1. The profit maximizing rule is to:

a. produce the product at the lowest variable cost and sell as many as you can at the highest acceptable price.

b. produce the product at the lowest fixed cost and sell as many as you can at highest acceptable price in the market

c. produce the product at lowest average fixed cost (or unit cost) and sell as many as you can at the highest acceptable price in the market.

d. produce at the quantity where total cost is equal to marginal cost

2. Other things being equal, if the prices of a firm's variable input were to fall:

a. one could predict how unit cost of production would be affected.

b. marginal cost, average variable cost, and average fixed cost would all fall.

c. marginal cost, average variable cost, and average total costs would all fall.

d. average variable cost would rise but marginal cost would fall.

3. The short run marginal cost (mc) curve eventually rises because of

a. diseconomies of scale

b. decreasing per unit fixed costs

c. Diminishing marginal returns

d. Increasing marginal productivity of the variable input

4. The law of diminishing returns states that

a.As a firm uses more of a variable resources (or input), given the quantity of fixed resources the average product of the firm will increase

b. as a firm uses more of the variable resource, given the quantity of fixed resources, marginal product of the firm will eventually decrease.

C. in the short run, the average total cost of the firm will eventually diminish

D.In the long run, the average total costs of the firm will eventually diminish

5. The basic attribute or characteristic of the short run is that:

a. barriers to entry prevent new firm from entering the industry.

b. the firm does not have enough time to change the size of the plant

c. the firm does not have enough time to cut its rate of output to zero

d. a firm does not have enough time to change the amounts of any resources it employs.

6. Diminishing returns are observed in increases of production output by adding a variable input to a fixed of inputs because:

a. the ability or quality of the variable input added decreases are more is used

b. the firm must lower the price of its product when it produces more units of output.

c. the per unit cost is must pay for the variable input increases as more of the input is used.

d. as more variable input is used, the amount of fixed input per variable input decreases.

7. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he maximizes utility is that the marginal utility:

` a. of all products he consumes is zero

b. of all products he consumes is positive

c. is the same for all products

d. per last dollar is the same for products consumed

8. A consumer has 2 basic choices: rent a video tape movie for 4 dollars and spend 2 hours of time watching it or spend 20 dollars for dinner at a restaurant that takes 1 hour of time. If the marginal utilities of the movie and the dinner are the same, and the consumer values time at 12 per hour, the rational consumer will most likely,

a. rent more movies and buy fewer restaurant dinners.

b. buy more restaurant dinners and rent fewer movies.

c. buy fewer restaurant dinners and rent fewer movies.

d. make no consumption of both

9. The law of diminishing marginal utility implies that the rate of marginal utility for a commodity:

a. remains constant, regardless of how much of the commodity is consumed.

b. remains constant as long as the commodity is still considered useful.

c. decreases as more of the commodity is consumed

d. increases as more of the commodity is consumed.

10. good reason why quantity demanded increases when its price falls is that the:

a. lower price shifts the supply curve to the left

b. lower price shifts the demand curve to the left

c. lower price shifts the demand curve to the right

d. lower price enables buyers to buy more since real income increases

11.Why does average variable cost fall when production operation is within the increasing return phase of the law of diminishing returns?

12.What is the difference between the short-run and long-run periods in economics?

13. State the law of Diminishing Return?

14. Compare and contrast Economic Price and Accounting (or Market) Price.

15. State the Law of Demand and Supply