Exam 21. If Weiskamp T-shirt Co. lowers its price from $6 to $5 and finds that students increase their quantity demanded from 400 to 600 T-shirts, demand isa.price inelasticb.price elasticc.unit elasticd.cross elastic2. In Exhibit D-1, price elasticity of demand within the price range $8 and $6 isa.4.27b.1.5c.1.6d.0.643. In Exhibit D-1, price elasticity of demand within the price range $10 and $8 isa.1.0b.0.7c.1.5d.2.04. The cross elasticity of demand for substitute goods musta.Be greater than oneb.Be less than onec.Be zerod.exceed zero5. The cross elasticity of demand for complementary goods musta.Be less than oneb.Be greater than onec.exceed zerod.Be negative6. If Herbert the hair stylist raises the price of his cuts from $13 to $15 and the quantity demanded for his cuts falls from 300 to 260, demand isa.price inelasticb.price elasticc.unit elasticd.cross elastic7. Refer to Exhibit E-2. Each dessert is priced at $1. If you had $10 to spend on desserts, which of the following combinations of goods would you buy?a.5 units of brownies, 4 units of ice cream, and 1 unit of pieb.4 units of brownies, 5 units of ice cream, and 1 unit of piec.4 units of brownies, 4 units of ice cream, and 2 units of pied.4 units of brownies, 3 units of ice cream, and 3 units of pie8. Refer to Exhibit E-3. Clothes and amusements are priced at $10 each. If you had a budget of $50, which of the following combinations of goods would you buy?a.4 units of clothes and 1 unit of amusementb.3 units of clothes and 3 units of amusementc.2 units of clothes and 3 units of amusementd.1 unit of clothes and 4 units of amusement9. Refer to Exhibit E-3. Clothes and amusements are priced at $10 each. The marginal utility per dollar for the first unit of amusement isa.0.5b.1.5c.2.0d.5.010. Refer to Exhibit E-3. Your budget is $50. The price of amusement goods is $10. If the price of clothes falls to $4, which of the following statements is true?a.The marginal-utility-to-price ratio for clothes will decrease.b.The marginal-utility-to-price ratio for clothes will increase.c.The quantity demanded of clothes will decrease.d.There will be no change in the quantity demanded of clothes or amusements.11. Given whatever income they have, consumers make consumption choices to maximize thea.total utility of the goods they consumeb.marginal utility of the goods they consumec.average utility of each good they consumed.number of goods they buy12. According to the law of diminishing marginal utility, the fifth pair of gloves that Mary receives for Christmas makes hera.as happy as she was while receiving the first pairb.less happy than she was while receiving the first pairc.more happy than she was while receiving the first paird.consider that fifth pair as having zero marginal utility13. If the total utility Jack receives from 10 gallons of gasoline is 16, and the total utility Jack receives from 11 gallons of gasoline is 20, the marginal utility of the 11th gallon of gasoline isa.1b.4c.7d.2014. If income increases from $100 to $150 and demand increases from 1 to 2, then income elasticity isa.-1.1b. 1.67c. -1.5d. 2.015. If income decreases from $150 to $100 and demand increases from 3 to 5, then income elasticity isa.-1.25b. 1.33c. -1.5d. 2.016. If the price of apples rises from $2 to $2.50 per pound, and the demand for bananas increases from 3 to 6 lbs per week, cross prices elasticity isa.-2b. 1.5c.-1.75d. 317. If the price of gasoline rises from $1.50 to $2 per pound and the demand for automobiles falls from 2.5 to 1.5 million, cross prices elasticity isa.-2b. 1.5c.-1.75d. 1.618. When demand is inelastic, a decrease in price will causea.no change in total revenue.b.an increase in total revenue.c.a decrease in total revenue.d.There is insufficient information to answer this question.19. When demand is elastic, an increase in price will causea.no change in total revenue.b.an increase in total revenue.c.a decrease in total revenue.d.There is insufficient information to answer this question.20. In Exhibit I-1, the marginal revenue of the twelfth unit equalsa.$7b.$18c.$216d.$121. At P = $20, AVC = $10, AFC = $10, & Q = 20, the result is aa.loss of $10b.profit of $10c.loss of $20d.normal economic profit22. If at Q = 12, MC of the twelfth unit = $84 & MR of that unit = $70, the firm shoulda.shut downb.increase outputc.remain at Q = 12d.reduce output23. In the short run, a firm should shut down if price is less thana.ATCb.ARc.MCd.AVC24. When the firm’s output level is zero, profit equalsa.Zerob.fixed costc.variable costd.marginal revenue25. At P = $20, AVC = $10, AFC = $8 & Q = 20, the result is aa.loss of $10b.normal economic profitc.profit of $20d.profit of $40NOTE: EXHIBIT 1-4 ERRONEOUSLY REVERSES MC & ATC CURVES26. In Exhibit I-4, if this firm is currently producing 20 units of output, this firma.is earning a profit of $10b.is earning a profit of $.50c.is losing $10d.should shut down27. In Exhibit I-4, if this firm is currently producing 20 units of output, this firma.is at its profit-maximizing pointb.could increase profits by increasing outputc.could increase profits by decreasing priced.should shut down28. At P = $24, Q = 200, MC = MR, AFC = $6, AVC = $25, the firm shoulda.increase output.b.decrease output.c.shut down.d.stay at the current output level, although profit = -$1,400.29. The firm’s supply curve isa.the same as the industry’s supply curveb.the average total cost curvec.perfectly horizontald.the marginal cost curve above AVC30. At P = $24, AVC = $22 & ATC = $26, in the long run this firm shoulda.continue to operate at a lossb.earn a positive profitc.go out of businessd.increase output31. At P = $20, AVC = $10, AFC = $12, & Q = 20, the result is aa.loss of $20b.profit of $0c.profit of $40d.loss of $4032. Market power refers to thea.firm’s ability to control the industry’s supply and demandb.joining of firms into a cartelc.firm’s ability to influence market priced.market’s ability to control a firm’s price33. In Exhibit I-2, at what quantity does the firm maximize profit?a.13 unitsb.14 unitsc.15 unitsd.16 units34. Which of the following is NOT possible when a firm is maximizing its profits?a.MC = MRb.AVC is at its minimum pointc.AFC < AVCd.MC = MR and TR is increasing35 The marginal product of labor can be defined as (where d denotes “change”)a.d profit/d labor.b.d output/d labor.c.d labor/d total cost.d.d labor/d output.36. Diminishing marginal product of labor would arise whena.workers are discouraged about the lack of help from other workers.b.only new workers are trained in using the most productive capital.c.crowded office space reduces the productivity of new workers.d.union workers are told to reduce their work effort in preparation for a new round of collective bargaining talks.37. The cost to produce an additional unit of output is the firm’sa.average variable cost.b.marginal cost.c.average opportunity cost.d.total productivity cost.38. Average total cost equalsa.(fixed costs + variable costs)/quantity produced.b.(fixed costs + variable costs)/change in quantity produced.c.change in total costs/quantity produced.d.change in total costs/change in quantity produced.39. If we assume that marginal product of labor is initially increasing but always decreasing thereafter, average total costa.and average fixed cost are always falling.b.and average fixed cost are always U-shaped.c.and average fixed cost are always rising.d.is U-shaped and average fixed cost is always falling.40. If marginal cost is risinga.average total cost must be falling.b.average fixed cost must be rising.c.marginal product must be rising.d.marginal product must be falling.