Microeconomics: Set 2

Which of the following goods will least likely suffer a decline in demand during a recession?

Toothpaste

Suppose that football tickets at your university are given away for free, and that there are still empty seats for all games. Ignoring all other costs of going to the game, you should attend until your:

Total utility stops increasing

Variable costs are:

costs that change with the level of production

If the income elasticity of demand for lard is -3.00, this means that:

lard is an inferior good

Supply curves tend to be:

more elastic in the long run because there is time for firms to enter or leave the industry

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:

negative and therefore these goods are complements

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:

positive and therefore X is a normal good

Refer to the table and information. The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. The firm's total variable cost is indicated in the table. The marginal cost of the sixth unit of output is:

$1600

We would expect the cross elasticity of demand between Pepsi and Coke to be:

positive, indicating substitute goods

The law of diminishing returns indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The economic profits of Harvey's firm in the first year:

$160,000

In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he consumed is 8, and the marginal utility of the last bottle of beer is 4. The price of a bottle of beer is $1.50. If Fred has maximized his utility, the price of pizza must be:

$3.00

Refer to the table and information. The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. The average variable cost of the firm when 5 units of output are produced is:

$400

Refer to the table and information. The fixed cost of the firm is $500. The firm's total variable cost is indicated in the table. The average total cost of the firm when 3 units of output are being produced is:

$500

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were:

$60,000

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The explicit costs of Harvey's firm in the first year were:

$605,000

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The total revenues of Harvey's firm in the first year were:

$825,000

Refer to the diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about:

0.25 and supply is inelastic

Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be:

1.2

Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:

1.2

A child is given $1 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 10 cents and hard candies 20 cents each. The marginal utilities derived from each product are as in the table. Which combination should be bought with the $1 to maximize total utility?

2 chocolates and 4 hard candies

Refer to the table. What is the marginal utility of the fourth unit?

44

A child is given $1 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 10 cents and hard candies 20 cents each. The marginal utilities derived from each product are as in the table. What will total utility be when the consumer purchases the utility-maximizing combination of products?

620

Refer to the graph showing the marginal product (MPL) and the average product of labor (APL). At which quantity of labor employed does diminishing marginal returns set in?

B

Which type of goods is most adversely affected by recessions?

Goods for which the income elasticity coefficient is relatively high and positive

After eating four slices of pizza, you are offered a fifth slice. You turn down the slice. Your refusal indicates that the:

Marginal utility is positive for the fourth slice and negative for the fifth slice

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the:

Marginal utility per dollar spent is the same for all goods

Total utility is best defined by which of the following?

The total satisfaction received from consuming a particular amount of a product

Which of the following defines marginal utility?

The additional satisfaction received from consuming one more unit of a product

Which situation is consistent with the law of diminishing marginal utility?

The more pizza Henry eats, the less he enjoys an additional slice

The main determinant of elasticity of supply is the:

amount of time the producer has to adjust inputs in response to a price change

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded:

decreased by 7 percent

If long-run average total cost decreases as output increases, this is due to:

economies of scale

The larger the positive cross elasticity coefficient of demand between products X and Y, the:

greater their substitutability

The main difference between the short run and the long run is that:

in the short run, some inputs are fixed

Marginal product of labor refers to the:

increase in output resulting from employing one more labor

The price elasticity of supply measures how:

responsive the quantity supplied of X is to changes in the price of X

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,:

the demand for pizza is elastic above $5 and inelastic below $5

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

the price of some other product

The concept of price elasticity of demand measures:

the sensitivity of consumer purchases to price changes