1) When a production possibilities frontier is bowed outward, the opportunity cost of
the second good in terms of the first good increases as more of the second good is
produced.
a.True
b.False
2) A profit-maximizing firm in a competitive market will earn zero accounting profits in
the long run.
a.True
b.False
3) The typical economic life cycle illustrates how people tend to
a.borrow more when they are younger and save more when they are middle-aged.
b.earn their peak incomes immediately prior to the typical retirement age of 65.
c.adjust their consumption based on changes in their transitory income.
d.All of the above are correct.
4) Maxine’s Production Possibilities FrontierDaisy’s Production Possibilities
Frontier
a.will export pecans (assuming trade is allowed).
b.will import pecans (assuming trade is allowed).
c.has a comparative advantage in producing pecans.
d.All of the above are correct.
10) Consider the market for capital equipment. Suppose the market price of firms’
output decreases. Holding all else constant, the equilibrium quantity of capital
equipment will
a.increase.
b.decrease.
c.not change.
d.It is not possible to determine what will happen to the equilibrium quantity of capital
equipment.
11) Omega Custom Cabinets produces and sells custom bathroom vanities. Assume that
labor is the only input that varies for the firm. The firm has determined that if it hires 10
workers, it can produce and sell 20 vanities per week. If it hires 11 workers, it can
produce and sell 22 vanities per week. It sells each vanity for $800, and it pays each of
its workers $1,000 per week. Which of the following is correct?
a.For the 11th worker, the marginal profit is $600.
b.For the 11th worker, the marginal revenue product is $2,000.
c.The firm is maximizing its profit.
d.If the firm is employing 11 workers, then its profit would increase if it cut back to 10
workers.
12) Mrs. Smith operates a business in a competitive market. The current market price is
$8.10. At her profit- maximizing level of production, the average variable cost is $8.00,
and the average total cost is $8.25. Mrs. Smith should
a.shut down her business in the short run but continue to operate in the long run.
b.continue to operate in the short run but shut down in the long run.
c.continue to operate in both the short run and long run.
d.shut down in both the short run and long run.