ECON 2020 Exam 4

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$10 and 100 units

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are

$100 and her economic profits

the total cost of producing 3 pitchers of lemonade is $5. the total cost of producing 4 pitchers of lemonade is $7. what. is the marginal cost of the 4th pitcher of lemonade.

$2

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? i. shoe polish ii. rent on the shoe stand iii. wages Pete could earn delivering newspapers iv. interest that Pete's money was earning before he spent his savings to set up the shoe-shine business

(i) and (ii) only

when a restaurant stays open for lunch service even though few customers patronize it for lunch, which of the following principles is (are) best demonstrated? (i) fixed costs are sunk in the short run (ii) in the short run, only fixed costs are important to the decision to stay open for lunch (iii) if revenue exceeds variable cost, the restaurant owner is making a smart decision to remain open for lunch

(i) and (iii) only

If a monopolist can practice perfect price discrimination, the monopolist will

- eliminate consumer surplus. - eliminate deadweight loss. - maximize profits.

antitrust laws allow/prevent

- government to prevent mergers. - government to break up companies into smaller ones. - prevent companies from coordinating their activities in ways that make markets less competitive.

A monopolist maximizes profits by

- producing an output level where marginal revenue equals marginal cost. - charging a price that is greater than marginal revenue.

Eldin is a house painter. He can paint three houses per week. He is considering hiring his friend Murphy. Together, Eldin and Murphy can paint five houses per week. What is Murphy's marginal product?

2 houses

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband.

38 bouquets

total revenue from selling 7 units if price is $120?

840 (multiply price by units)

economies of scale

A firm exhibits economies of scale when ATC decreases as Q increases.

Which of the following equations is correct?

ATC = AFC + AVC

accounting profit

Accounting Profit = Total revenue — Total explicit costs

characteristics of a competitive market

Buyers and sellers are price takers. Each firm sells a virtually identical product. Each firm chooses an output level that maximizes profits.

economic profit

Economic Profit = Total revenue — Total Cost

efficient scale

Efficient scale is the quantity that minimizes ATC.

explicit costs

Explicit costs are those costs that require an outlay of money

implicit costs

Implicit costs are those costs that do not require a cash outlay (foregone money that could've been made)

Which of the following could be used to calculate the profit for a firm?

Profit = (P - ATC) × Q

profit

Profit = total revenue - total cost

production function

Shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good.

average fixed cost

The average fixed cost tells us the fixed cost per unit, when producing a certain amount of output.

average total cost

The average total cost tells us the total "cost per unit" when producing a certain amount of output.

total revenue

The full amount of total sales of goods and services. It is calculated by multiplying the total amount of goods and services sold by their prices.

marginal cost

The increase in total cost that results from producing one more unit.

diminishing marginal product

The marginal product of an input declines as the quantity of the input increases (other things equal).

marginal product

The marginal product of any input is the increase in output arising from an additional unit of that input, holding all other inputs constant.

Which of the following statements about a production function is correct for a firm that uses labor to produce output?

The production function depicts the relationship between the quantity of labor and the quantity of output. The slope of the production function measures marginal product. The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing. (All of the above are correct)

total cost

The sum of all the fixed and variable costs.

fixed cost

Those costs that do not vary with the quantity of output produced.

variable cost

Variable costs change, depending on the quantity of output produced.

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

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

in the long-run,

all inputs can be varied

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is

an implicit cost

the amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is

an implicit cost

In the long run, a firm will exit a competitive industry if _______.

average total cost exceeds the price

which of the following is a characteristic of a competitive market?

buyers and sellers are price takers

When firms are said to be price takers, it implies that if a firm raises its price, _______.

buyers will go elsewhere.

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

dairy farmin

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

diminishing marginal product.

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will

double

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will _______.

double!!

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale

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

entry is limited (IT AIN'T)

Which of the following costs will not change as output changes?

fixed cost

pieology pizzeria rents out the space of their restaurant for $500 a month. this cost of their rent ($500 a month) would be considered a

fixed cost (they have to pay the $500 a month, regardless of how much pizza is produced)

A firm that shuts down temporarily has to pay _______.

fixed costs but not variable costs

if market price is $, what is the firms total revenue

go to price given and the quantity under the MC curve x your price is the total revenue

A monopolist's profits with price discrimination will be

higher than if the firm charged just one price because the firm will capture more consumer surplus.

In the short run, a firm that produces and sells house paint can adjust

how many workers to hire

The difference between accounting profit and economic profit relates to

how marginal revenue is calculated.

why does a firm in a competitive industry charge the market price?

if a firm charges less than MP, it loses potential revenue if a firm charges more than MP, it loses all its customers to other firms the firm can sell as many units of output as it wants to @ MP ALL OF THE ABOVE

the entry of new firms into a competitive market will

increase market supply and decrease market price

If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station _______.

is a competitive firm. is small relative to the size of the gasoline market. ​​​​​​has little or no market power. ALL OF THE ABOVE

An example of an explicit cost of production would be the

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

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

less than average variable cost

look at firms' cost curves. the firm should shut down if the market price is

less than the $ at bottom of the bottom curve

a monopolist produces

less than the socially efficient quantity of output but at a higher price than in a competitive market

When a firm experiences constant returns to scale,

long-run average total cost is unchanged, even when output increases.

Diseconomies of scale occur when

long-run average total costs rise as output increases.

a monopolist is a price-

maker

Which of the following is trueat the output level where average total cost is at its minimum?

marginal cost = average total cost

Kate is a professional opera singer who gives voice lessons. The vocal-music industry is competitive. Kate hires a business consultant to analyze her financial records. The consultant recommends that Kate give fewer voice lessons. The consultant must have concluded that Kate's _______.

marginal cost exceeds her marginal revenue

At the profit-maximizing level of output, _______.

marginal revenue equals marginal cost

economists assume that the goal of a firm is to

maximize its profit

profit is defined as total revenue

minus total cost

When profit-maximizing firms in competitive markets are earning profits, _______.

new firms will enter the market

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often - not in the best interest of society. - one that fails to maximize total economic well-being. - inefficient.

not in the best interest of society. one that fails to maximize total economic well-being. inefficient. ALL OF THE ABOVE

marginal revenue =

price

for a monopoly firm,

price always exceeds marginal revenue.

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.

average revenue for a # of units is just

price per unit

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

Economists assume that the goal of the firm is to maximize total

profit

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

profit is maximized

The marginal product of an input in the production process is the increase in

quantity of output obtained from an additional unit of that input.

A total-cost curve shows the relationship between the

quantity of output produced and the total cost of production.

A production function is a relationship between inputs and

quantity of output.

price discrimination is the practice of

selling the same good at different prices to different customers.

price discrimination requires the firm to

separate customers according to their willingnesses to pay.

a monopoly can

set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

The most likely explanation for economies of scale is

specialization of labor

Due to the nature of the patent laws on pharmaceuticals, the market for such drugs

switches from monopolistic to competitive once the firm's patent runs out.

a competitive firm is a price-

taker

The nature of a firm's cost (fixed or variable) depends on the

time horizon under consideration.

Average total cost is equal to

total cost divided by the level of output (Q)

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

total revenue is constant (IT AIN'T)

in the long run, a profit-maximizing firm will choose to exit a market when

total revenue is less than total cost

Profit is defined as

total revenue minus total cost.

As output increases, average fixed cost gets smaller and smaller.

true

the ingredients that it takes to make a pizza at pieology pizzeria cost $2 per pizza. some months, pieology pizzeria may spend $6000on ingredients. some months, they may spend $3000 on ingredients. this cost of ingredients is an example of a

variable cost (it varies with how many pizzas are produced that month)

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book.

you should go home and read a book