ECON Exam 2
The creation of the Internet has contributed to all of the following except
Increased marginal costs.
An In the News article, "Too Many Sellers: The Woes of T-Shirt Shops," states that if T-shirt shops are perfectly competitive firms, then each shop
Is a price taker.
The price signal the consumer gets in a competitive market
Is an accurate reflection of opportunity cost.
For perfectly competitive firms, price
Is equal to marginal revenue.
In the News article, "Are Profits Bad?" most Americans feel that the profit motive
Is good.
Marginal cost
Is the change in total cost associated with a one-unit increase in production.
Which of the following are factors of production?
Land, labor, capital, and entrepreneurship.
When a firm produces at a technically efficient output level, it is
Using the fewest resources to produce a good or service.
At any given rate of output, the difference between total cost and fixed cost is
Variable cost.
Changes in short-run total costs result from changes in
Variable costs.
A demand curve that is perfectly inelastic is
Vertical
Unit labor cost is equal to the
Wage rate divided by MPP.
Which of the following is a production decision?
Whether the firm should shut down or produce.
Which of the following is a production decision?
Whether to increase or decrease output.
Which of the following industries is perfectly competitive?
Wholesale fresh flowers.
In a perfectly competitive industry, economic profit
Will approach zero in the long run as more firms enter the market.
In the short run, when a firm produces zero output, variable cost equals
Zero.
If two products are homogeneous, then they
are identical
When income falls, the demand for an inferior goods
Increases.
The supply curve is upward-sloping (i.e., it takes a higher price to induce greater production) because of
Increasing marginal costs.
One World View article titled "U.S. Catfish Industry Bleeding Finally Stops" describes the loss of supply in the catfish market. Which of the following is not true for a perfectly competitive industry in the long run?
Individual firms possess significant market power.
The decision to enter or exit an industry is known as the
Investment decision.
A competitive firm
Is a price taker.
Profit
Is the difference between total revenue and total cost.
The equilibrium price in a competitive market
Is the price at which the quantity of a good demanded in a given time period equals the quantity supplied.
In which of the following types of markets does a single firm have the most market power?
Monopoly.
The average variable cost curve slopes upward with a higher rate of output in the short run because of
The effect of diminishing returns.
Competitive firms cannot individually affect market price because
Their individual production is insignificant relative to the production of the industry.
Perfect competition is a situation in which
There are many firms and no buyer or seller has market power.
Perfectly competitive firms cannot individually affect market price because
There are many firms, none of which has a significant share of total output.
A monopoly occurs when
There is only one producer of a good or service.
The fact that a perfectly competitive firm's total revenue curve is an upward-sloping straight line implies that
Product price is constant at all levels of output.
Economists assume the principal motivation of producers is
Profit.
Which of the following is generally a fixed cost?
Property taxes on land used in production.
Which of the following is most likely a fixed cost?
Property taxes.
Total revenue is
Quantity sold times price.
If peanut butter and jelly are complementary goods, an increase in the price of peanut butter will, ceteris paribus,
Reduce the demand for jelly.
The exit of firms from a market, ceteris paribus,
Reduces the economic losses of remaining firms in the market.
The entry of firms into a market, ceteris paribus,
Reduces the economic profit of each firm already in the market.
The entry of firms into a market
Reduces the profits of existing firms in the market.
Which of the following is not a characteristic of a perfectly competitive market?
High barriers to entry
Greater labor productivity means
Higher output per worker.
Which of the following is not a barrier to entry?
Homogeneous Products.
The demand curve confronting a competitive firm is
Horizontal, while market demand is downward-sloping.
The demand curve for each perfectly competitive firm is
Horizontal.
A production function shows
How a firm's production changes as quantity of labor and other inputs changes.
Price elasticity of demand refers to
How sensitive buyers are to a change in price
Which of the following is characteristic of a perfectly competitive market?
Identical products.
In the long run, which of the following is likely to be a variable cost?
Rent, wages, and all other costs are variable in the long run.
Price elasticity of demand shows how
Responsive the quantity demanded is to a change in price.
Smart phones and apps are complementary goods. The cross price elasticity of demand between smart phones and apps is expected to be.
Negative.
In a competitive market,
Neither buyers nor sellers have market power.
If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,
New cars are a normal good, and the income elasticity is +2.0
Profit per unit is equal to
P - ATC.
In which of the following cases would a firm exit from a market?
P < long-run ATC.
A firm should shut down production when
P < minimum AVC
In which of the following cases would entry and exit cease?
P = long-run ATC.
For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one?
P = maximum ATC
If a firm decides to make the investment decision to expand its capacity, then it must have discovered that
P > ATC.
A perfectly competitive firm should expand output when
P > MC.
In which of the following cases would a firm enter a market?
P > long-run ATC.
Greater-than-normal profit represents
Payment for entrepreneurship.
A change in which of the following will change the optimal rate of output?
Payroll taxes.
A perfectly competitive firm will maximize profits by choosing an output level where
Price equals marginal cost.
To maximize profits, a competitive firm will seek to expand output until
Price equals marginal cost.
Which of the following characterizes a firm that is in long-run perfectly competitive equilibrium where profits are maximized?
Price equals minimum ATC.
A catfish farmer will shut down production when
Price falls below AVC.
A firm experiencing economic losses will still continue to produce output in the short run as long as
Price is above average variable cost.
A perfectly competitive market results in efficiency because
Price is driven down to minimum ATC.
Profit per unit is equal to
Price minus average total cost.
When price exceeds average variable cost but not average total cost, the firm should, in the short run,
Produce at the rate of output where MR = MC.
Marginal cost pricing means that a firm
Produces up to the output where P = MC for a given market price.
If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can
Sell an additional pound of walnuts at $4.99.
A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?
The demand for salt is inelastic.
Profit is
The difference between total revenue and total cost.
Which of the following is the best explanation for why individuals own small businesses?
The expectation of profit.
Ceteris paribus, which of the following causes demand to be more elastic with respect to price?
A high ratio of price to income.
Suppose income falls 5 percent in a year, and as a result, housing construction falls from 10 million to 5 million units annually. Based on this information, housing starts are
A normal good.
Elasticity of supply tells us
How much sellers will increase production in response to a change in price.
Cross-price elasticity refers to
How responsive consumers of one good are to a change in the price of another good.
Elasticity of supply looks at
How responsive sellers are to a change in price.
Demand is more price-elastic
In the long run.
If a good is inferior, its
Income elasticity of demand is negative.
If a good is normal, its
Income elasticity of demand is positive.
Which of the following is the best measure of the effects of a recession?
Income elasticity of demand.
Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will
Increase because the percentage increase in price is greater than the percentage change in quantity demanded.
Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will
Increase by 95 percent.
If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should
Increase the price of its coffee.
Assume a good has a downward-sloping, linear demand curve. Starting at a price of zero, as the price of the good increases, total revenue
Increases, then decreases.
Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become
Less positive (move closer to zero).
Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to
Lower his price to increase revenue.
Which of the following products will have more inelastic demand?
Medicines.
Ceteris paribus, the longer the time period, the
More elastic the demand for the good.
A good is normal if the sign on the income elasticity formula is
Positive.
Ceteris paribus, as the number of substitutes for a good increases, the
Price elasticity of demand should become larger.
The total revenue effect of a movement along a demand curve can best be predicted using the
Price elasticity of demand.
When demand is price-inelastic, ceteris paribus, an increase in
Price leads to greater total revenue.
Income elasticity measures the
Responsiveness of quantity demanded to a percentage change in income.
The demand for normal goods
Rises when incomes rise.
The local baseball team owner hires you to help maximize the team's profits. Assume your task is to maximize revenues from ticket sales. Your advice to the owner should be to
Set the price of tickets at the unitary elasticity price.
Maximum total revenue occurs when
The absolute value of the price elasticity of demand is 1.0.
Which of the following is not a determinant of the price elasticity of demand?
The amount of income the consumer has.
To find the percentage change in price,
The change in price is divided by the average price.
To find the average percentage change in quantity demanded,
The change in quantity demanded is divided by the average quantity.
If the price of a good rises by 10 percent and quantity demanded falls by 20 percent, we can predict that
The company's total revenue will decrease.
If two goods are complementary goods, then
The cross-price elasticity sign will be negative.
If demand is perfectly elastic,
The demand curve is horizontal.
If demand is very inelastic,
The demand curve will be very steep.
In the article "After iPhone Price Cut, Sales Are Up by 200 Percent,"
The demand for iPhones is highly elastic.
If the price elasticity of demand for cigarettes is 0.4,
The demand is inelastic.
If demand is elastic, then
The elasticity number E is greater than 1.
Supply is very inelastic when
The quantity supplied changes little when the price increases.
Supply is very elastic when
The quantity supplied has a large increase in response to an increase in price.
The shutdown point occurs where price is below the minimum of
AVC.
If a firm can change market prices by altering its output, then it
Has market power.
When payroll taxes are raised, the firm's marginal cost curve shifts
Upward, and supply decreases.
If a perfectly competitive firm is producing a rate of output at which MC exceeds price, then the firm
Can increase its profit by decreasing output.
Entrepreneurship
Can result in economic losses.
In a competitive market, economic profits will
Cause existing firms to expand production.
If the elasticity of demand for cigarettes is 0.4, a seller should
Increase price to increase total revenue.
In defining economic costs, economists emphasize
Explicit and implicit costs while accountants recognize only explicit costs.
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What is the economic profit for the firm described above?
-$90,000.
If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is
$1.33
Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded. The value of the cross-price elasticity of demand is
-1.71
If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is
0.4
Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is
0.5
If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be
0.5.
Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to
1.29
If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is
2
In a competitive market where firms are earning economic profits, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?
A lower price and more firms.
The long run is
A period long enough for all inputs to be variable.
Adam is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit?
Accounting profit = $75,000; economic profit = $0.
If economic profits are earned in a competitive market, then over time
Additional firms will enter the market.
If price is greater than marginal cost, a perfectly competitive firm should increase output because
Additional units of output will add to the firm's profits (or reduce losses).
Which of the following would most likely have a price elasticity coefficient greater than 1?
Airline travel in the long run.
In reference to table 22.1, the $600 paid in property taxes counts as
An explicit cost.
Assuming an entrepreneur does not pay herself, the $1,000 she could earn as an employee elsewhere is considered
An implicit cost.
In a perfectly competitive market where firms are currently experiencing economic profits in the short-run, which of the following is least likely to occur during the long-run?
An increase in marginal revenue.
If demand is elastic, then
An increase in price will reduce total revenue.
Which of the following does not affect marginal costs?
An increase in property taxes.
The productivity of workers will increase in response to
An increase in the amount of physical capital per worker.
If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent, then this particular type of vehicle is
An inferior good.
Which of the following is a consequence of competition?
An unrelenting squeeze on prices and profit.
If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that
Both goods are substitute goods because the cross-price elasticity is +2.
In making a production decision, an entrepreneur
Decides what level of output will maximize profits.
Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus,
Fall by 3.5 percent.
Which of the following is most likely an inferior good?
Generic canned food.
When an athletic shoe company is producing a level of output at which price is greater than
Little because society would be willing to give up more alternative goods in order to get additional shoes.
If a perfectly competitive firm is producing at its profit-maximizing output in the short run and fixed costs decline, the firm should
Not change output.
If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will
Not change.
In making an investment decision, an entrepreneur
Only considers variable costs.
The most desired goods and services that are foregone in order to obtain something else are the
Opportunity cost.
Nobel Prize-winning economist Gary Becker corrected President Clinton's elasticity estimate for cigarette smoking by
Showing that the long-run response to a price increase in cigarettes was likely to be more elastic than the president had estimated.
Oil and alternative sources of energy such as wind and solar are
Substitute goods.
When the price of taking a ride in Uber increases, the demand for Lyft rides increases, ceteris paribus. Uber and Lyft are therefore
Substitutes.
To determine the market supply, the quantities
Supplied at each price by each supplier are added together.
When economic losses exist in the cereal market, for example, this is an indication that
The goods and services that society is giving up (the opportunity cost) are more valuable than the cereal being produced.
Total revenue is equal to
The income from sales
If the price elasticity of demand is equal to 2, the good has ________ demand.
elastic
The demand will be ________ if the consumer has ________ substitute goods to choose from
elastic; more
Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will ________.
fall; fall
A demand curve that is completely elastic is
horizontal
The shape of the marginal cost curve reflects the
law of diminishing returns
Examples of barriers to entry include
patents
A firm's total revenue can be determined by
price times quantity
Market structure is determined by the
the number and relative size of firms in an industry
When the average total cost curve is rising, the marginal cost curve will be
Above the average total cost curve.
In the short run, which of the following is most likely a variable cost?
Labor and raw materials costs.
Marginal cost
Rises as a direct result of diminishing returns.
If a new sushi restaurant opens, then
The market supply curve for sushi will shift to the right.
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What is the accounting profit for the firm described above?
$0.
When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour, the unit labor cost is
$0.67 per unit
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual explicit costs for the firm described above?
$360,000.
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual economic costs for the firm described above?
$450,000.
Lashondra is the owner/operator of an interior design firm. Last year she earned $400,000 in total revenue. Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources). During the year she received offers to work for other design firms. One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year. Lashondra's economic profit is equal to
$70,000.
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual implicit costs for the firm described above?
$90,000.
Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of footballs falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is
1.80.
When a producer can control the market price for the good it sells, the producer
Has market power.
Price elasticity looks at
) How much the quantity demanded or supplied changes after a change in price.
If diminishing returns exist, then
Each unit produced will cost incrementally more to produce.
If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to
3.5
For product X, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by
3.5 percent for each 1 percent decrease in price, ceteris paribus.
If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.
6 percent decrease
If the price of the iPhone X falls by 3 percent and the price elasticity of demand for iPhone X is 2.0, then quantity demanded will fall by what percentage?
6 percent.
Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to
6.3.
Which of the following affects both the marginal and average total cost curves of a firm in the short run?
A change in payroll taxes.
Which of the following affects the ATC curve for a firm but not the MC curve?
A change in property taxes.
Assuming labor is a variable input, an increase in labor productivity will result in
A downward shift in the MC curve.
Which of the following characterizes a competitive market?
A downward-sloping demand curve for the market.
Diminishing returns occur because
A firm increases the amount of a variable input without changing a fixed input.
In a competitive market where firms are earning economic losses, which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?
A higher price and fewer firms.
Which of the following is characteristic of a perfectly competitive market?
A large number of firms.
Which of the following statements is not true regarding the production function and the production possibilities curve?
A production function tells us the maximum amount of output attainable from the use of all resources.
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to
Earn $90,000 more in revenue.
A production decision involves choosing
A rate of output and is a short-run decision.
In a perfectly competitive market economy, business failures can benefit society by causing
A reallocation of resources to better uses.
The equilibrium price of a good or service in a competitive market is
A reflection of the opportunity cost of producing the product.
Which of the following is least likely to increase labor productivity?
A safer work environment.
Technological improvements cause
ATC to shift down.
The marginal cost curve intersects the minimum of which of the following cost curves?
ATC.
Which of the following statements about the relationship between economic costs and accounting costs is true?
Accounting costs are always less than or equal to economic costs.
The article "Samsung Stung by Apple Moves" related to the price cuts for the iPhone indicates that
Apple lowered the price for the iPhone because the cross-price elasticity between it and the other competitors was positive.
Fixed costs
Are constant in the short run.
If the products of two firms are homogeneous, then they
Are perfect substitutes.
Explicit costs
Are the dollar payments made for the use of resources.
Explicit costs
Are the sum of actual monetary payments made for the use of resources.
Implicit costs
Are the value of resources used for which no direct payment is made.
Implicit costs
Are the value of resources used, for which no monetary payment is made.
If a perfectly competitive firm wanted to maximize its total revenues, it would produce
As much as it is capable of producing.
The World View "Rebounding Oil Price Spurs More Rigs" related to oil prices and oil rigs suggests.
As the price of oil increases, there is an increase in oil rigs and thus the amount of quantity supplied, indicating that supply is elastic.
Technical efficiency is achieved when a firm produces
At an amount indicated by a point on the production function.
On a demand curve, demand is more elastic
At higher prices.
Which of the following is likely to have the most inelastic price elasticity of demand?
Automobiles.
Technological changes that increase productivity shift the
Average total cost curve downward.
Accounting costs and economic costs differ because
Economic costs include implicit costs and accounting costs do not.
Accounting costs and economic costs differ because
Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.
In the short run, the law of diminishing returns
Can be observed in every production process.
In the In the News article "The Lure of Catfish" production of catfish has skyrocketed in the United States from 16 million pounds in 1975 to an expected 340 million pounds in 1989. The business is growing among farmers in Alabama, Arkansas, and Louisiana. Which of the following is the motive that enticed many farmers to give up the production of row crops to produce catfish?
Catfish is relatively more profitable than row crops.
The marginal physical product is the
Change in total output associated with one additional unit of input.
Which of the following would most likely have a price elasticity coefficient less than 1?
Coffee.
Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of
Constant returns to scale.
For the perfectly competitive firm, the marginal revenue is always
Constant.
High profits in a particular industry indicate that
Consumers want more of that industry's goods.
When economic profits exist in the market for a particular product, this is a signal to producers that
Consumers would like more scarce resources devoted to the production of this product.
Which of the following does not influence the price elasticity of demand?
Costs of production.
A firm that makes zero economic profits
Covers all its costs, including a provision for normal profit.
Normal profit
Covers the full opportunity cost of the resources used by the firm.
The "$99 iPads" The Economy Tomorrow analysis indicates that the success of the iPad
Created new entrants into the tablet market.
One World View article is titled "Competition Shrinks India's Phone Bills." Competitive forces typically force companies to
Cut prices, improve product quality, and improve service.
Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.
Dad says her cost is $31,000 and Mom says her cost is $47,600.
Megan used to work at the local pizzeria for $15,000 per year but quit to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her annual profit for her.
Dad says her profit is $19,000 and Mom says her profit is $2,400.
The average fixed cost (AFC) curve
Declines as long as output increases.
Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will
Decrease by 14.3 percent
In a competitive market, if the market price is equal to the minimum point of the firm's ATC curve, the firm may seek to earn economic profits by
Decreasing production costs through technological improvements.
If the price of Good X falls and total revenue rises, then
Demand for Good X is elastic
A price decrease will cause total revenue to fall if
Demand is inelastic.
Higher prices will increase total revenue if
Demand is inelastic.
When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus,
Demand is inelastic.
When the short-run marginal cost curve is upward-sloping,
Diminishing returns occurs with greater output.
Which of the following is a long-run concept?
Diseconomies of scale.
When technology improves, the firm's marginal cost curve shifts
Downward, and supply increases.
Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for its product. The most likely short-run result of this campaign, ceteris paribus, would be
Economic losses for the firm.
One World View article is titled "Flat Panels, Thin Margins." New firms continue to enter the industry even though prices are falling because
Economic profits are being earned.
For a competitive market in the long run,
Economic profits induce firms to enter until profits are normal.
When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles,
Economies of scale must exist.
One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general. Such profits are most likely the result of
Economies of scale.
As an In-N-Out Burger restaurant increases the number of employees for a specific restaurant,
Efficiency will suffer as the restaurant becomes too crowded with employees.
The difference between the total revenue and total cost curves at a given output is equal to
Either profit or losses depending on the curves relative position.
If a firm could hire all the workers it wanted at a zero wage (i.e., the workers are volunteers), the firm should hire
Enough workers to produce where the MPP equals zero.
Which of the following is an investment decision in a competitive market?
Entry or exit.
The demand curve confronting a competitive firm
Equals the marginal revenue curve.
In long-run perfectly competitive equilibrium, marginal cost
Equals the minimum of the ATC.
If long-run economic losses are being experienced in a competitive market,
Equilibrium price will rise as firms exit.
Technological improvements cause
Existing firms to produce more output.
If price is below the long-run competitive equilibrium level, there will be
Exit of firms from the market.
Economies of scale
Explain why average total costs decline as output increases in the long run.
If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10, and gasoline prices rise by 18 percent, then SUV sales should, ceteris paribus,
Fall by 1.8 percent.
In a perfectly competitive market in the long run, which of the following is not correct?
Firms are maximizing total revenue.
If price is above the long-run competitive equilibrium level,
Firms will enter the market.
A U-shaped average total cost curve implies
First marginal cost below average total cost, and then marginal cost above average total cost.
Sam's surf shop has total costs of $2,000 when it is not producing any surfboards. This means that
Fixed costs are $2,000.
In the short run, when a firm produces zero output, total cost equals
Fixed costs.
Which of the following costs do not change when output changes in the short run?
Fixed costs.
Which of the following is a factor of production for the Little Biscuit Bread Company?
Flour
One In the News feature reports that General Motors planned to essentially quit making cars and trucks in the United States for nine weeks from mid-May through July 2009 and Omaha Power planned to close one of its nuclear plants permanently. Based on these particular news clips, what is the difference between GM's and Omaha Power's decisions?
GM's decision to idle plants was a short-run shutdown decision. Omaha Power, by contrast, made a long-run decision to exit a specific market.
Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls,
Good X is a normal good and good Y is an inferior good.
When demand is elastic, the absolute number for price elasticity will be
Greater than 1.
The market structure of the computer industry
Has become more competitive over time.
Which of the following is the best explanation of why the law of diminishing returns does not apply in the long run?
In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.
The short run is the time period
In which some costs are fixed.
Economic cost
Includes both implicit and explicit costs.
Marginal cost is the increase in total cost associated with a one-unit
Increase in production.
In order to sell additional units of their products, competitive firms must
Increase output.
Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should
Increase output.
Which of the following would cause a firm's production function to shift upward?
Increased training for the firm's workers.
The exit of firms from a market, ceteris paribus,
Increases the equilibrium price in the market.
The profit motive can encourage businesses to do all of the following except
Mistreat customers.
When a computer firm is producing a level of output at which MC is greater than price, from society's standpoint the firm is producing too
Much because society is giving up more to produce additional computers than the computers are worth.
The marginal cost curve
Is the short-run supply curve for a competitive firm at prices above the AVC curve.
When a firm is earning positive economic profits, this is an indication that the firm
Is using its resources in the best possible way.
When a firm minimizes its losses in the short run,
It continues to produce only if price exceeds average variable cost.
Which of the following is true about a competitive market supply curve?
It is the sum of the marginal cost curves of all firms.
Average total cost is important to a business because
It tells the firm what the profit per unit produced is.
The perfectly competitive market structure includes all of the following except
Large advertising budgets.
Economic profit is
Less than accounting profit by the amount of implicit cost.
The period in which there are no fixed costs is the
Long run.
Investment decisions are made on the basis of the relationship of price to
Long-run average total cost.
If Tesla is thinking about building a new factory, it is making a
Long-run decision that may enhance its profit.
Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chip-manufacturing factory in China if the U.S. government allows it, underscoring the technology giant's ambitions in the world's fourth-biggest economy. The Intel executive is making a
Long-run decision, and therefore an investment decision.
The long-run average total cost curve is constructed from the
Lowest average total cost for producing each level of output.
A competitive firm should always continue to operate in the short run as long as
MR > AVC.
Businesses that fail to account for implicit costs, like the strawberry farmer, Hiroshi Fujishige, who failed to consider the enormous opportunity of selling his property to Disneyland, will
Make more money when they shut down.
The competitive market model is important because
Many industries function much like the competitive model.
The average total cost (ATC) curve will be downward sloping so long as
Marginal cost is less than average total cost.
If the marginal physical product (MPP) is falling, then the
Marginal cost of each unit of output is rising.
The behavior expected in a competitive market includes
Marginal cost pricing.
Which characteristic of competitive markets permits society to answer the WHAT to produce question efficiently?
Marginal cost pricing.
Which of the following represents the change in total cost that results from a one-unit increase in production?
Marginal cost.
Ceteris paribus, the law of diminishing returns states that beyond some point, the
Marginal physical product of a factor of production diminishes as more of it is employed with a given quantity of other inputs.
The change in total output associated with one additional unit of input is the
Marginal physical product.
Short-run profits are maximized at the rate of output where
Marginal revenue is equal to marginal cost.
Marginal cost pricing in competitive markets results in all but which one of the following?
Maximization of consumer utility.
All of the following are ways a business can earn economic profits except
Maximize implicit costs but not explicit costs.
A profit-maximizing producer seeks to
Maximize total profit.
The most desirable rate of output for a firm is the output that
Maximizes total profit.
A production function shows the
Maximum output of a good attainable from different combinations of factor inputs.
Which of the following is consistent with long-run equilibrium for a perfectly competitive market?
Maximum technical efficiency is achieved.
In a perfectly competitive market, when price is equal to the
Minimum average total cost, economic profit is zero.
Higher education levels and better management
Shift the long-run ATC curve downward
A competitive market creates strong pressure for technological innovation that
Shifts the supply curve to the right.
Other things being equal, as more firms enter a market, the market supply curve A) Becomes more inelastic.
Shifts to the right.
The period in which at least one input is fixed in quantity is the
Short run.
If a firm finds that its marginal cost is greater than its price, it
Should reduce production.
The market price for any good or service sold in a perfectly competitive market is determined by
Supply and demand.
Short-run supply determinants include
Technology.
The In The News article "Tesla Banks on Gigafactory" says that
Teslas plan is a long-run production decision, and the company plans to enjoy economies of scale.
Economic losses are a signal to producers
That they are not using resources in the best way.
Profit per unit is maximized when the firm produces the output where
The ATC is minimized.
An investment decision involves choosing
The amount of plants and equipment and is a long-run decision.
Which of the following is always downward-sloping?
The average total cost curve when it is above the marginal cost curve.
An In the News article discusses "Too Many Sellers: The Woes of T-Shirt Shops." If T-shirt shops are perfectly competitive firms, then
The barriers to entry are low.
Marginal cost is equal to
The change in total costs divided by the change in quantity produced.
Barb's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because
The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.
Normal profit implies that
The factors employed are earning as much as they could in the best alternative employment.
If price is less than marginal cost, a perfectly competitive firm should decrease output because
The firm is producing units that cost more to produce than the firm receives in revenue, thus reducing profits (or increasing losses).
The World View article on the rise in gold prices indicates that
The law of supply is true: as the price of gold rises, miners around the world search for new deposits of gold.
Which of the following is the slope of the production function with respect to an input?
The marginal physical product of the input.
If catfish farmers expect catfish prices to fall in the future, then right now
The market supply curve for catfish will shift to the right.
If someone invents a more cost effective way to produce frozen pizzas, then
The market supply curve for frozen pizzas will shift to the right.
If the price of ricotta cheese, an ingredient in lasagna, increases, then
The market supply curve for lasagna will shift to the left.
The best measure of the economic cost of doing your homework is
The most valuable opportunity you give up when you do your homework.
Which of the following is a determinant of market supply but not the supply curve of an individual firm?
The number of firms in the market.
When demand is inelastic
The percentage change in price is greater than the percentage change in quantity demanded
The basic formula for price elasticity of demand is
The percentage change in quantity demanded divided by the percentage change in price.
The price elasticity of demand is equal to
The percentage change in quantity demanded divided by the percentage change in price.
If two goods are substitute goods,
The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.
If the demand for a product is elastic, then
The percentage change in quantity demanded is greater than the percentage in price.
The formula for the elasticity of supply is
The percentage change in quantity supplied divided by the percentage change in price.
The formula for cross-price elasticity is
The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.
A perfectly competitive firm is a price taker because
The price of the product is determined by many buyers and sellers.
Marginal cost pricing results in the most desirable mix of goods and services from the consumer's standpoint because
The prices consumers pay are a reflection of the value of the goods and services given up.
If the elasticity of demand is 3, and the price rises by 15 percent, then
The quantity demanded will fall by 45 percent.
Which of the following is most likely a fixed cost?
The rent for a factory.
Which of the following should not be included when calculating accounting profit?
The return on the next best alternative investment opportunity.
In economics, the long run is considered to be
The time period when all costs are variable.
Diseconomies of scale are reflected in
The upward-sloping segment of the long-run average total cost curve.
When firms in a competitive market are experiencing zero economic profits, this is an indication that
There is currently no better way to use society's scarce resources.
The sum of fixed cost and variable cost at any rate of output is
Total cost
Average total cost is equal to
Total cost divided by quantity produced.
Economies of scale are reductions in average
Total cost that result from using operations of larger size.
If the marginal cost curve is rising, which of the following must be true?
Total costs must be rising.
An increase in production in the short run definitely results in an increase in
Total costs.
A firm maximizes profit when
Total revenue exceeds total cost by the greatest amount.
Marginal revenue is the change in
Total revenue when output is changed.
If the demand for cigarettes is inelastic,
Total revenue will rise if the price of cigarettes rises.
Economic profit is the difference between
Total revenues and total economic costs.
Which of the following products will have elastic demand?
Travel souvenirs.
In making an investment decision, an entrepreneur
Treats all costs as variable.
A price change will have no effect on total revenue if demand is
Unitary elastic.
The market supply curve in a perfectly competitive market is usually
Upward-sloping.
Technically the elasticity number is negative because
When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.
In a perfectly competitive industry, economic profit:
Will approach zero in the long run as prices are driven to the level of average production costs.
Which of the following is characteristic of a perfectly competitive market?
Zero economic profit in the long run.
Which of the following is not a barrier to entry?
perfect information