Download Units 4 and 10 – Answers

Units 4 and 10 Final AP Review
1-30 : Unit 10 - Behind the Supply Curve : Profit , Production, Costs
31-60 : Unit 4 - National Income and Price Determination
Sigmund tutors five students for the introductory psychology class. The
students differ in their willingness to pay for a one-hour session. The
second column of the table shows their willingness to pay. Sigmund has
estimated his costs of providing tutoring hours
(he has no sunk costs) and these costs appear in the last column.
Students'
Hours of
Sigmund's
Student
Willingness to Pay
Tutoring
Cost
Peter
$25
1
$5
Quincy
15
2
10
Rosemary
5
3
15
Sally
20
4
20
Tomas
10
5
25
Table 53-2: Tutoring
____
1. (Table 53-2: Tutoring) Sigmund faces:
a. increasing marginal benefit.
b. constant marginal benefit.
c. increasing marginal cost.
d. decreasing marginal cost.
e. constant marginal cost.
____
2.
Quantity
of Gadgets
Produced
Total Cost Total Benefit
0
$100
$
0
1
$105
$200
2
$110
$215
3
$115
$225
4
$120
$230
5
$125
$223
Table: The Cost of Producing Gadgets
You own a small manufacturing company that produces gadgets. The table shows the quantity of gadgets that
you could produce, the total cost you incur at each level of production, and the total benefit your customer
receives at each level of production. According to the table, how many gadgets should you produce?
a. 2
b. 3
c. 1
d. 5
e. 4
Quantity
of Labor
Total
Output
0
0
1
12
2
22
3
30
4
36
5
40
6
43
7
44
Table 54-1 : Labor and Output
____
3. (Table 54-1: Labor and Output) Referring to the table, the marginal product of the fifth worker is:
a. 8.
b. 4.
c. 3.
d. 40.
e. 36.
Scenario 54-1: Marginal Product of Labor
Quantity of
Labor
Marginal
Product of
Labor
0
19
1
17
2
15
3
13
4
11
5
9
6
7
7
5
8
____
4. (Scenario 54-1: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total
product of labor for five workers is:
a. 11 bushels.
b. 45 bushels.
c. 55 bushels.
d. 75 bushels.
e. 64 bushels.
Figure 54-1: Total Product
____
5. (Figure 54-1: Total Product) Between points A and B the marginal product of labor is:
a. increasing.
b. zero.
c. falling.
d. infinite.
e. constant.
____
6.
You are a cabinetmaker who employs several workers to produce kitchen and bathroom cabinets. Your summer
intern has created a graph showing a relationship between the number of cabinetmakers you employ and the
number of cabinets produced. Unfortunately, your intern has failed to identify this curve. It is likely the
________ curve:
a.
b.
c.
d.
e.
____
total cost
total product
marginal product
total variable cost
total utility
7. Suppose that the first four units of a variable input generate corresponding total outputs per period of 200, 350,
450, and 500, respectively. The marginal product of the second unit of input is:
a. 50.
b. 100.
c. 150.
d. 200.
e. 350.
Quantity
of Output
0
1
2
3
4
5
6
7
Variable Cost
VC
0
50
70
100
140
Total Cost
TC
50
100
120
150
190
240
250
300
320
370
Table 55-1: Cost Data
____
8. (Table 55-1: Cost Data) The table shows some cost data for a firm currently operating in the short run. What is
the value of the total variable cost for this firm when the firm is producing five units of output?
a. $50
b. $240
c. $60
d. $190
e. It is impossible to determine without more information.
____
9. If Marie’s Marionettes is operating under conditions of diminishing marginal product, the marginal costs will
be:
a. equal to ATC.
b. decreasing.
c. increasing.
d. constant.
e. equal to zero.
____ 10. Marginal cost is the change in:
a. total cost resulting from a one-unit change in a variable input.
b. total cost resulting from a one-unit change in output.
c. total cost resulting from a one-unit change in average cost.
d. average cost resulting from a one-unit change in output.
e. total variable cost resulting from a one-unit change in a variable intput.
Quantity
of Bagels
Total
Variable Costs
Total
Fixed Costs
(per period)
0
$0.00
$0.10
1
0.20
0.10
2
0.30
0.10
3
0.35
0.10
4
0.45
0.10
5
0.60
0.10
6
0.80
0.10
7
1.05
0.10
8
1.35
0.10
Table 55-3: Costs of Producing Bagels
____ 11. (Table 55-3: Costs of Producing Bagels) The average total cost of producing two bagels is:
a. $0.05.
b. $0.10.
c. $0.20.
d. $0.40.
e. $0.25.
Figure 55-2: Short-Run Costs
____ 12. (Figure 55-2: Short-Run Costs) B is the ________ cost curve.
a. average total
b. average variable
c. marginal
d. total
e. average fixed
____ 13. When marginal cost is below average variable cost, average variable cost must be:
a. at its minimum.
b. at its maximum.
c. falling.
d. rising.
e. equal to zero.
____ 14. Average variable cost is:
a. the firm's variable cost per unit multiplied by the quantity.
b.
c.
d.
e.
total variable cost divided by quantity.
the difference between average total cost and total cost.
the difference between total cost and total fixed cost.
equal to marginal cost when average variable cost is maximized.
The table provides information about the production
function for Lindsay's Farm, which uses labor and land
to produce its produce. The price of labor is $50 per
worker per week and the price of land is $20 per acre.
Quantity
Quantity
Quantity
of Land
of Labor
of Produce
(acres)
(workers)
(bushels)
10
0
0
10
1
50
10
2
100
10
3
140
10
4
170
10
5
190
Table 55-4: Lindsay's Farm
____ 15. (Table 55-4: Lindsay's Farm) Lindsay's variable costs of production:
a. stay constant.
b. are equal to 10.
c. equal zero when she produces zero bushels of produce.
d. fall as soon as she starts producing.
e. equal $100 when 3 workers are employed.
____ 16. Diminishing returns is a reason why:
a. the marginal cost curve is downward-sloping.
b. fixed costs remain constant.
c. the marginal cost curve is upward-sloping.
d. the average fixed cost curve is downward-sloping.
e. demand curves can slope upward.
____ 17. Denaro pays $8,000 per month in rent to operate a health club in Memphis. He also pays $17,000 per month in
wages, $3,000 per month in food and supplies, and $1,000 per month in insurance. All of his costs of production
can change except his insurance and rent. Denaro's sunk costs equal:
a. $20,000 per month.
b. $11,000 per month.
c. $29,000 per month.
d. $5,000 per month.
e. $9,000 per month.
____ 18. A university that benefits from lower costs per unit as it grows is an example of:
a. economies of scale.
b. diseconomies of scale.
c. increasing opportunity costs.
d. scale reduction.
e. sunk costs.
Figure 56-1: Long-Run Average Cost
____ 19. (Figure 56-1: Long-Run Average Cost) Output per period in the region B to C indicates that a firm is
experiencing:
a. constant returns to scale.
b. diseconomies of scale.
c. economies of scale.
d. falling marginal cost.
e. increasing returns to scale.
____ 20. A firm that is experiencing diminishing returns in management's ability to use and disseminate information as it
increases production in the long run is an example of:
a. economies of scale.
b. diseconomies of scale.
c. being too small for the relevant market.
d. not having enough managers.
e. a perfectly competitive firm.
Figure 56-2: Cost Curves
____ 21. (Figure 56-2: Cost Curves) If a firm currently was producing at point C on the ATC2 in the figure but anticipates
increasing output to 225,000 units in the long run, the firm will build a ________ plant and experience
________.
a. smaller; economies of scale
b. smaller; diseconomies of scale
c. larger; economies of scale
d. larger; constant returns to scale
e. larger; diseconomies of scale
____ 22. A firm finds that as it produces more, its long-run average total costs increase. This firm is experiencing:
a. economies of scale.
b. constant returns to scale.
c. diseconomies of scale.
d. a dominant spreading effect.
e. increasing returns to scale.
____ 23. Economies and diseconomies of scale are best associated with the:
a. marginal product curve in the short run.
b. short-run average total cost curve.
c. marginal cost curve in both the long and short run.
d. average fixed cost curve in the short run.
e. long-run average total cost curve.
____ 24. For the Colorado beef industry to be classified as perfectly competitive ranchers in Colorado must have
________ on prices and beef is a ________ product.
a. no noticeable effect; standardized
b. a huge effect; standardized
c. a huge effect; differentiated
d. no noticeable effect; differentiated
e. no noticeable effect; price inelastic
____ 25. Which of the following is not a barrier to entry?
a. control of an input essential for production
b. government-created barriers such as patents
c. a ban on certain kinds of advertising
d. the existence of significant economies of scale
e. the elimination of trade barriers such as tariffs.
____ 26. A(n) ________ is a single firm with ________, whereas ________ implies an industry with ________ firm(s)
that has(have) ________.
a. oligopoly; no barriers to entry; monopoly; many; easy entry and exit
b. monopoly; barriers to entry; monopolistic competition; many; easy entry and exit
c. monopoly; barriers to entry; oligopoly; few; no barriers to entry
d. monopolistic competitor; barriers to entry; monopoly; one; barriers to entry
e. monopoly; barriers to entry; monopolistic competition; a small number of; easy entry and
exit
____ 27. The market for dentists in most communities can be considered ________ because there are a large number of
similar, but not identical, substitutes in the market.
a. monopolistically competitive
b. a monopoly
c. perfectly competitive
d. an oligopoly
e. a regulated natural monopoly
____ 28. Assume a firm employs two inputs, A and B.
following is true?
a. TPA/PA=TPB/PB
b. MPA/PA=MPB/PB
c. TCA=TCB
d. MPA=MPB
The optimal hiring of inputs occurs when which of the
e. (MPA) (PA)= (MPB) (PB)
____ 29. Suppose a firm is producing the profit-maximizing level of output and the MP of capital and labor are 10 and
20, respectively. If the wage is $10 and the rental rate for capital is $25, which of the following is true? To
minimize costs the firm should
a. Use more capital.
b. Hire more labor and use less capital.
c. Hire less labor and use more capital.
d. Hire less labor.
e. Continue using the current levels of capital and labor.
____ 30. Tanya is an independent truck driver who delivers cargo all around the country. For Tanya, she and her truck
are:
a. complementary inputs in the production process.
b. more productive when used separately, rather than when they are used together.
c. substitute inputs in the production process.
d. both examples of physical capital.
e. both examples are human capital.
____ 31. If the multiplier is 4, and investment spending falls by $100 billion, the change in equilibrium income will be:
a. -$40 billion.
b. $400 billion.
c. $25 billion.
d. –$25 billion.
e. –$400 billion.
Disposable Personal Income
Consumption
$100
$140
200
220
300
300
400
380
500
460
Table 16- 1: Income and Consumption
____ 32. Use Table 16- 1. When disposable personal income is $400, the level of personal saving is:
a. –$40.
b. –$20.
c. $0.
d. $20.
e. $40.
____ 33. If the MPC is greater than zero but less than one, then we can be sure that when disposable income rises by $1
consumption will:
a. not be affected.
b. will rise by more than $1.
c. will rise by less than $1.
d. will rise by exactly $1.
e. will fall by less than $1.
____ 34. An upward shift in the aggregate consumption function can be caused by:
a. expectations of higher future incomes.
b.
c.
d.
e.
expectations of less income in the future.
a stock market crash.
a reduction in the wealth of households.
economic forecasts of an impending recession.
____ 35. _____ inventories typically indicate _______ changes to unplanned inventory investment and a _________
economy.
a. Rising; positive; slowing
b. Rising; negative; slowing
c. Rising; positive; expanding
d. Falling; negative; slowing
e. Falling; positive; expanding
____ 36. Which of the following will cause a decrease in unplanned inventory investment?
a. An increase in interest rates.
b. A rapid increase in the unemployment rate.
c. A decrease in the growth rate of real GDP.
d. A sudden decrease in consumer wealth.
e. An unexpected increase in consumer spending.
____ 37. When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in
consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.
a. interest rate; aggregate demand; downward
b. wealth; aggregate demand; downward
c. interest rate; investment demand; downward
d. wealth; short-run aggregate supply; upward
e. substitution; aggregate demand; downward
____ 38. According to the wealth effect, when the price level decreases, the purchasing power of assets:
a. decreases and consumer spending decreases.
b. increases and consumer spending decreases.
c. decreases and consumer spending increases.
d. remains constant and consumer spending is unchanged.
e. increases and consumer spending increases.
____ 39. The interest rate effect is the tendency for changes in the price level to affect:
a. the quantity of investment demanded and thus affect interest rates.
b. export demand and thus affect aggregate demand.
c. interest rates and thus affect the quantity of investment and consumption demanded.
d. real incomes and lead to shifts in potential output.
e. interest rates and thus affect the productivity of existing capital equipment.
____ 40. Aggregate demand will decrease if:
a. the aggregate price level falls.
b. net exports rises.
c. productivity declines.
d. the money supply increases.
e. the government raises the tax rate.
Figure 17-2: Shift of the Aggregate Demand Curve
____ 41. Use the “Shift of the Aggregate Demand Curve” Figure 17-2. A movement from point A on AD1 to point C
on AD2 could have resulted from a(n):
a. lower price level.
b. higher price level.
c. increase in the total quantity of consumer goods and services demanded at every price level.
d. significant decrease in the income level of consumers.
e. increase in the income tax rates.
____ 42. An increase in wealth or an increase in government spending will result in a:
a. shift to the left of the short-run aggregate supply curve.
b. shift right of the aggregate demand curve.
c. shift right of the short-run aggregate supply curve.
d. movement along the aggregate demand curve.
e. shift right of the long-run aggregate supply curve.
____ 43. Which of the following would likely cause the short-run aggregate supply curve to shift to the left?
a. A decrease in consumer spending.
b. A decrease in the price of imported oil.
c. An increase in the price of imported oil.
d. An increase in consumer spending.
e. An increase in personal income taxes.
____ 44. A general decrease in wages will result in the:
a. aggregate demand shifting to the right.
b. aggregate demand shifting to the left.
c. short-run aggregate supply shifting to the right.
d. short-run aggregate supply shifting to the left.
e. long-run aggregate supply shifting to the right.
____ 45. In the long-run if all prices, including the nominal wage, rate doubled, then aggregate output supplied would:
a. double.
b. increase, but by less than double.
c. fall.
d. remain unchanged.
e. increase by more than double.
____ 46. In the short run, the equilibrium price level and the equilibrium level of total output are determined by the
intersection of:
a. LRAS and SRAS.
b. LRAS and aggregate demand.
c. SRAS and aggregate demand.
d. potential output and LRAS.
e. potential output and aggregate demand.
____ 47. A negative short-run supply shock:
a. decreases aggregate output with no impact on the aggregate price level.
b. increases aggregate output and decreases the aggregate price level.
c. decreases both aggregate output and the aggregate price level.
d. increases both aggregate output and the aggregate price level.
e. decreases aggregate output and increases the aggregate price level.
____ 48. If commodity prices rise unexpectedly, it will cause:
a. a positive supply shock.
b. a positive demand shock.
c. both a negative supply shock and a positive demand shock.
d. a negative demand shock.
e. a negative supply shock.
____ 49. When an economy experiences stagflation, it is usually caused by a:
a. negative demand shock.
b. positive supply shock.
c. negative supply shock.
d. positive demand shock.
e. negative supply shock and a positive demand shock.
____ 50. In the long run (as the economy self-corrects), an increase in aggregate demand will cause the price level to
_______ and potential output to _______ .
a. increase; increase
b. decrease; decrease
c. increase; increase
d. decrease; remain stable
e. increase; remain stable
____ 51. A recessionary gap will be eliminated because there is _______ pressure on wages, causing the _______ .
a. downward; short-run aggregate supply curve to shift rightward.
b. downward; short-run aggregate supply curve to shift leftward.
c. downward; aggregate demand curve to shift rightward.
d. upward; aggregate demand curve to shift to leftward.
e. upward; short-run aggregate supply curve to shift rightward.
____ 52. If an economy is in short-run equilibrium such that the level of output is greater than the potential output, then
this means that:
a. in the long run, nominal wages will rise.
b. the economy is in long-run equilibrium.
c. in the long run, the short run AS curve will shift to the right.
d. unemployment in the economy is much higher than the natural rate of unemployment.
e. in the long run, the unemployment rate will decrease as the short run AS curve shifts to the
right.
____ 53. Keynesians argue that a lack of spending is:
a. not possible in an economy.
b. possible and can lead to prolonged recessions.
c. not helped by monetary or fiscal policy efforts.
d. only evident during expansions.
e. a key indicator of an economic boom.
____ 54. An inflationary gap occurs when:
a. we need to increase prices.
b. real output is too low.
c. potential output exceeds actual output.
d. actual output exceeds potential output.
e. nominal interest rates exceed the inflation rate.
Figure 20-5: Fiscal Policy I
____ 55. Use the “Fiscal Policy I” Figure 20-5. Suppose that this economy is in equilibrium at E1. If there is an
increase in government purchases, then:
a. AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP.
b. AD2 will shift to the left, causing a decrease in the price level and a decrease in the real GDP.
c. AD1 will shift to the right, causing an increase in the price level and an increase in real GDP.
d. AD1 will shift to the right, causing a decrease in the price level and an increase in real GDP.
e. AD1 will shift to the right, causing a increase in the price level and a decrease in real GDP.
____ 56. Use the “Fiscal Policy I” Figure 20-5. Suppose that this economy is in equilibrium at E1. If there is a decrease
in taxes, then:
a. AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP.
b. AD2 will shift to the left, causing a decrease in the price level and a decrease in the real GDP.
c. AD1 will shift to the right, causing an increase in the price level and an increase in real GDP.
d. AD1 will shift to the right, causing a decrease in the price level and an increase in real GDP.
e. AD1 will shift to the right, causing an increase in the price level and a decrease in real GDP.
Figure 20-8: Fiscal Policy Options
____ 57. Use the “Fiscal Policy Options” Figure 20-8. If the aggregate demand curve is AD':
a. a contractionary fiscal policy may be warranted.
b. an expansionary fiscal policy may be warranted.
c. the economy is in long-run equilibrium.
d. the economy is experiencing an inflationary gap.
e. the unemployment rate is lower than the natural rate of unemployment.
____ 58. One of the shortcomings of fiscal policy is that:
a. it has significant time lags which make it more effective.
b. it takes effect immediately, thus it is the best policy to use at crunch time.
c. it affects aggregate demand indirectly through the interest rate.
d. it has time lags and sometimes it may end up destabilizing the economy as a result of these
lags.
e. changes to fiscal policy have very predictable and precise impacts on GDP and
employment.
____ 59. Discretionary fiscal policy may fail to stabilize the economy or even make the economy less stable due to:
a. its ineffectiveness.
b. government waste.
c. lags in deciding and implementing a policy change.
d. the business cycle.
e. the absence of the multiplier.
____ 60. If the marginal propensity to consume is .75, and the federal government increases spending by $100 billion, the
income expenditure model would predict that real GDP will increase by:
a. $100 billion.
b. $750 billion.
c. $400 billion.
d. $300 billion.
e. $150 billion.
Units 4 and 10 Final AP Review
Answer Section
MULTIPLE CHOICE
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E
PTS:
Critical Thinking
E
PTS:
Analytical Thinking
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
C
PTS:
Critical Thinking
B
PTS:
Concept-Based
C
PTS:
Analytical Thinking
D
PTS:
Analytical Thinking
C
PTS:
Concept-Based
B
PTS:
Definitional
C
PTS:
Analytical Thinking
A
PTS:
Concept-Based
C
PTS:
Concept-Based
B
PTS:
Definitional
C
PTS:
Analytical Thinking
C
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Concept-Based
B
PTS:
Concept-Based
B
PTS:
Critical Thinking
E
PTS:
Concept-Based
C
PTS:
1
DIF: M
REF: Module 53/17
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DIF: M
REF: Module 53/17
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DIF: M
REF: Module 54/18
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Critical Thinking
E
PTS:
Critical Thinking
A
PTS:
Concept-Based
C
PTS:
Fact-Based
B
PTS:
Definitional
A
PTS:
Definitional
B
PTS:
Concept-Based
B
PTS:
Analytical Thinking
A
PTS:
Critical Thinking
E
PTS:
Critical Thinking
D
PTS:
Critical Thinking
C
PTS:
Critical Thinking
A
PTS:
Critical Thinking
A
PTS:
Critical Thinking
E
PTS:
Critical Thinking
B
PTS:
Concept-Based
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Concept-Based
C
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Concept-Based
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Critical Thinking
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Concept-Based
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Concept-Based
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Critical Thinking
C
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Concept-Based
D
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Critical Thinking
C
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Concept-Based
1
DIF: M
REF: Module 56/20
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REF: Module 57/21
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DIF: M
REF: Module 16
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REF: Module 16
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DIF: M
REF: Module 16
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DIF: M
REF: Module 16
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REF: Module 17
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REF: Module 17
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REF: Module 17
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49. ANS:
MSC:
50. ANS:
MSC:
51. ANS:
MSC:
52. ANS:
MSC:
53. ANS:
MSC:
54. ANS:
MSC:
55. ANS:
MSC:
56. ANS:
MSC:
57. ANS:
MSC:
58. ANS:
MSC:
59. ANS:
MSC:
60. ANS:
MSC:
E
PTS:
Concept-Based
E
PTS:
Critical Thinking
C
PTS:
Concept-Based
E
PTS:
Critical Thinking
A
PTS:
Concept-Based
A
PTS:
Critical Thinking
B
PTS:
Fact-Based
D
PTS:
Concept-Based
C
PTS:
Critical Thinking
C
PTS:
Critical Thinking
B
PTS:
Critical Thinking
D
PTS:
Fact-Based
C
PTS:
Concept-Based
C
PTS:
Critical Thinking
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 19
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 20
1
DIF: M
REF: Module 21