Economics Quiz

Which of the following factors would cause the supply curve for apples to shift to the right?

• An improvement in apple harvesting technology

• An increase in the price of apples

• An increase in the wages of apple pickers

• A decrease in the rental price for apple harvesting equipment

• A decrease in the demand for oranges, a substitute in consumption

Answer explanation

An improvement in apple harvesting technology increases efficiency, allowing more apples to be produced at a lower cost, which shifts the supply curve to the right. The other options do not directly increase supply.

Which of the following best describes how a consumer maximizes total utility from the consumption of a bundle of goods and services?

• By choosing the quantity of each good such that the quantity demanded of each good is equal to the quantity supplied

• By choosing the quantity of each good such that the marginal utility from each good is equal to zero

• By choosing the quantity of each good such that the price is equal to the marginal revenue

• By choosing the level of output where marginal revenue is equal to marginal cost

• By choosing the combination of goods such that the marginal utility per dollar spent on the last unit of each good is equal

Answer explanation

Consumers maximize total utility by ensuring the marginal utility per dollar spent is equal across all goods. This means they allocate their budget in a way that each dollar spent yields the same additional satisfaction.

How many units of output should a firm with the cost and demand curves shown above produce to maximize profit?

• 0

• Q1

• Q2

• Q3

• Q4

Answer explanation

To maximize profit, a firm should produce where marginal cost equals marginal revenue. At Q3, the firm achieves this balance, leading to maximum profit. Producing at Q1, Q2, or Q4 would not optimize profit.

Which market structure is characterized by a few firms dominating the market, often leading to collusion and price-setting?

• Perfect competition

• Monopoly

• Oligopoly

• Monopsony

• Monopolistic competition

Answer explanation

Oligopoly is characterized by a few firms dominating the market, which can lead to collusion and coordinated price-setting. This distinguishes it from other market structures like perfect competition or monopoly.

Assume the demand curve for a good is perfectly elastic and the production of each unit of this good generates external benefits. A profit-maximizing firm producing the good in an unregulated free market will

• generate deadweight loss because marginal social benefit is greater than marginal private benefit

• generate deadweight loss only if marginal benefits are constant

• not generate deadweight loss because the equilibrium quantity is socially optimal

• not generate deadweight loss unless marginal benefits are constant

• not generate deadweight loss unless fixed benefits are zero

Answer explanation

In a perfectly elastic demand scenario, the firm sets price equal to marginal cost. However, since external benefits exist, the marginal social benefit exceeds the marginal private benefit, leading to deadweight loss.

Which of the following must be true if at the tenth unit of output, marginal cost (MC) is $130 and average total cost (ATC) is $150?

• ATC of producing the ninth unit is higher than $150.

• ATC of producing the ninth unit is less than $150.

• MC of producing the ninth unit is higher than $130.

• Average variable cost of producing the tenth unit is higher than $150.

• Average variable cost of producing the tenth unit is equal to $20.

Answer explanation

Since MC at the tenth unit is $130 and ATC is $150, the ATC of the ninth unit must be less than $150. If it were higher, the ATC would increase with the addition of the tenth unit, contradicting the given values.

What happens to the quantity demanded of a normal good when its price increases due to the substitution effect?

• The quantity demanded of the good decreases.

• The quantity demanded of the complementary good increases.

• The demand for the good becomes more elastic.

• The quantity demanded of the substitute good increases.

• The demand for the good decreases.

Answer explanation

When the price of a normal good increases, consumers tend to buy less of it due to the substitution effect, leading to a decrease in the quantity demanded of that good.

Which of the following combinations of output, price, and economic profit is consistent for the profit-maximizing monopolist depicted in the graph above?

• Q1, P1, 0P1LQ1

• Q1, P4, P1P4IL

• Q1, P4, P2P4IM

• Q2, P3, P2P3NM

• Q3, P1, P1P2ML

Answer explanation

The correct choice, Q1, P1, 0P1LQ1, indicates that at output Q1, the price P1 is set where marginal cost equals marginal revenue, resulting in zero economic profit, consistent with a profit-maximizing monopolist.

Assume a perfectly competitive firm is currently producing 100 units of output. Its marginal cost is $6 and rising at that output quantity. Its average variable cost is $7 and its average fixed cost is $3. If the product’s price is $6, which of the following will the firm do in the short run to maximize its profit?

• Shut down

• Produce, but less than 100 units of output

• Produce more than 100 units of output

• Continue to produce at exactly 100 units of output

• Increase its price above $6

Answer explanation

The firm should shut down because the price ($6) is below its average variable cost ($7). Continuing production would lead to greater losses than ceasing operations.

What is the marginal product of the third worker?

• 5

• 10

• 20

• 24

• It cannot be determined from the information given.

Answer explanation

The marginal product of the third worker is calculated by the additional output produced when the third worker is added. In this case, it is 24, indicating that the third worker contributes significantly to production.