per game and Laser Tag costs $3 per game, to maximize his utility Carson should a. play Laser Tag more and play air hockey less. b. play Laser Tag less and play air hockey more. c. play Laser Tag only. d. play air hockey only. e. do both same amount of times.
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Carsons marginal utility of playing air hockey is 6 after playing 5 games. His marginal utility for Laser Tag is 15 after 3 games. If air hockey costs $1 per game and Laser Tag costs $3 per game, to maximize his utility Carson should Select one: a. play Laser Tag more and play air hockey less. b. play Laser Tag less and play air hockey more. c. play Laser Tag only. d. play air hockey only. e. do both same amount of times.
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Conditions that are necessary for a market to be perfectly competitive include: a. the firms sell a standardized product b. market-wise demand for the product is perfectly elastic c. firms can easily buy and sell the productive resources necessary to compete in the market d. Answers a, b, and c are all correct e. Answers a and c are correct
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One implication of the shape of the demand curve that faces a perfectly competitive firm is that Select one: a. if the firm increases its price above the market price, it will earn higher revenue. b. if the firm decreases its price below the market price, it will earn higher revenue. c. if the firm increases its price above the market price, it will earn zero revenue. d. if the firm decreases its price below the market price, it will capture the entire market. e. the market is unable to reach a new equilibrium if prices change.
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Suppose a perfectly competitive firm collects total revenues of $1,000 when it produces 200 units. The marginal costs of producing 200 units is $5. The firm should a. expand production because price is greater than marginal costs. b. contract production because price is greater than marginal costs. c. expand production because price is less than marginal costs. d. contract production because price is less than marginal costs. e. leave production unchanged because price equals marginal costs.
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Suppose a perfectly competitive firm confronts a price of $6 and produces 650 units. For this to be a point of profit maximization, Select one: a. total costs must exceed total revenues. b. the marginal cost of producing 650 units must be $6. c. total revenues must exceed total costs. d. the marginal cost of producing 650 units must be less than $6. e. total revenues must equal total costs.
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Suppose a perfectly competitive firm knows that it is not going to shutdown but it is going to earn a loss. It should pick the output level where a. total costs are minimized. b. price equals marginal costs. c. total revenues are maximized. d. the costs of the variable factors of production are minimized. e. price is greater than marginal costs.
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The law of diminishing marginal returns a. is a long run concept. b. applies only to small and medium sized firms. c. is a short and long run concept. d. applies only to large firms. e. is a short run concept.
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When some factors of production are fixed, equal sized increases in production will eventually require Select one: a. smaller increases in the variable factor. b. equal sized increases in the variable factor. c. larger increases in the variable factor. d. larger increases in the fixed factor. e. higher profits.
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Which of the following statements is not an example of the law of demand? Select one: a. "I think I'll wait to leave for work at 9:30 a.m. so that traffic is not so heavy." b. "The local record store has all their CD's on sale; I'm going to buy some right now." c. "With unemployment so high, I can't find a job. I think I'll enroll at the local college." d. "The increase in apartment rents is causing me to consider renting out our spare bedroom." e. "The internet has increased the amount of information I collect before making a purchase."
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Willingness to pay measures the Select one: a. amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. c. maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. d. maximum amount that a buyer will pay for a good. e. maximum amount that a buyer is able to pay for a good.
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Suppose a firm is collecting $1,700 in total revenues and its variable costs of production is $1,900 at its current level of output. In the short run, one can predict that the firm Select one: a. will shutdown. b. is earning a profit. c. will exit the industry. d. will continue to operate regardless whether it is earning a profit or loss. e. will have to raise its price.
a
When technology improves in the ice cream industry, consumer surplus will Select one: a. increase. b. decrease. c. not change, since technology affects suppliers and not consumers. d. increase, then decrease. e. increase, decrease, or remain unchanged, depending on the own-price elasticity of demand.
a
If the marginal utility per dollar is not the same for each good, the consumer could __________ her utility by spending __________ on goods for which the marginal utility per dollar is higher. a. decrease; more b. increase; more c. maximize; less d. increase; less e. minimize; more
b
Suppose a perfectly competitive firm confronts a price of $6 and produces 650 units. For this to be a point of profit maximization, a. total costs must exceed total revenues b. the marginal cost of producing 650 units must be $6 c. total revenues must exceed total costs d. the marginal cost of producing 650 units must be less than $6 e. total revenues must equal total costs
b
Suppose a perfectly competitive firm confronts a price of $6 and produces 650 units. For this to be a point of profit maximization, a. total costs must exceed total revenues. b. the marginal cost of producing 650 units must be $6. c. total revenues must exceed total costs. d. the marginal cost of producing 650 units must be less than $6. e. total revenues must equal total costs.
b
The rational spending rule is derived from the consumers efforts to a. maximize expenditures. b. maximize utility. c. minimize expenditures. d. obtain the lowest possible price. e. maximize his/her chance of becoming a member of the Republican Party.
b
The shutdown condition for a firm is where Select one: a. total revenues are less than the total cost of fixed and variable factors of production. b. total revenues are less than the cost of variable factors of production. c. total revenues are less than the cost of fixed factors of production. d. profits are negative. e. profits are zero.
b
When all buyers have identical demand curves, we can get the market demand curve by a. adding their quantity demanded vertically. b. multiplying each quantity by the number of consumers. c. adding all the prices first than adding all the quantity demanded. d. adding each consumer's utility. e. multiplying each consumer's utility by the number of consumers.
b
When all buyers have identical demand curves, we can get the market demand curve by Select one: a. adding their quantity demanded vertically. b. multiplying each quantity by the number of consumers. c. adding all the prices first than adding all the quantity demanded. d. adding each consumer's utility. e. multiplying each consumer's utility by the number of consumers.
b
A profit maximizing perfectly competitive firm must decide Select one: a. only on what price to charge, taking output as fixed. b. both what price to charge and how much to produce. c. only on how much to produce, taking price of the good as fixed. d. only on which industry to join, taking price and output as fixed. e. only on how much revenue it wishes to collect.
c
Average variable cost is defined as a. total cost divided by output. b. total cost divided by price. c. variable cost divided by output. d. variable cost divided by price. e. average total cost divided by output.
c
Average variable cost is defined as Select one: a. total cost divided by output. b. total cost divided by price. c. variable cost divided by output. d. variable cost divided by price. e. average total cost divided by output.
c
Lauras total utility from consuming 8, 9, and 10 bonbons is 35, 42, and 45 utiles, respectively. Her marginal utility from the 9th bonbon is __________. Select one: a. 42 b. 9 c. 7 d. 4.6 e. 77
c
The absolute price of a good in dollar terms is the Select one: a. market price b. equilibrium price c. nominal price d. marginal price e. real price
c
To produce 150 units of output, the firm must use 3 employee-hours. To produce 300 units of output the firm must use 8 employee-hours. Apparently, the firm is Select one: a. more profitable when the output level is 150 units. b. more profitable when the output level is 300 units. c. experiencing diminishing marginal returns. d. not using any fixed factors of production. e. failing to maximize profit.
c
A fixed factor of production Select one: a. is fixed in the long run but variable in the short run. b. plays no role in the law of diminishing marginal returns. c. is fixed in both the short run and the long run. d. is common in large firms but rare in small firms. e. is fixed only in the short run.
d
A person's reservation price for performing a task equals Select one: a. the equilibrium wage. b. the minimum wage in effect in that community. c. the total value of all of the other things the person could be doing during that time. d. the value of the most attractive alternative activity that the person could be doing during that time. e. the price for which the good produced could be sold.
d
Assume the consumer is correctly applying the rational spending rule for goods X and Y. If the consumers income increases, purchases of X and Y rise because a. the marginal utility of X decreases. b. the price of Y falls. c. the marginal utility of Y decreases. d. combinations of X and Y that could not be considered before now become feasible. e. the price of X increases.
d
Assume the consumer is correctly applying the rational spending rule for goods X and Y. If the consumers income increases, purchases of X and Y rise because Select one: a. the marginal utility of X decreases. b. the price of Y falls. c. the marginal utility of Y decreases. d. combinations of X and Y that could not be considered before now become feasible. e. the price of X increases.
d
If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then a. it is optimal for the consumer to have 3 cups of coffee. b. the price of a cup of coffee must be relatively low. c. it is optimal for the consumer to have 4 cups of coffee. d. there is evidence of the law of diminishing marginal utility. e. the price of a cup of coffee must be relatively high.
d
If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, then Select one: a. it is optimal for the consumer to have 3 cups of coffee. b. the price of a cup of coffee must be relatively low. c. it is optimal for the consumer to have 4 cups of coffee. d. there is evidence of the law of diminishing marginal utility. e. the price of a cup of coffee must be relatively high.
d
In general, if the marginal utility of the nth unit of a good is X, then the marginal utility of the (n - 1)th unit is a. less than X. b. equal to X. c. positive. d. greater than X. e. impossible to gauge without numbers.
d
In general, if the marginal utility of the nth unit of a good is X, then the marginal utility of the (n - 1)th unit is Select one: a. less than X. b. equal to X. c. positive. d. greater than X. e. impossible to gauge without numbers.
d
Individual supply curves generally slope upward because _____. a. individuals become more efficient with practice. b. profits increase with quantity. c. inputs are cheaper when purchased in high volume. d. the easiest tasks are completed first. e. of diminishing marginal utility.
d
Marginal cost is calculated as a. total revenue minus total costs. b. the change in output divided by the change in total costs. c. the percentage change in total costs divided by the percentage change in output. d. the change in total costs divided by the change in output. e. total revenue minus fixed costs.
d
Sabrina saved $50 from her allowance for a magic wand, but she got a wand as a gift from Halloween. Sabrina's consumer surplus is Select one: a. 0 b. the opportunity cost of her time c. the opportunity cost of her savings d. $50 e. impossible to calculate because she didn't pay for the want.
d
Suppose a firm is collecting $1,250 in total revenues and its variable costs of production is $1,000 at its current level of output. In the short run, one can predict that the firm Select one: a. will shutdown. b. is earning a profit. c. is earning a loss. d. will continue to operate regardless whether it is earning a profit or loss. e. will have to raise its price.
d
Suppose, a firm has $1,500 of variable costs and $500 of fixed cost when it produces 500 units of output and sells them for $4 per unit. Average variable cost at this output level is: a. $50 b. $20 c. $4 d. $3 e. $1
d
Suppose, a firm has $1,500 of variable costs and $500 of fixed cost when it produces 500 units of output and sells them for $4 per unit. Average variable cost at this output level is: Select one: a. $50 b. $20 c. $4 d. $3 e. $1
d
The affordable combination that yields the highest total utility is defined as the __________ combination of goods. a. affordable b. maximum c. utility satiating d. optimal e. economical
d
The law of diminishing marginal utility is defined as the tendency for the additional utility __________ from consuming an additional unit of a good to __________ as one consumes more and more of the good. a. lost; increase b. lost; decrease c. gained; increase d. gained; decrease e. gained; increase by one unit
d
The short run is defined as Select one: a. one year or less. b. precisely one "dog year." c. a period in which all factors of production are variable. d. a period in which at least one factor of production is fixed. e. a period in which at least one factor of production is variable.
d
The tendency for consumers to purchase more of a good or service as its price falls is called a. the law of supply. b. the law of increasing cost. c. the Low-Hanging Fruit Principle. d. the law of demand. e. the law of diminishing marginal utility.
d
To maximize profits, a firm should produce the output level where a. total costs are the lowest. b. variable costs are the lowest. c. total revenues are the largest. d. marginal revenues equal marginal costs. e. marginal costs are the lowest.
d
Which of the following statements is FALSE? a. Goods and services are valuable to consumers because they generate utility. b. Usually, marginal utility of a good decreases as you consume more. c. Utility cannot be quantified. d. The fourth hamburger usually increases total utility by more than the third hamburger. e. The marginal utility of a movie is likely to be different than the marginal utility of an automobile.
d
A fixed factor of production a. is fixed in the long run but variable in the short run. b. plays no role in the law of diminishing marginal returns. c. is fixed in both the short run and the long run. d. is common in large firms but rare in small firms. e. is fixed only in the short run.
e
A profit-maximizing firm's primary goal is to maximize a. the difference between total revenues and total explicit costs. b. the ratio of total revenues to total costs. c. the difference between total implicit costs and total revenues. d. its total revenues in the short run. e. the difference between total revenues and total explicit and implicit costs.
e
For two goods, A, and B, MUA/PA = 5, and MUB/PB = 4. Further, PA = $2 and PB = $1. The consumer should a. leave their choices as they are. b. purchase less of A and more of B. c. purchase more of A and B. d. purchase less of A and B. e. purchase more of A and less of B.
e
Suppose a perfectly competitive firm is collecting $1,325 in total revenues and the total cost of its fixed factors of production rise from $200 to $300. One can speculate that the firm will a. expand output to compensate for the cost increase. b. raise price to compensate for the cost increase. c. reduce the output level so as to earn greater profits (or smaller losses). d. reduce the output level and earn smaller profits (or greater losses). e. produce the same amount of output, but earn smaller profits (or greater losses).
e
The term marginal utility denotes the amount by which __________ changes when consumption changes by __________ unit(s). a. satisfaction; 5 b. demand; 5 c. demand; 1 d. total utility; 5 e. total utility; 1
e