econ exam 2

On the backward-bending segment of the labor supply curve, if wage increases you will work:

less hours

In the short run a firm will continue to produce as long as revenues;

cover total variable costs

According to the data in the table, when the price is $4, the firm would produce:

four units of output, although it would suffer a loss from doing so

The process of transforming some combination of inputs into output is known as;

production

The wage rate can be considered:

the price of leisure

The short-run industry supply curve is;

the sum of the individual firms supply curves

When graphing a conventional short-run production function, we place __________ on the horizontal axis and __________ on the vertical axis.

the variable input, output

What does the shaded area in the graph represent for a perfectly competitive firm that produces at output level Q?

negative economic profit

What happens to average fixed costs when total annual fixed costs are $80,000 and the firm increases annual output from 100,000 units to 200,000 units?

average fixed costs fall from $0.80 a unit to $0.40 a unit

Based on the relationship between average total cost and marginal cost, which of the curves appears to be average total cost?

curve 2

According to the table, which of the following are implicit costs?

forgone salary and forgone interest

The capital market is the collective set of institutions that exist in order to:

funnel household savings to firms

Which graph is representative of a typical average total cost curve? (picture) * typically U shaped*

graph b

If the average total cost curve is above the demand curve, then this firm is:

having economic losses

The economic signal that will trigger resource reallocation of society's resources is;

higher prices and profit

In the long-run, economic profits will be;

zero

Which of these factors is a source of economies of scale?

bargaining power

CHAPTER

7

The substitution effect is the change in the quantity demanded of a good that results from __________, holding constant the effect of the price change on consumer purchasing power.

a change in price making the good more or less expensive relative to other goods

New investment is more likely to occur in industries earning;

above normal profits

__________ equals the firm's revenues minus its explicit costs.

accounting profit

Minimum efficient scale is the level of output at which:

all economies of scale have been exhausted

According to the graph, over what range of output do we find constant returns to scale in bookselling?

between 20,000 and 40,000 books

Which of these are financial securities that represent promises to repay a fixed amount of funds?

bonds

The situation where a firm is earning exactly a normal rate of return is known as;

breaking even

The limited amount of income available to consumers to spend on goods and services is known as the:

budget constraint

In the long run a firm;

can vary all inputs

marginal utility

change in total utility divided by change in quantity

According to the graph, which of the following is more likely to occur when moving from point A to point B? (see pictures

diminishing returns

A(n) __________ occurs when long-run average costs increase with output.

diseconomy of scale

___________ equals the firm's revenues minus all implicit and explicit costs

economic profit

The marginal utility from consuming the second ice cream cone is the:

extra satisfaction you get from consuming the second ice cream cone

the shutdown point occurs when price the lowest level of average variable cost.

falls below

In the short-run, the cost that is independent of the amount of output produced is called __________.

fixed cost

If a firm's revenues fall below the point needed to cover variable costs the firm will shut down operations and bear losses equal to;

fixed costs

One of the characteristics of perfect competition is;

homogeneous products

If interest rates move higher and I decide to save less money this reduction in savings is due to the:

income effect

payments made for the use of money are known as:

interest

If total revenues are than total variable costs the firm will .

less; shut down

Which of these factors will cause an increase in industry supply?

lower input costs

The optimal economic decision is to continue any activity, investing or otherwise, up to the point where:

marginal benefit equals marginal cost

The income effect for a normal good is __________ while the income effect for an inferior good is __________.

negative, positive

What term do economists use to refer to the minimum amount that investors must earn on the funds they invest in a firm, expressed as a percentage of the amount invested?

normal rate of return

In the short run, the firm should:

operate if price > average variable cost

highest-valued alternative that must be given up in order to engage in activity

opportunity cost

The scale of manufacturing facility that minimizes long-run average costs is the;

optimal scale of plant

In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to __________ and the market price to __________.

shift rightward; decrease

In the long run, the amount of investment a firm can make is dependent on:

the amount of household savings

Which of the following is considered an explicit cost?

the cost of labor

The income effect is the change in quantity demanded of a good that results from __________, holding all other factors constant.

the effect of a price change on consumer purchasing power

According to the graph, if a perfectly competitive firm is producing at point A, which of the following is true?

the firms earns zero economic profit

Mr. Davis hired another worker in his production facility and noticed that this worker did not increase his plant's output by as much as the previous worker he hired. This lower output is an example of;

the law of diminishing returns

When is output lower than the efficient level?

when marginal benefit is great than marginal cost

When is output higher than the efficient level?

when marginal benefit is less than marginal cost

Which of the following are sometimes called accounting costs?

explicit

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

as a part of fixed cost

The short run is a period of time where __________ while the long run is a period of time where __________.

at least one input is fixed, all inputs are variables

Our is the set of options that is defined and limited by our budget constraint.

choice set

Suppose you have a fixed amount of income and spend equal amounts on two goods, X and Y. The price of good X is Px = $10, and the price of good Y is Py = $5. The marginal utility of X is MUx = 60 utils, and the marginal utility of Y is MUy = 15 utils. How should the consumption of X and Y change, if at all, to increase utility? ANSWER

consumption of good x should increase, and consumption of good y should decrease

According to the graph the shut-down point corresponds to:

point d

A firm in perfect competition earns profit if:

price is greater than average total cost

The relationship between the inputs used by the firm and the maximum output it can produce is known as the:

production function

In the long run, the amount of financial capital available in an economy is constrained by the:

savings rate

According to the table of data, when do diminishing returns in the production of pizzas begin?

when the third worker is hired

The quantitative relationship between inputs and outputs is known as;

production technology

The perfectly competitive firm represented in the graph on the right is experiencing a __________.

profit in the short run

CHAPTER

8

In the short run, a profit-maximizing firm will produce where price is equal to;

marginal cost

The optimal level of production is one where;

costs are minimized for a given output level

According to the table, what is the average total cost of producing 550 pizzas?

$5

According to the graph, which level of output represents the minimum efficient scale in bookselling?

20,000

According to the graph, what is the value of total fixed cost for this perfectly competitive firm?

2400

What is the total revenue for a firm producing 500 widgets that cost $80 each to produce and can be sold for $120?

60,000

CHAPTER

9

The substitution effect for a normal good is __________ while the substitution effect for an inferior good is __________.

inversely related to price, inversely related to price

One hundred workers digging a pond with shovels is an example of;

labor-intensive technology

firms will maximize profit by choosing the quantity at which ____________ equals _____________

marginal revenue, marginal cost

According to the law of diminishing marginal utility, as the consumption of a particular good increases:

marginal utility decreases

The optimal combination of pizza and coke is the one where the:

marginal utility per dollar spent on pizza equals the marginal utility per dollar spent on coke

The process of dividing total fixed costs by more units of output is called;

spreading overhead

which of these costs are affected by the level of output produced?

variable costs