MICRO Test 2

Total consumer surplus in the market is found by adding all the individual consumer surpluses in the market of all the buyers of a good or service.

True

Total surplus is maximized when the market is in equilibrium condition.

True

True or False: At high levels of output, high fixed cost yields lower average total cost.

True

True or False: There is a trade-off between a higher fixed cost and a lower variable cost for any level of output.

True

Utility is measured in units called utils.

True

The production function occurs whenever an increase in the quantity of an input (holding the levels of all other inputs fixed) leads to a decline in the marginal product of that input.

False

The seller's cost refers to the highest price that a producer would be willing to sell a good or service.

False

There are no exceptions to the principle of diminishing marginal utility.

False

Total revenue is equal to the market price multiplied by ∆TC.

False

When the U-shaped average total cost curve slopes downward, the diminishing returns effect dominates.

False

Willingness to pay for a good or service refers to a minimum price that a consumer would be willing to buy a good or service.

False

Average total cost is important because it tells the producer how much the average unit of output costs to produce.

True

Diminishing returns only holds if the quantity of all other inputs is fixed.

True

If a consumer is willing to pay $15.00 for a new vinyl record and the price is $13.00, then the individual consumer surplus equals $2.00.

True

In order to calculate consumer surplus in the market and producer surplus in the market, use the formula for the area of a triangle.

True

In the long run, a firm's fixed cost becomes variable.

True

Labor can be measured in hours, days, weeks, or years as the number of workers.

True

Marginal cost tells the producer how much the last unit of output costs to produce.

True

Markets work so well due to well-defined property rights and economic signals.

True

Scale effects for the firm really depend on the level of technology of production.

True

Taxes decrease the quantity of goods and services bought and sold.

True

Taxes lead to higher prices and lower quantity.

True

The formula for marginal utility is (∆TU/∆Q).

True

A concert ticket would be an example of a good that you must experience to enjoy.

True

A fence would be an example of a good that delivers satisfaction only if you purchase enough of them.

True

A price is an example of an economic signal.

True

All cost are opportunity costs.

True

Although a market is efficient, it may not necessarily be fair.

True

An example of a fixed input at Papa John's would be the number of pizza ovens.

True

An example of a fixed input on a college campus would be the number of classrooms.

True

If the price of a good or service increases, then

A. and C. only (cons. decreases, prod. increases)

Some costs associated with taxes include

All of the Above

Which of the following would be considered as an example of a fixed input at a factory?

A and C

An example of a sunk cost is spending $15 on a movie ticket and leaving halfway through because the acting is terrible.

True

If the price of a good or service decreases, then

Consumer surplus will increase

Low price elasticities of demand and high price elasticities of supply lead the tax burden to fall on

Consumers

A benefit associated with taxes is administrative costs.

False

A budget line refers to a limited amount of income available to consumers to spend on goods and services.

False

A market is efficient if there are missed opportunities.

False

Accounting profit is often less than economic profit for a firm.

False

An example of a fixed cost at a small bakery would be the cost of wages per hour for employees.

False

An example of a variable cost would be rent per month on a building used by a small business.

False

An example of a variable input at McDonald's would be the number of drive-through windows.

False

An example of an implicit cost associated with a business would be the cost of machinery.

False

Average fixed cost rises as more output is produced.

False

Consumer surplus is the area located above the supply curve.

False

Deadweight loss refers to resources used by local, state, and federal governments to collect a tax.

False

In the short run, all inputs can vary.

False

Which of the following formulas is used to calculate marginal cost?

∆TC/∆Q

The goal of the firm is to experience diseconomies of scale.

False

Economic profit equals total revenue minus opportunity cost.

False

Everything on or below the budget line is considered unaffordable to the consumer.

False

In the short run, all of the firm's inputs can change.

False

Producer surplus is the area located underneath the demand curve.

False

Profit equals TC − TR.

False

The U-shaped average total cost curve rises at low levels of output, then falls at higher levels of output.

False

The formula for marginal product of an input equals ∆L/∆Q.

False

The formula for marginal revenue is ∆TC/∆Q.

False

The long-run average total cost curve shows the relationship between output and average total cost when variable cost has been chosen to minimize total cost for each level of output.

False

The main goal of consumers is to minimize their utility subject to their budget constraint.

False

The principle of diminishing marginal utility refers to the change in total utility that is generated by consuming an additional unit of a good or service.

False

Utility shows how marginal utility depends on various quantities of goods or services consumed.

False

Suppose the owner of High Mountain Ski Rentals purchased $150,000 worth of skis for rentals. The total revenue from the rentals is $300,000. Utilities are $20,000 per year and wages are $50,000. There is an outstanding loan, and the interest owing per year is $12,000. If the skis had not been purchased, the owner could have earned $11,500 in annual interest income on the $150,000 otherwise used to buy the skis. The owner was offered another managerial position at another ski shop for $40,000 a year. Using the information given, calculate accounting profit.

IDK but not $232,000

The total cost curve gets steeper as more output is produced due to the concept of diminishing returns to inputs.

True

An example of a variable input on a college campus would be the number of instructors needed.

True

An example of an implicit cost associated with attending college would be foregone salary that could have been earned working a full-time job instead.

True

At low levels of output, low fixed cost yields lower average total cost.

True

The marginal cost curve rises due to diminishing returns to inputs when a variable input is increased as quantities of other inputs remain fixed.

True

The optimal output rule says that profit is maximized when MR = MC.

True

Which of the following describes increasing returns to scale?

When long-run average total cost decreases as output increases.