Microeconomics 1st final review

1) The change in price that results from a leftward shift of the supply curve will be greater if
A) the demand curve is relatively steep than if the demand curve is relatively flat
B) the demand curve is relatively flat than if the demand curve is relatively steep
C) the demand curve is horizontal than if the demand curve is vertical
D) the demand curve is horizontal than if the demand curve is downward sloping

2) A vertical demand curve results in

A) no change in quantity when the supply curve shifts
B) no change in price when the supply curve shifts
C) no change in the supply curve being possible
D) no change in quantity when the demand curve shifts

3) A vertical demand curve for a particular good implies that consumers are
A) sensitive to changes in the price of that good
B) not sensitive to changes in the price of that good
C) irrational
D) not interested in that good

4) The percentage change in the quantity demanded in response to a percentage change in

the price is known as the
A) slope of the demand curve
B) excess demand
C) price elasticity of demand
D) all of the above

5) Suppose the demand curve for a good is expressed as Q = 50 - 2p If the good currently sells
for $3, then the price elasticity of demand is
A) -3 * (2/50)
B) -2 * (50/3)
C) -2 * (3/44)
D) -3 * (44/2)

6) If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the
price elasticity of demand for orange juice is
A) -1 25
B) -80 0
C) -0 80
D) -10 0

7) If a good has an income elasticity of demand greater than 1, one might classify that good as
A) a necessity
B) a luxury
C) unusual
D) inelastic
8) The price elasticity of supply when the supply curve is Q = 5 is
A) 5
B) perfectly inelastic
C) perfectly elastic
D) cannot be calculated from the information provided

9) Suppose the supply curve and the demand curve both have unitary elasticity at all prices The
price increase to consumers resulting from a specific tax of $1 imposed on sellers will be
A) $1
B) 50 cents
C) zero
D) impossible to calculate without knowing the slope of the supply curve

10) Consumers will always pay the entire amount of a specific tax whenever
A) demand is perfectly inelastic
B) supply is perfectly elastic
C) Both A and B above
D) Either A or B above but not at the same time

11) During last year the price of regular unleaded gasoline in Oakland, California increased 11 0
percent If the price elasticity of demand for gasoline was 0 13, the price hike means that the
quantity demanded decreased by
A) 1 43 percent
B) 8 46 percent
C) 0 16 percent
D) 4 31 percent

12) In the figure above, using the midpoint method, the price elasticity of demand when the price
falls from $8 to $7 is equal to
A) 2 50
B) 1 63
C) 0 40
D) 0 62
13) Suppose the demand for peaches from South Carolina is perfectly elastic If the supply curve
is upward sloping and a tax is imposed on peaches from South Carolina, then
A) peach sellers pay all of the tax
B) peach buyers pay all of the tax
C) peach buyers and sellers evenly split the tax
D) the government does not collect any revenue from the tax

14) If two bundles are on the same indifference curve, then

A) the consumer derives the same level of utility from each
B) the consumer derives the same level of ordinal utility from each but not the same level of
cardinal utility
C) no comparison can be made between the two bundles since utility cannot really be
measured
D) the MRS between the two bundles equals one

15) If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then
A) he would give up 5 pizzas to get the next salad
B) he would give up 5 salads to get the next pizza
C) he will eat five times as much pizza as salad
D) he will eat five times as much salad as pizza

16) If Fred's marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then we
know that
A) his indifference curves are convex
B) his indifference curves are L shaped
C) his indifference curves are linear
D) his indifference curves are downward sloping

17) If the utility for two goods "x" and "y" is measured as U = x + y, then it can be concluded
that
A) "x" and "y" are perfect substitutes
B) "x" and "y" are perfect complements
C) "x" and "y" are both bads
D) the indifference curves on the x,y graph will be upward sloping

18) Joe's income is $500, the price of food (F) is $2 per unit and the price of shelter (S) is $100
Which of the following represents his budget constraint?
A) 500 = 2F + 100S
B) F = 250 - 50S
C) S = 5 - 02F
D) All of the above
19) The marginal rate of transformation of y for x represents
A) the slope of the budget constraint
B) the rate at which the consumer must give up y to get one more x
C) - Px/Py
D) All of the above
20) Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100
Which of the following represents his marginal rate of transformation of food for shelter?
A) -5
B) -50
C) -0 02
D) None of the above
21) Lisa eats both pizzas and burritos If the price of a pizza increases, Lisa's opportunity set
A) becomes larger
B) becomes smaller
C) is unchanged
D) Unable to determine without more information

Figure 4 1

22) Max has allocated $100 toward meats for his barbecue His budget line and an indifference
map are shown in Figure 4 1 Which bundle will Max choose?
A) a
B) b
C) c
D) d
23) Max has allocated $100 toward meats for his barbecue His budget line and an indifference
map are shown in Figure 4 1 If the price of burger increases,
A) Max will buy less burger and more chicken
B) Max will buy less burger and the same quantity of chicken
C) Max will buy less of both meats
D) More information is needed to answer the question

24) Economists typicallyassume that the owners of firms wish to

A) produce efficiently
B) maximize sales revenues
 C) maximize profits
D) All of the above

25) Which of the following statements best describes a production function?

A) the maximum profit generated from given levels of inputs
B) the maximum level of output generated from given levels of inputs
C) all levels of output that can be generated from given levels of inputs
D) all levels of inputs that could produce a given level of output

Figure 6 1

26) Figure 6 1 shows the short-run production function for Albert's Pretzels The marginal
productivity of labor for the third worker is
A) 6
B) 8
C) 24
D) not known from the information provided

27) Figure 6 1 shows the short-run production function for Albert's Pretzels The law of
diminishing marginal productivity
A) appears with the second worker
B) has not yet appeared for any of the levels of labor
C) first appears with the fifth worker
D) is refuted by this evidence
28) 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) In the short run, the amount of labor a firm will hire diminishes as output increases
D) As more labor is hired, the length of time that defines the short run diminishes

29) 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
Figure 6 2

30) AtJoey's Lawncutting Service, a lawn mower cannot cut grass without a laborer A laborer
cannot cut grass without a lawn mower Which graph in Figure 6 2 best represents the
isoquants for Joey's Lawncutting Service when capital per day is on the vertical axis and
labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
31) Lectures in microeconomics can be delivered either by an instructor (labor) or a movie
(capital) or any combination of both Each minute of the instructor's time delivers the same
amount of information as a minute of the movie Which graph in Figure 6 2 best represents
the isoquants for lectures in microeconomics when capital per day is on the vertical axis and
labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

32) Economic costs of an input include

A) only implicit costs
B) only explicit costs
C) both implicit and explicit costs
D) whatever management wishes to report the shareholders
33) Sarah earns $40,000 per year working for a large corporation She is thinking of quitting this
job to work fulltime in her own business She will invest her savings of $50,000 (which
currently has an annual 10% rate of return) into the business Her annual opportunity cost of
this new business is
A) $0
 B) $40,000
C) $45,000
D) $90,000
34) If a firm buys a building so as to have office space for its workers, the monthly opportunity
cost of the building is best measured as
A) the monthly mortgage payment the firm must pay
B) the price the firm paid divided by twelve
C) zero
D) the rent the firm could earn if it rented the building to another firm
35) The Nifty Gum Co has purchased a large parcel of land for $1 million The company
recently discovered that the land is contaminated and is worthless to all possible buyers The
opportunity cost of the land is
A) $0
B) $1 million
C) some amount greater than $0 but less than $1 million
D) equal to the cost of the factory that was planned to be built there
36) Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q The
marginal cost of the 5th T-shirt is
A) 2
B) 10
C) 12
D) 60
37) Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q The average
cost of the 5th T-shirt is
A) 2
B) 12
C) 52
D) 60
38) Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q The average
cost of the 5th T-shirt is
A) MC = AVC
B) MC = AC
C) MC > AFC
D) All of the above
39) Suppose the short-run production function is q = 10 * L If the wage rate is $10 per unit of
labor, then AVC =
A) q
B) q/10
C) 10/q
D) 1
40) Suppose the short-run production function is q = 10 * L If the wage rate is $10 per unit of
labor, then AFC =
A) 0
B) 1
C) 10/q
D) Cannot determined from the information provided
41) In the long run, fixed costs are
A) sunk
B) avoidable
C) larger than in the short run
D) not included in production decisions
42) The slope of the isocost line tells the firm how much
A) capital must be reduced to keep total cost constant when hiring one more unit of labor
B) capital must be increased to keep total cost constant when hiring one more unit of labor
C) more expensive a unit of capital costs relative a unit of labor
D) the isocost curve will shift outward if the firm wishes to produce more
43) The slope of the isoquant tells the firm how much
A) output increases when labor increases by one unit
B) output increases when capital and labor are doubled
C) capital must decrease to keep output constant when labor increases by one unit
D) a unit of capital costs relative to the cost of labor
44) When the isocost line is tangent to the isoquant, then
A) MRTS = w/r
B) the firm is producing that level of output at minimum cost
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor
D) All of the above
45) If a production function is represented as q = L K, the long-run average cost curve will be
horizontal as long as
A) a + b = 0
B) a + b = 1
C) q > 0
D) L = K

46) Economists define a market to be competitive when the firms

A) spend large amounts of money on advertising to lure customers away from the
competition
B) watch each other's behavior closely
C) are price takers
D) All of the above
47) If consumers view the output of any firm in a market to be identical to the output of any
other firm in the market, the demand curve for the output of any given firm
A) will be identical to the market demand curve
B) will be horizontal
C) will be vertical
D) cannot be determined from the information given

48) In a perfectly competitive market,

A) firms can freely enter and exit
B) firms sell a differentiated product
C) transaction costs are high
D) All of the above
49) If a firm makes zero economic profit, then the firm
 A) has total revenues greater than its costs
B) must shut down
C) can be earning positive business profit
D) must have no fixed costs

Figure 8 1

50) Figure 8 1 shows the cost curves for a competitive firm If the firm is to earn economic
profit, price must exceed
A) $0
B) $5
C) $10
D) $11

51) Figure 8 1 shows the cost curves for a competitive firm If the firm is to operate in the short
run, price must exceed
A) $0
B) $5
C) $10
D) $11
52) A firm will shut down in the short run if
A) total fixed costs are too high
B) total revenue from operating would not cover all costs
C) total revenue from operating would not cover variable costs
D) total revenue from operating would not cover fixed costs
53) If a competitive firm maximizes short-run profits by producing some quantity of output,
which of the following must be true at that level of output?
A) p = MC
B) MR = MC
C) p > AVC
D) All of the above
54) If a competitive firm maximizes short-run profits by producing some quantity of output,
which of the following must be true at that level of output?
 A) p > MC
B) MR > MC
C) p > AVC
D) All of the above
55) If a firm finds that it maximizes short-run profits by shutting down, which of the following
must be true?
A) p < AVC for all levels of output
B) p < AVC only for the level of output at which p = MC
C) p < AVC only if the firm has no fixed costs
D) The firm will earn zero profit
56) Suppose TC = 10 + (0 1 * q2) If p = 10, the firm's profits will be
A) 240
B) 250
C) 260
D) -10 because the firm will shut down
57) Suppose TC = 10 + (0 1 * q2) If there are 100 identical firms in the market, the market
supply curve is
A) Q = 1000 * p
B) Q = 500 * p
C) Q = 100 * p
D) Q = 10
58) Suppose that for each firm in the competitive market for potatoes, long-run average cost is
minimized at $0 20 per pound when 500 pounds are grown The demand for potatoes is Q =
10000/p If the long-run supply curve is horizontal, then how much will consumers spend, in
total, on potatoes?
A) $0
B) $500
C) $10,000
D) $50,000
59) Suppose that for each firm in the competitive market for potatoes, long-run average cost is
minimized at $0 20 per pound when 500 pounds are grown The demand for potatoes is Q =
10000/p If the long-run supply curve is horizontal, then how many pounds of potatoes will
be consumed in total?
A) 0
B) 500
C) 10,000
D) 50,000
60) For a monopoly, marginal revenue is less than price because
A) the firm is a price taker
B) the firm must lower price if it wishes to sell more output
C) the firm can sell all of its output at any price
D) the demand for the firm's output is perfectly elastic

61) For a monopoly, marginal revenue is less than price because

A) the demand for the firm's output is downward sloping
B) the firm has no supply curve
 C) the firm can sell all of its output at any price
D) the demand for the firm's output is perfectly elastic
62) If the inverse demand function for a monopoly's product is p = a - bQ, then the firm's
marginal revenue function is
A) a
B) a - (1/2)bQ
C) a - bQ
D) a - 2bQ
63) If the inverse demand function for a monopoly's product is p = 100 - 2Q, then the firm's
marginal revenue function is
A) -2
B) 100 - 4Q
C) 200 - 4Q
D) 200 - 2Q
64) If the inverse demand curve a monopoly faces is p = 100 - 2Q, then profit maximization
A) is achieved when 25 units are produced
B) is achieved by setting price equal to 25
C) is achieved only by shutting down in the short run
D) cannot be determined solely from the information provided

Figure 11 1

65) Figure 11 1 shows the demand and cost curves facing a monopoly The monopoly maximizes
profit by selling
A) 0 units
B) 25 units
C) 50 units
D) 75 units
66) Figure 11 1 shows the demand and cost curves facing a monopolist The monopoly
maximizes profit by setting price equal to
A) $100
B) $200
C) $300
D) $400
67) Figure 11 1 shows the demand and cost curves facing a monopoly Maximum profit equals
A) $0
B) $100
C) $1,000
D) $2,500