Solved by Expert Tutors
Solved by Expert Tutors
Question

# 1) Wendy spends all of her weekly allowance (\$12) on candy bars and

hotdogs. Each candy bar costs \$1 and each hotdog costs \$2. The marginal utility of candy bars is 8 and the marginal utility of hotdogs is 5. Wendy can maximize her satisfaction by buying

-A. more candy bars and more hotdogs.
-B. fewer candy bars and fewer hotdogs.
-C. fewer candy bars and more hotdogs.
-D. more candy bars and fewer hotdogs.2)Joe would pay \$1.10 for his first cup of soda during the NCAA basketball championship game. He would pay 70¢ for his second, 60¢ for his third, 50¢ for his fourth, and 40¢ for his fifth.

-A. If the price is 50¢ per cup, Joe will buy 4 cups and have a consumer surplus of \$1.90.
-B. If the price is 50¢ per cup, Joe will buy 4 cups and have a consumer surplus of \$2.90.
-C. If the price is 55¢ per cup, Joe will buy 3 cups and have a consumer surplus of \$1.25.
-D. If the price is 55¢ per cup, Joe will buy 3 cups and have a consumer surplus of 75¢.3)In perfect competition, the industry's supply curve is __________; the firm's supply curve is ___________.

-A. horizontal; horizontal
-B. horizontal; upward sloping
-C. upward sloping; horizontal
-D. upward sloping; upward sloping4)A factory reorganizes production and finds that the marginal productivity of its variable resource (labor) has increased in the short run. We would expect that the factory's

-A. marginal cost has decreased at each output level.
-B. average total cost has increased at each output level
-C. average variable cost has increased at each output level.
-D. marginal cost has increased at each output level.5)Walt's Widgets is perfectly competitive. The total cost of 1 widget is \$10. The total cost of 2 widgets is \$24. The total cost of 3 widgets is \$42. MR = MC at 2 widgets. Which of the following is certainly true when 2 widgets are produced?

-A. Walt is making a negative economic profit but should produce.
-B. Walt is making an economic profit of zero.
-C. Walt is making a negative economic profit and should shut down.
-D. Walt is making a positive economic profit.6)A firm produces 10 units of output. Total Variable Cost is \$150. Average Total Cost is \$20. Marginal Cost of the tenth unit is \$30. Total Fixed Cost is

-A. \$50.
-B. \$200
-C. \$150.
-D. \$100.7)A perfectly competitive firm sells its output for \$40 per unit. Its current output is 1,000 units. At that level, its marginal cost is \$30 and increasing, average variable cost is \$35, and average total cost is \$60. To maximize short-run profits, the firm should

-A. increase production.
-B. shut down.
-C. increase price.
-D. decrease production.8)Regarding Hershey's Kisses, the marginal utility is the __________ satisfaction gained by eating _____________

-B. total; the last Kiss.
-C. total; all of the available Kisses.
-D. additional; all of the available Kisses.9)At the current output level, average variable costs are minimized. You know that, at this output,

-A. marginal costs are decreasing and average total costs are increasing.
-B. marginal costs are increasing and average total costs are decreasing.
-C. marginal costs are decreasing and average total costs are decreasing.
-D. marginal costs are increasing and average total costs are increasing.10)Marginal revenue is defined as

-A. total revenue divided by change in quantity.
-B. total revenue divided by quantity.
-C. change in total revenue divided by quantity.
-D. change in total revenue divided by change in quantity.11)Walt's Widgets is a profit-maximizing perfectly competitive firm. In the short run, if Walt earns zero economic profit, he will

-A. shut down.
-B. increase his output level to attract more business.
-C. decrease his output level but may not shut down.
-D. remain at his current output level.12)Which of the following is certainly true for the firm in the short run?

-A. If marginal cost is rising, average variable cost is rising.
-B. If average variable cost is rising, average total cost is rising.
-C. If marginal cost is falling, average total cost is falling.
-D. If marginal cost is rising, average total cost is rising.13)The short-run supply curve for a competitive firm is upward sloping because, as production rises,

-A. total fixed costs increase.
-B. the firm must pay higher hourly wages to its workers.
-C. the firm assigns its work force to specialized tasks increasing marginal productivity.
-D. the marginal productivity of additional workers decreases.14)To economists, the main difference between the "short run" and the "long run" is that

-A. the Law of Diminishing Marginal Productivity applies only in the long run.
-B. in the short run all resources are fixed, while in the long run all resources are variable.
-C. in the long run the quantities of all resources may be altered; in the short run at least one cannot change.
-D. fixed costs are more important in decision-making in the long run than in the short run.15)The perfectly competitive lobster market is in long-run equilibrium. The typical firm earns __________ economic profits. If demand increases then, in the short run, there will be ___________ in production.

-A. positive; an increase
-B. zero; an increase
-C. positive; no increase
-D. zero; no increase16)As output level increases, the difference between average total cost and average variable cost

-A. decreases, because additional units of output spread fixed cost over a larger number of units and reduce its importance.
-B. remains constant, because total fixed cost (which is included in total cost) is a constant.
-C. increases, because total cost includes fixed costs.
-D. decreases and then increases, because they are U-shaped curves.17)A factory reorganizes production and finds that the marginal productivity of its variable resource (labor) has increased in the short run. We would expect that the factory's

-A. marginal cost has increased at each output level.
-B. average variable cost has increased at each output level.
-C. marginal cost has decreased at each output level.
-D. average total cost has increased at each output level.18)Four workers (the variable input) can produce 20 widgets. Five workers can produce 25 widgets. The wage is \$15.00 per worker. The marginal cost of the 25th widget is roughly

-A. \$60.00.
-B. \$2.00.
-C. \$0.60.
-D. \$3.00.19)The goat butter industry is perfectly competitive. What makes it difficult for producers to earn economic profits in long-run equilibrium?

-A. Each producer faces a perfectly elastic (horizontal) demand curve.
-B. Goat butter is a homogeneous product.
-C. There is easy entry into and exit from the goat butter industry.
-D. Firms are price takers.20)HAL Inc., is maximizing its profits. Which of the following statements is false?

-A. Price exceeds average total cost by the maximum amount.
-B. Marginal revenue equals marginal cost.
-C. For the final unit sold, the increase in total revenue equals the increase in total cost.
-D. Total revenue exceeds total cost by the maximum amount.21)The relationship that indicates that the perfectly competitive firm in long-run equilibrium is allocatively efficient is that

-A. marginal benefit equals long-run marginal cost.
-B. demand equals marginal revenue equals average revenue equals price.
-C. long-run marginal cost equals long-run average cost at long-run average cost's lowest value.
-D. the typical firm earns neither economic profits nor economic losses.22)A perfectly competitive firm, producing widgets, is in long-run equilibrium. Suddenly, there is a decrease in the price of all variable factors of production. Also, market demand for widgets increases. In the short run, this firm will

-A. earn positive (economic) profits but the effect on output is uncertain.
-B. produce more widgets but the effect on profits is uncertain.
-C. produce more widgets and earn positive (economic) profits.
-D. produce fewer widgets, and possibly close down.23)When graphing a perfectly competitive firm's various curves, we find that the marginal revenue curve is above the average variable cost curve and below the average total cost curve. Which of the following is true of the firm in the short run?

-A. It would continue to operate, but not profitably.
-B. It would not be profitable and would shut down.
-C. It would be producing at a point where marginal revenue is not equal to marginal cost.
-D. It would have to raise its price.24)In a perfectly competitive market, what does a shift in the demand curve to the left mean in the long run?

-A. Short-run industry supply will increase.
-B. Firms will leave the market.
-C. Price will increase.
-D. New firms will enter the industry.25)As firms enter a perfectly competitive market following an increase in demand, which of the following best describes the long-run result?

-A. The good's price will increase.
-B. Firms will enter until all firms earn economic profits.
-C. Firms will enter the market until all firms earn normal profits.
-D. Firms will earn economic profits.26)In long-run equilibrium, firms produce at an output at which of the following occur except

-A. the minimum long-run average costs are equal to the market price.
-B. economic profits are zero.
-C. marginal benefit is greater than marginal cost.
-D. marginal cost equals marginal revenue.27)For a perfectly competitive firm, which of the following is true about its short-run supply curve?

-A. It is negatively sloped.
-B. It is vertical.
-C. It is the marginal cost curve above the average variable cost curve.
-D. It is also the average variable cost curve28)Which of the following is not a characteristic of a perfectly competitive industry?

-A. Each firm sells a somewhat different product from its rivals.
-B. Each firm's demand curve is horizontal.
-C. Each firm is free to adjust its output level.
-D. The market demand curve is downward sloping.29)Which ONE of the following is TRUE for a perfectly competitive firm?

-A. In long-run equilibrium, economic profits will be earned.
-B. In the long run, the firm will face a downward sloping demand curve.
-C. The firm will not advertise its product.
-D. In the short run, some production will occur since (fixed) resources must be employed.30)In the short run, a perfectly competitive firm can earn economic profits if the market price is greater than

-A. average fixed cost.
-B. marginal cost.
-C. average total cost.
-D. average variable cost.

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