Practice Test Micro

Unit consmd.total U .Marg Util 0 0 - 1 w 20 2 35 X 3 y 10 4 40 z 2. Refer to the above data. The value for X is: A. 15. B. 5. C. 55. D. 10.

A. 15

7. The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium? A. $4 and $6 B. $6 and $4 C. $8 and $12 D. $16 and $9

B. $6 and $4

Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be: A. 2. B. 3. C. 4. D. 5.

B. 3

inputs of labor total product 0 0 1 8 2 18 3 25 4 30 5 33 6 34 7 32 19. Refer to the above data. The average product (AP) when two units of labor are hired is: A. 8. B. 9. C. 10. D. 18.

B. 9.

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, for example, 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.

A purely competitive firm: A. must earn a normal profit in the short run. B. cannot earn economic profit in the long run. C. may realize either economic profit or losses in the long run. D. cannot earn economic profit in the short run.

B. cannot earn economic profit in the long run.

3. Marginal utility is the A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

B. change in total utility obtained by consuming one more unit of a good.

The demand curve in a purely competitive industry is _____, while the demand curve to a single firm in that industry is _____. A. perfectly inelastic, perfectly elastic B. downsloping, perfectly elastic C. downsloping, perfectly inelastic D. perfectly elastic, downsloping

B. downsloping, perfectly elastic

The primary force encouraging the entry of new firms into a purely competitive industry is: A. normal profits earned by firms already in the industry. B. economic profits earned by firms already in the industry. C. government subsidies for start-up firms. D. a desire to provide goods for the betterment of society.

B. economic profits earned by firms already in the industry

17. 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

14. Refer to the above data. If, other things equal, Creamy Crisp's revenue fell to $286,000: A. its implicit costs, including a normal profit, would exceed its explicit costs. B. it would earn a normal profit but not an economic profit. C. it would suffer an economic loss. D. its accounting profit would fall to zero.

B. it would earn a normal profit but not an economic profit.

A consumer's demand curve for a product is downsloping because: A. total utility falls below marginal utility as more of a product is consumed. B. marginal utility diminishes as more of a product is consumed. C. time becomes less valuable as more of a product is consumed. D. the income and substitution effects precisely offset each other.

B. marginal utility diminishes as more of a product is consumed.

6. 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

When a firm is maximizing profit it will necessarily be: A. maximizing profit per unit of output. B. maximizing the difference between total revenue and total cost. C. minimizing total cost. D. maximizing total revenue.

B. maximizing the difference between total revenue and total cost.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then: A. the selling price for this firm is above the market equilibrium price. B. new firms will enter this market. C. some existing firms in this market will leave. D. there must be price fixing by the industry's firms.

B. new firms will enter this market

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing: A. marginal revenue and marginal cost. B. price and minimum average variable cost. C. total revenue and total cost. D. total revenue and total fixed cost

B. price and minimum average variable cost.

A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

B. produce because the resulting loss is less than its TFC

Creative destruction is: A. the process by which large firms buy up small firms. B. the process by which new firms and new products replace existing dominant firms and products. C. a term coined many years ago by Adam Smith. D. is applicable to planned economies, but not to market economies

B. the process by which new firms and new products replace existing dominant firms and products

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

C. $230,000

15. Refer to the above data. The marginal product of the sixth worker is: A. 180 units of output. B. 30 units of output. C. 15 units of output. D. negative.

C. 15 units of output.

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2 respectively and that the consumer's income is $18. Refer to the above data. What quantities of X and Y should be purchased to maximize utility? A. 2 of X and 1 of Y B. 4 of X and 5 of Y C. 2 of X and 5 of Y D. 2 of X and 6 of Y

C. 2 of X and 5 of Y

If a rational consumer is in equilibrium, which of the following conditions will hold true? A. MUa = MUb = MUc = ... = MUn. B. The marginal utility of each good purchased will be zero. C. The marginal utility of the last dollar spent on each good purchased will be the same. D. The total utility obtained from each good purchased will be the same.

C. The marginal utility of the last dollar spent on each good purchased will be the same.

A purely competitive seller is: A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker."

C. a "price taker."

Suppose you find that the price of your product is less than minimum AVC. You should: A. minimize your losses by producing where P = MC. B. maximize your profits by producing where P = MC. C. close down because, by producing, your losses will exceed your total fixed costs. D. close down because total revenue exceeds total variable cost.

C. close down because, by producing, your losses will exceed your total fixed costs.

Refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect: A. firms to enter the industry, market supply to rise, and product price to fall. B. firms to leave the industry, market supply to rise, and product price to fall. C. firms to leave the industry, market supply to fall, and product price to rise. D. no change in the number of firms in this industry.

C. firms to leave the industry, market supply to fall, and product price to rise

The MR = MC rule applies: A. in the short run, but not in the long run. B. in the long run, but not in the short run. C. in both the short run and the long run. D. only to a purely competitive firm.

C. in both the short run and the long run

If a firm decides to produce no output in the short run, its costs will be: A. its marginal costs. B. its variable costs. C. its fixed costs. D. zero.

C. its fixed costs.

26. A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating: A. price and average total cost. B. price and average fixed cost. C. marginal revenue and marginal cost. D. price and marginal revenue.

C. marginal revenue and marginal cost.

1. 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.

inputs of labor total product 0 0 1 8 2 18 3 25 4 30 5 33 6 34 7 32 Diminishing returns begin to occur with the hiring of the _________ unit of labor. A. first B. second C. third D. seventh

C. third

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

C. zero

Creamy Crisp's economic profit is: A. $150,000. B. $80,000. C. $230,000. D. $94,000.

D. $94,000.

18. In the above diagram the range of diminishing marginal returns is: A. 0Q3. B. 0Q2. C. Q1Q2. D. Q1Q3.

D. Q1Q3.

Refer to the above diagram for a purely competitive producer. The firm will produce at a loss at all prices: A. above P1. B. above P3. C. above P4. D. between P2 and P3.

D. between P2 and P3

Long-run competitive equilibrium: A. is realized only in constant-cost industries. B. will never change once it is realized. C. is not economically efficient. D. results in zero economic profits.

D. results in zero economic profits

inputs of labor total product 0 0 1 8 2 18 3 25 4 30 5 33 6 34 7 32 Marginal product becomes negative with the hiring of the __________ unit of labor. A. third B. fourth C. sixth D. seventh

D. seventh

When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that: A. the LCD television industry was once competitive, but is now monopolistic. B. fewer firms produce LCD televisions than was the case five or ten years ago. C. the demand curve for LCD televisions has shifted leftward. D. the LCD television industry is a decreasing-cost industry.

D. the LCD television industry is a decreasing-cost industry

16. Refer to the above data. Average product is at a maximum when: A. five workers are hired. B. four workers are hired. C. three workers are hired. D. two workers are hired.

D. two workers are hired.