MORE MICRO PRACTICE QUESTIONS- IMPORTANT

Ignore the questions that have been deleted Multiple Choice Identify the letter of the choice that best completes the statement or answers the question.

____ 2. Economic profit is best defined as a. a company's net income as indicated by its accounting statement. b. the difference between the price of a product and the monetary cost of the raw materials

used to produce it. c. the difference between the revenue from the sale of a product and the opportunity cost of

the resources used to produce it. d. income paid by a business to its owners.

____ 3. The price of chicken increases as the result of higher beef prices. This indicates that a. chicken and beef are substitutes. b. chicken and beef are complements. c. the market demand for beef is inelastic. d. the market demand for chicken is elastic.

____

____ 5. The law of demand indicates that a. every physical good has a use. b. when people want a good badly enough, they will find a way to pay for it. c. the desire for a good is unrelated to its price. d. the quantity of a good that people will buy is inversely related to the price of the good.

____ 6. The maximum price that consumers are willing to pay for the 100th unit of a good can be found as a. the height of the supply curve at a quantity of 100. b. the height of the demand curve at a quantity of 100. c. the difference between the height of the supply and demand curves at a quantity of 100. d. none of the above.

____ 7. In a supply and demand graph, the triangular area that represents the difference between the maximum price consumers were willing to pay for a good and the market price is called a. consumer surplus. b. producer surplus. c. marginal cost. d. triangular arbitrage.

____ 8. Ceteris paribus, a decrease in the price of a good will cause the a. quantity demanded of the good to decrease. b. quantity supplied of the good to increase. c. consumer surplus derived from the good to increase. d. supply of the good to increase.

____ 9. Which of the following would be the best example of consumer surplus? a. Jane pays $30 a month for phone service even though it is worth $70 to her. b. Sam refuses to pay $10 for a hair cut because it is only worth $8 to him. c. Fred buys a car for $4,000, the maximum amount that he would be willing to pay for it. d. When Sue purchases a candy bar for $.50, she uses a $20 bill to pay for it.

____ 10. If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a a. demand curve that is relatively flat (more horizontal). b. demand curve that is relatively steep (more vertical).

c. supply curve that is relatively flat (more horizontal). d. supply curve that is relatively steep (more vertical).

____ 11. If the demand for a good is relatively inelastic this means that consumer purchases of the good are a. not very sensitive to the price of the good. b. highly sensitive to the price of the good. c. unrelated to the price of the good. d. none of the above.

____

____ 15. In which statement(s) are the words "demand" and "quantity demanded" used correctly? I. "An increase in the price of coffee will reduce the quantity demanded of coffee." II. "An increase in the price of coffee will reduce the demand for creamer used in coffee." a. in both statements I and II b. in statement I only c. in statement II only d. in neither statements I nor II

____ 16. Which of the following would most likely cause the demand for inkjet printers decrease? a. a decrease in consumer income b. an increase in the price of laser printers, a substitute for inkjet printers c. a decrease in the price of printer paper used with inkjet printers d. a decrease in the price of inkjet printer cartridges used in inkjet printers

____ 17. The current demand curve for a normal good would increase if a. the price of a complementary good rose. b. the price of a substitute good fell. c. consumers suddenly believed the price of the good would be sharply lower in the future. d. consumer income increased.

____ 18. If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that a. Y and Z are complements. b. Y and Z are substitutes. c. Y and Z are unrelated. d. the demand for Y is elastic, but the demand for Z is inelastic.

____ 19. If a firm is not covering the cost of all resources employed by the firm (including the opportunity cost of resources owned by the firm), they will generally a. go out of business. b. remain in business. c. issue stock to the general public. d. attempt to expand the size of their operation.

____ 20. If there is a decrease in both the supply and demand for a good, which of the following will necessarily occur? a. The price of the good will increase. b. The price of the good will decrease. c. The equilibrium quantity will increase. d. The equilibrium quantity will decrease.

____ 24. If Sarah's income rises from $2,000 to $2,400 per month, and, as a result, she purchases 40 percent more designer clothing, her income elasticity for designer clothing is a. 0.5. b. 1.0. c. 2.0.

d. Not enough information is given to answer this question.

____ 27. A local restaurant offers an "all you can eat" ribs special. You pay $11.95 and then you can eat as many servings as you desire at no additional cost. It would follow that you will stop eating when a. your marginal utility (or value) derived from eating another serving is zero. b. your total utility (or value) derived from all of the servings consumed just equals $11.95. c. your marginal utility (or value) derived from another serving equals $11.95. d. it is physically impossible for you to eat any more.

____ 28. If admission to a Shania Twain concert in a football stadium is lowered from $60 to $40 and attendance increases from 25,000 to 35,000, the price elasticity of demand for attending the concert is approximately a. -0.25. b. - 0.5. c. -0.83. d. - 1.2

____

____ 30. If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is a. elastic. b. inelastic. c. of unitary elasticity. d. perfectly elastic.

Figure 7-9

____ 33. Refer to Figure 7-9. Between $3 and $4, the price elasticity of the demand curve depicted above is

a. relatively inelastic. b. approximately equal to - 0.33. c. approximately equal to -3. d. both a and b.

____

____ 35. The short run average total cost (ATC) curve of a firm will tend to be U-shaped because a. larger firms always have lower per unit costs than smaller firms. b. at small output rates, AFC will be high while at large output rates MC will be high as the

result of diminishing returns and over-utilization of the plant.

c. Diminishing returns will be present when output is small while high AFC will push per unit cost to high levels when output is large.

d. diseconomies of scale will be present at both small and large output rates.

____ 36. Which of the following would shift a firm's short-run cost curves downward? a. an advance in technology b. an increase in employees' wages c. an increase in the demand for the firm's product d. an increase in excise taxes levied on the firm's product

____ 38. As output is expanded, if MC is more than ATC, a. ATC must be at its minimum. b. ATC must be at its maximum. c. ATC must be increasing. d. the firm must be earning economic profit.

____ 39. The short run average total cost (ATC) curve of a firm will tend to be U-shaped because a. larger firms always have lower per unit costs than smaller firms. b. at small output rates, AFC will be high while at large output rates MC will be high as the

result of diminishing returns and over-utilization of the plant. c. Diminishing returns will be present when output is small while high AFC will push per

unit cost to high levels when output is large. d. diseconomies of scale will be present at both small and large output rates.

____ 40. Use the table below to answer the following question.

Variable Cost Total Cost Marginal Cost Units of Output (dollars) (dollars) (dollars)

0 0 40 0 1 30 70 30 2 50 90 20 3 60 100 10 4 75 115 15 5 105 145 30 6 150 190 45

Average total cost is at a minimum when the output level is a. three units. b. four units. c. five units. d. six units.

____ 41. Average fixed costs a. will remain unchanged as output expands. b. are defined as the change in total costs divided by the change in output. c. will always increase as output increases. d. will always decrease as output expands.

____ 42. The law of diminishing marginal returns explains the general shape of the firm's a. long-run cost curves. b. short-run cost curves. c. both short-run and long-run cost curves. d. The law of diminishing returns has nothing to do with cost curves.

____ 43. In the long run, firms in many industries often experience falling average total costs as a result of a. gains through trade. b. increasing marginal returns.

c. economies of scale. d. lower fixed costs.

____ 44. The long-run average total cost (LRATC) curve a. indicates the per unit cost of producing various rates of output with a specific size of plant.b. indicates the minimum per unit cost that can be achieved at various output rates when the

firm is free to choose among all possible plant sizes. c. will be falling when diseconomies of scale are present. d. is a U-shaped curve. e. Both a and d are correct.

____ 45. Which of the following would most likely cause a firm's cost curve to shift downward? a. an increase in resource prices b. an increase in government regulations c. a decrease in taxes d. an increase in demand for the firm's product

____ 46. Before entry into an industry, a profit-maximizing decision maker will compare the expected market price with the expected a. long-run average total cost. b. short-run marginal cost. c. long-run average variable cost. d. short-run average total cost.

Exhibut 9-9

Exhibit 9 depicts a firm in a price-taker market. Use this exhibit to answer the following questions.

____ 48. Refer to Exhibit 9-9. To maximize profit, the firm should produce an output level of

a. q1. b. q2. c. q3. d. q4.

Figure 9-16

____ 49. Refer to Figure 9-16. The diagram above illustrates a price-taker firm operating at a loss. This firm

should a. go out of business immediately because it will never be able to make a profit. b. raise the price of its product. c. operate in the short run if it expects that an increase in the market price will lead to future

profitability. d. shut down in the short run but reopen if conditions improve.

____ 50. A profit-maximizing price searcher will expand output to the point where a. total revenue equals total cost. b. marginal revenue equals marginal cost. c. price equals average total cost. d. price equals marginal cost.

____ 51. Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in a. a wider variety of products and higher prices. b. less product variety and higher prices. c. a wider variety of products and lower prices. d. less product variety and lower prices.

53. Some economists have argued that competitive price-searcher industries are allocatively inefficient relative to price-taker industries because a. unlike price takers, price searchers fail to produce at the point where marginal revenue is

equal to marginal cost. b. competition forces price takers to find the most efficient method of production, while

product differentiation allows competitive price searchers to stay in business even when their methods of production are inefficient.

c. unlike price takers, price searchers do not produce at the minimum of their average total cost curves.

d. price searchers need to pay higher salaries to their managers because of the greater amount of entrepreneurship required in price-searcher industries.

Exhibit 10-5 Exhibit 10-5 depicts the demand, marginal revenue, and cost curves facing a firm in a competitive price-searcher industry.

____ 54. Refer to Exhibit 10-5. This firm will maximize profits by producing a quantity of output equal to

a. F and charging a price equal to A. b. E and charging a price equal to C. c. F and charging a price equal to L. d. E and charging a price equal to G.

SCS0082 - 003 TEST 2: MICROECONOMICS UNIVERSITY OF TORONTO Answer Section

Ignore the answers to the deleted questions MULTIPLE CHOICE

1. A

2. C

3. A

4. B

5. D

6. B

7. A

8. C

9. A

10. A

11. A

12. D

13. A

14. D

15. A

16. A

17. D

18. B

19. A

20. D

21. D

22. C

23. A

24. C

25. B

26. C

27. A

28. C

29. A

30. B

31. B

32. B

33. D

34. A

35. B

36. A

37. C

38. C

39. B

40. B

41. D

42. B

43. C

44. B

45. C

46. A

47. C

48. C

49. C

50. B

51. A

52. C

53. C

54. B

ESSAY