Economics
Identify the choice that best completes the statement or answers the question.
____ 1. Elasticity is
a. | a measure of how much buyers and sellers respond to changes in market conditions. |
b. | the study of how the allocation of resources affects economic well-being. |
c. | the maximum amount that a buyer will pay for a good. |
d. | the value of everything a seller must give up to produce a good. |
____ 2. If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
a. | immediately after the price increase |
b. | one month after the price increase |
c. | three months after the price increase |
d. | one year after the price increase |
____ 3. Economists compute the price elasticity of demand as the
a. | percentage change in price divided by the percentage change in quantity demanded. |
b. | change in quantity demanded divided by the change in the price. |
c. | percentage change in quantity demanded divided by the percentage change in price. |
d. | percentage change in quantity demanded divided by the percentage change in income. |
____ 4. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is
a. | 0. |
b. | 1. |
c. | 6. |
d. | 36. |
____ 5. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a
a. | 0.4 percent decrease in the quantity demanded. |
b. | 2.5 percent decrease in the quantity demanded. |
c. | 4 percent decrease in the quantity demanded. |
d. | 40 percent decrease in the quantity demanded. |
____ 6. If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a
a. | 0.0125 percent increase in the quantity demanded. |
b. | 4 percent increase in the quantity demanded. |
c. | 5 percent increase in the quantity demanded. |
d. | 80 percent increase in the quantity demanded. |
____ 7. If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price results in a
a. | 0.5 percent increase in the quantity demanded. |
b. | 2 percent increase in the quantity demanded. |
c. | 4.5 percent increase in the quantity demanded. |
d. | 5 percent increase in the quantity demanded. |
____ 8. Demand is inelastic if the price elasticity of demand is
a. | less than 1. |
b. | equal to 1. |
c. | greater than 1. |
d. | equal to 0. |
____ 9. Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is
a. | 2.00. |
b. | 1.55. |
c. | 1.00. |
d. | 0.64. |
____ 10. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
a. | a 7.5 increase in the price of the good |
b. | a 13.33 percent increase in the price of the good |
c. | an increase in the price of the good from $7.50 to $10 |
d. | an increase in the price of the good from $10 to $17.50 |
____ 11. Profit is defined as total revenue
a. | plus total cost. |
b. | times total cost. |
c. | minus total cost. |
d. | divided by total cost. |
____ 12. Daphne sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
a. | $25. |
b. | $124.50. |
c. | $125. |
d. | $150. |
Table 13-3
Number of
Workers |
Output | Fixed
Cost |
Variable
Cost |
Total
Cost |
0 | 0 | $50 | $0 | $50 |
1 | 90 | $50 | $20 | $70 |
2 | 170 | $50 | $40 | $90 |
3 | 230 | $50 | $60 | $110 |
4 | 240 | $50 | $80 | $130 |
____ 13. Refer to Table 13-3. The marginal product of the second worker is
a. | 90 units. |
b. | 85 units. |
c. | 80 units. |
d. | 20 units. |
____ 14. If marginal cost is greater than average total cost, then
a. | profits are increasing. |
b. | economies of scale are becoming greater. |
c. | average total cost remains constant. |
d. | average total cost is increasing. |
____ 15. The minimum points of the average variable cost and average total cost curves occur where the
a. | marginal cost curve lies below the average variable cost and average total cost curves. |
b. | marginal cost curve intersects those curves. |
c. | average variable cost and average total cost curves intersect. |
d. | slope of total cost is the smallest. |
Figure 13-10
____ 16. Refer to Figure 13-10. The three average total cost curves on the diagram labeled ATC1, ATC2, and ATC3 most likely correspond to three different
a. | time horizons. |
b. | products. |
c. | firms. |
d. | factory sizes. |
____ 17. Refer to Figure 13-10. The firm experiences economies of scale if it changes its level of output from
a. | Q1 to Q2. |
b. | Q2 to Q3. |
c. | Q3 to Q4. |
d. | Q4 to Q5. |
Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
Quantity | Total Revenue | Total Cost |
0 | $0 | $10 |
1 | $9 | $14 |
2 | $18 | $19 |
3 | $27 | $25 |
4 | $36 | $32 |
5 | $45 | $40 |
6 | $54 | $49 |
7 | $63 | $59 |
8 | $72 | $70 |
9 | $81 | $82 |
____ 18. Refer to Table 14-9. If the firm produces 4 units of output,
a. | marginal cost is $4. |
b. | total revenue is greater than variable cost. |
c. | marginal revenue is less than marginal cost. |
d. | the firm is maximizing profit. |
____ 19. Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost?
a. | 3 units |
b. | 6 units |
c. | 8 units |
d. | 9 units |
____ 20. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to
a. | $6. |
b. | $7. |
c. | $8. |
d. | $9. |
____ 21. Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal cost is equal to
a. | $5. |
b. | $7. |
c. | $9. |
d. | $10. |
____ 22. Refer to Table 14-9. The maximum profit available to the firm is
a. | $2. |
b. | $3. |
c. | $4. |
d. | $5. |
____ 23. Refer to Table 14-9. If the firm’s marginal cost is $11, it should
a. | increase production to maximize profit. |
b. | increase the price of the product to maximize profit. |
c. | advertise to attract additional buyers to maximize profit. |
d. | reduce production to increase profit. |
____ 24. Refer to Table 14-9. If the firm’s marginal cost is $5, it should
a. | reduce fixed costs by lowering production. |
b. | increase production to maximize profit. |
c. | decrease production to maximize profit. |
d. | maintain its current level of production to maximize profit. |
Figure 14-8
Suppose a firm operating in a competitive market has the following cost curves:
____ 25. Refer to Figure 14-8. The firm will exit the market for any price on the line segment
a. | ABCD. |
b. | AB. |
c. | CD. |
d. | None of the above is correct. |
____ 26. Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should
a. | operate his business as long as he rents at least 7 boats per month. |
b. | operate his business as long as he rents at least 1 boat per month. |
c. | operate his business as long as he rents all 10 boats each month. |
d. | raise the price he charges per boat rental. |
____ 27. When a perfectly competitive firm decides to shut down, it is most likely that
a. | marginal cost is above average variable cost. |
b. | marginal cost is above average total cost. |
c. | price is below the firm’s average variable cost. |
d. | fixed costs exceed variable costs. |
____ 28. A sunk cost is one that
a. | changes as the level of output changes in the short run. |
b. | was paid in the past and will not change regardless of the present decision. |
c. | should determine the rational course of action in the future. |
d. | has the most impact on profit-making decisions. |
____ 29. In the long run, a firm will exit a competitive industry if
a. | total revenue exceeds total cost. |
b. | the price exceeds average total cost. |
c. | average total cost exceeds the price. |
d. | Both a and b are correct. |