The Deciding Quiz On Microeconomics

20 Questions

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Microeconomics Quizzes & Trivia

Microeconomics notes section #2


Questions and Answers
  • 1. 
    • A. 

      Plot 1 has absolute advantage in producing both oranges and bananas.

    • B. 

      The cost of oranges from plot 1 is 4/6 bananas and the cost of oranges from plot 2 is 3/2 bananas.

    • C. 

      Plot 2 is the low-cost producer of oranges.

    • D. 

      Suppose each plot of land is specialized to produce on type of fruit. Plot 1 should specialize in growing oranges and plot 2 should specialize in growing bananas in order to maximize efficiency.

  • 2. 
    Which of the following about the concept of opportunity cost is incorrect? 
    • A. 

      Opportunity cost of an event is defined as the value of the best alternative foregone.

    • B. 

      Sunk cost is not an opportunity cost.

    • C. 

      Being an economist implies I am a high-cost janitor.

    • D. 

      All of the above are correct.

  • 3. 
    Heterogeneity in resources implies
    • A. 

      Increasing marginal cost because of comparative advantage

    • B. 

      The existence of economic rent for inferior resources.

    • C. 

      Perfectly elastic supply curve.

    • D. 

      All of the above.

  • 4. 
    The law of diminishing marginal product can be stated as: 
    • A. 

      Output will eventually decrease if we keep increasing inputs

    • B. 

      If we double all inputs, the increase in output will be less than double

    • C. 

      As one input of production is added to a fixed amount of other inputs, after some point, the marginal product of the variable input continually diminishes.

    • D. 

      None of the above.

  • 5. 
    Suppose labor and capital are complements. Which of the following is consistent with the economics of natural disaster?
    • A. 

      Epidemic which kills a lot of people tends to increase the wage rate of labor.

    • B. 

      Epidemic which kills a lot of people tends to decrease the wage rate of labor.

    • C. 

      Earthquake which destroys mostly buildings and machines tends to increase the wage rate of labor.

    • D. 

      Earthquake which destroys mostly buildings and machines tends to decrease the rental rate of capital.

  • 6. 
    In the U.S. oil industry, 
    • A. 

      When oil price was high during the 1970s, labor input, measured by employee hours, increased.

    • B. 

      During the late 1980s, oil price decreased and employee hours declined.

    • C. 

      Although labor input increased during the 1970s, output decreased because of technological improvement

    • D. 

      Both (a) and (b) are correct

  • 7. 
    When there are more than one factor of production, to maximize rent 
    • A. 

      the average product must be the same for all inputs

    • B. 

      The average product per dollar spent must be the same for all inputs.

    • C. 

      The marginal product must be the same for all inputs.

    • D. 

      The marginal product per dollar spent must be the same for all inputs.

  • 8. 
    An increase in minimum wage will __________ the demand for low-skilled labor and is likely to __________ the demand for capital when low-skilled labor and capital are good substitutes. 
    • A. 

      Increase, decrease

    • B. 

      Increase, increase

    • C. 

      Decrease, increase

    • D. 

      Decrease, decrease

  • 9. 
    Which of the following about di┬žerent types of costs as they related to the level of output produced is incorrect?
    • A. 

      Fixed cost is the part of costs that are independent of the output level produced.

    • B. 

      Variable cost is the part of costs that depend on the chosen level of production.

    • C. 

      Salvageable cost is the part of fixed cost that can be recovered if one decides not to produce after making the initial fixed cost investment or commitment.

    • D. 

      Total cost gives sum of salvageable and variable cost.

  • 10. 
    Which of the following about marginal cost and average cost is incorrect? 
    • A. 

      Marginal cost curve is U-shaped in general.

    • B. 

      Marginal cost curve cuts through the minimum point of the average cost curve

    • C. 

      When average cost is rising, marginal cost has to be larger than average cost

    • D. 

      If average cost is falling, marginal cost has to be smaller than average cost.

  • 11. 
    The existence of fixed-cost investment implies
    • A. 

      Firm will produce where price equals marginal cost so long as at this output level the Firm can cover its cost or simply price exceeds average salvageable cost, if the fixed-cost investment has already been made.

    • B. 

      Sunk cost investments are not relevant for decisions once they have been made.

    • C. 

      The exit price is below the entry price

    • D. 

      All of the above

  • 12. 
    Supply curve is __________ elastic in the long run than in the short run, and the long-run supply curve for an industry with identical firms is __________ elastic than one with non-identical firms. 
    • A. 

      Less, less

    • B. 

      More, more

    • C. 

      Less, more

    • D. 

      More, less

  • 13. 
     In 1959, __________ of all oil wells were marginal wells, and they provided __________ of all U.S. oil production in that year. In 1986, before the large drop in world oil prices, __________ of all producing oil wells were marginal wells, but they only accounted for __________ of U.S. crude oil production. 
    • A. 

      73.2%, 20.7%, 67.3%, 14.5%

    • B. 

      67.3%, 20.7%, 73.2%, 14.5%

    • C. 

      67.3%, 14.5%, 73.2%, 20.7%

    • D. 

      73.2%, 14.5%, 67.3%, 20.7%

  • 14. 
    Which of the following is consistent with the entry and exit decisions of firms? 
    • A. 

      Profits and entry rates are high with the economy is booming.

    • B. 

      Profits are low and exit rates are high during economic recession.

    • C. 

      Marginal firms tend to be new and small firms, and hence the bulk of firms exiting from an industry tend to be new and small businesses.

    • D. 

      All of the above

  • 15. 
    When we observe price and quantity of a good move in the same direction, which of the following has to be true? 
    • A. 

      There is an increase in demand

    • B. 

      There is a change in demand.

    • C. 

      There is a decrease in supply.

    • D. 

      There are changes in both demand and supply

  • 16. 
    A decrease foreign supply of oil will __________ the price of oil, and it will __________ the price of coal. 
    • A. 

      Increase, decrease

    • B. 

      Decrease, increase

    • C. 

      Increase, increase

    • D. 

      Decrease, decrease

  • 17. 
    If leather and beef are both produced by slaughtering cattle then reduced demand for beef (due for example to increased concerns about health) should __________ the price of leather products. 
    • A. 

      Decrease

    • B. 

      Increase

    • C. 

      Remain unchanged

    • D. 

      None of the above

  • 18. 
    In a competitive market equilibrium 
    • A. 

      Price equals to marginal value of all consumers

    • B. 

      Price equals to marginal cost of all producers

    • C. 

      Marginal value of all consumer equal to marginal cost of all producers

    • D. 

      All of the above

  • 19. 
    A company that makes a profit of $50 today can invest this money and earn an interest of $5 when the interest rate is 10%. This implies the present value of the company is 
    • A. 

      $50

    • B. 

      $55

    • C. 

      $60

    • D. 

      $65

  • 20. 
     It will pay to extract oil from the ground today as long as the cost of extraction is __________ the price of oil. 
    • A. 

      Less than

    • B. 

      Greater than

    • C. 

      The same as

    • D. 

      None of the above.