Exercise 3
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.
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
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
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
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