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QUESTION 1All of the following explains the inverse relationship between price and quantity  demanded except

  1. a.The Diminishing Marginal Utility effect
  2. b.The Income Effect
  3. c.The sales tax effect
  4. d.The Substitution Effect

2.5 points  


  1. The demand curve for an individual firm in pure competition market structure is
  2. a.Upward sloping
  3. b.Vertical
  4. c.Horizontal
  5. d.Downward sloping

2.5 points  


  1. The law of diminishing marginal utility return states that
  2. a.As more units are consumed past some point of consumption, less additional pleasure will be received
  3. b.As more units are consumed past some point of consumption, equal additional pleasure will be received
  4. c.As more units are consumed past some point of consumption, the additional pleasure received is not known 
  5. d.As more units are consumed past some point of consumption, more additional pleasure will be received

2.5 points  


  1. Assume the carrot market operates in the perfectly competitive market. The price that producers charge in the market is $10 and they sell 40 units. Also, the total fixed cost to produce 40 units is $80.  The average variable cost to produce each unit of carrot is $6. Given this information, please calculate the profit that the firms are making in this type or market
  2. a.$400
  3. b.$80
  4. c.$160
  5. d.$320

5 points  


  1. Perfectly Inelastic demand curves have the following shape -

  2. a.Downward Sloping
  3. b.Vertical
  4. c.Horizontal
  5. d.Upward Sloping

2.5 points  


  1. Suppose Fernanda owns a company that supplies vending machines. Currently, the vending machines sell soft drinks at $1.5 per bottle. At this price, customers purchase 2000 bottles per week. In order to increase sales, Fernanda decreases the price to $1 per bottle and sale increases to 4,000 bottles. What is the the price elasticity of demand using the midpoint method? 
  2. a.1.66; Elastic
  3. b.0.6; elastic
  4. c.1.66; Inelastic
  5. d.0.6; inleastic

5 points  


  1.  The  amount of time producers have to adjust quantity supplied to a price change is the major determinant of Elasticity of SUPPLY. Under this approach, all of the following are possible time frames except -
  2. a.The long run period
  3. b.The Short Run Period
  4. c.The Market Period
  5. d.The Permanent Time Period

2.5 points  


  1. The approach or method used to calculate the price elasticity by comparing the direction of the price change with the total revenue change is called _____________________________. Under this method, we only look at the direction and do not calculate the coefficient
  2. a.Total Revenue Approach
  3. b.Average Revenue Approach
  4. c.Coefficient of Elasticity of Demand
  5. d.Marginal Approach

2.5 points  


  1. The restaurant industry can be classified under the following market structure where products are differentiated but there are a large number of sellers and buyers
  2. a.Monopoly
  3. b.Oligopoly
  4. c.Monopolistic Market
  5. d.Perfect competition

2.5 points  


  1. You are given with the following. The cost of 1 unit of chocolate is $1 and the cost of one fruit is $2
  2. Q of chocolate       TU       Q of Fruit    TU     
  3.   0                 0          0         0
  4.   1                 100        1        120
  5.   2                 180         2        220
  6.    3                 240        3       270
  7.   4                 280         4       290
  8. Using the MU and MU/Dollar for both fruit and chocolate, what is the correct combination of chocolate and fruit?
  9. a.3 units of chocolate and 1 unit of fruit
  10. b.1 unit of chocolate and 2 units of fruit
  11. c.1 unit of chocolate and 3 units of fruit
  12. d.4 units of chocolate and 4 units of fruit

5 points  


  1. Economies of scale reduce average total costs to firms because of the following reasons EXCEPT -
  2. a.Increased use of time to produce goods and services
  3. b.Increased labor specialization
  4. c.Increased management productivity
  5. d.Increased use of capital resources

2.5 points  


  1. Office rent is an example of _______________ cost to producers or businesses
  2. a.Variable
  3. b.Average total cost
  4. c.Fixed
  5. d.Opportunity

2.5 points  


  1. A price ceiling refers to a government regulation where market price is_________ the equilibrium price
  2. a.Dependent on
  3. b.Equal to
  4. c.Higher than
  5. d.Lower than

2.5 points  


  1. When we make comparisons of the utility of water to the utility of diamonds, the following is only TRUE:
  2. a.Total Utility of Diamond = Total Utility of Water
  3. b.Marginal Utility of Diamond>Marginal Utility of Water, given we have sufficient water
  4. c.Total Utility of Diamond>Total Utility of Water
  5. d.Marginal Utility of Water>Marginal Utility of Diamond given we have sufficient water

2.5 points  


  1. The main reason for diseconomies of scale is -
  2. a.High Interest Loans
  3. b.Shortage of Land space
  4. c.Low Interest Loans
  5. d.Managerial Problems

2.5 points  


  1. If the total cost to produce 6 brownies is $4 and the fixed cost is $1. What the average variable cost for each brownie?
  2. a.$0.5
  3. b.$0.33
  4. c.$0.667
  5. d.$3

2.5 points  


  1. Under the income elasticity of demand, if the income elasticity coefficient is negative, it means it is a _____________ good
  2. a.Superior
  3. b.Normal
  4. c.Inferior
  5. d.Luxury

2.5 points  


  1. When there is an increase in demand in the market, producers in the short run
  2. a.Can build a larger plant to increase production
  3. b.Cannot increase their output at all
  4. c.Can increase their maximum capacity as the factors of productions are no longer fixed
  5. d.Can increase their output to maximum capacity by operating more hours

2.5 points  


  1. The Utility Maximization rule states that consumers should allocate their money in such a way so that the following is true
  2. a.Marginal Utility/dollar of product A is not related to Marginal Utility/dollar for product B

  3. b.Marginal Utility/dollar for product A is less than Marginal Utility/dollar for product B

  4. c.Marginal Utility/dollar for product A is greater than Marginal Utility/dollar for product B

  5. d.Marginal Utility/dollar of product A is equal to Marginal Utility/dollar for product B

2.5 points  


  1. The coefficient of price elasticity of demand for gasoline prices in Dallas, Texas is 0.32. What does this tell us about the price elasticity of demand?
  2. a.Inelastic
  3. b.Perfectly Elastic
  4. c.Elastic
  5. d.Unitary

2.5 points  


  1. _____________________ are payments to outsiders, third parties or non-owners by the producers
  2. a.Implicit cost
  3. b.Explicit costs
  4. c.Opportunity Cost
  5. d.Economic Cost

2.5 points  


  1. The point at which the indifference curve intersects the budget line constraint, at that point, consumer utility is
  2. a.Minimized
  3. b.Neutralized
  4. c.Maximized
  5. d.Diminished

2.5 points  


  1. When the total revenue remains the same whether a price increased or decreased, then it is called

  2. Elastic
  3. Unitary
  4. No relation
  5. Inelastic

2.5 points  


  1. One of the main disadvantages of pure competition is
  2. a.It does not maximize consumer utility
  3. b.Societal benefit is reduced due to lack of competition
  4. c.It causes market inefficiency
  5. d.It causes spill over costs that affect third parties

2.5 points  


  1. Under the marginal approach, a firm in a pure competition market will always operate at 
  2. a.MR and MC has no relationships
  3. b.MR<MC
  4. c.MR>MC
  5. d.MR = MC

2.5 points  


  1. All the following are determinants of Elasticity of Demand EXCEPT -
  2. a.The number of buyers in the market
  3. b.Availability of substitutes
  4. c.The percentage of total budget spent of a particular good or service
  5. d.Whether the good is a luxury or necessity.

2.5 points  


  1. Assume Hernan will invest $50,000 to open a hair salon in Richardson, Texas. In his first year of operations, Hernan will have a total revenue of $155,000. In order to run the salon, he will incur the following expenses in the year - Salary to employees - $25,000, Rent - $36,000, Utilities - $3,600 and equipment - $35,000. Also, if Hernan invested this money of $50,000 in the stock market, he could have earned a return of $10,000 in that year. What is Hernan's normal profit?
  2. a.$45,400
  3. b.$74,000
  4. c.$49,000
  5. d.$55,400

2.5 points  


  1. Genovia has experienced exceptional growth. It's income or GDP per capita has increased from $30,000 to $50,000 within the last 5 years. Over this period, the quantity demanded for public transport has decreased from 10,000 bus rides to 7,000 bus rides. Please calculate the income elasticity of demand and determine whether public transportation is a inferior, luxury or normal good
  2. a.-0.45 (negative) - inferior
  3. b.0.45 (positive) - normal
  4. c.2.22 (positive) - normal
  5. d.0.45 (positive) - luxury

5 points  


  1. A firm operating in a pure competition market structure will do the following if Price is less than Average Variable Cost (P<AVC)
  2. a.The firm will continue to operate both in the short run and long run
  3. b.The firm will continue to operate but only in the short run
  4. c.The firm will try to increase production to increase total revenue.
  5. d.The firm will shut down as it cannot cover the costs

2.5 points  


  1. In a perfect competition market structure, the price of a firm is equal to the ________________
  2. a.Average Revenue and Marginal Revenue
  3. b.Total Revenue
  4. c.Only Average Revenue
  5. d.Only Marginal Revenue

2.5 points  


  1. The Planning Curve is another name for the following
  2. a.Marginal Cost curve
  3. b.Marginal Utility curve
  4. c.Short run average cost curve
  5. d.Long run average cost curve

2.5 points  


  1. The ______________________ illustrates purchases that the consumer has with the total expenditure of funds. Any combination outside of this consumption possibility curve is not possible
  2. a.Indifference Curve
  3. b.Marginal Cost Curve
  4. c.Marginal Utility Function
  5. d.Budget Line Constraint

2.5 points  


  1. The following are the characteristics of a pure competition market structure EXCEPT
  2. a.Buyers and sellers in the market act to maximize their own economic benefit
  3. b.Large number of buyers and sellers
  4. c.Products are differentiated and non-identical to one another
  5. d.Very low barriers to entry and exit into the market

2.5 points  


  1. Price of Nike Shoes       Quantity for Nike     Price of Addidas Shoes          Qd for Addidas
  2. $30                      400                 $25                         250
  3. $20                      700                 $25                          150

  4. Given this table, calculate the cross elasticity of demand for Adidas shoes, How are Nike shoes and Addidas shoes related?
  5. a.-1.88 (negative) -complementary
  6. b.+1.20 (positive) - substitute
  7. c.+2.5 (positive) - substitute
  8. d.-2.5 (negative) - complementary

5 points  


  1. When total utility is at its maximum point, what is the value of marginal utility?
  2. a.Zero
  3. b.Negative
  4. c.Infinite
  5. d.Positive
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QUESTION 1 All of the following explains the inverse relationship between price andquantitydemandedexcept a.The Diminishing Marginal Utility effect...
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