Chapter 6

Busch Gardens recently announced that it will increase the entrance fees at its theme parks in order to
increase park revenues. Busch Gardens must believe that...
-the percentage increase in fees will be greater than the percentage decrease in the number of theme
park visitors.

When marginal revenue is positive,

-demand is elastic.

Refer to the following table showing a demand schedule for the next two questions

If price falls from $250 to $200, what is the elasticity of demand over this range?
-(-1.5)

As output increases from 2,100 to 2,700 what is marginal revenue?

-(-25)

If the price elasticity of tablet computers is -1.5 and price decreases 20%, what happens to the quantity
of tablet computers demanded?
-quantity increases by 30%

If the own-price elasticity of demand for a good is -0.6 and quantity demanded decreases by 30%, price
must have...
-increased by 50%

Which of the following would tend to INCREASE the elasticity of demand for good X?
-the percentage of a consumer's income spent on good X increases.
- a new product, Y, which can be used in place of X, is introduced.

All other things equal, the demand for good X will be more elastic than the demand for good Y when...
-good X has more substitutes than good Y

1
Refer to the graph below for the next 4 questions:

The equation for demand is

- P = 60 - 0.01Q.

The equation for marginal revenue is

- MR = 60 - 0.02Q.

Demand is unitary elastic at P = $________.

-30

Marginal revenue is zero at Q = ________.

- 3,000

The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4 implies that
- Natural gas and fuel oil are substitutes.
The quantity of natural gas demanded will decrease by 1.6% when the price of fuel oil decreases by 4%.

To answer the question, refer to the following table showing a demand schedule:

2
If price falls from $150 to $100, what is the elasticity of demand over this range?
-0.625

As quantity demanded rises from 1,400 to 1,800, what is marginal revenue?

-(-$75)

See next 9 questions.

In the figure above, what is the point price elasticity of demand when price is $60
-(-1.00.)

What is the interval elasticity of demand over the price range $60 to $80?
-(-1.40)

If price INCREASES from $60 to $80, an arrow representing the PRICE effect
-Will point upward; Will be shorter than (and in the opposite direction of) the arrow representing the
quantity effect.

If price DECREASES from $80 to $60, an arrow representing the QUANTITY effect
-Will point upward

In the figure above, what is the point price elasticity of demand when price is $40?
-(-0.50.)

What is demand elasticity over the price range $40 to $60?

-(-0.71)

If price INCREASES from $40 to $60, an arrow representing the PRICE effect
-Will point upward; Will be longer than (and in opposite direction of) the arrow representing the
quantity effect.

3
If price DECREASES from $60 to $40, an arrow representing the QUANTITY effect
- will be shorter than (and in opposite direction of) the arrow representing the price effect.

The cross-price elasticity of demand between goods X and Y

-Measures the responsiveness of the quantity of X demanded to changes in the price of Y; Is greater than
zero if X and Y are substitutes.

Suppose the demand for good X is Q = 500P-1. This demand curve has a ________ (constant, variable)
elasticity of demand equal to ________.
-constant; -1

If the demand for plastic surgery is price inelastic,

-then when more plastic surgery is performed, total expenditures on plastic surgery will decrease.

When demand is inelastic,

-buyers are not very responsive to changes in the price of the product.

Refer to the following figure.

When quantity demanded is 3,000, what is marginal revenue?

-(-$10)

In the figure above, what is the interval elasticity of demand over the price range $60 to $80?
-(-1.40)

4
Use the figure below, which shows a linear demand curve and the associated total revenue curve, to
answer the question.

The maximum possible total revenue is $_________.

-12,500

Refer to the following graph to answer the question:

Suppose price rises from $90 to $110. Using representative arrows, the price effect is a relatively
________ (short, long) arrow pointing _______ (upward, downward).
-short; upward

Use the figure below to calculate the cross-price elasticity of demand for good X when the price of good
Y increases from $12 to $14:

-0.42

If the price elasticity of demand for Harley-Davidson motorcycles is -1.2 and quantity demanded
increases by 24%, price must have
-decreased by 20%.

5
To answer the question, refer to the following table showing a demand schedule:

If price rises from $100 to $150,

-total revenue moves up as indicated by the direction of the arrow representing the price effect.

Refer to the following figure. At a price of $10, the point elasticity of demand for D3 is ________ and
marginal revenue is _______.
-5; positive

Which of the following would tend to DECREASE the elasticity of demand for good X?
-Consumers begin spending a smaller percentage of their income on X.

If the quantity of gidgets demanded increases when the price of gadgets decreases
-gidgets and gadgets are complements.

The price elasticity of demand over the price interval $90 to $110 is
-2.0

To answer the question, refer to the following table showing a demand schedule:
If price falls from $150 to $100,
- total revenue moves in the same direction as the arrow representing the price effect; the arrow
representing the price effect points down and the arrow representing the quantity effect points up

Marginal revenue
- is the change in total revenue when output increases by one unit; measures the slope of the total
revenue curve

If the price elasticity of demand for a good is -0.8 and quantity demanded decreases by 40%, price must
have
-none of the above

Refer to the following figure. When quantity demanded is 1,000, what is marginal revenue?
-$10

According to the following figure, demand is unitary elastic at P = $________.

-25

Refer to the following figure. At a price of $6, the point elasticity of demand for D1 is ________ and
marginal revenue is _______.
Picture
-(-1; zero)

6
To answer the question, refer to the following table showing a demand schedule:
If price falls from $200 to $150, what is the elasticity of demand over this range?
(-1.17)

Refer to the following graph to answer the question:

Suppose price rises from $90 to $110. Using representative arrows, the quantity effect is a relatively
________ (short, long) arrow pointing _______ (upward, downward).
-long; downward

Use the figure below, which shows a linear demand curve and the associated total revenue curve, to
answer the question.
The price for which 100 units can be sold is $____
-45

Use the figure below, which shows a linear demand curve and the associated total revenue curve, to
answer the question.
The marginal revenue of the 700th unit is $_____ and demand is __________ at this point.
-20; inelastic

Which of the following will NOT affect the elasticity of demand for a product?
-the cost of producing the product

Refer to the following figure. When price is $15 and quantity demanded is 1,000, what is the point
elasticity of demand?
(-3)

Refer to the following graph to answer the question:

Suppose price rises from $90 to $110. Total revenue moves in the ________ (same, opposite) direction
as the dominant effect. In this case, total revenue ____________ (increases, decreases, stays the same)
because the quantity effect is _________ (larger than, smaller than, the same as) the price effect.
-same; decreases; larger than

Refer to the following figure. At what prices are demand curves D1, D2, and D3 unitary elastic?
-$6; $3; $6; respectively

Refer to the following figure. At a price of $1, the point elasticity of demand for D2 is ________ and
marginal revenue is _______.
-0.2; negative

Consider the statement: "When the British government tripled university fees for foreign students in
Great Britain, about one-half of them left to study in other countries." This move will ___________
university revenues from foreign students in Great Britain.
-increase

7
To answer the question, refer to the following table showing a demand schedule:
As output increases from 1,000 to 1,400 what is marginal revenue?
-$25

Consider the statement: "When the British government tripled university fees for foreign students in
Great Britain, about one-half of them left to study in other countries." The implied price elasticity of
demand by foreigners for a British education is (in absolute value)
-less than 1.

The demand for heart surgery is price inelastic. So it follows that

-if the price of heart surgery increases, total expenditure by consumers on heart surgery will rise.

According to the following figure, marginal revenue is zero at Q = ________.

-2,000 units

If the demand for umbrellas is price inelastic,

-if more umbrellas are sold as the result of a price decrease, total expenditures by consumers on
umbrellas will decrease.

According to the following figure, the equation for marginal revenue is

-MR = 50 - 0.025Q.

If E1 is the demand elasticity for a product after a price change has been in effect one day, E2 is the
demand elasticity for that product after one week, and E3 is demand elasticity for that product after one
month,
-|E3|> |E2| > |E1|

Use the figure below, which shows a linear demand curve and the associated total revenue curve, to
answer the question.

The marginal revenue of the 100th unit is $_____.

-40

The demand for good X will be more elastic than the demand for good Y when
-consumers have more time to adjust to a change in the price of good X than they have time to adjust to
a change in the price of good Y

E1 is demand elasticity for Minute Maid orange juice, E2 is demand elasticity for all orange juice, and E3
is demand elasticity for all fruit drinks. Then
-|E1| > |E2| > |E3|

In the figure above, what is the point price elasticity of demand when price is $40?
-(-0.50)

8
Refer to the following figure. The point elasticities of demand for D1, D2, and D3 at a price of $5 are
________, ________, and _______, respectively.
-(-0.71; -5; -0.71)

Refer to the following figure. When quantity demanded is 2,000, what is marginal revenue?
-0

Refer to the following graph to answer the question:

Over the price range $90 to $110, marginal revenue is ________ and demand is ________.
-positive; elastic

Suppose that the Houston Rockets' management is considering a plan in which fans who donate blood
can attend games for $35 instead of the usual $50. If both ticket revenues and blood donations rise with
this plan, which of the following is true?
-The demand for Houston Rockets' tickets is price elastic.

To answer the question, refer to the following table showing a demand schedule:
If price falls from $200 to $150,
-an arrow representing the price effect points down and is shorter than an arrow for the quantity effect.

In the figure above, what is the point price elasticity of demand when price is $60?
-(-1.00)

If the price elasticity of DVD recorders is -0.3 and price increases 20%, what happens to the quantity of
DVD recorders demanded?
quantity decreases by 6%

Use the figure below, which shows a linear demand curve and the associated total revenue curve, to
answer the question.
The price at which total revenue is maximized is $_____.
-25

Refer to the following figure. When price is $10 and quantity demanded is 2,000, what is the point
elasticity of demand?
-(-1)

When the price of corn dogs is $0.50, 10,000 corn dogs are demanded. When the price of corn dogs is
$1.20, 5,000 are demanded. What is the price elasticity of demand for corn dogs?
-(-0.81)

To answer the question, refer to the following table showing a demand schedule:
If price falls from $200 to $150,
-total revenue moves in the same direction as the arrow representing the quantity effect.

9
In the figure above, what is demand elasticity over the price range $40 to $60?
-0.71

According to the following figure, the equation for demand is

-none of the above

Refer to the following figure. When price is $5 and quantity demanded is 3,000, what is the point
elasticity of demand?
-(-1/3)

Demand is (more elastic / less elastic) in the short run than in the long run
-(less elastic) because consumers have less time to adapt to a price change in the short run than in the
long run.

If the quantity of Harley-Davidson motorcycles demanded decreases by 10% when the price increases by
20%, the price elasticity of demand for Harley-Davidson motorcycles is:
-(-0.50)

In the figure above, what is the point price elasticity of demand when price is $80?
-2.00

Use the figure to calculate the income elasticity of demand when income increases from $25,000 to
$30,000:
-1.10

Perfume industry statistics show that over the past five years, the number of bottles of perfume sold
decreased by 30%, but the total dollar amount spent by consumers was unchanged. This means that
-demand was unitary elastic.

The Interior Department recently announced that it will increase the entrance fees at Yellowstone
National Park in order to increase park revenues. The Interior Department must believe that
-the percentage increase in fees will be greater than the percentage decrease in the number of park
visitors.

Use the figure to calculate the income elasticity of demand when income increases from $25,000 to
$30,000:
-(-1.0)

If a drought increases the price of corn by 10% and decreases the quantity of corn demanded by 5%,
then demand for corn is
-inelastic and total revenue to corn farmers will increase.

10
Chapter 8

Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of
labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed
input is $500.What is average variable cost?
-$1.60

Based on the following table, what is average fixed cost when 200 units of output are produced?
$1.50

In the table above, how much does the third unit of labor ADD to total output?
-none of the above

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If capital is fixed at three units, how much does the fourth unit of labor add to total output?
-none of the above

Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of
labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed
input is $500. Which of the following is true?
-Average variable cost is decreasing.

Given the table below, diminishing returns begin with the

-11th worker.

Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is 30, the last
worker added 12 units of output, and total fixed cost is $3,600. What is marginal cost?
-$5

Average total cost

increases if marginal cost is greater than average total cost.

In the above figure, what is the AVERAGE total cost of producing 10 units of output?
-$12

A short-run production function assumes that

-at least one input is a fixed input.

Given the table below, as the number of workers increases from 10 to 15, output per worker

-decreases from 29 to 28

11
The following graph shows the marginal and average product curves for labor, the firm's only variable
input. The monthly wage for labor is $2,800. Fixed cost is $160,000.
When the firm uses 120 units of labor, how much output does it produce?
-8,400 units

The following graph shows the marginal and average product curves for labor, the firm's only variable
input. The monthly wage for labor is $2,800. Fixed cost is $160,000.
When the firm uses 40 units of labor, what is average total cost at this output?
-$170

Which of the following statements is FALSE?

-In the short run all inputs are fixed.

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If the capital stock is fixed at four units and there are three units of labor, what is the average product of
labor?
-none of the above

To answer, refer to the following:

"At Huffy's ... bicycle factory, 1,700 employees turn out 15,000 bicycles a day (in 1987). Five years before,
it required 2,200 workers to make 10,000 bikes daily." (The Wall Street Journal). Holding all else equal,
we can conclude that, over those years,
-Huffy's average variable cost decreased.

Given the table below, if capital is fixed at one unit, diminishing returns begin with the
Amount of total output produced from various combinations of labor and capital.
-third unit of labor.

A fixed cost is
-a cost the firm must pay even if output is zero.

Given the table below, what is the marginal cost of the 250th unit of output?
Picture
-$7.40

In the table below, the capital stock is fixed at 40 units, the price of capital is $15 per unit, and the price
of labor is $80 per unit.
If the firm produces 180 units of output, what is total variable cost?
-$1,200

In the figure above, the wage rate is $600 and total fixed cost is $15,000. What is average variable cost at
its minimum?
-$3.75

12
If labor is fixed at 5 units, how much does the second unit of capital add to total output?
Amount of total output produced from various combinations of labor and capital.
-100

In the figure above, the wage rate is $600 and total fixed cost is $15,000. How much output does the
firm produce when average variable cost is at its minimum?
-4,800

In the above figure, what is the AVERAGE variable cost of producing 5 units of output?
-$12

Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is 30, the last
worker added 12 units of output, and total fixed cost is $3,600. What is average total cost?
-$8

Fill out the table and answer the question below.

Diminishing returns begin with the
-third unit of labor.

Above is a firm's average product of labor and marginal product of labor curves. The price of labor is $60
per unit. Given this, diminishing returns set in with the
-6th unit of labor.

Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of
labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed
input is $500. What is average total cost?
-$1.80

If a firm is producing a given level of output in an economically efficient manner, then it must be the case
that
-this is the lowest cost method of producing that output and this output level is the most that can be
produced with the given level of inputs.

A firm produces 4,000 units of output using 500 workers. Marginal cost is $10, the wage rate is $160, and
total fixed cost is $100,000. What is average variable cost?
-$20

In the table above, diminishing returns

-begin with the third unit of labor.

13
The capital stock is fixed at 50 units, the price of capital is $30 per unit, and the price of labor is $25 per
unit.
Given the above, if the firm produces 40 units of output, what is total variable cost?
-$2,400

Short-run average cost is

-none of the above

The capital stock is fixed at 50 units, the price of capital is $30 per unit, and the price of labor is $25 per
unit.
Given the above, if the firm produces 30 units of output, how many units of labor does the firm use?
-54

To answer, refer to the following:

"Ford built 18 vehicles per auto employee in North America last year, while GM could only manage 12."
(The Wall Street Journal)
In comparison with GM, Ford had
-lower average variable cost.

To answer, refer to the following:

"Ford built 18 vehicles per auto employee in North America last year, while GM could only manage 12."
(The Wall Street Journal)
In comparison with GM, Ford had a higher
-average product of labor.

Given the table below, how much does the 13th worker add to total output?
-none of the above

Based on the following table, what is average fixed cost when 150 units of output are produced?
-$11

The capital stock is fixed at 5 units, the price of capital is $60 per unit, and the price of labor is $20 per
unit.

Based on the above, how much does the 12th unit of output add to the firm's total variable cost?
-$2.50

14
Fill out the table and answer the question below.

The average product of labor when 4 units of labor are employed is

-19
Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of
labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed
input is $500. What is the marginal cost?
-none of the above

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.

Which of the following input combinations can produce the same level of output?
-2K, 3L and 4K, 2L

The following graph shows the marginal and average product curves for labor, the firm's only variable
input. The monthly wage for labor is $2,800. Fixed cost is $160,000.

When the firm uses 40 units of labor, what is AVC at this level of output?
-$70

When the firm uses 40 units of labor, what is marginal cost at this level of output?
-$35

15
When the firm uses 40 units of labor, what is average total cost at this output?
-$170

When the firm uses 120 units of labor, what is its AVC at this output?
-$40

When the firm uses 120 units of labor, what is its marginal cost at this output?
-$56

When the firm uses 40 units of labor, how much output does it produce?
-1,600 units

At what output does the firm reach minimum average variable cost?
-8,000

When the firm uses 120 units of labor, what is average total cost at this output?
-$59

In the above figure, what is the TOTAL cost of producing 5 units of output?
-$100

A short-run cost function assumes that

-at least one input is fixed in supply.

Suppose that you run a house-painting company and currently have 2 workers painting a total of 4
houses per month. If you hire a third worker, 6 houses can be painted per month. If you hire a fourth
worker, 9 houses can be painted, and a fifth and sixth worker will increase the number of houses painted
to 13 and 15, respectively. Diminishing returns
-set in when the sixth worker is hired.

16
Based on the following table, what is average variable cost when output is 200?

-$10.50

Given the table below, what is average total cost when 200 units of output are produced?

-$4.80
Diminishing returns refers to the decrease in
-marginal product that results from increases in the variable input.

In the table below, the capital stock is fixed at 40 units, the price of capital is $15 per unit, and the price
of labor is $80 per unit.
If the firm produces 40 units of output, what is average fixed cost?
-none of the above

The marginal product of labor

-is less than the average product of labor when the average product of labor is decreasing.
is negative when adding another unit of labor decreases output.

Based on the following table, the additional cost of producing the 60th unit of output is:
-$5

If average product is increasing, then marginal product

-must be greater than average product.

A firm is currently producing 10 units of output; marginal cost is $24 and average total cost is $6 at this
level of output. The average total cost at 9 units of output is:
-$4

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If the capital stock is fixed at one unit, how much does the third unit of labor add to total output?
-40

Given the table below, the maximum amount that can be produced using 20 workers is
-530 units.

17
A firm's cost of production is affected by changes in
-both a and b, the available technology and input prices

For a short-run production function in which output is determined by the number of workers utilized
(capital stock held constant), which of the following is FALSE?
-When diminishing returns set in, adding one more worker decreases output.
Based on the following table, the additional cost of producing the 170th unit of output is:
-$15

In the table above, what is the maximum amount of output that can be produced with two workers?
-250

The capital stock is fixed at 5 units, the price of capital is $60 per unit, and the price of labor is $20 per
unit.
Based on the above, if the firm produces 60 units of output, what is average variable cost?
-$2.67

A production function measures the relation between

-the quantity of inputs and the quantity of output.

Based on the following table, what is total variable cost when 100 units of output are produced?
-none of the above

A firm is using a single variable input, labor, with a given amount of a fixed input, capital. If the level of
capital is decreased,
-all of the above

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If the amount of capital increases from 3 to 4 units, the marginal product of the fourth unit of labor
-increases by 5 units.

In the table above, what is the average product of four units of labor?
-80

The capital stock is fixed at 50 units, the price of capital is $30 per unit, and the price of labor is $25 per
unit.
Given the above, if the firm produces 20 units of output, what is average fixed cost?
-none of the above

Given the table below, if capital is fixed at two units, what is the marginal product of the fourth unit of
labor?
Amount of total output produced from various combinations of labor and capital.
-none of the above

18
In the figure above, the wage rate is $600 and total fixed cost is $15,000. When there are 40 workers,
what is average variable cost?
-$5.00

Given the table below, what is average fixed cost when 300 units of output are produced?
-none of the above

Average fixed cost

-decreases as output increases.

Given the table below, what is the total fixed cost when 400 units of output are produced?
-$500

If a firm is producing a given level of output in a technically efficient manner, then it must be the case
that
-this output level is the most that can be produced with the given levels of inputs.

Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of
labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed
input is $500. Suppose that installation of a new assembly line increases the output produced per
worker. The cost per unit of output
-will decrease.

If marginal product is decreasing, then it must be the case that

-none of the above.

Above is a firm's average product of labor and marginal product of labor curves. The price of labor is $60
per unit. When the firm uses 4 units of labor, what is AVERAGE variable cost?
-$10

Fill out the table and answer the question below.

The marginal product of the fifth unit of labor is
-4.

The capital stock is fixed at 50 units, the price of capital is $30 per unit, and the price of labor is $25 per
unit.
Given the above, how much does the 23rd unit of output add to the firm's total cost?
-$75

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If the capital stock is fixed at one unit, diminishing returns begin with the
-third unit of labor.

19
Given the table below, if labor is fixed at three units, how much does the third unit of capital add to total
output?
Amount of total output produced from various combinations of labor and capital.
-60

A firm produces 4,000 units of output using 500 workers. Marginal cost is $10, the wage rate is $160, and
total fixed cost is $100,000. What is the marginal product of labor?
-16 units of output per worker

Suppose you run a pizza shop and currently have two employees. If you hire a third employee, your
output of pizzas per day rises from 55 to 65. If you hire a fourth employee, output rises to 80 per day. A
fifth and sixth employee would cause output to rise to 90 and 95 per day, respectively. Pick the correct
statement:
-Diminishing returns set in with the hiring of the fifth worker.

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If labor is fixed at three units, how much does the second unit of capital add to total output?
-210

Above is a firm's average product of labor and marginal product of labor curves. The price of labor is $60
per unit. When the firm uses 6 units of labor, what is marginal cost?
-$5

Use the following table to answer the question below:

The amount of total output produced from various combinations of labor and capital.
If the amount of labor used increases from three to four units, the marginal product of the second unit
of capital
-increases by 8 units.

In the table above, what is the marginal product of the fifth unit of labor?
-30

In the table below, the capital stock is fixed at 40 units, the price of capital is $15 per unit, and the price
of labor is $80 per unit.
How much does the 50th unit of output add to the firm's total cost?
-$6.67

The capital stock is fixed at 5 units, the price of capital is $60 per unit, and the price of labor is $20 per
unit.
Based on the above, if the firm produces 80 units of output, what is its total cost of production?
-$540

20