MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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1 Homework3 Name The homework3 consists 30 questions in total fromchapter 6, 10, and 11. You should bring your answer on Monday, March 18th. in class, and we will have last five minutes to bubble the scantron sheet in class. Late submission of the scantron sheets after Monday would not be accepted. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Suppose the value of the price elasticity of demand is -3. What does this mean? 1) A) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. B) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. C) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units. 2) If demand is inelastic, the absolute value of the price elasticity of demand is 2) A) greater than one. B) greater than the absolute value of the slope of the demand curve. C) one. D) less than one. 3) If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. A) 0.17 B) 0.62 C) 1.62 D) 5 4) Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula. A) 1.67 B) 1.0 C) 0.6 D) ) 4) 5) Total revenue equals 5) A) price per unit times quantity supplied. B) change in price per unit times quantity sold. C) price per unit times change in quantity sold. D) price per unit times quantity sold. 1

2 Table 6-3 Price per Pound (dollars) Quantity of Cheese Demanded (pounds) $ ) Refer to Table 6-3. Over what range of prices is the demand inelastic? 6) A) between $2 and $8 B) over the entire range of prices C) between $12 and $16 D) between $8 and $16 7) Price elasticity of supply is used to gauge 7) A) how responsive suppliers are to a change in demand. B) how responsive suppliers are to changes in future prices. C) how responsive sales are to a change in input prices. D) how responsive suppliers are to price changes. 8) Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information the price elasticity of supply of jean-jackets is A) B) 1.6. C) 1.6%. D) 6%. 8) 9) Utility is 9) A) subjective and difficult to measure. B) the production of a quasi-public good like electricity or natural gas. C) easily measured in units called utils. D) the consumption of a quasi-public good like electricity or natural gas. 10) If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the second candy bar is A) 25 utility units. B) 20 utility units. C) 5 utility units. D) unknown as more information is needed to determine the answer. 11) If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of A) the law of increasing marginal opportunity cost. B) the law of demand. C) the law of diminishing marginal utility. D) the law of supply. 10) 11) 2

3 Table 10-4 Steak & Cheese Steak & Cheese Grilled Chicken Grilled Chicken Quantity MU MU/P MU MU/P ) Refer to Table For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Which of the following statements is false? A) If Mabel maximizes her utility she will buy two steak and cheese sandwiches. B) The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. C) We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility. D) If Mabel maximizes her utility she will buy three grilled chicken sandwiches. 13) Refer to Table For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Which of the following statements is true? A) If Mabel was maximizing her utility when spending $14 and then received an additional $4, she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich. B) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and two grilled chicken sandwiches. C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will buy three grilled chicken sandwiches. D) To maximize her utility, Mabel will need a total of $36, the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches. 12) 13) 3

4 Table 10-3 Ice Cream Cones Lime Fizz Soda Quantity MU MU ) Refer to Table The table above shows Lee's marginal utility from consuming ice cream cones and cans of Lime Fizz Soda. Select the phrase that completes the following statement. "We can determine the number of ice cream cones and cans of Lime Fizz Soda Lee should consume to maximize his utility A) if we know what Lee's income is and the price of an ice cream cone and the price of a can of Lime Fizz Soda." B) if we know the values of the marginal utility per dollar for ice cream cones and Lime Fizz Soda." C) by adding up the marginal utilities for ice cream cones and Lime Fizz Soda." D) if we know what Lee's income is." 14) Table 10-6 Quantity of Burgers Marginal Utility Quantity of Pepsi Marginal Utility 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. 15) Refer to Table What is Jay's optimal consumption bundle? 15) A) 1 burger and 2 cans of Pepsi B) 3 burgers and 1 can of Pepsi C) 2 burgers and 3 cans of Pepsi D) 3 burgers and 2 cans of Pepsi 16) Refer to Table 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 16) 4

5 Figure ) Refer to Figure Best friends Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences? A) The diagrams do not provide any information about relative preferences. B) Laurel enjoys science fiction movies more than Hardy. C) Laurel enjoys romantic comedies more than Hardy. D) They have identical movie preferences. 18) Refer to Figure Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences? A) Hardy enjoys romantic comedies more than Laurel. B) Hardy enjoys science fiction movies more than Laurel. C) The diagrams do not provide any information about relative preferences. D) They have identical movie preferences. 17) 18) 5

6 Figure ) Refer to Figure The consumer can afford consumption bundles 19) A) s, v, t, and u. B) r, s, t, and u. C) s, v, and u only. D) r, s, v, and u. 20) Refer to Figure Which of the following statements is true? 20) A) The consumer gets more utility from bundle r than from bundle v. B) Bundles r and w are not affordable. C) The consumer gets less utility from bundle w than from bundle v. D) Bundles r, s, t, and u all cost the same. 21) Refer to Figure Suppose the price of pizza increases while the price of hamburger remains constant. Then, the consumer's A) indifference curve becomes straighter. B) budget constraint moves inward toward the origin on the pizza axis while the hamburger intercept remains the same. C) indifference curve becomes more concave away from the origin. D) budget constraint moves outward away from the origin on the pizza axis while the hamburger intercept remains the same. 21) 22) The formula for total fixed cost is 22) A) TFC = TVC - TC. B) TFC = TC + TVC. C) TFC = TC - TVC. D) TFC = TC/TVC. 6

7 Figure ) Refer to Figure The vertical difference between curves F and G measures 23) A) marginal costs. B) fixed costs. C) sunk costs. D) average fixed costs. 24) Refer to Figure Curve G approaches curve F because 24) A) fixed cost falls as capacity rises. B) marginal cost is above average variable costs. C) total cost falls as more and more is produced. D) average fixed cost falls as output rises. 25) Refer to Figure Identify the curves in the diagram. 25) A) E = average fixed cost curve; F = average total cost curve; G = average variable cost curve, H = marginal cost curve B) E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve. C) E = marginal cost curve; F = total cost curve; G = variable cost curve, H = average fixed cost curve D) E = average fixed cost curve; F = variable cost curve; G = total cost curve, H = marginal cost curve 7

8 Figure 11-7 Figure 11-7 shows the cost structure for a firm. 26) Refer to Figure When the output level is 100 units average fixed cost is 26) A) $10. B) $8. C) $5. D) This cannot be determined from the diagram. 27) Refer to Figure When output level is 100, what is the total cost of production? 27) A) $20 B) $1,000 C) $1,200 D) $2,000 28) Refer to Figure If output is 100 units what is the fixed cost of production? 28) A) $8 B) $800 C) $1,000 D) This cannot be determined from the diagram. 29) When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is A) $ B) $ C) $135. D) $ ) 8

9 Table 10-7 Quantity of Quantity of Total Utility Beer (glasses) Pizza (slices) Total Utility Table 10-7 shows Antonio's utility from beer and pizza. 30) Refer to Table Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice. How many of each good will he consume when he maximizes his utility? A) 2 glasses of beer, 3 slices of pizza B) 4 glasses of beer, 5 slices of pizza C) 2 glasses of beer, 1 slice of pizza D) 3 glasses of beer, 2 slices of pizza 30) 9

10 Answer Key Testname: UNTITLED2 1) A 2) D 3) C 4) C 5) D 6) A 7) D 8) B 9) A 10) D 11) C 12) C 13) A 14) A 15) C 16) C 17) C 18) B 19) A 20) B 21) B 22) C 23) D 24) D 25) B 26) B 27) D 28) B 29) D 30) D 10

Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ $ $ $ $10 2 8

Econ 101 Summer 2005 In class Assignment 2 Please select the correct answer from the ones given Figure 4 1 Price Quantity Quantity Per Pair Demanded Supplied $ 2 18 3 $ 4 14 4 $ 6 10 5 $ 8 6 6 $10 2 8