EC-321-001 Test #2 JSU (Dr. Bennett)

In January, a store sold 215 stuffed toys (their only good) at a price of $⁢55. The shop's January accounting profit was $⁢1,975. To open the store, the owner had left her previous job, where she earned $⁢1,420 per month. The cost of the materials used to create a toy is $⁢22. The shop also incurred overhead costs. Calculate the store's total costs, both implicit and explicit.

$11,270

Calculate the profit margin for a firm that gained $⁢605 in profit for the 50 guitars it produced and sold. (Round to the nearest whole number if necessary)

$12

Suppose someone's budget is $⁢1,080, and it is fully spent on buying Product A. The price of this product is $⁢30. Calculate the price change of Product A if there is a 1.5 times decrease in the quantity available to purchase. Use a minus sign to show a decrease in price. (Round to the nearest whole number if necessary)

$15

A firm had a sales revenue of $⁢1,200,000 last year. It spent $⁢600,000 on labor, $⁢150,000 on capital, and $⁢200,000 on materials. The firm's factory sits on land owned by the firm that it could rent for $⁢80,000 per year. What was the firm's economic profit? Write the exact answer. Do not round. (Hint: Subtract labor, capital, materials, and rent from sales revenue)

$170,000

Calculate the short-run AVERAGE cost for a surf shop given that the total cost of inputs is $1,400 and quantity of output produced is 280. (Round to the nearest cent if necessary) (Hint: Divide total cost of inputs by quantity of output)

$5.00

Consider a small photography studio with 5 workers and 2 printers. The total cost of labor and capital is $⁢3,400. In order to reduce total operating costs, the owner leases 2 additional printers and fires 3 workers. After these changes, the salary of each worker increases by $⁢15, the cost of using each of the printers (both new and old) remains constant, and the total cost of labor and capital decreases to $⁢3,000. What is the cost of using one printer? (Round to two decimal places if necessary)

$503.13 per printer

Given that total revenue is $36, and profit is $30, what is total cost?

$6

Imagine there is a perfectly competitive market. The market demand and supply are reflected in the following equations: Qd = 79 − 5P Qs = 16 + 4P Determine the price for the firm that wants to enter the market. (Round to the nearest whole number if necessary)

$7

Price is $5, average cost is $2, and quantity is 3. What is this footwear firm's profit? Write the exact answer. Do not round.

$9

A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: lots of labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on the front. The choices are summarized below: Method 1: 25 units of labor, 50 units of capital Method 2: 70 units of labor, 20 units of capital Method 3: 45 units of labor, 30 units of capital 1) If hiring labor for the winter costs $500 per unit, and a unit of capital costs $⁢600, what production method should the company choose? 2) What method should be chosen if the cost of labor rises to $700 per unit?

1) Method 3 2) Method 1

A flower shop specializing in wedding bouquets can employ up to three florists. The first florist can make 4 wedding bouquets per working day. The marginal product of employing the second florist is 7 bouquets per day, and the marginal product of employing the third florist is 9 bouquets per day. Calculate the total number of wedding bouquets three florists can make per day. (Hint: Add all three numbers together)

20 bouquets

A flower shop specializing in wedding bouquets can employ up to three florists. The first florist can make 8 wedding bouquets per working day. The marginal product of employing the second florist is 10 bouquets per day, and the marginal product of employing the third florist is 11 bouquets per day. Calculate the total number of wedding bouquets three florists can make per day. (Hint: Add all three numbers together)

29 bouquets

Abigail's grandmother gives her $⁢60 each month, which she spends on pizzas and burgers. Usually, she buys 4 pizzas for $⁢40 and spends the remaining $⁢20 on 4 burgers. However, the price of 1 pizza has increased by $⁢5; the price of a burger has not changed. Now, Abigail will buy only 3 pizzas per month. Calculate how many burgers Abigail can afford to buy if she still wants to spend all the money.

3 burgers

Paul gains 15 utils from eating an additional chocolate bar that costs $2. What is the marginal utility per dollar? (Round your answer to two decimal places if necessary)

7.50 utils

In March, a company employed 85 workers, but in April it expanded. The change in total product due to the expansion amounted to 50 tons. The firm's marginal product for this period was 10 tons. Calculate the new number of workers after the expansion.

90 workers

In March, a company employed 85 workers, but in April it expanded. The change in total product due to the expansion amounted to 40 tons. The firm's marginal product for this period was 5 tons. Calculate the new number of workers after the expansion.

93 workers

Of the following, what is the best example of a perfectly competitive market? A) A big city with a high number of hair salons, all with the same list of services B) The restaurant business in the capital of a large European country C) Windows software, which is developed by Microsoft and sold all around the world

A) A big city with a high number of hair salons, all with the same list of services

Suppose a perfectly competitive firm faces the following situation: Total Cost (TC) > Total Revenue (TR) What should the firm do in the short run? A) Additional information is needed to determine if the firm should produce in the short run B) The firm should shut down in the short run C) The firm should continue to produce in the short run

A) Additional information is needed to determine if the firm should produce in the short run

Suppose a perfectly competitive firm faces the following situation: Total Revenue (TR) > Fixed Cost (FC) at all output levels. What should the firm do in the short run? A) Additional information is needed to determine if the firm should produce in the short run B) The firm should shut down in the short run C) The firm should continue to produce in the short run

A) Additional information is needed to determine if the firm should produce in the short run

Buyers know all the features of the microwave they purchased. Which of the four perfect competition conditions does this comply with? A) Buyers and sellers make rational decisions based on relevant information B) Free market entry and exit C) Firms produce and sell identical products at identical prices D) Many buyers and sellers

A) Buyers and sellers make rational decisions based on relevant information

_____ marginal productivity occurs when firms employ more labor and additional output produced DECLINES. A) Diminishing B) Increasing

A) Diminishing

Apple may need to slow down large-scale production and releases of the iPhone, or it may experience _____. A) Diseconomies of scale B) Economies of scale

A) Diseconomies of scale

Pizza Hut opens five new restaurants nationwide. Does this describe economies or diseconomies of scale? A) Economies of scale B) Diseconomies of scale

A) Economies of scale

The firm notices an influx of online shoppers demanding its product. Will this firm enter or exit the market? A) Enter B) Exit

A) Enter

The firm signed a contract to receive more affordable labor overseas. Will this firm enter or exit the market? A) Enter B) Exit

A) Enter

The firm buys several thousand reams of paper for its office functions. Is this an explicit cost or an implicit cost? A) Explicit cost B) Implicit cost

A) Explicit cost

The price of a violin is $5,000, and the average total cost is $5,000. Based on this information, which of the following statements is true? A) The market is in equilibrium B) Musical instrument firms will EXIT the market C) Musical instruments firms will ENTER the market

A) The market is in equilibrium

The long run is the period of time when all costs are _____. A) Variable B) Fixed

A) Variable

Economic losses will cause firms to _____ the perfectly competitive market. A) Enter B) Exit

B) Exit

Suppose a perfectly competitive firm faces the following situation: Marginal Revenue (MR) > Marginal Cost (MC) at all output levels. What should the firm do in the short run? A) The firm should shut down in the short run B) Additional information is needed to determine if the firm should produce in the short run C) The firm should increase its output in the short run

C) The firm should increase its output in the short run

Fixed inputs _____ (cannot/can) easily be increased or decreased in a short period of time.

Cannot

Last year, a company's costs were $⁢900,000. The company spent $⁢40,000 on rent and paid $⁢60,000 in interest on a bank loan. The company produced 800 units. Calculate average variable cost. Write the exact answer. Do not round.

$1,000

Last year, a company produced 2,300 units. It faced fixed costs, which accounted for $⁢900,000. The average variable cost was $⁢400 per unit. Calculate the total costs the company faced last year.

$1,820,000

In January, a store sold 200 stuffed toys (their only good) at a price of $⁢57. The shop's January accounting profit was $⁢2,030. To open the store, the owner had left her previous job, where she earned $⁢1,510 per month. The cost of the materials used to create a toy is $⁢25. The shop also incurred overhead costs. Calculate the store's total costs, both implicit and explicit.

$10,880

A local artisan produces handmade toys. The monthly office rent is $⁢890. The production materials cost $⁢390 a month. In one month, the artisan can produce 85 toys. What is the maximum price at which the artisan should exit the market in the long run? (Round to two decimal places if necessary)

$15.06

A firm had a sales revenue of $1,200,000 last year. It spent $700,000 on labor, $150,000 on capital, and $200,000 on materials. What was the firm's accounting profit? (Hint: Subtract labor, capital, and materials from sales revenue)

$150,000

Suppose that due to technological improvements at a firm, the marginal cost of production decreased by $⁢34. However, soon the cost of materials increased, so the marginal cost increased by $⁢67. At the same time, the transportation of materials became cheaper and decreased the marginal cost by $⁢17. Considering that output stays unchanged and the market is perfectly competitive in long-run equilibrium, by how much did the price change? Use a minus sign to show a decrease if necessary.

$16

A local artisan produces handmade toys. The monthly office rent is $⁢870. The production materials cost $⁢370 a month. In one month, the artisan can produce 75 toys. What is the maximum price at which the artisan should exit the market in the long run? (Round to two decimal places if necessary)

$16.53

Calculate the short-run AVERAGE VARIABLE cost for a firm given fixed cost is $70, variable cost is $30, and quantity of output produced is 15. (Round to the nearest cent)

$2

Last year, a company produced 1,500 units. It faced fixed costs, which accounted for $⁢500,000. The average variable cost was $⁢1,000 per unit. Calculate the total costs the company faced last year.

$2,000,000

Total revenue increased by $⁢160, and quantity increased by 8. What is this grocery store's marginal revenue? Write the exact answer. Do not round.

$20

A firm had a sales revenue of $⁢700,000 last year. It spent $⁢500,000 on labor, $⁢50,000 on capital, and $⁢80,000 on materials. The firm's factory sits on land owned by the firm that it could rent for $⁢50,000 per year. What was the firm's economic profit? Write the exact answer. Do not round. (Hint: Subtract labor, capital, materials, and rent from sales revenue)

$20,000

Given that total revenue is $250, and total cost is $50, what is profit?

$200

Total revenue is $400, and total cost is $165, and quantity is 200. What is this footwear firm's profit? Write the exact answer. Do not round.

$235

Last year, a company produced 2,900 units. The price per unit was $⁢1,300. The total variable cost was $⁢2,610,000, while the total fixed cost was $⁢435,000. Calculate average profit.

$250

Calculate the short-run MARGINAL cost for a firm given that total cost of inputs increased from $65 to $80 and quantity of output produced increased from 2 units to 7 units. (Round to the nearest cent)

$3

Imagine there is a perfectly competitive market. The market demand and supply are reflected in the following equations: Qd = 32 − 4P Qs = 17 + 1P Determine the price for the firm that wants to enter the market. (Round to the nearest whole number if necessary)

$3

A fast-food chain is considering opening a new restaurant. To operate the restaurant, management would need to hire 7 employees (cooks and cashiers) at $⁢19,000 for each per year and 3 supervisors at $⁢28,000 for each per year. The rent will be $⁢46,000 per year. Depreciation of the equipment will make the company spend, on average, $⁢16,000 per year on its repairs. Management assumes that true economic profit would be $⁢72,000 per year. Determine the amount of expected earnings per year.

$351,000

A firm had a sales revenue of $700,000 last year. It spent $200,000 on labor, $50,000 on capital, and $80,000 on materials. What was the firm's accounting profit? (Hint: Subtract labor, capital, and materials from sales revenue)

$370,000

Today, you've decided to treat yourself to some dessert, so you go to the store to buy a doughnut or a cupcake. The utilities of one doughnut and one cupcake are 18 and 21, respectively. Given that the price of one doughnut is $6, what should be the price of a cupcake to get the same utility per dollar spent? (Round to two decimal places if necessary)

$7.00

Suppose some changes in a market occur. Rent is raised by $⁢100, and the price of raw materials increases by $⁢95 in total. At the same time, sales increase by 27 units. Calculate the average total cost in terms of long-run equilibrium. (Round to two decimal places if necessary)

$7.22

There is an Italian family restaurant that makes pizzas. To meet demand, 4 workers use 2 ovens. The salary of one worker is $⁢45 per day, and the cost of using one oven is $⁢32 per day. The restaurant's founder retires, and his son becomes the owner and decides to replace the traditional ovens with modern ovens. As a result, there are 2 workers, who are each paid $⁢50 per day. There are also 3 ovens that cost $⁢24 per day. Calculate the difference between total cost of the traditional ovens and total cost of the modern ovens. Enter your answer as a positive number.

$72

Calculate the short-run TOTAL cost for a firm given fixed cost is $50, variable cost is $25, and quantity of output produced is 10. (Round your answer to the nearest cent)

$75

Calculate the short-run AVERAGE cost for a bookstore given that the total cost of inputs is $9,000 and quantity of output produced is 116. (Round to the nearest cent if necessary) (Hint: Divide total cost of inputs by quantity of output)

$77.59

Imagine there are three technologies involved in manufacturing a certain product. The first technology requires 5 unit(s) of labor and 3 unit(s) of materials per unit of product. The second technology requires 4 unit(s) of labor and 4 unit(s) of materials. The third technology requires 3 unit(s) of labor and 5 unit(s) of materials. What is the minimum cost of manufacturing the product if one unit of labor costs $⁢7 and one unit of materials costs $⁢15?

$80

Today, you've decided to treat yourself to some dessert, so you go to the store to buy a doughnut or a cupcake. The utilities of one doughnut and one cupcake are 12 and 18, respectively. Given that the price of one doughnut is $6, what should be the price of a cupcake to get the same utility per dollar spent? (Round to two decimal places if necessary)

$9.00

How should the marginal cost of a perfectly competitive nursery change to achieve efficiency if the market price is $⁢10.60 and the firm grows 150 roses? Suppose the marginal cost is represented by the equation MC = 0.038Q + 5.4, where Q is quantity. Round to two decimal places and use a minus sign to show a decrease in marginal cost if necessary.

-$0.50

Suppose the total revenue from selling 200 goods in an imperfect market is $⁢4,600. The marginal cost of production is $⁢13. Then, a new, widely available technology makes the market perfectly competitive. Determine how the firm should change its price. Assume that the marginal cost stays the same. Use a minus sign to show a decrease in price if necessary.

-$10

Graham owns a small business. This year, he paid his employees $38,288. Insurance and licensing expenses cost $11,700. The cost of materials was $26,802. Graham has $161,000 invested in equipment for the business, which could be sold for the same price that he paid for it. If he did not own this equipment, he would have this amount in savings, which could be earning 10% interest. Graham also received an offer to return to his previous job at a salary of $40,000. Graham sold 25,000 units of his product this year at a price of $20. 1) Calculate Graham's total (economic) COSTS for this year. (Round to the nearest whole number if necessary) 2) Calculate Graham's economic PROFIT for this year. (Round to the nearest whole number if necessary)

1) $132,890 2) $367,110

The paper factory employs 310 workers, producing 1,150 tons of paper per month. Hiring 12 more workers will increase the output by 47 tons of paper. Calculate the total product for the next additional 12 workers if their marginal product is 6 tons of paper per month. (Round to the nearest whole number if necessary)

1,269 tons of paper

The paper factory employs 240 workers, producing 1,250 tons of paper per month. Hiring 7 more workers will increase the output by 48 tons of paper. Calculate the total product for the next additional 7 workers if their marginal product is 4 tons of paper per month. (Round to the nearest whole number if necessary)

1,326 tons of paper

A fruit stand owner rents a stall at the market for $⁢230. Each month, the owner spends $⁢280 for an accountant's services and $⁢630 on fresh fruit. The fruit stand sells 145 kilograms of fruit monthly at a price of $⁢7 per kilogram. 1. Calculate the fruit stand's profit or loss. Write the exact answer; do not round. Use a minus sign to show losses if necessary. 2. Should the fruit stand continue business in the short run? In the long run? A) The fruit stand SHOULD continue business in the short run because its total revenue is GREATER than variable costs. The fruit stand IS likely to exit the market in the long run because its total revenue is LOWER than total costs B) The fruit stand should NOT continue business in the short run because its total revenue is GREATER than variable costs. The fruit stand is NOT likely to exit the market in the long run because its total revenue is LOWER than total costs C) The fruit stand should NOT continue business in the short run because its total revenue is LOWER than variable costs. The fruit stand is NOT likely to exit the market in the long run because its total revenue is GREATER than total costs D) The fruit stand SHOULD continue business in the short run because its total revenue is LOWER than variable costs. The fruit stand IS likely to exit the market in the long run because its total revenue is GREATER than total costs

1. -$125 2. A) The fruit stand SHOULD continue business in the short run because its total revenue is GREATER than variable costs. The fruit stand IS likely to exit the market in the long run because its total revenue is LOWER than total costs

Jordan gains 11 utils from eating an additional slice of pizza that costs $7. What is the marginal utility per dollar? (Round your answer two decimal places if necessary)

1.57 utils

A long-run average cost curve has a clear minimum point at a quantity of 10,000 heaters. The current demand in the market for heaters is 540,000 heaters. Calculate the number of firms in the heating industry if demand increases and becomes twice as large.

108 firms

A long-run average cost curve has a clear minimum point at a quantity of 5,000 heaters. The current demand in the market for heaters is 290,000 heaters. Calculate the number of firms in the heating industry if demand increases and becomes twice as large.term-63

116 firms

A small business consists of an owner and a seamstress. The seamstress can sew 18 dresses per month. The owner can hire only two more seamstresses. (Other things being equal, each of them has the same labor productivity as the one already hired.) However, there is only one sewing machine available in the short run, resulting in a total product of 29 dresses if one additional seamstress is hired. Hiring the third seamstress increases the total product by an additional 2 dresses. If the owner hires all three seamstresses, what is the difference in the total product if the owner purchases one additional sewing machine as compared to a situation with only one sewing machine?

16 dresses

Suppose that a 3D printing firm has 7 workers. The total product of 7 workers is 900 plastic models per month. The hiring of the sixth and seventh workers increased the total product by 80 and 20 plastic models, respectively. Assume that all the workers have the same skills and productivity, other things being equal. Calculate the marginal product of the worker that was hired first if the firm owns 5 3D printers. (Round to the nearest whole number if necessary)

160 plastic models

If two gardeners can plant 10 flowers in an hour, and three gardeners can plant 27 flowers in an hour, what is the marginal product of the third gardener?

17

Suppose the price of a product equals $⁢2.80 per item. The current output level is 280 items. To reach the profit-maximizing level, the firm should increase the total cost by $⁢130. What should be the profit-maximizing quantity to demonstrate productive and allocative efficiency in a perfectly competitive market? (Round to the nearest whole number if necessary)

326 items

If two painters can paint 90 square feet of wall in an hour, and three painters can paint 96 square feet, what is the marginal product of the third painter?

6

Christie gained 50 utils from eating 4 cookies. She eats 1 more, increasing her total utility to 57 utils. What is the marginal utility of the fifth cookie?

7 utils

Which statement about about entry and exit is true? A) Exiting a market may sometimes be a necessary evil B) Only costs determine whether firms stay in business or not C) Only significant shifts in supply and demand can force firms to exit the market

A) Exiting a market may sometimes be a necessary evil

The firm paid the electricity bill for the office. Is this an explicit cost or an implicit cost? A) Explicit cost B) Implicit cost

A) Explicit cost

Which condition corresponds to perfect competition? A) Free entry into the market for sellers B) There are few firms producing identical products C) Buyers have no access to information on prices, so they have to make decisions at random about the product they are buying

A) Free entry into the market for sellers

Which condition is true in the long run? A) If total revenue is lower than total cost, a firm will exit the market in the long run B) In long-run equilibrium, some firms have an incentive to enter the market, while some have an incentive to exit the market C) The marginal cost curve does not cross the average cost curve in the long run

A) If total revenue is lower than total cost, a firm will exit the market in the long run

The machines owned by the firm depreciate in value. Is this an explicit cost or an implicit cost? A) Implicit cost B) Explicit cost

A) Implicit cost

Suppose Jennifer initially has an income of $2,000, the price of dinner is $100, and the price of a basketball ticket is $50. To maximize her utility, she initially purchases 10 dinners and 20 basketball tickets. Now, suppose her income increases to $4,000, and she chooses to purchase 37 dinners. Assuming Jennifer spends all of her income, basketball tickets are considered which type of good? A) Inferior B) Normal C) Inelastic D) Elastic

A) Inferior (Because as income INCREASES, her basketball ticket purchases DECREASE)

Melody buys nectarines and other goods. For Melody, nectarines are an inferior good, and all other goods can be considered normal. If the price of nectarines RISES, the income effect will cause Melody to buy _____ nectarines and _____ other goods. A) More; fewer B) Fewer; fewer C) More; more D) Fewer; more E) There is no effect because income has not changed

A) More; fewer

_____ involve(s) land and raw materials. A) Natural resources B) Capital

A) Natural resources

Which statement is correct? A) Output is also sometimes called total product B) In the short run, output is a function of the amount of labor employed and the capital used C) The law of diminishing marginal product is a characteristic of production in the long run

A) Output is also sometimes called total product

In the short run, a perfectly competitive firm will seek the quantity of output where _____ are highest. A) Profits B) Prices

A) Profits

The quantity of output produced in a perfectly competitive market is allocatively efficient. What does this mean? A) The consumer's willingness to pay for the last unit produced equals the marginal cost of producing that unit B) Producers receive the highest possible producer surplus C) Firms have the same marginal revenue and demand curves D) Firms produce as much as consumers are willing to buy at the lowest possible price

A) The consumer's willingness to pay for the last unit produced equals the marginal cost of producing that unit

The quantity of output produced in a perfectly competitive market is allocatively efficient. What does this mean? A) The marginal willingness to pay for the last unit produced equals the marginal cost of producing that unit B) Firms earn a normal rate of profit in the long run C) Goods are produced at their lowest possible average cost D) Consumers receive the highest possible consumer surplus

A) The marginal willingness to pay for the last unit produced equals the marginal cost of producing that unit

A perfectly competitive industry is in long-run equilibrium. At present, there are 100 identical firms, each producing 3,000 units of output at the prevailing market price of $20. Now, suppose the product's demand increases. Which of the following is a part of the industry adjustment process? A) The market price will rise above $20 temporarily B) The market price will stay the same, but each firm will increase output beyond 3,000 units C) Firms are now able to recover their sunk costs D) Each firm's marginal cost curve shifts upwards

A) The market price will rise above $20 temporarily

The quantity of output produced in a perfectly competitive market is allocatively efficient. What does this mean? A) The price of the product reflects society's opportunity cost of the resources used to produce that product B) Individual sellers cannot raise the market price C) All consumers pay the same price for the good D) Goods are produced at their lowest possible average cost

A) The price of the product reflects society's opportunity cost of the resources used to produce that product

Which option is necessary to calculate implicit costs? A) Wages the owner gives up in order to reduce company expenses B) Cost of corporate legal services C) Cost of raw materials

A) Wages the owner gives up in order to reduce company expenses

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) At the profit-maximizing output level, average revenue, marginal revenue, and average total cost are all equal B) All firms face the same market price and marginal cost C) Firms do not earn economic profit D) Some firms are able to earn profits by varying their products slightly E) Firms have an incentive to exit the industry because currently they earn zero profit

A, B, & C

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) Firms maximize profit by producing an output level where price equals marginal cost B) Firms produce an output level at which total revenue is maximized C) Firms earn zero profit D) Firms exhaust economies of scale E) Firms produce an output level at which average fixed cost is minimized

A, C, & D

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) Firms produce an output level at which average total cost is minimized B) All firms face the same market price but not the same average cost C) Firms maximize profit by producing at an output level where price, marginal cost, and average total cost are all equal D) Economic profits equal zero E) Firms maximize profit by producing the output level where the marginal revenue is higher than marginal cost

A, C, & D

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) New firms have no incentive to enter the industry because existing firms currently earn zero profits B) Some firms are able to earn profits by varying their products slightly C) Firms maximize profit by producing an output level where price equals marginal cost D) Firms earn zero profit E) All firms face the same market price but not the same average cost

A, C, & D

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) There will be no further entry or exit B) Firms produce an output level at which marginal cost is minimized C) Firms produce an output level at which average total cost is minimized D) At the profit-maximizing output level, price equals average total cost E) The long-run market demand curve is horizontal

A, C, & D

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) There will be no further entry or exit B) The long-run market supply curve is vertical C) Firms maximize profit by producing an output level where marginal revenue, marginal cost, and average total cost are all equal D) Firms earn positive accounting profit but no economic profit E) Firms produce an output level at which average variable cost is minimized

A, C, & D

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) Firms maximize profit by producing at an output level where price, marginal cost, and average total cost are all equal B) Firms are able to earn some profits by varying their products slightly C) There is no incentive for new firs to enter or for existing firms to exit the industry D) The market demand curve is perfectly elastic E) Firms earn positive accounting profit, but no economic profit

A, C, & E

Price is $66, average cost is $30, and quantity is 10. What is this footwear firm's profit? [Hint: (Price)(Quantity) - (Average cost)(Quantity)] A) $66 B) $360 C) $36

B) $360

Farmers currently sell eggplants for $8 per bushel. At what price must a new farmer sell eggplants? A) $7 per bushel B) $8 per bushel C) $9 per bushel

B) $8 per bushel

Imagine you are a perfectly competitive firm. How many units of a good should you produce? A) 80 units when total revenue is $200 and total cost is $200 B) 60 units when total revenue is $150 and total cost is $100 C) 40 units when total revenue is $70 and total cost is $60 D) 10 units when total revenue is $20 and total cost is $30

B) 60 units when total revenue is $150 and total cost is $100

_____ is an average cost curve that causes firms to produce at the same equal level of output. A) The short run B) A long-run average cost curve with a clear minimum point C) Constant returns to scale

B) A long-run average cost curve with a clear minimum point

A popular restaurant prematurely opened up new branches across the state and was forced to close down one store due to unexpectedly high output costs. Does this describe economies or diseconomies of scale? A) Economies of scale B) Diseconomies of scale

B) Diseconomies of scale

A perfectly competitive industry is in long-run equilibrium. At present, there are 100 identical firms, each producing 3,000 units of output at the prevailing market price of $20. Now, suppose the product's demand increases. Which of the following is a part of the industry adjustment process? A) Firms are now able to recover their sunk costs B) Each firm's demand curve shifts upwards along its marginal cost curve C) The market price will rise, but each firm cannot produce output beyond 3,000 units because of new entrants D) The increased demand causes input prices to rise, and some firms will incur losses

B) Each firm's demand curve shifts upwards along its marginal cost curve

Which of the following statements explains why firms in perfect competition earn zero profit in the long run? A) Since firms produce low-tech goods, they typically face tough foreign competition B) Easy entry and exit in the market ensures that profits are eliminated C) Firms incur the exact same costs of production D) Substantial barriers to entry force profits to zero

B) Easy entry and exit in the market ensures that profits are eliminated

The firm studies financial trends from the last decade and forecasts decreased profits. Will this firm enter or exit the market? A) Enter B) Exit

B) Exit

Midge buys strawberries and other goods. For Midge, strawberries are an inferior good, and all other goods can be considered normal. If the price of strawberries FALLS, the income effect will cause Midge to buy _____ strawberries and _____ other goods. A) Fewer; fewer B) Fewer; more C) More; fewer D) More; more E) There is no effect because income has not changed

B) Fewer; more

Six new art supply stores open on Etsy. Which of the four perfect competition conditions does this comply with? A) Many buyers and sellers B) Free market entry and exit C) Firms produce and sell identical products at identical prices D) Buyers and sellers make rational decisions based on relevant information

B) Free market entry and exit

Two new jewelry stores open up in the mall. Which of the four perfect competition conditions does this comply with? A) Firms produce and sell identical products at identical prices B) Free market entry and exit C) Many buyers and sellers D) Buyers and sellers make rational decisions based on relevant information

B) Free market entry and exit

Which statement is correct? A) In the long run, there is a point at which diminishing marginal productivity kicks in B) In the short run, capital is fixed C) In the short run, any additional worker changes the total product by the same amount

B) In the short run, capital is fixed

Which factor of production is an example of fixed inputs in the short run? A) Auxiliary equipment (tools, spare parts, etc) B) Independent contractors C) Electricity

B) Independent contractors

Which statement is correct? A) Interest and dividends are not factor payments because they are not involved in production of goods B) Labor is a variable cost C) If the price is above average variable costs, profits will be positive

B) Labor is a variable cost

Supply of quinoa must increase to accommodate increased demand for the grain. Which of the four perfect competition conditions does this comply with? A) Firms produce and sell identical products at identical prices B) Many buyers and sellers C) Buyers and sellers make rational decisions based on relevant information D) Free market entry and exit

B) Many buyers and sellers

Which condition corresponds to perfect competition? A) There are few firms producing identical products B) Many buyers are available to buy the product C) The government introduces license requirements for a good

B) Many buyers are available to buy the product

Which condition corresponds to perfect competition? A) The government introduces license requirements for a good B) Many sellers are available to sell the product C) Sellers have no access to information on prices, so they have to make decisions at random about the product they are selling

B) Many sellers are available to sell the product

The price of a tambourine is $20, and the average total cost is $30. Based on this information, which of the following statements is true? A) The market is in equilibrium B) Musical instrument firms will EXIT the market C) Musical instruments firms will ENTER the market

B) Musical instrument firms will EXIT the market

Which of the following statements explains why firms in perfect competition earn zero profit in the long run? A) Since consumers can shop for the lowest available price, firms hesitate to raise prices B) New firms can freely enter an industry in which existing firms are making profits C) Firms constantly face rising input costs that drive profits to zero D) Firms have perfectly elastic demand curves that do not allow them to raise prices to profitable levels

B) New firms can freely enter an industry in which existing firms are making profits

Which statement is correct? A) A situation when price equals marginal cost is not beneficial for the society because firms selling goods at this price do not make profit B) Perfect competition, in the long run, is a hypothetical benchmark rather than a real market structure C) Productive efficiency means producing at the lowest possible cost and selling at the maximum possible price

B) Perfect competition, in the long run, is a hypothetical benchmark rather than a real market structure

The quantity of output produced in a perfectly competitive market is allocatively efficient. What does this mean? A) Firms charge a price equal to the average cost of production B) Resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it C) Firms produce at an output level where total cost is minimized D) Firms allocate their output fairly among consumers

B) Resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it

In the long run, firms in perfect competition achieve productive efficiency. What does this mean? A) Firms produce as much as consumers are willing to buy at the lowest possible price B) Resources are used to produce output such that there is no waste C) The consumer's willingness to pay for the last unit produced equals the marginal cost of producing that unit D) Firms have the same marginal cost and average cost curves

B) Resources are used to produce output such that there is no waste

Which situation is typical for a DECREASING cost industry? A) The market price increases at the new zero-profit level B) The average total costs fall C) The supply of inputs for firms is perfectly elastic

B) The average total costs fall

Income INCREASES. How would this change affect consumer choice? A) The budget constraint changes slope and MORE of one good can be purchased B) The consumer is able to purchase MORE of all goods C) The budget constraint is shifted in to the LEFT D) The consumer is able to purchase LESS of all goods

B) The consumer is able to purchase MORE of all goods

Which of the following statements explains why firms in perfect competition earn zero profit in the long run? A) Firms are price takers and cannot set prices B) The ease of entry into the industry ensures that profits will be driven to zero C) Each firm is aware of its competitors' costs of production D) The government sets profit margins for firms

B) The ease of entry into the industry ensures that profits will be driven to zero

Suppose a perfectly competitive firm faces the following situation: Price > Average Total Cost at all output levels. What should the firm do in the short run? A) The firm should shut down in the short run B) The firm should continue to produce in the short run C) Additional information is needed to determine if the firm should produce in the short run

B) The firm should continue to produce in the short run

Which condition is true in the long run? A) The marginal cost curve does not cross the average cost curve in the long run B) The long-run supply curve is downward-sloping for decreasing cost industries C) In long-run equilibrium, some firms have an incentive to enter the market, while some have an incentive to exit the market

B) The long-run supply curve is downward-sloping for decreasing cost industries

Which situation is typical for an INCREASING cost industry? A) The average total costs fall B) The market price increases at the new zero-profit level C) The inputs in the market increase

B) The market price increases at the new zero-profit level

Which statement is correct? A) Food has constant marginal utility because each additional unit gives us the same quantity of calories B) Total utility is the satisfaction derived from consumer choices C) Expensive goods are always the best choice in terms of utility per dollar spent

B) Total utility is the satisfaction derived from consumer choices

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) New firms have an incentive to enter the industry because existing firms currently earn profits B) At the profit-maximizing output level, price equals average total cost C) Firms maximize profit by producing an output level where marginal revenue equals marginal cost D) Firms exhaust economies of scale E) Firms do not earn accounting profit

B, C, & D

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) The long-run market supply curve is vertical B) There will be no further entry or exit C) All firms face the same market price but not the same average cost D) All firms use the lowest-cost technologies to produce output E) Firms maximize profit by producing at an output level where price, marginal cost, and average total cost are all equal

B, D, & E

Which factor of production is an example of fixed inputs in the short run? A) Raw materials B) Fuel C) A factory that belongs to the company

C) A factory that belongs to the company

_____ is situation where a firm can compete if it's producing at any quantity within a certain range of outputs. A) The short run B) A long-run average cost curve with a clear minimum point C) A flat-bottomed long-run average cost curve

C) A flat-bottomed long-run average cost curve

Which statement about the production process and its factors is correct? A) As a factor of production, labor only includes physical effort B) The cost of producing outputs depends only on the quantity of inputs used C) A production function considers all inputs in order to determine the quantity of output a firm can make

C) A production function considers all inputs in order to determine the quantity of output a firm can make

Which statement is correct? A) If a firm is producing at a quantity where marginal revenue is greater than marginal cost, it can increase profit by reducing the output B) Marginal cost is total cost divided by the quantity of output C) A profit-maximizing rule for a perfectly competitive firm is to produce at the quantity of output where price equals marginal cost

C) A profit-maximizing rule for a perfectly competitive firm is to produce at the quantity of output where price equals marginal cost

Which statement is correct? A) A situation when price equals marginal cost is not beneficial for the society because firms selling goods at this price do not make profit B) The model of perfect competition takes into consideration many real-world issues, such as pollution and poverty C) Allocative efficiency means that among the points on the production possibility frontier, the chosen point is socially preferred

C) Allocative efficiency means that among the points on the production possibility frontier, the chosen point is socially preferred

Which statement about the production process and its factors is correct? A) For agricultural products, land is classified as technology B) Variable inputs can't easily be increased or decreased in a short period of time C) As a factor of production, labor includes mental human efforts required for production

C) As a factor of production, labor includes mental human efforts required for production

Which of the following statements explains why firms in perfect competition earn zero profit in the long run? A) Firms in perfect competition face identical costs and market prices B) There are many buyers and many sellers who produce homogeneous goods C) Easy entry and exit in the market ensures that profits are eliminated D) Firms in perfect competition seek to maximize revenue not profit

C) Easy entry and exit in the market ensures that profits are eliminated

A perfectly competitive industry is in long-run equilibrium. At present, there are 100 identical firms, each producing 3,000 units of output at the prevailing market price of $20. Now, suppose the product's demand increases. Which of the following is a part of the industry adjustment process? A) The market price will rise, but because of new entrants, each firm now produces fewer than 3,000 units B) Each firm's marginal cost curve shifts upwards C) Existing firms will enjoy above-normal profits temporarily D) New firms will enter the industry and force out some existing firms

C) Existing firms will enjoy above-normal profits temporarily

In the long run, firms in perfect competition achieve productive efficiency. What does this mean? A) The selling price of the product reflects consumers' ability to pay B) Firms earn a normal rate of profit in the long run C) Firms produce an output level where total cost is at its lowest D) The marginal value placed by consumers on the last unit sold equals the marginal cost of producing that unit

C) Firms produce an output level where total/average cost is at its lowest

In the long run, firms in perfect competition achieve productive efficiency. What does this mean? A) The price of the product reflects the social cost of producing the product B) Goods are produced at the lowest possible marginal cost C) Goods are produced at the lowest possible average cost D) All consumers pay the same price for the good

C) Goods are produced at the lowest possible average cost

Which statement is correct? A) The profit-maximizing choice for a perfectly competitive firm will occur at the level of output where marginal cost reaches its maximum B) If the price a firm receives leads it to produce at a quantity where price equals average cost, the firm loses C) If a firm is producing at a quantity where marginal cost is greater than marginal revenue, it ca increase profit by reducing the output

C) If a firm is producing at a quantity where marginal cost is greater than marginal revenue, it ca increase profit by reducing the output

Which statement is correct? A) In the short run, any additional worker changes the total product by the same amount B) In the short run, the only variable factor is capital C) In the short run, capital is fixed

C) In the short run, capital is fixed

Suppose Jennifer initially has an income of $2,000, the price of dinner is $100, and the price of a basketball ticket is $50. To maximize her utility, she initially purchases 10 dinners and 20 basketball tickets. Now, suppose her income increases to $4,000, and she chooses to purchase 38 dinners. Assuming Jennifer spends all of her income, basketball tickets are considered which type of good? A) Elastic B) Inelastic C) Inferior D) Normal

C) Inferior (Because as income INCREASES, her basketball ticket purchases DECREASE)

Total utility for one good DECREASES. How would this change affect consumer choice? A) The consumer should purchase MORE of this good B) The consumer should purchase the SAME amount of this good C) It is not possible to predict the change on consumer choice D) The consumer should purchase LESS of this good

C) It is not possible to predict the change on consumer choice

Which statement is correct? A) Usually, a marginal product curve decreases to a certain point and then begins to increase B) Diminishing marginal productivity occurs because of fixed labor C) Marginal product can be calculated as the change in output divided by the change in labor

C) Marginal product can be calculated as the change in output divided by the change in labor

A perfectly competitive industry is in long-run equilibrium. At present, there are 100 identical firms, each producing 3,000 units of output at the prevailing market price of $20. Now, suppose the product's demand increases. Which of the following is a part of the industry adjustment process? A) Firms are now able to recover their sunk costs B) The market price will fall as existing firms increase supply to meed demand C) New firms will enter the industry D) As firms expand production, costs also rise negating any potential profits

C) New firms will enter the industry

Perfect competition is considered to be "perfect" because both allocative and productive efficiency are met at the same time in long-run equilibrium. Suppose there is a good with a price of $20 and a marginal cost of $20. Based on this information, what action should society take? A) Since Price > MC, society should produce more of the good since benefits exceed costs B) Society will benefit from producing more of the good since the costs exceed the benefits C) Society is in balance and achieving both productive efficiency and allocative efficiency. The costs equal the benefits D) Society should not produce more of the good since the price exceeds the costs

C) Society is in balance and achieving both productive efficiency and allocative efficiency. The costs equal the benefits

Price of one good INCREASES. How would this change affect consumer choice? A) The budget constraint changes slope and MORE of the good can be purchased B) The SAME amount of OTHER goods can be purchased and MORE of the good can be purchased C) The budget constraint changes slope and LESS of the good can be purchased D) The budget constraint is shifted out to the RIGHT

C) The budget constraint changes slope and LESS of the good can be purchased

The quantity of output produced in a perfectly competitive market is allocatively efficient. What does this mean? A) No one buyer or one seller can influence market price B) Firms earn a normal rate of profit C) The marginal benefit of consuming an extra unit of a good exactly equals the marginal cost of producing the good D) Firms produce at an output level where the price just covers the average cost of production

C) The marginal benefit of consuming an extra unit of a good exactly equals the marginal cost of producing the good

Imagine you are choosing between purchasing two goods: energy drinks and ink pens. Assume both are normal goods. How would you respond to the income effect of a DECREASE in the price of energy drinks? A) You will buy FEWER energy drinks and FEWER ink pens B) You will buy FEWER energy drinks and MORE ink pens C) You will buy MORE energy drinks and MORE ink pens D) You will buy MORE energy drinks and FEWER ink pens

C) You will buy MORE energy drinks and MORE ink pens

Which of the following conditions exist when a perfectly competitive industry is in long-run equilibrium? (Select all that apply) A) All firms face the same market price but not the same marginal cost B) The market demand curve is perfectly elastic C) At the profit-maximizing output level, marginal cost equals average cost D) Firms earn zero profits E) Firms maximize profit by producing at an output level where price equals marginal cost

C, D, & E

Carol's income is spent on cats and dogs, as well as other goods. She considers cats to be a normal good and dogs to be an inferior good. What will happen to Carol's purchases of these goods if her income INCREASES? A) She will buy FEWER cats and MORE dogs B) She will buy FEWER cats and FEWER dogs C) She will buy MORE cats and MORE dogs D) She will buy MORE cats and FEWER dogs

D) She will buy MORE cats and FEWER dogs

Perfect competition is considered to be "perfect" because both allocative and productive efficiency are met at the same time in long-run equilibrium. Suppose there is a good with a price of $65 and a marginal cost of $80. Based on this information, what action should society take? A) Since Price = MC, both productive and allocative efficiency are being met and society is in balance B) Society should not produce more of the good since the price exceeds the costs C) Society will benefit from producing more of the good since the costs exceed the benefits D) Society will not benefit from producing more of the good since the costs exceed the benefits

D) Society will not benefit from producing more of the good since the costs exceed the benefits

Price of one good DECREASES. How would this change affect consumer choice? A) The SAME amount of OTHER goods can be purchased and LESS of the good can be purchased B) The budget constraint is shifted out to the RIGHT C) The budget constraint changes slope and LESS of the good can be purchased D) The SAME amount of OTHER goods can be purchased and MORE of the good can be purchased

D) The SAME amount of OTHER goods can be purchased and MORE of the good can be purchased

Price of all goods DECREASE. How would this change affect consumer choice? A) The consumer is able to purchase LESS of all goods B) The budget constraint changes slope and MORE of one good can be purchased C) The budget constraint is shifted in to the LEFT D) The budget constraint is shifted out to the RIGHT

D) The budget constraint is shifted out to the RIGHT

Marginal utility for one good INCREASES. How would this change affect consumer choice? A) The consumer should purchase MORE of other goods B) The budget constraint changes slope and MORE of the good can be purchased C) The budget constraint changes slope and LESS of the good can be purchased D) The consumer should purchase LESS of other goods

D) The consumer should purchase LESS of other goods

Marginal utility for one good INCREASES. How would this change affect consumer choice? A) The budget constraint is shifted out to the RIGHT B) The consumer should purchase LESS of this good C) The budget constraint is shifted in to the LEFT D) The consumer should purchase MORE of this good

D) The consumer should purchase MORE of this good

Imagine you are choosing between purchasing two goods: hot dogs and magazines. Assume both are normal goods. How would you respond to the income effect of an INCREASE in the price of hot dogs? A) You will buy MORE hot dogs and MORE magazines B) You will buy FEWER hot dogs and MORE magazines C) You will buy MORE hot dogs and FEWER magazines D) You will buy FEWER hot dogs and FEWER magazines

D) You will buy FEWER hot dogs and FEWER magazines

Firms EXPAND their operations in response to _____ (diseconomies/economies) of scale.

Economies

What is the formula for finding explicit costs?

Explicit costs = Total revenue - Accounting profit

Emma owns a small business. This year, she paid her employees $50,000. Insurance and licensing expenses cost $15,000. Cost of materials was $40,000. Emma has $100,000 invested in equipment for the business, which could be sold for the same price that she paid for it. If she did not own this equipment, she would have this amount in savings, which could be earning 2% interest. Emma also received an offer to return to her previous job at a salary of $45,000. Calculate Emma's explicit and implicit costs for this year. (Round to the nearest whole number if necessary)

Explicit costs: $105,000 Implicit costs: $47,000

T/F) In perfect competition, the allocatively efficient level of output is produced because firms earn only a normal profit in the long run

False

T/F) In the short run, firms can build more factories to account for increased demand.

False

T/F) Market price in a perfectly competitive market is solely determined by individual firms.

False

T/F) Perfectly competitive firms achieve ALLOCATIVE efficiency when they produce an output corresponding to the lowest point on the long-run average cost curve

False

T/F) Perfectly competitive firms achieve PRODUCTIVE efficiency in the short run and in the long run

False

T/F) Perfectly competitive firms achieve PRODUCTIVE efficiency when they maximize profit.

False

T/F) Perfectly competitive markets are allocatively efficient because consumers value the goods more than the value of the resources used to produce them.

False

T/F) Productive efficiency is the condition where resources are fairly distributed.

False

T/F) Implicit costs are actual payments made.

False (Implicit costs are opportunity costs)

T/F) An ideal production technology will produce the desired level of output at the HIGHEST cost.

False (It will produce the desired level of output at the LOWEST cost)

Firms are in perfect competition when they produce _____ (identical/unique goods.

Identical

An ideal production technology will produce the desired level of output at the _____ (highest/lowest) cost.

Lowest

What is the formula for calculating marginal COST?

Marginal cost = Change in total cost / Change in quantity

What is the formula for finding marginal product?

Marginal product = Change in output / Change in labor

What is the formula for calculating marginal REVENUE?

Marginal revenue = Change in total revenue / Change in quantity

Suppose someone's budget is $⁢1,960. The price of Product A is $⁢7 per unit, and the price of Product B is $⁢28. The utility-maximizing choice is to spend an equal amount of money on each product. Additionally, both goods are normal. Calculate how the quantity of both goods will change after a 1.4 times fall in income. Use a minus sign to show a decrease in amount. (Round your answers to the nearest whole number if necessary)

Product A: -40 units Product B: -10 units

A perfectly competitive firm must be a very _____ (small/large) player in the market so it can increase and decrease output without affecting the overall market.

Small

A perfectly competitive firm is known as a price _____ (taker/maker).

Taker

T/F) A flat long-run average cost curve shows constant returns to scale.

True

T/F) Allocative efficiency holds when the price of the product reflects society's opportunity cost of the resources used to produce that product.

True

T/F) Capital is fixed in the short run.

True

T/F) Diminishing marginal productivity is caused by fixed capital.

True

T/F) Explicit costs are actual payments made.

True

T/F) Firms SHRINK their operations in response to DISECONOMIES of scale.

True

T/F) Firms are in perfect competition when they produce identical goods.

True

T/F) From a social viewpoint, when price equals marginal cost, firms produce the exact amount of the good that consumers are willing to pay for

True

T/F) In the long run, firms earn zero profit when price equals average cost.

True

T/F) In the long run, in perfect competition, market price equals the minimum average cost of production, a condition that is called productive efficiency.

True

T/F) In the short run, the only variable factor is labor.

True

T/F) Marginal utility is the additional utility provided by one additional unit of consumption.

True

T/F) Market price in a perfectly competitive market is solely determined by demand and supply.

True

T/F) One of the formulas with which to calculate profit is: Profit = (Price - Average cost) X Quantity

True

T/F) Perfectly competitive firms achieve ALLOCATIVE efficiency in the short run and in the long run

True

T/F) Perfectly competitive firms achieve PRODUCTIVE efficiency when they produce an output corresponding to the lowest point on the long-run average cost curve

True

T/F) The break-even point is where the AVERAGE cost curve intersects the MARGINAL cost curve.

True

T/F) The price ratio of movie tickets to concert tickets is 1.7, so the marginal utility ratio of movie tickets to concert tickets must be 1.7.

True

T/F) The shutdown point is below the break-even point.

True