Econ 2610: Principles of Microeconomics, Spring 2010

Quiz # 6 Econ 2610: Principles of Microeconomics, Spring 2010 Yogesh Uppal March 25, 2010

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

1) Market demand measures A) the average benefit of consumers for each level of consumption. B) the total benefit of consumers for each level of consumption. C) the marginal benefit of consumers for each level of consumption. D) none of these. Answer: C

2) Assume extra benefits in a market are equal to $75 while extra costs are equal to $54. What can be said about economic efficiency? A) Economic efficiency has not been reached, more needs to be produced. B) It has been reached. C) Economic efficiency has not been reached, less needs to be produced. D) Need more information to reach a conclusion. Answer: A

3) The short run marginal product of labor increasing at first and then falling is an example of the law of: A) diminishing average returns. B) diminishing marginal returns. C) diminishing total returns. D) None of the above Answer: B

4) A characteristic of the long run is: A) there are no fixed inputs. B) plant capacity can be increased or decreased. C) all inputs can be varied. D) all of the above. Answer: D

5) An example of a short run adjustment is: A) Toyota builds a new assembly plant in Texas. B) the local bakery adds another oven. C) farmer Smith buys another section of land. D) your local Walmart hires two more associates. Answer: D

6) If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's average variable cost at that level of output is: A) $45 B) $40 C) $35 D) $30 Answer: C

7) If a perfectly competitive firm's price is equal to average total cost, the firm is: A) incurring a loss. B) making a profit C) breaking even. D) None of the above Answer: C

8) What is the shut down point for a perfectly competitive firm? A) p = minimum value of AVC B) p = minimum value of ATC C) p = minimum value of AFC D) p = minimum value of MC Answer: A

9) You are given the following information about a perfectly competitive firm: ATC = $10, AVC = $6, P =$7and Q = 100. Compute this firm’s profits. A) profit of $100 B) loss of $100 C) profit of $300 D) loss of $300 Answer: D

10) Refer to the information given in question (9). Should this firm shutdown? A) Yes because it is making losses. B) Yes because it is making profits. C) No because P > AVC D) Yes because P < ATC Answer: C