Principles of Microeconomics

Economics 111

Mr. Beck

SUNY College at Oneonta
Review Questions from Previous Exam 3's

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Review Questions for Economics 111


1.   A firm realizes that if it were to increase its quantity (Q) by 1 unit, its total revenue (TR ) would increase but by less than total cost (TC) would increase. 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. Q1 answer

2.    Given the following information for a firm:
 
Price (P)
Quantity (Q)
Total Cost (TC)
$45
0
$20
$42
1
$30
$39
2
$36
$36
3
$40
$33
4
$50
$30
5
$65
    The marginal profit of the 5th unit of quantity is:

    Q2 answer


3.  Given the following graph for a firm:

Graph question 3

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

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

    5. Q3 answer

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

Graph question 4

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

  1. marginal profit is negative.
  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. None of the above statements is correct.

    6. Q4 answer

5. Given the following information:
Price (P)
Quantity (Q)
Total Cost (TC)
$40
0
$10
36
1
$28
32
2
$44
28
3
$66
24
4
$96
20
5
$136
The firm's profit-maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q5 answer

6. Given the following information:
Price (P)
Quantity (Q)
Total Cost (TC)
$60
0
$50
55
1
$80
50
2
$95
45
3
$117
The marginal profit of the 3rd unit of quantity is
Q6 answer

7. Given the following total profit curve for a firm:
Graph Question 7
For all units of quantity from QA to QB, it can be concluded that
  1. total revenue (TR) is less than total cost (TC).
  2. marginal profit is positive.
  3. total revenue (TR) 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. Q7 answer

8.  A firm realizes that if it were to increase its quantity by 1 unit (from 15 to 16) its total revenue (TR) would increase but its total profits would decrease. It can be concluded that for this 16th unit of quantity
  1. demand is inelastic.
  2. marginal revenue (MR) is less than marginal cost (MC).
  3. marginal profit is positive.
  4. total revenue (TR) is less than total cost (TC).
  5. marginal cost (MC) is negative.
  6. None of the above can be concluded.

    7. Q8 answer

9.  A firm realizes that if it were to increase its quantity (Q) by 1 unit (from 60 to 61), its total revenue (TR) would decrease. It can be concluded that for this 61st unit of quantity
  1. marginal revenue (MR) is positive.
  2. marginal cost (MC) is negative.
  3. marginal profit is negative.
  4. marginal revenue (MR) is greater than marginal cost (MC).
  5. demand is elastic.
  6. None of the above can be concluded.

    7. 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 profit negative?

  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 profit negative.

    5. Q10 answer

11.    Given the following table for a firm which is producing good X:
 
Quantity (Q)
Marginal Revenue (MR)
Marginal Cost (MC)
1
$15
$7
2
$12
$5
3
$9
$8
4
$6
$10
5
$3
$13

What is the profit-maximizing level of output (Q)?

  1. 1
  2. 2
  3. 3
  4. 4
  5. 5

    6. Q11 answer

12.   If a firm increases its quantity (Q) by 7 units and discovers that its marginal profits are negative for these 7 units, then for these units which one, if any, of the following must also be negative?
  1. Total revenue (TR)
  2. Total profits
  3. Marginal revenue (MR)
  4. Profit per unit of quantity (P-AC)
  5. None of the above must be negative.

    6. Q12 answer

13. Profit-maximizing firm X is considering producing an additional unit of quantity (Q). Which one of the following statements about the additional unit of quantity is correct?
  1. Definitely produce this unit if demand is elastic or of unitary elasticity.
  2. Definitely do not produce this unit if demand is elastic or of unitary elasticity.
  3. Definitely produce this unit if demand is inelastic or of unitary elasticity.
  4. Definitely do not produce this unit if demand is inelastic or of unitary elasticity.
  5. Definitely produce this unit if demand is inelastic, but definitely do not produce this unit if demand is of unitary elasticity.
  6. Definitely produce this unit if demand is of unitary elasticity, but definitely do not produce this unit if demand is inelastic.

    7. Q13 answer

14.  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
$2
2
$2
3
$7
4
$1
5
-$2
6
-$4
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q14 answer

15. A firm realizes that if it were to increase its quantity by 1 unit (from Q = 10 to Q = 11) its total revenue (TR) would increase but its total profits would decrease. It can be concluded that for this 11th unit of quantity
  1. marginal revenue (MR) is positive.
  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. Q15 answer

16.    A firm realizes that if it were to increase its quantity (Q) by 1 unit (from Q = 20 to Q = 21), its total costs (TC) would increase and its total profits would also increase. It can be concluded that for this 21st unit of quantity
  1. marginal revenue (MR) is less than marginal cost (MC).
  2. marginal revenue (MR) is positive.
  3. marginal profit is negative.
  4. marginal cost (MC) is negative.
  5. None of the above can be concluded.

    6. Q16 answer

17.    Given the following information:
Price (P)
Quantity (Q)
Total Cost (TC)
$12
0
$6
11
1
$10
10
2
$13
9
3
$18
What is the dollar amount of the marginal profit of the 3rd unit of quantity?
    Q17 answer

18.    Given the following total profits curve for a firm:

Graph question 18

For all units of quantity from QA to QB, which one of the following, if any, has a negative value?

  1. Marginal revenue (MR).
  2. Marginal profit.
  3. Marginal cost (MC).
  4. Total revenue (TR).
  5. Total cost (TC).
  6. None of the above has a negative value.

    7. Q18  answer

19.    Given the following information:
Price (P)
Quantity (Q)
$80
0
70
1
60
2
50
3
The marginal revenue (MR) of the 3rd unit of quantity is
    Q19 answer

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

Graph question 20

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

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

    6. Q20 answer

21. Given the following total profit curve:

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 negative.
  3. Marginal revenue (MR) is greater than marginal cost (MC).
  4. Total profits are negative.
  5. Total revenue (TR) is greater than total cost (TC).
  6. None of the above statements is true.

    7. Q21 answer

22.   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
$2
4
-$1
5
-$2
6
-$4
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q22 answer

23.    Given the following information:
Price (P)
Quantity (Q)
Total Cost (TC)
$11
0
$5
10
1
$9
9
2
$12
8
3
$17
7
4
$23
6
5
$30
The firm's profit-maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q23 answer



24.    Given the following graph for a firm:

Graph question 24

In which one of the following quantity ranges, if any, is marginal profit negative?

  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 profit negative.

    5. Q24 answer

25. Given the following table
Quantity (Q)
Marginal Profit
1
$3
2
$3
3
$5
4
$2
5
$1
6
-$4
It can be concluded that as quantity (Q) increases from 3 to 5 units,
  1. marginal revenue (MR) is greater than marginal cost (MC).
  2. total revenue (TR) is greater than total cost (TC).
  3. total revenue (TR) is decreasing.
  4. total profits are decreasing.
  5. None of the above can be concluded.

    6. Q25 answer

26. If a profit-maximizing firm is producing but is currently suffering losses, then
  1. total revenue (TR) is less than total variable cost (TVC) and total revenue (TR) is less than total cost (TC).
  2. total revenue (TR) is greater than total fixed cost (TFC) and total revenue (TR) is less than total cost (TC).
  3. total revenue (TR) is greater than total variable cost (TVC) and total revenue (TR) is less than total cost (TC).
  4. total revenue (TR) is greater than total variable cost (TVC) and total revenue (TR) is greater than total cost (TC).
  5. total revenue (TR) is less than total fixed cost (TFC) and total revenue (TR) is less than total cost (TC).

    6. Q26 answer

27.    Given the following graph for a firm:
Graph question 27

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

  1. Marginal revenue (MR) is greater than marginal cost (MC).
  2. Total profit is negative.
  3. Marginal profit is positive.
  4. Marginal revenue (MR) is positive.
  5. Marginal cost (MC) is negative.

    6. Q27 answer

28.  Given the following graph for a firm:
Graph Question 28

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

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

    6. Q28 answer

29.    Given the following table for a firm which is producing good X:
Quantity (Q)
Marginal Revenue (MR)
Marginal Cost (MC)
1
$25
$7
2
$20
$5
3
$15
$8
4
$10
$11
5
$5
$15
6
$0
$20
What is the profit-maximizing level of output (Q)?
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    7. Q29  answer

30.    A firm which is producing 100 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. Total revenue (TR)
  2. Total cost (TC)
  3. Total profit
  4. Total variable cost (TVC)
  5. Total fixed cost (TFC)

    6. Q30 answer

31.    Given the following information for a firm which cannot produce fractional units of quantity:
Price (P)
Quantity (Q)
Total Cost (TC)
$14
0
$11
13
1
$19
12
2
$24
11
3
$28
10
4
$35
9
5
$46
 What is this firm’s highest $ value of marginal profit?
    Q31 answer

32. 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
$6
2
$6
3
$8
4
$5
5
-$1
6
-$4
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

    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)
$30
0
$10
27
1
$26
24
2
$36
21
3
$42
18
4
$49
15
5
$57
 What is this firm’s highest $ value of total profit?
    Q33 answer

34.   Given the following graph for a firm:

Graoh question 34

At which quantity, if any, is marginal revenue (MR) equal to marginal cost (MC)?

  1. 0
  2. QA
  3. QB
  4. QC
  5. At none of the above quantities is marginal revenue (MR) equal to marginal cost (MC).

    6. Q34 answer



35.    Given the following table for a firm which is producing good X:
Quantity (Q)
Marginal Revenue (MR)
Marginal Cost (MC)
1
$25
$6
2
$20
$5
3
$15
$7
4
$10
$9
5
$5
$13
What is the profit-maximizing level of output (Q)?

  1. 1
  2. 2
  3. 3
  4. 4
  5. 5

    6. Q35  answer

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

Graph question 36

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. total cost (TC) is decreasing.
  4. marginal revenue (MR) is less than marginal cost (MC).
  5. None of the above can be concluded.

    6. Q36 answer

37. Given the following graph for a firm:

Graph question 37

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

  1. Marginal revenue (MR) is greater than marginal cost (MC).
  2. Total profit is negative.
  3. Marginal profit is negative.
  4. Marginal revenue (MR) is negative.
  5. Marginal cost (MC) is negative.

    6. Q37 answer

38. Given the following information for a firm which cannot produce fractional units of quantity:
Price (P)
Quantity (Q)
Total Cost (TC)
$18
0
$5
16
1
$9
14
2
$12
12
3
$17
10
4
$23
8
5
$30
The firm's profit-maximizing level of quantity (Q) is
  1. 0
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5

    7. Q38 answer

39. A firm which is producing 1,000 units of quantity discovers that at this quantity it is incurring a loss. 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. Total fixed cost (TFC)

    6. Q39 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.

Marginal Physical Product (MPP) = DQ/DL   (Q is quantity, L is units of labor)

Labor-hiring rule: Increase Labor as long as: MRP > PL
[MRP is Marginal Revenue Product which is MPP x Price of output produced;    PL is Price of Labor]

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]

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.

Profit-Maximizing Rule:
Produce the Q at which MR=MC; that is, increase Q as long as MR is greater than  MC. Alternatively, increase Q as long as marginal profit is greater than  0. The exception is that if P is less than AVC (or equivalently, if TR is less than TVC), then the firm should shut down and not produce.
 

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)
 
 


ANSWERS


 

1. a  Return to Q1
Solution to Q1

 

2. $3  Return to Q2
Solution to Q2

 

3. d  Return to Q3
Solution to Q3

 

4. a  Return to Q4
Solution to Q4

 

5. c   Return to Q5
Solution to Q5

 

6. 13  Return to Q6
Solution to Q6

 

7. f  Return to Q7
Solution to Q7

 

8. b  Return to Q8
Solution to Q8

 

9. c  Return to Q9
Solution to Q9

 

10.  c  Return to Q10
Solution to Q10

 

11. c  Return to Q11
Solution to Q11

 

12. e  Return to Q12
Solution to Q12

 

13. d  Return to Q13
Solution to Q13

 

14. d  Return to Q14
Solution to Q14

 

15. a   Return to Q15
Solution to Q15

 

16. b  Return to Q16
Solution to Q16

 

17. $2  Return to Q17
Solution to Q17

 

18. f  Return to Q18
Solution to Q18

 

19. $30  Return to Q19
Solution to Q19

 

20. a  Return to Q20
Solution to Q20

 

21. c  Return to Q21
Solution to Q21

 

22. c  Return to Q22
Solution to Q22

 

23. d  Return to Q23
Solution to Q23

 

24. c  Return to Q24
Solution to Q24

 

25. a  Return to Q25
Solution to Q25

 

26. c  Return to Q26
Solution to Q26
 

27.  d  Return to Q27
Solution to Q27

 

28. e  Return to Q28
Solution to Q28

 

29. c  Return to Q29
Solution to Q29

 

30. a  Return to Q30
Solution to Q30

 

31. $6  Return to Q31
Solution to Q31

 

32. d  Return to Q32
Solution to Q32

 

33. $23  Return to Q33
Solution to Q33

 

34. c Return to Q34
Solution to Q34

 

35. d Return to Q35
Solution to Q35

 

36. d Return to Q36
Solution to Q36

 

37. c Return to Q37
Solution to Q37

 

38. d Return to Q38
Solution to Q38

 

39. b  Return to Q39
Solution to Q39
 
 

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