MidtermSolutions

MidtermSolutions - Econ 201 Midterm Solutions October 18th,...

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Econ 201 Midterm Solutions October 18 th , 2007 Name:__________________________________ Pledge:_________________________________
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Multiple Choice 1. The opportunity cost of choosing an alternative *a. is the value of the highest valued alternative forgone as the result of the choice. b. includes only the amount of time spent on whatever is chosen. c. includes only the money cost of the option. d. is irrelevant for most choices individuals face. 2. Which of the following are likely to be an implicit cost of production? a. property taxes on a building owned by the firm. b. transportation costs paid to a trucking supplier. c. rental payments for a building utilized by the company and rented from another party. *d. interest income foregone on funds invested in the firm by the owners. 3. The law of diminishing returns *a. explains why marginal cost eventually increases as output expands. b. implies that average fixed cost will remain unchanged as output expands. c. does not apply to any topics in this class. d. applies to a capitalist economy but would be irrelevant if the means of production were owned by the state. 4. A point outside of the production possibilities frontier represents a combination of goods that is a. inefficient b. efficient *c. unattainable d. attainable 5. The short run average total cost curve of a firm will tend to be U-shaped because a. larger firms always have lower per-unit costs than smaller firms *b. at low levels of output, average fixed costs will be high, while at high levels of output, marginal cost will be high as the result of diminishing returns c. diminishing returns will be present when output is small, and high average fixed costs will push per-unit costs to high levels when output is large d. diseconomies of scale will be present at both small and large output rates
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6. Which of the following most accurately states the economic significance of exchange (trade)? a. Physical goods have value because they exist; exchange can neither increase nor decrease their value. b. Exchange creates value by permitting trading partners to expand total output as the result of specialization in areas where they have a comparative advantage. c. Exchange creates value by moving goods from people who value the goods less to people who value the goods more. *d. both b. and c. are true 7. When the total amount of costs that vary with the level of output are divided by the level of output, you have calculated? a.
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MidtermSolutions - Econ 201 Midterm Solutions October 18th,...

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