ECON2023 Final

For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :

P = MR = AR; P = AR > MR

If a country has a comparative advantage in the production of a good over another country, this means that it has the ability to produce the good:

at a lower opportunity cost than the other country

If a firms total fixed costs increase, then:

average fixed costs and average total costs will increase

A patent or copyright is a barrier to entry based on:

government action to encourage and protect private research and development efforts

The price that a profit maximizing monopolist charges for its product is:

greater than the price that would prevail if the industry were perfectly competitive

An example of an ad valorem tax is: i. a 6.5% sales tax charged by local businesses on the sales of goods and services ii. a $2.00 per-pack tax imposed by a local municipality on the sale of cigarettes, irrespective of the cigarette brand iii. the 18.3 cent federal tax charged on each gallon of gasoline purchased iv. a residential property tax paid by a homeowner that depends upon the propertys assessed value as determined by a county tax appraiser

i. a 6.5% sales tax charged by local businesses on the sales of goods and services iv. a residential property tax paid by a homeowner that depends upon the propertys assessed value as determined by a county tax appraiser

If a consumer purchases units of goods X and Y such that MUX/PX < MUY/PY, then total utility could be increased by purchasing:

more of Y and less of X

If the market demand for a monopolists good is not changing over time (i.e., there are no changes in the determinants of demand), then under uniform pricing the monopolist:

must lower price if it wants to sell more units of output versus fewer units of output

If household annual income decreases and the quantity of a good it purchases increases as a result, then the income elasticity of demand is:

negative and the good is inferior

If a 7 percent decrease in the price of good X causes a 4 percent increase in the quantity demanded of good Y, then the cross-price elasticity of demand is:

negative and the goods are complements

What do the income effect of a price change, the substitution effect of a price change, and diminishing marginal utility have in common?

none of the above

A good would be considered rival in consumption if:

one individuals consumption of the good results in less of it being available for others to consume

The price elasticity of demand is defined as the:

percentage change in quantity demanded divided by the percentage change in price

The demand curve for a competitive firms good is ______, while the demand curve for a monopolists good is ______.

perfectly elastic, downward sloping

Which of the following is not a basic characteristic of a purely competitive market?

the ability of an individual firm to influence the market price

The producer surplus associated with a perfectly competitive market appears graphically as:

the area above the supply curve and below the market price

If the total variable cost incurred by producing 9 units of output is $90 and the total variable cost incurred by producing 10 units of output is $120, then:

the average variable cost of 9 units is $10

Consider a consumer who maximizes utility subject to a budget constraint. If her income decreases, then:

the budget constraint will shift inward, the consumer will move to a new equilibrium along a lower indifference curve, and the level of total utility will decrease

The marginal product of labor (MPL) is:

the change in total output attributed to employing an additional worker

A basic characteristic of the short run for a firm is that:

the firm does not have sufficient time to vary the level of all of the inputs used in the production process

Consider the following statement: When the price of a product increases, a consumer is able to buy less of it with a given amount of income. This statement describes:

the income effect of a price change

The more narrowly a product is defined (for example, a specific brand of gasoline versus gasoline in general):

the larger the number of substitutes that exist and the larger the price elasticity of demand

Consider an individual sellers supply curve for a good. If the supply curve is vertical, then it may be concluded that:

the law of supply fails to hold, and quantity supplied is completely insensitive to changes in price

Suppose the firms comprising the supply-side of a perfectly competitive market are earning economic profits, creating the incentive for new firms to enter the market and compete. Which of the following best describes the effect on the market resulting from the entry of new firms?

the market supply increases, causing price to decrease and the total output produced and sold to increase

Consider a local bakery that rents a facility at which it bakes loaves of bread using machinery (ovens, etc.) and labor. Which of the following best describes one of its fixed costs?

the monthly rental payments it makes to the owner of the facility

In moving downward or upward along an indifference curve:

total utility is constant

Sandy likes smoothies. If she consumes 1 smoothie, she obtains 8 units of utility, if she consumes 2 smoothies she obtains 12 units of utility, and if she consumes 3 smoothies she obtains 15 units of utility. It follows that:

total utility is increasing at a decreasing rate and marginal utility is decreasing

The shapes of which cost curves can be attributed to the law of diminishing marginal product (or returns)?

total variable cost, total cost, average variable cost, average total cost, and marginal cost

A firm that is confronted with fixed costs in the short run should produce versus shut down if the total revenue generated from the sales of its output is sufficient to cover its:

total variable costs

If the marginal utility of the last unit of good X consumed is 9 and the marginal utility of the last unit of good Y consumed is 6, then if the consumer is maximizing utility, what set of prices could exist for goods X and Y, respectively?

$3 and $2

Suppose the market demand for a good is described by the equation P = 40 - 0.5Q. If a change in market supply results in price decreasing from P0 = $30 to P1 = $20, then the resulting change in consumer surplus is:

$300

Consider a perfectly competitive market described by the per-period supply function P = 10 + 0.4Q and per-period demand function P = 80 - 0.3Q. If the market is in equilibrium, then the per-period total economic surplus (i.e., consumer surplus + producer surplus) generated by the good each period is:

$3500

Suppose the market supply for a good is described by the equation P = 40 + 0.5Q. If the equilibrium price in the market is P = $60, then the producer surplus is:

$400

Consider a perfectly competitive market described by the per-period supply function P = 10 + 0.4Q and per-period demand function P = 80 - 0.3Q. If the government intervenes in the market and imposes upon firms a specific tax of t = $7 per unit of output sold, then once the market achieves the new (regulated) market equilibrium:

$630 in tax revenues will be generated each period

A goods choke price is the dollar amount at which none of the good will be purchased and below which units will be purchased. If an individuals demand function for a good is given by the linear equation Q = 40 - 0.5P, then the choke price is:

$80

Suppose a quantity discount applies on purchases of a good. Specifically, the pricing arrangement is such that a consumer can purchase the first 20 units of the good for $5 each and all additional units (i.e., the 21st, 22nd, etc.) can be purchased for $3 each. If the consumer has an income of $250, what is the maximum number of units of the good that can be purchased?

70 units

If the price elasticity of demand for a good at the current price is ED = 0.4, then a 1 percent increase in price will result in a:

0.4 percent decrease in quantity demanded

If i) the total utility and marginal utility of the first unit of a good consumed is 4; ii) the total utility from consuming 2 units of the good is 10; and iii) the marginal utility of the third unit consumed is 2, then the total utility from consuming 3 units of the good is:

12

Suppose that at the current prices the price elasticity of demand is 0.52, 1.43, 2.85, and 0.87 for products A, B, C, and D respectively. A one percent decrease in price will increase total revenue (TR) in which of the following:

B and C

The U.S. Department of Energy reported in 2014 that it estimated that the average household can expect to spend about $750 less on gasoline in 2015 compared to 2014 as a result of the decline in the price of crude oil. Given this information, it may be concluded that for the average household:

ED < 1 within the range over which the price of gasoline has varied (e.g., between $3 and $2 per gallon)

Consider a perfectly competitive market described by the supply function P = 10 + 0.2Q and demand function P = 60 - 0.3Q. The equilibrium price and quantity are:

P = $30 and Q = 100

Consider a market for a good that is comprised of two identical buyers whose demand functions are P = 30 - 4Q. Given this information, the market demand function is:

P = 30 - 2Q

Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms total cost function is:

TC = 800 + Q2/4

Suppose the demand for a monopolists good is described by the demand function P = 100 - 2Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:

TR = 100Q - 2Q^2

Suppose the market demand for a good is described by the demand function P = 50 - 0.25Q. It follows that the total revenue function relating the total revenues in the market (TR) to the quantity sold (Q) is:

TR = 50Q - 0.25Q^2

Which of the following will not cause the market supply curve for gasoline to change?

a decrease in the price of gasoline

Suppose a consumer's utility function is U = X0.5Y0.5. It follows that the indifference function associated with the bundle X = 2 and Y = 2 or (2, 2) is:

Y = 4/X

A consumer exhausts her income on goods X and Y. If her income is $100, the price of good X is PX = $4, and the price of good Y is PY = $2, then the algebraic expression for her budget constraint is:

Y = 50 - 2X

Consider an individual whose utility function is U = X0.5Y0.5. If the individual consumes 4 units of X and 4 units of Y, then she will experience some level of utility. If the individual instead consumes 2 units of X, how much of good Y must she consume in order to attain the level of utility associated with 4 units of X and 4 units of Y?

Y = 8

If a technological improvement occurs in a production process, then:

a given amount of inputs will yield more output the short run production function (or total product curve) will rotate upward total variable cost and average variable cost will be reduced at all positive levels of output a given amount of output may be produced with fewer inputs ALL THE ABOVE

Which of the following examples best represents a private good?

a lakefront residential property located next to a community lake

If the demand for a good declines as a result of a decrease in consumer income, then the good is said to be:

a normal good

In moving up or down an individual or market demand curve for a particular good:

all non-price determinants of demand (i.e., factors other than the price of the good) are held constant

The primary determinant of the price elasticity of supply is the:

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

Which of the following will result in an increase in the supply of a good or service?

an increase in government subsidies given to the producers of the good or providers of the service

A fixed cost is:

any cost that does not change as the quantity of output changes

The law of diminishing marginal product (or returns) states that:

as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at a decreasing rate

The law of diminishing marginal utility states that:

as more and more units of a good are consumed, marginal utility will decline beyond a point

Which of the following examples best reflects the law of supply?

as the price of a good falls, a firm moves downward along its supply curve by reducing the quantity of output produced

Of the four types of economic goods discussed at the beginning of the semester, which are rival and non-excludable in consumption?

common goods (or common property resources)

Which of the following is not correct regarding the behavior of monopolies in the marketplace?

because of their market power they charge the highest price possible they sell their output at prices that maximize per-unit profits instead of total profits because of their market power they are guaranteed to earn economic profits ALL THE ABOVE

A shortage of a good (or commodity) will arise in a market if its price is sustained:

below the equilibrium price, resulting in the quantity demanded exceeding the quantity supplied

An individual who has an absolute advantage in accomplishing a particular task:

can accomplish the task using fewer resources than others (e.g., time)

Firms confront a variety of costs in producing units of output to sell in the marketplace. Marginal cost (MC) references the:

change in total cost that results from producing each additional unit of output

Marginal utility is the:

change in total utility from consuming each additional unit of a good

{scalc} At the beginning of the semester we discussed four types of economic goods. These included:

club goods, public goods, common goods (or common property resources), and private goods

Along a linear demand curve as price is lowered from the choke price to zero the price elasticity of demand:

decreases continuously

Suppose that the supply of and demand for a good change simultaneously. Subsequent to these changes you observe that the equilibrium price of the good did not change but the equilibrium quantity of the good increased. Given this information, which of the following occurred?

demand and supply increased by and equal amount

An elasticity is: i. a measure of the sensitivity of a variable to a change in another variable ii. invariant (or insensitive) to the units in which variables are measured iii. defined as the ratio of the percentage change in the affected variable to the percentage change in the affecting variable iv. defined as the ratio of the percentage change in the affecting variable to the percentage change in the affected variable

i. a measure of the sensitivity of a variable to a change in another variable and iii. defined as the ratio of the percentage change in the affected variable to the percentage change in the affecting variable

The total revenue generated by a perfectly competitive firm: i. appears graphically as an upward sloping straight line from the origin ii. increases by a constant amount as the quantity of output produced and sold increases iii. increases initially, reaches a maximum, and then decreases as the quantity of output produced and sold increases

i. appears graphically as an upward sloping straight line from the origin ii. increases by a constant amount as the quantity of output produced and sold increases

A fundamental characteristic of the demand side of markets for goods and services is given by the law of demand, which states that: i. as the price of a good increases, quantity demanded will decrease, holding all other factors constant ii. as the price of a good decreases, quantity demanded will increase, holding all other factors constant iii. as the price of a good increases, demand will decrease iv. as the price of a good decreases, demand will increase v. as the price of a good increases, quantity demanded will decrease vi. as the price of a good decreases, quantity demanded will increase vii. as the price of a good increases, demand will decrease, holding all other factors constant viii. as the price of a good decreases, demand will increase, holding all other factors constant

i. as the price of a good increases, quantity demanded will decrease, holding all other factors constant ii. as the price of a good decreases, quantity demanded will increase, holding all other factors constant

The determinants of supply are: i. factors other than price that will affect the quantity of a good or service a firm is willing and able to produce ii. factors that affect a producers maximum willingness-to-accept (WTA) to produce various quantities of a good iii. factors that affect a producers minimum willingness-to-accept (WTA) to produce various quantities of a good

i. factors other than price that will affect the quantity of a good or service a firm is willing and able to produce iii. factors that affect a producers minimum willingness-to-accept (WTA) to produce various quantities of a good

Which of the following can not be identified from the budget constraint alone? i. how the prices of the goods and services were determined ii. the various combinations of goods and services an individual consumer can purchase, given income and prices iii. the utility maximizing combination of goods and services the individual will choose to purchase

i. how the prices of the goods and services were determined iii. the utility maximizing combination of goods and services the individual will choose to purchase

Consider two goods, say X and Y, each of which possesses a downward sloping demand curve. Suppose the amount of X that consumers purchase per period depends upon its price and the price of Y; similarly, the amount of Y that consumers purchase per period depends upon its price and the price of X. Given this information, which of the following is/are true? i. if consumers confront a decrease in the price of X, the demand for X will increase ii. if consumers confront a decrease in the price of X, the demand for Y will increase if X and Y are substitutes iii. if consumers confront a decrease in the price of X, the demand for Y will decrease if X and Y are substitutes iv. if consumers confront an increase in the price of X, the demand for Y will increase if X and Y are complement goods v. if consumers confront an increase in the price of X, the demand for Y will decrease if X and Y are complement goods

i. if consumers confront a decrease in the price of X, the demand for X will increase ii. if consumers confront a decrease in the price of X, the demand for Y will increase if X and Y are substitutes iv. if consumers confront an increase in the price of X, the demand for Y will increase if X and Y are complement goods

Consider a firm that produces units of output using human labor and machinery, embedded in which is a level of technology. If the firm upgrades its machinery and in so doing it increases the level of technology used in the production process, then: i. more output may be obtained with a given amount of inputs compared to before the improvement ii. a given amount of output may be obtained with fewer inputs compared to before the improvement iii. the firm must have increased its plant size and its market share

i. more output may be obtained with a given amount of inputs compared to before the improvement ii. a given amount of output may be obtained with fewer inputs compared to before the improvement

If the demand for a good is inelastic with respect to its price, then a: i. percentage change in price will result in a smaller percentage change in quantity demanded ii. percentage change in price will result in a greater percentage change in quantity demanded iii. change in price will cause revenues (or consumer expenditures) to change in the same direction iv. change in price will cause revenues (or consumer expenditures) to change in the opposite direction

i. percentage change in price will result in a smaller percentage change in quantity demanded iii. change in price will cause revenues (or consumer expenditures) to change in the same direction

The market supply curve for a good is derived by: i. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices ii. horizontally summing the supply curves of the individual firms in the market iii. vertically summing the supply curves of the individual firms in the market

i. summing the quantity supplied by each firm at a given price and then repeating this over the range of prices ii. horizontally summing the supply curves of the individual firms in the market

One component of the consumer choice model is an individual's utility function. The utility function alone may be used to identify: i. the bundles of goods and services that yield the same level of utility ii. the utility derived from all bundles of goods and services iii. the single bundle the consumer will purchase in order to maximize utility

i. the bundles of goods and services that yield the same level of utility ii. the utility derived from all bundles of goods and services

Suppose a market researcher is interested in measuring the sensitivity of consumer purchases (or quantity demanded) to changes in the market price of a good. In order to measure consumer sensitivity the researcher may favor the price elasticity of demand over the slope of the demand curve because: i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured iii. the slope of the demand curve can only be used if the demand curve is linear

i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured

If a market is perfectly (or purely) competitive, then: i. there are large numbers of independently acting buyers and sellers ii. the good that is produced and traded is homogenous or standardized iii. an individual seller can affect the market price whereas an individual buyer can not iv. an individual buyer can affect the market price whereas an individual seller can not

i. there are large numbers of independently acting buyers and sellers iv. an individual buyer can affect the market price whereas an individual seller can not

If a firm is producing at a break-even point, then: i. total revenue is equal to total cost ii. total revenue is equal to total variable cost iii. average revenue is equal to average total cost iv. average revenue is equal to average variable cost

i. total revenue is equal to total cost iii. average revenue is equal to average total cost

A production possibilities curve (or frontier) illustrates the basic principle that:

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced

Under which of the following situations would a perfectly competitive firm increase profits by increasing output:

if it were producing a level of output such that MC < MR

Under which of the following situations would a monopoly increase its per-period total profits by raising price and reducing output:

if it were producing a level of output such that MC > MR

Which of the following is statements is correct?

if marginal utility is diminishing but positive as consumption increases, then total utility will increase

It is reasonable to expect that: i. demand curves for a given good are identical between consumers ii. demand curves for a given good differ between consumers iii. an individual has identical demand curves for different goods iv. an individual has different demand curves for different goods

ii. demand curves for a given good differ between consumers iv. an individual has different demand curves for different goods

Any bundle of goods located inside (versus outside) of a consumer's budget constraint: i. is unobtainable, given the consumer's income ii. implies the consumer is not spending all of her income on goods and services iii. will yield less utility than any bundle located on the budget constraint iv. will yield less utility than any bundle located outside of the budget constraint

ii. implies the consumer is not spending all of her income on goods and services

If an indifference curve relating X and Y is upward sloping, then it may be concluded that: i. both X and Y are goods ii. both X and Y are bads iii. X is a good and Y is a bad or X is a bad and Y is a good

iii. X is a good and Y is a bad or X is a bad and Y is a good

Assuming there are no quantity discounts or penalties, in moving downward or upward along a budget constraint: i. consumer income varies but the prices of the goods are constant ii. consumer income is constant but the prices of the goods vary iii. consumer income is constant iv. the prices of the goods are constant

iii. consumer income is constant iv. the prices of the goods are constant

Which of the following is correct? i. if average product is greater than marginal product, then marginal product must be increasing ii. if average product is less than marginal product, then marginal product must be decreasing iii. if marginal product is greater than average product, then average product must be increasing iv. if marginal product is less than average product, then average product must be decreasing

iii. if marginal product is greater than average product, then average product must be increasing iv. if marginal product is less than average product, then average product must be decreasing

Municipalities commonly have only one provider of electricity. Such natural monopolies are the result of: i. a firm owning or controlling a key input used in the production process ii. long-run total costs declining continuously as output increases iii. long-run average total costs declining continuously as output increases iv. economies of scale existing over a wide range of output

iii. long-run average total costs declining continuously as output increases iv. economies of scale existing over a wide range of output

In microeconomics the term 'utility' references the: i. relative scarcity of a good or service ii. usefulness of a good or service iii. satisfaction derived from consumption of a good or service iv. slope of a consumer's demand curve for a good or service

iii. satisfaction derived from consumption of a good or service

An individual's total expenditures on a good are equal to the quantity purchased multiplied by the per-unit price of the good. If an individual's demand function for a good is given by the linear equation Q = 80 - 2P, then as price decreases from the choke price to zero his/her total expenditures on the good:

increase initially and then decrease

A market:

is a mechanism or institution that brings buyers and sellers together for the purpose of trade

Suppose a firm is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $6 per unit and average total costs of $7 per unit. Given this information, it may be concluded that the firm:

is operating at maximum total profit

The consumer surplus derived by an individual from a good or service:

is the difference between the maximum amount the individual is willing to pay on each unit and the price he/she actually pays

If a competitive firm or a monopolist is producing a level of output such that P < ATC, it may be concluded that:

it will incur a loss

If the price of a good falls from $30 to $20 and as a result the per-period quantity demanded increases from 40 to 50 units, then it may be concluded that over this price range: i. demand has decreased ii. demand is unit elastic iii. demand is elastic iv. demand is inelastic

iv. demand is inelastic

If the price of a good rises from $10 to $20 and as a result the per-period quantity demanded decreases from 40 to 30 units, then it may be concluded that over this price range: i. demand has decreased ii. demand is unit elastic iii. demand is elastic iv. demand is inelastic

iv. demand is inelastic

In contrast to firms operating in purely competitive industries, demand curves faced by monopolists are:

less elastic at all prices

Like a perfectly competitive firm, if a monopolist wants to know how much it will save by reducing output, it will evaluate its:

marginal cost function

Consider a consumer that exhausts his per-period (e.g., weekly) income by purchasing units of various goods and services at the market prices. If the consumer is a utility maximizer, then income will be allocated such that:

marginal utility per dollar (i.e., marginal utility divided by price) is equal over the goods and services purchased

When a firm is maximizing total profit it will necessarily be:

maximizing the difference between total revenue and total cost

Consider a perfectly competitive market that is initially in equilibrium. If the supply of the good increases and the demand for the good simultaneously decreases, then equilibrium:

price will fall, but the equilibrium quantity may either rise, fall, or remain unchanged

A perfectly competitive firms average fixed cost function is AFC = 20/Q, its average variable cost function is AVC = 2 + 0.2Q, and it marginal cost function is MC = 2 + 0.4Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $10, then the firm will:

produce 20 units of output and earn a profit of $60

Consider a monopoly whose total cost function is TC = 100 + Q + 0.5Q2 and whose marginal cost function is MC = 1 + Q. The demand function for the firms good is P = 85 - 0.25Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the firm will:

produce 56 units of output, charge a price of $71, and earn a profit of $2252

Specializing in the production of a good or service in which a country has a comparative advantage allows it to do all of the following except:

produce a combination of goods that lies outside its production possibilities frontie

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit is known as the:

profit-maximization rule

Consider a perfectly competitive market that is initially in equilibrium. If the supply of the good increases and the demand for the good simultaneously increases, then equilibrium:

quantity will rise, but the equilibrium price may either rise, fall, or remain unchanged

If a monopolist is producing and selling a level of output in the inelastic segment of its demand curve, it can:

raise total revenue by raising price reduce total cost by raising price raise total profit by raising price ALL THE ABOVE

The price elasticity of supply measures how:

responsive the quantity supplied of a good is to changes in its price

From the framework developed and discussed in class and the readings it may be concluded that in order for a good to be exchanged between a seller and a buyer, it must be that:

seller minimum willingness-to-accept is less than or equal to buyer maximum willingness-to-pay

The income elasticity of demand for food (e.g., measured by daily calories consumed) can reasonably be expected to be: {scalc}

smaller than the income elasticity of demand for foreign vacation travel

The concept of opportunity costs in the production of a good:

suggests that if resources are allocated to the production of one good then the production of other goods must be foregone

Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold for the same price. The price that will result in the maximum total profit is:

the price at which marginal revenue equals marginal cost

Which of the following is not a characteristic of a good whose demand is elastic at the current market price?

the price elasticity is less than one

Which of the following generalizations is not correct?

the price elasticity of demand is greater for necessities than it is for luxuries

To derive a consumer's demand curve for a good from the consumer choice model:

the price of the good is varied, holding the prices of other goods and income constant, in order to identify the utility maximizing quantity of the good purchased

The total variable cost (TVC) incurred by a firm will depend upon:

the prices of its variable inputs (e.g., the hourly wage rate that workers are paid) the production techniques that are used (i.e., its short run production function) the amount of output produced ALL THE ABOVE

Suppose the market demand curve for a good is represented by the linear equation Q = 40 - 0.25P. If the market price were to decrease from P = $40 to P = $20, then holding all other factors constant:

the quantity demanded would increase by 5 units and total expenditures on the good would decrease by $500

The income elasticity of demand is a measure of:

the responsiveness of quantity demanded to changes in income

Consider a small farm that uses machinery and laborers to grow and harvest fruits or vegetables. Which of the following best describes one of its short run variable inputs?

the seeds or seedlings to be planted

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:

to both perfectly competitive firms and monopolies

If the government imposes a binding price floor (i.e., a minimum price that may be charged) upon a good that is produced and traded in a perfectly competitive market, then relative to the initial (unregulated) market equilibrium:

total economic surplus (i.e., consumer surplus + producer surplus) will decrease

Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 8 units of output will be produced; if it employs 2 units of labor, then 14 units of output will be produced; and if it employs 3 units of labor, then 18 units of output will be produced. It follows that:

total output is increasing at a decreasing rate and the marginal product of labor is decreasing

Consider a profit-maximizing firm operating in a perfectly competitive market. If the market price falls below the minimum of the firms average total cost curve but is greater than the minimum of its average variable cost curve, the firm:

will experience a loss but should continue to operate in the short-run