Economics 2005 Exam 2 – Flashcards

1. Suppose a firm in a perfectly competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output? a. $2 b. $64 c. $8 d. $32

3. On St. Patrick's Day, some bars have half-price drinks for people wearing green. This is an example of:? a. ?First degree price discrimination. b. ?Perfect price discrimination. c. ?Second degree price discrimination. d. ?Third degree price discimination.

4. A profit-maximizing monopolist will produce the level of output at which a. marginal revenue is equal to marginal cost. b. average revenue is equal to marginal cost. c. total revenue is equal to opportunity cost. d. average revenue is equal to average total cost

5. The productively efficient scale of the firm is the quantity of output that a. maximizes profit. b. minimizes average variable cost. c. maximizes marginal product. d. minimizes average total cost.

6. When calculating a firm's profit, an economist will subtract a. the marginal cost because the cost of the next unit is the only relevant cost. b. implicit costs from total revenue because these include both the costs that can be directly measured as well as the costs that can be indirectly measured. c. explicit costs from total revenue because these are the only costs that can be measured explicitly. d. both the implicit and explicit costs from total revenue.

11. Consumer surplus is the a. value of a good to a consumer. b. amount a consumer pays minus the amount the consumer is willing to pay. c. amount a consumer is willing to pay minus the amount the consumer actually pays. d. amount of a good consumers get without paying anything

12. In the long run, a. inputs that were fixed in the short run become variable. b. variable inputs are rarely used. c. inputs that were variable in the short run become fixed. d. inputs that were fixed in the short run remain fixed

13. A firm produces 30 units of output at a total cost of $100. If fixed costs are $10, a. average variable cost is $3. b. average fixed cost is $10. c. average total cost is $5. d. average total cost is $4

16. A natural monopoly occurs when a. production requires the use of free natural resources, such as water or air. b. the firm is characterized by a rising marginal cost curve. c. the product is sold in its natural state, such as water or diamonds. d. there are economies of scale over the relevant range of output.

17. Some costs do not vary with the quantity of output produced. Those costs are called a. average costs. b. marginal costs. c. explicit costs. d. fixed costs.

19. Economies of scale occur when a. long-run average total costs fall as output increases. b. long-run average total costs rise as output increases. c. marginal costs are falling. d. average fixed costs are falling

20. Which of the following illustrates the law of diminishing marginal utility? a. The total utility of one Coke is greater than the total utility of two Cokes, other things constant. b. The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant. c. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third pretzel, other things constant. d. The marginal utility of Diane's second Coke is greater than the marginal utility of Ken's third Coke, other things constant. e. The marginal utility of Diane's second Coke is greater than the marginal utility of her third pretzel, other things constant.

21. In a perfectly competitive market, the process of entry and exit will end when (i) accounting profits are zero. (ii) economic profits are zero. (iii) price equals minimum marginal cost. (iv) price equals minimum average total cost. a. (ii) and (iv) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), (iii), and (iv)

26. If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will a. not affect producer surplus. b. reduce producer surplus. c. increase producer surplus. d. Any of the above are possible

27. If MUx /Px > MUy /Py , the consumer can increase utility by buying a. more of good X b. ?can't tell c. more of good Y

29. Pete owns a shoe-shine business. Which of the following costs would be implicit costs? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoeshine business a. (i) and (ii) only b. (iii) and (iv) only c. (iv) only d. (i), (ii), (iii), and (iv)

30. Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output a. is less than 1,000 pounds. b. becomes zero. c. is still 1,000 pounds. d. is more than 1,000 pounds

35. The exit of existing firms from a competitive market will a. increase market supply and increase market price. b. decrease market supply and decrease market price. c. decrease market supply and increase market price. d. increase market supply and decrease market price

36. Which of the following is not a characteristic of a monopoly? a. one seller b. the seller has market power c. unrestricted entry and exit d. a product without close substitutes