Question 1
Refer to the figure below. If the average variable cost of producing 4 units is $15, then
the average total cost of producing 4 units is:
A. $17.
B. $27.
C. $10.
D. $20.
Question 2
The basic rule of logic for a rational choice is:
A. To do something until its benefit equals its total cost.
B. To do something until its marginal benefit is zero.
C. To do something as long as its marginal benefit exceeds its marginal cost, up to
the stopping point where its marginal benefit is equal to its marginal cost.
D. To do something until its marginal cost is equal to zero.
Question 3
The value of the firm unambiguously decreases when:
A. the discount rate increases, expected future profits decrease, and the life of the firm
decreases.
B. the discount rate increases, expected future profits increase, and the life of the firm
increases.
C. the discount rate decreases, expected future profits increase, and the life of the firm
increases.
D. the discount rate decreases, expected future profits increase, and the life of the firm
decreases.
Question 4
In one hour, John can prepare 2 income tax returns or 4 financial statements. In one hour,
Frank can prepare 1 income tax return or 3 financial statements. Frank and John currently
work separately, and they are deciding whether to continue working alone or to work
together. If they continue working separately, each of them must continue to produce
both tax returns and financial statements. In this example, the value of one tax return and
one financial statement is the same. Based on the above information on comparative
advantage:
A. Frank should specialize in preparing financial statements in a joint effort.
B. Frank should specialize in preparing tax returns in a joint effort.
C. John should work alone, preparing both tax returns and financial statements.
D. There is not enough information to know whether they should work alone or combine
their efforts.
Question 5
According to the table below, the opportunity cost of a microchip in Alpha is ________
units of beef, and the opportunity cost of a microchip in Beta is ______ units of beef. The
opportunity cost of a unit of beef is ______ units of microchips in Alpha and ______
units of microchips in Beta.
A. 1, 1/3; 1, 3.
B. 2, 3, 1/2, 1/3.
C. 1/3, 1, 3, 1.
D. 3, 2, 1/3, 1/2.
Question 6
Richard quit his job as a management professor to start his own restaurant. He gave up
salary of $60,000 per year and withdrew a $20,000 certificate of deposit that was earning
5 percent interest to purchase a building and equipment. He "loaned" himself the CD
proceeds as an interest-free loan. After the first year, an accountant calculated that his
accounting profit was $75,000. His friend (an economist) determines that his economic
profit was:
A. $14,000
B. $15,000
C. A loss of $5,000
D. $75,000
Question 7
If average fixed costs equal $40 and average total costs equal $100 when output is 10,
then total variable cost when output is 10 must be:
A. $40
B. $60
C. $600
D. $6,000
Question 8
If a demand curve has a constant slope, elasticity:
A. falls (in absolute value) as price falls.
B. rises (in absolute value) as price falls.
C. falls at first, but then rises once the mid-point of the demand curve is reached.
D. equals the slope.
Question 9
In the figure below, at an output level of G, total cost is:
A. 0E.
B. 0CKG.
C. 0GLF.
D. 0HME.
Question 10
Based on the graph above, why does the ATC curve fall, reach a minimum, and then rise over
various output ranges:
A. Because AFC is constant in this example.
B. ATC falls when AFC is below ATC, and ATC rises when AFC is above ATC.
C. ATC falls when MC is above ATC, and ATC rises when MC is below ATC.
D. ATC falls when MC is below ATC, and ATC rises when MC is above ATC.
Question 11
A firm has kept track of the quantity demanded of its output (Good X) during four time periods.
The price of X and the prices of two other goods (Good Y and Good Z) were also recorded for
each time period. The information is provided in the table that follows. Use it to calculate arc
elasticities for: __________own-price elasticity of demand (use periods 1 & 2); _________crossprice elasticity of X with Y (use periods 1 & 3); and ____________cross-price elasticity of X with
Z (use periods 3 & 4). The three respective elasticities indicated are:
A. -1.87; -0.19; and 0.098.
B. -2.05; -3.25; and -2.65.
C. -1.87; -0.19; and 2.65.
D. -1.87; 0.19, and -0.098.
Question 12
Suppose the price of gasoline suddenly but permanently increases by 20 percent because of a
supply shock. If the price elasticity of demand for gasoline is -0.25, the quantity demanded of
gasoline would:
A. fall 2 percent
B. fall 5 percent.
C. rise 5 percent.
D. fall 4 percent.
Question 13
For this question, assume that an increase in the price of good A causes consumers to make the
following adjustments in their equilibrium quantities purchased: a decrease in good B and an
increase in good C, other things equal. Then, from this information, we are able to conclude that
good B is a ____________ for good A and good C is a ______________ for good A:
A. substitute, substitute.
B. substitute, complement.
C. complement, complement.
D. complement, substitute.
Question 14
In the figure below, if the producer increases price within the section of the demand curve from C
to B, there will be:
A. An increase in demand.
B. A decrease in total revenue.
C. No change in total revenue.
D. An increase in total revenue.
Question 15
Based on information below for Jane's demand for smoothies, assuming a market price of $1.50,
she would:
A. purchase 3 units and gain $14 in consumer surplus.
B. purchase 3 units and gain $3.60 in consumer surplus.
C. purchase 4 units and gain $8 in consumer surplus.
D. purchase 4 units and gain $14 in consumer surplus.