Ec 205 Problem Sets 1-3

45 Questions | By Ammassoglia | Last updated: Mar 17, 2022 | Total Attempts: 149

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Fundamentals of Economics

Questions and Answers

1.

The portion of corporate profits that's passed on to stockholders is called
- A.
  
  Economic profit.
- B.
  
  Retained earnings.
- C.
  
  Net income.
- D.
  
  Interest payments.
- E.
  
  Dividends.
2.

Implicit costs are equal to
- A.
  
  Total revenues less total costs.
- B.
  
  Accounting costs less imputed costs
- C.
  
  Opportunity costs of owner-supplied resources.
- D.
  
  Imputed costs plus explicit costs.
- E.
  
  Opportunity costs of owner-supplied resources plus accounting costs.
3.

John is president of a small corporation. At the end of the year, his accountant calculates the following costs attributable to the business. Payroll for wages and salaries: $100,000 Interest paid to banks: $40,000 Depreciation on equipment: $80,000 Supplies, utilities: $50,000 The equity of the corporation, a measure of the value of its assets less debt, is estimated to be $200,000. John forgoes a return of 10% per year by keeping the equity in the corporation. If the corporation takes in revenue of $500,000 this year, its economic profit is
- A.
  
  $490,000.
- B.
  
  $290,000.
- C.
  
  $230,000
- D.
  
  $210,000.
4.

Unlimited liability is a characteristic of
- A.
  
  Partnerships.
- B.
  
  Sole proprietorships.
- C.
  
  Corporations.
- D.
  
  Sole proprietorships and partnerships.
5.

In the long run,
- A.
  
  Only some inputs are variable.
- B.
  
  The firm is confined to a plant of a given size.
- C.
  
  All inputs are variable.
- D.
  
  There are no variable inputs.
6.

Gilligan runs a local coconut processing plant. Gilligan notices that the marginal product of labor for his plant is currently negative. This means
- A.
  
  Total output will increase if Gilligan increases the amount of labor used
- B.
  
  Total output will remain unchanged if Gilligan increases the amount of labor used
- C.
  
  Total output will remain unchanged if Gilligan reduces the amount of labor used
- D.
  
  Total output will increase if Gilligan reduces the amount of labor used.
7.

Number of Workers Employed Marginal Product of Labor (Per Week) (Pairs of Shoes Per Week) 0 - 1 30 2 40 3 20 4 -10 5 -20 The table above shows the marginal product of labor for a shoe manufacturer. At what point does the law of diminishing marginal returns set in?
- A.
  
  After the first worker is hired.
- B.
  
  After the fourth worker is hired.
- C.
  
  After the third worker is hired.
- D.
  
  After the second worker is hired.
8.

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's fixed cost?
- A.
  
  $1
- B.
  
  $100
- C.
  
  $300
- D.
  
  $150
9.

If marginal cost is less than average cost, at current levels of production,
- A.
  
  Total cost is decreasing.
- B.
  
  Average cost is decreasing with output.
- C.
  
  Average cost is increasing with output.
- D.
  
  Average cost is at a minimum.
10.

Suppose you operate a factory producing lawn mowers. Your current level of output is 500 lawn mowers per week. Your weekly variable cost is $40,000. If your total cost is $50,000 per month,
- A.
  
  Average variable cost of production is $100.
- B.
  
  Average fixed cost of production is $80.
- C.
  
  Average variable cost of production is $80.
- D.
  
  Average cost of production is $80.
11.

At a current level of production of 10,000 per day in its Garner plant, the marginal cost of producing a Jess Jones Sausage is 50 cents. If the average cost of production is 40 cents, at that level of production,
- A.
  
  The average cost of production will decline if output is increased above 10,000 sausages per day
- B.
  
  The average cost of production will remain 40 cents if output is increased above 10,000 sausages per day.
- C.
  
  The average fixed cost of production will increase if output is increased above 10,000 sausages per day
- D.
  
  The average cost of production will increase if output is increased above 10,000 sausages per day.
12.

The only variable input used in producing bicycles in a small factory is labor. Currently, 4 workers are employed. Each works 40 hours per week and is paid $10 per hour. If fixed cost is $2,000 per week and total output is 10 bicycles per week,
- A.
  
  Average fixed cost is $200.
- B.
  
  Average variable cost is $160
- C.
  
  Average cost is $360.
- D.
  
  All of the above
13.

The figure above shows the long-run average cost (AC) curve for a firm that produces radios as well as four short-run average cost curves. Each of the short-run average cost curves corresponds to a different-sized plant--AC1 is associated with Plant 1 AC2 is associated with Plant 2 etc. Which plant is optimal if the firm is going to produce 2500 radios per week?
- A.
  
  Plant 1
- B.
  
  Plant 2
- C.
  
  Plant 3
- D.
  
  Plant 4
14.

Economies of scale occur if a firm's
- A.
  
  Average cost increases as the firm expands its plant.
- B.
  
  Long-run average cost curve is horizontal.
- C.
  
  Long-run average cost decreases as the firm increases its output by expanding its plant and equipment.
- D.
  
  Long-run average cost curve is upward-sloping.
15.

Which of the following is a measure of average variable cost?
- A.
  
  Average cost − average fixed cost
- B.
  
  (Cumulative sum of marginal cost)/Output
- C.
  
  (Total cost − fixed cost)/Output
- D.
  
  (Price of the variable input)/(Average product of the variable input)
- E.
  
  All of the above.
16.

Suppose the market equilibrium price of lumber increases while, at the same time, the market equilibrium quantity sold declines. Which of the following is the most likely explanation for the change in the market equilibrium price and quantity?
- A.
  
  A decrease in the demand for lumber combined with an increase in the supply of lumber.
- B.
  
  An increase in the demand for lumber combined with an increase in the supply of lumber.
- C.
  
  A decrease in the supply of lumber.
- D.
  
  An increase in the demand for lumber.
17.

Before the November 13, 1993, Florida State vs. Notre Dame football game, the price of a ticket to the game was below the equilibrium price. A price below the market equilibrium price results in
- A.
  
  Insufficient demand for tickets.
- B.
  
  A shortage of tickets.
- C.
  
  Excess supply.
- D.
  
  Rationing by the government.
- E.
  
  A surplus of tickets
18.

If price in the market for dinosaur bones is below its equilibrium level,
- A.
  
  Price will increase and quantity demanded will decrease
- B.
  
  Price will increase, causing an increase in supply.
- C.
  
  Price and quantity demanded will both increase
- D.
  
  Price will decrease, causing a decrease in supply.
19.

A recession hits the U.S., and there's a decrease in the demand for labor. Assuming nothing else changes in labor markets and the labor market achieves a new equilibrium in response to the decrease in demand,
- A.
  
  Wages will fall and the quantity of labor supplied will decrease
- B.
  
  Employment will increase.
- C.
  
  Wages will fall and the quantity of labor supplied will increase.
- D.
  
  There will be a surplus of workers.
- E.
  
  There will be a shortage of workers.
20.

A rent control law is passed in the city of Portland. If the equilibrium rent for a one-bedroom apartment is $550 per month,
- A.
  
  There will be a shortage of one-bedroom apartments if the rent ceiling is $550 per month.
- B.
  
  There will be a surplus of one-bedroom apartments if the rent ceiling exceeds $550 per month.
- C.
  
  There will be a shortage of one-bedroom apartments if the rent ceiling exceeds $550 per month.
- D.
  
  There will be a shortage of one-bedroom apartments if the rent ceiling is below $550 per month.
21.

As a result of a government guarantee of $2.50 per gallon for milk--no matter how much milk is produced--more farmers enter this market until the new supply curve equals S2. As a result of this development
- A.
  
  The milk surplus will increase to 7.6 billion gallons
- B.
  
  Taxpayers will pay an extra $6.25 billion to dairy farmers.
- C.
  
  The real equilibrium price of milk will be $.63.
- D.
  
  All of the above.
- E.
  
  None of the above.
22.

The graph shows the demand for and supply of labor hours by teenagers in the U.S. If the minimum wage is increased from $4.25 to $6.00 per hour, the result will be
- A.
  
  No change in labor hours supplied by teenagers or demanded by employers of teenagers.
- B.
  
  A shortage of teenaged workers.
- C.
  
  A decrease in labor hours supplied by teenagers, along with an increase in labor hours demanded by employers of teenagers.
- D.
  
  An increase in labor hours supplied by teenagers, along with a decrease in labor hours demanded by employers of teenagers.
23.

The price elasticity of demand for Bart Simpson watches is -3. A 5% increase in the price of the watches will cause the quantity demanded to
- A.
  
  Decrease by 3%.
- B.
  
  Decrease by 5%.
- C.
  
  Increase.
- D.
  
  Decrease by 15%.
24.

The more substitutes there are for an item,
- A.
  
  The higher the cost of the item will be
- B.
  
  The less elastic the demand will be.
- C.
  
  The more we need the item.
- D.
  
  The more elastic the demand will be.
25.

If the price elasticity of demand for car tags is zero for all prices, the demand curve is
- A.
  
  Vertical.
- B.
  
  Horizontal.
- C.
  
  Linear, with a slope of zero.
- D.
  
  Hyperbolic.