Ch.5/6 Exam

If Mitch's Surf Shop has $30,000 in revenue each month and if the total cost of operating the shop is $26,000 each month, then the monthly profit for Mitch's surf shop is?

$4,000

consumer surplus

(1/2)bh

Suppose that when the price of tomatoes is $2/lb, there are 5 farmers each willing to supply 10 lbs/day, and 3 farmers each willing to supply 20 lbs/day. Thus, when the price of tomatoes is $2/lb, the market supply of tomatoes is...

110 pounds (5x10 lbs)+ (3x20 lbs)

When Cathy goes from hiring 10 to 11 workers in her bakery, her total output increases from 100 to 120 loaves of bread/day. If Cathy's production process exhibits diminishing marginal returns, then when she hires 12 workers, we know her total output will be less than ____ loaves of bread/day

140

When Kim drinks 1 cup of coffee per day, her total utility is 10, when she drinks 2 cups her total utility is 14, when she drinks 3 cups her total utility is 16.Thus, her marginal utility from going from 1-2 cups of coffee per day is..

4 utils percupt

suppose that when the price of a sammy at D's deli is $5 there are 200 ppl who buy 1 sammy per week, 100 people who buy 2 sammy's per week. Thus, at $5 the market demand each week for sandiwches from Dogwoods Deli is

400 (1x200)+(2x100)

If output can be varied continuously, then firms in a perfectly competitive market maximize their profits by choosing the level of output such that

P=MC

T or F? Economists believe that our preferences for goods and services can be influenced by our peers

True

as input prices increase, the cost of producing each additional unit of output increases, leading to

a decrease in supply

profitable firm

a firm whose total revenue is greater than its total cost

perfectly competitive market

a market in which no individual seller has significant influence over the market price of a product

factor of production

an input used in the production of a good or service

variable factor of production

an input whose quantity can be altered in the short run

fixed factor of production

an input whose quantity cannot be altered in the short run

marginal cost

as output changes from one level to another, the change in total cost divided by corresponding change in output

Marginal cost curve passes through the minimum of the...

average variable cost curve (AVC) and average total cost curve (ATC)

an increase in MC corresponds to a ...

decrease (left shift) in supply

technology innovations in the production process tend to increase supply because they

decrease marginal cost

How to find profit on cost curve

difference between price and ATC times the number of units sold

marginal cost eventually increases because of

diminishing returns

price, at each point along the market supply curve measures..

each seller's marginal cost of production

price taker

firm that has no influence over the price at which it sells its product

changes in a firm's fixed costs of production do not affect the profit maximizing level of output since ..

firms have to pay their fixed costs regardless of how much they produce

suppose the owners of a local brewery carry property insurance that is paid for on an annual basis. In deciding how much beer to produce on any given day, the annual cost of the property insurance is considered a...

fixed cost

imperfectly competitive firm

has at least some control over the market price of its product

in perfectly competitive markets, firms choose

how much to produce but not the price of their output

diminishing returns

implies that it takes more of the variable input to produce each additional unit of output which implies that marginal cost is increasing

If the marginal cost of producing an additional unit of a good is less than the price of that good, then the firm should...

increase production

supply will increase as the number of sellers in the market...

increases

factors of production

inputs used to produce goods and services

suppose elsa owns an ice cream shop. If she expects the price to fall next month, she should..

lead her current supply of ice cream to increase

suppose an artist decides to paint one additional painting, the resulting increase in her total cost is the_____ of producing an additional painting

marginal cost

firms in a perfectly competitive market face demand curves that are

perfectly elastic

short run

period of sufficiently short time that at least some of the firm's factors of production are fixed

law of diminishing returns

says when some factors of production are fixed, increased production of a good eventually requires ever-larger increases in the variable factor

fixed cost

sum of all payments made to the firm's fixed factors of production

expectations of future price decreases lead current supply to increase because...

suppliers prefer to sell their product when prices are high

marginal utility

the additional utility gained from consuming an additional unit of a good; the change in utility that occurs as we move from one quantity to another

optimal combination of goods for a consumer

the affordable combination of goods that yields the highest total utility for a consumer..

producer surplus

the amount by which price exceeds the seller's reservation price; difference between the price a seller actually receives for the product and the lowest price for which she would have been willing to sell it (reservation price, marginal cost)

according to the rational spending rule, spending should be allocated across goods so that...

the marginal utility per dollar is the same for each good

long run

the period of time of sufficient length that all the firm's factors of production are variable

total cost

the sum of all payments made to the firm's fixed and variable factors of production

variable cost

the sum of all payments made to the firm's variable factors of production; quantities can be altered in the short run

law of diminishing marginal utility

the tendency for the additional utility gained from consuming an additional unit of a good to diminish as consumption increases beyond some point

profit

the total revenue a firm receives from the sale of products minus all costs (explicit and implicit-incurred in producing it) TR-TC

ATC Average Total Cost

total cost/total output

economists assume that people...

try to allocate their incomes so as to maximize their satisfaction (utility maximization)

suppose the owners of a local brewery can easily change the number of workers they hire each day to help brew beer. In deciding how much beer to produce each day, the daily cost of hiring their workers is a

variable cost (since the quantity of workers hired can be easily changed each day, they are considered a variable input, and the cost of hiring them is a variable cost)

once people have achieved bare subsistence levels of consumption, economists emphasize that we can talk mainly in terms of people's....

wants

(Given the figure) If strawberries sell for $3/lb, producer surplus is..

$45,000/day ($3x30,000)/(2)

characteristics of perfectly competitive markets

- all firms sell the same standardized product - the market has many buyers and sellers, each of which buys or sells only a small fraction of the total quantity exchanged - productive resources are mobile - buyers and sellers are well informed - firms can easily enter and exit the market - the market has many sellers, each of which sells only a small fraction of the quantity sold in the market

supply curves are upward sloping in part because as prices rise...

- firms with higher opportunity cost of producing the product will be willing to start supplying the product - individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product

Suppose Sandy makes bracelets that she sells on Etsy. If her fixed costs increases, then her profit maximizing number of bracelets will..

not change

for a firm that produces jeans, which of the following is likely to be a factor of production?

sewing machines, denim, and workers

law of demand

states that people do less of what they want to do as the cost of doing it rises

in a perfectly competitive market, the portion of the marginal cost curve that lies above the average variable cost curve is the firm's...

supply curve

the income effect of a price increase is....

the change in quantity demanded of a good that results because an increase in the price of the good decreases purchasing power

supply curves are upward sloping because as prices rise

- individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of one product - firms with a higher opportunity cost of producing the product will be willing to start supplying the product

conditions under which firms will shut down

- the firm's revenue is less than the firm's variable cost at all levels of output - if price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost

total utility

the total satisfaction that people derive from all of their consumption activities