econ 201 exam 3

23. Assume Dell Computer Company operates in a perfectly competitive market producing 5,000 computers per day. At this output level, price below the firm's marginal cost. It follows that producing one more computer will cause this firm's a. total cost to decrease. b. profits to increase. c. profits to decrease. d. profits to remain unchanged.

c. profits to decrease.

14. Economic profit is less than accounting profit because a. Economic costs are greater than accounting costs as economic costs include opportunity cost. b. Accounting costs are greater than Economic costs as accounting costs include opportunity cost c. Accounting costs are greater than Economic costs as economic cost do not include visible costs d. Accounting costs are less than Economic costs as accounting cost do not include visible costs e. None of these things.

a. Economic costs are greater than accounting costs as economic costs include opportunity cost.

For Questions 16 -20 refer to the following scenario and graph. The market for some good X begins in equilibrium. Demand for X is relatively elastic. The Government chooses to put a sales tax on X of size t. 17. Consumer surplus after the tax is: a. Only A b. Only E c. A+B+C d. D+E+F e. E+F

a. Only A

For Questions 16 -20 refer to the following scenario and graph. The market for some good X begins in equilibrium. Demand for X is relatively elastic. The Government chooses to put a sales tax on X of size t. 20. If demand for this good was inelastic relative to supply we would expect a. The burden of the tax to fall more on consumers b. The burden of the tax to fall more on producers c. The burden of the tax to completely on consumers d. The burden of the tax would be completely on producers e. Can't tell with this information,

a. The burden of the tax to fall more on consumers

1. The assumption of perfect information means a. It is difficult for sellers to leave the market b. All buyers know the prices of all sellers c. The government knows the price of all sellers d. A and B e. B and C

b. All buyers know the prices of all sellers Perfect information is a basic assumption of many economic models that asserts that all market participants have the same information all the time

13. I get more enjoyment out of the first piece of candy I eat than the last piece I eat because of: a. Diminishing marginal cost b. Diminishing marginal utility c. Increasing total utility d. The elasticity of demand for cookies is greater than on 1 e. None of these

b. Diminishing marginal utility Utility that cannot be directly measured, but can be inferred by asking consumers whether they feel they are better off, worse off, or indifferent.

9. Marginal Costs are sloped upwards because the Marginal Productivity of Labor is increasing. a. True b. False

b. False

29. If a firm produces a good using 10 workers on contract for 5 years and two machines on contract for 3 years, the long-run is defined as a. More than 10 years b. More than 5 years c. Less than 5 years d. Between 5 and 10 years

b. More than 5 years The long run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels.

22. For a perfectly competitive firm, a. P = MC at all levels of output b. P = MC at the profit-maximizing quantity only c. P > MC at all output levels d. P < MC at the profit maximizing quantity only e. P < MC at all output levels

b. P = MC at the profit-maximizing quantity only

24. Perfectly competitive firms are price takers. a. True, this means their demand curves are positively sloped and equal to their marginal revenue curve b. True; this means they must accept the market price and this sets their demand equal to their marginal revenue. c. False, goods are homogenous so the firm must accept the market price which is less than their marginal revenue. d. False, goods are the same which means that marginal revenue is less than demand because in order to increase output they must lower the price on all units that might have sold at a higher price.

b. True; this means they must accept the market price and this sets their demand equal to their marginal revenue.

3. If marginal cost less than average total cost, average total cost will a. be maximized. b. decrease. c. increase. d. be minimized e. equal

b. decrease.

For Questions 16 -20 refer to the following scenario and graph. The market for some good X begins in equilibrium. Demand for X is relatively elastic. The Government chooses to put a sales tax on X of size t. 18. The tax revenue is a. C+F b. A+B+C+D+E+F c. B+D d. B+D+E+F e. None of the above.

c. B+D

For Questions 16 -20 refer to the following scenario and graph. The market for some good X begins in equilibrium. Demand for X is relatively elastic. The Government chooses to put a sales tax on X of size t. 16. Producer surplus before the tax is: Only E Only 1 D+F+E A+C+B C+F

c. D+F+E

11. If we consider ordinal utility, if Person A has utility of 3 for good X and Person B has utility 12 for good X we can say a. Person A likes X more that person B b. Person B likes X twice as much as person A, c. Person B likes X more than person A d. Person A likes X twice as much as person B e. None of these

c. Person B likes X more than person A Utility that cannot be directly measured, but can be inferred by asking consumers whether they feel they are better off, worse off, or indifferent.

28. Considering the graph for long run costs we do not have to include a graph for fixed costs as a. It is the distance between the average variable cost curve and the average total cost curve. b. We ignore fixed costs in the long run c. There are no fixed costs in the long run d. All costs are fixed in the long run e. None of these

c. There are no fixed costs in the long run

10. A firm earning positive accounting profit will choose to operate a. True. They are covering all their visible costs and their opportunity cost. b. False, they are covering their opportunity costs but not visible cost. c. Uncertain. To operate a firm must cover all its accounting cost plus the the opportunity costs. d. True, accounting profits consider all relevant revenue ands costs. e. None of these

c. Uncertain. To operate a firm must cover all its accounting cost plus the the opportunity costs. Operate if economic profit is positive

6. If Total cost for 10 units is $120 and fixed costs are $10, what is Average Variable Cost is a. $2 b. $10 c. $20 d. $11 e. We cannot determine average variable cost with the above information.

d. $11 AVC= (TC-FC)/Units AVC=(120-10)/10 AVC= $11

26. Assume an economic agent is following the rational spending rule and consuming Apple and Raspberries. Assume at the optimal bundle the price of apples is $1 the price of Raspberries is $2 and marginal utility of apples is 50, what is the marginal Utility of Raspberries. a. 25 b. 50 c. 75 d. 100 e. It cannot be determined

d. 100

12. Marginal utility is the a. Average satisfaction obtained from consuming a good b. The change in satisfaction obtained from consuming 1% more of a good c. Overall satisfaction obtained from consuming a good d. Additional satisfaction obtained from consuming one more unit of the good e. Additional cost of one more unit of a good.

d. Additional satisfaction obtained from consuming one more unit of the good

27. If an economic agent is rational it means he or she a. Is self-interested b. Will never do something that will make them worse off c. Is only interested in themselves d. None of the above.

d. None of the above. meaning that people generally make logical decisions that produce the best outcomes for themselves. Also, firms and households are assumed to interact mainly in perfectly competitive markets Self-interested is not rational but another aspect of an economic agent

5. What are Marginal costs a. The additional quantity produced given an additional dollar in variable costs b. The additional quantity produced given an additional dollar in fixed costs c. The additional quantity produced given an additional dollar of opportunity cost d. None of these

d. None of these Marginal cost is the extra, or additional, cost of producing one more unit of output. It is the amount by which total cost and total variable cost change when one more or one less unit of output is produced.

2. Which is the best example of a homogenous good. a. Automobiles b. Potato chips c. automobiles d. None of these are good examples e. All of these are good examples

d. None of these are good examples A homogeneous product is one that cannot be distinguished from competing products from different suppliers. In other words, the product has essentially the same physical characteristics and quality as similar products from other suppliers. This makes them easy to substitute

4. If a firm is able to change the amount of capital it employees, but is unable to change the amount of labor due to union contracts the firm is making ________________ decisions a. Account cost. b. Long run c. Economic cost d. Short run e. None of these

d. Short run In the study of economics, the long run and the short run don't refer to a specific period of time, such as five years versus three months. Rather, they are conceptual time periods, the primary difference being the flexibility and options decision-makers have in a given scenario. The short run is a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied. The long run is a period of time in which the quantities of all inputs can be varied.

15. In a world without prices and income we will consume until: a. We are full b. Our marginal utility is 0 c. Marginal utility is negative d. a) and b) e. none of the above

d. a) and b)

For Questions 16 -20 refer to the following scenario and graph. The market for some good X begins in equilibrium. Demand for X is relatively elastic. The Government chooses to put a sales tax on X of size t. 19. What areas represent the loss to society due to less than socially optimal output being produced? a. A+B+C b. D+E+F c. A+E d. B+D e. None of the above.

e. None of the above.

8. When a worker produces more units of output than the work hired before her we have a. Decreasing marginal productivity of labor b. Positive labor productivity c. Increasing returns to capital d. Decreasing Marginal Productivity of capital e. None of these.

e. None of these. the marginal product of labor is the change in output that results from employing an added unit of labor. It is a feature of the production function, and depends on the amounts of physical capital and labor already in use.

21. A firm in a perfectly competitive market a. can raise the price of its product and sell more output b. can lower the price of its product and sell more output c. can increase its supply to lower the price d. can decrease its supply to raise the price e. accept the market price for its product

e. accept the market price for its product

25. Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors' fall, a. her accounting profit will rise b. her accounting profit will fall c. her accounting costs will rise d. her economic profit from textbooks will fall e. her economic profit from textbooks will rise

e. her economic profit from textbooks will rise

7. If at q units of output, AVC = $200, AFC = $10 and Total Cost = $21,000, what must the level of output for the firm be? a. 1 b. 5 c. 10 d. 15 e. none of these

e. none of these