Exam 1 Flashcards
If demand is inelastic
A) then quantity demanded changes very little in response to a price change.
B) then demand is zero at all prices.
C) then demand is infinite at all prices.
D) then quantity demanded changes significantly in response to a price change.
A) then quantity demanded changes very little in response to a price change.
A firm engaging in efficient production, using current technology, ________ produce its current level of
production with a ________ amount of all inputs.
A) cannot; smaller
B) cannot; different
C) could; smaller
D) cannot, greater
A) cannot; smaller
If a firms cuts inputs in half, and output falls by more than half, then there are A) increasing marginal returns. B) increasing returns to scale. C) constant returns to scale. D) decreasing returns to scale.
B) increasing returns to scale.
Variable costs A) might increase or decrease with increasing output. B) increase with decreasing output. C) increase with increasing output. D) decrease with increasing output.
C) increase with increasing output.
When a firm produces one unit, the variable cost is $3. When the firm produces two units, the variable cost is
$6. What is the marginal cost associated with two units of production?
A) $6
B) $3
C) $0.5
D) $2
B) $3
A firm that backward vertically integrates
A) moves downstream in the production process.
B) may be producing its own inputs.
C) requires that the production process be relatively simple.
D) has to merge with another corporation.
B) may be producing its own inputs.
The market supply curve is found by
A) vertically summing all individual supply curves at a quantity.
B) horizontally summing all individual supply curves at a price.
C) either A or B above since they both give the same answer.
D) None of the above.
B) horizontally summing all individual supply curves at a price.
A conflict between an owner and a manager may occur when
A) the manager is the owner himself.
B) the manager is seeking to maximize leisure time
C) the owner can easily observe the manager slacking off and reward him accordingly.
D) the manager earns more when the firm has higher profits.
B) the manager is seeking to maximize leisure time
Manisha could work for another firm making $10,000 per month, but she decides to open her own gourmet
cheese store and pay herself $2,000 per month. In her first month of operations, she spends $6,000 on cheese,
$1,000 on other items, and $2,500 on rent. She had a great opening month, and brought in revenues of
$14,500. What are Manisha’s economic profits?
A) -$5,000
B) $4,000
C) -$6,000
D) $3,000
A) -$5,000
A \_\_\_\_\_\_\_\_ is a governance structure where owners are not personally liable. A) sole proprietorship B) partnership C) corporation D) All of the above
C) corporation
The slope of an isoquant tells us
A) the increase in MPL (Marginal Product of Labor) when capital increases.
B) how much output increases when both inputs are increased.
C) the decrease in capital necessary to keep output constant when labor increases by one unit.
D) the decrease in capital necessary to keep MPL (Marginal Product of Labor) constant when labor increases by one unit.
C) the decrease in capital necessary to keep output constant when labor increases by one unit.
Which of the following statements best summarizes the law of diminishing marginal returns?
A) In the short run, as more labor is hired, output diminishes.
B) In the short run, as more labor is hired, output increases at a diminishing rate.
C) As more labor is hired, the length of time that defines the short run diminishes.
D) In the short run, the amount of labor a firm will hire diminishes as output increases.
B) In the short run, as more labor is hired, output increases at a diminishing rate.
The "goodness of the fit" of the regression is measured by the A) t-statistic. B) unbiased coefficient. C) standard error. D) R2 statistic.
D) R2 statistic.
If an isocost line crosses the isoquant twice, a cost minimizing firm will
A) use a different isocost line to select the bundle of inputs.
B) use the input bundle associated with the intersection on the higher point of the isoquant.
C) use the input bundle associated with the intersection on the lower point of the isoquant.
D) Both B and C.
A) use a different isocost line to select the bundle of inputs.
In the long run, fixed costs are A) avoidable. B) larger than in the short run. C) sunk. D) not included in production decisions.
A) avoidable.
Sometimes distinct patterns around a trend line for a time series with quarterly data can be caused by A) dummy variables. B) yearly variation. C) extrapolation. D) seasonal variation.
D) seasonal variation.
If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely A) become steeper. B) remain unchanged. C) shift leftward. D) shift rightward.
C) shift leftward
An isoquant represents levels of capital and labor that A) have constant marginal productivity. B) yield the same level of output. C) incur the same total cost. D) All of the above.
B) yield the same level of output.
Suppose the demand function for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then
the point price elasticity of demand equals
A) approximately -0.67.
B) -2.5.
C) -4.
D) -1.5.
A) approximately -0.67.
All of the following are characteristics of an oligopolistic market EXCEPT
A) firms have the ability to influence prices.
B) firms are price takers.
C) firms must consider the actions of their rivals.
D) firms earn lower profits than a monopoly.
B) firms are price takers.
If a consumer increases her quantity of ice cream consumed by 100% when her income rises by 25%, then her
income elasticity of demand for ice cream is
A) .25.
B) 4.0.
C) .08.
D) 8.0.
B) 4.0.
Suppose a market were currently at equilibrium. A rightward shift of the supply curve would cause a(n)
A) decrease in price but an increase in quantity.
B) increase in price but a decrease in quantity.
C) decrease in both price and quantity.
D) increase in both price and quantity.
A) decrease in price but an increase in quantity.
Which of the following would NOT change demand?
A) information about the product’s health effects
B) the income of the consumers
C) the price of related products
D) the price of the product
D) the price of the product
It is appropriate to use the supply-and demand-model if, in a market where
A) firms sell identical products.
B) costs of trading are low.
C) everyone is a price taker with full information about the price and quality of the good.
D) All of the above.
D) All of the above.
Economic costs of an input include A) only explicit costs. B) only implicit costs. C) both implicit and explicit costs. D) whatever management wishes to report to the shareholders.
C) both implicit and explicit costs.
The purpose of making assumptions in economic model building is to
A) simplify the model while keeping important details.
B) force the model to yield the correct answer.
C) minimize the amount of work an economist must do.
D) express the relationship mathematically.
A) simplify the model while keeping important details.
Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of
capital will
A) have no effect on the firm’s marginal cost.
B) decrease the firm’s marginal cost.
C) increase the firm’s marginal cost.
D) More information is needed to answer the question.
A) have no effect on the firm’s marginal cost.
