Unit 2

Question 1

Scarcity of a good ___ price, ___ marginal utility, and ___ total utility.

Answer 1

raises; raises; reduces

Question 2

The ___ is the point that maximizes both total net utility and quantity of a good.

Answer 2

Optimal Purchase Quantity

Question 3

___ x ___ = Total Revenue

Answer 3

Price and Quantity

Question 4

Utility is ___, meaning one thing is preferred to another, but not ___, which means it can not be explicitly measured.

Answer 4

Ordinal; Cardinal

Question 5

___ is the usefulness of a good/product/activity or the satisfaction from consuming a good/getting a service/partaking in an activity

Answer 5

Utility

Question 6

In an elastic model, what effect would a small increase in price have on quantity demanded and total revenue?

Answer 6

Large decrease for each

Question 7

What would the demand curve for a perfectly inelastic good look like?

Answer 7

Vertical line; Quantity demanded stays the same regardless of Price.

Question 8

Which of the following items are likely to be normal goods? Which are likely to be inferior goods?

A. Expensive perfume

B. Paper plates

C. Secondhand clothing

D. Overseas trips

Answer 8

• Normal: A, D
• Inferior: B, C

Question 9

___ is the addition to total utility that you derive by consuming one more unit of X.

Answer 9

Marginal Utility

Question 10

How is marginal revenue product calculated?

Answer 10

Marginal physical product x price of output

Question 11

Consumers will select the most desired combination of goods obtainable for their money. How can this combination be found?

Answer 11

It is the point on the budget line at which the budget line is tangent to an indifference curve.

Question 12

What does the slope of the indifference curve represent?

Answer 12

The terms on which the consumer is willing - according to his own preference - to trade one good for the other. (slope = # of units of good M he would give up for one unit of good N)

Question 13

How can we use slopes to determine the point where the budget line is tangent to an indifference curve?

Answer 13

The slopes of the budget line and the indifference curve will be equal at the tangency point

Question 14

In an inelastic model, what effect would a large increase in price have on quantity demanded and total revenue?

Answer 14

Small decrease for quantity demanded; Increase for total revenue

Question 15

The slope of a(n) ___, referred to as the marginal rate of substitution (MRS) between the commodities, represents the maximum amount of one commodity that the consumer is willing to give up in exchange for one more unit of another commodity.

Answer 15

indifference curve

Question 16

What is the formula for Average Costs? (In terms of fixed and variable costs)

Answer 16

Average Fixed Costs + Average Variable Costs

Question 17

The ___ is a period of time at which point all of the firm’s current commitments have come to an end.

Answer 17

Long run

Question 18

___ is the largest sum of money that a particular consumer will volunatrily give up in exchange for a particular bundle of goods.

Answer 18

Total Monetary Utility

Question 19

As a rule, as a person acquires more of a commodity, total utility ___ and marginal utility from that good ___, all other things being equal.

Answer 19

increase; decreases

Question 20

An output level can maximize total profit only if marginal profit is ___ zero.

Answer 20

equal to

Question 21

___ is the ratio of the percentage change in quantity demanded to the percentage change in price that brings about the change in quantity demanded.

Answer 21

Elasticity

Question 22

The ___ says that an increase in the amount of any one input, holding the amounts of all others constant, ultimately leads to lower marginal returns to the expanding input.

Answer 22

Law of Diminishing Marginal Returns

Question 23

If demand for a product is exactly unit-elastic, what effect would a price increase have on total revenue?

Answer 23

No effect

Question 24

The ___ shows the relationship between price and quantity demanded in the markey as a whole.

Answer 24

Market Demand Curve

Question 25

What would the demand curve for a perfectly elastic product look like?

Answer 25

Horizontal line; Price stays constant regardless of quantity demanded or else quantity demanded falls to zero.

Question 26

Suppose that a firm's management will be pleased to increase its share of the market, but if it expands its production, the price of its product will fall. Will its profits fall as well?

Answer 26

Not necessarily

Question 27

\_\_\_ is the additional revenue that the producer earns from increased sales when it uses an additional unit of the input.

Answer 27

Marginal Revenue Product

Question 28

What is the formula for own-price elasticity?

Answer 28

((New quantity - Old quantity) / Average of new quantity and old quantity) / ((New price - old price) / average of new price and old price)

Question 29

Name the 3 characteristics of production indfference curves, or isoquants.

Answer 29

1. Higher curves correspond to larger outputs 2. An indifference curve will generally have a negative slope 3. An indifference curve is typically assumed to curve inward toward the origin near its middle

Question 30

\_\_\_ is the amount of output a firm obtains in total from a given quantity of input.

Answer 30

Total Physical Product

Question 31

\_\_\_ is a measure of the change in quantity demanded for a good/service from a change in the price of that good/service.

Answer 31

Own-price elasticity

Question 32

\_\_\_ of demand is the ratio of the percentage change in quantity demanded to the percentage change in income.

Answer 32

Income Elasticity

Question 33

Profit can be maximized only at an output level at which marginal revenue is approximately equal to...

Answer 33

marginal cost

Question 34

The ___ is the total physical product divided by the quantity of input.

Answer 34

Average Physical Product

Question 35

Increasing marginal returns, diminishing marginal returns, and negative marginal returns refer to the slope of the ___ curve.

Answer 35

Marginal Physical Product

Question 36

The ___ is a period of time during which some of the form's cost commitments will not have ended.

Answer 36

Short run

Question 37

The ___ connects all combinations of the commodities that are equally desirable to the consumer.

Answer 37

Indifference curve

Question 38

What is the formula for Total Cost? (In terms of fixed and variable costs)

Answer 38

Total Fixed Costs + Total Variable Costs

Question 39

If Marginal Utility is ___ than Price, you should continue buying the good.

Answer 39

greater

Question 40

What variables other than price and advertising are likely to affect the quantity demanded of a product? (Choose all that apply) ## Footnote A. Prices of Complements B. Prices of Inputs C. Prices of Substitutes D. Consumer Incomes E. Number of Sellers F. Population Size

Answer 40

A, C, D, F

Question 41

A for-profit firm should seek to maximize ___ profit.

Answer 41

Total

Question 42

Suppose that firm's demand curve indicates that at a price of $10 per unit, customers will demans 2 million units of its product. Suppose that management decidesr to pick both price and output; the firm produces 3 millions units of its product and prices them at $18 each. What will happen? ## Footnote A. The firm will sell between 2 million and 3 million units B. The firm will succesfully sell 3 million units C. The firm will not sell more than 2 million units

Answer 42

C

Question 43

When does Optimal Purchase Quantity occur?

Answer 43

When Marginal Utility = Price

Question 44

In a ___ demand curve, the elasticity always equals 1, so a given percentage price change always leads to teh same percentage change in quantity demanded.

Answer 44

Unit-elastic

Question 45

The slope of a(n) ___ is the amount of one commodity that the market requires an individual to give up to obtain one additional unit of another commodity without any change in the amount of money spent.

Answer 45

Budget Line

Question 46

In a ___ demand curve, slope remains constant but elasticity grows steadily smaller as you move from left to right.

Answer 46

Straight-line

Question 47

The ___ says that the more of a good a consumer has, the less marginal utility an additional unit contributes to overall satisfaction, if all other things remain unchanged.

Answer 47

Law of Diminishing Marginal Utility

Question 48

The indifference curve has a ___ slope.

Answer 48

negative

Question 49

A(n) ___ is the locus of all points representing every combination of inputs that the producer can afford to buy with a given amount of money and given input prices.

Answer 49

Budget line

Question 50

\_\_\_ is a measure of the responsiveness of one variable to changes in another variable.

Answer 50

Elasticity

Question 51

Name 2 ways to calculate Consumer's Surplus, or Total Utility.

Answer 51

1. Value to the consumer of the quantity of Commodity X purchased - amount required by market for that quantity of X 2. Sum of Marginal Net Utilities for each quantity increase.

Question 52

\_\_\_ is a method for calculating optimal choices - the choices that best promotes the decision maker's objective. It works by testing whether, and by how much, a small change in a decision will move things toward or away from the goal.

Answer 52

Marginal Analysis

Question 53

When the marginal revenue product of an input exceeds its price, what should the firm do?

Answer 53

Use more of that input

Question 54

The ___ says that a lower price generally increases the amount of a commodity that people in a market are willing to buy and also tends to increase the number of buyers.

Answer 54

Law of Demand

Question 55

A firm's marginal revenue is $133, and its marginal cost is $90. What amount of profit does the firm fail to pick up by refusing to increase output by one unit?

Answer 55

$43

Question 56

The ___ of demand for product X to a change in the price of another product, Y, is the ratio of the percentage change in quantity demanded of X to the percentage change in the price of Y that brings about the change in quantity demanded.

Answer 56

Cross elasticity

Question 57

The ___ for a household graphically represents all possible combinations of two commodities that it can purchase, given the prices of the commodities and some fixed amount of money at its disposal.

Answer 57

budget line

Question 58

What is the formula for Marginal Cost? (In terms of fixed and variable costs)

Answer 58

= Marginal Variable Costs

Question 59

What are the four determinants of Demand Elasticity?

Answer 59

1. Nature of the Good (necessities = inelastic, luxuries = elastic) 2. Share of consumer's budget 3. Number of substitutes 4. Time (more time = more elastic)

Question 60

Name the 3 assumptions made in the supply and demand linear model.

Answer 60

1. Perfect information 2. Free entry and exit 3. Equal market power

Question 61

The ___ is the increase in total output that results from a one-unit increase in the input quantity, holding the amounts of all other inputs constant.

Answer 61

Marginal Physical Product

Question 62

A(n) ___ is one which, among all the decisions that are actually possible, best achieves the decision maker's goals. For example, if profit is the sole objective of some firm, the price that makes the firm's profit as large as possible is optimal for that company.

Answer 62

Optimal decision

Question 63

\_\_\_ is the total revenue divided by the quantity.

Answer 63

Average revenue

Question 64

\_\_\_ equals net earnings, in the accountant's sense, minus the opportunity costs of capital and of any other inputs supplied by the firm's owners.

Answer 64

Economic Profit

Question 65

Production is said to involve \_\_\_, also referred to as \_\_\_, if, when all input quantities are increased by X percent, the quantity of output rises by more than X percent.

Answer 65

Economies of scale; increasing returns to scale

Question 66

The ___ is the locus of the firm's cost- minimizing input combinations for all relevant output levels.

Answer 66

expansion path

Question 67

A(n) ___ (sometimes called an isoquant) is a curve showing all the different quantities of two inputs that are just sufficient to produce a given quantity of output.

Answer 67

Production indifference curve