ECON 103 Midterm 2

__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).

Elasticity

Which of the following falls outside of the classification of business expenses that fall into the category of fixed costs?

costs incurred in the act of producing

What falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

cross-price elasticity of demand for iced tea is -2.

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________.

economies of agglomeration; corresponding diseconomies

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls

economies of scale

Youth smoking seems to be more __________ than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

__________ is the change in what is on the horizontal axis (quantity) divided by the change in what is on the vertical axis (price).

elasticity

If the supply curve for a product is horizontal, then the elasticity of supply is:

equal to infinity.

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________.

inelastic

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

the quantity of output

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms

Total costs

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

diseconomies of scale

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1.00

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

3.0

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:

5 units

____________ tells a firm whether it can earn profits given the price in the market

Average cost

A situation known as _____________________ occurs when all production inputs are allowed to expand, but that expansion does not result in much of a change in the average cost of production.

constant returns to scale

When demand is inelastic:

consumers are not very responsive to changes in price.

a graph illustrates the total cost function for GoodieCookie Co. The changing upward slope of the total cost (y) curve reflects this company's

decreasing marginal costs.

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

The longer the time period considered, the more the elasticity of supply tends to:

increase

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume

macaroni is an inferior good and price elasticity of supply is infinite.

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to

stay the same and the equilibrium quantity to fall.

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

upward-sloping; more costly to produce