Multiple-Choice Answers and Explanations
- D. The shaded region represents total variable cost; this can be found by multiplying the quantities, or units, on
the x and y axis. P is the average cost of each unit of output, and Q is the quantity of output; their product yields
the total variable cost. - A.In the long run, the horizontal price line also represents the marginal revenue of a firm. Choices C and E deal
with price, so they are incorrect. Choice B is incorrect because marginal cost is not perfectly elastic. Choice D is
incorrect because the total revenue is the product of quantity and price, but the price line alone represents the
marginal revenue. - D. Consumer surplus is the area bounded between the demand curve and the price paid by the consumers; in this
figure that area is represented by A + B. Areas C and D are government tax revenues, E is dead weight loss, and F
is the producer surplus. - E.A price ceiling usually causes an increase in demand; in this case, the quantity demanded increases from B to
C. The price ceiling will cause an artificially low price in the market, which will increase quantity demanded. - A.Price floors have the effect of causing a surplus in the market because at a price higher than equilibrium price,
consumers demand less and producers produce more. In this case, the surplus of lemons will be Q2 – Q1, the
quantity supplied minus the quantity demanded. - D. Choice D is incorrect because the firm’s profit maximizing price is $20 where MC is equal to ATC.
- D. To clarify, capital goods ensure future consumption, and consumer goods ensure current consumption. If a
society chooses to consume more consumer goods and less capital goods, as at point A, then the society will
choose more current consumption and less future consumption. Choices A, B, C, and E are all correct. - B.The graph depicts the economic idea of diminishing marginal returns to labor because output per worker
increases when the firm has few employees, and the output per worker decreases as the firm hires more employees. - D. Perfectly competitive firms produce many of the same or homogenous products. There are many firms in a
perfectly competitive firm that produce many of the same product. - C.The problem that all countries face is how to use resources to meet unlimited wants. This problem is more
commonly known as scarcity. - C.Choice A is just stating that whatever profits are made eventually is made into investment. Choice B is just
a managerial problem to integrate technology. Choice D is just a managerial problem. Choice E is stating that
production maximization with the help of the government. - B.Choice A is incorrect because the price rises for a substitute the demand for the substitute will increase.
Choice B is correct because an increase in the price of substitute will shift the substitute demand cure to the right.
Choice C is incorrect because there would be an increase in the demand of margarine if the price of the substitute
increase. Choice D is incorrect because the quantity demand of margarine will increase because it is a substitute
of butter. Choice E is incorrect because a change in quantity demand for a product will cause a change in the
substitutes demand. - B.Choice A is incorrect because it results in a decrease in price and decrease in quantity. Choice C results in
an increase in price and increase in quantity but not elastic. Choice D results in a decrease price and increase
quantity. Choice E results in a decrease in price and quantity. - B.Choice A is incorrect because the income effect will cause additional consumption of ordinary good. Choice
C incorrect because the first law of demand states that as price falls quantity demanded increase. Choice D is
incorrect because price does not affect shifts in demand curve. Choice E is incorrect because an ordinary good
does not violate the first law of demand. - D. Choice A is incorrect because substitutes are determinates of demand. Choice B is incorrect because
preferences are determinates of demand. Choice C is incorrect because advertising is a determinate of demand.
Choice E is incorrect because the number of buyers in the market are determinates of demand.
Microeconomics Full-Length Practice Test 2Microeconomics Full-Length
Practice Test 2