Download Practice Problems Chapters 5 and 6 1. The intercept of a budget line

Practice Problems
Chapters 5 and 6
1.
The intercept of a budget line measures the
a. amount of a good that a consumer will purchase
b. maximum amount of a good that a consumer could purchase, given his consumption of
some other good
c. maximum amount of a good that could be consumed at given prices and income
d. minimum amount of a good that could be consumed at given prices and income
e. minimum consumption of a good consistent with utility maximization
ANS: C
2.
If the price of bread were zero, a budget line between bread (on the vertical axis) and cheese (on
the horizontal axis) would
a. not exist
b. be vertical
c. coincide with the vertical axis
d. be horizontal
e. coincide with the horizontal axis
ANS: B
3.
The ratio of the prices of two goods when multiplied by -1
a. is the slope of the demand curve
b. measures the price elasticity of demand for a particular good
c. defines real income for the consumer
d. is the slope of the budget line
e. is the slope of the indifference curve
ANS: D
4.
An increase in the price of the good measured on the horizontal axis of a budget line diagram will
a. make the budget line flatter
b. make the budget line steeper
c. leave the budget line unchanged
d. cause a parallel inward shift of the budget line
e. cause a parallel outward shift of the budget line
ANS: B
5.
Which of the following could change a consumer's budget line?
a. a change in utility
b. an increase in the availability of substitute goods
c. additional responsibilities taken on by the consumer
d. a change in the price of one or more goods
e. a reduction in the level of technical inefficiency in the market
ANS: D
6. A rational consumer who prefers one apple to two oranges, and two oranges to one orange,
a. must prefer two oranges to one apple
b. must prefer one apple to one orange
c. must prefer two oranges to two apples
d. must be indifferent between two oranges and two apples
e. might prefer one orange to one apple
ANS: B
7. Marginal utility
a. increases as more of a good is consumed
b. increases as the total utility of consuming a good increases
c. is the same as the utility of consuming a good
d. is the same as the utility of consuming an additional unit of a good
e. is the same for all units of a good, but varies from one consumer to another
ANS: D
8. Which of the following most clearly illustrates the law of diminishing marginal utility?
a. The total satisfaction from consuming a good falls as more of the good is consumed.
b. Marginal utility falls as total utility falls.
c. The quantity of a good demanded falls as its price rises.
d. The additional satisfaction from consuming a good falls as more of the good is consumed.
e. There is a direct relationship between the price of a good and its total utility.
ANS: D
9.
Consuming to the point where the marginal utility of each good is equal to the price of that good
is consistent with utility maximization.
a. True
b. False
ANS: B
10. A utility-maximizing consumer will choose a collection of goods
a. represented by a point below her budget line
b. represented by a point above her budget line
c. for which the marginal utility from each good is the same
d. for which the marginal utility divided by the price is the same or each good
e. for which the total utility from each good is the same
ANS: D
11. Beginning at the vertical axis intercept, as a consumer moves down the budget line, she will find
that
a. the marginal utility per dollar spent on the vertical axis good decreases
b. the marginal utility per dollar spent on the vertical axis good increases
c. the marginal utility per dollar spent on the horizontal axis good increases
d. the marginal utilities per dollar spent on both goods increase
e. the marginal utilities per dollar spent on both goods remain constant along that particular
budget line
ANS: B
12. Suppose that the price of a pizza is $10 and that the price of a blouse is $30. At her present level
of consumption, Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/4. To
maximize total utility, she should
a. buy more pizzas and fewer blouses
b. buy fewer pizzas and more blouses
c. continue to buy the same quantities of pizza and blouses
d. spend more time consuming pizza
e. spend more time buying blouses
ANS: A
13.
As Reba consumes four slices of pizza, her total utility rises from 0 to 18, to 24, to 28, and to 30,
respectively. What is her marginal utility of the fourth slice of pizza?
a. 28
b. 24
c. 2
d. 7
e. 8
ANS: C
14. The Jones family is going to Disney World and has set a budget of $2000 for food and souvenirs.
If Mr. Jones finds a $50 bill on the ground during their trip and uses it to purchase additional
souvenirs, then
a. souvenirs are a normal good
b. food is an inferior good
c. the budget line has shifted to the left
d. the slope of the budget line has changed
e. souvenirs are a luxury good
ANS: A
15. The total change in quantity demanded of a good following a price change
a. is equivalent to the substitution effect
b. is equivalent to the income effect
c. must decrease as marginal utility rises
d. is negative only when the income effect is negative
e. reflects both the substitution and income effects
ANS: E
16. The market demand curve for a good is found by
a. adding up the quantities demanded by all consumers at different prices of that good
b. adding up the quantities demanded by all consumers at different incomes
c. adding up the maximum price each consumer is willing to pay for each possible quantity
of the good
d. varying consumers' total income and determining what prices they are willing to pay
e. vertically summing the individual consumers' demand curves
ANS: A
17. An inferior good is one that
a. people consume if their income falls
b. people consume more of if their income falls
c. people never consume
d. people consume if their income rises
e. people consume more of if their income rises
ANS: B
18.
If the physical plant for a corporation is considered to be a fixed input, then
a. it is held constant in the long run
b. it can be changed in the long run
c. labor must be a variable input
d. technology must be changing
e. the firm will lose money in the short run, except under perfect competition
ANS: B
19. Which of the following is most likely to be a fixed input in the short run for Joe's Garage?
a. the grease used to lubricate cars
b. the part-time labor employed to repair cars
c. the inventory of replacement parts
d. the electricity used to heat and light the garage
e. the garage used to repair cars
ANS: E
Figure 6-1
Quantity
of Labor
1
2
3
4
5
Tons of Coal
Mined
80
180
300
480
555
20. Figure 6-1 shows the amounts of coal that a mining company could produce per week by
changing the number of workers while capital and technology remain constant. The marginal
product of employing the fourth worker is
a. 120 tons of coal
b. 480 tons of coal
c. 319 tons of coal
d. 180 tons of coal
e. 106.33 tons of coal
ANS: D
21. Figure 6-1 shows the production function of a mining company. How many workers could the
mine hire before the marginal product of labor begins to decline?
a. 1 worker
b. 2 workers
c. 3 workers
d. 4 workers
e. 5 workers
ANS: D
22.
If a firm is experiencing diminishing marginal returns to labor, then
a. total output must be decreasing
b. total output rises more slowly as additional workers are added
c. the firm must decrease the amount of labor it hires
d. total output per worker must be rising
e. the firm is in the short run
ANS: B
23. Consider the total product curve depicted in Figure 6-5. The firm experiences negative returns to
labor
a. when employing more than 200 workers
b. when employing between 80 and 200 workers
c. when employing more than 80 workers
d. when employing between zero and 80 workers
e. at all levels of employment
ANS: A
24. A firm's total cost of production is
a. the owners' opportunity cost
b. labor costs plus the cost of materials
c. the payments for its inputs
d. Depreciation plus payments for inputs
e. taxes plus depreciation plus payments for inputs
ANS: A
25. Average total cost is
a. the change in cost as output decreases
b. the change in cost as output increases
c. TC – MC
d. MC – TC
e. AFC + AVC
ANS: E
26.
Which of the following is the best example of a variable cost?
a. property taxes
b. lease payments for equipment rental
c. rent on office space
d. wages for hourly workers
e. interest on outstanding loans
ANS: D
27. If the marginal product of labor rises, the marginal cost of output
a. Rises
b. Falls
c. remains constant
d. rises and then falls
e. Dampens
ANS: B
28. If the marginal product of labor falls, the marginal cost of output
a. declines, then increases
b. becomes negative
c. Rises
d. remains constant
e. Falls
ANS: C
29. Figure 6-8 shows three different cost curves, labeled A, B, and C. Which of these curves is most
likely to represent marginal cost?
a. curve A
b. curve B
c. curve C
d. neither A, B, nor C
e. cannot be determined without more information
ANS: B
30. Figure 6-8 shows three different cost curves, labeled A, B, and C, for a firm. Which of these
curves could most likely represent total cost?
a. curve A
b. curve B
c. curve C
d. curves A or B
e. none of the curves can represent total cost
ANS: E
31. The vertical distance between a firm's average total cost curve and its average variable cost curve
is its
a. marginal cost
b. sunk cost
c. total variable cost
d. total fixed cost
e. average fixed cost
ANS: E
32. Along its long-run average total cost curve, a firm employs
a. a different amount of fixed inputs at each point
b.
c.
d.
e.
the same amount of fixed inputs at each point
a declining amount of fixed inputs at each point as it moves to higher output levels
an increasing amount of fixed inputs at each point as it moves to higher output levels
no fixed inputs
ANS: E
33.
In comparing long-run and short-run costs, which of the following statements is true at each level
of output?
a. long-run total cost is always less than short-run total costs
b. long-run total cost cannot exceed short-run total cost
c. long-run and short-run total costs are equal when fixed costs are large
d. firms usually make decisions about production levels based on long-run costs rather than
short-run costs
e. short-run total cost cannot exceed long-run total cost
ANS: B