1. Suppose there is an electric bike shop that faces the following demand function

Q= 250 - .25p+ 4ps, whereQis the quantity of e-bikes,pis the price of an e-bike, andpsis the price of a scooter. How much of a change inpmust occur forQto increase by one?

A) fall by 25

B) fall by $4

C) increase by 25

D) fall by $4.25

2. Suppose there is a market for electronic bikes that is currently at equilibrium. If the demand curve were to shift right, this would cause

A) an increase in price but a decrease in quantity.

B) a decrease in price but an increase in quantity.

C) an increase in both price and quantity.

D) a decrease in both price and quantity.

3. Suppose there is a market for electronic bikes that is currently at equilibrium. If the consumers of electronic bikes had an increase in income which resulted in a rightward parallel shift of the demand for electronic bikes, then at any given price, the price elasticity of demand will have

A) increased in absolute terms.

B) decreased in absolute terms.

C) remained unchanged.

D) increased, decreased or stayed the same. It cannot be determined.

4. Suppose Bob consume goods"x" and "y"and his preferences for both goods are represented by convex indifference curves. This implies that Bob is willing to

A) give up more "y" to get an extra "x" the more "x" they have.

B) give up more "y" to get an extra "x" the less "x" they have.

C) settle for less of both "x" and "y".

D) acquire more "x" only if they do not have to give up any "y".

5. Suppose Bob has a marginal utility of electronic bikes equal to 1000 and his marginal utility of scooters equal to 200, then we know that

A) his indifference curves are convex.

B) his indifference curves are L-shaped.

C) his indifference curves are linear.

D) his indifference curves are downward sloping.

6. Suppose Bob has an income of $500, the price of a bike bell is $2, and the price of bike light is $100. Which of the following bundles is inBob'sopportunity set?

A) 50 bike bells, five bike lights

B) 200 bike bells, two bike lights

C) 100 bike bells, one bike lights

D) 150 bike bells, three bike lights

7. Suppose Bob and Rob consume e-bikes and scooters. Bob and Rob face the same prices and both claim to be in equilibrium. Therefore, we know that

A) they both have the same marginal utility for e-bikes.

B) they both have the same marginal utility for scooters.

C) they both have the same MRS of e-bikes for scooters.

D) All of the above.

8. Suppose Bob consumes e-bikes and scooters. IfBob's incomeand prices of both goods increase by the same percentage,

A) Bob will buy more of both goods.

B) Bob will buy more of both goods if they are both normal goods.

C) Bob will buy less of both goods if they are both inferior goods.

D)Bob'sutility maximizing bundle stays the same.

9. Suppose Bob spends his entire income on e-bikes and scooters. Every month he spends half of his income on each of these goods. Bob's income elasticity of demand for e-bikes is -.75. What is the income elasticity of demand for scooters?

A) 2.75

B) 0.36

C) -2.75

D) Unknown with the information provided

10. When the price of a good changes, the total effect of the price change on the quantities purchased can be found by comparing the quantities purchased

A) on the old budget line and the new budget line.

B) on the original indifference curve when faced with the original prices and when faced with the new prices.

C) on the new budget line and a hypothetical budget line that is a parallel shift back to the original indifference curve.

D) on the new indifference curve.

11. If the marginal product of labor is constant for all levels of output, then the average product of labor

A) is constant.

B) equals the marginal product of labor.

C) Both A and B above.

D) Either A or B above but not both.

12. At any given point on the curve, the slope of the total product curve always equals A) the ratio of the marginal product and the average product.

B) the change in input divided by the change in output.

C) the average product of the input.

D) the marginal product of the input.

13. One way to explain the convexity of isoquants is to say that A) as labor increases and capital decreases,rises while

falls. rises.

B) as labor increases and capital decreases,falls while

C) as labor increases and capital decreases,andboth fall.

D) as labor increases and capital decreases,andboth rise.

14. Suppose that electric bikes are produced according to the following production function: q = L0.4K0.4. The firm currently producesunits. If all inputs doubled, the new level of

output will equal

A) 20.4q1.

B) 20.8q1.

C) 0.8 q1.

D) 1.6 q1.

15. The company E-bikes R US has increased production efficiency by

A) producing output with fewer inputs.

B) expanding the amount of inputs used.

C) outsourcing production.

D) relying on decreasing returns to scale.

16. A firm's marginal cost can always be thought of as the change in total cost if

A) the firm produces one more unit of output.

B) the firm buys one more unit of capital.

C) the firm's average cost increases by $1.

D) the firm moves to the next highest isoquant.

17. When E-bikes R US produces 1000 e-bikes fenders with total cost of $2000 and fixed cost of $1000, what is the average variable cost?

A) $2

B) $1

C) $0.50

D) $0.20

18. The point in the production process at which diminishing marginal returns to capital begin is the point at which the marginal cost curve

A) peaks.

B) bottoms out.

C) is flat.

D) is downward sloping.

19. Suppose each mechanic must use only one wrench to fix the car, and wrenches are useless by themselves. In the short run, an increase in the price of wrenches will result in

A) fewer wrenches being purchased.

B) more mechanics being hired.

C) a decrease in the number of cars fixed.

D) no change in the number of cars fixed.

20. Suppose the company E-bikes R US has an isocost line that crosses the isoquant twice. To cost minimize, E-bikes R US will

A) use a different isocost line to select the bundle of inputs.

B) use the input bundle associated with the intersection on the higher point of the isoquant.

C) use the input bundle associated with the intersection on the lower point of the isoquant.

D) Both B and C.

21. Suppose the company E-bikes R US has isoquants that are straight lines or L-shaped. To cost minimize, E-bikes R US will

A) not be able to minimize costs.

B) find the lowest isocost line touching the relevant isoquant.

C) find the highest isocost line touching the relevant isoquant.

D) choose not to produce any output.

22. Suppose each mechanic must use only one wrench to fix the car, and wrenches are useless by themselves. In the long run, the firm will experience

A) increasing returns to scale.

B) constant returns to scale.

C) decreasing returns to scale.

D) The returns to scale cannot be determined from the information provided.

23. Suppose that for the company E-bikes R US, a unit of capital costs three times as much as a unit of labor. If MPK = 100, MPL = 50, then this firm

A) is minimizing its cost at current output level.

B) should use more capital and less labor to raise output at current cost.

C) should use less capital and more labor to raise output at current cost.

D) None of above.

24. In the long-run, the average cost is never higher than the short-run average cost because in the long run

A) capital costs equal zero.

B) the firm can move to the lowest possible isocost curve.

C) wages always increase over time.

D) wages always decrease over time.

25. After 3 years of being in business, the bike builders at E-bikes R US have become more adept because of the overall number of bikes built over that time. As a result, the average cost of production is lowered due to

A) economies of scale.

B) increasing returns to scale.

C) increasing marginal returns.

D) learning by doing.

26. Suppose that the number of e-bike producers increase. The residual demand curve for each e-bike firm becomes

A) more elastic.

B) less elastic.

C) larger.

D) vertical.

27. In a perfectly competitive market,

A) firms can freely enter and exit.

B) firms sell a differentiated product.

C) transaction costs are high.

D) All of the above.

28. The "Got Milk?" advertising campaign is a good example of

A) advertising in a competitive market.

B) how advertising in a competitive market does not pay off for a single firm.

C) interest groups financed by the industry advertise for the whole industry.

D) All of the above.

29. A bike builder owns a bike shop earns $18,000 in revenue weekly. She pays $8,000 as explicit costs and owns the shop so no rent is paid. The bike builder could work for other bike shop and earn $10,000 per week. Her business profit is ________ and her economic profit is ________.

A) $10,000, $10,000

B) $28,000, $10,000

C) $10,000, $0

D) $8,000, $0

30. If the company E-bikes R US is producing at a level where losses are minimized, the company

A) has no incentive to stay in the industry.

B) is better of exiting the industry.

C) is maximizing profits.

D) will shut down.

31. Suppose the company E-bikes R US produces bike seats and has an estimated fixed cost of $7,000 and not sunk. The estimated variable cost for each bike seat is $20. The market price for a bike seat is $25 each and the owner can sell 1000 bike seats at most each year. In the long run, the owner

A) should shut down.

B) should keep operating.

C) should sell less.

D) None of the above.

32. If the company E-bikes R US is a price taker, then its marginal revenue will always equal

A) price.

B) total cost.

C) zero.

D) one.

33. The company E-bikes R US operates in a competitive market. If E-bikes R US is in short-run equilibrium, then

A) profits equal zero.

B) it will not operate at a loss.

C) an increase in its fixed cost will have no effect on profit.

D) an increase in its fixed cost will have no effect on output as long as revenue can cover its variable cost.

34. Suppose the company E-bikes R US has the following total cost function:

TC = 10 + (0.1q2). If there are 100 firms in this market for e-bikes that are identical to E-bikes R US (that is, all 100 firms have the same total cost function), the market supply curve is

A) Q = 1000p.

B) Q = 500p.

C) Q = 100p.

D) Q = 10.

35. Suppose the e-bike market is competitive and in the long-run. The profits for each firm in this market will equal zero because of

A) constant returns to scale.

B) identical products being produced by all firms.

C) the availability of information.

D) free entry and exit.

36. Suppose the e-bike market is competitive and in the long-run. Long-run e-bike market supply curve is upward sloping if

A) firms are identical.

B) the number of firms is restricted in the long run.

C) input prices fall as the industry expands.

D) All of the above.

37. Suppose there is a competitive market for e-bikes that is in the long-run. If firms in the e-bike market are not identical, then an increase in cost will

A) shift marginal cost to the right.

B) push the most inefficient firms out of the market.

C) push the most efficient firms out of the market.

D) There is not enough information to answer.

38. Suppose the company E-bikes R US is the sole supplier of e-bikes and produces 100 e-bikes. E-Bikes R US faces MC = 15 and MR = 17. If E-bikes R US produces 101 e-bikes, then MC = 16 and MR = 15. To maximize profits, E-Bikes R US

A) should produce 100 units.

B) should produce 101 units.

C) The firm cannot maximize profits.

D) The firm is not a monopoly.

39. Suppose the company E-bikes R US is the sole supplier of e-bikes and faces the following inverse demand: p = 100 - 2Q. Profit maximization

A) is achieved when 25 units are produced.

B) is achieved by setting price equal to 25.

C) is achieved only by shutting down in the short run.

D) cannot be determined solely from the information provided.

40. Suppose the company E-bikes R US is the sole supplier of e-bikes. The more elastic the demand curve faced by E-bikes R US, the monopolist

A) will have a larger Lerner Index.

B) will face a lower marginal cost.

C) will earn more profit.

D) will lose more sales as it raises its price.

41. Suppose the company E-bikes R US is the sole supplier of e-bikes. As other e-bike firms enter the market, the market power of E-bikes R US

A) is unaffected.

B) declines.

C) increases.

D) increases according to the Lerner Index but decreases according to the price/marginal cost ratio.

42. Suppose the company E-bikes R US is the sole supplier of e-bikes and faces the following inverse demand function: p = 100 - 2Q, and total cost is given by TC = 16q + 2. The deadweight loss from E-bikes R US equals

A) $21.

B) $441.

C) $882.

D) $1,764.