This Homework Must Be Done Using Scantron # 882-E

Homework Set # 2

Econ 102

Fall03

Zahui

Instruction:

1. This homework must be done using scantron # 882-E.
2. This homework is due on November 24, 2003.
3. Late work will be penalized – You will be loosing 5 points for each day that it is late.

Multiple Choice Questions- GoodLuck!!! -

1. Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?

a.Wilson paid $120 for an outside laundry service to clean the towels used at the club.

b.Wilson paid $100 for the pest control exterminator to spray the health club.

c.Wilson previously worked as an accountant, earning $3,000 a month.

d.Wilson usually eats four hamburgers a day, priced at $3 each.

1. Consider the following information about a business Rodriguez opened last year: price = $5; quantity sold = 15,233; implicit cost = $18,000; explicit cost = $33,000. What was Rodriguez’s accounting profit?

a.$43,165

b.$25,165

c.$58,165

d.$61,165

1. “As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline.” This is a statement of the

a.law of supply.

b.average-marginal rule.

c.law of diminishing marginal utility.

d.law of diminishing marginal returns.

1. A rising marginal cost curve is a reflection of a

a.rising marginal physical product curve.

b.falling marginal physical product curve.

c.falling average fixed cost curve.

d.rising average variable cost curve.

1. The change in output that results from changing a variable input by one unit, holding all other inputs fixed, is called the marginal ______product.

a.physical

b.value

c.average

d.explicit

1. Suppose that a firm produces hard candies using both machines and labor, and that its quantity of machines is currently fixed but it can vary the number of workers. As more workers are added to operate the machines, output increases. Is this a refutation of the law of diminishing marginal returns?

a.Yes, because the law definitely states that output will decrease as more workers are added.

b.No, because we must be observing output in the long run if the stated scenario is occurring.

c.Yes, because the only way that this could occur is if the number of machines being used is also increasing.

d.No, because it is entirely possible for output to increase even when the law is in operation.

Exhibit 1

(1) / (2) / (3) / (4)
Variable Input / Fixed Input / Quantity of Output / MPP of Variable Input
0 / 1 / 0
1 / 1 / 20 /

A

2 / 1 / 41 / B
3 / 1 / 63 / C
4 / 1 / 86 / D
5 / 1 / 108 / E
6 / 1 / 129 / F

For questions 7-8, refer to Exhibit 1 above.

1. Refer to Exhibit l. The numbers that go in blanks C and F are, respectively,

a.22 and 21.

b.20 and 22.

c.23 and 24.

d.22 and 20.

e.none of the above

1. Refer to Exhibit 1. Diminishing marginal returns set in with the addition of which unit of the variable input?

a.the fourth

b.the fifth

c.the sixth

d.the second

1. If labor is the variable input, then MC equals

a.total labor costs divided by MPP.

b.average variable (labor) costs divided by MPP.

c.average variable (labor) costs multiplied by MPP.

d.the wage rate divided by MPP.

c.the wage rate multiplied by MPP.

1. Suppose a given marginal cost curve starts out downward sloping and at some point turns upward. The point at which it turns upward is the point at which

a.marginal physical product increases.

b.total cost rises.

c.average fixed cost declines.

d.average variable cost is below marginal cost.

e.diminishing marginal returns set in.

1. The average-marginal rule states that if the marginal magnitude is

a.less than the average magnitude, the average magnitude falls.

b.greater than the average magnitude, the average magnitude falls.

c.rising, the average magnitude is necessarily above it.

d.falling, the average magnitude is necessarily below it.

e.c and d

1. There are 30 students in a class. The average grade for 29 of the students is 87. The grade of the remaining student is 84. Given this student’s grade, the average grade of the 30-student class will be

a.87.

b.higher than 87.

c.lower than 87.

d.84.

1. Which of the following statements is true?

a.In the short run, there are no fixed costs, only variable costs.

b.In the short run, there are fixed and variable costs, but in the long run there are only fixed costs.

c.In the short run, there are fixed and variable costs, but fixed costs are the only costs a firm is concerned with.

d.In the long run, there are no costs, fixed or variable.

e.none of the above

1. Economies of scale are said to exist when inputs are increased by some percentage and output increases by a(n) ______percentage, causing unit costs to ______.

a.greater; fall

b.smaller; fall

c.greater; rise

d.smaller; rise

e.equal; fall

Situation 1

Diane’s Donuts will begin selling donuts next week. Diane figures that the ingredients necessary to make donuts will cost $.05 per donut. She has paid $4,400 for the donut-making machinery and one year’s rent.

For questions 15-17, refer to Situation 1 above.

1. Refer to Situation1. What will Diane’s total variable costs be if she sells 2,500 donuts?

a.$95

b.$220

c.$345

d.$125

e.There is not enough information to answer the question.

1. Refer to Situation l. What will Diane’s total costs be if she sells 2,500 donuts in one week and then goes out of business?

a.$4,400.00

b.$4,525.00

c.$209.62

d.$125.00

e.There is not enough information to answer the question.

1. Refer to Situation l. What is the marginal cost of the 2,500th donut?

a.$0.038

b.$0.088

c.$0.138

d.$0.050

e.There is not enough information to answer the question.

1. If inputs are increased by 10 percent and output increases by 10 percent, then ______are said to exist.

a.economies of scale

b.constant returns to scale

c.diseconomies of scale

d.diminishing marginal returns

1. Minimum efficient scale refers to the

a.smallest plant size a firm can utilize and still maintain production.

b.lowest point on a given SRATC curve.

c.output level at which the LRATC curve touches each SRATC curve.

d.lowest output level at which average total costs are minimized.

Exhibit 2

Variable Input / Fixed Input / Output / Marginal Physical Product of Variable Input /

Fixed Cost

/ Variable Cost / Marginal Cost
(units) / (units) / (units) / (units) / (dollars) / (dollars) / (dollars)
0 / 1 / 0 / $50 / $0
1 / 1 / 10 /

A

/ $50 / $20 /

F

2 / 1 / 25 / B / $50 / $40 / G
3 / 1 / 45 / C / $50 / $60 / H
4 / 1 / 60 / D / $50 / $80 / I
5 / 1 / 70 / E / $50 / $100 / J

For question 20, refer to Exhibit 2 above.

1. Refer to Exhibit 2. The average fixed cost of producing 10 units of output is

a.$50.00.

b.$10.00.

c.$2.50.

d.$1.00.

e.$5.00.

1. John purchases a baseball card for $10 that turns out to be so rare that a collector offers to buy it from him for $2,000. Instead, John decides to give the card to his sister (an avid baseball-card collector) as a birthday present. The opportunity cost of John’s generosity is

a.$10, the purchase price.

b.$0, because at the time the decision is made, $10 are sunk cost, i.e., at that point there is no cost to John of giving the card away.

c.$2,000, the amount offered by the collector.

d.$1,005, the average of $10 and $2,000.

Exhibit 3

Units of Labor / Units of Output
0 / 0
1 / 60
2 / 130
3 / 190
4 / 230
5 / 250

For question 22, refer to Exhibit 3 above.

1. Exhibit 3 shows how output varies with the only variable input used in its production. The table indicates that diminishing marginal returns set in with the hiring of which unit of labor?

a.first

b.second

c.third

d.fourth

e.fifth

Situation 2

Alejandro is one of the leading widget producers in the country. His total costs amount to $5,000, total fixed costs are $3,000, and average total costs are $200.

For questions 23, refer to Situation 2 above.

1. Refer to Situation 2. How many widgets is Alejandro producing?

a.10

b.15

c.20

d.25

e.There is not enough information to answer the question.

Situation 3

Gizmos, Inc. produces gizmos at an average total cost of $13 and an average variable cost of $12. The only fixed input used in the production of gizmos costs $20.

For questions 24, refer to Situation 3 above.

1. Refer to Situation 3. How many gizmos does Gizmos, Inc. produce?

a.7

b.8

c.20

d.25

e.There is not enough information to answer the question.

Exhibit 4

Hours of Studying / Total Number of Problems Solved
Jon /

Paul

/ Deborah
1 / 4 / 3 / 4
2 / 9 / 8 / 10
3 / 15 / 14 / 18
4 / 22 / 19 / 28
5 / 27 / 23 / 32
6 / 30 / 26 / 35

For questions 25, refer to Exhibit 4 above.

1. Refer to Exhibit 4. Paul’s marginal product of the fourth hour of studying is

a.4 problems.

b.5 problems.

c.14 problems.

d.19 problems.

e.23 problems.

1. If we apply marginal analysis to a firm that is considering giving its employees a raise of $2 an hour above the current market wage, we would conclude that the firm will go ahead with this plan only if

a.the current market wage is below the minimum wage.

b.labor costs are less than 50 percent of total costs.

c.monitoring costs go down by more than $2 per hour, per employee.

d.the employees do not engage in shirking.

1. Satisficing behavior refers to

a.maximizing profits.

b.trying to achieve some satisfactory target profit level.

c.employees (in a firm) working to satisfy the managers who are their bosses.

d.the fact that in most modern firms there is separation of ownership from control.

e.none of the above

1. When a proprietor is responsible for the debts of the business, he or she is said to have

a.par value.

b.limited liability.

c.residual claimant status.

d.unlimited liability.

e.managerial control.

1. The Alchian and Demsetz theory of why business firms exist suggests that

a.there are only advantages to team production.

b.disadvantages of team production may outweigh the disadvantages of individual production.

c.individual production is more efficient than team production.

d.the sum of team production is sometimes greater than the sum of individual production.

1. What form of business issues shares of stock?

a.the proprietorship

b.the partnership

c.the corporation

d.all of the above

e.none of the above

31If income elasticity of demand is 2.12, it means that quantity demanded will ______by 2.12 percent for every ______percent ______in income.

a.rise; 2.12; fall

b.rise; 1.0; rise

c.fall; 1.0; rise

d.fall; 2.12; fall

e.none of the above

32As price falls from $4 to $3, quantity supplied falls from 400 units to 350 units. Price elasticity of supply is

a.0.95.

b.1.20.

c.2.22.

d.0.71.

e.none of the above

33Income rises from $1,200 to $1,500 a month and the quantity demanded of good X rises from 40 to 55 units a month. Income elasticity of demand (for good X) is ______and good X is a(n) ______good.

a.2.40; inferior

b.1.42; normal

c.1.42; inferior

d.2.40; normal

e.0.70; normal

34The percentage change in the quantity demanded of good X is 20 percent and the percentage change in the price of good Y is 10 percent. It follows that the ______elasticity of demand is ______and that the two goods are ______.

a.income; 0.50; substitutes

b.cross; 2.00; complements

c.cross; 0.50; substitutes

d.cross; 2.00; substitutes

e.price; 2.00; substitutes

35Good X has three substitutes and good Y has four substitutes, therefore it follows that the demand for good X is ______and the demand for good Y is ______.

a.inelastic; elastic

b.elastic; inelastic

c.perfectly elastic; perfectly inelastic

d.perfectly inelastic; inelastic

e.There is not enough information to answer the question.

36If demand is perfectly elastic, it follows that

a.as price changes, quantity demanded does not change.

b.as quantity demanded changes, price does not change.

c.as price changes only a small percentage, quantity demanded falls to zero.

d.as income changes only a small percentage, quantity demanded changes by a very large percentage.

e.none of the above

37Price rises from $10 to $14 and quantity demanded falls from 130 units to 110 units. The (price) elasticity coefficient is

a.1.89.

b.0.50.

c.2.00.

d.1.50.

e.none of the above

38The price elasticity coefficient is 2.3. This implies that if price

a.rises by 10 percent, quantity demanded falls 2.3 percent.

b.rises by 2.3 percent, quantity demanded falls 2.3 percent.

c.rises by 20 percent, quantity demanded falls 46 percent.

d.falls by 10 percent, quantity demanded falls 2.3 percent.

e.none of the above

For questions 39, refer to Exhibit R-7 above.

39Refer to Exhibit 5-7. Which of the graphs shows a unitary elastic demand curve?

a.(1)

b.(2)

c.(3) and (4)

d.none of the above

40Dan is currently consuming 10 Cokes and 5 slices of pizza per week such that the marginal utility of the tenth Coke is 12 utils and that of the fifth slice of pizza is also 12 utils. How should Dan redirect his purchases so as to attain consumer equilibrium?

a.He should buy more pizza slices and less Coke.

b.He should buy fewer pizza slices and more Coke.

c.He is currently attaining consumer equilibrium and should not redirect his purchases.

d.He could gain more satisfaction by buying less of both and more of something else.

e.There is not enough information to answer the question.

41Suppose the marginal utility (MU) of paperback books is 40 utils and each costs $4 while the MU of video movies is 50 utils and each rents for $4. If you consume one movie and one book per week, are you attaining consumer equilibrium?

a.Yes, so there is no need to change.

b.No. You need to buy more books and rent fewer videos.

c.No. You need to rent more videos and buy fewer books.

d.There is not enough information to answer the question.

42Suppose for a consumer the marginal utility (MU) of bread is 10 utils and the MU of milk is 20 utils; the price of bread is $1 and the price of milk is $1. Given this,

a.more utility per dollar is gained from consuming bread than milk.

b.more utility per dollar is gained from consuming milk than bread.

c.the same amount of utility per dollar is gained from consuming milk as bread.

d.the consumer is in consumer equilibrium.

43Ashley is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ashley consuming the correct quantities of these two goods to be in consumer equilibrium?

a.No, she should consume more hamburgers and fewer hot dogs.

b.No, she should consume more hot dogs and fewer hamburgers.

c.Yes, so there is no need to change her eating habits.

d.There is not enough information to answer the question.

44The absolute price of good X, a normal good, falls and you buy more of good X. The additional consumption of good X is attributable to the ______effect.

a.substitution

b.income

c.marginal utility

d.a and b

e.all of the above

45Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely ______her consumption of Coke and the marginal utility of Coke will ______while the total utility from Coke will ______.

a.increase; increase; increase

b.increase; decrease; decrease

c.increase; decrease; increase

d.decrease; increase; increase

e.decrease; decrease; decrease

46If the total utilities corresponding to the first five units of a good consumed are 10, 15, 19, 22, and 24, respectively, what is the marginal utility of the fourth unit?

a.22

b.5

c.4.5

d.4

e.3

47If the marginal utility of a good is negative, then

a.consumers should buy less of it.

b.consumers will consume it only if it is free.

c.consumers should buy more of it to make its marginal utility positive.

d.the law of diminishing marginal utility is being violated.

48Given two goods, X and Y, their prices, PX and PY, and a constant marginal utility of money, a consumer is in equilibrium when the last dollar spent on X yields

a.zero marginal utility for Y.

b.the same marginal utility as if all the money were spent on Y.

c.a smaller marginal utility than the last dollar spent on Y.

d.the same marginal utility as the last dollar spent on Y.

e.none of the above

49The substitution effect refers to the change in the

a.quantity demanded of good A as a result of the change in the price of good B when goods A and B are substitutes.

b.demand for good A as a result of the change in the price of good B when goods A and B are substitutes.

c.demand for a good that is attributable to a change in the relative price of its substitute.

d.quantity demanded of a good that is attributable to a change in its relative price.

50The income effect refers to a change in

a.income as a result of a change in the general price level.

b.the general price level due to a change in real income.

c.the price of a good due to a change in real income.

d.the quantity demanded of a good due to a change in real income (brought about by a change in absolute price).

e.the demand for a good due to a change in real income (brought about by a change in absolute price).