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ECON300 Final Exam

question
Which of the following is true?
A. Marginal revenue increases for all market structures.
B. Marginal revenue is constant for all market structures.
C. Marginal revenue is constant in perfect competition and decreases for firms with market power.
D. Marginal revenue is constant in perfect competition and increases for firms with market power.
answer
C. Marginal revenue is constant in perfect competition and decreases for firms with market power.
question
A firm is operating at a level of production such that marginal revenue is $40 and marginal cost is $35. What do you suggest?
A. increase production until MR = MC.
B. decrease production until MR = MC.
C. Do not change production
answer
A. increase production until MR = MC.
question
Firms will only sell output if they are making positive short run profits.
A. true
B. false
answer
B. false
question
A firm will shut down in the short run if
A. they cannot cover their total costs.
B. they cannot cover their fixed costs.
C. they cannot cover their variable costs.
answer
C. they cannot cover their variable costs.
question
If there are 100 identical competitive firms, and each is producing 200 units at a price =$50. What is the market supply at price = $50?
A. 200
B. 2000
C. 20000
D. 200000
answer
C. 20000
question
Profits...
A. =TR-TC
B. q(P-AC)
C. can be positive, zero, or negative in the short run
D. all of the above
answer
D. all of the above
question
In the short run, the number of firms is fixed (no entry or exit), and in the long run, firms may enter or exit the market.
A. true
B. false
answer
A. true
question
In the long run, firms in a perfectly competitive market will
A. earn positive economic profits: P > AC at q
B. earn negative economic profits: P < AC at q
C. earn zero economic profits: P = min AC at q
D. earn positive or zero economic profits: P > or = min AC at q
answer
C. earn zero economic profits: P = min AC at q
question
A competitive market in which input prices do not change as the market expands is called
A. increasing cost
B. constant cost
C. decreasing cost
answer
B. constant cost
question
A competitive market in which input prices increase as the market expands is called
A. increasing cost
B. constant cost
C. decreasing cost
answer
A. increasing cost
question
The price elasticity of supply is estimated to be 0.2 for medical care and 15 for coal.Which of the following is true?
A. The supply curve for medical care will be relatively steeper than the supply curve for coal.
B. The supply of medical care is more inelastic than the supply for coal.
C. If prices go up 10%, the quantity supplied in medical care will increase by 2%, and the quantity supplied in coal will increase by 15%.
D. All of the above.
answer
D. All of the above.
question
Producer surplus...
A. measures the net benefit of consumers participating in the market
B. is the area below the demand curve and above the price line
C. is the area below the supply curve
D. measures the net benefit of producers participating in the market
answer
D. measures the net benefit of producers participating in the market
question
A market allocation is efficient if
A. total surplus is maximized
B. buyers in the market are those with WTP > = Price
C. sellers in the market are those with WTS < = Price
D. all of the above
answer
D. all of the above
question
If price is equal to short-run average variable cost, this price is known as
A. the break-even price
B. the profit-maximizing price
C. the revenue-maximizing price
D. the shutdown price
answer
D. the shutdown price
question
Suppose a farmer is a price taker for soybean sales with cost functions given by
TC= .1q^2+2q+30
MC= .2q+2
If P=6, the profit maximizing level of output is...
A. 20
B. 10
C. 40
D. 80
answer
A. 20
(6=-.2q+2)
question
In order to maximize profits, a firm should produce at the output level for which
A. average cost is minimized
B. marginal cost is minimized
C. marginal revenue equals marginal cost
D. price minus average cost is as large possible
answer
C. marginal revenue equals marginal cost
question
If a firm is a price taker, its marginal revenue is..
A. greater than market price
B. equal to market price
C. a multiple of market price that may be either greater than or less than one
D. less than market price
answer
B. equal to market price
question
A firm's marginal revenue is defined as..
A. the additional revenue received when selling one more unit of output
B. the additional revenue received due to technical innovation
C. the additional output produced by lowering price
D. the ratio of total revenue to total quantity produced
answer
A. the additional revenue received when selling one more unit of output
question
If a firm's marginal revenue is below its marginal cost, an increase in production will usually
A. decrease profits
B. leave profits unchanged
C. increase profits
D. increase marginal revenue
answer
A. decrease profits
question
It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve. In order for this to be true, which of the following additional assumptions are necessary?
I. that the firm seek to maximize profits
II. that the marginal cost curve be positively sloped
III. that price exceeds average variable cost
IV. that price exceeds average total cost
A. all of the above
B. I and II only
C. I and II but not III and IV
D. I, II, and III, but not IV
E. I and III but not II and IV
answer
D. I, II, and III, but not IV
question
Positive economic profits exist for a firm in the long run if price is above
A. long-run marginal cost
B. long-run average cost
C. long-run total cost
D. long-run variable cost
answer
B. long-run average cost
question
Under perfect competition, if an industry is characterized by positive economic profits in the short run
A. firms will enter the market in the long run and the short-run supply curve will shift outward
B. firms will leave the market in the long run and the short-run supply curve will shift outward
C. firms will leave the market in the long run and the short-run supply curve will shift inward
D. firms will enter the market in the long run and the short-run supply curve will shift inward
answer
A. firms will enter the market in the long run and the short-run supply curve will shift outward
question
In the short run, an increase in market demand will usually lead ti
A. a decrease in price and an increase in quantity
B. an increase in price and a decrease in quantity
C. a decrease in price and a decrease in quantity
D. an increase in price and an increase in quantity
answer
D. an increase in price and an increase in quantity
question
The short-run market supply curve is
A. the vertical summation of each firm's short-run supply curve
B. the horizontal summation of each firm's short-run average cost curve
C. the vertical summation of each firm's short-run average cost curve
D. the horizontal summation of each firm's short-run supply curve
answer
D. the horizontal summation of each firm's short-run supply curve
question
In the short run
A. new firms may enter an industry
B. quantity supplied is absolutely fixed
C. price and quantity supplied are absolutely fixed
D. existing firms may change the quantity they are supplying
answer
D. existing firms may change the quantity they are supplying
question
Firms in a long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because
A. firms in the industry desire to operate efficiently
B. firms maximize profits and free entry implies that maximum profits will be zero
C. free entry implies that long-run profits will be zero no matter how much each firm produces
D. firms seek maximum profits and to do so they must choose to produce where average costs are minimized
answer
B. firms maximize profits and free entry implies that maximum profits will be zero
question
If the market for hula-hoops is characterized by a very inelastic supply curve and a very elastic demand curve, an inward shift in the supply curve would be reflected primarily in the form of
a. higher prices.
b. higher output.
c. lower prices.
d. lower output.
answer
d. lower output.
question
If a 1 percent increase in price leads to a .7 percent increase in quantity supplied in the short run, the short-run supply curve is
A. perfectly inelastic
B. elastic
C. inelastic
D. unit elastic
answer
C. inelastic
question
In a competitive market, an efficient allocation of resources is characterized by
A. the possibility of further mutually beneficial transactions
B. a value of consumer surplus equal to that of producer surplus
C. the largest possible sum of consumer and producer surplus
D. a price greater than the marginal cost of production
answer
C. the largest possible sum of consumer and producer surplus
question
For an increasing cost industry, the long-run supply curve has ________ elasticity of supply
A. an infinite
B. a positive
C. a negative
D. a zero
answer
B. a positive
question
Suppose demand for a good is Qd= 100-P and supply is Qs=-20+P. Supposed that a nationwide quota of 20 is enforced so that more can be used in a war effort. What is the price?
A. $80
B. $40
C. $60
D. $20
answer
A. $80
-20+P=100-P
P= 60+20
question
Suppose a chemical company is in a perfectly competitive industry and has a short run total cost curve of TC=1/3q^3+5q^2+10q+10 and a short run marginal cost of SMC= q^2+10q+10. At the price of 49, how much will be produced?
A. 5
B. 15
C. 3
D. 0
answer
C. 3
q^2+10q+10=49
question
A demand curve will shift out for any of the following reasons except:
A. price of a substitute falls
B. price of a complement falls
C. income rises
D. preference for a good increases
answer
A. price of a substitute falls
question
Long-run elasticity of supply is defined as
A. percentage change in quantity demanded in the long run divided by percentage change in price
B. percentage change in quantity supplied in the long run divided by percentage change in price
C. percentage change in price divided by percentage change in quantity demanded in the long run
D. percentage change in price divided by percentage change in quantity demanded in the long run
answer
B. percentage change in quantity supplied in the long run divided by percentage change in price
question
A deadweight loss of consumer and/or producer surplus occurs when
A. consumers do not maximize their utility
B. the price of inputs increases
C. mutually beneficial transactions cannot be completed
D. producers fail to maximize profits
answer
C. mutually beneficial transactions cannot be completed
question
Suppose demand for a good is Qd= 100-P and supply is Qs= -20+P. What is the consumer surplus?
A. 400
B. 800
C. 200
D. 600
answer
B. 800
1/240(100-60)
P=60
Q=40
question
In the long run, in the model of monopolistic competition, for a typical firm, price is
A. above marginal cost
B. above marginal cost but equal to average cost
C. equal to marginal cost and equal to or greater than average cost
D. above average cost but equal to marginal cost
answer
B. above marginal cost but equal to average cost
question
Which of the following statements about the supply curve for a monopoly is true?
A. the supply curve for a monopoly is given by the firm's marginal cost curve about the average variable cost curve
B. the supply curve for a monopoly is given by the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost
C. the monopolist does not have a well-defined supply curve
D. the supply curve for a monopoly is given by the entire demand curve above the point where price is equal to average cost
answer
C. the monopolist does not have a well-defined supply curve
question
If the government requires a natural monopoly to price at marginal cost,
A. monopoly firms will operate at a loss because P<AC
B. more firms will be able to enter the market
C. monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good
D. producer surplus will increase because quantity supplied is greater
answer
A. monopoly firms will operate at a loss because P<AC
question
If a monopoly is maximizing profits,
A. price will always equal marginal cost
B. price will always be greater than marginal cost
C. price will always be greater than the elasticity of demand
D. price will always equal marginal revenue
answer
B. price will always be greater than marginal cost
question
In the monopolistic competition model,
A. barriers to entry maintain some monopoly "rents" in the long run
B. one dominant firm acts as the monopolist that is followed by the fringe of competitors
C. firms behave as monopolists over their local or niche markets
D. firms are price takers
answer
C. firms behave as monopolists over their local or niche markets
question
The principal difference between economic profits for a monopolist an d for a competitive firm is that
A. monopoly profits are considered a deadweight loss but competitive profits are not
B. monopoly profits create major problems of equity whereas competitive profits do not
C. monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not. monopoly profits are considered a deadweight loss but competitive profits are not
D. competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well
answer
D. competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well
question
Which of the following statements about the supply curve for a monopoly is true?
A. the supply curve for a monopoly is given by the firm's marginal cost curve about the average variable cost curve
B. the supply curve for a monopoly is given by the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost
C. the supply curve for a monopoly is given by the entire demand curve above the point where price is equal to average cost
D. the monopolist does not have a well-defined supply curve
answer
D. the monopolist does not have a well-defined supply curve
question
A profit-maximizing monopoly will produce that output for which
A. marginal cost is minimized
B. average cost is minimized
C. marginal revenue equals price
D. marginal cost equals marginal revenue
answer
D. marginal cost equals marginal revenue
question
A natural monopoly
A. occurs when one firm can supply the entire market more cheaply than can a number of firms
B. is a monopoly in the production of raw materials
C. results from decreasing returns to scale
D. is one result of a patent
answer
A. occurs when one firm can supply the entire market more cheaply than can a number of firms
question
All monopolies exist because of
A. firms' desire to maximize profit
B. barriers to entry
C. natural selection
D. failure of antitrust laws
answer
B. barriers to entry
question
If the government requires a natural monopoly to price at marginal cost,
A. monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good
B. more firms will be able to enter the market
C. producer surplus will increase because quantity supplied is greater
D. monopoly firms will operate at a loss because P<AC
answer
D. monopoly firms will operate at a loss because P<AC
question
If a monopoly is maximizing profits,
A. price will always equal marginal cost
B. price always be greater than marginal cost
C. price will always equal marginal revenue
D. price will always be greater than the elasticity of demand
answer
B. price always be greater than marginal cost
question
Which of the following is not a technical barrier to entry in a monopolized market?
A. a patent
B. a low cost method of production known only by monopolst
C. decreasing average cost
D. increasing returns to scale
answer
A. a patent
question
A monopolist with constant average and marginal cost equal to 8 (AC=MC=8) faces demand Q= 100-P, implying that its marginal revenue is MR=100-2Q
A. 92
B. 50
C. 46
D. 5
answer
C. 46
question
A monopoly's economic profits are represented by
A. price minus marginal cost times number of units sold
B. marginal revenue minus price times number of units sold
C. marginal cost minus price times number of units sold
D. price minus average cost times number of units sold
answer
D. price minus average cost times number of units sold
question
A monopolist has total cost TC= .1q^2-2q+100 and marginal cost MC=.2q-2. market demand is q=86-P, implying that the firm's marginal revenue is MR=86-2q. the deadweight loss (compared to a single firm behaving as if it were perfectly competitive) is about
A. 1333
B. 333
C. 667
D. 1000
answer
C. 667
1/2(46-6)(73-40)
question
A monopolist has total cost TC= q^2+10q+100 and marginal cost MC=2q+10. it faces demand q=130-P (so its marginal revenue is MR=130-2q). its profit-maximizing output
A. 10
B. 20
C. 25
D. 30
answer
D. 30
question
A monopolist with constant average and marginal cost equal to 8 but (AC=MC=8) faces demand Q=100-P, implying that its marginal revenue is MR=100-2Q. the deadweight loss associated with this monopoly is
A. 2484
B. 1058
C. 3680
D. 996
answer
B. 1058
MC=P=8
Q=100-8=92
1/2(54-8)(92-46)
MR=MC
100-2Q=8
Q=46
P=100-46=54
question
If goods X and Y are complements, then the cross price elasticity of demand will be
A. infinity
B. zero
C. negative
D. positive
answer
C. negative
question
The lump sum principle suggests that the tax that reduces utility the least is
A. a tax on a good with only a few substitutes
B. a tax on a good with many substitutes
C. a tax on income
D. an equal tax per-unit on all goods
answer
C. a tax on income
question
With only two goods, if the income effect is in the same direction as the substitution effect then the good is
A. there is not enough information
B. inferior but not Giffen
C. Giffen
D. normal
answer
D. normal
question
If the demand for a product is elastic, then a rise in price will
A. cause total spending on the good to increase
B. keep total spending the same, but reduce the quantity demanded
C. keep total spending the same, but increase the quantity demanded
D. cause total spending on the good to decrease
answer
D. cause total spending on the good to decrease
question
The demand for gasoline is more elastic in the long run than in the short run because
A. cars have become more expensive over time
B. incomes tend to rise over time
C. other prices are more likely to change in the long run
D. people can buy new cars in the long run
answer
D. people can buy new cars in the long run
question
Suppose a person's utility is only a function of their consumption of diet soda and they do not care which brand, diet coke (DC) or diet pepsi (dp) they consume. suppose further than Pdc<Pdp. if Pdc rises but it remains less than Pdp than the consumption of DC
A. stays at zero
B. rises
C. falls from a positive amount to zero
D. falls from a positive amount to another positive amount
answer
D. falls from a positive amount to another positive amount
question
If the income elasticity of demand is 0.5, the good is
A. an inferior good
B. a luxury
C. a Giffen good
D. a normal good (but not a luxury)
answer
D. a normal good (but not a luxury)
question
With only two goods, if the income effect is in the opposite direction as the substitution effect but the substitution effect dominates then the good is
A. normal
B. not enough information
C. Giffen
D. inferior but not Giffen
answer
D. inferior but not Giffen
question
Which of the following will not cause a demand curve to shift position
A. a doubling of the price of a closely substitute good
B. a doubling of both the price of X and the price of Y
C. a doubling of the good's price
D. a shift in preferences
E. a doubling of income
answer
C. a doubling of the good's price
question
Suppose there are two goods (X and Y). on a traditional graph of a budget line a tripling of all prices and incomes will
A. leave the budget line unaltered
B. alter the slope of the budget line only
C. alter the slope of the budget line as well as the Y intercept
D. alter the slope of the budget line as well as the x intercept
answer
A. leave the budget line unaltered
question
If a good is normal and its price increases,
A. the income effect will be positive and the substitution effect will be positive
B. the income effect will be positive and the substitution effect will be negative
C. the income effect will be negative and the substitution effect will be negative
D. the income effect will be positive and the substitution effect will be positive
answer
C. the income effect will be negative and the substitution effect will be negative
question
Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions. An increase in the price of coffee will yield
A. a substitution effect but no income effect
B. an income effect but no substitution effect
C. a substitution effect and an income effect in the same direction
D. a substitution effect and an income effect in opposite directions
answer
B. an income effect but no substitution effect
question
The marginal physical product of labor is
A. the negative of the slope of the total output curve at the relevant point
B. the slope of the total output curve at the relevant point
C. the negative of the slope of the line connecting the origin with the relevant point on the total output curve
D. the slope of the line connecting the origin with the relevant point on the total output curve
answer
B. the slope of the total output curve at the relevant point
question
A production function measures how
A. a firm minimizes cost
B. an individual maximizes utility
C. a firm transforms output into input
D. a firm transforms inputs into output
answer
D. a firm transforms inputs into output
question
If production is given by Q=K^sL^b, (a+b<1) doubling both inputs
A. increases output but does not double it
B. leaves output unchanged
C. more than doubles output
D. exactly doubles output
answer
A. increases output but does not double it
question
A technical innovation in the production of automobiles by Ford Motor Company's for 1 million cars per year would necessarily
A. shift the "1 million car" isoquant aways from the origin
B. cause 1 million cars to be produced with more capital and less labor
C. shift the "1 million car" isoquant toward the origin
D. cause 1 million cars to be produced with more labor and less capital
answer
C. shift the "1 million car" isoquant toward the origin
question
The marginal rate of technical substitution of labor for capital measures
A. the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used
B. the ratio of total labor to capital
C. the amount by which labor input can be reduced while holding quantity produced constant when one more unit of capital is used
D. the ratio of capital to total labor
answer
A. the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used
question
The marginal physical product of labor is defined as
A. the extra output produced by employing one more unit of labor while allowing other inputs to vary
B. a firm's total output divided by total labor input
C. the extra output produced by employing one more unit of capital while holding labor input constant
D. the extra output produced by employing one more unit of labor while holding other inputs constant
answer
D. the extra output produced by employing one more unit of labor while holding other inputs constant
question
A firm's isoquant shows
A. the amount of capital needed to produce a given level of output with labor held constant
B. none of the above
C. the various combinations of capital and labor that will produce a given amount of output
D. the amount of labor needed to produce a given level of output with capital held constant
answer
C. the various combinations of capital and labor that will produce a given amount of output
question
Suppose Q=K^aL^b, if a+b<1 the isoquants will be
A. equally spaced
B. progressively further apart at higher quantities
C. upward sloping
D. progressively closer together at higher quantities
answer
B. progressively further apart at higher quantities
question
Suppose the production function for good q is given by q=3K+2L where K and L are capital and labor inputs. consider three statement about this function
I. the function exhibits constant returns to scale
II. the function exhibits diminishing marginal productivities to all inputs
III. the function has a constant rate of technical substitution
Which of these statements is true?
A. I and II but not III
B. I and III but not II
C. all of them
D. none of them
E. only I
answer
B. I and III but not II
question
A fixed-proportion production function has isoquants that are
A. L-shaped
B. none of the above
C. almost flat (i.e., the isoquants are almost straight lines)
D. normally shaped (rectangular hyperbolas)
answer
A. L-shaped
question
Suppose the production function for coffee (c) is c=min(B,W), where B=beans in pounds and W=water in gallons. suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. the expansion path
A. depends on the costs of both beans and water
B. depends on the price of water only
C. depends on the price of beans only
D. depends on the price of neither beans nor water
answer
D. depends on the price of neither beans nor water
question
Suppose a production function is q=K^1/2L^1/3 and in the short run capital (K) is fixed at 100. if the wage is $10 and the rental rate on capital is $20, the short run production function is
A. q=100
B. q=100L^1/3
C. q=10L1/3
D. q=1/10L^1/3
answer
C. q=10L1/3
question
Suppose a production function is q=K^1/2L^1/3 and in the short run capital (K) is fixed at 100. if the wage is $10 and the rental rate on capital is $20, the fixed cost is
A. $0
B. $2000
C. $20,000
D. $200
answer
vk=20*100=2000
question
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $4 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P=200?
A. S=40
B. C=100
C. C=50, S= 20
D. C=20, S= 50
answer
A. S=40
200=5S
question
As long as marginal cost is below average cost, average cost will be
A. falling
B. changing in a direction that cannot be determined without more information
C. rising
D. constant
answer
A. falling
question
Suppose the production function for coffee (c) is C=min(B,W) where B= beans in pounds and W=water in gallons. suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. the cost minimizing combination of beans and water for C=200 is
A. B=100, W=100
B. B=2000, W=200
C. B=200, W=2000
D. B=200, W=200
answer
D. B=200, W=200
question
Technical progress will
A. shift a firm's production function and alter its marginal revenue curve
B. shift a firm's production and its related cost curves
C. shift's a firm's production and its related cost curves
D. not affect the production function, but may shift cost curves
answer
B. shift a firm's production and its related cost curves
question
Suppose a cost function is TC= Aq^3+bq^2+cq+d. then the average variable cost is
A. Aq^2+bq+c
B. Aq^2+bq+cq+d/q
C. Aq^3+bq^2+cq
D. d
answer
A. Aq^2+bq+c
question
The shape of a firm's expansion path depends upon
A. all of these factors
B. the shape of the firm's production function
C. the price of the capital input
D. the price of the labor input
answer
A. all of these factors
question
In order to minimize the cost of a particular level of output, a firm should produce where
A. labor input equals capital input
B. the MRTS (of L for K)=w/v
C. the MRS=v/w
D. the MRTS (of L for K)=v/w
answer
B. the MRTS (of L for K)=w/v
question
Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production is currently efficient, the wage rate must be
A. $20
B. $10
C. $40
D. $5
answer
D. $5
question
Suppose a cost function is TC= Aq^3+bq^2+cq+d. then the total fixed cost is
A. Aq^2+bq+cq+d/q
B. Aq^3+bq^2+cq
C. d
D. Aq^2+bq+c
answer
C. d
question
Which of the following are true about consumer surplus?
A. Consumer surplus measures the net benefit of buyers participating in the market.
B. Consumer surplus is measured as the area below the demand curve and above the price line for all quantity traded.
C. Consumer surplus is the WTP - cost for all quantity traded.
D. All of the above
answer
D. All of the above
question
Assume the price increases 2% and quantity demanded falls 4%
A. The price elasticity of demand is -2, and total revenue will fall.
B. The price elasticity of demand is -2, and total revenue will increase. C. The price elasticity of demand is -1/2, and total revenue will fall.
D. The price elasticity of demand is -1/2, and total revenue will increase.
answer
A. The price elasticity of demand is -2, and total revenue will fall.
question
The price elasticity of demand for Mt. Dew is estimated to be -4. which of the following is true?
A. If the price increases 1%, then quantity demanded will fall 4%.
B. The demand curve for Mr. Dew is relatively flat and categorized as elastic.
C. The substitution effect is large given the number of close substitutes.
D. If the price decreases 1%, then quantity demanded will increase 4%.
E. All of the above.
answer
E. All of the above.
question
Your friend asks your opinion about whether they should increase or decrease the price of their product to increase total revenue. what do you respond?
A. increase the price
B. decrease the price
C. need more information
answer
C. need more information
question
The income elasticity of demand for cars is estimated to be 1.2. which of the following is true?
A. Cars are categorized as an inferior good.
B. If the price of a car goes up 1%, then the quantity demanded for cars goes up 1.2%.
C. If incomes go up 10%, the quantity demanded for cars will increase 12%. Cars are a normal good.
D. If incomes go up 10%, the quantity demanded for cars will increase 12%. Cars are an inferior good.
answer
C. If incomes go up 10%, the quantity demanded for cars will increase 12%. Cars are a normal good.
question
If the cross price elasticity of demand is estimated to 1.53 for butter and margarine, what is true?
A. Butter and margarine are considered to be complements. If the price of butter goes up by 1%, the quantity demanded of margarine goes up by 1.53%.
B. Butter and margarine are considered to be substitutes. If the price of butter goes up by 1%, the quantity demanded of margarine goes up by 1.53%.
C. Butter and margarine are considered to be complements. If the quantity demanded of butter goes up by 1%, the price of margarine goes up by 1.53%.
D. Butter and margarine are considered to be complements. If the quantity demanded of butter goes up by 1%, the price of margarine goes up by 1.53%.
answer
B. Butter and margarine are considered to be substitutes. If the price of butter goes up by 1%, the quantity demanded of margarine goes up by 1.53%.
question
In short run production,
A. at least one input, typically capital, is fixed.
B. all inputs are variable.
C. at least one input, typically labor or raw materials, is fixed.
answer
A. at least one input, typically capital, is fixed.
question
Which of the following is true for the marginal product of labor (MPL)?
A. MPL is labor divided by output.
B. MPL is the change of output divided by the change in labor and typically increases at an increasing rate.
C. MPL is the change of output divided by the change in labor and typically diminishes as more labor is utilized.
answer
C. MPL is the change of output divided by the change in labor and typically diminishes as more labor is utilized.
question
What is an isoquant map?
A. the contour lines of a production function, each of which indicate the different combinations of inputs (K and L) that are needed to produce a level of output
B. the contour lines of a utility function, each of which indicate the different combinations of inputs (K and L) that are needed to produce a level of output
C. the slope of a budget line
D. the contour lines of a production function, which gives the relationship between output and labor, holding capital constant.
answer
A. the contour lines of a production function, each of which indicate the different combinations of inputs (K and L) that are needed to produce a level of output
question
Isoquants...
A. typically slope downwards
B. can never cross
C. represent greater levels of output as they move farther from the origin
D. all of the above
answer
D. all of the above
question
A production process can be characterized as perfect substitutes. what is true?
A. The isoquants are L shaped, and the MRTS of L for K is constant.
B. The isoquants are L shaped, and the MRTS of L for K diminishes.
C. The isoquants are linear, and the MRTS of L for K is constant.
D. The isoquants are linear, and the MRTS of L for K diminishes.
answer
C. The isoquants are linear, and the MRTS of L for K is constant.
question
Landscaping lawns is characterized as fixed proportions. For example, to landscape one lawn, it takes exactly 2 mowers and 3 people. What is true?
A. The isoquants are linear with a constant MRTS of L for K equal to 2/3.
B. The isoquants are convex.
C. The isoquants are L shaped with each corner representing the exact proportion.
D. The isoquants are linear with a constant MRTS of L for K equal to 3/2.
answer
C. The isoquants are L shaped with each corner representing the exact proportion.
question
If the MPL is 5, and the MPK is 10, what it the MRTS of L for K?
A. 5
B. 10
C. 1/2
D. 2
answer
C. 1/2
question
If a production function exhibits constant returns to scale (CRS), then
A. Output is tripled if inputs are doubled. Isoquants are evenly spaced apart.
B. Output is tripled if inputs are tripled. Isoquants are evenly spaced apart.
C. Output is doubled if inputs are tripled. Isoquants are evenly spaced apart.
D. Output is tripled if inputs are tripled. Isoquants are spaced farther apart as output increases.
answer
B. Output is tripled if inputs are tripled. Isoquants are evenly spaced apart.
question
You are considering opening a new business. Labor costs are $10,000 and capital costs are $35,000. If you did not own the business, you could earn $50,000.
A. Accounting costs and economic costs are both $45,000.
B. Accounting costs and economic costs are both $95,000.
C. Accounting costs are $45,000 while economic costs are $95,000.
D. Accounting costs are $95,000 while economic costs are $45,000.
answer
C. Accounting costs are $45,000 while economic costs are $95,000.
question
Assume that the price of labor is $20 and the cost of capital is $30. which of the following is true?
A. the relative price of labor in terms of capital is 2/3
B. If the firm wants to hire one more labor, then they will have to give up 2/3 units of capital.
C. This isocost equation is generally: TC = 20L + 30K.
D. The absolute value of the slope of each isocost line is 2/3.
E. all of the above.
answer
E. all of the above.
question
Assume that a firm's production is represented by convex isoquants and will use positive amounts of both K and L. What is true at the cost minimizing combination of K and L?
A. The MRS of X for Y equals the relative price of X in terms of Y.
B. The MRTS of K for L is greater than the relative price of L in terms of K.
C. The MRTS of K for L is equal to the relative price of L in terms of K. D. The MRTS of K for L is less than the relative price of L in terms of K.
answer
C. The MRTS of K for L is equal to the relative price of L in terms of K.
question
Assume that a firm has convex isoquants and is operating with a L and K combination such that the MRTS of L for K is greater than the relative price of L in terms of K (w/v).What would you suggest for this firm?
A. The firm is operating at its cost min combination of K and L. They should not change their inputs.
B. The firm should change its inputs to more K and less L to reach the cost min combination of K and L.
C. The firm should change its inputs to more L and less K to reach the cost min combination of K and L.
answer
C. The firm should change its inputs to more L and less K to reach the cost min combination of K and L.
question
Assume that a firm faces convex isoquants and its input costs change due to inflation and other factors. The wage rate increases by 4% while the rental rate of capital increases by 10%. Which of the following is true?
A. The relative price of L in terms of K will increase; the isocost lines become steeper; and the cost min combination of L and K will change to less L and more K.
B. The relative price of L in terms of K will decrease; the isocost lines become steeper; and the cost min combination of L and K will change to less L and more K.
C. The relative price of L in terms of K will decrease; the isocost lines become flatter; and the cost min combination of L and K will change to more L and less K.
D. The relative price of L in terms of K will decrease; the isocost lines become flatter; and the cost min combination of L and K will not change.
answer
C. The relative price of L in terms of K will decrease; the isocost lines become flatter; and the cost min combination of L and K will change to more L and less K.
question
Assume a firm has a fixed proportion production function with the following input ratio:4 truck hours and 9 person hours to collect 4 donations.
A. To collect 12 donations, the cost minimizing combination would be 27 truck hours and 12 person hours.
B. To collect 12 donations, the cost minimizing combination would be 12 truck hours and 27 person hours.
C. Need more information to determine the cost minimizing combination.
answer
B. To collect 12 donations, the cost minimizing combination would be 12 truck hours and 27 person hours.
question
A firm has a production function that is represented by q = 3K + 10L. The cost of K = $20, and the cost of L is $15.
A. The isoquants are convex, and the cost minimizing combination will be positive amounts of both K and L.
B. The isoquants are linear, and the cost minimizing combination will be positive amounts of both K and L.
C. The isoquants are linear, and the cost minimizing combination will be all K and no L.
D. The isoquants are linear, and the cost minimizing combination will be all L and no K.
answer
D. The isoquants are linear, and the cost minimizing combination will be all L and no K.
question
Assume a firm has the following production function: q = K*L. Which of the following is true?
A. the production function exhibits constant returns to scale
B. total costs increase at a constant rate- is a linear function of output
C, marginal and average costs are constant
D. all of the above
answer
D. all of the above
question
If a firm has a production function that exhibits increasing returns to scale, then
A. Total costs increase at an increasing rate, and marginal costs increase as q increases.
B. Total costs decrease at decreasing rate, and marginal costs decrease as q increases.
C. Total costs increase at a decreasing rate, and marginal costs decrease as q increases.
D. Total costs do not change as q increases.
answer
C. Total costs increase at a decreasing rate, and marginal costs decrease as q increases.
question
If a firm has a production function that exhibits decreasing returns to scale, then
A. total costs increase at an increasing rate, and marginal costs increase as q increases
B. total costs increase at decreasing rate, and marginal costs decrease as q increases
C. total costs decrease at an decreasing rate, and marginal costs decrease as q increases
D. total costs do not change as q increases
answer
A. total costs increase at an increasing rate, and marginal costs increase as q increases
question
Short run costs are
A. typically less than long run costs.
B. typically greater than long run costs.
C. always equal to long run costs.
answer
B. typically greater than long run costs.
question
Suppose Qd= -5P+44 and Qs=P-4. the equilibrium quantity is
A. 5
B. 2
C. 4
D. 3
answer
C. 4
-5P+44=P-4
p=8-->-5(8)+44
question
If the prevailing price of shirts is $10 and at this price demanders demand 100 shirts while suppliers are willing to supply 110 shirts, there is a(n)
A. shortage at the $10 price
B. surplus at the $10 price
C. equilibrium in this market
D. shortage if price were to rise above $10
answer
B. surplus at the $10 price
question
For the equation Y=sqrtX*Z the point X= 20, Z=5
A. yields a value of Y=10 and lies below the contour line that includes the point X=15, Z=7
B. yields a value of Y=10 and lies on the same contour line as the point X=12, Z=6
C. yields a value of Y=10
D. lies below the contour line that includes the point X=15, Z=7
E. lies on the same contour as the point X=12, Z=6
answer
A. yields a value of Y=10 and lies below the contour line that includes the point X=15, Z=7
question
The Y-intercept of Y=3x+8
A. 3/8
B. -8/3
C. 8
D. 3
answer
C. 8
question
The problem of scarcity
A. exists because of limited resources
B. will eventually be solved by better planning
C. exists because the price of goods is too high
D. arises only in poor countries
answer
A. exists because of limited resources
question
The x-intercept of Y=4x+12 is
A. -1/3
B. 3
C. 12
D. -3
answer
D. -3
question
solution to simultaneous equations 5x-y=10 and 10x+y=35 is
A. x=15, y=0
B. x=5, y=3
C. x=3, y=5
D. none of the above
answer
C. x=3, y=5
question
For the function Y=XZ, the equation XZ=10 represents
A. a contour line
B. the Y-intercept
C. a tangent line
D. the X-intercept
answer
A. a contour line
question
Let QD= -5P+54 and QS= P-6. Here equilibrium price and quantity are:
A. Q=6; P=10
B. Q=4; P=10
C. P=6; Q=0
D. Q=54/5; P=2
answer
B. Q=4; P=10
question
The slope of a nonlinear function at some particular point
A. is the slope of the straight line that is tangent to the function at that point
B. is the slope of the straight line connecting the origin and the point
C. cannot be determined
D. is constant for the entire function
answer
A. is the slope of the straight line that is tangent to the function at that point
question
Betsy buys 2 pints of chocolate ice cream and 3 pints of strawberry ice cream. suppose that the price of chocolate ice cream goes up by 80 cents per pint and the price of strawberry ice cream falls by 60 cents per pint. her income does not change, and her preferences are convex. what will Betsy do?
A. buy the same amount of chocolate ice cream and more strawberry ice cream
B. buy more chocolate ice cream and less strawberry ice cream
C. buy less chocolate ice cream and more strawberry ice cream
D. keep the same amounts since 2 pints chocolate and 3 pints strawberry is her best choice after the prices change
answer
C. buy less chocolate ice cream and more strawberry ice cream
question
If a person's indifference curves can be represented as a straight line, the person views the goods as
A. perfect substitutes
B. perfect complements
C. substitutes (but not perfect)
D. complements (but not perfect)
answer
A. perfect substitutes
question
The X-intercept of the budget constraint represents
A. total income divided by the price of X
B. how much of good X can be purchased if no good Y is purchased and all income is spent
C. how much of good Y can be purchased if no good X is purchased and all income is spent
D. how much of good X can be purchased if no good Y is purchased and all income is spent and total income divided by the price of X
E. how much of good Y can be purchased if no good X is purchased and all income is spent and total income divided by the price of Y
answer
D. how much of good X can be purchased if no good Y is purchased and all income is spent and total income divided by the price of X
question
An increase in an individual's income without changing relative prices will
A. shift the indifference curves outward
B. rotate the budget constraint about the X-axis
C. rotate the budget constraint about the Y-axis
D. shift the budget constraint outward in a parallel way
answer
D. shift the budget constraint outward in a parallel way
question
The point of tangency between a consumer's budget constraint and their indifference curve represents
A. constrained utility maximization for the consumer
B. complete satisfaction for the consumer
C. the equivalence of prices the consumer pays
D. the least they can spend
answer
A. constrained utility maximization for the consumer
question
If people like their goods in fixed proportions, the two goods are
A. complements (but not perfect)
B. perfect substitutes
C. substitutes (but not perfect)
D. perfect complements
answer
D. perfect complements
question
The slope of the budget constraint line is
A. the negative of the ratio of the prices (Px/Py)
B. none of the above
C. the ratio of the prices (Px/Py)
D. the ratio of income divided by price of Y(I/Py)
answer
A. the negative of the ratio of the prices (Px/Py)
question
If goods X and Y are complements, then the cross price elasticity of demand between them will be
A. infinity
B. zero
C. negative
D. positive
answer
C. negative
question
With only two goods, if the income effect is in the same direction as the substitution effect then the good is
A. there is not enough information to answer
B. inferior but not Giffen
C. Giffen
D. normal
answer
D. normal
question
Which of the following will not cause a demand curve to shift position?
A. a doubling of the price of a closely substitutable good
B. a doubling of both the price of X and the price of Y
C. a doubling of the good's price
D. a shift in prefernces
E. a doubling of income
answer
C. a doubling of the good's price
question
Suppose there are two goods (X and Y). on a traditional graph of a budget line a tripling of all prices and incomes will
A. leave the budget line unaltered
B. alter the slope of the budget line only
C. alter the slope the budget line as well as the Y-intercept
D. alter the slope of the budget line as well as the X-intercept
answer
A. leave the budget line unaltered
question
If a good is normal and its price increases,
A. the income effect will be positive and the substitution effect will be positive
B. the income effect will be positive and the substitution effect will be negative
C. the income effect will be negative and the substitution effect will be negative
D. the income effect will be negative and the substitution effect will be positive
answer
C. the income effect will be negative and the substitution effect will be negative
question
Which of the following is NOT true about indifference curves?
A. They are typically downward sloping.
B. The MRS of X for Y measures the amount of Y given up for an additional unit of X.
C. Indifference curves may cross. D. Indifference curves can be used to rank a person's preferences over two bundles of goods.
answer
C. Indifference curves may cross.
question
In an analysis of preferences over two car attributes: acceleration (X) and interior space(Y), what would you expect that historical data would show?
A. SUV owners would have steeper indifference curves than Ford Mustang owners.
B. SUV owners would have flatter indifference curves than Ford Mustang owners.
C. SUV owners and Ford Mustang owners would have identical preferences.
answer
B. SUV owners would have flatter indifference curves than Ford Mustang owners.
question
Holding everything else constant, watching the first episode of your favorite show gives you more additional satisfaction/happiness than that of watching the tenth episode of your favorite show. What concept does this represent?
A. MRS of X of Y
B. Marginal Utility of watching the show
C. Marginal Utility of eating cupcakes
D. Diminishing marginal utility of watching the show
answer
D. Diminishing marginal utility of watching the show
question
A person's income increases by 1% but prices do not change. What happens to their optimal choice for Ramen noodles?
A. They will always buy more Ramen noodles.
B. If they consider Ramen noodles to be an inferior good, then they will buy more Ramen noodles.
C. If they consider Ramen noodles to be a normal good, then they will buy more Ramen noodles.
D. If they consider Ramen noodles to be a normal good, then they will buy less Ramen noodles.
answer
C. If they consider Ramen noodles to be a normal good, then they will buy more Ramen noodles.
question
What is true about a convex indifference curve?
A. The MRS of X for Y is constant at every combination of X and Y along the convex curve.
B. The MRS of X for Y diminishes as more X (and less Y) is chosen. The tangent lines along the convex curve change from steeper to flatter as more X (and less Y) is chosen.
C. The MRS of X for Y increases as more X (and less Y) is chosen. The tangent lines along the convex curve move from flatter to steeper as more X (and less Y) is chosen.
answer
B. The MRS of X for Y diminishes as more X (and less Y) is chosen. The tangent lines along the convex curve change from steeper to flatter as more X (and less Y) is chosen.
question
When the price of X falls (holding everything else constant), which of the following is true?
A. The budget line is flatter.
B. The optimal choice will be on a higher indifference curve.
C. The MRS of X for Y will change at the new optimal choice.
D. All of the above.
answer
D. All of the above.
question
What is the substitution effect?
A. A movement from the initial difference curve to the new indifference curve
B. A movement along the indifference curve for the optimal choice after the price change (e.g. U2)
C. A movement along the indifference curve for the initial choice (before the price change, U1)
D. A movement from the new indifference curve to the initial indifference curve
answer
C. A movement along the indifference curve for the initial choice (before the price change, U1)
question
What is the income effect?
A. A movement from the initial difference curve to the new indifference curve.
B. A movement along the indifference curve for the optimal choice after the price change (e.g. U2)
C. A movement along the indifference curve for the initial choice (before the price change, U1)
D. A movement from the new indifference curve to the initial indifference curve
answer
A. A movement from the initial difference curve to the new indifference curve.
question
Assume goods are normal. When the price of X increases (holding everything else constant), which of the following is true?
A. The income and substitution effects are in the same direction (less X).
B. The income effect is positive, and the substitution effect is negative.
C. The income and substitution effects are in the same direction (more X).
D. The income effect is negative, and the substitution effect is positive.
answer
A. The income and substitution effects are in the same direction (less X).
question
Assume goods are normal and are complements. When the price of X decreases (holding everything else constant), which of the following is true for good Y?
A. The income and substitution effects are in the same direction (more Y).
B. The income effect is positive, and the substitution effect is negative. SE is larger than IE, so amount of Y decreases.
C. The income effect is negative, and the substitution effect is positive. SE is larger than IE, so amount of Y increases.
D. The income effect is positive, and the substitution effect is negative. SE is smaller than IE, so amount of Y increases.
answer
D. The income effect is positive, and the substitution effect is negative. SE is smaller than IE, so amount of Y increases.
question
Assume that a person buys two goods: X and Y. Assume that the price of good X changes.Which of the following is true?
A. The income effect is typically small for most goods.
B. The substitution effect is zero if the person has L-shaped indifference curves.
C. The substitution effect is very large if the person has linear indifference curves.
D. All of the above.
answer
D. All of the above.
question
A policymaker is considering two different taxes: an income tax ($) and a per unit tax on cigarettes. The tax revenue generated under either tax is equivalent. Which of the following statements are true?
A. The person will worse off under both programs, but will prefer the income tax since their utility under the income tax is higher than that under the per unit tax
B. The person will be better off under either tax program.
C. The person will be worse off under both tax programs but will prefer the per unit tax since their utility under the per unit tax is higher than that under the income tax.
D. The person will worse off under both programs, but will prefer the income tax since their utility under the per unit tax is higher than that under the income tax.
answer
A. The person will worse off under both programs, but will prefer the income tax since their utility under the income tax is higher than that under the per unit tax
question
A policymaker is considering two different subsidies: a cash grant ($) and a per unit subsidy on milk (price of milk falls are subsidy). The subsidy payments are equivalent under both programs. Which of the following statements are true?
A. The person will be worse off under either subsidy program.
B. The person will be worse off under the per unit subsidy and better off under the cash grant. Therefore, the person will prefer the cash grant.
C. The person will better off under both programs, but will prefer the cash grant because they will reach a higher indifference curve under the cash grant than under the per unit subsidy.
D. The person will better off under both programs, but will prefer the per unit subsidy because they will reach a higher indifference curve under the per unity subsidy grant than under the cash grant.
answer
C. The person will better off under both programs, but will prefer the cash grant because they will reach a higher indifference curve under the cash grant than under the per unit subsidy.
1 of 148
question
Which of the following is true?
A. Marginal revenue increases for all market structures.
B. Marginal revenue is constant for all market structures.
C. Marginal revenue is constant in perfect competition and decreases for firms with market power.
D. Marginal revenue is constant in perfect competition and increases for firms with market power.
answer
C. Marginal revenue is constant in perfect competition and decreases for firms with market power.
question
A firm is operating at a level of production such that marginal revenue is $40 and marginal cost is $35. What do you suggest?
A. increase production until MR = MC.
B. decrease production until MR = MC.
C. Do not change production
answer
A. increase production until MR = MC.
question
Firms will only sell output if they are making positive short run profits.
A. true
B. false
answer
B. false
question
A firm will shut down in the short run if
A. they cannot cover their total costs.
B. they cannot cover their fixed costs.
C. they cannot cover their variable costs.
answer
C. they cannot cover their variable costs.
question
If there are 100 identical competitive firms, and each is producing 200 units at a price =$50. What is the market supply at price = $50?
A. 200
B. 2000
C. 20000
D. 200000
answer
C. 20000
question
Profits...
A. =TR-TC
B. q(P-AC)
C. can be positive, zero, or negative in the short run
D. all of the above
answer
D. all of the above
question
In the short run, the number of firms is fixed (no entry or exit), and in the long run, firms may enter or exit the market.
A. true
B. false
answer
A. true
question
In the long run, firms in a perfectly competitive market will
A. earn positive economic profits: P > AC at q
B. earn negative economic profits: P < AC at q
C. earn zero economic profits: P = min AC at q
D. earn positive or zero economic profits: P > or = min AC at q
answer
C. earn zero economic profits: P = min AC at q
question
A competitive market in which input prices do not change as the market expands is called
A. increasing cost
B. constant cost
C. decreasing cost
answer
B. constant cost
question
A competitive market in which input prices increase as the market expands is called
A. increasing cost
B. constant cost
C. decreasing cost
answer
A. increasing cost
question
The price elasticity of supply is estimated to be 0.2 for medical care and 15 for coal.Which of the following is true?
A. The supply curve for medical care will be relatively steeper than the supply curve for coal.
B. The supply of medical care is more inelastic than the supply for coal.
C. If prices go up 10%, the quantity supplied in medical care will increase by 2%, and the quantity supplied in coal will increase by 15%.
D. All of the above.
answer
D. All of the above.
question
Producer surplus...
A. measures the net benefit of consumers participating in the market
B. is the area below the demand curve and above the price line
C. is the area below the supply curve
D. measures the net benefit of producers participating in the market
answer
D. measures the net benefit of producers participating in the market
question
A market allocation is efficient if
A. total surplus is maximized
B. buyers in the market are those with WTP > = Price
C. sellers in the market are those with WTS < = Price
D. all of the above
answer
D. all of the above
question
If price is equal to short-run average variable cost, this price is known as
A. the break-even price
B. the profit-maximizing price
C. the revenue-maximizing price
D. the shutdown price
answer
D. the shutdown price
question
Suppose a farmer is a price taker for soybean sales with cost functions given by
TC= .1q^2+2q+30
MC= .2q+2
If P=6, the profit maximizing level of output is...
A. 20
B. 10
C. 40
D. 80
answer
A. 20
(6=-.2q+2)
question
In order to maximize profits, a firm should produce at the output level for which
A. average cost is minimized
B. marginal cost is minimized
C. marginal revenue equals marginal cost
D. price minus average cost is as large possible
answer
C. marginal revenue equals marginal cost
question
If a firm is a price taker, its marginal revenue is..
A. greater than market price
B. equal to market price
C. a multiple of market price that may be either greater than or less than one
D. less than market price
answer
B. equal to market price
question
A firm's marginal revenue is defined as..
A. the additional revenue received when selling one more unit of output
B. the additional revenue received due to technical innovation
C. the additional output produced by lowering price
D. the ratio of total revenue to total quantity produced
answer
A. the additional revenue received when selling one more unit of output
question
If a firm's marginal revenue is below its marginal cost, an increase in production will usually
A. decrease profits
B. leave profits unchanged
C. increase profits
D. increase marginal revenue
answer
A. decrease profits
question
It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve. In order for this to be true, which of the following additional assumptions are necessary?
I. that the firm seek to maximize profits
II. that the marginal cost curve be positively sloped
III. that price exceeds average variable cost
IV. that price exceeds average total cost
A. all of the above
B. I and II only
C. I and II but not III and IV
D. I, II, and III, but not IV
E. I and III but not II and IV
answer
D. I, II, and III, but not IV
question
Positive economic profits exist for a firm in the long run if price is above
A. long-run marginal cost
B. long-run average cost
C. long-run total cost
D. long-run variable cost
answer
B. long-run average cost
question
Under perfect competition, if an industry is characterized by positive economic profits in the short run
A. firms will enter the market in the long run and the short-run supply curve will shift outward
B. firms will leave the market in the long run and the short-run supply curve will shift outward
C. firms will leave the market in the long run and the short-run supply curve will shift inward
D. firms will enter the market in the long run and the short-run supply curve will shift inward
answer
A. firms will enter the market in the long run and the short-run supply curve will shift outward
question
In the short run, an increase in market demand will usually lead ti
A. a decrease in price and an increase in quantity
B. an increase in price and a decrease in quantity
C. a decrease in price and a decrease in quantity
D. an increase in price and an increase in quantity
answer
D. an increase in price and an increase in quantity
question
The short-run market supply curve is
A. the vertical summation of each firm's short-run supply curve
B. the horizontal summation of each firm's short-run average cost curve
C. the vertical summation of each firm's short-run average cost curve
D. the horizontal summation of each firm's short-run supply curve
answer
D. the horizontal summation of each firm's short-run supply curve
question
In the short run
A. new firms may enter an industry
B. quantity supplied is absolutely fixed
C. price and quantity supplied are absolutely fixed
D. existing firms may change the quantity they are supplying
answer
D. existing firms may change the quantity they are supplying
question
Firms in a long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because
A. firms in the industry desire to operate efficiently
B. firms maximize profits and free entry implies that maximum profits will be zero
C. free entry implies that long-run profits will be zero no matter how much each firm produces
D. firms seek maximum profits and to do so they must choose to produce where average costs are minimized
answer
B. firms maximize profits and free entry implies that maximum profits will be zero
question
If the market for hula-hoops is characterized by a very inelastic supply curve and a very elastic demand curve, an inward shift in the supply curve would be reflected primarily in the form of
a. higher prices.
b. higher output.
c. lower prices.
d. lower output.
answer
d. lower output.
question
If a 1 percent increase in price leads to a .7 percent increase in quantity supplied in the short run, the short-run supply curve is
A. perfectly inelastic
B. elastic
C. inelastic
D. unit elastic
answer
C. inelastic
question
In a competitive market, an efficient allocation of resources is characterized by
A. the possibility of further mutually beneficial transactions
B. a value of consumer surplus equal to that of producer surplus
C. the largest possible sum of consumer and producer surplus
D. a price greater than the marginal cost of production
answer
C. the largest possible sum of consumer and producer surplus
question
For an increasing cost industry, the long-run supply curve has ________ elasticity of supply
A. an infinite
B. a positive
C. a negative
D. a zero
answer
B. a positive
question
Suppose demand for a good is Qd= 100-P and supply is Qs=-20+P. Supposed that a nationwide quota of 20 is enforced so that more can be used in a war effort. What is the price?
A. $80
B. $40
C. $60
D. $20
answer
A. $80
-20+P=100-P
P= 60+20
question
Suppose a chemical company is in a perfectly competitive industry and has a short run total cost curve of TC=1/3q^3+5q^2+10q+10 and a short run marginal cost of SMC= q^2+10q+10. At the price of 49, how much will be produced?
A. 5
B. 15
C. 3
D. 0
answer
C. 3
q^2+10q+10=49
question
A demand curve will shift out for any of the following reasons except:
A. price of a substitute falls
B. price of a complement falls
C. income rises
D. preference for a good increases
answer
A. price of a substitute falls
question
Long-run elasticity of supply is defined as
A. percentage change in quantity demanded in the long run divided by percentage change in price
B. percentage change in quantity supplied in the long run divided by percentage change in price
C. percentage change in price divided by percentage change in quantity demanded in the long run
D. percentage change in price divided by percentage change in quantity demanded in the long run
answer
B. percentage change in quantity supplied in the long run divided by percentage change in price
question
A deadweight loss of consumer and/or producer surplus occurs when
A. consumers do not maximize their utility
B. the price of inputs increases
C. mutually beneficial transactions cannot be completed
D. producers fail to maximize profits
answer
C. mutually beneficial transactions cannot be completed
question
Suppose demand for a good is Qd= 100-P and supply is Qs= -20+P. What is the consumer surplus?
A. 400
B. 800
C. 200
D. 600
answer
B. 800
1/240(100-60)
P=60
Q=40
question
In the long run, in the model of monopolistic competition, for a typical firm, price is
A. above marginal cost
B. above marginal cost but equal to average cost
C. equal to marginal cost and equal to or greater than average cost
D. above average cost but equal to marginal cost
answer
B. above marginal cost but equal to average cost
question
Which of the following statements about the supply curve for a monopoly is true?
A. the supply curve for a monopoly is given by the firm's marginal cost curve about the average variable cost curve
B. the supply curve for a monopoly is given by the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost
C. the monopolist does not have a well-defined supply curve
D. the supply curve for a monopoly is given by the entire demand curve above the point where price is equal to average cost
answer
C. the monopolist does not have a well-defined supply curve
question
If the government requires a natural monopoly to price at marginal cost,
A. monopoly firms will operate at a loss because P<AC
B. more firms will be able to enter the market
C. monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good
D. producer surplus will increase because quantity supplied is greater
answer
A. monopoly firms will operate at a loss because P<AC
question
If a monopoly is maximizing profits,
A. price will always equal marginal cost
B. price will always be greater than marginal cost
C. price will always be greater than the elasticity of demand
D. price will always equal marginal revenue
answer
B. price will always be greater than marginal cost
question
In the monopolistic competition model,
A. barriers to entry maintain some monopoly "rents" in the long run
B. one dominant firm acts as the monopolist that is followed by the fringe of competitors
C. firms behave as monopolists over their local or niche markets
D. firms are price takers
answer
C. firms behave as monopolists over their local or niche markets
question
The principal difference between economic profits for a monopolist an d for a competitive firm is that
A. monopoly profits are considered a deadweight loss but competitive profits are not
B. monopoly profits create major problems of equity whereas competitive profits do not
C. monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not. monopoly profits are considered a deadweight loss but competitive profits are not
D. competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well
answer
D. competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well
question
Which of the following statements about the supply curve for a monopoly is true?
A. the supply curve for a monopoly is given by the firm's marginal cost curve about the average variable cost curve
B. the supply curve for a monopoly is given by the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost
C. the supply curve for a monopoly is given by the entire demand curve above the point where price is equal to average cost
D. the monopolist does not have a well-defined supply curve
answer
D. the monopolist does not have a well-defined supply curve
question
A profit-maximizing monopoly will produce that output for which
A. marginal cost is minimized
B. average cost is minimized
C. marginal revenue equals price
D. marginal cost equals marginal revenue
answer
D. marginal cost equals marginal revenue
question
A natural monopoly
A. occurs when one firm can supply the entire market more cheaply than can a number of firms
B. is a monopoly in the production of raw materials
C. results from decreasing returns to scale
D. is one result of a patent
answer
A. occurs when one firm can supply the entire market more cheaply than can a number of firms
question
All monopolies exist because of
A. firms' desire to maximize profit
B. barriers to entry
C. natural selection
D. failure of antitrust laws
answer
B. barriers to entry
question
If the government requires a natural monopoly to price at marginal cost,
A. monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good
B. more firms will be able to enter the market
C. producer surplus will increase because quantity supplied is greater
D. monopoly firms will operate at a loss because P<AC
answer
D. monopoly firms will operate at a loss because P<AC
question
If a monopoly is maximizing profits,
A. price will always equal marginal cost
B. price always be greater than marginal cost
C. price will always equal marginal revenue
D. price will always be greater than the elasticity of demand
answer
B. price always be greater than marginal cost
question
Which of the following is not a technical barrier to entry in a monopolized market?
A. a patent
B. a low cost method of production known only by monopolst
C. decreasing average cost
D. increasing returns to scale
answer
A. a patent
question
A monopolist with constant average and marginal cost equal to 8 (AC=MC=8) faces demand Q= 100-P, implying that its marginal revenue is MR=100-2Q
A. 92
B. 50
C. 46
D. 5
answer
C. 46
question
A monopoly's economic profits are represented by
A. price minus marginal cost times number of units sold
B. marginal revenue minus price times number of units sold
C. marginal cost minus price times number of units sold
D. price minus average cost times number of units sold
answer
D. price minus average cost times number of units sold
question
A monopolist has total cost TC= .1q^2-2q+100 and marginal cost MC=.2q-2. market demand is q=86-P, implying that the firm's marginal revenue is MR=86-2q. the deadweight loss (compared to a single firm behaving as if it were perfectly competitive) is about
A. 1333
B. 333
C. 667
D. 1000
answer
C. 667
1/2(46-6)(73-40)
question
A monopolist has total cost TC= q^2+10q+100 and marginal cost MC=2q+10. it faces demand q=130-P (so its marginal revenue is MR=130-2q). its profit-maximizing output
A. 10
B. 20
C. 25
D. 30
answer
D. 30
question
A monopolist with constant average and marginal cost equal to 8 but (AC=MC=8) faces demand Q=100-P, implying that its marginal revenue is MR=100-2Q. the deadweight loss associated with this monopoly is
A. 2484
B. 1058
C. 3680
D. 996
answer
B. 1058
MC=P=8
Q=100-8=92
1/2(54-8)(92-46)
MR=MC
100-2Q=8
Q=46
P=100-46=54
question
If goods X and Y are complements, then the cross price elasticity of demand will be
A. infinity
B. zero
C. negative
D. positive
answer
C. negative
question
The lump sum principle suggests that the tax that reduces utility the least is
A. a tax on a good with only a few substitutes
B. a tax on a good with many substitutes
C. a tax on income
D. an equal tax per-unit on all goods
answer
C. a tax on income
question
With only two goods, if the income effect is in the same direction as the substitution effect then the good is
A. there is not enough information
B. inferior but not Giffen
C. Giffen
D. normal
answer
D. normal
question
If the demand for a product is elastic, then a rise in price will
A. cause total spending on the good to increase
B. keep total spending the same, but reduce the quantity demanded
C. keep total spending the same, but increase the quantity demanded
D. cause total spending on the good to decrease
answer
D. cause total spending on the good to decrease
question
The demand for gasoline is more elastic in the long run than in the short run because
A. cars have become more expensive over time
B. incomes tend to rise over time
C. other prices are more likely to change in the long run
D. people can buy new cars in the long run
answer
D. people can buy new cars in the long run
question
Suppose a person's utility is only a function of their consumption of diet soda and they do not care which brand, diet coke (DC) or diet pepsi (dp) they consume. suppose further than Pdc<Pdp. if Pdc rises but it remains less than Pdp than the consumption of DC
A. stays at zero
B. rises
C. falls from a positive amount to zero
D. falls from a positive amount to another positive amount
answer
D. falls from a positive amount to another positive amount
question
If the income elasticity of demand is 0.5, the good is
A. an inferior good
B. a luxury
C. a Giffen good
D. a normal good (but not a luxury)
answer
D. a normal good (but not a luxury)
question
With only two goods, if the income effect is in the opposite direction as the substitution effect but the substitution effect dominates then the good is
A. normal
B. not enough information
C. Giffen
D. inferior but not Giffen
answer
D. inferior but not Giffen
question
Which of the following will not cause a demand curve to shift position
A. a doubling of the price of a closely substitute good
B. a doubling of both the price of X and the price of Y
C. a doubling of the good's price
D. a shift in preferences
E. a doubling of income
answer
C. a doubling of the good's price
question
Suppose there are two goods (X and Y). on a traditional graph of a budget line a tripling of all prices and incomes will
A. leave the budget line unaltered
B. alter the slope of the budget line only
C. alter the slope of the budget line as well as the Y intercept
D. alter the slope of the budget line as well as the x intercept
answer
A. leave the budget line unaltered
question
If a good is normal and its price increases,
A. the income effect will be positive and the substitution effect will be positive
B. the income effect will be positive and the substitution effect will be negative
C. the income effect will be negative and the substitution effect will be negative
D. the income effect will be positive and the substitution effect will be positive
answer
C. the income effect will be negative and the substitution effect will be negative
question
Suppose two goods coffee and creamer provide the consumer with utility but only if they are consumed in fixed proportions. An increase in the price of coffee will yield
A. a substitution effect but no income effect
B. an income effect but no substitution effect
C. a substitution effect and an income effect in the same direction
D. a substitution effect and an income effect in opposite directions
answer
B. an income effect but no substitution effect
question
The marginal physical product of labor is
A. the negative of the slope of the total output curve at the relevant point
B. the slope of the total output curve at the relevant point
C. the negative of the slope of the line connecting the origin with the relevant point on the total output curve
D. the slope of the line connecting the origin with the relevant point on the total output curve
answer
B. the slope of the total output curve at the relevant point
question
A production function measures how
A. a firm minimizes cost
B. an individual maximizes utility
C. a firm transforms output into input
D. a firm transforms inputs into output
answer
D. a firm transforms inputs into output
question
If production is given by Q=K^sL^b, (a+b<1) doubling both inputs
A. increases output but does not double it
B. leaves output unchanged
C. more than doubles output
D. exactly doubles output
answer
A. increases output but does not double it
question
A technical innovation in the production of automobiles by Ford Motor Company's for 1 million cars per year would necessarily
A. shift the "1 million car" isoquant aways from the origin
B. cause 1 million cars to be produced with more capital and less labor
C. shift the "1 million car" isoquant toward the origin
D. cause 1 million cars to be produced with more labor and less capital
answer
C. shift the "1 million car" isoquant toward the origin
question
The marginal rate of technical substitution of labor for capital measures
A. the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used
B. the ratio of total labor to capital
C. the amount by which labor input can be reduced while holding quantity produced constant when one more unit of capital is used
D. the ratio of capital to total labor
answer
A. the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used
question
The marginal physical product of labor is defined as
A. the extra output produced by employing one more unit of labor while allowing other inputs to vary
B. a firm's total output divided by total labor input
C. the extra output produced by employing one more unit of capital while holding labor input constant
D. the extra output produced by employing one more unit of labor while holding other inputs constant
answer
D. the extra output produced by employing one more unit of labor while holding other inputs constant
question
A firm's isoquant shows
A. the amount of capital needed to produce a given level of output with labor held constant
B. none of the above
C. the various combinations of capital and labor that will produce a given amount of output
D. the amount of labor needed to produce a given level of output with capital held constant
answer
C. the various combinations of capital and labor that will produce a given amount of output
question
Suppose Q=K^aL^b, if a+b<1 the isoquants will be
A. equally spaced
B. progressively further apart at higher quantities
C. upward sloping
D. progressively closer together at higher quantities
answer
B. progressively further apart at higher quantities
question
Suppose the production function for good q is given by q=3K+2L where K and L are capital and labor inputs. consider three statement about this function
I. the function exhibits constant returns to scale
II. the function exhibits diminishing marginal productivities to all inputs
III. the function has a constant rate of technical substitution
Which of these statements is true?
A. I and II but not III
B. I and III but not II
C. all of them
D. none of them
E. only I
answer
B. I and III but not II
question
A fixed-proportion production function has isoquants that are
A. L-shaped
B. none of the above
C. almost flat (i.e., the isoquants are almost straight lines)
D. normally shaped (rectangular hyperbolas)
answer
A. L-shaped
question
Suppose the production function for coffee (c) is c=min(B,W), where B=beans in pounds and W=water in gallons. suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. the expansion path
A. depends on the costs of both beans and water
B. depends on the price of water only
C. depends on the price of beans only
D. depends on the price of neither beans nor water
answer
D. depends on the price of neither beans nor water
question
Suppose a production function is q=K^1/2L^1/3 and in the short run capital (K) is fixed at 100. if the wage is $10 and the rental rate on capital is $20, the short run production function is
A. q=100
B. q=100L^1/3
C. q=10L1/3
D. q=1/10L^1/3
answer
C. q=10L1/3
question
Suppose a production function is q=K^1/2L^1/3 and in the short run capital (K) is fixed at 100. if the wage is $10 and the rental rate on capital is $20, the fixed cost is
A. $0
B. $2000
C. $20,000
D. $200
answer
vk=20*100=2000
question
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $4 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P=200?
A. S=40
B. C=100
C. C=50, S= 20
D. C=20, S= 50
answer
A. S=40
200=5S
question
As long as marginal cost is below average cost, average cost will be
A. falling
B. changing in a direction that cannot be determined without more information
C. rising
D. constant
answer
A. falling
question
Suppose the production function for coffee (c) is C=min(B,W) where B= beans in pounds and W=water in gallons. suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. the cost minimizing combination of beans and water for C=200 is
A. B=100, W=100
B. B=2000, W=200
C. B=200, W=2000
D. B=200, W=200
answer
D. B=200, W=200
question
Technical progress will
A. shift a firm's production function and alter its marginal revenue curve
B. shift a firm's production and its related cost curves
C. shift's a firm's production and its related cost curves
D. not affect the production function, but may shift cost curves
answer
B. shift a firm's production and its related cost curves
question
Suppose a cost function is TC= Aq^3+bq^2+cq+d. then the average variable cost is
A. Aq^2+bq+c
B. Aq^2+bq+cq+d/q
C. Aq^3+bq^2+cq
D. d
answer
A. Aq^2+bq+c
question
The shape of a firm's expansion path depends upon
A. all of these factors
B. the shape of the firm's production function
C. the price of the capital input
D. the price of the labor input
answer
A. all of these factors
question
In order to minimize the cost of a particular level of output, a firm should produce where
A. labor input equals capital input
B. the MRTS (of L for K)=w/v
C. the MRS=v/w
D. the MRTS (of L for K)=v/w
answer
B. the MRTS (of L for K)=w/v
question
Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production is currently efficient, the wage rate must be
A. $20
B. $10
C. $40
D. $5
answer
D. $5
question
Suppose a cost function is TC= Aq^3+bq^2+cq+d. then the total fixed cost is
A. Aq^2+bq+cq+d/q
B. Aq^3+bq^2+cq
C. d
D. Aq^2+bq+c
answer
C. d
question
Which of the following are true about consumer surplus?
A. Consumer surplus measures the net benefit of buyers participating in the market.
B. Consumer surplus is measured as the area below the demand curve and above the price line for all quantity traded.
C. Consumer surplus is the WTP - cost for all quantity traded.
D. All of the above
answer
D. All of the above
question
Assume the price increases 2% and quantity demanded falls 4%
A. The price elasticity of demand is -2, and total revenue will fall.
B. The price elasticity of demand is -2, and total revenue will increase. C. The price elasticity of demand is -1/2, and total revenue will fall.
D. The price elasticity of demand is -1/2, and total revenue will increase.
answer
A. The price elasticity of demand is -2, and total revenue will fall.
question
The price elasticity of demand for Mt. Dew is estimated to be -4. which of the following is true?
A. If the price increases 1%, then quantity demanded will fall 4%.
B. The demand curve for Mr. Dew is relatively flat and categorized as elastic.
C. The substitution effect is large given the number of close substitutes.
D. If the price decreases 1%, then quantity demanded will increase 4%.
E. All of the above.
answer
E. All of the above.
question
Your friend asks your opinion about whether they should increase or decrease the price of their product to increase total revenue. what do you respond?
A. increase the price
B. decrease the price
C. need more information
answer
C. need more information
question
The income elasticity of demand for cars is estimated to be 1.2. which of the following is true?
A. Cars are categorized as an inferior good.
B. If the price of a car goes up 1%, then the quantity demanded for cars goes up 1.2%.
C. If incomes go up 10%, the quantity demanded for cars will increase 12%. Cars are a normal good.
D. If incomes go up 10%, the quantity demanded for cars will increase 12%. Cars are an inferior good.
answer
C. If incomes go up 10%, the quantity demanded for cars will increase 12%. Cars are a normal good.
question
If the cross price elasticity of demand is estimated to 1.53 for butter and margarine, what is true?
A. Butter and margarine are considered to be complements. If the price of butter goes up by 1%, the quantity demanded of margarine goes up by 1.53%.
B. Butter and margarine are considered to be substitutes. If the price of butter goes up by 1%, the quantity demanded of margarine goes up by 1.53%.
C. Butter and margarine are considered to be complements. If the quantity demanded of butter goes up by 1%, the price of margarine goes up by 1.53%.
D. Butter and margarine are considered to be complements. If the quantity demanded of butter goes up by 1%, the price of margarine goes up by 1.53%.
answer
B. Butter and margarine are considered to be substitutes. If the price of butter goes up by 1%, the quantity demanded of margarine goes up by 1.53%.
question
In short run production,
A. at least one input, typically capital, is fixed.
B. all inputs are variable.
C. at least one input, typically labor or raw materials, is fixed.
answer
A. at least one input, typically capital, is fixed.
question
Which of the following is true for the marginal product of labor (MPL)?
A. MPL is labor divided by output.
B. MPL is the change of output divided by the change in labor and typically increases at an increasing rate.
C. MPL is the change of output divided by the change in labor and typically diminishes as more labor is utilized.
answer
C. MPL is the change of output divided by the change in labor and typically diminishes as more labor is utilized.
question
What is an isoquant map?
A. the contour lines of a production function, each of which indicate the different combinations of inputs (K and L) that are needed to produce a level of output
B. the contour lines of a utility function, each of which indicate the different combinations of inputs (K and L) that are needed to produce a level of output
C. the slope of a budget line
D. the contour lines of a production function, which gives the relationship between output and labor, holding capital constant.
answer
A. the contour lines of a production function, each of which indicate the different combinations of inputs (K and L) that are needed to produce a level of output
question
Isoquants...
A. typically slope downwards
B. can never cross
C. represent greater levels of output as they move farther from the origin
D. all of the above
answer
D. all of the above
question
A production process can be characterized as perfect substitutes. what is true?
A. The isoquants are L shaped, and the MRTS of L for K is constant.
B. The isoquants are L shaped, and the MRTS of L for K diminishes.
C. The isoquants are linear, and the MRTS of L for K is constant.
D. The isoquants are linear, and the MRTS of L for K diminishes.
answer
C. The isoquants are linear, and the MRTS of L for K is constant.
question
Landscaping lawns is characterized as fixed proportions. For example, to landscape one lawn, it takes exactly 2 mowers and 3 people. What is true?
A. The isoquants are linear with a constant MRTS of L for K equal to 2/3.
B. The isoquants are convex.
C. The isoquants are L shaped with each corner representing the exact proportion.
D. The isoquants are linear with a constant MRTS of L for K equal to 3/2.
answer
C. The isoquants are L shaped with each corner representing the exact proportion.
question
If the MPL is 5, and the MPK is 10, what it the MRTS of L for K?
A. 5
B. 10
C. 1/2
D. 2
answer
C. 1/2
question
If a production function exhibits constant returns to scale (CRS), then
A. Output is tripled if inputs are doubled. Isoquants are evenly spaced apart.
B. Output is tripled if inputs are tripled. Isoquants are evenly spaced apart.
C. Output is doubled if inputs are tripled. Isoquants are evenly spaced apart.
D. Output is tripled if inputs are tripled. Isoquants are spaced farther apart as output increases.
answer
B. Output is tripled if inputs are tripled. Isoquants are evenly spaced apart.
question
You are considering opening a new business. Labor costs are $10,000 and capital costs are $35,000. If you did not own the business, you could earn $50,000.
A. Accounting costs and economic costs are both $45,000.
B. Accounting costs and economic costs are both $95,000.
C. Accounting costs are $45,000 while economic costs are $95,000.
D. Accounting costs are $95,000 while economic costs are $45,000.
answer
C. Accounting costs are $45,000 while economic costs are $95,000.
question
Assume that the price of labor is $20 and the cost of capital is $30. which of the following is true?
A. the relative price of labor in terms of capital is 2/3
B. If the firm wants to hire one more labor, then they will have to give up 2/3 units of capital.
C. This isocost equation is generally: TC = 20L + 30K.
D. The absolute value of the slope of each isocost line is 2/3.
E. all of the above.
answer
E. all of the above.
question
Assume that a firm's production is represented by convex isoquants and will use positive amounts of both K and L. What is true at the cost minimizing combination of K and L?
A. The MRS of X for Y equals the relative price of X in terms of Y.
B. The MRTS of K for L is greater than the relative price of L in terms of K.
C. The MRTS of K for L is equal to the relative price of L in terms of K. D. The MRTS of K for L is less than the relative price of L in terms of K.
answer
C. The MRTS of K for L is equal to the relative price of L in terms of K.
question
Assume that a firm has convex isoquants and is operating with a L and K combination such that the MRTS of L for K is greater than the relative price of L in terms of K (w/v).What would you suggest for this firm?
A. The firm is operating at its cost min combination of K and L. They should not change their inputs.
B. The firm should change its inputs to more K and less L to reach the cost min combination of K and L.
C. The firm should change its inputs to more L and less K to reach the cost min combination of K and L.
answer
C. The firm should change its inputs to more L and less K to reach the cost min combination of K and L.
question
Assume that a firm faces convex isoquants and its input costs change due to inflation and other factors. The wage rate increases by 4% while the rental rate of capital increases by 10%. Which of the following is true?
A. The relative price of L in terms of K will increase; the isocost lines become steeper; and the cost min combination of L and K will change to less L and more K.
B. The relative price of L in terms of K will decrease; the isocost lines become steeper; and the cost min combination of L and K will change to less L and more K.
C. The relative price of L in terms of K will decrease; the isocost lines become flatter; and the cost min combination of L and K will change to more L and less K.
D. The relative price of L in terms of K will decrease; the isocost lines become flatter; and the cost min combination of L and K will not change.
answer
C. The relative price of L in terms of K will decrease; the isocost lines become flatter; and the cost min combination of L and K will change to more L and less K.
question
Assume a firm has a fixed proportion production function with the following input ratio:4 truck hours and 9 person hours to collect 4 donations.
A. To collect 12 donations, the cost minimizing combination would be 27 truck hours and 12 person hours.
B. To collect 12 donations, the cost minimizing combination would be 12 truck hours and 27 person hours.
C. Need more information to determine the cost minimizing combination.
answer
B. To collect 12 donations, the cost minimizing combination would be 12 truck hours and 27 person hours.
question
A firm has a production function that is represented by q = 3K + 10L. The cost of K = $20, and the cost of L is $15.
A. The isoquants are convex, and the cost minimizing combination will be positive amounts of both K and L.
B. The isoquants are linear, and the cost minimizing combination will be positive amounts of both K and L.
C. The isoquants are linear, and the cost minimizing combination will be all K and no L.
D. The isoquants are linear, and the cost minimizing combination will be all L and no K.
answer
D. The isoquants are linear, and the cost minimizing combination will be all L and no K.
question
Assume a firm has the following production function: q = K*L. Which of the following is true?
A. the production function exhibits constant returns to scale
B. total costs increase at a constant rate- is a linear function of output
C, marginal and average costs are constant
D. all of the above
answer
D. all of the above
question
If a firm has a production function that exhibits increasing returns to scale, then
A. Total costs increase at an increasing rate, and marginal costs increase as q increases.
B. Total costs decrease at decreasing rate, and marginal costs decrease as q increases.
C. Total costs increase at a decreasing rate, and marginal costs decrease as q increases.
D. Total costs do not change as q increases.
answer
C. Total costs increase at a decreasing rate, and marginal costs decrease as q increases.
question
If a firm has a production function that exhibits decreasing returns to scale, then
A. total costs increase at an increasing rate, and marginal costs increase as q increases
B. total costs increase at decreasing rate, and marginal costs decrease as q increases
C. total costs decrease at an decreasing rate, and marginal costs decrease as q increases
D. total costs do not change as q increases
answer
A. total costs increase at an increasing rate, and marginal costs increase as q increases
question
Short run costs are
A. typically less than long run costs.
B. typically greater than long run costs.
C. always equal to long run costs.
answer
B. typically greater than long run costs.
question
Suppose Qd= -5P+44 and Qs=P-4. the equilibrium quantity is
A. 5
B. 2
C. 4
D. 3
answer
C. 4
-5P+44=P-4
p=8-->-5(8)+44
question
If the prevailing price of shirts is $10 and at this price demanders demand 100 shirts while suppliers are willing to supply 110 shirts, there is a(n)
A. shortage at the $10 price
B. surplus at the $10 price
C. equilibrium in this market
D. shortage if price were to rise above $10
answer
B. surplus at the $10 price
question
For the equation Y=sqrtX*Z the point X= 20, Z=5
A. yields a value of Y=10 and lies below the contour line that includes the point X=15, Z=7
B. yields a value of Y=10 and lies on the same contour line as the point X=12, Z=6
C. yields a value of Y=10
D. lies below the contour line that includes the point X=15, Z=7
E. lies on the same contour as the point X=12, Z=6
answer
A. yields a value of Y=10 and lies below the contour line that includes the point X=15, Z=7
question
The Y-intercept of Y=3x+8
A. 3/8
B. -8/3
C. 8
D. 3
answer
C. 8
question
The problem of scarcity
A. exists because of limited resources
B. will eventually be solved by better planning
C. exists because the price of goods is too high
D. arises only in poor countries
answer
A. exists because of limited resources
question
The x-intercept of Y=4x+12 is
A. -1/3
B. 3
C. 12
D. -3
answer
D. -3
question
solution to simultaneous equations 5x-y=10 and 10x+y=35 is
A. x=15, y=0
B. x=5, y=3
C. x=3, y=5
D. none of the above
answer
C. x=3, y=5
question
For the function Y=XZ, the equation XZ=10 represents
A. a contour line
B. the Y-intercept
C. a tangent line
D. the X-intercept
answer
A. a contour line
question
Let QD= -5P+54 and QS= P-6. Here equilibrium price and quantity are:
A. Q=6; P=10
B. Q=4; P=10
C. P=6; Q=0
D. Q=54/5; P=2
answer
B. Q=4; P=10
question
The slope of a nonlinear function at some particular point
A. is the slope of the straight line that is tangent to the function at that point
B. is the slope of the straight line connecting the origin and the point
C. cannot be determined
D. is constant for the entire function
answer
A. is the slope of the straight line that is tangent to the function at that point
question
Betsy buys 2 pints of chocolate ice cream and 3 pints of strawberry ice cream. suppose that the price of chocolate ice cream goes up by 80 cents per pint and the price of strawberry ice cream falls by 60 cents per pint. her income does not change, and her preferences are convex. what will Betsy do?
A. buy the same amount of chocolate ice cream and more strawberry ice cream
B. buy more chocolate ice cream and less strawberry ice cream
C. buy less chocolate ice cream and more strawberry ice cream
D. keep the same amounts since 2 pints chocolate and 3 pints strawberry is her best choice after the prices change
answer
C. buy less chocolate ice cream and more strawberry ice cream
question
If a person's indifference curves can be represented as a straight line, the person views the goods as
A. perfect substitutes
B. perfect complements
C. substitutes (but not perfect)
D. complements (but not perfect)
answer
A. perfect substitutes
question
The X-intercept of the budget constraint represents
A. total income divided by the price of X
B. how much of good X can be purchased if no good Y is purchased and all income is spent
C. how much of good Y can be purchased if no good X is purchased and all income is spent
D. how much of good X can be purchased if no good Y is purchased and all income is spent and total income divided by the price of X
E. how much of good Y can be purchased if no good X is purchased and all income is spent and total income divided by the price of Y
answer
D. how much of good X can be purchased if no good Y is purchased and all income is spent and total income divided by the price of X
question
An increase in an individual's income without changing relative prices will
A. shift the indifference curves outward
B. rotate the budget constraint about the X-axis
C. rotate the budget constraint about the Y-axis
D. shift the budget constraint outward in a parallel way
answer
D. shift the budget constraint outward in a parallel way
question
The point of tangency between a consumer's budget constraint and their indifference curve represents
A. constrained utility maximization for the consumer
B. complete satisfaction for the consumer
C. the equivalence of prices the consumer pays
D. the least they can spend
answer
A. constrained utility maximization for the consumer
question
If people like their goods in fixed proportions, the two goods are
A. complements (but not perfect)
B. perfect substitutes
C. substitutes (but not perfect)
D. perfect complements
answer
D. perfect complements
question
The slope of the budget constraint line is
A. the negative of the ratio of the prices (Px/Py)
B. none of the above
C. the ratio of the prices (Px/Py)
D. the ratio of income divided by price of Y(I/Py)
answer
A. the negative of the ratio of the prices (Px/Py)
question
If goods X and Y are complements, then the cross price elasticity of demand between them will be
A. infinity
B. zero
C. negative
D. positive
answer
C. negative
question
With only two goods, if the income effect is in the same direction as the substitution effect then the good is
A. there is not enough information to answer
B. inferior but not Giffen
C. Giffen
D. normal
answer
D. normal
question
Which of the following will not cause a demand curve to shift position?
A. a doubling of the price of a closely substitutable good
B. a doubling of both the price of X and the price of Y
C. a doubling of the good's price
D. a shift in prefernces
E. a doubling of income
answer
C. a doubling of the good's price
question
Suppose there are two goods (X and Y). on a traditional graph of a budget line a tripling of all prices and incomes will
A. leave the budget line unaltered
B. alter the slope of the budget line only
C. alter the slope the budget line as well as the Y-intercept
D. alter the slope of the budget line as well as the X-intercept
answer
A. leave the budget line unaltered
question
If a good is normal and its price increases,
A. the income effect will be positive and the substitution effect will be positive
B. the income effect will be positive and the substitution effect will be negative
C. the income effect will be negative and the substitution effect will be negative
D. the income effect will be negative and the substitution effect will be positive
answer
C. the income effect will be negative and the substitution effect will be negative
question
Which of the following is NOT true about indifference curves?
A. They are typically downward sloping.
B. The MRS of X for Y measures the amount of Y given up for an additional unit of X.
C. Indifference curves may cross. D. Indifference curves can be used to rank a person's preferences over two bundles of goods.
answer
C. Indifference curves may cross.
question
In an analysis of preferences over two car attributes: acceleration (X) and interior space(Y), what would you expect that historical data would show?
A. SUV owners would have steeper indifference curves than Ford Mustang owners.
B. SUV owners would have flatter indifference curves than Ford Mustang owners.
C. SUV owners and Ford Mustang owners would have identical preferences.
answer
B. SUV owners would have flatter indifference curves than Ford Mustang owners.
question
Holding everything else constant, watching the first episode of your favorite show gives you more additional satisfaction/happiness than that of watching the tenth episode of your favorite show. What concept does this represent?
A. MRS of X of Y
B. Marginal Utility of watching the show
C. Marginal Utility of eating cupcakes
D. Diminishing marginal utility of watching the show
answer
D. Diminishing marginal utility of watching the show
question
A person's income increases by 1% but prices do not change. What happens to their optimal choice for Ramen noodles?
A. They will always buy more Ramen noodles.
B. If they consider Ramen noodles to be an inferior good, then they will buy more Ramen noodles.
C. If they consider Ramen noodles to be a normal good, then they will buy more Ramen noodles.
D. If they consider Ramen noodles to be a normal good, then they will buy less Ramen noodles.
answer
C. If they consider Ramen noodles to be a normal good, then they will buy more Ramen noodles.
question
What is true about a convex indifference curve?
A. The MRS of X for Y is constant at every combination of X and Y along the convex curve.
B. The MRS of X for Y diminishes as more X (and less Y) is chosen. The tangent lines along the convex curve change from steeper to flatter as more X (and less Y) is chosen.
C. The MRS of X for Y increases as more X (and less Y) is chosen. The tangent lines along the convex curve move from flatter to steeper as more X (and less Y) is chosen.
answer
B. The MRS of X for Y diminishes as more X (and less Y) is chosen. The tangent lines along the convex curve change from steeper to flatter as more X (and less Y) is chosen.
question
When the price of X falls (holding everything else constant), which of the following is true?
A. The budget line is flatter.
B. The optimal choice will be on a higher indifference curve.
C. The MRS of X for Y will change at the new optimal choice.
D. All of the above.
answer
D. All of the above.
question
What is the substitution effect?
A. A movement from the initial difference curve to the new indifference curve
B. A movement along the indifference curve for the optimal choice after the price change (e.g. U2)
C. A movement along the indifference curve for the initial choice (before the price change, U1)
D. A movement from the new indifference curve to the initial indifference curve
answer
C. A movement along the indifference curve for the initial choice (before the price change, U1)
question
What is the income effect?
A. A movement from the initial difference curve to the new indifference curve.
B. A movement along the indifference curve for the optimal choice after the price change (e.g. U2)
C. A movement along the indifference curve for the initial choice (before the price change, U1)
D. A movement from the new indifference curve to the initial indifference curve
answer
A. A movement from the initial difference curve to the new indifference curve.
question
Assume goods are normal. When the price of X increases (holding everything else constant), which of the following is true?
A. The income and substitution effects are in the same direction (less X).
B. The income effect is positive, and the substitution effect is negative.
C. The income and substitution effects are in the same direction (more X).
D. The income effect is negative, and the substitution effect is positive.
answer
A. The income and substitution effects are in the same direction (less X).
question
Assume goods are normal and are complements. When the price of X decreases (holding everything else constant), which of the following is true for good Y?
A. The income and substitution effects are in the same direction (more Y).
B. The income effect is positive, and the substitution effect is negative. SE is larger than IE, so amount of Y decreases.
C. The income effect is negative, and the substitution effect is positive. SE is larger than IE, so amount of Y increases.
D. The income effect is positive, and the substitution effect is negative. SE is smaller than IE, so amount of Y increases.
answer
D. The income effect is positive, and the substitution effect is negative. SE is smaller than IE, so amount of Y increases.
question
Assume that a person buys two goods: X and Y. Assume that the price of good X changes.Which of the following is true?
A. The income effect is typically small for most goods.
B. The substitution effect is zero if the person has L-shaped indifference curves.
C. The substitution effect is very large if the person has linear indifference curves.
D. All of the above.
answer
D. All of the above.
question
A policymaker is considering two different taxes: an income tax ($) and a per unit tax on cigarettes. The tax revenue generated under either tax is equivalent. Which of the following statements are true?
A. The person will worse off under both programs, but will prefer the income tax since their utility under the income tax is higher than that under the per unit tax
B. The person will be better off under either tax program.
C. The person will be worse off under both tax programs but will prefer the per unit tax since their utility under the per unit tax is higher than that under the income tax.
D. The person will worse off under both programs, but will prefer the income tax since their utility under the per unit tax is higher than that under the income tax.
answer
A. The person will worse off under both programs, but will prefer the income tax since their utility under the income tax is higher than that under the per unit tax
question
A policymaker is considering two different subsidies: a cash grant ($) and a per unit subsidy on milk (price of milk falls are subsidy). The subsidy payments are equivalent under both programs. Which of the following statements are true?
A. The person will be worse off under either subsidy program.
B. The person will be worse off under the per unit subsidy and better off under the cash grant. Therefore, the person will prefer the cash grant.
C. The person will better off under both programs, but will prefer the cash grant because they will reach a higher indifference curve under the cash grant than under the per unit subsidy.
D. The person will better off under both programs, but will prefer the per unit subsidy because they will reach a higher indifference curve under the per unity subsidy grant than under the cash grant.
answer
C. The person will better off under both programs, but will prefer the cash grant because they will reach a higher indifference curve under the cash grant than under the per unit subsidy.
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