Preparatory course in Economics

Microeconomics of Product Markets

Quiz 2

Deadline: 16/02/2020 at 23:59

1. Suppose the price of local cable TV serviсe increased from $16.20 to $19.80 and as a result the
number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the
demand curve, price elasticity of demand is:
A) 0.8.
B) 1.2.
C) 1.6.
D) 8.0
Use the following to answer question 2

2. Suppose that the above total revenue curve is derived

from a particular linear demand curve. That demand
curve must be:
A) inelastic for price declines that increase
quantity demanded from 6 units to 7 units.
B) elastic for price declines that increase quantity
demanded from 6 units to 7 units.
C) inelastic for price increases that reduce quantity
demanded from 4 units to 3 units.
D) elastic for price increases that reduce quantity
demanded from 8 units to 7 units.

3. Which of the following generalizations is not correct?

A) The larger an item is in one's budget, the greater the price elasticity of demand.
B) The price elasticity of demand is greater for necessities than it is for luxuries.
C) The larger the number of close substitutes available, the greater will be the price elasticity of
demand for a particular product.
D) The price elasticity of demand is greater the longer the time period under consideration.
4. An antidrug policy which reduces the supply of heroin might:
A) increase street crime because the addict's demand for heroin is highly inelastic.
B) reduce street crime because the addict's demand for heroin is highly elastic.
C) reduce street crime because the addict's demand for heroin is highly inelastic.
D) increase street crime because the addict's demand for heroin is highly elastic.
5. The shift of the budget line from cd to ab in the above figure is consistent with:
 A) decreases in the prices of both M and N .
B) an increase in the price of M and a decrease in the price of N . C) a decrease in money
income.
D) an increase in money income.

6. At each point on an indifference curve:

A) money income is the same.
B) the prices of the two products are the same.
C) total utility is the same.
D) marginal utility is the same.

7. An indifference map implies that:

A) money income is constant, but the prices of the two products vary directly with the quantities
purchased.
B) the two products under consideration are perfectly substitutable for one another.
C) a consumer is better off to be at some point high on a given curve as opposed to a point low
on the same curve.
D) curves farther from the origin yield higher levels of total utility.
8. Which of the following is correct?
A) Budget lines are linear and upsloping; indifference curves are downsloping and concave to
the origin.
B) Budget lines are linear and downsloping; indifference curves are downsloping and concave to
the origin.
B) Budget lines are linear and downsloping; indifference curves are downsloping and convex to
the origin.
D) Budget lines are downsloping and convex to the origin; indifference curves are linear and
downsloping.
9. Which of the following is most likely to be an implicit cost for Company X?
A) depreciation charges on company-owned equipment
B) rental payments on IBM equipment
C) payments for raw materials purchased from Company Y
D) transportation costs paid to a nearby trucking firm
10. Which of the following statements concerning the relationships between total product (TP),
average product (AP), and marginal product (MP) is not correct?
A) AP continues to rise so long as TP is rising.
B) AP reaches a maximum before TP reaches a maximum.
C) TP reaches a maximum when the MP of the variable input becomes zero.
D) MP cuts AP at the maximum AP.

Use the following to answer questions 6-7

11. Refer to the above diagram, where variable inputs of labor are being added to a constant
amount of property resources. The total output of this
firm will cease to expand:
A) if a labor force in excess of Q1 is employed.
B) if a labor force in excess of Q2 is employed.
C) if a labor force in excess of Q3 is employed.
D) only if the marginal product curve becomes negative
at all levels of output.
12. Refer to the above diagram, where variable inputs of labor are being added to a constant
amount of property resources. Average variable cost will be at a minimum when the firm is
hiring:
A) Q3 workers.
B) Q2 workers.
C) Q1 workers.
D) more than Q3 workers.
13.

In the above figure, curves 1, 2, 3, and 4 represent the:

A) ATC, MC, AFC, and AVC curves respectively.
B) AFC, MC, AVC, and ATC curves respectively.
C) MC, ATC, AVC, and AFC curves respectively.
D) ATC, AVC, AFC, and MC curves respectively.

14. Total fixed cost (TFC):

A) falls as the firm expands output from zero, but eventually rises.
B) falls continuously as total output expands.
C) varies directly with total output.
D) does not change as total output increases or decreases.
15. Which of the following curves is not U-shaped?
A) MC
B) AFC
C) AVC
D) ATC