U.5 microE

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:

20 percent reduction in price.

Which of the following definitions is correct?

Economic profit = accounting profit - implicit costs.

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

increase the quantity demanded by about 25 percent.

If the price elasticity of demand for a product is unity, a decrease in price will:

increase the quantity demanded, but total revenue will be unchanged.

Which of the following is not a source of economies of scale?

inelastic resource supply curves.

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:

relatively elastic.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is:

relatively price elastic.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's total ECONOMIC COSTS are:

$286,000

Answer the next question(s) on the basis of the following cost data: CHART Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be:

$50

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's ECONOMIC PROFIT is:

$94,000

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's EXPLICIT COSTS are

$150,000

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's ACCOUNTING PROFIT is:

$230,000

When diseconomies of scale occur:

the long-run average total cost curve rises.

Economies and diseconomies of scale explain:

the profit-maximizing level of production.

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its hauling rates by 20%. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenue would fall because of the rate hike. It can be concluded that:

the railroad felt demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.

The concept of price elasticity of demand measures:

the sensitivity of consumer purchases to price changes.

To economists, the main difference between the short run and the long run is that:

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

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. Creamy Crisp's IMPLICIT COSTS, including a normal profit, are:

$136,000.

Answer the next question(s) on the basis of the following cost data: CHART Refer to the above data. The total cost of four units of output is:

$310

Which of the following is correct as it relates to cost curves?

Marginal cost intersects average total cost at the latter's minimum point.

Suppose the income elasticity of demand for toys is +2.00. This means that:

a 10 percent increase in income will increase the purchase of toys by 20 percent.

An explicit cost is:

a money payment made for resources not owned by the firm itself.

The main determinant of elasticity of supply is the:

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

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.

If you operated a small bakery, which of the following would be a variable cost in the short run?

baking supplies (flour, salt, etc.)

The law of diminishing marginal utility states that:

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

Which of the following is most likely to be an implicit cost for Company X?

forgone rent from the building owned and used by Company X

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

positive, indicating substitute goods.

In which of the following instances will total revenue decline?

price rises and demand is elastic

We would expect:

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.

The elasticity of demand for a product is likely to be greater:

the greater the amount of time over which buyers adjust to a price change.

Marginal cost is the:

change in total cost that results from producing one more unit of output.

If a firm decides to produce no output in the short run, its costs will be:

its fixed costs

To maximize utility a consumer should allocate money income so that the:

marginal utility obtained from the last dollar spent on each product is the same.

Which of the following is most likely to be a variable cost?

fuel and power payments

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range:

is elastic.

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000:

it would earn a normal profit but not an economic profit.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:

more of X and less of Y.