Erec 411 Exam 2
On the vertical axis (Costs per unit) and the horizontal axis (Quantity), the middle-most intersection of curves A and C is the point at which...
average variable cost is minimized
Total surplus is defined as...
consumer surplus plus producer surplus
A budget line shows the...
consumption possibilities of a consumer at a given level of income and prices
Marginal cost is the increase in total _____ that results from a one-unit increase in _____.
cost, output
On an indifference curve, a consumer is indifferent between points...
that lie on the same line and aren't the same point
If economic profit is equal to zero then...
the entrepreneur is earning only a normal profit
Diminishing marginal returns occur when _______.
the marginal product of an additional worker is less than the marginal product of the previous worker hired
A proprietorship is a firm with...
a single owner who has unlimited liability
On a indifference curve,what is a preferred point?
Any point that lies outside the indifference curve
A market with the characteristics of many firms selling an identical product, many buyers, and no restrictions on entry or exit to the market is...
a perfectly competitive market
A market demand curve is constructed by...
a horizontal summation of each individual curve
What combination point of good A and good B is not affordable with a budget line?
a point outside the budget line
Average variable cost is equal to...
average total cost minus average fixed cost
What is an example of consistency with the assumptions of marginal utility theory?
as Jose consumes more of one good, his marginal utility from consuming more of that good decreases
What characteristics does a curve that shows diminishing marginal utility have?
as consumption of the product on the horizontal axis increases, the curve starts to become flatter
Economies of scale exist when the _____ a unit of a good _____.
average cost of producing, falls as its output rate increases
On the vertical axis (Costs per unit) and the horizontal axis (Quantity), curve D slopes downward because...
average fixed costs decrease as output increases
All the production points that lie ______ the total product curve are attainable and _____.
below, inefficient
______ is the change in market value of capital over a given period.
economic depreciation
What are some reasons why firms may be more efficient than markets as coordinators of economic activity?
economies of scale and scope, lower transactions costs, and economies of team production
T/F: Buyers receive a consumer surplus when the price exceeds the marginal benefit.
false
T/F: Marginal utility diminishes as consumption of a good decreases.
false
T/F: To draw your budget line between steak and lobster, all you need to know is your income.
false
At the current level of output, the marginal social benefit from a slice of pizza is less than the marginal social cost of producing a slice of pizza. Resources will be used more efficiently if _____ slides of pizza are produced and _____ other goods are produced.
fewer, more
Best define "economies of scope".
firms use specialized resources to produce a range of goods, as the number of products produced increases, the cost of producing a unit decreases
With a given income and prices of goods, Marcus will be in a consumer equilibrium if _____.
he maximizes his total utility
As output increases, total cost _____, total fixed cost _____, and total variable cost _____.
increases, does not change, increases
If a firm is economically efficient...
it is always technologically efficient
In a given market, a large number of firms sell a similar product. Consumers think that each firm's product is somewhat different from that of its competitors. This market is....
monopolistically competitive
Moving along a given budget line,
prices and real income are constant
A firm has achieved technological efficiency whenever it has...
produced the given output using the fewest inputs
Indifference curves are drawn on a diagram with the...
quantity of one good on the vertical axis and the quantity of another good on the horizontal axis
On a budget line, if the price of good B (on the horizontal line) falls, then the budget line...
rotates outward with no change in the vertical axis
The law of diminishing returns makes it clear that as more a variable input is employed, in the ______ the marginal product of the variable input eventually will ______.
short run, fall
A firm's long-run average cost curve...
shows the lowest attainable average total cost of producing any level of output when the plant and labor are variable, is U-shaped, and tells the firm which plant size to use and which quantity of labor to use to minimize the cost of producing any level of output
The marginal cost curve...
shows the minimum price sellers must receive to produce a unit of a good or service
In economics, the short run is the time frame in which the quantities of _____ and the long run is the period of time in which _____.
some factors of production are fixed; the quantities of all factors of production can be varied
What are some examples of economic inefficiency?
subsidies, taxes, external costs
A company does not need to know the price of each resource it employs if it wants to determine whether or not it is achieving...
technological efficiency
The marginal product of labor is the change in total product from a one-unit increase in...
the quantity of labor employed, holding the quantity of other inputs constant
The total benefit that a person receives from the consumption of goods and services is called...
total utility
T/F: If a firm is achieving economic efficiency it must also be achieving technological efficiency.
true
The vertical distance between the average variable cost curve and the average total cost curve equals average fixed cost.
true
Owners of a proprietorship have _____ liability and stockholders in a corporation have _____.
unlimited, limited
Consumer surplus is the _____ summed over the quantity bought.
value of a good or service minus the price paid for the good or service