# 01:220:102 Study Guide - Midterm Guide: Diminishing Returns, Economic Surplus, Music Download

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Name: ___________________________________ Date: ______________

1.

Suppose the marginal cost curve in the short run first decreases, then reaches a

minimum, and then increases. If we are at an output where marginal cost is decreasing,

then:

A)

average total cost must be increasing.

B)

marginal product must be increasing.

C)

marginal product must be increasing and average variable cost must be decreasing.

D)

average variable cost must be decreasing.

2.

Adam has a monthly income of $20 that can be spent on books (B) and pencils (P). The

price of a book is $5 and the price of a pencil is $0.50. Which of the following bundles

of books and pencils lies on Adam's budget line?

A)

zero books and 20 pencils

B)

3 books and 5 pencils

C)

1 book and 40 pencils

D)

2 books and 20 pencils

Use the following to answer question 3:

Figure: The Indifference Curve Map II

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3.

(Figure: The Indifference Curve Map II) Look at the figure The Indifference Curve Map

II. Sara enjoys attending Chicago Cubs' baseball games and eating baby back rib

dinners. The figure shows two of her indifference curves for Cubs' tickets and baby back

rib dinners. If she consumes 20 baby back rib dinners and 6 tickets to Cubs' games, she

would be equally happy to give up 8 dinners for ________ more ticket(s) to Cubs'

games.

A)

1/2

B)

3

C)

4

D)

1

4.

The total cost curve gets steeper as output increases because of

A)

decreasing returns to the variable input.

B)

decreases in overhead costs.

C)

increasing returns to the variable input.

D)

increases in fixed cost.

5.

Taxation according to the ability-to-pay principle is best illustrated in the United States

by:

A)

excise taxes.

B)

sales taxes.

C)

gasoline taxes.

D)

personal income taxes.

6.

Joseph chooses a combination of apples and oranges along his budget line. The marginal

rate of substitution of apples in place of oranges is 2, the price of an apple is $0.50, and

the price of an orange is $0.50. Joseph:

A)

should consume more apples and fewer oranges to maximize total utility.

B)

should consume fewer apples and more oranges to maximize total utility.

C)

may or may not be maximizing total utility.

D)

is maximizing total utility.

7.

Marge has spent her entire budget on milk and cookies. The last glass of milk provided

Marge with 10 additional utils and the last cookie provided her with 25 additional utils.

The price of a cookie is twice the price of a glass of milk. Given this information, Marge

should:

A)

decrease her consumption of milk and increase her consumption of cookies.

B)

decrease her consumption of milk and decrease her consumption of cookies.

C)

increase her consumption of milk and decrease her consumption of cookies.

D)

increase her consumption of milk and increase her consumption of cookies.

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Use the following to answer questions 8-9:

Figure: Indifference Curves and Consumption Bundles

8.

(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference

Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of

hot dogs increases, and the new equilibrium point is c. The change in hot dog

consumption due to the income effect of the price change is:

A)

H2 to H1.

B)

H3 to H2.

C)

H1 to H2.

D)

H3 to H1.

9.

(Figure: Indifference Curves and Consumption Bundles) Let MUP = marginal utility of

pizza, MUH = marginal utility of hot dogs, PP = price of a slice of pizza, PH = price of a

hot dog. In the figure, the absolute value of the slope of an indifference curve is equal

to:

A)

PH/PP.

B)

MUP/MUH.

C)

PP/PH.

D)

MUH/MUP.

## Document Summary

Name: ___________________________________ date: _____________: suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then increases. The price of a book is and the price of a pencil is sh. 50. Which of the following bundles of books and pencils lies on adam"s budget line: zero books and 20 pencils, 3 books and 5 pencils, 1 book and 40 pencils, 2 books and 20 pencils. 1: (figure: the indifference curve map ii) look at the figure the indifference curve map. Sara enjoys attending chicago cubs" baseball games and eating baby back rib dinners. The figure shows two of her indifference curves for cubs" tickets and baby back rib dinners. The marginal rate of substitution of apples in place of oranges is 2, the price of an apple is sh. 50, and the price of an orange is sh. 50. Marge with 10 additional utils and the last cookie provided her with 25 additional utils.