Demand, Production, Cost, Market Equilibrium,

Please denote which letter best suits the answer to the question.

1. Microeconomics is the study of:
A- the overall level of unemployment, output, and inflation in an economy
B- how to increase our scarce resources
C- how firms and individuals make economic choices and how those choices create markets
D- both b and c

2. If demand is elastic, a decrease in quantity will case the total spending (P * Q) to
A- fall
B- rise
C- remain unchanged
D- change in a way that cannot be determined

3. A production function measures how
A- a firm transforms output into input
B- a firm transforms inputs into output
C- an individual maximizes utility
D- a firm minimizes cost

4. The point of tangency between a consumer's budget constraint and his or her indifference curve represents
A- complete satisfaction for the consumer
B- the equivalence of prices the consumer pays
C- constrained utility maximization for the consumer
D- the least he or she can spend

5. The notion that the cost of producing one more unit becomes progressively more costly as more units are produced is known as:
A- increasing total costs
B- diminished capacity
C- increasing returns
D- diminishing returns

6. Suppose that at current consumption levels an individual's marginal utility of consuming an extra hot dog is 10 whereas the marginal utility of consuming an extra soft drink is 4. Then the MRS (of soft drinks for hot dogs)--that is, the number of hot dogs the individual is willing to give up to get one more soft drink is:
A- 1/5
B- 5
C- 2/5
D- 1/2

7. The cross price elasticity of demand for good X with respect to Py is defined as
A- percentage change in X/percentage change in Px
B- percentage change in Py/percentage change in X
C- percentage change in Y/percentage change in Px
D- percentage change in X/percentage change in Py

8. The demand curve is downward sloping because:
A- the total value of the good to consumers declines as more of the good is consumed
B- the marginal value of the good to consumers declines as more fo the good is consumed
C- both a and b
D- none of the above

9. In general, microeconomic theory assumes that firms attempt to maximize the difference between
A- total revenue and accounting costs
B- price and marginal costs
C- total revenue and economic costs
D- economic costs and average costs

10. In order to maximize profits, a firm should produce at the output level for which
A- average cost is minimized.
B- marginal revenue equals marginal cost.
C- marginal cost is minimized.
D- price minus average cost is as large as possible.

11. If a firm is a price taker, its marginal revenue is
A- equal to market price.
B- less than market price.
C- greater than market price
D- a multiple of market price that may be either greater than or less than one.

12. The production function q = (sq root) of K*L
A- exhibits constant returns to scale and constant marginal productivities for K and L
B- exhibits diminishing returns to scale and diminishing marginal productivities for K and L
C- exhibits constant returns to scale and diminishing marginal productivities for K and L
D- exhibits diminishing returns to scale and constant marginal productivities for K and L

13. If price is equal to short-run average variable cost, the firm is at the point known as
A- the break even point.
B- the profit maximizing point.
C- the shutdown point.
D- the revenue maximizing point.

14. Two goods, X and Y, are called substitutes if
A- an increase in Px causes more Y to be bought
B- an increase in Px causes less Y to be bought
C- an increase in Py causes less Y to be bought
D- an increase in income causes more of both X and Y to be bought

15. The opportunity cost of producing a bicycle refers to
A- the out-of-pocket payments made to produce the bicycle.
B- the value of the goods that were given up to produce the bicycle.
C- the bicycle's retail price.
D- the marginal cost of the last bicycle produced.

16. The shape of a firm's expansion path depends upon
A- the cost of labor input.
B- the cost of capital input.
C- the shape of the firm's production function.
D- all of the above factors.

17. A firm whose production function displays increasing returns to scale will have a total cost curve that is
A- a straight line through the origin.
B- a curve with a positive and continually decreasing slope.
C- a curve with a positive and continually increasing slope.
D- a curve with a negative and continually decreasing slope.

18. As long as marginal cost is below average cost, average cost will be
A- falling
B- rising
C- constant
D- changing in a direction that cannot be determined without more information

19. A firm's marginal cost curve
A- is always U-shaped.
B- always has a positive slope.
C- is always below its average cost curve.
D- always intersects its average cost curve at its minimum point.

20. A rise in the average productivity of labor
A- always reflects technical progress.
B- reflects technical progress if other input usage hasn't changed.
C- reflects technical progress only if labor input hasn't changed.
D- reflects technical progress only if the quantity of output is increased.