Micro Exam 2

Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because

As more variable inputs are hired, the amount of the fixed input per unit of variable input decreases.

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

An increase in supply.

If a monopolist engages in price discrimination, it will:

Charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.

Accounting profits are typically

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

Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained:

In terms of a stable demand curve and increasing supply.

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.

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that:

Increases in the supply of computer memory have exceeded increases in demand.

Consumer surplus

Is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is:

Negative and therefore X is an inferior good.

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

Positive, indicating substitute goods.

Market failure is said to occur whenever

Private markets do not allocate resources in the most economically desirable way.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:

Relatively inelastic.

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:

The price elasticity of demand is 2.25.

Price discrimination refers to:

The selling of a given product at different prices that do not reflect cost differences.

Which of the following goods will least likely suffer a decline in demand during a recession?

Toothpaste.

The demand for autos is likely to be:

less price elastic than the demand for Honda Accords.