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micro principles makeup fall 15
Student: ___________________________________________________________________________
1. The opportunity cost of doing or getting something is best and fully defined as:
A. The difference between the marginal cost and benefit of doing something
B. The materials used in doing or getting something
C. The value of the best alternative that is given up in order to do or get something
D. The money spent in doing or getting something
2. Lauren makes $150 a day as a bank clerk. She takes two days off work without pay, to fly to another city to
attend the concert of her favorite band. The cost of transportation and lodging for the trip is $250. The cost of
the concert ticket is $50. The opportunity cost of Lauren's decision to attend the concert is:
A. $600 money could have made + money spent
B. $450
C. $300
D. $250
3. The role of an assumption in an economic theory is to:
A. Add realism
B. Prove the theory
C. Cover special cases
D. Simplify the complex reality
4. A budget line is a graph that shows the various combinations of two products that a:
A. Consumer can buy with a given amount of money income
B. Business firm can produce with a given budget
C. Household can produce with a given amount of resources
D. Nation can trade with another nation
5. The term "laissez-faire" suggests that:
A. land and other natural resources should be privately owned, but capital should be publicly owned.
B. land and other natural resources should be publicly owned, but capital should be privately owned.
C. government should not interfere with the operation of the economy.
D. government action is absolutely necessary if the economy is to achieve full employment and full production.
6. The presence of market failures implies that:
A. money is not an effective tool for exchange in a market system.
B. there is an active role for government, even in a market system.
C. individuals and firms should strive to be self-sufficient rather than specialize.
D. command systems are superior to market systems in the allocation of resources.
7. If competitive industry Z is making substantial economic profit, output will:
A. fall in industry Z and firms will likely leave the market.
B. fall in all industries except industry Z.
C. expand in industry Z as more resources will move to that industry.
D. expand in industry Z, but no new firms will enter the market.
8. The economic function of profits and losses is to:
A. bring about a more equal distribution of income.
B. signal that resources should be reallocated. If company is losing money then rework
C. eliminate small firms and reduce competition.
D. tell government which industries need to be subsidized.
9. The most efficient combination of resources in producing a given output is the combination that:
A. comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability.
B. minimize the cost per unit of output.
C. uses the smallest total quantity of all resources. Resources=resources less resources
D. conserves most on the use of labor.
10. Firms are motivated to minimize production costs because:
A. it is the most environmentally friendly way to produce goods.
B. least-cost production techniques use the smallest total quantity of resources.
C. competitive pressures in the market will drive out higher-cost producers.
D. the government provides tax credits and subsidies to low-cost producers.
11. The income and substitution effects account for:
A. the upward-sloping supply curve.
B. the downward-sloping demand curve. Less demand for product
C. movements along a given supply curve.
D. shifts in the demand curve.
12. In the past few years, the demand for donuts has greatly increased. This increase in demand might best be
explained by:
A. an increase in the cost of making donuts.
B. an increase in the price of coffee.
C. consumers expecting donut prices to fall.
D. a change in buyer tastes.
13. If Z is an inferior good, an increase in money income will shift the:
A. supply curve for Z to the left.
B. supply curve for Z to the right.
C. demand curve for Z to the left.
D. demand curve for Z to the right.
14.
Refer to the diagram. A decrease in supply is depicted by a:
A. move from point x to point y.
B. shift from S1 to S2.
C. shift from S2 to S1. Less quantity
D. move from point y to point x.
15. Increasing marginal cost of production explains:
A. the law of demand.
B. the income effect.
C. why the supply curve is upsloping.
D. why the demand curve is downsloping.
16. Unlike a private good, a public good:
A. has no opportunity costs.
B. has benefits available to all, including nonpayers.
C. produces no positive or negative externalities.
D. is characterized by rivalry and excludability.
17. Which of the following is an example of a public good?
A. A weather warning system.
B. A television set.
C. A sofa.
D. A bottle of soda.
18. If one person's consumption of a good does not preclude another's consumption, the good is said to be:
A. nonrival in consumption. Public goods
B. rival in consumption.
C. nonexcludable.
D. excludable.
19. Because of the free-rider problem:
A. the market demand for a public good is overstated.
B. the market demand for a public good is nonexistent or understated.
C. government has increasingly yielded to the private sector in producing public goods.
D. public goods often create serious negative externalities.
20. At the optimal quantity of a public good:
A. marginal benefit exceeds marginal cost by the greatest amount.
B. total benefit equals total cost.
C. marginal benefit equals marginal cost. Don’t want to spend too much
D. marginal benefit is zero.
21. A perfectly inelastic demand schedule:
A. rises upward and to the right but has a constant slope.
B. can be represented by a line parallel to the vertical axis.
C. cannot be shown on a two-dimensional graph.
D. can be represented by a line parallel to the horizontal axis.
22. Most demand curves are relatively elastic in the upper-left portion because the original price:
A. and quantity from which the percentage changes in price and quantity are calculated are both large.
B. and quantity from which the percentage changes in price and quantity are calculated are both small.
C. from which the percentage price change is calculated is small and the original quantity from which the
percentage change in quantity is calculated is large.
D. from which the percentage price change is calculated is large and the original quantity from which the
percentage change in quantity is calculated is small. One more
23. The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its
commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential.
Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can
be concluded that:
A. both groups felt that the demand was elastic but for different reasons.
B. both groups felt that the demand was inelastic but for different reasons.
C. the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it
was elastic.
D. the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it
was inelastic.
24. The elasticity of demand for a product is likely to be greater:
A. if the product is a necessity, rather than a luxury good.
B. the greater the amount of time over which buyers adjust to a price change. Really elastic change price slowly
C. the smaller the proportion of one's income spent on the product.
D. the smaller the number of substitute products available.
25. The narrower the definition of a product:
A. the larger the number of substitutes and the greater the price elasticity of demand. sensitive
B. the smaller the number of substitutes and the greater the price elasticity of demand.
C. the larger the number of substitutes and the smaller the price elasticity of demand.
D. the smaller the number of substitutes and the smaller the price elasticity of demand.
26. The demand for a necessity whose cost is a small portion of one's total income is:
A. perfectly price inelastic.
B. perfectly price elastic.
C. relatively price inelastic.
D. relatively price elastic.
27. Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal
utility of the event is:
A. zero.
B. positive, but declines rapidly.
C. negative.
D. positive, but less than the ticket price.
28. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His
total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
A. 26 units of utility.
B. 6 units of utility.
C. 8 units of utility.
D. 38 units of utility.
29. If the price of product X rises, then the resulting decline in the amount purchased will:
A. necessarily increase the consumer's total utility from his total purchases.
B. increase the marginal utility of the last unit consumed of this good.
C. increase the total utility from purchases of this good.
D. reduce the marginal utility of the last unit consumed of this good.
30. The law of diminishing marginal utility explains why:
A. supply curves slope upward.
B. demand curves slope downward.
C. addicts can never get enough.
D. people will only consume their favorite goods and not try new things.
31. Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such
amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils.
The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:
A. the two commodities are substitute goods.
B. Mrs. Arnold should spend more on pretzels and less on soda.
C. Mrs. Arnold should spend more on soda and less on pretzels.
D. Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts.
32. Implicit and explicit costs are different in that:
A. explicit costs are opportunity costs; implicit costs are not.
B. implicit costs are opportunity costs; explicit costs are not.
C. the latter refer to nonexpenditure costs and the former to monetary payments.
D. the former refer to nonexpenditure costs and the latter to monetary payments.
33. Normal profit is:
A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.
34. The law of diminishing returns indicates that:
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond
some point.
B. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will
be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point, the extra utility derived from additional units of a product will yield the consumer
smaller and smaller extra amounts of satisfaction.
35.
In the diagram, curves 1, 2, and 3 represent the:
A. average, marginal, and total product curves respectively.
B. marginal, average, and total product curves respectively.
C. total, average, and marginal product curves respectively.
D. total, marginal, and average product curves respectively.
36. Average fixed cost:
A. equals marginal cost when average total cost is at its minimum.
B. may be found for any output by adding average variable cost and average total cost.
C. graphs as a U-shaped curve.
D. declines continually as output increases.
37. Which of the following is correct as it relates to cost curves?
A. Average variable cost intersects marginal cost at the latter's minimum point.
B. Marginal cost intersects average total cost at the latter's minimum point.
C. Average fixed cost intersects marginal cost at the latter's minimum point.
D. Marginal cost intersects average fixed cost at the latter's minimum point.
38. In which of the following market structures is there clear-cut mutual interdependence with respect to priceoutput policies?
A. Pure monopoly.
B. Oligopoly.
C. Monopolistic competition.
D. Pure competition.
39. An industry comprised of a very large number of sellers producing a standardized product is known as:
A. monopolistic competition.
B. oligopoly.
C. pure monopoly.
D. pure competition.
40. Which of the following statements applies to a purely competitive producer?
A. It will not advertise its product. Keep it secret
B. In long-run equilibrium it will earn an economic profit.
C. Its product will have a brand name.
D. Its product is slightly different from those of its competitors.
41. The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in
that industry is ______.
A. perfectly inelastic; perfectly elastic
B. downsloping; perfectly elastic
C. downsloping; perfectly inelastic
D. perfectly elastic; downsloping
42. The MR = MC rule applies:
A. to firms in all types of industries.
B. only when the firm is a "price taker."
C. only to monopolies.
D. only to purely competitive firms.
43. In the short run, the individual competitive firm's supply curve is that segment of the:
A. average variable cost curve lying below the marginal cost curve.
B. marginal cost curve lying above the average variable cost curve.
C. marginal revenue curve lying below the demand curve.
D. marginal cost curve lying between the average total cost and average variable cost curves.
44. Suppose you find that the price of your product is less than minimum AVC. You should:
A. minimize your losses by producing where P = MC.
B. maximize your profits by producing where P = MC.
C. close down because, by producing, your losses will exceed your total fixed costs.
D. close down because total revenue exceeds total variable cost.
45. A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its:
A. total variable costs.
B. total costs.
C. total fixed costs.
D. marginal costs.
46. In a purely competitive industry:
A. there will be no economic profits in either the short run or the long run.
B. economic profits may persist in the long run if consumer demand is strong and stable.
C. there may be economic profits in the short run but not in the long run.
D. there may be economic profits in the long run but not in the short run.
47. Allocative efficiency is achieved when the production of a good occurs where:
A. P = minimum ATC.
B. P = MC.
C. P = minimum AVC.
D. total revenue is equal to TFC.
48. The term productive efficiency refers to:
A. any short-run equilibrium position of a competitive firm.
B. the production of the product mix most desired by consumers.
C. the production of a good at the lowest average total cost.
D. fulfilling the condition P = MC.
49. Under pure competition in the long run:
A. neither allocative efficiency nor productive efficiency is achieved.
B. both allocative efficiency and productive efficiency are achieved.
C. productive efficiency is achieved, but allocative efficiency is not.
D. allocative efficiency is achieved, but productive efficiency is not.
50. Which of the following is correct?
A. Both purely competitive and monopolistic firms are "price takers."
B. Both purely competitive and monopolistic firms are "price makers."
C. A purely competitive firm is a "price taker," while a monopolist is a "price maker."
D. A purely competitive firm is a "price maker," while a monopolist is a "price taker."
51. Pure monopolists may obtain economic profits in the long run because:
A. of advertising.
B. marginal revenue is constant as sales increase.
C. of barriers to entry.
D. of rising average fixed costs.
52. A natural monopoly occurs when:
A. long-run average costs decline continuously through the range of demand.
B. a firm owns or controls some resource essential to production.
C. long-run average costs rise continuously as output is increased.
D. economies of scale are obtained at relatively low levels of output.
53. When a firm is on the inelastic segment of its demand curve, it can:
A. increase total revenue by reducing price.
B. decrease total costs by decreasing price.
C. increase profits by increasing price.
D. increase total revenue by more than the increase in total cost by increasing price.
54. In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is
equal to:
A. average total cost.
B. marginal revenue.
C. average variable cost.
D. average cost.
55. Nonprice competition refers to:
A. competition between products of different industries, for example, competition between aluminum and steel
in the manufacture of automobile parts.
B. price increases by a firm that are ignored by its rivals.
C. advertising, product promotion, and changes in the real or perceived characteristics of a product.
D. reductions in production costs that are not reflected in price reductions.
56. Oligopolistic industries are characterized by:
A. a few dominant firms and substantial entry barriers.
B. a few dominant firms and no barriers to entry.
C. a large number of firms and low entry barriers.
D. a few dominant firms and low entry barriers.
57. The mutual interdependence that characterizes oligopoly arises because:
A. the products of various firms are homogeneous.
B. the products of various firms are differentiated.
C. each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
D. the demand curves of firms are kinked at the prevailing price.
58. Concentration ratios measure the:
A. geographic location of the largest corporations in each industry.
B. degree to which product price exceeds marginal cost in various industries.
C. percentage of total industry sales accounted for by the largest firms in the industry.
D. number of firms in an industry.
59. Industries X and Y both have four-firm concentration ratios of 65 percent, but the Herfindahl index for X is
1,500 while that for Y is 2,000. These data suggest:
A. greater market power in X than in Y.
B. greater market power in Y than in X.
C. that X is more technologically progressive than Y.
D. that price competition is stronger in Y than in X.
60. Answer the question on the basis of the following table showing the demand schedule facing a
nondiscriminating monopolist:
Refer to the table. Assume that this monopolist faces zero production costs. The profit-maximizing monopolist
will set a price of:
A. $10.
B. $7.
C. $5.
D. $3.