Micro- Exam Three

Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total revenue is

$20,000

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are

$25

Total revenue minus only explicit costs is called

Accounting profit

Total Costs

The market value of all the inputs that a firm uses in production - TC = FC+VC

When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?

$80

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood

Foregone investment opportunities are an example of

An implicit cost

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit

For an individual firm operating in a competitive market, marginal revenue equals

Average revenue and the price for all levels of output

Corrective taxes

Because corrective taxes correct market externalities, they take into consideration the well-being of bystanders Corrective taxes differ from most other taxes in that corrective taxes do not cause deadweight losses Corrective taxes provide incentives to develop cleaner technologies

Characteristic of a competitive market

Buyers and sellers are price takers

When firms are said to be price takers, it implies that if a firm raises its price,

Buyers will go elsewhere

Two types of private solutions to the problem of externalities are

Charities and the golden rule

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Command-and-control policy

Which of the following statements is not correct about corrective taxes?

Corrective taxes require the government to set a target level of pollution

Implicit Costs

Costs that do not require an outlay of money by the firm

Fixed Costs

Costs that do not vary with the quantity of output produced - FC

Explicit Costs

Costs that require an outlay of money by the firm

Variable Costs

Costs that vary with the quantity of output produced - VC

Which of the following industries is most likely to exhibit the characteristic of free entry?

Dairy farming

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing

Diminishing marginal product

Total revenue minus both explicit and implicit costs is called

Economic profit

Average Fixed Costs

Fixed cost divided by the quantity of output - AFC = FC/Q

Competitive markets are characterized by

Free entry and exit by firms

In a competitive market, the actions of any single buyer or seller will

Have a negligible impact on the market price

A production function describes

How a firm turns inputs into outputs

Industrial organization is the study of

How firms' decisions regarding prices and quantities depend on the market conditions they face

A difference between explicit and implicit costs is that

Implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Increases the social cost above the private cost

When an externality is present, the market equilibrium is

Inefficient, and the equilibrium does not maximize the total benefit to society as a whole

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

Its average total cost is less than $10

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should

Make more than 20 wedding cakes per month

The competitive firm's short-run supply curve is its

Marginal cost curve, but only the portion above the minimum of average variable cost

Profit is defined as total revenue

Minus total cost

Free entry means that

No legal barriers prevent a firm from entering an industry

An externality is the uncompensated impact of

One person's actions on the well-being of a bystander

When positive externalities are present in a market

Social benefits will be greater than private benefits

If a sawmill creates too much noise for local residents,

The government can raise economic well-being through noise-control regulations

Marginal Costs

The increase in total cost that arises from an extra unit of production - MC = ^TC/^Q

Average Total Costs

Total cost divided by the quantity of output - ATC = TC/Q

Average Variable Costs

Variable cost divided by the quantity of output - AVC = VC/Q

Which of the following firms is the closest to being a perfectly competitive firm?

Wheat farmer in Kansas

Which of the following is an example of a positive externality?

Your neighbor plants a nice garden in front of his house