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# econ test 2 study guide

question
if price elasticity equals 4.6 demand is,
answer
relatively elastic
question
if the price elasticity of demand for sneakers is 1.6, then 2% increase in price will cause quantity demanded to
answer
decrease by 3.2 units
question
price elasticity of demand for a horizontal demand curve is equal to
answer
infinity
question
the price elasticity of demand for fresh fish is 2.20. an increase in the price of fresh fish would cause:
answer
quantity demanded to fall and total revenue to fall
question
a decrease in the price of widgets from \$10 to \$8 caused the quantity demanded for widgets to increase from 100 to 140 widgets per week. the price elasticity of demand is closest to
answer
1.50
question
in general demand is more elastic:
answer
when good substitutes are available
question
for a linear demand curve
answer
demand become less elastic as price falls
question
if a 2% increase in the price of potatoes causes a 4.6% decrease in the demand for sour cream, cross elasticity is
answer
-2.3
question
for an inferior good
answer
income elasticity is negative
question
suppose that the demand for rice was 600 pounds per year when consumer income was \$20,000 per year. when consumer income rose to \$22,000 per year, the demand for rice fell to 400 pounds per year. income elasticity of demand is closest to:
answer
-4.20
question
L Q
1 10
2 22
3 36
4 47
5 57
6 64
7 69
8 72
9 70

marginal physical product for the third worker is:
answer
12
question
the law of diminishing returns sets in with the ________ worker
answer
fourth
question
for a typical short-run production process, marginal physical product initially increases due to:
answer
input specialization
question
FC: stays the same
VC: TC-FC
MC: VC-VC (change)
ATC: TC/Q
AFC: FC/Q
answer
...
question
Q TC FC VC ATC AFC AVC MC
4 85 60 10
5 40
answer
...
question
FC at 5 units of output equals ________ dollars
answer
60
question
MC for the fifth unit of output equals __________ dollars
answer
15
question
VC at 4 units of output equals ____________ dollars
answer
25
question
A typical MC curve is
answer
U shaped
question
Which of the following costs always declines as output increases?
answer
AFC
question
In the long run
answer
all inputs are variable
question
In the short run, if a firm produces no output:
answer
TC=FC
question
IF marginal cost is above average total cost, then:
answer
ATC is increasing
question
Economies of scale are present if an increase in the firm's output causes:
answer
long run average cost to decrease
question
a perfectly competitive market is characterized by:
answer
a homogeneous product
question
to say that a firm is a price taker means that
answer
the firm can alter its output without influencing price
question
for a perfectly competitive firm, market price is equal to
answer
average revenue, marginal revenue, the demand curve facing the firm (all of the above)
question
at the break-even output
answer
ATC=AR
question
The total revenue for a perfectly competitive firm is
answer
an upward sloping straight ling from the origin
question
ass that firm z currently produces 100 units of output. at this output, MC equals \$16 and MR equals \$20. If firm z produces another unit of output:
answer
its profit will increase by \$4
question
under perfect competition, if price is below the equilibrium market price:
answer
there is a shortage
question
a competitive firm will shut down in the short run if it is unable to:
answer
cover its fixed costs
question
a competitive firms short run supply curve is
answer
its mc curve above the AVC curve
question
for a perfectly competitive market in long run equilibrium:
answer
a. MR=MC for the typical firm
b. quantity demanded equals quantity supplied in the market
c. economic profit equals zero for the typical firm
d. the typical firm produces at minimum LRAC
(all of the above)
question
for an increasing cost industry, the long run market supply curve is
answer
upward sloping
question
if the price elasticity of demand for fresh fish equals 2.20 then demand is:
answer
relatively elastic
question
if the price elasticity of demand for air travel is 2.4 then a two percent decrease in the price of air travel would:
answer
increase quantity demanded by 4.8%
question
price elasticity of demand for a horizontal demand curve is equal to:
answer
infinity
question
a decrease in the price of widgets from \$10 to \$9 caused the quantity demanded of widgets to increase from 100 to 160 widgets per week. the price elasticity of demand rounds to:
answer
4.38
question
if demand is relatively inelastic then:
answer
a price increase will decrease quantity demanded but increase total revenue
question
suppose that the demand for rice was 600 pounds per year when consumer income was \$20,000 per year. When consumer income rose to \$22,000 per year, the demand for rice fell to 400 pounds per year. income elasticity of demand is closest to:
answer
-4.20
question
if 1 3% increase in the price of peanut butter causes a 4.8% decrease in the demand for jelly, cross elasticity is equal to:
answer
-1.6
question
when income elasticity of demand is negative, one can correctly conclude that
answer
the good is a compliment
question
in general , demand is more elastic
answer
when good substitutes are available
question
for a linear demand curve:
answer
as price falls, demand becomes less elastic
question
in the short run
answer
at least one of the firms inputs is fixed
question
L Q
1 10
2 22
3 35
4 47
5 57
6 64
7 69
8 72
9 70
answer
...
question
marginal physical product for the second worker is
answer
12 units of output per day
question
the law of diminishing returns sets in with the addition of the ____________ worker.
answer
fourth
question
marginal physical product initially increase due to:
answer
input specialization
question
in the short run, if the firm produces no output then:
answer
TC=FC
question
the addition to total cost when one more unit of output is produced is
answer
marginal cost
question
Q TC FC VC ATC AFC AVC MC
4 70 60 15
5 40
answer
...
question
VC at 4 units of output equals:
answer
\$10
question
MC for the fifth unit of output equals:
answer
\$30
question
AFC for 4 units of output equals:
answer
\$15
question
which of the short run cost curves is horizontal?
answer
FC
question
which of the following costs always decreases as output increases?
answer
AFC
question
a typical MC curve is:
answer
U shaped
question
if marginal cost is above average cost, then
answer
ATC is increasing
question
Economies of scale are present if an increase in the firms output causes
answer
long run average cost to decrease
question
which of the following is characteristics of a perfectly competitive market?
answer
a. good info
b. a homogeneous product
c. many sellers
d. no barriers
(all of the above)
question
to say that a firm is a price taker means that
answer
the firm cannot influence market price by adjusting its output
question
for a perfectly competitive firm, market price is equal to:
answer
a. average revenue
b. marginal revenue
c. the firms demand
(all of the above)
question
at a break-even output
answer
a. TR=TC
b. AR=ATC
c. profit=zero
d. AR=AFC+AVC
(all of the above)
question
if at its current output, price is less than MC, a competitive firm can improve by:
answer
decreasing output
question
Assume that marginal revenue equals a rising marginal cost at 50 units of output. At this output, average total costs is \$10 and average variable cost is \$7. The product in a perfectly competitive market at a price of \$8.
answer
...
question
this firm will maximize profit by producing
answer
exactly 50 units of output
question
the firms profit or loss would be
answer
loss of \$100
question
if the firm shut down, its loss would be
answer
\$150
1 of 70
question
if price elasticity equals 4.6 demand is,
answer
relatively elastic
question
if the price elasticity of demand for sneakers is 1.6, then 2% increase in price will cause quantity demanded to
answer
decrease by 3.2 units
question
price elasticity of demand for a horizontal demand curve is equal to
answer
infinity
question
the price elasticity of demand for fresh fish is 2.20. an increase in the price of fresh fish would cause:
answer
quantity demanded to fall and total revenue to fall
question
a decrease in the price of widgets from \$10 to \$8 caused the quantity demanded for widgets to increase from 100 to 140 widgets per week. the price elasticity of demand is closest to
answer
1.50
question
in general demand is more elastic:
answer
when good substitutes are available
question
for a linear demand curve
answer
demand become less elastic as price falls
question
if a 2% increase in the price of potatoes causes a 4.6% decrease in the demand for sour cream, cross elasticity is
answer
-2.3
question
for an inferior good
answer
income elasticity is negative
question
suppose that the demand for rice was 600 pounds per year when consumer income was \$20,000 per year. when consumer income rose to \$22,000 per year, the demand for rice fell to 400 pounds per year. income elasticity of demand is closest to:
answer
-4.20
question
L Q
1 10
2 22
3 36
4 47
5 57
6 64
7 69
8 72
9 70

marginal physical product for the third worker is:
answer
12
question
the law of diminishing returns sets in with the ________ worker
answer
fourth
question
for a typical short-run production process, marginal physical product initially increases due to:
answer
input specialization
question
FC: stays the same
VC: TC-FC
MC: VC-VC (change)
ATC: TC/Q
AFC: FC/Q
answer
...
question
Q TC FC VC ATC AFC AVC MC
4 85 60 10
5 40
answer
...
question
FC at 5 units of output equals ________ dollars
answer
60
question
MC for the fifth unit of output equals __________ dollars
answer
15
question
VC at 4 units of output equals ____________ dollars
answer
25
question
A typical MC curve is
answer
U shaped
question
Which of the following costs always declines as output increases?
answer
AFC
question
In the long run
answer
all inputs are variable
question
In the short run, if a firm produces no output:
answer
TC=FC
question
IF marginal cost is above average total cost, then:
answer
ATC is increasing
question
Economies of scale are present if an increase in the firm's output causes:
answer
long run average cost to decrease
question
a perfectly competitive market is characterized by:
answer
a homogeneous product
question
to say that a firm is a price taker means that
answer
the firm can alter its output without influencing price
question
for a perfectly competitive firm, market price is equal to
answer
average revenue, marginal revenue, the demand curve facing the firm (all of the above)
question
at the break-even output
answer
ATC=AR
question
The total revenue for a perfectly competitive firm is
answer
an upward sloping straight ling from the origin
question
ass that firm z currently produces 100 units of output. at this output, MC equals \$16 and MR equals \$20. If firm z produces another unit of output:
answer
its profit will increase by \$4
question
under perfect competition, if price is below the equilibrium market price:
answer
there is a shortage
question
a competitive firm will shut down in the short run if it is unable to:
answer
cover its fixed costs
question
a competitive firms short run supply curve is
answer
its mc curve above the AVC curve
question
for a perfectly competitive market in long run equilibrium:
answer
a. MR=MC for the typical firm
b. quantity demanded equals quantity supplied in the market
c. economic profit equals zero for the typical firm
d. the typical firm produces at minimum LRAC
(all of the above)
question
for an increasing cost industry, the long run market supply curve is
answer
upward sloping
question
if the price elasticity of demand for fresh fish equals 2.20 then demand is:
answer
relatively elastic
question
if the price elasticity of demand for air travel is 2.4 then a two percent decrease in the price of air travel would:
answer
increase quantity demanded by 4.8%
question
price elasticity of demand for a horizontal demand curve is equal to:
answer
infinity
question
a decrease in the price of widgets from \$10 to \$9 caused the quantity demanded of widgets to increase from 100 to 160 widgets per week. the price elasticity of demand rounds to:
answer
4.38
question
if demand is relatively inelastic then:
answer
a price increase will decrease quantity demanded but increase total revenue
question
suppose that the demand for rice was 600 pounds per year when consumer income was \$20,000 per year. When consumer income rose to \$22,000 per year, the demand for rice fell to 400 pounds per year. income elasticity of demand is closest to:
answer
-4.20
question
if 1 3% increase in the price of peanut butter causes a 4.8% decrease in the demand for jelly, cross elasticity is equal to:
answer
-1.6
question
when income elasticity of demand is negative, one can correctly conclude that
answer
the good is a compliment
question
in general , demand is more elastic
answer
when good substitutes are available
question
for a linear demand curve:
answer
as price falls, demand becomes less elastic
question
in the short run
answer
at least one of the firms inputs is fixed
question
L Q
1 10
2 22
3 35
4 47
5 57
6 64
7 69
8 72
9 70
answer
...
question
marginal physical product for the second worker is
answer
12 units of output per day
question
the law of diminishing returns sets in with the addition of the ____________ worker.
answer
fourth
question
marginal physical product initially increase due to:
answer
input specialization
question
in the short run, if the firm produces no output then:
answer
TC=FC
question
the addition to total cost when one more unit of output is produced is
answer
marginal cost
question
Q TC FC VC ATC AFC AVC MC
4 70 60 15
5 40
answer
...
question
VC at 4 units of output equals:
answer
\$10
question
MC for the fifth unit of output equals:
answer
\$30
question
AFC for 4 units of output equals:
answer
\$15
question
which of the short run cost curves is horizontal?
answer
FC
question
which of the following costs always decreases as output increases?
answer
AFC
question
a typical MC curve is:
answer
U shaped
question
if marginal cost is above average cost, then
answer
ATC is increasing
question
Economies of scale are present if an increase in the firms output causes
answer
long run average cost to decrease
question
which of the following is characteristics of a perfectly competitive market?
answer
a. good info
b. a homogeneous product
c. many sellers
d. no barriers
(all of the above)
question
to say that a firm is a price taker means that
answer
the firm cannot influence market price by adjusting its output
question
for a perfectly competitive firm, market price is equal to:
answer
a. average revenue
b. marginal revenue
c. the firms demand
(all of the above)
question
at a break-even output
answer
a. TR=TC
b. AR=ATC
c. profit=zero
d. AR=AFC+AVC
(all of the above)
question
if at its current output, price is less than MC, a competitive firm can improve by:
answer
decreasing output
question
Assume that marginal revenue equals a rising marginal cost at 50 units of output. At this output, average total costs is \$10 and average variable cost is \$7. The product in a perfectly competitive market at a price of \$8.
answer
...
question
this firm will maximize profit by producing
answer
exactly 50 units of output
question
the firms profit or loss would be
answer
loss of \$100
question
if the firm shut down, its loss would be
answer
\$150

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