ag econ- quiz answer keys
The "units" for measuring MFC are:
$/unit of input
The "units" for measuring MRP are
$/unit of input
The slope of the PPF:
1. Is called the Marginal Rate of Product Substitution 2. Gets steeper as we move to the right along a typical PPF 3. Is the rate at which one output must be decreased as the other output is increased using a fixed set of input
Producers maximize profits by:
1. Maximizing the difference between TFC and TRP 2. Using more variable input as long as MRP is greater than MFC. 3. Weighing marginal benefits vs. marginal costs of incremental input decisions
The profit maximizing combination of 2 outputs can be found:
1. Where the slope of the PPF is = to the slope of the Isorevenue line 2. Where the iso-revenue line is as far out from the origin as it can possibly be and still touch the PPF 3. At the tangency point of the isorevenue line and the PPF
Optimal input combinations are found
A. By attaining the "farthest out from the origin" isoquant possible given the amount of money being spent on inputs B. By setting the slope of the isoquant equal to the slope of the isocost line C. By equating the MRTS to the ratio of the prices of the two variable input
Which of the following can be plotted on the same graph (with only one vertical axis)
APP and MPP
If you look at a level of input use on an APP - MPP graph, and MPP>APP then:
APP will be increasing as you add more variable input
The trend of increased numbers of really small scale farming operations is
Driven by consumer segments desiring to pay for special food attributes that can often be best supplied by smaller operations (organic, non-gmo, locally grown, etc.)
If (px)=0.50, (Py)= 3, and TPP= 7 then,
MFC= 0.50
Assume that producing 5 units of output yields total cost of $106 but producing 6 units of output yields total cost of $112 and assume that Py is $5
MR-$5 A rational producer would not produce 6 units of output in this scenario Marginal costs between 5 and 6 units of output is $6
Profit maximization output level is found where:
MR= MC and MC is increasing
If MPP is 10 and (Py) is 3 and (Px) is 20 then:
MRP=30 MFC=20 The firm should use more variable input to maximize profit
When will MC and MFC be the same?
Only in the rare instance where the production of one unit of output requires exactly one unit of variable input
Which two curves are mirror images of each other?
TC and TPP
Which of the following could commonly be a "non-economic" good?
Watching the sunset
An observed change in the a quantity that consumers are willing to purchase that is caused by a change in the price of a related good is:
a change in demand
An observed change in the quantity that producers are willing to supply to the market that is caused by a change in the price of that good:
a change in the quantity supplied
The price of chicken feed is $11.50 per 50 lb. bag at the Stillwater Mill is
a positive economic statement
Which of the following could be a market place
a roadside stand, website, store
Marginal Cost is:
additional cost from selling one more unit of output
Decreasing returns means:
additional units of input yield less additional output relative to previous units of input
The Production Possibilities Frontier (PPF) shows:
all combinations of two outputs that can be produced with a constant level of inputs
The perfect competition characteristic of perfect information means
all industry participants have access to price and technology information
For compliments in production (2 goods that are typically produced together)
an increase in the price of one will increase the "supply" of the other
Imperfect substitute isoquants:
are convex to the origin
A point located inside (closer to the origin than) the PPF is:
attainable but not efficient
The relationship between average and marginal is
average chases marginal
Why does the TVC curve begin to increase at an increasing rate as more and more output is produed
because of diminishing marginal returns associated with the decreasing returns portion of the production function
Stage 1 of the production function
begins at 0 input use and goes up to maximum APP
Free trade tariffs (removing tariffs and quotas) will:
benefit citizens of all countries because less resources will be wasted producing things inefficiently
An Oklahoma cow-calf rancher is an example of
both a consumer and a producer, depending on the good or service
Placing a numerical value on the satisfaction derived from the consumption of a piece of apple pie at one point in time is
cardinal utitlity
For both supply and demand relationships:
changing prices cause quantities to change for individual decision makers
An IsoCost shows
combinations of 2 variable inputs that can be purchased for the same level expenditure
An IsoQuant shows
combinations of 2 variable inputs that can be used to produce the same level of output
A cattle feedlot with large fixed costs would likely exhibit:
decreasing cost structure
The "laws of supply and demand" indicate that
demand curves slope down and supply curves slope up
Typical (imperfect substitute) isoquants get there shape because of
diminishing marginal returns to each individual input in the production process
Fixed costs
do not vary with the level of output produced
What are the "units" on the vertical axis of the AVC, ATC, and MC graph?
dollars per unit of output
The benefits of free trade come from:
each country producing the stuff they are relatively best at
If the price of a good increases by 1% and the quality supplied increases by 2% then the supply of the good is
elastic
All else equal, if the demand for oranges shifts to the right:
equilibrium price and quantity will both increase
Scarcity affects
everyone
If the price of corn increases relative to the price of other crops that can be grown by the same farmers:
farmers will plant more corn
The equation for a line expressed as P = 5.20 - .1Q, that could be graphed with P (price) on the vertical axis and Q (quantity) on the horizontal axis:
has a vertical axis intercept of 5.20
An "elasticity" measures
how responsive 1 economic variable is to another variable
Variable costs
increase with the level of output produced, increased with the level of input usage, could also be opportunity costs
A timber harvest company operating in very rough terrain would likely exhibit
increasing cost structure
The shape of the PPF
is a bowed curve concave to the origin
An Oklahoma cow-calf producer who is earning exactly zero economic profits over time:
is earning exactly what you would expect the average cow-calf producer to earn
Profit maximizing level of input use:
is found when the difference between TRP and TVFC is at a maximum
Economic Profits will always be
less than or equal to accounting profits
Relative to broadly defined products (all shirts for example) more narrowly defined products (red shirts) have:
more elastic demand curves
The "cross price" elasticity of demand for compliments is
negative
If the price of output is less than the minimum average total cost (ATC) this will results in:
negative economic profits
"The price of steer calves should be higher" is an example of a:
normative statement
When assembling something, nuts and bolts would normally be:
perfect compliments with an L shaped isoquant
Resources are allocated in a market economy by:
prices
The "major" point to remember about perfect competition is that:
prices are given, participants are "price takers"
If the price of marijuana decreases, ceteris paribus, then producers of marijuana will always want to:
produce and supply less marijuana
If the price of fertilizer (a major input in corn production) increases ceteris paribus, then a corn producer will:
produce the same amount of corn
Homogeneous Products means:
products produced by different firms in the industry are similar and consumers are pretty much indifferent regarding who they buy from
The optimal combination of inputs depends on:
relative prices of inputs
Total Variable Factor Cost (TFC in the book)
represents the total cost of all of the variable inputs at various levels of input use
If the slope of the PPF (MRPS) is > than the slope of the isorevenue line at the point where the producer is currently operation on the PPF, with Y2 on the vertical axis and Y1 on the horizontal axis, the producer should
shift to more Y2 and less Y1
Technological change that is allowed to happen typically
shifts the production function up, allows more output to be produced with less input, makes society better off
If prices are artificially held at levels lower than the market equilibrium:
shortages will occur and some consumers will not get the goods they want
If both the supply and demand curves for a particular good are elastic, then:
small price changes trigger large quantity changes.
The law of diminishing marginal returns
states that as more units of one variable input are added to a fixed amount of other inputs, eventually the additional output gained from adding more of that input will decline
The underlying assumptions regarding individual decision maker behavior include
that producers behave rationally and maximize profit and consumers behave rationally and maximize utility
If you graph X1 on the horizontal axis and X2 on the vertical axis and the price of X1 increases then:
the Isocost line becomes steeper
The individual firm supply curve is
the MC curve above minimum AVC
If a firm gets more efficient at producing the product that is depicted on the vertical axis of a PPF graph:
the PPF vertical axis intercept will increase
MFC is:
the additional cost of one more unit input
For a perfectly competitive firm, marginal revenue is
the additional revenue from selling one more unit of output
Increasing Cost structure means
the average cost (per unit) increases as output increases
Opportunity costs over and above accounting costs would include:
the fair market rental "value" of a pasture that is owned so no rent is actually paid
If some inputs are variable but some are fixed for a wheat producer then
the firm is in the short run
If MPP is 5 and (Py) is 3 and (Px) 20, and MPP is decreasing then:
the firm should use less variable input to maximize profit
"Marginal Cost" refers to
the increase in total cost due to the production of one more unit of output
On the Total Cost Graph, the decision variable is
the level of output
When graphing the total cost curves (TC, TVC, and TFC) the decision variable (the one we change) is:
the level of output we are producing
A production function is
the physical relationship between inputs and outputs
A supply curve shifter for steak would NOT be
the price of steak
The Iso-Revenue line is derived from
the price of the outputs
"Optimal" level of input use means:
the producer is doing the best they can do
If the price of fish increases then there is a change in
the quantity supplied of fish
If the price of wheat increases
the quantity supplied of wheat will increase and the supply of canola will decrease
MRTS is:
the rate at which one input can be substituted for another while maintaining the same level of output
Micro-Economics is
the study of individual decision maker behavior and individual industry segments
The market supply curve is:
the summation of all individual supply curves across quantities (horizontally)
The "long run" in economics refers to
the time frame in which all inputs into the production process can be changed
TPP and TRP cannot usually be graphed on the same 2 dimensional graph because:
they are not measured in the same units
TRP: Total Revenue Product
transforms the physical relationship of TPP into an economic relationship
If the price of the output (Py) decreases significantly ceteris paribus then the profit maximizing producer will
use less variable input and produce less output
If the price of the variable input (Px) decreases significantly ceteris paribus then the profit maximizing producer will:
use more variable input and produce more output
In economics when we look at one change at a time while holding all else constant:
we are using the term "ceteris paribus"
