econ

A firm is currently producing zero units. Its costs are currently zero. From this information it is reasonable to conclude that: A. The firm's fixed costs are equal to its variable costs. B. The firm has no fixed costs. C. The firm's variable costs are zero. D. The firm's variable costs are less than its fixed costs.

B

What happens to fixed costs for a firm as it transitions from the short-run to the long-run? A. Nothing, fixed costs will stay the same. B. Fixed costs will turn into variable costs. C. Fixed costs will become marginal revenue. D. Fixed costs will become sunk costs.

B

Budget line

Budget = Pfood + Qfood + Qclothes + Pclothes

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the A. marginal utility for the fourth slice is the largest among all slices. B. marginal utility for four pizza slices is negative. C. marginal utility is positive for the fourth slice and negative for the fifth slice. D. total utility for five pizza slices is negative.

C

If every new worker hired adds more to total output produced than the previous worker, we have: A. decreasing marginal returns. B. increasing marginal costs. C. constant marginal costs. D. increasing marginal returns.

D

Which of the following statements is correct? A. When marginal utility is decreasing, an increase in the quantity consumed will decrease total utility. B. When marginal utility is positive, an increase in the quantity consumed will decrease total utility. C. When marginal utility is zero, an increase in the quantity consumed will make total utility zero. D. When marginal utility is positive, an increase in the quantity consumed will increase total utility.

D

Maximize profit using MR info

If marginal revenue > marginal cost, it is still worth producing an extra unit. I stop when MR = MC, since after that an extra unit will "lose money"

What happens to price when a firm leaves the market?

Prices rises supply curve shifts to the left

marginal cost

The amount by which total cost increases when an additional unit is produced ΔTC/ΔQ The change in total cost divided by the change in output

Average variable cost

The sum of all costs that change as output changes divided by the number of units produced VC/Q

Average (total costs)

The total cost divided by the quantity of output TC/Q

Marginal cost (graph)

decreases, then increases

Negative elasticity

demand with decrease when price increases demand will increase when price decreases

An additional worker adds less to total output than the previous worker hired.

diminishing returns

Suppose that a car manufacturer discovers that it can lower its average costs if it diversifies its operation by also producing pickup trucks and SUVs.

economies of scope

Judi has $50 to spend. If movies cost $8 and books cost $5, Judi can purchase five movies and three books

false

The budget line shows possible production bundles

false

What is a perfectly competitive industry?

farm commodities (wheat, grain) homogeneous products, many buyers and sellers, no barriers to entry, zero economic profit in the long run

Average fixed cost

fixed cost/quantity

Sam lowered the price of coffee at his grocery store from $10.00 to $9.99 per can. Consumers now purchase significantly more cans of coffee at his store.

framing bias

Marginal revenue (graph)

is a straight line

Because of dismal sales last year, half of the city's donut shops exit the industry.

long run

Newton Bros. Bagels opens a new store on the other side of town.

long run

If hiring Kristen causes average product to increase, Kristen's ___________ must be above current average product.

marginal product

Joe notices that when he hires another worker, the number of cars his company can wash increases.

marginal product

This is the change in total output divided by the change in the number of workers.

marginal product

The change in utility from consuming one additional unit of a good.

marginal utility

What usually decreases as consumption increases.

marginal utility

The possible combinations of two goods that a person can consume, given her or his income.

neither

This lasts at least six months but no longer than one year.

neither

Economic costs and accounting costs differ because accountants include

only explicit costs.

After negotiating for days, Sonia realized that she was not worth as much to her potential employer as she had previously believed.

over confidence

Ownership is distributed among a small number of people. This type of business is subject to unlimited liability.

partnership

Which business organization has unlimited liability and more than one owner?

partnership

How should producers act when the demand for their good is inelastic?

raise prices

In order to produce more cookies, Mrs. Meadows asks her third shift to work overtime.

short run

Purple berry Frozen Custard has $11,000 of fixed costs and $45,000 of variable costs.

short run

This is a period of time during which a firm is unable to increase or decrease its amount of capital.

short run

Most American businesses are this form of business.

sole proprietorship

Which business organization typically has a single owner that has unlimited liability?

sole proprietorship

Sean continues skiing in spite of blizzard conditions because he has already paid for a nonrefundable all-day pass.

sunk cost fallacy

Marginal cost is defined as

the change in total costs from producing one more unit of output.

The marginal cost curve often decreases at first and then starts to increase. This is explained by

the law of diminishing returns.

Relationship between taxes and elasticity

the relatively more inelastic side of the market bears more of the tax burden. Ex. demand for oil is inelastic

What happens to costs in the long run?

they become variable costs

The amount of satisfaction that a consumer gets from consuming a bundle of goods and services.

total utility

What economists assume rational consumers seek to maximize.

total utility

What usually increases as consumption increases.

total utility

A budget line slopes downward because, to buy more of Good 1, a consumer has to buy less of Good 2

true

Along a particular budget line, the prices faced by the consumer and the consumer's income are held constant.

true

The budget line depicts the combinations of two goods a consumer can buy given her income and the current prices

true

Variable inputs in the long run

two-year lease on office and retail space hourly labor chairs computers shipping beads upper management salaries

Economic profit is

typically lower than accounting profit.

It is argued that this form of business contributes the most to increases in the nation's output (GDP).

corporation

Limited liability encourages investors to invest large amounts of money in this form of business

corporation

Shareholders are the owners of this form of business.

corporation

Which business organization can raise capital by issuing stock?

corporation

If good weather results in a large harvest, what happens to market equilibrium price and quantity?

- Shits supply to the right - Higher quantities, lower prices - More goods available

Suppose Hans Kelsen is maximizing total utility given his budget. If the price of the last book purchased is $25 and it yields 100 units of extra satisfaction and the price of the last pen purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last pen must be

80 units

All of these are explicit costs, EXCEPT: A. the salary a CEO could earn if he taught an MBA course instead of working. B. salaries paid by a law firm to its lawyers. C. corporate taxes paid by McDonald's. D. money paid for the wood used to manufacture furniture.

A

Should a perfectly competitive firm keep producing even if it faces short-run losses?

Yes, as long as it is covering its variable cost

What is the primary difference between accounting profits and economic profits

accounting profits ignore implicit costs; economic profits consider them.

How to maximize utility

add both utilities together and see which combination has the highest result

Nicolle was pleased that she was able to donate $100 to her favorite charity this year.

altruism

Average variable cost (graph)

always lower than the average total cost line

Average cost equation

average cost = average variable cost + average fixed cost

This is total output divided by the number of workers

average product

When eight weavers are employed, and output is 80 baskets, ___________ is equal to 10 baskets.

average product

Economic costs and accounting costs differ because economists include

both explicit and implicit costs.