MicroEcon Final Review

question

Which of the following best defines opportunity cost

answer

It is the amount of one product that must be given up in order to produce an additional unit of production

question

Which of the following explains why a production possibilities curve is often represented as concave from the origin

answer

Increasing opportunity cost

question

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

answer

Increasing the demand for pretzels and therefore the price of pretzels

question

In the market depicted in the graph if the government imposes a price ceiling of one dollar per gallon of gasoline which of the following will result

answer

A shortage of 6,000,000,000 gallons

question

Assume that Maria spends her entire income on the purchase of two good, x and Y. If her income and the prices of good x and Y all double, Clark will

answer

The consumption bundle will not change

question

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to

answer

rise initially, but eventually fall

question

In the short run which of the following costs must continuously decrease as output produced increases

answer

Average fixed cost

question

According to the graph if the firm produces 10 units of output, its economic profits will equal

answer

$50

question

According to the graph which of the following is most likely to occur if the firm increases production beyond 10 units

answer

The firm would have to lower its price to sell more than 10 units

question

Which of the following statements about a constant cost perfectly competitive industry in long run equilibrium must be true

answer

An increase in demand will cause no change in the long run equilibrium price

question

In which of the following market structures do firms recognize their mutual interdependence

answer

Oligopoly

question

Assume that a profit maximizing firm is perfectly competitive in both the output and the factor market and is at its long run equilibrium. The firms output is 100 units, it's total revenue is $600, and the fixed cost of production is $50. Based on this information which of the following is true

answer

The marginal cost is $6 and the average variable cost is $5.50

question

Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The wage government offers businesses a wage where

answer

The wage rate of rural workers decreases and the total hours worked by rural workers decreases

question

A per-unit tax on pollution produced by a firm will affect the firms output and pollution levels in which of the following ways

answer

Output decreases and pollution decreases

question

Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy holds a comparative advantage in the production of wine then which of the following statements is not true

answer

Italy must hold an absolute advantage in the production of wine

question

Following a pro long power outage, the price of flashlights normally increases significantly. If cities had passed laws prohibiting price increase for flashlights, during power outages such laws would

answer

Create a shortage of flashlights /to the right

question

Using the graph what is the price paid by consumers and the net price received by producers after the tax is paid

answer

$11 paid by consumers and $10 received by producers

question

According to the diagram what is the dollar amount of the unit tax

answer

One dollar

question

According to the law of diminishing marginal utility which of the following is true

answer

Total satisfaction decreases as more units of a good are consumed

question

Within the range of market demand which of the following is consistent with the conditions of a natural

answer

Long run average total cost decreases as output increases

question

A farmer grows wheat using two inputs: labor and land whose prices are constant. If he doubles his inputs, he finds that the quantity of wheat produced more than doubles. Therefore it must be

answer

Downward sloping

question

A Constant cost perfectly competitive gadget industry is in long run equilibrium. An increase in the number of consumers of gadgets will most likely result in

answer

A higher short run price for gadgets, followed by an increase in the quantity produced

question

According to the graph the profit maximizing firm should

answer

Exit if conditions do not improve in the long run because marginal revenue is < variable cost. Pp

question

If the average variable cost of producing five units of a good is $100 on the average variable cost of producing six units is $150 in the marginal cost of increasing output from 5 to 6 units is

answer

$400

question

According to the table which shows the relationship between the number of workers and coal output how many workers with the coal company want to hire if the price of coal we're competitively priced at five dollars per ton and the wage rate was $40 per day

answer

question

According to the table above which shows the relationship between the number of coal
output in the marginal product of the second worker is

answer

question

Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for 10000$ per year she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year or $125,000. If the total revenue from her printing company is $155,000 or total economic profit is

answer

-$5000

question

If the production of a good generates a positive externality the government can increase allocative efficiency by

answer

Subsidizing the producer of the good

question

Which of the following is the best example of a pure public good

answer

National defense

question

According to the information in the table above which of the following statements is true if both countries have the same number of workers

answer

Country a has an absolute advantage in the manufactured goods but a comparative advantage in service goods

question

Which of the following would most likely result in a decrease in the equilibrium price of oranges

answer

New studies suggest that oranges contain traces of cancer-causing substance is due to pesticide residue

question

If a severe drought destroys a significant portion of the peanut crap and peanut farmers revenues increased, which of the following is true over the observed range of prices?

answer

The demand for peanuts must be price in elastic

question

Promoters of a rock group know that if they charge $8 a ticket, 400 people would buy tickets for a concert, and if they charge 4$ a ticket, 800 people would buy tickets. Over this price range

answer

Unit elastic (straight line, ratio)

question

Assume that people like onions on their hamburgers. If the supply of hamburgers decreases, the demand for onions will most likely

answer

Decrease because hamburgers and onions are complements

question

If labor is the only variable input in the production process, the short run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added

answer

Output increases but at a decreasing rate and thus the cost of producing each additional unit of output increases

question

Add a firms current rate of output, the marginal cost is $65, the average variable cost is $35, the average fixed cost is $30, and the product price is $65. Which of the following statements is true for the firm

answer

Economic profits are zero because price equals average total cost

question

The graph above shows the short run cost curves of a firm in a perfectly competitive market. Which of the following are true that the firms profit maximizing output level

answer

Price taker = perfectly competitive
Price exceeds the average total cost, marginal cost equals average total cost, new firms are likely to enter the market in the long run

question

Which of the following best describes an oligopolistic market

answer

Few competing sellers with similar products and high barriers to entry

question

The payoff matrix shows the per-unit profits associated with the production strategies to utility companies, UA and UB. Each firm has two choices, to reduce production by 10% or by 20%. The first entry in each cell indicates the profits in UA and the second, the profits to UB. based on the information and assuming no cooperation which of the following statements is true

answer

Both companies have incentive to reduce production by 10%

question

In order to minimize short run losses a profit maximizing firm will necessarily shut down producing under which of the following

answer

Average revenue is less than average variable cost

question

An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is

answer

Relatively inelastic

question

If a firm employees only labor and capital in its production process, which of the following best describes the optimal combination of input for the firm in the long run

answer

The marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital

question

Most economists argue that a monopoly is inefficient because it

answer

Produces too little output and sets a price above marginal cost

question

After graduating from high school Peggy Smith decided to enroll in a two year program at a local community college rather than to except a job that offered a salary of $12,000 per year. If the annual tuition and fees are $4600 the annual opportunity cost of attending the community college is

answer

$16,600

question

In which of the following situations is a good not scares

answer

Consumers give up nothing to obtain more of the good

question

Suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. How will the imposition of a sales tax on shoes affect the consumer surplus,

answer

Consumer surplus, producer surplus, and total surplus all decrease

question

At her current level of consumption a consumer is willing to pay up to $1.50 for a bottle of water and $1500 for a diamond ring because the

answer

Marginal utility of a bottle of water is less than the marginal utility of a diamond ring

question

If a firms production process exhibits economies of scale, which of the following will occur when the firms output increases

answer

Long run average total costs will fall

question

Which of the following helps explain why the demand curve for a normal good is downward sloping

answer

The income and substitution effects move the quantity demanded in the same direction

question

The graph above shows the total revenue and the total cost curves for a firm in which type of market structure and what is the profit maximizing quantity

answer

Market structure is perfect competition and the quantity is Q1

question

If total revenue is increasing as output increases, marginal revenue is

answer

Greater than zero

question

In monopolistic competition, which of the following most accurately describes the long run equilibrium conditions for a firm

answer

P=ATC
MR=MC
P>MC

question

In a perfectly competitive free market economy a wage gap between two workers can be explained by differences in all of the following except their

answer

Taste for luxury goods

question

A monopolistically competitive firm advertises in order to

answer

Make the demand for its product less price elastic

question

A profit maximizing firm should hire an input up to the point at which

answer

Marginal revenue product equals marginal resource cost

question

The diagram shows the market cost and revenue curves. The socially optimal quantity and the per-unit tax that will achieve the socially optimal quantity or which of the

answer

Q1 w a pet unit tax of P4-P2

1 of 56

question

Which of the following best defines opportunity cost

answer

It is the amount of one product that must be given up in order to produce an additional unit of production

question

Which of the following explains why a production possibilities curve is often represented as concave from the origin

answer

Increasing opportunity cost

question

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

answer

Increasing the demand for pretzels and therefore the price of pretzels

question

In the market depicted in the graph if the government imposes a price ceiling of one dollar per gallon of gasoline which of the following will result

answer

A shortage of 6,000,000,000 gallons

question

Assume that Maria spends her entire income on the purchase of two good, x and Y. If her income and the prices of good x and Y all double, Clark will

answer

The consumption bundle will not change

question

Suppose that a firm begins to hire workers for a newly completed plant with a fixed amount of machinery. As the firm hires additional workers, one would expect the marginal product to

answer

rise initially, but eventually fall

question

In the short run which of the following costs must continuously decrease as output produced increases

answer

Average fixed cost

question

According to the graph if the firm produces 10 units of output, its economic profits will equal

answer

$50

question

According to the graph which of the following is most likely to occur if the firm increases production beyond 10 units

answer

The firm would have to lower its price to sell more than 10 units

question

Which of the following statements about a constant cost perfectly competitive industry in long run equilibrium must be true

answer

An increase in demand will cause no change in the long run equilibrium price

question

In which of the following market structures do firms recognize their mutual interdependence

answer

Oligopoly

question

answer

The marginal cost is $6 and the average variable cost is $5.50

question

Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The wage government offers businesses a wage where

answer

The wage rate of rural workers decreases and the total hours worked by rural workers decreases

question

A per-unit tax on pollution produced by a firm will affect the firms output and pollution levels in which of the following ways

answer

Output decreases and pollution decreases

question

Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy holds a comparative advantage in the production of wine then which of the following statements is not true

answer

Italy must hold an absolute advantage in the production of wine

question

answer

Create a shortage of flashlights /to the right

question

Using the graph what is the price paid by consumers and the net price received by producers after the tax is paid

answer

$11 paid by consumers and $10 received by producers

question

According to the diagram what is the dollar amount of the unit tax

answer

One dollar

question

According to the law of diminishing marginal utility which of the following is true

answer

Total satisfaction decreases as more units of a good are consumed

question

Within the range of market demand which of the following is consistent with the conditions of a natural

answer

Long run average total cost decreases as output increases

question

A farmer grows wheat using two inputs: labor and land whose prices are constant. If he doubles his inputs, he finds that the quantity of wheat produced more than doubles. Therefore it must be

answer

Downward sloping

question

A Constant cost perfectly competitive gadget industry is in long run equilibrium. An increase in the number of consumers of gadgets will most likely result in

answer

A higher short run price for gadgets, followed by an increase in the quantity produced

question

According to the graph the profit maximizing firm should

answer

Exit if conditions do not improve in the long run because marginal revenue is < variable cost. Pp

question

If the average variable cost of producing five units of a good is $100 on the average variable cost of producing six units is $150 in the marginal cost of increasing output from 5 to 6 units is

answer

$400

question

answer

question

According to the table above which shows the relationship between the number of coal
output in the marginal product of the second worker is

answer

question

answer

-$5000

question

If the production of a good generates a positive externality the government can increase allocative efficiency by

answer

Subsidizing the producer of the good

question

Which of the following is the best example of a pure public good

answer

National defense

question

According to the information in the table above which of the following statements is true if both countries have the same number of workers

answer

Country a has an absolute advantage in the manufactured goods but a comparative advantage in service goods

question

Which of the following would most likely result in a decrease in the equilibrium price of oranges

answer

New studies suggest that oranges contain traces of cancer-causing substance is due to pesticide residue

question

If a severe drought destroys a significant portion of the peanut crap and peanut farmers revenues increased, which of the following is true over the observed range of prices?

answer

The demand for peanuts must be price in elastic

question

Promoters of a rock group know that if they charge $8 a ticket, 400 people would buy tickets for a concert, and if they charge 4$ a ticket, 800 people would buy tickets. Over this price range

answer

Unit elastic (straight line, ratio)

question

Assume that people like onions on their hamburgers. If the supply of hamburgers decreases, the demand for onions will most likely

answer

Decrease because hamburgers and onions are complements

question

If labor is the only variable input in the production process, the short run marginal cost curve is upward sloping because which of the following occurs as more and more labor is added

answer

Output increases but at a decreasing rate and thus the cost of producing each additional unit of output increases

question

answer

Economic profits are zero because price equals average total cost

question

The graph above shows the short run cost curves of a firm in a perfectly competitive market. Which of the following are true that the firms profit maximizing output level

answer

Price taker = perfectly competitive
Price exceeds the average total cost, marginal cost equals average total cost, new firms are likely to enter the market in the long run

question

Which of the following best describes an oligopolistic market

answer

Few competing sellers with similar products and high barriers to entry

question

answer

Both companies have incentive to reduce production by 10%

question

In order to minimize short run losses a profit maximizing firm will necessarily shut down producing under which of the following

answer

Average revenue is less than average variable cost

question

An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is

answer

Relatively inelastic

question

If a firm employees only labor and capital in its production process, which of the following best describes the optimal combination of input for the firm in the long run

answer

The marginal product per dollar spent on labor is equal to the marginal product per dollar spent on capital

question

Most economists argue that a monopoly is inefficient because it

answer

Produces too little output and sets a price above marginal cost

question

answer

$16,600

question

In which of the following situations is a good not scares

answer

Consumers give up nothing to obtain more of the good

question

Suppose that the market supply curve for shoes is upward sloping and the market demand curve is downward sloping. How will the imposition of a sales tax on shoes affect the consumer surplus,

answer

Consumer surplus, producer surplus, and total surplus all decrease

question

At her current level of consumption a consumer is willing to pay up to $1.50 for a bottle of water and $1500 for a diamond ring because the

answer

Marginal utility of a bottle of water is less than the marginal utility of a diamond ring

question

If a firms production process exhibits economies of scale, which of the following will occur when the firms output increases

answer

Long run average total costs will fall

question

Which of the following helps explain why the demand curve for a normal good is downward sloping

answer

The income and substitution effects move the quantity demanded in the same direction

question

The graph above shows the total revenue and the total cost curves for a firm in which type of market structure and what is the profit maximizing quantity

answer

Market structure is perfect competition and the quantity is Q1

question

If total revenue is increasing as output increases, marginal revenue is

answer

Greater than zero

question

In monopolistic competition, which of the following most accurately describes the long run equilibrium conditions for a firm

answer

P=ATC
MR=MC
P>MC

question

In a perfectly competitive free market economy a wage gap between two workers can be explained by differences in all of the following except their

answer

Taste for luxury goods

question

A monopolistically competitive firm advertises in order to

answer

Make the demand for its product less price elastic

question

A profit maximizing firm should hire an input up to the point at which

answer

Marginal revenue product equals marginal resource cost

question

The diagram shows the market cost and revenue curves. The socially optimal quantity and the per-unit tax that will achieve the socially optimal quantity or which of the

answer

Q1 w a pet unit tax of P4-P2

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