ECON 2120

What happens when firms experience economies of scale? a. Firms can produce more output in smaller plants. b. The firm's long-run average costs fall as output increases. c. The possibility of lowering long-run average costs is exhausted. d. Only a single plant size minimizes the long-run average cost of production.

b. The firm's long-run average costs fall as output increases.

What do we obtain by dividing the fixed cost by the quantity of output produced? a. total variable cost b. average fixed cost c. total cost d. average variable cost

b. average fixed cost

Which of the following goods would have the most inelastic demand? A) ski vacations B) bread C) luxury cars D) big screen TVs

B) bread

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are A) substitutes. B) complements. C) inferior. D) normal.

B) complements.

Cross-price elasticity of demand is calculated as the A) percentage change in quantity demanded divided by percentage change in price of a good. B) percentage change in quantity demanded of one good divided by percentage change in price of a different good. C) percentage change in quantity sold divided by percentage change in buyers' incomes. D) percentage change in quantity supplied divided by percentage change in price of a good.

B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.

Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that A) the demand for bottled water is inelastic in the price range considered. B) the demand for bottled water is elastic in the price range considered. C) the supply of bottled water is inelastic in the price range considered. D) the supply of bottled water is elastic in the price range considered.

B) the demand for bottled water is elastic in the price range considered.

Suppose when Mike's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent. What was the effect on sales revenue? A) Sales revenue increased. B) Sales revenue remained unchanged. C) Sales revenue decreased. D) It cannot be determined without information on prices.

C) Sales revenue decreased.

Income elasticity measures A) how a good's quantity demanded responds to change in the goods price. B) how a good's quantity demanded responds to change in the price of another good. C) how a good's quantity demanded responds to change in buyers' incomes. D) how a good's quantity demanded responds to producers' incomes.

C) how a good's quantity demanded responds to change in buyers' incomes.

Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes.

C) how responsive quantity demanded is to a change in price.

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is A) unit-elastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

C) relatively inelastic.

In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. coli bacteria. Following this recommendation, the food industry looked at alternatives and many turned to arugula. One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information, A) arugula is a normal good while raw spinach is an inferior good. B) the cross-price elasticity between arugula and spinach is negative. C) the cross-price elasticity between arugula and spinach is positive D) the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.

C) the cross-price elasticity between arugula and spinach is positive

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A) Demand is likely to be perfectly inelastic. B) Demand is likely to be perfectly elastic. C) Demand is likely to be relatively elastic. D) Demand is likely to be relatively inelastic

D) Demand is likely to be relatively inelastic

A demand curve that is horizontal indicates that the commodity A) has few substitutes. B) must be very cheap. C) is a necessity. D) has a large number of substitutes.

D) has a large number of substitutes.

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees? a. They are part of fixed cost. b. They are part of variable cost. c. They are an implicit cost. d. They are not considered a part of the cost of production.

a. They are part of fixed cost.

Which of the following is known as the highest-valued alternative that must be given up in order to engage in an activity? a. opportunity cost b. explicit cost c. total cost d. variable cost

a. opportunity cost

What does the term "spreading the overhead" refer to? a. reducing average fixed cost by selling more output b. reducing average total cost by selling more output. c. reducing average variable cost by selling more output d. reducing total cost by selling more output

a. reducing average fixed cost by selling more output

When does the law of diminishing returns apply? a. when there are diseconomies of scale b. in the short run only c. in the long run only d. in both the short run and the long run

b. in the short run only

What happens to the difference between average variable cost and average total cost as the level of output increases? a. the difference increases b. the difference decreases c. the difference remains the same d. the difference first increases then decreases

b. the difference decreases

Which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long run, when no inputs are fixed? a. the long-run marginal cost curve b. the long-run average cost curve c. the variable inputs curve d. economies of scale

b. the long-run average cost curve

What is the production function? a. the representation of the firm's costs b. the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs c. the total cost divided by the quantity of output produced d. all of the above

b. the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs

Which costs are affected by the level of output produced? a. fixed costs b. variable costs c. all costs d. sunk costs

b. variable costs

The following cost measures reach their minimum points when they are equal to the value of marginal cost, except one. Which cost measure is the exception? a. average variable cost b. average total cost c. average fixed cost d. There is no exception; all three measures above reach their minimum values when they are equal to the value of marginal cost.

c. average fixed cost

Which of the following refers to the total output produced by a firm divided by the quantity of workers? a. average total cost b. marginal cost c. average product of labor d. marginal product of labor

c. average product of labor

What is the additional output that a firm produces as a result of hiring one more worker called? a. the production function b. average total cost c. marginal product of labor d. average product of labor

c. marginal product of labor

Which of the following is true? i. Total cost = fixed cost + variable cost ii. Total cost = explicit costs + implicit costs iii. Economic cost = accounting cost + implicit costs a. i only b. ii only c. i and ii only d. i, ii, and iii

d. i, ii, and iii

The term used to describe a change in the ability of a firm to produce a given level of output with a given level of inputs is called __________. a. technology b. technological change c. the long run d. the production function

technological change