ECON 302

Which of the following equations based on capital (K) and labor (L) inputs does not represent a plausible production function?

F(K,L) = K + L - 1

In an increasing-cost industry, expansion of output

causes input prices to rise as demand for them grows

If the price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is:

continue operating, but plan to go out of business in the long-run

The marginal product of an input is

the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

When labor usage is at 12 units, output is 36 units. From this we may infer that

the average product of labor is 3.

The substitution effect of the price change in food on the quantity of food purchased is:

the change from F3 to F2 (SE: A to C, IE: C to B)

If two bundles are on the same indifference curve, then

the consumer derives the same level of utility from each

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect:

the demand curve for steel to shift to the right

When the isocost line is tangent to the isoquant, then

the firm is producing that level of output at minimum cost

Median household income is $50,000 per year. The typical household spends about $125 per year on milk, which has an income elasticity of about 0.07. From this information, we can conclude that

the income effect from a change in the price of milk is less than proportional to the price change

If the isoquants are straight lines, then

the marginal rate of technical substitution of inputs is constant

The competitive firm's short run supply curve is equal to

the portion of its marginal cost curve that lies above AVC

That Table 8.1 shows a short-run situation is evident from

the presence of positive costs at Q = 0.

The substitution effect of a price change for product X is the change in consumption of X associated with a change in

the price of X, with the level of utility held constant

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

the rent the firm could earn if it rented the building to another firm

Marginal revenue, graphically, is

the slope of the total revenue curve at a given point

Which of the following costs always declines as output increases?

Average fixed cost

Refer to Figure 8.2. When this competitive industry is at long-run equilibrium, how much profit will the firm earn?

$0 (long run equilibrium)

The above figure shows the cost curves for a competitive firm. The firm will incur economic losses if the price is less than

$10

The above figure shows the cost curves for a competitive firm. If the market price is $15 per unit, the firm will earn total profits of

$160 (4*40)

Refer to Table 8.1. The maximum profit available to the firm is:

$35 (last row of the MC)

The cross-price elasticity of demand for peanut butter with respect to the price of jelly is -0.3. If we expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut butter?

+4.5%, (-0.3*-0.15)

If the demand curve for orange juice is expressed as Q = 2000-500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, price elasticity of demand equals

-3, (-500*(3/500))

If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then her income elasticity of demand for ice cream is:

4.0 (2/.25 = 8/2 = 4)

Suppose that for each firm in the competitive market for potatoes, LRAC is minimized at $0.20 per pound when 500 pounds are grown. The demand for potatoes is Q = 10,000/P. If the long-run supply curve is horizontal, then how many pounds of potatoes will be consumed in total?

50,000 (10,000/0.20)

If a consumer prefers Apples to Bananas and prefers Bananas to Citrus Fruit, in order to satisfy the standard assumptions of "well behaved" indifference curves, she has to prefer

Apples to Citrus Fruit

Which of the following will NOT cause a rightward shift in the demand curve for beer?

A change in the price of beer

Refer to Figure 3.2. Which assumption concerning preferences do Alvin's indifference curves violate?

A or B: Diminishing marginal rates of substitution and more is preferred to less

Based on Figure 3.1 (graph with multiple downward sloping lines), it can be inferred that:

Alvin regards good X and good Y as perfect substitutes

The above figure shows the short-run production function for Albert's Pretzels. The law of diminishing marginal returns

Appears with the second worker

Assume that food is measured on the horizontal axis and clothing on the vertical axis. If the price of food falls relative to that of clothing, the budget line will:

Become flatter

Refer to Table 8.1. That the firm is perfectly competitive is evident from its

Constant marginal revenue.

Which of the following is true concerning the income effect of a decrease in price?

It will lead to an increase in consumption only for a normal good

Refer to the indifference curve in Figure 3.3 (Good A and Good B, vertical lines going across the graph *increasing utility). Which of the following statements about marginal utility (MU) is correct?

MU(B) = 0.

Suppose you only consume rice and bananas. Can both of these goods be Giffen goods in your consumption?

No, at least one of the goods must be normal

The demand curve facing a perfectly competitive firm is:

Perfectly horizontal

Revenue is equal to

Price times quantity

Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition?

Prices are relatively low

Assume that steak and potatoes are complements. When the price of steak goes up, the demand curve for potatoes:

Shifts to the left

The change in the quantity demanded of a good resulting from a change in relative price with the level of satisfaction held constant is called the _____ effect.

Substitution

An economist says: "A firm earning a zero economic profit in the long run has earned a competitive return on its investment." What does this person mean by "competitive" return in this context?

The firm's return is at least as large as could be earned in another investment

Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents

a sunk cost

If a firm finds that, at its current level of production, MR < MC, it will

decrease output

Economists proclaim that competitive firms make zero economic profit in the long run. This shows how

firms cover all their costs, both explicit and implicit

The long-run supply curve in a constant-cost industry is linear and

horizontal

The perfectly competitive firm's marginal revenue curve is

horizontal

A production function defines the output that can be produced

if the firm is technically efficient.

If a firm finds that, at its current level of production, MR > MC, it will

increase output

The curve which shows combinations of inputs that yield the same output is called a(n)

isoquant curve

A firm maximizes profit by operating at the level of output where

marginal revenue equals marginal cost

In the short run, a perfectly competitive firm earning a positive economic profit is

on the upward-sloping portion of its ATC

Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=3 machines, what is his short-run production function?

q=9L

If current output is less than the profit-maximizing output, then the next unit produced

will increase revenue more than it increases cost