Econ Exam#3
Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing a. economies of scale. d. a decrease in average plant size. b. increasing average cost. e. diseconomies of scale. c. economies of cost.
E
According to Figure 8-1, what is the firm's approximate total cost when it produces three units? a. 10 b. 16 c. 48 d. 60
C
"I have been making furniture for 27 years. I have never heard of either marginal cost or marginal revenue. Fancy economic theories mean nothing to me. I just know how to do well in business. Whenever I can sell something for more than it cost me to produce it, I make it, and whenever I can't sell it for enough to cover my cost, I don't. That's how I stay in business and earn income for my family. Common sense and watching the market are good enough for me." For producers like this, economic models a. accurately describe their behavior and allow predictions to be made as to how they will respond to changes in market conditions. b. indicate nothing about the behavior of such producers. c. will generally only apply if the person has a college education. d. do not apply because the producers do not understand the terminology.
A
A 10 percent increase in the price of sugar reduces sugar consumption by about 5 percent. The increase causes households to a. spend more on sugar. b. spend less on sugar. c. spend the same amount on sugar. d. consume more goods like coffee and tea that are complements of sugar.
A
A 10-cent-per-box tax on producers of cigars will a. shift the firm's ATC and MC curves upward by the full amount of the tax. b. induce the firm to produce less but will not shift the firm's MC curve. c. shift the firm's ATC and MC curves downward by the full amount of the tax. d. shift the MC curve upward but will not cause any shift in the ATC curve.
A
A downward-sloping portion of a long-run average total cost curve is the result of a. economies of scale. c. diminishing returns. b. diseconomies of scale. d. the existence of fixed resources.
A
A firm that must sell its output at a market-determined price is called a a. price-taker firm. c. price-setter firm. b. price-searcher firm. d. price-maker firm
A
A good that takes up a very large percentage of the consumer's budget will tend to have a. an elastic demand. d. an upward-sloping demand curve. b. a perfectly elastic demand. e. very many substitutes. c. an inelastic demand.
A
A local restaurant offers an "all you can eat" ribs special. You pay $11.95, and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when a. your marginal utility (or value) derived from eating another serving is zero. b. your total utility (or value) derived from all of the servings consumed just equals $11.95. c. your marginal utility (or value) derived from another serving equals $11.95. d. it is physically impossible for you to eat any more.
A
Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup, $.50. If Elaine drinks three cups of coffee for breakfast, her marginal utility is equal to a. $.50, the value of her last cup of coffee. b. $1.00, the value of her first cup of coffee. c. $2.25. d. $1.50.
A
For a firm in a price-taker market, the firm's demand curve is a. a horizontal line at the market price that is equal to the firm's marginal revenue curve. b. an upward-sloping line that is equal to the firm's marginal cost above AVC. c. a downward-sloping line that lies below the firm's marginal revenue curve. d. undefined because it cannot determine the price it charges for its output.
A
Historically, most economists have referred to markets where firms are price takers as a. purely competitive markets. c. open-door markets. b. monopoly markets. d. price-searcher markets.
A
If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent, a. demand is elastic. c. elasticity of demand is unitary. b. demand is inelastic. d. None of the above is correct.
A
If marginal revenue exceeds marginal cost, a price-taker firm should a. expand output. c. lower its price. b. reduce output. d. do both a and c.
A
In competitive price-taker markets, firms a. can sell all of their output at the market price. b. produce differentiated products. c. can influence the market price by altering their output level. d. are large relative to the total market.
A
Other things equal, the demand for a good tends to be more inelastic, a. the fewer the available substitutes. b. the longer the time period considered. c. the more the good is considered a luxury good. d. the more narrowly defined is the market for the good.
A
Refer to Figure 9-18. Given the current market conditions, in the long run, a. new firms will enter the industry and market price will fall. b. firms will exit the industry and market price will rise. c. firms will neither enter nor exit because the market is in long-run equilibrium. d. firms will maintain their current level of economic profit.
A
Sally recently got a 15 percent raise. She now purchases 7.5 percent more steak dinners. Sally's income elasticity for steak dinners is a. 0.5. c. 1.5 b. 0.75. d. 2.
A
Sunk costs a. are expenditures made in the past that cannot be regained no matter what is done now or in the future. b. are a component of variable costs, but not fixed costs. c. represent foregone opportunities, and therefore the firm's managers should consider these costs when they are making current decisions. d. can be avoided if the firm goes out of business.
A
Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is a. less than 1 in absolute value. c. negative. b. elastic. d. equal to 1.
A
The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure? a. This firm should shut down immediately. b. This firm is earning positive economic profit. c. This firm is able to cover its variable cost but not its total cost. d. All of the above are true.
A
The law of diminishing returns a. explains why marginal cost eventually increases as output expands. b. implies that average fixed cost will remain unchanged as output expands. c. is true for physical production activities but not for activities such as studying. d. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state.
A
When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is called the a. income effect. c. elasticity effect. b. substitution effect. d. monetary effect.
A
Which of the following is the best example of a fixed cost for a business? a. the insurance payment for the protection of a building owned by the firm b. shipping charges for the delivery of products c. managerial salaries paid d. the total of medical insurance premiums on the firm's employees
A
Which of the following relates most directly to the law of diminishing marginal utility? a. After watching two football games, Terry decides to play golf rather than watch a third game. b. A sports fan enjoys watching Monday night football rather than going to the theater. c. Two carpenters build their own house rather than hiring a contractor. d. A musician receives the biggest ovation of the evening after playing the final work of a recital.
A
Which of the following would shift a firm's short-run cost curves downward? a. an advance in technology b. an increase in employees' wages c. an increase in the demand for the firm's product d. an increase in excise taxes levied on the firm's product
A
You are the owner of an ice cream shop that earns a profit most of the year except during the cold winter months. During the month of December, your rent and other fixed costs amount to a total of $200. If you remain open, your total variable costs (workers, ice cream cones, etc.) will amount to $300. If you would be able to sell 100 ice cream cones at $4 each during December, then a. to maximize profits, you should remain open in December. b. to maximize profits, you should shut down in December. c. you will be able to avoid making a loss by shutting down in December. d. you should go out of business in the long run if there is any single month in which you do not earn a profit.
A
A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to a. spend less on sugar. b. spend more on sugar. c. spend the same amount on sugar as before. d. consume more goods like coffee and tea, which are sugar complements.
B
A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $300. The utilities, to be paid by the owner, cost $100 per month if the house is occupied; otherwise zero. If the owner wishes to minimize her losses from the house, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) (Hint: Remember the concept of sunk cost.) a. $0 b. $100 c. $200 d. $400
B
At what output in Figure 8-1 would the firm's per-unit cost of production be minimized? a. 3 b. 4 c. 5 d. 6
B
Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop but not as much as the first layer. What economic concept best explains this observation? a. the law of diminishing marginal utility c. return equalization principle b. the law of diminishing returns d. the principal-agent problem
B
If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the doughnut shop must be a. elastic. c. inelastic. b. of unitary elasticity. d. equal to 0.5.
B
If most firms in an industry are earning a 7 percent rate of return on their assets, but your business is earning 9 percent, your rate of economic profit is a. minus 2 percent. c. 9 percent. b. 2 percent. d. 16 percent.
B
If the price of a good is $0, a consumer will a. consume an infinite quantity. c. consume the entire amount supplied. b. consume all units with positive marginal utility. d. consume until total utility becomes 0.
B
If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by a. the substitution effect. b. the income effect. c. the highly elastic demand for gasoline. d. all of the above.
B
In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be a. $25. c. $5,000. b. $2,500. d. $7,500
B
Larger firms will often have lower minimum per-unit costs than smaller firms because a. employee shirking is less of a problem. b. large-scale output allows greater specialization for both labor and machines in the production process. c. mass production techniques, with high setup and development costs, are appropriate only when a small output is planned. d. all of the above are correct.
B
Marginal utility is the change in a. total utility when an extra unit of output is produced. b. total utility when an extra unit of output is consumed. c. marginal utility when an extra unit of output is produced. d. average utility when an extra unit of output is consumed.
B
Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station? a. Yes; such action would clearly violate the law of demand. If the price is lower across the street, Jones should go there. b. Not necessarily; he may think the ease and convenience of using the credit card is worth the extra cost. c. Yes; his actions imply that the law of diminishing returns does not apply to gasoline. d. Not enough information is given to determine if his actions are rational.
B
Refer to Figure 9-18. At the profit-maximizing level of output, the firm will earn an economic (Hint: Areas in the exhibit are referenced by the four letters on the corners of the respective area.) a. profit of AHEC. c. loss of AHEC. b. profit of BIFC. d. loss of BIFC.
B
Refer to Figure 9-19. Given the current market conditions, in the long run, a. new firms will enter the industry and market price will fall. b. firms will exit the industry and market price will rise. c. firms will neither enter nor exit because the market is in long-run equilibrium. d. firms will continue to suffer economic losses.
B
Ron works for Betty at Betty's Pizza Palace. Betty has many work rules, and Ron believes if there were fewer rules and more flexibility, he could do a better job. Betty probably has the rules because a. Ron, like her other employees, is a residual claimant. b. due to the principal-agent problem, some employees are likely to shirk when the owner is absent. c. she is maximizing sales rather than profits. d. with regard to their jobs, employees seldom know what is best.
B
Scenario 7-1 Use the information below to answer the following question(s). JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls. Refer to Scenario 7-1. According to the substitution effect, which of the following is most likely to occur? a. JoAnn will purchase less cola and more sparkling water. b. JoAnn will purchase more cola and less sparkling water. c. JoAnn will purchase more of all goods due to her higher real income. d. JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.
B
Sunk or "historical" costs are costs a. associated with current operational decisions. b. that have already been incurred as the result of past decisions. c. that add to the firm's marginal costs. d. that form the major component of the firm's variable costs.
B
Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should a. shut down during the winter, even if it is able to cover its variable costs during that period. b. continue operating during the winter months if it is able to cover its variable costs. c. go a out of business immediately; losses should never be tolerated. d. lower its prices during the summer months.
B
Suppose the state of New York imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The price elasticity of demand for cigarettes is equal to a. -0.20. b. -0.67. c. -1.50. d. -3.00.
B
The average total cost (ATC) and marginal costs (MC) of a firm producing in a price-taker industry are depicted in Figure 9-9. If the current market price of the firm's product is $50, what output should this firm produce per day? a. 10 b. 15 c. 20 d. 25
B
The dynamic process of competition a. provides profit-seeking sellers with little incentive to heed consumer preferences. b. was shown by Adam Smith to be a major source of economic inefficiency. c. provides consumers with alternative suppliers and thus a mechanism with which they can discipline sellers. d. will permit business decision makers to earn long-run economic profit unless they are regulated by government officials.
B
The optimal plant size depends on: a. whether the firm confronts diminishing returns on its fixed factors of production. b. the output the firm expects to produce. c. whether the plant uses capital-intensive or labor-intensive production techniques. d. the preferences of the individual firm owners.
B
The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because a. larger firms always have lower per-unit costs than smaller firms. b. at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns. c. diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large. d. diseconomies of scale will be present at both small and large output rates.
B
What amount must be earned to induce investors to continue to supply the funds necessary to maintain a firm's capital assets? a. stockholder equity c. economic profit b. the opportunity cost of capital d. accounting profit
B
When firms in a price-taker market are temporarily able to charge prices that exceed their production costs, a. the firms will earn long-run economic profit. b. additional firms will be attracted into the market until price falls to the level of per-unit production cost. c. the firms will earn short-run economic profits that will be offset by long-run economic losses. d. the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.
B
When the market price is $60 in Figure 9-9, the firm's maximum daily profit will be approximately a. zero. c. $900. b. $100. d. $1,200.
B
When the owner of a business invests his or her own money in the business, they give up the interest this money could be earning in the bank. This forgone interest is called a. the marginal cost of diminishing financial services. b. the opportunity cost of equity capital. c. the opportunity cost of labor services. d. interest expense and is included as a cost in the accounting statements of the business.
B
When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because a. producers maximize short-run, not long-run, profits. b. over time, new firms will enter the industry and old firms will expand their operations in response to the price increase. c. consumers are less resistant to higher prices in the long run than in the short run because they have fewer options in the long run. d. consumer income will expand in the long run, causing resource prices to rise, which will induce producers to increase output.
B
When we say that a firm is a price taker, we are indicating that the a. firm takes the price established in the market then tries to increase that price through advertising. b. firm can change output levels without having any significant effect on price. c. demand curve faced by the firm is perfectly inelastic. d. firm will have to take a lower price if it wants to increase the number of units that it sells.
B
Which of the following describes a situation in which demand must be inelastic? a. The price of pens rises by 10 cents, and quantity of pens demanded falls by 50. b. The price of pens rises by 10 cents, and total revenue rises. c. A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. d. Total revenue does not change when the price of pens rises. e. Total revenue decreases when the price of pens rises.
B
Which of the following explains most clearly why business owners have a strong incentive to strive for operational efficiency? a. They recognize that operational efficiency promotes the public interest. b. As residual claimants, owners will receive a higher income from increased efficiency. c. The owners will be able to keep production costs low by providing free managerial services to the firm. d. The owners will be able to gain by paying employees below market wages, which will improve the overall efficiency of the economy.
B
Which of the following explains why business owners have a strong incentive to strive for operational efficiency? a. they recognize that operational efficiency promotes the public interest. b. since the owners are residual income claimants, increased efficiency will mean a higher income for the owners. c. if production is not conducted efficiently, the firm will ship jobs and capital out of the domestic market in order to be able to compete effectively. d. Increased operational efficiency allows the firm to receive government tax breaks.
B
A foreign exchange student bought a used car for $10,000 and resold it one year later for $6,500. Insurance, license, and operating costs for the year were $1,500. What was his economic cost of owning and operating the car for the year if the market rate of interest was 10 percent? a. $3,500 c. $6,000 b. $5,000 d. $8,500
C
Which of the following is a primary difference between price searchers and price takers? a. Price searchers maximize profits, but price takers do not. b. Price searchers have to cut their price to sell additional output, but price takers do not. c. The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal. d. Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.
B
According to the income effect, when the price of automobiles rises, people buy fewer automobiles because a. they substitute other forms of transportation for driving. b. the nominal amount of their paychecks is smaller. c. the purchasing power of their income is reduced. d. their demand for automobiles is very elastic.
C
After eating six chocolate candy bars in ten minutes, Jody says, "You would have to pay me to eat another chocolate candy bar!" This statement best illustrates a. the law of demand. c. the law of diminishing marginal utility. b. the substitutability among goods. d. that chocolate candy bars are an inferior good.
C
As a firm expands output, in the short run marginal costs will a. always decline as output expands. b. increase at first but eventually level off and decline. c. eventually increase as the firm experiences diminishing returns to the fixed factors of production. d. initially increase at a decreasing rate but eventually increase at an increasing rate.
C
Assume that a college student purchases only coffee and Snickers. The substitution effect associated with a decrease in the price of a Snickers will result in a. an increase in the consumption of coffee only. b. a decrease in the consumption of coffee only. c. an increase in the consumption of Snickers and a decrease in the consumption of coffee. d. a decrease in the consumption of Snickers and an increase in the consumption of coffee.
C
High-wage consumers are overrepresented among airline and taxi passengers because a. the opportunity cost of spending more time on transportation is higher for low-wage consumers. b. these commodities have income elasticities of less than 1. c. the opportunity cost of spending more time on transportation is higher for high-wage consumers. d. the price elasticity of demand for airline and taxi services is quite high.
C
If Sarah's income rises by 20 percent, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is a. 0.5. b. 1.0. c. 2.0. d. Not enough information is given to answer this question.
C
If a Pizza Hut restaurant near campus increases its prices by 10 percent, and as a result, its sales revenue increases by 3 percent, the price elasticity of demand for the services offered by the restaurant must be a. elastic. d. equal to 0.5. b. of unitary elasticity. e. equal to 2. c. inelastic.
C
If demand price elasticity measures 2, this implies that consumers would a. buy twice as much of the product if the price drops 10 percent. b. require a 2 percent drop in price to increase their purchases by 1 percent. c. buy 2 percent more of the product in response to a 1 percent drop in price. d. require at least a $2 increase in price before showing any response to the price increase. e. buy twice as much of the product if the price drops 1 percent.
C
If marginal revenue exceeds marginal cost at the current level of output, profit will increase when output is expanded because a. other firms in the industry will shut down as the firm expands output. b. the market price will rise as the firm expands output. c. producing and selling an additional unit will add more to total revenue than it adds to total cost. d. marginal cost will decline as output is expanded.
C
If the market price in Figure 9-9 increases to $60, what should the firm do? a. produce 10 per day c. produce 20 per day b. produce 15 per day d. increase its price to $70
C
If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a a. 4.5 percent decrease in quantity demanded. d. 45 percent increase in quantity demanded. b. 4.5 percent increase in quantity demanded. e. 450 percent increase in quantity demanded c. 45 percent decrease in quantity demanded.
C
In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is a. a downward-sloping curve. b. indeterminate. c. constant at the market price of the product. d. precisely the same as the firm's total revenue curve.
C
In the short run, a profit-maximizing price taker will expand output as long as the market price exceeds a. average variable cost. c. average total cost. b. marginal cost. d. average fixed cost.
C
Jeff likes Pepsi and pizza. When the price of pizza rises, the substitution effect causes Pepsi to be relatively a. more expensive, so Jeff buys more Pepsi. c. less expensive, so Jeff buys more Pepsi. b. more expensive, so Jeff buys less Pepsi. d. less expensive, so Jeff buys less Pepsi.
C
Libby has a business using no owned capital and makes an accounting profit of $52,000 a year. Libby could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have had time to run her business. The economic profit from Libby's business per year is a. $87,000. c. $17,000. b. $35,000. d. -$17,000
C
Refer to Figure 9-18. To maximize profit, the firm should produce an output level of a. q1. b. q2. c. q3. d. q4.
C
Refer to Figure 9-19. At the profit-maximizing level of output, the firm will earn an economic a. profit of AHEB. c. loss of AHEB. b. loss of AGDC. d. loss of AIFB.
C
Refer to Figure 9-19. To maximize profit, the firm should produce an output level of a. zero; the firm should shut down immediately.
C
Scenario 7-1 Use the information below to answer the following question(s). JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls. Refer to Scenario 7-1. According to the income effect, which of the following is most likely to occur? a. JoAnn will purchase less cola and more sparkling water. b. JoAnn will purchase more cola and less sparkling water. c. JoAnn will purchase more of most goods due to her higher real income. d. JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.
C
Suppose you value watching a movie at $5. You rent it from your local movie rental store for $3.50 for one night. You do not get a chance to watch it, so you decide to keep it an extra day and pay a late fee of $2. Your decision is a. incorrect; you paid $5.50 to watch a movie you valued at only $5. You should have taken the movie back. b. incorrect; you should have returned the movie and rented it later. c. correct; the $3.50 paid for the first night is a sunk cost and is not relevant in your decision to keep it an additional night. d. correct; you value watching the movie at $5 per night, so keeping it an extra day increases your value of the movie to $10.
C
The long run is a period of a. at least one year. b. sufficient length to allow a firm to expand output by hiring additional workers. c. sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. d. sufficient length to allow a firm to transform economic losses into economic profits.
C
The short run is a time period of insufficient length for the firm to change its a. output. c. plant size and heavy equipment. b. amount of labor employed. d. price.
C
To maximize profits, a firm should always produce the level of output where a. marginal cost equals average total cost. b. average total cost equals price. c. marginal cost equals marginal revenue. d. marginal revenue equals price.
C
What is the firm's total cost in Figure 8-1 when it produces four units? a. 11 b. 15 c. 60 d. 75
C
When an economist says a firm is earning zero economic profit, this implies that the firm a. will be forced out of business in the near future unless market conditions change. b. is earning a zero rate of return on its assets. c. is earning as high a rate of return now as could be earned in other industries. d. has an accounting profit of zero.
C
When market conditions in a price-taker market are such that firms cannot cover their production costs, a. the firms will suffer long-run economic losses. b. the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits. c. some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs. d. all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs.
C
When new firms enter a competitive price-taker market, a. economic profits of existing firms will continue to be zero. b. entering firms will earn zero economic profit upon entry into the market. c. existing firms may see their costs rise as more firms compete for limited resources. d. prices will rise as existing firms raise prices to keep new firms out of the market.
C
Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward? a. an increase in the price of fertilizer b. an increase in the tax on diesel fuel, which is used by the farmer c. the development of a new, more efficient corn harvester d. the adoption of a regulation requiring farmers to treat their crops with three new pesticides.
C
Which of the following is true? a. Under the partnership form of business organization, the owners are not personally liable for the debts of the business. b. When employees also own a business, their incentive to shirk is removed. c. The limited liability of stockholders under the corporate business structure makes it easier to raise equity capital. d. Under the corporate form of business organization, the owners of the firm are personally liable for its debts.
C
Which of the following is true? a. under the partnership form of business organization, the owners are not personally liable for the debts of the business. b. when employees also own a business, their incentive to shirk is removed. c. the limited liability of stockholders under the corporate business structure makes it easier to raise equity capital. d. under the corporate form of business organization, the owners of the firm are personally liable for its debts.
C
Which of the following most directly reflects the law of diminishing marginal utility? a. After watching two football games, Terry decides to watch a third game. b. A sports fan enjoys watching Monday night football rather than going to the theater. c. After listening to three compact discs, Kim decides to go bowling rather than listen to a fourth disc. d. A musician receives the biggest ovation of the evening after playing the final number of a recital.
C
Which of the following represents a long-run adjustment? a. the hiring of four additional cashiers by a supermarket b. a cutback on purchases of coke and iron ore by a steel manufacturer c. construction of a new assembly-line plant by a car manufacturer d. the extra dose of fertilizer used by a farmer on his wheat crop
C
"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects a. the budget constraint. b. consumer irrationality. c. the second law of demand: Price elasticity increases with time. d. the law of diminishing marginal utility.
D
Advantages of the corporate form of business organization include a. the ease of transferring ownership in a corporation. b. the limited liability concept that protects the stockholder from potential debts incurred by the corporation. c. the lack of employee shirking that occurs in corporations. d. both a and b.
D
An inferior good is a good whose quantity demanded a. rises when its price falls. c. falls when the consumer's total utility rises. b. falls when the price of a related good falls. d. rises when the consumer's income falls.
D
As people have more time to adjust to a price change, a. demand becomes more elastic, and supply becomes less elastic. b. demand becomes less elastic, and supply becomes more elastic. c. both supply and demand become less elastic. d. both supply and demand become more elastic. e. elasticity of both demand and supply tends toward unity.
D
Beginning from a point of long-run equilibrium, an increase in the market demand for wheat would result in a. an increase in the market price of wheat. b. existing wheat producers increasing output in the short run and earning positive economic profits. c. new firms entering the wheat industry in the long run. d. all of the above.
D
For a price-taker firm, marginal revenue is a. equal to price. b. equal to zero when the market is in long-run equilibrium. c. equal to the change in total revenue divided by the change in output. d. both a and c.
D
For which one of the following goods would you expect the demand to be most elastic? a. salt c. automobiles b. gasoline, short run d. Chevrolet automobiles
D
If Mr. McLean thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on hamburgers, and McLean is a utility-maximizing consumer, he should a. bowl less, so the marginal satisfaction from expenditures in this area will increase. b. spend more on hamburgers, so total satisfaction from that activity will increase. c. eliminate spending on hamburgers. d. bowl more and spend less on hamburgers.
D
If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should a. decrease his spending on cola. b. decrease his spending on cola and increase his spending on shirts. c. increase his spending on shirts. d. increase his spending on cola and decrease his spending on shirts.
D
If a 10 percent increase in income induced a group of consumers to reduce their yearly purchases of potatoes by 5 percent, for these consumers, a. the income elasticity of potatoes equals approximately 1.05. b. the income elasticity of potatoes is 0.5. c. potatoes are a luxury good. d. potatoes are an inferior good.
D
If a firm's per-unit costs fall as it produces a larger output, a. average variable cost must also decline as output expands. b. marginal cost must also decline as output expands. c. average fixed cost must be less than average variable costs. d. marginal cost must be less than average total cost.
D
If firms in a price-taker industry were forced to install antipollution devices that increased their production costs, we should expect a. the cost curves for the firms in this industry to shift downward. b. the market price of the product to decrease. c. that the firms in the industry would suffer long-run economic losses. d. that the firms in the industry would earn normal economic profits in the long run, as the higher production costs were passed along to consumers in the form of higher prices.
D
If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect a. the demand for the products of this industry to increase. b. the market price of the products of this industry to decrease in the short run but not in the long run. c. the firms in the industry to make long-run economic profit. d. competition to force producers to pass the lower production costs on to consumers in the long run.
D
If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is a. 0.25. b. 0.50. c. 1.25. d. 2.
D
Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that a. tomatoes are a necessity while salt is a luxury. b. it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes. c. salt will not spoil as easily as fresh tomatoes. d. more good substitutes exist for fresh tomatoes than for salt.
D
The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because a. ice cream must be eaten quickly. b. this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. c. the market is broadly defined. d. other flavors of ice cream are good substitutes for this particular flavor.
D
The difference between normal and inferior goods is that a. an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward. b. if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true. c. an inferior good is something that will not be demanded until quantities of the normal good have been exhausted. d. an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.
D
The figure shows a representative firm in a price-taker market. Which of the following is true regarding the situation depicted in the figure? a. This firm shown is earning zero economic profit. b. The industry is in long-run equilibrium. c. Firms will neither enter nor exit the market. d. All of the above are true.
D
The law of diminishing returns indicates why a. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller amounts of additional satisfaction. b. the firm's total fixed costs do not change with output in the short run. c. a firm's long-run average total cost curve is U-shaped. d. a firm's marginal costs will eventually increase as the firm expands output in the short run.
D
The more broadly a good is defined, a. the more substitutes it has so the more elastic is its demand. b. the fewer substitutes it has so the more elastic is its demand. c. the more substitutes it has so the less elastic is its demand. d. the fewer substitutes it has so the less elastic is its demand.
D
The principle of diminishing marginal utility says that a. as more of a good or service is consumed, demand will decrease. b. as more of a good or service is consumed, the price will rise. c. the marginal utility of additional units consumed will increase. d. the marginal utility of additional units consumed will decline.
D
The three basic legal forms of business enterprise are a. monopolists, competitors, and enterprises. b. vertical, horizontal, and conglomerate corporations. c. conglomerates, multinationals, and partnerships. d. proprietorships, partnerships, and corporations.
D
What is the difference between accounting profit and economic profit? a. They are the same thing. b. They are only different if the accountant makes a mistake. c. Accounting profit is usually smaller than economic profits. d. Accounting profit makes no allowance for several implicit costs, including equity capital, while economic profit takes these costs into account.
D
When a firm increases its plant size in the long run and its per-unit costs fall, this is called a. diminishing returns and is shown by the downward-sloping portion of the MP curve (or the upward-sloping portion of the MC curve). b. constant returns to scale and is shown by the flat portion of the LRATC curve. c. diseconomies of scale and is shown by the upward-sloping portion of the LRATC curve. d. economies of scale and is shown by the downward-sloping portion of the LRATC curve.
D
When consumer demand for a good produced in a price-taker market decreases, a. firms in the industry will continue to produce at the same output levels as before. b. total market output will generally rise, but each individual firm will reduce its output. c. the market price of the good will rise, causing additional resources to flow into the industry in the long run. d. some firms will shut down in the long run, making their resources available for the production of other goods.
D
When costs that vary with the level of output are divided by the output, you have calculated a. total changing cost. c. average fixed cost. b. total fixed cost. d. average variable cost.
D
Which of the following factors would not shift the cost curves of an automobile company upward? a. a regulation requiring all automobiles be equipped with improved safety equipment b. an increase in the price of steel used to make automobiles c. an increase in the property tax on buildings and equipment used by the automobile company d. An employee develops a new method of installing doors on the cars that requires half as many workers as before.
D
Which of the following is most likely to be an implicit cost of production? a. property taxes on a building owned by the firm b. transportation costs paid to a trucking supplier c. rental payments for a building utilized by the company and rented from another party d. interest income foregone on funds invested in the firm by the owners
D
Which of the following is true? a. When firms in a price-taker market are earning zero economic profit, they shut down. b. When firms in a price-taker market are earning positive economic profits, new firms will enter the industry causing the market price to fall until the firms in the industry are earning only zero economic profit. c. When firms in a price-taker market are earning economic losses, some firms will exit the industry causing the market price to rise until the remaining firms are earning zero economic profit. d. Both b and c are true.
D
Which of the following statements is correct? a. In order to maximize profits in the short run, a price taker should always produce at the output level where marginal cost is equal to price. b. In long-run equilibrium, a price taker will produce at an output level where average total cost is at its minimum. c. A price taker will remain open in the short run, even if it is earning an economic loss, so long as price is sufficient to cover average variable cost. d. All of the above are true.
D
End section on Consumer choice and Elasticity
End section on Consumer choice and Elasticity
End section on Costs and the Supply of Goods
End section on Costs and the Supply of Goods
End section on Price Takers and the Competitive Process
End section on Price Takers and the Competitive Process
