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Exercise 3

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26 views16 pages

Exercise 3

Uploaded by

吳卓蔚
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Exercise 3

1. If the price of one good changes, what happens to the relative price and the
slope of the household's budget line?
When the price of the good measured on the x-axis rises, the relative price of the
good measured on the x-axis _______ and the budget line _______.
A. remains the same; does not change
B. falls; becomes less steep
C. rises; becomes steeper
D. rises; shifts outward
The graph shows Jen's budget line.

Draw Jen's new budget line when the price of a banana rises. Label it.
2. The figure shows one of Carson's indifference curves.

Which combinations of subs and bottled water does Carson prefer?


Carson prefers to consume a combination of subs and bottled water _______ the
indifference curve to a combination of subs and bottled water _______ the
indifference curve.
A. on; above
B. with more subs and fewer bottles of water on; with more bottles of water
and fewer subs on
C. on; below
D. below; above
3. Rashid buys only books and take-out meals. The figure shows his preference map.

If Rashid chooses 3 books and 2 take-out meals, what is his marginal rate of
substitution?
When Rashid chooses the consumption point of 3 books and 2 take-out meals,
his marginal rate of substitution is _______.
A. zero
B. 1 book per take-out meal
C. 2/3 book per take-out meal
D. 3/2 books per take-out meal
If Rashid chooses 2 books and 6 take-out meals, what is his marginal rate of
substitution?
When Rashid chooses the consumption point of 2 books and 6 take-out meals,
his marginal rate of substitution is _______.
A. 0.5 book per take-out meal
B. 1/3 book per take-out meal
C. 1 book per take-out meal
D. 3 books per take-out meal
4. When a consumer chooses the combination of goods and services to buy, what is
she or he trying to achieve?
When a consumer chooses the combination of goods and services to buy, she is
trying to achieve _______.
A. an outcome that is in her self-interest and in the social interest
B. the most expensive goods she can find
C. the combination of goods and services that she prefers above all other
combinations of goods and services that she can afford
D. the greatest number of goods possible

5. The figure shows two of Mary's indifference curves.

The price of chewing gum is $0.50 a pack.


What is Mary's quantity demanded of water when the price of a bottle of water
is $1.00 and when the price of a bottle of water is $0.50?
When the price of a bottle of water is $1.00, Mary's quantity demanded of water
is _______ bottles a day; When the price of a bottle of water is $0.50, her
quantity demanded of water is _______ bottles a day.
A. 4; 3
B. 2; 5
C. 3; 4
D. 5; 2
6. What is a firm's fundamental goal and what happens if the firm doesn't pursue
this goal?
The fundamental goal of a firm is to _____. If a firm fails in this goal, it is _____.
A. make a high-quality product or provide a high-quality service; forced to spend
more than it wants to on advertising and promotions
B. grow into a large multi-national corporation; forced to deal in the domestic
market, which means its profits are smaller than predicted
C. maximize profit; either eliminated or bought by other firms that do seek to
maximize profit
D. obtain the largest possible market share; unable to list its stock on the New
York Stock Exchange

7. What are the items that make opportunity cost differ from the accountant's
measure of cost?
A firm's opportunity cost includes _______.
A. only costs that are paid in cash or by check
B. the cost of using resources bought in the market and owned by the firm only
C. the cost of using resources bought in the market, owned by the firm, and
supplied by the firm's owner
D. the cost of using resources supplied by the firm's owner only
Consider how the following, which are part of a firm's opportunity cost, are
treated by accountants.
Expenses for raw materials _______ in an accountant's measure of cost.
Wages paid to workers _______ in an accountant's measure of cost.
A. are included; are included
B. are not included; are included
C. are included; are not included
D. are not included; are not included

8. Which of the following illustrates implicit rental rate of capital?


A. Jake bought an HDTV
B. Apartment rents have risen in the city of Denver
C. A pound of apples costs $8
D. Ned runs a hair salon out of the first floor of his house
9. Which of the following are examples of short run and long run decisions?
A. LG has adopted a new technology to create a new cell phone
The sale of LG phones has increased
B. Starbucks has hired more labor to meet the increasing demand
Starbucks has opened another store to meet the increasing demand
C. The profits of Dell have improved this quarter
Consumers' preferences for Dell laptops have changed over time
D. Olive Garden has increased its plant size
Olive Garden has opened two new restaurants in Ames
Which of the following is an example of sunk cost?
A. Rachel buys her groceries from WinCo as it is much cheaper
B. Ned spent $50,000 to train employees at his start-up firm
C. The government has regulated a minimum wage rate for all fast-food
employees
D. Nancy uses her own laptop at work

10. Why is a sunk cost irrelevant to a firm's current decisions?


A sunk cost is irrelevant to a firm's current decisions because _______.
A. the decision to make the expenditure was made by previous managers
B. it cannot be changed by any current decision
C. it is a fixed factor of production
D. it occurred in the long run
11. Total product is the total _____ of a good produced in a given period.
Marginal product is the change in _____ product that results from a one-unit
increase in the _____.
Average product is the total product divided by the _____.
A. quantity; total; average product; price
B. price; average; total product; total cost
C. cost; average; marginal cost; average cost
D. quantity; total; quantity of labor employed; quantity of a factor of production
Which of the following illustrates diminishing marginal returns?
A. Total cost decreases as the quantity of labor hired increases
B. Debra produces 30 hats per hour
C. Hiring more workers decreases the productivity of each additional worker
D. A company makes greater investments as it earns higher profits
The law of diminishing marginal returns states that as a firm uses more of a
_____ factor of production with a given quantity of the _____ factor of
production, the _____ product of the _____ factor eventually diminishes.
A. fixed; variable; average; variable
B. variable; fixed; marginal; variable
C. fixed; variable; total; fixed
D. variable; fixed; average; variable

12. Explain how the marginal product and average product of labor change as the
labor employed increases initially and eventually.
As the labor employed increases, marginal product of labor initially _______.
As the labor employed increases, the average product of labor initially_______.
A. decreases and eventually increases; decreases and eventually increases
B. increases and eventually decreases; decreases and eventually increases
C. increases and eventually decreases; increases and eventually decreases
D. decreases and eventually increases; increases and eventually decreases

13. Explain the relationship between marginal product and average product.
When marginal product exceeds average product, _______ product is increasing.
When average product exceeds marginal product, _______ product is decreasing.
A. marginal; marginal
B. average; average
C. marginal; average
D. average; neither average product nor marginal
14. The table gives Sue's Surfboards' total product schedule.

Draw the four points on the average product curve using the information in the
table. Draw the average product curve. Label it.

What is the average product of labor if 6 workers can produce 210 surfboards a
week?
If 6 workers can produce 210 surfboards a week, then average product is
_______ surfboards per worker.
A. 210
B. 35
C. 216
D. 126
15. Total cost is the cost of _____ by a firm.
Total fixed cost is the cost of the _____ - the cost of _____, _____, and _____.
Total variable cost is the cost of the _____ - the cost of _____.
A. the output produced; firm's fixed output; primary; intermediate; final output;
firm's variable output; primary goods and services
B. all the factors of production used; firm's fixed factors of production; land;
capital; entrepreneurship; firm's variable factor of production; labor
C. the quantities of goods produced; firm's fixed quantities; land; labor; capital;
firms’ variable quantities; labor
D. the interest on capital used; firm's fixed rate of interest; physical capital;
financial capital; entrepreneurship; firm's variable rate of interest; financial
capital
When Sam increases smoothie production from 4 gallons to 5 gallons, his total
cost of production increases from $32.50 to $36.85. Calculate Sam's marginal
cost of producing smoothies.
A. $4.35
B. $26.85
C. $4.45
D. $2.50
Tina employs 4 people in her pizza store, where she produces 12 pizzas an hour.
Her total fixed cost, total variable cost, and total costs of pizza production per
hour are $15, $19.40, and $34.40, respectively.
Calculate Tina's average fixed cost, average variable cost, and average total cost.
A. $34.40; $15; $19.40
B. $1.62; $10; $1.25
C. $1.25; $1.62; $2.87
D. $1.25; $2.87; $1.62

16. What relationships do a firm's short-run cost curves show?


Indicate whether each of the following statements is true or false.
The marginal cost curve intersects the average variable cost curve at its minimum
The marginal cost curve intersects the average total cost curve at its maximum
When MC is greater than average variable cost, average variable cost is increasing
When MC is less than average variable cost, average variable cost is decreasing
17. How does marginal cost change as output increases initially and eventually?
Marginal cost _______.
A. decreases at low outputs until it reaches its minimum value, then remains
constant
B. increases at low outputs until it reaches its maximum value, then remains
constant
C. decreases at low outputs and increases at high outputs
D. is constantly increasing, but as output increases it increases by smaller and
smaller amounts
18. Draw a firm's average variable cost curve. Label it.
Draw the firm's average total cost curve. Label it.

Why does the AVC curve have this shape?


The shape of the AVC curve arises because of _______.
A. constant returns
B. falling average fixed cost
C. increasing returns initially and eventually diminishing returns
D. increasing returns as output increases
Why does the ATC curve have this shape?
The shape of the ATC curve arises because of _______.
A. the influence of two opposing forces—spreading total fixed cost over a larger
output and eventually increasing returns
B. falling total product
C. rising marginal cost
D. the influence of two opposing forces—spreading total fixed cost over a larger
output and eventually diminishing returns
19. Sue's Surfboards hires workers at $500 a week and its total fixed cost is $1,000 a
week. The table shows the firm's total product schedule and the graph shows the
cost curves.

When the Sue's output is 210 surfboards a week, what is the firm's total fixed
cost, total variable cost, and total cost?
The firm's total fixed cost is $_______, total variable cost is $_______, and total
cost is $_______.
Sue's output is 210 surfboards a week.
Draw a point to show the firm's
1) Total fixed cost. Label it TFC.
2) Total variable cost. Label it TVC.
3) Total cost. Label it TC.
20. Sue's Surfboards is a firm that produces surfboards.
What is the connection between Sue's AP, MP, AVC, and MC curves?
When the marginal product curve is _______, the marginal cost curve is falling.
When the average product curve is _______, the average variable cost curve is
falling.
A. falling; falling
B. falling; rising
C. rising; falling
D. rising; rising
Maximum MP occurs at the same output as _______. Maximum AP occurs at the
same output as _______.
A. minimum MC; minimum AVC
B. maximum MC; maximum AVC
C. minimum AVC; minimum MC
D. maximum AVC; maximum MC
21. Long-run average cost curve is a curve that shows the _____ average total cost at
which it is _____ to produce each output when the firm has had sufficient time to
change both its plant size and labor employed.
A. lowest; possible
B. lowest; not possible
C. highest; possible
D. highest; not possible
Which of the following illustrates economies of scale, diseconomies of scale, and
constant returns to scale?
Liza's average total cost changes from $4.50 to $2.20 when she increases salad
production from 7 to 9 an hour.
Sam's average total cost changes from $1.30 to $2.80 when he increases
smoothie production from 5 to 8 gallons an hour.
Tina's average total cost remains at $3 when she increases pizza production from
12 to 13 an hour.
A. Sam faces economies of scale; Tina faces diseconomies of scale; Liza faces
constant returns to scale
B. Liza faces economies of scale; Sam faces diseconomies of scale; Tina faces
constant returns to scale
C. Tina faces economies of scale; Sam faces diseconomies of scale; Liza faces
constant returns to scale
D. Sam faces economies of scale; Liza faces diseconomies of scale; Tina faces
constant returns to scale
Which of the following firms produce at the minimum efficient scale?
A. Starbucks makes 1,000 chai lattes each day at which its total revenue is
maximized
B. Dell produces 100 computers a week at which its long-run average total cost
is minimized
C. A Gap outlet in Chicago sells 500 jackets a day and lowers its average variable
cost
D. Toyota produces 20 cars a day at its Texas plant at which its profit is
maximized
22. Does the law of diminishing returns apply to capital as well as labor? Explain why
or why not.
Diminishing returns to capital _______ occur as the quantity of capital increases
because for a given quantity of _______ incremental amounts of output.
A. do; labor each additional unit of capital will result in smaller
B. do not; labor each additional unit of capital will result in smaller
C. do not; labor each additional unit of capital will result in larger
D. do; capital each additional unit of labor will result in smaller

23. What does a firm's LRAC curve show?


The long-run average cost curve is the relationship between the lowest attainable
average total cost and output, when plant size is _______ and labor is _______.
A. held constant; held constant
B. varied; held constant
C. held constant; varied
D. varied; varied
How is a firm’s LRAC curve related to firm's short-run ATC curve?
The long-run average cost curve is made up of the segments of individual average
_______ cost curves with the lowest average _______ cost for a given output.
A. variable; total
B. total; total
C. total; variable
D. variable; variable
24. What are economies of scale and diseconomies of scale? How do they arise?
What do they imply for the shape of the LRAC curve?
_______ are features of a firm's technology that lead to falling long-run average
cost as output increases that arise because of _______.
A. Economies of scope; the challenge of managing a large enterprise
B. Economies of scale; greater specialization of both labor and capital
C. Decreasing economies; comparative advantage
D. Economies of scale; free markets
_______ are features of a firm's technology that lead to rising long-run average
cost as output increases that arise because of _______.
A. Output diseconomies; free markets
B. Diseconomies of scale; comparative advantage
C. Diseconomies of scale; the challenge of managing a large enterprise
D. Economies of scope; greater specialization of both labor and capital
When economies of scale are present, the LRAC curve _______. When
diseconomies of scale are present, the LRAC curve _______.
A. slopes upward; slopes downward
B. is horizontal; slopes upward
C. slopes downward; slopes upward
D. slopes downward; is horizontal

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