Econ 323

a deadweight loss of consumer and/or producer surplus occurs when

mutually beneficial transactions cannot be completed

Does it make sense to consider the returns to scale of a production function in the short run

no, we cannot change all of the production inputs in the short run

when the market price is held above the competitive level, the deadweight loss is composed of...

producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged

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

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 rented the building to another firm

at every output level, a firms short run average cost (SAC) equals or exceeds its long-run average cost (LAC) because

there are at least as many possibilities for substitution between factors of production in the long run as in the short run

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

will increase revenue more than it increases cost

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

will increase revenue more than it will increase cost

which of the following is an example of a sunk cost fallacy?

"im not going to allow the sacrifice of 2,527 troops who have died in Iraq to be in vain by pulling out before the job is done"

the perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economic textbooks still talk a lot about this model?

-many markets are close to being perfectly competitive -it is an important model to use as a benchmark to compare other markets structures to -perfectly competitive markets maximize societal welfare

At the optimum combination of two inputs

1) the marginal rate of technical substitution equals the ratio of input prices 2)costs are minimized for the production of a given output 3) the slopes of the isoquant and isocost curves are equal

at the optimum combination of 2 inputs...

1) the marginal rate of technical substitution equals the ration of input prices 2) costs are minimized for the production of a given output 3)the slopes of the isoquant and isocost curves are equal

In the short run, stage 2 of production is characterized by

Average product is falling

in the opening of free trade, if world prices of a good are less than domestic prices of that same good...

Domestic prices will drop to the world price level

At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you:

How increasing labor use alters the average product of labor

Which of the following statements best summarizes the law of diminishing marginal returns

In the short run, as more labor is hired, output increases at a diminishing rate

Does it make sense to consider the returns to scale of a production function in the short run?

No, we cannot change all of the production inputs in the short run

When the market price is held above the competitive level, the dead weight loss is composed of

Producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged

Three techniques are possible to produce 100 units of output, identify the technically inefficient one:

Technique B requires 16 units of labor and 21 units of capital

An L shaped isoquant

Would indicate that capital and labor cannot be substituted for each other in production

With it's current levels of input use, a firms MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis) this implies:

The marginal product of labor is 3 times the marginal product of capital

At every output level, a firms short run average cost (SAC) equals or exceeds it's long run average cost because

There are at least as many possibilities for substitution between factors of production in the long run as in the short run

Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey

When Joey aquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother

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

Will increase revenue more than it increases cost

in the short-run, stage two of production is characterized by

average product is falling

Assume that the average product for 6 workers is 15. If the marginal product of the seventh worker is 18,

average product is rising

in an unregulated, competitive market consumer surplus exists because some

consumers are willing to pay more than the equilibrium price

in the opening of free trade, if world prices of a good are less than domestic prices of that same good

domestic prices will drop to the world price level

under perfect competition if an industry is characterized by positive economic profits in the short run

firms will enter the market in the long run and the short run supply curve will shift outward

under perfect competition, if an industry is characterized by positive economic profits in the short run...

firms will enter the market in the long run and the short run supply curve will shift outward

With its current levels of input use, a firms MRTS is 2 (when capital is on the vertical axis and labor is on the horizontal axis). this implies...

if the firm reduced its capital stock by 2 units, it would have to hire an additional worker to maintain its current level of output

which of the following statements best summarizes the law of diminishing marginal returns?

in the short run, as more labor is hired, output increases at a diminishing rate

when the market price is held above the competitive level, the deadweight loss is composed of:

producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged

the shut down decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

producer surplus is positive

the shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

producer surplus is positive

in the very short run

quantity supplied is absolutely fixed

a price support may be pictured by

shifting the demand curve to the right by the amount of the government purchase

producer surplus in a perfectly competitive industry is

the difference between revenue and variable cost

if a graph of a perfectly competitive firm shows that the P=MC point occurs where P is above AVC but below ATC

the firm is earning negative profit, but will continue to produce where P=MC in the short run

in a competitive market, an efficient allocation of resources is characterized by

the largest possible sum of consumer and producer surplus