MCPractice Midterm

MC
C Practice Questions:
Q
1. Ecconomic profits are:

otal revenue minus total cost.
A. to
B. m
marginal reveenue minus marginal
m costt.
C. to
otal revenue minus total opportunityy cost.
D. to
otal profits of my as a who le.
o the econom
2. Th
he opportun eceiving ten ddollars in the
nity cost of re e future as opposed to geetting that te
en
dollaars today is:
he foregone interest thatt could be eaarned if you had
A. th h the mon
ney today.
B. th
he taxes paid
d on any earn
nings.
C. th $ relative to the total inncome of thaat person.
he value of $10
D. th
he value of $10 t the total inncome of all persons.
$ relative to
3. TTo maximize profits, a firrm should coontinue to inccrease produ

uction of a goood until:
A. to
otal revenue equals totall cost.
B. profits are zerro.
C. m
marginal reveenue equals marginal
m cosst.
D. avverage cost equals
e average revenue.
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4. What is the marginal cost associated with producing three units of the control variable, Q
(identify point E in the above table)?
A. 50.
B. 100.
C. 200.
D. 300.
5. The marginal cost in the above table is

A. increasing at an increasing rate.
B. decreasing at an increasing rate.
C. increasing at a constant rate.
D. decreasing at a decreasing rate.
6. What is the net benefit associated with producing two units of the control variable, Q
(identify point C in the above table)?
A. 600.
B. 800.
C. 1,200.
D. 1,400.
7. The first‐order condition for maximizing net benefits is

A. dB/dQ = dC/dQ.
B. dN/dQ = 0.
C. d2N/dQ2 = 0.
D. dB/dQ = dC/dQ and dN/dQ = 0.
8. The second‐order condition for maximizing net benefits is

A. d2N/dQ2 < 0.
B. d(MB)/dQ < d(MC)/dQ.
C. d2B/dQ2 < d2C/dQ2.
D. all of the statements associated with this question are correct.
9. Suppose market demand and supply are given by Qd = 100 ‐ 2P and QS = 5 + 3P. If a price
ceiling of $15 is imposed, what will be the resulting full economic price?
A. $19.
B. $21.
C. $6.
D. $25.
10. The minimum legal price that can be charged in a market is:
A. a price floor.
B. a price ceiling.
C. non‐pecuniary price.
D. full economic price.
11. Good Y is a complement to good X if an increase in the price of good Y leads to

A. an increase in the demand for good X.
B. an increase in the supply for good X.
C. a decrease in the demand for good X.
D. a decrease in the supply for good X.
12. Good X is a normal good and its demand is given by Qxd = α0 + αXPX + αYPY + αMM + αHH.
Then we know that
A. αH > 0.
B. αX > 0.
C. αY > 0.
D. αM > 0.
13. Suppose the demand for good X is given by Qdx = 20 ‐ 4Px + 2Py + M. The price of good X is
$5, the price of good Y is $15, and income is $150. Given these prices and income, how much
of good X will be purchased?
A. 160.
B. 180.
C. 220.
D. None of the statements associated with this question are correct.
14. An excise tax of $1.00 per gallon of gasoline placed on the suppliers of gasoline, would
shift the supply curve
A. down by $1.00.
B. down by more than $1.00.
C. up by $1.00.
D. up by less than $1.00.
15. Suppose there is a simultaneous increase in demand and decrease in supply, what effect
will this have on the equilibrium price?
A. It will rise.
B. It will fall.
C. It may rise or fall.
D. It will remain the same.
16. The demand for good X has been estimated by Q xd = 12 ‐ 3Px + 4Py. Suppose that good X
sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.
A. ‐0.2.
B. ‐0.3.
C. ‐0.5.
D. ‐0.6.
17. The own‐price elasticity of demand for apples is ‐1.2. If the price of apples falls by 5%,
what will happen to the quantity of apples demanded?
A. It will increase 5%.
B. It will fall 4.3%.
C. It will increase 4.2%.
D. It will increase 6%.
18. Lemonade, a good with many close substitutes, should have an own‐price elasticity that
is:
A. unitary.
B. relatively elastic.
C. relatively inelastic.
D. perfectly inelastic.
19. We would expect the demand for jeans to be:

A. more elastic than the demand for clothing.
B. less elastic than the demand for clothing.
C. the same as the demand for clothing.
D. neither more elastic, less elastic nor the same elasticity of demand for clothing.
20. The demand for good X is estimated to be Qxd = 10,000 ‐ 4PX + 5PY + 2M + AX where PX is
the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X.
Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units.
What is the quantity demanded of good X?
A. 61,500.
B. 61,300.
C. 61,300 ‐ 4PX.
D. 61,500 ‐ 4PX.
21. When a demand curve is linear,

A. the elasticity is the same as the slope of the demand curve.
B. demand is elastic at high prices.
C. demand is unitary elastic at low prices.
D. the elasticity is constant at all prices.
22. Which of the following is not the important factor that affects the magnitude of the own
price elasticity of a good?
A. available substitutes.
B. supply of the good.
C. time.
D. expenditure share.
23. U
Use the regression outpu
ut to computte the R Squaare and Adju
usted R Squa re (points A and
B, reespectively).
A. 0.056 and 0.0
017.
B. 0.944 and 0.9
942.
C. 0..944 and ‐0.4
428.
D. 0.06 and 0.02
2.
24. The residual sum of squares and deggrees of freedom due to the regressioon are
A. 444,539.54 and
d 2, respectivvely.
B. 7447,851.57, and 98, respe
ectively.
C. 1,,540,242.68 and 48, resp
pectively.
D. th
here is not su
ufficient info
ormation to aanswer this question.
q
25. D
Determine th
he intercept coefficient ((point E) and
d whether that estimate iis statisticallyy
significant at thee 5 percent le
evel.
A. 1,,664.46 and statistically significant
s si nce the p‐vaalue is less th
han 5 percennt.
B. 2.32 and statistically signifficant since tthe t statisticc is greater than 2 in absoolute value.
C. 1,,664.46 and statistically insignificant
i since the p‐vvalue is less than 5 perceent.
D. 2.32 and statiistically insignificant sincee the t statisstic is less tha
an 2 in absol ute value.
26. Determine the standard error of the estimated slope coefficient for the price of roses
(point F) and whether that estimate slope coefficient is statistically significant at the 5
percent level.
A. 9.42 and statistically significant since the t statistic is greater than 2 in absolute value.
B. 9.42 and statistically insignificant since the t statistic is less than 2 in absolute value.
C. 4.74 and statistically insignificant since the p‐value is less than 5 percent.
D. 4.74 and statistically significant since the p‐value is less than 5 percent.
27. The absolute value of the slope of the indifference curve is called the:
A. marginal revenue.
B. average rate of substitution.
C. marginal rate of substitution.
D. marginal cost.
28. Suppose we are given that the value of a particular utility function is a constant. That is,
U(X,Y) = c. Then, the total derivative of this relation is
A. (∂U/∂X)dX + (∂U/∂Y)dY = c.
B. (∂U/∂X)dX + (∂U/∂Y)dY = 0.
C. (∂Y/∂X)dX + (∂X/∂Y)dY = 0.
D. (∂Y/∂X)dU + (∂X/∂Y)dU = c.
29. Suppose a consumer has M = $200 to spend on two goods, X and Y. If the per‐unit prices
of X and Y are respectively given by PX = $2 and PY = $4, then to maximize utility subject to a
budget constraint can be solved by form which of the following Lagrangian?
A. ℒ = U(X,Y) + λ(200 ‐ 2X ‐ 4Y).
B. ℒ = U(X,Y) + λ(200 ‐ 2PX ‐ 4PY).
C. ℒ = (200 ‐ 2X ‐ 4Y) + λU(X,Y).
D. ℒ = U(X,Y) + λ(2X ‐ 4Y + 200).
30. What is the maximum amount of good X that can be purchased if X and Y are the only
two goods available for purchase and Px = $10, Py = $20, Y = 5, and M = 400?
A. 80.
B. 20.
C. 40.
D. 30.
31. The short run response of quantity demanded to a change in price is usually:
A. The same as the long run response.
B. Less than the long run response.
C. Greater than the long run response.
D. None of the statements associated with this question are correct.
32. The cross‐price advertising of demand for books and magazines is ‐2.0. If the
price of magazines decreases by 10 percent, the quantity demanded of books will
A. fall by 2.0 percent.
B. rise by 2.0 percent.
C. fall by 20 percent.
D. rise by 20 percent.
33. The elasticity which shows the responsiveness of the demand for a good due to
changes in the price of a related good is the:
A. own‐price elasticity.
B. income elasticity.
C. log‐linear elasticity.
D. cross‐price elasticity.
34. Many gourmet shops go out of business during recessions since they sell almost
exclusively
A. inferior goods.
B. normal goods.
C. substitutes.
D. complements.
35. If you include in your offerings some inferior goods, the demand for these
products will increase
A. during bad economic times.
B. during economic booms.
C. when incomes are high.
36. Running a supermarket involves

A. a lower level of risk than running a gourmet shop.
B. a higher level of risk than running a gourmet shop.
C. the same level of risk as running a gourmet shop.
37. Suppose that three consumers are in the market for good X. Consumer 1's
(inverse) PX = 20 ‐ QX; Consumer 2's (inverse) demand is PX = 20 ‐ 2QX; and Consumer
3's (inverse) demand is PX = 20 ‐ 4QX. When PX = $10, the market will demand
A. 17.5 units and the inverse market demand curve is PX = 20 ‐ 0.5714QX.
B. ‐30 units and the inverse market demand curve is PX = 60 ‐ 7QX.
C. 17.5 units and the inverse market demand curve is PX = 60 ‐ 7QX.
D. none of the statements associated with the questions are correct.
38. If the price of good X increases, what will happen to the budget line?
A. It will have a parallel shift inward.
B. It will have a parallel shift outward.
C. It will become steeper.
D. It will become flatter.
39. Given an unknown utility function of good x and y, the best approximation is
a) Polynomial function
b) Leontief function
c) Cobb Douglas function
d) linear function
40. Why do we use lnPt ‐ lnPt‐1 to compute asset return instead of (Pt ‐ Pt‐1) / Pt‐1?
a) because Pt is discrete.
b) because Pt is continuous.
c) because taking log can linearize any function.
d) none of the above.
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MC

1. Ecconomic profits are:

3. TTo maximize profits, a firrm should coontinue to inccrease produ

5. The marginal cost in the above table is

7. The first‐order condition for maximizing net benefits is

8. The second‐order condition for maximizing net benefits is

11. Good Y is a complement to good X if an increase in the price of good Y leads to

19. We would expect the demand for jeans to be:

21. When a demand curve is linear,

A. ℒ = U(X,Y) + λ(200 ‐ 2X ‐ 4Y).

B. ℒ = U(X,Y) + λ(200 ‐ 2PX ‐ 4PY).

C. ℒ = (200 ‐ 2X ‐ 4Y) + λU(X,Y).

D. ℒ = U(X,Y) + λ(2X ‐ 4Y + 200).

36. Running a supermarket involves

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