Quiz # 3

Intro to Microeconomics
Objective
Version A
Marks: 35

1) To determine the optimal method of production for a good or service, a firm needs to
know
A) the market price of output.
B) the technologies of production that are available to the firm.
C) the prices of inputs.
D) All of the above are correct.

2) The optimal production method

A) maximizes output regardless of cost. B) maximizes inputs. C) minimizes cost. D)
minimizes the normal rate of return.

3) The Wax Works sells 500 candles at a price of $10 per candle. The Wax Worksʹ total
economic costs for producing 500 candles are $2,000. The Wax Worksʹ economic profit is
A) $2,000. B) $3,000. C) $5,000. D) indeterminate from this information.

4) The Wax Works sells 500 candles at a price of $5 per candle. The Wax Worksʹ total
economic costs for producing 500 candles are $3,000. The Wax Worksʹ economic profit is
A) -$3,000. B) -$500. C) $2,500. D) $3000

5) Economic costs include

A) both a normal rate of return on investment and the opportunity cost of each factor of
production.
B) the direct costs of hiring all factors of production.
C) the opportunity cost of each factor of production minus any interest charges paid on
borrowed funds.
D) total revenue minus accounting profit.

6) The Oh So Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs
for producing 300 muffins are $250. If the bakery is earning a normal rate of return, then its
implicit costs must be
A) $100. B) $200. C) $300. D) $400

7) A firm ________ if it earns zero economic profit.

A) earns a negative rate of return
B) will leave the industry
C) earns a positive but below normal rate of return
D) earns exactly a normal rate of return

8) You own a building that has four possible uses: a cafe, a craft store, a hardware store, and
a bookstore. The buildingʹs value in each use is $2,000; $3,000; $4,000; and $5,000,
respectively. You decide to open a hardware store. The opportunity cost of using this
building for a hardware store is
A) $2,000, the value if the building is used as a cafe.
B) $3,000, the value if the building is used as a craft store.
C) $10,000, the sum of the values if the building is used for a cafe, a craft store, or a
bookstore.
D) $1,000, the difference in value if the building were used as a bookstore and its actual use.

9) An economist is studying the pricing behavior of Atlantaʹs 100 dog kennels. She says she
will limit her analysis to a time period that allows for neither new kennels to enter the market
nor existing ones to leave it. The economist is referring to the ________ time period.
A) market B) industry C) long run D) short run
10) In the long run, a firm
A) can shut down, but it cannot exit the industry.
B) has no fixed factors of production.
C) can vary all inputs, but it cannot change the mix of inputs it uses.
D) must make positive economic profits.

11) In the short run, a firm

A) has at least one fixed factor of production.
B) cannot enter an industry where positive profits are being earned.
C) can exit and industry and all of its factors of production are variable.
D) both (A) and (B) are correct.

12) To determine the optimal method of production for a good or service, a firm needs to
know
A) the market price of output.
B) the technologies of production that are available to the firm.
C) the prices of inputs.
D) All of the above are correct.

13) The optimal production method

A) maximizes output regardless of cost.
B) maximizes inputs.
C) minimizes cost.
D) minimizes the normal rate of return.

14) If diminishing marginal returns have already set in for The Picture Perfect Framing Store
and the marginal product of the fifth picture framer is 25, then the marginal product of the
sixth picture framer must be
A) negative. B) zero. C) less than 25. D) greater than 25.
15) If labor is a variable input in production, the law of diminishing marginal returns implies
that in the short run
A) laborʹs marginal product is constant.
B) laborʹs marginal product decreases after a certain point.
C) total product is negative.
D) total product is negative after a certain point has been reached.

16) The version of the law of diminishing returns that applies to production
A) implies that as we add more workers our production decreases.
B) applies only in the short run.
C) is true only when all inputs are variable.
D) applies in the short and long run.

17) When a firm maximizes total product in the short run, marginal product
A) and average product are zero.
B) is positive but average product is zero.
C) is zero but average product is positive.
D) and average product are positive.

18) At the point where total product is maximized, marginal product

A) is zero, but average product is still positive.
B) and average product are negative.
C) is positive, but average product is negative.
D) and average product are positive.

19) If marginal product is greater than average product, then

A) average product must be decreasing.
B) marginal product must be decreasing.
C) marginal product must be increasing.
D) marginal product could either be increasing or decreasing.

20) An economist estimates that the maintenance of a public park costs $20,000 a year and
that the park generates $35,000 a year in revenue for merchants near it. From societyʹs point
of view, the maintenance of this park is
A) inefficient, because everyone in the community pays taxes to support the park, but only
the merchants near the park benefit.
B) inefficient because the additional revenues generated by the park are so low.
C) potentially efficient because the value of the gains exceed the value of the losses.
D) potentially efficient because no one would be made worse off as a result of maintaining
the park.

21) Suppose a new government policy generates $6,000 of benefits for local businesses and
$4,000 of costs. We can best describe the policy as
A) Pareto efficient. B) inefficient. C) potentially efficient. D) equitable.

22) Suppose a policy change generates $90,000 of benefits for low‐income families and
$150,000 of costs for high‐income families. We can best describe the change as
A) Pareto efficient. B) inefficient. C) potentially efficient. D) equitable.
23) Refer to Figure 12.4. A firm produces hula hoops in a perfectly competitive market and
currently produces and sells 100 per week. Which of the following is TRUE?
A) Society would be better off if the firm produced more hula hoops because price is greater
than marginal cost at the current production level.
B) Society would be better off if the firm produced fewer hula hoops because the firmʹs
profits would increase if it reduced production.
C) Because the firm is minimizing ATC, it is producing hula hoops at the efficient level.
D) Because ATC is less than price, the firm should devote fewer resources to hula hoop
production.

24) ________ is the cost of using resources to produce another unit of a good.
A) Marginal revenue. B) Marginal cost. C) Price. D) Total cost.

25) A person who chooses not to be in the labor force reveals that
A) his or her potential product in the market is zero.
B) either leisure or the value of nonpaid labor is worth more to him or her than the value that
society places on his or her potential product in the market.
C) either leisure or the value of nonpaid labor is worth less to him or her than the value that
society places on his or her potential product in the market.
D) either leisure or the value of nonpaid labor is worth zero to him or her.

26) In making labor supply decisions households weigh

A) the market wage against the value of capital inputs.
B) the market wage against the value of their marginal product of labor.
C) the market wage against the value of leisure and time spent in unpaid household
production.
D) None of the above is correct.

27) Under perfect competition,

A) resources are allocated among firms efficiently.
B) final products are distributed among households efficiently.
C) the system produces the goods and services consumers want.
D) All of the above are correct.

28) Which assumption leads to an efficient allocation of resources among firms?

A) Factor markets are open and competitive.
B) All firms pay the same prices for identical inputs.
C) Firms behave so as to maximize their profits.
D) All of the above are correct.

29) In order to have an efficient distribution of final products to households,

A) free and open markets are essential.
B) households must maximize their income.
C) the equity criterion must be satisfied.
D) All of the above are correct.
30) The condition P = MC implies that ________ consumer surplus.
A) consumers will get no
B) an individual who values the product at more than P will receive positive
C) an individual who values the product at less than P will receive positive
D) there is an infinite amount of

31) Under perfect competition, firms produce the efficient level of output because
A) government regulates the output level that firms must produce.
B) firms earn only a normal profit in the long run.
C) firms can earn an economic profit in the long run.
D) price equals marginal cost.

32) In perfect competition, ________ is the condition that ensures that firms produce the
right things.
A) MUX = PX. B) P = MC. C) P = ATC. D) MRPL = ATC.

33) Under perfect competition the person that ends up with the marginal unit is the person
that values it
A) at an amount above its price.
B) at an amount lower than its price.
C) just at its price.
D) above its marginal cost.

34) ) If PX > MCX, society gains by ________ X.

A) producing more
B) producing less
C) raising the price of
D) increasing the cost of producing
35) If PX < MCX, society gains by ________ X.
A) producing more
B) producing less
C) lowering the price of
D) increasing the cost of producing