Deck 7: Cost and Industry Structure

Question 1

(Exhibit: Utility) The law of diminishing marginal utility is first observed at the _______ unit.

A) second
B) third
C) fifth
D) sixth

Answer 1

second

Question 2

The amount by which an additional unit of a good or service increases a consumer's total utility, all other things unchanged, is:

A) marginal utility.
B) maximum utility.
C) average utility.
D) required utility.

Answer 2

marginal utility.

Question 3

(Exhibit: Utility) The marginal utility for the fifth unit is:

A) 15.
B) 10.
C) 5.
D) 0.

Answer 3

0.

Question 4

Marginal utility is best computed as the:

A) change in total utility from an additional unit consumed.
B) total utility divided by the total quantity consumed.
C) change in total utility divided by the total quantity consumed.
D) total utility divided by the change in quantity consumed.

Question 5

Assume that the total utilities corresponding to the first five units of a product consumed are 10, 15, 19, 22, and 24, respectively. The marginal utility of the third unit is:

A) 19.
B) 15.
C) 4.
D) 3.

Question 6

Which of the following statements is true regarding utility?

A) Utility can be measured.
B) Utility cannot be measured.
C) Utility, at the margin, eventually increases as more of a good is consumed.
D) A and C are true.

Question 7

The amount by which total utility increases when an additional unit of a good is consumed is called ________ utility.

A) average
B) additional
C) maximum
D) marginal

Question 8

Assume that the total utilities for the fifth and sixth units of a good consumed are 83 and 97, respectively. The marginal utility for the sixth unit is:

A) -14.
B) 14.
C) 83.
D) 97.

Question 9

(Exhibit: Utility.) Marginal utility is zero for the _______ unit.

A) first
B) second
C) third
D) fifth

Question 10

(Exhibit: Utility) Marginal utility first becomes negative at the _______ unit.

A) first
B) second
C) fifth
D) sixth

Question 11

The utility of a good is determined by how much _______ a particular consumer obtains from it.

A) satisfaction
B) usefulness
C) cost
D) need fulfillment

Question 12

Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility when 2 units are consumed is:

A) 150.
B) 200.
C) 350.
D) 475.

Question 13

The conceptual measure of the satisfaction a person obtains by consuming a given quantity of a good or service during a given time period is:

A) average product.
B) marginal cost.
C) marginal revenue.
D) total utility.

Question 14

(Exhibit: Utility) Total utility is maximized at the _______ unit.

A) first
B) second
C) fourth
D) sixth

Question 15

The ability of a good to satisfy a want refers to its:

A) utility.
B) usefulness.
C) worthiness.
D) necessity.

Question 16

(Exhibit: Utility) The marginal utility for the sixth unit is:

A) -5.
B) 0.
C) 5.
D) -10.

Question 17

(Exhibit: Utility) The marginal utility for the second unit is:

A) 35.
B) 15.
C) 10.
D) 5.

Question 18

Utility is most closely related to the term:

A) usefulness.
B) satisfaction.
C) requirement.
D) necessity.

Question 19

Assume that the marginal utilities for the first three units of a good consumed are 200, 150, and 125, respectively. The total utility for the first unit is:

A) 125.
B) 150.
C) 200.
D) 350.

Question 20

Economists identify the satisfaction a person derives from the consumption of goods and services as:

A) happiness.
B) usefulness.
C) utility.
D) pleasure.

Question 21

If the first four units of a good consumed have marginal utilities of 60, 50, 40, and 30, respectively, this trend is an indication of the:

A) maximization of utility.
B) law of diminishing marginal utility.
C) law of consumer equilibrium.
D) minimization of utility.

Question 22

Total Utility and Marginal Utility from Consumption of Good A

(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) Marginal utility eventually decreases with the consumption of additional units of good A because of the law of:

A) increasing costs.
B) decreasing total returns.
C) diminishing average returns.
D) diminishing marginal utility.

Question 23

The law of diminishing marginal utility indicates that the slope of the marginal utility curve eventually becomes:

A) negative.
B) vertical.
C) horizontal.
D) positive.

Question 24

Assume that the total utilities corresponding to the first five units of a product consumed are 14, 20, 25, 29, and 32, respectively. The marginal utility of the third unit is:

A) 5.
B) 6.
C) 20.
D) 25.

Question 25

The law of diminishing marginal utility exists for the first three units of a good if they have total utilities of:

A) 8, 17, 27.
B) 9, 17, 27.
C) 9, 19, 30.
D) 10, 19, 27.

Question 26

Total Utility and Marginal Utility from Consumption of Good A

(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) If 4 units of good A are consumed, the total utility received is _______ and the marginal utility of the 4th unit is _______ .

A) 26; 5
B) 14; 2
C) 12; 3
D) None of the above is correct.

Question 27

Total Utility and Marginal Utility from Consumption of Good A

(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) Marginal utility of good A is found by:

A) dividing total utility by the number of units consumed of good A.
B) dividing the change in the number of units of A by the change in total utility of A.
C) computing the change in total utility of A resulting from the consumption of one more unit of A.
D) doing none of the above.

Question 28

The amount by which total utility rises when an additional unit of a good is consumed is called:

A) average utility.
B) the law of diminishing returns.
C) incremental utility.
D) marginal utility.

Question 29

The law of diminishing marginal utility indicates that the marginal utility curve eventually becomes:

A) vertical.
B) U-shaped.
C) upward sloping.
D) downward sloping.

Question 30

The law of diminishing marginal utility exists for the first three units of a good if they have marginal utilities, respectively, of:

A) 8, 9, 10.
B) 9, 8, 10.
C) 9, 10, 8.
D) 10, 9, 8.

Question 31

If the first four units of a good consumed have marginal utilities of 10, 9, 8, and 7, respectively, this trend is an indication of the:

A) law of diminishing marginal utility.
B) minimization of utility.
C) law of consumer equilibrium.
D) law of diminishing consumer surplus.

Question 32

As you consume more of good A relative to another good B, the _______ of good A eventually decreases.

A) total utility
B) usefulness
C) marginal utility
D) demand

Question 33

When supply and demand are in equilibrium, the price of a good is:

A) greater than the marginal utility of the good.
B) equal to the marginal utility of the good.
C) less than the marginal utility of the good.
D) not necessarily any of the above.

Question 34

Which of the following statements is true because of the law of diminishing marginal utility?

A) When a customer continues to eat more pie at the Pie Palace, each additional piece of pie gives a larger amount of marginal utility.
B) When a customer continues to eat more pie at the Pie Palace, each additional piece of pie gives a smaller amount of marginal utility.
C) The marginal utility of a piece of pie is maximum when the total utility of pie is zero.
D) The total utility of pie is at a maximum while the marginal utility of pie is still increasing.

Question 35

The law of diminishing marginal utility:

A) is the tendency of total utility to increase until an individual's budget is no longer constrained.
B) refers to the tendency of marginal utility to decline beyond some level of consumption during a period.
C) indicates that, if a good is inferior, less of it will be purchased when income falls during a period.
D) assumes all goods are normal.

Question 36

Total Utility and Marginal Utility from Consumption of Good A

(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) If the total utility curve of good A is plotted on a graph, the slope of TU between 3 units consumed and 4 units consumed is:

A) 1.
B) 2.
C) 3.
D) 4.

Question 37

In using the concept of marginal utility as an argument for a downward-sloping demand curve, economists:

A) are ignoring the law of diminishing marginal utility.
B) invoke the law of diminishing marginal utility.
C) are denying the law of diminishing marginal utility.
D) are doing none of the above.

Question 38

Total Utility and Marginal Utility from Consumption of Good A

(Exhibit: Total Utility and Marginal Utility from Consumption of Good A) If 2 units of A are consumed, the total utility received is _______ , and the marginal utility of the second unit is _______ .

A) 4; 9
B) 9; 4
C) 12; 3
D) 14; 9

Question 39

When total utility is at a maximum, marginal utility is:

A) rising.
B) at its average value.
C) at a maximum.
D) zero.

Question 40

Which of the following statements is (are) true?

A) As a consumer consumes more and more of a good or service, its marginal utility eventually falls.
B) Utility is a quality inherent in the good or service itself.
C) Marginal utility is the change in total utility resulting from consuming one more or one less unit of a good.
D) Both A and C are true.

Question 41

The Case in Point on Changing Lanes and Raising Utility, indicated that the government's decision to allow single-occupancy-vehicle to use former HOV lanes for a fee resulted in:

A) only wealthy drivers using these lanes.
B) only poor drivers using these lanes.
C) drivers of all income levels using these lanes.
D) no statistical evidence on who uses these lanes most frequently.

Question 42

If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 40 and MU_b/P_b = 60, to maximize utility, the consumer should buy:

A) less of both a and b.
B) less of a and more of b.
C) more of both a and b.
D) more of a and less of b.

Question 43

In dealing with utility, we assume that the ability of consumers to purchase goods and services is:

A) infinite.
B) irrelevant.
C) limited.
D) infinitesimal.

Question 44

Which of the following statements most fully explains a driver's decision, as discussed in the Case in Point on Changing Lane and Raising Utility, to pay to use a highway express lane?

A) The total utility of using the lane must be greater than zero.
B) The marginal utility per dollar on using the lane must be greater than zero.
C) The marginal utility per dollar spent on the lane must be equal to the price per gallon of gasoline plus associated driving costs.
D) The marginal utility per dollar spent on the lane must be greater than the marginal utility per dollar spent on the next best alternative.

Question 45

Economists assume that consumers behave in a manner consistent with the _______ of utility.

A) maintenance
B) minimization
C) maximization
D) final degree

Question 46

If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 50 and MU_b/P_b = 30, to maximize utility, the consumer should buy:

A) less of both a and b.
B) more of both a and b.
C) more of a and less of b.
D) less of a and more of b.

Question 47

The utility-maximization condition for two goods is achieved by equating the:

A) prices of both goods.
B) marginal utilities of both goods.
C) ratios of total utility to price of both goods.
D) ratios of marginal utility to price of both goods.

Question 48

Which of the following is (are) true?

A) A budget constraint limits what a poor consumer can spend, but there is no similar constraint on rich people.
B) Utility maximization requires seeking the greatest utility from a given budget.
C) In consumer choice theory, we assume all goods and services are normal.
D) All of the above are true.

Question 49

If a consumer purchases a combination of commodities x and y such that MU_x/P_x = 30 and MU_y/P_y = 40, to maximize utility, the consumers should buy.

A) less of x and more of y.
B) more of x and less of y.
C) more of both x and y.
D) less of both x and y.

Question 50

If a consumer purchases a combination of commodities x and y such that MU_x/P_x = 20 and MU_y/P_y = 10, to maximize utility, the consumers should buy.

A) less of x and more of y.
B) more of x and less of y.
C) more of both x and y.
D) less of both x and y.

Question 51

Which of the following is (are) true?

A) The goal of a consumer is to maximize utility.
B) A consumer will consume each good at a level that yields the maximum utility possible.
C) Rich consumers are not constrained by income or budget constraints.
D) A and C are true.

Question 52

If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 100
And MU_b/P_b = 80, to maximize utility, the consumer should buy:

A) less of both a and b.
B) more of a and less of b.
C) less of a and more of b.
D) more of both a and b.

Question 53

If a consumer purchases a combination of commodities x and y such that MU_x/P_x = 20 and MU_y/P_y = 5, to maximize utility, the consumers should buy.

A) more of x and less of y.
B) less of x and less of y.
C) more of both x and y.
D) less of both x and y.

Question 54

Which of the following statements is (are) true?

A) Consumers are constrained by a budget.
B) If a consumer decides to spend more on one good, he or she must decide to spend less on another good to satisfy the budget constraint.
C) The marginal decision rule states that an activity should be expanded if its marginal benefit exceeds its marginal cost.
D) All of the above statements are true.

Question 55

A consumer's spending is restricted because of:

A) marginal utility.
B) total utility.
C) a budget constraint.
D) utility maximization.

Question 56

Which of the following is true regarding a budget constraint?

A) The budget constraint indicates that consumers desire more income.
B) The budget constraint indicates that there are limits on the consumption possibilities for a consumer.
C) The budget constraint is based on some, but not all of the prices for goods that consumers may want to buy.
D) All of the above statements describe the budget constraint.

Question 57

Utility is maximized in the consumption of two goods by equating the:

A) marginal utility of one good to the price of the other.
B) ratios of marginal utility to price for both goods.
C) ratios of total utility to price of both goods.
D) marginal utilities of both goods.

Question 58

Whatever the time period involved, a consumer's spending will be _______ by his or her _______ .

A) unlimited; marginal utility
B) limited; marginal utility
C) limited; budget
D) unlimited; budget

Question 59

A budget constraint is:

A) a consumer's restriction on spending.
B) a consumer's total utility.
C) a consumer's marginal utility.
D) the income effect.

Question 60

If a consumer purchases a combination of commodities x and y such that MU_x/P_x = 50 and MU_y/P_y = 40, to maximize utility, the consumers should buy.

A) more of x and less of y.
B) more of both x and y.
C) less of x and more of y.
D) less of both x and y.

Question 61

Utility maximization for all goods requires that:

A) the marginal utilities of all goods consumed divided by their prices are equal to the budget constraint.
B) the marginal utilities of all goods exceed the total utility of all goods.
C) the marginal utilities of all goods divided by their respective prices are equal.
D) all of the above be true.

Question 62

If a consumer buys more of good X and less of good Y, the _______ of good X will _______ , and the ________ of good Y will _______ .

A) marginal utility; fall; marginal utility; rise
B) marginal utility; rise; marginal utility; fall
C) total utility; fall; marginal utility; rise
D) marginal utility; rise; total utility; rise

Question 63

If a consumer derives more utility by spending an additional $1 on good X rather than on good Y, then:

A) MU_x/P_x > MU_y/P_y.
B) MU_x/P_x = MU_y/P_y.
C) MU_x/P_x < MU_y/P_y.
D) P_x/MU_x > P_y/MU_y.

Question 64

Utility is maximized when:

A) the marginal utility of every good consumed times its price is everywhere equal.
B) total outlays equal a varying budget and when the ratios of marginal utilities to prices are equal for all goods and services.
C) total outlays equal a given budget and the ratios of marginal utilities to prices are equal for all goods and services.
D) A and C occur.

Question 65

(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit and the price of good Y is $1 per unit, and you consume 3 units of good X and 3 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

A) less of both X and Y.
B) more of both X and Y.
C) less of X and more of Y.
D) more of X and less of Y.

Question 66

(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $1 per unit and the price of good Y is $2 per unit, and you consume 4 units of good X and 2 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

A) less of both X and Y.
B) more of both X and Y.
C) less of X and more of Y.
D) more of X and less of Y.

Question 67

(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $2 per unit, the price of good Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume _______ units of X and _______ units of Y.

A) 3; 4
B) 4; 3
C) 4; 6
D) 5; 5

Question 68

Sally Garcia devotes all of her income to the consumption of two goods, apples and Reese's Peanut Butter Cups. She has just discovered that at her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8. To maximize her total utility, she would:

A) consume more of both goods.
B) consume less of both goods.
C) consume more apples and fewer Reese's Butter Cups.
D) there is not enough information to justify a change in her current level of consumption.

Question 69

(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $7 of income to spend on both goods. To maximize utility, you would consume ________ units of X and _______ units of Y.

A) 2; 5
B) 3; 4
C) 4; 3
D) 5; 2

Question 70

If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 50 and MU_b/P_b = 40, to maximize utility, the consumer should buy:

A) less of both a and b.
B) more of both a and b.
C) more of a and less of b.
D) less of a and more of b.

Question 71

Sally Garcia devotes all of her income to the consumption of two goods, apples and Reese's Peanut Butter Cups. She has just discovered that at her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8. Suppose the price of an apple is $0.20, while the price of a Reese's Peanut Butter Cup is $0.25. To maximize her total utility, assuming that the goods are divisible, she would:

A) consume more Reese's Butter Cups and fewer apples.
B) consume less of both goods.
C) consume more apples and fewer Reese's Butter Cups.
D) there is not enough information to justify a change in her current level of consumption.

Question 72

(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $4 of income to spend on both goods. To maximize utility, you would consume ______ units of X and _______ units of Y.

A) 0; 4
B) 1; 3
C) 2; 2
D) 3; 1

Question 73

(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 4 units of good X and 2 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

A) less of X and more of Y.
B) more of both X and Y.
C) less of both X and Y.
D) more of X and less of Y.

Question 74

Sally Garcia devotes all of her income to the consumption of two goods, apples and Reese's Peanut Butter Cups. She has just discovered that at her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8. Suppose the price of an apple is $0.10, while the price of a Reese's Peanut Butter Cup is $0.25. To maximize her total utility, assuming that the goods are divisible, she would:

A) consume more Reese's Butter Cups and fewer apples.
B) consume less of both goods.
C) consume more apples and fewer Reese's Butter Cups.
D) there is not enough information to justify a change in her current level of consumption.

Question 75

How much utility is gained by spending an additional dollar on good X?

A) It is the average utility of good X divided by the price of good X.
B) MU_x/P_x
C) TU_x/P_x
D) None of the above are correct.

Question 76

Faced with two goods to buy, good 1 and good 2, a utility-maximizing individual will buy according to which of the following statements?

A) price of good 1 = price of good 2
B) MU of good 1 = MU of good 2
C) price of good 1 divided by MU of good 2 = price of good 2 divided by MU of good 1
D) MU of good 1 divided by price of good 1 = MU of good 2 divided by price of good 2

Question 77

(Exhibit: Consumer Equilibrium 1) Assume that the price of good X is $5 per unit, the price of good Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume _______ units of X and _______ units of Y.

A) 0; 1
B) 1; 5
C) 4; 6
D) 5; 5

Question 78

(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods is $1 per unit, and you consume 3 units of good X and 3 units of good Y. To maximize utility, assuming that the goods are divisible, you would consume:

A) less of both X and Y.
B) more of both X and Y.
C) less of X and more of Y.
D) more of X and less of Y.

Question 79

(Exhibit: Consumer Equilibrium 1) Assume that the price of both goods X and Y is $1 per unit, and you have $10 of income to spend on both goods. To maximize utility, you would consume ________ units of X and _______ units of Y.

A) 3; 4
B) 4; 3
C) 4; 6
D) 5; 5

Question 80

If, for a particular consumer, the marginal utility of ties is greater than the marginal utility of shirts, this consumer should:

A) buy more ties and fewer shirts.
B) buy more shirts and fewer ties.
C) buy the same amount of each.
D) not do anything until more information is available.