intermediate economics

Intermediate Microeconomics (Econ 021)

July/28/2020

Quiz 5 (Time Allotted: 30 minutes)

Student Name: ___________________________________ Score:_____/30

Part I: Multiple choice. Answer all questions in this part. (10 marks).

1. The short run is the time period in which the level of output is fixed.

True or False? Explain your choice.

2. Which of the following will cause the average fixed cost curve of making cigarettes to shift? A. A $5 million penalty charged to each cigarette maker. B. A $1 per pack tax on cigarettes. C. A $3 per hour wage increase in tobacco industry. D. An increase in the demand for cigarettes.

3. How is MR different from MC? A. MR is the per-unit selling price of an item, while MC is the per-unit cost of an item.

B. MR is the per-unit production price of an item, while MC is the per-unit revenue of an item.

C. MR is the per-unit production price of an item, while MC is the per-unit cost of an item.

D. MR is the per-unit selling price of an item, while MC is the per-unit production of an item

4. How does marginal revenue appear on a graph? E. A line sloping down to the right.

F. A line sloping downward and then coming back up.

G. A line sloping up to the left.

H. A line sloping upward and then coming back down.

5. Which of the following is most likely to be an implicit cost for Company X?

A. forgone rent from the building owned and used by Company X

B. rental payments on IBM equipment

C. payments for raw materials purchased from Company Y

D. transportation costs paid to a nearby trucking firm

6. To the economist, total cost includes:

A. explicit and implicit costs, including a normal profit.

B. neither implicit nor explicit costs.

C. implicit, but not explicit, costs.

D. explicit, but not implicit, costs.

7. Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a

specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits

were:

A. $100,000 and its economic profits were zero.

B. $200,000 and its economic profits were zero.

C. $100,000 and its economic profits were $100,000.

D. zero and its economic loss was $200,000.

8. Which of the following is a short-run adjustment?

A. A local bakery hires two additional bakers.

B. Six new firms enter the plastics industry.

C. The number of farms in the United States declines by 5 percent.

D. BMW constructs a new assembly plant in South Carolina.

9. The short run is characterized by:

A. plenty of time for firms to either enter or leave the industry.

B. increasing, but not diminishing returns.

C. fixed plant capacity.

D. zero fixed costs.

10. The law of diminishing returns indicates that:

A. as extra units of a variable resource are added to a fixed resource, marginal product will

decline beyond some point.

B. because of economies and diseconomies of scale a competitive firm’s long-run average total

cost curve will be U-shaped.

C. the demand for goods produced by purely competitive industries is downward sloping.

D. beyond some point the extra utility derived from additional units of a product will yield the

consumer smaller and smaller extra amounts of satisfaction.

PART II Answer all questions. (10 marks)

QUESTION 1: Give a short write-up to explain the difference between short-run costs and the long-run

costs.

QUESTION 2: In your own words, explain the following: (10 marks)

i. Lowest-Isocost rule ii. Tangency Rule

iii. Last-Dollar Rule iv. Economies of scale v. Diseconomies of scale

vi. Durable Good vii. Sunk Cost

viii. Durable Good ix. Sunk Cost x. Economic cost or Opportunity cost

Remarks: Additional marks will be awarded based on clarity of explanations and the use of examples.