18. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
(A)There are many substitutes for this good.
(B)The good is a necessity.
(C)The market for the good is narrowly defined.
(D)The relevant time horizon is long.

1. In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits (A)diseconomies of scale because total cost is rising as output rises. (B)diseconomies of scale because average total cost is rising as output rises. (C)economies of scale because total cost is rising as output rises. (D)economies of scale because average total cost is falling as output rises.

2. Which of the following is NOT a characteristic of a perfectly competitive industry? (A)There are many firms. (B)There are no restrictions on entry into the market. (C)Each firm produces a slightly differentiated product. (D)Each firm takes price as given, determined by the equilibrium of industry supply and industry demand.

3. If the price elasticity of demand for Pepsi is 1.5, then an increase in the selling price will: (A)increase the total revenue (B)decrease the total revenue (C)lead to no change in total revenue (D)first increase and then decrease total revenue

4. Which of the following statements is correct for a monopolist?(i) The firm maximizes profits by equating marginal revenue with marginal cost.(ii) The firm maximizes profits by equating price with marginal cost.(iii) Demand equals marginal revenue.(iv) Average revenue equals price. (A)(i), (iii), and (iv) only (B)(i) and (iv) only (C)(i), (ii), and (iv) only (D)(iii) and (iv) only

5. As the quantity produced increase (A)Average fixed cost decreases (B)Fixed cost increases (C)Variable cost decreases (D)None of the above

6. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? (A)Consumers have experienced an increase in income, and beef-production technology has improved. (B)The price of chicken has risen, and the price of steak sauce has fallen. (C)New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. (D)The demand curve for beef must be positively sloped.

7. Other things the same, if the central bank decreases the rate at which it increases the money supply, then (A)unemployment and inflation rise in the short run. (B)unemployment rises and inflation falls in the short run. (C)unemployment falls and inflation rises in the short run. (D)unemployment and inflation fall in the short run.

8. Which of the following is NOT true of firms in monopolistic competition? (A)They practice product differentiation. (B)They have excess capacity in the long run. (C)They earn a normal profit in the long run. (D)They are price takers.

9. Which of the following statements is correct? (A)If marginal cost is rising, then average total cost is rising. (B)If marginal cost is rising, then average variable cost is rising. (C)If average variable cost is rising, then marginal cost is minimized. (D)If average total cost is rising, then marginal cost is greater than average total cost.

10. For Product X, the income elasticity of demand is -2.45. Which of the following is therefore true? (A)Product X is a necessity. (B)Product X is a normal good. (C)Product X is an inferior good. (D)Product X is a luxury.

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