Principles of Microeconomics

Economics 111

Mr. Beck

SUNY College at Oneonta
Review Questions for Chapter 9
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Review Questions for Economics 111

The next 2 questions are based on the following table:

1. Given the following information:
 
Price Quantity
Total Cost
$32  0
$20
$30 1
$30
$28 2
$38
$26 3
$50
$24 4
$66
$22 5
$86

The firm's profit-maximizing level of Q is

  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q1 answer

2. The marginal profit of the 3rd unit of quantity is:
Q2 answer

3. Given the following graph for a firm:

Graph Question 3

Between QB and QC, which one of the following, if any, is negative?

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

    5. Q3 answer

4. Given the following information:
 
Price Quantity
60 0
55 1
48 2
38 3

The marginal revenue (MR) of the 3rd unit of quantity is

Q4 answer

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

Graph Question 5

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

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

    6. 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 +2
2 +4
3 +7
4 +3
5 +1
6 -2
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q6 answer

7. If a firm were to increase its quantity (Q) from 13 to 14 units, the % decrease in price required to sell the additional unit would be greater than the % increase in quantity. If this is a profit- maximizing firm, it
  1. should produce the 14th unit of quantity.
  2. should produce the 14th unit of quantity, but only if its marginal cost (MC) is decreasing.
  3. should not produce the 14th unit of quantity.
  4. None of the above statements is correct.

    5. Q7 answer

8. Given the following information:
 
Price Quantity Total Cost
$22 0 $10
$20 1 $26
$18 2 $36
$16 3 $42
$14 4 $49
$12 5 $57

The profit-maximizing level of quantity (Q) is

  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q8 answer

9. A firm realizes that if it were to increase its quantity by 1 unit (from 80 to 81) its total revenue (TR) would increase but its total profits would decrease. It can be concluded that for this 81st unit of quantity
  1. marginal revenue (MR) is negative.
  2. marginal revenue (MR) is greater than marginal cost (MC).
  3. marginal profit is positive.
  4. marginal cost (MC) is negative.
  5. None of the above can be concluded.

    6. Q9 answer

10. Given the following graph for a firm:

Graph Question 10

In which one of the following quantity ranges, if any, is marginal revenue (MR) less than marginal cost (MC)?

  1. From 0 to QA.
  2. From QA to QB.
  3. From QB to QC.
  4. In none of the above quantity ranges is marginal revenue (MR) less than marginal cost (MC).

    5. Q10 answer

11. A firm realizes that if it were to increase its quantity (Q) by 1 unit (from 40 to 41), its total costs (TC) would increase and its total profits would also increase. It can be concluded that for this 41st unit of quantity
  1. marginal revenue (MR) is negative.
  2. marginal cost (MC) is negative.
  3. marginal profit is negative.
  4. marginal revenue (MR) is greater than marginal cost (MC).
  5. None of the above can be concluded.

    6. Q11 answer
The next 2 questions refer to the following total profit curve:

Graph Questions 12-13


12. For all units of quantity from 0 to QA,

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

    6. Q12 answer

13. For all units of quantity from QB to QC, which one of the following, if any, is not true?
  1. Total profits are positive.
  2. Marginal profit is positive.
  3. Total revenue (TR) is greater than total cost (TC).
  4. Total profits are increasing.
  5. None of the above answers is correct. All of the above statements are true.

    6. Q13 answer
The next 2 questions refer to the following graph:

Graph Questions 14-15

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

  1. marginal revenue (MR) is less than marginal cost (MC).
  2. total revenue (TR) is less than total cost (TC).
  3. marginal profit is positive.
  4. marginal revenue (MR) is negative.
  5. None of the above answers is true.

    6. Q14 answer

15. For all units of quantity from QA to QB, which one of the following is true?
  1. Marginal revenue (MR) is greater than marginal cost (MC).
  2. Total revenue (TR) is greater than total cost (TC).
  3. Marginal profit is negative.
  4. Total profits are negative.
  5. Marginal Cost (MC) is negative.

    6. Q15 answer

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

    7. Q16 answer

17. Given the following information:
 
Price Quantity Total Cost
$22 0 $10
$20 1 $18
$18 2 $24
$16 3 $31
$14 4 $40
$12 5 $50

The firm's profit-maximizing level of quantity (Q) is

  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q17 answer

18. If a firm were to increase its quantity (Q) from 23 to 24 units, the demand for its product would be inelastic. If this is a profit- maximizing firm, it can be concluded that it
  1. should produce the 24th unit of quantity.
  2. should produce the 24th unit of quantity, but only if its marginal cost (MC) is decreasing.
  3. should not produce the 24th unit of quantity.
  4. None of the above can be concluded.

    5. Q18 answer

19. Given the following total profit curve:

Graph Question 19

For all units of quantity from QA to QB, which one of the following, if any, is true?

  1. Total profits are positive.
  2. Marginal profit is positive.
  3. Marginal revenue (MR) is less than marginal cost (MC).
  4. Total profits are negative.
  5. None of the above statements is true.

    6. Q19 answer

20. A firm realizes that if it were to increase its quantity (Q) by 1 unit (from 25 to 26), its total costs (TC) would increase and its total profits would also increase. It can be concluded that for this 26th unit of quantity
  1. total revenue (TR) is greater than total cost (TC).
  2. total revenue (TR) is less than total cost (TC).
  3. marginal profit is negative.
  4. marginal revenue (MR) is greater than marginal cost (MC).
  5. marginal cost (MC) is negative.
  6. None of the above can be concluded.

    7. Q20 answer

21.    Given the following graph for a firm:

Graph Question 21
    At QB, which one of the following, if any, is true?

  1. marginal revenue (MR) is greater than marginal cost (MC).
  2. total revenue (TR) is equal to total cost (TC).
  3. total profit is 0.
  4. marginal profit is 0.
  5. None of the above statements is true.

    6. Q21 answer
Review Questions from Last Year's Exams


22.  A firm realizes that if it were to increase its quantity by 1 unit (from 49 to 50) the % increase in quantity would be greater than the % decrease in price required to sell the additional unit of quantity. It can be concluded that for this 50th unit of quantity

  1. demand is inelastic.
  2. marginal revenue (MR) is greater than marginal cost (MC).
  3. marginal profit is negative.
  4. marginal revenue (MR) is positive.
  5. marginal cost (MC) is negative.
  6. None of the above can be concluded.

    7. Q22 answer

23. Given the following information for a firm:
 
Price Quantity Total Cost
$11 0 $ 9
$10 1 $12
$ 9 2 $13
$ 8 3 $15
The $ amount of the marginal profit of the 3rd unit of quantity is:
Q23 answer

24. Given the following total profit curve for a firm:

Graph Question 24

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

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

    7. Q24 answer

25. Given the following table for a firm which is producing good X:
Quantity (Q)
Marginal Revenue (MR)
Marginal Cost (MC)
1
$50
$12
2
$40
$8
3
$30
$11
4
$20
$18
5
$10
$30
What is the profit-maximizing level of quantity (Q)?
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5

    6. Q25 answer

26. A firm realizes that if it were to increase its quantity by 1 unit (from 34 to 35) its total revenue (TR) would increase but its total profits would decrease. It can be concluded that for this 35th unit of quantity
  1. marginal revenue (MR) is negative.
  2. marginal revenue (MR) is less than marginal cost (MC).
  3. marginal profit is positive.
  4. marginal cost (MC) is negative.
  5. None of the above can be concluded.

    6. Q26 answer

27. Given the following information for a firm which cannot produce fractional units of quantity:
Price Quantity Total Cost
$40 0 $ 7
$35 1 $11
$30 2 $14
$25 3 $21
$20 4 $33
$15 5 $50
The firm's profit-maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q27 answer

28. A firm which is producing 100 units of quantity discovers that at this quantity it is earning a positive total profit. Which one of the following variables has the highest $ value at this quantity?
  1. Total revenue (TR)
  2. Total cost (TC)
  3. Total profit
  4. Total variable cost (TVC)
  5. Price (P)
  6. Average cost (AC)

    7. Q28 answer

29. Given the following graph for a firm:

Graph Question 29

Between QB and QC, which one of the following, if any, is negative?

  1. Total profit
  2. Average cost (AC)
  3. marginal revenue (MR)
  4. marginal cost (MC)
  5. marginal profit
  6. None of the above is negative.

    7. Q29 answer

30. In the negatively sloped portion of the total revenue (TR) curve,
  1. marginal revenue (MR) is positive and decreasing and demand is elastic.
  2. marginal revenue (MR) is positive and decreasing and demand is of unitary elasticity.
  3. marginal revenue (MR) is positive and decreasing and demand is inelastic.
  4. marginal revenue (MR) is negative and demand is elastic.
  5. marginal revenue (MR) is negative and demand is of unitary elasticity.
  6. marginal revenue (MR) is negative and demand is inelastic.

    7. Q30 answer

31. If a firm were to increase its quantity (Q) from 9 to 10 units, the demand for its product would be of unitary elasticity (price elasticity of demand = 1). If this is a profit- maximizing firm, it can be concluded that it
  1. should definitely produce the 10th unit of quantity.
  2. should produce the 10th unit of quantity, but only if the total revenue (TR) of 10 units is greater than the total cost (TC) of 10 units.
  3. should produce the 10th unit of quantity, but only if the average cost (AC) of 10 units of quantity is less than the average cost (AC) of 9 units of quantity.
  4. should definitely not produce the 10th unit of quantity.
  5. None of the above can be concluded.

    6. Q31 answer

32. Given the following information:
Price Quantity Total Cost
$300 0 $40
$270 1 $55
$240 2 $66
$210 3 $87
The $ amount of the marginal revenue (MR) of the 3rd unit of quantity is
Q32 answer

33.  A firm realizes that if it were to increase its quantity by 1 unit (from 42 to 43) its total revenue (TR) would increase by more than its total cost (TC) would increase. It can be concluded that for this 43rd unit of quantity
  1. marginal revenue (MR) is negative.
  2. marginal revenue (MR) is positive, but marginal revenue (MR) is less than marginal cost (MC).
  3. marginal profit is positive.
  4. marginal cost (MC) is negative.
  5. average cost (AC) is negative.
  6.  None of the above statements is correct.

    7. Q33 answer

34.  A firm which is producing 500 units of quantity discovers that, at this quantity, price is greater than average cost (AC). Which one of the following variables has the highest $ value at this quantity?
  1. Marginal revenue (MR)
  2. Total fixed cost (TFC)
  3. Total profit
  4. Total cost (TC)
  5. Price
  6. Total revenue (TR)

    7. 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 +4
2 +5
3 +3
4 +2
5 -3
6 -5
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q35 answer

36.  Given the following total profit curve for a firm:
Graph question 36
At QA which one of the following equalities, if any, is not true?
  1. Price equals average cost (AC)
  2. Total revenue (TR) equals total cost (TC).
  3. Marginal revenue (MR) equals marginal cost (MC).
  4. All of the above equalities are true at QA.

    5. Q36 answer

37. Given the following information for a firm which cannot produce fractional units of quantity:
Price Quantity Total Cost
$100 0 $20
$ 90 1 $70
$ 80 2 $135
$ 70 3 $210
$ 60 4 $290
$ 50 5 $400
The firm's profit-maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q37 answer

38.   Given the following total profit curve for a firm:
Graph question 38
At quantity QA,
  1. price equals marginal cost (MC).
  2. price equals average cost (AC).
  3. total revenue (TR) equals total cost (TC).
  4. marginal revenue (MR) equals marginal cost (MC).
  5. marginal cost (MC) = average cost (AC).
  6. None of the above statements is correct.

    7. Q38 answer

39.  Given the following graph for a firm:
Graph question 39
From QB to QC, which one of the following, if any, is true?
  1. Marginal revenue (MR) is negative.
  2. Marginal cost (MC) is negative
  3. Marginal revenue (MR) is greater than marginal cost (MC).
  4. Demand is inelastic.
  5. Total profit increases.
  6. None of the above statements is true.

    7. Q39 answer

40. A firm lowers the price of its product and sells additional units of quantity. If the demand for these additional units of quantity is inelastic, then the firm can conclude that for these units
  1. marginal profit is negative.
  2. marginal cost (MC) is negative.
  3. marginal cost (MC) is positive and increasing.
  4. marginal cost (MC) is positive and decreasing.
  5. None of the above can be concluded.

    6. Q40 answer

41. Given the following information for a firm:
Price Quantity Total Cost
$70 0 $30
$60 1 $50
$50 2 $60
$40 3 $78
The $ amount of the marginal profit of the 3rd unit of quantity is:
Q41 answer

42. A firm which is producing 200 units of quantity discovers that at this quantity all of the following variables have positive $ values. Which one has the highest $ value at this quantity?
  1. Average cost (AC)
  2. Price
  3. Average variable cost (AVC)
  4. Profits per unit of quantity (P-AC)
  5. Average fixed cost (AFC)

    6. Q42 answer

43. Given the following graph for a firm which cannot produce fractional units of quantity:

Graph question 43

 The profit-maximizing level of quantity is

  1. 1 unit per day
  2. 2 units per day
  3. 3 units per day
  4. 4 units per day
  5. 5 units per day
  6. 6 units per day

    7. Q43 answer

Formulas

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), MR is positive. P & TR vary in opposite directions because the %DQ > %DP.

If demand is of unitary elasticity (elasticity =1), MR equals 0. P & TR are independent of each other (TR doesn't change as P changes) because the %DQ = %DP.

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

Slope = DY/DX

Total Cost (TC) = Total Variable Cost (TVC) + Total Fixed Cost (TFC)

Total Variable Cost (TVC) = PL x L      (price per unit of labor x number of units of labor)

Average cost (AC) = Average variable cost (AVC) + average fixed cost (AFC)
[AC also equals TC/Q and TC = AC x Q]

Average variable cost (AVC) = TVC/Q

Average fixed cost (AFC) = TFC/Q

Total variable cost (TVC) = Average variable cost (AVC) x quantity (Q)

Total fixed cost (TFC) = Average fixed cost (AFC) x quantity (Q)

Marginal Cost (MC) = (DTC/DQ)  or  (DTVC/DQ)  or  (PL/MPP)

[MC is inversely (oppositely) related to MPP because PL is assumed to be a constant]

Relationship between any marginal and the corresponding average concept (as, for example, between MC and AC):

If Marginal is greater than Average, then average is increasing.

If Marginal = Average, then Average is constant.

If Marginal is less than Average, then average is decreasing.

Relationship between any marginal and the corresponding total concept (as, for example, between MC and TC):

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.

Profits = TR - TC or, equivalently, Profits = (P - AC) x Q

(P - AC) = Profits per unit of Q

Marginal Revenue (MR) =  DTR/DQ

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

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. e  Return to Q1
Solution to Q1

 

2. $10  Return to Q2
Solution to Q2

 

3. c  Return to Q3
Solution to Q3

 

4. $18  Return to Q4
Solution to Q4

 

5. d  Return to Q5
Solution to Q5

 

6. e  Return to Q6
Solution to Q6

 

7. c  Return to Q7
Solution to Q7

 

8. e  Return to Q8
Solution to Q8

 

9. e  Return to Q9
Solution to Q9

 

10. c  Return to Q10
Solution to Q10

 

11. d  Return to Q11
Solution to Q11

 

12. b  Return to Q12
Solution to Q12

 

13. e  Return to Q13
Solution to Q13

 

14. a  Return to Q14
Solution to Q14

 

15. a  Return to Q15
Solution to Q15

 

16. e  Return to Q16
Solution to Q16

 

17. d  Return to Q17
Solution to Q17

 

18. c  Return to Q18
Solution to Q18

 

19. b  Return to Q19
Solution to Q19

 

20. d  Return to Q20
Solution to Q20

 

21. d  Return to Q21
Solution to Q21

 

22. d  Return to Q22
Solution to Q22

 

23. $4  Return to Q23
Solution to Q23

 

24. f  Return to Q24
Solution to Q24

 

25. d  Return to Q25
Solution to Q25

 

26. b  Return to Q26
Solution to Q26

 

27. d  Return to Q27
Solution to Q27

 

28. a  Return to Q28
Solution to Q28

 

29. e  Return to Q29
Solution to Q29

 

30. f  Return to Q30
Solution to Q30

 

31. d  Return to Q31
Solution to Q31

 

32. 150  Return to Q32
Solution to Q32

 

33. c  Return to Q33
Solution to Q33

 

34. f  Return to Q34
Solution to Q34

 

35. d  Return to Q35
Solution to Q35

 

36. c  Return to Q36
Solution to Q36

 

37. c  Return to Q37
Solution to Q37

 

38. d  Return to Q38
Solution to Q38

 

39. f  Return to Q39
Solution to Q39

 

40. a  Return to Q40
Solution to Q40

 

41. $2  Return to Q41
Solution to Q41

 

42. b  Return to Q42
Solution to Q42

 

43. e  Return to Q43
Solution to Q43

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