BD103 Microeconomics Revision Questions

Questions on Chapter 1: 1. The scarcity principle indicates that A. no matter how much one has, it is never enough. B. compared to 100 years ago, individuals have less time today. C. with limited resources, having more of "this" means having less of "that." D. because tradeoffs must be made, resources are therefore scarce.

2. What is the opportunity cost of living in a house that you already own? A. Zero, because you already own it. B. That mostly depends on current mortgage rates. C. The rent you could receive if you rented the house out to someone else. D. The taxes you pay your local government

3. Microeconomics is distinguished from macroeconomics in that microeconomics

focuses on A. the performance of the national economy. B. the overall price level. C. choices made by individuals or groups in the context of individual markets. D. how to improve the performance of the national economy.

4. Which of the following decisions would not be part of microeconomics? A. How to make the largest profit. B. Whether to study or watch TV tonight. C. How an early freeze in California will affect the price of fruit. D. Whether the federal budget should always be balanced.

5. One thing that distinguishes normative principles from positive principles is that A. normative principles are pessimistic and positive principles are optimistic. B. normative principles reflect the social norms of the community, and positive

principles reflect universal truths. C. normative principles tell us how people should make economic decisions, and

positive principles tell us how people actually do make decisions. D. normative principles tell us how people actually make economic decisions, and

positive principles tell us how people should make decisions.

Questions on Chapter 4: 6. A perfectly inelastic demand curve: A. has a price elasticity coefficient greater than unity. B. has a price elasticity coefficient of unity throughout. C. graphs as a line parallel to the vertical axis. D. graphs as a line parallel to the horizontal axis. Answer: C

7. In which of the following instances will total revenue decline? A. price rises and supply is elastic B. price falls and demand is elastic C. price rises and demand is inelastic

D. price rises and demand is elastic Answer: D

8. If the price elasticity of demand for a product is unity, a decrease in price will: A. have no effect upon the amount purchased. B. increase the quantity demanded and increase total revenue. C. increase the quantity demanded, but decrease total revenue. D. increase the quantity demanded, but total revenue will be unchanged. Answer: D

Questions on Chapter 5:

9. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and

I3 are indifference curves. The equilibrium position for the consumer is at:

A. any point on xy. B. point M. C. point K. D. point J. Answer: C 10. Refer to the above diagram where xy is the relevant budget line and I1 , I2,

and I3 are indifference curves. If the consumer is initially at point L, he or she

should: A. strive for point N by obtaining a larger money income. B. purchase more of X and less of Y. C. remain at that point to maximize utility. D. purchase more of Y and less of X. Answer: D

11. Refer to the above data. The value for Y is: A. 25. B. 30. C. 40. D. 45. Answer: D 12. Refer to the above data. The value for X is: A. 15. B. 5. C. 55. D. 10. Answer: A 13. Refer to the above data. The value for W is: A. 15. B. 20. C. 25. D. 30. Answer: B 14. The above data illustrate the: A. law of comparative advantage. B. utility-maximizing rule. C. law of diminishing marginal utility. D. law of increasing opportunity costs. Answer: C 15. Refer to above data. Marginal utility becomes negative beginning with the: A. first unit. B. second unit. C. third unit. D. fourth unit. Answer: D 16. Where total utility is at a maximum, marginal utility is: A. negative. B. positive and increasing. C. zero. D. positive but decreasing. Answer: C

Answer the next question(s) on the basis of the following two schedules which show the amounts of additional satisfaction (marginal utility) which a consumer would get from successive quantities of products J and K.

Total Utility for J MU per dollar for J MU per

dollar for K 1 56 7 1 8 2 104 6 2 7 3 136 8 3 6 4 160 3 4 5 5 180 2.5 5 3 6 196 2 6 2.5 7 208 1.5 7 2 17. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing: A. 2 units of J and 7 units of K. B. 5 units of J and 5 units of K. C. 4 units of J and 5 units of K. D. 6 units of J and 3 units of K. Answer: C 18. Refer to the above data. What level of total utility is realized from the equilibrium combination of J and K, if the consumer has a money income of $52 and the prices of J and K are $8 and $4 respectively? A. 156 utils B. 124 utils C. 276 utils D. 36 utils Answer: C 19. Refer to the above data. If the consumer's money income were cut from $52 to $28, and the prices of J and K remain at $8 and $4 respectively, she would maximize her satisfaction by purchasing: A. 3 units of J and 3 units of K. B. 1 unit of J and 3 units of K. C. 4 units of J and 1 unit of K. D. 2 units of J and 3 units of K. Answer: D

20. Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

A. more of A and less of B. B. more of B and less of A. C. more of both A and B. D. less of both A and B. Answer: B

21. The shift of the budget line from cd to ab in the above figure is consistent with: A. decreases in the prices of both M and N. B. an increase in the price of M and a decrease in the price of N. C. a decrease in money income. D. an increase in money income. Answer: C

22. In the above diagram: A. the consumer is indifferent between points A and B, but neither point maximizes his utility. B. the consumer is indifferent between points A and B and either point will maximize his utility.

C. any combination of X and Y entailing more of Y and less of X than shown at B would be preferred. D. any combination of X and Y entailing more of X and less of Y than shown at A would be preferred. Answer: A 22A. In the Diagram above, please label as "C" the optimal consumption point for the consumer.

Questions on Chapter 6 & 7

23. Refer to the above diagram. At output level Q total variable cost is: A. 0BEQ. B. BCDE. C. 0CDQ. D. 0AFQ. Answer: A 24. Refer to the above diagram. At output level Q total fixed cost is: A. 0BEQ. B. BCDE. C. 0BEQ 0AFQ. D. 0CDQ. Answer: B 25. Refer to the above diagram. At output level Q total cost is: A. 0BEQ. B. BCDE. C. 0BEQ plus BCDE. D. 0AFQ plus BCDE. Answer: C 26. Refer to the above diagram. At output level Q average fixed cost:

A. is equal to EF. B. is equal to QE. C. is measured by both QF and ED. D. cannot be determined from the information given. Answer: C 27. Refer to the above diagram. At output level Q: A. marginal product is falling. B. marginal product is rising. C. marginal product is negative. D. one cannot determine whether marginal product is falling or rising. Answer: A 28. Refer to the above diagram. The vertical distance between ATC and AVC reflects: A. the law of diminishing returns. B. the average fixed cost at each level of output. C. marginal cost at each level of output. D. the presence of economies of scale. Answer: B 29. Marginal cost: A. equals both average variable cost and average total cost at their respective minimums. B. is the difference between total cost and total variable cost. C. rises for a time, but then begins to decline when diminishing returns set in. D. declines continuously as output increases. Answer: A 30. Which statement is true? A. Average total cost is the difference between average variable cost and average fixed cost. B. Marginal cost measures the cost per unit of output associated with any level of production. C. When marginal product rises, marginal cost must also rise. D. Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product. Answer: D

31. In the above diagram the range of diminishing marginal returns is: A. 0Q3. B. 0Q2. C. Q1Q2. D. Q1Q3. Answer: D 32. In the above diagram, total product will be at a maximum at: A. Q3 units of labor B. Q2 units of labor C. Q1 units of labor D. some point that cannot be determined with the above information. Answer: A 33. When total product is increasing at an increasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative. Answer: A 34. When total product is increasing at a decreasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative. Answer: B

35. Refer to the above short-run production and cost data. In Figure A curve (1) is: A. total product and curve (2) is average product. B. total product and curve (2) is marginal product. C. average product and curve (2) is marginal product. D. marginal product and curve (2) is average product. Answer: C 36. Refer to the above short-run production and cost data. In Figure B curve (3) is: A. AVC and curve (4) is MC. B. MC and curve (4) is AVC. C. MC and curve (4) is AFC. D. AFC and curve (4) is MC. Answer: B 37. Refer to the above short-run production and cost data. The curves of Figures A and B suggest that: A. marginal product and marginal cost reach their maximum points at the same output. B. marginal cost reaches a minimum where marginal product is at its maximum. C. marginal cost and marginal product reach their minimum points at the same output. D. AVC cuts MC at the latter's minimum point. Answer: B 38. The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. Answer: A

39. Refer to the above data. Diminishing marginal returns become evident with the addition of the: A. sixth worker. B. fourth worker. C. third worker. D. second worker. Answer: C 40. Refer to the above data. The marginal product of the sixth worker is: A. 180 units of output. B. 30 units of output. C. 15 units of output. D. negative. Answer: C 41. Refer to the above data. Average product is at a maximum when: A. five workers are hired. B. four workers are hired. C. three workers are hired. D. two workers are hired. Answer: D 42. Marginal product: A. diminishes at all levels of production. B. may initially increase, then diminish, but never become negative. C. may initially increase, then diminish, and ultimately become negative. D. is always less than average product. Answer: C 43. Which of the following is not correct? A. Where marginal product is greater than average product, average product is rising. B. Where total product is at a maximum, average product is also at a maximum. C. Where marginal product is zero, total product is at a maximum. D. Marginal product becomes negative before average product becomes negative. Answer: B

44. Refer to the above data. The total variable cost of producing 5 units is: A. $61. B. $48. C. $37. D. $24. Answer: C 45. Refer to the above data. The average total cost of producing 3 units of output is: A. $14. B. $12. C. $13.50. D. $16. Answer: D 46. Refer to the above data. The average fixed cost of producing 3 units of output is: A. $8. B. $7.40. C. $5.50. D. $6. Answer: A 47. Refer to the above data. The marginal cost of producing the sixth unit of output is: A. $24. B. $12. C. $16. D. $8. Answer: D

48. Refer to the above data. Total fixed cost is: A. $6.25. B. $100.00. C. $150.00. D. $50.00. Answer: D 49. Refer to the above data. The average total cost of five units of output is: A. $69. B. $78. C. $3. D. $10. Answer: B 50. Refer to the above data. The total cost of four units of output is: A. $260. B. $77.50. C. $310. D. $215. Answer: C 51. Refer to the above data. If the firm closed down in the short run and produced zero units of output, its total cost would be: A. zero. B. $50. C. $150. D. $100. Answer: B 52. Refer to the above data. The marginal cost of the fifth unit of output is: A. $3. B. $62. C. $80. D. $78. Answer: C 53. Refer to the above data. The marginal cost curve would intersect the average variable cost curve at about:

A. 2 units of output. B. 4 units of output. C. 6 units of output. D. 7 units of output. Answer: B 54. Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are: A. $5,000. B. $500. C. $0.50. D. $50. Answer: A

55. In the above diagram curves 1, 2, and 3 represent: A. average variable cost, marginal cost, and average fixed cost respectively. B. total variable cost, total fixed cost, and total cost respectively. C. total fixed cost, total variable cost, and total cost respectively. D. marginal product, average variable cost, and average total cost respectively. Answer: C