1. If the consumption of one good is reduced, how must a consumer alter his consumption of another good in order to remain indifferent between two bundles? a. He can reduce, increase, or not change his consumption of another good. b. He must reduce his consumption of another good. c. He must increase his consumption of another good. d. He must not change his consumption of another good. 2. Which of the following statements explains the relationship between indifference curves and consumer preferences? a. A consumer is equally satisfied with any indifference curve. b. A consumer prefers indifference curves with positive slopes. c. A consumer prefers higher indifference curves to lower indifference curves. d. A consumer is generally unable to place all consumption bundles on an indifference curve. Table 1: The relationship between the marginal utility that George gets from eating a bag of cookies and the number of bags he eats per month is as follows: Bags of Cookies 1 2 3 4 5 6 Marginal Utility 20 16 12 8 4 0 3. Refer to Table 1. George consumes two goods, milk and cookies. He has maximized his utility given his income. Milk costs $2 per litre and he consumes it to the point where the marginal utility he receives from milk is 8. Cookies cost $3 per bag. How many bags of cookies does George buy each month? a. 1 b. 2 c. 3 d. 4 4. XYZ Corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Price of each unit is $95. What would total revenue for XYZ Corporation be? a. -$3875 b. $26125 c. -$1375 d. $28,500 5. ___is falling when marginal cost is below it, and rising when marginal cost is above it. a. total cost b. average cost c. revenue d. fixed cost Scenario 1: Aziz is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Aziz has more students requesting lessons than he has time for if he is to also maintain his farming business. Aziz charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. 6. Refer to Scenario 1. What is the economic profit Aziz made from his wheat? a. -$80 b. $250 c. $300 d. $130 e. $170 7. When a competitive firm doubles the amount of output it sells, what is the result? a. Its total revenue doubles. b. Its average revenue doubles. c. Its marginal revenue doubles. d. Its selling price doubles. 8. In consumer theory, we discovered that the demand curve a. is always downward sloping b. is not always downward sloping c. follows the law of demand all the time d. is always upward sloping 9. What happens when a business is operating a factory in the short run? a. The business cannot change variable costs. b. Total cost and variable cost are usually the same. c. Average fixed cost rises as output increases. d. The business cannot change fixed costs. of the following statements does NOT reflect a price-taking firm? 10. Which a. If the firm were to charge more than the going price, it would sell none of its goods. b. The firm has no incentive to charge less than the going price. c. The firm can sell as much as it wants to sell at the going price. d. Consumers have a major impact on price, not firms. 11. When a firm in a competitive market receives $200 in total revenue, it has average revenue of $20. What is the marginal revenue, and how many units were sold? a. $5 and 100 units b. $10 and 50 units c. $20 and 10 units d. $20 and 40 units ECON 201-2 12. Which of the following explains the relationship between average revenue, marginal revenue, and price in a competitive market? a. Average revenue equals the price of the good, but marginal revenue is different. b. Marginal revenue equals the price of the good, but average revenue is different. c. Average revenue equals marginal revenue, but the price of the good is different. d. Average revenue, marginal revenue, and the price of the good are all equal to one another. 13. When total revenue is less than variable costs, what will a firm in a competitive market do in the short-run? a. It will continue to operate as long as average revenue exceeds marginal cost. b. It will continue to operate as long as average revenue exceeds average fixed cost. c. It will shut down. d. It will always exit the industry 14. When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision? a. The cost of something is what you give up to get it. b. A country's standard of living depends on its ability to produce goods and services. c. Prices rise when the government prints too much money. d. Governments can sometimes improve market outcomes. 15. As long as a consumer is on a given indifference curve, what can we say about her preferences? a. She is indifferent to all points that lie on any other indifference curves. b. Her preferences will not affect the marginal rate of substitution. c. She is unable to decide which bundle of goods to choose. d. She is indifferent among the points on that curve