Transcript Oct. 7 th Practice Mid

Practice Questions
 Two goods are ________. A(n) _________ in the price of
one good will _________ the demand for the other good:
 (A) substitutes; increase; increase;
 (B) substitutes; increase; decrease;
 (C) complements; increase; increase;
 (D) complements; increase; decrease;
 (E) A & D.
Practice Questions
 _____ elasticity of demand refers to the degree of consumer
responsiveness to the percentage change in _______ with
respect to the percentage change in _______:
 (A) Income; price of the a good; income;
 (B) Income; quantity of a good; income;
 (C) Own-price; price of a good; demand for that good;
 (D) Own-price; quantity demanded; price of a good;
 (E) Cross-price; quantity of one good; price of the other good;
 (F) B & D & E.
Practice Questions
 The _____ substitutes available, the ____ elastic the
demand for a good is:
 (A) more; less;
 (B) more; more;
 (C) less; more;
 (D) Not enough information.
Practice Questions
 The price of a product is ______ the marginal revenue
under conditions of perfect competition:
 (A) greater than;
 (B) equal to;
 (C) less than;
 (D) Not enough information;
 (E) None of the above.
Practice Questions
 A shift in the demand curve is generally caused by changes
in ______:
 (A) the prices of substitutes and complements;
 (B) incomes;
 (C) both of the above;
 (D) none of the above.
Practice Questions
 The law of diminishing marginal returns says:
 (A) Less goods will be available to consume over time;
 (B) Marginal utility declines as more of a good is consumed
during a period of time;
 (C) There is a maximum amount of total utility;
 (C) Two of the above;
 (D) None of the above.
Practice Questions
 A budget constraint reflects:
 (A) the income available for consumption;
 (B) the prices for the goods a consumer may purchase;
 (C) the marginal rate of substitution that will result in
consumer equilibrium;
 (D) all of the above.
Practice Questions
 A firm’s supply curve corresponds to:
 (A) the average total cost curve;
 (B) the marginal cost curve above the minimum average
variable cost curve;
 (C) the average variable cost curve;
 (D) the marginal cost curve.
Practice Questions
 Which of the following is true:
 (A) Average Fixed Cost + Average Variable Cost = Average
Total Cost;
 (B) A shift to the right of the demand curve makes consumer
better off;
 (C) The law of diminishing marginal returns states that as the
use of an input increases, ceteris paribus, its Marginal
Physical Product will eventually fall;
 (D) All of the above.
Practice Questions
P
 A firm acts as a profit
maximizer with its MC, AVC,
ATC as shown in graph. At
market price P2, it will
produce an output of ____,
making a loss of ____:
 (A) Q1; P2P3KG;
 (B) Q2; P1P2ED;
MC
ATC
AVC
D
P1
P2
P3
G
K
E
F
H
 (C) Q3; P1P2ED;
 (D) None of the above.
Q1
Q2
Q3
Q
Practice Questions
 Generally, firms want to maximize profit, which is
equivalent to setting:
 (A) MPP = 0;
 (B) MR = 0;
 (C) MR = MC;
 (D) MPP = APP.
Practice Questions
 In the graph, IQ indicates an
isoquant curve of a firm; EE’
indicates the price ratio of capital
over labor; & A indicates the firm’s
current input mix. To increase its
profit, the firm should use:
 (A) more capital, less labor;
 (B) more labor, less capital;
 (C) more labor, same amount of
capital;
 (D) maintain the input mix at A.
Capital
A
E
IQ
E’
Labor
Practice Questions
 If marginal cost exceeds average variable cost, then ____
cost is ____:
 (A) average total; increasing;
 (B) average variable; increasing;
 (C) average total; at a minimum;
 (D) average fixed; increasing;
 (E) average total; at a maximum.
Practice Questions
 To maximize profit, firms should NOT produce in the stage
during which:
 (A) MPP is decreasing; APP is greater than MPP;
 (B) MPP is increasing; MC is less than AVC & ATC;
 (C) MPP is decreasing; MVP equals MIC;
 (D) None of the above.
Practice Questions
 Billy Bob’s Fried Chicken Palace has an Average Fixed Cost
of $0.25/chicken wing producing 500 wings/day. If
production doubles to 1000 wings/day, AFC will:
 (A) Increase;
 (B) Increase, then decrease;
 (C) Decrease, then increase;
 (D) Decrease;
 (E) None of the above;
Practice Questions
 Billy Bob’s also has the following information regarding
demand for their chicken: at a price of $6/chicken wing,
demand for their good is 0 chicken wings, while at the
current market price of $2, demand is 100 wings. Suppose
consumer willingness-to-pay for wings increases by $1 (i.e.
the demand curve shifts up in a parallel manner).
Consumer surplus _______ by _______ if the market price
stays at $2:
 (A) Increases; $112.50;
 (B) Increases; $225;
 (C) Decreases; $100;
 (D) Not enough information is provided;
Practice Questions
 The own-price elasticity of demand for a good is -1 at the
current market price. At this price:
 (A) The firm selling the good is maximizing revenue;
 (B) The firm selling the good could increase revenue by
lowering the price;
 (C) The firm selling the good could decrease revenue by
raising the price;
 (D) A + C;
 (E) B + C;
Practice Questions
 Stage 2 of production is where:
 (A) Firms do not want to produce to maximize profits;
 (B) Marginal physical product is greater than average physical
product;
 (C) Marginal physical product is negative;
 (D) Average physical product is decreasing and marginal
physical product is less than average physical product but still
positive;
 (E) None of the above;
Practice Questions
 Pat consumes pudding and pickles. Pat’s marginal utility
from pudding is 10, and Pat’s marginal utility from pickles
is 20. Pudding costs $1 while pickles cost $2. Assuming
Pat’s current bundle of goods is on the frontier of the
budget constraint, which of the following are true?:
 (A) Pat could increase total utility by consuming more pickles
and less pudding;
 (B) Pat could increase total utility by consuming less pickles
and more pudding;
 (C) Pat is maximizing total utility given the budget
constraint;
 (D) None of the above;