Economics Exam 2
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In table 5.6, the total cost of 3 units of output is: A. $5 B. $10 C. $15 D. $30
D Since the variable cost of the third unit of output is $15 and the fixed cost is $15 the total cost of three units is $30.
Table 5.1 Units of labor: 0 1 2 3 4 Units of output: 0 14 30 42 51 What is the marginal physical product of the fourth unit of labor in Table 5.1? A. 51 B. 42 C. 12 D. 9
D Since total physical product is equal to the sums of the marginal physical products then the marginal physical product of the forth unit would be total physical product minus the marginal physical products of the first three units.
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In table 5.6, the total cost of 2 units of output is: A. $4 B.$6 C. $12 D. $27
D The total cost of two units of output would be equal to the total cost of one unit ($23) plus the marginal cost of the second unit or $4.
Complete the following table (5.6): Q: 0 1 2 3 TFC: ______ ______ ______ ______ TVC: ______ ______ ______ 15 TC: 15 23 ______ ______ AVC: X ______ ______ _______ MC: X ______ 4 ______
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3
A perfectly competitive firm: A. Can sell all of its output at the prevailing price. B. Has some market power. C. Can sell some output at a price above the market price. D. Can sell more output only if it reduces its price.
A
A producer tries to maximize profits by operating at an output where: A. MC equals price. B. Price minus ATC is greatest. C. MR is greater then MC. D. The profit per unit is greatest.
A
A profit-maximizing competitive firm wants to _____ the rate of output when price _____ marginal cost. A. Expand; exceeds B. Reduce; exceeds C. Expand; is less than D. Reduce; equals
A
If Pepsi and Coke are the only two soft drink producers, they could be considered: A. A duopoly. B. A monopoly. C. An oligopoly. D. Perfectly competitive firms.
A
If a firm can change market prices by altering its output then it: A. Has market power. B. Is a price taker. C. Faces a horizontal demand curve. D. Is a competitive firm.
A
If an individual demands a particular good, it means that he or she: A. Is willing and able to purchase the good at some price. B. Has a strong desire for the good. C. Must need the good. D. Prefers the good over all other choices.
A
If more of an input factor is used, while holding other inputs constant, a firm will eventually experience: A. Diminishing returns. B. Falling marginal cost. C. Rising marginal physical product. D. Rising consumer demand.
A
In a competitive market, in the long run, economic profits will cause: A. New firms to enter the market. B. Existing firms to leave the market. C. Supply to decrease. D. Demand to decrease.
A
The change in total output that results from one additional unit of input is the: A. Marginal physical product. B. Average product of the input. C. Unit cost of the input. D. Input price.
A
The response of quantity demanded to price changes is shown by: A. Price elasticity. B. The determinants of demand. C. Opportunity cost. D. Income elasticity of demand.
A
Total revenue minus cost equals: A. Profit. B. Variable costs. C. Economic costs. D. Marginal revenue.
A
When the additional satisfaction from a good declines as more of it is consumed, this illustrates the law of: A. Diminishing marginal utility. B. Exceptional marginal utility. C. Declining demand. D. Increasing opportunity costs.
A
Which of the following causes the price elasticity of demand for a good to be more inelastic? A. A shorter period of time to adjust to a change in price. B. A higher ratio of price to income. C. The availability of many substitutes. D. The good is a luxury.
A
Which of the following does not characterize a competitive market? A. A few firms B. No market power C. Identical products D. Marginal cost equals price
A
Which of the following is a determinant of demand for a good? A. Consumer income. B. The number of available workers. C. Prices of factor inputs. D. Technology.
A
Which of the following is true about the short-run? A. Some inputs are fixed. B. It is less than one year. C. It is one to two years. D. All inputs are variable.
A
graph 6.1 Refer to Figure 6.1 for a perfectly competitive firm. If the market price is $30: A. The firm should produce 19 units. B. No entry or exit will occur. C. The firm should produce 15 units. D. Economic profits will be greater than zero.
A
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In table 5.6, the total variable cost of 1 unit of output is: A. $8. B. $12. C. $15. D. $23.
A Since the fixed cost is $15 and the total cost at 1 unit of output is $23 then the variable cost is $8.
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In table 5.6, the marginal cost of the third unit of output is: A. $3 B. $5 C. $6 D. $15
A Since the marginal cost of the second unit of output is $4 then the total cost of two units of output is $27. Then the total cost of three units of output is the sum of the fixed cost and variable cost or $30 so the marginal cost of the third unit is $3.
Table 5.2 Rate of Output (jeans per day): 0 10 15 20 30 40 Total cost: $60.00 102.50 122.50 135.00 180.00 290.00 What is the marginal cost of the 30th pair of jeans in Table 5.2? A. $4.50 B. $45.00 C. $6.00 D. $1.50
A The change in cost from the 20th to the 30th units is $45 and the change in units is ten so the marginal cost would be the change in cost divided by the change in output.
Table 5.2 Rate of Output (jeans per day): 0 10 15 20 30 40 Total cost: $60.00 102.50 122.50 135.00 180.00 290.00 If the firm in Table 5.2 can sell jeans for $7.00 per pair, the total profit from producing 40 pair is: A. $-10 B. $10 C. $290 D. $280
A The profit is calculated by subtracting the total costs of $290 from the total revenue ($7.00 X 40 = $280 - $290).
Figure 5.1 -GRAPH In Figure 5.1, the marginal physical product of the fourth unit of labor is: A. 6. B. 12. C. 40. D. 46.
A The total product of 3 units is 40 and the total product of 4 units is 46 so the change is 6.
An individual competitive firm: A. Has a large advertising budget. B. Produces a small portion of output relative to the market. C. Can alter the market price of the good(s) it produces. D. Can raise its price to increase profit.
B
As more labor is hired in the short run, diminishing returns are observed because: A. The new workers are lazy. B. The new workers have less capital and land to work with. C. All the workers begin to socialize more and work less. D. The new workers are less skilled.
B
Assume a toy company hires additional workers to assemble toys, and the size of the factory and amount of equipment remain constant. As a result, the level of output increases but by a smaller amount than when the previous additional worker was hired. This is an example of: A. The law of poor planning. B. The law of diminishing returns. C. Say's Law. D. The law of substitution.
B
During the short run: A. All inputs can be changed. B. Some inputs are fixed. C. Factory size can be changed. D. The number of workers cannot be changed.
B
Explicit costs: A. Include only payments to labor. B. Are the sum of actual monetary payments made for resources used to produce a good. C. Include the market value of all resources used to produce a good. D. Are the total value of resources used to produce a good but for which no monetary payments is actually made.
B
If marginal cost equals price, then _____ is at a maximum. A. Total cost B. Profit C. Total revenue D. Marginal cost
B
If price is greater than marginal cost, a competitive firm should increase output because additional units of output will: A. Cause marginal costs to fall. B. Add to the firm's profits (or reduce losses). C. Add to the firm's fixed costs. D. Cause price to rise.
B
If quantity demanded rises only slightly following a moderate price cut, then the demand is: A. Elastic. B. Inelastic. C. Unitary elastic. D. Abnormal.
B
In defining costs, economists recognize: A. Explicit and implicit costs while accountants recognize only implicit costs. B. Explicit and implicit costs while accountants recognize only explicit costs. C. Only explicit costs while accountants recognize only implicit costs. D. Only explicit costs while accountants recognize explicit and implicit costs.
B
People find it difficult to get along without necessities, therefore demand for necessities: A. Is relatively elastic. B. Is relatively inelastic. C. Is relatively unitary elastic. D. Does not change with changes in price.
B
In a perfectly competitive industry, firms are likely to: A. Exit when there are economic profits because they know the profits will not last. B. Reduce the level of production when there are economic profits. C. Enter when there are economic profits. D. Enter when price is equal to the minimum average total cost.
C
In a perfectly competitive market: A. A single firm may dominate the supply side of the market. B. A single consumer can impact the market price. C. No seller has market power. D. The buyers with the most money have the most market power.
C
Price elasticity of demand indicates the consumer response to changes in: A. Quantity. B. Demand. C. Price. D. Supply.
C
The law of diminishing returns indicates that the marginal physical product of a factor declines as more: A. Output is produced with the most efficient combination of factors. B. Of the factor is used, holding output constant. C. Of the factor is used, holding other inputs constant. D. Of the goods consumed.
C
The main difference to an economist between "short-run" and "long-run" is that: A. Variable costs are short-run investment decisions where as fixed costs are long-run production decisions. B. In the short-run all resources are fixed whereas in the the long-run all resources are variable. C. In the long-run all resources are variable whereas in the short-run at least one resource is fixed. D. Fixed costs are more important than variable costs in the short-run.
C
The market demand curve is calculated by: A. Summing the price from individual demand curves. B. Averaging the price demanded from individual demand curves. C. Summing the quantities demanded from individual demand curves. D. Averaging the quantities demanded from individual demand curves.
C
The pleasure or satisfaction obtained from goods or services is know as: A. Price elasticity of demand. B. Total revenue. C. Utility. D. Ceteris paribus.
C
The price elasticity of demand is defined as the: A. Percentage change in quantity demanded times the percentage change in price. B. Unit change in price divided by the unit change in quantity demanded. C. Percentage change in quantity demanded divided by the percentage change in price. D. Unit change in quantity demanded times the unit change in price.
C
Which list has market structures in the correct order from the most to the least market power? A. Perfect competition, oligopoly, monopolistic competition, monopoly B. Monopoly, monopolistic competition, oligopoly, perfect competition C. Monopoly, oligopoly, monopolistic competition, perfect competition D. Oligopoly, perfect competition, monopolistic competition, monopoly
C
Which of the following characterizes a perfectly competitive market? A. A downward-sloping demand curve facing the firm. B. A horizontal demand curve for the market. C. A selling price at the market-established equilibrium price. D. A few firms that compete by changing price.
C
Which of the following does not influence the price elasticity of demand? A. The availability of substitutes. B. The price of the item relative to your budget. C. The costs of production. D. Successful advertising.
C
Which of the following is an example of perfect competition? A. One large firm supplies the entire product to the market B. Two firms supply the entire market and compete with each other for customers C. Many small firms all produce the same good D. Many firms supply the same product essentially, but each has significant brand loyalty
C
Which of the following is not a determinant of demand? A. Income. B. Tastes. C. The cost of factors of production. D. Expectations of the future price.
C
Which of the following statements is true? A. As consumption increases, total utility must increase. B. Total utility increases initially and then decreases as marginal utility approaches zero. C. If marginal utility is greater than zero, total utility is increasing. D. If marginal utility is zero, total utility is at a minimum.
C
If the price elasticity of demand is 1.8 then a 30 percent decrease in the price of the good will lead to a ____________ percent increase in the quantity demanded. A. 0.60 B. 0.55 C. 54.00 D. 16.67
C 180% X 30% = 54%
Assume a price elasticity of demand is 0.50. If the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10 percent, the quantity demanded will: A. Decrease by 5 percent. B. Decrease by 2 percent. C. Increase by 5 percent. D. Increase by 2 percent.
C 50% X 10% = 5%
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In table 5.6, total fixed costs are equal to: A. $0, because the problem involves the long run. B. $4 C. $15 D. $23
C Since at a zero level of output total cost equal $15 and since variable cost at that level of output would be zero, fixed cost equals $15.
Economic cost is: A. Equal to explicit costs minus implicit costs. B. The same as dollar costs. C. Equal to the accounting cost minus implicit costs. D. The value of all resources used to produce a good or service.
D
If quantity demanded rises significantly following a moderate price cut, then demand is: A. Elastic. B. Inelastic. C. Unitary elastic. D. Most likely elastic.
D
In the perfectly competitive catfish market, the market demand curve is: A. Flat (horizontal). B. The same as the demand curve faced by the firm. C. Vertical. D. Downward sloping.
D
Javier goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. Which of the following explains why the third plate of food does not provide as much satisfaction as the second plate? A. The law of expanding externalities. B. The rule of total utility. C. The law of supply. D. The law of diminishing marginal utility.
D
The law of demand states that: A. The greater the number of buyers in a market, the lower the price. B. Price and quantity demanded are directly related. C. The lower the cost the lower the price. D. Price and quantity demanded are inversely related.
D
The limits to the production of any good are reflected in the: A. Law of demand. B. Capacity curve. C. Demand curve. D. Production function.
D
Which of the following refers to the satisfaction a consumer receives from the consumption of a good? A. Price elasticity. B. Law of demand. C. Equilibrium price. D. Utility.
D
If the price elasticity of demand is 1.5, and a firm raises its price by 20 percent, the quantity sold by the firm will, ceteris paribus: A. Rise by 13.3 percent. B. Fall by 13.3 percent. C. Rise by 30.0 percent. D. Fall by 30.0 percent.
D 150% X 20% = 30%
The difference between total utility and marginal utility is that: A. Total utility is the satisfaction from consuming one additional unit of a good while marginal utility is the complete satisfaction from consuming a good. B. Total utility is the complete satisfaction from consuming a good while marginal utility is the satisfaction from consuming one additional unit of a good. C. Both represent the satisfaction obtained from most all goods and services. D. Total utility is the satisfaction from consuming a good while marginal utility is the satisfaction from consuming services.
B
The equilibrium price for a perfectly competitive firm always occurs: A. Where price equals minimum average total cost. B. At the intersection of market supply and market demand. C. Where a firm's marginal cost equals total revenue. D. At the point where profit is maximized.
B
Which of the following causes demand to be more elastic with respect to price? A. Shorter periods of time to adjust to a change in price. B. A higher ratio of price to income. C. Fewer substitutes. D. A steeper demand curve for a given price.
B
Which of the following causes the market demand curve fro a good to shift? A. The cost of factors of production. B. The number of buyers in the market. C. The expectations about future sales. D. A producer's income.
B
Which of the following does not characterize a competitive market? A. Many firms B. Advertising by individual firms C. Low barriers to entry D. Zero economic profit in the long run
B
Which of the following is not true for a competitive firm? A. The marginal cost curve is the short-run supply curve. B. The marginal cost curve is horizontal at the equilibrium price. C. The marginal cost curve shifts downward when productivity increases. D. The marginal cost curve shifts upward when wages increase.
B
Which of the following is true about demand? A. Demand reflects the desire for a good but not necessarily the ability to buy it. B. In order to demand a good, a person must be willing and able to buy the good. C. When drawing a demand curve, influences such as price do not change. D. Demand reflects the ability to buy a good but not necessarily the desire to do so.
B
If the price elasticity of demand is 2.5, then a 40 percent decrease in the price of the good will lead to a ____________ percent increase in the quantity demanded. A. 150.00 B. 100.00 C. 66.7 D. 22.5
B 250% x 40% = 100%
Table 5.1 Units of labor: 0 1 2 3 4 Units of output: 0 14 30 42 51 What is the marginal physical product of the first unit of labor in Table 5.1? A. 0 B. 14 C. 16 D. 30
B Since the output at zero units of input is zero and the output at one unit of input is 14 the marginal physical product is the change in output per one unit of input which is 14.
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In table 5.6, the total variable cost of 2 units of output is: A. $8 B. $12 C. $15 D. $27
B Since the total cost of 2 units is $27 and the fixed cost is $15 the variable cost would be $12.
Q: 0 1 2 3 TFC: 15 15 15 15 TVC: 0 8 12 15 TC: 15 23 27 30 AVC: 0 8 6 5 MC: 0 8 4 3 In Table 5.6, the average variable cost of 3 units of output is: A. $3. B. $5. C. $15. D. $30.
B Since the variable cost at 3 units is $15 the average variable cost is $5.
Table 5.2 Rate of Output (jeans per day): 0 10 15 20 30 40 Total cost: $60.00 102.50 122.50 135.00 180.00 290.00 What is the marginal cost of the 40th pair of jeans in Table 5.2? A. $7.25 B. $11.00 C. $110.00 D. $2.75
B The change in cost from the 30th to the 40th units is $110 and the change in units is ten so the marginal cost would be the change in cost divided by the change in output.
An industry in which many firms produce similar products but each firm has significant brand loyalty is known as: A. Perfect competition. B. A monopoly. C. Monopolistic competition. D. An oligopoly.
C
If there are only four companies that produce tennis balls, the market could be considered: A. A duopoly. B. A monopoly. C. An oligopoly. D. Perfectly competitive.
C
