Econ 351 Study Set 2

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold. For the cab owner the madallion is: a. A fixed cost b. A variable cost c. An opportunity cost d. A sunk cost

A

Mary is starting a jewelry collection. She wants to own matched sets of three bracelets (b) and one necklace (n) that can be worn together, and she doesn't want to own any bracelets or necklaces that are not in a matched set of this size. Which of the following utility functions is consistent with Mary's preferences? a. U(b,n) = min (3n, b) b. U(b,n) = min (n, 3b) c. U(b,n) = 3n + b d. U(b,n) = n +3b

A

Ozan is maximizing utility by consuming 3 colas at $2 a piece and 4 hot dogs at $3 a piece. The last cola gave him 200 units of utility. How many units did the last hot dog give him? a. 300 b. 10 c. 600 d. 133.33

A

Scenario 1: Suppose the demand curve for a product is given by: Q=120-5P-2I. The supply curve is: 4P-10. Assume I=20. What is the price elasticity of supply at the equilibrium? a. 4/3 b. -5/3 c. 12 d. -15

A

A country, which does not tax cigarettes, is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as: Qd=140000-25000Pb Qs=20000+75000Ps If the government were to introduce the $0.4 tax per pack, what would be the government tax revenue? a. $41000 b. $44000 c. $52000 d. $55000

A

A country, which does not tax cigarettes, is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as: Qd=140000-25000Pb Qs=20000+75000Ps If the government were to introduce the $0.40 tax per pack, what portion of the tax would be borne by sellers? a. $0.1 b. $0.2 c. $0.3 d. $0.4

A

A marketing student observes that when the price of ice cream rises by 10%, the quantity of ice cream a supplier is willing to sell rises by 5%. The student correctly concludes that the elasticity of supply for ice cream is: a. 0.5 b. 5 c. 0.2 d. 2

A

Assume that the cross-price elasticity of demand is 2. Which of the following statements would describe the relationship between the two related goods? a. Demand is elastic to changes in the price of the substitute good b. Demand is inelastic to changes in the price of the substitute good c. Demand is elastic to changes in the price of the complement good d. Demand is inelastic to changes in the price of the complement good

A

Consider the following production function Q=2K^0.5L^0.5 Where K is the amount of capital employed and L is the amount of labor employed. The price of capital is $3 and the price of labor is $12. Suppose that you want to produce 64 units of output. How much labor will you hire to minimize the cost of producing? a. 16 b. 24 c. 36 d. 64

A

Considering the following production function q=7K^0.5L^2. Which of the following is true? a. Labor exhibits increasing marginal returns b. Capital exhibits increasing marginal returns c. Labor exhibits decreasing marginal returns d. Capital exhibits constant marginal returns

A

When the production possibility frontier bows outward from the origin: a. Opportunity costs are increasing b. Opportunity costs are decreasing c. Opportunity costs are constant d. Some of society's resources are unemployed

A

A country, which does not tax cigarettes, is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as: Qd=140000-25000Pb Qs=20000+75000Ps Determine the equilibrium price before the tax. a. $1 b. $1.2 c. $1.6 d. $2

B

A fast food restaurant currently pays $5 per hour for servers and $50 per hour to rent ovens and other kitchen machinery. The restaurant uses seven hours of server time per unit of machinery time. Determine whether the restaurant is minimizing its cost of production when the ratio of marginal products (capital to labor) is 12. If not, what adjustments are called for? The firm a. Is producing its current output level at the minimum cost b. Could reduce the cost of producing its current output level by employing more capital and less labor c. Could reduce the cost of producing its current output level by employing more labor and less capital d. Could increase its output at no extra cost by employing more capital and less labor

B

Consider the demand for peanut butter. When the price of a complementary good increases: a. There will be a movement down the demand curve for peanut butter b. The demand curve for peanut butter will shift to the left, with less being demanded at all prices c. The demand curve for peanut butter will shift to the right d. The equilibrium price of peanut butter can be expected to rise

B

Consider the following production function Q=2K^0.5L^0.5 Where K is the amount of capital employed and L is the amount of labor employed. The price of capital is $3 and the price of labor is $12. What is the total cost of producing 64 units of output? a. 128 b. 384 c. 624 d. 816

B

Demand for a product will be more elastic: a. The fewer good substitutes there are b. The more narrowly you define the good c. The more of a necessity the product is d. The smaller a proportion of income that purchases of this good represent for people

B

Economists tend to judge a model based upon: a. The reality of its assumptions b. The accuracy of its predictions c. Its simplicity d. Its complexity

B

For group K, the cost of attaining an educational level y is CK(y) = 2000y, and for Group M, the cost of attaining that level is CM(y) = 4000y. Employees will be offered $30000 if they have y<y*, where y* is an educational threshold determined by the employer. They will be offered $90000 if they have y>y*. An employer who only wants to hire those people who find learning less costly can do so by choosing y* to be anywhere between a. 15 and 45 b. 15 and 30 c. 13 1/3 and 30 d. 8 and 20

B

Hakan just bought a house for $250000. The utility he gets from wealth is given by: U(w)=5w^0.5. Hakan estimates that the probability of a major earthquake in the coming year is 10%, and that in the event of such a quake, the property would be worth $40000. Assume insurance is available for $30000. Should hakan buy the insurance? a. Yes b. No c. Hakan is indifferent d. We need more information on Hakan's attitude toward risk

B

Hakan just bought a house for $250000. The utility he gets from wealth is given by: U(w)=5w^0.5. Hakan estimates that the probability of a major earthquake in the coming year is 10%, and that in the event of such a quake, the property would be worth $40000. What is the maximum Hakan would pay for insurance? a. $18500 b. $29100 c. $36900 d. $50250

B

If Yasemin's marginal utility of income function is given as: MU(I)=2I, where I represents income, she is: a. Risk averse b. Risk loving c. Risk neutral d. None of the above

B

Jim left his previous job as a sales manager and started his own sales consulting business. He previous earned $70000 per year, but he now pays himself $25000 per year while he is building the new business. What is his accounting cost of the time he contributes to the new business? a. Zero b. $25000 per year c. $45000 per year d. $70000 per year

B

Scenario 1: Suppose the demand curve for a product is given by: Q=120-5P-2I. The supply curve is: 4P-10. Assume I=20. Which statement about the above good is true? a. This good is a complement good b. This good is an inferior good c. This good is a substitute good d. This good is a normal good.

B

Suppose a perfectly competitive firm's total cost of production is TC=Q^3-14Q^2+80Q+30 What is the price above which the firm will produce in the short-run? a. $21 b. $31 c. $42 d. $62

B

Suppose you are the manager of a firm operating in a perfectly competitive market. Your cost of production is C=500+2Q^2. Price of the good is $120. What is the profit? a. 1200 b. 1300 c. 1400 d. 1500

B

The cost-output elasticity equals 1.4. This implies that: a. Marginal cost is less than average cost b. There are diseconomies of scale c. There are economies of scale d. A and C both are correct

B

The president of a college has been told that when they raised their tuition by 15% the previous year, total revenue from tuition remained unchanged. Assuming the change in revenue is due to the change in tuition only, the president could conclude that price elasticity of demand for that college, over that tuition range must be: a. Greater than 1 b. Equal to 1 c. Equal to zero d. Less than 1

B

The tendency for individuals to assign higher values to goods when they own the goods than when they dod not possess the goods is known as the: a. Substitution effect b. Endowment effect c. income effect d. Anchoring effect

B

Which of the following correctly describes the relationship between economic efficiency and economic equity? a. They always call for opposite outcomes b. There is often a trade-off between the two goals c. There is no conflict between the two goals d. They are both automatically achieved in a free market economy

B

If the government imposes a price ceiling below the existing market price, it will: a. Cause demand to contract b. Create a surplus c. Create a shortage d. Have no effect

C

Marginal product crosses the horizontal axis (is equal to zero) at the point where: a. Output per worker reaches a maximum b. Diminishing marginal returns set in c. Total product is maximized d. Average product is maximized

C

Suppose you are the manager of a firm operating in a perfectly competitive market. Your cost of production is C=500+2Q^2. Price of the good is $120. What is the profit maximizing level of output? a. 10 b. 20 c. 30 d. 40

C

The argument that new industries require a temporary period of trade protection to get established is called: a. National security argument b. Job creation argument c. Infant industry argument d. International trade agreement

C

The total cost of producing computer software diskettes (Q) is given as: TC=300+4Q. What is the average variable cost? a. 300 b. 4Q c. 4 d. 300/Q

C

Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale. a. I and II are both true b. I and II are both false c. I is true, and II is false d. I is false, and II is true

C

What happens in a perfectly competitive industry when economic profit is <zero? a. Existing firms may get larger b. New firms may enter the industry c. Firms may exit the industry d. There may be pressure on prices to fall

C

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto workers negotiate higher wages? a. Price will fall and the effect on quantity is ambiguous b. Price will rise and the effect on quantity is ambiguous c. Quantity will fall and the effect on price is ambiguous d. Quantity will rise andn the effect on price is ambiguous

C

Which of the following is a key assumption of a competitive market? a. Firms can influence market price b. Commodities have few sellers c. Each seller has a very small share of the market d. There are barriers to entry into the market

C

Which of the following is a factor of production? a. The value of shares in Britain's biggest businesses b. Money held by businesses in bank accounts c. The profits made by businesses d. Land owned or rented by firms

D

A farmer uses M units of machinery and L hours of labor to produce C tons of corn. The production function is C=L^0.5M^0.75 This production function exhibits: a. Decreasing returns to scale for all output levels b. Constant returns to scale for all output levels c. Increasing returns to scale for all output levels d. No clear pattern of returns to scale

C

Assume that both high and low quality appliances are sold in the used appliance market. If we assume asymmetric information with sellers having more information regarding quality than buyers, which of the following is necessarily true? The: a. Fraction of high quality appliances will be greater than under perfect knowledge b. Fraction of high and low quality appliances will be the same as with perfect information c. Fraction of high quality appliances will be less than with perfect information d. None of the above

C

Consider the following production function Q=2K^0.5L^0.5 Where K is the amount of capital employed and L is the amount of labor employed. The price of capital is $3 and the price of labor is $12. What capital to capital labor ratio minimizes the cost of producing any given output? a. 1/4 b. 1/6 c. 4 d. 6

C

Which of the following is an example of a positive, as opposed to normative, statement? a. An increase in carbon tax is needed to tackle global warming b. The government must provide job training if we are to compete with other countries c. The rise in oil prices above $100 a barrel will result in a reduction in demand for new cars d. The government should provide free tuition to all college students

C

A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one more unit of labor, but does not want its output quantity to change, the firm should a. Use 1.25 fewer units of capital b. Add 1.25 units of capital c. Use 5 fewer units of capital d. Use 0.8 fewer units of capital

D

Consider the following statements when answering this question: I. Whenever a firm's average variable costs are falling as output rises, marginal costs must be falling too. II. Whenever a firm's average total costs are rising as output rises, average variable costs must be rising too. a. I and II are both true b. I and II are both false c. I is true, and II is false d. I is false, and II is true

D

If Hakan is currently willing to trade 3 Hot Wheels cars for 1 Bakugan toy, then he must like Bakugan better than Hot Wheels. This statement is a. True because Hakan has a diminishing marginal rate of substitution b. True because Hakan is always willing to trade 3 Hot Wheels for 1 Bakugan c. Not necessarily true if Hakan's willingness to trade Hot Wheels cars for 1 Bakugan toy does not change d. Not necessarily true if Hakan's willingness to trade Hot Wheels cars for 1 Bakugan toy depands on how many Hot Wheels cars and Bakugan toys he currently has

D

If a person has a MRS of x for y that is constant at 3/4, and if prices of the two goods are equal , then the individual will: a. Spend 100% of income on x b. Spend 75% of income on x c. Spend 25% of income on x d. Spend 0% of income on x

D

In long-run competitive equilibrium, a firm that owns factors of production will have an: a. Economic and accounting profit of $0 b. Economic profit>$0 and accounting profit = $0 c. Economic and accounting profit >$0 d. Economic profit = $ and accounting profit >$0

D

Jim left his previous job as a sales manager and started his own sales consulting business. He previous earned $70000 per year, but he now pays himself $25000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? a. Zero b. $25000 per year c. $45000 per year d. $70000 per year

D

Market surveys show that there are two types of consumers for frozen yogurt. The first type like frozen yogurt and have an inverse demand curve of P=5-1/2Q. The second type are crazy about frozen yogurt and have an inverse demand curve of P=20-Q. In the town of Smallville there are only 2 consumers: One of them likes frozen yogurt and the other is crazy about frozen yogurt. What is the market demand? a. Q=30-3p for 0<P<20 b. Q=25-(3/2)p for 0<p<20 c. Q=30-3p for 0<p<5; Q=10-2p for p>5 d. Q=30-3p for 0<p<5; Q=20-p for p>5

D

Rahsan receives utility from consuming avocado (A) and chocolate (C) as given by the utility function U(A,C) = 3A3C2. In addition, the price of avocado is $2 per unit and the price of chocolate is $4 per unit. Rahsan's' weekly income is $120. What is her optimum avocado and chocolate consumption? a. A=30, C=15 b. A=36, C=8 c. A=24, C=20 d. A= 36, C=12

D

Scenario 1: Suppose the demand curve for a product is given by: Q=120-5P-2I. The supply curve is: 4P-10. Assume I=20. What is the equilibrium price? a. 4 b. 6 c. 8 d. 10

D

Scenario 1: Suppose the demand curve for a product is given by: Q=120-5P-2I. The supply curve is: 4P-10. Assume I=20. What is the equilibrium quantity? a.. 10 b. 15 c. 20 d. 30

D

Suppose that typical firm in a perfectly competitive industry has the following costs: TC = 64+ [Q^2/100] What is the price associated with long-run equilibrium? a. $0 b. $0.4 c. $1.2 d. $1.6

D

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is: a. -2/5 b. -5/2 c. -5/9 d. -9/5

D

Which of the following inputs are variable in the long-run? a. Plant size b. Labor c. Capital and equipment d. All of these

D