MICRO CHAPTERS 5-8

Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals:

$400.

Refer to Figure 5-1. With reference to Graph A, at a price of $5, total revenue equals:

$500.

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point?

2 pizzas, 4 burgers

2. ______________________ refers to the additional revenue gained from selling one more unit.

A. Marginal revenue

14. If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

A. decreasing returns to scale

12. The term "constant returns to scale" describes a situation where

A. expanding all inputs does not change the average cost of production.

In the US economy, nearly half of all the workers employed by private firms work at

B. 18,000 large firms that employ more than 500 workers.

In microeconomics, the term _____________________ is synonymous with economies of scale.

B. increasing returns to scale

11. It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $199.00, ____________________.

C. could likely result in a notable loss of sales to competitors

The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

are two stark realities any business firm must recognize.

If the price that a firm charges is lower than its ____________ of production, the firm will suffer losses.

average cost

The _________ curve will always lie below the curve for average cost because average cost includes ______ in the numerator of the calculation.

average variable cost; fixed costs

Which of the following is most likely to cause variation in American household spending patterns?

each of the above will cause a variation

The most common pattern for marginal utility is ____________________.

diminishing marginal utility

The term ___________________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

diminishing marginal utility

In microeconomics, the term _______________ is synonymous with decreasing returns of scale.

diseconomies of scale

The term ______ describes a situation where a _____ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.

income level of each household

The term "constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

In the ________, the perfectly competitive firm will react to losses by ______________________ .

long run; reducing production or shutting down

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

increasing the price of game tickets because demand is inelastic.

In economics, the term "shutdown point" refers to the point where the

marginal cost curve crosses the average variable cost curve.

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .

marginal revenue; marginal cost

The term _________________ refers to the additional utility provided by one additional unit of consumption.

marginal utility

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

If this information were used to create a total cost graph, the curve should

reflect all of the above.

As a general rule, utility-maximizing choices between consumption goods occur where the:

price ratio and marginal utilities ratio of two goods is equal.

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ .

short run; losses are smallest

In the _________, the perfectly competitive firm will seek out ________________________ .

short run; the quantity of output where profits are highest

Which of the following occurs simultaneously with an income effect?

substitution effect

Economists are able to determine total utility by:

summing up the marginal utilities of each unit consumed.

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

For a perfectly competitive firm, the marginal cost curve is identical to the firm's _____________ .

supply curve

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

The graph above illustrates the electricity market. Consider market competition between firms where price is based on AR and select the most appropriate answer.

this market is imperfectly competitive with excess profits possible in the short-run

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

total revenue will decrease.

In microeconomic terms, the ability of a good or a service to satisfy wants is called:

utility.

If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

variable costs

A situation where the level of output, scale and average costs are all rising is called

both a and b are correct

Refer to Figure 5-1. With reference to Graph B, at a price of $5, total revenue equals:

$200.

Refer to the above diagram. In this instance:

all of the above and the consumer can choose any point on or below the budget constraint line BC.

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added.

Diminishing marginal returns

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1.00

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

. average cost

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

1.0

For lunch, Maria eats only salads or vegetarian burgers. Her weekly food budget is $36. Each salad costs $6 and each vegetarian burger costs $3. When deciding how much of each good to buy, Maria knows that 2 salads and 4 vegetarian burgers will give her a utility of 8. Maria's utility-maximizing point is:

3 salads, 6 vegetarian burgers

Neil's Bakery is famous for its giant cinnamon buns. The bakery has fixed costs of $100. Neil must pay each worker a wage of $10.00 per hour and each works an 8 hour shift. He earns $2 for each cinnamon bun that is sold. The following table shows how many cinnamon buns he can sell, depending on the number of workers he hires. Refer to the table below. To maximize his profits in this competitive market, how many workers should he hire?

3 workers

Jed's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Jed knows that 2 pizzas and 4 burgers will give him a utility of 8. At his utility-maximizing point, Jed's utility is:

8

7. An _________________ is calculated by subtracting the firm's costs from its total revenues, _______________________________ .

A. accounting profit; excluding opportunity cost

In order to reduce the harmful affects of recession and carbon emissions, the government provided tax incentives for manufacturing firm's to ___________________ that provide alternative, more efficient methods of combining inputs to produce output.

A. acquire energy efficient production technologies

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

A. fixed costs; do not change,

12. If a perfectly competitive firm is a price taker, then

A. pressure from competing firms will force acceptance of the prevailing market price

13. If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

A. price of competing products

The price elasticity of demand measures the:

B BNVHG,CH,G

In economics, a firm that faces no competitors is referred to as _________________.

B. a monopoly

8. Economic profit can be derived from calculating total revenues minus all of the firm's costs,

B. including its opportunity costs.

6. When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is

B. preparing to exit operations.

15. Idaho farmers can sell as large a quantity of their potato crop as they wish,

B. provided each is willing to accept the prevailing market price.

3. If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

B. shutdown point

In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

B. the quantity of output

________________________ arises where many firms are competing in a market to sell similar but differentiated products.

C. Monopolistic competition

10. The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

C. economies of scale

5. A manufacturer would likely make an ___________ in a market following the long-run process of beginning and expanding production in response to ________________ .

C. entry; a sustained pattern of profits

9. A perfectly competitive industry is a

C. hypothetical extreme.

1. The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

C. price taker

14. In the _________, the perfectly competitive firm will seek out ________________________ .

C. short run; the quantity of output where profits are highest

How does the U.S. Bureau of Labor Statistics gather information with regard to the typical consumption choices of Americans?

Consumer Expenditure Survey

10. The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

D. are two stark realities any business firm must recognize.

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale.

D. diseconomies of scale

The term _____________ is used to describe the additional cost of producing one more unit.

D. marginal cost

4. In economics, the term "shutdown point" refers to the point where the

D. marginal cost curve crosses the average variable cost curve.

Price elasticity of demand is defined as:

J

_____ arises where many firms are competing in a market to sell similar but differentiated products.

Monopolistic competition

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Total revenue

______________ include all of the costs of production that increase with the quantity produced.

Variable costs

In economics, a firm that faces no competitors is referred to as __________.

a monopoly

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:

are being offset by negative savings or less savings in other kinds of accounts.

Marginal utility can:

be positive, negative, or zero

Which of the following falls outside of the classification of business expenditures that fall into the category of variable costs?

costs of research and development

The future of cities in the United States and in other countries will be determined by their ability to benefit from the __________ and to minimize or counterbalance the ________________.

economies of agglomeration; corresponding diseconomies

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________.

elastic

If the supply curve for a product is horizontal, then the elasticity of supply is:

equal to infinity.

If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,

expanding output levels at any given price will be profitable.

An inferior good is a product:

for which demand decreases as income increases.

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

The longer the time period considered, the more the elasticity of supply tends to:

increase

The key assumption that accompanies the use of numbers for measuring utility is that:

individuals choose based on their preferences.

Demand is said to be ______ when the quantity demanded is not very responsive to changes in price.

inelastic

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________.

inelastic

Refer to Figure 5-1. Graph B represents a demand curve that is relatively __________. Total revenue __________ as the price decreases from $10 to $5.

inelastic; decreases

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

inelastic; elastic

A demand or supply curve with ______________ would be horizontal in appearance.

infinite elasticity

Saving money is a(n) ____________________, because it involves less consumption in the present, but the ability to consume more in the future.

intertemporal choice

I'maSolarPanelCo. manufactures and distributes solar panels in the US market. Two years ago, it had 5 US competitors, but government stimulus in the industry has encouraged 7 new US competitors to enter the market. In these circumstances, I'maSolarPanelCo.'s price for its output

is dictated by the forces of demand and supply.

The ______ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

substitution effect

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

substitution effect

If I'maJuiceCo. establishes a bottling plant in Delaware, it will most likely

use production technologies that conserve on the number of workers.