ECON202 - Exam 1 - Review

Question 1

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

Answer 1

direct, inverse

Question 2

If average income increases, all else equal, then there will be:

Answer 2

a shift of the demand curve.

Question 3

The law of supply indicates that:

Answer 3

producers will offer more of a product at high prices than they will at low Pric e prices.

Question 4

A fall in the price of milk, used in the production of ice cream, will:

Answer 4

increase the supply of ice cream, causing the supply curve of ice cream to shift to the right.

Question 5

A market for a product is in equilibrium when:

Answer 5

quantity supplied equals quantity demanded.

Question 6

If the supply and demand curves for a product both decrease, then equilibrium:

Answer 6

quantity must decline, but equilibrium price may either rise, fall, or remain unchanged.

Question 7

The price elasticity of demand coefficient indicates:

Answer 7

buyer responsiveness to price changes.

Question 8

The basic formula for the price elasticity of demand coefficient is:

Answer 8

percentage change in quantity demanded/percentage change in price.

Question 9

The demand for a product is inelastic with respect to price if:

Answer 9

consumers are largely unresponsive to a per unit price change.

Question 10

The larger the coefficient of price elasticity of demand for a product, the:

Answer 10

smaller the resulting price change for an increase in supply.

Question 11

Utility refers to the:

Answer 11

satisfaction that a consumer derives from a good or service.

Question 12

To maximize utility a consumer should allocate money income so that the:

Answer 12

marginal utility obtained from the last dollar spent on each product is the same.

Question 13

Which of the following statements is correct?

Answer 13

A product may yield utility, but not be functionally useful.

Question 14

Total utility may be determined by:

Answer 14

summing the marginal utilities of each unit consumed.

Question 15

Marginal utility can be:

Answer 15

positive, negative, or zero.

Question 16

The law of diminishing marginal utility states that:

Answer 16

beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

Question 17

Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is spending all her money income should buy:

Answer 17

more of X and less of Y.

Question 18

To the economist total cost includes:

Answer 18

explicit and implicit costs, including a normal profit.

Question 19

Which of the following definitions is correct?

Answer 19

Economic profit = accounting profit - implicit costs.

Question 20

To economists the main difference between the short run and the long run is that:

Answer 20

in the long run all resources are variable, while in the short run at least one resource is fixed.

Question 21

Which of the following best expresses the law of diminishing marginal returns?

Answer 21

As successive amounts of one resource (labor) are added to fixed amounts of other resources (property), beyond some point the resulting extra output will decline.

Question 22

A fixed cost is:

Answer 22

any cost which a firm would incur even if output was zero.

Question 23

Marginal cost is the:

Answer 23

change in total cost that results from producing one more unit of output.

Question 24

Which of the following is correct as it relates to cost curves?

Answer 24

Marginal cost intersects average total cost at the latter’s minimum point.

Question 25

Which of the following is not a basic characteristic of pure competition?

Answer 25

considerable nonprice competition

Question 26

The demand curve in a purely competitive industry is \_\_\_\_\_\_, while the demand curve to a single firm in that industry is \_\_\_\_\_\_.

Answer 26

downsloping, perfectly elastic

Question 27

Which of the following is characteristic of a purely competitive seller's demand curve?

Answer 27

Price and marginal revenue are equal at all levels of output.

Question 28

In the short run a purely competitive firm that seeks to maximize profit will produce:

Answer 28

where total revenue exceeds total cost by the maximum amount.

Question 29

The MR = MC rule can be restated for a purely competitive seller as P = MC because:

Answer 29

each additional unit of output adds exactly its price to total revenue.

Question 30

In the short run a purely competitive firm will always make an economic profit if:

Answer 30

P \> ATC.

Question 31

Suppose you find that the price of your product is less than minimum AVC. You should:

Answer 31

close down because, by producing, your losses will exceed your total fixed costs.

Question 32

If a purely competitive firm shuts down in the short run:

Answer 32

it will realize a loss equal to its total fixed costs.

Question 33

A purely competitive firm's short-run supply curve is:

Answer 33

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

Question 34

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

Answer 34

P = MC = minimum ATC.

Question 35

What do economies of scale, the ownership of essential raw materials, and patents have in common?

Answer 35

They are all barriers to entry.

Question 36

A pure monopolist is:

Answer 36

a one-firm industry.

Question 37

Price discrimination refers to:

Answer 37

the selling of a given product at different prices that do not reflect cost differences.

Question 38

Which of the following is not a precondition for price discrimination?

Answer 38

The commodity involved must be a durable good.

Question 39

If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then:

Answer 39

the firm must be subsidized or it will go bankrupt.

Question 40

The dilemma of regulation refers to the idea that:

Answer 40

the regulated price which achieves allocative efficiency is also likely to result in losses.

Question 41

A decrease in quantity demanded (as distinct from a decrease in demand) is depicted by a:

Answer 41

move from point y to point x.

Question 42

A decrease in demand is depicted by a:

Answer 42

shift from D2 to D1.

Question 43

If the price of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility this consumer should buy:

Answer 43

1 units of X and 2 units of Y.

Question 44

The total cost of four units of output is:

Answer 44

$310.

Question 45

If the firm closed down and produced zero units of output, its total cost would be:

Answer 45

$50.

Question 46

By producing output level Q:

Answer 46

both productive and allocative efficiency are achieved.

Question 47

The above diagram implies that whenever a firm's demand curve is downsloping:

Answer 47

marginal revenue is less than price.

Question 48

If a monopolist were to produce in the inelastic segment of its demand curve:

Answer 48

marginal revenue would be negative.

Question 49

To maximize profits or minimize losses this firm should produce:

Answer 49

E units and charge price A.

Question 50

Refer to the above diagram for a pure monopolist. If a regulatory commission seeks to achieve the most efficient allocation of resources to this line of production, it will set a price of:

Answer 50

P2.

Question 51

If columns (1) and (3) of the demand data shown above are this firm's demand schedule, the profit-maximizing level of output will be:

Answer 51

8units.

Question 52

Suppose that entry into the industry changes this firm's demand schedule from columns (1) and (3) shown above to columns (2) and (3). Economic profit will:

Answer 52

decline to zero.

Question 53

Which of the above diagrams correctly portray a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves?

Answer 53

B

Question 54

Refer to the above data for a nondiscriminating monopolist. This firm will maximize its profit by producing:

Answer 54

4 units.

Question 55

Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be:

Answer 55

$82

Question 56

The profit-maximizing output of a pure monopoly is economically inefficient because in equilibrium:

Question 57

If the supply and demand curves for a product both decrease, then equilibrium:

Answer 57

quantity must decline, but equilibrium price may either rise, fall, or remain unchanged.

Question 58

Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n):

Answer 58

increase in the wage rates paid to laborers employed in the production of X.

Question 59

The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. If demand changed from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium price is:

Answer 59

$4.

Question 60

If government set a minimum price of $50 in the above market, a:

Answer 60

surplus of 21 units would occur.

Question 61

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:

Answer 61

increase the quantity demanded by about 25 percent.

Question 62

Most demand curves are relatively elastic in the upper-left portion because the original price:

Answer 62

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

Question 63

Suppose Al's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Al now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:

Answer 63

demand will become less price elastic.

Question 64

Refer to the above data. Total fixed cost is:

Answer 64

$50.00.

Question 65

Refer to the above data. The average total cost of five units of output is:

Answer 65

$78.

Question 66

Refer to the above data. The total cost of four units of output is:

Answer 66

$310.

Question 67

Refer to the above data. If the firm closed down and produced zero units of output, its total cost would be:

Answer 67

$50.

Question 68

Refer to the above data. The marginal cost of the fifth unit of output is:

Answer 68

$80.

Question 69

Refer to the above data. If the firm decided to increase its output from 6 to 7 units, its total costs would rise by:

Answer 69

$120.00.

Question 70

Which of the following is not a basic characteristic of pure competition?

Answer 70

considerable nonprice competition

Question 71

Which of the following is characteristic of a purely competitive seller's demand curve?

Answer 71

Price and marginal revenue are equal at all levels of output.

Question 72

Assume the XYZ Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

Answer 72

is realizing an economic profit of $40.

Question 73

Refer to the above data. This firm is selling its output in a(n):

Answer 73

purely competitive market.

Question 74

Refer to the above data. If the firm's minimum average variable cost is $10, the firm's profit- maximizing level of output would be:

Answer 74

3.

Question 75

Refer to the above data. At the profit-maximizing output the firm's total revenue is:

Answer 75

$48.

Question 76

Refer to the above data. At the profit-maximizing output the firm's total cost is:

Answer 76

$32.

Question 77

Refer to the above data. The firm's:

Answer 77

economic profit is $16.

Question 78

A firm finds that at its MR = MC output, its TC = $1000, TVC = $800, TFC = $200, and total revenue is $900. This firm should:

Answer 78

produce because the resulting loss is less than its TFC.

Question 79

The lowest point on a purely competitive firm's short-run supply curve corresponds to:

Answer 79

the minimum point on its AVC curve.

Question 80

Refer to the above data. If there were 1,000 identical firms in this industry and total or market demand is as shown below, equilibrium price will be:

Answer 80

$36.

Question 81

Refer to the above diagram. The firm will realize an economic profit if price is:

Answer 81

P4.

Question 82

Refer to the above diagrams. Firm A is a:

Answer 82

pure competitor and Firm B is a pure monopoly.

Question 83

The MR = MC rule:

Answer 83

applies both to pure monopoly and pure competition.

Question 84

Which of the following statements is incorrect?

Answer 84

A monopolist's 100 percent market share ensures economic profits.

Question 85

Refer to the above diagram. At the profit-maximizing level of output, the firm will realize:

Answer 85

an economic profit of ABHJ.