QUIZ 1: CHAPTER 1 ECON 24 – MANAGERIAL ECONOMICA AND BUSINESS STRATEGY

1. In order to maximize net benefits, firms should produce where:

total benefits equal total costs.
profits are zero.
marginal cost is minimized.
marginal benefits equal marginal costs.
2. Economics is social science that:
is purely normative
is primarily concerned with how resources are used
is primarily concerned with maximizing spiritual well-being
relies solely on the scientific method for analysis
is primarily concerned with money
3. Property owners move scarce resources towards the production of goods most valued by society
because
government controls the allocation of resources.
consumers demand inexpensive goods and services.
managers are solely pursuing the interests of society.
firms attempt to maximize profits.
4. Which of the following is not the source of rivalry that exists in economic transactions?
A. consumer-producer rivalry.
B. producer-producer rivalry.
C. government-producer rivalry.
D. all of the statements associated with this question are correct.
5. What level of bargaining power do consumers have when the products being purchased are standard or
undifferentiated?
Low
High
Marginal
Negligible
Negative
6. Which of the following is an explicit cost of going to college?
Sacrificed salaries
Playing dota and mine craft
Cost of books and supplies
Worship participation
7. In economics, 'the central economic problem' means that:
consumers do not have as much money as they would wish.
output is restricted to the limited availability of resources.
resources are not always allocated in an optimum way.
there will always be a certain level of unemployment
8. According to Porter, what is usually the most powerful of the five competitive forces?
Rivalry among competing firms (industry rivalry)
Potential development of substitute products (substitutes and complements)
Bargaining power of consumers (buyers)
Potential entry of new competitors
Bargaining power of suppliers
9. Suppose total benefits and total costs are given by B(Y) = 25Y - 2Y² and C(Y) =Y². Then marginal net
benefits are:
25 - 4Y.
25Y - 6Y^2.
25-2Y.
25 - 6Y.
10. Whenever new firms can easily enter a particular industry, the intensity of competitiveness among
firms tends to
increase.
stay the same.
neutralize.
decrease.
become irrelevant.
11. Suppose the interest rate is 6 percent, the expected growth rate of the firm is 5 percent, and the firm is
expected to continue forever. If current profits are $1,000, what is the value of the firm?
$106,000
$110,000
$120,000
$100,000

12. The behavior of bidders in an auction is an example of:

producer-producer rivalry.
consumer-producer rivalry.
consumer-consumer rivalry.
None of the statements associated with this question are correct.

13. In a market economy, the allocation of resources between different productive activities is determined
mainly by:
the pattern of consumer expenditure
the decisions of the government
the wealth of entrepreneurs
the supply of factors of production

14. Land refers to

farmland only
all productive resources
chattels
real estate
all natural resources.

15. The opportunity cost to the government of building a public school is:
the money spent in the construction of the school.
none of the above
the value of goods and services that could otherwise have been produced with the resources used to build
the school.
the traffic congestion caused during the construction of the school.

16. Given the cost function C(Y) = 10Y², what is the marginal cost?
Y^2
20Y
2.5Y
10Υ

17. As the interest rate decreases, the opportunity cost of waiting to receive a future amount:
increases.
decreases.
may rise or fall.
remains the same.

18. Under producer-producer rivalry, individual firms want to sell the product at the maximum price
consumers will pay, but they are unable to do this because of:
competition among sellers.
cost considerations.
competition among buyers.
the scarcity of resources.

19. Given the table below, what is the opportunity cost of rice in Vietnam? Labor hours needed to produce
a unit of
COUNTRY RICE CLOTH
Vietnam 5 10
Philippines 20 60
2 rice
2 Cloth
½ Cloth
½ Rice
1/4 Cloth

20. If a producer offers a price that is LOWER of a consumer's valuation of the good, the consumer:
must buy the good at that price.
must revalue the good.
None of the statements associated with this question are correct.
will refuse to purchase the good.

21. The primary inducement for new firms to enter an industry is:
increased technology.
availability of labor.
low capital costs.
presence of economic profits.

22. In a market economy, the price system provides all of the following except;
a signal to consumers
a signal to producers
a means of allocating scarce resources
an equal distribution of income and wealth

23. To maximize profits, a firm should continue to increase production of a good until:
average cost equals average revenue.
total revenue equals total cost.
marginal revenue equals marginal cost.
profits are zero.

24. "Our marginal revenue is greater than our marginal cost at the current production level." This
statement indicates that the firm:
None of the statements associated with this question are correct.
is maximizing profits.
should decrease the quantity produced to
increase profits. should increase the quantity produced to increase profits.

25. Maximizing the present value of all future profits is the same as maximizing current profits if the
growth rate in profits is:
not constant over time.
greater than the interest rate.
equal to the interest rate.
less than the interest rate.

26. When MB = 318 6Y and TC = 18Y+ 108, the optimal level of Y is:
48.
49.
50.
25.

27. What is the marginal net benefit of producing the fourth unit?
No. Units
Produced Total Revenue Total Costs
0 0 0
1 100 50
2 180 110
3 250 180
4 280 270
5 310 380

0
50
40
-60

28. Suppose total benefits and total costs are given by B(Y) = 300Y - 4Y2 and C(Y) = 5Y². What is the
maximum level of net benefits?
5,000.00
2,812.50
2,500.00
5,000.75

29. Economists use the term "capital" to mean

a major idea
where the central government is located
money
the center of the economy
plant and equipment

30. As lesser firms enter an industry:

accounting profits decrease.
economic profits increase.
economic profits decrease.
prices fall.

31. Given the benefit function B(Y) = 50Y 20Y2, the marginal benefit is:
500 - 2Y^2.
500-4Y.
50 - 40Y.
500Y.

32. Negotiations between the buyer and seller of a new house are an example of:
producer-producer rivalry.
consumer-producer rivalry.
consumer-consumer rivalry.
monopoly.

33. The value of the firm is the:

total value of all future profits.
average value of all future profits.
present discounted value of all future profits.
current value of profits.

34. A company which operates a policy of satisficing is:

Attempting to maximize market share
Attempting to seek acceptable levels of attainment for various stakeholder groups
Attempting to maximize sales revenue
Attempting to maximize profits

35. Suppose total benefits and total costs are given by B(Y) = 30Y - Y2 and C(Y) = 4Y². Then marginal
benefits are:
30 - Y.
15Y - 8Y^2.
30 - 2Y.
30 - 6Y.

36. Managerial economics:

is valuable to the coordinator of a shelter for the homeless.
is not relevant for managers of not-for-profit groups..
has little to say about day-to-day decisions.
is the study of how to get rich in the stock market.

37. The optimal amount of studying is determined by comparing:

total benefit and the total cost of studying.
marginal benefit and the marginal cost of studying.
marginal benefit and the total benefit of studying.
marginal benefit and the total cost of studying.

38. Suppose total benefits and total costs are given by B(Y) = 100Y - 5Y² and C(Y) = Y. What level of Y
will yield the maximum net benefits?
19.9
7
9.9
10/9

39. In order to maximize net benefits, the managerial control variable should be used up to the point
where:
total costs equal total benefits.
average costs equal marginal benefits.
net marginal benefits equal zero.
average benefits equal marginal costs.

40. Which of the following is necessarily held constant when drawing the short-run production function?
the population
the share capital
the money supply
the rate of interest

41. New firms have incentive to enter an industry when there is(are):
high capital costs.
an abundance of labor.
positive economic profits.
new production technologies.

42. In the Wealth of Nations, Adam Smith argues that:

None of the statements associated with this question are correct.
profits are maximized where marginal revenue equals net marginal benefits.
benevolence leads to the efficient allocation of resources.
self-interest leads to the efficient allocation of resources.

43. Suppose total benefits and total costs are given by B(Y) = 30Y - 3Y² and C(Y) = 4Y². Then marginal
costs are:
8Y.
10Y.
4Y.
25Y.

44. What is the main role of economic profits?

None of the statements associated with this question are correct.
To help firms cover their production costs
To signal where resources are most highly valued
To help consumers cover their opportunity cost
45. What is the marginal revenue of producing the fortieth unit?
No. Units
Produced Total Revenue Total Costs
0 0 0
10 120 40
20 200 100
30 270 187
40 220 270
50 330 370

50
4
8
5

46. A firm will have constant profits of $110,000 per year for the next four years, and the interest rate is 7
percent. Assuming these profits are realized at the end of each year, what is the present value of these
future profits?
$400,000
$362,431
$346,511
$372,593

47. Trade will take place:

None of the statements associated with this question are correct.
if the maximum that a consumer is willing and able to pay is greater than the minimum price the producer
is willing and able to accept for a good.
if the maximum that a consumer is willing and able to pay is less than the minimum price the producer is
willing and able to accept for a good.
only if the maximum that a consumer is willing and able to pay is equal to the minimum price the
producer is willing and able to accept for a good.
48. Which of the following is an implicit cost to a firm that produces a good or service?
Costs of renting or buying land for a production site
Costs of operating production machinery
Labor costs
Foregone profits of producing a different good or service

49. Incentive plans imply:

managers are not selfish.
if managers put forth little effort, they receive little pay; if they put forth much effort and hence generate
many sales, they receive a lot of pay.
if managers get highly paid, then they work hard.
managers should be watched all the time.

50. A firm will maximize the present value of future profits by maximizing current profits when the:
growth rate in profits is constant.
growth rate in profits is larger than then interest rate.
interest rate is larger than the growth rate in profits and both are constant.
growth rate and interest rate are constant and equal.
 ECON 24 QUIZ 2

1. In a free market, if the price of a good is below the equilibrium price, then
suppliers, dissatisfied with growing inventories, will raise the price.
suppliers, dissatisfied with growing inventories, will lower the price.
government needs to set a lower price.
government needs to set a higher price.
demanders, wanting to ensure they acquire the good, will bid the price higher.

2. Suppose that a price of P5, quantity demanded is 300 units and quantity supplied is 700 units.
This market will experience ____, of ____ units.
excess supply, - 400 units
a shortage, 400 units
excess demand, 400 units
excess demand, -400 units
excess supply, 400 units

3. Suppose the demand for good X is given by Qdx = 10 - 2Px + Py + M. The price of good X is
$1, the price of good Y is $10, and income is $97. Given these prices and income, how much of
good X will be purchased?
115
1,000
None of the statements
associated with this question are correct.
515

4. Competitive market equilibrium:

implies that quantity supplied is sufficiently larger than quantity demanded.
is determined by the intersection of the excess demand and excess supply curves.
implies that quantity demanded is sufficiently larger than quantity supplied.
is determined by the intersection of the market demand and supply curves.

5. Demand shifters do NOT include the:

consumer's tastes and preferences.
price of the good.
price of the other related goods.
consumer's expectations about future prices of the good.

6. In a competitive market, the market demand is Qd = 70 3P and the market supply is Qs = 6P. A
price ceiling of $5 will result in a:
shortage of 34 units.
shortage of 25 units.
surplus of 34 units.
surplus of 58 units.

7. Given a linear demand function of the form Qxd = 100 - Px, find the inverse linear demand
function.
PX = 100QX-0.5PX
PX = 100 QX
PX = 100 2QX
PX = 200 2QX

8. In a competitive market, the market demand is Qd = 150 - 2P and the market supply is Qs = 30
+ 4P. A price ceiling of $12 will result in a:
surplus of 58 units.
shortage of 48 units.
surplus of 34 units.
shortage of 24 units.
9. For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve
to:
become parallel to the price axis.
become flatter.
shift to the left.
shift to the right.

10. If it too costly to prevent those who refuse to pay from enjoying the benefits of a particular
good, we call this:
a negative externality
non-feasibility
non-exclusion
non-rivalry in consumption
the free-rider problem

11. If an excise tax is imposed on a good, then the supply curve:

shifts down by the amount of the tax.
shifts up by the amount of the tax.
does not change.
shifts up by the amount of the demand elasticity.

12. Suppose market demand and supply are given by Qd = 100 - 2P and Qs = 5 + 3P. If a price
ceiling of $10 is imposed, what will be the resulting full economic price?
$21
$25
$32.5
$6
13. In a competitive market, the market demand is Qd = 60 - 5P and the market supply is Qs =
2P. A price ceiling of $3 will result in a:
surplus of 30 units.
surplus of 12 units.
shortage of 30 units.
shortage of 39 units.

14. If a city were to ban the use of automobiles within its city limits, we would expect
The demand curve for automobiles will remain the same
The demand curve for bicycles will remain the same.
The demand curve for bicycles to shift to the left.
The demand curve for automobiles to shift to the left

15. Which of the following can explain an increase in the demand for housing in retirement
communities?
An increase in the population of the elderly
A drop in real estate prices
A drop in the average age of retirees
Mandatory government legislation

16. Consider a market characterized by the following inverse demand and supply functions: Px =
<= 2 + 2Qx. 10 - 2Qx and Px = Compute the number of units exchanged and the price at which
those units will be exchanged when there is an $5 per unit price floor.
1 unit and $8 per unit
2 units and $6 per unit
3 units and $8 per unit
1 unit and $6 per unit

17. A price ceiling is:

the maximum legal price
that can be charged in a market.
equal to the initial equilibrium price.
above the initial equilibrium price.
the minimum legal price that can be charged in a market.

18. Scarcity could be reduced if:

individuals work less and want fewer consumption goods.
individuals work more and want fewer consumption goods.
world population grows and world production remains the same.
innovation comes to a halt.

19. Suppose market demand and supply are given by Qd = 100 - 3P and Qs = 5 + 4P. If the
government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total
cost to the government will be:
$1,375.
$3,450.
$1,650.
$1,125.

20. In making decisions,

economists primarily use
peso costs
monetary costs
benefit costs
opportunity costs

21. The Third Wave Computer Company employs Sally to assemble personal computers. Sally
can assemble 1 computer if she works 1 hour, 4 computers in 2 hours, 7 computers in 3 hours, 9
computers in 4 hours, and 10 computers in 5 hours. Each computer consists of a motherboard
that cost P2,500, hard drive costs P1,500, a case that costs P250, a monitor that costs P2,000, a
keyboard that costs P500, and a mouse that costs P250. The cost of employing Sally is P500 per
hour. What is the marginal cost of producing the computers Sally assembles during her second
hour of work?
P21,500
P7,500
P7,000
P28,000
P28,500

22. Suppose market demand and supply are given by Qd = 105 - 2P and Qs = 5 + 3P. The
equilibrium quantity is:
62.
92.
81.
65.

23. An increase in demand for a good will cause

movement down along the demand curve as price changes
excess demand (a shortage) before price changes
movement down along the supply curve as price changes
a higher price and a smaller quantity traded in the market

24. Corn is a resource needed to produce tortilla chips. If the demand for tortilla chips increases,
then the:
supply of corn will decrease
demand for corn will decrease
price of corn will decrease
demand for corn will increase
supply of corn will increase
25. If there is an effective price ceiling
the price is above equilibrium
then a surplus is created
the quantity demanded exceeds the quantity supplied.
the supply exceeds demand

26. If the price of an input decreases, producers will be willing to produce:

less output at each given price.
more output at each given price.
the same output at each given price.
None of the statements associated with this question are correct.

27. Ten cases of apple juice can be sold at P10 each in a perfectly competitive product market,
and the marginal physical product of the last unit of labor is five. In this situation, the marginal
revenue product of the last unit of labor is which of the following?
P50.00
P2.00
P0.50
P15.00
P30.00

28. Scientists have developed a bacterium they believe will lower the freezing point of
agricultural products. This innovation could save farmers $1 billion a year in crops now lost to
frost damage. If this technology becomes widely used, what will happen to the equilibrium price
and quantity in, for example, the market for potato?
Price will decrease, quantity will decrease
The changes in price and quantity is indeterminate.
Price will increase, quantity will decrease
Price will decrease, quantity will increase
Price will increase, quantity will increase
29. The demand curve for any product slopes downward because
time becomes less valuable as more of a product is consumed.
the total utility falls below the marginal utility as more of a product is consumed.
the income and substitution
effects precisely offset each other.
marginal utility diminishes as more of a product is consumed.
the marginal utility lies below the total utility as more of a product is consumed.

30. If the full marginal costs of producing a certain good are greater than the seller's marginal
costs then
the market will produce the
socially optimal outcome.
the equilibrium price will reflect the true cost of production.
the total economic surplus will be maximized.
too little of the good will be produced.
too much of the good will be produced.

31. If good A is an inferior good, an increase in income leads to:

a decrease in the demand for good B.
no change in the quantity demanded for good A.
an increase in the demand for good A.
a decrease in the demand for good A.

32. Jim, a student at Kingfisher School, is enrolled in 21 units this semester. His grade in
Mathematics in the Real World is a passing grade, but below his expectations. Fearing that his
grade may slip into the failing range, he is considering withdrawing from the course. He tells a
friend, "I would drop the course but I don't want to waste the P2,700 I paid for the course." His
friend replies, "The P2,700 tuition you paid for the course is. irrelevant to your decision. Your
grade in the course is the only thing that is important, now." The friend is
incorrect, because the tuition is a variable cost and variable costs should always be considered
when making decisions.
correct, because the tuition: is a sunk cost and sunk costs should not be considered when making
decisions.
correct, because the tuition is a fixed cost and fixed costs should never be considered when
making decisions.
incorrect, and obviously so rich that money means nothing to him/her. incorrect, because the
tuition will have to be paid again when Jim retakes the course.

33. Consider a market characterized by the following inverse demand and supply functions: Px =
10 - 2Qx and Px = 2 + 2Qx. Compute the surplus received by consumers and producers.
$2 and $6, respectively
$4 and $4, respectively
$3 and $9, respectively
$24 and $24, respectively

34. When the demand for a good increases, firms respond by

increasing their supply
increasing their price
decreasing their supply
increasing their quantity supplied
decreasing their costs

35. So long as the actual market price exceeds the equilibrium market price, there will be
Upward pressure on the price
A shortage
Excess demand
Downward pressure on the price

36. A floor price is:

equal to the initial market equilibrium price.
the maximum legal price that can be charged in a market.
the minimum legal price that can be charged in a market.
below the initial market equilibrium price.

37. An increase in the price of bangus will probably lead to:

an increase in demand for chicken.
an increase in demand for bangus.
an increase in the supply for chicken.
no change in the demand for bangus or chicken.

38. Suppose the demand for good X is given by Qd = 10 + axPx + ayPy + aMM. If ay is
negative, then:
goods y and x are inferior goods.
goods y and x are normal goods.
goods y and x are complements.
goods y and x are substitutes.

39. Consider a market characterized by the following inverse demand and supply functions: Px =
10-2Qx and Px = 2 + 2Qx. Compute the loss in social welfare when an $8 per unit price floor is
imposed on the market.
$3
$1
$2
$0

40. Which of the following would decrease the demand for tennis ball?
A decrease in the price of tennis rackets
An increase in the price of tennis ball
An increase in the cost of producing tennis balls
A decrease in the average houseold income when tennis balls are normal good.

41. Suppose the supply of good X is given by Q³x = 10 + 2Px. How many units of good X are
produced if the price of good X is 10?
None of the statements associated with this question are correct.
20
30
10

42. An increase in the minimum wage can be expected to

cause unemployment for some workers
increase employment
cause a shortage of workers
help businesses by reducing their costs of production

43. The demand for good X is given by Qx = 4,000 - PX - 2Py + 4Pz+ 0.2M, where Py is the
price of good Y, Pz is the price of good Z, and M is income. If Py = $800, Pz = $200, and M =
$500, what is the inverse demand function for good X?
PX = 4,200 QX
PX = 3,300 QX
PX = 3,200 QX
PX = 1,200 2QX

44. Suppose the demand for good X is given by Qdx = 20 - 4Px + 3Py + M. The price Y of good
X is $5, the price of good Y is $15, and income is $150. Given these prices and income, how
much of good X will be purchased?
180
None of the statements associated with this question are correct.
160
195

45. If a frost in Benguet damages strawberries, what will likely happen to the market for Benguet
strawberries?
Demand will increase
Supply will increase
Demand will fall
Supply will decrease

46. If you are willing to sell your car business for P500, 000 and someone offers you P420,000
for it, this transaction will generate:
P40, 000 worth of buyer surplus and P40,000 worth of seller surplus
There is no surplus created.
P80,000 worth of buyer surplus and unknown amount of seller surplus.
P80, 000 worth of seller surplus and unknown amount of buyer surplus

47. Suppose the demand for X is given by Qxd = 100 - 2Px -4Py + 10M + 2A, where Px
represents the price of good X, Py is the price of good Y, M is income and A is the amount of
advertising on good X. Based on this information, we know that good Y is
a complement for good X.
an inferior good.
a substitute for good X.
a normal good.

48. Which of the following is probably NOT a normal good?

New automobiles
Designer jeans
Diamond rings
Inter-town passenger bus travel
49. An excise tax of Php1.00 per LITER of gasoline placed on the suppliers of gasoline in a
market with downward sloping demand and upward sloping supply would raise the equilibrium
price:
by less than Php1.00 per LITER.
by more than Php1.00 per LITER.
exactly Php1.00 per LITER.
There is too little information to determine the impact on the equilibrium price.

50. Producer surplus is measured as the area:

below the supply curve and above the market price.
above the supply curve and below the market price.
above the demand curveand below the market price.
below the demand curve and above the market price.
 CHAPTER 3 QUIZ

1. Which of the following measures of fit penalizes a researcher for estimating many coefficients
with relatively little data?
t-statistic
R-square
Adjusted R-square
Neither the t-statistic, the R-square, nor the adjusted R-square

2. Non-fed* ground beef is an inferior good. In economic booms, grocery managers should:
*Coming from culled cows and bulls
increase their orders of non-fed ground beef.
neither increase, reduce, nor maintain their current orders for non-fed ground beef.
reduce their orders of non-fed ground beef.
not change their orders of non-fed ground beef.

3. The price of milk increases. Which of the following is not part of the likely chain of events
that follows from this price change?
Milk producers increase their production of milk.
The producers of feed for dairy cows increase production.
Some milk consumers reduce their consumption of milk.
The manufacturers of milking machines lay-off some workers.

4. If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple
sauce from 100 to 130 jars, what is the cross-price elasticity of apple sauce and pork chops at a
pork chop price of $6?
2.71
0.42
-0.69
-0.86
5. Suppose 1,000 units of a good are sold at P10 a unit. If price increases to P15 and total
revenue increases to P15,000 and increases by P1,000 for every peso increase in price after that,
we know that:
the demand curve is downward-sloping and the firm is on the inelastic portion of the demand
curve.
the demand curve is vertical.
demand is perfectly elastic.
the demand curve is a rectangular hyberbola.

6. Assume that the price elasticity of demand is 2 for a certain firm's product. If the firm raises
price, the firm's managers can expect total revenue to:
remain constant.
increase.
decrease.
either increase or remain constant, depending upon the size of the price increase.

7. An income elasticity less than zero tells us that the good is:
a Giffen good.
an inferior good.
a normal good.
an inelastic good.

8. If a price increase from $5 to $7 causes quantity demanded to fall from 140 to 100, what is the
absolute value of the own price elasticity at a price of $7?
1.75
0.02
0.57
1.40.
9. Shaw and Hobbs work for the same recording company. Shaw claims that they would be better
off increasing the iTunes downloading price while Hobbs claims that they would be better off
decreasing the price. We can conclude that:
Shaw thinks the demand for iTunes is price elastic, and Hobbs thinks it is price inelastic.
Shaw thinks the demand for iTunes is price inelastic and Hobbs thinks it is price elastic.
Shaw thinks the demand for iTunes has price elasticity of zero, and Hobbs thinks price elasticity
equals to one.
Shaw thinks the demand for iTunes has price elasticity equal to one, and Hobbs thinks price
elasticity equals to zero.
Shaw and Hobbs should stick to singing and arguing and forget about managerial economics.

10. If the income elasticity for lobster is 0.4, a 50 percent increase in income will lead to a:
10 percent drop in demand for lobster.
4 percent increase in demand for lobster.
20 percent increase in demand for lobster.
16 percent increase in demand for lobster.

11. If quantity demanded for sneakers falls by 10 percent when price increases 50 percent, we
know that the absolute value of the own price elasticity of sneakers is:
2.5.
2.0.
0.4.
0.2.

12. A technological breakthrough lowers the cost of photocopiers. If the demand for photocopiers
is price inelastic, we predict that photocopiers sales will:
rise but changes in total revenue will depend on elasticity of supply.
fall and total revenue will fall.
fall and total revenue will rise.
rise and total revenue will fall.
rise and total revenue will rise.

13. Which of the following is not an example of a transaction cost?

The opportunity cost of time spent looking for stores that sold the good desired.
Time spent bargaining over the price of a good.
The cost of returning a defective product.
The enjoyment of owning the good.

14. Suppose the demand function is given by Qd = 8P 1.5 P 1.25 M0.12 H. Then the demand for
good x is:
unitary.
elastic.
perfectly elastic.
inelastic.

15. The demand for good X has been estimated by Qd = 12-3Px + 2Py. Suppose that good X
sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.
-0.75
-0.2
-0.6
-0.3

16. The demand for video recorders has been estimated to be Qy = 134 -1.07Pf+46Pm-2.1P,+ 51,
where Q, is the quantity of video recorders, P, denotes the price of video recorder film, Pm is the
price of attending a movie, P, is the price of video recorders, and I is income. Based on the
estimated demand equation we can conclude:
video recorders are inferior goods.
the demand for video recorders is neither inferior nor inelastic, and video recorder film is not a
substitute for video recorders.
video recorders are normal goods.
video recorder film is a substitute for video recorders.

17. If the demand for frozen orange juice is price elastic, then severe frost that destroys large
quantities of oranges will likely:
increase the equilibrium price of juice as well as total consumer spending on it.
increase the equilibrium price of juice, but leave total consumer spending on it constant.
reduce the equilibrium price of juice, but increase total consumer spending on it.
reduce both the equilibrium quantity and the price of juice.
reduce the equilibrium quantity of juice as well as total consumer spending on it.

18. Which of the following is NOT an important factor that affects the magnitude of the own
price elasticity of a good?
Time
Expenditure share
Supply of the good
Available substitutes

19. Price elasticity of demand

varies with changes in supply.
will change when the units of goods is measured in changes.
measures the relative change in quantity demanded when there is a change in price.
is always negative.

20. The cross elasticity of demand is

the percentage change in the price of one good divided by the percentage change in the price of
another good.
the percentage change in the quantity demanded of one good divided by the percentage change in
price of another good.
the change in the price of one good divided by the change of quantity demanded of another good.
the percentage change in the quantity demanded of one good divided by the percentage change in
the quantity demanded of another good.

21. In Dagupan City, too many people are parking their vehicles downtown without minding city
ordinances. They crowd up city streets and make driving difficult. The mayor decided to double
the cost of tickets issued for illegal parking from P500 to P1,000. The city actually realized more
money after that. This means that demand for illegal parking is:
elastic because revenue and price moved in the same direction.
perfectly elastic because revenue and price moved in the same direction.
unit elastic because revenue and price moved in the same direction.
inelastic because revenue and price moved in the same direction.

22. Suppose the demand function is given by Qd = 21 - 8P 0.5+ 2P 0.25-M0.12+ H. Then the
cross-price elasticity between goods x and y is:
0.50.
4.00.
8.33.
0.25.

23. Which of the following is used to determine the statistical significance of a regression
coefficient?
t-statistic
R-square
Adjusted R-square
F-statistic

24. When good substitutes do not exist, the price elasticity of demand will be:
perfectly unit-elastic
elastic
inelastic
unit-elastic

25. Suppose the own price elasticity of demand for good X is -1.05, and the price of good X
increases by 10 percent. What would you expect to happen to the total expenditures on good X?
Remain unchanged
Increase
Neither increase, decrease, nor remain unchanged
Decrease
 CHAPTER 4 QUIZ IN ECON 24 [muted, to be reviewed]

1. Zarina's income allows her to afford 3 tomatoes and no toothbrushes, or 2 toothbrushes and no
tomatoes. The relative price of toothbrushes (price toothbrushes/ price tomato) is:
1/6
impossible to calculate without additional information
2/3
3/2
6/1

2. For an increase in price, the substitution effect:

increases consumption for normal goods only.
does none of the choices
decreases consumption for inferior goods only.
decreases consumption for normal goods only.
always increases consumption

3. If the price elasticity of demand is 2, then a 1 percent decrease in price will:

increase the quantity demanded by 2 percent
reduce the quantity demanded by half
double the quantity demanded
reduce the quantity demanded by 2 percent
increase the quantity demanded by 0.5 percent

4. Market demand is the

sum of the quantities demanded by each individual at each price
difference between the maximum amount each individual is willing to pay for a good and the
market price.
sum of the consumer surplus of each individual
difference between the market price and the maximum amount each individual is willing to pay
for a good.
sum of the prices that each individual is willing to pay for each quantity demanded

5. Which of the following statements is false?

the marginal rate of substitution increases with movement up an indifference curve
indifference curves are bowed out from the origin
indifference curves are negatively sloped
the marginal rate of substitution is the magnitude of the slope of an indifference curve
a preference map consists of a series of nonintersecting indifference curves

6. The property that implies that indifference curves are convex to the origin is:
completeness
more is better
transitivity
diminishing marginal rate of substitution

7. Real income is measured in:

price units
units of satisfaction
units of indifference
units of goods
monetary units

8. Which of the following statements best describes a consumer's budget line?

the amount of each good a consumer can purchase
the consumption choices made a consumer
the limits to a consumer's set of affordable consumption choices
the desired level of consumption for the consumer
the set of all affordable consumption choices

9. When Daniel Padilla took off his shirt in The How's of Us, he was not wearingan undershirt.
As a result men's undershirt sales plummeted. Ceteris paribus, we can conclude that men's
undershirt:
preferences changed when prices changed
choices changed when prices changed
preferences changed when income changed
choices changed when income changed
choices changed when preferences changed

10. A poll conducted by a national firm (SWS) finds that most Filipinos say they care more about
safety when buying a car than about fuel efficiency. As a result, a car maker produces a car with
many safety features, but it doesn't sell well. This behavior:
does not contradict economic theory because economist focus on what people do rather than
what they say
contradicts economic theory because it is irrational not to purchase safer cars
does not contradict economic theory because economic theory only relates to prices and not to
features such as safety.
contradicts economic theory because the people didn't do what they said they would do.

11. Suppose the following Lagrangian is formed to maximize a consumer's utility subject to her
budget constraint: = U(X,Y) + X (1,000-50X-5Y). The first-order conditions for this problem
imply:
PX/PY = 50
(2U/ 9X) / (9U/Y) = 5
MRS = 10
All of the statements associated with this question are correct.

12. Squid costs P100 per kilogram and octopus costs P50 per kilogram. Jacques buys only
octopus and gets 10 units of utility from the last kilogram he buys. Assuming Jacques has
maximized his utility, his marginal utility, in units, from the first kilogram of squid must be:
more than 20
more than 10
zero
less than 20
less than 10

13. The fact that human wants cannot be fully satisfied with available resources is called the
problem of:
opportunity cost
who will consume
scarcity
normative economics
what to produce

14. Bikes and roller blades are substitutes. Marginal utility theory predicts that when the price of
bikes increases, the quantity demanded of bikes:
decreases and the demand curve for roller blades shifts rightward
decreases and the demand curve for roller blades shifts leftward
increases and the demand curve for roller blades shifts leftward
decreases and the demand curve for roller blades will not shift
increases and the demand curve for roller blades shifts rightward

15. If sugar and Nutrasweet are substitutes, then we can be certain that an increase in the price of
sugar will lead to an increase in the consumption of:
sugar only
None of the statements is correct
Nutrasweet only
sugar and Nutrasweet
16. What is the maximum amount of good Y that can be purchased if X and Y are the only two
goods available for purchase and Px = $5, Py = $10, X = 10, and M = 500?
25
45
40
75

17. A household's consumption choices are determined by:

preferences
prices of goods and services
prices of goods and services and income only
all of the foregoing
income

18. Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand
is PX = 20 - QX; Consumer 2's (inverse) demand is PX = 20 - 2QX; and Consumer 3's (inverse)
demand is PX = 20 - 4QX. When PX = $15, the market will demand:
17.5 units and the inverse market demand curve is PX = 20 -0.5714QX.
17.5 units and the inverse market demand curve is PX = 60 - 7QX.
8.75 units and the inverse market demand curve is PX = 20-0.5714QX.
None of the statements is correct.

19. Learning by doing is the basis of:

dynamic competitive advantage
absolute comparative advantage
monetary exchange
intellectual property rights
20. Suppose that Arnie spends his entire income of P1,000. on Accounting books and Cellphone
loads. Accounting books cost P200 and cellphone load cost P400 (See Table). The marginal
utility of each good is independent of the amount consumed of the other good.
Quantity Marginal Utility
Accounting Books Cellphone Load
1 12 16
2 10 12
3 8 8
4 6 4

If Arnie is maximizing his utility, how many cell phone loads does he buy?
2
4
1
0
3

21. The high price of diamonds relative to the price of water reflects the fact that at typical levels
of consumption:
the total utility of diamonds is relatively high
the marginal utility of diamonds is relatively low
the total utility of water is relatively low
none of the choices is true
the marginal utility of water is relatively high

22. If a consumer is in equilibrium, then:

total utility is maximized given the consumer's income and the prices of goods
marginal utility per peso spent is maximized given the consumer's income and the prices of
goods
marginal utility is maximized given the consumer's income and the prices of goods
the marginal utility of each good will be equal
none of the choices is true
23. "Ceteris paribus" means
"other things constant"
"individual"
"invisible hand"
"making all the necessary changes"

24. Kate's money income is $250, the price of X is $5, and the price of Y is $3. Given these
prices and income, Kate buys 29 units of X and 35 units of Y. Call this combination of X and Y
bundle J. At bundle J, Kate's MRS is 3. At bundle J, if Kate increases consumption of Y by 1
unit, how many units of X must she give up in order to satisfy her budget constraint?
1
3/5
2/3
3

25. Suppose a manager views both quantity and profit as "goods." Such a manager will then have
an indifference curve that:

is tangent to the profit curve somewhere between quantities of 2.5 and 5

intersects the profit curve at a quantity exactly equal to 2.5.
intersects the profit curve at a quantity exactly equal to 5.
is tangent to the profit curve somewhere between 0 and 2.5.

26. Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume that X is a normal good, Y is an inferior good, and the price of
good Y increases. Then, which of the following effects is known with certainty?
The income and substitution effects will reinforce one another, leading to an overall increase in
the consumption of good X.
The income and substitution effects reinforce one another, leading to an overall decrease in the
consumption of good X.
The income and substitution effects will have competing effects, leading to an indeterminate
impact on the consumption of good Y.
The income and substitution effects will reinforce one another, leading to an overall increase in
the consumption of good Y.

27. What is the maximum amount of good X that can be purchased if X and Y are the only two
goods available for purchase and Px = $10, Py = $20, Y = 10, and M = 400?
20
40
30
0

28. What are the advantages to a firm of selling gift certificates?

Greater quantity sold if your good is a normal good.
Greater quantity sold if your good is an inferior good.
Reduced strain on the refund department and greater quantity sold if your good is a normal good.
Reduced strain on the refund department and greater quantity sold if your good is an inferior
good.

29. If potato chips were free, individuals would consume:

infinite quantity of chips
none of the choices
the quantity of chips at which marginal utility from chips falls to zero
the quantity of chips at which total utility from the chips fall to zero.
zero chips since this equates marginal utility and price

30. Kate's money income is $350, the price of X is $4, and the price of Y is $6. Given these
prices and income, Kate buys 50 units of X and 25 units of Y. Call this combination of X and Y
bundle J. At bundle J, Kate's MRS is 3. At bundle J, if Kate increases consumption of Y by 2
unit, how many units of X can she give up and still reach the same level of utility?
2/3
1
1/3
3

31. The budget line depends on;

preferences and prices
income
preferences
income and prices
prices

32. Joe consumes 10 units of food and 12 units of clothing. Since food is an inferior good, a gift
to Joe of a $12 gift certificate at a clothing store will:
induce Joe to eat more than 10 units of food.
definitely make Joe better off than a gift of $12 in cash.
definitely make Joe worse off than a gift of $12 in cash.
None of the statements is correct.

33. The possible goods and services a consumer can afford to consume represents the:
consumer preferences
consumer status
consumer opportunities
consumer behavior

34. Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand
is PX = 40- 5QX; Consumer 2's (inverse) demand is PX = 10 - QX; and Consumer 3's (inverse)
demand is PX = 30- 2QX. When PX = $2, the market will demand:
29.6 units
24.5 units
None of the statements is correct
15.5 units

35. The long-run supply curve is likely to be:

more elastic than both momentary and short-run supply curves
less elastic than both momentary and short-run supply curves
more elastic than momentary supply but less elastic than short-run supply
vertical
less elastic than momentary supply, but more elastic than short-run supply

36. Preferences for Mongo sprouts increase. The price of Mongo sprouts will not change if the
price elasticity of:
demand is 0
demand is 1
supply is 0
supply is 1
supply is infinity

37. A situation where a consumer says he does not know his preference ordering for bundles X
and Y would violate the property of:
completeness
more is better
substitutability
complementarity

38. Which of the following will definitely cause an increase in the equilibrium price?
a decrease in demand combined with an increase in supply
an increase in both demand and supply
a decrease in both demand and supply
an increase in demand combined with a decrease in supply

39. . If an increase in the price of good A causes the supply curve for good B to shift to the right,
then
A and B are complements in consumption
A and B are substitutes in production
A is a factor of production for making B
A and B are complements in production
A and B are substitutes in consumption

40. If the price of the good measured on the vertical axis increases, the budget line will
become flatter
shift leftward and become steeper
become steeper
shift rightward but parallel to the original budget line
shift leftward but parallel to the original budget line

41. The value of a good is defined as the:

total utility to an individual of all units of the good.
market price.
cost of producing the good.
highest price an individual is willing to pay.
average price paid by individuals in a market.

42. If income increases, the budget line will:

shift leftward but parallel to
the original budget line become flatter
shift rightward but parallel to the original budget line
shift parallel but leftward or rightward depending on whether a good is normal or inferior
become steeper

43. The property that rules out indifference curves that cross is:
diminishing marginal rate of substitution
transitivity
îndependence
completeness

44. In moving down along an indifference curve, the marginal rate of substitution (MRS) for
complements will;
decrease more slowly than the MRS for substitutes.
increase faster than the MRS for substitutes
increase more slowly than the MRS for substitutes
decrease faster than the MRS for substitutes
be relatively constant

45. The income effect

minus the price effect equals the substitution effect
usually dominates the price effect
usually dominates the substitution effect
plus the price effect equals the substitution effect
plus the substitution effect equals the price effect

46. Bill and Ted consume 15 chocolate bars each at current price. If Bill's demand curve is more
elastic than Ted's demand curve, then:
Bill's willingness to pay the last chocolate bar is greater than Ted's
Bill's consumer surplus is greater than Ted's
Ted's consumer surplus is greater than Bill's
Bill's consumer surplus is equal Ted's
Ted's willingness to pay the last chocolate bar is greater than Bill's

47. The idea that a consumer is limited to selecting a bundle of goods that is affordable is
captured by the:
consumer equilibrium
indifference curve
price changes
budget constraint

48. The fact that a decline in the price of a good causes producers to reduce the quantity of the
good supplied illustrates
the law of supply
the nature of an inferior good
a change in supply
technological improvement
the law of demand

49. Samir consumes apples and bananas and is in consumer equilibrium. The marginal utility of
the last apple is 10 and the marginal utility of the last banana is 5. If the price of an apple is P25,
then what is the price of a banana?
P2.50
P50
P5.00
P12.50
P25

50. Ann's money income is $250, the price of X is $3.6, and the price of Y is $2. Given these
prices and income, Ann buys 50 units of X and 35 units of Y. Call this combination of X and Y
bundle J. At bundle J Ann's MRS is 2. Given these prices and income, what is Ann's equilibrium
consumption of X?
None of the statements is correct.
X = 50
X > 60
X >50
 ECON 24 QUIZ FOR CHAPTER 5

1. Economies of scope exist when:

A. C(Q1) + C(Q2) < C(Q1, Q2).
B. C(Q1) - C(Q2) < C(Q1, Q2).
C. C(Q1) + C(Q2) > C(Q1, Q2).
D. C(Q1) - C(Q2) > C(Q1, Q2).

2. Cost per unit is minimized where:

A. Marginal cost = Average revenue
B. Average revenue = Average cost
C. Marginal cost = Average cost
D. Marginal revenue = 0

3. Supposed that the trademark "Vice-President's Choice currently has a market value of
P100,000. After one year, the market value increases to P150,000. The opportunity cost of using
the trademark during the year is:
A. -P50,000
B. P100,000
C. zero
D. P50,000
E. P150,000

4. The Cobb-Douglas production function is:

A. Q = aK + bL.
B. Q = min{bK, cL}.
C. Q = max{bK, cL}.
D. Q = KaLb.
5. When there are economies of scope between products, selling off an unprofitable subsidiary
could lead to:
A. only a minor reduction in sales.
B. only a minor reduction in costs.
C. a major reduction in sales.
D. a major reduction in costs.

6. Which of the following statements by a restaurant owner refers to the law of diminishing
returns?
A. “The higher the quality of the ingredients we use, the higher the cost of producing each meal."
B. "We can serve the same number of meals with less kitchen equipment, but we would have to
hire more kitchen staff."
C. “We can serve the same number of meals with fewer kitchen staff, but we would have to buy
more labor saving kitchen equipment."
D. "If we double the size of our premises and double everything else - kitchen staff, serving staff.
equipment - we can increase the number of meals we serve, but not to double current levels."
E. "We can increase the number of meals we serve by just adding more kitchen staff, but each
additional worker adds fewer meals than the previous worker because traffic in the kitchen will
get worse."

7.
Quantity of Labor Total Product Average Product Marginal Product
1 22 22 22
2 52 26 30
3 81 27 29
4 100 25 19
5 115 23 15
6 126 21 11
Using the table above, at what quantity of labor does the law of diminishing returns set in?
A. After 3 units
B. After 6 units
C. After 1 unit
D. After 2 units
8. If the price of labor increases, in order to minimize the costs of producing a given level of
output, the firm manager should use:
A. less of labor and more of capital.
B. less of labor and less of capital.
C. more of labor and more of capital.
D. more of labor and less of capital.

9. Which of the following activities is not included in the production process?

A. Transporting the goods.
B. Packaging the goods.
C. Making the goods.
D. Determining the value of the goods.

10. If a firm's production function is Leontief and the price of capital goes down, the:
A. firm must use less labor in order to minimize the cost of producing a given level of output.
B. firm must use more capital in order to minimize the cost of producing a given level of output.
C. firm must use less capital in order to minimize the cost of producing a given level of output.
D. cost-minimizing combination of capital and labor does not change.

11. If the production function is Q = K.5L.5 and capital is fixed at 9 units, then the marginal
product of labor when L = 49 is:
A. 1/3
B. 9/98.
C. 3/14.
D. None of the answers are correct.

12.
Q FC VC TC AFC AVC ATC
1
2 75 25
3 40
What does total variable cost equal at output level 3?
A. 270
B. 120
C. 150
D. 90

13. The short run is:

A. a year or less.
B. up to three years.
C. the period of time in which the firm cannot change its use of at least one input.
D. the period of time in which the firm can vary its rate of output.

14. Changes in the price of an input cause:

A. slope changes in the isocost line.
B. parallel shifts of the isocost lines.
C. changes in both the isoquants and isocosts of equal magnitude.
D. isoquants to become steeper.

15.
Quantity of Labor Total Product Average Product Marginal Product
1 22 22 22
2 52 26 30
3 81 27 29
4 100 25 19
5 115 23 15
6 126 21 11
At what quantity of labor is the average product of labor maximized?
A. After 3 units
B. After 6 units
C. After 1 unit
D. After 2 units

16. If at Kingfisher School there are significantly more females than males (and there are not a
significant number of gays) economic forces:
A. will be pushing for neither to pay on dates.
B. are irrelevant to this issue. Everyone knows that the males always should pay.
C. will be pushing for females to pay on dates.
D. will be pushing for males to pay on dates.

17. In the long-run,

A. all inputs are variable.
B. only the scale of plant is fixed.
C. a firm must experience decreasing returns to scale.
D. all inputs are fixed.
E. none of the statements is true.

18.
Q FC VC TC AFC AVC ATC
1
2 75 25
3 40
What does total fixed cost equal at output level 2?
A. 150
B. 200
C. 100
D. 50

19. According to the table below, what is the average total cost of producing 160 units of output?
Q FC VC
0 1,000 0
50 1,000 1,000
90 1,000 1,800
125 1,000 2,500
145 1,000 2,900
160 1,000 3,200
A. 19.38
B. 12.98
C. 22.04
D. 26.25

20. Marginal cost is the amount that

A. total cost increases when one more unit of output is produced.
B. fixed cost increases when one more unit of output is produced.
C. total cost increases when one more laborer is hired.
D. fixed cost increases when one more laborer is hired.
E. variable cost increases when one more laborer is hired.

21. A firm's total fixed costs are P100; total variable costs are P200; and average fixed costs are
P20. The firm's total output:
A. is 5
B. is 1.
C. cannot be determined from the information provided.
D. is 10.

22. The production function in the table below exhibits negative marginal returns to capital over
what output range?
Production Function for Good X
L K Q MPK= ( APK= (Q/K)
∆ Q/∆ K )
Labor Capital Output Marginal Average
Product of Product of
Capital Capital
 9 0 0 -- --
9 10 57 5.7 5.7
9 20 324 26.7 B
9 30 657 33.3 21.9
9 40 1,127 47 28.18
9 50 1,524 39.7 30.48
9 60 1,914 39 31.9
9 70 2,294 38 32.77
9 80 2,494 A 31.18
9 90 2,681 18.7 29.79
9 100 2,786 10.5 27.86
9 110 2,750 -3.6 25
9 120 2,662 -8.8 22.18

A. Between 3,016 and 2,945

B. Between 2,750 and 2,662
C. Between 0 and 2,991
D. Between 0 and 1,524

23. For given input prices, isocosts farther from the origin are associated with:
A. lower costs.
B. initially lower, then higher costs.
C. the same costs.
D. higher costs.

24. The best way to think of the short run and the long run is as
A. concepts that apply to all people who work for a firm.
B. a concept that only accountants are concerned with.
C. specific periods of time, although the time periods may differ across industries.
D. planning terms that apply to managers.

25. Which of the following is not a reason why a firm may experience economies of scale?
A. Increased levels of management.
B. Specialization is productive.
C. Improved productive equipment.
D. Dimensional factors.

26. Suppose the production function is given by Q = 4K +8L. What is the average product of
capital when 10 units of capital and 5 units of labor are employed?
A. 10
B. 8 Q = [4(10) + 8(5)]/10
C. 7
D. 14

27. In a map showing the short run cost curves, the one curve which declines continuously as we
expand output is called:
A. marginal cost
B. average fixed cost
C. average total cost
D. average variable cost

28.
Q FC VC TC AFC AVC ATC
1
2 75 25
3 40
What does total cost equal at output level 2?
A. 150
B. 200 (75 x 2) + (25x2) = 200
C. 100
D. 50

29. The long-run average cost curve:

A. shifts up when fixed costs increase.
B. traces the minimum points on all the short-run average total cost curves for each scale of
plant.
C. traces the minimum short run average total cost fort each output.
D. shifts down when fixed costs increase.
E. is the short-run average total cost curve with the lowest cost.

30. If the average product of 20 workers is 100 sacks of palay and the average product of 21
workers of palay is 99 sacks of palay, when the marginal product of the 21st worker was:
A. 79 sacks of palay
B. -1 sack of palay
C. 99 sacks of palay
D. 5 sacks of palay