Econ Test 3 [10,11,12]
[11] Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to
price.
[11] It is a "given" that an individual firm selling in a perfectly competitive market will take the market price because
each producer supplies a negligible fraction of total market.
[10] Economic profit is
equal to the difference between accounting profit and implicit costs.
[10] At any level of output
average total cost will exceed average variable cost by the amount of the average fixed cost.
[12] A pure monopoly can sell 20 toys per day for $8 each. To sell 21 toys per day, the price must be cut to $7. The marginal revenue of the 21st toy is
-$13.
Marginal Product
the extra output or change in total product caused by the addition of one more unit of variable input
[10] Answer the next question on the basis of the data. The marginal cost associated with the production of the third unit of output is
$7.
[10] Use the table to answer this question, which provides information on the production of a product that requires one variable input. With the addition of the second unit of input, the marginal product is __________ and the average product is __________.
15; 10
[10] Answer the next question on the basis of the following information. TFC = Total Fixed Cost MC = Marginal Cost TVC = Total Variable Cost Q = Quantity of Output P = Product Price Select the marginal cost.
Change in TVC/Change in Q
[10.1] Estella decides to set up a lemonade stand on a hot summer day. Before long, Estella's friends all decide they would like to help. The table below shows what happens to the number of glasses of lemonade Estella and her friends can make in an hour.
a. Graph the relationship between the amount of labor used to make lemonade and the amount of lemonade that can be produced each hour.
[11] A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The minimum possible average variable cost is $1. The market price of the product is $1.25. To maximize profits, the firm should
decrease production to less than 500 units.
[11] Which idea is inconsistent with perfect competition? price-taking behavior product differentiation freedom of entry or exit for firms a large number of buyers and sellers
product differentiation.
[12] A pure monopoly may generate economic profits because _____.
of barriers to entry
[11] The short-run supply curve of a perfectly competitive firm is based primarily on its
MC curve.
[10] According to the law of diminishing marginal returns
the additional product generated by additional units of an input will eventually diminish.
Short run
the period of time during which at least one of a firm's inputs is fixed
[10] Use the table to answer the next question. The total variable cost associated with the production of 5 units of output is
$63.00.
[11] Assume the price of a product sold by a perfectly competitive firm is $5. Given the data in the accompanying table, at what output level is total profit highest in the short run?
40
[12] Suppose that a pure monopoly calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. The monopoly could maximize profits or minimize losses by ____.
increasing price and decreasing output
[12] Use the graph for a profit-maximizing pure monopoly to answer the next question. The firm will set its price at
0J.
Average Product
The total output produced per unit of a resource employed (total product divided by the quantity of that employed resource).
Total Product
All the goods and services produced by a business during a given period of time with a given amount of input
[10] Variable costs are
costs that change with the amount of output a firm produces.
Marginal Revenue
the change in total revenue from an additional unit sold
Normal Profit
The level of profit that occurs when total revenue is equal to total cost. Normal profit is also known as zero economic profit.
[11] Use the graph for a perfectly competitive firm generating a loss in the short run to answer the next question. Which area in the graph represents the loss generated by the firm?
bcde
[11] Use the graph for a perfectly competitive firm to answer the next question. The firm is
earning a normal profit.
[10] To an economist, the economic costs associated with the use of resources include
explicit and implicit costs.
[10] The main difference between the short run and the long run is that
in the short run, some inputs are fixed and some are variable.
[10] Fixed costs are those costs that are
independent of the amount of output a firm produces in the short run.
[11] T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should
shut down in the short run.
[12] One argument for having the government regulate natural monopolies is that without regulation _____.
these monopolies produce at a level where price is greater than marginal cost
[10] If the short-run average variable cost of production for a firm is decreasing, then it follows that
average variable cost must be greater than marginal cost.
Profit Maximization
setting prices so that total revenue is as large as possible relative to total costs
[11] The table shows cost data for a perfectly competitive firm. The firm will produce output in the short run only if the market price is at least equal to
$2.00.
[12] For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue (MR) at this output level will be _____.
< $8
[11] The short-run supply curve for a perfectly competitive firm is the
segment of the MC curve lying at and above the AVC curve.
[10.4] The table below shows Crystal's total cost of producing different quantities of tie-dyed t-shirts for a local arts festival.
a. Complete the marginal cost column in the table.
[10.2] David decides to open a bakery serving fresh bagels. The table below displays the labor and production of bagels.
a. Complete the missing cells in the table above.
[11.1] Pete's Electronics is a small company that produces 8 gigabyte flash drives in a perfectly competitive market. The market price for 8 gigabyte flash drives is $15 each.
a. Complete the table below with the total revenue (TR), marginal revenue (MR), and average revenue (AR) for Pete's Electronics.
[10] Which of the following is most likely to be an implicit cost for Company X? Forgone rent from the building owned and used by Company X Rental payments on IBM equipment Payments for raw materials purchased from Company Y Transportation costs paid to a nearby trucking firm
Forgone rent from the building owned and used by Company X
[12] The data relates to a pure monopoly and the product it produces. What is the profit-maximizing output and price for this firm?
P = $14; Q = 4
[12] Use the graph for a profit-maximizing pure monopoly to answer the next question. At equilibrium, the firm will be generating _____.
an economic profit
[10.1] Estella decides to set up a lemonade stand on a hot summer day. Before long, Estella's friends all decide they would like to help. The table below shows what happens to the number of glasses of lemonade Estella and her friends can make in an hour.
b. Complete the average product and marginal product columns in the table above.
[10.4] The table below shows Crystal's total cost of producing different quantities of tie-dyed t-shirts for a local arts festival.
c. What is the total cost of producing 5 tie-dyed t-shirts? $29 d. What is the marginal cost of producing the 5th tie-dyed t-shirt? $5
[12] Use the following graph to answer the next question. If the industry were perfectly competitive, the quantity of output produced would be _____.
160
[11.4] The graph below depicts the revenue and cost curves for Pike's Flower Shop.
a. What is the market price for a bouquet of flowers? $14 b. What is the profit-maximizing level of output for Pike's? 150 boquets c. What are Pike's weekly profits at the profit-maximizing level of output? $600 d. At what market price is a normal profit generated? $8
[11] A perfectly competitive firm trying to maximize profits in the short run will expand output
as long as marginal revenue is greater than marginal cost.
[11.1] Pete's Electronics is a small company that produces 8 gigabyte flash drives in a perfectly competitive market. The market price for 8 gigabyte flash drives is $15 each.
b. Draw the marginal revenue (MR) and average revenue (AR) curve for Pete's Electronics for quantities 10 to 60.
[11.2] The table below shows the total cost (TC) and marginal cost (MC) for Baker Street, a perfectly competitive firm producing different quantities of apple pies. The market price of apple pies is $4.00 per pie.
b. Graph the marginal cost (MC), marginal revenue (MR), and average revenue (AR) curves.
[10.4] The table below shows Crystal's total cost of producing different quantities of tie-dyed t-shirts for a local arts festival.
b. Graph the marginal cost curve for producing tie-dyed t-shirts.
[12] One defining characteristic of pure monopoly is that the _____.
monopoly produces a product with no close substitutes
[11] A firm sells a product in a purely competitive market. The marginal cost of the product at the current output level of 800 units is $3.50. The minimum possible average variable cost is $3. The market price of the product is $4. To maximize profits, the firm should
increase production to more than 800 units.
Allocative Efficiency
Producing the goods and services that are misr wanted by consumers in such a way that their marginal benefit equals their marginal cost.
[10] Which of the following would be an implicit cost for a firm? The cost of worker wages and salaries for the firm The cost paid for leasing a building for the firm The cost paid for production supplies for the firm The cost of wages foregone by the owner of the firm
The cost of wages foregone by the owner of the firm
[11.2] The table below shows the total cost (TC) and marginal cost (MC) for Baker Street, a perfectly competitive firm producing different quantities of apple pies. The market price of apple pies is $4.00 per pie.
a. Fill in the marginal revenue (MR) and average revenue (AR) columns.
[10.3] The table below shows the monthly cost of producing vintage model cars for collectors.
a. Fill in the missing values for total fixed cost, total variable cost, and total cost in the table below.
[10] Marginal cost can be defined as the change in
total cost resulting from the production of an additional unit of output.
[11] If a firm operating in a perfectly competitive industry is confronted with an equilibrium market price of $5, its marginal revenue
will also be $5.
[10] Use the table to answer the next question. The total fixed cost of production is
$10.
[12] Answer the next question based on the demand and cost data faced by a pure monopolist The profit-maximizing price for the pure monopoly will be ____.
$2.25
[11] Use the table to answer the next question for a perfectly competitive firm. The marginal revenue generated from the third unit of output is
$40.
[10] Assume that you are the owner of a small bakery in your home town. Which of the following would be a variable cost of production in the short run? Baking ovens The interest on business loans The annual lease payment for use of the building Baking supplies (flour, salt, etc.)
Baking supplies (flour, salt, etc.)
[12.2] The figure below shows the demand, marginal revenue, marginal cost, and average total cost curves for a monopolist.
For this monopolist, the profit-maximizing quantity is 75 units and the profit-maximizing price is $250.
[12.1] The table below shows the demand and total revenue for a monopolist. Fill in the "Marginal Revenue" column for the various prices and quantities.
Marginal Revenue = (New Total Revenue - Initial Total Revenue)/(New Quantity - Initial Quantity)
[11] Given the graph, which level of output should the perfectly competitive firm choose?
X3, since any increase in output beyond that point will reduce profits
[10.1] Estella decides to set up a lemonade stand on a hot summer day. Before long, Estella's friends all decide they would like to help. The table below shows what happens to the number of glasses of lemonade Estella and her friends can make in an hour.
c. Graph the marginal product and average product curves from the data in the table.
[11] A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should
leave price unchanged and increase output.
[12] At the profit-maximizing level of output for a pure monopoly ____.
price is greater than marginal cost
[12] The demand curve faced by a nondiscriminating pure monopoly is _____.
the same as the industry's demand curve
[12.4] Major Tom's Space Flights offers commercial space flights to people willing to pay for a seat on his rocket ship. Major Tom currently has a monopoly on commercial space travel. The demand for seats on his rocket ship and the cost information are shown in the table and graph below.
a. For Major Tom's Space Flights, the profit-maximizing level of output is 7 seats and the profit-maximizing price is $ 20 million. b. In the market for Major Tom's Space Flights, the allocatively efficient level of output is 12 seats and the allocatively efficient price is $ 10 million. c. If the market for space flight seats were to go from the monopoly solution to the allocatively efficient solution, the change in consumer surplus would be $ 95 million. d. Using the graph, identify the area of deadweight loss that results from Major Tom having a monopoly in commercial space flight.
[11.3] The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Smitten, a perfectly competitive firm that produces children's mittens in a competitive market.
a. If the market price of children's mittens is $6.00 per pair, how many pairs of children's mittens should Smitten produce per week to maximize its profits? 35 pairs of mittens b. What is Smitten's average total cost at the profit-maximizing quantity of children's mittens? $5.00 c. What are Smitten's weekly profits if the market price is $6.00 per pair and the firm produces the profit-maximizing quantity of mittens? $35.00 d. What are Smitten's weekly profits if the market price is $5.00 per pair and the firm produces the profit-maximizing quantity of mittens? $15.00 e. At what price would Smitten earn a normal profit? $4.00
[12] Answer the next question based on the demand and cost data faced by a pure monopoly. At equilibrium, the pure monopoly will generate_____.
an economic profit of $6.50
[10.3] The table below shows the monthly cost of producing vintage model cars for collectors.
b. Graph the total fixed cost, total variable cost, and total cost curves from the data in the table.
[10.2] David decides to open a bakery serving fresh bagels. The table below displays the labor and production of bagels.
b. When David hires a second worker, he experiences: increasing marginal returns.
[11.2] The table below shows the total cost (TC) and marginal cost (MC) for Baker Street, a perfectly competitive firm producing different quantities of apple pies. The market price of apple pies is $4.00 per pie.
c. At the market price of $4.00 per apple pie, how many apple pies should Baker Street make? 25 apple pies d. If the market price for apple pies were to rise to $6.00 per apple pie, how many apple pies should Baker Street make? 30 apple pies
[10.2] David decides to open a bakery serving fresh bagels. The table below displays the labor and production of bagels.
c. When David hires a fifth worker, he experiences: diminishing marginal returns.
[10] Marginal product of labor refers to the
change in total product resulting from employing one more unit of labor.
[11] A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. To maximize profits, the firm should
continue producing 1,000 units.
[10.1] Estella decides to set up a lemonade stand on a hot summer day. Before long, Estella's friends all decide they would like to help. The table below shows what happens to the number of glasses of lemonade Estella and her friends can make in an hour.
d. How many additional glasses of lemonade can Estella produce if she has one friend help her make lemonade instead of making lemonade by herself? 9 glasses e. How many additional glasses of lemonade can Estella produce if she has four friends help her rather than having three friends help her? -3 glasses f. If Estella has four friends help her, on average how many glasses of lemonade can each her and her friends make per hour? 5 glasses
[12.3] Lucinda has written a new novel and has chosen to self-publish. Her copyright ensures that no one can legally copy her novel. The table below shows the demand for Lucinda's novel and her costs of publishing.
d. Identify the profit-maximizing price and quantity and show the amount of profit earned.
[10] Average fixed cost
declines continually as output increases.
[10] The reason the marginal cost curve eventually increases as output increases for the typical firm is because of
diminishing marginal returns.
[12] Pure monopolies are said to be allocatively inefficient because ____.
price is greater than marginal cost
[12] Use the table to answer the next question. The marginal revenue generated by the pure monopoly from selling the third unit of output is
$3.
Average Revenue (AR)
total revenue divided by the quantity of the product sold
[12] A pure monopoly will generate an economic profit whenever ____.
total revenue is greater than total cost
[12] Use the graph for a profit-maximizing pure monopoly to answer the next question. The firm will produce the quantity ____.
0V
[11] Use the graph to answer the next question. The graph shows the cost curves for a perfectly competitive firm. If the market price of the product is $1.25 per unit, then the firm will produce how many units to maximize profits in the short run?
20
Implicit Costs
Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
Production Function
Maximum quantity of a good attainable from different combinations of factor input.
[12] Use the graph showing the demand and marginal revenue curves faced by a pure monopoly to answer the next question. If the pure monopoly wants to sell quantity Q1, it should charge
P1.
[11] Use the graph for a perfectly competitive firm to answer the next question. The lowest price at which the firm should produce (as opposed to shutting down) is
P2.
productive efficiency
Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service.
[12.3] Lucinda has written a new novel and has chosen to self-publish. Her copyright ensures that no one can legally copy her novel. The table below shows the demand for Lucinda's novel and her costs of publishing.
a. How many books should Lucinda publish in order to maximize profits? 16,000 books b. What price should Lucinda charge for her book in order to maximize profits? $25 per books c. How much profit will Lucinda's book generate if she produces the profit-maximizing quantity and charges the profit-maximizing price? $300,000
[12] Many people believe that pure monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where ____.
marginal revenue equals marginal cost
Explicit Cost
opportunity cost of resources employed by a firm that takes the form of cash payments; Payments made by individuals, firms, and government for use of resources owned by others.
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 its physical plant
