Thursday, July 26, 2012

Utility + Production




1.        A cost that is incurred when an actual monetary payment is made is a(n) __________ cost.
a.
Explicit
b.
Implicit
c.
Positive
d.
Expressed


2.        A cost of resources used in production for which no actual monetary payment is made is a(n) __________ cost.
a.
Tacit
b.
Implicit
c.
Covert
d.
Explicit

3.        Which of the following statements is true?
a.
Costs are always explicit, never implicit.
b.
Costs are always implicit, never explicit.
c.
George runs a stationery shop; he paid Frank $5,000 for the carpet he installed in the shop. The $5,000 for carpet is an implicit cost.
d.
An implicit cost is a cost that represents the value of resources used in production for which no actual monetary payment is made.
e.
none of the above


4.        Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?
a.
Wilson paid $120 for an outside laundry service to clean the towels used at the club.
b.
Wilson paid $100 for the pest control exterminator to spray the health club.
c.
Wilson previously worked as an accountant, earning $3,000 a month.
d.
Wilson usually eats four hamburgers a day, priced at $3 each.


5.        Which of the following statements is false?
a.
Money must change hands before a cost can be incurred.
b.
No monetary payment takes place when an implicit cost is incurred.
c.
Costs may be either explicit costs or implicit costs.
d.
Cost implies that a sacrifice has been made.

6.        Consider the following information about a business Diane opened last year: price = $4, quantity sold = 10,000; implicit cost = $14,000; explicit cost = $20,000. What was Diane's economic profit?
a.
$20,000
b.
$34,000
c.
$6,000
d.
$42,000

7.        Consider the following information about a business Rodriguez opened last year: price = $5; quantity sold = 15,233; implicit cost = $18,000; explicit cost = $33,000. What was Rodriguez's accounting profit?
a.
$43,165
b.
$25,165
c.
$58,165
d.
$61,165

8.        Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $100,000 in total revenues and paid $75,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $45,000 per year. What are Joe's explicit costs?
a.
$105,000
b.
$75,000
c.
$35,000
d.
$45,000
e.
$60,000






9.        Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $100,000 in total revenues and paid $75,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $45,000 per year. What are Joe's implicit costs?
a.
$105,000
b.
$65,000
c.
$25,000
d.
$45,000
e.
$60,000

10.      Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $100,000 in total revenues and paid $75,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $45,000 per year. What are Joe's accounting profits?
a.
$0
b.
-$25,000
c.
-$20,000
d.
$40,000
e.
$25,000

11.      An unrecoverable cost that should be disregarded in any current or future decision is also called a(n) __________ cost.
a.
Sunk
b.
Explicit
c.
Implicit
d.
Variable

12.      You paid $25 for your ticket to the football game, only to see your favorite team losing 28-0 at the end of the first quarter. That $25 should now be regarded as a(n) __________ cost that should be __________ in your decision on whether or not to stay at the game.
a.
explicit; included
b.
explicit; disregarded
c.
sunk; included
d.
sunk; disregarded

13.      Carol says the following to an economist: "I hate playing the guitar, but I have taken lessons for 10 years, so I might as well continue. There is a chance I will become a professional guitarist one day." An economist would probably make which of the following statements?
a.
In a world of scarcity and unhappy alternatives, guitar playing may be your best bet.
b.
You're right; it is better not to let all that time, energy, and money on guitar lessons go to waste. That would be uneconomical and irrational.
c.
The music made by a guitar is nice; maybe you should stay with it, you may come to like it.
d.
The cost you have incurred for guitar lessons is sunk. You should not allow something that can't be undone to influence a current decision.

14.      A fixed input is an input whose quantity
a.
can be changed as output changes in the short run.
b.
cannot be changed as output changes in the short run.
c.
cannot be changed as output changes in the long run.
d.
a and c
e.
b and c

15.      Which of the following statements is true?
a.
The short run is always somewhere between six and twelve months.
b.
In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.
c.
The long run is any period of time over one year.
d.
In the short run, there are variable costs but no fixed costs.
e.
b and d







16.      Average fixed cost
a.
is usually greater at lower levels of output than at higher levels.
b.
does not change as output changes.
c.
exists only in the short run.
d.
is usually greater at higher levels of output than at lower levels of output.
e.
a and c

17.      Ryan recently went into the business of producing and selling cardboard boxes. For this business, which of the following is most likely to be a fixed cost?
a.
fire insurance
b.
labor costs
c.
paper costs
d.
long-distance telephone costs
e.
b, c, and d are equally likely to be fixed costs

18.      Costs that do not change with output are called __________ costs.
a.
Marginal
b.
Average
c.
Fixed
d.
Variable

19.      Fixed costs
a.
are equal to explicit costs plus implicit costs.
b.
do not vary with output.
c.
are the same as total costs for any level of output greater than zero.
d.
are another name for sunk costs.

20.      Which of the following statements is false?
a.
Since (total) fixed costs are constant as output changes in the short run, it follows that average fixed cost is constant in the short run.
b.
Marginal cost is the cost of producing an additional unit of output.
c.
Changes in variable costs are reflected dollar-for-dollar in changes in total cost.
d.
Fixed costs exist in the short run, but not in the long run.

21.      At 100 units of output, total cost is $30,000 and total variable cost is $14,000. What does average fixed cost equal at 100 units?
a.
$300
b.
$160
c.
$140
d.
There is not enough information to answer the question.

22.      At 200 units of output, total cost is $36,000 and total variable cost is $20,000. What does total fixed cost equal at 200 units?
a.
$38,000
b.
$20,000
c.
$16,000
d.
$80
e.
none of the above

23.      Which of these statements is false?
a.
There are no fixed costs in the long run.
b.
Total costs are equal to total fixed costs plus total variable costs.
c.
In the short run, all inputs are fixed inputs.
d.
A fixed cost is a cost that does not change as output changes.

24.      The change in total cost that results from a change in output is __________ cost.
a.
average fixed
b.
average variable
c.
average total
d.
Marginal









25.      The law of diminishing marginal returns holds for a situation in which
a.
all inputs are variable.
b.
all inputs are fixed.
c.
some inputs are variable and some inputs are fixed.
d.
all inputs are increased in the same proportion.



26.      "As additional units of a variable input are added to a fixed input, eventually the marginal physical product of the variable input will decline." This is a statement of the
a.
law of supply.
b.
average-marginal rule.
c.
law of diminishing marginal utility.
d.
law of diminishing marginal returns.

27.      A rising marginal cost curve is a reflection of a
a.
rising marginal physical product curve.
b.
falling marginal physical product curve.
c.
falling average fixed cost curve.
d.
rising average variable cost curve.

28.      The law of diminishing marginal returns is
a.
the same as economies of scale.
b.
the same as the law of diminishing marginal utility.
c.
important for long-run economic analysis.
d.
relevant to the production of goods, but not services.
e.
none of the above

29.      As the marginal physical product curve rises,
a.
the marginal cost curve rises.
b.
the marginal cost curve falls.
c.
the total cost curve rises.
d.
the total cost curve falls.

30.      The change in output that results from changing a variable input by one unit, holding all other inputs fixed, is called the marginal __________ product.
a.
Physical
b.
Value
c.
Average
d.
Explicit

31.      The marginal physical product (MPP) of a variable input is
a.
total output divided by the quantity of the input used.
b.
the change in total output that results from changing the variable input by one unit.
c.
the change in total revenue that results from changing the variable input by one unit.
d.
the change in total output that results from changing the fixed input by one unit.
e.
the change in total costs that results from a change in output.

32.      Which of the following curves should one look at to observe the law of diminishing marginal returns?
a.
the average fixed cost curve
b.
the total fixed cost curve
c.
the marginal physical product curve
d.
the long run average total cost curve

33.      Suppose that a firm produces hard candies using both machines and labor, and that its quantity of machines is currently fixed but it can vary the number of workers. As more workers are added to operate the machines, output increases. Is this a refutation of the law of diminishing marginal returns?
a.
Yes, because the law definitely states that output will decrease as more workers are added.
b.
No, because we must be observing output in the long run if the stated scenario is occurring.
c.
Yes, because the only way that this could occur is if the number of machines being used is also increasing.
d.
No, because it is entirely possible for output to increase even when the law is in operation.





Table 1

(1)
(2)
(3)
(4)
Variable
Input
Fixed
Input
Quantity
of Output
MPP of
Variable Input
0
1
0

1
1
20
A
2
1
41
B
3
1
63
C
4
1
86
D
5
1
108
E
6
1
129
F


   34.   Refer to Table 1. The numbers that go in blanks A and B are, respectively,
a.
20 and 22.
b.
0 and 21.
c.
20 and 61.
d.
1 and 2.
e.
20 and 21.

35.      Refer Table 1. The numbers that go in blanks C and F are, respectively,
a.
22 and 21.
b.
20 and 22.
c.
23 and 24.
d.
22 and 20.
e.
none of the above

36.      Refer to Table 1. Diminishing marginal returns set in with the addition of which unit of the variable input?
a.
the fourth
b.
the fifth
c.
the sixth
d.
the second

37.      Refer to Table 1. What number goes in blank D?
a.
4.0
b.
21.5
c.
23.0
d.
149.0

38.      As the marginal physical product of a variable input __________, the marginal cost __________.
a.
increases; increases
b.
increases; decreases
c.
decreases; increases
d.
b and c

39.      Suppose that one fixed and one variable input are used to produce good X. As the marginal physical product of the variable input increases, then marginal cost
a.
increases.
b.
decreases.
c.
remains constant.
d.
There is not enough information to answer the question.

40.      Suppose a given marginal cost curve starts out downward sloping and at some point turns upward. The point at which it turns upward is the point at which
a.
marginal physical product increases.
b.
total cost rises.
c.
average fixed cost declines.
d.
average variable cost is below marginal cost.
e.
diminishing marginal returns set in.







41.      When an economist talks about utility, she is talking about
a.
a company that provides electricity, water, gas, etc.
b.
the satisfaction, in terms of price, that a producer receives from selling his product.
c.
the satisfaction that results from the consumption of a good.
d.
the amount of one good that a person is willing to give up in order to get a unit of another good.
e.
the satisfaction that results from the consumption of a good minus the price that must be paid to get the good.


42.      A util is an artificial construct used as a means of measuring the
a.
price of a good.
b.
satisfaction one receives from the consumption of a good.
c.
costs of producing a good.
d.
difference between the price and the value of a good.


43.      Total utility is defined as the
a.
change in marginal utility a person derives from the consumption of a good.
b.
change in total utility a person derives from the consumption of a good divided by the price of that good.
c.
change in total utility a person derives from the consumption of a good divided by the change in the consumption of that good.
d.
sum of the amounts of satisfaction a person receives from consuming a good.
e.
change in total utility a person derives from the consumption of a good.

44.      Marginal utility is defined as the
a.
change in marginal utility a person derives from the consumption of a good.
b.
change in total utility a person derives from the consumption of a good divided by the price of that good.
c.
change in total utility a person derives from the consumption of a good divided by the change in the quantity of the good consumed.
d.
sum of the amounts of satisfaction a person receives from consuming a good.
e.
change in total utility a person derives from the consumption of a good divided by the value in use of that good.

45.      Suppose Alice receives 123 utils from consuming one hamburger and 50 utils from consuming a second hamburger. What is the marginal utility of the second hamburger?
a.
173 utils
b.
73 utils
c.
50 utils
d.
0 utils
e.
none of the above

46.      Suppose Will receives 50 utils from consuming one banana and 86 utils from consuming two bananas. What is the marginal utility of the second banana?
a.
136 utils
b.
63 utils
c.
36 utils
d.
58 utils
e.
none of the above

47.      Suppose you are eating slices of pizza and after consuming the first slice you have 14 utils, after the second you have 22 utils, and after the third 25 utils. Then
a.
the law of diminishing marginal utility is not applicable because your total utility is increasing instead of diminishing.
b.
your total utility is 61 utils.
c.
your total utility is 25 utils, and the marginal utility of the first slice is 8 utils (22 - 14).
d.
your total utility is 25 utils, and the marginal utility of the third slice is 3 utils.







48.      Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the seventh wing is __________ utils.
a.
14
b.
150
c.
70
d.
21.4
49.      Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 80, 116, 136, 150, respectively. The marginal utility of the sixth wing is __________ utils.
a.
14
b.
136
c.
20
d.
22.7

50.      Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.
a.
increasing; assumed
b.
increasing; not assumed
c.
diminishing; assumed
d.
diminishing; not assumed

51.      The law of diminishing marginal utility can be stated as follows:
a.
As the amount of a good consumed increases, the sum of satisfaction received tends to decrease.
b.
As the amount of a good consumed increases, the additional satisfaction gained from consuming additional units tends to decrease.
c.
As the amount of a good consumed decreases, the additional satisfaction gained from consuming additional units tends to increase.
d.
As the amount of a good consumed increases, the sum of satisfaction received tends to increase but at a diminishing rate.
e.
b and d

52.      The law of diminishing marginal utility says that
a.
the marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.
b.
the more of a particular good one consumes, the greater is the utility received from the consumption of that good.
c.
the marginal utility gained by consuming equal successive units of a good will increase as the amount consumed increases.
d.
the more of a particular product one sells, the less utility one receives from selling.
e.
none of the above


53.      Suppose you are consuming a particular good and you could somehow give back the last unit you consumed. What would happen to total and marginal utility (assuming that the marginal utility of the unit given back is positive)?
a.
Both total and marginal utility would decrease.
b.
Both total and marginal utility would increase.
c.
Total utility would increase but marginal utility would decrease.
d.
Total utility would decrease but marginal utility would increase.
e.
There would be no change in marginal utility but total utility would decrease.


54.      Which of the following is true?
a.
It is possible for total utility to rise as marginal utility falls.
b.
Marginal utility is the same as total utility.
c.
As marginal utility falls, total utility always falls.
d.
a and c

55.      We take one dollar from a millionaire and give it to a pauper. Assuming a diminishing marginal utility of money,
a.
total utility in the economy must rise.
b.
total utility in the economy must fall.
c.
total utility in the economy must remain the same.
d.
we cannot say whether or not total utility changes.

56.      Jackson says that his fifth game of chess gave him greater utility than his first, and therefore the law of diminishing marginal utility does not hold. An economist who believes that marginal utility definitely and always declines with the consumption of equal successive units of a good will likely say
a.
the fifth game of chess is a different good than the first game of chess.
b.
there are exceptions to the law of diminishing marginal utility.
c.
the law of diminishing marginal utility does not apply to board games.
d.
a or b
e.
a or c

57.      Suppose you just finished your third plateful of Thanksgiving dinner and it yielded zero units of additional satisfaction. Should you go back for more?
a.
Why not? Since the third plateful gave you zero units, the fourth can't give you any less than zero.
b.
No way. You could get negative utility from the fourth plateful.
c.
Yes or no. It won't make any difference because your total utility is at its peak.
d.
Yes. If you received zero units of satisfaction from the third, then obviously the law of diminishing marginal utility is not working in this case.

58.      You and your roommate are eating pizza and have already consumed all but the last slice. Your roommate claims that he is hungrier than you and therefore should get the last slice of pizza. Your roommate has made
a.
a diminishing marginal utility analysis.
b.
an interpersonal utility comparison.
c.
a correct statement.
d.
a marginal error.

59.      Which of the following statements is false?
a.
A millionaire definitely receives less utility from an additional dollar than a poor person.
b.
A poor person definitely receives less utility from an additional dollar than a rich person.
c.
A millionaire definitely receives the same utility from an additional dollar as a poor person.
d.
A millionaire generally receives less utility from an additional dollar than a poor person.
e.
We do not know if any of the statements are true or false, because we do not know how much utility one person receives relative to another.

60.      Rich has $100,000 and Poore has $1,000. Which of these statements is most strongly supported by the theory of consumer choice?
a.
An extra dollar given to Rich is worth less to him than his 100,000th dollar.
b.
An extra dollar is worth less to Rich than it is to Poore.
c.
An extra dollar is worth less to Poore than it is to Rich.
d.
Rich's 1,000th dollar is worth more to Rich than Poore's 1,000th dollar is worth to Poore.
e.
Rich's 100,000th dollar is worth to Rich exactly what Poore's 1,000th dollar is worth to Poore.

61.      In which of the following settings is an interpersonal utility comparison being made?
a.
Brandon says to Jack, "I get a lot more satisfaction out of eating pizza than you do."
b.
Stephanie says, "I don't know what Taylor is feeling or thinking; I can't read a person's heart or mind."
c.
David says to Maria, "I know you like this course a lot more than I do."
d.
a and c
e.
a, b, and c

62.      Which of the following statements is true?
a.
The less you have of any one good, the less you would be willing to pay for one more unit of it.
b.
The less you have of any one good, the more you would be willing to pay for one more unit of it.
c.
The amount you have of any one good does not influence the price you would be willing to pay for it, but it does affect the marginal utility received from consuming a particular unit.
d.
none of the above








63.      Suppose you could quantify the amount of satisfaction you receive from consuming ice cream in money terms. You might say, "I expect to get $3 worth of satisfaction from this ice cream cone." According to traditional economic theory, if the price of this ice cream cone were $3.05, would you buy one?
a.
Sure, why not? What's a nickel?
b.
Absolutely. It's worth it at that price.
c.
No way, because it's not worth it.
d.
There is no way to answer this question because you really can't compare the price of something and the amount of satisfaction you expect to receive from it.

64.      Suppose the government provides peanut butter to everyone free of charge and everyone consumes it to the point at which he receives no additional satisfaction from another spoonful. Is this necessarily good?
a.
Yes, because everyone is satisfied.
b.
No, because there might be some cases where the resources used to produce peanut butter could have been better used to produce more of other products.
c.
Yes, because the law of diminishing marginal utility indicates that in order to get the greatest amount of satisfaction from the use of resources, people should consume as much of every good as they can.
d.
none of the above

65.      Dan is currently consuming 10 Cokes and 5 slices of pizza per week such that the marginal utility of the tenth Coke is 12 utils and that of the fifth slice of pizza is also 12 utils. How should Dan redirect his purchases so as to attain consumer equilibrium?
a.
He should buy more pizza slices and less Coke.
b.
He should buy fewer pizza slices and more Coke.
c.
He is currently attaining consumer equilibrium and should not redirect his purchases.
d.
He could gain more satisfaction by buying less of both and more of something else.
e.
There is not enough information to answer the question.

66.      Suppose the marginal utility (MU) of paperback books is 40 utils and each costs $4 while the MU of video movies is 50 utils and each rents for $4. If you consume one movie and one book per week, are you attaining consumer equilibrium?
a.
Yes, so there is no need to change.
b.
No. You need to buy more books and rent fewer videos.
c.
No. You need to rent more videos and buy fewer books.
d.
There is not enough information to answer the question.

67.      Suppose for a consumer the marginal utility (MU) of bread is 10 utils and the MU of milk is 20 utils; the price of bread is $1 and the price of milk is $1. Given this,
a.
more utility per dollar is gained from consuming bread than milk.
b.
more utility per dollar is gained from consuming milk than bread.
c.
the same amount of utility per dollar is gained from consuming milk as bread.
d.
the consumer is in consumer equilibrium.

68.      If a person is receiving greater utility per dollar from consuming one good than another, it follows that he or she is
a.
maximizing disutility.
b.
not maximizing utility.
c.
maximizing utility.
d.
There is not enough information to answer the question.

69.      Ashley is currently consuming 10 hot dogs and 8 hamburgers per week. The last hot dog she consumed yielded 20 utils while the last hamburger she ate gave her 25 utils. If hot dogs cost $2 and hamburgers cost $2.50, is Ashley consuming the correct quantities of these two goods to be in consumer equilibrium?
a.
No, she should consume more hamburgers and fewer hot dogs.
b.
No, she should consume more hot dogs and fewer hamburgers.
c.
Yes, so there is no need to change her eating habits.
d.
There is not enough information to answer the question.
       








70.      In order for an individual to achieve consumer equilibrium through the consumption of two goods, A and B, that individual must fulfill the condition
a.
TUA = TUB.
b.
TUA/PA = TUB/PB.
c.
MUA = MUB.
d.
MUA/PA = MUB/PB.
e.
MUB/PA = MUA/PB.
71.      A consumer is in equilibrium if he or she derives the same
a.
total utility from each good consumed.
b.
total utility per dollar spent on each good consumed.
c.
marginal utility from each good consumed.
d.
marginal utility per dollar spent on each good consumed.

72.      Which of the following statements is true?
a.
If a consumer is in equilibrium, it does not necessarily follow that he or she is also achieving the greatest total utility.
b.
If a consumer is in equilibrium, it necessarily follows that he or she is also achieving the greatest total utility.
c.
If a consumer is attaining the greatest marginal utility, then it necessarily follows that he or she is also achieving the greatest total utility.
d.
If a consumer is attaining the greatest total utility, then it necessarily follows that he or she is also achieving the greatest marginal utility.

73.      The law of diminishing marginal utility helps to explain
a.
why people trade.
b.
the law of demand.
c.
why the production possibilities frontier is typically bowed-out.
d.
a and b
e.
all of the above

74.      Suppose a consumer is purchasing Coke (c) and pretzels (p) in quantities such that he is achieving consumer equilibrium. Then the price of Coke increases. Which of the following will be true?
a.
MUC/PC = MUP/PP
b.
MUC/PC > MUP/PP
c.
MUC/PC < MUP/PP
d.
We cannot say for certain what will happen to the MUC/PC relative to the MUP/PP.

75.      Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________.
a.
increase; increase; increase
b.
increase; decrease; decrease
c.
increase; decrease; increase
d.
decrease; increase; increase
e.
decrease; decrease; decrease

76.      Joe is currently in consumer equilibrium by consuming cheese and crackers, such that the last cracker consumed yielded 8 utils and the last piece of cheese consumed yielded 12 utils. Assume the price of crackers is two cents per cracker and the price of cheese is three cents per piece. If the price of crackers increases to four cents, Joe should __________ his consumption of crackers and his marginal utility from crackers will __________ and also __________ his consumption of cheese and his marginal utility from cheese will __________.
a.
increase; increase; increase; increase
b.
increase; increase; decrease; decrease
c.
increase; decrease; increase; decrease
d.
decrease; increase; decrease; increase
e.
decrease; increase; increase; decrease









77.      Suppose Valerie is consuming lipstick (L) and eye shadow (E) and nothing else. MUL = 24 and MUE = 20. The price of eye shadow is $5, and the price of lipstick is $4. What should Valerie do?
a.
Consume more eye shadow and less lipstick.
b.
Consume more lipstick and less eye shadow.
c.
Consume less of both.
d.
Consume more of both.
e.
Not change her consumption of either good.

78.      To an economist, utility refers to the
a.
usefulness of a good or service.
b.
satisfaction that results from the consumption of a good.
c.
relative scarcity of a good.
d.
rate of decline in the demand curve.

79.      If the total utilities corresponding to the first five units of a good consumed are 10, 15, 19, 22, and 24, respectively, what is the marginal utility of the fourth unit?
a.
22
b.
5
c.
4.5
d.
4
e.
3

80.      Suppose that the total utilities corresponding to the first five units of a good consumed are 14, 20, 25, 29, and 32, respectively. The marginal utility of the fifth unit is
a.
5.
b.
4.
c.
2.
d.
6.
e.
3.

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