Note: For Fall 1999, questions 24-36 correspond to chapter 19 on which you will be tested with exam 3. The remainder of the exam is relevant to chapters 17 and 18 (exam 2). Don't forget to study the last half of chapter 4, which will also be covered on exam 2.

Econ 2023

Exam 2

Choose the best answer for each question and mark your selection in the corresponding bubble on your scantron sheet.

MULTIPLE CHOICE

  1. Diminishing marginal utility means that
    1. Ralph will enjoy his second hamburger less than the first.
    2. the utility from one hamburger exceeds the utility from two hamburgers.
    3. the price of two hamburgers is less than twice the price of one.
    4. beyond a certain point, total utility decreases as income rises.
  2. Total utility is maximized when
    1. the marginal utility per dollar spent is equal for all goods.
    2. marginal utilities are all zero.
    3. marginal utilities are all maximized.
    4. marginal utilities are all negative.
  3. If income is fully spent and the marginal utility per dollar spent is equal for all goods, then
    1. marginal utility is maximized.
    2. total utility is maximized.
    3. a consumer could not be better off even with greater income.
    4. the proportion of income spent on each good must be equal.
  4. Kangil can consume either pens or milkshakes. Both pens and milkshakes sell for $1. Kangil figures that when his income is spent, his marginal utility of pens will be 10 while his marginal utility of milkshakes will be 8. Kangil could increase his utility by consuming
    1. more pens and fewer milkshakes.
    2. more pens and more milkshakes.
    3. fewer pens and fewer milkshakes.
    4. fewer pens and more milkshakes.

    Table 7.2

    Apples Total Utility Tacos Total Utility
    1 5 1 10
    2 9 2 18
    3 12 3 24
    4 14 4 28

  5. Sally derives utility from consuming apples and tacos as described in Table 7.2. Apples cost $1 each and tacos cost $2 each. If Sally's income is $9, she will consume
    1. 5 apples and 2 tacos.
    2. 3 apples and 3 tacos.
    3. 1 apple and 4 tacos.
    4. no apples and 4 1/2 tacos.
  6. John can consume apples and oranges. If he increases his consumption of oranges, his
    1. marginal utility from oranges decreases.
    2. marginal utility from apples decreases.
    3. total utility from oranges decreases.
    4. total utility from apples increases.
  7. Normally, as the quantity of a good consumed increases, marginal utility
    1. increases and total utility increases.
    2. increases and total utility decreases.
    3. decreases and total utility increases.
    4. decreases and total utility decreases.
  8. From 1985 to 1988 the price of aluminum bats rose relative to the price of wood bats. In the 1988 consumer equilibrium, the ratio of the marginal utility of aluminum bats to the marginal utility of wood bats
    1. was equal to 1, as it was in 1985.
    2. was lower than in 1985.
    3. was higher than in 1985.
    4. remained the same as in 1985, perhaps equal to 1 and perhaps not.
  9. Marginal utility theory predicts that a decrease in the price of a good increases the quantity demanded and
    1. decreases the demand for substitutes.
    2. decreases the demand for complements.
    3. increases income.
    4. decreases total utility.
  10. The market demand curve is
    1. used to derive individual demand curves.
    2. the sum of the quantity demanded by each individual at each price.
    3. more elastic than any other individual demand curve.
    4. less elastic than any individual demand curves.
  11. The market demand curve for onions will shift with
    1. a change in the price of fertilizer.
    2. an increase in the income of all individuals.
    3. a change in the price of onions.
    4. improved technology for pest control on onion farms.
  12. Stacey watches five movies a month at a total cost of $30. She values the first movie at $14, the second at $12, the third at $10, the fourth at $8, and the fifth at $6. Her consumer surplus from seeing movies is
    1. $0.
    2. $8.
    3. $20.
    4. $50.
  13. The most important goal of the firm is to
    1. maximize revenues.
    2. maximize sales volume.
    3. maximize profits.
    4. minimize costs.
  14. Over a given period, economic depreciation is the change in capital equipment's
    1. output.
    2. market price.
    3. rate of return.
    4. cost of maintenance.
  15. Which of the following is an implicit cost of operating a business?
    1. The wages paid to the workers.
    2. The salary paid to the owners.
    3. The interest not earned on funds used to buy capital equipment.
    4. The interest paid on a bank loan the owners incurred to help finance the company.
  16. In their relationship with shareholders, a firm's managers act
    1. as agents.
    2. as principals.
    3. in loco parentis.
    4. as a cabinet.
  17. A large part of the principal-agent problem stems from the desire of
    1. agents to work.
    2. agents to shirk.
    3. principals to work.
    4. principals to shirk.
  18. In the long run, a firm can vary
    1. its capital input but not its labor input.
    2. its labor input but not its capital input.
    3. both its labor and its capital inputs.
    4. neither its labor nor its capital input.
  19. Marginal product is the
    1. change in output resulting from a one-unit increase in an input.
    2. maximum output attainable with fixed factors and one variable factor.
    3. output level above which the slope of the total product curve falls.
    4. output level above which the rate of total product per unit of input falls.
  20. The law of diminishing marginal returns states that as
    1. the size of a plant increases, its fixed cost decreases.
    2. the size of a plant increases, its fixed cost increases.
    3. a firm uses more of a variable input, given the quantity of fixed inputs, its marginal product eventually decreases.
    4. a firm uses more of a variable input, given the quantity of fixed inputs, its average cost will decrease eventually.
  21. Marginal cost is
    1. all costs associated with fixed inputs.
    2. all costs associated with the production of goods.
    3. all costs that vary with output.
    4. the change in total cost resulting from a one-unit increase in output.
  22. In Fig. 10.3, the marginal cost curve is
    1. A .
    2. B .
    3. C .
    4. D .
  23. When long-run average costs are increasing, there are
    1. increasing returns to scale.
    2. decreasing returns to scale.
    3. constant returns to scale.
    4. constant marginal costs.
  24. Perfect competition occurs in a market where there are
    1. a few firms producing the same quality of the good.
    2. a few firms producing widely varying qualities of the good.
    3. many firms producing the same quality of the good.
    4. many firms producing widely varying qualities of the good.
  25. A price-taking firm faces a
    1. downward-sloping average revenue curve.
    2. downward-sloping marginal revenue curve.
    3. downward-sloping supply curve.
    4. horizontal demand curve.
  26. For a purely competitive firm, marginal revenue
    1. is zero.
    2. is positive but less than the price.
    3. equals the price.
    4. exceeds the price.
  27. In pure competition, price is determined where the industry
    1. elasticity of supply equals the industry elasticity of demand.
    2. supply curve and industry demand curve intersect.
    3. average variable cost equals the industry average total cost.
    4. fixed cost is zero.
  28. In the short run,
    1. a firm's output is fixed.
    2. a firm's profit is fixed.
    3. one of a firm's inputs is fixed.
    4. a firm charges a fixed price.
  29. A firm maximizes profit by producing the output at which marginal cost equals
    1. marginal revenue.
    2. average total cost.
    3. average variable cost.
    4. average fixed cost.
  30. A firm should expand output as long as its
    1. average total revenue exceeds its average total cost.
    2. average total revenue exceeds its average variable cost.
    3. marginal cost exceeds its marginal revenue.
    4. marginal revenue exceeds its marginal cost.
  31. It pays a firm to shut down if price is
    1. above minimum average variable cost.
    2. below minimum average variable cost.
    3. above maximum variable cost.
    4. below maximum variable cost.
  32. A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If it boosts its output, its total revenue will
    1. rise and its profits will rise.
    2. rise and its profits will fall.
    3. fall and its profits will rise.
    4. fall and its profits will fall.
  33. A purely competitive firm's marginal revenue exceeds its marginal cost at its current output. The firm is at a point that is to the
    1. left of its supply curve and will reduce its output.
    2. left of its supply curve and will increase its output.
    3. right of its supply curve and will reduce its output.
    4. right of its supply curve and will increase its output.
  34. A purely competitive firm's supply curve is made up of its marginal cost curve at all points above its minimum average
    1. total cost curve.
    2. fixed cost curve.
    3. price.
    4. variable cost curve.
  35. Industry supply is the sum of the
    1. supply curves of all the individual firms.
    2. average variable cost curves of all the individual firms.
    3. average total cost curves of all the individual firms.
    4. average fixed cost curves of all the individual firms.
  36. Chemist Kevin Costner discovers that eating turnips helps people grow gills. The news shifts the demand curve for turnips to the right. In response, new farms enter the turnip industry. During the period in which the new farms are entering, they cause the price of turnips to
    1. rise and the profit of each existing farm to rise.
    2. rise but the profit of each existing farm to fall.
    3. fall but the profit of each existing farm to rise.
    4. fall and the profit of each existing farm to fall.
  37. Refer to Fig. 11.5. Given the market price of P , in the long run market
    1. demand will increase.
    2. demand will decrease.
    3. supply will increase.
    4. supply will decrease.
  38. Allocative efficiency occurs when
    1. marginal revenue equals minimum average variable cost.
    2. average revenue equals minimum average fixed cost.
    3. marginal cost equals the value consumers place on the good.
    4. marginal revenue equals marginal social benefit.
  39. Refer to Fig. 11.10. The market for books is purely competitive. If the average household income decreases, the _____ curve facing an individual bookseller shifts _____.
    1. demand, rightward
    2. demand, leftward
    3. supply, rightward
    4. supply, leftward
  40. Refer to Fig. 11.17. Joe's Shiny Shoes is a firm that operates in a competitive market. The graph shows Joe's cost and revenue curves. If the number of firms in the shoe market decreases, Joe will
    1. cut back production.
    2. increase production.
    3. have an MR curve with positive slope.
    4. have an MR curve with negative slope.
  41. Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel reduces the quantity demanded from 12,500 to 11,500 bushels. In this range of the demand curve, the price elasticity of demand is
    1. 0.5.
    2. 1.0.
    3. 2.0.
    4. 1000.0.
  42. The more substitutes available,
    1. the larger is the price elasticity of demand.
    2. the smaller is the income elasticity of demand.
    3. the smaller is the price elasticity of demand.
    4. the larger is the income elasticity of demand.
  43. The demand for a good is elastic if
    1. an increase in price results in an increase in total revenue.
    2. a decrease in price results in a decrease in total revenue.
    3. an increase in price results in a decrease in total revenue.
    4. the good is a necessity.
  44. Which of the following would NOT shift the demand curve for turkey?
    1. An increase in income.
    2. A decrease in the price of ham.
    3. A change in tastes for turkey.
    4. A change in the price of turkey.
  45. People buy more of good 1 when the price of good 2 rises. These goods are
    1. complements.
    2. substitutes.
    3. normal goods.
    4. inferior goods.

ANSWER KEY FOR TEST- D:\APPS\ESATEST\TEST1

1. a

2. a

3. b

4. a

5. b

6. a

7. c

8. c

9. a

10. b

11. b

12. c

13. c

14. b

15. c

16. a

17. b

18. c

19. a

20. c

21. d

22. d

23. b

24. c

25. d

26. c

27. b

28. c

29. a

30. d

31. b

32. b

33. b

34. d

35. a

36. d

37. c

38. c

39. b

40. b

41. a

42. a

43. c

44. d

45. b


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