1

Figure 11-7 Figure 11-7 shows the cost structure for a firm. Refer to Figure 11-7. When the output level is 100 units average fixed cost is A. $10. B. $8. C. $5. D. This cannot be determined from the diagram.

$8.

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A. -0.66 B. 0.5 C. 1.5 D. 2

0.5

Suppose the value of the price elasticity of demand is -3. What does this mean? A. A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B. A $1 increase in price causes quantity demanded to fall by 3 units. C. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. D. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Figure 6-1 Refer to Figure 6-1. A perfectly inelastic demand curve is shown in A. Panel A B. Panel B C. Panel C D. Panel D

Panel A

Figure 6-1 Refer to Figure 6-1. A perfectly elastic demand curve is shown in A. Panel A B. Panel B C. Panel C D. Panel D

Panel B

Figure 6-1 Refer to Figure 6-1. The demand curve on which elasticity changes at every point is given in A. Panel A B. Panel B C. Panel C D. none of the above graphs.

Panel C

If a producer is not able to expand its plant capacity immediately, it is A. operating in the long run. B. bankrupt. C. operating in the short run. D. losing money.

operating in the short run.

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm A. should increase output. B. is earning a profit. C. should increase price. D. should shut down.

should shut down.

An individual seller in perfect competition will not sell at a price lower than the market price because A. demand is perfectly inelastic. B. the seller can sell any quantity she wants at the prevailing market price. C. the seller would start a price war. D. demand for the product will exceed supply.

the seller can sell any quantity she wants at the prevailing market price.

A firm will make a profit when A. P > AVC B. P = MC C. P = ATC D. P > ATC

P > ATC

Figure 11-7 Figure 11-7 shows the cost structure for a firm. Refer to Figure 11-7. When output level is 100, what is the total cost of production? A. $20 B. $1,000 C. $1,200 D. $2,000

$2,000

If the market price is $25, the average revenue of selling five units is A. $5. B. $12.50. C. $25. D. $125.

$25.

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. The firm's manager suggests that the firm's goal should be to maximize average profit. If the firm does this, what is the amount of profit that it will earn? A. $6,600 B. $6,750 C. $12,150 D. $36,000

$6,600

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output? A. 750 units B. 1,100 units C. 1,350 units D. 1,800 units

1,350 units

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. A. 0.17 B. 0.62 C. 1.62 D. 5

1.62

Figure 11-1 Refer to Figure 11-1. The marginal product of the 3rd worker is A. 57. B. 19. C. 15. D. 11.

15.

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is A. 0. B. 130. C. 180. D. 240.

180.

Table 10-6 Table 10-6 lists Jay's marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1. Refer to Table 10-6. What is Jay's optimal consumption bundle? A. 3 burgers and 2 Pepsis B. 3 burgers and 1 Pepsi C. 2 burgers and 3 Pepsis D. 1 burger and 2 Pepsis

2 burgers and 3 Pepsis

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is A. 2 chairs. B. 3 chairs. C. 4 chairs. D. 38 chairs.

2 chairs.

Table 10-1 Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of the two items. Refer to Table 10-1. What is Keegan's optimal consumption bundle? A. 3 pita wraps and 4 bubble teas B. 5 pita wraps and 0 bubble teas C. 3 pita wraps and 3 bubble teas D. 4 pita wraps and 2 bubble teas

3 pita wraps and 4 bubble teas

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is A. 57 utility units. B. 35 utility units. C. 15 utility units. D. unknown as more information is needed to determine the answer.

57 utility units.

Table 10-1 Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of the two items. Refer to Table 10-1. If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume? A. 4 glasses B. 5 glasses C. 6 glasses D. 7 glasses

6 glasses

Which of the following equations is correct? A. AFC + AVC = ATC B. AVC - ATC = AFC C. AVC + ATC = AFC D. ATC + AVC = AFC

AFC + AVC = ATC

Figure 11-5 Refer to Figure 11-5. Identify the curves in the diagram. A. E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost curve B. E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve. C. E = average fixed cost curve; F = variable cost curve; G = total cost curve, H = marginal cost curve D. E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H = marginal cost curve

E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.

Goods with upward sloping demand curves are referred to as A. luxury goods. B. Giffen goods. C. substitute goods. D. Marshall goods.

Giffen goods.

Figure 11-10 Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production? A. In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. B. In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. C. In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37. D. In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37.

In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41.

If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises? A. It rises. B. It falls by 162 percent. C. It rises by 1.62 percent. D. It falls.

It falls.

Which of the following statements best describes the economic short run? A. It is a period during which fixed inputs become variable inputs because of depreciation. B. It is a period of one year or less. C. It is a period during which at least one of the firm's inputs is fixed. D. It is a period during which firms are free to vary all of their inputs.

It is a period during which at least one of the firm's inputs is fixed.

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's average profit? A. (P - ATC) × Q B. P - TC C. P - ATC D. (P × Q) - TC

P - ATC

Table 12-3 Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC) and marginal cost (MC). Refer to Table 12-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50? A. Price and profit cannot be determined from the information given. B. P = $12.50; profit = $52.50 C. P = $20; profit = $75.00. D. P = $12.50; profit = $22.50

P = $12.50; profit = $22.50

A firm will break even when A. P = ATC B. P < AVC C. P = AVC D. P > ATC

P = ATC

In the long run which of the following is true? A. There are no fixed costs. B. The size of a firm's physical plant can be changed but the firm cannot adopt new technology. C. The firm can vary its explicit costs but not its implicit costs. D. Total cost = fixed cost + variable cost.

There are no fixed costs.

Figure 12-1 Refer to Figure 12-3. If the firm is producing 500 units, what is the amount of its profit or loss? A. profit equivalent to the area A B. profit of $280 C. loss equivalent to the area A D. There is insufficient information to answer the question.

There is insufficient information to answer the question.

Which of the following statements is true? A. When a firm lowers its price its total revenue may either increase or decrease. B. Whenever a firm increases its quantity sold its revenue will increase. C. Total revenue will equal zero when the demand for a product is unit-elastic. D. Whenever a firm raises its price its total revenue will increase.

When a firm lowers its price its total revenue may either increase or decrease.

The amount of income a consumer has to spend on goods and services is known as A. wealth. B. effective demand. C. purchasing power. D. a budget constraint.

a budget constraint.

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause A. a consumer to go beyond her optimal consumption of apples. B. a consumer's total utility to increase. C. total utility to decrease. D. a consumer to get no satisfaction from consuming apples.

a consumer's total utility to increase.

Which of the following is a factor of production that generally is fixed in the short run? A. raw materials B. labor C. water D. a factory building

a factory building

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is A. a substitute for another good. B. an inferior good. C. a luxury. D. a necessity.

a luxury.

The income effect due to a price decrease will result in an increase in the quantity demanded for A. a Giffen good. B. a normal good. C. a public good. D. an inferior good.

a normal good.

A perfectly competitive firm earns a profit when price is A. above minimum average total cost. B. equal to minimum average fixed cost. C. equal to minimum average variable cost. D. equal to minimum average total cost.

above minimum average total cost.

Marginal cost is the A. change in the price of inputs if a firm buys more inputs to produce an additional unit of output. B. the additional output when total cost is increased by one dollar. C. change in average cost when an additional unit of output is produced. D. additional cost of producing an additional unit of output.

additional cost of producing an additional unit of output.

A characteristic of the long run is A. plant capacity cannot be increased or decreased. B. there are fixed inputs. C. all inputs can be varied. D. there are both fixed and variable inputs

all inputs can be varied.

In making decisions about what to consume, a person's goal is to A. maximize her marginal utility from the goods and services she wishes to buy using her limited income. B. consume as many necessities as possible and then, if there is money left over, to buy luxuries. C. allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. D. buy low-priced goods rather than high-priced goods.

allocate her limited income among all the products she wishes to buy so that she receives the highest total utility.

Firms pay famous individuals to endorse their products because A. famous people obviously know what are the best goods and services. B. famous people only consume high quality products. C. apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. D. the firms are irrational and are wasting advertising expenditures.

apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.

Figure 11-5 Refer to Figure 11-5. Curve G approaches curve F because A. fixed cost falls as capacity rises. B. total cost falls as more and more is produced. C. marginal cost is above average variable costs. D. average fixed cost falls as output rises.

average fixed cost falls as output rises.

Figure 11-5 Refer to Figure 11-5. The vertical difference between curves F and G measures A. sunk costs. B. fixed costs. C. marginal costs. D. average fixed costs.

average fixed costs.

If the marginal cost curve is below the average variable cost curve, then A. average variable cost is decreasing. B. marginal cost must be decreasing. C. average variable cost could either be increasing or decreasing. D. average variable cost is increasing.

average variable cost is decreasing.

Consider a good whose consumption takes place publicly. Your decision to buy that good depends A. only on the price of the good. B. only on how many other people buy the good. C. only on the characteristics of the good. D. both on the characteristics of the product and on how many other people are buying the good.

both on the characteristics of the product and on how many other people are buying the good.

Marginal cost is equal to the A. change in average product divided by the change in output. B. change in average total costs divided by the change in output. C. change in total product divided by the change in output. D. change in total cost divided by the change in output.

change in total cost divided by the change in output.

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays A. constant returns to scale. B. decreasing returns to scale. C. constant average fixed costs. D. increasing returns to scale.

constant returns to scale.

The economic model of consumer behavior predicts that A. consumers will try to accumulate as many goods and services as they can before they die. B. consumers divide their time between consumption and leisure activities in order to maximize social welfare. C. consumers will try to earn as much income as they can over their lifetimes. D. consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy.

consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy.

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility A. rises. B. declines. C. fluctuates. D. is constant.

declines.

Both buyers and sellers are price takers in a perfectly competitive market because A. each buyer and seller is too small relative to others to independently affect the market price. B. the price is determined by government intervention and dictated to buyers and sellers. C. both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. D. each buyer and seller knows it is illegal to conspire to affect price.

each buyer and seller is too small relative to others to independently affect the market price.

The demand curve for each seller's product in perfect competition is horizontal at the market price because A. each seller is too small to affect market price. B. the price is set by the government. C. all the demanders get together and set the price. D. all the sellers get together and set the price.

each seller is too small to affect market price.

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays A. declining fixed costs. B. economies of scale. C. diseconomies of scale. D. diminishing returns.

economies of scale.

Total utility is maximized in the consumption of two goods by A. equating the marginal utility for each good consumed. B. equating the total utility of each good divided by its price. C. maximizing expenditure on each good. D. equating the marginal utility per dollar for each good consumed.

equating the marginal utility per dollar for each good consumed.

As a firm hires more labor in the short run, the A. extra output of another worker may rise at first, but eventually must fall. B. output per worker rises. C. level of total product stays constant. D. costs of production are increasing at a fixed rate per unit of output.

extra output of another worker may rise at first, but eventually must fall.

Marginal utility is the A. total satisfaction received from consuming a given number of units of a product. B. satisfaction achieved when a consumer has had enough of a product. C. extra satisfaction received from consuming one more unit of a product. D. average satisfaction received from consuming a product.

extra satisfaction received from consuming one more unit of a product.

Average fixed costs of production A. will rise at a fixed rate as more is produced. B. graph as a U-shaped curve. C. fall as long as output is increased. D. remain constant.

fall as long as output is increased.

A demand curve that is horizontal indicates that the commodity A. is a necessity. B. has a large number of substitutes. C. must be very cheap. D. has few substitutes.

has a large number of substitutes.

Both individual buyers and sellers in perfect competition A. have to take the market price as a given. B. can influence the market price by joining with a few of their competitors. C. can influence the market price by their own individual actions. D. have the market price dictated to them by government.

have to take the market price as a given.

Income elasticity measures A. how a good's quantity demanded responds to producers' incomes. B. how a good's quantity demanded responds to change in the goods price. C. how a good's quantity demanded responds to change in buyers' incomes. D. how a good's quantity demanded responds to change in the price of another good.

how a good's quantity demanded responds to change in buyers' incomes.

Price elasticity of demand measures A. how responsive sales are to a change in buyers' incomes. B. how responsive suppliers are to price changes. C. how responsive quantity demanded is to a change in price. D. how responsive sales are to changes in the price of a related good.

how responsive quantity demanded is to a change in price.

The demand for gasoline in the short run is A. unit-elastic because people tend to consume a stable amount of gasoline per period. B. inelastic because there are no good substitutes for gasoline. C. elastic because people can easily switch to public transportation. D. perfectly inelastic because people have no choice but to buy gasoline.

inelastic because there are no good substitutes for gasoline.

If a good has a negative income elasticity of demand, this indicates that the good is A. a substitute with another good. B. a complement with another good. C. normal. D. inferior.

inferior.

If a perfectly competitive firm's price is above its average total cost, the firm A. should shut down. B. is incurring a loss. C. is earning a profit. D. is breaking even.

is earning a profit.

Total utility A. is negative when marginal utility is declining. B. cannot decrease as a person consumes more and more of a good. C. is equal to the sum of the marginal utilities of all units consumed. D. has a constant rate of increase as a person consumes more and more of a good.

is equal to the sum of the marginal utilities of all units consumed.

Figure 12-1 Refer to Figure 12-1. If the firm is producing 700 units A. it is making a profit. B. it is making a loss. C. it should increase its output to maximize profit. D. it should cut back its output to maximize profit.

it should cut back its output to maximize profit.

Figure 12-1 Refer to Figure 12-1. If the firm is producing 200 units A. it should cut back its output to maximize profit. B. it breaks even. C. it is making a loss. D. it should increase its output to maximize profit.

it should increase its output to maximize profit.

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper. A. perfectly elastic compared to B. more elastic than C. less elastic than D. perfectly inelastic compared to

less elastic than

If demand is inelastic, the absolute value of the price elasticity of demand is A. greater than one. B. less than one. C. one. D. greater than the absolute value of the slope of the demand curve.

less than one.

Figure 6-4 Refer to Figure 6-4. The inelastic segment of the demand curve A. is coincident with the horizontal axis. B. lies above the midpoint of the curve. C. is coincident with the vertical axis. D. lies below the midpoint of the curve.

lies below the midpoint of the curve.

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss? A. loss of $1,080 B. profit of $1,440 C. profit of $1,300 D. loss of $2,520

loss of $1,080

Economists assume that the goal of consumers is to A. make themselves as well off as possible. B. do as little work as possible to survive. C. consume as much as possible. D. expend all their income.

make themselves as well off as possible.

A perfectly competitive firm's supply curve is its A. marginal cost curve. B. marginal cost curve above its minimum average fixed cost. C. marginal cost curve above its minimum average total cost. D. marginal cost curve above its minimum average variable cost.

marginal cost curve above its minimum average variable cost.

Figure 12-10 Refer to Figure 12-10. The firm's short-run supply curve is its A. marginal cost curve from c and above. B. marginal cost curve from d and above. C. marginal cost curve from b and above. D. marginal cost curve.

marginal cost curve from b and above.

In the short run, if marginal product is at its maximum, then A. total cost is at its maximum. B. average cost is at its minimum. C. average variable cost is at its minimum. D. marginal cost is at its minimum.

marginal cost is at its minimum.

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then A. firms are breaking even. B. existing firms will exit the industry. C. market supply will remain constant. D. new firms are attracted to the industry.

new firms are attracted to the industry.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell A. the output where average total cost equals price. B. nothing at all; the firm shuts down. C. any positive output the entrepreneur decides upon because all of it can be sold. D. the output where marginal revenue equals marginal cost.

nothing at all; the firm shuts down.

The cross-price elasticity of demand measures the A. percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. B. percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location. C. absolute change in the quantity demanded of one good divided by the absolute change in the price of another good. D. percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.

percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is A. perfectly inelastic. B. unit-elastic. C. inelastic. D. perfectly elastic.

perfectly inelastic.

Marginal utility can be A. positive. B. zero. C. negative. D. positive, negative or zero.

positive, negative or zero.

Total revenue equals A. price per unit times quantity supplied. B. price per unit times quantity sold. C. price per unit times change in quantity sold. D. change in price per unit times quantity sold.

price per unit times quantity sold.

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is A. relatively elastic. B. relatively inelastic. C. unit-elastic. D. perfectly elastic.

relatively inelastic.

When there few close substitutes available for a good, demand tends to be A. perfectly elastic. B. relatively elastic. C. relatively inelastic. D. perfectly inelastic.

relatively inelastic.

In a perfectly competitive market the term "price taker" applies to A. buyers but not sellers. B. sellers and buyers. C. firms but not buyers. D. only the smallest sellers and buyers.

sellers and buyers.

If a perfectly competitive firm's total revenue is less than its total variable cost, the firm A. should continue to produce and increase its demand. B. should adopt new technology in order to lower its costs of production. C. should raise its price above its average variable cost. D. should stop production by shutting down temporarily.

should stop production by shutting down temporarily.

In the long run, a perfectly competitive market will A. supply whatever amount consumers will buy at a price which earns the market an economic profit. B. generate a long-run equilibrium where the typical firm operates at a loss. C. supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve. D. produce only the quantity of output that yields a long-run profit for the typical firm.

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve.

The difference between technology and technological change is that A. technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques. B. technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. C. technology involves the use of capital equipment while technological change requires the use of brain power. D. technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.

technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.

The processes a firm uses to turn inputs into outputs of goods and services is called A. marginal analysis. B. technology. C. technological change. D. positive economic analysis.

technology.

In general, a "big ticket item" such as a house or new car will A. tend to have a more inelastic demand the more time that passes. B. tend to have an inelastic demand because it has many substitutes. C. tend to have a more elastic demand than a lower priced good. D. tend to have an inelastic demand because spending on the item takes up a large share of the average consumer's budget.

tend to have a more elastic demand than a lower priced good.

The law of diminishing marginal returns states A. that in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added. B. average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases. C. that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline. D. that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.

Figure 11-1 Refer to Figure 11-1. Diminishing marginal productivity sets in after A. the 2nd worker is hired. B. the 3rd worker is hired. C. the 4th worker is hired. D. the 5th worker is hired.

the 2nd worker is hired.

The marginal product of labor is defined as A. the additional sales revenue that results when one more worker is hired. B. the cost of hiring one more worker. C. the additional number of workers required to produce one more unit of output. D. the additional output that results when one more worker is hired, holding all other resources constant.

the additional output that results when one more worker is hired, holding all other resources constant.

At the minimum efficient scale A. all possible economies of scale have not been exhausted. B. the firm has achieved the lowest possible average cost of production. C. marginal cost is at its minimum. D. any increases in the scale of operation will encounter further economies of scale.

the firm has achieved the lowest possible average cost of production.

A very large number of small sellers who sell identical products imply A. a multitude of vastly different selling prices. B. the inability of one seller to influence price. C. a downward sloping demand for each seller's product. D. chaos in the market.

the inability of one seller to influence price.

Figure 10-1 Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to A. the fact that marginal willingness to pay falls. B. the law of diminishing marginal utility. C. the income and substitution effects. D. the price and output effects.

the income and substitution effects.

For a demand curve to be upward sloping, the good would have to be an inferior good, and A. the income effect and the substitution effect would have to be nonexistent. B. the income effect would have to be larger than the substitution effect. C. the income effect would have to be equal to the substitution effect. D. the income effect would have to be smaller than the substitution effect.

the income effect would have to be larger than the substitution effect.

When demand is elastic, a fall in price causes total revenue to rise because A. the increase in quantity sold is large enough to offset the lower price. B. when price falls, quantity sold increases so total revenue automatically rises. C. the percentage increase in quantity demanded is less than the percentage fall in price. D. the demand curve shifts.

the increase in quantity sold is large enough to offset the lower price.

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of A. the law of increasing marginal opportunity cost. B. the law of demand. C. the law of diminishing marginal utility. D. the law of supply.

the law of diminishing marginal utility.

Along a downward-sloping linear demand curve A. the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. B. the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. C. the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant. D. the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant.

the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.

Implicit costs can be defined as A. the non-monetary opportunity cost of using the firm's own resources. B. total cost minus fixed costs. C. accounting profit minus explicit cost. D. the deferred cost of production.

the non-monetary opportunity cost of using the firm's own resources.

The income elasticity of demand measures A. how a consumer's purchasing power is affected by a change in the price of a product. B. the income effect of a change in price. C. the responsiveness of quantity demanded to changes in income. D. the percentage change in the price of a product divided by the percentage change in consumer income.

the responsiveness of quantity demanded to changes in income.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that A. consumers have a distinct preference for one brand versus the other. B. the two brands are probably made by the same company. C. the two brands of detergent are close substitutes. D. detergents are necessities.

the two brands of detergent are close substitutes.

A network externality occurs when A. the usefulness of a good is affected by how many others use the good. B. there is production cost savings from being networked with buyers. C. the usefulness of a good is affected by celebrities who use the good. D. there is production cost savings from being networked with suppliers.

the usefulness of a good is affected by how many others use the good.

A significant downside to network externalities is that A. firms may network with unethical suppliers or distributors. B. the costs of hiring celebrity endorsements may be very high. C. there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. D. there may be large switching costs to firms changing technologies.

there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies.

Consumers have to make tradeoffs in deciding what to consume because A. not all goods give them the same amount of satisfaction. B. they are limited by a budget constraint. C. the prices of goods vary. D. there are not enough of all goods produced.

they are limited by a budget constraint.

Table 11-3 Refer to Table 11-3. The table above refers to the relationship between the quantity of workers employed and the number of cardboard boxes produced per day by Manny's House of Boxes. The capital used to produce the boxes is fixed. Diminishing returns to labor are first observed in this example after Manny hires the ________ worker. A. second B. third C. fourth D. fifth

third

In the short run, a firm that is operating at a loss has two options. These options are A. to reduce output or reduce its variable costs. B. to shut down temporarily or continue to produce. C. to go out of business or declare bankruptcy. D. to adopt new technology or change the size of its physical plant.

to shut down temporarily or continue to produce.

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is A. perfectly elastic. B. perfectly inelastic. C. unit-elastic. D. relatively elastic.

unit-elastic.

The satisfaction a person receives from consuming goods and services is called A. psychic income. B. wealth. C. utility. D. contentment.

utility.

A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand. A. horizontal; downward sloping B. upward sloping; horizontal C. vertical; downward sloping D. downward sloping; vertical

vertical; downward sloping

Giffen goods A. have not existed since prior to the Industrial Revolution. B. were not shown to actually exist until 2006. C. were proven to exist in the 1890s by Sir Robert Giffen. D. are theoretical and have never been discovered in the real world.

were not shown to actually exist until 2006.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded A. will decrease by 5 percent. B. will decrease by 45 percent. C. will increase by 45 percent. D. will increase by 5 percent.

will decrease by 45 percent.

If a firm shuts down it A. will produce nothing but must pay its fixed and variable costs. B. will earn enough revenue to cover its variable costs but not all of its fixed costs. C. will suffer a loss equal to its fixed costs. D. will produce nothing but must pay its variable costs.

will suffer a loss equal to its fixed costs.

Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects A. work in the same direction to increase quantity demanded. B. work in the same direction to decrease quantity demanded. C. work in opposite directions and quantity demanded increases. D. work in opposite directions and quantity demanded decreases.

work in the same direction to decrease quantity demanded.

Consider a downward-sloping demand curve. When the price of a normal good decreases, the income and substitution effects A. work in the same direction to increase quantity demanded. B. work in the same direction to decrease quantity demanded. C. work in opposite directions and quantity demanded increases. D. work in opposite directions and quantity demanded decreases.

work in the same direction to increase quantity demanded.

If, when you consume another piece of candy, your marginal utility is zero, then A. you have not yet reached the point of diminishing marginal utility. B. you should consume less candy. C. you want more candy. D. you have maximized your total utility from consuming candy.

you have maximized your total utility from consuming candy.

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. Refer to Figure 12-9. At price P1, the firm would produce A. Q1 units B. Q3 units. C. Q5units. D. zero units.

zero units.

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is A. less than one. B. zero. C. more than one. D. equal to the absolute value of the slope of the demand curve.

zero.