Transcript Chapter 6, Question 12

Q1: The price elasticity of demand equals magnitude of
the _________.
A change in the price divided by the change in quantity
demanded
B change in the quantity demanded divided by the
change in price
C percentage change in the price divided by the
percentage change in the quantity demanded
D percentage change in the quantity demanded divided
by the percentage change in the price
Q2: “Last October, due to an early drought, the price of
date per kg increased by 10 percent compared to the
previous year’s price. As a result, the quantity
demanded decreased from 2 million kg to 1.5 million
kg.”
Based on this statement, the _______.
A demand for dates is elastic
B demand for dates is inelastic
C demand for dates is unit elastic
D demand for dates increased
Q3: In 2008, the price of cocoa beans increased more
than 44 percent. In response to the increase in the price
of cocoa beans, Rogue Chocolatier increased the price of
its gourmet chocolate bars by 20 percent. Rogue says the
quantity of its bars sold decreased by 15 percent.
The price elasticity of demand for gourmet chocolate bars
is ________.
A elastic
B inelastic
C undefined
D unit elastic
Q4: Netflix is the largest online DVD rental service
offering flat rate rental-by-mail and online streaming to
households.
If Netflix increases its average flat rate by 10 percent
and its total revenue increases, then the demand for
Netflix subscriptions ___________.
A is price inelastic
B is price elastic
C is unit elastic
D income elastic
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Q5: To increase its total revenue, a firm will ________.
A raise its price if the demand for the firm’s good is
inelastic
B raise its price if the demand for the firm’s good is
elastic
C charge the highest price possible regardless of the
elasticity of demand
D raise its price if the demand for the firm’s good is unit
elastic
Q6: The air route from New York to Chicago is served by
more than one airline. The demand for tickets on United
Airlines flights for that route is probably _________.
A inelastic, but more elastic than the demand for all
tickets for that route
B elastic and more elastic than the demand for all
tickets for that route
C inelastic and less elastic than the demand for all
tickets for that route
D elastic, but less elastic than the demand for all tickets
for that route
Q7: The income elasticity of demand is defined as the
percentage change in ________.
A the quantity demanded resulting from a given
percentage change in price
B income divided by the percentage change in quantity
demanded
C the movement along the demand curve resulting from
a change in income
D the quantity demanded divided by the percentage
change in income
Q8: The cross elasticity of demand is calculated as the
percentage change in the ________.
A quantity demanded of one good divided by the
percentage change in the price of another good
B price of one good divided by the percentage change
in the quantity demanded of another good
C quantity demanded of one good divided by the
percentage change in the quantity demanded of
another good
D price of one good divided by the percentage change
in the price of another good.
Q9: Suppose that when the price of oil is $60 per barrel,
the quantity supplied is 70 million barrels a day, but when
the price is $40 per barrel, the quantity of oil supplied is 69
million barrels a day.
A The supply of oil is elastic.
B The supply of oil is inelastic.
C The demand for oil is inelastic.
D The demand for oil is elastic.
Q10: The cross elasticity of demand for good X with
respect to the price of good Y is negative. Good X is a
normal good and good Y is an inferior good. The
supply of good X is perfectly elastic.
A rise in income _____ the equilibrium price of good X.
A will raise
B will lower
C will have no effect
D initially raise and then lower
Q11: An electrician is paid $40,000 a year in her current
job, but she could take a job with another firm for
$45,000 a year.
If she decides to quit the current job and work for
herself, she will incur an opportunity cost of ________.
A
B
C
D
$5,000 a year
$40,000 a year
$45,000 a year
$85,000 a year
Q12: Jitters Coffee Company can lower the cost of
packaging a pound of coffee by doubling the quantity
packaged each day, Jitters is achieving ________.
A
B
C
D
economies of scale
economies of scope
economies of team production
all of the above
Q13: In the long run, a firm can vary ______.
A the capital it uses but not the quantity of labor it hires
B the quantity of labor it hires but not the capital it uses
C both the quantity of labor it hires and the capital it
uses
D neither the quantity of labor it hires nor the capital it
uses
Q14: If when a firm hires one more worker, the new
worker and the existing workers are able to increase
specialization and division of labour in the production
process, marginal product ________ and average product
________.
A
B
C
D
increases; increases
increases; might increase or decrease
decreases; decreases
decreases; might increase or decrease
Q15: If marginal product falls as an additional worker is
employed, then we know that average product ______.
A
B
C
D
is less than marginal product
exceeds marginal product
falls if it is less than marginal product or rises if it
exceeds marginal product
is less than marginal product and rising or more than
marginal product and falling
Q16: Which of the following statements regarding the
marginal product curve is false?
A If an increase in the number of workers increases
total product, then marginal returns are increasing.
B Increasing marginal returns is due to greater
efficiency from specialization in the production
process.
C The law of diminishing returns applies in the short
run.
D Along the marginal product curve, marginal returns
increase initially but then diminishing as the number
of workers increases.
Q17: Rogue Chocolatier sells specialty chocolate bars
with a high cocoa content. Rogue can produce 15
chocolate bars a day with one employee, 29 with 2, 35
with 3, and 40 with 4 employees.
Which statement is correct?
A Rogue’s marginal product curve slopes downward.
B Rogue’s marginal product curve initially slope upward
but eventually downward.
C Rogue’s total product curve slopes upward at an
increasing rate.
D Rogue’s marginal product curve slopes downward
initially but eventually upward.
Q18: Ernie’s Earmuffs produces 200 earmuffs a year at
a total cost of $2,000. Its fixed costs are $400.
Ernie’s average variable cost of producing an earmuff is
________.
A
B
C
D
$12
$20
$8
$4
Q19: Fernando charges the restaurant Flaming
Fernando’s $1,000 annually for use of his name. If
Fernando increases the fee to use of his name, _______.
A the restaurant’s average fixed cost, average variable
cost, average total cost, and marginal cost curves all
shift upward.
B only the restaurant’s average fixed cost, average total
cost, and marginal cost curves shift upward.
C only the restaurant’s average variable cost, average
total cost, and marginal cost curves shift upward.
D only the restaurant’s average fixed cost and average
total cost curves shift upward.
Q20: A firm is reaping economies of scale and is
producing at a point on both its LRAC curve and its
short-run ATC curve. At that level of output, its LRAC
curve is _________.
A
B
C
D
horizontal and its ATC curve is horizontal
horizontal and its ATC curve is downward sloping
downward sloping and its ATC curve is horizontal
downward sloping and its ATC curve is downward
sloping
Q21: Precision Pattern Interiors, which makes high-end
aircraft interiors, has completed a $1 million renovation
of its building. The company also added new equipment
worth $400,000 and tripled its work force.
Which of Precision Pattern Interiors decisions was a
short-run decision?
A
B
C
D
Triple its work force
$1 million renovation of its building
The new equipment worth $400,000
All of these decisions are short-run decisions.
Q22: The demand for wheat from farm A is perfectly
elastic because wheat from farm A is ______.
A
B
C
D
a perfect complement of wheat from other farms
a normal good
a perfect substitute for wheat from other farms
an inferior good
Q23: A perfectly competitive firm will shut down if
___________.
A its total revenue is less than its total cost
B its total revenue is less than its total fixed cost
C the market price is less than the firm’s average
variable cost
D the market price is less than the firm’s average total
cost
Q24: A perfectly competitive market is in long-run
equilibrium. If the wage rate paid to workers falls, in the
short run individual firms will _____.
A lower their price, decrease the quantity that they
produce, and break even
B not change the quantity they produce so that they
increase economic profit
C increase the quantity they produce and make positive
economic profit
D make positive economic profit and new firms enter
the market
Q25: If the market for wheat is perfectly competitive, an
increase in the price of fertilizer used by wheat farmers
will ________.
A have no effect on the market output because no farm
can change the price
B have no effect on the market output because each
farm’s supply of wheat is perfectly inelastic
C decrease the market output of wheat because each
farm’s supply decreases
D reduce the quantity of wheat supplied by the market
because each farm’s supply curve is horizontal and it
will shift upward.
Q26: A firm in a perfectly competitive market is producing
the quantity of the good at which marginal cost exceeds
the market price.
This firm will increase its profit by producing _________.
A less of the good and not change the market price of
the good
B less of the good and lower the market price of the
good
C a larger quantity of the good
D the same quantity and raising its price of the good
Q27: Suppose that firms selling a good in a perfectly
competitive market are incurring economic losses.
Over time, ______.
A new firms will enter the market, the price of the good
will rise, and economic losses will decrease
B some firms will exit the market, the price of the good
will rise, and economic losses will decrease
C new firms will enter the market, the price of the good
will fall, and economic losses will increase
D some firms will exit the market, the price of the good
will fall, and economic losses will decrease
Q28: Gayle Goshie, a hops farmer, blames the low
price of hops for pushing many hop farmers out of
business. The hop farmers who went out of business
did so because the price of hops was _______.
A
less than minimum average fixed cost
B
higher than average variable cost but less than
average total cost
C
less than minimum average variable cost
D
less than average total cost but equal to marginal
cost
Q29: Ethanol is made from corn. “Higher ethanol
production definitely and directly raises the price of corn,”
said economist Ephraim Leibtag.
In the short run, if the production of ethanol increases,
individual corn farmers will _________.
A incur economic losses and will shut down
B make positive economic profits
C incur economic losses, but they will still produce
D make zero economic profit
Q30: One reason why corn production, which takes
place in a perfectly competitive market, achieves an
efficient use of resources is because a perfectly
competitive firm _________.
A produces at the lowest possible long-run average cost
B produces where marginal revenue exceeds marginal
cost
C is a price maker
D produces the quantity that maximizes profit
Chapter 6, Question 8
A.
FALSE,
D.
FALSE
A firm’s marginal product will start to
decrease.
Stage I ends shortly after this, when
the already diminishing marginal
product intersects the average
product at the latter’s maximum value.
Chapter 6, Question 12
A.
B.
C.
D.
E.
F.
CRTS (read book to know why, page 225)
CRTS (read book to know why, page 225)
IRTS (read book to know why, page 225)
DRTS (read book to know why, see example on page 221)
IRTS (read book to know why, see example on page 221)
IRTS (read book to know why, see example on page 221)
Chapter 7, Question 10
A. FALSE Decision-makers should always use the
replacement or current cost of raw materials because it is
considered to be relevant to the decision.
B. TRUE The mathematical relationship between the
marginal and average assures that this will always be the
case.
C. TRUE Declining average cost indicates economies of
scale and increasing average cost indicates diseconomies
of scale.
D. FALSE Marginal cost is also considered in the long run
cost structure. See Table 7.3 and Figure 7.5 in text.
E. FALSE The rational firm will try to operate most
efficiently by making sure that its unit costs are exactly as
indicated by its cost structure (i.e. as seen by observing
any of the points on its average cost curve).
Chapter 8, Question 1
A.
E.
FALSE,
Not if its loss is less than its fixed
cost.
TRUE, If P>AVC but P<AC, then the company
will cover some of its fixed costs; thus, loss will
be less than fixed cost.