ECO 111 Lecture Notes - Lecture 11: Root Mean Square, Perfect Competition

1. To establish a market, which of the following are essential?

1. A marketplace or a location

2. Potential buyers

3. An auctioneer

4. Potential sellers

A. 1, 2 and 4

B. 1, 2, 3, and 4

C. 1 only

D. 2 and 4

E. None of the above

2. Marketing value is:

A. The share of consumer food expenditures going to farmers

B. The share of consumer food expenditures going only to processors

C. The share of consumer food expenditures going to agribusinesses

D. The share of consumer food expenditures going only to marketers

E. None of the above

3. Micropolitan area contains:

A. One urbanized area of at least 10,000 but less than 50,000 people

B. One urbanized area of at least 20,000 but less than 50,000 people

C. One urbanized area of at least 30,000 but less than 50,000 people

D. One urbanized area of at least 40,000 but less than 50,000 people

E. None of the above.

4. Which of the following does not belong to  Maslow's hierarchy of needs?

A. Self-actualization

B. Political views

C. Esteem

D. Love/belonging

E. Physiological

5. The process of identifying and focusing on target submarkets is known as:

A. Market collusion

B. Market targeting

C. Market segmentation

D. Market development

E. None of the above

6. Given the following information concerning elasticities for bubble gum:

Own-price elasticity of demand = -0.3

Own-price elasticity of supply = 1.7

Income elasticity = 0.6

Cross-price elasticity concerning chewing gum = -1.5,

then bubble gum demand is ___ and it is a ___ good.

A.Unitary elastic; inferior

B.Inelastic; inferior

C. Elastic; inferior

D. Inelastic; normal

E. Elastic; normal

7. The cross-price elasticity for peanut butter demand with respect to the price of jelly is equal to -0.8. If the price of jelly decreases by 10%, the consumption of peanut butter will:

A. Decrease by 8%

B. Decrease by 1.25%

C. Increase by 1.25%

D. Increase by 8%

E. None of the above

8. The percentage change in quantity demanded of a commodity or product given a 1% change in income is captured by:

A. Own-price elasticity of demand

B. Cross-price elasticity

C. Own-price flexibility

D. Own-price elasticity of supply

E. Income elasticity

9. The most important determinant of supply elasticity is:

A. Length of time

B. Degree of substitutability

C. Degree of complementarity

D. Importance in the budget

E. Luxury versus necessity

10. Assume that a retailer sells 2,000 six-packs of Pepsi per day at a price of $3.00 per six-pack. Also, assume the cross-price elasticity for Pepsi with respect to the price of Coca Cola is 0.5. If the price of Coca Cola rises by 10 percent, what will be the new quantity of six-packs sold by Pepsi?

A. 1,000

B. 2,100

C. 2,400

D. 12,000

E. None of the above

4. Decisions made “at the margin” entail a choice based upon_____________ of a decision.

a. the additional benefits
b. the total costs
c. comparing the total benefits and costs
d. comparing the additional benefits and costs
5. 100 units of Good X are available but individuals desire 500units. ______________ will determine who attains Good X, and whodoes not.

a. A rationing device
b. Opportunity Cost
c. Utility
d. Natural Selection


6. Individuals will continue consuming so long as:

a. The price of a good continues to decrease
b. The marginal costs of consuming are outweighed by the marginalbenefits
c. The individual seeks additional utility
d. The individual is willing and able

8. If the cross-price elasticity of two goods is positive, thenthose two goods are
a. substitutes.
b. complements.
c. normal goods.
d. inferior goods.

11. The basic reason most supply curves are upward sloping isthat:

a. More firms are in the market, therefore more goods areproduced.
b. Because more quantity is being demanded, suppliers raise theprice.
c. Producers face higher opportunity costs when producing higherlevels of quantity, so they must receive a higher price.
d. Producers seek to maximize total revenue.


18. When the price of bubble gum is $0.60, the quantity demanded is500 packs per day. When the price falls to $0.50, the quantitydemanded increases to 900. The demand for gum would beconsidered:

a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.



20. Inefficient Production implies which of the following:

a. it is impossible to produce more of one good without producingless of another
b. there are too few resources
c. there are too many resources
d. it is possible to produce more of one good without producingless of another

21. Workers at a bicycle assembly plant currently make minimumwage. If the federal government increases the minimum wage by $1.00an hour it is likely that the

a. demand for bicycle assembly workers will increase.
b. supply of bicycles will shift to the right.
c. supply of bicycles will shift to the left.
d. firm must increase output to maintain profit levels.


24. Suppose at a price of $5 and at a price of $9, John purchases40 units of good X. Given this information, we know that John’sdemand for good X is
a. perfectly elastic at all prices.
b. inelastic at all prices.
c. unit elastic between the prices of $5 and $9.
d. perfectly elastic between the prices of $5 and $9.
e. perfectly inelastic between the prices of $5 and $9.


25. If the price of good A decreases by 10 percent and the quantitydemanded of good B decreases by 10 percent, this is evidence that Aand B are
a. substitute goods.
b. complement goods.
c. inferior goods.
d. normal goods.
e. not related.


6. For an individual to achieve consumer equilibrium when consumingtwo goods, A and B, the individual must satisfy the followingcondition:

a. TUA = TUB
b. TUA/PA = TUB/PB
c. MUA = MUB
d. MUA/PA = MUB/PB
e. MUA/PB = MUB/PA

7. Which of the following statements is correct regarding a firm'sdecision making?
a. The decision to shut down and the decision to exit are bothshort-run decisions.
b. The decision to shut down and the decision to exit are bothlong-run decisions.
c. The decision to shut down is a short-run decision, whereas thedecision to exit is a long-run decision.
d. The decision to exit is a short-run decision, whereas thedecision to shut down is a long-run decision.

Table 1

Output Total Cost
0 $20
1 $30
2 $41
3 $51
4 $65
5 $75
6 $84
7 $105

13. Refer to Table 1. The marginal cost of producing the fifth unitof output is
a. $55.00
b. $15.00
c. $9.00
d. $10.00

21. A perfectly competitive firm can produce its current level ofoutput at an average total cost of $10 and a marginal cost of $8.If the market price of the product is currently $8, what should thefirm do?

a. The firm should definitely shut down since average total costexceeds price.
b. The firm should shut down if average variable cost is $8 orgreater, but the firm should continue to produce the current levelof output if average variable cost is less than $8.
c. The firm should increase production in order to increaseprofit.
d. The firm should continue to produce, but it should decreaseproduction in order to increase profit.
24. In the long run all costs are variable. Thus, aprofit-maximizing firm may exit:

a. When Price < Average Total Cost
b. When Price > Average Total Cost
c. When Average Revenue > Average Fixed Cost
d. When Average Revenue > Marginal Cost

25. Marginal cost tells us the
a. value of all resources used in a production process.
b. marginal increment to profitability when price isconstant.
c. amount by which total cost rises when output is increased by oneunit.
d. amount by which output rises when labor is increased by oneunit.

26. For a perfectly competitive firm:
a. marginal revenue is equal to price.
b. price is equal to marginal cost at the output level thatmaximizes profit.
c. selling an additional unit of the good it produces increasestotal revenue by the price of the good.
d. a and b
e. a, b, and c