Microeconomics Final II

Refer to the above figure. Marginal costs are represented by curve A) 1. B) 2. C) 3. D) 4.

A) 1.

A market is classified as an oligopoly when A) a few firms compete. B) many firms produce a slightly differentiated product. C) no matter how many firms are in the market, a barrier blocks entry by other new firms. D) many firms produce the same product. E) only one firm sells a product with no close substitutes.

A) a few firms compete.

If a monopoly wants to sell a greater quantity of output, it must A) lower its price. B) raise its price. C) tell consumers to buy more because it's a monopolist. D) raise its marginal cost. E) change its fixed costs.

A) lower its price.

The price charged by a perfectly competitive firm is A) the same as the market price. B) different than the price charged by competing firms. C) lower the more the firm produces. D) higher the more the firm produces. E) indeterminate.

A) the same as the market price.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A. $5,000. B. $500. C. $.50. D. $50.

A. $5,000

Which of the following is a short-run adjustment? A. A local bakery hires two additional bakers. B. Six new firms enter the plastics industry. C. The number of farms in the United States declines by 5 percent. D. BMW constructs a new assembly plant in South Carolina

A. A local bakery hires two additional bakers

In purchasing products A and B, a consumer is in equilibrium when: A. MUa/Pa = MUb/Pb. B. MUa/Pb = MUb/Pa. C. MUa - MUb = Pa/Pb. D. MUa _Pa = MUb _Pb.

A. MUa/Pa = MUb/Pb.

A budget line shows the: A. alternative combinations of two goods that a consumer can purchase with a given money income. B. alternative combinations of two goods that will yield the same level of total utility to a consumer. C. quantities of a particular good that a consumer will buy at various prices. D. ratio of money income to product price.

A. alternative combinations of two goods that a consumer can purchase with a given money income

The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The diamond-water paradox arises because: A. essential goods may be cheap while nonessential goods may be expensive. B. the marginal utility of certain products increases, rather than diminishes. C. essential goods are always higher priced than nonessential goods. D. we sometimes fail to use money as a standard of value.

A. essential goods may be cheap while nonessential goods may be expensive.

To the economist, total cost includes: A. explicit and implicit costs, including a normal profit. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.

A. explicit and implicit costs, including a normal profit.

Which of the following is most likely to be a variable cost? A. fuel and power payments B. interest on business loans C. rental payments on IBM equipment D. real estate taxes

A. fuel and power payments

Utility refers to the: A. satisfaction that a consumer derives from a good or service. B. rate of decline in a product demand curve. C. relative scarcity of a product. D. usefulness of a product.

A. satisfaction that a consumer derives from a good or service.

Refer to the above figure. Average total costs are represented by curve A) 1. B) 2. C) 3. D) 4.

B) 2.

A single-price monopoly has a marginal revenue curve that is A) horizontal and equal to price. B) downward sloping and below the demand curve. C) upward sloping and equal to the supply curve. D) downward sloping and above the demand curve. E) vertical at the profit-maximizing quantity.

B) downward sloping and below the demand curve.

The demand curve for a monopoly is A) horizontal because the demand is perfectly elastic. B) downward sloping. C) vertical because the demand is perfectly inelastic. D) upward sloping. E) undefined because it is the only supplier in the market.

B) downward sloping.

A monopoly occurs when A) each of many firms produces a product that is slightly different from that of the other firms. B) one firm sells a good that has no close substitutes and a barrier blocks entry for other firms. C) there are many firms producing the same product. D) a few firms control the market. E) one firm is larger than the many other firms that make an identical product.

B) one firm sells a good that has no close substitutes and a barrier blocks entry for other firms.

Answer the next question(s) on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10: OUTPUT . ATC ($) 1 . 40 2 . 27 3 . 29 4 . 31 5 . 38 Refer to the above data. The average variable cost of 4 units of output is: A. $33.50. B. $28.50. C. $19.00. D. $21.00.

B. $28.50.

An explicit cost is: A. omitted when accounting profits are calculated. B. a money payment made for resources not owned by the firm itself. C. an implicit cost to the resource owner who receives that payment. D. always in excess of a resource's opportunity cost.

B. a money payment made for resources not owned by the firm itself.

Fixed cost is: A. the cost of producing one more unit of capital, say, machinery. B. any cost which does not change when the firm changes its output. C. average cost multiplied by the firm's output. D. usually zero in the short run.

B. any cost which does not change when the firm changes its output.

The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

B. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

Marginal cost is the: A. rate of change in total fixed cost that results from producing one more unit of output. B. change in total cost that results from producing one more unit of output. C. change in average variable cost that results from producing one more unit of output. D. change in average total cost that results from producing one more unit of output.

B. change in total cost that results from producing one more unit of output.

To economists, the main difference between the short run and the long run is that: A. the law of diminishing returns applies in the long run, but not in the short run. B. in the long run all resources are variable, while in the short run at least one resource is fixed. C. fixed costs are more important to decision making in the long run than they are in the short run. D. in the short run all resources are fixed, while in the long run all resources are variable.

B. in the long run all resources are variable, while in the short run at least one resource is fixed.

Utility: A. is synonymous with usefulness. B. is want-satisfying power. C. is easy to quantify. D. rarely varies from person to person.

B. is want-satisfying power.

To maximize utility a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same.

B. marginal utility obtained from the last dollar spent on each product is the same.

Which of the following is most likely to be a fixed cost? A. shipping charges B. property insurance premiums C. wages for unskilled labor D. expenditures for raw materials

B. property insurance premiums

Total utility may be determined by: A. multiplying the marginal utility of the last unit consumed by the number of units consumed. B. summing the marginal utilities of each unit consumed. C. multiplying the marginal utility of the last unit consumed by product price. D. multiplying the marginal utility of the first unit consumed by the number of units consumed.

B. summing the marginal utilities of each unit consumed.

The basic characteristic of the short run is that: A. barriers to entry prevent new firms from entering the industry. B. the firm does not have sufficient time to change the size of its plant. C. the firm does not have sufficient time to cut its rate of output to zero. D. a firm does not have sufficient time to change the amounts of any of the resources it employs.

B. the firm does not have sufficient time to change the size of its plant.

Refer to the above figure. Average variable costs are represented by curve A) 1. B) 2. C) 3. D) 4.

C) 3.

_______ a large number of firms competing by making similar but slightly different products. A) Monopoly requires B) Perfect competition requires C) Monopolistic competition requires D) Oligopoly requires E) Both perfect competition and monopolistic competition require

C) Monopolistic competition requires

The long run is a time period in which A) some of the firm's resources are fixed. B) all of the firm's resources are fixed. C) all of the firm's resources are variable. D) the firm cannot increase its output. E) all costs become explicit costs.

C) all of the firm's resources are variable.

Refer to the above figure. Curve (4) is the A) total fixed cost curve. B) marginal product curve. C) average fixed cost curve. D) average variable cost curve.

C) average fixed cost curve.

The short run is the time frame A) during which the quantities of all resources are fixed. B) that is less than a year. C) during which the quantities of some resources are fixed. D) during which the quantities of all resources are variable. E) during which all costs are implicit costs.

C) during which the quantities of some resources are fixed.

Monopolies arise when there are A) many substitutes but there are no barriers to entry. B) no close substitutes and there are no barriers to entry. C) no close substitutes and there are barriers to entry. D) many substitutes and there barriers to entry E) None of the above answers are correct because the existence of a monopoly has nothing to do with the presence or absence of barriers to entry.

C) no close substitutes and there are barriers to entry.

In which market structure do firms exist in very large numbers, each firm produces an identical product, and there is freedom of entry and exit? A) monopoly B) oligopoly C) only perfect competition D) only monopolistic competition E) either perfect competition or monopolistic competition

C) only perfect competition

A firm's total product is the A) change in output from adding one more unit of labor. B) change in average product from employing one more unit of labor. C) total quantity of a good the firm produced in a given time period. D) cost of all of the units of output the firm produced in a given time period. E) change in quantity produced by changing the quantity of labor employed.

C) total quantity of a good the firm produced in a given time period.

Answer the next question(s) on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10: OUTPUT . ATC ($) 1 . 40 2 . 27 3 . 29 4 . 31 5 . 38 Refer to the above data. The total cost of producing 4 units of output is: A. $31. B. $87. C. $124. D. $108.

C. $124

Answer the next question(s) on the basis of the accompanying table that shows average total costs (ATC) for a manufacturing firm whose total fixed costs are $10: OUTPUT . ATC ($) 1 . 40 2 . 27 3 . 29 4 . 31 5 . 38 Refer to the above data. The marginal cost of the fourth unit of output is: A. $2. B. $12. C. $37. D. $16.

C. $37.

Implicit costs are: A. regarded as costs by accountants but not by economists. B. payments that a firm makes to other firms or individuals who supply resources to it. C. non-expenditure costs. D. costs that vary proportionately with output.

C. non-expenditure costs.

Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative.

C. positive, negative, or zero.

A product has utility if it: A. takes more and more resources to produce successive units of it. B. violates the law of demand. C. satisfies consumer wants. D. is useful.

C. satisfies consumer wants.

Costs I (3) (2) I I I I I I I I I I I I II---- I---------------------------------- (1) I I 0I-------------------------------------------- Output 27. In the above diagram curves 1, 2, and 3 represent: A. average variable cost, marginal cost, and average fixed cost respectively. B. total variable cost, total fixed cost, and total cost respectively. C. total fixed cost, total variable cost, and total cost respectively. D. marginal product, average variable cost, and average total cost respectively.

C. total fixed cost, total variable cost, and total cost respectively.

Where total utility is at a maximum, marginal utility is: A. negative. B. positive and increasing. C. zero. D. positive but decreasing.

C. zero.

The primary goal of a business firm is to A) promote fairness. B) make a quality product. C) promote workforce job satisfaction. D) maximize profit. E) increase its production.

D) maximize profit.

Cynthia is an Oklahoma wheat farmer. The demand for her wheat is A) perfectly inelastic. B) inelastic but not perfectly inelastic. C) elastic but not perfectly elastic. D) perfectly elastic. E) unit elastic.

D) perfectly elastic.

Which of the following markets is characterized by product differentiation? A) cauliflower B) peaches C) plums D) soda E) electricity

D) soda

A firm's total variable cost will depend on: A. the prices of variable resources. B. the production techniques that are used. C. the level of output. D. all of these.

D. all of these.

Marginal utility: A. is equal to total utility divided by the number of units consumed. B. is equal to total utility if the demand curve is linear. C. increases as more of a product is consumed. D. diminishes as more of a product is consumed.

D. diminishes as more of a product is consumed.

Economic profits are calculated by subtracting: A. explicit costs from total revenue. B. implicit costs from total revenue. C. implicit costs from normal profits. D. explicit and implicit costs from total revenue.

D. explicit and implicit costs from total revenue.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy: A. less of X only if its price rises. B. more of Y only if its price rises. C. more of Y and less of X. D. more of X and less of Y.

D. more of X and less of Y.