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Departmental Exam: Principles
Section A: True or False
1.____Average physical product equals to total physical product divided by input level.
2.____The average cost is computed by dividing the total cost by output.
3.____A decrease in consumer disposable income will shift the budget constraint to the left.
4.____There is no difference between an inferior and a normal good.
5.____Average physical product equals to output divided by input level.
6.____If butter and margarine are substitutes then a decrease in the price of margarine would cause the
demand curve of butter to decrease.
7. ____Syrup & pancakes and cereal & milk are examples of substitutes.
8.____A shift in the demand curve is referred to, by economists, as a change in quantity demanded
9.____Marginal utility is the satisfaction gained by consuming another unit of a particular good.
10.____The average cost is computed by dividing the total cost by output.
11.____An increase in consumer disposable income will shift the demand curve to the left away from the
origin.
12. ____Ceterus Parabus, is a Latin phrase used by economist that means change.
13. ____Goods are classified as inferior if their consumption rises as their income falls.
14.____An indifference curve reflects the alternative combinations of consumption of two consumer
goods that provide the consumer with a given level of satisfaction.
Section B: Multiple Choice (Circle the correct answer)
Which of the following numbers represents a normal good?
15.
a. - 0.57
b. 0.00
c. 1.01
d. 2.27
16.
A knowledge of total variable cost and total fixed cost for various outputs is sufficient to
determine which of the following?
a. Average total cost.
d. Marginal cost.
17.
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b. Average fixed cost.
e. All of the above.
c. Average variable cost;
If a consumer’s disposable income increased and that consumer’s demand for pizza decreases,
then we may conclude that pizza is a(n) ____________ for that consumer.
a. normal good
b. substitute
c. luxury good
d. inferior good
18.
Which of the following will definitely cause a change in supply (shift in supply curve)?
a. Improvement in technology;
b. Price of the good;
c. Household size;
d. Taste and preference;
19.
A variable cost is one that:
a. is constant, regardless of the level of input used
b. is the same as the firm's profit level
c. remains constant as one uses more input
d. changes as output changes
20.
A profit maximizing firm will apply input up to the point where:
a. marginal cost equals average cost
b. total costs are at a maximum
c. its marginal revenue equals the marginal cost
d. its marginal revenue equals its average cost
21.
A market is in equilibrium:
a. if the amount which producers want to sell is equal to the amount which consumers
want to buy
b. at all equal market prices
c. provided there are buyers and sellers in the market
d. whenever the demand curve is downward sloping and there is no supply curve
22.
Two goods are said to be __________________________ if the cross-price elasticity of demands is
negative.
23.
Two goods are said to be __________________________ if the cross-price elasticity of demands is zero.
24.
The _________________________ measures the percentage change in the demand for a good given a
specific percent change in income.
Section C: Short Essays
1. Graphically illustrate the difference between Change in Demand and Change in Quantity
Demanded
2. List the classification of inputs
1.
2.
3.
4.
3. Explain the Law of Diminishing Marginal Utility
4. Calculate the total physical product, marginal physical product and the average physical product
for the following table
Quantity
Of Land
Quantity
Of Fertilizer
4
4
4
4
4
4
4
4
4
4
0
10
20
30
40
50
60
70
80
90
Total
Physical
Product
10
22
46
61
68
72
75
75
73
70
(a) Which input is the variable input? ___________________
Marginal
Physical
Product
Average
Physical
Product
(b) Which input is the fixed input? _____________________
5. Complete the following table using the information provided.
Fixed Input Price = $100.00
Fixed
Input
1
Variable
Input
5
10
15
20
25
30
35
40
45
Variable Input Price = $10.00
TPP
150
250
325
375
400
410
415
416
415
TFC
Market Output Price = $5.00
AFC
TVC
AVC
TC
MC
5. Complete the following table using the formulas provided on the following page.
Output
1
2
3
4
5
6
Total Cost
90
100
114
130
150
174
MC
XXX
AC
MR
XXX
Note

Own Price Elasticity = (QA – QB)/[(QA + QB)/2];
(PA – PB)/[(PA + PB)/2]

Income Elasticity

Marginal Physical Product =

Average Physical Product = Output

Marginal Utility =change in total utility

TFC = Fixed Input x Fixed Input Price

TVC = Variable Input x Variable Input Price

AFC = Total Fixed Cost

AVC = Total Variable Cost

TC = TFC + TVC

MC= Change in TC/Change in Output;
= (QA – QB)/[(QA + QB)/2];
(IA – IB)/[(IA + IB)/2]
Output
Input;
Input;
Output
Output
change in the number of pizza