Sample Quiz
Multiple Choice
1. Which of the following best explains why wages in service industries have increased along with wages in manufacturing industries, even though service industry productivity has not increased as much? Because
a. the opportunity cost of working in the service industry is the wage in the manufacturing industry.
b. the opportunity cost of working in the manufacturing industry is the wage in the service industry.
c. the service and manufacturing industry are complements.
d. working in the service industry yields much more utility.
e. MC > MB for service industry workers.
2. A firm's profit is equal to which of the following?
a. the value of its sales
b. marginal revenue minus marginal cost
c. total sales minus wages
d. total revenue minus total cost
e. none of the above
3. Which of the following is not a characteristic of a perfectly competitive firm?
a. perfectly elastic demand curve
b. price taker
c. control over market price
d. many sellers
e. all of the above are characteristics of perfectly competitive firms
4. Which of the following can a firm vary in the long-run?
a. no factors of production
b. all factors of production
c. all but one factor of production
d. only one factor of production
e. more information about the firm is needed to answer this question
5. When the quantity of an input can be altered in the short-run, the input is
a. fixed.
b. variable.
c. implicit.
d. explicit.
e. efficient.
6. A perfectly competitive firm will maximize profit when
a. total revenue exceeds total cost.
b. marginal revenue exceeds marginal cost.
c. price equals marginal cost.
d. price equals marginal benefit.
e. marginal benefit exceeds marginal cost.
7. A firm will shut down when
a. it is not earning a profit.
b. price does not equal marginal cost.
c. price is less than average cost.
d. revenue is less than variable costs.
e. revenue is less than total costs.
8. An increase in supply could be caused by which of the following?
a. an improvement in technology
b. an increase in input prices
c. an increase in income
d. an increase in the price of the product
e. a decrease in the number of suppliers
9. Which of the following is true for a vertical supply curve?
a. Price elasticity of supply is perfectly elastic
b. Quantity supplied is very responsive to price changes
c. Price elasticity of supply is inelastic
d. Price elasticity of supply is infinite
e. Quantity supplied is negatively related to price
10. Which of the following would cause supply to be more inelastic?
a. production that requires unskilled labor
b. improved transportation of inputs
c. moving from the short-run to the long-run
d. a unique or essential input
e. none of the above would cause supply to be more inelastic
Problems/Short Answer
1. Assume you can either work as an economics tutor on campus for $20 per hour or work in your own business making college t-shirts. You must decide how much time each day to spend on each activity (up to 8 hours total). Use the information in the table below to determine how you will allocate your time if you earn $5 for each t-shirt.
Hours per day # T-shirts
1 6
2 11
3 15
4 18
5 21
6 23
7 25
8 26
_______________________
2. Assume you and your friend Keiko each work for your own businesses solving economics and math problems. The table below shows how many hours it takes each of you to solve each type of problem.
Time to solve 1 economics problem Time to solve 1 math problem
You 1 hour 2 hours
Keiko 4 hours 1 hour
a. If each of you works 8 hours per day, draw the individual production possibilities curves for you and Keiko.
b. What is the price of an economics problem in terms of math problems for you and Keiko?
c. A firm is willing to pay for economics problems. Graph the supply curve for economics problems, where the vertical axis represents the price of economics problems in terms of math problems.