MANAGERIAL ECONOMICS

MIDTERM EXAM

Multiple Choice Questions

1. If an input must be increased for output to increase it is called a

a. Fixed input
b. Changeable input
c. Variable input
d. Unchangeable input

2. If the level of an input cannot be increased because there is insufficient time to put them in place,
they are called
a. Fixed input
b. Changeable input
c. Variable input
d. Unchangeable input

3. When firms add workers and get more efficient they are benefiting from
a. The division of labor
b. The law of large numbers
c. Diminishing returns
d. Diminishing marginal utility

4. Costs which increase with an increase in output are called

a. Fixed costs
b. Changeable costs
c. Variable costs
d. Unchangeable costs

5. Costs which do not increase with an increase in output are called

a. Fixed costs
b. Changeable costs
c. Variable costs
d. Unchangeable costs

6. Marginal Cost is
a. The addition to cost associated with one additional unit of output
b. The per unit cost of production
c. The per unit variable cost of production
d. The per unit fixed cost of production

7. Average Total Cost is

a. The addition to cost associated with one additional unit of output
b. The per unit cost of production
c. The per unit variable cost of production
d. The per unit fixed cost of production
8. Average Variable Cost is
a. The addition to cost associated with one additional unit of output
b. The per unit cost of production
c. The per unit variable cost of production
d. The per unit fixed cost of production

9. Average Fixed Cost is

a. The addition to cost associated with one additional unit of output
b. The per unit cost of production
c. The per unit variable cost of production
d. The per unit fixed cost of production

10. Marginal Revenue is

a. The extra revenue associated with one additional unit of sales
b. The extra cost associated with one additional unit of output
c. The revenue associated with the first unit of sales
d. The revenue associated with the sale of the average unit

11. When a firm has many competitors selling the same good, in order to sell more of the good
a. It only need produce more of the good
b. It must, ironically, increase prices
c. It must reduce the price it charges
d. It must advertise

12. If a firm can increase output by hiring more workers then

a. It will always do so
b. It will never do so
c. It will do so only if the cost of hiring the workers (and purchasing the materials) is less than the
increase in revenues associated with the increase in sales
d. It will do so only if the cost of hiring the workers (and purchasing the materials) is more than the
increase in revenues associated with the increase in sales

13. When a firm has no competitors, in order to sell more of the good
a. It only need produce more of the good
b. It must, ironically, increase prices
c. It must reduce the price it charges
d. It must keep prices steady

14) The price elasticity of demand equals

A) the percentage change in the quantity demanded divided by the percentage change in the
price.
B) the change in the quantity demanded divided by the change in price.
C) the percentage change in the price divided by the percentage change in the quantity
demanded.
D) the change in the price divided by the change in quantity demanded.

15) If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent
increase in the quantity demanded, the price elasticity of demand is
A) 0.83. B) 0.30. C) 0.60. D) 1.20.
16) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in
its price. The price elasticity of demand for spinach is
A) 0.5. B) 20.0. C) 2.0. D) 10.0.

17) A 20 percent increase in the quantity of pizza demanded results from a 10 percent decline in its
price. The price elasticity of demand for pizza is
A) 2.0. B) 10.0. C) 0.5. D) 20.0.

18) If demand is price elastic,

A) a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1
percent.
B) a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds 1
percent.
C) the price is very sensitive to any shift of the supply curve.
D) a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less than
1 percent.

19) The price elasticity of demand can range between

A) negative one and one.
B) zero and infinity.
C) zero and one.
D) negative infinity and infinity.

20) Demand is perfectly inelastic when

A) the good in question has perfect substitutes.
B) shifts in the supply curve results in no change in price.
C) shifts of the supply curve results in no change in quantity demanded.
D) shifts of the supply curve results in no change in the total revenue from sales.

21) The more substitutes available for a product,

A) the larger is its income elasticity of demand.
B) the smaller is its income elasticity of demand.
C) the smaller is its price elasticity of demand.
D) the larger is its the price elasticity of demand.

22) Of the following, demand is likely to be the least elastic for

A) Toyota automobiles. B) compact disc players.
C) Ford automobiles. D) toothpicks.

23) Of the following, demand is likely to be the least elastic for

A) pink grapefruit. B) iceberg lettuce.
C) insulin for diabetics. D) diamonds.

24) The demand for food is most elastic in countries

A) with low income levels. B) that are highly urbanized.
C) with intermediate income levels. D) with high income levels.
25) If the cross elasticity of demand between goods A and B is positive,
A) the demands for A and B are both price elastic.
B) A and B are complements.
C) A and B are substitutes.
D) the demands for A and B are both price inelastic.

26) If goods A and B are complements,

A) the cross elasticity of demand between A and B is negative.
B) the cross elasticity of demand between A and B is positive.
C) their income elasticities of demand are both less than 1.
D) their income elasticities of demand are both greater than 1.

27) If a rise in the price of good B increases the quantity demanded of good A,
A) B is a substitute for A, but A is a complement to B.
B) A is a substitute for B, but B is a complement to A.
C) A and B are complements.
D) A and B are substitutes.

28. A monopoly:
a. charges higher prices than competitive firms, all other things equal.
b. produces more output than competitive markets, all other things equal.
c. is one of several firms in the market.
d. All of the above.

29. Compared to competitive markets, monopolies charge:

a. higher prices, produce more output, but make lower profits.
b. higher prices, produce more output, and make higher profits.
c. higher prices, produce less output, and make higher profits.
d. lower prices, produce more output, and make higher profits.

30. What do patents, economies of scale, and exclusive franchises have in common?
a. They are all barriers to entry.
b. They are all granted by the government to monopoly firms.
c. They guarantee that a market will be

END OF TEST