1. If 8 percent increase in the price of one good results in an increase of 4 percent in the quantity
demanded of another good, then it can be concluded that the two goods are:
a) complements.
b) substitutes.
c) independent.
d) normal.
2. The law of diminishing marginal utility explains why:
a) supply curves are upsloping.
b) demand curves are downsloping.
c) real income of the consumer rises when the price of a commodity falls.
d) substitution effect is always higher than income effect mentioned in c) above.
3. 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.
4. 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 it 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.
5. A necessary and sufficient condition for a rational consumer to be in equilibrium or at that position where he
maximizes utility as he spends the last dollar of his budget is that the marginal utility:
e) of all products he consumes is zero.
f) of all products he consumes is positive.
g) is the same for all products.
h) per dollar for all products is the same.
6. 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.
7. 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.
8. 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.
9. Marginal cost is the:
a) rate of change in total fixed cost that results from producing one more unit of output
b) change in total cost that results from producing one more unit of output
c) change in average variable cost that results from producing one more unit of output
d) change in average total cost that results from producing one more unit of output
II. Definitions / Short Essays:
10. State the Law of Supply. Why do the supply curve slopes upward?
11. State the Law of Demand. Why do the demand curve slopes downward?
12. Explain why normal profit is an implicit cost (i.e., subtracted from accounting profits) in our definition of
economic price .
13. Explain why when total output crosses the point of diminishing returns, total output increases at a
decreasing (or slower rate)?
14. State the Law of Diminishing Marginal Utility.
15. State the Law of Diminishing Returns.
III. Computations:
A. Utility Maximization
16. Alfredo has $22 of budget to spend. If the price of X and Y are $2 and $4, respectively , how much of each
would he buy to get the best value for his dollar.
Units of X MU of X Units of Y MU of Y
1 20 1 48
2 18 2 40
3 16 3 36
4 14 4 32
5 12 5 24
6 11 6 12
B. Profit Maximization
Monterey Park Leather Goods Corporation, a firm in a purely competitive market ,sells men's leather belts at
$26 each. Its production costs at corresponding total output are shown in the table below below :
Total Average Average Average Marginal Marginal
Output Fixed Cost Variable cost Total Cost Cost Revenue
1 100.00 17.00 117.00
2 50.00 16.00 66.00
3 33.33 15.00 48.33
4 25.00 14.25 39.25
5 20.00 14.00 34.00
6 16.67 14.00 30.67
7 14.29 15.71 30.00
8 12.50 17.50 30.00
9 11.11 19.44 30.55
10 10.00 21.60 31.60
11 9.09 24.00 33.09
____________________________________________________________________
17. Why do the value of Average Fixed Cost begins at a high value of $100 at the first output and
ends at a very low $9.09 at the last output showing in the table?
18. Explain why the value of the Average Total Cost starts at $117.00 and dips to $30 on the at the 8th
output but eventually rises again to $33.09 at the last output.
19. What output should the firm produce to make the most profits at price of $26?
20. What is the rule of profit maximization in economics?
($) ($) ($) ($) ($)
17 26
15 26
13 26
12 26
13 26
14 26
26 26
30 26
35 26
41 26
East Los Angeles College -South Gate Mid-Term Exam July 1, 2013
MICROECONOMICS Summer Session 2013
Name:_________________________
I. Multiple Choices:
1._____ 2.______ 3. ______ 4. _____ 5.______ 6. ______ 7._____ 8._____ 9.______
II. Definitions / Short Essays:
10. State the Law of Supply. Why do the supply curve slopes upward?
11. State the Law of Demand. Why do the demand curve slopes downward?
12. Explain why normal profit is an implicit cost (i.e., subtracted from accounting profits) in our definition
of economic transfer price from the seller to the buyer.
13. Explain why when total output crosses the point of diminishing returns, total output increases at a
decreasing (or slower rate)?
14 . State the Law of Diminishing Marginal Utility.
15. State the Law of Diminishing Returns.
III. Computations:
A. Utility Maximization :
16.. Amount of X_________ Amount of Y________
Show your solution:
B. Profit Maximization
Monterey Park Leather Goods Corporation, a firm in a purely competitive market ,sells men's leather belts at
$26 each. Its production costs at corresponding total output are shown in the table below below :
Total Average Average Average Marginal Marginal
Output Fixed Cost Variable cost Total Cost Cost Revenue
1 100.00 17.00 117.00
2 50.00 16.00 66.00
3 33.33 15.00 48.33
4 25.00 14.25 39.25
5 20.00 14.00 34.00
6 16.67 14.00 30.67
7 14.29 15.71 30.00
8 12.50 17.50 30.00
9 11.11 19.44 30.55
10 10.00 21.60 31.60
12 9.09 24.00 33.09
____________________________________________________________________
17. Why do the value of Average Fixed Cost begins at a high value of $100 at the first output and
ends at a very low $9.09 at the last output showing in the table?
($) ($) ($) ($)
17 26
15 26
13 26
12 26
13 26
14 26
26 26
30 26
35 26
41 26
18. Explain why the value of the Average Total Cost starts at $117.00 and dips to $30 on the at the 8th
output but eventually rises again to $33.09 at the last output.
19. What output should the firm produce to make the most profits at price of $26?
20. What is the rule of profit maximization in economics?