QUESTION 1

1. "Our marginal revenue is greater than our marginal cost at the current production level." This statement indicates that the firm:

		is maximizing profits.
		should increase the quantity produced to increase profits.
		should decrease the quantity produced to increase profits.
		None of the statements associated with this question are correct.

QUESTION 2

1. A firm will have constant profits of $100,000 per year for the next 5 years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits?

		$325,816.49
		$376,741.64
		$421,236.38
		$346,510.56

QUESTION 3

1. Generally when calculating profits as total revenue minus total costs, accounting profits are larger than economic profits because economists take into account:

		only explicit costs.
		only implicit costs.
		both explicit and implicit costs.
		Both types of profits are always equal because they account for the same costs.

QUESTION 4

1. At what level of output is the profits maximized?

No. units produced	Total Revenue	Total Costs
0	0	0
10	120	40
20	200	101
30	270	170
40	310	260
50	330	370
		10
		20
		30
		40

QUESTION 5

1. An ad valorem tax causes the supply curve to:

		shift to the right.
		become flatter.
		become steeper.
		shift to the left.

QUESTION 6

1. If steak and chicken are substitute goods, an increase in the price of steak will lead to:

		an increase in demand for chicken.
		an increase in demand for steak.
		no change in the demand for steak or chicken.
		an increase in the supply for chicken.

QUESTION 7

1. Negotiations between the buyer and seller of a new house are an example of:

		consumerconsumer rivalry.
		consumerproducer rivalry.
		producerproducer rivalry.
		monopoly.

QUESTION 8

1. Demand shifters do not include

		the price of the good.
		the consumer's income.
		the level of advertising.
		the price of the other goods.

QUESTION 9

1. For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to:

		become flatter.
		become steeper.
		shift to the left.
		shift to the right.

QUESTION 10

1. If A and B are complementary goods, a decrease in the price of good A would:

		have no effect on the quantity demanded of B.
		lead to an increase in demand for B.
		lead to a decrease in demand for B.
		none of the statements associated with this question are correct.

QUESTION 11

1. If bundles A, B, and C lie on the same indifference curve, then:

		ABC.
		BCA.
		ABC.
		ABC.

QUESTION 12

1. If the price of good X is $10 and the price of good Y is $5, how much of good X will the consumer purchase if her income is $15?

		0
		2
		3
		Cannot tell based on the above information.

QUESTION 13

1. If the price of labor increases, in order to minimize the costs of producing a given level of output, the firm manager should use:

		less of labor and more of capital.
		less of labor and less of capital.
		more of labor and more of capital.
		more of labor and less of capital.

QUESTION 14

1. Consumers adjust their purchasing behavior so that:

		they purchase as many scarce resources as possible.
		marginal rate of substitution is maximized.
		marginal rate of substitution is minimized.
		the ratio of prices they pay equals their marginal rate of substitution.

QUESTION 15

1. Kate's money income is $350, the price of X is $4, and the price of Y is $6. Given these prices and income, Kate buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Kate's MRS of X for Y is 3. At bundle J, if Kate increases consumption of Y by 1 unit, how many units of X can she give up and still reach the same level of utility?

		1
		1/3
		3
		2/3

QUESTION 16

1. If the income elasticity for lobster is 0.6, a 25 percent increase in income will lead to a:

		6 percent drop in demand for lobster.
		2.4 percent increase in demand for lobster.
		15 percent increase in demand for lobster.
		42 percent increase in demand for lobster.

QUESTION 17

1. If the short-term own price elasticity for food is estimated to be 0.4, then long-term own price elasticity is expected to be:

		0.4.
		greater than -0.4 (less elastic).
		less than -0.4 (more elastic).
		neither greater than, less than, nor equal to 0.4.

QUESTION 18

1. Accounting profits are:

		total revenue minus total cost.
		total cost minus total revenue.
		marginal revenue minus total cost.
		total revenue minus marginal cost.

QUESTION 19

1. In order to maximize net benefits, firms should produce where:

		total benefits equal total costs.
		profits are zero.
		marginal cost is minimized.
		marginal benefits equal marginal costs.

QUESTION 20

1. If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000 at the end of year two, then the present value of these cash flows is:

		$2,562.
		$3,200.
		$439.
		$3,000.

QUESTION 21

1. By the transitivity property, if A B and B C then:

		AC
		AC
		AC
		BC

QUESTION 22

1. If sugar and Nutrasweet are substitutes, a decrease in the price of sugar will lead to an increase in the consumption of:

		Nutrasweet only.
		sugar only.
		sugar and Nutrasweet.
		None of the statements is correct.

QUESTION 23

1. Some individuals choose to undertake risky prospects while others choose safer ones because they have different:

		degrees of transitivity.
		marginal rates of substitution between risk and reward.
		income elasticities.
		marginal utilities.

QUESTION 24

1. The budget set defines the combinations of good X and Y that:

		are desirable to the consumer.
		are affordable to the consumer.
		maximize the consumer's utility.
		maximize the supplier's profit.

QUESTION 25

1. The equilibrium consumption bundle is:

		the bundle where the budget line and the indifference curve meet.
		the affordable bundle that yields the greatest satisfaction to the consumer.
		any bundle that is the farthest from the origin.
		any affordable bundle in the budget set.

QUESTION 26

1. For given input prices, isocosts closer to the origin are associated with:

		lower costs.
		the same costs.
		higher costs.
		initially lower, then higher costs.

QUESTION 27

1. The short run is defined as the time frame:

		in which there are no fixed factors of production.
		in which there are fixed factors of production.
		less than one year.
		less than three years.

QUESTION 28

1. Each week Bill buys exactly 10 hot dogs regardless of their price. Bill's own price elasticity of demand for hot dogs IN ABSOLUTE VALUE is:

		greater than 1.
		less than 1.
		1.
		zero.

QUESTION 29

The demand function for a particular good is Qx = 20 4Px.

. At a price of $1, the quantity demand of good X is ______?

. The own price elasticity of demand is ________ at a price of $1?

. At a price of $1, is the demand elastic, inelastic, or unitary elastic?

. At a price of _________ dollars, the demand is unitary elastic?