MICROECONOMICS-REVIEW 1

1. Two goods are substitutes when a decrease in the price of one good
a. decreases the demand for the other good.
b. decreases the quantity demanded of the other good.
c. increases the demand for the other good.
d. increases the quantity demanded of the other good.
2. Ford Motor Company announces that next month it will offer $3,000 rebates on new Mustangs.
As a result of this information, today’s demand curve for Mustangs
a. shifts to the right.
b. shifts to the left.
c. shifts either to the right or to the left, but we cannot determine the direction of the shift
from the given information.
d. will not shift; rather, the demand curve for Mustangs will shift to the right next month.
3. If suppliers expect the price of their product to fall in the future, then they will
a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.
4. Which of the following would shift the supply curve for gasoline to the right?
a. An increase in the demand for gasoline.
b. An increase in the price of gasoline.
c. An increase in the number of producers of gasoline
d. An increase in the price of oil, an input into the production of gasoline.
Table 10-2

Quantity of
Total Utility
Soup (cups)
1 40
2 60
3 72
4 82
5 88
6 90
Quantity of
Total Utility
Sandwiches
1 45
2 75
3 102
4 120
5 135
6 145

Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per
cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
5. Refer to Table 10-2. What is Keira's marginal utility per dollar spent on the third cup of
soup?
A) 72 utils
B) 36 utils
C) 12 utils
D) 6 utils
6. Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should
she buy?
A) 1 cup of soup and 5 sandwiches
B) 3 cups of soup and 4 sandwiches
C) 6 cups of soup and 2 sandwiches
D) 4 cups of soup and 3.5 sandwiches
 7. Refer to Table 10-2. Suppose Keira's income increases from $18 to $23 but prices have
not changed. What is her utility maximizing bundle now?
A) 6 cups of soup and 5 sandwiches
B) 4 cups of soup and 5 sandwiches
C) 5 cups of soup and 4 sandwiches
D) 5 cups of soup and 5 sandwiches
8. Refer to Table 10-2. Holding prices constant, when Keira's income changed from $18 to
$23, her utility maximizing bundle changed. Based on your answers to her optimal
choices at the two income levels, what type of goods are soup and sandwiches?
A) Soup is an inferior good and sandwiches are a normal good.
B) Soup is a normal good and sandwiches are an inferior good.
C) Both soup and sandwiches are normal goods.
D) Both soup and sandwiches are inferior goods.
9. Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60,
respectively. The total utility received from consuming 2 cans is
A) 20.
B) 80.
C) 90.
D) 180.
10. Total utility is maximized in the consumption of two goods by
A) equating the marginal utility for each good consumed.
B) equating the marginal utility per dollar spent for each good consumed.
C) equating the total utility of each good divided by its price.
D) maximizing expenditure on each good.
11. A budget constraint
A) represents the bundles of consumption that make a consumer equally happy.
B) refers to the limited amount of income available to consumers to spend on goods and services.
C) reflects the desire by consumers to increase their income.
D) shows the prices that a consumer chooses to pay for products he consumes.
12. Marge buys 5 CDs and 7 DVDs. The marginal utility of the 5th CD and the marginal
utility of the 7th DVD are both equal to 30 utils. Can we say that this is the optimal
combination of CDs and DVDs for Marge?
A) No. We need to know her preferences for CDs and DVDs.
B) Yes.
C) No. For this to be the optimal combination, the total utility from her purchase of CDs needs to
equal the total utility from her purchase of DVDs.
D) No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the
7th DVD would be equal.
Table 10-6

Quantity of Marginal Quantity of Marginal

Burgers Utility Pepsi Utility
1 20 1 30
2 14 2 10
3 10 3 7
4 3 4 5
 5 1 5 1
6 -5 6 0
7 -10 7 -4

Table 10-6 lists Jay's marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two
goods. The price of a burger is $2 and the price of a can of Pepsi is $1.

13. Refer to Table 10-6. What is Jay's optimal consumption bundle?

A) 1 burger and 2 cans of Pepsi
B) 2 burgers and 3 cans of Pepsi
C) 3 burgers and 1 can of Pepsi
D) 3 burgers and 2 cans of Pepsi
14. Refer to Table 10-6. If Jay can eat all the burgers he wants for free, how many burgers
will he consume?
A) 7 burgers
B) 6 burgers
C) 5 burgers
D) 3 burgers
15. Suppose Barry is maximizing his utility from consuming used paperback novels and
audio books. The price of a used novel = $4 and the price of an audio book = $8. If the
marginal utility of the last novel was 32 units of utility (utils) what was the marginal
utility of the last audio book purchased?
A) 2 utils
B) 12 utils
C) 16 utils
D) 64 utils
16. Terence has $50 per week to spend on Subway sandwiches and milkshakes. The price of
a Subway sandwich is $5 and the price of a milkshake is $4. He buys 6 sandwiches and 5
milkshakes. The marginal utility of the 6th sandwich = 25 and the marginal utility of the
5th milkshake = 24. Which of the following is true?
A) He is not maximizing his utility and should buy more milkshakes.
B) He is maximizing his utility.
C) He is not maximizing his utility and should buy more Subway sandwiches.
D) He is not maximizing his utility because he is not spending all of his income.
17. Music compact discs are normal goods. What will happen to the equilibrium price and
quantity of music compact discs if musicians accept lower royalties, compact disc
players become cheaper, more firms start producing music compact discs, and music
lovers experience an increase in income?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
18. New oak tables are normal goods. What would happen to the equilibrium price and quantity in
the market for oak tables if the price of maple tables rises, the price of oak wood rises, more
buyers enter the market for oak tables, and the price of wood saws increased?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
 c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
19. What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts
went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials
announced that eating peanut butter was good for you?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
20. The demand for a good or service is determined by
a. those who buy the good or service.
b. the government.
c. those who sell the good or service.
d. both those who buy and those who sell the good or service.
21. Benny rents 5 movies per month when the price is $3.00 per rental and 7 movies per month when
the price is $2.50 per rental. Benny’s demand demonstrates the law of
a. price.
b. supply.
c. demand.
d. income.
22. Pizza is a normal good if
a. the demand for pizza rises when income rises.
b. the demand for pizza rises when the price of pizza falls.
c. the demand curve for pizza slopes downward.
d. the demand curve for pizza shifts to the right when the price of burritos rises, assuming
pizza and burritos are substitutes.
Figure 4-8

23. Refer to Figure 4-8. Equilibrium price and quantity are, respectively,
a. $15 and 200.
b. $25 and 600.
c. $25 and 400.
d. $35 and 200.
24. Refer to Figure 4-8. At a price of $35,
a. there would be a shortage of 400 units.
b. there would be a surplus of 200 units.
c. there would be a surplus of 400 units.
d. there would be a surplus of 600 units.
 25. Refer to Figure 4-8. At what price would there be an excess supply of 200 units of the good?
a. $15
b. $20
c. $30
d. $35
26. Refer to Figure 4-8. At a price of $15,
a. there would be a surplus of 400 units.
b. there would be a shortage of 200 units.
c. there would be a shortage of 400 units.
d. there would be a shortage of 600 units.
27. If the demand for a product decreases, then we would expect
a. equilibrium price to increase and equilibrium quantity to decrease.
b. equilibrium price to decrease and equilibrium quantity to increase.
c. equilibrium price and equilibrium quantity to both increase.
d. equilibrium price and equilibrium quantity to both decrease.
28. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean
pickers fell and the price of tea fell?
a. Price would fall and the effect on quantity would be ambiguous.
b. Price would rise and the effect on quantity would be ambiguous.
c. Quantity would fall and the effect on price would be ambiguous.
d. Quantity would rise and the effect on price would be ambiguous.

Table 5-2
The following table shows a portion of the demand schedule for a particular good at various levels of
income.

Quantity Demanded Quantity Demanded Quantity Demanded

Price (Income = $5,000) (Income = $7,500) (Income = $10,000)
$24 2 3 4
$20 4 6 8
$16 6 9 12
$12 8 12 16
$8 10 15 20
$4 12 18 24

29. Refer to Table 5-2. Using the midpoint method, when income equals $7,500, what is the price
elasticity of demand between $16 and $20?
a. 0.56
b. 0.75
c. 1.33
d. 1.80
30. Refer to Table 5-2. Using the midpoint method, when income equals $5,000, what is the price
elasticity of demand between $8 and $12?
a. 0.56
b. 0.75
c. 1.33
d. 1.80
 31. Refer to Table 5-2. Using the midpoint method, at a price of $16, what is the income elasticity of
demand when income rises from $5,000 to $10,000?
Ey=%change Qd/%change Income=(12-6/9)/(10-5)/15/2
a. 0.00
b. 0.50
c. 1.00
d. 1.50
32. Refer to Table 5-2. Using the midpoint method, at a price of $8, what is the income elasticity of
demand when income rises from $7,500 to $10,000?
a. 0.00
b. 0.41
c. 1.00
d. 2.45
33. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price
of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint
method,
Ed=((400-50)/450)/((70-50)/10)
a. the price elasticity of demand for good A is 1.50, and an increase in price will result in an
increase in total revenue for good A.
b. the price elasticity of demand for good A is 1.50, and an increase in price will result in a
decrease in total revenue for good A.
c. the price elasticity of demand for good A is 0.67, and an increase in price will result in an
increase in total revenue for good A.
d. the price elasticity of demand for good A is 0.67, and an increase in price will result in a
decrease in total revenue for good A.
34. When the local used bookstore prices economics books at $15.00 each, it generally sells 70 books
per month. If it lowers the price to $7.00, sales increase to 90 books per month. Given this
information, we know that the price elasticity of demand for economics books is about
a. 2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
b. 2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.
c. 0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
d. 0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.
35. Last year, Joan bought 50 pounds of hamburger when her household’s income was $40,000. This
year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else
constant, Joan's income elasticity of demand for hamburger is
a. positive, so Joan considers hamburger to be an inferior good.
b. positive, so Joan considers hamburger to be a normal good and a necessity.
c. negative, so Joan considers hamburger to be an inferior good.
d. negative, so Joan considers hamburger to be a normal good but not a necessity.
36. Muriel's income elasticity of demand for football tickets is 1.50. All else equal, this means that if
her income increases by 20 percent, she will buy
Ey=15=%Qd/%Y
a. 150 percent more football tickets.
b. 50 percent more football tickets.
c. 30 percent more football tickets.
d. 20 percent more football tickets.
37. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity
between these two goods to be
a. positive.
b. negative.
c. either positive or negative. It depends whether A and B are normal goods or inferior goods.
 d. either positive or negative. It depends whether the current price level is on the elastic or
inelastic portion of the demand curve.
38. Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This
month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of
good Y. At the same time, the price of good X stayed the same, but sales of good X increased
from 20 units to 40 units. We can conclude that goods X and Y are
Ecross=%∆Qd of X/%∆P of Y
Good X
.Q0=20
.Q1=40
Good Y
.P0=2
.P1=3
a. substitutes, and have a cross-price elasticity of 0.60.
b. complements, and have a cross-price elasticity of 0.60.
c. substitutes, and have a cross-price elasticity of 1.67.
d. complements, and have a cross-price elasticity of 1.67.
39. What will happen to the equilibrium price and quantity of traditional camera film if traditional
cameras become more expensive, digital cameras become cheaper, the cost of the resources
needed to manufacture traditional film falls, and more firms decide to manufacture traditional
film?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
40. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have
fallen over time. Which of the following explanations would be most consistent with this
observation?
a. Consumers have experienced an increase in income and beef-production technology has
improved.
b. The price of chicken has risen and the price of steak sauce has fallen.
c. New medical evidence has been released that indicates a negative correlation between a
person’s beef consumption and his or her longevity.
d. The demand curve for beef must be positively sloped.
41. During the last few decades in the United States, health officials have argued that eating too much
beef might be harmful to human health. As a result, there has been a significant decrease in the
amount of beef produced. Which of the following best explains the decrease in production?
a. Beef producers, concerned about the health of their customers, decided to produce
relatively less beef.
b. Government officials, concerned about consumer health, ordered beef producers to produce
relatively less beef.
c. Individual consumers, concerned about their own health, decreased their demand for beef,
which lowered the equilibrium price of beef, making it less attractive to produce.
d. Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the
marketplace.
42. There are very few, if any, good substitutes for motor oil. Therefore,
a. the demand for motor oil would tend to be inelastic.
b. the demand for motor oil would tend to be elastic.
c. the demand for motor oil would tend to respond strongly to changes in prices of other
goods.
 d. the supply of motor oil would tend to respond strongly to changes in people’s tastes for
large cars relative to their tastes for small cars.
43. A good will have a more inelastic demand,
a. the greater the availability of close substitutes.
b. the broader the definition of the market.
c. the longer the period of time.
d. the more it is regarded as a luxury.
44. The greater the price elasticity of demand, the
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity demanded.
d. greater the responsiveness of quantity demanded to a change in price.
45. For which of the following goods would demand be most elastic?
a. clothing
b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same elasticity of demand since they are all related.
46. The price elasticity of demand for eggs
a. is computed as the percentage change in quantity demanded of eggs divided by the
percentage change in price of eggs.
b. will be lower if there is a new invention that is a close substitute for eggs.
c. will be higher if consumers consider eggs to be a luxury good.
d. All of the above are correct.
47. If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a
a. 0.4 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 4 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.
48. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity
demanded. Which of the following statements is most likely applicable to this good?
a. There are many substitutes for this good.
b. The good is a necessity.
c. The market for the good is narrowly defined.
d. The relevant time horizon is long.
Figure 12-4

49. Refer to Figure 12-4. Curve A represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
50. Refer to Figure 12-4. Which of the curves is most likely to represent average fixed cost?
a. A
b. B
c. C
d. D
51. Refer to Figure 12-4. Curve C represents which type of cost curve?
a. marginal cost
b. average total cost
c. average variable cost
d. average fixed cost
52. Refer to Figure 12-4. Which curve is most likely to represent average total cost?
a. A
b. B
c. C
d. D
53. Refer to Figure 12-4. Curve A is always declining because of
a. diminishing marginal product.
b. dividing fixed costs by higher and higher levels of output.
c. the fact that increasing marginal product follows decreasing marginal product.
d. the fact that decreasing marginal product follows increasing marginal product.
54. Refer to Figure 12-4. Curve D intersects curve C
a. where the firm maximizes profit.
b. at the minimum of average fixed cost.
c. at the efficient scale.
d. where fixed costs equal variable costs.
 55.If marginal cost is rising,
a. average variable cost must be falling.
b. average fixed cost must be rising.
c. marginal product must be falling.
d. marginal product must be rising.
56.A firm has market power if it can
a. maximize profits.
b. minimize costs.
c. influence the market price of the good it sells.
d. hire as many workers as it needs at the prevailing wage rate.
57.A key characteristic of a competitive market is that
a. government antitrust laws regulate competition.
b. producers sell nearly identical products.
c. firms minimize total costs.
d. firms have price setting power.
58.Who is a price taker in a competitive market?
a. buyers only
b. sellers only
c. both buyers and sellers
d. neither buyers nor sellers
59.Suppose a firm in a competitive market received $1,000 in total revenue and had a marginal
revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how
many units were sold?
a. $5 and 50 units
b. $5 and 100 units
c. $10 and 50 units
d. $10 and 100 units
60. The intersection of a firm's marginal revenue and marginal cost curves determines the level of
output at which
a. total revenue is equal to variable cost.
b. total revenue is equal to fixed cost.
c. total revenue is equal to total cost.
d. profit is maximized.
61. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10
and a marginal cost of $7. It follows that the
MC=∆TC/∆Q=∆VC/∆QQ
a. production of the 100th unit of output increases the firm's profit by $3.
b. production of the 100th unit of output increases the firm's average total cost by $7.
c. firm's profit-maximizing level of output is less than 100 units.
d. production of the 99th unit of output must increase the firm’s profit by less than $3.
62. Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura
specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly
total revenue is $5,000. The marginal cost of making a wedding cake is $300. In order to
maximize profits, Laura should
a. make more than 20 wedding cakes per month.
b. make fewer than 20 wedding cakes per month.
c. continue to make 20 wedding cakes per month.
d. We do not have enough information with which to answer the question.
 63. A competitive firm has been selling its output for $10 per unit and has been maximizing its profit.
Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize
its profit at the now-higher price. Once the firm has adjusted, which of the following statements is
correct?
MC=$10
MR=$14
a. The firm's marginal revenue is lower than it was previously.
b. The firm's marginal cost is lower than it was previously.
c. The firm's quantity of output is higher than it was previously.
d. All of the above are correct.

Table 5-1
Good Price Elasticity of Demand
A 1.3
B 2.1

64. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
a. A is a luxury and B is a necessity.
b. A is a good several years after a price increase, and B is that same good several days after
the price increase.
c. A is a Kit Kat bar and B is candy.
d. A has fewer substitutes than B.
65. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
a. A is grapes and B is fruit.
b. A is T-shirts and B is socks.
c. A is train tickets before cars were invented, and B is train tickets after cars were invented.
d. A is diamond necklaces and B is beds.
66. At a price of $1.20, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price
of $1.40, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the
midpoint method, the price elasticity of supply is
Es=Qs1-Qs0/(Qs1+Qs0)/2
a. 0.15
b. 0.375
c. 2.5
d. 2.60
67. Total cost is the
a. amount a firm receives for the sale of its output.
b. fixed cost less variable cost.
c. market value of the inputs a firm uses in production.
d. quantity of output minus the quantity of inputs used to make a good.
68. Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
300*0.5-125=25
a. $25.
b. $124.50.
c. $125.
d. $150.
 69. Dianne has decided to start her own photography studio. To purchase the necessary equipment,
Dianne withdrew $10,000 from her savings account, which was earning 3% interest, and
borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Dianne's annual
opportunity cost of the financial capital that has been invested in the business?
a. $300
b. $400
c. $700
d. $1,650
70. Jane decides to open her own business and earns $50,000 in accounting profit the first year. When
deciding to open her own business, she turned down three separate job offers with annual salaries
of $30,000, $40,000, and $45,000. What is Jane's economic profit from running her own
business?
a. $-55,000
b. $-5,000
c. $5,000
d. $20,000
71. Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and
sells at the local farmer’s market. One day she spends 5 hours planting $50 worth of seeds in her
garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer’s
market. Which of the following statements is correct regarding Katherine’s profits from selling
flowers?
Accounting profit=TR - Ex Cost = 150-50=100
Economic profit= TR - Ex cost - Implicit cost = 25
a. Katherine’s accounting profits are $100, and her economic profits are $25.
b. Katherine’s accounting profits are $100, and her economic profits are $75.
c. Katherine’s accounting profits are $25, and her economic profits are $100.
d. Katherine’s accounting profits are $75, and her economic profits are $125.
Scenario 12-1
Joe wants to start his own business, which will require that he purchase a factory that costs $400,000. Joe
currently has $500,000 in the bank earning 3 percent interest per year.
72. Refer to Scenario 12-1. If Joe purchases the factory with his own money, what is the annual
implicit opportunity cost of purchasing the factory?
a. $0
b. $3,000
c. $12,000
d. $15,000
73. Refer to Scenario 12-1. Suppose Joe purchases the factory using $200,000 of his own money and
$200,000 borrowed from a bank at an interest rate of 6 percent. What is Joe’s annual opportunity
cost of purchasing the factory?

a. $3,000
b. $6,000
c. $15,000
d. $18,000
Table 12-1
Alyson’s Pet Sitting Service
Number of Output (number of
Workers pet visits)
0 0
1 20
 2 45
3 60
4 70
74. Refer to Table 12-1. What is the marginal product of the second worker?
a. 15
b. 20
c. 22.5
d. 25
75. Refer to Table 12-1. What is the marginal product of the third worker?
a. 15
b. 20
c. 35
d. 60
76. Refer to Table 12-1. Alyson’s pet sitting service experiences diminishing marginal productivity
with the addition of the
a. First worker.
b. second worker.
c. third worker.
d. fourth worker.
77. Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of
output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q
= 132). Then the marginal product of the 13th worker is
132/122
a. 8 units of output.
b. 10 units of output.
c. 122 units of output.
d. 132 units of output.
78. Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired.
The firm is able to produce 176 units of output per day when 16 workers are hired (holding other
inputs fixed). Then the marginal product of the 16th worker is
MP=∆TP/∆L=∆Q/∆LL
a. 10 units of output.
b. 11 units of output.
c. 16 units of output.
d. 176 units of output.
Table 12-2
Number of Output Fixed Variable Total
Workers Cost Cost Cost
0 0 $50 $0 $50
1 90 $50 $20 $70
2 170 $50 $40 $90
3 230 $50 $60 $110
4 240 $50 $80 $130
79. Refer to Table 12-2. The marginal product of the second worker is
a. 90 units.
b. 85 units.
c. 80 units.
d. 20 units.
80. Refer to Table 12-2. The marginal product of the third worker is
a. 230 units.
 b. 100 units.
c. 77 units.
d. 60 units.
81. Refer to Table 12-2. The marginal product of the fourth worker is
a. 10 units.
b. 60 units.
c. 230 units.
d. 240 units.
82. Refer to Table 12-2. At which number of workers does diminishing marginal product begin?
a. 1
b. 2
c. 3
d. 4
83. Refer to Table 12-2. If the firm can sell its output for $1 per unit, what is the profit-maximizing
level of output?
a. 240 units
b. 230 units
c. 190 units
d. 170 units
Table 12-4
Gallo Cork Factory
Output
Number Number (corks Marginal
of of produced Product of Cost of Cost of Total
Workers Machines per hour) Labor Workers Machines Cost
 1  2  5
 2  2  10
 3  2  20
 4  2  35
 5  2  55
 6  2  70
 7  2  80

84. Refer to Table 12-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each
machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate
of 70 corks per hour and operates 8 hours per day, what is Gallo’s total labor cost per day?
a. $72
b. $112
c. $576
d. $616
85. Refer to Table 12-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each
machine is $20 per day regardless of the number of corks produced. What is the total daily cost of
producing at a rate of 55 units per hour if Gallo’s operates 8 hours per day?
a. $480
b. $576
c. $520
d. $616
86. Refer to Table 12-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each
machine is $20 per day regardless of the number of corks produced. Assume the number of
machines does not change. If Gallo's produces at a rate of 78 corks per hour, what is the total
machine cost per day?
a. $20
b. $40
c. $240
d. We are unable to determine total machine costs from the information given.
87. Refer to Table 12-4. Each worker at Gallo's cork factory costs $12 per hour. The cost of each
machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate
of 35 corks per hour, what is the total labor cost per hour?
a. $40
b. $48
c. $384
d. $424
88. Refer to Table 12-4. Assume Gallo's currently employs 5 workers. What is the marginal product
of labor when Gallo's adds a 6th worker?
a. 5 corks per hour
b. 15 corks per hour
c. 25 corks per hour
d. 70 corks per hour
89. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price is constant.
c. amount by which total cost rises when output is increased by one unit.
d. amount by which output rises when labor is increased by one unit.
90. A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of
output, its total costs are $3,500. When it produces 101 units of output, its total costs are $3,750.
What is the marginal cost of producing the 101st unit of output?
3750-3500/(101-100)
a. $250
b. $275
c. $340.91
d. $350
91. Which of the following statements is not correct?
a. The marginal cost of the fifth unit of output equals the total cost of five units minus the
total cost of four units.
b. The total variable cost of seven units equals the average variable cost of seven units times
seven.
c. If marginal cost is rising, then average variable cost must be rising.
d. The marginal cost of the fifth unit of output equals the total variable cost of five units minus
the total variable cost of four units.
92. When marginal cost is greater than average cost, average cost is
a. rising.
b. falling.
c. constant.
d. either rising or falling depending on the economies of scale.
Figure 13-2

93. Refer to Figure 13-2. If the market price is $10, what is the firm’s short-run economic profit?
a. $9
b. $15
c. $30
d. $50
94. Refer to Figure 13-2. If the market price is $10, what is the firm’s total cost?
a. $15
b. $30
c. $35
d. $50
95. Refer to Figure 13-2. If the market price is $10, what is the firm’s total revenue?
a. $15
b. $30
c. $35
d. $50
96. Refer to Figure 13-2. The firm will earn zero economic profit if the market price is
a. $0
b. $6
c. $7
d. $10
97. If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20
units from consuming the second, and 15 from the third, the total utility of consuming the
three units is
A) 57 utils
B) 35 utils.
C) 15 utils.
D) unknown as more information is needed to determine the answer.
Table 10-1

Quantity of Quantity of
Total Utility Total Utility
Pita Wraps Bubble Tea
1 60 1 40
 2 102
3 132
4 144
5 144
6 138
7 128
2 70
3 91
4 106
5 112
6 115
7 115

Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the
price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of
the two items.

98. Refer to Table 10-1. What is Keegan's optimal consumption bundle?

A) 3 pita wraps and 3 bubble teas
B) 3 pita wraps and 4 bubble teas
C) 4 pita wraps and 2 bubble teas
D) 5 pita wraps and 0 bubble teas
99. Refer to Table 10-1. If Keegan can drink all the bubble tea he wants for free, how many
glasses will he consume?
A) 4 glasses
B) 5 glasses
C) 6 glasses
D) He would consume an infinite amount of bubble tea if it is free.
100. When the price of summer tank tops falls and you buy more of them because they are
relatively less expensive, this is called
A) the substitution effect.
B) the income effect.
C) the deadweight loss effect.
D) the elasticity effect.