MICROECONOMICS MCCLUNG
16. If a firm stops production, then its: A. variable costs drop to zero. B. fixed costs rise. C. total costs may increase or decrease. D. All of these are true.
A
11. If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is: A. $20. B. $24. C. $22. D. $480.
B
14. Which of the following statements is always true? A. Absolute advantage implies comparative advantage. B. Comparative advantage does not require absolute advantage. C. Absolute advantage requires comparative advantage. D. Comparative advantage requires absolute advantage.
B
2. The central concern of economics is: A. poverty. B. scarcity. C. wealth accumulation. D. overconsumption.
B
2. The primary objective of most private firms is to: A. maximize revenue. B. maximize profit. C. minimize cost. D. maximize output.
B
9. One reason that variable factors of production tend to show diminishing returns in the short run is that: A. too much capital equipment is idle. B. there are more and more workers using a fixed amount of productive resources. C. the firm has become too large to effectively manage workers. D. the cost of hiring additional workers increases as firms seek to hire more.
B
6. The cost-benefit principle indicates that an action should be taken: A. if the total benefits exceed the total costs. B. if the average benefits exceed the average costs. C. if the net benefit (benefit minus cost) is zero. D. if the extra benefit is greater than or equal to the extra costs.
D
3. Total revenue minus total explicit and implicit costs defines: A. gross earnings. B. profit. C. marginal earnings. D. net worth.
B
18. A production function represents: A. the relationship between the quantity of inputs and the quantity of outputs. B. the relative values of the inputs and modes of production. C. the relative costs of the inputs across various modes of production. D. the relationship between the cost of the inputs and the revenue generated by the outputs.
A
19. Application of the Principle of Comparative Advantage leads to: A. greater specialization of labor and other factors of production. B. less specialization of labor and other factors of production. C. societies without any specialization of labor. D. lower total output.
A
20. The increase in output that is generated by an additional unit of input is call the: A. marginal product. B. input-output relationship. C. production function. D. resource product.
A
27. Suppose a firm is collecting $1,700 in total revenues and the total costs of its variable factors of production are $1,900 at its current level of output. One can predict that the firm will A. shut down. B. raise its price. C. earn a loss. D. continue to operate.
A
29. An increase in the price the firm receives for its output will cause the firm to: A. expand output and earn greater profits or smaller losses. B. leave output unchanged and earn greater profits. C. leave output unchanged and earn greater profits or smaller losses. D. contract output and earn greater profits.
A
3. If all the world's resources were to magically increase a hundredfold, then: A. the scarcity principle would still govern behavior. B. economics would no longer be relevant. C. the scarcity principle would disappear. D. tradeoffs would become unnecessary.
A
34. A movement along a demand curve from one price-quantity combination to another is called: A. a change in quantity demanded. B. a shift in the demand curve. C. a change in demand. D. a change in quantity supplied.
A
36. What might cause a demand function to shift to the right? A. An increase in the price of a substitute. B. An increase in the product's own price. C. An increase in the price of a complement. D. A decrease in the price of a substitute.
A
37. If the price of computers increases and the demand for monitors decreases as a result, then: A. computers and monitors are complements. B. computers are a normal good and monitors are inferior. C. computers and monitors are substitutes. D. computers are an inferior good and monitors are normal.
A
38. Suppose that the technology used to manufacture laptops has improved. The likely result would be: A. an increase in supply of laptops. B. an increase in quantity supplied of laptops. C. a decrease in supply of laptops. D. a decrease in quantity supplied of laptops
A
40. Generally, ______ motivate firms to enter an industry while ______ motivate firms to exit an industry. A. economic profits; economic losses B. accounting profits; accounting losses C. accounting profits; economic losses D. economic profits; accounting losses
A
41. Suppose all firms in a perfectly competitive industry are experiencing economic profits. One would expect that, over time, the number of firms will _______ and the market price will _____. A. rise; fall B. fall; rise C. rise; rise D. rise; stay the same
A
45. If the percentage change in the price of a good is less than the percentage change in the quantity demanded of that good then the demand for that good, with respect to price, is: A. elastic. B. inelastic. C. unitary elastic. D. perfectly inelastic
A
47. If a firm collects $80 in revenues when it sells 4 units, $100 in revenues when it sells 5 units, and $120 when it sells 6 units, one can infer the firm is more likely to be: A. a perfect competitor. B. a monopolistic competitor. C. an oligopolist. D. a monopolist.
A
49. If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is: A. (P/Q)*(1/slope) B. (Q/P)*(1/slope) C. (P/Q)*(slope) D. Q*P*(1/slope)
A
50. If the slope of the demand curve is -1.4, price is $5 and quantity demanded is 13 units, the price elasticity of demand is: A. 0.27. B. 0.38. C. 1.4. D. 1.8.
A
7. Which of the following factors of production is likely to be fixed in the short run? A. The location of the firm. B. The number of employee-hours. C. The amount of electricity consumed. D. The amount of paper used.
A
8. Which of the following is most likely to be a variable factor of production at a university? A. The number of teaching assistants. B. The size of the basketball arena or football stadium. C. The school mascot. D. The location of the university.
A
1. The most important decision that sellers make is: A. whether to set profit maximization as a goal. B. whether to produce another unit. C. whether to change the price of their product. D. whether to expand factory facilities.
B
10. The opportunity cost of an activity is the value of: A. an alternative forgone. B. the next-best alternative forgone. C. the least-best alternative forgone. D. the difference between the chosen activity and the next-best alternative forgone.
B
21. When economists use standard supply and demand theory, they are assuming that the supply curve describes: A. all firms. B. firms that operate in perfectly competitive markets. C. firms that face perfectly elastic supply. D. Firms in the short run.
B
24. A profit-maximizing firm will shut down when: A. total revenues are less than the total cost of fixed and variable factors of production. B. total revenues are less than the cost of variable factors of production. C. total revenues are less than the cost of fixed factors of production. D. profits are zero.
B
25. Suppose a perfectly competitive firm knows that it is not going to shut down, but it is going to earn a loss. It should pick the output level where: A. total costs are minimized. B. price equals marginal cost. C. total revenues are maximized. D. the costs of the variable factors of production are minimized.
B
25. You have noticed that your next-door neighbor, Mary, always works in the garden and her husband, Joe, always walks the dog. Based on this observation, you conclude that: A. Mary has an absolute advantage in gardening. B. Joe has a comparative advantage in walking the dog. C. Mary does not understand the principle of low-hanging fruit. D. Joe experiences increasing opportunity costs when he gardens, but not when he walks the dog.
B
28. The supply curve illustrates that firms: A. increase the supply of a good when its price rises. B. increase the quantity supplied of a good when its price rises. C. decrease the quantity supplied of a good when input prices fall. D. decrease the quantity supplied to earn higher profits.
B
31. A perfectly competitive firm's output price is $8 and the firm is producing 77 units with a marginal cost of $11. The firm should: A. lower its price. B. decrease production. C. increase production. D. raise its price.
B
35. If the demand for a good decreases as income decreases, it is a(n): A. complementary good. B. normal good. C. inferior good. D. substitute good.
B
36. Accounting profits are: A. equal to total revenues minus implicit costs. B. the difference between total revenues and explicit costs. C. equal to total revenues minus explicit and implicit costs. D. less than economic profits.
B
37. If you were to start your own business, your implicit costs would include: A. rent that you have paid in advance for use of a building. B. the opportunity cost of your time. C. profit over and above normal profit. D. interest that you pay on your business loans.
B
4. At the very least, Joe Average and Bill Gates are both identically limited by: A. their wealth. B. the 24 hours that comprise a day. C. their knowledge. D. their influence.
B
42. If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is: A. negative. B. price inelastic. C. price elastic. D. perfectly inelastic.
B
43. Pure monopoly exists when: A. many firms produce a good with no close substitutes. B. a single firm produces a good with no close substitutes. C. a single firm is present in the market. D. a single firm produces a good with many close substitutes.
B
47. Jeans in general have fewer close substitutes than any specific brand of jeans. Therefore, the demand for jeans in general would be _______ than the demand for a specific brand of jeans. A. more elastic B. more inelastic C. more unitary elastic D. less inelastic
B
5. A fixed factor of production: A. is fixed in the long run but variable in the short run. B. is fixed only in the short run. C. is fixed in both the short run and the long run. D. is common in large firms but rare in small firms.
B
7. The seventh glass of soda that Tim consumes will produce an extra benefit of 10 cents and has an extra cost of zero (Tim is eating at the cafeteria). The cost-benefit principle predicts that Tim will: A. realize he has had too much soda to drink and go home. B. drink the seventh glass and continue until the marginal benefit of drinking another glass of soda is zero. C. volunteer to empty out the fountain. D. not drink the seventh glass.
B
9. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his surplus by attending: A. Elite U, because $60,000 is greater than the benefit at the other schools. B. State College, because the difference between the benefit and cost is greatest there. C. NoName U, because Larry has a full scholarship there. D. Elite U, because the opportunity costs of attending Elite U are the lowest.
B
12. Assume that a firm uses 13 employee-hours and an office to produce 100 units of output. The price of output is $5, the wage rate is $10, and rent is $200. The firm will earn a _____ of _____. A. profit; $370 B. loss; $200 C. profit; $170 D. loss; $170
C
13. Having a comparative advantage in a particular task means that: A. you are better at it than other people. B. you give up more to accomplish that task than do others. C. you give up less to accomplish that task than do others. D. you have specialized in that task, while others have not.
C
17. Costs that require a firm to spend money are considered: A. fixed costs. B. variable costs. C. explicit costs. D. implicit costs.
C
20. The production possibilities curve shows: A. the minimum production of one good for every possible production level of the other good. B. how increasing the inputs used for one good increases the production of the other good. C. the maximum production of one good for every possible production level of the other good. D. how increasing the production of one good allows production of the other good to also rise.
C
26. The demand curve illustrates the fact that consumers: A. tend to purchase more of a good as its price rises. B. purchase name brand products more frequently than generic products. C. tend to purchase more of a good as its price falls. D. purchase more of a good as their incomes rise.
C
27. Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore: A. Gertie should not buy the jeans because they will be of lower quality than she expected. B. Gertie should not buy the jeans because the price is not equal to her reservation price. C. Gertie should buy the jeans because the price is less than her reservation price. D. Gertie should buy the jeans because the price is more than her reservation price.
C
28. If a perfectly competitive firm produces an output level where price is greater than marginal costs, then the firm should: A. pay more to its variable factors of production. B. reduce output to earn greater profits or smaller losses. C. expand output to earn greater profits or smaller losses. D. leave its output decision unchanged.
C
30. A perfectly competitive firm's output price is $5 and the firm is producing 37 units with a marginal cost of $3. The firm should: A. lower its price. B. decrease production. C. increase production. D. raise its price.
C
31. A shortage occurs when: A. demand is greater than supply. B. the equilibrium price is too high. C. quantity demanded exceeds quantity supplied. D. quantity supplied exceeds quantity demanded.
C
38. Suppose you quit your job to start a business. In the first month, your total revenue was $6,000. You paid: $1,000 in monthly rent for office space. $200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month. You determine that your profit that month was negative $200. Why? A. You did the math incorrectly. B. You accounted for lost salary of $200. C. You accounted for lost salary of $1,000. D. Your equipment rent is an implicit cost.
C
39. Economic profits are: A. the same as accounting profits. B. equal to total revenue minus the sum of explicit fixed and variable costs. C. equal to total revenue minus both explicit and implicit costs. D. greater than accounting profits.
C
40. In general, when the demand curve shifts to the right and supply remains constant then: A. quantity demanded will rise. B. the equilibrium price will fall. C. the equilibrium quantity will rise. D. the market cannot reestablish an equilibrium.
C
41. The percentage change in quantity demanded that results from the percentage change in price is known as the: A. price elasticity of supply. B. price elasticity of demand. C. income elasticity of demand. D. cross-price elasticity of demand.
C
42. If all firms in a perfectly competitive industry earn a normal profit, then: A. new firms will enter the industry. B. old firms will exit the industry. C. the number of firms in the industry is stable. D. market supply will shift to the left.
C
43. Price elasticity of demand is often expressed as a positive number because: A. using the formula yields a positive number. B. demand has a positive slope. C. it's convenient to use absolute values even though the formula yields non-positive numbers. D. both the numerator and the denominator in the formula are negative.
C
44. If the price elasticity of demand for tickets to a football game is 2 then, when the price increases by 1%, quantity demanded decreases by: A. ½%. B. 1%. C. 2%. D. 4%.
C
44. In order to sell another unit, an imperfectly competitive firm must: A. increase its advertising. B. increase the value of its product. C. lower its price. D. lower its quality.
C
45. Patents and copyrights, which confer market power, exist to: A. protect the consumer from imitations. B. ensure excessive profits to the holders. C. protect research, development and creative expression. D. magnify the dominance of large firms.
C
48. Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it more practical for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to: A. become more inelastic. B. become less elastic. C. become more elastic. D. shift to the left.
C
6. A variable factor of production: A. is fixed in the long run but variable in the short run. B. plays no role in the law of diminishing marginal returns. C. is variable in both the short run and the long run. D. is variable only in the short run.
C
8. Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. No Name U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. The opportunity cost of attending Elite U is: A. $50,000 B. $10,000 C. $20,000 D. $15,000
C
1. Economic questions always deal with: A. financial matters. B. political matters. C. insufficient resources. D. choice in the face of limited resources.
D
10. Marginal cost is calculated as: A. total revenue minus total costs. B. the change in output divided by the change in total costs. C. the percentage change in total costs divided by the percentage change in output. D. the change in total costs divided by the change in output.
D
11. Sally earned $25,000 per year before she became a mother. After she became a mother, she told her employer that her opportunity cost of working is now $50,000, and so she is not willing to work for anything less. Her decision is based on: A. the high cost of raising a child. B. her desire to save for her child's college expenses. C. her increased value to her employer. D. the value she places on spending time with her child.
D
12. If Scout has an absolute advantage over Dill: A. Scout has more money than Dill. B. the problem of scarcity applies to Dill, but not to Scout. C. the problem of scarcity applies to Scout, but not to Dill. D. Scout can accomplish more in a given period of time than can Dill.
D
15. Suppose Chip's Chips produces bags of potato chips. An example of a fixed cost for this company would be: A. a potato peeling machine. B. the factory building. C. the deep fryer. D. All of these are examples of fixed costs.
D
19. When a firm doubles its inputs, its output: A. will double. B. will less than double. C. will more than double. D. All of these are possible
D
24. According to the principle of increasing opportunity cost, expanding production requires using resources in which order? A. In random order. B.Starting with the resource with the highest opportunity cost and progressing to the lower opportunity cost resources. C.Starting with the resource closest to the average opportunity cost, then progressing to higher opportunity cost resources. D.Starting with the resource with the lowest opportunity cost and proceeding to the higher opportunity cost resources.
D
26. In the short run, if a firm chooses to operate and produce output, it must be the case that: A. it earns a profit. B. it avoids a loss. C. total revenues are greater than or equal to the cost of fixed factors of production. D. total revenues are greater than or equal to the cost of variable factors of production
D
29. A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because: A. price will never change. B. quantity will never change. C. demand will never change. D. at any price other than equilibrium, forces in the market move price towards the equilibrium.
D
30. A market in disequilibrium would feature: A. a stable price. B. consumers able to purchase all they wish at the market price. C. a stable quantity. D. either excess supply or excess demand.
D
4. The short run is defined as: A. one year or less. B. a period in which all factors of production are variable. C. the period of time between quarterly accounting reports. D. a period in which at least one factor of production is fixed.
D
46. For all firms, the additional revenue collected from the sale of one additional unit of output is: A. price. B. average revenue. C. marginal profit. D. marginal revenue.
D
46. When the demand for a good is inelastic, that good is likely to have: A. many close complements. B. few close complements. C. many close substitutes. D. few close substitutes.
D
48. For perfectly competitive firms price _____ marginal revenue; for monopolists price ____ marginal revenue. A. equals; equals B. equals; is less than C. is less than; equals D. equals; is greater than
D
5. Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is: A. not an economic problem because neither one costs money. B. not an economic problem because it's an hour that is wasted no matter what Chris does. C. an economic problem because the tuition Chris pays covers both the gym and the library. D. an economic problem because Chris has only one hour during which he can study or work out.
D
