MicroEcon exam 2
If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is: A. $93.75 B. $97.78 C. $750 D. $880
A. $93.75
At an output of 20,000 units per year, a firm's variable costs are $80,000 and its average fixed costs are $3. The total costs per year for the firm are: A. $80,000 B. $100,000 C. $140,000 D. $240,000
C. $140,000
In long-run equilibrium, a purely competitive firm will operate where price is A. greater than MR but equal to MC and minimum ATC. B. greater than MR and MC, but equal to minimum ATC. C. greater than MC and minimum ATC, but equal to MR. D. equal to MR, MC, and minimum ATC.
D. equal to MR, MC, and minimum ATC
While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information, we can conclude that A. Alex may have to lower the price to convince Kara to buy a second slice. B. Kara will not eat a second slice, even if it is given to her at no charge. C. Kara will definitely want to buy a second slice of pizza. D. even if Kara buys a second slice, she will not buy a third slice. E. people will only consume their favorite goods and not try new things.
A. Alex may have to lower the price to convince Kara to buy a second slice
In the graph above LRTC = long-run total cost. The firm is experiencing: A. Economies of scale B. Diseconomies of scale C. Constant returns to scale D. Minimum efficient scale
A. Economies of scale
When a firm doubles its inputs and finds that its output has more than doubled, this is known as: A. Economies of scale B. Constant returns to scale C. Diseconomies of scale D. A violation of the law of diminishing returns
A. Economies of scale
Susie purchased a nonrefundable ticket to a soccer match for $20. It will cost her $10 worth of gas and wear and tear to drive to the match and $5 to park her car. On the day of the match, Susie's boss offers her $100 to come to work instead. In considering what to do, which of the above would be considered a sunk cost? A. The $20 ticket to the match. B. The $10 cost to drive to the match. C. The $5 cost to park at the stadium. D. The $100 offered by Susie's boss.
A. The $20 ticket to the match
Suppose that football tickets at your university are given away for free, and that there are still empty seats for all games. Ignoring all other costs of going to the games, you should continue attending until your: A. Total utility stops increasing B. Marginal utility begins to diminish C. Marginal utility stops increasing D. Total utility reaches zero
A. Total utility stops increasing
When a consumer shifts purchases from product X to product Y, the marginal utility of A. X falls and the marginal utility of Y rises. B. X rises and the marginal utility of Y falls. C. both X and Y rises. D. both X and Y falls.
A. X falls and the marginal utility of Y rises
An implicit cost is A. a nonmonetary opportunity cost. B. a cost incurred in the short run. C. the highest-valued alternative that must be given up to engage in an activity. D. a cost that remains constant as output changes. E. a cost that changes as output changes.
A. a nonmonetary opportunity cost
Because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced A. an upward shift in their MC, AVC, and ATC curves. B. an upward shift in their AFC, AVC, and ATC curves. C. a downward shift in their MC, AFC, and AVC curves. D. greater economies of scale.
A. an upward shift in their MC, AVC, and ATC curves
The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point
To the economist, total cost includes: A. explicit and implicit costs. B. neither implicit nor explicit costs. C. implicit, but not explicit, costs. D. explicit, but not implicit, costs.
A. explicit and implicit costs
Any cost that remains unchanged as output changes represents a firm's A. fixed cost. B. marginal cost. C. opportunity cost. D. variable cost.
A. fixed cost.
In which of the following industry structures is the entry of new firms the most difficult? A pure monopoly B. oligopoly C. monopolistic competition D. pure competition
A. pure monopoly
At P4 in the accompanying diagram, this firm will A. shut down in the short run. B. produce 30 units and incur a loss. C. produce 30 units and earn only a normal profit. D. produce 10 units and earn only a normal profit.
A. shut down in the short run
Deadweight loss is A. the reduction in economic surplus resulting from a market not being in competitive equilibrium. B. the reduction in consumer expenditure resulting from market failure. C. the reduction in sales revenue resulting from market distortions. D. a measure of market equity.
A. the reduction in economic surplus resulting from a market not being in competitive equilibrium.
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its A. total variable costs. B. total costs. C. total fixed costs. D. marginal costs.
A. total variable costs
At an output level of 50 units per day a firm has average total costs of $60 and average variable costs of $35. Its total fixed costs are: A. $925 B. $1,250 C. $1,750 D. $3,000
B. $1,250
If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is: A. $91 B. $94 C. $97 D. $100
B. $94
Consider the demand curve above. If the price is A, then the total revenues of sellers would be the area: A. DABE B. 0ABC C. 0DEF D. CBEF
B. 0ABC
Marginal cost can be defined as the: A. Change in total fixed cost resulting from one more unit of production B. Change in total cost resulting from one more unit of production C. Change in average total cost resulting from one more unit of production D. Change in average variable cost resulting from one more unit of production
B. Change in total cost resulting from one more unit of production
Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero? A. If marginal utility is falling, then total utility is falling. B. Consumers face budget constraints that limit how much they can purchase. C. Governments tend to limit how much of a good a person is allowed to consume. D. The price of a good tends to rise as an individual attempts to purchase more.
B. Consumers face budget constraints that limit how much they can purchase
As output increases, average fixed costs: A. Increase B. Decrease C. Remain constant D. First increase and then decrease
B. Decrease
Cash expenditures a firm makes to pay for resources are called: A. Implicit costs B. Explicit costs C. Average cost D. Opportunity costs
B. Explicit costs
The table below shows a consumer's utility schedule. Refer to the above table. Marginal utility begins to diminish with the consumption of the: A. Fifth unit B. Fourth unit C. Third unit D. Second unit
B. Fourth Unit
If pizza is a normal good, a price decrease will cause you to consume more pizza because of: A. Substitution effect B. Income effect C. Both Substitution effect and Income effect D. Neither of these two effects
B. Income effect
Marginal product of labor refers to the: A. Last unit of output produced by labor at the end of each period B. Increase in output resulting from employing one more unit of labor C. Total output divided by the number of labor employed D. Smallest unit of the output produced by labor
B. Increase in output resulting from employing one more unit of labor
At the point where diminishing marginal returns of an input sets in, the: A. Average product starts to decrease B. Marginal product starts to decrease C. Total product starts to decrease D. Average product exceeds the marginal product
B. Marginal product starts to decrease
If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should A. use more labor and less capital to produce a larger output. B. not change its output. C. reduce its output. D. increase its output.
B. Not change its output
Allocative efficiency is achieved when the production of a good occurs where A. P = minimum ATC. B. P = MC. C. P = minimum AVC. D. total revenue is equal to TFC.
B. P = MC
If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output A. marginal revenue is less than price. B. Price /revenue exceeds ATC. C. ATC is being minimized. D. total revenue equals total cost.
B. Price /revenue exceeds ATC
Assume that a consumer purchases a combination of product A and product B such that the MUa/Pa = 8 and MUb/Pb = 6. To maximize utility without spending more money, the consumer should: A. Purchase less of product A and more of product B B. Purchase more of product A and less of product B C. Purchase more of both product A and product B D. Make no change in purchases of products A and B
B. Purchase more of product A and less of product B
Refer to the above table. The addition of which unit has the greatest marginal utility? A. Fifth B. Sixth C. Seventh D. Eighth
B. Sixth
When average variable cost is at a minimum: A. Marginal cost is at a maximum B. The average product of labor is at a maximum C. The marginal product of labor is at a minimum
B. The average product of labor is at a maximum
Which situation is consistent with the law of diminishing marginal utility? A. The more pizza Joe eats, the more he enjoys an additional slice B. The more pizza Joe eats, the less he enjoys an additional slice C. Joe's marginal utility from eating pizza becomes positive after eating three slices D. Joe's marginal utility from eating pizza reaches a maximum when total utility is zero
B. The more pizza Joe eats, the less he enjoys an additional slice
24. An increasing-cost industry is associated with A. a perfectly elastic long-run supply curve. B. an upsloping long-run supply curve. C. a perfectly inelastic long-run supply curve. D. an upsloping long-run demand curve.
B. an upsloping long-run supply curve
The law of diminishing marginal utility explains why A. supply curves slope upward. B. demand curves slope downward. C. addicts can never get enough.
B. demand curves slope downward
The equilibrium price and quantity in a competitive market usually produce allocative efficiency because: A. all consumers who want the good are satisfied. B. marginal benefit and marginal cost are equal at that point C. equilibrium ensures an equitable distribution of output. D. the excess of goods produced at equilibrium guarantees that all will have enough.
B. marginal benefit and marginal cost are equal at that point
In the short run, the individual competitive firm's supply curve is that segment of the A. average variable cost curve lying below the marginal cost curve. B.marginal cost curve lying above the average variable cost curve. C. marginal revenue curve lying below the demand curve. D. marginal cost curve lying between the average total cost and average variable cost curves.
B. marginal cost curve lying above the average variable cost curve.
To maximize utility, a consumer should allocate money income so that the A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same.
B. marginal utility obtained from the last dollar spent on each product is the same
In long-run equilibrium, purely competitive markets A. minimize total cost. B. maximize the sum of consumer surplus and producer surplus. C. yield economic profits to most sellers. D. inevitably degenerate into monopoly in increasing-cost industries.
B. maximize the sum of consumer surplus and producer surplus
Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that A. Betty's is in long-run equilibrium. B. potential new firms will be encouraged by Betty's success to enter the market. C. some existing firms in this market will leave. D. potential new firms will be discouraged by Betty's struggles and not enter the market.
B. potential new firms will be encouraged by Betty's success to enter the market
In the short run, a purely competitive seller will shut down if A. it cannot produce at an economic profit. B price is less than average variable cost at all outputs. C. price is less than average fixed cost at all outputs. D. there is no point at which marginal revenue and marginal cost are equal.
B. price is less than average variable cost at all outputs
Refer to the diagram. The vertical distance between ATC and AVC reflects: A. the law of diminishing returns. B. the average fixed cost at each level of output. C. marginal cost at each level of output. D. the presence of economies of scale.
B. the average fixed cost at each level of output
The diamond-water paradox occurs because A. the price of a product is related to its total utility, not its marginal utility. B. the price of a product is related to its marginal utility, not its total utility. C. water is, in fact, very scarce in certain regions of the world. D. diamonds are more useful than water.
B. the price of a product is related to its marginal utility, not its total utility
Refer to the above graph. If the firm is producing at Q1, the area 0ADQ1 represents: A. Total costs B. Total variable costs C. Total fixed costs D. Average total costs
B. total variable cost
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were: A. $100,000 and its economic profits were zero. B. $200,000 and its economic profits were zero. C. $100,000 and its economic profits were $100,000. D. zero and its economic loss was $200,000.
C. $200,000 and its economic profits were zero
Refer to the above graph of cost curves. Total fixed cost at output level Q2 is measured by: A. 0B B. AC C. CD D. DE
C. CD
"Consumer equilibrium or "Equimarginal utility" refers to the situation when the consumer is getting: A. The highest total utility out of spending a given budget on various goods B. The highest marginal utility out of spending a given budget on various goods C. Equal marginal utility values per dollar from each product consumed D. Equal total utility values from each product consumed
C. Equal marginal utility values per dollar from each product consumed
The main difference between the short run and the long run is that: A. Firms earn zero profits in the long run B. The long run always refers to a time period of one year or longer C. In the short run, some inputs are fixed and some are variable D. In the long run, all inputs are fixed
C. In the short run, some inputs are fixed and some are variable
Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. Both are normal goods for Tonya. If the price of pizza decreases, then Tonya's consumption of pizza will: A. Decrease due to the income effect B. Decrease due to the substitution effect C. Increase due to the income effect D. Increase due to the law of diminishing marginal utility
C. Increase due to the income effect
Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially A. MUd<MUc B. MUc/Pc<MUd/Pc C. MUc/Pc>MUd/Pd D. MUd>MUc
C. MUc/Pc>MUd/Pd
Competitive markets satisfy: A. Maximum economic efficiency B. The greatest economic surplus C. Maximum economic surplus and efficiency D. Efficiency since marginal benefit equals marginal cost
C. Maximum economic surplus and efficiency
In the long run a firm will choose a plant size that has the: A. Minimum of average fixed costs B. Capacity to produce the largest quantity of the product C. Minimum average total cost of producing the target level of output D. Maximum level of resource use per unit of the total product of output
C. Minimum average total cost of producing the target level of output
Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is A. zero. B. positive, but declines rapidly. C. negative. D. positive, but less than the ticket price.
C. Negative
The vertical distance between the TC curve and TVC curve is equal to: A. ATC B. AVC C. TFC D. MC
C. TFC
The difference between the maximum price a consumer is willing to pay for a product and the actual price the consumer pays is: A. Allocative efficiency B. Productive efficiency C. The consumer surplus D. The producer surplus
C. The consumer surplus
Economic efficiency is A. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is not at a maximum. B. a market outcome in which the marginal benefit to consumers of the last unit produced is greater than its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. C. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. C. a government outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
C. a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred. Expected revenues from the flight are $600. DASH should A. not add this flight, because only flights that cover their full costs are profitable. B. not add this flight, because it is not profitable at the margin. C. add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost. D. not add this flight, because total costs exceed total revenue.
C. add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.
If at the MC = MR output, AVC exceeds price, A. new firms will enter this industry. B. the firm should produce the MC = MR output and realize an economic profit. C. some firms should shut down in the short run. D. the firm should expand its plant.
C. firms should shut down in the short run
Prashanth decides to buy a $75 ticket to a particular New York professional hockey game rather than a $50 ticket for a particular Broadway play. We can conclude that Prashanth A. is relatively unappreciative of the arts. B. obtains more marginal utility from the play than from the hockey game. C. has a higher "marginal utility-to-price ratio" for the hockey game than for the play. D. has recently attended several other Broadway plays
C. has a higher "marginal utility-to-price ratio" for the hockey game than for the play
A purely competitive seller should produce (rather than shut down) in the short run A. only if total revenue exceeds total cost. B. only if total cost exceeds total revenue. C if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost. D. if total cost exceeds total revenue by some amount greater than total fixed cost.
C. if total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost
Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will A. realize a profit of $4 per unit of output. B. maximize its profit by producing in the short run. C. minimize its losses by producing in the short run. D. shut down in the short run.
C. minimize its losses by producing in the short run
A purely competitive firm is precluded from making economic profits in the long run because A. it is a "price taker." B. its demand curve is perfectly elastic. C. of unimpeded entry to the industry. D. it produces a differentiated product.
C. of unimpeded entry to the industry
The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that A. product price increases as output increases. B. product price decreases as output increases. C. product price is constant at all levels of output. D. marginal revenue declines as more output is produced.
C. product price is constant at all levels of output
The optimal combination of pizza and coke you should consume is the one A. where your marginal utility of pizza equals your total utility of pizza, and your marginal utility of coke equals your total utility of coke B. where your marginal utility of pizza equals your marginal utility of coke C. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke D. where your total utility of pizza equals your total utility of coke
C. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke
Which of the following conditions is true for a purely competitive firm in long-run equilibrium? A. P > MC = minimum ATC. B. P > MC > minimum ATC. C.P = MC = minimum ATC. D. P < MC < minimum ATC.
C.P = MC = minimum ATC
Refer to the above table. Marginal product is zero when the total product is: A. 0 B. 5 C. 56 D. 58
D. 58
Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because: A. The ability or quality of the variable inputs hired decreases as more are hired B. The firm must lower the price of its product when it produces more units of output C. The per unit cost it must pay for variable inputs increases as more inputs are hired D. As more variable inputs are hired, the amount of the fixed input per variable input decreases
D. As more variable inputs are hired, the amount of the fixed input per variable input decreases
At any level of output: A. Average variable cost will exceed average total cost in the short run B. Marginal cost will exceed average variable cost by the level of average fixed cost C. Average variable cost will exceed average fixed cost by the level of average total cost D. Average total cost will exceed average variable cost by the level of average fixed cost
D. Average total cost will exceed average variable cost by the level of average fixed cost
Economic profits are: A. Always larger than accounting profits B. The sum of accounting profits and implicit costs C. Equal to the difference between total revenues and implicit costs D. Equal to the difference between accounting profits and implicit costs
D. Equal to the difference between accounting profits and implicit costs
When total utility reaches a maximum, then marginal utility is: A. Increasing B. Decreasing C. At a minimum D. Equal to zero
D. Equal to zero
Refer to the above table. There are negative marginal returns from the input, when the: A. Fifth unit of input is added B. Sixth unit of input is added C. Seventh unit of input is added D. Ninth unit of input is added
D. Ninth unit of input is added
Which would be an implicit cost for a firm? The cost: A. Of worker wages and salaries for the firm B. Paid for leasing a building for the firm C. Paid for production supplies for the firm D. Of wages foregone by the owner of the firm
D. Of wages foregone by the owner of the firm
Refer to the above graph. It shows the total product (TP) curve. At which point is marginal product smallest? A. Point a B. Point b C. Point c D. Point d
D. Point d
Economic surplus in a market is the sum of_____ surplus and_____ surplus. In a competitive market, with many buyers and sellers and no government restrictions, economic surplus is at a_____ when the market is in_____. A. consumer; producer; maximum; disequilibrium B. consumer; producer; minimum; equilibrium C. consumer; government; maximum; equilibrium D. consumer; producer; maximum; equilibrium
D. consumer; producer; maximum; equilibrium
Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy A. less of X only if its price rises. B. more of Y only if its price rises. C. more of Y and/or less of X. D. more of X and/or less of Y.
D. more of X and/or less of Y
The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should A. reduce output to about 80 units. B. expand its production. C. continue to produce 100 units. D. produce zero units of output.
D. produce zero units of output
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4, respectively. The marginal utility of the last units of A and B are 16 and 24, respectively. These data suggest that Ms. Thomson A. has preferences that are at odds with the principle of diminishing marginal utility. B. considers A and B to be complementary goods. C. should buy less A and more B. D. should buy less B and more A.
D. should buy less B and more A
When LCD televisions first came on the market, they sold for at least $1,000, and some for much more. Now many units can be purchased for under $400. These facts imply that A. the LCD television industry was once competitive but is now monopolistic. B. fewer firms produce LCD televisions than was the case five or ten years ago. C. the demand curve for LCD televisions has shifted leftward. D. the LCD television industry is a decreasing-cost industry
D. the LCD television industry is a decreasing-cost industry
Consumer and producer surplus measure the _____ benefit rather than the _____ benefit. A.net; total B. marginal; additional C. subjective; objective D total; net
D. total; net
