Q1: The price elasticity of demand equals magnitude of the _________.

A change in the price divided by the change in quantity demanded

B change in the quantity demanded divided by the change in price

C percentage change in the price divided by the percentage change in the quantity demanded

D percentage change in the quantity demanded divided by the percentage change in the price

Q2: “Last October, due to an early drought, the price of date per kg increased by 10 percent compared to the previous year’s price. As a result, the quantity demanded decreased from 2 million kg to 1.5 million kg.”

Based on this statement, the _______.A demand for dates is elastic

B demand for dates is inelastic

C demand for dates is unit elastic

D demand for dates increased

Q3: In 2008, the price of cocoa beans increased more than 44 percent. In response to the increase in the price of cocoa beans, Rogue Chocolatier increased the price of its gourmet chocolate bars by 20 percent. Rogue says the quantity of its bars sold decreased by 15 percent.

The price elasticity of demand for gourmet chocolate bars is ________.

A elastic

B inelastic

C undefined

D unit elastic

© 2014 Pearson Addison-Wesley

Q4: Netflix is the largest online DVD rental service offering flat rate rental-by-mail and online streaming to households.

If Netflix increases its average flat rate by 10 percent and its total revenue increases, then the demand for Netflix subscriptions ___________.

A is price inelastic

B is price elastic

C is unit elastic

D income elastic

Q5: To increase its total revenue, a firm will ________.

A raise its price if the demand for the firm’s good is inelastic

B raise its price if the demand for the firm’s good is elastic

C charge the highest price possible regardless of the elasticity of demand

D raise its price if the demand for the firm’s good is unit elastic

Q6: The air route from New York to Chicago is served by more than one airline. The demand for tickets on United Airlines flights for that route is probably _________.

A inelastic, but more elastic than the demand for all tickets for that route

B elastic and more elastic than the demand for all tickets for that route

C inelastic and less elastic than the demand for all tickets for that route

D elastic, but less elastic than the demand for all tickets for that route

Q7: The income elasticity of demand is defined as the percentage change in ________.

A the quantity demanded resulting from a given percentage change in price

B income divided by the percentage change in quantity demanded

C the movement along the demand curve resulting from a change in income

D the quantity demanded divided by the percentage change in income

Q8: The cross elasticity of demand is calculated as the percentage change in the ________.

A quantity demanded of one good divided by the percentage change in the price of another good

B price of one good divided by the percentage change in the quantity demanded of another good

C quantity demanded of one good divided by the percentage change in the quantity demanded of another good

D price of one good divided by the percentage change in the price of another good.

Q9: Suppose that when the price of oil is $60 per barrel, the quantity supplied is 70 million barrels a day, but when the price is $40 per barrel, the quantity of oil supplied is 69 million barrels a day.

A The supply of oil is elastic.

B The supply of oil is inelastic.

C The demand for oil is inelastic.

D The demand for oil is elastic.

Q10: The cross elasticity of demand for good X with respect to the price of good Y is negative. Good X is a normal good and good Y is an inferior good. The supply of good X is perfectly elastic.

A rise in income _____ the equilibrium price of good X.

A will raise

B will lower

C will have no effect

D initially raise and then lower

Q11: An electrician is paid $40,000 a year in her current job, but she could take a job with another firm for $45,000 a year.

If she decides to quit the current job and work for herself, she will incur an opportunity cost of ________.

A $5,000 a year

B $40,000 a year

C $45,000 a year

D $85,000 a year

Q12: Jitters Coffee Company can lower the cost of packaging a pound of coffee by doubling the quantity packaged each day, Jitters is achieving ________.

A economies of scale

B economies of scope

C economies of team production

D all of the above

Q13: In the long run, a firm can vary ______.

A the capital it uses but not the quantity of labor it hires

B the quantity of labor it hires but not the capital it uses

C both the quantity of labor it hires and the capital it uses

D neither the quantity of labor it hires nor the capital it uses

Q14: If when a firm hires one more worker, the new worker and the existing workers are able to increase specialization and division of labour in the production process, marginal product ________ and average product ________.

A increases; increases

B increases; might increase or decrease

C decreases; decreases

D decreases; might increase or decrease

Q15: If marginal product falls as an additional worker is employed, then we know that average product ______.

A is less than marginal product

B exceeds marginal product

C falls if it is less than marginal product or rises if it exceeds marginal product

D is less than marginal product and rising or more than marginal product and falling

Q16: Which of the following statements regarding the marginal product curve is false?

A If an increase in the number of workers increases total product, then marginal returns are increasing.

B Increasing marginal returns is due to greater efficiency from specialization in the production process.

C The law of diminishing returns applies in the short run.

D Along the marginal product curve, marginal returns increase initially but then diminishing as the number of workers increases.

Q17: Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Rogue can produce 15 chocolate bars a day with one employee, 29 with 2, 35 with 3, and 40 with 4 employees.

Which statement is correct?

A Rogue’s marginal product curve slopes downward.

B Rogue’s marginal product curve initially slope upward but eventually downward.

C Rogue’s total product curve slopes upward at an increasing rate.

D Rogue’s marginal product curve slopes downward initially but eventually upward.

Q18: Ernie’s Earmuffs produces 200 earmuffs a year at a total cost of $2,000. Its fixed costs are $400.

Ernie’s average variable cost of producing an earmuff is ________.

A $12

B $20

C $8

D $4

Q19: Fernando charges the restaurant Flaming Fernando’s $1,000 annually for use of his name. If Fernando increases the fee to use of his name, _______.

A the restaurant’s average fixed cost, average variable cost, average total cost, and marginal cost curves all shift upward.

B only the restaurant’s average fixed cost, average total cost, and marginal cost curves shift upward.

C only the restaurant’s average variable cost, average total cost, and marginal cost curves shift upward.

D only the restaurant’s average fixed cost and average total cost curves shift upward.

Q20: A firm is reaping economies of scale and is producing at a point on both its LRAC curve and its short-run ATC curve. At that level of output, its LRAC curve is _________.

A horizontal and its ATC curve is horizontalB horizontal and its ATC curve is downward slopingC downward sloping and its ATC curve is horizontalD downward sloping and its ATC curve is downward

sloping

Q21: Precision Pattern Interiors, which makes high-end aircraft interiors, has completed a $1 million renovation of its building. The company also added new equipment worth $400,000 and tripled its work force.

Which of Precision Pattern Interiors decisions was a short-run decision?

A Triple its work forceB $1 million renovation of its building C The new equipment worth $400,000D All of these decisions are short-run decisions.

Q22: The demand for wheat from farm A is perfectly elastic because wheat from farm A is ______.

A a perfect complement of wheat from other farms

B a normal good

C a perfect substitute for wheat from other farms

D an inferior good

Q23: A perfectly competitive firm will shut down if ___________.

A its total revenue is less than its total cost

B its total revenue is less than its total fixed cost

C the market price is less than the firm’s average variable cost

D the market price is less than the firm’s average total cost

Q24: A perfectly competitive market is in long-run equilibrium. If the wage rate paid to workers falls, in the short run individual firms will _____.

A lower their price, decrease the quantity that they produce, and break even

B not change the quantity they produce so that they increase economic profit

C increase the quantity they produce and make positive economic profit

D make positive economic profit and new firms enter the market

Q25: If the market for wheat is perfectly competitive, an increase in the price of fertilizer used by wheat farmers will ________.

A have no effect on the market output because no farm can change the price

B have no effect on the market output because each farm’s supply of wheat is perfectly inelastic

C decrease the market output of wheat because each farm’s supply decreases

D reduce the quantity of wheat supplied by the market because each farm’s supply curve is horizontal and it will shift upward.

Q26: A firm in a perfectly competitive market is producing the quantity of the good at which marginal cost exceeds the market price.

This firm will increase its profit by producing _________.

A less of the good and not change the market price of the good

B less of the good and lower the market price of the good

C a larger quantity of the goodD the same quantity and raising its price of the good

Q27: Suppose that firms selling a good in a perfectly competitive market are incurring economic losses.

Over time, ______.

A new firms will enter the market, the price of the good will rise, and economic losses will decrease

B some firms will exit the market, the price of the good will rise, and economic losses will decrease

C new firms will enter the market, the price of the good will fall, and economic losses will increase

D some firms will exit the market, the price of the good will fall, and economic losses will decrease

Q28: Gayle Goshie, a hops farmer, blames the low price of hops for pushing many hop farmers out of business. The hop farmers who went out of business did so because the price of hops was _______.

A less than minimum average fixed cost

B higher than average variable cost but less than average total cost

C less than minimum average variable cost

D less than average total cost but equal to marginal cost

Q29: Ethanol is made from corn. “Higher ethanol production definitely and directly raises the price of corn,” said economist Ephraim Leibtag.

In the short run, if the production of ethanol increases, individual corn farmers will _________.

A incur economic losses and will shut down

B make positive economic profits

C incur economic losses, but they will still produce

D make zero economic profit

Q30: One reason why corn production, which takes place in a perfectly competitive market, achieves an efficient use of resources is because a perfectly competitive firm _________.

A produces at the lowest possible long-run average cost

B produces where marginal revenue exceeds marginal cost

C is a price maker

D produces the quantity that maximizes profit

Chapter 6, Question 8A. FALSE, A firm’s marginal product will start to

decrease.

D. FALSE Stage I ends shortly after this, when the already diminishing marginal product intersects the average product at the latter’s maximum value.

Chapter 6, Question 12

A.CRTS (read book to know why, page 225)

B.CRTS (read book to know why, page 225)

C.IRTS (read book to know why, page 225)

D.DRTS (read book to know why, see example on page 221)

E.IRTS (read book to know why, see example on page 221)

F.IRTS (read book to know why, see example on page 221)

Chapter 7, Question 10A.FALSE Decision-makers should always use the replacement or current cost of raw materials because it is considered to be relevant to the decision.

B. TRUE The mathematical relationship between the marginal and average assures that this will always be the case.

C. TRUE Declining average cost indicates economies of scale and increasing average cost indicates diseconomies of scale.

D. FALSE Marginal cost is also considered in the long run cost structure. See Table 7.3 and Figure 7.5 in text.

E. FALSE The rational firm will try to operate most efficiently by making sure that its unit costs are exactly as indicated by its cost structure (i.e. as seen by observing any of the points on its average cost curve).

Chapter 8, Question 1

A. FALSE, Not if its loss is less than its fixed cost.

E. TRUE, If P>AVC but P<AC, then the company will cover some of its fixed costs; thus, loss will be less than fixed cost.