Econ Midterm Review Questions
Refer to Table 5.1. Marginal cost (MC) is equal to average total cost (ATC)
between 7 and 8 units of outputs
Average Total Cost
change in the cost of all resources divided by the change in the quantity of output
If a firm is producing at a point where marginal revenue is greater than marginal cost, it should
continue producing at the current level
Marginal total cost is the
cost of all resources divided by the quantity of output
If demand is perfectly inelastic, then the
demand curve will be a vertical line
Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 4 percent, the quantity demanded of bread decreases to 45 loaves, which means
demand is elastic
After hiring three new employees, a manager sees that total output increases. If the manager hires two additional employees and discovers total output has fallen, the result is due to
diminishing marginal return
To calculate a price elasticity of demand, we need to
divide the percentage change in the quantity demanded by the percentage change in the price
In Table 5.2, marginal cost is largest for the
eighth unit produced
If 100 units of product L are sold at a unit price of $10 and only 25 units are sold at a unit price of $20, one can conclude that demand for L is
elastic
If the percentage change inn quantity demanded of a good is less than infinite and is greater than the percentage change in price that caused it, then the demand for the good is
elastic
When a university increased tuition by 10 percent, the number of students enrolled in fell by 15 percent. This university is faced with a(n)_________ demand.
elastic
As competitors enter a market, demand becomes more ____, meaning the demand curve shifts ____ and becomes ____
elastic; in; flatter
Suppose that the price elasticity of demand for firms A,B,C, and D IS 0, 0.5, 1, 1.5, respectively. An increase in the price would lead to a reduction in the quantity demanded for
firm D
The demand curve facing a perfectly competitive firm is
horizontal
The price elasticity of demand for a product measures
how much price changes given a change in demand
The price elasticity of demand for a product is 2, which implies that
if the price increases by 1 percent, the quantity demanded will decrease by 2 percent
In the long run, if a perfectly competitive firm cannot cover its costs, the profit-maximizing firm will
increase output and lower price
If the percentage change in quantity demanded for a product is greater then zero and is smaller than the percentage change in price that caused it, then demand for the good is
inelastic
Most economists like perfect competition because
it raises profits
Total cost is the cost of
land, labor, and capital
The law stating that added quantities of a variable resource will eventually result in less additional output is called the
law of diminishing marginal return
When diminishing marginal returns occurs, the
marginal costs starts to rise
When perfectly competitive firms produce at a quantity where marginal revenue equals marginal costs, they are
maximizing output
Which of the following is least likely to be a monopolistically competitive market in the United States?
mobile telephone service
A brand new store, Billy's Boards, opens and business takes off. We would expect
new firms will enter the board business
A monopolist will earn
normal profit in the long run
Demand provides a great deal of information to a business. A business can learn about the demand for its products by comparing
number of customers, price and quantities of different products, prices and quantities at different times and levels of income
Monopoly is a market structure characterized by
one producer and entry by other firms is not possible
The formula for the price elasticity of demand is the
percentage change in quantity demanded divided by the percentage change in price
The short run is a
period of time when plant size cannot be changed
Total revenue is the
price at which a product is sold multiplied by the number of units of the product that is sold
The transformation if resources into economic goods and services is called
production
If, at the current level of output, the extra revenue received from producing and selling the last unit of output is less than the extra cost of producing that output, the firm should
reduce output to the point where the extra revenue just equals the extra cost.
More competitors will increase the market supply, thus
resulting in lower prices
As output rises unit by unit, costs ____ relatively ____ at first, but then ____ more ____.
rise;slowly;increase; slowly
A perfectly competitive market is characterized by
small numbers of producers of commodities with ease of entry
Marginal cost is calculated by dividing
the change in total cost by the hcnage in the quantity of output produced
Marginal Revenue
the change in total revenue divided by the change in quantity sold
Average total cost is calculated by dividing
the change in totall cost by the change in the quantity of output
If demand for a good is inelastic. one can conclude that
the good is a necessity
Marginal cost (MC) is equal to average total cost (ATC) at
the minimum point of the ATC
Average total cost is
the per-unit cost and is derived by dividing total cost by the quantity of output
Price elasticity of the demand is the
the percentage change in quantity demanded divided by the percentage change in price
"Creative destruction" is:
the process of competition where the inefficient producers are driven out of business
If the price of a product decreases by 10 percent and the quantity demanded increases by 5 percent, then
the producer should raise the price higher than where it was to experience higher total revenue
To sell one more unit of output, the seller must make one more and sell it for
the same price as the last unit sold
The results of competition will be different depending on
the type of product being produced
A product is turned into a commodity when
there is no more incentive for new businesses to enter
Which of the following does not change with the level of output?
total fixed cost
A price elasticity of demand greater than 1 means that
total revenue (or total consumer expenditures) will rise if price rises
Average revenue is
total revenue divided by the number of units of the product sold
If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, the price elasticity of demand is
unit elastic
If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units, one can conclude that demand for the product is
unit elastic
Economists profits are earned
when price exceeds average total cost
In the long run, if a perfectly competitive firm is incurring an economic loss, the firm
will leave the industry
All of the following are characteristics of the market for a commodity product except
All of these are characteristics of a market for a commodity product
Competition benefits individuals because
All of these are true of competition
Which of the following does not refer to diminishing marginal returns?
Increasing the number of assistant vice presidents as the size of the firm increases
Which of the following goods or services will most likely have an inelastic demand?
Insulin (medication used to treat diabetes)
A monopolistically competitive firm will maximize profits where
MR=MC
If the firm described in Table 5.2 decided to produce nothing, which of the following would be true?
Total fixed cost would be $40
The law of diminishing returns causes the shape of the average-total-cost curve to be
U- Shaped
If demand is unit elastic, a 25 percent increase in price will result in
a 25 percent decrease in the quantity demanded
Competition is exemplified by:
all of these are true of competition
A price taker is
an individual seller in a commodity market
The average total cost curve indicates that
as more outuput is produces in the short run, average total costs must increase
Demand provides a great deal of information to a business. A business can learn about the demand for its products by conducting a survey
asking people what they would be willing to pay for one unit of a certain product., carried out at dinnertime asking about the prices of various goods. conducted in a shopping mall asking about various goods. in a focus group
Price is the same as
average revenue
What price will be charged by the profit-maximizing firm described in Table 6.1 if the firm is earning a positive economic profit?
$11
If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245, what is the marginal cost of producing the seventh unit?
$17
Refer to Figure 6.1. Given MR2, what is total cost at the profit-maximizing quantity if the lowest point of the average-total-cost curve is $4?
$200
Refer to Figure 6.1. Given MR1, what is total revenue if marginal cost at the profit-maximizing quantity is $2?
$80
Refer to Table 5.1. Average total cost (ATC) at 3 units of output is
1,167
When the price of a good increases by 50 percent, quantity demanded decreases by 2 percent. What is the price elasticity of demand?
1/25
Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a
2 percent decrease in the quantity demanded
Refer to Table 5.2. We can conclude that the marginal-cost curve intersects the average-variable-cost curve at ____ units of output and the average-total-cost curve at ____ units of output.
4;5
Refer to Table 5.1. Marginal cost (MC) of the third unit of output is
700
Refer to Table 5.2. For what unit of output is the marginal cost double the total fixed cost?
8
What would be the consequences of a 10 percent decrease in price for a good whose price elasticity of demand is 5?
A 50 percent increase in quantity demanded
Which of the following is the closest to being a perfectly competitive market in the United States?
Cell Phone Service
Suppose 200 DVD's are rented when the price is $4. If the price drops by $.80, the number of DVD's rented increases to 220. Which of the following statements about the price elasticity of demand is true?
Demand is inelastic
Which of the following is most likely to be a monopoly market in the United States?
Patented pharmaceutical
Carla buys one soft drink a day regardless of the price. Which of the following is correct about Carla?
Price elasticity of demand for soft drinks is 0
Land, Labor, and Capital used in production are
Resources
Refer to Figure 6.1. Given MR2, what is total revenue if the firm produces 60 units and the lowest point of the average-total-cost curve is $4?
The Amount cannot be determined from the information given
