Practice QuestionsTwo goods are ________. A(n) _________ in the

price of one good will _________ the demand for the other good:(A) substitutes; increase; increase;(B) substitutes; increase; decrease;(C) complements; increase; increase;(D) complements; increase; decrease;(E) A & D.

Practice Questions_____ elasticity of demand refers to the degree of

consumer responsiveness to the percentage change in _______ with respect to the percentage change in _______:(A) Income; price of the a good; income;(B) Income; quantity of a good; income; (C) Own-price; price of a good; demand for that good;(D) Own-price; quantity demanded; price of a good;(E) Cross-price; quantity of one good; price of the

other good;(F) B & D & E.

Practice QuestionsThe _____ substitutes available, the ____ elastic

the demand for a good is:(A) more; less;(B) more; more; (C) less; more;(D) Not enough information.

Practice QuestionsThe price of a product is ______ the marginal

revenue under conditions of perfect competition:(A) greater than;(B) equal to; (C) less than;(D) Not enough information;(E) None of the above.

Practice QuestionsA shift in the demand curve is generally caused

by changes in ______:(A) the prices of substitutes and complements;(B) incomes; (C) both of the above;(D) none of the above.

Practice QuestionsThe law of diminishing marginal returns says:

(A) Less goods will be available to consume over time;

(B) Marginal utility declines as more of a good is consumed during a period of time;

(C) There is a maximum amount of total utility;(C) Two of the above;(D) None of the above.

Practice QuestionsA budget constraint reflects:

(A) the income available for consumption;(B) the prices for the goods a consumer may

purchase; (C) the marginal rate of substitution that will result

in consumer equilibrium;(D) all of the above.

Practice QuestionsA firm’s supply curve corresponds to:

(A) the average total cost curve;(B) the marginal cost curve above the minimum

average variable cost curve; (C) the average variable cost curve;(D) the marginal cost curve.

Practice QuestionsWhich of the following is true:

(A) Average Fixed Cost + Average Variable Cost = Average Total Cost;

(B) A shift to the right of the demand curve makes consumer better off;

(C) The law of diminishing marginal returns states that as the use of an input increases, ceteris paribus, its Marginal Physical Product will eventually fall;

(D) All of the above.

Practice QuestionsA firm acts as a profit

maximizer with its MC, AVC, ATC as shown in graph. At market price P2, it will produce an output of ____, making a loss of ____:(A) Q1; P2P3KG;(B) Q2; P1P2ED; (C) Q3; P1P2ED;(D) None of the above.

MCATC

AVC

P

Q

P1P2

Q3

P3

Q2Q1

D

FEH

GK

Practice QuestionsGenerally, firms want to maximize profit, which is

equivalent to setting:(A) MPP = 0;(B) MR = 0; (C) MR = MC;(D) MPP = APP.

Practice QuestionsIn the graph, IQ indicates an

isoquant curve of a firm; EE’ indicates the price ratio of capital over labor; & A indicates the firm’s current input mix. To increase its profit, the firm should use: (A) more capital, less labor; (B) more labor, less capital; (C) more labor, same

amount of capital; (D) maintain the input mix

at A.

Capital

A

E

E’

Labor

IQ

Practice QuestionsIf marginal cost exceeds average variable cost,

then ____ cost is ____:(A) average total; increasing; (B) average variable; increasing; (C) average total; at a minimum;(D) average fixed; increasing;(E) average total; at a maximum.

Practice QuestionsTo maximize profit, firms should NOT produce in

the stage during which:(A) MPP is decreasing; APP is greater than MPP;(B) MPP is increasing; MC is less than AVC & ATC;(C) MPP is decreasing; MVP equals MIC;(D) None of the above.

Practice QuestionsBilly Bob’s Fried Chicken Palace has an Average

Fixed Cost of $0.25/chicken wing producing 500 wings/day. If production doubles to 1000 wings/day, AFC will:(A) Increase;(B) Increase, then decrease; (C) Decrease, then increase;(D) Decrease;(E) None of the above;

Practice QuestionsBilly Bob’s also has the following information

regarding demand for their chicken: at a price of $6/chicken wing, demand for their good is 0 chicken wings, while at the current market price of $2, demand is 100 wings. Suppose consumer willingness-to-pay for wings increases by $1 (i.e. the demand curve shifts up in a parallel manner). Consumer surplus _______ by _______ if the market price stays at $2:(A) Increases; $112.50;(B) Increases; $225; (C) Decreases; $100;(D) Not enough information is provided;

Practice QuestionsThe own-price elasticity of demand for a good is -

1 at the current market price. At this price:(A) The firm selling the good is maximizing

revenue;(B) The firm selling the good could increase

revenue by lowering the price; (C) The firm selling the good could decrease

revenue by raising the price;(D) A + C;(E) B + C;

Practice QuestionsStage 2 of production is where:

(A) Firms do not want to produce to maximize profits;

(B) Marginal physical product is greater than average physical product;

(C) Marginal physical product is negative;(D) Average physical product is decreasing and

marginal physical product is less than average physical product but still positive;

(E) None of the above;

Practice QuestionsPat consumes pudding and pickles. Pat’s

marginal utility from pudding is 10, and Pat’s marginal utility from pickles is 20. Pudding costs $1 while pickles cost $2. Assuming Pat’s current bundle of goods is on the frontier of the budget constraint, which of the following are true?:(A) Pat could increase total utility by consuming

more pickles and less pudding;(B) Pat could increase total utility by consuming

less pickles and more pudding; (C) Pat is maximizing total utility given the budget

constraint;(D) None of the above;