Econ 2302

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity

Marginal cost is the a) change in the price of inputs if a firm buys more inputs to produce an additional unit of output. b) change in average cost when an additional unit of output is produced. c) additional output when total cost is increased by one dollar. d) additional cost of producing an additional unit of output.

additional cost of producing an additional unit of output

If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is a) $1,000. b) $700. c) $300. d) impossible to determine without additional information.

b) $700

Explicit Cost

A cost that involves spending money

Implicit Cost

A nonmonetary opportunity cost

Technological Change

A positive or negative change in the ability of a firm to produce a given level of output with a given quanity of inputs

Law of Diminishing Marginal Utility

Consumers experience diminishing additional satisfaction as they consume more of a good or service.

Variable Costs

Costs that change as output changes

Fixed Costs

Costs that remain constant as output changes

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is a) 2 chairs. b) 3 chairs. c) 4 chairs. d) 38 chairs.

a) 2 chairs

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is a) 57 utils b) 35 utils. c) 15 utils. d) unknown as more information is needed to determine the answer.

a) 57 utils

Budget Constraint

Indicates the limited amount of income available to consumers to spend on goods and services.

Marginal Product of Labor

The additional output a firm produces as a result of hiring one more worker.

Substitution Effect

The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Income Effect

The change in the quantity of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.

Marginal Utility

The change in utility from consuming an additional unit of a good or service.

Short Run

The period of time during which at least one of a firm's inputs are fixed

Long Run

The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of it's physical plant

Law of Diminshing Returns

The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.

Technology

The processes a firm uses to turn inputs into outputs of goods and services

Production Function

The relationship between the inputs employed by a firm and the maximum output the firm can produce with those inputs

Total Cost

The total cost of all the inputs a firm uses in production

Average Total Cost

Total cost divided by the quantity of output produced

Which of the following is an example of positive technological change? a) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day. b) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. c) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. d) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases.

a) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day

Consumers maximize total utility within their budget constraint by a) buying the goods with the largest marginal utility per dollar spent. b) buying whatever they like the best. c) spending the same dollar amount for each good. d) buying the cheapest goods they can find.

a) buying the goods with the largest marginal utility per dollar spent

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then a) new firms are attracted to the industry. b) firms are breaking even. c) existing firms will exit the industry. d) market supply will remain constant.

a) new firms are attracted to the industry

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is a) the minimum efficient scale. b) where firm profit is large enough to finance research and development. c) one which guarantees economic profit. d) where maximum economic profit is earned by producers.

a) the minimum efficient scale

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she a) wants to consume more ankle socks and fewer bandanas. b) wants to consume more bandanas and fewer ankle socks. c) is maximizing total utility and does not want to change her consumption of ankle socks or bandanas. d) wants to consume less of both ankle sock and bandanas.

a) wants to consume more ankle socks and fewer bandanas

If, when you consume another piece of candy, your marginal utility is zero, then a) you have maximized your total utility from consuming candy. b) you should consume less candy. c) you want more candy. d) you have not yet reached the point of diminishing marginal utility.

a) you have maximized your total utility from consuming candy

Which of the following is the best example of a short-run adjustment? a) Smith University completed negotiations to acquire a large piece of land to build its new library. b) Your local Walmart hires two more associates. c) Toyota builds a new assembly plant in Texas. d) A local bakery purchases another commercial oven as part of its capacity expansion.

b) Your local Walmart hires two more associates

The marginal product of labor is defined as a) the additional number of workers required to produce one more unit of output. b) the additional output that results when one more worker is hired, holding all other resources constant. c) the additional sales revenue that results when one more worker is hired. d) the cost of hiring one more worker.

b) the additional output that results when one more worker is hired, holding all other resources constant

The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as a) economizing behavior. b) the budget constraint. c) the price constraint. d) maximizing behavior.

b) the budget constraint

Consumers have to make tradeoffs in deciding what to consume because a) not all goods give them the same amount of satisfaction. b) they are limited by a budget constraint. c) the prices of goods vary. d) there are not enough of all goods produced.

b) they are limited by a budget constraint

In long-run perfectly competitive equilibrium, which of the following is false? a) Economic surplus is maximized. b) Economies of scale are exhausted. c) Firms earn economic profit. d) There is efficient, low-cost production at the minimum efficient scale.

c) Firms earn economic profit

The economic model of consumer behavior predicts that a) consumers will try to accumulate as many goods and services as they can before they die. b) consumers divide their time between consumption and leisure activities in order to maximize social welfare. c) consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy. d) consumers will try to earn as much income as they can over their lifetimes.

c) consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy

A perfectly competitive industry achieves allocative efficiency when a) firms carry production surpluses. b) it produces where market price equals marginal production cost. c) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. d) goods and services are produced at the lowest possible cost.

c) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it

The difference between technology and technological change is that a) technology involves the use of capital equipment while technological change requires the use of brain power. b) technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. c) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. d) technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques.

c) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given quantity of inputs

The law of diminishing marginal returns states a) average total costs of production initially fall and after some point starts to rise at a decreasing rate as output increases. b) that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline. c) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline. d) that in the presence of a fixed factor, at some point average product of labor starts to fall as more and more variable inputs are added.

c) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline

A firm's cost of production is determined by all of the following except a) the cost of raw material used in production. b) the technology used to produce its output. c) the amount of corporate taxes it must pay on its profit. d) the productivity of its workers.

c) the amount of corporate taxes it must pay on its profit

Average fixed cost can be calculated using any of the formulas below except a) (TC/Q) - AVC. b) TFC/Q. c) Δ(TC - VC)/ΔQ. d) (TC - VC)/Q.

c) Δ(TC - VC)/ΔQ (triangle means change of)

When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is a) $41.43. b) $134.29. c) $135. d) $145.

d) $145

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be a) 2,000 units of utility. b) 500 units of utility. c) 100 units of utility. d) 80 units of utility.

d) 80 units of utility

Adhira buys chocolates and almonds. She has 3 bars of chocolates and 4 bags of almonds. The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18. Is Adhira maximizing her utility? a) No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. b) Yes, the marginal utility from the last unit of each good is equal. c) No, she must buy 1 more chocolate bar to equate her quantities of the two goods. d) No, without information on her income and the prices of the two goods, we cannot answer the question.

d) No, without information on her income and the prices of the two goods, we cannot answer the question

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays a) diseconomies of scale. b) declining fixed costs. c) diminishing returns. d) economies of scale.

d) economies of scale

Marginal utility can be a) positive. b) negative. c) zero. d) positive, negative, or zero.

d) positive, negative, or zero

If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a Blue Man Group performance, we can conclude that a) the marginal utility per dollar spent on Cirque du Soleil is lower than the marginal utility per dollar spent on Blue Man Group. b) Paul is not making a rational choice. c) Paul's demand for a ticket to see Cirque du Soleil is more elastic than his demand for a ticket to see Blue Man Group. d) the marginal utility per dollar spent on Cirque du Soleil is higher than the marginal utility per dollar spent on Blue Man Group.

d) the marginal utility per dollar spent on Cirque du Soleil is higher than the marginal utility per dollar spent on Blue Man Group