ch 14 micro

Explicit costs are input costs that require an outlay of money by the firm

true

Sunk costs are irrelevant for decisions in the short run

true

Quantity Total Cost -------------------------- 0 $10 1 30 2 48 3 64 4 82 5 102 6 124 7 148 Refer to the table. What is the marginal cost of producing the 4th unit of output?

$18

Quantity of output 0 1 2 3 4 5 -------------- Fixed Costs $10 10 10 10 10 10 ------------------- Variable Costs $0 4 9 15 22 40 ------------------- Refer to the table. The marginal cost of producing the fifth unit of output is

$18

Alexander owns a small factory that makes fishing lures. He can make 10,000 lures per year and sell them for $10 each. Alexander pays $25,000 for raw materials to produce the 10,000 lures. He invested a total of $20,000 in equipment: $12,000 of his own savings and $8,000 borrowed at 10 percent interest. He could have earned 10 percent interest on his own money. Alexander could work at a competing factory for $40,000. Alexander's economic profit is _________, while his accounting profit is _________.

$33,000; $74,200

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?

$35

Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above

$4.50

Quantity of output 0 1 2 3 4 5 -------------- Fixed Costs $10 10 10 10 10 10 ------------------- Variable Costs $0 4 9 15 22 40 ------------------- Refer to the table. The total cost of producing five units of output is:

$50

Refer to Table 14-3. For a firm operating in a competitive market, the price is

$7

Quantity of output 0 1 2 3 4 5 -------------- Fixed Costs $20 20 20 20 20 20 ------------------- Variable Costs $0 5 10 15 20 25 ------------------- Refer to the table. The average total cost of producing five units of output is

$9

Scenario 13-7 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's total accounting profits?

$96

Scenario 13-7 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's total economic profits?

$96

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $600. (iii) Average revenue exceeds marginal revenue, but we don't know by how much.

(i) only

Refer to Figure 13-3. Which of the following is true of the production function (not pictured) that underlies this total cost function? (i) Total output increases as the quantity of inputs increases but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage. (iii) The slope of the production function decreases as the quantity of inputs increases.

(i), (ii), and (iii)

Refer to the table. The marginal product from hiring the third worker is Labor Output -------------------- 0 0 1 22 2 38 3 50

12 units of output

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product?

15 pieces of pottery

Quantity Total Cost -------------------------- 0 $10 1 30 2 48 3 64 4 82 5 102 6 124 7 148 Refer to the table. Assume that the firm can sell any output at the market price of $21. To maximize profit or minimize loss, the firm will produce

5 units

Refer to the figures. For the individual firm in a competitive market, the optimal quantity of output is _____, which would earn _________.

6 units, losses of an unspecified amount.

Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

ATCA

Refer to Figure 13-9. Which curve represents the long-run average total cost?

ATCD

For a perfectly competitive firm, the relationship between price (P), marginal revenue (MR), and average revenue (AR) is as follows:

P = AR = MR

Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is

above $6.30

Refer to Figure 13-5. Curve D intersects curve C

at the efficient scale.

Refer to Figure 13-5. Curve A represents which type of cost curve?

average fixed cost

Refer to Figure 13-5. Curve C represents which type of cost curve?

average total cost

The textile industry is composed of a large number of small firms. In recent years, many textile firms have suffered economic losses. Economic theory suggests that these conditions will

cause the market supply to decline and the price of textiles to rise.

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

continue to operate in the short run but shut down in the long run

Labor Output ------------------ 0 0 1 22 2 38 3 50 Refer to the table. From zero to three units of labor, the production function exhibits

decreasing marginal product; the marginal cost curve would be upward sloping.

A competitive firm will charge a price:

determined on the market, by the market demand and market supply

Which of the following is most likely to occur if a firm experiences coordination problems?

diseconomies of scale

Which of the following represents the firm's long-run condition for exiting a market?

exit if P < ATC

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium

A competitive firm will exit the industry if profits are not greater than zero in the short run

false

Implicit costs are irrelevant for decisions in the short run

false

The short run is a period of time less than three months

false

The supply curve of the competitive firm is its average total cost curve above marginal cost

false

A long-run supply curve is flatter than a short-run supply curve because

firms can enter and exit a market more easily in the long run than in the short run

Suppose that wheat is produced in a perfectly competitive market. If market demand increases, the individual wheat farmer's marginal revenue will

increase, and her profit-maximizing level of output will increase.

Which of the following is most likely to be a fixed cost in the short run?

interest payments on funds borrowed by a farmer to finance farm machinery

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and capital to be fixed

Refer to Figure 14-1. The firm should shut down if the market price is

less than $4.50

Refer to Figure 13-5. Curve D represents which type of cost curve?

marginal cost

The Chocolate Moose Ice Cream Store is a business that closes from November to April each year. The best explanation for closing during these months is that the store's

marginal costs are less than the revenues.

Chris owns 'Christina's bakery' that currently has 2 workers. The first worker can produce 100 delicious baked goods in one day, and the second worker increased the total production by 80 delicious baked goods in one day. Chris is hiring a 3rd worker. With three workers, what is the likely total production in one day?

more than 180 but less than 260

Refer to Figure 14-1. If the market price is $5.00, the firm will

negative economic profits in the short run but remain in business.

Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels?

output levels between M and N

Refer to Figure 13-9. The firm experiences economies of scale at which output levels?

output levels less than M

Art's Garage operates in a perfectly competitive market. Suppose that at the point where marginal cost equals marginal revenue, ATC = $20, and AVC = $15. If the price per unit is $10, in the short run Art will

shut down immediately.

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

shut down in both the short run and long run

Refer to the figure. If the market price is $2.00, this perfectly competitive firm should:

shut down in the short run to minimizes losses

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called

sunk costs

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

total cost

Suppose that a market is in long-run equilibrium. Then demand increases. Suppose that the entry of new firms into the industry causes the price of a scarce resource used by firms in the industry to increase. The long-run supply curve for this industry would likely be

upward sloping

Refer to Figure 13-5. Curve A is always declining because

we are dividing fixed costs by higher and higher levels of output.

If the marginal cost curve is U-shaped and intersects the U-shaped average total cost curve at the minimum point on the average total cost curve, which of the following statements is correct?

when the marginal cost curve is below the average cost curve, the average total cost is decreasing as more output is produced.

Refer to Figure 14-1. If the market price is $6.30, the firm will earn

zero economic profits in the short run.