25. E.
Marginal Revenue = change in Total Revenue = ( $2000 -$1000 ) = $2
change in quantity ( $1000 -$500 )- A.Diseconomies of scales occur when the long-run ATC rises and quantity of output rises, eliminating choice B.
When the long-run ATC remains the same as quantity produced changes, this is known as constant returns to
scale; eliminate choice C. Sunk costs is a cost that has already been committed and cannot be returned; eliminate
choice D. Efficiency occurs when resources are allocated to maximize the total surplus received by all members
of society; therefore, choice E is eliminated. - B.A competitive, profit-maximizing firm will hire workers up to the point where the value of the marginal product
of labor (VMPL) equals the wage. Hiring below this point implies that the value of the marginal product of labor
exceeds the wage, so the firm could increase profits if they hire an additional worker. Therefore, eliminate answers
A, C, D, and E. - E.Indifference curves have four general properties. One, higher indifference curves are preferred to lower ones.
They are always downward sloping because if the quantity of one good is reduced, the consumer will desire more
of the other good in order to be equally happy. Indifference curves cannot cross each other because it is our
assumption that the consumer will always prefer more of both good. Lastly, indifference curves are bowed
inwards because people are more willing to give up goods they have a greater quantity of than they are to give up
those that they have less of. - A.Since both goods are inferior in nature, a decrease in income will spur the consumer to consume more of both
goods. Therefore, the budget constraint line will shift out. A shift inwards would imply that the consumer is
consuming less of both good, so eliminate choice B. Since both goods are inferior, both consumption levels will
increase equally, so the slope of the budget constraint will not change, eliminating answers C and D. No change
would imply that this would have no effect upon the consumer, which is clearly not the case if there is a decline
in the income level; eliminate choice C. - C.C is the best answer because the deadweight loss is shared by both the consumers and producers, eliminating
choices A and B. Although taxes do create administrative burdens, this is not what creates deadweight losses in
the market; eliminate D. Taxes are used for government spending, and although it might imply that government
spending has increased, it also does not account for the deadweight loss; eliminate choice E. - E.Marginal diminishing utility is when marginal utility is increasing at a decreasing rate, and in the table we can
clearly see this trend. - B.Opportunity cost is the amount the farmer can earn if he produces the next best alternative; in this case the
next best alternative is 200 bushels of apples, or in money terms ((200 bushels)($3 a bushel)) $600. - C. Collusive firms try to effectively form a monopoly in a market where they can reduce supply and charge a
higher price. - A.The long-run average total cost curve is often referred to as the firm’s planning curve because it allows the
firm to forecast costs in relation to future output. The average total cost curve represents the lowest average total
cost at which any output level can be produced after the firm had time to make all adjustments in its capabilities. - C.At 700 units of apples, the economy was producing 300 units of oranges. If the economy were to produce 900
units of apples, then production for oranges would fall to 100 units. Therefore, the opportunity cost of increasing
the production of apples from 700 to 900 units would be 200 units of oranges. - D. Monopolies are price makers. Therefore, they determine their price and usually set it above marginal cost,
leading to long run economic profits and deadweight losses for society. A monopoly consists of one firm in the
given market, eliminating choice A. A normal good’s demand increases with income. This can be true of any
market, so it would not be the best illustration of a monopolistic market; eliminate choice B. When there are a
few firms in a market it is considered to be an oligopoly, so answer C would not be correct. Monopolies are price
makers, and they will not determine prices by quantity demanded, eliminating choice E.
Microeconomics Full-Length Practice Test 1Microeconomics Full-Length
Practice Test 1