Exam 2 Study Guide (COMBINED)
Marginal revenue is the change in total revenue from using one more unit of an input in the short run. a. True b. False
False
Perfectly competitive firms are sometimes called price makers because they have significant control over product price. a. True b. False
False
The availability of substitutes makes the demand for a good less elastic. a. True b. False
False
The short-run average fixed cost curve is a horizontal line. a. True b. False
False
If all the savings of an owner are invested in his consulting company, an increase in the interest rate increases his implicit costs. a. True b. False
True
In a perfectly competitive, increasing-cost industry, if price and quantity increase, demand must have increased. a. True b. False
True
In the long run, all of a firm's inputs are variable. a. True b. False
True
It is possible for a firm to enjoy a short-run producer surplus while suffering a short-run economic loss. a. True b. False
True
Mobility of resources ensures productive efficiency in a perfectly competitive market. a. True b. False
True
Substitutes are pairs of goods that have a positive cross-price elasticity of demand. a. True b. False
True
The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will demand a substitute. a. True b. False
True
The marginal cost curve intersects the minimum point of the average variable cost curve. a. True b. False
True
Total revenue is the same for every price-quantity combination along a unit-elastic demand curve. a. True b. False
True
When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes. a. True b. False
True
In short-run equilibrium, a perfectly competitive firm can never earn an economic profit. a. True b. False
False
Long-run average costs are the same as long-run total costs. a. True b. False
False
A firm said to be is productively efficient if, _____. a. it produces its output at the lowest possible cost b. it sells its product at the lowest possible price c. it earns a positive economic profit d. it produces what consumers demand e. it earns a normal profit in the short run
A
A good that takes up a very large percentage of a consumer's budget will tend to have: a. an elastic demand. b. a perfectly elastic demand. c. an inelastic demand. d. an upward-sloping demand curve. e. many close substitutes.
A
Another word for elasticity is _____. a. responsiveness b. happiness c. bonus d. profit e. surplus
A
Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present level of output, Claude's marginal cost is $39, average variable cost is $25, and average total cost is $45. To improve his profit or loss situation, Claude should: a. increase output. b. reduce output but not to zero. c. continue to produce the present level of output. d. shut down. e. raise the price.
A
Demand is unit elastic whenever a. price elasticity has an absolute value of 1. b. price elasticity has an absolute value greater than 1. c. price elasticity has an absolute value less than 1. d. price elasticity is negative. e. consumers do not respond to a change in price.
A
For a perfectly competitive firm, ____. a. price equals marginal revenue at all output levels b. price equals marginal revenue only at the profit-maximizing quantity c. price exceeds marginal revenue at all output levels d. price is less than marginal revenue only at the profit-maximizing quantity e. price is less than marginal revenue at all output levels
A
For which of the following goods is the value of income elasticity most likely to be negative? a. Macaroni and cheese. b. Champagne. c. Airline tickets. d. Clothes. e. Toothpaste.
A
If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of the price elasticity of demand is: a. −1/3 b. −2 1/3 c. −1/4 d. −3 e. −2/3
A
If people have more time to adjust to a price change, the price elasticity of demand for that good is likely to: a. increase. b. decrease. c. fall to zero. d. be equal to −1. e. remain unchanged.
A
In the short run, producers derive surplus from market exchange because: a. the price they receive is greater than the minimum amount they require to sell a good. b. the price they receive is equal to the minimum amount they require to sell a good. c. the price they receive is less than the minimum amount they require to sell a good. d. market price equals average total cost. e. they can charge higher prices for their products by restricting supply.
A
Perfectly competitive firms are price takers because: a. each firm is too small compared to the market to be able to affect price. b. one firm determines the market price and all other firms accept this price. c. firms charge the price that government determines. d. firms must accept any price that consumers offer them. e. firms earn high profits by charging different prices to different groups of consumers.
A
Suppose a soccer coach has been making $25,000 per year but gives up his coaching job in order to make soccer shoes. If his revenue from the sale of these shoes is $50,000 and his materials cost $20,000, then his economic profit is equal to _____. a. $5,000 b. $25,000 c. $30,000 d. $50,000 e. $80,000
A
If a firm is producing at its minimum efficient scale, increasing its output slightly will always lead to diseconomies of scale. a. True b. False
False
The marginal cost curve intersects the average total cost (ATC) curve: a. at the ATC curve's minimum point. b. only when the ATC curve is sloping upward. c. at the ATC curve's maximum point. d. only when the ATC curve is sloping downward. e. when the ATC curve intersects the fixed cost curve.
A
The minimum efficient scale for a firm is the: a. lowest rate of output at which long-run average cost is at a minimum. b. lowest rate of output at which short-run average total cost is at a minimum. c. lowest rate of output at which short-run average variable cost is at a minimum. d. average of the rates of output at which long-run average cost is at a minimum. e. average of the rates of output at which short-run average total cost is at a minimum.
A
The percentage change in the demand for film divided by the percentage change in the price of cameras indicates: a. the cross-price elasticity of demand between film and cameras. b. the cross-price elasticity of demand for photographs. c. the price elasticity of demand for film. d. the price elasticity of demand for cameras. e. the income elasticity of demand between film and camera.
A
The slope of the total revenue curve for a perfectly competitive firm equals: a. marginal revenue. b. economic profit. c. accounting profit. d. average revenue. e. normal profit.
A
The total revenue from selling trucks is equal to: a. the price of a truck times the quantity sold. b. the change in quantity sold divided by the change in price. c. average cost times the quantity produced. d. the price of a truck times the quantity produced. e. the price of a truck times the price elasticity of demand.
A
Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is: a. inelastic. b. elastic. c. unit elastic. d. downward sloping. e. perfectly elastic.
A
Which of the following is true for a perfectly competitive firm in long-run equilibrium? a. Marginal revenue (MR) = Marginal cost (MC) = Average total cost (ATC) b. Marginal revenue (MR) = Marginal cost (MC) = Average fixed cost (AFC) c. Marginal cost (MC) = Average total cost (ATC) = Average fixed cost (AFC) d. Marginal revenue (MR) = Marginal cost (MC) > Average total cost (ATC) e. Marginal revenue (MR) = Marginal cost (MC) > Average variable cost (AVC)
A
Which of the following is true in the short run at the output level where average total cost is at its minimum? a. Marginal cost equals average total cost. b. Average variable cost equals fixed cost. c. Marginal cost equals average variable cost. d. Average total cost equals average fixed cost. e. Average total cost equals average variable cost.
A
he opportunity cost of a resource: a. includes both explicit and implicit cost. b. includes explicit cost only. c. includes implicit cost only. d. is equal to the market price of the resource. e. is not related to the market price of the resource.
A
***Figure 7.1 shows the U-shaped cost curves for a producer. In the figure below, curve B represents ____ a. marginal cost b. average total cost c. average variable cost d. average fixed cost e. average marginal cost
C
***Consider the following figure that shows the demand and the cost curves of a perfectly competitive firm. The firm will earn zero economic profit _____. a. at a price of P1 b. at a price of P2 c. at a price of P3 d. at a price between P1 and P2 e. at a price above P1
B
***The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. The table given below shows cost for one representative firm and the demand schedule for one representative consumer. The demand curve facing a single firm will be a : a. horizontal line at a price of $120. b. horizontal line at a price of $100. c. vertical line at a quantity of 3 cords of firewood. d. horizontal line at a price of $60. e. vertical line at a quantity of 4 cords of firewood.
B
42. At the point where diminishing marginal returns set in, the slope of the total product curve is _____. a. positive and increasing b. positive and decreasing c. negative and increasing d. negative and decreasing e. constant
B
A perfectly elastic demand curve is: a. a vertical straight line. b. a horizontal straight line. c. a downward-sloping straight line. d. an upward-sloping straight line. e. u-shaped.
B
Average revenue is: a. total revenue minus total cost. b. total revenue divided by the quantity of output. c. total revenue divided by the quantity of the variable input. d. the change in total revenue divided by the change in output. e. the change in total revenue divided by the change in the quantity of an input used.
B
Figure 5.4 shows a downward-sloping linear demand curve. In the figure below, demand is unit elastic: a. between points a and d. b. between points d and e. c. between points e and g. d. at the top portion of the curve. e. anywhere along the curve.
B
If a pizza joint earns only a normal profit this year, its: a. economic profit is equal to its accounting profit. b. economic profit is zero. c. economic profit is equal to the average accounting profit in other industries. d. accounting profit is zero. e. accounting profit is less than its economic profit.
B
If price is less than minimum average variable cost, a perfectly competitive firm that continues to produce in the short run _____. a. earns a positive economic profit b. incurs a loss greater than its fixed cost c. can cover all of its fixed cost and some of its variable cost d. can cover all of its variable cost and some of its fixed cost e. can cover both its fixed cost and its variable cost
B
If supply is perfectly elastic, the supply curve is: a. vertical. b. horizontal. c. downward sloping. d. upward sloping. e. u-shaped.
B
***For the perfectly competitive firm represented in the figure given below, the short-run supply curve is: Figure 8.7 a. abcde. b. bcde. c. cde. d. de. e. abcd.
C
If the price elasticity of demand is −0.5, then a: a. 1 percent decrease in quantity demanded leads to a 0.5 percent decrease in price. b. 1 percent decrease in price leads to a 0.5 percent increase in quantity demanded. c. 50 percent decrease in price leads to a 1 percent increase in quantity demanded. d. 50 percent decrease in price leads to a 100 percent increase in quantity demanded. e. 50 percent decrease in quantity demanded leads to a 1 percent decrease in price.
B
In the long run, the entry of new firms in a competitive industry: a. drives up the equilibrium price. b. eliminates economic profits. c. reduces the equilibrium quantity. d. makes the demand curve facing each firm more inelastic. e. makes the market demand curve steeper.
B
Inferior goods have an income elasticity of demand that is: a. positive. b. negative. c. zero. d. greater than 1 in absolute value. e. equal to 1 in absolute value.
B
Inputs that can be increased or decreased in the short run are called _____. a. fixed inputs b. variable inputs c. economic inputs d. accounting inputs e. normal inputs
B
One group of people uses New York City subways only during rush hour to travel to and from work. Another group uses them only in midday for leisure activity. If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare? a. The rush-hour group because its demand for subway service is more elastic than that of the midday group. b. The rush-hour group because its demand for subway service is less elastic than that of the midday group. c. The midday group because its demand for subway service is more elastic than that of the rush-hour group. d. The midday group because its demand for subway service is less elastic than that of the rush-hour group. e. It doesn't matter because both groups have the same elasticity of demand.
B
Perfectly competitive firms respond to changing market conditions by varying their: a. price. b. output. c. market share. d. cost structures. e. advertising campaigns.
B
Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. What is likely to happen to a typical firm in the long run? a. It will not change either the equilibrium price charged or the equilibrium quantity supplied. b. The equilibrium price will be higher in the long run. c. The equilibrium price will be lower than the original equilibrium price in the long run. d. It will not change the equilibrium price but will increase output. e. It will experience a lower average total cost and will increase output.
B
Table 5.4 shows the price and quantity combinations for a product. The demand for the good is _____, and an increase in the price of the product from $40 to $60 per unit will _____ total revenue. Table 5.4 Quantity Price Old 20 $40 New 10 $60 a. unit elastic; increase b. elastic; decrease c. unit elastic; not change d. inelastic; increase e. elastic; decrease
B
Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the marginal product of the third unit of labor. Table 7.2 Labor Total product (pairs of shoes) 0 0 1 20 2 50 3 75 4 80 5 75 a. 45 pairs of shoes b. 25 pairs of shoes c. 15 pairs of shoes d. 75 pairs of shoes e. 50 pairs of shoes
B
The demand curve for the output of a perfectly competitive firm is _____. a. perfectly inelastic b. perfectly elastic c. unit elastic d. downward sloping e. nonlinear
B
The long-run market supply curve for an increasing-cost, perfectly competitive industry _____. a. is horizontal b. slopes upward c. is backward bending d. slopes downward e. is vertical
B
The supply of a product will be more elastic if: a. the good has few substitutes. b. the time the producer has to adjust to a price change is long. c. the time frame for adjusting to price changes is short. d. demand is elastic. e. demand is inelastic.
B
Total cost is calculated as _____. a. average fixed cost plus average variable cost b. fixed cost plus variable cost c. the additional cost of the last unit produced d. marginal cost plus variable cost e. marginal cost plus fixed cost
B
If a firm's accounting profit is positive, its economic profit must also be positive. a. True b. False
False
If demand is elastic, a decrease in price leads to a decrease in total revenue. a. True b. False
False
***The perfectly competitive firewood market is composed of 1,000 identical consumers and 1,000 identical firms. The table given below shows cost for one representative firm and the demand schedule for one representative consumer. The equilibrium price in this market is _____. a. $60 b. $80 c. $100 d. $120 e. below $60
C
A firm enters into a consent decree to avoid an even greater legal setback. If the terms of the consent decree effectively double the firm's fixed costs, then: a. marginal cost more than doubles. b. marginal cost doubles. c. marginal cost remains unchanged. d. average total cost remains unchanged. e. average variable cost doubles.
C
A perfectly competitive firm's short-run supply curve is the same as: a. the supply curve of all the other firms in the industry. b. the upward-sloping portion of its marginal cost curve. c. the portion of its marginal cost curve above the minimum average variable cost. d. the portion of its average variable cost curve above the average total cost curve. e. the market demand curve.
C
A university administration's decision to raise tuition in order to increase revenue will be successful if: a. the demand curve slopes downward. b. demand is elastic. c. demand is inelastic. d. supply is elastic. e. supply is inelastic.
C
Elasticity measures: a. whether a price increase causes quantity demanded to increase or decrease. b. the strength of an economy's tendency to recover from recession. c. the responsiveness of decision makers to changes in price, income, or other variables. d. the profitability of investment in an industry. e. the long-run price trends in an economy.
C
Figure 5.10 shows two upward-sloping linear supply curves that pass through the origin. The price elasticity of supply between $10 and $20 on the supply curve S is _____. a. 0 b. infinity c. 1 d. 2 e. 10
C
Figure 5.3 shows a linear demand curve. Between points C and D, the demand is: a. unitary. b. elastic. c. inelastic. d. perfectly elastic. e. perfectly inelastic.
C
Figure 5.4 shows a downward-sloping linear demand curve. Between points b and c in the figure below, price decreases by $1, quantity demanded increases by 10, _____. a. total revenue decreases by $1, and demand is elastic b. total revenue decreases by $1, and demand is inelastic c. total revenue increases by $40, and demand is elastic d. total revenue increases by $40, and demand is inelastic e. and total revenue increases by $80
C
Firms achieve productive efficiency by: a. striving to minimize their fixed cost. b. striving to maximize their total revenue. c. producing at their minimum long-run average cost. d. producing at their minimum long-run marginal cost. e. producing the products that have no substitute.
C
If General Electric finds that doubling both its plant size and the amount of associated inputs does not double its output level, then: a. the law of diminishing returns is in effect. b. long-run average costs must be decreasing. c. the firm is experiencing diseconomies of scale. d. the firm should increase production. e. the firm is experiencing constant returns to scale.
C
If a firm is experiencing diminishing marginal returns to labor, then which of the following statements is true? a. The first workers the firm hired were better than the workers hired later on. b. The firm is experiencing decreasing returns to scale. c. The positive effect of specialization in production is being offset by the negative effect of crowding of inputs. d. Output is decreasing with increasing inputs. e. The firm should buy more non-labor inputs.
C
If a firm shuts down in the short run and produces no output, its total cost will be: a. equal to zero. b. equal to the variable cost. c. equal to the fixed cost. d. equal to only explicit costs. e. equal to the sum of implicit and explicit costs.
C
If a firm triples all of its inputs and its output doubles, it is said to be experiencing: a. diminishing marginal returns. b. increasing marginal returns. c. diseconomies of scale. d. economies of scale. e. constant average costs.
C
If a manufacturer shuts down in the short run, it must be true that before the shutdown, at all positive output levels, _____. a. average total cost was less than average variable cost b. fixed cost was greater than total revenue c. variable cost was greater than total revenue d. profit was zero e. total cost plus total revenue was less than profit
C
If an increase in the price of peanut butter causes a decline in the demand for jelly, then: a. the goods are substitutes. b. jelly is an inferior good. c. the goods are complements. d. both goods are necessities. e. peanut butter is an inferior good.
C
Luxury goods are: a. price inelastic. b. income inelastic. c. income elastic. d. goods with negative income elasticity. e. goods with positive price elasticity.
C
Marginal product is defined as: a. the increase in revenue that occurs when an additional unit of a resource is added. b. the increase in output that occurs when all resources are increased by the same proportion. c. the increase in output that occurs when an additional unit of a resource is added, holding all other resources constant. d. the amount of additional resources needed to increase output by one unit when all resources are increased by the same amount. e. the amount of additional money needed to increase output by one unit when all resources are held constant.
C
Maryann and Don want to open their own deli. To do so, Maryann must give up her job, where she earns $20,000 per year, and Don must give up his part-time job, where he earns $10,000 per year. They must liquidate their money market fund, which earns $1,000 interest annually. The rent on the building is $10,000 per year, and the expenses of such necessities as utilities, corned beef, and pickles are $35,000 annually. _____ is the explicit cost per year of operating the deli. a. $10,000 b. $35,000 c. $45,000 d. $31,000 e. $76,000
C
Opportunity cost usually: a. cannot be measured. b. applies to labor but not to capital. c. is involved in calculating economic profit. d. is greater than the cash payment made to a resource. e. is less than the cash payment made to a resource.
C
Resources are efficiently allocated when production occurs at that point at which: a. the marginal cost curve intersects the average variable cost curve. b. price is equal to average revenue. c. price is equal to marginal cost. d. the marginal revenue curve intersects the average variable cost curve. e. price is equal to average variable cost.
C
Table 7.1 shows revenue and cost information for Sally's small business. Sally owns a small business that she operates in a building she owns. Given the information in the table below, Sally's accounting profit is equal to _____. Table 7.1 Total Revenue $100,000 Assistant's salary $20,000 Material & equipment $15,000 Forgone salary $30,000 Forgone interest $1,000 Foregone building rental $10,000 a. $80,000 b. $50,000 c. $65,000 d. $35,000 e. $24,000
C
Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, _____ is the average product of the fourth unit of labor. Table 7.2 Labor Total product (pairs of shoes) 0 0 1 20 2 50 3 75 4 80 5 75 a. 5 pairs of shoes b. 10 pairs of shoes c. 20 pairs of shoes d. 50 pairs of shoes e. 80 pairs of shoes
C
The demand for flour is: a. inelastic because there are few substitutes for flour and it represents a large percentage of a consumer's budget. b. inelastic because there are many substitutes for flour and it represents a large percentage of a consumer's budget. c. inelastic because there are few substitutes for flour and it represents a small percentage of a consumer's budget. d. elastic because there are no substitutes for flour and it represents a large percentage of a consumer's budget. e. elastic because there are many substitutes for flour and it represents a large percentage of a consumer's budget.
C
The law of diminishing marginal returns states that: a. long-run average cost declines as output increases. b. if the marginal product is above the average product, the average will rise. c. as units of a variable input are added to a given amount of fixed inputs, the marginal product of the variable input eventually diminishes. d. as a person consumes more of a good, the marginal satisfaction from that good eventually diminishes. e. if marginal product is positive, total product rises.
C
The price elasticity of demand is useful because it measures the responsiveness of _____ to changes in _____. a. taxpayers; demand b. producers; supply c. consumers; price d. consumers; demand e. producers; income
C
Which of the following are implicit costs for a typical firm? a. Insurance costs b. Electricity costs c. The opportunity costs of the capital owned and used by the firm d. The cost of the labor hired by the firm e. The cost of raw materials
C
Which of the following best approximates a perfectly competitive market structure? a. Automobile manufacturing b. The insurance market c. Foreign exchange markets d. The airlines industry e. Manufacture of stereo equipment
C
Which of the following is most likely to be an increasing-cost industry? a. An industry whose firms experience diseconomies of scale b. An industry whose firms experience economies of scale c. An industry that is a major buyer in the markets for the inputs it uses d. An industry that is a very small buyer in the markets for the inputs it uses e. An industry in which the firms earn positive economic profit in the long run
C
Which of the following is true of the MC curve? a. It intersects the ATC curve at its minimum, but it does not intersect the AVC curve at its minimum. b. It intersects the AVC curve at its minimum, but it does not intersect the ATC curve at its minimum. c. It intersects both the ATC and the AVC curves at their minimums. d. It intersects both the ATC and the AFC curves at their minimums. e. It intersects both the AVC and the AFC curves at their minimums.
C
A perfectly competitive firm has a horizontal supply curve in the short run. a. True b. False
False
If marginal product is negative, total product must be negative. a. True b. False
False
A constant-cost industry is one: a. whose average costs are constant in the short run. b. that experiences economies of scale throughout its scale of operation. c. that experiences a stable demand in the long run. d. whose cost curves do not change as new firms enter the market. e. that faces increasing resource prices as new firms enter the market.
D
A decline in market demand in a competitive industry will result in a(n): a. increase in the equilibrium price. b. decrease in the number of firms in the industry in the short run. c. economic profit for all firms in the industry. d. decrease in the equilibrium quantity. e. rightward shift of the market supply curve in the short run.
D
A firm's opportunity costs of using resources provided by the firm's owners are called _____. a. sunk costs b. fixed costs c. explicit costs d. implicit costs e. entrepreneurial costs
D
A good that is defined broadly has: a. more substitutes and a more elastic demand. b. fewer substitutes and a more elastic demand. c. more substitutes and a less elastic demand. d. fewer substitutes and a less elastic demand. e. more complements and a more elastic demand.
D
Along a linear demand curve, as the price increases from zero: a. demand decreases. b. demand increases. c. quantity demanded increases. d. total revenue first increases but eventually decreases. e. total revenue first decreases but eventually increases.
D
At its present rate of output, Barrel O' Biscuits, a perfectly competitive firm, finds that its marginal cost exceeds its marginal revenue and its price exceeds its average variable cost. To maximize profit, the firm should _____. a. lower the price b. increase the price c. increase output d. decrease output e. produce at its current level of output
D
Economic profit is defined as _____. a. total fixed cost plus total variable cost b. total revenue minus marginal costs c. average revenue minus average variable cost d. total revenue minus total costs e. marginal revenue minus opportunity costs
D
Figure 5.1 shows the demand curve for a firm. In the figure below, the total revenue at point a is _____. a. $4 b. $5 c. $10 d. $50
D
Fixed costs are defined as: a. the total costs of a firm's production. b. the additional costs of the last unit produced. c. costs that increase proportionately as the quantity produced increases. d. costs that do not vary as quantity produced increases. e. implicit costs only
D
For which of the following is demand most likely to be perfectly inelastic? a. BMW automobiles. b. Pepsi Cola. c. Hot dogs. d. Insulin. e. Tylenol.
D
Goods with an income elasticity of demand greater than 1 are called: a. necessities. b. inferior goods. c. substitutes. d. luxuries. e. complements.
D
If a market is allocatively efficient, _____. a. firms produce at the minimum point of their marginal cost curve b. firms produce at the minimum point of their total cost curve c. consumers minimize their expenditures d. total utility cannot be increased through a reallocation of resources e. total output cannot be decreased through a reallocation of resources
D
If an industry is a constant-cost industry, _____. a. the prices of its inputs increase even when output remains constant b. it uses the same amount of inputs even at higher levels of output c. the prices of its inputs rise at a constant rate as it uses more inputs d. the prices of its inputs remain the same as the number of firms increases e. firms in the industry experience economies of scale throughout their scales of operation
D
If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is: a. unit elastic. b. perfectly elastic. c. perfectly inelastic. d. elastic. e. inelastic.
D
If total cost at Quantity = 0 is $100 and total cost at Quantity = 10 is $500, then average variable cost at Quantity = 10 is _____. a. $500 b. $400 c. $50 d. $40 e. $10
D
Marginal cost eventually increases as output increases due to the effect of _____. a. economies of scale b. increasing average cost c. increasing total cost d. diminishing marginal product of inputs e. constant fixed cost
D
Suppose Bob leaves his $50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling pet-care products. In the first year, his accounting profit is $70,000. Based on this level of success, Bob should: a. return to his old job because his economic profit is negative. b. return to his old job because his economic profit is smaller than his accounting profit. c. return to his old job because his economic profit is less than his old salary. d. stay with his new firm because his economic profit is positive. e. stay with his new firm because accounting profit is positive.
D
Suppose Thelma and Louise both sell tomatoes in a perfectly competitive market. If Louise increases the amount of tomatoes that she sells in the market, _____. a. Thelma must reduce the amount of tomatoes she sells b. the price Thelma can charge for her output decreases c. the price Thelma can charge for her output increases d. the price at which Thelma sells her output is unaffected e. Thelma's profits must fall
D
If the marginal product of an input is negative, the total product must also be negative. a. True b. False
False
Suppose a perfectly competitive firm and industry is in long-run equilibrium. A rightward shift of the market demand curve is likely to: a. shift the demand curve facing the firm downward and increase the quantity supplied in the market. b. shift the demand curve facing the firm upward and not cause any change in the quantity supplied in the market. c. shift the demand curve facing the firm downward and increase the quantity supplied in the market. d. shift the demand curve facing the firm upward and increase quantity supplied in the market. e. shift the demand curve facing the firm downward and not cause any change in the quantity supplied in the market.
D
Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand increases. Which of the following statements is true in this case? a. Existing firms will earn economic profits in the new long-run equilibrium. b. Existing firms will decrease output in the short run. c. New firms will enter the industry in the short run. d. Some resource suppliers to the industry will earn higher income. e. The new long-run equilibrium price will be lower than the original equilibrium price.
D
Table 5.5 shows the quantity supplied and the quantity demanded for restaurant meals at different prices. Use the information in the table below to calculate the price elasticity of supply for restaurant meals. Table 5.5 Quantity Price demanded 200 $10 150 $20 a. 7 b. 2 c. 1/2 d. 3/5 e. 5/3
D
Table 7.4 shows labor, total product, and marginal product for a firm. In the table below, marginal returns begin to diminish with the hiring of the _____ worker. Table 7.4 Units of Total Marginal Labor Product Product 0 0 - 1 6 6 2 14 8 3 24 10 4 36 12 5 42 6 6 46 4 a. second b. third c. fourth d. fifth
D
The additional output obtained by adding another unit of labor to the production process is called _____. a. the marginal cost of labor b. the average output of labor c. a variable cost d. the marginal product of labor e. the marginal utility of labor
D
The cross-price elasticity of demand between milk and soft drinks is likely to be: a. negative, because the goods are complements. b. positive, because the goods are complements. c. negative, because the goods are substitutes. d. positive, because the goods are substitutes. e. zero, because the goods are not usually consumed by the same person at one time.
D
The demand curve for a good that has many perfect substitutes is likely to be: a. upward sloping. b. steep. c. backward-bending. d. horizontal. e. vertical.
D
The long-run supply curve for a constant-cost perfectly competitive industry is _____. a. a ray from the origin at a 45-degree angle b. perfectly inelastic c. relatively inelastic d. perfectly elastic e. downward sloping
D
The supply of paintings by Van Gogh is most likely to be: a. relatively elastic because supply is limited. b. relatively inelastic because supply is limited. c. perfectly elastic because the paintings are luxury goods. d. perfectly inelastic because supply is limited. e. unit elastic.
D
The total revenue curve that corresponds to a downward-sloping linear demand curve: a. slopes downward. b. slopes upward. c. is a horizontal line. d. first rises, then falls. e. first falls, then rises.
D
Unlike implicit costs, explicit costs: a. reflect opportunity costs. b. include the value of the owner's time. c. are not included in a firm's accounting statements. d. are actual cash payments. e. do not change as a firm's output changes.
D
Which of the following is true of marginal cost when marginal returns are increasing? a. It is negative and increasing. b. It is negative and decreasing. c. It is positive and increasing. d. It is positive and decreasing. e. It is positive and has a constant slope.
D
As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic. a. True b. False
False
Cross-price elasticity measures the responsiveness of the price of good A to a change in the price of good B. a. True b. False
False
41. Table 7.1 shows revenue and cost information for Sally's small business. Sally owns a small business that she operates in a building she owns. Given the information in the table below, Sally's economic profit is equal to _____. Table 7.1 Total Revenue $100,000 Assistant's salary $20,000 Material & equipment 15,000 Forgone salary 30,000 Forgone interest 1,000 Foregone building rental 10,000 a. $80,000 b. $50,000 c. $65,000 d. $35,000 e. $24,000
E
A firm in a perfectly competitive market: a. can raise the price of its product and sell more output. b. has to lower the price of its product to sell more output. c. can increase its supply to lower the market price. d. can decrease its supply to increase the market price. e. has to accept the market price for its product.
E
A perfectly competitive firm's profit per unit of output equals: a. price minus average variable cost. b. price minus marginal cost. c. total revenue minus total cost. d. price times quantity. e. price minus average total cost.
E
Diseconomies of scale are pictured on a graph by the upward-sloping portion of the _____. a. marginal product curve b. short-run marginal cost curve c. long-run marginal cost curve d. short-run average cost curve e. long-run average cost curve
E
Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This strategy is chosen only by large firms because it results in _____. a. production inefficiency b. diminishing marginal returns c. diseconomies of scale d. constant returns to scale e. economies of scale
E
If Harry's Blueberries, a perfectly competitive firm, shuts down in the short run, Harry must pay: a. the variable cost but not the fixed cost of production. b. the marginal cost but not the variable cost of production. c. both the variable cost and the fixed cost of production. d. only the variable cost of production. e. only the fixed cost of production.
E
If a firm is producing at an output level where the total revenue curve intersects the total cost curve, which of the following is true of the firm? a. Its revenue is maximized. b. Its cost is maximized. c. Its cost is minimized. d. Its profit is maximized. e. Its profit is zero.
E
If the cross-price elasticity of demand is −3, then: a. the goods are substitutes. b. the goods are unrelated. c. one of the two goods is an inferior good d. one of the two goods is a luxury. e. the goods are complements.
E
If you were to put the following effects of a decrease in demand into the sequence in which they occur, which would be the last one? a. The demand curve facing each individual firm shifts downward. b. Each firm reduces quantity supplied to the point where marginal cost equals its decreased marginal revenue. c. In the short run, the market price drops. d. Market output falls. e. A short-run loss forces some firms out of business in the long run.
E
In order to prove that Coca Cola and 7-Up are substitutes, one should test the _____ and get a _____. a. price elasticity of demand; number less than −1 b. income elasticity; positive number c. cross-price elasticity; negative number d. price elasticity of demand; number greater than −1 e. cross-price elasticity; positive number
E
In order to prove that macaroni is an inferior good, we could test the _____ of macaroni and get a _____. a. cross-price elasticity; negative number. b. income elasticity; number less than 1. c. income elasticity; positive number. d. price elasticity of demand; number greater than negative 1. e. income elasticity; negative number.
E
John moved his office from a building he was renting downtown to the carriage house he owns behind his house. How will his profit change? a. Implicit costs will fall. b. Explicit costs will remain unchanged, while implicit costs will rise. c. Economic profit will fall. d. Explicit costs will rise. e. Accounting profit will rise.
E
Suppose Ernie gives up his job as financial advisor for P.E.T.S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which were originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000 and the explicit costs were $10,000. The economic profit earned by Ernie was _____. a. $10,000 b. $50,000 c. $20,000 d. $40,000 e. $9,500
E
To achieve the minimum efficient scale in the long run, a firm must: a. charge the highest price possible. b. produce where demand is unit elastic. c. sell the most output possible. d. minimize the cost of producing any given amount of output. e. produce at minimum long-run average cost.
E
Which of the following is likely to be present in a perfectly competitive market? a. Patents b. Government licenses c. Nonprice competition such as advertising d. High capital costs e. Firms producing identical products
E
Which of the following is true of a perfectly competitive market? a. Firms experience constant returns to scale. b. Firms face significant barriers to entry. c. Firms experience decreasing returns to scale. d. Each firm chooses the price at which it wants to sell its product. e. Each seller supplies only a small fraction of the total amount in a market.
E
A firm that minimizes average cost will not survive in the long run. a. True b. False
False
A normal good is defined as a product for which quantity demanded increases as price decreases. a. True b. False
False
Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values. a. True b. False
True
A perfectly competitive firm is allocatively efficient because price is identical to marginal cost at every quantity. a. True b. False
True
An increasing-cost industry is one in which per-unit cost increases as output expands in the long run. a. True b. False
True
If a firm is experiencing diminishing marginal returns, its marginal product is declining. a. True b. False
True
