Exam 2

Front 1

As you move down a linear demand curve, the price elasticity of demand will:

Back 1

decrease.

Front 2

Which of the following goods is likely to be the most income inelastic?

a. caviar b. private college education c. cigarettes d. diamonds

Back 2

cigarettes

Front 3

Which of the following goods is likely to have the largest price elasticity of demand? a Cannondale mountain bike b. a green Cannondale mountain bike c. a mountain bike d. a bicycle

Back 3

a green Cannondale mountain bike

Front 4

The income elasticity of demand for peaches has been estimated to be 1.43. If income grows by 15% in a period, how will that affect total revenue from peaches in that period, all other things unchanged?

Back 4

Total revenue will rise

Front 5

If supply is perfectly inelastic, then a 5 percent increase in the price of the good would cause _________ in the quantity supplied.

Back 5

no change.

Front 6

Since the price of walnuts increases as the demand for cashews increases, we can assume that these two goods are:

Back 6

substitute goods

Front 7

When Joe's income is $100 per week, he spends $20 per week on pizza. When his income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza remains constant, this information implies that for Joe:

Back 7

pizza is a normal good and a luxury.

Front 8

If the quantity supplied responds substantially to a relatively small change in price, supply would be:

Back 8

price-elastic.

Front 9

If an 8 percent increase in the price of cotton leads to a 10 percent increase in the quantity of cotton supplied, then the price elasticity of supply of cotton is:

Back 9

1.25

Front 10

We would say that sports cars are a normal good if the ___________ for a sports car is __________ .

Back 10

income elasticity of demand; positive.

Front 11

The cross-price elasticity of demand for Coke with respect to the price of Pepsi has been estimated to be 0.61. If the price of Pepsi falls by 10% in a period, how will that affect the demand for Coke in that period, all other things unchanged?

Back 11

The demand for Coke will decrease by 6.1%.

Front 12

There are several close substitutes for Quaker State oil but fewer substitutes for a complete check-up of your car's engine. We can expect the demand for:

Back 12

Quaker State oil to be more price-elastic.

Front 13

The price elasticity of demand measures the responsiveness of the change in:

Back 13

quantity demanded to a change in price.

Front 14

If the quantity demanded of agricultural output is very unresponsive to a fall in price, the demand for agricultural output is:

Back 14

price-inelastic.

Front 15

When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is:

Back 15

price-inelastic.

Front 16

If the income elasticity of demand for a good is _______, the good is said to be _________.

Back 16

negative; inferior good

Front 17

If your income increases and your consumption of bagels increases, other things equal, bagels are considered a(n):

Back 17

normal good.

Front 18

Based on sales history, a retailer calculates that Income Elasticity for Gummycrumbs is -0.8. Now, due to a recession, incomes in the market area are down 10%. Based on this it can be estimated that Gummycrumb sales will:

Back 18

increase by 8%

Front 19

The absolute value of the price elasticity of demand for milk has been estimated to be somewhere between 0.49 and 0.63. If a new system of feeding and milking cows yields a 15% increase in the production of milk throughout the country, how will that affect total expenditures on milk, all other things equal? (Hint: Consider the change in milk prices.)

Back 19

Total expenditures will fall.

Front 20

The cross-price elasticity of demand of substitute goods is:

Back 20

greater than 0.

Front 21

A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with four workers. The marginal product of the fourth worker is:

Back 21

150 bushels.

Front 22

Lauren has 11 people working in her tangerine grove. The marginal product of the eleventh worker equals 13 bushels of tangerines. If she hires a twelfth worker, the marginal product of that worker will equal:

Back 22

The answer cannot be determined with the information available.

Front 23

Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. The average product of labor is 30, and the marginal product of the twentieth worker is 12. What is the marginal cost of the last unit produced by the last worker Austin hired?

Back 23

$5

Front 24

In the short run: (regarding fixed and variable)

Back 24

some inputs are fixed and some inputs are variable.

Front 25

Darren runs a barbershop with fixed costs equal to $40 per day and a total output of 10 haircuts per day. What is his weekly total fixed cost if he is open 6 days per week?

Back 25

$240.

Front 26

Wendy leaves her job as a dancer to start her own dance studio. As a dancer, she made $34,000 per year. During the first year she paid $4,300 per year for insurance, $1846 for music and licensing fees, $150 for a boom box, and $11,300 for rent and utilities. She received $60,480 in tuition payments. Wendy's economic profit was

Back 26

$8,884

Front 27

Quantity of labor (workers)Total numbers of cars serviced(0,0)(1,12) (2,22)(3,30)(4,36)(5,40)(6,42) The table above gives the production function for Andrew’s Garage. If labor is the variable input and number of cars serviced is the output, what is the marginal product of labor when the number of workers rises from 2 to 3?

Back 27

8

Front 28

Maria has a business printing t-shirts selling 200 t-shirts per month. Her monthly total fixed costs are $400, and her monthly total variable costs are $1,000. If for some reason Maria’s fixed cost increased to $1,000, then her:

Back 28

average fixed costs would increase.

Front 29

Austin's total fixed cost is $4,000. Austin employs 15 workers and pays each worker $100. The average product of labor is 5, and the marginal product of the last worker hired is 8. What is the marginal cost of the last unit produced by the last worker Austin hired?

Back 29

$13.

Front 30

If Jakob knows the marginal cost of the first sports jersey is $20, the marginal cost of the second sports jersey is $32, and the marginal cost of the third jersey is $40, what is the total variable cost of producing 3 jerseys?

Back 30

$92.

Front 31

If Jakob knows the marginal cost of producing the seventh sports jersey is $21, then the total cost of seven sports jerseys is:

Back 31

The answer cannot be determined from the information provided.

Front 32

Oscar has negotiated a lease for his sporting goods store in which he is required to pay $2,000 per month in rent. Oscar pays his staff $10 per hour to sell sporting goods and his monthly electricity bill averages $500, depending on his total hours of operation. Oscar's fixed costs per month equal:

Back 32

$2,000.

Front 33

A restaurant manager sees that when he has too many servers on the floor, the servers get in each other's way and fewer people are served. This shows the concept of:

Back 33

diminishing marginal product.

Front 34

For Heidi, the marginal cost of producing one additional photograph equals the change in ________ divided by the change in the ________.

Back 34

total cost; number of photographs

Front 35

Suppose that Bob leaves a job that pays $50,000 per year in order to open a new sponge business. His insurance cost is $5,000, his material cost is $25,000, his lease payments are $10,000 and his sales revenue is $90,000. Bob's economic profit is:

Back 35

$0.

Front 36

At 20 units of output, a firm finds that its average variable cost is $5 per unit and its average total cost is $8 per unit. Therefore, its:

Back 36

average fixed cost is $3 per unit.

Front 37

Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with 3 employees. Staci hires an additional worker and total output per week rises to 328. At four workers, marginal product is _____________ the average product, so average product is ______________.

Back 37

above; rising

Front 38

Larry owns his own auto repair shop, and employs three mechanics. His total parts and sales volume this year was $322,400. Because he is well known for his repair expertise, he is also paid $5,200 per year by a local radio station to answer auto repair questions on “Ask the Mechanic.” His explicit costs for payroll, parts and taxes, mortgage and utilities are 290,160. Larry left a job as an accountant making $40,000 a year to own his own business. Larry's economic profit is

Back 38

Larry is actually making an economic loss of $2,560.

Front 39

King's Inc. produces 250 sweaters per week. The average variable cost per sweater is $3.75 and average fixed costs are $1.50 per sweater. Total cost per week is:

Back 39

$1312.50.

Front 40

The table shows the cost information for Bonita’s pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the average total cost of serving 2 clients?( Q FC VC) (0$70$18) (17032) (27042) (37057) (47075) (57095) (670120)

Back 40

$56.

Front 41

If a perfectly competitive gardening shop sells 30 evergreen bushes at a price of $10 per bush, its marginal revenue is:

Back 41

$10.

Front 42

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

Back 42

earning an economic profit.

Front 43

The table above gives the total cost information for Hank and Helen’s cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 5 pounds of cherries, what is their total revenue?(Q P TC) (1$6$6)(2$6$11)(3$6$13)(4$6$16)(5$6$20)(6$6$28)(7$6$38)

Back 43

$30.

Front 44

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

Back 44

fall, fall.

Front 45

If a perfectly competitive firm sells 300 units of output at a market price of $1 per unit, its marginal revenue is:

Back 45

$1.

Front 46

Suppose Sarah's pottery studio is charging the market price, which is just higher than her minimum average total cost. This means that Sarah:

Back 46

is earning a small economic profit.

Front 47

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

Back 47

rise, rise.

Front 48

If the marginal revenue for the next unit being produced is $50, but the marginal cost is $45, the firm should:

Back 48

increase production.

Front 49

Heath's company is currently producing 30 units of output. The price of the good is $8 per unit. Total fixed costs are $50 and the average variable cost is $5 at 30 units. This company:

Back 49

is experiencing an economic profit of $40.

Front 50

If a perfectly competitive firm has total revenue equal to $400 when it produces 100 units, and if its total revenue rises to $404 when it produces 101 units, the marginal revenue of the 101st unit is:

Back 50

$4.

Front 51

Mikail's perfectly competitive camera memory card–producing factory is making positive economic profits. If the price of memory cards is $9, Mikail's output is 3,000 cards a month, and his monthly average total cost is $7, what are his monthly profits?

Back 51

$6,000.

Front 52

The table above gives the total cost information for Hank and Helen’s cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 6 pounds of cherries, what is their total revenue?(Q P TC) (1$6$6)(2$6$11)(3$6$13)(4$6$16)(5$6$20)(6$6$28)(7$6$38)

Back 52

$36.

Front 53

Jack is making a normal profit by selling firewood in a perfectly competitive market. His price is $100 per load. If the market price goes up to $120, then he can expect to see:

Back 53

more competitive in the future.

Front 54

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, corn flakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

Back 54

a standardized product.

Front 55

The market for beef is in long-run equilibrium at a price of $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, then when the long-run equilibrium is reestablished, the price will be:

Back 55

$3.25 per pound.

Front 56

If a firm's economic profits are equal to zero, its accounting profits are most likely:

Back 56

greater than economic profits.

Front 57

If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 10 units is:

Back 57

$200.

Front 58

Bob runs a pedicure business in a perfectly competitive industry. He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11. If the market demand in the industry is P = 30 – (0.2)Q and the market supply is P = (0.2)Q, then in the short run, Bob will:

Back 58

produce, since he is at his break-even level.

Front 59

Wenqin is a farmer, and in the short run she produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are equal to $100. Wenqin's:

Back 59

profit per bushel is equal to $2.75.

Front 60

If the absolute value of the price elasticity of demand is found to be 6, then demand is:

Back 60

price-elastic

Front 61

Which of the following would you expect to have highly price elastic demand curves? a. name brand cereals b. gasoline c. all d. drugs for serious illnesses

Back 61

a. name brand cereals

Front 62

If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you would expect:

Back 62

a decrease in the amount of golf played on the course.

Front 63

We would say that apples are a normal good if the ___________ for apples is __________

Back 63

income elasticity of demand; positive.

Front 64

A group of dairy farmers are trying to raise milk prices by 10%. If the price elasticity of demand for milk is 0.75, and the price elasticity of supply for milk is 0, then by how much should farmers reduce their milk production to obtain the 10% increase?

Back 64

7.5%

Front 65

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that:

Back 65

consumer demand becomes less price-elastic as departure time approaches.

Front 66

Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will ________ due to the ________ effect being greater than the ________ effect.

Back 66

increase; price; quantity

Front 67

If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are:

Back 67

complementary goods.

Front 68

There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas, no matter how high or low the price. If he is correct in this assertion, what must be true about the demand curve for gas at his station?

Back 68

It must be vertical with a price elasticity of zero.

Front 69

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered:

Back 69

unrelated goods

Front 70

If an increase in income of 10% causes an increase in quantity demanded of 20% for a good, the good is a(n):

Back 70

luxury good

Front 71

If the price elasticity of demand for beach towels is 1.00, then the demand is _____ and total revenue will ______ if the price of beach towels increases.

Back 71

unit-elastic; remain unchanged.

Front 72

Krista operates a dry-cleaning business in Tampa that incurs $900 per month in fixed costs. Last month her total output equaled 3,000 pounds of clothes. This month her total output fell to 2,700 pounds. This means her average fixed cost ________ by a little more than ________.

Back 72

fell; 3.33 cents

Front 73

Which of the following will not cause a market failure?

Back 73

Adequate competition

Front 74

Total revenue will decrease following a price increase if demand is:

Back 74

elastic

Front 75

Perfectly competitive markets benefit ________ more than ________ because they create __________.

Back 75

Producers; Consumers; Consumer Surplus

Front 76

In a perfectly competitive market there is a decrease in production costs. Firms can expect their economic profit to:

Back 76

Increase, then return to normal

Front 77

Karen is deciding whether or not to close down her bridal shop. What information should she use to decide if she should close it or not?

Back 77

Economic Profit

Front 78

Espresso Royale offers discounted lattes every Wednesday. Every other day of the week, lattes are $4.45 each, but on Wednesday they sell for $2.00 each. On Wednesdays, latte sales increase 250%. It can be assumed that the demand for lattes is:

Back 78

Elastic

Front 79

The state of Illinois determines that an education from the University of Illinois is inelastic. This means a raise in tuition prices would result in:

Back 79

Slightly fewer students attending the university and the school would have higher revenue.