microeco practice tests

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figure 6-6 shows the total cost for six different levels of output for a particular firm. total fixed cost (TFC) if five units of output are produced is

$1,000

figure 6-6 shows the total cost for six different levels of output for a particular firm. what is the marginal cost (MC) of the last unit of output listed in the table (e.g the fifth unit of output)

$100

figure 6-7 shows a firms total variable cost for different daily output levels. in addition, the firm has total fixed cost of $50 per day. at an output level of 20 units average variable cost is

$17.50 and average fixed cost is $2.50

figure 8-2 shows the total revenue and total cost data for a perfectly competitive firm. the marginal cost of producing the sixth unit of output is

$25

at the profit-maximizing, or loss-minimizing output level, the firm in figure 10-2 has total cost approximately equal to

$3,000

a consumer is currently spending all of her available income on two goods: music CDs and DVDs. at her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. if the consumer has $120 of income and is consuming 10 CDs and 2 DVDs what is the price of CD

$8

consider the competitive market for oil. which of the following would result from the discovery of new oil feilds that can be profitably accessed at the current price

- an excess supply of oil if the price of oil fails to -drop sufficiently

in a long run perfectly competitive equilibrium

- price and marginal cost are equal to minimum short run and long run average total cost - the typical firm will earn an normal profit

in the short run

- utilization of some inputs is assumed constant - at least one of the firms inputs is fixed

if a 20 percent decrease in the price of chickens results in a 10 percent increase in the quantity demanded, the price elasticity of demand has a value of

0.5

figure 16-2 if korea produces 2 fewer radios then how many more calculators could it produce

1

figure 4-6 shows the prices of two services offered by Earl's barber shop and the resulting quantities demanded by customers. in this example, the price elasticity of demand for manicures (using the midpoint formula) is

1

assume that canadian firms can produce one automobile or 1,000 calculators per day, and that US firms can produce three automobiles or 6,000 calculators per day. the terms of trade should be between

1, 000 and 6,000 calculators per automobile and the US should produce calculators ?

assume that the publishing industry producers novels and textbooks, as shown in the production possibilities frontier in figure 2-10. moving from point H to G, the opportunity cost of those five additional textbooks equals

10 millions novels

figure 6-2 shows a firms short run production function. what is the marginal product of labor between 20 and 30 units of labor

11 units

figure 6-2 shows a firm's short run production function. what is the product of labor when 20 units of labor are employed?

11.5 units

if the price elasticity of demand for Cheer detergent is 3.0 then a

12 percent drop in price leads to a 36 percent rise in the quantity demanded

in figure 3-4 equilibrium price is

3 where d line and supply line intecet

a family on a trip budgets $800 for it-down restaurant meals and fast food. if the price of a fast food meal for the family is $20, how many such meals can the family buy if they do not eat at restaurants

40

figure 16-3 quantities of goods that can be produced in one day with available resources: in figure 16-3 the opportunity costa in cost rica of producing one additional bicycle is

5 rugs

consider the marginal revenue and marginal cost curves shown in figure 7-13. assume that the firm represented is able to cover is variable costs if it operates in the short run. what is the firms optimal output level

80 units

cashews and asparagus are normal goods. when the price of cashew falls, by substitution and income effects, we can conclude the consumer will buy

? - buy more cashew and more asparagus

figure 2-2 illustrates the trade-off for a particular student between time spent studying per week and income per week from working part-time. what is the opportunity cost for this person of moving from point B to point a?

? 10 of income per week

myron worked at a factory where he earned $200,000 per year. one day, he quit his job and opened a bumper sticker business. after one year, his business earned $60,000 in sales revenue and he incurred $30,000 in direct business expenses. if he received no salary from the new business, what is his economic profit

? 10,000

figure 14-1 S and D shows the market supply and demand curves for dvds. the curve of S is the supply curve with tax. the economically efficient quantity

? 50

a budget constraint shows

? a series of bundles that cost the consumer the same amount of money

in figure 6-4 marginal product of labor is increasing for levels of employment

? bte 0 and 35 workers

dave consumes two normal goods, X and Y, and is currently at an optimum. if the price of good x falls we can predict with certainty that

? dave will consume more of both goods bec his real income has risen

in a decreasing-cost industry the long-run supply curve is

? downward sloping

an inferior good is one that

? ppl consumer if their income falls

for the perfectly competitive firm shown in figure 8-6

? profit rises when the firm raises its price and lower its output

suppose that Carla's candy shop finds that at the current level of output, marginal revenue is below marginal cost and average variable cost is below price. if the market is held constant, carla's candy shop should ____ in order to maximize profits

? reduce output

in short run equilibrium in a perfectly competitive market

? the market demand curve is horizontal

assume that a constant-cost perfectly competitive market is initially in long run equilibrium. after all long run adjustments are made, which of the following would occur as a result of an increase in the price of a complement to this industrys product

? the market price would remain unchanged; the market quantity would fall

the income effect measures how

? the quantity of good demanded changes in response to a change in purchasing power

if papagna's pizza parlor knows that the marginal cost of 500th pizza is $3.00 and that the average total cost of making 499 pizzas is $3.30, then

? total costs are falling at Q=500

which point in figure 2-4 is not possible for this society to produce

E

figure 14-1 shows the market supply and demand curves of DVDS. at which of the following points is the minimum acceptable price equal to 30 for some firm

F

brain and matt own the only two bicycle repair shops in town. each must choose between a low price for repair work and a high price. the yearly economic profits from each strategy are indicated in figure 10-12. the upper right side of each rectangle shows brains profits; the lower left side shows matt's profits. which of the following statements is correct?

Matt dominant strategy is to charge a low price

figure 9-12 shows the cost and demand curves facing a monopolist whose marginal cost is constant. the firm has no fixed costs. if the firm charges a single price, economic profit will equal the area

PABP'

figure 9-24 depicts a single-price monopoly. how much less output will it produce compared to a perfectly competitive industry facing the same cost conditions

Q-Q'

which of the following would shift the demand curve for regular vanilla ice cream, which is a normal good, to the left?

a change in tastes toward chocolate ice cream

procter and gamble co. is a major soap producer, all fot he following ecpect one, would shift its supply curve of liquid soap to left. which is exception?

a dec in price of liquid soap

which of the following would not lead to a shift of the demand curve for apples

a decrease in the supply of apples

an increase in the price of a particular good, with all other variables constant, causes

a movement along a given supply curve to a higher quantity supplied

a perfectly competitive firm produces in a market where the prevailing price is $25 at its current output level of 10,000 units its average total cost equals $15 the firm is earning

a total economic profit of $100,000

under price leadership

all firms follow price changes initiated by the leader

which of the following statements about the price elasticity of demand is true

all of the following are true - it is infinity when demand is perfectly elastic - it is unitary elastic when the demand curve slopes downward is 1 - it is zero when demand is perfectly inelastic

which of the following is assumed constant along the demand curve for gasoline

all variables affecting demand other than the price of gasoline

moving downward along a straight-line demand curve, the absolute value of the price elasticity of demand

always falls

consider the competitive market for oil, which of the following would result from the discovery of new oil fields that can be profitably accessed at the current price

an excess supply of oil if the price of oil fails to drop sufficiently

which of the following could lead to an increase in equilibrium quantity of a good

an increase in demand and an increase in supply

of the following, which could cause the demand curve for personal computers to shift to the left

an increase in the price of computer software

which of the following would shift the demand curve for new college textbooks to the right

an increase in the price of used college textbooks

consider the indifference curve map and budget constraint for two goods, X and Y. suppose the good on the horizontal axis, X, is normal. when the price of X increases, the substitution effect

and income effect both cause a decrease in the consumption of X

physical capital differs from raw materials in the sense that raw materials

are used up in prodiction

the height of the market supply curve

at any quantity shows the marginal cost of producing the last unit of good

the vertical distance between a firms average total curve and its average variable cost curve is it

average fixed cost

if the demand curve is a straight line and has the normal negative slope, then as quantity demanded increases, demand

becomes more inelastic

the cost of producing a car in Germany is 2,000 bushels of wheat, and the cost of producing a car in Canada is 1,200 bushels of wheat. the two countries can both benefit if the terms of trade are

between 1,200 bushels and 2,000 bushels of wheat per car, and Germany produces wheat

when a perfectly competitive market is in long run equilibrium each firms price equals

both marginal cost and average total cost

if a supply curve shift rightward along a downward sloping demand curve

both the quantity supplied and the quantity demanded will increase

suppose that the opp cost of producing a rocking chair in mexico is 50 bbs and the opp cost of a rocking chair in Japan is 80 bbs. jap and mexico can realize mutual gains if the terms of trade are

btw 50 and 80 bbs per rocking chair, and japan produces bbs

figure 16-1 number of workers need to produce 1 unit of each of the following goods: korea 1 radio (3), 1 calculator (6), colombia 1 radio (4), 1 calcultor (2) what can be said regarding absolute advantage in production for the 2 countries shown in figure 16-1

colombia has an absolute advantage only in producing calculators

number of workers needed to produce 1 unit of each of following goods: Korea: 1 radio= 3 1 cal= 6 colombia: 1 radio= 4 1 cal= 2 what can be said regarding the absolute advantage in production for the two countries

colombia has an absolute advantage only in production calculators

the theory of consumer choice examines how

consumers make utility-maximizing decisions

a budget constraint illustrates the

consumption bundles that a consumer can afford

the entry of new firms into a perfectly competitive market in the long run is most likely the result of

continued above-normal profit, combined with the absence of barriers to entry

a price floor on corn would have the effect of

creating a surplus supply when the floor is above the equilibrium price

when calculating the price elasticity of demand, we assume that the price of the good changes while all other variables affecting

demand remain constant

both diana and sarah like jazz music and music by the beatles. diana likes music by the beatles much better than jazz music whereas sarah prefers jazz music to music by the beatles. if we were to graph an indifference curve with cds by the beatles on the horizontal axis and jazz cds on the vertial axis then

diana's indifferene curve would be steeper than sarah's indifference curve

when the long run average total cost increases as output increases a firm experiences

diseconomies of scale

the demand curve facing a monopolistic competitor is

downward sloping

the firm depicted in figure 9-25 is a perfect price discriminator. what is its equilibrium price and output

each consumer is charged the maximum price he or she is willing to pay and the equilibrium output is Q

if the firms in a monopolistically competitive market are earning short-run economic profits then

each firms profit will drop to normal in the long run as its demand curve shifts leftward due to entry of new firms

in the long run, entry ensures that the typical monopolistically competitive firm will

earn a normal profit

which of the following is a characteristic of perfect competition

easy entry into or exit from the market

if a firm is a price taker, then the demand curve it faces is perfectly

elastic and the same as its marginal revenue curve

in the short run, if the firms total variable cost curve lies above its total revenue at all possible output levels the firms minimum short run loss

equals its total fixed cost

if food is measured on the horizontal axis of a budget line diagram, and clothing is measured on the vertical axis, the slope of the budget line

equals minus the maximum consumption of clothing divided by the maximum consumption of food

in the long run in a competitive market

existing firms can increase their plant size, and new firms can enter the market

when the oil-producing countries of the middle east meet to set prices and output levels, this is an example of

explicit collusion

consider the market represented by figure 3-9 if the price of the good is currently 50 the price will

fall, causing the quantity supplied to fall

if the marginal product of labor rises the marginal cost of output

falls

economic profit is another name for accounting profit

false

if the price of a good increases form $20 to $25 the quantity demanded declines from 15 to 10 units of the good, the price elasticity of demand is 5

false

if the price of a good increases from $20 to $25 and the quantity demanded declines from 15 to 10 units of the good, the price elasticity of demand is 5

false

if the price of jelly (a complement with peanut butter) decreases, both the demand and supply curves of peanut butter will shift rightward

false

if the price of jelly (a complement with peanut butter)decreases, both the demand and supply curves of peanut butter will shift rightward

false

market producer surplus is the area above the market price and below the market supply curve

false

total fixed costs decrease as output expands

false

if holly's demand for fast food decreases as her income rises, then

fast food is an inferior good for her

what characteristic is common to perfect competition, monopolistic competition and monopoly

firms maximize profits by producing where MR = MC

in the short run, costs that arise from resources that cannot vary in quantity are known as ___. whereas costs from inputs that can vary in quantity are known as ___

fixed costs , variable costs

which of the following is an implicit cost

foregone rent on office space owned and used by the firm

if 50 units of resources can produce either 1 ton of sugar beets or 100 lbs of ham in germany while 90 units f resources can produce either 2 tons of sugar beets or 300 lbs of ham in poland

germany has a comparative advantage in producing sugar beets

if the price of a haircut increases

haircuts become more expensive relative to other goods and services

kens lawn service co operates in a perfectly competitive market. why doesnt ken try to increase his revenue by lowering his price below the prevailing market price

he can sell as much as he wishes to at the market price

higher education is a normal good. it its price falls

higher education will satisfy to the law of demand

a good is an inferior good if the consumer buys less of it when

his income rises

the height of demand curve at any quantity indicates

how much that particular unit is worth to the person who buys it

the height of the demand curve at any quantity indicates

how much that particular unit is worth to the person who buys it

microeconomics deals with which of the following

how producers and consumers interact in individual markets

rent control is an example of a price ceiling. which of the following problems must be addressed under a rent control program?

how to allocate scarce rental units

the long run supply curve of a perfectly competitive industry is horizontal

in a constant- cost industry

a non-discriminating monopolists marginal revenue curve lies below its demand curve because

in order to increase the number of units sold, the firm must lower the price on all units sold

which of the following statements about perfectly competitive markets is not correct

in the long run, firms can earn economic profits or suffer economic losses

if the price of ground beef falls, the demand for hamburger buns will

increase bec the 2 goods are complements

oil and natural gas can each be used as a source of energy and are, for many purposes interchangable. which of the following best explains the increase in the price of natural gas that accompanied the increase in the price of oil during the 1990-1991 persian gulf war.

increased oil prices raised demand for natural gas, a substitute good

steak is a normal good. a decrease in the price of steak

increases the consumers purchasing power

if two bundles of goods give a consumer the same satisfaction, the consumer must be

indifferent between the bundles

as the price of a computer falls, overall

individuals would purchase more computers in equilibrium

if the percentage change in quantity demanded is smaller (in absolute value) than the percentage change in price, then demand is

inelastic

suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity demanded falls from 800 bottles per day to 700 bottles per day. over this range, the demand for aspirin is

inelastic

if the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is an(n)

inferior good

the welfare loss due to a price floor

is caused by a decrease in quantity

mark spends his weekly income on gin and cocktail olives. the price of gin has risen form $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and mark's income has stayed fixed at $46 per week. if you measure gin on the vertical axis and cocktail olives on the horizontal axis, then the budget constraint

is flatter after the price changes

mark spends his weekly income on gin and cocktail olives. the price of gin risen from $7 to $9 per bottle, the price of cocktail olives has fallen from $6 to $5 per jar, and mark's income has stayed fixed at $46 per week. if you measure gin on the vertical axis and cocktail olives on the horizontal axis then the budget constraint

is flatter after the price changes

a firms total revenue

is found by multiplying price per unit by the number of units produced and sold

when a firm faces a downward sloping demand curve, marginal revenue

is less than price

a government program would impose a 25-cent tax on each pack of cigarettes in order to fund welfare programs. such a policy

is not a pareto improvement

efficient quantity of a good

is the quantity at which the market supply and demand curves intersect

total net benefits gained in a market

is the sum of producer and consumer surplus in that market

which of the following statements about a non-discriminating monopoly firm is correct

it charges a price greater than its marginal cost

if expansion of a industry's output causes a downward shift of firms average total cost curves

it is a decreasing cost industry

the price elasticity of demand is important to firms because

it shows how price changes affect total expenditures on the goods they sell

jack and diane each buy pizza and paperback novels. pizza costs $3 per slice, and paperback novels cost $5 each. jack has a budget of $30, and diane has a budget $15 to spend on pizza and paperback novels which consumer(s) can afford to purchase 5 slices of pizza and 3 paperback novels

jack only

joes garage operates in a perfectly competitive market. at the point where marginal cost equals marginal revenue, ATC = $20 AVC=$15 and the price per unit is $10 in this situation

joes garage will shut down immediately

a consumer consumes two normal goods, coffee and chocolate. the price of coffee rises. the income effect, by itself, suggests that the consumer will consume

less coffee and less chocolate

a single-price monopoly with the same market demand and cost structure as a perfectly competitive market will produce

less since the monopolists marginal revenue curve lies below its demand curve

opportunity costs exist because

limited resources cannot satisfy all of the wants in society

in the long run equilibrium for a perfectly competitive market firms will choose the level of output where

long run average total cost is minimized

if a firm experiences economies of scale then as output increases

long run total cost rises proportionately less then output

an increase in the price of the good measured on the vertical axis of a budget line diagram will

make the budget line flatter

in order to maximize profit, a perfectly competitive firm should select the level of output where

marginal cost equals marginal revenue

indifference curves tend to be bowed inward because of diminishing

marginal rates of substitution

the additional revenue received by a firm from selling one more unit of output is known as

marginal revenue

in the short run the horizontal sum of all of the marginal cost curves (above minimum average variable cost) of individual firms in a competitive market defines the

market supply curve

consider a perfectly competitive firm whose minimum average total cost is $100. this firm is representative of all the firms in the market. if the market price is $80 then in the long run

market supply will fall

the intercept of a budget line measures the

maximum amount of a good that could be consumed at given prices and income

for a given level of output, the short run total cost of production

may exceed to equal the long run total cost of production

if firm is selling its output in an imperfectly competitive market, then an increase in the quantity the firm sells

may increase or decrease total revenue

if a firms short run total cost curve lies above its total revenue curve at all output levels, the goal of the firms should be to

minimize its loss

when there are many buyers and sellers, no significant barriers to entry, and a differentiated product, the market structure is called

monopolistic competition

the substitution effect of a price change is depicted by a

movement along the original indifference curve to the point where the marignal rate of substitution equals the price ratio for the new set of prices

which of the following would shift the entire supply curve for electricity to the left

new EPA regulations that force the closing of the worst polluting coal-burning power plants

suppose that a monopoly is earning economic profits in the short run. as a result,

no new firms will enter the industry because of barriers to entry

in a nash equilibrium

no player can improve his outcome by changing only his own strategy

if the consumer's income and all prices simultaneously double, then the optimum consumption bundle will

not change

the income effect

of a price decrease could work to increase or decrease the quantity of the good demanded

if a market is dominated by a few large, interdependent firms, it is said to be a(n)

oligopoly

a natural monopoly exist when

one firm can produce the market output at lower average cost than two or more firms can

what is perfect competition? a firm in a perfectly competitive market faces a demand curve that is

perfectly elastic

the statement that "at 10 percent the interest rate is too high for families to buy a home they could have afforded when the interest rate was below 7 percent" is an

positive statement

a firm suffers an economic loss whenever

price is less than average total cost

if the printed circuit board market is perfectly competitive

printed circuit boards will be allocated efficiently

what is the total profit (or loss) for the (single-price) monopolist shown in figure 9-9

profit of edcf

a perfectly competitive firm is operating where its total revenue equals its total cost in the short run if market demand increases this firm will have an economic

profit while expanding output

a consumer chooses an optimal consumption point where the

rate at which the consumer is willing to trade one good for another equals the price ratio

the consumer chooses a optimal consumption point where the

rate at which the consumer is willing to trade one good for another equals the price ratio

an increase in the price of a loaf of bread will

reduce the maximum number of loaves any individual consumer can purchase

if income and prices of both good all double, the budget line will

remain unchanged

the price elasticity of demand measures the

responsiveness of quantity demanded to a change in a good's price

economics is the study of choice under conditions of

scarcity

suppose a consumer spends his income on CDs and DVDs. if his income decreases the budget constraint for CDs and DVDs will

shift inward, parallel to the original budget constraint

which of the following is not a basic characteristic of a perfectly competitive market

significant nonprice competition among firms

housing is a normal good. that means

that people tend to purchase more housing if their income increases

suppose that for each automobile japan produces it must forego producing 40 computers. the united states must forego producing one automobile for every 80 computers it produces. which of the following is true?

the US has a comparative advantage in producing computers

a consumers budget line shows

the combinations of two good that are individual is able to purchase, given prices and income

in a competitive market, excess demand for a good exists whenever

the current price is below the equilibrium price

in perfect competition

the demand curve facing the firm is horizontal line at the market price

figure 8-1 shows the marginal cost and average total cost curves for a perfectly competitive firm. if the market price is $10, and the firm produces more than 200

the firm earns less profit per unit that if it produced 200 and less total profit

a single-price monopolist is producing 8,000 units of output. at that level, price equals $10, average total cost equals $12, and average variable cost equals $8. in addition, both marginal cost and marginal revenue equal $6. which of the following statements is correct in the short run

the firm is minimizing its economic loss at $16,000

in the long run

the firm may vary all inputs

if marginal cost exceeds marginal revenue

the firm will lower profits by increasing output

consider the monopolistically competitive firm whose demand curve and cost structure are illustrated in figure 10-1. which of the following statements is correct in the short run

the firm will produce zero units and suffer a loss of $300 per week

the market demand curve is

the horizontal sum of the individual demand curves of all consumers in the market

the demand curve faced by a monopolist is

the market demand curve

suppose the market price exceeds the typical perfectly competitive firms short run average total cost. what will happen to this market in the long run

the market supply curve will shift to the right as firms enter

a firm's explicit costs are

the money paid for use of inputs

the law of increasing opportunity cost says that

the more of something we produce, the greater is the opportunity cost of producing an additional unit

figure 2-6 shows five different points along the production possibilities frontier for a country that produces rockets and cruise ships. if the country is currently operating at point C and decided to move to point B

the opportunity cost would be four cruise ships?

a firms minimum efficient scale is defined as

the output level at which LRATC first reaches its minimum level

in a firm's planning horizon the long run refers to

the period during which all of the firm's inputs can be varied

if a consumer's budget line between meat and potatoes has a vertical axis intercept at 100 pounds of meat and a horizontal axis intercept at 100 pounds of potatoes

the price of a pound of meat must equal the price of a pound of potatoes

firms in a perfectly competitive market cannot influence

the price of the product they sell

when there is an improvement in technology, holding all else constant

the production possibilities frontier will shift outward

the substitution effect measures how

the quantity demanded of one good is influenced by a change in the price of that good, with income constant

a $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded of 5 meals. which of the following statements is correct

the slope of the demand curve is -1/5; there is insufficient information to determine the price elasticity of demand

higher education is a normal good if its price falls

the substitution and income effects work in the same directions

when there is a change in demand

there is a shift of the demand curve

which of the following does not apply to a firm that has shut down in the short run

total cost is zero

the principle of specialization and exchange implies that

total production is highest when individuals specialize according to their comparative advantage

the principle of comparative advantage states that

total production of every good or service can be greater if individuals specialize according to their comparative advantage

a price elasticity of demand if 2 for a specific cola means that if the price increases 1 percent, the quantity demanded of the cola will decrease by 2 percent

true

if Armenia can produce rugs more efficiently than any other country, it does not necessarily benefit form producing rugs for international trade

true

if the demand curve is a straight line with a negative slope, then demand is more elastic at higher prices than lower prices

true

if the demand for new automobiles falls when income falls, automobiles are said to be normal goods

true

supply curves usually slope upward because producers face increasing opportunity costs when increasing output

true

the law of diminishing marginal returns says that as more of a variable input is combined with a fixed input, total output will increase; however the increases in the firm's output will become even smaller

true

the limits of the terms of trade between 2 countries are determined by those countries opp costs of production

true

the ratio of the prices of two good multiplied by -1 is equal to the slope of the budget line

true

when opportunity costs rise as more of a good is consumed, the production possibilities frontier will be concave ( bowed out) with respect to the origin

true

whenever marginal cost is below average cost average cost must fall as output increases

true

if the marginal product of labor is positive and increasing then the total product of labor curve is

upward sloping and becoming steeper

the opportunity cost of any activity can be measured by the

value of the best alternative to that activitiy

which of the following necessarily equals zero when the firm's short run output level is zero

variable costs

a sunk cost is one that

was paid in the past and will not change regardless of later decisions


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