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ECO 2301
Sec 002
Spring 2015
Klaus Becker
EXAM 3
Both Forms
Monday, April 27th
Solutions
1. Utility measurements are:
A. a relative ranking of how much people enjoy a particular good.
B. None of these is true.
C. a relative ranking of the values a person places on alternative combinations of things.
D. used to compare one person's preference for a good to another person's preference.
2. The concept of marginal utility:
A. All of these are true.
B. can only be applied to situations in which individuals can choose among several goods or
services.
C. explains why individuals find it difficult to maximize their total utility.
D. is the change in total utility that comes from consuming one additional unit of a good or
service.
3. The concept of diminishing marginal utility:
A. is the principle that the additional utility gained from consuming different bundles of goods
and services tend to be smaller than the utility gained from consuming just one bundle of goods
and services.
B. is the principle that the additional utility gained from consuming successive units of a good or
service tends to be smaller than the utility gained from the previous unit.
C. is the change in total utility that comes from consuming one additional unit of a good or
service.
D. explains why individuals rarely maximize their total utility.
4. (p. 117) Suppose that MUx/Px exceeds MUy/Py. To maximize utility the consumer who is
spending all her money income should buy:
A. more of Y and less of X.
B. more of X and less of Y.
C. less of X only if its price rises.
D. more of Y only if its price rises.
5. (p. 115) The utility-maximizing rule:
A. implies a leftward shifting demand curve.
B. implies a perfectly elastic demand curve.
C. is consistent with the law of demand.
D. is inconsistent with the law of demand.
6. (p. 126) A consumer's budget constraint is determined by
A. The consumer's income and the prices of the goods they buy
B. The consumer's income and preferences
C. The consumer's preferences and the prices of the goods they buy
D. The consumer's income
7. (p. 129) An increase in a consumer's income will cause the budget line to
A. Shift inward
B. Shift outward
C. Become flatter
D. Become steeper
8.
Assume Willow's income to spend on either earrings or hairbands is $24. If her budget constraint
is pictured in the graph shown, which of the following must be true?
A. Willow will buy more headbands than earrings because they are less expensive.
B. Headbands must cost $8, and earrings must cost $4.
C. Willow will buy more earrings than headbands because they are less expensive.
D. Headbands must cost $3, and earrings must cost $6.
9.
If the more-is-better principle holds, then indifference curves must
A. Be positively-sloped
B. Be negatively-sloped
C. Be thin
D. Be concave
9.
10.
Assume Kara's budget constraint is represented by line A in the graph shown, and that her
income to spend on these two items is $24. What would cause her budget constraint to move to
B?
A. The price of movie tickets falls to $6.
B. The price of movie tickets increases to $6.
C. The price of movie tickets increases to $4.
D. The price of movie tickets falls to $4.
11. (p. 7) According to Figure 4.1, which of the following statements is true?
A. Bundle A would be preferred to bundle B
B. Bundle A would be preferred to bundle C
C. Bundle B would be preferred to bundle A
D. Bundle C would be preferred to bundle D
12. (p. 11) A "bad" would be associated with
A. A very small amount of marginal utility
B. Positive marginal utility
C. Negative marginal utility
D. Zero marginal utility
13. (p. 14) Which of the following conditions must hold if a consumer is maximizing their utility?
A. MUX = MUY
B. MUX x PX = MUY x PY
C. MUX/PY = MUY/PX
D. MUX/PX = MUY/PY
14. Economists assume the central goal of any business is to:
A. maximize profit.
B. minimize total costs.
C. maximize market share.
D. maximize sales.
15. The amount that a firm receives from the sale of goods and services is called:
A. profit.
B. total revenue.
C. net profit.
D. total cost.
16. Explicit costs are costs that:
A. require a firm to spend money.
B. are zero when no output is produced.
C. depend on the quantity of output produced.
D. do not depend on the quantity of output produced.
17. Implicit costs are costs that:
A. require a firm to spend money.
B. do not depend on the quantity of output produced.
C. represent forgone opportunities.
D. depend on the quantity of output produced.
18. When economic profits are zero, accounting profits are most likely:
A. zero.
B. negative.
C. All of these are likely.
D. positive.
19. The relationship between the quantity of inputs and the quantity of outputs is called:
A. a production function.
B. a resource function.
C. an input-output function.
D. a cost function.
20. The marginal product of any input into the production process:
A. is the constant ratio of inputs to outputs.
B. is the increase in output that is generated by an additional unit of input.
C. None of these is true.
D. is the decrease in input that is generated by an additional unit of output.
21. The principle that states the marginal product of an input decreases as the quantity of the
input increases is called:
A. diminishing marginal product.
B. production function.
C. increasing rate of return.
D. total product optimization.
22. Assume a company is at a point in production where marginal product is above average
product. Which of the following must be true?
A. Diminishing marginal product must not have set in yet.
B. Average product must be rising.
C. All of these are true.
D. Marginal product must be rising.
23. Marginal cost:
A. is calculated by change in total output divided by change in total cost.
B. is calculated by change in total cost divided by change in total output.
C. increases then decreases, as output increases, to reflect marginal product.
D. None of these is true.
24. The marginal cost curve:
A. All of these are true.
B. is U-shaped.
C. rises when marginal product falls, and falls when marginal product rises.
D. crosses ATC at the average total cost curve's minimum.
25. If the marginal cost of hiring another worker to produce sandwiches is $4 per sandwich, and
sandwiches sell for $5 each, then:
A. another worker should not be hired.
B. another worker should be hired.
C. two more workers should be hired.
D. Cannot answer this without more information.
26.
According to the graph shown, producing 9 units earns profits that are:
A. higher than output of 11 units, and the firm should decrease production.
B. lower than output of 11 units, and the firm should increase production.
C. higher than output of 11 units, and the firm should increase production.
D. lower than output of 11 units, and the firm should decrease production.
27. Fixed costs are:
A. costs that are negotiated to stay the same throughout the life of a contract.
B. costs that don't depend on the quantity of output produced.
C. inputs costs that stay the same price per unit.
D. costs that depend on the quantity of output produced.
28. Variable costs are:
A. one-time costs.
B. costs that depend on the quantity of output produced.
C. costs that don't depend on the quantity of output produced.
D. None of these is true.
29. If a firm produces nothing, then its:
A. fixed costs equal zero.
B. total costs equal zero.
C. All of these are true.
D. variable costs equal zero.
30. Suppose Winston's annual salary as an accountant is $60,000, and his financial assets
generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job
and uses his financial assets to establish a consulting business, which he runs out of his home. To
run the business, he outlays $8,000 in cash to cover all the costs involved with running the
business, and earns revenues of $150,000. What are Winston's economic profits?
A. $138,000
B. $78,000
C. $150,000
D. $142,000