Principles of Economics 2e Chapters 6
The most common pattern for marginal utility is ____________________. A. diminishing marginal utility B. a budget constraint model C. a long-term perspective theoretical model D. substitute consumption
A. diminishing marginal utility
The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit. A. diminishing marginal utility B. marginal utility pattern C. marginal income utility D. decreasing marginal utility
A. diminishing marginal utility
According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will A. do so regardless of what type of competition exists in a market. B. take a long-run perspective on costs, when such costs cannot be adjusted. C. take a short-run perspective on labor costs which cannot be immediately changed. D. breakdown its cost structure according to short-run adjustments.
A. do so regardless of what type of competition exists in a market.
The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________. A. economies of agglomeration; corresponding diseconomies B. economies of scale; agglomeration factors C. diverse population; greater returns to scale of illegal activities D. constant returns to scale; market-orientated system
A. economies of agglomeration; corresponding diseconomies
When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________. A. economies of scale; a larger factory can produce at a lower average cost than a smaller company. B. economies of scale; a smaller factory can produce at a lower average cost than a larger company. C. low labor inputs; larger scale of production leads to higher costs. D. labor inputs; economies-of-scale curve is U-shaped.
A. economies of scale; a larger factory can produce at a lower average cost than a smaller company.
When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________. A. elastic B. inelastic C. having zero elasticity D. price inelasticity
A. elastic
The term "constant returns to scale" describes a situation where A. expanding all inputs does not change the average cost of production. B. a larger-scale firm can produce at a lower cost than a smaller-scale firm. C. expanding all inputs changes the average cost of production. D. the quantity of output rises and the average cost of production falls.
A. expanding all inputs does not change the average cost of production.
If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output, A. expanding output levels at any given price will be profitable. B. producing less at any market price will off-set marginal cost . C. the firm's marginal cost curve will shift to the left. D. the firm's demand curve will also shift to the left.
A. expanding output levels at any given price will be profitable.
A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production. A. fixed costs; do not change, B. variable costs; are constantly changing, C. fixed costs; are consistently changing, D. variable costs; do not change,
A. fixed costs; do not change,
When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make. A. income level of each household B. national average spending level C. national average savings level D. nation's perennial political debate
A. income level of each household
A. economies of scale; a larger factory can produce at a lower average cost than a smaller company.
A. it allows all factors of production to change.
I'maGoldMiner has benefited from a record rise in gold prices in the global commodities market. While the price of its output is highly influenced by market speculation, if it wants to increase production to take advantage of the current profit-maximizing opportunity, the company A. must accept market price for its physical capital inputs. B. must reduce what it pays for inputs that make up its costs of production. C. must reduce production to encourage speculators to drive gold prices higher. D. must alter the price of its labor inputs to maximize profits.
A. must accept market price for its physical capital inputs.
The government distributes food stamps that can only be used to acquire food to low-income families. The budget line graph will show food on the horizontal axis and everything else on the vertical axis. After receiving food stamps, Ted's family is able to consume the same amount of food. The new consumption point for Ted's family will be: A. on the new budget line, directly above the old consumption point. B. on the new budget line, above and to the right of the old consumption point. C. on the new budget line, directly to the right of the old consumption point. D. remain precisely the same as the old consumption point.
A. on the new budget line, directly above the old consumption point.
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it? A. physical space for the gallery B. costs of purchasing art work to sell in the gallery C. wages paid to three part-time employees D. accountant's fees for preparing tax returns
A. physical space for the gallery
If a perfectly competitive firm is a price taker, then A. pressure from competing firms will force acceptance of the prevailing market price. B. it must be a relatively small player compared to its competitors in the overall market. C. it can increase or decrease its output without affecting overall quantity supplied in the market. D. quality differences will be very perceptible and will play a major role in purchasers' decisions.
A. pressure from competing firms will force acceptance of the prevailing market price.
If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers? A. price of competing products B. size of competing products C. purchaser's opportunity cost D. geographic origin of products
A. price of competing products
When a firm makes plans for investments in physical capital, it compares the _______________ on these investments with ______________________ . A. projected rates of return; the cost of financial capital to the firm B. present inputs of physical capital; future hurdle rates C. present inputs of physical capita; future marginal revenue product D. projected rates of return; the competitive pressures for labor
A. projected rates of return; the cost of financial capital to the firm
. If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to: A. stay the same and the equilibrium quantity to fall. B. fall and the equilibrium quantity to fall. C. rise and the equilibrium quantity to stay the same. D. rise and the equilibrium quantity to fall.
A. stay the same and the equilibrium quantity to fall.
In Sam's greenhouse operation, labor is the only short term variable input. After completing a cost analysis, if the marginal product of labor is the same for each unit of labor, this will imply that A. the average product of labor is always equal to the marginal product of labor. B. the average product of labor is always greater that the marginal product of labor. C. the average product of labor is always less than the marginal product of labor. D. as more labor inputs are used, the average product of labor inputs will fall.
A. the average product of labor is always equal to the marginal product of labor.
Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found? A. the marginal utility per dollar is the same for both goods B. the marginal utility per dollar is controlled by trade-offs C. the quantities demanded change so total utility rises D. the demand curves are flatter reducing quantity
A. the marginal utility per dollar is the same for both goods
. If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero? A. variable costs B. fixed costs C. opportunity costs D. total cost
A. variable costs
In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice? A. what quantity to produce B. what price to charge C. what quantity of labor is needed D. what quality to produce
A. what quantity to produce
. The marginal utility of two goods changes ______________. A. with the quantities consumed B. for the better, if taxes are imposed C. if they are intertemporal choices D. if the mother controls the household budget
A. with the quantities consumed
In the US economy, nearly half of all the workers employed by private firms work at A. 18,000 firms with fewer than 100 employees. B. 18,000 large firms that employ more than 500 workers. C. 26,000 firms with fewer than 100 employees. D. 26,000 large firms that employ more than 300 workers.
B. 18,000 large firms that employ more than 500 workers.
Jed's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Jed knows that 2 pizzas and 4 burgers will give him a utility of 8. At his utility-maximizing point, Jed's utility is: A. 4 B. 8 C. 6 D. 10
B. 8
I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was A. $1.00 B. $3.00 C. $4.00 D. $7.00
A. $1.00
In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost: A. $50 B. $25 C. $100 D. $150
A. $50
Rick eats only french fries and burgers at his office cafeteria. His weekly lunch budget is $48. Each burger costs $6 and each order of fries costs $3. When deciding how much of each good to buy, Rick knows that 2 burgers and 4 orders of french fries will give him a utility of 8. At his utility-maximizing point, Rick's utility is: A. 32 B. 48 C. 40 D. 24
A. 32
______________________ refers to the additional revenue gained from selling one more unit. A. Marginal revenue B. Total revenue C. Economic profit D. Accounting profit
A. Marginal revenue
_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price. A. Total revenue B. Total profits C. Average profit margin D. Total cost
A. Total revenue
An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ . A. accounting profit; excluding opportunity cost B. accounting profit; including opportunity cost C. economic profit; excluding opportunity cost D. opportunity cost; including economic profit
A. accounting profit; excluding opportunity cost
In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output. A. acquire energy efficient production technologies B. increase the returns to scale C. maintain constant returns to scale D. create perfect competition between firms
A. acquire energy efficient production technologies
If a firm is producing so that the point chosen along the production possibility frontier is socially preferred, then that firm is said to have reached its A. allocative efficiency B. productive efficiency C. utility-maximizing efficiency D. minimum price efficiency
A. allocative efficiency
If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses. A. average cost B. marginal cost C. fixed cost D. variable cost
A. average cost
If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises. A. decreasing returns to scale B. consent returns to scale C. economies of scale D. increasing returns to scale
A. decreasing returns to scale
. The government wants to make medicare benefits available to more people, but to achieve this goal, it needs to make cuts in the existing medicare budget. The two areas where they are considering cuts are non-essential elective surgery and 6-12 month mental health care programs. Applying the concept of diminishing marginal utility, the budget cuts should be made for spending on: A. mental health therapy due to its higher marginal return rate. B. elective surgery due to its lower marginal return rate. C. both programs, which have the same marginal return rate. D. neither can be compared by measuring marginal utility.
B. elective surgery due to its lower marginal return rate.
Even with wage increases, the supply curve of labor is most often inelastic for which of the following? A. part-time workers B. full-time workers C. lawyers D. massage therapists
B. full-time workers
Economic profit can be derived from calculating total revenues minus all of the firm's costs, A. excluding its opportunity costs. B. including its opportunity costs. C. including its marginal revenue. D. excluding its marginal revenue.
B. including its opportunity costs.
In microeconomics, the term _____________________ is synonymous with economies of scale. A. diminishing marginal returns B. increasing returns to scale C. decreasing returns to scale D. constant returns to scale
B. increasing returns to scale
Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future. A. budget constraint B. intertemporal choice C. risk premium D. opportunity cost
B. intertemporal choice
I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output A. can be tailored to exceed the price of its inputs. B. is dictated by the forces of demand and supply. C. can be tailored to meet the price of its inputs. D. can be set by management to maximize profits.
B. is dictated by the forces of demand and supply.
When Marietta chooses to only purchase a combination of goods that lie within her budget line, she: A. is decreasing utility. B. is maximizing utility. C. likely has negative savings. D. must reduce the quantity.
B. is maximizing utility.
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should A. raise her prices above the perfectly competitive level set by the market. B. keep the business open in the short-run, but plan to go out of business in the long-run. C. keep the business open in the short-run, and plan to expand the business in the long-run. D. lay-off her staff, break her lease, and close the business down immediately.
B. keep the business open in the short-run, but plan to go out of business in the long-run.
In the ________, the perfectly competitive firm will react to losses by __________________________ . A. short run; reducing production or shutting down B. long run; reducing production or shutting down C. short run; increasing physical inputs D. long run; increasing capital inputs
B. long run; reducing production or shutting down
Under perfect competition, any profit-maximizing producer faces a market price equal to its A. average costs B. marginal costs C. total costs D. variable costs
B. marginal costs
In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ . A. total revenue; total cost B. marginal revenue; marginal cost C. total revenue; marginal cost D. marginal revenue; total cost
B. marginal revenue; marginal cost
The term _________________ refers to the additional utility provided by one additional unit of consumption. A. utility B. marginal utility C. added utility D. Giffen utility
B. marginal utility
. The step-by-step process of finding the choice with highest total utility involves a comparison of the: A. budget constraint and low-income housing expenses. B. marginal utility gained and lost from different choices along the budget constraint. C. household consumption choice budget and the labor-leisure budget using an utilimometer. D. various categories of economic proverbial wisdom.
B. marginal utility gained and lost from different choices along the budget constraint.
A decrease in consumer preference for a product, other things being equal, will cause: A. a decrease in supply. B. market demand to shift to the left. C. market demand to shift to the right. D. quantity demanded is not a price function.
B. market demand to shift to the left.
. Jay and Jen are married with two children. They are preparing a household budget for the coming year. Based on statistical information for American households, approximately what portion of this family's annual consumption will most likely be budgeted for food and vehicle expenses? A. one-fourth B. one-third C. one-quarter D. two-thirds
B. one-third
When a firm uses retained profits to invest in more energy efficient equipment, an economist would calculate the _________________ of investing in physical capital. A. typical hurdle rate B. opportunity cost C. degree of risk D. hurdle rate premium
B. opportunity cost
Firms operating in a market situation that creates ___________________, sell their product in a market with other firms who produce identical or extremely similar products. A. a perfect monopoly B. perfect competition C. an oligopoly D. a free-market
B. perfect competition
When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is A. considering opportunity costs. B. preparing to exit operations. C. preparing to reach its shutdown point. D. considering capital investments.
B. preparing to exit operations.
As a general rule, utility-maximizing choices between consumption goods occur where the: A. rise in income has created the greatest utility. B. price ratio and marginal utilities ratio of two goods is equal. C. higher-income households have the greatest satisfaction. D. constraints on budget expenditures has fallen substantially.
B. price ratio and marginal utilities ratio of two goods is equal.
Idaho farmers can sell as large a quantity of their potato crop as they wish, A. if they set their own price in the short run, but in the long run, the market sets the price. B. provided each is willing to accept the prevailing market price. C. if they set their own price in the long run, but in the short run, the market sets the price. D. provided quality is perceptible and determines the market price.
B. provided each is willing to accept the prevailing market price.
Fixed costs are important because, at least in the ___________, the firm _______________. A. long run; cannot alter them B. short run; cannot alter them C. long run; can alter them D. short run; can alter them
B. short run; cannot alter them
If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ . A. price taking point B. shutdown point C. marginal point D. opportunity margin
B. shutdown point
The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. A. income effect B. substitution effect C. backward-bending supply curve D. preferences effect
B. substitution effect
Which of the following should typically be ignored because spending has already been made and cannot be changed? A. variable costs B. sunk costs C. marginal costs D. average marginal costs
B. sunk costs
For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ . A. demand curve B. supply curve C. average total cost curve D. average variable cost curve
B. supply curve
Even when competitive firms are unable to calculate marginal revenue product directly, _________________________________________ will push wage rates toward the marginal revenue product of labor. A. planned future investment in physical capital B. the pressures of competition in the labor market C. the marginal workers ongoing skills training D. wages that exceed workers' net revenue product
B. the pressures of competition in the labor market
. In order to determine the average variable cost, the firm's variable costs are divided by _______________________. A. its' fixed costs B. the quantity of output C. its' average costs D. diminishing marginal costs
B. the quantity of output
The theoretical model of the intertemporal budget constraint for the U.S. economy as a whole suggests that the most common pattern seems to be that: A. the quantity of savings automatically adjusts to changes in the rate of return. B. the quantity of savings doesn't adjust much to changes in the rate of return. C. the result of a higher rate of return is a higher quantity of saving. D. the result of a lower rate of return is a lower quantity of saving.
B. the quantity of savings doesn't adjust much to changes in the rate of return.
The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________. A. downward-sloping; more costly to produce B. upward-sloping; more costly to produce C. downward-sloping; less costly to produce D. upward-sloping; less costly to produce
B. upward-sloping; more costly to produce
In microeconomic terms, the ability of a good or a service to satisfy wants is called: A. opportunity cost. B. utility. C. utility maximization. D. profit potential.
B. utility.
Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point? A. 0 pizzas, 8 burgers B. 3 pizzas, 2 burgers C. 2 pizzas, 4 burgers D. 4 pizzas, 1 burger
C. 2 pizzas, 4 burgers
For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is: A. 6 salads, 1 vegetarian burger B. 4 salads, 6 vegetarian burgers C. 3 salads, 6 vegetarian burgers D. 2 salads, 8 vegetarian burgers
C. 3 salads, 6 vegetarian burgers
_____________________ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas. A. Economies of scale B. Constant returns to scale C. Agglomeration factors D. Diseconomies of scale
C. Agglomeration factors
____________ tells a firm whether it can earn profits given the price in the market. A. Marginal cost B. Total cost C. Average cost D. Average marginal cost
C. Average cost
How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans? A. Consumer Spending Survey B. Consumer Income Budget Survey C. Consumer Expenditure Survey D. Consumer Income Survey
C. Consumer Expenditure Survey
______________ include all of the costs of production that increase with the quantity produced. A. Fixed costs B. Variable costs C. Average costs D. Average variable costs
B. Variable costs
In economics, a firm that faces no competitors is referred to as _________________. A. an oligopoly B. a monopoly C. a perfect competitor D. an oligopolizor
B. a monopoly
Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes. A. one budget constraint theory; unrealistic possibilities B. a systematic way of thinking; misguided conclusions C. two budget constraint theories; misguided possibilities D. systematic consumption choices; unrealistic conclusions
B. a systematic way of thinking; misguided conclusions
Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs? A. costs that increase with the quantity produced B. costs of research and development C. costs related to labor expenditures D. costs related to physical inputs
B. costs of research and development
In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts: A. are the negative result of a change in wage levels and a higher work effort. B. the result of personal preferences and intertemporal budget constraints. C. are being offset by negative savings or less savings in other kinds of accounts. D. the result of a higher interest rates and preferences about present consumption.
C. are being offset by negative savings or less savings in other kinds of accounts.
If the price that a firm charges is higher than its ________________ cost of production for that quantity produced, then the firm will earn profits. A. marginal B. variable C. average D. fixed
C. average
If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then A. marginal product is rising. B. marginal product is falling. C. average product is rising. D. average product is falling.
C. average product is rising.
The _____________________ curve will always lie below the curve for average cost because average cost includes _____________ in the numerator of the calculation. A. marginal cost; total costs B. marginal cost; fixed costs C. average variable cost; fixed costs D. average variable cost; total costs
C. average variable cost; fixed costs
Marginal utility can: A. be positive or negative, but not zero B. decrease, but not become negative C. be positive, negative, or zero D. increase positively, but not negatively
C. be positive, negative, or zero
Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers A. will determine what price to produce at given the market demand. B. at all levels of output shifts marginal costs to the right. C. can also be interpreted as shifts of their respective marginal cost curves. D. shifts marginal costs to the right enabling both to produce more at any given market price.
C. can also be interpreted as shifts of their respective marginal cost curves.
A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production. A. returns to scale B. economies of scale C. constant returns to scale D. diminishing marginal returns
C. constant returns to scale
The ______________ of all firms can be broken down into some common underlying patterns. A. total revenues B. diminishing short-run costs C. cost structure D. diminishing long-run costs
C. cost structure
Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs? A. costs that must be made before production starts B. costs that vary according to specific line of business C. costs incurred in the act of producing D. costs incurred as advertising expenses
C. costs incurred in the act of producing
It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________. A. will likely cause the firm to reach its shutdown point immediately B. will cause the firm to recover some of its opportunity costs C. could likely result in a notable loss of sales to competitors D. is a sure sign the firm is raising the given price in the market
C. could likely result in a notable loss of sales to competitors
The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls. A. diminishing marginal returns B. marginal cost output C. economies of scale D. diseconomies of scale
C. economies of scale
In order to calculate marginal cost, the change in ______________ is divided by the amount of change in quantity. A. either total cost or average cost B. increasing marginal returns C. either total cost or variable cost D. decreasing marginal returns
C. either total cost or variable cost
A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ . A. accounting profit; a strategy to grow profits B. accounting profit; an incentive for profit C. entry; a sustained pattern of profits D. entry; an incentive to add to profits
C. entry; a sustained pattern of profits
An inferior good is a product: A. for which demand increases as income increases. B. for which there is no demand. C. for which demand decreases as income increases. D. that has an upward sloping demand curve.
C. for which demand decreases as income increases.
Why are some producers forced to sell their products at the prevailing market price? A. price takers find market analysis is too costly B. they are very small players in the overall market C. high degree of similarity to competitor's products D. they can increase output without affecting quality
C. high degree of similarity to competitor's products
A perfectly competitive industry is a A. realistic extreme. B. hypothetical assumption. C. hypothetical extreme. D. realistic assumption.
C. hypothetical extreme.
. Which of the following can be thought of as an adjustment for the risks involved with respect to the cost of a firm acquiring financial capital? A. higher retained earnings from past profits B. cost of financial capital paid by a firm C. imposition of hurdle rates of interest D. tax credits for physical capital investments
C. imposition of hurdle rates of interest
The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed. A. substitution effect; lower price B. intertemporal budget; higher price C. income effect; higher price D. intertemporal budget; lower price
C. income effect; higher price
The key assumption that accompanies the use of numbers for measuring utility is that: A. utility cannot be measured by an outside party. B. utility can be perfectly measured. C. individuals choose based on their preferences. D. people make consumption decisions.
C. individuals choose based on their preferences.
The _________________ budget constraint shows the tradeoff between present and future consumption. A. inflation B. utility-maximizing C. intertemporal choice D. time-value of money
C. intertemporal choice
If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then A. marginal cost is above average variable cost. B. marginal cost is below average fixed cost. C. marginal cost is below average variable cost. D. average fixed cost is constant.
C. marginal cost is below average variable cost.
____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added. A. Diminishing variable returns B. Diminishing average returns C. Diminishing marginal returns D. Diminishing marginal costs
C. Diminishing marginal returns
________________________ arises where many firms are competing in a market to sell similar but differentiated products. A. Oligopolistic competition B. Perfect competition C. Monopolistic competition D. Monogopolised competition
C. Monopolistic competition
. If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the _______________ and the vertical axis will represent ______________________ . A. price, measured in dollars; quantity of goods produced B. total costs measured in dollars; quantity of goods produced C. quantity produced; both total revenue and total costs, measured in dollars. D. quantity produced; total revenue and total variable costs, measured in dollars.
C. quantity produced; both total revenue and total costs, measured in dollars.
In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ . A. long run; increasing production B. short run; fixed costs can be reduced C. short run; losses are smallest D. long run; fixed costs can be eliminated
C. short run; losses are smallest
In the _________, the perfectly competitive firm will seek out ________________________ . A. long run; the quantity of output where profits are highest B. short run; profits by ignoring the concept of total cost analysis C. short run; the quantity of output where profits are highest D. long run; methods to reduce production and shut down
C. short run; the quantity of output where profits are highest
Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct? A. producing a marginal unit is reducing average costs overall B. the marginal cost of production for producing an additional unit is below the cost for producing the earlier units C. the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve D. low marginal costs first pull up the overall average costs
C. the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve
Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit. A. marginal costs B. average costs C. total revenue D. variable costs
C. total revenue
. In terms of microeconomic analysis, what is the function of "utils"? A. a form of budget constraint B. applies to changes in income C. a measurement of utility D. relates to a consumers original choice
C. a measurement of utility
In a perfectly competitive market setting, which of the following would be a true statement? A. Market price automatically sets itself exactly at equilibrium. B. Market price rarely trends toward the equilibrium value. C. Wage rates mirror marginal revenue product levels exactly. D. Wage rates trend toward marginal revenue product levels.
D. Wage rates trend toward marginal revenue product levels.
The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead A. will reduce the revenue a firm receives and it should shut down. B. means the firm has reached it shutdown point and should exit. C. is part of the process to a sustained pattern of profits. D. are two stark realities any business firm must recognize.
D. are two stark realities any business firm must recognize.
In order to determine ____________, the firm's total costs must be divided by the quantity of its output. A. diminishing marginal returns B. fixed costs C. variable cost D. average cost
D. average cost
Refer to the diagram above. Which of the following is a true statement? A. backward-bending supply curves for labor are typical in the short run B. workers react to higher wages by working more hours in the long run C. long run reaction to higher wages is an increase in hours worked to gain more income D. backward-bending supply curves for labor are not typical in the short run
D. backward-bending supply curves for labor are not typical in the short run
A situation where the level of output, scale and average costs are all rising is called A. decreasing returns to scale B. diseconomies of scale C. diminishing returns to scale D. both a and b are correct
D. both a and b are correct
In economics, labor demand is synonymous with A. market demand. B. average demand. C. marginal demand. D. derived demand.
D. derived demand.
For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy's utility-maximizing point? A. 1 salad, 14 smoothies B. 6 salads, 4 smoothies C. 5 salads, 6 smoothies D. 4 salads, 8 smoothies
D. 4 salads, 8 smoothies
Todd is a cattle rancher. In June and July he spent his clothing budget on jeans and cowboy hats. Each pair of jeans cost $50 and each hat cost $100. At Todd's optimal choice, his marginal utility from the last pair of jeans purchased is 200. This means that his marginal utility from the last cowboy hat purchased is: A. 550 B. 500 C. 450 D. 400
D. 400
When I'MaGoldMiner chooses what quantity of gold each of it/s mines will produce over the next 12 months, this quantity, along with the prices prevailing in the market for output and inputs, will A. determine the company's annual revenue, variable costs and its profits. B. no longer be dictated by the forces of demand and supply. C. have no effect on the market forces of demand and supply. D. determine the company's total revenue, total costs, and its profits.
D. determine the company's total revenue, total costs, and its profits.
Substitution and income effects of a change in price of a good may be used to explain the: A. direct relationship between price and quantity purchased. B. inverse relationship between price and quantity demanded. C. direct relationship between price and quantity supplied. D. direct relationship between income and demand.
D. direct relationship between income and demand.
In microeconomics, the term ___________________ is synonymous with decreasing returns of scale. A. monopoly B. economies of scale C. diminishing returns D. diseconomies of scale
D. diseconomies of scale
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point? A. divide total costs into two categories: variable costs that can't be changed in the short run and fixed costs that can be B. divide the total costs of production by the quantity of output C. divide the variable costs of production by the quantity of output D. divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
D. divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
Which of the following is most likely to cause variation in American household spending patterns? A. differing levels of family income B. geographical location of households C. each household's personal preferences D. each of the above will cause a variation
D. each of the above will cause a variation
. Economies of scale may arise from all but one of the following. Which one is it? A. doubling promotional expenses to expand sale more than proportionately B. having a larger retail space can expand sales more than proportionately C. spreading the fixed-costs of administration over more customers holds average costs down D. government economic subsidies protect firms from competition to avoid losses.
D. government economic subsidies protect firms from competition to avoid losses.
In the ________, the perfectly competitive firm will react to profits by __________________________ . A. short run; increasing quality of products B. long run; tailoring their quality controls C. short run; reducing its labor inputs D. long run; increasing its production
D. long run; increasing its production
The term _____________ is used to describe the additional cost of producing one more unit. A. average cost B. fixed cost C. variable cost D. marginal cost
D. marginal cost
In economics, the term "shutdown point" refers to the point where the A. marginal cost curve crosses the total revenue curve. B. average variable cost curve crosses the total revenue curve. C. average variable cost curve crosses the marginal cost curve. D. marginal cost curve crosses the average variable cost curve.
D. marginal cost curve crosses the average variable cost curve.
. What happens in a perfectly competitive industry when economic profit is greater than zero? A. existing firms may expand their operations B. firms may move along their LRAC curves to new outputs C. there may be pressure on the market price to fall D. new firms may enter the industry and all of the above
D. new firms may enter the industry and all of the above
12. Approximately what portion of annual consumption is typically spent by American households on shelter? A. one-fourth B. one-half C. one-quarter D. one-third
D. one-third
Why would labor be treated as a variable cost? A. they are costs incurred in the act of producing that will decrease with quantity produced B. they are made before production starts and vary according to the specific line of business C. labor costs are an input cost that firms are unable to change in the short run D. producing larger quantities of a good or service generally requires more workers
D. producing larger quantities of a good or service generally requires more workers
During a severe recession, the government issued food stamps that could only be used to acquire food to a greater number of families. The budget line graph shows food on the horizontal axis and everything else on the vertical axis. The government expects that issuing the food stamps will cause each family's budget constraint line to: A. pivot out along the horizontal axis. B. pivot out along the vertical axis. C. shift to the left. D. shift to the right.
D. shift to the right.
Which of the following occurs simultaneously with an income effect? A. backward-bending supply curve B. Giffen good effect C. preferences effect D. substitution effect
D. substitution effect
. Economists are able to determine total utility by: A. multiplying the marginal utility of the first unit consumed by the number of units consumed. B. multiplying the marginal utility of the last unit consumed by the number of units consumed. C. multiplying the marginal utility of the last unit consumed by the unit price. D. summing up the marginal utilities of each unit consumed.
D. summing up the marginal utilities of each unit consumed.
Why would a profit-seeking firm need to tailor its decisions about the quantity of labor inputs that it purchases? A. to produce the highest profitable quantity of output at the lowest possible marginal cost B. deciding what quantity to produce is one of the major choices a profit-seeking firm makes C. the quantity of labor is the only variable cost choice a profit-seeking firm can make D. to produce the profit-maximizing quantity of output at the lowest possible average cost
D. to produce the profit-maximizing quantity of output at the lowest possible average cost
If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely A. use production technologies that require more workers. B. strive for economies of scale where quantity of output falls as the cost of production falls. C. strive to reach economies of scale that will result in producing at a higher average cost. D. use production technologies that conserve on the number of workers.
D. use production technologies that conserve on the number of workers.
If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals A. that if the market price exceeds average cost, profits will be positive. B. that if the market price is below average cost, then profits will be negative. C. total revenues are the quantity produced multiplied by the price. D. whether the firm is earning profit if fixed costs are left out of the calculation.
D. whether the firm is earning profit if fixed costs are left out of the calculation.
If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. fall and the equilibrium quantity to fall. D. fall and the equilibrium quantity to stay the same.
D. fall and the equilibrium quantity to stay the same.
I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was A. $3.00 B. $2.00 C. $1.80 D. $1.60
B. $2.00
In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is A. $25 B. $20 C. $50 D. $60
B. $20
. If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal? A. 6% of output B. 10% of output C. 12% of output D. 8% of output
C. 12% of output
___________ include all spending on labor, machinery, tools, and supplies purchased from other firms. A. Total profits B. Total revenues C. Total costs D. Total profit margins
C. Total costs
Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees? A. 63% B. 50% C. 45% D. 35%
D. 35%
The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product. A. price setter B. business entity C. price taker D. trend setter
C. price taker
I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was A. $1.50 B. $1.23 C. $2.25 D. $2.43
D. $2.43
In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia's marginal cost is constant at $10.00 for every pair of oven gloves produced. The total cost to produce 50 pairs of oven gloves is A. $250.00 B. $500.00 C. $300.00 D. $200.00
D. $200.00
