MULTIPLE CHOICE QUESTIONS: Select the best answer for each of

the following questions.

7. If two market baskets lie on the same indifference curve then

a) the two market baskets cost the same

b) the consumer's marginal utility per dollar is equal for the two goods

c) the two market baskets provide the same level of utility or satisfaction

d) none of the above

8. Consider the following three market baskets:

X Y

A 1 9

B 2 6

C 3 3

The consumer's preferences satisfy the dominance assumption and exhibit diminishing marginal rate of

substitution. If market baskets A and B lie on the same indifference curve then the consumer

a) prefers C to either A or B

b) is indifferent between A, B and C

c) prefers A to C

d) can not be determined from the information given

9. Which of these situations represents an inelastic point along the demand curve of a normal good?

a) Price increases, Revenue stays the same

b) Price increases, Revenue decreases

c) Price increases, Revenue increases

d) none of the above

10. Bill consumes only two goods, beer and hamburgers. His utility function for these two goods exhibits diminishing marginal rate of substitution. At his current consumption bundle, Bill is spending all of his income and Bill's marginal utility from hamburgers is 10 and his marginal utility from beer is 6. The price of beer is 3 and the price of hamburger is 5. In order to maximize his utility Bill should

a) consume more hamburgers and less beer

b) consume more beer and less hamburgers

c) not change his behavior, he is maximizing his utility

d) this can not be determined from the information given

11. All else equal, when the price of a good falls, consumer surplus

a) decreases

b) increases

c) will increase only if the good is inferior

d) none of the above

12. Consider the production function q = 4K^2L^5. This production function exhibits

a) diminishing marginal rate of technical substitution

b) decreasing returns to scale

c) diminishing returns to labor

d) all of the above

13. There are six firms operating in the short run with MC = 4 + 2q. For each of these firms average nonsunk cost reaches its minimum at q = 3. The short run industry supply curve is

a) Q = .5P - 2, Q > 18

b) P = 24 + 12Q, Q> 6

c) Q = 3P - 12, P> 10

d) Q = 12P + 24, P > 10

14. Consider a firm that has a long run cost function given by: C(q) = 200 + 7q. This firm's production function exhibits

a) decreasing returns to scale

b) constant returns to scale

c) increasing returns to scale

d) can not be determined from the information given

15. Along the long run industry (or market) supply curve

a) input prices are held constant

b) the number of firms is held constant

c) firm profits are held constant

d) none of the above

16. In order to maximize profits, a monopolist unable to price discriminate should

a) produce the output at which its costs are minimized

b) never operate on the inelastic portion of the demand curve

c) set price equal to marginal cost

d) all of the above

17. Monopolistic competition differs from perfect competition in that

a) a firm faces a downward sloping demand curve for its product

b) the products firms in the industry produce are not identical

c) firms do not produce at the minimum of their average cost curves.

d) all of the above

18. Economists describe consumer choice as a constrained optimization problem. What is the consumer trying to do?

a) maximize their income subject to the budget constraint.

b) maximize their budget constraint.

c) maximize their utility subject to the budget constraint.

d) maximize their market baskets