Micro Economics Exam 2

Answer the question on the basis of the accompanying demand schedule. The marginal revenue obtained from selling the fourth unit of output is A) $16. B)$3. C) $1. D) $4.

$1

Refer to data. Marginal utility becomes negative beginning with the A) first unit. B) second unit. C) the third unit. D) fourth unit.

fourth unit.

Diminishing returns begin to occur with the hiring of the _________ unit of labor. A) first B) second C) third D) seventh

third

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing A) 2 units of J and 7 units of K. B) 5 units of J and 5 units of K. C) 4 units of J and 5 units of K. D) 6 units of J and 3 units of K.

4 units of J and 5 units of K.

the diagram, total product will be at a maximum at A) Q3units of labor. B) Q2units of labor. C) Q1units of labor. D) some point that cannot be determined with the provided information.

Q3units of labor.

Refer to the diagram. Diseconomies of scale A) begin at output Q1. B) occur over the Q1Q3range of output. C) begin at output Q3. D) are in evidence at all output levels.

begin at output Q3.

An indifference curve shows all A) possible equilibrium positions on an indifference map. B) equilibrium combinations of two products that are obtainable with a given money income. C) combinations of two products yielding the same totalutility to a consumer. D) possible combinations of two products that a consumer can purchase, given her income and the prices of the products.

combinations of two products yielding the same total utility to a consumer.

Refer to the diagram. At output level Q, total variable cost is A) 0 BEQ. B) BCDE. C) 0 CDQ. D) 0 AFQ.

0 BEQ

Refer to the provided table. The total fixed cost of production is A) $10. B) $20. C) $98. D) $0.

10

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all non labor resources are fixed. The marginal product of the sixth worker is A) 180 units of output. B) 30 units of output. C) 15 units of output. D) negative.

15 units of output.

The total utility yielded by 4 units of X is A) 4. B) 15. C) 17. D) 18.

17

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4, respectively, she would maximize her satisfaction by purchasing A) 3 units of J and 3 units of K. B) 1 unit of J and 3 units of K. C) 4 units of J and 1 unit of K. D) 2 units of J and 3 units of K.

2 units of J and 3 units of K.

Refer to the data for a non discriminating monopolist. This firm will maximize its profit by producing A) 3 units. B) 4 units. C) 5 units. D) 6 units.

4 units.

Answer the question on the basis of the following total utility data for products L and M. Assume that the prices of L and M are $3 and $4, respectively, and that the consumer's income is $18. What level of total utility does the rational consumer realize in equilibrium? A) 87 utils B) 104 utils C) 51 utils D) 58 utils

51 utils

The first Pepsi yields Craig 18 units of utility and the second yield him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is A) 26 units of utility. B) 6 units of utility. C) 8 units of utility. D) 38 units of utility.

8 units of utility.

Refer to the data in the accompanying table. At the profit-maximizing output, the firm's total revenue is A) $48. B) $32. C) $80. D) $64.

A) $48

Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be A) $82. B) zero. C) $54. D) $27.

A) $82.

Which of the following statements applies to a purely competitive producer? A) It will not advertise its product. B) In long-run equilibrium, it will earn an economic profit. C) Its product will have a brand name that elicits customer loyalty. D) Its product is slightly different from those of its competitors.

A) It will not advertise its product.

Refer to the diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a "fair return," it will set price at A) P1. B) P3. C) P2. D) P4.

A) P1.

Which of the following is characteristic of a purely competitive seller's demand curve? A) Price and marginal revenue are equal at all levels of output. B) Average revenue is less than price. C) Its elasticity coefficient is 1 at all levels of output. D) It is the same as the market demand curve.

A) Price and marginal revenue are equal at all levels of output.

Refer to the diagram. At the profit-maximizing level of output, the firm will realize A) an economic profit of ABHJ. B) an economic profit of ACGJ. C) a loss of GHper unit. D) a loss of JHper unit.

A) an economic profit of ABHJ.

the provided diagram, at the profit-maximizing output, total profit is A) efbc. B) fgab. C) egac. D) 0fbn.

A) efbc.

To the economist, total cost includes A) explicit and implicit costs. B) neither implicitnor explicit costs. C) implicit, but not explicit, costs. D) explicit, but not implicit, costs.

A) explicit and implicit costs.

A natural monopoly occurs when A) long-run average costs decline continuously through the range of demand. B) a firm owns or controls some resource essential to production. C) long-run average costs rise continuously as output is increased. D) economies of scale are obtained at relatively low levels of output.

A) long-run average costs decline continuously through the range of demand

If the budget line shifts from BBto bbin the diagram, we can infer that the A) price of Yhas increased and the price of Xhas decreased. B) price of Yhas decreased and the price of Xhas increased. C) prices of both Xand Yhave increased. D) prices of both Xand Yhave decreased.

A) price of Yhas increased and the price of Xhas decreased.

Which of the following is nota characteristic of pure competition? A) pricing strategies by firms B) a standardized product C) no barriers to entry D) a larger number of sellers

A) pricing strategies by firms

At the profit-maximizing level of output, a purely competitive firm will: A) produce the quantity of output at which marginal cost equals price. B) keep marginal cost lower than price, so profits will be greater than zero. C) produce the quantity of output at which marginal cost is minimized. D)try to sell all the output it can produce, to spread fixed costs across the largest possible number of units.

A) produce the quantity of output at which marginal cost equals price.

Refer to the diagram. At output level Q2, A) resources are overallocated to this product and productive efficiency is not realized. B) resources are underallocated to this product and productive efficiency is not realized. C) productive efficiency is achieved, but resources are underallocated to this product. D) productive efficiency is achieved, but resources are overallocated to this product.

A) resources are overallocated to this product and productive efficiency is not realized.

In the diagram, A) the consumer is indifferent between points AandB, but neither point maximizes his utility. B) the consumer is indifferent between points Aand B, and either point will maximize his utility. C) any combination of Xand Yentailing more of Yand less of Xthan shown at Bwould be preferred. D) any combination of Xand Yentailing more of Xand less of Ythan shown at Awould be preferred.

A) the consumer is indifferent between points AandB, but neither point maximizes his utility.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were A) $100,000 and its economic profits were $0. B) $200,000and its economic profits were $0. C) $100,000 and its economic profits were $100,000. D) $0 and its economic loss was $200,000.

B) $200,000and its economic profits were $0.

What do economies of scale, the ownership of essential raw materials, and patents have in common? A) They must all be present before price discrimination can be practiced. B) They are all barriers to entry. C) They all help explain why a monopolist's demand and marginal revenue curves coincide. D) They all help explain why the long-run average cost curve is U-shaped.

B) They are all barriers to entry.

The law of diminishing returns results in A) an eventually rising marginal product curve. B) a total product curve that eventually increases at a decreasing rate. C) an eventually falling marginal cost curve. D) a total product curve that rises indefinitely.

B) a total product curve that eventually increases at a decreasing rate.

The budget line shift from abto cdin the figure is consistent with A) decreases in the prices of both Mand N. B) an increase in the price of Mand a decrease in the price of N. C) a decrease in money income. D) an increase in money income and decrease in the price of N.

B) an increase in the price of Mand a decrease in the price of N.

Which of the following is a characteristic of pure monopoly? A) close substitute products B) barriers to entry C) the absence of market power D) "price taking"

B) barriers to entry

the competitive firm depicted in this diagram produces output Q, it will A) suffer an economic loss. B) earn a normal profit. C) earn an economic profit. D)achieve productive efficiency but not allocative efficiency.

B) earn a normal profit.

To economists, the main difference between the short run and the long run is that A) the law of diminishing returns applies in the long run, but not in the short run. B) in the long run all resources are variable, while in the short run atleastone resource is fixed. C) fixed costs are more important to decision making in the long run than they are in the short run. D) in the short run all resources are fixed, while in the long run all resources are variable.

B) in the long run all resources are variable, while in the short run at least one resource is fixed.

the accompanying diagram, if price is reduced from P1to P2, total revenue will A) increase by A −C. B) increase by C −A. C) decrease by A −C. D) decrease by C −A.

B) increase by C −A.

If a price-discriminating monopolist sells the same product in two markets but charges a higher price in market X and a lower price in market Y, the pricing difference indicates that demand is A) more elastic in market X than in market Y. B) less elastic in market X than in market Y. C) less elastic in market Y than in market X. D) the same in both markets X and Y.

B) less elastic in market X than in market Y.

When a purely competitive firm is in long-run equilibrium A) marginal revenue exceeds marginal cost. B) price equals marginal cost. C) total revenue exceeds total cost. D) minimum average total cost is less than the product price.

B) price equals marginal cost.

The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $28, the competitive firm will A) produce 4 units at a loss of $17.40. B) produce 7 units at a loss of $14.00. C) shut down in the short run. D) produce 6 units at a loss of $23.80.

B) produce 7 units at a loss of $14.00.

Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output A) q1. B) q2. C) q3. D) q4.

B) q2.

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is A) the abcdsegment and above on the MC curve. B) the bcdsegment and above on the MC curve. C) the cdsegment and above on the MC curve. D) not shown.

B) the bcdsegment and above on the MC curve.

The diagram suggests that A) when marginal product is zero, total product is at a minimum. B) when marginal product lies above average product, average product is rising. C) when marginal product lies below average product, average product is rising. D) when total product is at a maximum, so are marginal product and average product.

B) when marginal product lies above average product, average product is rising

The total cost of four units of output is A) $260. B) $77.50. C) $310. D) $215.

C) $310

Refer to the provided table. The total variable cost of producing 5 units of output is A) $10. B) $14.60. C) $63. D) $73.

C) $63.

Refer to the short-run data in the accompanying graph. The profit-maximizing output for this firm is A) above 440 units. B) 440 units. C) 320 units. D) 100 units.

C) 320 units.

Balin's Burger Barn operates in a perfectly competitive market. Balin'sis currently earning economic profits of $20,000 per year. Based on this information, we can conclude that A) Balin's profits will discourage new firms from entering. B) Balin's will increase its market price over the coming months. C) Balin's is operating in the short run, but not the long run. D) Balin's is operating in the long run.

C) Balin's is operating in the short run, but not the long run.

An unregulated pure monopolist will maximize profits by producing that output at which A) P= MC. B) P= ATC. C) MR = MC. D) MC = AC.

C) MR = MC.

Refer to the diagram for a pure monopolist. If a regulatory commission seeks to achieve the socially optimal allocation of resources to this line of production, it will set a price of A) P1. B) P3. C) P2. D) P4.

C) P2.

Which of the following conditions is true for a purely competitive firm in long-run equilibrium? A) P> MC = minimum ATC. B) P> MC > minimum ATC. C) P= MC = minimum ATC. D) P< MC < minimum ATC.

C) P= MC = minimum ATC.

The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) Pdenotes the price of a round of golf, and Qis the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, this profit-maximizing golf course should A) charge $9 for each round, regardless of the day of the week. B) charge $7 for each round, regardless of the day of the week. C) charge $7 for each round on weekdays and $10 during the weekend. D) charge $9 for each round on weekdays and $10 during the weekend.

C) charge $7 for each round on weekdays and $10 during the weekend.

Refer to the diagram for a purely competitive producer. If product price is P3, A) the firm will maximize profit at point d. B) the firm will earn an economic profit. C) economic profits will be zero. D) new firms will enter this industry.

C) economic profits will be zero.

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expec A) firms to enter the industry, market supply to rise, and product price to fall. B) firms to leave the industry, market supply to rise, and product price to fall. C) firms to leave the industry, market supply to fall, and product price to rise. D) no change in the number of firms in this industry.

C) firms to leave the industry, market supply to fall, and product price to rise.

Refer to the diagram, where variable inputs of labor are being added to a constant amount of property resources. The total output of this firm will cease to expand A) if a labor force in excess of Q1is employed. B) if a labor force in excess of Q2is employed. C) if a labor force in excess of Q3is employed. D) only if the marginal product curve becomes negative at all levels of output.

C) if a labor force in excess of Q3is employed.

the accompanying diagram, demand is relatively elastic A) in the P2P1price range. B) in the 0 P1price range. C) in the P2P4price range. D) only at price P2.

C) in the P2P4price range.

Refer to the diagram. At output level Q, average fixed cost A) is equal to EF. B) is equal to QE. C) is measured by both QFand ED. D) cannot be determined from the information given.

C) is measured by both QFand ED.

At each point on an indifference curve, A) money income is the same. B) the prices of the two products are the same. C) total utility is the same. D) marginal utility is the same.

C) total utility is the same.

The profit-maximizing price for the monopolist will be A) $5.00. B) $2.90. C) $3.35. D) $4.50.

D) $4.50.

Refer to the diagram. At the profit-maximizing level of output, total cost will be A) NMtimes 0 M. B) 0 AJE. C) 0 CGC. D) 0 BHE.

D) 0 BHE.

For a purely competitive seller, price equals A) average revenue. B) marginal revenue. C) total revenue divided by output. D) all of these.

D) all of these.

According to the accompanying diagram, at the profit-maximizing output, the firm will realize A) a loss equal to BCFG. B) a loss equal to ACFH. C) an economic profit of ACFH. D) an economic profit ofABGH.

D) an economic profit ofABGH.

To practice long-run price discrimination, a monopolist must A) be a natural monopoly. B) charge one price to all buyers. C) permit the resale of the product by the original buyers. D) be able to separate buyers into different markets with different price elasticities.

D) be able to separate buyers into different markets with different price elasticities.

Refer to the diagram for a purely competitive producer. The firm will produce at a loss at all prices A) below P2. B) below P1. C) below P3. D) between P2and P3.

D) between P2and P3.

Marginal revenue is the A)change in product price associated with the sale of one more unit of output. B) change in average revenue associated with the sale of one more unit of output. C) difference between product price and average total cost. D) change in total revenue associated with the sale of one more unit of output.

D) change in total revenue associated with the sale of one more unit of output.

For a purely competitive firm, total revenue A) is price timesquantity sold. B) increases by a constant absolute amount as output expands. C) graphs as a straight upsloping line from the origin. D) has all of these characteristics.

D) has all of these characteristics.

Refer to the diagram for a natural monopolist. If a regulatory commission set a maximum price of P2, the monopolist would A) produce output Q1and realize an economic profit. B) produce output Q3and realize an economic profit. C) close down in the short run. D) produce output Q3and realize a normal profit.

D) produce output Q3and realize a normal profit.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting A) profits were $100,000 and its economic profits were $0. B) losses were $500,000 and its economic losses were $0. C) profits were $500,000 and its economic profits were $1 million. D) profits were $0 and its economic losses were $500,000.

D) profits were $0 and its economic losses were $500,000.

Long-run competitive equilibrium A) is realized only in constant-cost industries. B) will never change once it is realized. C) is not economically efficient. D) results in zero economic profits.

D) results in zero economic profits.

the provided diagram, the short-run supply curve for this firm is the A) entire MC curve. B) segment of the AVC curve lying to the right of the MC curve. C) segment of the MC curve lying to the right of output level k. D) segment of the MC curve lying to the right of output level h.

D) segment of the MC curve lying to the right of output level h.

Implicit and explicit costs are different in that A) explicit costs are opportunity costs; implicit costs are not. B) implicit costs are opportunity costs; explicit costs are not. C) the latter refer to nonexpenditure costs and the former to monetary payments. D) the former refer to nonexpenditure costs and the latter to monetary payments.

D) the former refer to nonexpenditure costs and the latter to monetary payments.

Answer the question on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Average product is at a maximum when A)five workers are hired. B) four workers are hired. C) three workers are hired. D) two workers are hired.

Three workers are hired.

Which of the following statements about utility is true? A) It is the same as usefulness. B) Total utility diminishes as soon as additional units of a good are consumed. C) Utility is objectively determined, meaning a good should provide the same satisfaction to whomever consumes it. D) Utility is difficult to measure quantitatively.

Utility is difficult to measure quantitatively.

If MU a/ Pa= 100/$35 = MU b/ Pb= 300/? = MU c/ Pc= 400/?, the prices of products B and C in consumer equilibrium A) cannot be determined from the information given. B) are $105 and $140, respectively. C) are $105 and $175, respectively. D) are $100 and $200, respectively.

are $105 and $140, respectively.

The law of diminishing marginal utility states that A) total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B) beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. C) price must be lowered to induce firms to supply more of a product. D) it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

The marginal product of the fourth worker A) is 5. B) is 7. C) is 7 1/ 2. D) cannot be calculated from the information given.

is 5

If total utility is increasing, marginal utility A) is positive but may be either increasing or decreasing. B) must also be increasing. C) may be either positive or negative. D) will be increasing at an increasing rate.

is positive but may be either increasing or decreasing.

A consumer's demand curve for a product is downsloping because A) total utility falls below marginal utility as more of a product is consumed. B) marginal utility diminishes as more of a product is consumed. C) time becomes less valuable as more of a product is consumed. D) the income and substitution effects precisely offset each other.

marginal utility diminishes as more of a product is consumed.

Refer to the diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P3, the monopolist would A) maximize profits. B) increase output beyond the profit-maximizing level. C) reduce output below the profit-maximizing level. D) be unable to make a normal profit.

maximize profits.

Suppose that MU x/ Pxexceeds MU y/ Py. To maximize utility, the consumer who is spending all her money income should buy A) less of X only if its price rises. B) more of Y only if its price rises. C) more of Y and/or less of X. D) more of X and/or less of Y.

more of X and/or less of Y.

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is A) zero. B) positive, but declines rapidly. C) negative. D) positive, but less than the ticket price.

negative

Refer to the diagram, where xyis the relevant budget line and I1, I2, and I3are indifference curves. The equilibrium position for the consumer is at A) any point on xy. B) point M. C) point K. D) point J.

point K.

Refer to the diagram. Suppose the budget line shifts so that the consumer's equilibrium changes from point Ato point B. This means that the A) price of Yhas increased. B) price of Yhas decreased. C) price of Xhas increased. D) consumer's money income has increased.

price of Yhas decreased.

If all of the firms in a competitive industry are legally required to meet new regulations that increase their costs of production: A)supply of the product will decrease. B)the long-run economic profits of individual firms in the industry will decrease. C)demand for the product will decrease. D)the short-run economic profits of individual firms in the industry will increase.

supply of the product will decrease.