1) The mathematical relationship between inputs and outputs is referred to as:A) demand curve.
B) derived demand.
C) supply curve.
D) production possibilities.
E) production function.

2) As quantity of production increases, the average fixed cost:
A) increases due to diminishing marginal productivity.
B) decreases due to the law of increasing costs.
C) increases due to the law of economy of scale.
D) decreases due to fixed cost being spread over larger volume.
E) stays the same, since it is fixed.

3) Economic profit is:
A) the same as accounting profit.
B) the residual after all resources used in production are compensated at their normal market determined rates.
C) what the owners can take out of business without reducing its capital.
D) total revenue minus expenses and before taxes.
E) all of the above.

4) Utility
A) is the satisfaction obtained from consumption of a product.
B) has no meaning in economics.
C) can be used to decide what to produce.
D) all of the above.
E) none of the above.

5) The difference between what a consumer is willing to pay for a commodity and what he/she actually pays for that commodity is known as:
A) producer’s surplus.
B) consumer’s surplus.
C) bargaining power.
D) utility gained.
E) profit.
Kiki owns a small factory producing and selling facial lotions. Each jar of lotion is sold for $50 and the marginal cost of each worker is constant at $150. The table below is also known. Use the information to answer questions 6-10.

QUANTITY OF LABOR UNITS OF OUTPUT

0 0
1 12
2 22
3 30
4 36
5 40
6 43
7 44
6) The marginal product of the fifth worker is:

A) 8.
B) 3.
C) 40.
D) 4.
E) none of the above.

7) The average product, when 4 workers are employed, is:

A) 36.
B) 4.
C) 9.
D) 6.
E) none of the above.

8) The marginal cost of third worker hired is:
A) $50.
B) $100.
C) $200.
D) $150.
E) none of the above.

9) The marginal revenue product of the sixth worker is:

A) $100.
B) $150.
C) $50.
D) $200
E) none of the above.
10) In order to maximize profit, how many workers Kiki should hire?
A) Seven workers.
B) Six workers.
C) Five workers.
D) As many workers as he can find.
E) Not enough information to answer the question.

11) Marginal utility is the
A) total satisfaction gained by consuming large quantities of a good.
B) total satisfaction gained by saving a large quantity of a good.
C) additional satisfaction gained by the consumption of one more unit of a good.
D) additional consumption divided by the additional satisfaction of consumption.
E) any of the above.

12) You own a business that answers telephone calls for physicians after their offices close. Currently you operate at your optimal point. You have an incentive to substitute capital for labor if:
A) price of capital increases.
B) price of labor decreases.
C) price of labor increases.
D) marginal product of labor increases.
E) all of the above.

13) The principle of diminishing marginal utility implies that when Sophia eats pizza, her utility from the second slice of pizza is:

A) greater than the utility from the first slice.
B) equal to the utility from the first slice.
C) not comparable to the utility from the second slice.
D) less than the utility from the first slice.
E) none of the above.

14) Marginal cost:
A) is the increase in total cost resulting from producing one more unit.
B) is the average cost of production divided by output.
C) equals the increase in fixed cost resulting from producing one more unit.
D) always equals average total cost.
E) none of the above.

15) Which one of the followings can be considered as a “derived demand”?
A) demand for pizza and soft drink.
B) demand for airline pilots.
C) demand for electricity.
D) all of the above.
E) (B) and (C) above.
Use the following information to answer questions 16-20

UNITS OF OUTPUT TOTAL COST

0 $100
1 $130
2 $158
3 $183
4 $210
5 $250

16) Marginal cost of producing the third unit is:
A) $183
B) $40
C) $393
D) $27
E) none of the above.

17) Average total cost of producing five units of output is:
A) $40
B) $250
C) $50
D) $30
E) none of the above.

18) Average fixed cost of producing four (4) units of output is:
A) $100
B) $25
C) $20
D) $210
E) none of the above.

19) Average variable cost of producing the fifth (5) unit is:
A) $25
B) $30
C) $50
D) $250
E) none of the above.

20) Total cost of producing 2 units is:
A) $28.
B) $70.
C) $58.
D) $158.
E) none of the above.
21) Sunk cost is:

A) the cost that is implicit.
B) the cost that will not be paid.
C) the cost that can not be retrieved.
D) the same as marginal cost.
E) any of the above is possible.

22) As output increases, average variable costs

A) fall.
B) initially fall and then increase.
C) remain constant.
D) increase.
E) any of the above is possible.

23) In a world of two commodities, the optimal level of consumption for a consumer will be:

A) where the consumer spends all of his/her income on one commodity.
B) where the consumer spends half of his/her income on each commodity.
C) where the budget line intersects the indifference curve.
D) at the point at which the indifference curve is just tangent to the budget line.
E) any of the above.

24) Assume there are only two inputs in a production, labor and capital. If a firm wants to utilize least cost combination of the two inputs, it should combine them:

A) in such a way that the amount spent on each input is equal.
B) in such a way that the output produced by each input is equal.
C) in such a way that contribution of each dollar invested in each input is the same.
D) any of the above.
E) none of the above.

25) The long run refers to the period of time for which:

A) all inputs are fixed.
B) at list one input is fixed.
C) all inputs are variable.
D) all of the above.
E) all of the above.