econonmMicroeconomics Review Quiz Test 2 1. When is marginal utility equal to zero? A. When TU is zero. B. When MU is at its maximum. C. When TU is at its maximum. D. When MU is at its minimum. The following table shows Mia's $ marginal utility for litres of soya milk: 2. Refer to the above table to answer this question. Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1, what is the maximum quantity that Mia might purchase? A. 0. B. 4 litres. C. 5 litres. D. 6 litres. E. Cannot be determined. 3. What is the correct formula for MCS (marginal consumer surplus)?

A. $MU-price. B. Price-$MU. C. $TU-price. D. TU/price. E. TU/quantity. 4. What is the term for the difference between the consumer's evaluation of a product and the price which is paid for it? A. Price discrimination. B. Price elasticity of demand. C. Consumer indifference. D. Consumer surplus. 5. Refer to Table 5. 13 to answer this question. With the consumption of what quantity is marginal utility equal to zero. A. 1. B. 5. C. 7. D. 8. 6. You have just spent two hours studying microeconomics and this has made you very hungry. You have $10 to spend on a snack and decide to go to Taco Bell.

Putting your newly acquired economics knowledge to use, you have developed the following table to assist with your purchase decision: (a) Fill in the missing values in the table above. (b) If you bought 6 tacos and 2 burritos are you maximizing your utility? Explain. Below are some financial data for the Do Drop In convenience store. The owners have put $40,000 into the business and they worked a total of 80 hours during the week. Savings accounts are currently paying 5. 2% interest and the going wage rate is $8 per hour. 7. Refer to the information above to answer this question.

What is the week's economic profit for the Do Drop In? A. -$320. B. -$40. C. $280. D. $320. E. $1,050. 8. Which of the following statements about the marginal product of labour is correct? A. It may either rise or fall as more labour is used. B. It always rises as more labour is used. C. It always falls as more labour is used. D. There is no relationship between marginal product and labour. 9. What causes marginal cost to increase? A. The advantages of the division of labour. B. The fact that ATC increases. C. Raising marginal product. D. The law of diminishing returns. 0. Which of the following statements regarding average fixed costs is correct? A. They are constant since fixed costs are fixed. B. They are equal to average variable cost less average total cost. C. When graphed, they are a horizontal line. D. When graphed, they are a straight line which comes out of the origin. E. They fall continuously as output increases. 11. Which of the following is a variable cost? A. The leasehold cost of a building. B. Insurance on the factory's physical plant. C. Raw materials. D. The cost of a marketing research report. 12.

What is the sum of total variable costs and total fixed costs? A. It is equal to the sum of average product and marginal product. B. It is the sum of all marginal costs. C. It is total cost. D. It is AVC times the quantity of output. 13. Can a firm earn an economic loss and an accounting profit at the same time? Explain. 14. What is meant by the term economic capacity? A. An output level where the firm is physically unable to increase output. B. The output level where average variable cost is at a minimum. C. The output level where average total cost is at a minimum. D. Total fixed costs are at a minimum. 5. Which of the following statements is correct if a firm's capacity output increases from 300 to 600 and its total costs rise from $40,000 to $78,000? A. The firm is experiencing constant returns to scale. B. The firm is experiencing decreasing returns to scale. C. The firm is experiencing increasing returns to scale. D. The firm's long-run average cost must have decreased but its short-run average cost could have either decreased or increased. 16. The existence of both economies of scale and diseconomies of scale would have what effect on the LRAC curve? A. It would make it upward-sloping. B.

It would make it downward-sloping. C. It would give it an inverse U shape. D. It would give it a U shape. E. It would make it horizontal. 17. All of the following, except one, are examples of pecuniary economies of scale. Which is the exception? A. A lower interest rate paid on money borrowed. B. The ability to sell the by-products of production. C. The ability to use specialized inputs such as a robotics assembly line. D. The ability to obtain lower prices by buying in bulk. 18. What is the shape of the LRAC curve for a firm enjoying diseconomies of scale? 19. Which of the following refers to the perfectly competitive firm?

A. It is a price-maker. B. It is a price-taker. C. It might be either a price-maker or a price-taker. D. It is neither a price-maker nor a price-taker. 20. What is the term for the extra revenue derived from the sale of one more unit? A. Average revenue. B. Marginal revenue. C. Net revenue. D. Total revenue. 21. What is average revenue? A. The price multiplied by the quantity sold. B. The total revenue divided by the price. C. The extra revenue derived from the sale of one more unit. D. It is equal to the price in perfectly competitive markets. 22. What is break-even output? A.

The output at which the total revenue just covers a firm's total fixed cost. B. The output at which the total revenue just covers a firm's total variable cost. C. The output at which the total revenue just covers a firm's fixed and variable costs including normal profits. D. The output at which the firm is making zero normal profits. 23. Which of the following is the correct sequence of events following a decrease in demand for a product in a perfectly competitive market? A. A decrease in the price and in the total profits of the representative firm which causes new firms to enter the industry. B.

A decrease in the price and in the total profits of the representative firm which causes firms to leave the industry. C. A decrease in the price but an increase in the total profits of the representative firm which causes new firms to enter the industry. D. An increase in the price but a decrease in the total profits of the representative firm which causes firms to leave the industry. 24. How is average revenue defined? A. It is the extra revenue derived from the sale of one more unit. B. It is the total revenue divided by the number of units sold. C. It is marginal revenue divided by the number of units sold. D.

It is the sum of the marginal revenue of all units sold. 25. Which of the following markets provide the best example of a perfect competition? A. Automobile manufacturing. B. Restaurants. C. Oil refining. D. Wheat farming. 26. Explain why a perfectly competitive firm faces a horizontal demand curve? 27. Explain why average revenue is equal to marginal revenue for a perfectly competitive firm? 28. The supply curve for a perfectly competitive firm is that portion of its marginal cost curve that lies above its average variable cost curve. Explain why? Micro Review Quiz Test 2 Key 1. (p. 143) When is marginal utility equal to zero?

A. When TU is zero. B. When MU is at its maximum. C. When TU is at its maximum. D. When MU is at its minimum. Difficulty: Easy Learning Objective: 05-01 Explain the law of diminishing marginal utility. Sayre - Chapter 05 #11 Source: Text Topic: Law of Diminishing Marginal Utility Type: Comprehension Type: Pickup The following table shows Mia's $ marginal utility for litres of soya milk: Sayre - Chapter 05 2. (p. 151) Refer to the above table to answer this question. Suppose that Mia has a budget of $7 and the price of a litre of soya milk is $1, what is the maximum quantity that Mia might purchase? A. 0. B. litres. C. 5 litres. D. 6 litres. E. Cannot be determined. Difficulty: Easy Learning Objective: 05-04 Provide a theoretical rationale for downward-sloping demand curves. Sayre - Chapter 05 #54 Source: Text Topic: Marginal Utility and Demand Type: Computation Type: Pickup 3. (p. 154) What is the correct formula for MCS (marginal consumer surplus)? A. $MU-price. B. Price-$MU. C. $TU-price. D. TU/price. E. TU/quantity. Difficulty: Easy Learning Objective: 05-05 Understand why consumers generally value a product more than the price they pay. Sayre - Chapter 05 #62 Source: Text Topic: Consumer Surplus Type: Definition

Type: Pickup 4. (p. 154) What is the term for the difference between the consumer's evaluation of a product and the price which is paid for it? A. Price discrimination. B. Price elasticity of demand. C. Consumer indifference. D. Consumer surplus. Difficulty: Easy Learning Objective: 05-05 Understand why consumers generally value a product more than the price they pay. Sayre - Chapter 05 #63 Source: Text Topic: Consumer Surplus Type: Definition Type: Pickup Sayre - Chapter 05 5. (p. 162) Refer to Table 5. 13 to answer this question. With the consumption of what quantity is marginal utility equal to zero.

A. 1. B. 5. C. 7. D. 8. Difficulty: Easy Learning Objective: 05-02 Derive a consumers purchasing rule that ensures satisfaction is maximized. Sayre - Chapter 05 #91 Source: Study Guide Topic: Optimal Purchasing Rule Type: Computation Type: Pickup 6. (p. 145-148) You have just spent two hours studying microeconomics and this has made you very hungry. You have $10 to spend on a snack and decide to go to Taco Bell. Putting your newly acquired economics knowledge to use, you have developed the following table to assist with your purchase decision: (a) Fill in the missing values in the table above. b) If you bought 6 tacos and 2 burritos are you maximizing your utility? Explain. (a) The completed table: (b) By purchasing 6 tacos and 2 burritos you are not maximizing your utility. At this level of consumption you have put yourself into the following position: MU/P for tacos = -6 ; 9 = MU/P for burritos. You can use the rational choice rule to reallocate your $10 and increase your total utility. Rather than the above allocation, you should purchase each item until your MU/P is the same for both munchies. Doing so will result in the purchase of 4 double Decker tacos and 3 chicken burrito Supremes.

To see why this is the case, think about each purchase individually, and pick the item that will give you the highest MU/P. Reasoning in this way, you would make the following decisions: First dollar spent on a taco Second through fourth dollars spent on one taco and one burrito Fifth dollar spent on a taco Sixth and seventh dollars spent on a burrito Eighth through tenth dollars spent on one taco and one burrito After this allocation, the MU/P for each item is the same (and equal to 4). Difficulty: Difficult Learning Objective: 05-02 Derive a consumers purchasing rule that ensures satisfaction is maximized.

Sayre - Chapter 05 #130 Source: Text Topic: Optimal Purchasing Rule Type: Computation Type: Pickup Below are some financial data for the Do Drop In convenience store. The owners have put $40,000 into the business and they worked a total of 80 hours during the week. Savings accounts are currently paying 5. 2% interest and the going wage rate is $8 per hour. Sayre - Chapter 06 7. (p. 182) Refer to the information above to answer this question. What is the week's economic profit for the Do Drop In? A. -$320. B. -$40. C. $280. D. $320. E. $1,050. Difficulty: Easy

Learning Objective: 06-01 Understand how and why economists measure costs differently from how accountants do and distinguish between the accountants and economists views of profits. Sayre - Chapter 06 #10 Source: Text Topic: Explicit and Implicit Costs Type: Computation Type: Pickup 8. (p. 185) Which of the following statements about the marginal product of labour is correct? A. It may either rise or fall as more labour is used. B. It always rises as more labour is used. C. It always falls as more labour is used. D. There is no relationship between marginal product and labour.

Difficulty: Easy Learning Objective: 06-02 Understand the crucial relationship between productivity and costs. Sayre - Chapter 06 #23 Source: Text Topic: Theory of Production Type: Comprehension Type: Pickup 9. (p. 194) What causes marginal cost to increase? A. The advantages of the division of labour. B. The fact that ATC increases. C. Raising marginal product. D. The law of diminishing returns. Difficulty: Easy Learning Objective: 06-04 List and graph the seven specific cost definitions used by economists. Sayre - Chapter 06 #75 Source: Text Topic: Total Costs and Average Total Costs

Type: Comprehension Type: Pickup 10. (p. 193) Which of the following statements regarding average fixed costs is correct? A. They are constant since fixed costs are fixed. B. They are equal to average variable cost less average total cost. C. When graphed, they are a horizontal line. D. When graphed, they are a straight line which comes out of the origin. E. They fall continuously as output increases. Difficulty: Easy Learning Objective: 06-04 List and graph the seven specific cost definitions used by economists. Sayre - Chapter 06 #84 Source: Text Topic: Total Costs and Average Total Costs

Type: Comprehension Type: Pickup 11. (p. 190) Which of the following is a variable cost? A. The leasehold cost of a building. B. Insurance on the factory's physical plant. C. Raw materials. D. The cost of a marketing research report. Difficulty: Easy Learning Objective: 06-03 Understand the important difference between fixed costs and variable costs. Sayre - Chapter 06 #86 Source: Text Topic: Marginal and Variable Costs Type: Computation Type: Pickup 12. (p. 202) What is the sum of total variable costs and total fixed costs? A. It is equal to the sum of average product and marginal product.

B. It is the sum of all marginal costs. C. It is total cost. D. It is AVC times the quantity of output. Difficulty: Easy Learning Objective: 06-04 List and graph the seven specific cost definitions used by economists. Sayre - Chapter 06 #119 Source: Study Guide Topic: Total Costs and Average Total Costs Type: Definition Type: Pickup 13. (p. 182-183) Can a firm earn an economic loss and an accounting profit at the same time? Explain. Accounting profit is equal to total revenue less explicit cost and economic profits is equal to total revenue less implicit cost and explicit cost.

Suppose the firm is earning an accounting profit. If implicit cost is greater than accounting profit, there will be an economic loss. Difficulty: Easy Learning Objective: 06-05 Explain the meaning of increasing productivity and cutting costs. Sayre - Chapter 06 #158 Source: Text Topic: Explicit and Implicit Costs Type: Comprehension Type: Pickup 14. (p. 210) What is meant by the term economic capacity? A. An output level where the firm is physically unable to increase output. B. The output level where average variable cost is at a minimum. C. The output level where average total cost is at a minimum.

D. Total fixed costs are at a minimum. Difficulty: Easy Learning Objective: 07-02 Understand why medium-sized firms are sometimes just as efficient as big firms. Sayre - Chapter 07 #3 Source: Text Topic: Constant Returns to Scale Type: Definition Type: Pickup 15. (p. 213) Which of the following statements is correct if a firm's capacity output increases from 300 to 600 and its total costs rise from $40,000 to $78,000? A. The firm is experiencing constant returns to scale. B. The firm is experiencing decreasing returns to scale. C. The firm is experiencing increasing returns to scale. D.

The firm's long-run average cost must have decreased but its short-run average cost could have either decreased or increased. Difficulty: Easy Learning Objective: 07-03 Understand why big firms sometimes enjoy great cost advantages. Sayre - Chapter 07 #17 Source: Text Topic: Economies of Scale Type: Definition Type: Pickup 16. (p. 218) The existence of both economies of scale and diseconomies of scale would have what effect on the LRAC curve? A. It would make it upward-sloping. B. It would make it downward-sloping. C. It would give it an inverse U shape. D. It would give it a U shape. E.

It would make it horizontal. Difficulty: Easy Learning Objective: 07-06 Explain what is meant by the right size of firm. Sayre - Chapter 07 #46 Source: Text Topic: What is the Right Size of Firm? Type: Comprehension Type: Pickup 17. (p. 224) All of the following, except one, are examples of pecuniary economies of scale. Which is the exception? A. A lower interest rate paid on money borrowed. B. The ability to sell the by-products of production. C. The ability to use specialized inputs such as a robotics assembly line. D. The ability to obtain lower prices by buying in bulk. Difficulty: Easy

Learning Objective: 07-03 Understand why big firms sometimes enjoy great cost advantages. Sayre - Chapter 07 #75 Source: Study Guide Topic: Economies of Scale Type: Comprehension Type: Pickup 18. (p. 215) What is the shape of the LRAC curve for a firm enjoying diseconomies of scale? The long-run average cost curve is upward-sloping when the firm is experiencing diseconomies of scale; an increase in output will lead to an increase in the average cost. Difficulty: Easy Learning Objective: 07-04 Understand why firms can sometimes be too big. Sayre - Chapter 07 #120 Source: Text Topic: Why Firms can be too Big

Type: Comprehension Type: Pickup 19. (p. 232) Which of the following refers to the perfectly competitive firm? A. It is a price-maker. B. It is a price-taker. C. It might be either a price-maker or a price-taker. D. It is neither a price-maker nor a price-taker. Difficulty: Easy Learning Objective: 08-02 Explain what is meant by perfect competition and the market system. Sayre - Chapter 08 #6 Source: Text Topic: Perfect Competition and the Market System Type: Definition Type: Pickup 20. (p. 239) What is the term for the extra revenue derived from the sale of one more unit? A. Average revenue. B. Marginal revenue.

C. Net revenue. D. Total revenue. Difficulty: Easy Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits. Sayre - Chapter 08 #12 Source: Text Topic: The Competitive Industry and Firm Type: Definition Type: Pickup 21. (p. 238) What is average revenue? A. The price multiplied by the quantity sold. B. The total revenue divided by the price. C. The extra revenue derived from the sale of one more unit. D. It is equal to the price in perfectly competitive markets. Difficulty: Easy Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits.

Sayre - Chapter 08 #13 Source: Text Topic: The Competitive Industry and Firm Type: Definition Type: Pickup 22. (p. 239) What is break-even output? A. The output at which the total revenue just covers a firm's total fixed cost. B. The output at which the total revenue just covers a firm's total variable cost. C. The output at which the total revenue just covers a firm's fixed and variable costs including normal profits. D. The output at which the firm is making zero normal profits. Difficulty: Easy Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits. Sayre - Chapter 08 #26

Source: Text Topic: The Competitive Industry and Firm Type: Definition Type: Pickup 23. (p. 254) Which of the following is the correct sequence of events following a decrease in demand for a product in a perfectly competitive market? A. A decrease in the price and in the total profits of the representative firm which causes new firms to enter the industry. B. A decrease in the price and in the total profits of the representative firm which causes firms to leave the industry. C. A decrease in the price but an increase in the total profits of the representative firm which causes new firms to enter the industry. D.

An increase in the price but a decrease in the total profits of the representative firm which causes firms to leave the industry. Difficulty: Easy Learning Objective: 08-06 Explain the effect of a change in market demand or market supply on both the industry and the firm. Sayre - Chapter 08 #100 Source: Text Topic: The Industry Demand and Supply Type: Comprehension Type: Pickup 24. (p. 260) How is average revenue defined? A. It is the extra revenue derived from the sale of one more unit. B. It is the total revenue divided by the number of units sold. C. It is marginal revenue divided by the number of units sold.

D. It is the sum of the marginal revenue of all units sold. Difficulty: Easy Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits. Sayre - Chapter 08 #106 Source: Study Guide Topic: The Competitive Industry and Firm Type: Definition Type: Pickup 25. (p. 261) Which of the following markets provide the best example of a perfect competition? A. Automobile manufacturing. B. Restaurants. C. Oil refining. D. Wheat farming. Difficulty: Easy Learning Objective: 08-02 Explain what is meant by perfect competition and the market system.

Sayre - Chapter 08 #111 Source: Study Guide Topic: Perfect Competition Type: Comprehension Type: Pickup 26. (p. 237) Explain why a perfectly competitive firm faces a horizontal demand curve? In a perfectly competitive market, the individual firm has no control over price. Furthermore, the individual firm only produces a tiny fraction of the total market supply. If the individual firm sells at a higher price, nobody will buy it; nor would the firm sell it at a lower price. Therefore there is only one price: the market price, at which the firm can produce as much or as little as it wishes.

Difficulty: Moderate Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits. Sayre - Chapter 08 #170 Source: Text Topic: The Competitive Industry and Firm Type: Comprehension Type: Pickup 27. (p. 239) Explain why average revenue is equal to marginal revenue for a perfectly competitive firm? A perfectly competitive firm faces a perfectly elastic demand curve. It may sell as many units as it wishes at the prevailing market price, thus the revenue from the incremental sale (MR) and the revenue per unit (AR) is equal to the price.

Difficulty: Moderate Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits. Sayre - Chapter 08 #171 Source: Text Topic: The Competitive Industry and Firm Type: Comprehension Type: Pickup 28. (p. 248) The supply curve for a perfectly competitive firm is that portion of its marginal cost curve that lies above its average variable cost curve. Explain why? If the price is below average variable cost, the firm could not cover all of its variable cost. It would therefore shut down and produce nothing.

If the price is equal or greater to the average variable cost, the firm will cover all of its variable cost, thus the firm will operate. Difficulty: Moderate Learning Objective: 08-05 Explain how a firms supply curve is derived. Sayre - Chapter 08 #173 Source: Text Topic: The Firms Supply curve Type: Comprehension Type: Pickup Micro Review Quiz Test 2 Summary Category| # of Questions| Difficulty: Difficult| 1| Difficulty: Easy| 24| Difficulty: Moderate| 3| Learning Objective: 05-01 Explain the law of diminishing marginal utility. 1| Learning Objective: 05-02 Derive a consumers purchasing rule that ensures satisfaction is maximized. | 1| Learning Objective: 05-02 Derive a consumers purchasing rule that ensures satisfaction is maximized. | 1| Learning Objective: 05-04 Provide a theoretical rationale for downward-sloping demand curves. | 1| Learning Objective: 05-05 Understand why consumers generally value a product more than the price they pay. | 2| Learning Objective: 06-01 Understand how and why economists measure costs differently from how accountants do and distinguish between the accountants and economists views of profits. 1| Learning Objective: 06-02 Understand the crucial relationship between productivity and costs. | 1| Learning Objective: 06-03 Understand the important difference between fixed costs and variable costs. | 1| Learning Objective: 06-04 List and graph the seven specific cost definitions used by economists. | 3| Learning Objective: 06-05 Explain the meaning of increasing productivity and cutting costs. | 1| Learning Objective: 07-02 Understand why medium-sized firms are sometimes just as efficient as big firms. | 1| Learning Objective: 07-03 Understand why big firms sometimes enjoy great cost advantages. 2| Learning Objective: 07-04 Understand why firms can sometimes be too big. | 1| Learning Objective: 07-06 Explain what is meant by the right size of firm. | 1| Learning Objective: 08-02 Explain what is meant by perfect competition and the market system. | 2| Learning Objective: 08-03 Use two approaches to explain how a firm might maximize its profits. | 6| Learning Objective: 08-05 Explain how a firms supply curve is derived. | 1| Learning Objective: 08-06 Explain the effect of a change in market demand or market supply on both the industry and the firm. | 1| Sayre - Chapter 05| 8|

Sayre - Chapter 06| 8| Sayre - Chapter 07| 5| Sayre - Chapter 08| 10| Source: Study Guide| 5| Source: Text| 23| Topic: Constant Returns to Scale| 1| Topic: Consumer Surplus| 2| Topic: Economies of Scale| 2| Topic: Explicit and Implicit Costs| 2| Topic: Law of Diminishing Marginal Utility| 1| Topic: Marginal and Variable Costs| 1| Topic: Marginal Utility and Demand| 1| Topic: Optimal Purchasing Rule| 2| Topic: Perfect Competition| 1| Topic: Perfect Competition and the Market System| 1| Topic: The Competitive Industry and Firm| 6| Topic: The Firms Supply curve| 1|