D) close down rather than incur a loss by producing.

2. Please answer the following concisely:

a) Is there a relationship between Marginal Cost (MC) and Average Fixed Cost? Why or why not?

b) Where does the MC curve intersect the AVC curve? Where does MC intersect the ATC curve?

c) How does a decrease in the price of fuel affect: Average Total Cost, Average Variable Cost, and Marginal Cost?

3. From society’s point of view the economic function of profits and losses is to:

A) promote the equal distribution of real assets and wealth.

B) achieve full employment and price level stability.

C) contribute to a more equal distribution of income.

D) reallocate resources from less desired to more desired uses.

Answer the next question(s) using the following data which show all available techniques for producing 20 units of a particular commodity:

4. Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):

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

5. Refer to the above data. Assuming that the firm is motivated by self-interest and that the 20 units which can be produced with each technique can be sold for $3 per unit, the firm will:

A) realize an economic profit of $10.

B) realize an economic profit of $30.

C) not earn any economic profit.

D) close down rather than incur a loss by producing.

6. The market system’s answer to the fundamental question “Who will get the goods and services?” is essentially:

A) “Those willing and able to pay for them.” C) “Those who most need them.”

B) “Those who physically produced them.” D) “Those who get utility from them.”

7. An increase in the price of a product will reduce the amount of it purchased because:

A) supply curves are upsloping.

B) the higher price means that real incomes have risen.

C) consumers will substitute other products for the one whose price has risen.

D) consumers substitute relatively high-priced for relatively low-priced products.

8. If two goods are complements:

A) they are consumed independently.

B) an increase in the price of one will increase the demand for the other.

C) a decrease in the price of one will increase the demand for the other.

D) they are necessarily inferior goods.

Use the following to answer questions 9-10:

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