Practice Test – Chapters 9, 11, 12, 13
Professor Lehrer Econ 120
1. Jennifer owns a small lemonade stand. Variable costs for her business in the short run would
include:
a. the costs of lemons and sugar
b. the cost of building the lemonade stand
c. the cost of the blender used to make lemonade
d. the cost of hiring an artist to design a logo for her sign
e. all of the above
2. Malthus’ very pessimistic predictions
a. were based on the assumption that the MPL would shift out as technology improves
b. have become true throughout the world
c. were based on the assumption that technology does not improve over time and the MPL curve
does not shift outward
d. were based on the assumption that the size of the population does not change much over time
e. were based on the assumption that wages would be stabilized at a high level, far above that
needed for subs
i
s
tence
3. Which of the following statements is true about Marginal Cost?
a. Marginal cost is equal to total cost divided by output
b. Marginal cost is the addition to cost associated with hiring one more worker
c. Marginal cost is always equal to total variable costs
d.
The marginal cost curve eventually slopes upward because of the law of diminishing
marginal returns
e. Marginal cost can be calculated as the slope of the Total Product curve
4. The long-run average cost curve will be upward sloping when the firm is experiencing
a. increasing returns to scale
b. decreasing returns to scale
c. constant returns to scale
d. economic profits at all levels of output
e. economic losses at all levels of output
2
Questions 5 and 6 are based on the following information:
Barton is self-employed in the computer software business; his annual total revenues are $100,000 and
his annual out-of-pocket expenses are $40,000. His office is in a small building that he owns. If he
were to sell the building and equipment, he could get $100,000 and earn 2% at a bank, i.e., $2,000. In
his best alternative employment, he could work for Dell and make an annual salary of $45,000.
5. Barton’s total costs in his computer software business are:
a. $40,000
b. $45,000
c. $ 2,000
d. $87,000
e. $185,000
6. In his current computer software business, Barton’s economic profits are:
a. $60,000; he should stay in this business
b. $13,000; he should go work for Dell
c. $13,000; he should stay in this business
d. $-13,000; he should go work for Dell
e. $-85,000; he should go work for Dell
7. A firm has a certain TP curve, showing the relationship between the number of workers and the
level of output. If the amount of capital the firm has increases,
a. the TP curve will shift up
b. the TP curve will shift down
c. there will be movement downward along the TP curve
d. there will be movement upward along the TP curve
e. the corresponding marginal product of labor curve will shift down
8. The region in which MC is increasing corresponds to the region
a. in which MPL is a vertical curve
b. of diminishing marginal returns
c. where division of labor and specialization cause MPL to rise
d. in which TFC are rising
e. where the marginal productivity of workers has become negative
Questions 9 and 10 pertain to the following Total Product schedule
L
Q
3
70
4
90
5
100
6
107
7
110
8
105
9. The marginal product of the fourth worker is:
a. 7
b. 10
c. 20
d. 90
e. 100
10. Negative marginal returns begin when the
a. fourth worker is added
b. fifth worker is added
c. sixth worker is added
