Applied Econ Ch 1-4

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Suppose you have recently graduated and have been offered a salary position at a reputable accounting firm of​ $125,000 (including all​ benefits) per year. After much​ consideration, you turn down the offer to start your own accounting firm. You pay yourself​ $75,000 (including all​ benefits) a year. Which of the following represents the opportunity cost of your​ time?

$125,000

A florist paid​ $1,200 for 500 glass vases. The florist has used 300 of the glass vases and is holding the remaining 200 vases in inventory. The current market price for the 200 pieces of hardware is​ $600. What is the opportunity cost of holding the 200 vases in​ inventory?

$600

The figure shows the quantity of iron ore demanded at various prices. The maximum price a demander is willing to pay for the 300 thousandth ton of iron ore is​ ____ per ton.

$80

If a 10 percent increase in price leads to a 5 percent decrease in the quantity​ demanded, the price elasticity of demand equals

0.50

If a 4 percent increase in the price of golf clubs leads to a 3 percent increase in the demand for tennis​ rackets, then the cross elasticity of demand is​ ____ and golf clubs and tennis rackets are​ ____.

0.75; substitutes

The table on the right shows the marginal benefit and marginal cost of an action. Using marginal​ analysis, managers should undertake

3 units of the action because that is the action that sets the marginal benefit equal to the marginal cost.

Suppose the price elasticity of demand for gasoline is 0.5. Then a 10 percent increase in the price of gasoline leads to a​ ____ decrease in the quantity of gasoline demanded.

5 percent

If the 95 percent confidence interval for an estimated coefficient runs from 1.0 to​ 3.2, then there is a​ ____ probability that the true value of the coefficient​ ____.

95​ percent; lies inside of the range from 1.0 to 3.2

All of the following can affect a​ firm's total revenue except which​ one?

Accounting costs

How does an advance in technology affect the supply​ curve?

An advance in technology shifts the supply curve to the right.

Average total cost ​(ATC​) equals i. total cost ​(TC​) divided by output ​(Q​) or TCQ. ii. the sum of average fixed cost ​(AFC​) and average variable cost ​(AVC​) or AFC​ + AVC.

Both i and ii are correct.

If a manager chooses the amount of an action that sets the marginal benefit of the action equal to its marginal​ cost, then i. all the units for which the marginal benefit exceed the marginal cost are undertaken. ii. none of the units for which the marginal benefit is less than the marginal cost are undertaken.

Both i and ii are correct.

The marginal cost curve goes through the minimum point of the i. average total cost curve. ii. average variable cost curve. iii. average fixed cost curve.

Both i and ii are correct.

Which of the following factors does not shift the supply curve of a​ product?

Consumers' income

Which type of firm is legally required to setup a double−entry booking system to record its business​ transactions?

Corporation

Under which​ form(s) of business organization are owners not responsible for the​ company's debt if the company goes​ bankrupt?

Corporation and limited liability company

Which​ form(s) of business organization have their profits taxed​ twice?

Only corporations

For the demand function Qd​ = a−b​ × P​, regression analysis is used to estimate​ ____. i. the​ price, P ii. the​ coefficients, a and b

Only ii is correct.

​____ become(s) constantly smaller as output increases.

Only the average fixed cost ​(AFC​)

In the demand​ function, Qd​ = a​ -​ b​ × P​, ​____ is​ (are) the dependent​ variable(s) and​ ____ is the independent variable.

Qd​; P

At the 50th unit of​ action, the marginal benefit is equal to​ $20 and the marginal cost is equal to​ $25. Which of the following is​ true?

The 50th unit of action should not be undertaken.

________ is an example of an implicit cost.

The wear and tear on a​ firm's machinery

According to the law of​ demand, ____ increases the quantity of tires demanded.

a fall in the price of car tires

An increase in the price of dry cleaning results in

a movement up along the dry cleaning supply curve.

The income elasticity of demand for dining out is positive. Dining out is therefore

a normal good

In​ Venezuela, residents must stand in long lines to buy diapers in drug stores but can buy them at a much higher price from venders selling them at busy street corners. The most likely explanation for this situation is

a price ceiling that has been set below the equilibrium price.

A movement upward along the demand curve for tangerines is the result of​ ____.

an increase in the price of tangerines

In the demand function Qd​ = r - s​ × P​, the​ coefficient(s)

are r and s.

Which average cost curve is not​ U-shaped?

average fixed cost curve

An increase in the wage rate shifts the

average variable cost curve and marginal cost curve upward.

If the marginal​ ________ of an action exceeds its marginal​ ________ then the action​ ________ be performed.

benefit; cost; should

According to the definition of a​ firm, the American Cancer Society

can be considered a firm.

A production function shows that to increase the quantity​ produced, the firm

can increase its use of at least one input or adopt new technology.

A firm produces output using only labor and capital. MPL is the marginal product of labor and W is the cost of a unit of labor. MPL/W measures the

change in output from a one dollar change in spending on labor

You are a manager for Callaway Golf Company. You know that you are producing your golf clubs at the lowest average total cost ​(ATC​) and are producing at a point on your​ long-run average cost ​(LAC​) curve.​ Consequently, the firm is producing at a point where it has

constant returns to scale.

In a regression estimating the demand function for​ corn, the estimated coefficient on the income variable is positive. This result means that

corn is a normal good.

For two goods that are​ substitutes, the

cross elasticity of demand is positive

Marginal analysis recognizes that

decisions have both marginal benefits and marginal costs

Each hour a store remains open it incurs a marginal cost. If the marginal benefit of staying open does not change but the marginal cost​ doubles, then the manager will​ ____ the hours the store remains open.

decrease

If the marginal benefit curve is linear and downward sloping and the marginal cost curve is linear and upward​ sloping, an increase in the marginal cost that causes an upward shift of the curve will​ ________ the profit−maximizing number of units undertaken.

decrease

In a regression estimating the demand function for Dell​ tablets, the estimated coefficient on income is positive. As a manager for​ Dell, if you think the economy will fall into a business cycle recession during which income​ falls, you predict that the demand for your tablets will​ ____.

decrease

Accounting cost and opportunity cost differ when it comes to measuring​ ____.

depreciation.

If your firm can decrease its average total cost ​(ATC​) by decreasing its​ production, then it is definitely producing at a point with

diseconomies of scale.

The defining feature of a demand curve is that it is​ ____.

downward sloping

Over the range for which the​ long-run average cost ​(LAC​) curve is downward​ sloping, the firm is definitely producing at points with

economies of scale.

For about a​ decade, Procter​ & Gamble​ (P&G) increased the number of different types of beauty products it sold. But then the executives started to divest many of these products by selling them to other companies. The executives initially thought​ P&G would have​ ____ and then they believed that​ P&G had​ ____.

economies of​ scope; diseconomies of scope

You are a manager for Royal Caribbean Cruises. You realize that​ (a) there are many substitutes for your​ cruises, which makes the demand for cruises​ ____, and​ (b) the families that buy your cruises spend a large fraction of their income on the​ cruises, which makes the demand for cruises​ ____.

elastic; elastic

At the equilibrium​ price, the equilibrium quantity is

equal to the quantity supplied and to the quantity demanded.

The 95 percent confidence level for the​ t-statistic is 1.96. If the estimated coefficient is 3.0 and its standard error is​ 1.0, then the null hypothesis that the true coefficient is

equal to zero can be rejected.

Suppose a​ downward-sloping, linear demand curve has a slope of −4 dollars per unit. Moving downward along this demand​ curve, the price elasticity of demand

falls in value.

White bread contains a lot of simple​ carbohydrates, so if more people limit their intake of simple​ carbohydrates, the equilibrium price of a loaf of white bread​ ____ and the equilibrium quantity​ ____.

falls; decreases

If pineapples and mangos are​ substitutes, then in a regression estimating the demand function for​ pineapples, the coefficient on the price of mangos will be negative.

false

If you are producing at a point on your​ long-run average cost ​(LAC​) curve with economies of​ scale, then if you increase your production you expect your average costs will fall in the short run but rise in the long run.

false

In a perfectly competitive​ market, the consumer surplus is equal to the total surplus.

false

Producing more than the efficient quantity of a product never creates a deadweight loss for society.

false

The equilibrium price is determined using only the demand​ function, and the equilibrium quantity is determined using only the supply function.

false

The larger the​ t-statistic, the more likely the true coefficient is equal to zero.

false

The​ long-run average cost ​(LAC​) curve

first falls and eventually rises as the quantity is increased.

As more capital is​ used, the marginal product of capital

first increases and then ultimately decreases

Managerial economics

helps executives manage their firms more efficiently.

An​ ____ cost is defined as a cost that does not involve an outflow of cash.

implicit

If the marginal benefit curve is linear and downward sloping and the marginal cost curve is linear and upward​ sloping, a decrease in the marginal cost that causes a downward shift of the curve will​ ________ the profit−maximizing number of units undertaken.

increase

Increasing marginal returns to labor is the result of

increased specialization of labor.

According to the law of​ supply, a rise in the price of a product

increases the quantity supplied

To maximize total​ profit, managers want to produce the quantity in which marginal benefit​ ________ marginal cost.

is equal to

If the equilibrium price of ammonia is​ $600 per metric ton and the actual price is​ $560 per metric​ ton, the quantity demanded​ ____ the quantity supplied.

is greater than

Analyzing sales​ data, you discover that a fall in your price decreases your total revenue.​ Therefore, you know that the demand for your product​ ____.

is inelastic

In a supply​ function, the coefficient on the price of the product

is positive.

An increase in the price of a substitute in production shifts the supply curve to the​ ____; an increase in the price of a complement in production shifts the supply curve to the​ ____.

left;right

A price ceiling creates a shortage when it is set

lower than the equilibrium price

If both the supply and demand​ increase, then the equilibrium price​ ____ and the equilibrium quantity​ ____.

might rise, fall, or not change; increases

According to the law of​ supply, supply curves​ ____ upward sloping and​ ____ linear.

must​ be; might be

In the short​ run, when a firm produces no​ output, the​ firm's fixed cost is​ ____ and its total cost is​ ____.

not​ zero; not zero

An​ ____ cost is defined as the return from the​ best-alternative use of a resource.

opportunity

The price elasticity of demand is equal to the absolute value of the

percentage change in the quantity demanded divided by the percentage change in the price.

If a demand curve is​ vertical, then the demand is​ ____ and the price elasticity of demand equals​ ____.

perfectly inelastic, zero

A minimum wage is an example of

price floor

An increase in the​ ____ shifts the supply curve of raisins to the left.

price of​ grapes, an input used to produce​ raisins

A firm owned by one person with unlimited liability is a

proprietorship.

A​ ________ only exists for the life of the​ owner, while a​ ________ has perpetual life.

proprietorship; corporation

The substitution effect means that an increase in the price of beef​ ____.

raises its price relative to the price of​ chicken, which is a substitute for beef

Gasoline and diesel fuel are complements in​ production, so a fall in the price of gasoline​ ____ the price of diesel fuel and​ ____ the quantity of diesel fuel.

raises; decreases

An increase in demand combined with a decrease in supply​ ____ the price and​ ____ the quantity.

raises; might​ increase, decrease, or not change

If jet fuel rises in​ price, the price of an airline ticket​ ____ and the quantity of travel by air​ ____.

rises; decreases

If the cost of the corn fed to steers​ increases, then the price of beef​ ____ and the equilibrium quantity​ ____.

rises; decreases

At the equilibrium​ price, the quantity demanded is equal to the equilibrium quantity.

true

When the demand and supply functions include factors in addition to the price of the​ product, the equilibrium price is determined by equating the demand function to the supply​ function, that​ is, Qd​ = Qs.

true

The​ long-run average cost curve

shows the lowest average total cost ​(ATC​) of producing each quantity.

Economic models

simplify the real world by ignoring minor details.

A price floor set above the equilibrium price creates

surplus

At any price higher than the equilibrium​ price, there is a​ ____ and the price will​ ____.

surplus; fall

Marginal cost ​(MC​) is equal to​ ____.

the change in the total cost ​(ΔTC​) divided by the change in output ​(ΔQ​) or

You know that both the demand and supply of wheat have increased. You observe that the price rises. You can conclude that

the demand for wheat increased more than the supply of wheat.

If the demand function for a product includes both the price of the product and​ households' income while the supply function includes both the price and the cost of producing the​ product, then

the equilibrium price will change if either cost or income changes.

The price elasticity of demand is smaller

the fewer substitutes for the product.

If a firm has constant returns to​ scale, then

the firm must increase its use of all inputs to increase its production.

If the marginal product of labor ​(MPL​) increases when more labor is​ employed, then

the marginal cost ​(MC​) decreases when output increases.

A price ceiling is a government regulation that sets

the maximum legal price

The law of demand refers to the relationship between​ ____ and the quantity demanded of the good or service.

the price of a good or service

The law of supply refers to the relationship between

the price of a good or service and the quantity supplied of that good or service.

The demand curve of a good or service shifts to the left when

the price of a substitute good falls.

Two of your managers complain​ that: "We wish we had another factory to meet the demand for our​ product!" These managers mean that

they wish that enough time had passed so that the company reached the long run

If the​ long-run average cost ​(LAC​) curve has a horizontal​ range, then

the​ long-run marginal cost ​(LMC​) equals the​ long-run average cost for this range of output.

You are a manager of Redland Brick. If the price elasticity of demand for your bricks is​ 2.5, then if you raise the price of bricks by 4​ percent, the quantity of your bricks demanded decreases by 10 percent.

true

You manage a firm that produces output using only labor and capital. The marginal product of labor is 10 units of output per​ worker, the cost of a worker is​ $200 per​ worker, the marginal product of capital is 30 units of output per unit of​ capital, and the cost of a unit of capital is​ $400. To minimize the cost of producing the desired quantity of​ output, you should

use more capital and less labor.

A firm produces output using only labor and capital. MPL is the marginal product of​ labor, W is the cost of a unit of​ labor, MPK is the marginal product of​ capital, and R is the cost of a unit of capital. If MPLW>MPKR to minimize the cost of producing the desired quantity of​ output, the firm should

use more labor and less capital.

In the short​ run, labor is a​ ____ input and capital is a​ ____ input.

variable, fixed

In the long​ run, labor is a​ ____ input and capital is a​ ____ input.

variable,variable

If people switch their drinking habits from soda to energy​ drinks, then the quantity of soda​ ___ and the quantity of energy drinks.

​decreases; increases

If the price elasticity of demand is​ 2.0, then demand is​ ____. If the price elasticity of demand is​ 0.5, then demand is​ ____.

​elastic; inelastic

If the supply of corn​ increases, then the equilibrium price of a ton of corn​ ____ and the equilibrium quantity​ ____.

​falls; increases

Older people use more pharmaceutical drugs than younger people. As the number of older people in the United States​ increases, the demand for pharmaceutical drugs​ ____, thereby causing the price of these drugs to​ ____.

​increases; rise

In a business cycle​ recession, income​ falls, and in a business cycle​ expansion, income rises.​ Consequently, in a recession the demand for​ ____ goods​ increases, and in an expansion the demand for​ ____ goods decreases.

​inferior; inferior

An increase in the expected future price shifts the supply curve to the​ ____; a decrease in the expected future price shifts the supply curve to the​ ____.

​left; right

A technological advance in the production of computer chips​ ____ the price of these chips and​ ____ quantity.

​lowers; increases

Demand increases when the price of a substitute​ ____ and when the price of a complement​ ____.

​rises, falls

Travel by airline is a normal​ good, and​ people's incomes increase.​ Consequently, the equilibrium price of an airline ticket​ ____ and the equilibrium quantity​ ____.

​rises; increases

f the demand for iron ore​ increases, then the equilibrium price of a ton of iron ore​ ____ and the equilibrium quantity​ ____.

​rises; increases

If the supply of oil decreases and demand for oil​ increases, then the equilibrium price of oil​ ____ and the equilibrium quantity​ ____.

​rises; might​ increase, decrease, or not change

The cost of producing chickens rises and simultaneously more people decide that eating chicken is healthy.​ Consequently, the equilibrium price of chicken​ ____ and the equilibrium quantity​ ____.

​rises; might​ increase, decrease, or not change

If consumers respond​ ____ to a change in​ price, then demand is​ ____.

​weakly; inelastic


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