ECON 415 Review Quiz BPJ Part I: Choose the best answer. (1 point each) 1) When a shortage exists in a market, A) current price is lower than the equilibrium price. B) there is an excess quantity supplied. C) consumers increase the quantities they are willing and able to purchase. D) suppliers will quit producing until the shortage disappears. 2) A movement along a demand curve may be caused by a change in: A) the non-price determinants of demand. B) the change in consumer expectations. C) the change in demand. D) the change in supply. 3) Two goods are ________ if the quantity consumed of one increases when the price of the other decreases. A) normal B) superior C) complementary D) substitute 4) Which of the following will change only the quantity demanded, not the demand of oranges? A) an increase in the population B) a change in the price of tangerines C) a change in the price of oranges D) a decrease in the taste & preferences for oranges 5) Which of the following will not cause a short-run shift in the supply curve? A) a change in the number of sellers B) a change in the cost of resources C) a change in the price of the product D) a change in future expectations 6) Which of the following would cause a leftward shift in the demand curve for a good? A) an increase in income B) a decrease in the price of a complementary good C) a decrease in the price of a substitute D) the expectation that there will be a shortage in the availability of the good 7) The switch to the use of ethanol from gasoline is driven primarily by its relatively lower price. Assuming a competitive market, what effect would this change have on the equilibrium price and output for gasoline? A) Price rises, output falls. B) Price falls, output rises. C) Price rises, output rises. D) Price falls, output falls. 8) Which of the following distinctions helps to explain the difference between relevant and irrelevant cost? A) accounting cost vs. direct cost B) historical cost vs. replacement cost C) sunk cost vs. fixed cost D) variable cost vs. incremental cost 9) Costs of production that change with the rate of output are: A) Sunk costs B) Opportunity costs C) Fixed costs D) Variable costs 10) Economic profit equals accounting profit minus A) explicit costs. B) implicit costs C) fixed costs D) variable costs. 11) Which of the following is most likely a fixed cost? A) Expenditures for raw materials B) Wages for unskilled labor C) Fuel cost D) Property Taxes 12) When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC is A) $5. B) between $45 and $50. C) greater than $50. D) Cannot be determined from the above information. 13) Which level indicates the point of maximum economic efficiency? A) lowest point on AC curve B) lowest point on TC curve C) lowest point on MC curve D) None of the above. 14) A feature of Perfect Competition is A) use of non-price competition by firms. B) mutual interdependence among firms. C) unique products. D) standardized (homogeneous) products. 15) A normal profit is: A) revenues minus opportunity cost only. B) revenues minus accounting costs only. C) a zero accounting profit. D) revenues minus accounting and opportunity costs. 16) Mars Inc. produces 100,000 boxes of Snickers bars which sell for $4 a box. If variable costs are $3 per box, and it has $150,000 fixed operating costs, in the short run, it should: A) shut down as fixed costs are not being covered. B) keep producing as profits are $50,000. C) keep producing as variable costs are being met. D) keep producing as total costs are being recovered 17) A monopoly will produce A) where its demand curve is inelastic. B) where its demand curve is elastic. C) where its demand curve is either elastic or inelastic. D) only when its demand curve is perfectly inelastic. 18) The main difference between the price-quantity graph of a perfectly competitive firm and a monopoly is A) that the competitive firm's demand curve is horizontal, while that of the monopoly is downward sloping. B) that a monopoly always earns an economic profit while a competitive company always earns only normal profit. C) that a monopoly maximizes its profit when marginal revenue is greater than marginal cost. D) that a monopoly does not incur increasing marginal cost. 19) If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run? A) Some firms will leave the market. B) Firms will join together to keep others from entering. C) New firms will enter the market, thereby eliminating the economic profit. D) Firms will continue to earn economic profit. 20) Which of the following represents a good example of an Oligopoly? A) The Agriculture industry B) A Public Utility C) The Automobile industry D) The Restaurant Industry Part II: Provide concise answers. (1 point each) 21) Annual demand and supply for a company is given by: QD = 5,000 + 0.5 I + 0.2 A - 100P, and QS = -5000 + 100P where Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure. a. If A = $10,000 and I = $25,000, what is the equation of the demand curve? b. Given the demand curve in part a., what is equilibrium price and quantity? c. If consumer incomes increase to $30,000, what will be the impact on equilibrium price and quantity? 22) Consider a firm that has just built a plant, which cost $20,000. Each worker costs $5.00 per hour. Based on this information, fill the five blanks in the table below. Number Average Average of Output Marginal Fixed Variable Total Marginal Variable Total Worker Product Cost Cost Cost Cost Cost Cost Hours 0 0 -- 20,000 0 20,000 -- -- -- 50 400 8 20,250 .625 50.625 100 900 500 20,500 .50 22.78 23) Suppose a perfectly competitive firm is facing the market price of $50. The firm's cost curves are: TC = 30 + 10Q + Q2 and MC = 10 + 2Q a. Find the profit-maximizing output for the firm. b. At the profit-maximizing output level, how much profit is the firm making?