Econs Online
Econs Online
Econs Online
3. Suppose the marginal utility of pretzels is a constant 3 utils and the marginal utility of
potato chips is a constant 2 utils. If the price of pretzels is $2.00 and the price of potato
chips is $1.00, then we know that:
A) the equilibrium will be a corner solution
B) potato chips and pretzels are perfect substitutes
C) the indifference curves will be linear
D) all the above are true
6. If price elasticity of a good is inelastic; total expenditures will ____________ as the price
rises:
A) increase
B) decrease
C) stay the same
D) depends the amount of the price changes
7. Cindy's cross-price elasticity of magazine demand with respect to the price of books is
.61, this means that, for Cindy, magazines and books are _____________ and that an
increase in the price of books would cause her magazine demand to __________.
A) complements ; increase
B) complements ; decrease
C) substitutes ; increase
D) substitutes ; decrease
9. Tom's income falls by 3%. At the same time, his demand for fine wine falls by 4%. All
other things remaining the same, Tom treats fine wine as a(n):
A) inferior good
B) normal good
C) luxury good
D) substitute good
12. You are willing to pay a scalper up to $50 for concert tickets. If you win free tickets
from the local radio station, your consumer surplus is:
A) $0
B) $50
C) less than $50
D) more than $50
13. The earthquake in Kobe, Japan decreased the supply of computer memory, which
increased the price of new computers. When this occurred,
A) consumer surplus increased
B) consumer surplus decreased
C) deadweight social loss increased
D) Both B and C are correct
16. Normally, a price change moves an individual to a new indifference curve. At the new
prices, the amount of income necessary to move the individual to the old level of utility is
called:
A) an equivalent variation
B) a Slutsky variation
C) Marshallian consumer surplus
D) a compensating variation
20. Doctor Susan worked 46 weeks a year when her wage was $500 an hour. Now at a wage
of $750 an hour, Susan will work:
A) More than 46 weeks a year
B) Less than 46 weeks a year
C) Equal to 46 weeks a year
D) Cannot tell from information given
Answer Key
1. C
2. D
3. D
4. A
5. D
6. A
7. C
8. A
9. C
10. A
11. A
12. B
13. B
14. D
15. B
16. D
17. D
18. B
19. B
20. D
2nd Exam
1. Old models of cars sell for less than new models. This is due to:
A) imputed costs
B) depreciation
C) sunk expenditure
D) None of the above
Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost Profit
0 $0 --- $0 --- $0
1 $10 $10 $5
2 $20 $10 $11
3 $30 $10 $8
4 $40 $10 $30
4. According to Table 7.4, if the price of the good (and therefore the marginal revenue in
this case) fell to $4, a firm would maximize profit at :
A) 0 units
B) 1 unit
C) 2 units
D) 3 units
5. A curve showing all the input combinations that yield the same level of output is called:
A) an indifference curve
B) a supply curve
C) a cost curve
D) an isoquant curve
6. A firm's long run production situation occurs when:
A) it is earning profits
B) there are no fixed factors
C) total cost is minimized
D) total revenue is maximized
7. If MPPA and MPPB represent the marginal physical products of two inputs, then the
marginal rate of technical substitution would be:
A) MPPA * MPPB
B) MPPA / MPPB
C) MPPA - MPPB
D) MPPA + MPPB
9. If a firm triples its inputs and output goes up 400% , the production function would have:
A) increasing returns to scale
B) decreasing returns to scale
C) constant returns to scale
D) none of the above
11. On an isoquant map, an increase in the firm's level of output is shown by movement:
A) downward on a given isoquant
B) upward on a given isoquant
C) to a lower isoquant
D) to a higher isoquant
12. The line representing input combinations that cost the same amount to the firm is called:
A) isocost line
B) isoquant line
C) budget constraint
D) none of the above
13. Linda wants to open a T-shirt stand for Homecoming week. The school will license her a
booth for $100. Each T-shirt from the store will cost her $4. Linda's average cost
function will be:
A) $100 + $4 * X
B) $100 / X + $4
C) $104 / X
D) $100 / X + $4 / X
14. Suppose an output has the usual convex isoquants. An increase in the price of input A
would cause:
A) factor substitution toward input B
B) factor substitution toward input A
C) an increase in the use of both inputs
D) both A and C are correct
15. A firm has only two inputs, iron and steel. Suppose that steel is the fixed factor in the
short-run. The firm's short-run total cost curve:
A) does not depend on the level of steel
B) shifts upward as the level of steel increases
C) has its slope increase as the level of steel increases
D) shifts downward as the level of steel increases
16. The firm's short-run marginal cost is the change in the short-run:
A) total cost due to the use of one more unit of input
B) average cost due to the use of one more unit of input
C) total cost due to the production of one more unit of output
D) Average cost due to the production of one more unit of output
17. Given that a firm is a price taker, the __________ the marginal physical product, the
________ the marginal cost of output.
A) higher : higher
B) lower : lower
C) lower : higher
D) None of the above
19. If a firm is a price-taker when buying inputs, the marginal factor cost will:
A) have a positive slope
B) have a negative slope
C) be a horizontal line
D) be a vertical line
20. A firm profit-maximizing level of output generates a total revenue of $2000. The firm's
costs are as follows: total cost = $4000, total variable cost = $1500, total fixed cost =
$2500. In the short-run, the firm should:
A) leave output at its current level
B) increase output
C) decrease output
D) shut-down
1. B
2. C
3. C
4. A
5. D
6. B
7. B
8. A
9. A
10. D
11. D
12. A
13. B
14. A
15. D
16. C
17. C
18. A
19. C
20. A
3rd Exam
3. Given the usually shaped supply and demand curves, if demand is more elastic than
supply, the greater burden of a unit tax falls on:
A) producers
B) consumers
C) equally share
D) cannot tell from information given
7. According to diagram 11.1, other firms will _________ and force prices to________
A) exit : rise
B) enter : rise
C) enter : fall
D) stay out : stay the same
8. The government recently decided to try to reduce the deficit by imposing a 3% tax on
alcohol purchases. This is an example of:
A) economic incidence of a tax
B) unit tax
C) ad valorem tax
D) none of the above
9. If only two firms produce goods for market. If the goods are homogeneous, the marginal
rate of substitution between them is:
A) zero
B) one
C) infinity
D) varies at some positive rate
10. A tax is imposed on cigarettes. The economic incidence of that tax _______ the statutory
incidence of that tax.
A) always equals
B) always exceeds
C) always falls
D) can be any of the above
11. With a monopoly:
A) firms do not behave strategically
B) there is free entry and exit from the market
C) buyers are price makers
D) all the above are correct
12. Given a downward sloping demand curve, a market that moves from competition to a
monopoly will:
A) have excess burden
B) see a decrease in total surplus
C) see an increase in total surplus
D) both A and B are correct
13. For a monopoly, the relationship between MR and elasticity of demand is that:
A) both have the same slope
B) the more elastic the demand, the lower the marginal revenue
C) the more inelastic the demand, the lower the marginal revenue
D) there is no relationship between the two
14. If the monopoly is a perfect price discriminator, then its marginal revenue curve:
A) depends on the marginal cost curve
B) is the same as the market demand curve
C) intersects the demand curve at its midpoint
D) lies somewhere below the market demand curve
15. If a single firm can produce industry output at a lower cost than any other number of
firms, this is called:
A) an increasing cost industry
B) a natural monopoly
C) the marginal output rule
D) none of the above
17. If the elasticity of market demand is __________, the marginal revenue for a monopolist
would be __________:
A) larger than one : positive
B) less than one : positive
C) equal to one : negative
D) equal to one : positive
18. Free entry in to a market with a cartel will:
A) cause the price to fall until it equals average cost
B) cause the price to rise until it equals marginal cost
C) decrease the quantity produced in the market
D) none of the above
20. Under monopolistic competition, in the long-run, the firm will earn:
A) positive economic profit
B) zero economic profit
C) negative economic profit
D) cannot tell from information given
21. When suppliers jointly work to restrict output in order to control the price, the firms act
like a:
A) a monopsony
B) monopolistic competition
C) a natural monopoly
D) a cartel
22. A perfectly competitive and monopolistically competitive market are alike in that:
A) both have downward sloping market demands
B) both have zero economic profit in the long run
C) both have free entry and exit
D) all of the above
26. Given that the total market demand for Cds is Q = 10 - P. If the production technology
has constant marginal cost of $3, the price for the good in a market with Cournot
Duopoly will be:
A) $7
B) $14
C) $5.33
D) none of the above
29. Given that market demand is given as Q = 15 - P, both firms in a Cournot oligopoly have
constant marginal costs of $6. The firm A will produce _________ units and firm B will
produce _________.
A) 6 : 6
B) 6 : 9
C) 3 : 3
D) 3 : 12
1. D
2. A
3. A
4. C
5. C
6. C
7. A
8. C
9. B
10. D
11. A
12. D
13. C
14. B
15. B
16. D
17. A
18. A
19. D
20. B
21. D
22. D
23. B
24. C
25. D
26. C
27. D
28. D
29. C
30. D