IVY SOFTWARE MBA PREPWORKS FUNDAMENTALS OF ECONOMICS
EXAMACTUAL EXAM |LATEST UPDATE 2025 COMPLETE QUESTIONS WITH
CORRECT DETAILED AND VERIFIED ANSWERS| MOSTLY TESTED QUESTIONS -
RATED 100% CORRECT!!GUARANTEED PASS!ALREADY GRADED A+
The main concept demonstrated in the production possibilities frontier is - (answers)Opportunity
cost
When country A has a lower opportunity cost of producing sugar relative to country B, then
country A is said to have - (answers)Comparative Advantage
A graph that shows the combinations of two goods that the economy can produce given the
available scarce resources and available technology is called a - (answers)Production
Possibilities Frontier
Assume a production possibilities frontier for pickup trucks and big Mac hamburgers. The
economy is producing 20 big Mac hamburgers and 65 pickup trucks (point 20, 65). What is the
opportunity cost of producing an additional 20 Big Mac hamburgers (point 40, 60)? -
(answers)Five Pickup Trucks
The opportunity cost of an item is - (answers)whatever must be given up to obtain the item.
Consider market for pork, suppose that price of beef, a substitute for pork, increases. Because of
the change in price of beef, the equilibrium price of pork...? - (answers)Increases
Consider the market for pork, suppose that the price of beef, a substitute for pork, increases.
Because of this change in the price of beef, the equilibrium quantity of pork will...? -
(answers)Increase because increase in price of beef causes demand curve for pork to shift North
East. B/c of this shift, the equilibrium quantity of pork will increase.
Consider the market for pork. Suppose that the price of hog feed, an input to the production of
pork, increases. Because of that change in the price of hog feed, the equilibrium quantity of pork
...? - (answers)Decreases because the increase in price of hog feed causes the supply curve for
pork to shift NW. B/c of this shift, the quantity of pork decreases.
Consider the market for pork. Suppose that disposable income increases and pork is an inferior
good. Because of that change in income, the equilibrium price of pork...? - (answers)Decreases
because the increase in disposable income causes the demand curve for pork to shift south west,
because pork is an inferior good. because of this shift, the equilibrium price of pork decreases.
Consider the market for pork. Suppose that 1) disposable income increases and pork is a normal
good, And 2) the price of hog feed decreases. Because of these changes, the equilibrium price of
,pork is... - (answers)Indeterminate because the increase in disposable income causes the demand
curve for pork to shift north east because pork is a normal good. The decrease in price of hog
feed causes the supply curve to shift to the south east. The net effect of these shifts leaves us
unable to say waht will happen to the equilibrium price of pork.
Consider the market for pork. Suppose that disposable income increases and pork is a normal
good and the price of hog feed decreases. The equilibrium quantity of pork...? -
(answers)Increases.
Suppose the price elasticity for demand for retail phone service in the US is 0.95. If the # of retail
substitutes for retail telephone service increases, will the price elasticity of demand become more
elastic or more inelastic? - (answers)Elastic. When the number of substitute products increases,
the price elasticity of demand will become more elastic. consumers become more sensitive to
price when they have more options to chose among.
True or False: the law of demand states that if the price of a good increases, CP, then the quantity
demanded of that good will increase. - (answers)False. quantity demanded of that good will
decrease.
Suppose the cross-price elasticity of demand for home heating oil with respect to the price of
natural gas is +0.6. This number tells us that home heating oil and natural gas are substitute or
compliment goods? - (answers)Substitute goods. When the cross price elasticity is positive then
they are substitutes.
Consider the market for mustard which is a complement to hot dogs. Suppose the price of hot
dogs increase. What happens to the equilibrium price and equilibrium quantity of the mustard
market? - (answers)Equilibrium price decreases and equilibrium quantity decreases. The price of
hot dogs is an independent variable in the demand function for mustard. This is because hot dogs
and mustard are complementary goods. Therefore, if the price of hot dogs increases, then the
demand curve for mustard shifts to the south-west. People demand less mustard at every price
when hot dogs are more expensive. In the mustard market, the equilibrium price decreases and
equilibrium quantity decreases.
profit maximizing rule - (answers)a business maximizes profits when it produces where the
marginal revenue from selling another unit equals the marginal cost of producing another unit.
Marginal Revenue=Marginal Cost
Marginal cost - (answers)is equal to the change in the total cost that arises from an extra unit of
production. It is calculated by taking the change in total cost and dividing it by the change in the
quantity produced =change in TC/change in Q
,Marginal revenue - (answers)is the change in total revenue generated from an additional unit
sold. It is calculated by taking the change in total revenue divided by the change in quantity sold
Short Run - (answers)a time horizon where some fixed costs exist. is a time horizon within
which a business is unable to adjust at least one input because there is a fixed cost of some
kind. we think in terms of the short run not the long run
Long Run - (answers)a situation where the fixed costs (the inputs) become variable. a time
horizon long enough for the seller to adjust all inputs. If you observe a business with no fixed
costs, then it is in a long run state.
\when prices remain low for a very long period of time, then the business moves into a long run
decision mode. In the long run there are no fixed costs.
fixed costs - (answers)costs that do not vary with changes in the quantity produced. what
expenses must be paid even if production equals zero?
variable costs - (answers)costs that do vary with changes in the quantity produced
total cost - (answers)equals the sum of the fixed costs and variable costs
TC=VC+FC
average fixed cost - (answers)equals fixed cost divided by quantity produced
AFC= TC/Q
average variable cost - (answers)equals variable cost divided by the quantity produced
average total cost - (answers)equals the total cost divided by the quantity produced, or it is the
sum of average fixed cost plus average variable cost
sunk cost - (answers)a cost that has already been committed and cannot be recovered
joint costs - (answers)costs that do not change with changes in the scope of production.
economies of scope arise when there are joint costs. (ie: comcast purchasing NBC universal).
perfect competition - (answers)occurs in an industry in which
- there are many buyers and many sellers
- an industry in which the good is homogeneous
- and an industry in which all who want to enter the industry are free to do so and any business
may exit at a time of their choosing
, monopoly - (answers)an industry that is controlled by a monopolist firm who is the only seller of
a good. the good the monopolist sells is heterogeneous because they are the only one that sells
the good and the market that the monopolist sells its product in has barriers to entry
short run shut-down rule - (answers)a business could shut down if production at the profit
maximizing quantity (where MR=MC) generates total revenues that are less than variable costs.
In all other cases the business should stay open
a business should shut down when the losses from operating are greater than the total fixed costs.
Economies of scale - (answers)occur over a range of production in which average total costs
decline as output increases (ie: creation of software, a pharmaceutical pill) they have large fixed
costs and relatively low marginal costs.
diseconomies of scale - (answers)occur over a range of output in which average total costs
increase as output increases
constant economies of scale - (answers)occur over a range of production where constant average
total cost as output increases
economies of scope - (answers)occur when an organization can produce several products
together at less cost than could a group of single product firms operating independently
whenever marginal cost is higher than average variable cost or average total cost, the average
variable cost or average total cost must increase decrease
stay the same - (answers)increase
whenever marginal cost is lower than average variable cost or average total cost, then the
average variable cost or the average total cost must increase decrease
stay the same - (answers)decrease
whenever the marginal cost curve crosses the average variable or total cost curve then the values
are higher lower
equal - (answers)equal
price takers - (answers)businesses operating in a perfectly competitive industry
in a perfectly competitive industry, market prices are determined by - (answers)the interaction of
the market demand and market supply curves
total revenue - (answers)calculated by multiplying price and quantity or Marginal Revenue and
quantity
EXAMACTUAL EXAM |LATEST UPDATE 2025 COMPLETE QUESTIONS WITH
CORRECT DETAILED AND VERIFIED ANSWERS| MOSTLY TESTED QUESTIONS -
RATED 100% CORRECT!!GUARANTEED PASS!ALREADY GRADED A+
The main concept demonstrated in the production possibilities frontier is - (answers)Opportunity
cost
When country A has a lower opportunity cost of producing sugar relative to country B, then
country A is said to have - (answers)Comparative Advantage
A graph that shows the combinations of two goods that the economy can produce given the
available scarce resources and available technology is called a - (answers)Production
Possibilities Frontier
Assume a production possibilities frontier for pickup trucks and big Mac hamburgers. The
economy is producing 20 big Mac hamburgers and 65 pickup trucks (point 20, 65). What is the
opportunity cost of producing an additional 20 Big Mac hamburgers (point 40, 60)? -
(answers)Five Pickup Trucks
The opportunity cost of an item is - (answers)whatever must be given up to obtain the item.
Consider market for pork, suppose that price of beef, a substitute for pork, increases. Because of
the change in price of beef, the equilibrium price of pork...? - (answers)Increases
Consider the market for pork, suppose that the price of beef, a substitute for pork, increases.
Because of this change in the price of beef, the equilibrium quantity of pork will...? -
(answers)Increase because increase in price of beef causes demand curve for pork to shift North
East. B/c of this shift, the equilibrium quantity of pork will increase.
Consider the market for pork. Suppose that the price of hog feed, an input to the production of
pork, increases. Because of that change in the price of hog feed, the equilibrium quantity of pork
...? - (answers)Decreases because the increase in price of hog feed causes the supply curve for
pork to shift NW. B/c of this shift, the quantity of pork decreases.
Consider the market for pork. Suppose that disposable income increases and pork is an inferior
good. Because of that change in income, the equilibrium price of pork...? - (answers)Decreases
because the increase in disposable income causes the demand curve for pork to shift south west,
because pork is an inferior good. because of this shift, the equilibrium price of pork decreases.
Consider the market for pork. Suppose that 1) disposable income increases and pork is a normal
good, And 2) the price of hog feed decreases. Because of these changes, the equilibrium price of
,pork is... - (answers)Indeterminate because the increase in disposable income causes the demand
curve for pork to shift north east because pork is a normal good. The decrease in price of hog
feed causes the supply curve to shift to the south east. The net effect of these shifts leaves us
unable to say waht will happen to the equilibrium price of pork.
Consider the market for pork. Suppose that disposable income increases and pork is a normal
good and the price of hog feed decreases. The equilibrium quantity of pork...? -
(answers)Increases.
Suppose the price elasticity for demand for retail phone service in the US is 0.95. If the # of retail
substitutes for retail telephone service increases, will the price elasticity of demand become more
elastic or more inelastic? - (answers)Elastic. When the number of substitute products increases,
the price elasticity of demand will become more elastic. consumers become more sensitive to
price when they have more options to chose among.
True or False: the law of demand states that if the price of a good increases, CP, then the quantity
demanded of that good will increase. - (answers)False. quantity demanded of that good will
decrease.
Suppose the cross-price elasticity of demand for home heating oil with respect to the price of
natural gas is +0.6. This number tells us that home heating oil and natural gas are substitute or
compliment goods? - (answers)Substitute goods. When the cross price elasticity is positive then
they are substitutes.
Consider the market for mustard which is a complement to hot dogs. Suppose the price of hot
dogs increase. What happens to the equilibrium price and equilibrium quantity of the mustard
market? - (answers)Equilibrium price decreases and equilibrium quantity decreases. The price of
hot dogs is an independent variable in the demand function for mustard. This is because hot dogs
and mustard are complementary goods. Therefore, if the price of hot dogs increases, then the
demand curve for mustard shifts to the south-west. People demand less mustard at every price
when hot dogs are more expensive. In the mustard market, the equilibrium price decreases and
equilibrium quantity decreases.
profit maximizing rule - (answers)a business maximizes profits when it produces where the
marginal revenue from selling another unit equals the marginal cost of producing another unit.
Marginal Revenue=Marginal Cost
Marginal cost - (answers)is equal to the change in the total cost that arises from an extra unit of
production. It is calculated by taking the change in total cost and dividing it by the change in the
quantity produced =change in TC/change in Q
,Marginal revenue - (answers)is the change in total revenue generated from an additional unit
sold. It is calculated by taking the change in total revenue divided by the change in quantity sold
Short Run - (answers)a time horizon where some fixed costs exist. is a time horizon within
which a business is unable to adjust at least one input because there is a fixed cost of some
kind. we think in terms of the short run not the long run
Long Run - (answers)a situation where the fixed costs (the inputs) become variable. a time
horizon long enough for the seller to adjust all inputs. If you observe a business with no fixed
costs, then it is in a long run state.
\when prices remain low for a very long period of time, then the business moves into a long run
decision mode. In the long run there are no fixed costs.
fixed costs - (answers)costs that do not vary with changes in the quantity produced. what
expenses must be paid even if production equals zero?
variable costs - (answers)costs that do vary with changes in the quantity produced
total cost - (answers)equals the sum of the fixed costs and variable costs
TC=VC+FC
average fixed cost - (answers)equals fixed cost divided by quantity produced
AFC= TC/Q
average variable cost - (answers)equals variable cost divided by the quantity produced
average total cost - (answers)equals the total cost divided by the quantity produced, or it is the
sum of average fixed cost plus average variable cost
sunk cost - (answers)a cost that has already been committed and cannot be recovered
joint costs - (answers)costs that do not change with changes in the scope of production.
economies of scope arise when there are joint costs. (ie: comcast purchasing NBC universal).
perfect competition - (answers)occurs in an industry in which
- there are many buyers and many sellers
- an industry in which the good is homogeneous
- and an industry in which all who want to enter the industry are free to do so and any business
may exit at a time of their choosing
, monopoly - (answers)an industry that is controlled by a monopolist firm who is the only seller of
a good. the good the monopolist sells is heterogeneous because they are the only one that sells
the good and the market that the monopolist sells its product in has barriers to entry
short run shut-down rule - (answers)a business could shut down if production at the profit
maximizing quantity (where MR=MC) generates total revenues that are less than variable costs.
In all other cases the business should stay open
a business should shut down when the losses from operating are greater than the total fixed costs.
Economies of scale - (answers)occur over a range of production in which average total costs
decline as output increases (ie: creation of software, a pharmaceutical pill) they have large fixed
costs and relatively low marginal costs.
diseconomies of scale - (answers)occur over a range of output in which average total costs
increase as output increases
constant economies of scale - (answers)occur over a range of production where constant average
total cost as output increases
economies of scope - (answers)occur when an organization can produce several products
together at less cost than could a group of single product firms operating independently
whenever marginal cost is higher than average variable cost or average total cost, the average
variable cost or average total cost must increase decrease
stay the same - (answers)increase
whenever marginal cost is lower than average variable cost or average total cost, then the
average variable cost or the average total cost must increase decrease
stay the same - (answers)decrease
whenever the marginal cost curve crosses the average variable or total cost curve then the values
are higher lower
equal - (answers)equal
price takers - (answers)businesses operating in a perfectly competitive industry
in a perfectly competitive industry, market prices are determined by - (answers)the interaction of
the market demand and market supply curves
total revenue - (answers)calculated by multiplying price and quantity or Marginal Revenue and
quantity
