Econ 2000 Exam 2
Econ 2000 Exam 2
Price
Per
5
bushel
Q
Bushels of corn
2. You own and are the only employee of a company that writes computer
software that gamblers use to collect sports data. Last year your total
revenue was $90,000. Your costs for equipment, rent, and supplies were
$50,000. To start this business you invested an amount of you own capital
that could pay you a $40,000 a year return.
Your accounting profit last year was
A. $10,000
B. $30,000
C. $40,000
D. $60,000
3. If the hourly price of capital is $50 and the hourly wage rate is $10, which
production technology should be selected?
A. A
B. B
C. C
D. D
4. For inferior goods, the substitution and income effects of price increase will
A. Both decrease the quantity of the good demanded
B. Both increase the quantity of the good demanded
C. The substitution effect will increase the quantity of the good demanded
while the income effect will decrease the quantity of the good demanded
D. The substitution effect will decrease the quantity of the good demanded
while the income effect will increase the quantity of the good demanded
5. Upon graduating with an accounting degree, you open your own accounting
firm of which you and your assistant are the only employees. To start the
firm you passed on a job offer with a large accounting firm that offered you a
salary of $50,000 annually. Last year you earned a total revenue of
$120,000. Rent and supplies last year were $50,000. Your assistants salary
is $30,000 annually.
6. A lawn service company has the following production possibilities. With one,
two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns
per day, respectively.
7. At the Pampered Pet Salon the marginal products of the first, second, and
third workers are 50, 36, and 25 dogs washed, respectively. The total product
(number of dogs washed) of the first two workers is
A. 11
B. 50
C. 86
D. 111
8. Diminishing marginal returns set in after the ____ worker is hired.
A. First
B. Fifth
C. Eighth
D. Sixteenth
9. Assume the total product of two workers is 110 and the total product of three
workers is 120. The third workers average product is ___ while her marginal
product is ____ .
A. 40; 10
B. 40; 20
C. 50; 10
D. 120; 110
10.A dairy company, Farley Farm, has total cost of $10,000 and total variable
costs of $3,000. Farley Farms total fixed costs are
A. $0
B. $7,000
C. $13,000
D. Indeterminate because the firms output level is not known
11.Assuming the price of capital (K) is $10 per unit and the price of labor (L) is
$5 per unit, what production technique should this firm use to produce 2 units
of output?
A. Production technique A
B. Production technique B
C. The firm is indifferent between production technique A and production
technique B
D. It is impossible to determine if the firm should select production technique
A or B because total fixed costs are not given
12.Jane has $500 a week to spend on clothing and food. The price of clothing is
$25 and the price of food is $10. Jane spends her entire income when she
purchases units of clothing and ____ units of food.
A. 10; 10
B. 25; 5
C. 12; 20
D. 16; 8
16.Ellie is spending her entire income on goods X and Y. Her marginal utility
from the last unit of X is 100 and the marginal utility from the last unit of Y
that she consumes is 50. Ellies utility is only maximized if
A. The prices of X and Y are the same
B. The price of good X is twice that of good Y
C. The price of good Y is twice that of good X
D. We cannot determine whether Ellie is maximizing her utility
17.We can stat the utility-maximizing rule in words in the following way: A
person maximizes utility when she equalizes the ____ across products.
A. Total utility
B. Total utility per dollar spent
C. Marginal utility
D. Marginal utility per dollar spent
19.If the price of a candy bar is $1, the price of a hot dog is $2, and Aaron has $6
of income, Aarons utility maximizing combination of sodas and hamburgers
per day is
A. 1 candy bar and 2 hot dogs
B. 4 candy bars and 1 hot dog
C. 2 candy bars and 1.5 hot dogs
D. Indeterminate from this information
20.The total utility of five candy bars per day is
A. 115
B. 120
C. 130
D. Indeterminate from this information
21.The marginal cost of the fourth unit is ____ and the average total cost of the
fourth unit is ___.
A. $10; $30
B. $20; $45
C. $30; $35
D. Indeterminate from the given information
22.If the marginal cost curve is about the average variable cost curve, then
A. Average variable coast is increasing
B. Average variable cost is deceasing
C. Average variable cost is constant
D. Marginal cost is decreasing
23.The Framing Gallery frames posters and has total fixed costs of $1,000. The
Framing Gallery is currently framing _____ posters if its average variable cost
is $20 and its average total cost is $30.
A. 5
B. 25
C. 100
D. An indeterminate number of
25.Outdoor Equipments average total costs are minimized at the output level
A. Where curves 1 and 2 intersect
B. Where curves 1 and 3 intersect
C. Between the intersections of curves 1 and 2 and curves 1 and 3
D. Indeterminate with the given information
26.Assume that Exotic Fruit sells fruit baskets in a perfectly competitive market.
The market price of a fruit basket is $15. To maximized profits, Exotic Fruit
should sell ____ fruit baskets and their profit it ____.
A. Zero; $0
B. Two; -$35
C. Three; -$26
D. Five; -$21
27.If the farmer is producing the profit-maximizing level of output, her profit is
A. $0
B. $2,800
C. $3,000
D. $12,000
28.A firm in a perfectly competitive industry produces its profit-maximuzing
quantity, 40 units. Industry price is $3, total fixed costs are $45, and total
variable costs are $60. The firms economic profit is
A. $15
B. $30
C. $35
D. $60
29.If P=MC and MC > ATC, then a perfectly competitive firm will earn ___ profits.
A. Positive
B. Zero
C. Negative
D. Breakeven
30.If the market price of hay falls to $18, then to maximize profits this farmer
should produce
A. 350 bales of hay
B. 500 bales of hay
C. 700 bales of hay
D. A level of output that is indeterminate from this information
31.Janice owns an ice cream shop. Monthly revenue is $12,000. Her fixed cost
of operation include rent, electricity, interest on a loan, etc. and come to
$3,500 per month. Her variable costs include wages for her workers to stay
in business or return to her previous occupation as an elementary school
teacher. Janice should return to teaching only if she earns more than __ a
month.
A. $4,500
B. $8,000
C. $8,500
D. She should return to teaching regardless of her salary because education
is the most important career anyone can have
33.Tom borrowed $80,000 from his parents to open a donut stand. He agrees to
pay his parents a 5% yearly return on the money they lent him. His other
yearly fixed costs equal $16,000. His variable costs equal $60,000. He sold
50,000 dozen donuts during the year at a price of $3.00 per dozen
Toms profit is
A. $0
B. $30,000
C. $50,000
D. $70,000
34.If this farmer maximizes profits, his total revenue will be
A. $90
B. $135
C. $180
D. $240
35.A(n) ____ in a firms scale of production leads to ___ average total cost when
there are economies of scale.
A. Increase; lower
B. Increase; higher
C. Decrease; lower
D. Decrease; no change in
36.In which of the following price ranges will the firms continue to operat but at
a loss?
A. $5-$6
B. $6-$7
C. $7-$8
D. $8-$9
37.If the market price is $17 and the firm produces 4 units of output, then its
profit would be
A. -$50
B. -$44
C. $0
D. $18
38.Engineers for the Off Road Skateboard Company determine that a 12%
increase in all inputs will cause output to increase by 6%. Assuming that
input prices remain constant, you correctly deduce that such a change in
inputs will cause ___ as output.
A. Total cost to decrease
B. Average cost to increase
C. Average costs to decrease
D. Average fixed costs to increase
39.As long as incumbent firms in this perfectly competitive industry make ___
economic profits, new firms will ___ it and existing firms will ___ it.
A. Zero; not enter; leave
B. Positive; not enter; not leave
C. Positive; enter; not leave
D. Zero; enter; leave
40.If TR > TVC but TR < TC, a firm would ____ in the short run and ___ in the long
run.
A. Operate; expand
B. Operate; exit the industry
C. Shut down; expand
D. Shutdown; exit the industry