ECON 2001.01 Study Guide - Midterm Guide: Caramel, Chocolate Syrup, Marginal Utility

1. the marginal cost curve is

A. Downward sloping to reflect the bowed out PPF.

B. Downward sloping as marginal benefits increase.

C. Upward sloping because marginal cost falls as more of a good or service is produced.

D. Upward sloping to reflect the increasing opportunity cost of producing one more unit.

E. U-shaped to reflect the bowed out PPF.

2. Allocative efficiency occurs

A. Anywhere inside or on the production possibilities frontier.

B. When the total cost of production is minimized

C. At all points on the production possibilities frontier.

D. At only one point on the production possibilities frontier.

E. At the points where the production possibilities frontier crosses the horizontal or vertical axis.

3. Auditors working for a large accounting firm are often away from the office. When they are in the office, they are allowed to use any desk that is available. Which method is used to allocate desks?

A. lottery

B. first-come, first-served

C. Command

D. Contest

E. Sharing equally

4. The marginal cost of a good or service

A. Can be calculated from the marginal benefit of that good or service.

B. decreases as more of the good or service is produced.

C. Can be derived from the production possibilities frontier.

D. Graphs as a positively sloped curve, so it cannot be derived from the production possibilities frontier, which is downward sloping.

E. None of the above answers is correct.

5. The maximum amount of other goods and services that people are willing to give up in order to get one more unit of a good is defined as the good's

A. Marginal benefit.

B. Total benefit.

C. Marginal cost

D. Total cost.

E. Price.

1. Production point Pages typed Web pages created A 0 and 4 B 40 and 3 C 70 and 2 D 90 and 1 E 100 and 0 (a) Jean can either type her term paper or create Web pages during the limited time she has available. The table above shows her PPF. [02] (i) Can Jean type 90 pages and create 2 Web pages? (ii) Use the above numbers to calculate the opportunity cost of a typed page as she increases her time typing and decreases time creating a Web page. (b) Mary takes 4 minutes to make a sandwich and 6 minutes to mix a cocktail. Her sister Ash takes 4 minutes to make a sandwich and 4 minutes to mix a cocktail. Calculate each sister's opportunity cost. Which of the two sisters has an absolute advantage in making sandwiches? In mixing cocktails? Which of the two has a comparative advantage in making sandwiches? In mixing cocktails? [01] (c) "If an economy is producing at a point on its PPF, it has achieved allocative efficiency." True or false? Explain. [01] (d) What is the relationship between the bowed out shape of the production possibilities frontier and the increasing opportunity cost of a good as more of it is produced?

1.The ATC curve for a natural monopoly falls as output increases.

(A) Rises as output increases.

(B) Stays the same as output increases.

(C) Is u-shaped.

2. At what point would the government need to subsidize a price-regulated monopoly in order to keep it from exiting the market in the long run?

(A) Price < ATC

(B) Price < MC

(C) MR < MC

(D) ATC > MC

3. Forcing a natural monopoly to provide a minimum amount of a good or service would likely cause the firm to

(A) Cease production unless the government provides a subsidy

(B) Reduce costs through improved efficiency

(C) Reduce costs through quality deterioration

(D) Inflate costs to increase maximum allowable profits

4. Regulation is appropriate if

(A) Market failure exists.

(B) Market failure exists and the benefit of regulation outweighs the cost.

(C) The regulation improves the total utility.

(D) Regulation is costless.

5. Before the deregulation in the airline industry, airlines charged higher rates on long flights in order to make short flights cheaper. Such a practice is an example of:

(A) Cross-subsidization

(B) Price discrimination

(C) Public goods

(D) Externalities