CSM 303 Final Exam

Tom's Tent Company has total fixed costs of $300,00 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal

$110

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total cost are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal cost of producing the 101 unit of output?

$250

Average total cost equals

(fixed+variable costs) divided by quantity produced

Suppose that a firm operating in perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct? (i) marginal revenue equals $4 (ii) average revenue equals $100 (iii) totale revenue equals $1,600

(i) and (iii) only

Economists generally believe that rent control is

a highly inefficient way to help the poor raise their standard of living

Suppose that Jane enjoys Diet Coke so much that she consumes one can everyday. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

a necessity versus a luxury in determining the price elasticity of demand

Which of the following would not interfere w/ market equilibria?

a non-binding price floor

If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then

a one-unit increase in output will increase the firm's profit

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

a smaller quantity of the good is bought and sold

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

a technological advance makes cellular phone production less expensive

Johnny is a sophomore in college and has a 1.5 cumulative GPA. Johnny's cumulative GPA will fall even further next semester if he performs worse than (i) his cumulative GPA (ii) he ever performed before (iii) he did last semester

a. (i) and (ii) only

A price floor will be binding only if it is set

above the equilibrium price

Consumer surplus is the

amount a consumer is willing to pay minus the amount the consumer actually pays

The cost of producing the typical unit of output is the firm's

average total cost

Marginal cost is equal to average total cost when

average total cost is at its minimum

When a firm is operating at an efficient scale,

average total cost is minimized

If Franco's Pizza Parlor knows that the marginal cost of the 500th pizza is $3.50 and that the average total cost of making 499 pizzas is $3.30, then

average total costs are rising at Q= 500

You and your college roommate eat 3 packages of Ramen each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen very much and buys even more, buy you plan to buy fewer Ramen in favor of foods you prefer more. When looking at income elasticity of demand for Ramen, yours would

be negative and your roommate's would be positive

Who is a price take in a competitive market?

both buyers and sellers

If the cross-price elasticity of 2 goods is negative, then the 2 goods are

complements

Which of the following costs of publishing a book is fixed?

composition, typesetting, and jacket design for the book

Which of the following is likely to have the most price inelastic demand?

cookies

A binding price ceiling (i) causes surplus (ii) causes shortage (iii) is set at a price above the equilibrium price (iv) is set at a price below the equilibrium price

d. (ii) and (iv) only

Which of the following industries is most likely to exhibit the characteristics of a free entry?

dairy farming

A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes

decreases, and the consumer surplus in the market for red wine decreases

Which of the following is likely to have the most price elastic demand?

diamond earrings

Marginal cost increases as the quantity of output increases. This reflects the property of

diminishing marginal product

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

entry is limited

For a firm in a perfectly competitive market, the price of the good is always

equal to marginal revenue

There are several criticisms of the minimum wage. Which of the following is not one of those criticisms? The minimum wage

fails to raise the wage of any employed person

Which of the following costs do not vary w/ the amount of output a firm produces?

fixed costs

Total cost can be divided into 2 types of costs:

fixed costs and variable costs

Elasticity if demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be

Ina competitive market, the actions of any single buyer or seller will

have a negligible impact on the market price

The goal of rent control is to

help the poor by making housing more affordable

If the government removes a binding price ceiling from a market, then the price received by sellers will

increase, and the quantity sold in the marker will increase

The average-fixed-cost curve

is always decreasing

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of

lemons and sugar

A key determinant of the price elasticity of supply is the

length of the time period

The cost of producing an additional unit of output is the firm's

marginal cost

At the profit-maximizing level of output,

marginal revenue equals average total cost

When OPEC raised the price of crude oil in the 1970s, is cause the US

nonbinding price ceiling on gasoline to become binding

A minimum wage that is set below a market's equilibrium wage will result in an excess a. demand for labor, that is, unemployment b. demand for labor, that is, a shortage of workers c. supply of labor, that is, unemployment d. none of the above

none of the abov

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

one year after the price increase

Which of the following expressions represent a cross-price elasticity of demand?

percentage change in quantity demanded of bread divided by percentage change in price of butter

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

quantity demanded of physicals increases, and the quantity supplies of physicals decreases

The price elasticity of demand measures how much

quantity demanded responds to a change in price

Total revenue

remains unchanged as price increases when demand is unit elastic

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?

sellers of corn, recognizing that the pice floor is good for them, have pressured policymakers into imposing the price floor

Which of the following events would increase producer surplus?

sellers' costs stay the same and the price of the good increases

When a supply curve is relatively flat, the

supply is relatively elastic

Producer surplus is

the amount a seller is paid minus the cost of the production

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, ppl would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

the costs of bookkeeping services

Which of the following statements about the effects of rent control is correct?

the short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness or flatness of the supply curve for the good

Efficiency in a market is achieved when

the sum of producer surplus and consumer surplus is maximized

Total surplus is

the total value of the good to buyers minus the cost to sellers of providing the good

For a firm operating in a competitive industry, which of the following statements is not correct?

total revenue is constant

If a firm produces nothing, which of the following costs will be zero?

variable cost

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property