Download Econ 1 UT2 F16 - Bakersfield College

Economics 1 Unit 2 Test
Class Time:
Name:
Part A. Answer the following 7 questions in the space provided. Each question is worth 4
points.
1. Draw a diagram for the short-run showing the typical marginal product of labor and label it
MPL and the average product of labor curve and label it APL. Mark the specialization of
labor region and the diminishing marginal returns region on your diagram. Mark the
horizontal axis as N for number of workers and the vertical axis as output.
2. Draw a diagram illustrating the case of a perfectly competitive business firm making a profit.
Label the demand curve D, the marginal revenue curve MR, the marginal cost curve MC, and
the average total cost curve ATC. Show the quantity the firm will choose to produce and the
price it will charge and mark those Q1 and P1 respectively.
3. Draw a supply and demand diagram showing the effect of an increase in demand in the longrun for a constant cost industry. Label the starting price and quantity P1 and Q1 and the
ending price and quantity P2 and Q2. Be sure to label the axis of the diagram and any lines
you draw on the diagram also.
4. A. List the 3 attributes or properties of perfect competition.
(1)
(2)
(3)
B. Circle the correct answer. A firm that raises its price keeps all its customers. What is
the elasticity of demand for its product?
0
0.1
0.5
1
2
10
infinity
5. A grocery store has noticed that when they raise the price of a bottle of ketchup from $4 to
$6, the number of bags of French fries they sell falls from 11 to 9. Answer the following 2
questions.
a. What is the cross-price elasticity of French fries with respect to the price of ketchup?
This part of the question is worth 2 points.
b. What does the number you found for answer a mean? This question is worth 2 points.
6. A. List 2 public goods below. (2 points)
.
1. _________________________
2. _________________________
B. List a good with an externality. State both the good and what the externality is. (2 points)
7. A. List 2 of the 3 factors that will cause elasticity to be higher. (2 points)
(1)
(2)
B. Fill in the missing numbers in the following table. (2 points). Do not fill in where there is
an X.
Q
FC
VC
TC
MC
0
___
___
___
N/A
1
$50
___
___
$30
2
X
X
$90
___
Part B. Mark the letter of the correct answer on your scantron. Each question is worth 1 point.
1. The mass production assembly line machines:
a. make average total cost rise in the short-run.
b. make ATC fall in the short-run.
c. make ATC rise in the long-run.
d. make ATC fall in the long-run.
2. A firm in perfect competition is losing money in the short-run. It should:
a. raise its price.
b. lower its price.
c. shut down production so it loses no money.
d. none of the above.
3. Which of the following is most likely a fixed cost for a business?
a. The lease agreement for the factory.
b. The materials the product is made out of.
c. Labor.
d. Both b and c.
4. When a firm has diseconomies of scale, their average cost of production as they make more of
the good is:
a. rising.
b. falling.
c. staying the same.
d. could be any of the above.
5. A reason that average total cost might be rising in the long-run is:
a. diminishing marginal returns.
b. specialization of labor.
c. command and control problems.
d. both a and c.
6. How much more you make doing one thing rather than the next best thing is called:
a. accounting profit.
b. economic profit.
c. total revenue.
d. total cost.
7. A reason that marginal cost might be rising in the short-run is:
a. specialization of labor.
b. command and control problems.
c. diminishing marginal returns.
d. both b and c.
8. When a factory goes from having 1 worker to 2 workers, its total production rises from 20 to
50. What is the marginal product of labor of worker 2?
a. 20.
b. 50.
c. 70.
d. 120.
9. If a firm in the short-run is losing money and does not expect business to improve in the
future, it should shut down:
a. immediately in all cases.
b. only if P < AVC (TR < TVC).
c. only if P < ATC (TR < TC).
d. only when it gets to the long-run, and never shut down in the short-run.
10. A firm has a price of $7, an ATC of $6.50, and an AVC of $6.00
a. This firm is making money and should keep operating.
b. This firm is losing money but should keep operating.
c. This firm is losing money and should shut-down.
11. A firm can overcrowd the factory with too many workers:
a. only in the short-run.
b. only in the long-run.
c. in both the short-run and the long-run.
d. in neither the short-run nor the long-run.
12. For a firm in perfect competition, the owner has real control which of the following?
a. Both the price he charges and the quantity of product he makes.
b. The price he charges, but not the quantity.
c. The quantity he makes, but not the price.
d. Neither the price he charges or the quantity of product he makes.
13. In which case below will the long-run supply curve be a sloping down line?
a. An increasing cost industry.
b. A decreasing cost industry.
c. A constant cost industry.
d. There is no case in which this happens.
14. What is the rule about how much of its product a firm in perfect competition should produce?
a. Where marginal revenue is as high above marginal cost as possible.
b. Where marginal revenue is equal to marginal cost.
c. Where the average total cost is equal to the demand curve.
d. Where marginal cost is as high above marginal revenue as possible.
15. Which of the following is true about the total cost of producing 0 units in the long-run?
a. The variable cost will be $0.
b. The total cost will be $0.
c. The total cost will be greater than $0.
d. Both a and b.
16. Diminishing marginal returns is a reason that cost might rise:
a. in both the short-run and the long-run.
b. only in the short-run.
c. only in the long-run.
d. In neither the short-run or the long-run.
17. In the long-run for firms in perfect competition:
a. profits never go to zero.
b. profits rarely go to zero.
c. profits often go to zero.
d. profits always go to zero.
18. Which of the following is a good example of perfect competition?
a. Wheat farming when there are many wheat farmers.
b. Restaurants, when there are many restaurants.
c. One electric company which powers a whole town.
d. The breakfast cereal industry.
19. If the elasticity of a good is 0.4, then if the price is lowered, total revenue will:
a. rise.
b. fall.
c. stay the same.
d. there is not enough information to tell.
20. Income elasticity is negative. This good is:
a. substitutes.
b. complements.
c. normal.
d. inferior.
21. What two problems does price solve for a market economy?
a. Public goods and externalities.
b. Information and incentive.
c. The tragedy of the commons and inequality of income.
d. All of the above.
22. If the price is raised on a good with elasticity of 7.0, then total revenue will:
a. rise.
b. fall.
c. stay the same.
d. it might be any of the above, there is not enough information to tell.
23. Pepsi has an elasticity of 2. This means:
a. if it raises its price $1, it sells 2 less cans.
b. if it raises its price $2, it wells 1 less can.
c. if it raises its price 1%, it sells 2% less cans.
d. if it raises its price 2%, it sells 1% less cans.
24. The tragedy of the commons is that a fishing area that is open to use to everybody with no
restrictions will often:
a. not be used at all.
b. be fished to extinction.
c. be kept secret to all but a few.
d. be the source of fierce fights between the users.
25. A public good is:
a. easily excludable.
b. not easily excludable.
c. one produced by the government.
d. both a and c.
26. By the logic of the invisible hand, who wins in the trade between buyer and seller of money for
goods?
a. The seller, because he now has more money than before.
b. Whoever is smarter, and thus can take advantage of the other person.
c. The buyer, as the seller must sell eventually or he will go out of business.
d. both.
27. The phrase “the invisible hand” refers to the idea that:
a. businessmen will exploit their customers with low quality goods to make money.
b. the government must have anti-pollution laws to prevent pollution.
c. businessmen who best supply what customers want the most will make the most money.
d. sometimes people want goods that will actually make their lives worse.
28. What is true about a good with an infinite elasticity?
a. Zero people buy the good.
b. If price is increased, the business loses all its customers.
c. Revenue will stay the same if the store raises the price of the good.
d. None of the above.
29. According to the average-marginal rule, if the current average cost of making radios is $50 and you
make one more radio which cost $40 to make; then the new average cost per radio including this
additional radio will be:
a. higher than $50.
b. lower than $50.
c. stay at $50.
d. there is not enough information to say.
30. A person who attempts to get a public good without paying is called:
a. a thief.
b. a customer.
c. marginal guy.
d. a free rider.
31. If there is a decrease in demand that causes the price of wheat to fall significantly and wheat farms
in the U.S. have the market structure of perfect competition, then wheat farms in the U.S. will:
a. have losses in the short-run, but not the long-run.
b. have losses in the long-run, but not the short-run.
c. have losses in both the short-run and long-run.
d. not have losses in either the short-run nor long-run.
32. The owner of a business can work all day at his business and make an economic profit of $1. What
is likely true?
a. He would not do that, as who works all day to earn $1?
b. Getting paid $1 is better than not getting $1, so he would likely do that.
c. He is getting $1 more working at the business than he can get with any other use of his time, so
he likely would do that.
d. He would get a job somewhere else.
e. Both a and d.