Econ 106 Midterm 2
the diamond-water paradox arises because:
essential goods may be cheap while nonessential goods may be expensive.
the law of diminishing returns describes the:
relationship between resource inputs and product outputs in the short run.
total utility may be determined by:
summing the marginal utilities of each unit consumed
Assume a diagram in which a budget line is imposed on an indifference map. a consumer will maximize her utility:
where the budget line is tangent to an indifference curve
where total utility is at a maximum, marginal utility is:
zero
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
marginal cost is the:
change in total cost that results from producing one more unit of output.
the theory of consumer behavior assumes that:
consumers behave rationally, maximizing their satisfactions.
average fixed cost:
declines continually as output increases.
diminishing marginal utility explains why:
demand curves are downsloping
marginal utility:
diminishes as more of a product is consumed
marginal cost:
equals both average variable cost and average total cost at their respective minimums.
which of the following is correct?
if marginal utility is diminishing and is a positive amount, total utility will increase.
an indifference curve:
is downsloping and convex to the origin.
any combination of goods lying outside of the budget line:
is unobtainable, given the consumer's income.
Utility:
is want-satisfying power
if a firm decides to produce no output in the short run, its costs will be:
its fixed costs.
which of the following is correct as it relates to cost curves?
marginal cost intersects average total cost at the latter's minimum point.
other things equal, if the prices of a firm's variable inputs were to fall:
marginal cost, average variable cost, and average total cost would all fall.
if in the short run a firm's total product is increasing, then its:
marginal product could be either increasing or decreasing.
the first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. therefore, the:
marginal product of the third worker is 9.
a product has utility if it:
satisfies consumer wants
Assume that a consumer purchases products a, b, and c in quantities such that the last dollar spent on each yields the same marginal utility and the consumer's income is totally spent. we can conclude that:
total utility is being maximized
at each point on an indifference curve:
total utility is the same.
The first pepsi yields craig 18 units of utility and the second yields 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:
8 units of utility
True or False when marginal product is falling, total product must be falling.
False
True or False where marginal product is zero, total product is at a maximum.
False
True or False marginal product rises faster than average product and also falls faster than average product.
True
True or False where total product is at a maximum, average product is also at a maximum.
True
the law of diminishing returns results in:
a total product curve that eventually increases at a decreasing rate.
the budget line shows:
all possible combinations of two goods that can be purchased, given money income and the prices of the goods.
fixed cost is:
any cost which does not change when the firm changes its output.
which of the following statements concerning the relationships between total product (tp), average product (ap), and marginal product (mp) is not correct?
ap continues to rise so long as tp is rising.
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.
which of the following best expresses the law of diminishing returns?
as successive amounts of one resource (labor) are added to fixed amounts of other resources (property), beyond some point the resulting extra output will decline.
the short run is characterized by:
at least one fixed resource.
for most producing firms:
average total costs decline as output is carried to a certain level, and then begin to rise.
if you operated a small bakery, which of the following would be a variable cost in the short run?
baking supplies (flour, salt, etc.)
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
marginal product:
may initially increase, then diminish, and ultimately become negative.
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.
If a consumer is initially in equilibrium, an increase in money income will:
move him to a new equilibrium on a higher indifference curve
the total output of a firm will be at a maximum where:
mp is zero.
A consumer is maximizing her total utility when:
mua/pa = mub/pb = muc/pc = ... = mun/p
which of the following statements is correct?
noncash gift-giving create a value loss, but cash gifts do not.
Marginal utility can be:
positive, negative, or zero
which of the following is most likely to be a fixed cost?
property insurance premiums
the long run is characterized by:
the ability of the firm to change its plant size.
marginal product is:
the increase in total output attributable to the employment of one more worker.
if a variable input is added to some fixed input, beyond some point the resulting extra output will decline. this statement describes:
the law of diminishing returns.
suppose you have a limited money income and you are purchasing products a and b whose prices happen to be the same. to maximize your utility you should purchase a and b in such amounts that:
their marginal utilities are the same.
what do the income effect, the substitution effect, and diminishing marginal utility have in common?
they all help explain the downsloping demand curve.