Certs - Managerial Economics

MANAGERIAL ECONOMICS
TOPIC: MARKET EQUILIBRIUM
Holly, a horseshoe maker, has collected the following data regarding the local market for full
sets of horseshoes.
Horseshoe
Price Demanded Supplied
P30 400 180
33 375 250
36 350 290
39 320 320
42 285 345
45 235 395
At each price, there is a 60 unit decrease in the number of horseshoes supplied for every increase in
the cost of labor. Therefore, the market has a new equilibrium price for horseshoes of
(adapted)
P45 P36 P39 P42
The following table shows the marginal-utility schedules for goods M and N for a consumer. The
price of good M is P2, and the price of good N is P4. The income of the consumer is P18.
Good Good N
Quantity MU Quantity MU
1 8 1 10
2 7 2 8
3 6 3 6
4 5 4 4
5 4 5 3
6 3 6 2
7 2 7 1
8 1 8 0
If the consumer's income is increased from P18 to P24 and the consumer wishes to maximize utility,
then the consumer will purchase (adapted)
4M and 4N.
2M and 5N.
6M and 3N.
8M and 2N.
sets of horseshoes.
Horseshoe
P30 400 180
33 375 250
36 350 290
39 320 320
42 285 345
45 235 395
Assume the supply stays as shown in the previous table, and the quantity of
horseshoes demanded at each price increase by 160 units. What will be the new equilibrium
quantity? (adapted)
480 395 445 510
Following are total utility data for tapes and CDs. Assume that the prices of tapes and CDs are
P9 and P12, respectively, and that consumer income is P54.
Units of Tapes Total Utility Units of CDs Total Utility

1 9 1 16
2 15 2 28
3 19 3 36
4 21 4 40
5 22 5 42
How many of each product will the consumer buy? (adapted)

2 tapes and 2 CDs.
1 tape and 4 CDs.
3 tapes and 3 CDs.
2 tapes and 3 CDs.
sets of horseshoes.
Horseshoe
P30 400 180
33 375 250
36 350 290
39 320 320
42 285 345
45 235 395
The market has an equilibrium price for horseshoes of (adapted)

P36 P33 P30 P39
Navigation
1
2
3
4
5
Jim is satisfying his hunger by consuming two desserts, pies and cakes. If the marginal utility of
a pie is half that of a cake, what is the price of a pie if the price of a cake is P8.00?
(adapted)
P12.00 P16.00 P8.00 P4.00
Rock Salt, Inc. has collected the following information regarding the current market for rock
salt.
Salt Supplied
Salt Demanded Price (pounds)
2,000 P44 8,000

2,500 42 7,000
3,000 40 6,000
3,500 38 5,000
4,000 36 4,000
4,500 34 3,000
What would equilibrium price and quantity be? (adapted)

P34 and 3,000 pounds.
Which one of the following statements about supply and demand is true?
CMA 1290 1-4
If demand increases and supply decreases, equilibrium price will fall.
If demand increases and supply increases, equilibrium quantity will fall.
If supply increases and demand remains constant, equilibrium price will rise.
If demand increases and supply decreases, equilibrium price will increase.
Good M Good N
1 8 1 10
2 7 2 8
3 6 3 6
4 5 4 4
5 4 5 3
6 3 6 2
7 2 7 1
8 1 8 0
If the consumer wishes to maximize utility, then total utility will equal (adapted)
Cannot be determined.36 24 48
Following are total utility data for tapes and CDs.
Assume that the prices of tapes and CDs are P9 and P12, respectively, and that consumer income
is P54.

1 9 1 16
2 15 2 28
3 19 3 36
4 21 4 40
5 22 5 42
If the price of tapes decreases to P6, then the consumer will purchase (adapted)
3 tapes and 3 CDs.
4 tapes and 2 CDs.
2 tapes and 4 CDs.
4 tapes and 4 CDs.
The prices of A and B are P5 and P4, respectively. The consumer is spending her entire income
buying 5 units of A and 7 units of B. The marginal utility of both the fifth unit of A and the
seventh unit of B is 3. It follows that (adapted)
The consumer should buy more of A and less of B.
The consumer is in equilibrium.
The consumer should buy less of A and more of B.
The consumer should buy less of both A and B.
Following are total utility data for tapes and CDs. Assume that the prices of tapes and CDs are
P9 and P12, respectively, and that consumer income is P54.

1 9 1 16
2 15 2 28
3 19 3 36
4 21 4 40
5 22 5 42
What is the consumer's total utility at the equilibrium point? (adapted)

5547 51 61
Government price regulations in competitive markets that set maximum or ceiling prices below
the equilibrium price will in the short run
CMA 1292 1-3
Create shortages of that product.
Cause demand to decrease.
Cause supply to increase.
Produce a surplus of the product.
Good M Good N
1 8 1 10
2 7 2 8
3 6 3 6
4 5 4 4
5 4 5 3
6 3 6 2
7 2 7 1
8 1 8 0
If the consumer wishes to maximize utility, then the consumer will purchase
(adapted)
1M and 4N.
7M and 1N.
3M and 3N.
5M and 2N.
In competitive product markets, equilibrium price in the long run is

CMA 1292 1-4
Set equal to the marginal costs of production.
Set equal to the total costs of production.
A fair price all consumers can afford.
Set equal to the total fixed costs of production.
If both the supply and the demand for a good increase, the market price will
CMA 0691 1-13
Not be predictable with only these facts.
Rise only in the case of an inelastic supply function.
Fall only in the case of an inelastic supply function.
Rise only in the case of an inelastic demand function.
TOPIC: PRICE FLOOR
The competitive model of supply and demand predicts that a surplus can arise only if there is a
CMA 1292 1-18
Maximum price above the equilibrium price.
Minimum price below the equilibrium price.
Minimum price above the equilibrium price.
Maximum price below the equilibrium price.
Rock Salt, Inc. has

Salt Supplied
Salt Demanded Price (pounds)
2,000 P44 8,000
2,500 42 7,000
3,000 40 6,000
3,500 38 5,000
4,000 36 4,000
4,500 34 3,000
What would occur if a legal price floor were set at P42? (adapted)
Shortage of 6,000 pounds.
Surplus of 4,500 pounds.
Surplus of 6,000 pounds.
Shortage of 4,500 pounds.
TOPIC: PRICE CEILING
If the federal government regulates a product or service in a competitive market by setting a

maximum price below the equilibrium price, what is the long-run effect?
CMA 1296 1-1
No effect on the market.
A shortage.
A surplus.
A decrease in demand.
If a rent control law in a competitive housing market establishes a maximum or
ceiling rent that is above the market or equilibrium rent,
(CMA 1286 1-7)
Demand will increase as price increases.
A surplus of rental housing units will result.
Supply will decrease as price increases.
The law has no effect on the rental market.
Price ceilings CMA 1290 1-6

Create prices below equilibrium prices.
Result in persistent surpluses.
Are illustrated by government price support programs in agriculture.
Create prices greater than equilibrium prices.
TOPIC: MARKET ADJUSTMENTS
In any competitive market, an equal increase in both demand and supply can be expected to
always CMA 1292 1-1
Increase both price and market-clearing quantity.
Increase price.
Decrease both price and market-clearing quantity.
Increase market-clearing quantity.
TOPIC: COST CLASSIFICATION
Companies A, B, and C had the following results for last year as reported on financial statements
prepared in conformity with generally accepted accounting principles:
A B C
Sales P100,000 P200,000 P400,000
Cost of goods sold 60,000 120,000 200,000
Gross profit 40,000 80,000 200,000
Other expenses 10,000 20,000 80,000
Profit 30,000 60,000 120,000
Shareholders’ equity P500,000 P300,000 900,000
Which company had the highest accounting income? (adapted)

Company C.
Two were equal.
Company A.
Company B.
In the economic theory of production and cost, the short run is defined to be a production
process CMA 1287 1-10
That is subject to economies of scale.
That always produces economic profits.
In which both fixed and variable inputs are employed.
Which spans a time period of less than one year in length.
Because of the existence of economies of scale, business firms may find that
CMA 1292 1-7
Increasing the size of a factory will result in lower total costs.

Increasing the size of a factory will result in lower average costs.
Each additional unit of labor is less efficient than the previous unit.
As more labor is added to a factory, increases in output will diminish in the short run.
A normal profit is CMA 1290 1-10

The same as an economic profit.
The same as the accountant's bottom line.
An explicit or out-of-pocket cost.
A cost of resources from an economic perspective.
The existence of economic profit in pure monopoly will

CMA 1290 1-1
Have no influence on the number of firms in the industry.
Lead to an increase in product supply.
Lead to a decline in market prices for substitutes.
Lead to a decline in the number of firms in the industry.
The measurement of using resources now in lieu of alternative uses of the resources is
CMA 0689 1-21
Comparative advantage.
Economic efficiency.
Opportunity cost.
Absolute advantage.
The definition of economic cost is CMA 1292 1-12

The difference between all implicit and explicit costs of the business firm.
All the peso costs employers pay for all inputs purchased.
The sum of all explicit and implicit costs of the business firm .
The opportunity cost of all inputs minus the peso cost of those inputs.
Because of economies of scale, as output from production expands,

CMA 1289 1-9
The long-run average cost of production increases.
The long-run total cost decreases.
The slope of the demand curve increases.
The short-run average cost of production decreases.
When long-run average cost is declining over a range of increasing output, the firm is
experiencing CMA 0692 1-30
Decreasing returns.
Economies of scale.
Technological efficiency.
Increasing fixed costs.
Companies A, B, and C had the following results for last year as reported on financial statements
prepared in conformity with generally accepted accounting principles:
A B C
Sales P100,000 P200,000 P400,000
Cost of goods sold 60,000 120,000 200,000
Gross profit 40,000 80,000 200,000
Other expenses 10,000 20,000 80,000
Profit 30,000 60,000 120,000
Shareholders’ equity P500,000 P300,000 900,000
Assets are equal to shareholders' equity. The company has no long-term debt outstanding. The cost
of internally-generated equity capital is 12%. Which company had the highest economic profit?
(adapated)
Company A.
Company B.
Cannot be determined from information given.
Company C.
If Tonya used P10,000 from her savings account, which was paying 5% interest annually, to
invest in a saloon, the opportunity cost of this investment would annually be
(adapted)
P500
P10,500
P10,000
The dividend paid by the coffee shop.
While walking around a yard sale, Jimbo happened upon a bicycle that he personally valued at
P55. Jimbo was able to purchase the bicycle for P30, even though it was only 2 years old and
originally sold for P100. What is Jimbo's consumer surplus?
(adapted)
P25 P15 P70 P45
Which one of the following is not a factor contributing to economies of scale?

CMA 1290 1-9
Diminishing returns.
Use of by-products.
Labor specialization.
Efficient use of capital equipment.
n the short run, a purely competitive firm operating at a loss will

CMA 1285 1-15
Shut down.
Continue to operate as long as price exceeds average variable costs.
Raise the price of its product.
Reduce the size of its plant to lower fixed costs.
TOPIC: AVERAGE COST AND MARGINAL COST
Use the following data:
Units of Resource Total Product Marginal Product

1 8 8
2 14 6
3 18 4
4 21 3
5 23 2
The product that the firm produces has a selling price of P5. Therefore, the fourth unit of the
resource will have a marginal revenue product of (adapted)
P3 P5 P15P10
The last hour of labor, hired for P20, produces 6 units of output selling for P3 per unit.
Therefore, that labor-hour adds _______________ to the firm's profit, so ______________ labor
should be hired. (adapted)
P 2; less.
P18; more.
P 2; more.
P18; less.
As of December 31 of the current year, a monopolist was producing at a level that experienced
price = P18, average total cost = P15, average variable cost = P12, marginal revenue = P13, and
marginal cost = P14. To maximize profits in the new year, the monopolist should
(adapted)
Decrease production.
Not change the output level, because the monopolist is currently at the profit-maximizing output
level.
Increase production.
Shut down.
Gator Company is selling in a purely competitive market and has the following cost data.
Average Fixed Average Average Total Marginal Cost

Cost Variable Cost Cost
1 P600 P100 P700 P100
2 300 75 375 50
3 200 70 270 60
4 150 73 223 80
5 120 70 190 110
6 100 90 190 190
7 86 105 191 200
8 76 119 195 230
9 67 138 205 290
10 60 160 220 360
If the market price for Gator's product is P290, this firm should produce (adapted)
10 units at an economic profit of P700.
PR
Mrs. Robinson is hired as a consultant to a firm that is currently competing perfectly. At the
current output level the price is P10, the average variable cost is P6, the average total cost is
P10, and marginal cost is P8. To maximize profits, Mrs. Robinson will recommend that the firm
should (adapted)
Shut down.
Not change production.
No. of Total Product Average

Workers Units Selling Price
10 20 P50.00
11 25 49.00
12 28 47.50
The marginal physical product when one worker is added to a team of 10 workers is
CMA 1295 1-17
8 units.
25 units.
5 units.
1 unit.
Pinta Inc., a profit-maximizing manufacturer, employs two resources, resource P and resource Q.
The price of resource P is P40 and its marginal revenue product (MRP) for the last unit of P
hired was P240. The price of resource Q is P25 and its MRP for the last unit of Q hired was
P150. Pinta should (adapted)
Hire less of both resource X and resource Y.
Hire more of resource X and less of resource Y.
Hire more of both resource X and resource Y.
Hire less of resource X and more of resource Y.
Average Fixed Average Average Total Marginal Cost

Cost Variable Cost Cost
1 P600 P100 P700 P100
2 300 75 375 50
3 200 70 270 60
4 150 73 223 80
5 120 70 190 110
6 100 90 190 190
7 86 105 191 200
8 76 119 195 230
9 67 138 205 290
10 60 160 220 360
If the market price for Gator's product is P190, this firm should produce (adapted)
8 units and break even.

6 units and break even.
5 units at an economic loss of P70.
No. of Workers Total Product Units Average Selling Price

10 20 P50.00
11 25 49.00
12 28 47.50
The marginal revenue product when one worker is added to a team of 11 workers is
CMA 1295 1-19
P225.00
P47.50
P42.00
P105.00
The marginal cost curve is the supply curve for the firm in CMA 0690 1-29
Oligopoly.
Monopolistic competition.
Pure competition.
Pure monopoly.
Soggy Shoes, a pure monopolist, has accumulated the following cost data.
Quantity Demanded Price Per Unit Total Cost
1 650 410
2 600 450
3 550 510
4 500 590
5 450 700
6 400 840
7 350 1,020
8 300 1,250
9 250 1,540
Assume Dry Toes is a nondiscriminating monopolist and Soggy Shoes is a discriminating

monopolist. How much greater of a total economic profit will Soggy Shoes obtain than Dry Toes,
based upon the data given for Soggy Shoes? (adapted)
P2,550
P1,400
P990
P1,560
Microhard Technologies has always used 100 units of labor and 100 units of capital to produce
10 keyboards. Recently, Microhard has decided to double both inputs. This increase in
production has resulted in increasing the outputs from 10 units to 18 units. Microhard is
experiencing (adapted)
Increasing returns.
Constant returns.
Decreasing returns.
Economies of scale.
Ekin Inc. has always used 100 units of capital and 100 units of labor to produce 10 automobiles.
Recently, Ekin has decided to double both inputs. This increase in production has resulted in the
production of 15 more automobiles. Ekin is experiencing
(adapted)
Diseconomies of scale.
Increasing returns.
Decreasing returns.
Constant returns.
Marginal revenue is CMA 1290 1-15

The change in total revenue associated with increasing prices.
Equal to price in monopolistic competition.
The change in total revenue associated with producing and selling one more unit.
Greater than price in pure competition.
Average Fixed Average Variable Average Total Marginal Cost

Cost Cost Cost
1 P600 P100 P700 P100
2 300 75 375 50
3 200 70 270 60
4 150 73 223 80
5 120 70 190 110
6 100 90 190 190
7 86 105 191 200
8 76 119 195 230
9 67 138 205 290
10 60 160 220 360
An equilibrium price will be set at (adapted)
P230 P190P200 P110
Suppose the price of a factor of production is P10, and the product's price (evaluated in a
competitive market) is P8. If the last unit of a factor of production employed has a marginal
physical product of 12, then this factor's marginal revenue product is
(adapted)
P8 P10 P96P24

10 20 P50.00
11 25 49.00
12 28 47.50
The marginal cost of producing the ninth unit is CMA 0697 1-4
P23.75 P25.75 P23.50P33.75
As of December 31 of the current year, a monopolist was producing at a level that experienced
price = P18, average total cost = P15, average variable cost = P12, marginal revenue = P13, and
marginal cost = P14. To maximize profits in the new year, the monopolist should
(adapted)
Not change the output level, because the monopolist is currently at the profit-maximizing output
level.
Shut down.
When a firm produces 10,000 units of output, its total variable cost is equal to P50,000. Also, it
experiences average fixed costs of P3 per unit. What are the total costs for producing 10,000
units? (adapted)
P80,000
P50,003
P50,000
P30,000
A corporation's net income as presented on its income statement is usually

CMA 0690 1-27
Less than its economic profits because accountants include labor costs, while economists exclude
labor costs.
More than its economic profits because opportunity costs are not considered in calculating net
income.
Equal to its economic profits.
More than its economic profits because economists do not consider interest payments to be costs.
The fixed cost of Civic Co. is P1,000, and Civic's total variable cost is indicated in the table.
Output Total Variable Cost

1 P 200
2 360
3 500
4 600
5 1,000
6 1,800
7 2,800
Civic has an average variable cost when 4 units of output are produced of (adapted)
P200 P250 P150P600
If a firm's fixed costs are P500, and its average variable costs stay constant despite various levels
of output, which of the following must be true?
(adapted)
Marginal cost will be less than average variable cost.
Marginal cost will equal average total cost.
Average total cost will decrease when output is increased.
Average total cost will be constant.
Quantity Price Per Unit Total Cost

Demanded
1 650 410
2 600 450
3 550 510
4 500 590
5 450 700
6 400 840
7 350 1,020
8 300 1,250
9 250 1,540
Assume Soggy Shoes is able to engage in price discrimination and sell each unit of the
product at a price equal to the maximum price the buyer of that unit would be willing to
pay. The marginal revenue that Soggy Shoes obtains from the sale of an additional unit
will equal its (adapted)
Total cost.
Average cost.
Unit cost.
Price.
Quantity Price Per Unit Total Cost

Demanded
1 650 410
2 600 450
3 550 510
4 500 590
5 450 700
6 400 840
7 350 1,020
8 300 1,250
9 250 1,540
The profit-maximizing output and price for Soggy Shoes is (adapted)

8 units and a P300 price.
Demand and cost data for Billingsworth, a pure monopolist, is shown below.
Output Price Per Unit Total Cost

1 P1,000 P500
2 600 520
3 500 580
4 400 700
5 300 1,000
6 200 1,500
As a profit-maximizing monopolist, Billingsworth will sell its product at a price of

(adapted)
P600 P500
P1,000
P400
No. of Workers Total Production Total Price (P)

1 16 P4
2 26 4
3 34 4
4 40 4
5 44 4
If the wage rate is P35, the firm will employ (adapted)

Four workers.
Three workers.
Two workers.
Five workers.
Spruce Goose Inc. is a chief competitor in the highly competitive field of small jet production.
Its total revenue for producing 10 small jets is P60. Meanwhile, its total revenue for producing
11 small jets is P77. Therefore, the (adapted)
Average revenue for producing 11 units is P17.
Marginal revenue for producing the eleventh unit is P77.
Marginal revenue for producing the eleventh unit is P17.
Average revenue for producing 11 units is P77.

1 16 P4
2 26 4
3 34 4
4 40 4
5 44 4
If the wage rate is P15, the firm will employ (adapted)

Four workers.
Three workers.
Two workers.
Five workers.

1 P1,000 P500
2 600 520
3 500 580
4 400 700
5 300 1,000
6 200 1,500
Billingsworth, a profit-maximizing monopolist, will produce how many units?

(adapted)
3
1
2
4
se the following data:

1 16 P4
2 26 4
3 34 4
4 40 4
5 44 4
Assume the product has an increase to a fixed price of P6, then if the wage rate is maintained at
P35, the firm will employ (adapted)
Four workers.
Five workers.
Three workers.
Two workers.
The long-run average total cost curve CMA 1290 1-8

Is horizontal and parallel to the demand curve.
Is ordinarily U-shaped.
Is strongly influenced by diminishing returns.
Is the same as the rising portion of the marginal cost curve.

1 P 200
2 360
3 500
4 600
5 1,000
6 1,800
7 2,800
Civic has an average total cost when 4 units of output are produced of
(adapted)
P150 P250 P400P600

10 20 P50.00
11 25 49.00
12 28 47.50
The marginal revenue per unit when one worker is added to a team of 11 workers is
CMA 1295 1-18
P35.00
P225.00
P105.00
P47.50

1 P 200
2 360
3 500
4 600
5 1,000
6 1,800
7 2,800
Civic's marginal cost of the seventh unit of output is (adapted)

P300 P100
P1,000
P400
In the short run in perfect competition, a firm maximizes profit by producing the rate of output at
which the price is equal to
CMA 1289 1-8
Average fixed costs.
Marginal cost.
Total variable cost.
Total cost.
Mr. Bojangles is hired as a consultant to a firm that is, currently, competing perfectly. At the
current output level the price is P20, the average variable cost is P15, average total cost is P22,
and marginal cost is P20. In order to maximize profits, Mr. Bojangles will recommend that the
firm should (adapted)
Not change output. This firm is at its profit-maximizing position .
Shut down.
If a firm currently producing 500 units of output incurs total fixed costs of P10,000 and total
variable costs of P15,000, the average total cost per unit is
CMA 1289 1-7
P20.
P50.P25.
P30.
Santa Maria Co. employs inputs that have a marginal product of labor of 10 and a price of labor
equal to P5. Santa Maria's inputs also have a marginal price of capital of 45 and a price of
capital of P15. Assuming the firm wishes to maximize profits, Santa Maria should
(adapted)
Make no change in resource use.
Use less labor and less capital.
Use more labor and less capital.
Use less labor and more capital.
The sum of the average fixed costs and the average variable costs for a given output is known as
CMA 0692 1-28
Average total cost.
Long-run average cost.
Total cost.
Average product.
No. of Total Product Average

Workers Units Selling Price
10 20 P50.00
11 25 49.00
12 28 47.50
CMA 1295 1-17
5 units.
1 unit.
8 units.
25 units.

1 P1,000 P500
2 600 520
3 500 580
4 400 700
5 300 1,000
6 200 1,500
Billingsworth has decided to put 4 units on the market. If Billingsworth is able to sell each unit at
the maximum price that the buyer is willing to purchase it for, how much would total revenue be?
(adapted)
P4,000
P2,500
P2,800
P1,600
Quantity Demanded Price Per Unit Total Cost
1 650 410
2 600 450
3 550 510
4 500 590
5 450 700
6 400 840
7 350 1,020
8 300 1,250
9 250 1,540
Assuming Soggy Shoes is a price-discriminating monopolist, what would their profit-maximizing

output be? (adapted)
6 units.
9 units.
8 units.
7 units.
A firm produces only 5 units of output. If total variable cost is P400, and total fixed cost is P200,
then (adapted)
Average fixed cost is P200.
Marginal cost is P120.
Average total cost is P600.
Average variable cost is P80.

1 P1,000 P500
2 600 520
3 500 580
4 400 700
5 300 1,000
6 200 1,500
As a profit-maximizing monopolist, Billingsworth will sell its product at a price of

(adapted)
P400 P600
P1,000
P500
The output and cost information for a firm is presented below. (adapted)
Output Total Variable Cost Total Cost

0 P0 P100
1 150 250
2 260 360
3 350 450
The marginal cost of the second unit of output is

P150 P100 P180 P110
During the previous year, Morrison Inc. produced 200,000 pogo sticks and sold them all for P10
each. The explicit costs of production were P700,000, and the implicit costs of production were
P200,000. The firm had an accounting profit of (adapted)
P1.3 million and economic profit of P1.1 million.
P1.1 million and economic profit of P0.
The change in total product resulting from the use of one unit more of the variable factor is
known as CMA 0692 1-29
Marginal cost.
The point of diminishing marginal productivity.
The point of diminishing average productivity.
Marginal product.
A particular piece of equipment, owned by Meehan Inc., is to become worthless in exactly 1

year, the same time in which it will produce its last marginal revenue product, valued at
P50,000. If the interest rate is 8%, a firm would be willing to buy the piece of equipment when
the purchase price is (adapted)
Below P50,000.
Below P46,296.
Above P46,296.
Above P50,000.
Units of Resource Total Product Marginal Product

1 8 8
2 14 6
3 18 4
4 21 3
5 23 2
Assume that the firm's product still has a price of P5 and that the price of the resource is valued at
P20. It can be concluded that the firm will employ _____ units of the resource.
(adapted)
4
5
3
1
he fixed cost of Civic Co. is P1,000, and Civic's total variable cost is indicated in the table.

1 P 200
2 360
3 500
4 600
5 1,000
6 1,800
7 2,800
Civic's marginal cost of the seventh unit of output is (adapted)

P100 P300 P400
P1,000
TOPIC: Fundamental Economic Principles and the Law of Diminishing Returns
Which one of the following would cause the demand curve for a normal good to shift to the left?
A rise in average household income
A rise in the price of a substitute product
A change in consumers' tastes in favor of the commodity
A rise in the price of a complementary commodity
A decrease in the price of a complementary good will

Increase the price paid for a substitute good.
Shift the supply curve of the joint commodity to the left.
Shift the demand curve of the joint commodity to the right.
Shift the demand curve of the joint commodity to the left.
The local video store's business increased by 12% after the movie theater raised its prices from
P6.50 to P7.00. This is an example ofSuperior goodsSubstitute goodsPublic
goodsComplementary goods
If a product has a price elasticity of demand of 2.0, the demand is considered to be

Relatively inelastic
Relatively elastic
Perfectly inelastic
Perfectly elastic
As the price for a particular product changes, the quality of the product demanded changes
according to the following schedule.
Quantity Demanded Price per Unit

100 P50
150 45
200 40
225 35
230 30
232 25
The price elasticity of demand for this product when the price decreases from P50 to P45 is
0.20
0.10
10.00
3.80
Which of the following statements is not true of indifference curves?

Indifference curve indicate that more goods are preferable to fewer goods.
The marginal utility of a good decreases as consumption of the good increases.
Indifference curves cross at their equilibrium point.
Indifference curves slope downward to the right, indicating goods are substitutable.
The demand curve for a normal good is

Upward sloping because higher-priced goods are of higher quality.
Upward sloping because firms produce more at higher prices.
Vertical
Downward sloping because of the income and substitution effects of price changes.
P6.50 to P7.00. This is an example ofComplementary goodsPublic goods Substitute goods
Superior goods
Which one of the following would cause the demand curve for a normal good to shift to the left?
A rise in the price of a complementary commodity
A rise in average household income
A change in consumers' tastes in favor of the commodity
A rise in the price of a substitute product
If a diabetic must have insulin no matter what the cost, the diabetic's demand is considered to be
Perfectly inelastic
Perfectly elastic
Indifferent
As the price for a particular product changes, the quality of the product demanded changes
according to the following schedule.
Quantity Demanded Price per Unit

100 P50
150 45
200 40
225 35
230 30
232 25
The price elasticity of demand for this product when the price decreases from P50 to P45 is
10.00
3.80
0.10
0.20
In the theory of demand, the marginal utility per peso of a product

Decrease when consumption expands.
Increases as more units of a variable input are added to the production process.
Increase when consumption expands.
Explains why short-run supply curves are upward sloping.
Shift the demand curve of the joint commodity to the right .
If a product has a price elasticity of demand of 2.0, the demand is considered to be

Relatively elastic
Perfectly elastic
Perfectly inelastic
The law of diminishing marginal utility states that

Marginal utility will decline as a consumer acquires additional units of a specific product
Declining until cause the demand curve to slope upward
Consumers' wants diminish with the passage of time
Total utility will decline as a consumer acquires additional units of specific product
Which of the following statements concerning pure monopolies is correct?

The demand curve of a monopolies is perfectly elastic
The supply curve of a monopoly is perfectly inelastic
The monopolist's marginal revenue curve lies below the monopolist's demand curve
The point of profit maximization for a monopoly is where average total revenue equals
average total cost
Which of the following statements concerning pure monopolies is correct?

The price at which monopolist maximizes its profit is where price equals both marginal cost
and marginal revenue
A monopolist's marginal revenue curve lies below its demand curve
For a monopolist, there is a unique relationship between the price and the quantity supplied
The demand curve of a monopolist is perfectly elastic
A market with many independent firms, low barriers to entry, and product differentiation is best
classified as
A monopoly
Pure competition
An oligopoly
Monopolistic competition
In the context of a two-sector, free-market model, which of the following is not correct?
The cost of economic resources to business firms is equal to the compensation paid to individuals.
Income of business firms is equal to the cost of goods and services to individuals.
Business firms are the primary owners of the factors of production.
What gets produced by business firms depends on the needs and wants of individuals who have
the ability to pay for goods and services.
Business firms are the primary owners of the factors of production.
Correct. This statement is not correct. In a two-sector, free-market model it is assumed that the
factors of production (labor, capital, and natural resources) are owned primarily by
individuals, not business firms. It is further assumed that business firms acquire those factors of
production from individuals in order to produce other goods and services.
In a free-market economy, which of the following should be the least significant factor in
determining resource allocation and use?
Preferences of individuals.
Availability of economic resources.
Government regulation of commerce.
Level of technological development.
Government regulation of commerce.
In a free-market economy, government regulation of commerce should be the least significant

factor (of those listed) in determining resource allocation and use.
Brainpower
Read More
Previous
Play
Next
Rewind 10 seconds
Move forward 10 seconds
Unmute
0:00
/
0:15
Full screen
The free-market economy flow model depicts four major interrelated flows:
I . Individuals provide economic resources to business firms.
II. Firms provide payment to individuals for economic resources.
III. Firms provide goods and services to individuals.
IV. Individuals provide payment to firms for goods and services.
If financial institutions and businesses suddenly and severely restrict the availability of consumer
credit, which one of the above flows would be most likely to be the first to be impacted adversely?
I.
II.
III.
IV.
IV.
Initially, a sudden and severe restriction in the availability of consumer credit likely would
adversely impact the ability of individuals to provide payment to firms for goods and services. The
lack of credit likely would reduce consumer demand, which would then begin to impact other flows.
Which of the following is not a characteristic of a free-market economy?
Economic decisions are made by individual decision makers.
There is an interdependent relationship between individual consumers and business firms.
Economic resources are unlimited.
What gets produced depends on the preferences of end-use consumers.
Economic resources are unlimited.
Under any economic system, economic resources--labor, capital, and natural resources--are
scarce.
Which of the following are considered economic resources?
Labor
Capital
Natural resources
Yes
Yes
Yes
Yes
Yes
No
Yes
No
No
No
Yes
Yes
Yes
Yes
Yes
Labor (human work, etc.), capital (financial and man-made), and natural resources (land, minerals,
etc.) are all economic resources and they are scarce.
In a competitive market for labor in which demand is stable, if workers try to increase their wage,
employment must fall.
government must set a maximum wage below the equilibrium wage.
firms in the industry must become smaller.
product supply must decrease.
employment must fall.
This answer is correct. If wages rise in a stable market, the quantity demanded for labor will
decline and employment will fall. Since the wage rate is the price of labor, a change in that price
would result in a change in quantity demanded for labor.
The movement along the demand curve from one price-quantity combination to another is called
a(n)
Change in demand.
Shift in the demand curve.
Change in the quantity demanded.
Increase in demand.
Change in the quantity demanded.
This answer is correct. Movement along the existing demand curve reflects an increase or
decrease in the quantity demanded.
If a group of consumers decide to boycott a particular product, the expected result would be
An increase in the product price to make up lost revenue.
A decrease in the demand for the product.
An increase in product supply because of increased availability.
That demand for the product would become completely inelastic.
A decrease in the demand for the product.
This answer is correct. If consumers boycott a product, demand for the product declines.
X and Y are substitute products. If the price of product Y increases, the immediate impact on
product X is
(This question is CIA adapted.)

Price will increase.

Demand will increase.
Quantity supplied will increase.
Price, demand, and quantity supplied will increase.
Demand will increase.
The demand and price of substitute products are directly related. If the price of a good increases,
the demand for its substitute will also increase. This statement depicts this relationship.
(This question is CMA adapted.)

If the price of a complementary good decreases, demand for the joint commodity will increase.
This is due to the fact that the total cost of using the two products decreases. If demand for a
product increases, the demand curve will shift to the right.
All of the following are complementary goods except
Margarine and butter.

Cameras and rolls of film.
VCRs and video cassettes.
Razors and razor blades.
Margarine and butter.
Complementary goods are those that are used together because they enhance each other's use.
Margarine and butter are substitute goods, not complementary goods.
Which one of the following would cause the demand curve for a commodity to shift to the left?
A rise in the price of a substitute product.

A rise in average household income.
A rise in the price of a complementary commodity.
A rise in the population.
A rise in the price of a complementary commodity.
A shift in the demand curve to the left would be indicative of a decrease in demand for the product,
and an increase in the price of a complementary commodity would cause such a shift.
When a demand schedule is plotted on a graph, the resulting demand curve for a market will be
positively sloped.
negatively sloped.
completely vertical.
completely horizontal.
negatively sloped.
The demand schedule of an individual or of the market shows that more units of a commodity are
demanded as the price decreases. Therefore, the demand curve would be
negatively sloped; the quantity demanded would be lower at higher prices and would increase as
price decreases. The quantity demanded varies inversely with price along a given demand curve:
Image containing a negatively sloped demand curve, with price marked on the y-axis and quantity
marked on the x-axis.
Thus, a demand curve has a negative slope; quantity is inversely related to price.
In the statement "quantity demanded is a function of price," are the variables quantity and price
dependent or independent variables?
Quantity
Price
Dependent
Dependent
Dependent
Independent
Independent
Independent
Independent
Dependent
Dependent
Independent
Since "quantity" is a function of "price," price is an independent variable and quantity is the
dependent variable. The quantity demanded of a commodity depends upon (i.e., is dependent on)
the price of acquiring the commodity.
Which one of the following would not cause an increase in demand for a commodity?
An increase in the number of consumers.
An increase in the price of a substitute commodity.
An increase in consumers' preference for the commodity.
A reduction in the price of the commodity.
A reduction in the price of the commodity.
A reduction in price will not cause an increase in demand for a commodity, but rather will change
(increase) the quantity demanded. An increase in demand causes a shift of the demand curve (up
and to the right). A change in price causes movement along a specific demand curve.
Concurrent with a significant downturn in the economy, the sale of Scope's high-end electronics
decreased dramatically. Which of the following is the most likely direct cause of the decline in
demand for Scope's products?
Scope increased the price of the products.
Income of market participants decreased.
Scope reduced the price of its products.
Market participants' preferences for electronics changes.
Income of market participants decreased.
In view of the economic downturn, a decrease in the income of market participants for high-end
electronics was probably the direct cause of the decline in demand for Scope's products. A
decrease in income is normally associated with a decrease in demand for normal (and "above
normal") goods and an increase in demand for inferior goods.
The demand curve for a product reflects which of the following?
The impact of prices on the amount of product offered.
The willingness of producers to offer a product at alternative prices.
The impact that price has on the amount of a product purchased.
The impact that price has on the purchase amount of two related products.
The impact that price has on the amount of a product purchased.
The demand curve reflects the impact that price has on the amount of a product purchased. A
demand curve (or schedule) for a product shows the quantity of a commodity that will be
demanded at various prices during a specified time, ceteris paribus (holding variables other than
price constant).
Increased demand for product A increases the demand for resources used to produce product A.
What is the best explanation for the increase in the demand for resources?
The theory of derived demand is working.
Product A is in an expanding industry.
The theory of the invisible hand is working.
The demand for product A is highly elastic.
The theory of derived demand is working.
CORRECT! Derived demand is the demand for a good or service that results because it is an
input needed in order to provide another good or service for which there is demand. The demand
for a good or service is derived from the demand for another good or service. The theory of
derived demand explains why an increase in product A increases the demand for resources used
to produce product A.
If both the supply and the demand for a good increase, the market price will
Rise only in the case of an inelastic supply function.
Fall only in the case of an inelastic supply function.
Rise only in the case of an inelastic demand function.
This answer is correct. Since the amounts of the supply and demand increase are not known, it is
impossible to predict the effects.
A supply curve illustrates the relationship between
Price and quantity supplied.
Price and consumer tastes.
Price and quantity demanded.
Supply and demand.
Price and quantity supplied.
This answer is correct. A supply curve illustrates the quantity of a good supplied at different prices.
An increase in the market supply of beef would result in a(n)
Increase in the price of beef.
Decrease in the demand for beef.
Increase in the price of pork.
Increase in the quantity of beef demanded.
Increase in the quantity of beef demanded.
This answer is correct. An increase in supply of beef would result in a lower equilibrium price and
therefore increase the demand for beef.
Which of the following is not likely to affect the supply of a particular good?
Changes in government subsidies.
Changes in technology.
Changes in consumer income.
Changes in production costs.
Changes in consumer income.
Changes in consumer income could affect the demand for the good, but not its supply.
If a change in market variables causes a supply curve to shift inward, which one of
the following will occur?
The price at which the same quantity will be provided after the shift will be less than the price
before the shift.
At a given price, a greater quantity will be provided after the shift than the quantity provided before
the shift.
The supply curve after the shift will intercept the Y axis at a lower point than before the shift.
In order for the same quantity to be provided after the shift as was provided before the shift, price
will have to increase.
In order for the same quantity to be provided after the shift as was provided before the shift, price
will have to increase.
If the supply curve shifts inward (to the left), the same quantity will be provided after the shift as
was provided before the shift, only at a higher price.
When the cost of input factors to the production process increases, which one of the following will
occur?
The demand curve will shift outward.
The supply curve will shift outward.
The demand curve will shift inward.
The supply curve will shift inward.
The supply curve will shift inward.
An increase in the cost of input factors to the production process will cause the supply curve to
shift inward. An increase in input costs will cause the per-unit cost to increase and the supply
curve will shift upward and to the left (inward).
A supply schedule (or supply curve) shows the relationship between the quantity of a commodity
that will be supplied during a period of time and
the cost of input factors.
The level of technology.
The selling price of the commodity.
The demand for the commodity.
The selling price of the commodity.
A supply schedule (or supply curve) shows the quantity of a commodity that will be supplied
(provided) at different selling prices during a period of time. The supply curve normally is positively
sloped; the quantity supplied increase along a given supply curve as the price increases. The
following graph depicts a typical supply curve:
Image containing a positively sloped, straight line supply curve, with price marked on the y-axis
and quantity marked on the x-axis.
In the statement "quantity supplied is a function of price," are the variables quantity and price
dependent or independent variables?
Quantity
Price
Independent
Independent
Independent
Dependent
Dependent
Independent
Dependent
Dependent
Dependent
Independent
The statement "quantity supplied is a function of price" means that quantity depends upon price.
Therefore, quantity is the dependent variable and price is the independent variable.
Which one of the following factors would not cause an increase in the supply curve of a
commodity?
Improvements in related technology.
A decrease in the cost of production inputs.
An increase in the number of manufacturers of the commodity.
An increase in the price of the commodity.
An increase in the price of the commodity.
A change in price changes the quantity supplied, which is a movement along a supply curve, not a
shift in the supply curve. An increase in the price of a commodity would increase the quantity
supplied, but would not shift the supply curve.
In the short run, a severe hurricane creates an immediate strong increase in demand for roofers.
Some roofers in other parts of the country are then attracted to the disaster area. Assume that in
the long run the increase in demand still exceeds the increase in supply. Incorporating these facts
in an analysis, the price for roofers in the short run increases, while in the long run the price will
Decrease below the original price.
Return to the original price.
Decrease, but remain above the original price.
Continue to increase.
Decrease, but remain above the original price.
This answer is correct. If the increase in demand continues to exceed the increase in supply, price
will remain above the original price.
A city ordinance that freezes rent prices may cause
The demand curve for rental space to fall.
The supply curve for rental space to rise.
Demand for rental space to exceed supply.
Supply of rental space to exceed demand.
Demand for rental space to exceed supply.
This answer is correct because if prices are held artificially low, demand will exceed supply.
Not studied (45)
You haven't studied these terms yet!
Select these 45
Price ceilings
(This question is CMA adapted)
Are illustrated by government price support programs in agriculture.

Create prices greater than equilibrium prices.
Result in persistent surpluses.
Price ceilings cause the price of a product to be artificially low resulting in decreased supply. The
price is below the equilibrium price as indicated by this choice.
When the federal government imposes health and safety regulations on certain products, one of
the most likely results is

Greater consumption of the product.
Lower prices for the product.
Greater tax revenues for the federal government.
Higher prices for the product.
Higher prices for the product.
Government regulation increases the cost of the product and therefore will most likely result in
higher prices.
If the federal government regulates a product or service in a competitive market by setting a

maximum price below the equilibrium price, what is the long-run effect?
A surplus.
A shortage.
No effect on the market.
A shortage.
If the government mandates a maximum price below the equilibrium price, the product will be
selling at an artificially low price resulting in shortages.
Which of the following will cause a shift in the supply curve of a product?
(This question is CIA adapted)
Changes in the price of the product.

Changes in production taxes.
Changes in consumer tastes.
Changes in the number of buyers in the market.
Changes in production taxes.
A shift in the supply curve may result from (1) changes in production technology, (2) changes or
expected changes in resource prices, (3) changes in the prices of other goods, (4) changes in
taxes or subsidies, (5) changes in the number of sellers in the market, and (6) expectations about
the future price of the product. This item identifies changes in production taxes, which will alter the
supply curve.
A city ordinance that establishes a price ceiling on rent below the equilibrium price may cause
the demand curve for rental space to shift to the left.
the supply curve for rental space to shift to the right.
the quantity of rental space demanded to exceed the quantity supplied.
the quantity of rental space supplied to exceed the quantity demanded.
the quantity of rental space demanded to exceed the quantity supplied.
A city ordinance that freezes rent prices will cause the quantity of rental space demanded to
exceed the quantity supplied. Specifically, a freeze in rental prices would cause the actual price
charged (the controlled price) to be less than the equilibrium price, resulting in a shortage of
rentable space. Since suppliers (landlords) are prevented from raising prices to an equilibrium
level, they will cease to invest in rentable space, causing a shortage.
If both demand and supply have traditional curves, a higher equilibrium price may be caused by
which one of the following?
An increase in demand.
An increase in supply.
A production technology innovation.
An increase in demand.
A higher equilibrium price (and quantity) would be caused by an increase in demand.

A price ceiling that is below the market equilibrium price would be expected to result in which one
of the following sets of effects on demand and supply?
Supply
Demand
Excess
Shortage
Excess
Excess
Shortage
Shortage
Shortage
Excess
Shortage
Excess
A price ceiling established below the market equilibrium price would be expected to result in a
shortage in supply and an excess demand. The price ceiling will limit what can be charged for a
good or service, resulting in marginal (high cost) suppliers unable to compete in the market. This
will result in a shortage of supply. The shortage in supply, in turn, will result in demand for the
good or service (at the "low" controlled price) exceeding what is provided, an excess demand.
If the price for a good is fixed by government fiat below market equilibrium price, which one of the
following will occur?
Excess supply.
Demand shortage.
Excess demand.
Actual price will be greater than equilibrium price.
Excess demand.
If the price for a good is fixed by government fiat below market equilibrium price, an excess
demand will result. Because the price that can be charged is limited (price ceiling), less will be
supplied, such that the quantity demanded will exceed quantity supplied. There will be an excess
demand.
An increase in the market supply of beef would result in a/an
increase in the price of beef.
decrease in the demand for beef.
increase in the price of pork.
increase in the quantity of beef demanded.
increase in the quantity of beef demanded.
An increase in the market supply of beef (with no change in demand) would result in a new supply
and demand equilibrium which reflects an increase in the quantity of beef demanded and a
decrease in the price of beef (a movement along the "fixed" demand for beef curve).
X and Y are complementary products. If the price of product Y increases, the immediate impact on
product X is that its
Price will decrease.
Quantity demanded will decrease.
Quantity supplied will decrease.
Price, quantity demanded, and supplies will remain unchanged.
Quantity demanded will decrease.
This answer is correct. If two goods are complements, an increase in the price of one tends to
decrease the quantity demanded of the other. The package of goods becomes more expensive.
Tower Inc. sells a product that is a close substitute for a product offered by Westco. Historically,
management of Tower has observed a coefficient of cross-elasticity of 1.5 between the two
products. If management of Tower anticipates a 5% increase in price by Westco, how would this
action by Westco's management be expected to affect the demand for Tower's product?
A 5% increase.
A 5% decrease.
A 7.5% increase.
A 7.5% decrease.
A 7.5% increase.
This answer is correct. A coefficient of cross-elasticity of 1.5 would mean that a 5% increase in the
price of the substitute would result in a 7.5% (5% × 1.5) increase in demand for Tower's product.
$6.50 to $7.00. Thus, relative to movie theater admissions, videos are
Substitute goods.
Superior goods.
Complementary goods.
Public goods.
Substitute goods.
This answer is correct. The demand for a substitute good goes up when the primary good's price
increases. This illustrates cross-elasticity of demand.
Which of the following characteristics would indicate that an item sold would have a high price
elasticity of demand?
The item has many similar substitutes.
The cost of the item is low compared to the total budget of the purchasers.
The item is considered a necessity.
Changes in the price of the item are regulated by governmental agency.
This answer is correct because if an item has many substitutes, a small price increase would
result in a large decrease in demand as consumers choose lower-cost substitutes.
In the pharmaceutical industry where a diabetic must have insulin no matter the cost and where
there is no other substitute, the diabetic's demand curve is best described as
Perfectly elastic.
Perfectly inelastic.
Elastic.
Inelastic.
Perfectly inelastic.
Demand for the product is perfectly inelastic because the diabetic will purchase the product
regardless of the price.
If a product's demand is elastic and there is a decrease in price, the effect will be
A decrease in total revenue.

No change in total revenue.
A decrease in total revenue and the demand curve shifts to the left.
An increase in total revenue.
An increase in total revenue.
If a product's demand is price-elastic, a decrease in price will lead to an even larger percentage
increase in quantity demanded. Therefore, total revenue will increase.
Demand for a product tends to be price inelastic if
The product is considered a luxury item.

People spend a large percentage of their income on the product.
The population in the market area is large.
Few good substitutes for the product are available.
Few good substitutes for the product are available.
Price inelasticity means that the quantity demanded does not change much with price changes.
This would be a characteristic of a good with few substitutes.
As a business owner you have determined that the demand for your product is inelastic. Based
upon this assessment you understand that
Increasing the price of your product will increase total revenue.
Decreasing the price of your product will increase total revenue.
Increasing the price of your product will have no effect on total revenue.
Increasing the price of your product will increase competition.
Increasing the price of your product will increase total revenue.
If demand is inelastic an increase in price will increase total revenue. This statement accurately
states this rule.
Which of the following has the highest price elasticity coefficient?
Milk.
Macaroni and cheese.
Bread.
Ski boats.
Ski boats.
If substitutes for a good are readily available then the demand for the good is more elastic. There
are many substitutes for luxury goods
If demand for a product is elastic, what would be the effect of a price increase and a price
decrease on total revenue (TR) generated?
Price Increase
Price Decrease
TR Increase
TR Increase
TR Increase
TR Decrease
TR Decrease
TR Increase
TR Decrease
TR Decrease
TR Decrease
TR Increase
When demand is elastic (with a calculated elasticity coefficient greater than 1), the percentage
change in demand is greater than the percentage change in price.
Therefore, an increase in price would result in a greater than proportionate decrease in quantity,
which would cause a decrease in total revenue. A decrease in price would result in a greater than
proportionate increase in quantity, which would cause an increase in total revenue.
The elasticity of demand is measured by
The change in quantity divided by the change in price.
The change in price divided by the change in quantity.
The percentage change in quantity divided by the percentage change in price.
The percentage change in price divided by the percentage change in quantity.
The percentage change in quantity divided by the percentage change in price.
The elasticity of demand measures the percentage change in the quantity demanded of a
commodity as a result of a given percentage change in the price of the commodity. The formula for
a commodity is:
Elasticity = Percentage change in quantity demanded

Percentage change in price
The percentage change in quantity demanded is computed by dividing the change in quantity by
the original quantity (or the new quantity or the average of the original and new quantities).
The percentage change in price is computed by dividing the change in price by the original price
(or the new price or the average of the original and new prices).
The absolute value of the percentage change in quantity is then divided by the absolute value of
the percentage change in price. The result is expressed as a positive number. The resulting
demand elasticity can be:
Less than 1 = inelastic: quantity percentage change is less than the percentage change in price.
Equal to 1 = unitary: quantity percentage change is the same as the percentage change in price.
Greater than 1 = elastic: quantity percentage change is more than the percentage change in price.
A 4% increase in the market price of Commodity X resulted in an 8% increase in the quantity of
Commodity X supplied. Which one of the following statements is correct?
Supply is inelastic.
Supply is unitary.
Supply is elastic.
Supply is price neutral.
Supply is elastic.
Since the percentage change in supply (8%) was greater than the percentage change in price
(4%), supply is elastic.
Which of the following characteristics would indicate that an item sold would have a high price
elasticity of demand?

The cost of the item is low compared to the total budget of the purchasers.
The item is considered a necessity.
Changes in the price of the item are regulated by governmental agency.
When a good or service has a high price elasticity of demand the percentage change in quantity
demanded is greater than the percentage change in price. When a good or service has many
substitutes, a small change in price will result in a greater change in quantity demanded as
consumers switch to the substitutes. So, for example, if the price of an item with many substitutes
increases, consumers will switch to lower-cost substitutes, reflecting a high price
elasticity of demand.
Marginal revenue is
This answer is correct. Marginal revenue is defined as the amount of additional revenue received
from the sale of one additional unit.
The law of diminishing marginal utility states that
Marginal utility will decline as a consumer acquires additional units of a specific product.
Total utility will decline as a consumer acquires additional units of a specific product.
Declining utilities cause the demand curve to slope upward.
Consumers' wants diminish with the passage of time.
Marginal utility will decline as a consumer acquires additional units of a specific product.
This answer is correct. The principle of diminishing marginal utility states that marginal utility
declines with each additional unit the consumer receives.
When maximizing utility in economics, what is being maximized?
Profits.
Satisfaction.
Costs.
Elasticity.
Satisfaction
This answer is correct. Utility involves maximizing satisfaction.

As an individual acquires (or consumes) more units of a commodity over a given time period, what
is the effect on the individual's total utility and marginal utility?
Total Utility
Marginal Utility
Decreases
Decreases
Decreases
Increases
Increases
Decreases
Increases
Increases
Increases
Decreases
As an individual acquires or consumes more units of a commodity, the total satisfaction or utility
derived increases with each unit; however, the additional (marginal) utility derived from each
additional unit acquired or consumed decreases.
This is the basis of the law of diminishing utility and helps explain the negative slope of an
individual's demand curve.
Allen buys only beer and pizza. When the price of beer is $2.00 per bottle and the price of pizza is
$10.00, Allen maximizes his total utility (satisfaction) by buying 5 beers and 4 pizzas. If the
marginal utility of the 5th beer is 100 utils, which one of the following would be the marginal utility
of the 4th pizza?
40 utils.
100 utils.
200 utils.
500 utils.
500 utils.
When total utility is maximized, the marginal utility (MU) of the last dollar spent on each and every
item acquired must be the same. Thus, total utility is maximized when: MU of beers/price of beers
= MU of pizza/price of pizza. Using the values given: 100 utils/$2.00 = MU of pizza/$10.00. The
equation for beers = 100/$2 = 50 utils per dollar. The MU of pizza also must be 50 utils per dollar.
Therefore, 50 = MU of pizza × $10 = 500 utils.
Allen has the following schedule of marginal utility for slices of pizza and bottles of beer:
Slices of
Pizza Marginal
Utility Bottles of
Beer Marginal
Utility
1 100 1 60
2 80 2 50
3 60 3 30
4 50 4 20
If Allen maximizes his total utility by consuming 3 slices of pizza and 3 bottles of beer, which one
of the following is the ratio of the price of a slice of pizza to the price of a bottle of beer?
1:1
1:2
2:1
2:2
2:1
Since total utility is achieve when 3 slices of pizza and 3 bottles of beer are consumed, the
marginal unit per dollar must be equal at those quantities of pizza and beer. For that to be true, the
price of a slice of pizza must be twice that of the price of a bottle of beer, as computed by the
marginal utility of beer divided into the marginal utility of pizza. That calculation would be 60/30,
which is 2:1.
The following graph shows four curves: A-A, B-B, C-C, and D-D.
Image of a graph in which straight line DD is parallel to the y-axis and BB is parallel to the x-axis.
Curve AA is negatively sloped and curve CC is positively sloped.
Which one of these curves could depict a total utility curve?
A-A.
B-B.
C-C.
D-D.
C-C.
Total utility increases as quantity increases. The curve C-C correctly depicts a variable (total utility)
on the Y axis that increases as the variable (quantity) on the X axis increases.
This question is based on the following information.
Total units of product Average fixed cost Average variable cost Average total cost
6 $15.00 $25.00 $40.00
7 12.86 24.00 36.86
8 11.25 23.50 34.75
9 10.00 23.75 33.75
The total cost of producing seven units is

$90.02
$168.00
$258.02
$280.00
$258.02
This answer is correct. The total cost would equal the average cost multiplied by the number of
units, or $258.02 (7 × $36.86).
This question is based on the following information.
Total units of product Average fixed cost Average variable cost Average total cost
6 $15.00 $25.00 $40.00
7 12.86 24.00 36.86
8 11.25 23.50 34.75
9 10.00 23.75 33.75
The marginal cost of producing the ninth unit is

$23.50
$23.75
$25.75
$33.75
$25.75
This answer is correct. Marginal cost is the additional cost of producing one more unit. The
amount may be obtained by subtracting the total cost of 9 units from the total cost of 8 units.
$25.75 = ($33.75 × 9) - ($34.75 × 8).
Marginal revenue is

Marginal revenue is the change in total revenue associated with the sale of one more unit of
output.
The marginal revenue product when one worker is added to a team of 11 workers
is
Number of workers Total product units Average selling price

10 20 $50.00
11 25 49.00
12 28 47.50
$42.00
$225.00
$105.00
$47.50
$105.00
The marginal revenue product is the increase in total revenue received by the addition of one
worker. The total revenue from adding one additional worker to a team of 11 is equal to the
difference between total revenue at 12 workers and total revenue at 11 workers, or $105 [(25 ×
$49) − (28 × $47.50)].
In the long run, a firm may experience increasing returns due to
Law of diminishing returns.

Opportunity costs.
Economies of scale.
Economies of scale.
In the long run, firms may experience increasing returns because they operate more efficiently.
With growth comes specialization of labor and related production efficiencies. This phenomenon is
called economies of scale.
In microeconomics, the distinguishing characteristic of the long run on the supply side is that
Only supply factors determine price and output.

Only demand factors determine price and output.
Firms are not allowed to enter or exit the industry.
All inputs are variable.
All inputs are variable.
The distinguishing characteristic of the long-run production function is that all costs are variable.
The marginal revenue per unit when one worker is added to a team of 11 workers is

10 20 $50.00
11 25 49.00
12 28 47.50
$105.00
$225.00
$35.00
$47.50
$35.00
The total revenue of adding one additional worker to a team of 11 is equal to the difference
between total revenue at 12 workers and total revenue at 11 workers, or [(25 × $49) − (28 ×
$47.50)]/28 − 25 units = $105/3 units = $35 (marginal revenue per unit).
Because of the existence of economies of scale, business firms may find that
Each additional unit of labor is less efficient than the previous unit.
As more labor is added to a factory, increases in output will diminish in the short run.
Increasing the size of a factory will result in lower total costs.
In the long run firms may experience increasing returns because they operate more efficiently.
With growth comes specialization of labor and related production efficiencies related to the law of
diminishing returns. This phenomenon is called economies of scale. This statement accurately
describes this concept.
What is the main factor that differentiates the short-run cost function from the long-run cost
function?
Nothing, the two functions are identical.
The level of technology.
Changes in government subsidies.
The nature of the costs.
The nature of the costs.
In the short run firms have fixed and variable costs, whereas in the long run all costs are variable.

10 20 $50.00
11 25 49.00
12 28 47.50
1 unit.
8 units.
5 units.
25 units.
5 units.
The marginal physical product is the additional output obtained by adding one additional worker.
When one worker is added to a team of 10, five (25 − 20) additional units are produced.
Daily costs for Kelso Manufacturing include $1,000 of fixed costs and total variable costs are
shown below.
Unit output 10 11 12 13 14 15
Cost $125 $250 $400 $525 $700 $825
The average total cost at an output level of 11 units is

$113.64
$125.00
$215.91
$250.00
$113.64
The average total cost is calculated by dividing total cost by the number of units: [($1,000 fixed
cost + $250 variable cost)/11] = $113.64.
Which one of the following cost curves does not have a general "U-shape"?
Average variable cost (AVC) curve.
Average fixed cost (AFC) curve.
Average total cost (ATC) curve.
Marginal cost (MC) curve.
Average fixed cost (AFC) curve.
Since, by definition, fixed costs do not change with changes in output over the relevant range of
production, the more units produced, the lower the average fixed cost. Simply put, more units are
being produced for a fixed cost. Therefore, the average fixed cost decreases continuously over the
relevant range of production. It is not "U-shaped."
In the long run, if all input factors to a production process are increased by 100%, but total output
increases by only 75%, this indicates
Increasing returns to scale.
Constant returns to scale.
Decreasing returns to scale.
Diminishing returns.
Decreasing returns to scale.
Since output increases in lesser proportion (75%) than inputs (100%), there are decreasing
returns to scale; the returns from increasing the scale of operations in the long-run are less than
proportionate to the inputs incurred in increasing the scale of operations.
This is a long-run concept in which all inputs are considered variable and primarily result from
problems (communication, coordination, etc.) associated with managing very large-scale
operations.
According to the law of diminishing returns, which one of the following is correct?
The marginal product (output) falls as more units of a variable input are added to fixed inputs.
The marginal product (output) increases as more units of a variable input are added to fixed
inputs.
The total product (output) falls as more units of a variable input are added to fixed inputs.
Marginal utility falls as more units of goods are consumed.
The marginal product (output) falls as more units of a variable input are added to fixed inputs.
According to the law of diminishing returns, as more units of a variable input are added to fixed
inputs, a point is reached at which the continued addition of variable inputs results in decreasing
output per unit of variable input. Generally, this diminishing return results when the increasing
variable inputs overwhelm the fixed inputs, which results in inefficiencies.
Which one of the following statements regarding periods of analysis is correct?
Short-run analysis assumes that all inputs can be varied.
Long-run analysis assumes that all inputs can be varied.
Short-run analysis assumes that all inputs are fixed.
Long-run analysis assumes that all inputs are fixed.
Long-run analysis assumes that all inputs can be varied.
In the long run, it is assumed that all inputs to the production process can be
varied, including the number and size of production facilities.
In the long run, a firm may experience increasing returns due to
The law of diminishing returns.
Opportunity costs.
Economies of scale.
Economies of scale.
In the long run, a firm can experience increasing returns due to economies of scale. The long-run
average cost (LAC) curve is "U" shaped. Where the LAC curve is decreasing, quantity of output
increases in greater proportion than the increase in all inputs, primarily due to specialization of
labor and equipment. That downward-sloping section of a LAC curve reflects increasing returns to
scale.

Certs - Managerial Economics

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Certs - Managerial Economics

Uploaded by

Copyright:

Available Formats

MANAGERIAL ECONOMICS

TOPIC: MARKET EQUILIBRIUM

Units of Tapes Total Utility Units of CDs Total Utility

How many of each product will the consumer buy? (adapted)

The market has an equilibrium price for horseshoes of (adapted)

2,000 P44 8,000

What would equilibrium price and quantity be? (adapted)

Following are total utility data for tapes and CDs.

Units of Tapes Total Utility Units of CDs Total Utility

Units of Tapes Total Utility Units of CDs Total Utility

What is the consumer's total utility at the equilibrium point? (adapted)

In competitive product markets, equilibrium price in the long run is

TOPIC: PRICE FLOOR

Rock Salt, Inc. has

TOPIC: PRICE CEILING

If the federal government regulates a product or service in a competitive market by setting a

Price ceilings CMA 1290 1-6

TOPIC: MARKET ADJUSTMENTS

TOPIC: COST CLASSIFICATION

Which company had the highest accounting income? (adapted)

Increasing the size of a factory will result in lower total costs.

A normal profit is CMA 1290 1-10

The existence of economic profit in pure monopoly will

The definition of economic cost is CMA 1292 1-12

Because of economies of scale, as output from production expands,

Which one of the following is not a factor contributing to economies of scale?

n the short run, a purely competitive firm operating at a loss will

TOPIC: AVERAGE COST AND MARGINAL COST

Use the following data:

Units of Resource Total Product Marginal Product

Average Fixed Average Average Total Marginal Cost

Use the following data:

No. of Total Product Average

Average Fixed Average Average Total Marginal Cost

8 units and break even.

Use the following data:

No. of Workers Total Product Units Average Selling Price

Quantity Demanded Price Per Unit Total Cost

Assume Dry Toes is a nondiscriminating monopolist and Soggy Shoes is a discriminating

Marginal revenue is CMA 1290 1-15

Average Fixed Average Variable Average Total Marginal Cost

An equilibrium price will be set at (adapted)

P230 P190P200 P110

Use the following data:

No. of Workers Total Product Units Average Selling Price

A corporation's net income as presented on its income statement is usually

Output Total Variable Cost

Quantity Price Per Unit Total Cost

Quantity Price Per Unit Total Cost

The profit-maximizing output and price for Soggy Shoes is (adapted)

Output Price Per Unit Total Cost

As a profit-maximizing monopolist, Billingsworth will sell its product at a price of

Use the following data:

No. of Workers Total Production Total Price (P)

If the wage rate is P35, the firm will employ (adapted)

No. of Workers Total Production Total Price (P)

If the wage rate is P15, the firm will employ (adapted)

Output Price Per Unit Total Cost

Billingsworth, a profit-maximizing monopolist, will produce how many units?

se the following data:

No. of Workers Total Production Total Price (P)

The long-run average total cost curve CMA 1290 1-8