Microeconomics Test #2
7. Marginal utility for a good is computed as:
D) The change in total utility divided by the change in quantity.
11. The equilibrium price in a competitive market:
D). All of the above.
75. Which of the following influences the price elasticity of demand?
D). All of the above.
19. In the graph above, consumer surplus is shown by area:
D). BCD.
24. Bill can consume 10 Chinese Buffets or go bowling five times this month (or other specific combinations). This above graph represents Bill's:
D). Budget line
30. Greater labor productivity means:
D). Higher output per worker.
70. If the price of "X" increases and you buy less "Y," then
B). "X" and "Y" are complements, and the price of "Y" will decrease.
42. Which of the following is equivalent to ATC?
B). (FC+VC)/Q
58. In making a production decision, an entrepreneur:
B). Decides what level of output will maximize profits.
16. The only costs which do not change when output changes in the short run are:
B). Fixed costs.
31. With greater consumption, total utility always:
B). Increases as long as marginal utility is positive
28. A production function:
B). Is a technological relationship between factors of production and output.
35. An essential characteristic of a perfectly competitive firm is that:
B). It is a price taker. or C). The market-demand curve is perfectly elastic.
56. In which of the following cases would a firm enter a market?
B). P > long-run ATC.
71. To maximize profits, a purely competitive firm will seek to expand output until:
B). Price equals marginal cost.
22. Decisions which treat at least one factor of production as fixed are referred to as:
B). Short-run decisions.
49. Which of the following determinants of demand is most directly an indication of a consumer's utility for a good?
B). Tastes
21. The additional pleasure or satisfaction from a good declines as more of it is consumed in a given period. This is the definition of:
B). The law of diminishing marginal utility.
81. Refer to Figure 8.8 above for a perfectly competitive firm. If this firm produces the level of output corresponding to point C in the short run, it will earn:
B). The maximum profit possible.
17. The total revenue effect of a movement along a demand curve can best be predicted using:
B). The price elasticity of demand.
13. The market value of all resources used in producing a good or service is expressed by:
B). Total costs.
32. If marginal utility is negative:
B). Total utility decreases with additional consumption of a good.
14. The change in total cost that results from a 1-unit increase in production is:
C). Marginal cost.
10. A perfectly competitive firm should expand output when:
C). P<MC or D). P > MC.
27. Economists assume the principal motivation of producers is:
C). Profit.
55. If the equilibrium price in a perfectly competitive market for strawberries is $1.50 per pound, then an individual firm in this market could:
C). Sell an additional pound at $1.50.
52. Other things being equal, as more firms enter a market, the market supply curve:
C). Shifts to the right.
4. Suppose a hurricane hits Florida, causing widespread damage to houses and businesses. The governor of Florida places price ceilings on all building materials to keep the prices reasonable. Which of the following is the most likely result?
C). Shortages of building materials and a slower recovery from the storm.
84. Vanessa has $100 to spend on jewelry. She can buy earrings for $16 a pair and bracelets for $20 each. The combination of three pairs of earrings and three bracelets lies outside Vanessa's budget line.
true
89. To maximize profits, a firm should expand production as long as it is making profits.
true
90. When the price of a good is expected to fall next month, there should be a downward movement along the current demand curve.
true
91. Economic profit is the difference between a firm=s total revenue and its direct costs.
true
93. When a firm produced nothing, total fixed cost is equal to total cost.
true
95. Economic profit is zero when a firm's revenues just cover its economic cost.
false
33. The entry of firms into a market:
B) Reduces the profits of existing firms in the market. or D). All of the above.
59. Rising marginal costs result from:
C). Falling marginal physical product.
3. The marginal physical product of the third unit of labor in Figure 6.1 above is:
A). 40 units per day
29. If economic profits are earned in a competitive market, then in the long run:
A). Additional firms will enter the market. or D). All of the above.
39. (Figure in figure above: Determining Short-Run Supply Curves) Which segment represents the short-run supply curve?
A). DE
43. If a firm can change market prices by altering its output, then:
A). It has market power.
8. Monopolistic competition is a market structure in which:
A). Many interdependent firms sell a homogenous product or C). Many firms produce a particular type of product, but each maintains some independent control over its own price.
76. A firm should shut down production when:
A). P< minimum AVC.
25. Which market structure is characterized by many firms producing close substitutes which are differentiated in the eyes of the consumer?
A). Perfect Competition or B). Monopolistic competition.
65. Carla buys one soft drink a day regardless of the price. Which of the following is correct with respect of Carla?
A). Price elasticity of demand for soft drinks is 0.
6. Investment decisions are made on the basis of the relationship of price to:
A). Short-run average total cost. or D). Long-run average total cost.
20. The best measure of the economic cost of doing your homework is:
A). The best opportunity you give up when you do your homework.
23. Perfect competition and monopolistic competition are best distinguished by:
A). The degree of product differentiation.
67. When a purely competitive firm advertises, it is attempting to increase:
A). The demand and decrease the price elasticity of demand for its product.
72. A demand curve is described as perfectly inelastic if:
A). The same quantity is purchased regardless of price.
51. Economic costs and economic profits are:
A). Usually greater and smaller, respectively, than their accounting counterparts.
37. Which of the following is a characteristic of a perfectly competitive market?
A). Zero economic profit in the long run. or D). All of the above.
60. In the long run,
A). all of a firm's resources are variable.
2. Knowing a product's price elasticity allows economists to:
A). predict the amount by which quantity demanded will drop in response to a price increase
77. Labor, land, and capital used in production are
A). resources.
47. In a perfectly competitive market economy, business failures can benefit society by causing:
A.) A reallocation of resources to better uses.
61. The slope of the production function with respect to an input is:
A.) The marginal physical product of the input.
44. The law of demand implies that, ceteris paribus:
A.) The quantity demanded increases at lower prices.
73. Which of the following is equivalent to ATC?
AFC+AVC.
9. Explicit costs:
B) Are the sum of actual monetary payments made for resources used to produce a good.
34. The exit of firms from a market, ceteris paribus:
B) Reduces the economic losses of remaining firms in the market.
46. Marginal cost is equal to:
B.) Change in total cost x change in total output.
5. A movement along a given demand curve between two prices refers to:
C) A change in quantity demanded.
36. Total utility will be maximized:
C) When marginal utility is zero.
48. Profit is:
C). (P x Q) - TC
18. Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is two, then the discount would increase sales by:
C). 50%.
53. If marginal cost (MC) is less than average total cost (ATC), then:
C). ATC is decreasing.
66. Which of the following is least likely to occur during the long run in a perfectly competitive market experiencing economic profits?
C). An increase in the marginal revenue.
57. The price elasticity of demand is calculated using percentage changes in order to:
C). Avoid problems associated with units of measurement.
40. The market demand curve in a perfectly competitive market is downward sloping:
C). Because of the law of demand.
69. When total utility is at a maximum, marginal utility is
C). Equals to zero.
12. Refer to Figure 5.3 above. With no budget constraint, a rational consumer will consume _________ apples.
C). Six.
62. Which of the following elasticities can be computed using the data in Table 5.4 above?
C). The cross-price elasticity of demand.
54. If more firms enter a perfectly competitive market, we would expect:
C). The demand curves facing existing firms to shift to the left and become more price elastic.
41. The law of diminishing returns states that beyond some point, ceteris paribus:
C). The marginal physical product of a factor of production diminishes as more of that factor is used.
38. The change in total output associated with one additional unit of input is:
C). The marginal physical product.
80. If a perfectly competitive firm can sell 400 computers at $800 each, in order to sell one more computer, the firm:
C).Can sell the 41st computer at $800.
62. Perfectly competitive industries are characterized by:
C.) Independent production decisions.
45. Firms in a perfectly competitive market will:
C.) Use the profit-maximizing rule MC=MR.
1. Larry owns his own auto repair shop, and employs three mechanics. His total parts and sales volume this year was $322,400. Because he is well known for his repair expertise, he is also paid $5,200 per year by a local radio station to answer auto repair questions on "Ask the Mechanic." His explicit costs for payroll, parts and taxes, mortgage and utilities are $290,160. Larry left a job as an accountant making $40,000 a year to own his own business. Larry's economic profit is:
D). Larry is actually experiencing an economic loss of $2,560.
74. The change in total revenue that results from a 1-unit increase in the quantity sold is:
D). Marginal revenue.
26. The amount of satisfaction obtained from consumption of an additional unit of a good or service is:
D). Marginal utility.
68. A consumer maximized his or her satisfaction from a given amount of income when
D). Mua/Pa=MUb/Pb=...MUn/Pn.
64. President Bush once claimed, "I wouldn't eat broccoli if you paid me". We can assume that for him the marginal utility of broccoli is
D). Negative.
15. In which of the following cases would a firm exit from a market?
D). P < long-run ATC.
78. The marginal utility of additional units consumed of any good
D). decreases.
79. Assume MUx=30 utils,MUy15, Px=$2, and Py=$0.50. This consumer
D). should buy less of X and more of Y.
50. The production function:
D.) All of the above.
99. Since a perfectly competitive firm has no market power, its marginal cost curve is flat (i.e. horizontal).
false
104. Minimizing average total cost always leads to the maximization of total profit.
false
106. Total output may continue to rise even though marginal physical product is negative.
false
107. Perfectly competitive firms are very sensitive to any increase in marginal costs.
false
111. Normal profit is zero when a firm's revenues just cover its economic cost.
false
112. The production function shows the minimum output that would equal the opportunity cost of the resources used to produce the output.
false
114. Diseconomies of scale imply that the average total cost curve is downward-sloping in the long run.
false
115. A negative cross-price elasticity indicates goods are substitutes because a positive percentage increase in one good results in a negative percentage increase in the other.
false
116. When resources are earning zero economic profits for a firm the resources could earn more in their next best alternative use.
false
117. When firms enter a purely competitive industry, the market supply curve shifts to the left.
false
85. Brand loyalty makes the demand curve facing the perfectly competitive firm less priceinelastic.
false
86. An increase in consumer income increases the quantity demanded of an inferior good.
false
87. When businesses earn zero economic profit, they have no incentive to stay in business.
false
88. In a perfectly competitive market, firms will earn economic profits in the long run.
false
92. A sunk cost is a cost that has occurred but can be recovered.
false
94. Marginal utility is always positive.
false
100. A demand curve is perfectly inelastic if consumers reduce their quantity demanded to zero when price rises by even the slightest amount.
true
101. A perfectly competitive firm has no market power.
true
102. The law of diminishing marginal utility helps explain the law of demand.
true
103. Economic losses would lead to firms exiting a market in the short run.
true
105. The law of diminishing returns indicates that the marginal physical product of a variable input declines as more of it is employed, ceteris paribus.
true
108. Short-run choices imply that at least one factor of production is fixed.
true
109. When entrepreneurs decide to build a plant, they are making an investment decision.
true
110. If there is no budget constraint, utility maximization is achieved when marginal utility is zero.
true
113. A distinguishing characteristic of perfect competition is that there are many firms in an industry.
true
82. If MPP declines with greater output, then MC must increase.
true
83. Constant returns to scale occur when an increase in all resources results in an exactly proportionate increase in output.
true