Ch. 4, 10, 11, & 12 Exam

Which of the following statements best describes the concept of consumer surplus?

"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."

SCENARIO 7.1: You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return. Your economic profit was _____

$0

Figure 4.3 An example of an effective price ceiling would be government setting the price of pencils at

$0.40

Table 8.4 If David produces four figs, David's average total costs are:

$100

Table 8.4 If David produces three figs, David's total variable costs are:

$240

SCENARIO 7.1: You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return. Your accounting profit last year was _______

$40,000

Characteristics of indifference curves

-Indifference curves cannot intersect -The slope of an indifference curve is negative -Indifference curves are usually bowed in, or convex

perfect competition is characterized by

-homogeneous products -sellers are price takers -a horizontal demand curve for individual sellers

Characteristics of a perfectly competitive market structure

-there are no restrictions to entry by new firms -there are a very large number of firms that are small compared to the market -all firms sell identical products

A perfect competitive market meets all of the following conditions: ...

1) many buyers & sellers 2) all firms selling identical products 3) no barriers to new firms entering the market

Figure 6.8 The marginal utility of the second movie rental is

10

Figure 12.4 If the market price is $30, the firm's profit-maximizing output level is

180

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

2 chairs

Figure 4.2 What area represents the increase in producer surplus when the market price rises from P1 to P2?

A + B

Which of the following is an example of economies of scale?

A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially

Figure 4.6 What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?

B

Figure 10.5 Which of the following statements is true?

Bundles r and w are not affordable

Figure 4.6 What area represents the deadweight loss after the imposition of the price floor?

C + D

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run

Jason, a high school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?

If Jason raises his price he would lose all his customers

What is an indifference curve?

It is a curve that shows the combinations of consumption bundles that gives the consumer the same utility

Which of the following is not a characteristic of indifference curves?

The closer to the origin, the greater the utility level

the period of time during which at least one of a firm's inputs is fixed

short run

Which of the following is explained by the law of diminishing marginal utility?

The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola.

Which of the following is not a characteristic of a perfectly competitive market structure?

There are restrictions on exit of firms

Which of the following statements is true? (about costs)

Total cost = fixed cost + variable cost

Figure 12.4 If the market price is $30, should the firm represented in the diagram continue to stay in business?

Yes, because it is covering part of its fixed cost

A market that meets all of the following conditions: 1) many buyers & sellers 2) all firms selling identical products 3) no barriers to new firms entering the market

a perfect competitive market

Where is price floor?

above the equilibrium

Where is surplus?

above the equilibrium

Where is consumer surplus?

above the market price or equilibrium & under the demand curve

A characteristic of the long run is

all inputs can be varied

The total of consumer plus producer surplus is greatest

at the market equilibrium

Figure 8.6 The vertical distance AB is Outdoor Equipment's

average fixed cost

afc =

average fixed cost = fixed cost/quantity

atc =

average total cost = total cost/quantity or average total cost = average fixed cost + average variable cost

avc =

average variable cost = variable cost/quantity

Where is price ceiling?

below the equilibrium

Where is shortage?

below the equilibrium

Where is producer surplus?

below the market price of equilibrium & above the supply curve

If the price of muffins, a normal good you enjoy, rises

both the income and substitution effects lead you to buy fewer muffins

the limited amount of income available to consumers to spend on goods and services

budget constraint

Suppose the consumer's income increases while the prices of the goods remain constant. Then the

budget constraint shifts outward parallel to the original budget constraint

mc =

change in total cost/change in quantity

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

consumer surplus

the reduction in economic surplus resulting from a market not being in competitive equilibrium

deadweight loss

the situation in which a firm's long run average costs rise as the firm increases output

diseconomies of scale

the situation when a firm's long-run average costs fall as it increases the quantity of output it produces

economies of scale

The average total cost of production

equals total cost of production divided by the level of output

at quantity = 0,...

everything is 0 except for fc & tc @ quantity = 0, fc = tc

a cost that involves spending money

explicit cost

costs that remain constant as output changes

fixed cost

Total cost =

fixed cost + variable cost

fc =

fixed costs = the same for every quantity

Perfect competition is characterized by all of the following except

heavy advertising by individual sellers

In a "black market"

illegal trading at market prices take place

______ are likely a fixed cost of a firm

lease payments for office space

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

long run

the change in a firm's total cost from producing one more unit of a good or service

marginal cost

Figure 8.6 Curve 1 is Outdoor Equipment's

marginal cost curve

Figure 12-10 The perfectly competitive firm's short0run supply curve is its

marginal cost curve from b and above

the change in total utility a person receives from consuming one additional unit of a good or service

marginal utility

at quantity = 1,...

mc = vc

Jon is consuming X and Y so that he is spending his entire income and MUx/Px=8 and MUy/Py=4. To maximize utility, he should consume

more X and less Y

a buyer or seller that is unable to affect the market price

price takers

the difference between the lowest price a firm is willing to accept for a good or service and the price it actually receives

producer surplus

economic profit =

revenues - all costs (even those that don't involve spending money)

accounting profit =

revenues - explicit costs (just those that involve spending money)

Figure 10.5 The consumer can afford consumption bundles

s, v, t and u

The processes a firm uses to turn inputs into outputs of goods and services is called

technology

Figure 11.11 For output rates greater than 20,000 picture frames per month

the firm will experience diseconomies of scale

Diseconomies of scale apply only to

the long run

Figure 11.2 The curve labeled "E" is

the marginal product curve

In perfect competition

the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic

Figure 10.9 The change in the budget constraint from BC1 to BC2 implies

the price of DVDs has increased and the price of CDs has decreased

law of diminishing marginal utility

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

law of diminishing returns

the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline

Diminishing returns apply only to

the short run

the cost of all of the inputs a firm uses in production

total cost

tc =

total cost = fixed cost + variable cost

Figure 6.13 If Arthur moves from indifference curve 1 to indifference curve 2, then Arthur's

total utility increases

The satisfaction a person receives from consuming goods and services is called

utility

costs that change as output changes

variable cost

Figure 8.6 Outdoor Equipment's average variable costs are minimized at the output level

where Curves 1 and 2 intersect

If, when you consume another piece of candy, your marginal utility is zero, then

you have maximized your total utility from consuming candy