Microeconomics - Quiz 2
In the short run, a profit-maximizing firm will not shut down if its total revenue is ___.
It will not shut down if its total revenue is greater than, equal to, its variable cost.
Purchasing goods such that the ratio of marginal utility to price is equal across all goods results in ___.
Results in the greatest total utility.
If the market of wedding cakes is perfectly competitive and wedding cakes sell for $95 each, then Sarah should produce ___ cakes per day.
Sarah should produce 3 days per day.
Suppose Sarah owns a small company that makes wedding cakes. The table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If the market for wedding cakes is perfectly competitive and wedding cakes sell for $95 each, then at her profit-maximizing level of output, Sarah will earn a ___ of ___ per day.
Sarah will earn a loss of $15 per day.
When Sarah produces 2 cakes per day, her average variable cost is ___.
Sarah's average variable cost is $60. Average cost = VC/Q
Given the information in the table, what is the call center's marginal cost when it goes from making 6 to 16 cells an hour?
$2
Assume that Dusty has $30 in income. The price of a loaf of bread is $1.50 and the price of a jar of peanut butter is $3. If Dusty's income rises to $45, Dusty can now buy a maximum of ___ loaves of bread or a maximum of ___ jars of peanut butter.
30 (loaves of bread), 15 (jars of peanut butter)
As price increases, firms find that it is ___.
It is beneficial to produce more units of output.
As the price of computers falls, the quantity demanded increases.
The law of demand.
Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires cheese to be sold for less than the equilibrium price, then relative to before the price controls, total consumer surplus in the market ___.
could either increase or decrease.
The table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. Each worker is paid $10 per hour. If the price of a telephone call increases from $5 to $10 an hour and nothing else changes, then ___.
marginal cost would not change.
The absolute price of a good in dollar terms is the good's ___.
nominal price.
The dollar price of a good relative to the average dollar price of all other goods is the good's ___.
Real Price
(graph) If Laura and Chris are the only 2 consumers in this market, the market demand for hamburger will be 9 pounds per week when the price of hamburgers is ___ per pound.
... is $1 per pound.
(graph, Laura and Chris) The price of hamburgers decreases from $2.50 to $2.00 per pound. The quantity demanded in the market will ___ by ___ pound(s) per week.
...will increase (quantity demanded) by 1.5 pounds per week.
In which of the following markets do firms sell the same standardized product?
2% milk
If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is ___.
24.
Casey earns $150 a week and consumes only fish and shrimp. The price of fish is $3 a pound and the price of shrimp is $5 a pound. Casey can buy a maximum of ___ pounds of fish or a maximum of ___ pounds of shrimp.
50 (pounds of fish), 30 (pounds of shrimp)
Total utility increases with each additional pizza up to the ___ and then declines, but marginal utility ___ with each additional pizza consumed.
6th pizza (total utility), decreases (marginal utility)
The long run is best defined as ___.
A period of time sufficiently long that all factors of production are variable
A seller's supply curve shows the seller's ___.
A seller's supply curve shows the seller's opportunity cost of producing an additional unit of output at each quantity.
A variable factor of production is ___.
A variable factor of production is variable in both the short run and the long run.
If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to ___.
An increase in price will lead to a decrease in the firm's supply.
An increase in consumers' demand for espresso will lead to an increase in ___, while an increase in the number of firms producing espresso will lead to a(n) ___.
An increase in supply, an increase in quantity supplied (for espresso-producing firms)
According to the law of diminishing marginal utility, as you consume ___ of something, your marginal utility from consuming that good will ___.
As you consume less of something, your marginal utility from consuming that good will increase.
You are trying to decide how to spend your last lunch dollar. You should that dollar to buy more of the item ___.
Buy more of the item that gives you the highest marginal utility per dollar.
The term "marginal utility" denotes the amount by which ___ changes when consumption changes by ___ unit(s).
By which total utility changes when consumption changes by 1 unit.
Last year, Casey grew fresh vegetables, which she sold at her local farmer's market; this year, however, Casey did not plant any vegetables and went to work at a bank instead. Which of the follow best explains Casey's career change?
Casey's opportunity cost of gardening exceeded Casey's opportunity cost of working at the bank.
Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, $10 for 0, $14 for 1, $19 for 2, and $25 for 3. What is his fixed cost per day?
Chris's fixed cost is $10 per day.
Cory gets 18,23, and 25 units worth of total utility from consuming 10, 11, and 12 raw oysters, respectively, and the price per oyster is $0.25. Thus, one can infer that Cory ___.
Cory is experiencing diminishing marginal utility.
The most important challenge facing a firm in a perfectly competitive market is deciding ___.
Deciding how much to produce.
Assume that each day a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day, the firm earns a ___ of ___.
Each day, the firm earns a profit of $170.
Assume that each day, a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day, the firm earns a ___ of ___.
Each day, the firm earns a profit of $170.
Jerry, Tom, and William all own a lemonade stand, selling their products at different prices. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?
Eventually, prices will equalize across all three lemonade stands.
Fred runs a fishing lodge, and has a very successful business during the summer. In the fall, the number of guests at the lodge starts to decline, and by November very few people stay at Fred's Lodge. Fred should keep the lodge open ___.
Fred should keep the lodge open only during those months in which his total revenue exceeds his variable cost.
Moe's mushroom gathering business is perfectly competitive. If mushrooms sell for $10 per bushel and Moe chooses the profit-maximizing quantity, he will gather ___ bushels.
He will gather 0 bushels. Profit-maximization in a perfectly market is at a point where marginal revenue is equal to marginal cost. Since he chose price more than the prevailing one, he won't be able to gather anything.
As Lynn eats more pizza, we would typically expect her marginal utility from eating pizza to ___.
Her marginal utility from eating pizza should decrease.
As Jeff watches more movies, his marginal utility ___.
His marginal utility decreases.
If Chris's fixed cost decreases, then in the short run his profit-maximizing level of output will ___.
His profit-maximizing level of output will not change. If fixed cost decreases but the variable cost remains the same, there will be no change in output level.
John is trying to make extra money on the weekends by cleaning windows. He makes $2 for every window he cleans. The number of windows he cleans depends on how many hours he spends in a day. 0 hours = 0 windows, 1 hour = 7 windows, 2 hours = 11 windows, 3 hours = 14 windows, 4 hours = 16 windows, and 5 hours = 17 windows. How many hours a day should John spend cleaning windows?
John should spend 2 hours a day cleaning windows.
If a consumer reallocates his or her spending away from good A and towards good B, then the consumer's total utility will increase if ___.
MU(a)/P(a) > MU(b)/P(b)
The additional utility gained from consuming an additional unit of good
Marginal utility
When the price of a good falls, marginal utility per dollar spent on that good ___, prompting consumers to purchase ___ of that good.
Marginal utility per dollar spent on that good rises, prompting consumers to purchase more of that good.
The primary objective of most private firms is to ___.
Maximize profits
Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output will require ___.
More than 30 additional employee-hours.
The marginal utility formula
Mu = M(n) - M(n-1)
A profit-maximizing perfectly competitive firm must decide ___.
Must decide only on how much to produce, taking price as fixed.
Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility?
No - Miles should shift his spending away from frozen pizza and towards ice cream.
The difference between the price a seller actually receives for a good and the seller's reservation price is ___.
Producer surplus
If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then using her profit-maximizing level of output, Sarah's profit will be ___ per day.
Sarah's profit will be $105 per day.
Sven's total utility ___ with each hour that he skied.
Sven's total utility increased
The tendency for consumers to purchase more of a good or service as its price falls is captured by ___.
The Law of Demand
The tendency for marginal utility to decline as consumption increases beyond some point
The Law of Diminishing Marginal Utility
A consumer will be in equilibrium when the ratio of marginal utility and price for good A is equal to the ratio of marginal utility and price of good B.
The Law of Equi Marginal Utility
Marginal cost is calculated as ___.
The change in total cost / the change in output
If a perfectly competitive firm can sell each unit of output for $9 and the marginal cost of the last unit produced is $8.50, then ___.
The extra benefit of the last unit produced is greater than the extra cost.
To produce 150 units of output, a firm must use 3 employee hours. To produce 300 units of output, the firm must use 8 employee hours. Apparently, the firm is ___.
The firm is experiencing diminishing returns.
To produce 150 units of output, the firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is ___.
The firm is experiencing diminishing returns.
Suppose a perfectly competitive firm is producing 77 units of output and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firms' revenue is sufficient to cover its variable cost, the firm should ___.
The firm should decrease production.
Suppose a perfectly competitive firm is producing 1000 units of output and the marginal cost of the 1000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should ___.
The firm should leave production unchanged.
For Michael, the first cup of coffee was great, but every cup after did not taste as good. For Michael, the marginal utility from drinking a cup of coffee had ___.
The marginal utility had decreased.
Which of the following is the most likely to be a fixed factor of production at a pizza restaurant? The number of waiters / The size of the seating area / The amount of electricity / The amount of pizza dough
The size of the seating area
Your neighbors have offered to pay you for looking after their dog. The smallest amount of money you would accept to look after your neighbor's dog is equal to ___.
The value of one hour of leisure, which is greater than zero.
The goal of utility maximization is to allocate your ___ in order to maximize your ___.
To allocate your resources in order to maximize your satisfaction.
Average total cost is defined as ___.
Total cost / Total output
Total profit is calculated as ___.
Total revenue - Total cost Total revenue - (Variable cost - Fixed cost)
If marginal utility is positive, then as consumption increases, ___.
Total utility will increase.
According to the law of demand, when the price of shoes ___, people will consume ___ shoes.
When the price of shoes falls, people will consume more shoes.
A technological innovation that reduces a firm's cost of producing additional units of output will lead to ___.
Will lead to an increase (shift right) in the firm's supply.
(pumpkin-pie eating contest) After the third pie, your total utility ___.
Your total utility decreased after the third pie.
During Thanksgiving, you participated in a pumpkin-pie eating contest. You really enjoyed eating the first two pies, the third one was okay, but you became ill and lost the contest as you ate your fourth. Your total utility ___ with the first three pies you ate.
Your total utility increased with the first three pies.
Angela is currently playing five games of pool and bowling three games. At this level of consumption, her marginal utility from a game of pool is 10 and her marginal utility from bowling a game is 6. IF both pool and bowling cost $1 a game, Angela should ___.
bowl less and play pool more.
Sven likes to water ski. On the fifth day of Sven's vacation, Sven went blueberry picking all day - Sven's vacation convinced him that ___.
even for activities he really enjoys, diminishing marginal utility eventually sets in.
An imperfectly competitive firm is one that ___.
has some degree of influence over the price it charges for its output (the market price)
The Law of Demand indicates that as the cost of an activity ___.
rises, less of the activity will occur.
Suppose a cup of tea costs $0.60 and a scone costs $1.20. Edith received a marginal utility of 6 utils from the last cup of tea she bought and a marginal utility of 24 utils from the last scone. She should buy less ___ and more ___.
tea (should buy less), scones (should buy more)