Download Microeconomics Test 2 Review (Frank): Multiple Choice Questions and Answers and more Exams Economics in PDF only on Docsity!
82 correct solutions.
Microeconomics Test 2 Review (Frank)
82 correct solutions.
Home football games at your college are free for students and most of the students like to go to the game. The 5 hours you waited in the line to get ticket is the _________ cost for you to go to the game. - ANSWER Non-monetary
When the price of shoes falls you will consume more shoes, this is an example of? - ANSWER The Law of Demand
Subsistence levels are? - ANSWER a standard of living (or wage) that provides only the bare necessities of life.
Ten years ago you had never even heard of wireless internet. Now you complete assignments for class on a laptop that accesses the Internet using wireless technology. This is evidence that ___ remain the same, but ___ change. - ANSWER needs, wants
What is utility? - ANSWER The satisfaction people get from their consumption activities.
Utility maximization means? - ANSWER That people try to allocate their resources to maximize their satisfaction.
During Thanksgiving you participated in a pumpkin-pie eating contest since you love pumpkin pie. You really enjoyed the first two pies, the third one was OK, but as soon as you ate the 4th one you became ill and lost the contest. You can assume that... - ANSWER Your total utility increased with each pie you ate up to the 3rd pie. You got more utility from eating the 1st pie than eating the 3rd pie.
Marginal utility is? - ANSWER The additional utility gained from consuming an additional unit of a good.
82 correct solutions.
Laura's total utility from consuming 8, 9, and 10 bonbons is 35, 43, and 45, respectively. Her marginal utility from the 9th bonbon is? - ANSWER 8
If marginal utility is positive as consumption increases, you can assume that... - ANSWER Total utility will increase as consumption increases.
The tendency for marginal utility to decline as consumption increases beyond some point is called the? - ANSWER Law of diminishing marginal utility.
If the marginal utility of the 3rd cup of coffee is 23 and the marginal utility of the 4th cup is 15, you can assume that... - ANSWER There is evidence of the law of diminishing marginal utility.
According to the law of diminishing marginal utility, if you consume less of something - ANSWER then your marginal utility from that consumption increases.
Assume that Dusty has $30 in income, the price of a loaf of bread is $1.50, and the price of a jar of peanut butter is $3. - ANSWER Dusty can buy a maximum of 10 jars of peanut butter or a maximum of 20 loaves of bread.
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. - ANSWER Casey can buy a maximum of 30 pounds of shrimp or a maximum of 50 pounds of fish.
The optimal combination of goods is the? - ANSWER Combination of goods that yields the highest total utility given the consumer's income.
You are trying to decide how to spend your last lunch dollar. - ANSWER You should use that dollar to buy more of the item that will give you the greatest marginal utility per dollar spent.
For two goods, coffee and scones, MU(coffee)/P(coffee) = 4 and MU(scones)/P(scones) = 3. - ANSWER The consumer should purchase more coffee and fewer scones.
82 correct solutions.
A price-taker confronts a demand curve that is horizontal at the market price - ANSWER A perfectly competitive firm is a price taker because it cannot influence price.
- ANSWER
A profit-maximizing perfectly competitive firm must decide only on how much to produce, taking price of the good as ___ - ANSWER Fixed
It takes a bus and a driver to produce bus service for the students in a college town. - ANSWER Therefore, the bus and the driver are the factors of production for bus service.
The short run is defined as? - ANSWER A period in which at least one factor of production is fixed.
The long run is defined as? - ANSWER A period in which all factors of production are variable.
When some factors of production are fixed, in order to increase production by equal amounts, a firm would need to add successively larger and larger quantities of the variable factor. Because the law of ______________ says that it takes larger and larger increases in the variable input to increase output by the same amount. - ANSWER Diminishing returns
The location of the firm is a factor of production that is likely to be fixed in the? - ANSWER Short run
One reason that variable factors of production tend to show diminishing returns in the short run is that there are more and more workers using a fixed amount of productive resources. - ANSWER
To produce 150 units of output, the firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is experiencing _______________. Because the law of diminishing returns says that it takes larger and larger increases in the variable input to increase output by the same amount. - ANSWER diminishing marginal returns
82 correct solutions.
If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is - ANSWER $24. (Total cost increased by $480 and the number of units increased by 20, so the increase in cost per unit is $480/20, or $24.)
Marginal cost is calculated as the change in ________ divided by the change in ______. - ANSWER total costs, output
If a firm is experiencing diminishing returns, you can conclude that marginal costs are _______. - ANSWER Increasing
Assume that a firm uses 13 employee-hours and an office to produce 100 units of output. The price of output is $5, the wage rate is $10, and rent is $200. The firm will earn a profit of - ANSWER $170. (Revenue is $5 times 100, or $500. Total labor costs are $130 and rent is $200, so total costs are $330. $500 - $330 = $170.)
The price equals marginal cost rule for profit maximization is a specific example of the? - ANSWER Cost- benefit core principle
In the _____ run, if a firm chooses to operate and produce output, it must be the case that total revenues are greater than or equal to the cost of variable factors of production. The firm must pay fixed costs whether it operates or not. As long as the firm is covering its variable costs in the short run it will operate even if profit is negative. - ANSWER Short
A profit-maximizing firm will shut down when total revenues are ____ than the cost of variable factors of production. - ANSWER Less
The shutdown condition applies only in the - ANSWER short run
Suppose a firm is collecting $1,700 in total revenues and the total costs of its variable factors of production are $1,900 at its current level of output. One can predict that the firm will - ANSWER Shut down, a firm is better off shutting down if its variable costs are greater than its revenues.
82 correct solutions.
Economic profits are equal to total revenue minus - ANSWER both explicit and implicit costs
Accounting profits minus implicit costs equals - ANSWER economic profits
Normal profits occur when economic profits are - ANSWER 0
The statement, "price distributes goods and services to those that value them the most" refers to the - ANSWER rationing function of price
The statement, "price directs resources across different sectors of the economy" refers to the - ANSWER allocative function of price
Last year Pat was a soybean farmer and Chris was a corn farmer. This year, high demand for ethanol, an automobile fuel made from corn, causes the price of corn to increase. Suppose Pat stopped growing soybeans and began growing corn. This is explained by the - ANSWER incentive principle
One difference between the long run and the short run in a perfectly competitive industry is that firms necessarily earn zero economic profit in the ____ run but may earn positive or negative economic profit in the ____ run. - ANSWER long, short
Free entry of firms is a characteristic of - ANSWER perfectly competitive industries
Barriers to entry are created by government regulation and natural characteristics of a - ANSWER market
If buyers and sellers are free to pursue their own selfish interests, according to the invisible hand theory, the result would be - ANSWER an efficient allocation of resources.
82 correct solutions.
Barriers to entry are forces that limit new firms from joining an industry, and one effect of barriers to entry is to reduce the ability of the invisible hand to - ANSWER allocate resources efficiently.
Economic rent is the difference between the payment made to the supplier of an input and the supplier's - ANSWER reservation price
Mary Jane is willing to baby-sit for $6 an hour. Her neighbor called and asked her to baby-sit for $8 an hour. Mary Jane will earn economic rent of - ANSWER $2 per hour
Economic rent can never be - ANSWER negative
Factors of production most likely to earn positive economic rent are - ANSWER uniquely talented individuals
Suppose several United States software design companies compete with each other in a perfectly competitive environment. If one company decides to move some of its offices to a low-wage country in order to reduce operating costs the other companies will - ANSWER also move to the low wage country in order to remain in the industry. (Firms have an incentive to find the least-cost production methods.)
The No Cash on the Table principle means - ANSWER unexploited opportunities cannot be exploited for long
The Smart for One, Dumb for All principle indicates that - ANSWER pursuing selfish interests sometimes conflicts with social welfare
Price ceilings that are below the equilibrium price result in - ANSWER shortages
If an individual consumer is willing to pay $12 for one unit of a good but finds he can purchase it for $7, he has a consumer surplus of - ANSWER $5.
