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Answers and explanations to a 9-question M/C economics quiz

See the attached file.

Average Variable Costs and Marginal Costs
Average variable costs are increasing when:
1. Marginal costs are increasing
2. Marginal costs are declining
3. Marginal costs exceed fixed costs
4. Marginal productivity is increasing.

Demand for Steel
When calculating the own price elasticity for steel and the income elasticity for steel, an economist found that income has a greater impact on steel demand compared to steel's own price. A possible explanation for this phenomenon might be that:
1. Steel is elastic good.
2. Steel is an intermediate good used in many final goods such as automobiles.
3. Steel is an inferior good.
4. None of the above

Law of diminishing returns and aphorisms
Which of the following aphorisms best describes the law of diminishing returns?
1. a. Don't cry over spilled milk.
2. b. Too many cooks spoil the soup.
3. c. You can lead a horse to water but you can't make him drink.
4. d. A penny saved is a penny earned.

Marginal productivity and Costs
In the short run, machinery is fixed and labor is variable for a business that uses only these two inputs. If, at the current level of output, marginal product of labor is declining

1. The marginal cost of producing output must be rising if output is increased.
2. average product of labor must also be rising.
3. average fixed cost must be greater than average variable cost.
4. None of the above.

Own Price Elasticity and Revenue
Millie produces and sells 300 jars of honey per day at a price of $8 per jar. In order to increase total revenues, she plans to increase prices from $8 per jar to $10 per jar. Mollie's strategy will work so long as:

1. The demand for honey is inelastic between $8 and $10.
2. The demand for honey is elastic between $8 and $10.
3. Honey is a normal good.
4. None of the above.

Own Price Elasticity of Demand
All of the following factors affect the price elasticity of demand EXCEPT:
1. Availability of substitutes.
2. Proportion of income spent on the product.
3. Time to adjust to a change in the price.
4. A change in consumer income.

Own Price Elasticity of Water
Due to drought conditions, the local government wants to reduce the quantity demand of water by 10%. If it is estimated that the price elasticity of demand for water is -0.3, by how much (in percentage terms) must the price of water be increased to reach this goal?

1. 33.3%
2. 3.0 %
3. 0.3%
4. 0.003%

Trucking, Revenues and Own Price Elasticity
Along Haul Trucking Inc., decided to increase its long haul rates by 5% in order to increase revenues. Revenues in April were $325,000 and revenues in May increased to $333,000. As a result, it is likely that:
1. The own price elasticity of demand for long haul trucking is inelastic.
2. The own price elasticity of demand for long haul trucking is elastic.
3. Long haul trucking is a normal good.
4. Long haul trucking is a luxury good.

Upward Sloping Supply Curves
The supply curve for a business is upward sloping so long as:
1. Additional production increases the efficiency of production.
2. The producer understands the 'Law of Demand'
3. It is more profitable to produce at higher levels of production
4. Production costs of additional units of output are increasing.

Attachments

Solution Preview

Average Variable Costs and Marginal Costs
1. If average variable cost is increasing, it means that the cost of producing each additional unit of output must also be increasing. "The cost of producing each additional unit of output" is the definition of "marginal cost", so marginal costs must be increasing.

Demand for Steel
2. The economist's calculations show that changes in price do not have a large effect on the quantity of steel demanded. This means that demand for steel is inelastic. An increase in income causes an increase in the demand for steel, so steel must be a normal good, not an inferior good. A possible explanation for these results is that steel is an ...

Solution Summary

The solution questions on the following topics:

Average Variable Costs and Marginal Costs
Demand for Steel
Law of Diminishing Returns and Aphorisms
Marginal Productivity and Costs
Own Price Elasticity and Revenue
Own Price Elasticity of Demand
Own Price Elasticity of Water
Trucking, Revenues and Own Price Elasticity
Upward Sloping Supply Curves.

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