EC1301 Midterm Test: You Have Completed

3/3/2021
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DETAILED RESULTS
Questions
1. If the marginal product of labour is positive and increasing, then the total product of labour curve is
constant
None of the other options are correct
upward sloping and becoming steeper
lies below the total cost curve
upward sloping and becoming flatter
Response Rationale
Please provide a rationale for your answer.
No rationale provided.
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2.
The figure below shows five different points along the production possibilities frontier for a
country that produces apples and pears. If the country is currently operating at point C and
decided to move to point B,
Point #Apples #Pears

A 20 0
B 18 6
C 14 10
D 8 12
E 0 13
the opportunity cost would be six apples
the opportunity cost would be four apples
it could not do so, given the current state of technology and quantity of resources
the country would have to forego producing six pears
the opportunity cost would be four pears
Response Rationale
3. Kelvin’s apple store operates in a perfectly competitive market. The firm is currently
maximizing profits by producing 1,000 kg of apples per day. If Kelvin’s fixed costs
unexpectedly increase and the market price remains constant, then the profit-maximizing level
of output
will increase
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is less than 1,000 kg
is still 1,000 kg
is more than 1,000 kg
cannot be determined without more information
Response Rationale
4. You are an owner of a chocolate shop. Suppose that your firm’s marginal cost of producing a
bar of chocolate is $0.50 and the average cost of producing a bar of chocolate is $0.80 cents. If
your firm’s objective is to minimize average total costs (not maximize profits), what should
your firm do?
Decrease production
Maintain production at the current level
Increase production
Look for ways to increase fixed costs
Response Rationale
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5. Biden’s Charm Store is a single price monopolist selling lucky charms. Suppose it incurs a
large increase in fixed cost that shifts its average total cost curve upward, the effect on its price
and output will be (assuming it continues to produce)
price will rise and output will fall
there will be no effect on price or output
price and output will both rise
the firm will pass the higher cost on to customers without changing the amount
consumers will buy
Response Rationale
6. The figure below shows a firm's total variable cost for different daily output levels.
Short-run Costs
Output TVC
0 $0
10 $200
20 $350
30 $575
40 $900
In addition, the firm has total fixed cost of $50 per day. If output increases from 20 to 30 units,
average total cost rises from
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$400 to $625, and marginal cost is $225.00
$17.50 to $19.17, and marginal cost is $225.00
Response Rationale
7. If there is an increase in the demand for steel, and at the same time, workers in the steel
industry receive a substantial raise in salary, what will happen to equilibrium price and quantity
in the steel market?
Price and quantity traded will fall
Price will rise; change in quantity traded cannot be determined
Price will rise; quantity traded will fall
Price and quantity traded will rise
Quantity traded will rise; change in price cannot be determined
Response Rationale
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8. Bath and Body Co. is a major soap producer. All of the following, except one, would shift its
supply curve of liquid soap to left. Which is the exception?
an increase in the wage rate for factory workers who produce liquid soap
an increase in the price of bar soap
an increase in the price of a key ingredient of liquid soap
a decrease in the price of liquid soap
environmental regulations force Bath and Body Co. to use a more costly technology to produce
liquid soap
Response Rationale
9. Which of the following is an implicit cost of production?
salaries paid to owners who work for their own firm
wages paid to hourly employees
foregone rent on office space owned and used by the firm

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interest on money borrowed to finance equipment purchases
cash payments for raw materials
Response Rationale
10. If a monopolist incurs a large fixed cost that shifts its average total cost curve upward, the
effect on price and output will be
none of the other options are correct
price will rise and output will fall
the firm will pass the higher cost on to customers without changing the amount
consumers will buy
price and output will both rise
there will be no effect on price or output
Response Rationale
11.
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The figure below indicates data for the total cost curve and the demand curve facing Vincent’s
shop. The quantities indicated are potential daily sales. If Vincent sells 5 units of output per
day, he will earn a profit of
Units of Total
Price Output Cost
> $800 0 $ 200
$800 1 $ 500
$750 2 $ 700
$700 3 $ 800
$650 4 $ 850
$600 5 $ 950
$550 6 $1,150
$500 7 $1,450
$450 8 $1,850
$400 9 $2,350
$350 10 $2,950
$1,750
$2,050
$3,000
$2,150
Response Rationale
12. If the firm in the figure below is a perfect price-discriminating monopoly, it will produce an
output level of
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greater than 500 units
350 units
zero units
500 units
225 units
Response Rationale
13. Suppose the firm in the figure below is a perfect price-discriminating monopoly. And further,
suppose it is maximizing its profits. Then its total cost of production is
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$787.50
$875.00
more than $1,500.00
$1,137.50
$1,500.00
Response Rationale
14. Assume that a firm is able to cover its variable costs if it operates in the short run. If marginal
cost equals $0 for all output levels, then the firm's profit-maximizing output level occurs
where
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marginal revenue is maximized
total cost is minimized
marginal revenue equals $0
marginal revenue is minimized
Response Rationale
15.
Kenneth’s massage shop operates in a perfectly competitive market. At the point where
marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per massage is
$10. In this situation,
Kenneth’s massage shop should shut down immediately
Kenneth’s massage shop will break even
the market price will fall in the long run
Kenneth’s massage shop will suffer a loss in the short run, but should still stay in
business
Kenneth’s supply curve will shift to the left
Response Rationale
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16.
Kelvin’s cup shop is a firm operating in a perfectly competitive market. Suppose it currently
produces 1,000 cups per day for a total daily revenue of $2,000. Kelvin’s total costs would
rise by $2 if it produced the 1,001st cup. Which of the following is true?
profit will fall by some unknown amount if Kelvin produced the 1,001st cup
profit would fall by $2 if Kelvin produced the 1,001st cup
profit would rise by $2 if Kelvin produced the 1,001st cup
profit would not change if Kelvin produced the 1,001st cup
the total cost curve must have shifted to the left
Response Rationale
17.
If the price of leather (an input for leather purses) increases, ceteris paribus, the equilibrium
price of leather purses will increase and the equilibrium quantity of leather purses will
decrease
False
True
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Response Rationale
18.
A firm uses both labour and capital to produce output. The cost of each unit of labour per day
is $200 and the cost of each unit of capital per day is $220. The firm’s capital is fixed at 2
units in the short run. If the firm does not produce any output on a particular day, then the
average fixed cost faced by the firm that day is:
equals $440
equals zero
equals $200
equals $220
Response Rationale
19. Jianhao left a job in which he was earning $75,000 a year for one he liked better but pays
only $50,000 a year. Around the same time as the job switch, Jianhao needed to buy a new
car. Had he kept his old job he would have bought a new car but instead he was forced to buy
a used car. Therefore
used cars are normal goods for Jianhao
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used cars are inferior goods for Jianhao
new and used cars are complements
new cars are inferior goods for Jianhao
the supply curve for new cars shifted to the left
Response Rationale
20. If a mobile phone shop can make three mobile phones for $200 and four mobile phones for
$240, then the average variable cost of four mobile phones
equals $40
cannot be determined without more information
equals $240
equals $10
equals $60
Response Rationale
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21.
Last month, Debbie spent $3,000 on repairing her old car. Now her car requires an additional
$2,000 in repairs. Suppose she could purchase a comparable used car for $2,500. She should
repair her car because the money she has already spent repairing the car ($3,000) exceeds the
price of the “new” used car ($2,500)
repair her car since the cost of repairing it is lower than the cost of buying another car
buy a “new” used car because the price of the new used car ($2,500) is less than the total
amount she would spend on her current car ($5,000)
buy a “new” used car because sunk costs should be ignored in decision making
Response Rationale
22. The figure below indicates data for the total cost curve and the demand curve facing
Vincent’s shop. The quantities indicated are potential daily sales. Vincent’s maximum profit is
Units of Total
Price Output Cost
> $800 0 $ 200
$800 1 $ 500
$750 2 $ 700
$700 3 $ 800
$650 4 $ 850
$600 5 $ 950
$550 6 $1,150
$500 7 $1,450
$450 8 $1,850
$400 9 $2,350
$350 10 $2,950
$2,150
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$2,050
$550
$3,600
Response Rationale
23.
Swee Keat’s Harmonica shop sells 1,000 harmonicas each month at a price of $10.00 each.
(The shop can sell as many as it wants to at that price.) If the marginal cost of producing an
additional harmonica is $9.60, then
The shop’s total economic profit is $400 per month
The shop should produce additional harmonicas
The shop is currently maximizing its profits
The shop will be reducing its profits if it produces one additional harmonica
Response Rationale
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24.
The figure below indicates the prices at which Rachel’s Salon is able to sell various quantities
of haircuts.
Price Haircuts
per Day
$15 1
$14 2
$13 3
$12 4
$11 5
$10 6
If the marginal cost of a haircut is constant at $12.50, then the salon's profit is maximized at
3 haircuts per day
4 haircuts per day
2 haircuts per day
1 haircut per day
Response Rationale
25.
A country is currently using all of its land to produce rice and pears. However, the land most
suited to growing pears is being used to produce rice, and the land most suited to growing
rice is being used to produce pears. Which of the following statements is true?
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The country is operating inside its production possibilities frontier
The country is operating on its production possibilities frontier
The country is operating outside of its production possibilities frontier
Pear production must be sacrificed if the country increases rice production
Rice production must be sacrificed if the country increases pear production
Response Rationale
26.
If a firm wishes to engage in price discrimination, which of the following conditions must be
met?
The demand curve must be horizontal
Many identical firms in the market must each have a small share of total industry
output
Price must be less than marginal cost
The supply curve must be horizontal
It must be possible to prevent resale of the good from low-paying to high-paying

customers
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Response Rationale
27. Suppose the supply curve for apples is upward sloping. Suppose also that as average
household income increases we observe a fall in the price of apples. We can conclude that
apples is a(n)
inferior good
normal good
substitute good
luxury good
necessity good
Response Rationale
28.
If a piece of information causes buyers to expect the price of a good to rise in the future, but
sellers take that same information and believe it will have no impact on price, then the result
is
a decrease in supply today
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an increase in supply today
an increase in demand today
an increase in quantity demanded today
a decrease in quantity demanded today
Response Rationale
29. The figure shows the demand schedule facing the only chocolate shop in a small New
Zealand town.
Demand Facing Hersheem’s Chocolate Shop

Price per gram of chocolate Grams per Day
$1.50 100
$1.40 110
$1.30 120
$1.20 130
$1.10 140
$1.00 150
$0.90 160
The shop does not price discriminate. Which of the following statements is correct?
If the shop increases sales from 100 to 110 grams of chocolate, marginal revenue will
equal $14.00
The demand curve facing the shop is economically faulty
If the shop increases sales from 100 to 110 grams of chocolate, marginal revenue will
equal $1.40
The owner of the shop would be unwilling to charge either $1.00 or $0.90 per gram
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Response Rationale
30.
Evaluate if this statement is true or false.
"A firm’s total variable cost of production consists of only explicit costs".
False
True
Response Rationale
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3/3/2021

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SCROLL DOWN TO VIEW

None of the other options are correct

upward sloping and becoming steeper

lies below the total cost curve

upward sloping and becoming flatter

Point #Apples #Pears

the opportunity cost would be six apples

the opportunity cost would be four apples

the country would have to forego producing six pears

the opportunity cost would be four pears

is less than 1,000 kg

is more than 1,000 kg

cannot be determined without more information

Maintain production at the current level

None of the other options are correct

Look for ways to increase fixed costs

None of the other options are correct

price will rise and output will fall

there will be no effect on price or output

price and output will both rise

$400 to $625, and marginal cost is $225.00

$17.50 to $19.17, and marginal cost is $225.00

$20.00 to $20.83, and marginal cost is $22.50

$20.00 to $20.83, and marginal cost is $225.00

$15.00 to $22.50, and marginal cost is $22.50

Price and quantity traded will fall

Price will rise; change in quantity traded cannot be determined

Price will rise; quantity traded will fall

Price and quantity traded will rise

Quantity traded will rise; change in price cannot be determined

Please provide a rationale for your answer.

an increase in the price of bar soap

an increase in the price of a key ingredient of liquid soap

a decrease in the price of liquid soap

9. Which of the following is an implicit cost of production?

salaries paid to owners who work for their own firm

wages paid to hourly employees

foregone rent on office space owned and used by the firm

interest on money borrowed to finance equipment purchases

cash payments for raw materials

none of the other options are correct

price will rise and output will fall

price and output will both rise

there will be no effect on price or output

None of the other options are correct

greater than 500 units

more than $1,500.00

None of the other options are correct

marginal revenue is maximized

total cost is minimized

marginal revenue equals $0

marginal revenue is minimized

Kenneth’s massage shop should shut down immediately

Kenneth’s massage shop will break even

the market price will fall in the long run