econ 110 final

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

exactly $2.50

Zach withdrew $400,000 out of his personal savings account and used it to start his new cookie business. The bank account pays 3 percent interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50 per box. Also during the first year, the cookie business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Zach's time. Refer to Scenario 13-11. Zach's economic profit for the year was

$-6,000

If Tanya sells 200 glasses of fruit punch at $0.50 each, her total revenues are

$100

Zach withdrew $400,000 out of his personal savings account and used it to start his new cookie business. The bank account pays 3 percent interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50 per box. Also during the first year, the cookie business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Zach's time. Refer to Scenario 13-11. Zach's accounting profit for the year was

$6,000

Which of the following would be an example of an implicit cost? (i) forgone investment opportunities (ii) wages of workers (iii) raw materials costs

(i) only

A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market.

(ii) and (iii) only

In a perfectly competitive market, the process of entry and exit will end when (i) accounting profits are zero. (ii) economic profits are zero. (iii) price equals minimum marginal cost. (iv) price equals minimum average total cost.

(ii) and (iv) only

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

0.67

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 176 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

11 units of output

Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the average total cost of production when the firm hires 7 workers?

81 cents

When marginal cost exceeds average total cost

average total cost must be rising

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

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.

Which of the following statements is correct concerning the burden of a tax imposed on take-out food?

Buyers and sellers share the burden of the tax

All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases

Tom is restoring a car and has already spent $3500 on the restoration. He expects to be able to sell the car for $5000. Tom discovers that he needs to do an additional $2000 of work to make the table worth $5000 to potential buyers. He could also sell the car now, without completing the additional work, for $2800. What should he do?

He should complete the additional work and sell the car for $5000

Which of the following claims is consistent with the views of mainstream economists?

If we increase the rate of inflation from 3 percent to 6 percent, then the rate of unemployment will temporarily fall.

In a competitive market the current price is $7, and the typical firm in the market has ATC = $7.50 and AVC = $7.15.

In the short run firms will shut down, and in the long run firms will leave the market

Jose's restaurant operates in a perfectly competitive market. At the point where marginal cost equals marginal revenue, ATC = $20, AVC = $15, and the price per unit is $10. In this situation

Jose's restaurant should shut down immediately.

Which of the following statements is correct?

Only for competitive firms does average revenue equal marginal revenue.

Which of the following statements best captures the nature of the underlying production function?

Output increases at a decreasing rate with additional units of input

Which of the following statements about the circular-flow diagram is correct?

The diagram leaves out details that are not essential for understanding the economic transactions that occur between households and firms.

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

The greater are the price elasticities of supply and demand, the greater is the deadweight loss.

Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?

a woman buys corn for dinner

When a tax is levied on a good

a. government collects revenues which might justify the loss in total welfare. b. there is a decrease in the quantity of the good bought and sold in the market. c. a wedge is placed between the price buyers pay and the price sellers effectively receive. *d. All of the above are correct.

In the simple circular-flow diagram,

a. households own the factors of production. b. households buy all the goods and services that firms produce. c. land, labor, and capital flow from households to firms. *d. All of the above are correct.

The amount of deadweight loss from a tax depends upon the

a.price elasticity of demand. b.price elasticity of supply. c.amount of the tax per unit. *d.All of the above are correct.

Which of the following expressions is correct?

accounting profit = total revenue - explicit costs

In a competitive market, the quantity of a product produced and the price of the product are determined by

all buyers and all sellers.

In a competitive market with free entry and exit, if all firms have the same cost structure, then

all firms will operate at their efficient scale in the long run

The average fixed cost curve

always declines with increased levels of output

In competitive markets, buyers

and sellers are price takers

Fixed costs can be defined as costs that

are incurred even if nothing is produced

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

assuming that the demand for university education is inelastic.

A price ceiling is binding when it is set

below the equilibrium price, causing a shortage

For which of the following problems can well-designed public policy enhance economic efficiency?

both externalities and market power

The price elasticities of supply and demand affect

both the size of the deadweight loss from a tax and the tax incidence

When a tax is placed on the sellers of energy drinks, the

burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology.

Economists speaking like policy advisers make

claims about how the world should be

Rational people make decisions at the margin by

comparing marginal costs and marginal benefits

When a firm's long-run average total costs do not vary as output increases, the firm exhibits

constant returns to scale

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

continue to operate in the short run but shut down in the long run

When the price of hot dogs changes, the demand curve for hot dogs

does not shift because the price of hot dogs is measured on the vertical axis of the graph.

When new firms have an incentive to enter a competitive market, their entry will

drive down profits of existing firms in the market

Economists use the word equality to describe a situation in which

each member of society has the same income

A decrease in the size of a tax is most likely to increase tax revenue in a market with

elastic demand and elastic supply

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal.

Which of the following will cause a decrease in consumer surplus?

the imposition of a binding price floor in the market

A long-run supply curve is flatter than a short-run supply curve because

firms can enter and exit a market more easily in the long run than in the short run

Enid regularly buys fruits and vegetables at a grocery store. Santo regularly pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery store to Enid is represented by an arrow from Box C to Box B of this circular-flow diagram, then the money paid by Santo to the lawn-care company is represented by an arrow

from Box B to Box C

The greater the price elasticity of demand, the

greater the responsiveness of quantity demanded to a change in price.

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

Deadweight loss measures the loss

in a market to buyers and sellers that is not offset by an increase in government revenue

If the demand for donuts is elastic, then a decrease in the price of donuts will

increase total revenue of donut sellers.

An economy's production of two goods is efficient if

it is impossible to produce more of one good without producing less of the other.

A tradeoff exists between a clean environment and a higher level of income in that

laws that reduce pollution raise costs of production and reduce incomes.

An example of an explicit cost of production would be

lease payments for the land on which a firm's factory stands

In the short run, a firm operating in a competitive industry will shut down if price is

less than average variable cost

When a firm experiences diseconomies of scale

long-run average total cost increases as output increases

Economies of scale occur when

long-run average total costs fall as output increases

In the short-run, a firm's supply curve is equal to the

marginal cost curve above its average variable cost curve

A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it

maximizes the combined welfare of buyers and sellers

The equilibrium of supply and demand in a market

maximizes the total benefits received by buyers and sellers

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same

In the housing market, supply and demand are

more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run

Timmy's Trophies operates in a perfectly competitive market. If trophies sell for $20 each and average total cost per trophy is $15 at the profit-maximizing output level, then in the long run

more firms will enter the market.

An example of an externality is the impact of

pollution from a factory on the health of people in the vicinity of the factory

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

price is greater than average variable cost

A tax imposed on the buyers of a good will raise the

price paid by buyers and lower the equilibrium quantity

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

profit is maximized

The price elasticity of demand measures how much

quantity demanded responds to a change in price

You wear either shorts or sweatpants every day. You notice that sweatpants have gone on sale, so your demand for

shorts will decrease.

Efficiency means that

society is getting the maximum benefits from its scarce resources

Carol owns a running shoe store that operates in a perfectly competitive market. If running shoes sell for $120 per pair and the average total cost per pair of shoes is $125 at the profit-maximizing output level, then in the long run

some firms will exit from the market

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

supply of the product is more elastic than the demand for the product

Suppose the tax on liquor is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

tax revenue decreases, and the deadweight loss increases

The Laffer curve illustrates that

tax revenue first rises, then falls as a tax increases.

Welfare economics is the study of how

the allocation of resources affects economic well-being

Consumer surplus is

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

The primary determinant of a country's standard of living is

the country's ability to produce goods and services.

Russell spends an hour studying instead of playing tennis. The opportunity cost to him of studying is

the enjoyment and exercise he would have received had he played tennis.

A certain production possibilities frontier shows production possibilities for two goods: wheat and shirts. Which of the following concepts cannot be illustrated by this model?

the flow of dollars between sellers of wheat and shirts and buyers of wheat and shirts

When computing the opportunity cost of attending a Broadway show you should include

the price you pay for the ticket and the value of your time

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good

The Laffer curve relates

the tax rate to tax revenue raised by the tax

A university's football stadium is never more than half-full during football games. This indicates

the ticket price is above the equilibrium price

Market economies are distinguished from other types of economies largely on the basis of

the ways in which scarce resources are allocated.

Profit is defined as

total revenue minus total cost

A certain firm manufactures and sells computer chips. Last year it sold 2 million chips at a price of $10 per chip. For last year, the firm's

total revenue was $20 million

Total surplus is equal to

value to buyers - cost to sellers

A sunk cost is one that

was paid in the past and will not change regardless of the present decision

The marginal seller is the seller who

would leave the market first if the price were any lower

A positive economic statement such as "Pollution taxes decrease the quantity of pollution generated by firms"

would require data but not values in order to be evaluated