Homework answers / question archive / Michigan State University - EC 201 Sample Test for Midterm #2 EC 201                                                                                                     Spring 2016 Michigan State University                                                                                 Kiwon Kang   Which of the following statements about marginal and average cost is correct? If average cost is rising, marginal cost may be rising or falling; Average cost equals marginal cost at the minimum point of the marginal cost curve; If marginal cost is rising, average cost must be rising; Marginal cost equals average cost at the minimum point of the average cost curve; If average cost is falling, marginal cost may be falling

Michigan State University - EC 201 Sample Test for Midterm #2 EC 201                                                                                                     Spring 2016 Michigan State University                                                                                 Kiwon Kang   Which of the following statements about marginal and average cost is correct? If average cost is rising, marginal cost may be rising or falling; Average cost equals marginal cost at the minimum point of the marginal cost curve; If marginal cost is rising, average cost must be rising; Marginal cost equals average cost at the minimum point of the average cost curve; If average cost is falling, marginal cost may be falling

Business

Share With

---

Michigan State University - EC 201

Sample Test for Midterm #2

EC 201                                                                                                     Spring 2016

Michigan State University                                                                                 Kiwon Kang

 

1. Which of the following statements about marginal and average cost is correct?

1. If average cost is rising, marginal cost may be rising or falling;
2. Average cost equals marginal cost at the minimum point of the marginal cost curve;
3. If marginal cost is rising, average cost must be rising;
4. Marginal cost equals average cost at the minimum point of the average cost curve;
5. If average cost is falling, marginal cost may be falling.

 

2.   Which of the following statements regarding the relationship between marginal cost and average cost is not true?

1. If marginal cost is greater than average cost, then average cost will rise;
2. If marginal cost is equal to average cost, then average cost neither rises nor falls;
3. If marginal cost is equal to average cost, then average cost is at minimum;
4. Average cost is increasing until marginal cost equals average cost;
5. None of above.

 

3.   If input prices rise,

      a.   marginal cost curve shifts up, but average cost curve shifts down;

      b.   marginal cost curve shifts down, but average cost curve shifts up;

      c.   both marginal cost and average cost curves shift up;

      d.   both marginal cost and average cost curves shift down;

      e.   there will be no change in both curves.

 

4.   Which of the following statements is not true?

1. Under CRTS, the firm can scale up or down without changing its average cost;
2. Under DRTS, average costs rise as output expands;
3. Firms sometimes encounter DRTS when they have difficulty in managing and coordinating the activities of increasing numbers of workers;
4. When you are operating DRTS firm, bigger is better;
5. None of above.

 

5.   If there are increasing returns to scale in the production process, this means that, if all inputs are increased in proportion to each other, output

1. increases less than in proportion to the increase in inputs;

      b.   increases more than in proportion to the increase in inputs;

3. stays constant;
4. decreases less than in proportion to the increase in inputs;
5. falls.

 

6.   In the basic competitive model, economic profits are driven to zero.  This means that

1. revenues are just enough to cover all fixed costs;
2. revenues are just enough to cover all costs, including the opportunity cost of owner’s capital;
3. price equals the minimum of the average cost curve;
4. accounting profits are equal to zero;
5. b. and c.

 

7.   A profit-maximizing firm operating in a competitive market will set output such that

1. price exceeds marginal cost;
2. price equals marginal cost;
3. average cost exceeds marginal cost;
4. marginal revenue equals marginal cost;

e.   b. and d.

 

8.   When some of a profit-maximizing firm's costs are sunk costs, a firm that is operating in a competitive market where price lies between minimum average variable cost and minimum average cost will

1. be making a profit;
2. be making a loss and will shut down;
3. be making zero profit;
4. be making a loss but will continue to produce;
5. not be covering its variable costs.

 

9.   When wage decreases, the substitution effect

1. increases the supply of labor because leisure is more expensive;
2. decreases the supply of labor because leisure is less expensive;
3. increases the supply of labor because the individual is worse off and will buy less leisure;
4. decreases the supply of labor because the individual is worse off and will buy more leisure;

e.   has no effect on the supply of labor.

 

10. When the wage rate increases, which of the followings is not true?

1. Leisure become more expensive;
2. The income effect leads to decrease the labor supply;
3. The income and substitution effects move in opposite directions;  
4. At higher wage range, the labor supply curve appears to be a backward-bending, since the substitution effect dominates income effect;
5. Empirically, the labor supply curve appears to be fairly steep with a positive slope, since the substitution effect slightly exceeds the income effect.

 

11. The profit-maximizing firm operating in a competitive market will hire labor up to the point where the

       a.  nominal wage rate equals the marginal cost of labor;

       b. value of the marginal product of labor equals the nominal wage rate;

       c.  marginal product of labor equals the real wage rate;

       d.  value of the marginal product of labor equals marginal revenue.

       e.  b. and c.

 

12. An increase in the interest rate leads to

1. less savings because the substitution effects motivate more consumption today;
2. more savings because both income and substitution effects motivate less consumption today, and more consumption tomorrow;
3. slightly more savings because the substitution effect outweighs the income effect;
4. slightly less savings because the substitution effect dominates the income effect;

 

13. With the policy of “rent controls”, which of followings is not true?

1. The landlords will have larger producer surplus;
2. There will be a rental shortage.
3. Consumer surplus for incumbent renters may be increasing;
4. There will be a deadweight loss;

e.   In the long run, the efficiency cost is greater.

 

14. A tax has been levied on the product.  The more price-elastic the demand for that product is,

      a.   the more likely it is that losses in consumer and producer surpluses are equal.

b.   the greater is the loss of producer surplus;

      c.   the greater is the loss of consumer surplus;

      d.   the greater is the gain of consumer surplus;

      e.   the greater is the gain of producer surplus.

 

15. When tax is levied on the output of cigarette (* Note that demand for cigarette is inelastic.), which of the following is not true?

      a.   most of tax burden is passed on to the consumers;

b.   both consumers and producers lose surplus;

      c.   government collect taxes;

d.   tax produces a larger deadweight loss, comparing to the case of elastic demand;

      e.   none of the above

 

16. In a general equilibrium analysis of the effect of technical advances in production, the labor demand depends on

a.   technical advances;

      b.   changes in prices in the product market;

c.   changes in the interest rate in capital market;

      d.   all of the above;

e.   b. and c.

 

17. Suppose that households decrease their consumption and increase their savings.  Under a general equilibrium analysis, which of the followings are not true? (For simplicity, we assume that interdependencies between labor and capital are negligible.)

a.   In the first round, product price falls;

      b.   In the first round, the interest rate falls;

      c.   In the first round, the wage rate stays constant;

d.   In the second round, the wage rate rises;

e.   In the second round, there will be further reduction in product price;

 

18. In the case of a negative externality, the producer will take into account only the

 ____ when deciding how much to produce. As a result, output will ____ its efficient level  and price will ____ its efficient level.

a.   private costs; equal; lie below;

      b.   social costs; lie below; exceed;

c.   private costs; lie below; exceed;

      d.   private costs; exceed; lie below;

e.   social costs; exceed; lie below;

 

19. For a monopoly who maximizes his profit, its marginal revenue

      a.   is greater than price;

      b.   is equal to price;

      c.   is less than price;

      d.  is equal to marginal cost;

      e.   c. and d.

 

20. When the demand curve facing the monopolist is relatively elastic, the

1. difference between marginal revenue and marginal cost is relatively small;
2. difference between marginal revenue and price is relatively large;
3. difference between marginal revenue and price equals zero;
4. difference between marginal revenue and price is relatively small;
5. difference between marginal revenue and marginal cost is relatively large.