Question 1. If a 5 percent decrease in the price of long-distance phone calls leads to a 25 percent increase in the number of calls made, we can then conclude that the demand for long-distance phone calls at the current rate is ________.
a. elastic
b. inelastic
c. unitarily elastic
d. cannot be determined on the basis of data given
Question 2. The concept of derived demand can best be illustrated by the statement:
a. An increase in the price of butter results in an increase in the demand for margarine.
b. A decrease in the price of automobiles results in greater demand for automobiles, and the greater demand in automobiles results in greater demand for automobile windshields.
c. The demand curve is derived from the law of supply.
d. The demand for clothes depends upon buyers' incomes.
Question 3. One way to view the law of diminishing marginal productivity is to say that ________________.
a. as more and more inputs (e.g., labor) are added to the production process, there will come a point where the marginal productivity will actually fall and even become negative
b. as more and more inputs are added to the production process, there will not be a change to total productivity
c. adding inputs to the production process will cause marginal productivity to keep rising infinitely, because, like money, there can never be enough supplies
d. as more and more units of input are added, the total product becomes ever lower
Question 4. The costs of a firm that vary with the level of production are called ___________.
a. fixed costs
b. total costs
c. variable costs
d. sunk costs
Question 5. A perfect competitor can reap an economic profit ________________.
a. in the short term
b. in the long term
c. never
d. in both the short term and long term