Mr. Beck

SUNY College at Oneonta

Economics 110  Exam  Questions on Material After Exam 3

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Review Questions for Economics 110

1. Given the following information for a firm which cannot produce fractional units of quantity:
Price (P)
Quantity (Q)
Total Cost (TC)
$11
0
$ 5
$10
1
$ 9
$ 9
2
$15
$ 8
3
$22
$ 7
4
$30
$ 6
5
$40
The firm's profit maximizing level of quantity (Q) is

  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5
    Q1 answer
2. Given the following total profits curve for a firm:

Graph Question 2

 At QA, which one of the following variables is equal to 0?

  1. Total profits.
  2. Total revenue (TR).
  3. Total cost (TC).
  4. Marginal revenue (MR).
  5. Marginal cost (MC).
  6. Marginal profit.

    7. Q2 answer
3.  A firm realizes that if it were to increase its quantity by 1 unit (from 23 to 24) its total revenue (TR) would increase but its total profits would decrease. It can be concluded that for this 24th unit of quantity
  1. Marginal profit is positive.
  2. marginal revenue (MR) is negative.
  3. marginal revenue (MR) is less than marginal cost (MC).
  4. marginal cost (MC) is negative.
  5. None of the above can be concluded.

    6. Q3 answer
4.   Given the following graph for a firm:
Graph question 4

At QB, which one of the following, if any, is true?

  1. Total profit equals 0.
  2. Marginal profit equals 0.
  3. Marginal cost (MC) equals 0.
  4. Marginal revenue (MR) equals 0.
  5. None of the above statements is true.

    6. Q4 answer
5.  Assume the absolute value of the price elasticity of demand for a product is greater than 1. If price is increased by 7%, then
  1. total revenue (TR) will increase because the decrease in quantity demanded will be less than 7%.
  2. total revenue (TR) will decrease because the decrease in quantity demanded will be less than 7%.
  3. total revenue (TR) will increase because the decrease in quantity demanded will be greater than 7%.
  4. total revenue (TR) will decrease because the decrease in quantity demanded will be greater than 7%.
  5. total revenue (TR) will increase because the increase in quantity demanded will be greater than 7%.
  6. total revenue (TR) will increase because the increase in quantity demanded will be less than 7%.

    7. Q5 answer
6.  Given the following table, what is the firm's profit maximizing level of quantity (Q)? (Assume the firm cannot produce fractional units of quantity)
Quantity (Q)
Marginal Profit
1
$5
2
$6
3
$6
4
$2
5
- $3
6
- $7
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q6 answer
7.  Given the following information for a firm:
Price (P)
Quantity (Q)
Total Cost (TC)
$11
0
$ 7
$10
1
$ 9
$ 9
2
$13
What would be the marginal profit ($ amount and sign) of the 2nd unit of quantity (increasing quantity from 1 to 2 units/day)?
    Q7 answer
8.  A firm realizes that if it were to increase its quantity by 1 unit (from 47 to 48) its total cost (TC) and total profits would both increase. It can be concluded that for this 48th unit of quantity
  1. Marginal profit is negative..
  2. marginal revenue (MR) is negative.
  3. marginal revenue (MR) is less than marginal cost (MC).
  4. marginal cost (MC) is negative.
  5. None of the above can be concluded.

    6. Q8 answer
9.  Given the following graph for a firm:

Graph question 9

 At QA, which one of the following, if any, is equal to 0?

  1. Marginal profit
  2. Marginal revenue (MR)
  3. Marginal cost (MC)
  4. Total profit
  5. None of the above is equal to 0.

    6. Q9 answer
10. Assume the absolute value of the price elasticity of demand for a product is greater than 1. If price is decreased by 7%, then
  1. total revenue (TR) will increase because the increase in quantity demanded will be less than 7%.
  2. total revenue (TR) will decrease because the increase in quantity demanded will be less than 7%.
  3. total revenue (TR) will increase because the increase in quantity demanded will be greater than 7%.
  4. total revenue (TR) will decrease because the increase in quantity demanded will be greater than 7%.
  5. total revenue (TR) will decrease because the decrease in quantity demanded will be less than 7%.
  6. total revenue (TR) will decrease because the decrease in quantity demanded will be greater than 7%.

    7. Q10 answer
11. Given the following information for a firm which cannot produce fractional units of quantity:
Price (P)
Quantity (Q)
Total Cost (TC)
$60
0
$60
$55
1
$90
$50
2
$100
$45
3
$115
$40
4
$145
$35
5
$180
The firm's profit maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q11 answer
12.  Given the following graph for a firm:
    Graph question 12

    As a firm increases quantity from QA to QB, which one of the following, if any, is true?
     

  1. Marginal profit is negative.
  2. Marginal cost (MC) is negative.
  3. Marginal revenue (MR) is negative.
  4. None of the above statements is true.

    5. Q12 answer
13. Given the following table:
Quantity (Q)
Marginal Profit
1
$4
2
$4
3
$6
4
$3
5
$1
6
- $4
     It can be concluded that as quantity (Q) increases from 3 to 5 units,

    a. total costs (TC) are decreasing.
    b. total revenue (TR) is decreasing.
    c. total profits are decreasing.
    d. marginal revenue (MR) is less than marginal cost (MC).
    e. None of the above can be concluded.
    Q13 answer

14. Given the following total profits curve for a firm:
Graph question 14

As a firm increases its quantity from QA to QB, it can be concluded that its

    a. marginal revenue (MR) is greater than its marginal cost (MC).
    b. marginal cost (MC) is negative.
    c. marginal revenue (MR) is negative.
    d. marginal profit is negative.
    e. None of the above can be concluded.

    Q14 answer

15. Given the following information for a firm:
Price (P)
Quantity (Q)
Total Cost (TC)
$25
0
$18
$24
1
$30
$23
2
$38
$22
3
$53
What would be the marginal profit ($ amount and sign) of the 3rd unit of quantity (increasing Q from 2 to 3)?
    Q15 answer
16. In order to increase its total revenue (TR), a firm is planning on putting some of its products on sale. In deciding which products to put on sale, the firm should decrease the price of those products for which
  1. demand is inelastic and the percentage (%) increase in quantity demanded is less than the percentage (%) decrease in price.
  2. demand is inelastic and the percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price.
  3. demand is elastic and the percentage (%) increase in quantity demanded is less than the percentage    (%) decrease in price.
  4. demand is elastic and the percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price.
  5. demand is of unitary elasticity  and the percentage (%) increase in quantity demanded is equal to the percentage (%) decrease in price.

    6. Q16 answer
17. A firm increases its quantity (Q) by 1 unit and, as a result, its total revenue (TR)  increases by $8 and its total cost (TC) increases by $9. For this additional unit of quantity, which one of the following, if any, is negative?
  1. Marginal profit
  2. Marginal cost (MC)
  3. Marginal revenue (MR)
  4. None of the above is negative.

    5. Q17 answer
18. The price of good X is decreased from $24 to $16. As a result, the total revenue received (TR) by the producers of good X increases from $336 to $416. What is the absolute value of the price elasticity of demand for good X between $24 and $16? (You should round off your answer to the nearest hundredth [2 decimal places], if necessary)
    Q18 answer
19. As the price of gasoline increased last year, total dollars spent by consumers on gasoline increased because
  1.  the absolute value of the elasticity of demand for gasoline is less than 1 and demand is inelastic.
  2. the absolute value of the elasticity of demand for gasoline is less than 1 and demand is elastic.
  3. the absolute value of the elasticity of demand for gasoline is greater than 1 and demand is inelastic.
  4. the absolute value of the elasticity of demand for gasoline is greater than 1 and demand is elastic.

    5. Q19 answer
20. A firm increases its quantity by 50 units per day and discovers that marginal revenue (MR), marginal cost (MC), and marginal profit all are positive. For these 50 units, which one of the following increased by the most $?
  1. Total profits
  2. Total cost (TC)
  3. Total revenue (TR)
  4. Insufficient information provided to determine which one of the above increased by the most $.

    5. Q20 answer
21. Given the following total profit curve for a firm:

Graph question 21

 For all units of quantity from QA to QB, it can be concluded that

  1. marginal cost (MC) is negative.
  2. marginal revenue (MR) is positive.
  3. marginal profit is negative.
  4. total cost (TC) is negative
  5. total revenue (TR) is negative
  6. None of the above statements is correct.

    7. Q21 answer
22. Given the following graph for a firm:

Graph question 22

From QB to QC,

  1. Marginal profit and marginal revenue (MR) are both positive.
  2. Marginal profit and marginal revenue (MR) are both negative.
  3. Marginal profit is positive, but marginal revenue (MR) is negative.
  4. Marginal profit is negative, but marginal revenue (MR) is positive.

    5. Q22 answer
23. A firm is selling its product at $10 per unit. It doubles the price of its product to $20 per unit and discovers that its quantity demanded is cut exactly in half as a result. The firm can conclude that between $10 and $20,
  1. total revenue (TR) will increase because demand is inelastic.
  2. total revenue (TR) will decrease because demand is elastic.
  3. total revenue (TR) will remain constant because demand is inelastic.
  4. total revenue (TR) will decrease because demand is of unitary elasticity (elasticity value = 1).
  5. total revenue (TR) will remain constant because demand is of unitary elasticity (elasticity value = 1).
  6. total revenue (TR) will increase because demand is elastic.

    7. Q23 answer
24. Which one of the following combinations of characteristics would tend to make the demand for good X most elastic?
  1. Good X is a necessity which represents a small percent of the typical consumer’s budget and there are no close substitutes for good X.
  2. Good X is a necessity which represents a large percent of the typical consumer’s budget and there are no close substitutes for good X.
  3. Good X is a necessity which represents a large percent of the typical consumer’s budget and there are many close substitutes for good X.
  4. Good X is a luxury good which represents a small percent of the typical consumer’s budget and there are no close substitutes for good X.
  5. Good X is a luxury good which represents a large percent of the typical consumer’s budget and there are no close substitutes for good X.
  6. Good X is a luxury good which represents a large percent of the typical consumer’s budget and there are many close substitutes for good X.

    7. Q24 answer
25. If the demand for good X were perfectly inelastic with an elasticity of demand equal to 0, then doubling the price of good X would result in
  1. total revenue (TR) increasing because the percentage change in quantity demanded would equal 0.
  2. total revenue (TR) increasing because the percentage change in quantity demanded would equal 100%.
  3. total revenue (TR) remaining constant because the percentage change in quantity demanded would  equal 0.
  4. total revenue (TR) remaining constant because the percentage change in quantity demanded would  equal 100%.
  5. total revenue (TR) decreasing because the percentage change in quantity demanded would equal 0.
  6. total revenue (TR) decreasing because the percentage change in quantity demanded would  equal 100%.

    7. Q25 answer
26. A firm is selling its product at $10 per unit. It estimates that if it were to cut its price to $6 per unit, its quantity demanded would exactly triple. What is the absolute value of the price elasticity of demand between $10 and $6?
  1. 0.50
  2. 1.00
  3. 2.00
  4. 3.00
  5. Insufficient information provided to calculate the price elasticity of demand between $10 and $6.
  6. Sufficient information provided, but none of the numerical answers provided is correct.

    7. Q26 answer
27. The Arab oil countries realize that they can increase their total revenue (TR) received if they can all agree on reducing their quantity produced. This is true because
  1. demand for oil is inelastic and the percentage (%) increase in price will be greater than the percentage (%) decrease in quantity.
  2. demand for oil is elastic and the percentage (%) increase in price will be greater than the percentage (%) decrease in quantity.
  3. demand for oil is inelastic and the percentage (%) increase in price will be less than the percentage (%) decrease in quantity.
  4. demand for oil is elastic and the percentage (%) increase in price will be less than the percentage (%) decrease in quantity.
  5. demand for oil is inelastic and the percentage (%) decrease in price will be greater than the percentage (%) decrease in quantity.
  6. demand for oil is elastic and the percentage (%) decrease in price will be less than the percentage (%) decrease in quantity.

    7. Q27 answer
28.  Given the following information for a firm:
Price (P)
Quantity (Q)
Total Cost (TC)
$25
0
$18
$24
1
$30
$23
2
$39
$22
3
$52
What would be the marginal profit ($ amount and sign) of the 2nd unit of quantity (increasing Q from 1 to 2)?
      Q28 answer
29. Although gasoline is a necessity, most consumers don’t care which brand of gasoline they buy. If Exxon gasoline were able to change the price of its brand of gasoline alone, ceteris paribus (without the price of any other brand of gasoline changing), then it is reasonable to believe that Exxon’s
  1. total revenue (TR) would increase if Exxon increased its price, but Exxon’s total revenue (TR) would decrease if Exxon decreased its price.
  2. total revenue (TR) would decrease if Exxon increased its price, but Exxon’s total revenue (TR) would increase if Exxon decreased its price.
  3. total revenue (TR) would increase if Exxon increased or decreased its price.
  4. total revenue (TR) would decrease if Exxon increased or decreased its price.
  5. total revenue (TR) would remain constant if Exxon increased its price, but Exxon’s total revenue (TR) would decrease if Exxon decreased its price.
  6. total revenue (TR) would increase if Exxon increased its price, but Exxon’s total revenue (TR) would remain constant if Exxon decreased its price.

    7. Q29 answer
30. Given the following graph for a firm:
Graph question 30
From QA to QB,
  1. Marginal profit and marginal revenue (MR) are both positive.
  2. Marginal profit and marginal revenue (MR) are both negative.
  3. Marginal profit is positive, but marginal revenue (MR) is negative.
  4. Marginal profit is negative, but marginal revenue (MR) is positive.

    5. Q30 answer
31. A business firm is selling its product at a price of $10 per unit and it is receiving total revenue (TR) of $300 per day. The firm estimates that the price elasticity of demand between $10 and $20 is unitary (=1). How many units of quantity per day would the firm expect to sell at a price of $20 per unit?
    Q31 answer
32. A firm can sell 10 units per day at a price of $20 per unit. If it raises its price to $32 per unit, it would only be able to sell 4 units per day. By increasing its price from $20 to $32, the firm realizes that, within this price range,
  1. total revenue (TR) would increase and demand is elastic.
  2. total revenue (TR) would decrease and demand is elastic.
  3. total revenue (TR) would increase and demand is inelastic.
  4. total revenue (TR) would decrease and demand is inelastic.
  5. total revenue (TR) would increase and demand is of unitary elasticity (elasticity value = 1).
  6. total revenue (TR) would decrease and demand is of unitary elasticity (elasticity value = 1).

    7. Q32 answer
33. Given the following information for a firm which cannot produce fractional units of quantity:
Price (P)
Quantity (Q)
Total Cost (TC)
$60
0
$20
$55
1
$55
$50
2
$80
$45
3
$110
$40
4
$150
$35
5
$200
The firm's profit maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q33 answer
34.    Given the following total profit curve for a firm:

Graph question 34
        For all units of quantity from QA to QB, it can be concluded that

  1. marginal cost (MC) is negative.
  2. marginal revenue (MR) is negative.
  3. marginal profit is negative.
  4. marginal revenue (MR) is less than marginal cost (MC).
  5. None of the above statements is correct.

    6. Q34 answer
35. Given the following table, what is the firm's profit maximizing level of quantity (Q)? (Assume the firm cannot produce fractional units of quantity)
Quantity (Q)
Marginal Profit
1
+ $5
2
+ $4
3
+ $4
4
- $1
5
- $2
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5

    6. Q35 answer
36. Given the following graph for a firm:
Graph question 36

From QB to QC, which one of the following, if any, is true?

  1. Demand is inelastic.
  2. Marginal cost (MC) is negative.
  3. Marginal profit is negative.
  4. Marginal revenue (MR) is negative.
  5. None of the above statements is true.

    6. Q36 answer
37. Given the following table for a firm which is producing good X:
Quantity (Q)
Marginal Revenue (MR)
Marginal Cost (MC)
1
 $22
$17
2
 $20
$19
3
 $18
$21
4
$16
$23
5
$14
$25
6
$12
$27
What is the profit-maximizing level of quantity (Q)?
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q37 answer
38. A firm is selling 12 units of its product per day at $40 per unit. It decides to raise the price to $60 per unit. If the slope of its demand curve is –10 and is constant, then the absolute value of the price elasticity of demand between $40 and $60 is (You may round off your answer to the nearest hundredth [2 decimal places], if necessary.)
    Q38 answer
39. A firm increases its quantity by 100 units per day and discovers that its total revenue (TR), total cost (TC), and total profit all increase. For these 100 units, which one of the following variables has the highest $ value?
  1. Marginal revenue (MR)
  2. Marginal cost (MC)
  3. Marginal profit
  4. Insufficient information provided to determine which one of the above variables has the highest $ value.

    5. Q39 answer
40. Assume the demand for a product is inelastic. If the price of the product is decreased by 10%, then
  1. total revenue (TR) will increase and the increase in quantity demanded will be greater than 10%.
  2. total revenue (TR) will increase and the increase in quantity demanded will be less than 10%.
  3. total revenue (TR) will decrease and the increase in quantity demanded will be greater than 10%.
  4. total revenue (TR) will decrease and the increase in quantity demanded will be less than 10%.
  5. total revenue (TR) will decrease and the decrease in quantity demanded will be greater than 10%.
  6. total revenue (TR) will decrease and the decrease in quantity demanded will be less than 10%.

    7. Q40 answer
41.   Given the following graph for a firm:
Graph question 41

At QC, which one of the following, if any, is true?

  1. Demand is elastic
  2. Total profit equals 0.
  3. Marginal profit equals 0.
  4. Marginal cost (MC) equals 0.
  5. Marginal revenue (MR) is less than marginal cost (MC).
  6. None of the above statements is true.

    7. Q41 answer
42. The absolute value of the price elasticity of demand between the 2 points, A and B, on a demand curve is (You should round off your answer to the nearest hundredth [2 decimal places], if necessary.)
Point
Price
Quantity
A
$ 36
4
B
$ 28
16
Q42 answer
43. Given the following graph for a firm:
Graph question 43
        From QC to QD,
  1. Marginal profit and marginal revenue (MR) are both positive.
  2. Marginal profit and marginal revenue (MR) are both negative.
  3. Marginal profit is positive, but marginal revenue (MR) is negative.
  4. Marginal profit is negative, but marginal revenue (MR) is positive.

    5. Q43 answer
44. Given the following total profit curve for a firm:
Graph question 44
        As a firm increases its quantity from QA to QB, it can be concluded that its
  1. marginal revenue (MR) is greater than its marginal cost (MC).
  2. marginal cost (MC) is negative.
  3. marginal revenue (MR) is negative.
  4. marginal profit is negative.
  5. None of the above can be concluded.

    6. Q44 answer
Formulas

DY/DX  =  slope.     Y is the variable measured on the vertical axis.  X is the variable measured on the horizontal axis.
 (D represents change.)

Price Elasticity of Demand = (%DQ/%DP) = [(DQ/Average Q) / (DP/Average P)]

If price elasticity is greater than 1, then demand is elastic.

If price elasticity is equal to 1, then demand is of unitary elasticity.

If price elasticity is less than 1, then demand is inelastic.
 

Total Revenue (TR) = Price (P) x Quantity (Q)

If demand is elastic (elasticity >1), P & TR vary in opposite directions because the %DQ > %DP.

If demand is of unitary elasticity (elasticity =1), P & TR are independent of each other (TR doesn't change as P changes) because the %DQ = %DP.

If demand is inelastic (elasticity <1), P & TR vary in the same direction because the %DQ < %DP.
 

Relationship between any marginal and the corresponding total:

Marginal is the slope of Total. Therefore, as units increase,

If Total is increasing, then marginal is positive.
If Total is constant, then marginal is 0.
If Total is decreasing, then marginal is negative.

Total Revenue (TR) = Price (P) x Quantity (Q)

Marginal Revenue (MR) = (DTR/DQ)

Marginal Cost (MC) = (DTC/DQ)

Marginal Profit  = MR - MC.     Marginal Profit is also (DTotal Profit/DQ)

Total Profits = TR - TC

Profit Maximizing Rule:
Produce the quantity at which MR=MC; that is, increase quantity as long as MR > MC. Alternatively, produce the quantity at which marginal profit = 0; that is, increase quantity as long as marginal profit > 0.
 

Answers

1. c  Return to Q1
Solution to Q1

2. f  Return to Q2
Solution to Q2

3. c  Return to Q3
Solution to Q3

4. b   Return to Q4
Solution to Q4

5. d   Return to Q5
Solution to Q5

6. d   Return to Q6
Solution to Q6

7.  +4   Return to Q7
Solution to Q7

8. e   Return to Q8
Solution to Q8

9. d   Return to Q9
Solution to Q9

10. c   Return to Q10
Solution to Q10

11. d   Return to Q11
Solution to Q11

12. d   Return to Q12
Solution to Q12

13. e   Return to Q13
Solution to Q13

14. a   Return to Q14
Solution to Q14

15. +5   Return to Q15
Solution to Q15

16. d  Return to Q16
Solution to Q16

17. a  Return to Q17
Solution to Q17

18. 1.50   Return to Q18
Solution to Q18

19. a  Return to Q19
Solution to Q19

20. c  Return to Q20
Solution to Q20

21. b  Return to Q21
Solution to Q21

22. d  Return to Q22
Solution to Q22

23. e  Return to Q23
Solution to Q23

24. f  Return to Q24
Solution to Q24

25.  a  Return to Q25
Solution to Q25

26. c  Return to Q26
Solution to Q26

27. a  Return to Q27
Solution to Q27

28. + $13  Return to Q28
Solution to Q28

29. b   Return to Q29
Solution to Q29

30. a  Return to Q30
Solution to Q30

31. 15  Return to Q31
Solution to Q31

32. b  Return to Q32
Solution to Q32

33. d  Return to Q33
Solution to Q33

34. e   Return to Q34
Solution to Q34

35. c   Return to Q35
Solution to Q35

36. c   Return to Q36
Solution to Q36

37. b   Return to Q37
Solution to Q37

38. 0.45   Return to Q38
Solution to Q38

39. a   Return to Q39
Solution to Q39

40. d   Return to Q40
Solution to Q40

41. e   Return to Q41
Solution to Q41

42. 4.80   Return to Q42
Solution to Q42

43. b  Return to Q43
Solution to Q43

44. d  Return to Q44
Solution to Q44

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