Multiple Choice Questions

Marginal product of labor refers to the-last unit of output produced by labor at the end of each period.-increase in output resulting from employing one more unit of labor.-total output divided by the number of labor employed.-smallest unit of the output produced by labor.
  • increase in output resulting from employing one more unit of labor.
  • is the satisfaction or happiness one receives from consuming it.
  • an increase in the value of land you own when a nearby development is completed
  • Change in total utility divided by change in quantity consumed
When diminishing marginal utility starts happening as a person consumes more and more of a given good-total utility will decrease at a diminishing rate.-total utility will increase at a diminishing rate.-marginal utility will increase at a diminishing rate.-total utility will become negative.
  • is the satisfaction or happiness one receives from consuming it.
  • total utility will increase at a diminishing rate.
  • marginal utility is positive for the fourth slice and negative for the fifth slice.
  • accounting profits are greater than zero.
Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called
  • subsidized.
  • total explicit costs.
  • nonexcludability.
  • explicit costs.
Oscar makes purchases of an existing product (X) such that the marginal utility of the last unit he consumes is 10 utils and the price is $He also tries a new product (Y) and the marginal utility of the last unit he consumes is 8 utils and the price is $The equal marginal principle suggests that Oscar should-increase his consumption of product X and decrease his consumption of product Y.-increase his consumption of product X and increase his consumption of product Y.-increase his consumption of product Y and decrease his consumption of product X.-decrease his consumption of product Y and decrease his consumption of product X.
  • bike path around a city or town.
  • forgone rent from the building owned and used by Company X
  • The more pizza Joe eats, the less he enjoys an additional slice.
  • increase his consumption of product Y and decrease his consumption of product X.
Among the following examples, the one that best illustrates a public good is a(n)
  • forgone rent from the building owned and used by Company X
  • bike path around a city or town.
  • negative
  • other than the ones who consumed the product.
The price elasticity of demand increases with the length of the period considered because
  • price would increase and its output would decrease
  • consumers will be better able to find substitutes.
  • sensitivity of consumer purchases to price changes.
  • consumers behave rationally, attempting to maximize their satisfaction.
Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa / Pa = 8 and MUb / Pb =To maximize utility without spending more money, Alex should-purchase less of product A and more of product B.-purchase more of product A and less of product B.-purchase more of both product A and product B.-make no change in purchases of products A and B.
  • increase the marginal utility of the last unit consumed of this good.
  • price would increase and its output would decrease
  • purchase more of product A and less of product B.
  • The more pizza Joe eats, the less he enjoys an additional slice.
If all resources used in the production of a product are increased by 10% and output increases by less than 5%, then the firm is experiencing-economies of scale.-diseconomies of scale.-constant returns to scale.-decreasing average total costs.
  • 20% reduction in price.
  • total explicit costs.
  • economies of scale.
  • diseconomies of scale.
In which instances will total revenues decline?
  • price rises and Ed equals -2.47
  • different across each price range.
  • nonrivalry and nonexcludability.
  • positive, indicating substitute goods.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?-payments of wages to its office workers-rent paid for the use of equipment owned by the Schultz Machinery Company-use of savings to pay operating expenses instead of generating interest income-economic profits resulting from current production
  • increase the marginal utility of the last unit consumed of this good.
  • use of savings to pay operating expenses instead of generating interest income
  • an increase in the value of land you own when a nearby development is completed
  • The time interval considered is long.
Use the following information to answer the question below. It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Based on the preceding information, which of the following policies would be most appropriate for dealing with this problem?
  • use of savings to pay operating expenses instead of generating interest income
  • increase the marginal utility of the last unit consumed of this good.
  • Levy a tax on the producers of paper products and use the tax revenues to clean up the river.
  • purchase more of product A and less of product B.
Which of the following factors will make the demand for a product relatively elastic?
  • The time interval considered is long.
  • use of savings to pay operating expenses instead of generating interest income
  • The consumer considers the prices of the products.
  • an increase in the value of land you own when a nearby development is completed
Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $1/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be-$1/unit.-less than $1/unit.-greater than $2/unit.-greater than $1/unit but less than $2/unit.
  • nonexcludability.
  • less than $1/unit.
  • costs that change with the level of production.
  • economies of scale.
In a free-market economy, a product that entails a positive externality (additional social benefit) will be
  • diseconomies of scale.
  • underproduced.
  • subsidized.
  • explicit costs.
Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is-zero.-negative.-positive, but decreasing.-less than the total utility.
  • subsidized.
  • other than the ones who consumed the product.
  • negative
  • forgone rent from the building owned and used by Company X
The larger the diameter of a natural gas pipeline is, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of one reason for-economies of scale.-diminishing returns to scale.-diminishing marginal returns.-increasing marginal cost.
  • a positive number.
  • 20% reduction in price.
  • diseconomies of scale.
  • economies of scale.
After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the-marginal utility for four pizza slices is negative.-total utility for five pizza slices is negative.-marginal utility is positive for the fourth slice and negative for the fifth slice.-marginal utility for the fourth slice is the largest among all slices.
  • increase the marginal utility of the last unit consumed of this good.
  • marginal utility is positive for the fourth slice and negative for the fifth slice.
  • The marginal cost curve cuts the average variable cost curve at its lowest point.
  • total utility will increase at a diminishing rate.
Along a linear downward-sloping demand curve, the price elasticity of demand will be
  • different across each price range.
  • price rises and Ed equals -2.47
  • has benefits available to all, including nonpayers.
  • total explicit costs.
Marginal utility is equal to-total utility multiplied by quantity consumed.-total utility divided by quantity consumed.-change in total utility multiplied by change in quantity consumed.-change in total utility divided by change in quantity consumed.
  • cannot be reduced by producing less output.
  • change in total utility divided by change in quantity consumed.
  • is the satisfaction or happiness one receives from consuming it.
  • The more pizza Joe eats, the less he enjoys an additional slice.
Use the following information to answer the question below. It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an
  • purchase more of product A and less of product B.
  • The consumer considers the prices of the products.
  • 20% reduction in price.
  • overproduction of paper in the mills.
Accounting profits equal total revenue minus-total explicit costs.-total implicit costs.-total economic costs.-economic profits.
  • 20% reduction in price.
  • total explicit costs.
  • diseconomies of scale.
  • less than $1/unit.
The decision-making process followed by consumers to maximize utility assumes that-consumers behave rationally, attempting to maximize their satisfaction.-consumers have unlimited incomes.-consumers do not know how much marginal utility they obtain from consuming additional units of various products.-consumers are unable to rank their preferences.
  • consumers behave rationally, attempting to maximize their satisfaction.
  • total utility will increase at a diminishing rate.
  • cannot be reduced by producing less output.
  • is the satisfaction or happiness one receives from consuming it.
If the consumption of a product or service involves external benefits, then the government can improve efficiency in the market by
  • sensitivity of consumer purchases to price changes.
  • providing a subsidy to correct for an underallocation of resources.
  • increase the marginal utility of the last unit consumed of this good.
  • sensitivity of the firms production (or sales) to price changes.
Unlike a private good, a public good
  • has benefits available to all, including nonpayers.
  • a measure of one's preference or taste for it.
  • sensitivity of consumer purchases to price changes.
  • Change in total utility divided by change in quantity consumed
The price elasticity of demand for widgets is 0.Assuming no change in the demand curve for widgets, a 16% increase in sales implies a
  • a positive number.
  • economies of scale.
  • consumers will be better able to find substitutes.
  • 20% reduction in price.
The utility from a specific product is
  • a measure of one's preference or taste for it.
  • sensitivity of the firms production (or sales) to price changes.
  • sensitivity of consumer purchases to price changes.
  • consumers will be better able to find substitutes.
If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be
  • utility.
  • underproduced.
  • subsidized.
  • a positive number.
The satisfaction or happiness one gets from consuming a good or service is called
  • utility.
  • subsidized.
  • a positive number.
  • 5% and quantity supplied rises by 7%.
Which of the following is an assumption of the decision-making process followed by consumers to maximize utility?-The consumer's income increases as prices of goods increase.-The consumer considers the prices of the products.-The consumer oftentimes is not sure about her preferences.-Marginal utility always increases as more units of a good are consumed.
  • The time interval considered is long.
  • The consumer considers the prices of the products.
  • an increase in the value of land you own when a nearby development is completed
  • purchase more of product A and less of product B.
If a good that generates negative externalities were priced to take these negative externalities into account, its
  • price would increase and its output would decrease
  • the short-run supply curve for pork is less elastic than the long-run supply curve for pork.
  • The time interval considered is long.
  • positive, indicating substitute goods.
The two main characteristics of a public good are
  • nonrivalry and nonexcludability.
  • price rises and Ed equals -2.47
  • positive, indicating substitute goods.
  • 5% and quantity supplied rises by 7%.
If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be-$200.-$250.-$800.-$3,200.
  • subsidized.
  • $930.
  • 0.5.
  • $200.
Which situation is consistent with the law of diminishing marginal utility?-The more pizza Joe eats, the more he enjoys an additional slice.-The more pizza Joe eats, the less he enjoys an additional slice.-Joe's marginal utility from eating pizza becomes positive after eating three slices.-Joe's marginal utility from eating pizza reaches a maximum when total utility is zero.
  • consumers behave rationally, attempting to maximize their satisfaction.
  • The marginal cost curve cuts the average variable cost curve at its lowest point.
  • use of savings to pay operating expenses instead of generating interest income
  • The more pizza Joe eats, the less he enjoys an additional slice.
A public good
  • consumers will be better able to find substitutes.
  • is the satisfaction or happiness one receives from consuming it.
  • is available to all and cannot be denied to anyone.
  • Change in total utility divided by change in quantity consumed
Cash expenditures a firm makes to pay for resources are called-implicit costs.-explicit costs.-normal profit.-opportunity costs.
  • utility.
  • providing a subsidy to correct for an underallocation of resources.
  • explicit costs.
  • a positive number.
When the price of candy bars increased from $0.545 to $0.55, the quantity demanded changed from 21,000 per day to 19,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is
  • increase the marginal utility of the last unit consumed of this good.
  • 0.5.
  • $930.
  • $165
The supply of product X is elastic if the price of X rises by
  • 5% and quantity supplied rises by 7%.
  • is the satisfaction or happiness one receives from consuming it.
  • nonrivalry and nonexcludability.
  • sensitivity of consumer purchases to price changes.
If the price of product X increases, then the resulting decline in the amount purchased will-necessarily increase the consumer's total utility from his total purchases.-increase the marginal utility of the last unit consumed of this good.-increase the total utility from purchases of this good.-reduce the marginal utility of the last unit consumed of this good.
  • increase in output resulting from employing one more unit of labor.
  • Levy a tax on the producers of paper products and use the tax revenues to clean up the river.
  • increase the marginal utility of the last unit consumed of this good.
  • consumers behave rationally, attempting to maximize their satisfaction.
It takes a considerable amount of time to increase the production of pork. This implies that
  • are not directly involved in the transaction or activity.
  • the short-run supply curve for pork is less elastic than the long-run supply curve for pork.
  • an increase in the value of land you own when a nearby development is completed
  • The marginal cost curve cuts the average variable cost curve at its lowest point.
If economic profits in an industry are zero and implicit costs are greater than zero, then-resources will move out of the industry.-there will be no production in the short run.-accounting profits are greater than zero.-new firms will enter the industry.
  • total utility will increase at a diminishing rate.
  • accounting profits are greater than zero.
  • costs that change with the level of production.
  • increase in output resulting from employing one more unit of labor.
Firms seek to maximize:
  • fixed plant capacity.
  • economies of scale.
  • a "price taker."
  • total profit.
Refer to the above data. The value for Z is:
  • 15
  • -5
  • 20.
  • 45.
Answer the next question(s) on the basis of the following cost data: Refer to the above data. The total variable cost of producing 5 units is:
  • $16.
  • TFC+TVC/Q
  • $37
  • $15.
Which of the following is not a characteristic of pure competition?
  • the average fixed cost at each level of output.
  • 0BEQ plus BCDE.
  • pure monopoly
  • price strategies by firms
If a firm increases all of its inputs by 10 percent and its output increases by 15 percent, then:
  • economies of scale are being realized.
  • X rises and the marginal utility of Y falls.
  • average product and curve (2) is marginal product.
  • it is encountering economies of scale.
The law of diminishing marginal utility states that
  • MC, ATC, AVC, and AFC curves respectively.
  • beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
  • demand curves slope downward
  • at least one resource is fixed in the short run, while all resources are variable in the long run.
In the above figure, curves 1, 2, 3, and 4 represent the:
  • MC, ATC, AVC, and AFC curves respectively.
  • explicit and implicit costs from total revenue.
  • marginal, average, and total product curves respectively.
  • MC and curve (4) is AVC.
Where total utility is at a maximum, marginal utility is:
  • $35.
  • zero.
  • 0BEQ.
  • $15.
In the above diagram curves 1, 2, and 3 represent the:
  • is positive, but may be either increasing or decreasing.
  • marginal cost reaches a minimum where marginal product is at its maximum.
  • Marginal cost intersects average total cost at the latter's minimum point.
  • marginal, average, and total product curves respectively.
An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of:
  • pure competition.
  • monopolistic competition.
  • oligopoly.
  • more of X and less of Y.
Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa= 5 and MUb/Pb=Ben should purchase:
  • demand curves slope downward
  • more of B and less of A.
  • beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
  • ratios of the marginal utility of each product purchased divided by its price are equal.
Refer to the above diagram. The vertical distance between ATC and AVC reflects:
  • 10 to 30 units of output.
  • MC and curve (4) is AVC.
  • the average fixed cost at each level of output.
  • 0BEQ.
The short run is characterized by:
  • economies of scale.
  • fixed plant capacity.
  • 0BEQ plus BCDE.
  • MP is zero.
Answer the next question(s) on the basis of the following cost data: Refer to the above data. The marginal cost of producing the sixth unit of output is:
  • $8.
  • $37
  • $35.
  • $105.
The total output of a firm will be at a maximum where:
  • MP is zero.
  • MC and curve (4) is AVC.
  • zero.
  • its fixed costs.
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
  • pure competition.
  • $6 and $4
  • all units of output greater than 80.
  • 8 units of utility.
The long run is characterized by
  • he ability of the firm to change its plant size
  • more of B and less of A.
  • ratios of the marginal utility of each product purchased divided by its price are equal.
  • demand curves slope downward
The basic difference between the short run and the long run is that:
  • at least one resource is fixed in the short run, while all resources are variable in the long run.
  • marginal utility obtained from the last dollar spent on each product is the same.
  • in the long run all resources are variable, while in the short run at least one resource is fixed.
  • Marginal cost intersects average total cost at the latter's minimum point.
Refer to the above short-run production and cost data. In Figure B curve (3) is
  • 0BEQ plus BCDE.
  • economies of scale.
  • Marginal cost intersects average total cost at the latter's minimum point.
  • MC and curve (4) is AVC.
Suppose you have a limited money income and you are purchasing products A and B whose prices happen to be the same. To maximize your utility you should purchase A and B in such amounts that:
  • their marginal utilities are the same.
  • firm's total cost is $270
  • economies of scale are being realized.
  • all units of output greater than 80.
Answer the next question(s) on the basis of the following cost data: Refer to the above data. The average total cost of producing 3 units of output is:
  • $8.
  • TFC+TVC/Q
  • $16.
  • $8
A consumer who has a limited budget will maximize utility or satisfaction when the:
  • ratios of the marginal utility of each product purchased divided by its price are equal.
  • beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
  • demand curves slope downward
  • in the long run all resources are variable, while in the short run at least one resource is fixed.
Refer to the above information. The marginal cost of the third unit of output is
  • $15.
  • 0BEQ.
  • average product and curve (2) is marginal product.
  • $16.
An industry comprised of a very large number of sellers producing a standardized product is known as:
  • economies of scale.
  • pure competition.
  • price strategies by firms
  • more of X and less of Y.
The basic characteristic of the short run is that
  • the declining segment of the long-run average total cost curve.
  • the firm does not have sufficient time to change the size of its plant.
  • at least one resource is fixed in the short run, while all resources are variable in the long run.
  • the long-run average total cost curve rises.
Answer the next question(s) on the basis of the following information: Refer to the above information. Average total cost is:
  • $8
  • $8.
  • oligopoly.
  • TFC+TVC/Q
Average fixed cost:
  • declines continually as output increases.
  • it is encountering constant returns to scale.
  • the long-run average total cost curve rises.
  • all units of output greater than 80.
Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $This
  • more of X and less of Y.
  • firm's total cost is $270
  • price strategies by firms
  • are $105 and $140 respectively.
Refer to the above data. The value for Y is:
  • BCDE.
  • 0BEQ plus BCDE.
  • 20.
  • 45.
If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then:
  • its fixed costs.
  • marginal cost reaches a minimum where marginal product is at its maximum.
  • it is encountering constant returns to scale.
  • it is encountering economies of scale.
Refer to the above diagram. At output level Q total variable cost is:
  • BCDE.
  • 0BEQ.
  • average product and curve (2) is marginal product.
  • $35.
Refer to the above short-run production and cost data. The curves of Figures A and B suggest that:
  • marginal cost reaches a minimum where marginal product is at its maximum.
  • Marginal cost intersects average total cost at the latter's minimum point.
  • the average fixed cost at each level of output.
  • 10 to 30 units of output.
Marginal product is:
  • the declining segment of the long-run average total cost curve.
  • declines continually as output increases.
  • the firm does not have sufficient time to change the size of its plant.
  • the increase in total output attributable to the employment of one more worker.
The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed isWhat set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?
  • MP is zero.
  • $13.33.
  • $6 and $4
  • $105.
The law of diminishing marginal utility explains why
  • more of B and less of A.
  • marginal, average, and total product curves respectively.
  • beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
  • demand curves slope downward
In the long run:
  • any cost which does not change when the firm changes its output.
  • marginal, average, and total product curves respectively.
  • are $105 and $140 respectively.
  • all costs are variable costs.
Refer to the above information. The average total cost of 3 units of output is:
  • average product and curve (2) is marginal product.
  • $37
  • $15.
  • $35.
In which of the following industry structures is the entry of new firms the most difficult?
  • price strategies by firms
  • oligopoly.
  • pure monopoly
  • economies of scale.
Refer to the above short-run production and cost data. In Figure A curve (1) is:
  • MC and curve (4) is AVC.
  • marginal cost reaches a minimum where marginal product is at its maximum.
  • average product and curve (2) is marginal product.
  • 0BEQ plus BCDE.
Which of the following is correct as it relates to cost curves?
  • marginal, average, and total product curves respectively.
  • the firm does not have sufficient time to change the size of its plant.
  • average product and curve (2) is marginal product.
  • Marginal cost intersects average total cost at the latter's minimum point.
Use the following data to answer the next question(s). The letters A, B, and C designate three successively larger plant sizes. Refer to the above data. In the long run the firm should use plant size "C" for:
  • economies of scale are being realized.
  • all units of output greater than 80.
  • their marginal utilities are the same.
  • all costs are variable costs.
If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that:
  • it is encountering economies of scale.
  • are $105 and $140 respectively.
  • economies of scale are being realized.
  • economies of scale.
The theory of consumer behavior assumes that consumers attempt to maximize:
  • total utility.
  • pure monopoly
  • total profit.
  • consumers behave rationally, attempting to maximize their satisfaction
To economists, the main difference between the short run and the long run is that:
  • the long-run average total cost curve rises.
  • why the firm's long-run average total cost curve is U-shaped.
  • in the long run all resources are variable, while in the short run at least one resource is fixed.
  • it is encountering constant returns to scale.
Fixed cost is:
  • change in total cost that results from producing one more unit of output.
  • any cost which does not change when the firm changes its output.
  • Marginal cost intersects average total cost at the latter's minimum point.
  • marginal cost reaches a minimum where marginal product is at its maximum.
Economic profits are calculated by subtracting:
  • the declining segment of the long-run average total cost curve.
  • explicit and implicit costs from total revenue.
  • is positive, but may be either increasing or decreasing.
  • MC, ATC, AVC, and AFC curves respectively.
An industry comprised of four firms, each with about 25 percent of the total market for a product is an example of
  • $6 and $4
  • a "price taker."
  • oligopoly.
  • MP is zero.
Refer to the above data. The value for W is:
  • 20.
  • $15.
  • 10 to 30 units of output.
  • 0BEQ.
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Multiple Choice Questions
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