Multiple choice

1) As a consumer moves along an indifference curve, the benefits of trading will be exhausted only when:

A) The MRS equals the price ratio.

B) The MRS is greater than the price ratio.

C) The MRS is smaller than the price ratio.

D) There is not sufficient information.

2) Refer to Figure 7.7. The marginal rate of substitution (in absolute value) is ________ the price ratio (in absolute value) at point A; ________ the price ratio at point B; and ________ the price ratio at point C (trading peaches for herbs).

A) greater than; less than; equal to

B) less than; equal to; greater than

C) equal to; less than; equal to

D) greater than; equal to; less than

3) Refer to Table 8.2, which gives a firm's production function. Assume that all non-labor inputs are fixed. Diminishing returns set in with the addition of the:

A) third worker.

B) fourth worker.

C) fifth worker.

D) sixth worker.

4) Table 8.3 presents the cost schedule for Candy's Cakes. If Candy produces zero cake, Candy's total costs are:

A) $0.

B) $50.

C) $100.

D) $150