# Econmoics Test 3

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Utility

### Total utility may be determined by

summing the marginal utilities of each unit consumed.

20.

15

45.

-5.

fourth unit.

### The above data illustrate the:

law of diminishing marginal utility.

negative.

### Marginal utility can be:

positive, negative, or zero.

### The law of diminishing marginal utility states that:

beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.

### . If the consumer has a money income of \$52 and the prices of J and K are \$8 and \$4 respectively, the consumer will maximize her utility by purchasing

4 units of J and 5 units of K.

276 utils

### If the consumer's money income were cut from \$52 to \$28, and the prices of J and K remain at \$8 and \$4 respectively, she would maximize her satisfaction by

2 units of J and 3 units of K.

### Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

more of B and less of A.

### Diminishing marginal utility explains why

demand curves are downsloping.

### What quantities of X and Y should be purchased to maximize utility?

. 2 of X and 5 of Y

96 utils

### If the price of X decreases to \$2, then the utility-maximizing combination of the two products is:

4 of X and 5 of Y.

B

### Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

depreciation charges on company-owned equipment

### Costs to an economist

. may or may not involve monetary outlays.

### To the economist, total cost includes:

. explicit and implicit costs, including a normal profit.

### Which of the following definitions is correct?

. Economic profit = accounting profit - implicit costs.

### Suppose that a business incurred implicit costs of \$200,000 and explicit costs of \$1 million in a specific year. If the firm sold 4,000 units of its output at \$300 per unit, its accounting profits were:

\$200,000 and its economic profits were zero

### The basic characteristic of the short run is that:

. the firm does not have sufficient time to change the size of its plant.

### To economists, the main difference between the short run and the long run is that:

in the long run all resources are variable, while in the short run at least one resource is fixed.

### The law of diminishing returns indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

### Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

AP continues to rise so long as TP is rising.

### Which of the following best expresses the law of diminishing returns?

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline

\$37.

\$16.

\$8.

\$8.

is 5.

### Economies and diseconomies of scale explain:

why the firm's long-run average total cost curve is U-shaped.

### . The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects:

. increasing returns, followed by diminishing returns.

### As the firm in the above diagram expands from plant size #1 to plant size #3, it experiences:

economies of scale.

### As the firm in the above diagram expands from plant size #3 to plant size #5, it experiences:

diseconomies of scale.

. #2.

C

44

Sixth

7 units

5x and 120

and 4y

156

5x and 5y

18000

165

114 unit

63

.67

3.33

C2

utility.

Example: