1. Assuming the price elasticity of demand for gasoline is -0.25, a 10—percent increase in price, other things remaining the same, will:

a. Reduce the quantity of gasoline demanded by 2.5%

b. Reduce the quantity of gasoline demanded by 25%

c. Have no effect on demand since the price elasticity is less than one

d. Increase the quantity of gasoline demanded by 40%

e. Reduce the quantity of gasoline demanded by 40%

2. The Coyote Corporation, a large conglomerate, estimates that the income elasticity of demand is 1.3 for its paper products and 0.8 for its oil products. Other things remaining the same, a given percentage decline in income should:

a. Produce a bigger percentage decline in the demand for paper products than for oil products

b. Produce a bigger percentage decline in the demand for oil products than for paper products

c. Have the same percentage impact on both product groups

d. Product a bigger percentage increase in the demand for paper products than for oil products

e. Produce a bigger percentage increase in the demand for oil products than paper products.

3. Tennis rackets and tennis balls may be described as:

a. Inferior goods

b. Substitute goods

c. Complementary goods

d. Derived demand goods

e. None of the above

4. The production function for a firm

a. Is a statistical relationship between cost and revenue

b. Relates output produced to required inputs

c. Relates wages to interest rates

d. Associates level of profit with the amount of production

e. Relates output to revenue

5. When output of a product increases at a decreasing rate as uniform sized increments of variable input factors are added while fixed input factors remain constant in amount, this is an example of:

a. Economies of scale

b. Diminishing marginal utility

c. Demand

d. Diminishing returns

e. None of the above

6. For an individual firm, “value defined” is defined as:

a. The difference between marginal cost and fixed cost

b. The average mark-up on its product

c. The difference between the value of a firm’s output and the cost of materials purchased

d. The difference between average fixed cost and the cost of materials purchased

e. Profits less retained earnings

7. A manufacturer of baseball bats has a fixed cost of $2,000 for equipment and a constant marginal cost o $4 per bat. With this particular cost structure, we can conclude:

a. That both the average variable cost and the average total cost curves will be u-shaped.

b. That both the average variable cost and the average total cost curves will be horizontal lines

c. That both the average variable cost and the average total cost curves will be vertical lines

d. That the average variable cost curve will be a horizontal line while the average total cost curve will be downward sloping

e. That the average variable cost curve will be downward sloping while the average total cost curve will be a horizontal line.

8. Economies of scale are experienced when:

a. The law of diminishing returns holds

b. A variable input is added to a fixed factor of production

c. The total of all factors are variable and output grows at a faster percentage rate than input

d. The total of all factors are variable and input grows at a faster percentage rate than output

e. The total of all factors are variable and both input and output are growing at the same percentage rate.

Answer rating: 100% (QA)

1 b Reduce the quantity of gasoline demanded by 25 ... View the full answer