Practice Questions

Two goods are ________. A(n) _________ in the price of

one good will _________ the demand for the other good:
 (A) substitutes; increase; increase;
 (B) substitutes; increase; decrease;
 (C) complements; increase; increase;
 (D) complements; increase; decrease;
 (E) A & D.
Practice Questions
_____ elasticity of demand refers to the degree of
consumer responsiveness to the percentage change in
_______ with respect to the percentage change in _______:
 (A) Income; price of the a good; income;
 (B) Income; quantity of a good; income;
 (C) Own-price; price of a good; demand for that good;
 (D) Own-price; quantity demanded; price of a good;
 (E) Cross-price; quantity of one good; price of the other
good;
 (F) B & D & E.
Practice Questions
The _____ substitutes available, the ____ elastic the
demand for a good is:
 (A) more; less;
 (B) more; more;
 (C) less; more;
 (D) Not enough information.
Practice Questions
The price of a product is ______ the marginal revenue
under conditions of perfect competition:
 (A) greater than;
 (B) equal to;
 (C) less than;
 (D) Not enough information;
 (E) None of the above.
Practice Questions
A shift in the demand curve is generally caused by changes
in ______:
 (A) the prices of substitutes and complements;
 (B) incomes;
 (C) both of the above;
 (D) none of the above.
Practice Questions
The law of diminishing marginal returns says:
 (A) Less goods will be available to consume over time;
 (B) Marginal utility declines as more of a good is consumed
during a period of time;
 (C) There is a maximum amount of total utility;
 (C) Two of the above;
 (D) None of the above.
Practice Questions
A budget constraint reflects:
 (A) the income available for consumption;
 (B) the prices for the goods a consumer may purchase;
 (C) the marginal rate of substitution that will result in
consumer equilibrium;
 (D) all of the above.
Practice Questions
A firm’s supply curve corresponds to:
 (A) the average total cost curve;
 (B) the marginal cost curve above the minimum average
variable cost curve;
 (C) the average variable cost curve;
 (D) the marginal cost curve.
Practice Questions
Which of the following is true:
 (A) Average Fixed Cost + Average Variable Cost = Average
Total Cost;
 (B) A shift to the right of the demand curve makes consumer
better off;
 (C) The law of diminishing marginal returns states that as
the use of an input increases, ceteris paribus, its Marginal
Physical Product will eventually fall;
 (D) All of the above.
Practice Questions
P
A firm acts as a profit
MC
maximizer with its MC, AVC,
ATC
ATC as shown in graph. At
market price P2, it will
produce an output of ____, AVC

making a loss of ____: P1

D
 (A) Q1; P2P3KG; G E F
P2
 (B) Q2; P1P2ED; P3 K H

 (C) Q3; P1P2ED;

 (D) None of the above.

Q1 Q2 Q3 Q
Practice Questions
Generally, firms want to maximize profit, which is
equivalent to setting:
 (A) MPP = 0;
 (B) MR = 0;
 (C) MR = MC;
 (D) MPP = APP.
Practice Questions
In the graph, IQ indicates an
isoquant curve of a firm; EE’ Capital
indicates the price ratio of capital
over labor; & A indicates the
firm’s current input mix. To
increase its profit, the firm should A
use:
E
 (A) more capital, less labor;
IQ
 (B) more labor, less capital;
E’
 (C) more labor, same amount of
capital; Labor
 (D) maintain the input mix at A.
Practice Questions
If marginal cost exceeds average variable cost, then ____
cost is ____:
 (A) average total; increasing;
 (B) average variable; increasing;
 (C) average total; at a minimum;
 (D) average fixed; increasing;
 (E) average total; at a maximum.
Practice Questions
To maximize profit, firms should NOT produce in the
stage during which:
 (A) MPP is decreasing; APP is greater than MPP;
 (B) MPP is increasing; MC is less than AVC & ATC;
 (C) MPP is decreasing; MVP equals MIC;
 (D) None of the above.
Practice Questions
Billy Bob’s Fried Chicken Palace has an Average Fixed Cost
of $0.25/chicken wing producing 500 wings/day. If
production doubles to 1000 wings/day, AFC will:
 (A) Increase;
 (B) Increase, then decrease;
 (C) Decrease, then increase;
 (D) Decrease;
 (E) None of the above;
Practice Questions
Billy Bob’s also has the following information regarding
demand for their chicken: at a price of $6/chicken wing,
demand for their good is 0 chicken wings, while at the
current market price of $2, demand is 100 wings. Suppose
consumer willingness-to-pay for wings increases by $1 (i.e.
the demand curve shifts up in a parallel manner).
Consumer surplus _______ by _______ if the market price
stays at $2:
 (A) Increases; $112.50;
 (B) Increases; $225;
 (C) Decreases; $100;
 (D) Not enough information is provided;
Practice Questions
The own-price elasticity of demand for a good is -1 at the
current market price. At this price:
 (A) The firm selling the good is maximizing revenue;
 (B) The firm selling the good could increase revenue by
lowering the price;
 (C) The firm selling the good could decrease revenue by
raising the price;
 (D) A + C;
 (E) B + C;
Practice Questions
Stage 2 of production is where:
 (A) Firms do not want to produce to maximize profits;
 (B) Marginal physical product is greater than average
physical product;
 (C) Marginal physical product is negative;
 (D) Average physical product is decreasing and marginal
physical product is less than average physical product but
still positive;
 (E) None of the above;
Practice Questions
Pat consumes pudding and pickles. Pat’s marginal utility
from pudding is 10, and Pat’s marginal utility from pickles
is 20. Pudding costs $1 while pickles cost $2. Assuming
Pat’s current bundle of goods is on the frontier of the
budget constraint, which of the following are true?:
 (A) Pat could increase total utility by consuming more
pickles and less pudding;
 (B) Pat could increase total utility by consuming less pickles
and more pudding;
 (C) Pat is maximizing total utility given the budget
constraint;
 (D) None of the above;