Question 1. When price is above the equilibrium level (as with a price floor), suppliers offer more than demanders wish to buy. T F
Question 2. Suppose the numbers in parenthesis represent two points on a line: (59 billion quarts; $4) and (78 billion quarts; $6). The line is likely a
a. production possibilities frontier for milk
b. supply curve for milk
c. demand curve for milk
d. time series line
Question 3. Marginal utility is measured by the maximum amount of money a consumer is willing to pay for one more unit of a good. T F
Question 4. A high price and a low total utility mean
a. low marginal utility
b. large quantities are being sold
c. high marginal utility
d. a high ratio of price to marginal utility
Question 5. Elaine values the utility of her first cup of coffee at $1; a second cup, $.75; and a third cup. $.50. If elaine drinks 3 cups of coffee for beakfast, her total utility is equal to
a. $.50, the value of her last cup of coffee
b. $1.00, the value of her first cup of coffee
c. marginal utility
d. $2.25
e. $1.50
Question 6. Tom is buying a quantity of wheat at which the MU (in dollars) exceeds price. Tom should
a. reduce wheat consumption, thus raising P to the level at which MU = P
b. reduce wheat consumption, thus raising MU to the level at which MU = P
c. increase wheat consumption, thus raising P to the level at which MU = P
d. increase wheat consumption, thus lowering MU to the level at which MU = P
Question 7. The theory of consumer choice is based on the hypothesis that each consumer wants to
a. maximize her consumer's surplus
b. minimize her consumer's surplus
c. minimize the rate at which her MU dereases
d. minimize the percentage of her budget spent on inferior goods.
Question 8. Along a typical straight-line demand curve (dropping minus signs)
a. price elasticity of demand gets larger as quantity demanded gets larger
b. price elasticity of demand gets smaller as quantity demanded gets larger
c. price elasticity of demand always equals one
d. price elasticity of demand is constant, although not necessarily equal to one
Question 9. A horizontal demand curve is perfectly elastic because any change in price will bring an infinite change in quantity demanded. T F
Question 10. If the price of gasoline rises by 20% and the quantity consumed falls by 5%
a. demand is elastic
b. demand is inelastic
c. demand is unit-elastic
d. elasticity of demand cannot be specified.
Question 11. Winston raises and sells 100,000 genetically identical rats for scientific experiments each year. Because feed prices have risen, Winston had to raise his price from $1.00 to $1.50 per rat. As a result, sales fell to 80,000 rats per year. The price elasticity for rats is
a. .22
b. .28
c. .55
c. 2.0
Question 12. If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of ciggies from $1.00 to $1.30 would reduce quantities demanded by about
a. 27 percent
b. 40 percent
c. 12 percent
d. 95 percent
Question 13. According to the estimates of a Harvard economist, the demand for cocaine is unit elastic. This means that if the priceof cocaine were to rise by10%, (1) the quantity demanded would fall by 10%, and (2) dealer income from the sale of cocaine would fall 10%. Which of these two starements is/are correct?
a. 1 and 2
b. 1 but not 2
c. 2 but not 1
d. neither 1 nor 2
Question 14. A production function describes how much
a. of one output can be produced given any possible level of production of other outputs
b. the production of any level of output will cost
c. output can be produced given any combination of inputs
d. output a firm must produce to function at maximum efficiency
Question 15. Marginal physical product can tell a producer
a. at what point to stop adding inputs to the production process
b. how much profit will be made at each level of production
c. how much the last input added to the total amount of revenue
d. how much the last input added to the total amount of production
Workers--Toys
1--5
2--12
3--22
4--30
5--35
Question 16. In the table above, the marginal physical product begins to diminish with the addition of the
a. second worker
b. third worker
c. fourth worker
d. marginal physical product never diminishes in the table above
Question 17. When the marginal revenue product of an input is greater than its price
a. the producer should expand use of that input
b. the price of the input will automatically fall in a free market
c. the producer should reduce use of that input
d. the producer is using just the right quantity of that input
Question 18. The MPP of labor is 60 and the price of labor per period is $20. The MPP of machinery is 75 and the price of machinery per period is $25. In order to achieve optimal input proportions, the firm should
a. use more labor and less machinery
b. use more machinery and less labor
c. use more labor and the same amount of machinery
d. use the current combination
Question 19. At a given level of wheat output, one more unit of labor would produce 10 extra bushels and one more unit of seed would produce 30 extra bushels. A unit of labor costs $6 and a unit of seed costs $12. The farmer should
a. produce more wheat
b. buy more seed and less labor
c. buy only seed
d. buy less seed and more labor
Question 20. The law of diminishing marginal returns is the same as decreasing returns to scale
T F
Question 21. A firm can choose a quantity of output, and the price is then determined by
a. the government
b. consumers' demand
c. the supply schedule
d. the average cost
Question 22. Marginal revenue is
a. the addition to a firm's revenue from a $1 change in price
b. the addition to a firm's revenue from a one-unit increase in output
c. the addition to a firm's revenue from the sale of inferior output
d. the addition to a firm's revenue from a $1 reduction in marginal cost.
Question 23. Which are most important to a profit-maximizing firm in determining its optimum level of output?
a. marginal cost and marginal revenue
b. total cost and total revenue
c. average cost and average revenue
d. fixed costs
Question 24. At a profit-maximizing level of output
a. marginal revenue equals marginal cost
b. the slope of the total profit curve is zero
c. marginal profit equals zero
d. all the above are true
Question 25. If the marginal cost of an additional unit of output is greater than average cost, then average cost must rise. T F