Econ Test 2
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 20 bushels of barley, which of the following is the market price for a bushel of barley?
$0.60
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 25 bushels of barley, which of the following could be the market price for a bushel of barley?
$0.75
A business has revenues of $40 million per month and costs of $28 million per month. Annual profits for this firm are:
$12 Million
If a local car dealership can sell 8 cars per day at a price of $25,000 each, but must reduce the price to $24,000 to sell one more car, what is the marginal revenue of the 9th car?
$16,000
If a local diner can sell 50 burgers per day at a price of $5 each, but must reduce the menu price to $4.95 to sell one more burger, what is the marginal revenue of the 51st burger?
$2.45
If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?
$80
A small business makes 1970s-style lava lamps. There aren't many competitors. The business can sell the first few lamps for $30 each, but the business owners have found that they need to reduce the price if they want to sell more.
10 30 300 30 20 25 500 20 30 23 690 19 40 21 840 15 50 19 950 11 Suppose the marginal cost of making each lamp is 14$. The business should make 40 lamps
In 2010 American Electric Power (AEP), an electric utility with operations from Texas to Michigan, produced 206 million megawatt-hours of electricity (a megawatt-hour measures the output of an electricity-generating plant). The company also had 19,000 U.S. employees. What is the average labor productivity of AEP (in megawatt-hours per worker)?
10842.1
In 2010 American Electric Power (AEP), an electric utility with operations from Texas to Michigan, produced 208 million megawatt-hours of electricity (a megawatt-hour measures the output of an electricity-generating plant). The company also had 19,000 U.S. employees. What is the average labor productivity of AEP (in megawatt-hours per worker
10947.4
A business has revenues of $93 million per month and costs of $57 million per month. Annual profits for this firm are:
36 Million
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. Suppose Farmer McColl is one of 20 farmers in the barley market, and all of the farmers have identical marginal cost functions. If the market price of barley is $1.00 per bushel, which of the following could be the total amount of barley produced in the market?
700
A) Standardized products are B) Markets with one or two sellers are C) Buyers and sellers in a perfectly competitive market need information about prices so they can
A) easy to compare B) Less likely to be perfectly competitive C) Find the current market price
A local handyman offers to install new windows in your home. His cost function is given in the table below: 0 100 - 1 150 50 2 200 50 3 250 50 4 325 75 5 425 100 6 550 125
What are the fixed costs of window installation? 100
Microsoft's two main products, Windows and Office, could be examples of
a natural monopoly
When businesses have market power, they are able to charge a price higher than the price charged by a business in perfect competition. Thus the market power equilibrium on a diagram will be
higher and to the left of the perfect competition equilibrium
In a simple grass-mowing business, the lawn mower and labor would be
Inputs
What word describes the goods and services that are used to produce outputs for a business?
Inputs
Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?
It must be less than 18
Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?
It must be less than 18.
_________ is the added cost to produce one more unit of output.
Marginal Cost
In perfect competition, a profit-maximizing business will expand until its _____ equals the market price
Marginal cost
_________ is the added cost to produce one more unit of output.
Marginal cost
The extra amount of output a business can generate by adding one more hour of labor is called
Marginal product
The additional money a business gets from producing and selling one more unit of output is
Marginal revenue
_____________ is the added revenue from producing and selling one more unit of output.
Marginal revenue
A profit-maximizing business will increase production as long as
Marginal revenue exceeds marginal cost
From World War II to the early 1970s, GM, Ford, and Chrysler enjoyed
Market power
___________ is the ability to raise prices above the level perfect competition would produce by restricting the quantity supplied.
Market power
In perfect competition, all businesses in a market produce at the point where ________ equals __________.
Market price; marginal cost
Economists generally assume that the main goal of most businesses in the economy is to
Maximize profits
What happens to the marginal product of labor if more capital is added to a production process?
More capital generally causes the marginal product of labor to rise.
A profit-maximizing monopolist will always charge _______ a perfect competitor would.
More than
A _______ monopoly is an industry in which it makes economic sense to have only one provider.
Natural
In a simple lawn-mowing business where you have a push mower and labor as input, by adding an additional input in the form of a gas self-propelled mower (capital), what would be the impact on output?
Output would increase
In the long run, monopolistic competition starts to look like
Perfect competition
What is the economic process of turning inputs into outputs that a business will sell to customers?
Production
What is the difference between revenue and cost?
Profit
What word describes the money that customers pay for the output of a business?
Revenue
___________ is the amount of money a company receives for selling its product or service
Revenue
When a business expands production and increases sales, what generally happens to revenue?
Revenue rises because the business is selling more output
In a market with perfect competition, given enough time and no barriers to entry, profits will tend toward zero in the long run.
True
In perfect competition, a profit-maximizing business will expand until its marginal cost equals the market price.
True
In perfect competition, all buyers and sellers are price takers
True
In perfect competition, all buyers and sellers are price takers.
True
In perfect competition, if there are no barriers to entry, only the lowest-cost businesses survive over the long run.
True
Inputs for a business are the goods and services that it sells to its customers.
True
Marginal cost is the added expense of producing one more unit of output.
True
Marginal revenue is the additional revenue a business gets from producing or selling one more unit of input.
True
Marshall Field's and Sterns Department Stores are examples of low-cost producers in a perfect competition market.
True
Revenue is the money that customers pay for the output of a business.
True
The average product is calculated by dividing input by the number of hours worked
True
The marginal product is the extra amount of output a firm can generate by adding one more hour of labor (or one more worker).
True
Under the right circumstances, competition could be a win-win proposition for companies and consumers.
True
An example of variable costs is
hourly labor
One strategy for long-term profit maximization is
innovation
In a simple grass-mowing business, the lawn mower and labor would be
inputs
The goods or services purchased by a business for immediate use in the production process are known as
intermediate inputs
AT&T is an example of a business that used market power to avoid
invest in important research benefiting society
AT&T is an example of a business that used market power to
invest in important research benefiting society.
Inputs used by a business in the production process include
labor
The hours of work supplied by various types of workers are referred to by economists as
labor
The price of labor per unit times the amount of labor used is called
labor cost
An example of a barrier to entry is
lack of a key resource
Fixed costs are also known as __________ costs because they are much harder for a business to change.
long-term
Which of the following is NOT an example of a barrier to entry?
lower costs
Marginal revenue is generally __________ for businesses that do not operate under conditions of perfect competition.
lower than the price
Compared to businesses with market power, businesses in perfect competition will charge __________ prices and sell __________ output.
lower; more
Compared to businesses with market power, businesses in perfect competition will charge __________ prices and sell __________ output.
lower;more
In perfect competition, a profit-maximizing business will expand until its _________ equals the market price.
marginal cost
The added expense of producing one more unit of output is called the
marginal cost
The additional money a business gets from producing and selling one more unit of output is
marginal revenue
As the market price of a good rises, businesses will respond by producing more of that good because
marginal revenue exceeds marginal cost after the price increase
As the market price of a good rises, businesses will respond by producing more of that good because
marginal revenue exceeds marginal cost after the price increase.
All other things equal, a business making shirts would choose not to expand when
marginal revenue per shirt equals $7 and the marginal cost per shirt equals $10
From World War II to the early 1970s, GM, Ford, and Chrysler enjoyed
market power
___________ is the ability to raise prices above the level perfect competition would produce by restricting the quantity supplied.
market power
In perfect competition, all businesses in a market produce at the point where ________ equals __________.
market price, marginal cost
A market where there is only one seller, and buyers have no good alternative, is called a(n)
monopoly
In general, as markets have
more competition, production rises and costs fall over the long run.
A good example of monopolistic competition is
neighborhood restaurants
A profitable business will attract
new competitors
Average product is not as reliable an indicator of how a business is doing as it used to be because of
outsourcing labor
The four main types of market structure are
perfect competition, monopolistic competition, oligopoly, and monopoly.
If music was perfectly competitive, then all performers would
play the same music and charge the same price for concerts
If music was perfectly competitive, then all performers would
play the same music and charge the same prices for concerts
In perfect competition, P = MC means
price equals marginal cost
Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the
production function
The __________ summarizes the output of the business, given the level of inputs.
production function
The main objective of a business in a market economy is
profit maximization
Companies will often spend considerable amounts of money to create a ____________ in regards to their brand name.
reputation effect
In a market where businesses are earning high profits, new entrants will cause the supply curve to shift to the _________ and the market price to _________.
right; fall
In a market where businesses are earning high profits, new entrants will cause the supply curve to shift to the _________ and the market price to _________.
right;fall
Marginal cost generally ________ quantity produced.
rises with
In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.
short-term cost function
Variable costs are also known as
short-term costs
Variable costs are relevant for
short-term everyday decision making
If all of the restaurants in a small town colluded and agreed to raise dinner prices, this would lead to a loss to society because
some dinners that could be served are not.
If all of the restaurants in a small town colluded and agreed to raise dinner prices, this would lead to a loss to society because
some dinners that would be served are not
A business with market power may
sometimes use high profits to research new technologies
A business with market power may
sometimes use high profits to research new technologies.
Natural monopolies have been slowly eroded by
technological change
In perfect competition, higher-cost businesses
tend to go out of business if unable to adjust
Market power is
the ability to raise prices above the prices that would exist under perfect competition.
Natural monopolies include
the local water company
Many hospitals and private universities are nonprofit institutions. This means
they do not seek maximize their profits.
The easiest way to have a monopoly today is
to have the government protect you
A production function tells you, given the inputs, what the output will be
true
Advertising a brand can help create a reputation effect
true
Perfect competition requires a nonstandard product.
true
In the process of long-term profit maximization, the business makes decisions under the assumption that it can
vary all the inputs
If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?
80$
The local department store used to be ___________ before technological change.
A monopoly
Suppose that the price of the labor input (the MRI technician) is $300 per day in wages and benefits. Suppose also that the capital input (the MRI machines) has a price of $150 per day for each machine, on a long-term lease. A) To do 17 scans in a day, how many technicians are needed? B) what is the labor cost of doing 17 scans in a day? C) what is the total cost of doing 17 scans per day? D) What is the variable cost of doing 20 scans in a day? E) what is the fixed cost of doing 20 scans in a day?
A) 4 B) 1200 C) 1500 D) 1500 E) 300
Here is the cost function for a bicycle repair shop, including the labor cost for the repair technicians: A)How many bicycles must the store repair per day to maximize profits? BNow suppose the market price for repairing a bicycle goes up to $100. How many bicycles will the shop repair?
A) 5 B) 7
The following table shows the maximum amount five potential car buyers are willing to pay for each level of sales. Suppose that the cars are being sold by a car dealer operating as a monopoly (perhaps because there are no other car dealers in the market). A) if the price of the car is $30,000, the revenue will be ___ thousand B) if the marginal cost of each car is $20,00. The monopolistic car dealer will want to sell __ cars and the price will be ___ thousand C) in a perfectly competitive market, the number of cars sold would be __ cars
A) 90 B) 3, 30 C) 5
Think about a Starbucks coffee shop. Identify whether each of the following inputs is a fixed cost or a variable cost: A) An expresso machine B) Electricity to run the machine C) the lease on the store D) Workers
A) Fixed costs B) Variable Cost C) Fixed Cost D) Variable Cost
A) Apples in the grocery store B) Plane tickets from New York to Seattle. C) Tickets to a professional football game in your town. D) Passenger train service.
A) Many sellers B) Many sellers C) few sellers D) few sellers
A) None of the available property in town is zoned for business use B) The price of tablecloths has risen C) Consumers buy only from businesses they know D) The town requires all businesses to pay a hefty annual permit fee. E) The town requires new businesses to pay a hefty permit fee.
A) This would be a barrier to entry B) This would not be a barrier to entry C) This would be a barrier to entry D) This would not be a barrier to entry E) This would be a barrier to entry
In 2008 the cost of oil soared, and so did the cost of jet fuel. In response, American Airlines announced in May of that year that it was cutting some routes and reducing the frequency of flights on other routes. A) Jet fuel is B) What did american airlines gain from reducing the number of flights? C) The airline was more likely to cancel D)The next generation of airplanes from Boeing, the 787, uses less fuel than many of the aircraft currently being flown (see "Spotlight: Boeing's Long-Term Decision"). If American Airlines could replace its aircraft with more fuel-efficient models, it would want to
A) a fixed cost for a flight that will fly B) lower fuel costs C) partially filled flights because these have a higher average cost D) Increase the number of flights because the marginal cost of adding a flight would be lower.
A) Another restaurant opens across the street, in this case, B) You advertise in the local newspaper, In this case C) You develop a new dish that mixes Polynesian, Turkish and Indian Cuisines.
A) demand shifts left B) Demand shifts right C) demand shifts right
In November 2010, Google had almost 64 percent of all online searches, according to comScore, an Internet tracking company. By comparison, Yahoo! and Microsoft had only 19 percent and 11 percent respectively. A)Clearly Google is the choice of many people for searching. If Google started charging for searches, the demand for its services would B)Does Google have market power in the market for searches, as defined in this chapter? C)Google does charge advertisers for placing their ads next to related searches. For example, if you search for "Toyota," you will see car-related ads. Does Google have market power in the market for advertising? D Suppose Google had 100 percent of the online search market (perhaps by buying up Microsoft and Yahoo!). Would Google be able to raise the price it charges advertisers?
A) go down, but by how much is indeterminate B) No, because they have not raised to the price to provide the needed evidence. C) No, because there are many other advertising outlets. D) Yes, Because any firm wanted this type of advertising would have to use google.
There are 15 hair salons in town, and the local haircut market is operating under conditions of perfect competition. A) If one of the hair salons goes out of business, in the short run the market supply curve will B) The price of haircuts sold will C) The number of haircuts sold will
A) shift to the left B) Increase C) Decrease
A) What is the quantity demanded if cars sell for $30,000 each? B) Under conditions of perfect competition, how many cars are bought if the marginal cost of producing a car is $25,000 C) How many cars are bought if the marginal cost of producing a car falls to $20,000?
A) there will be 3 cars demanded B) 4 cars are bought C) 5 cars will be bought
__________ is paid communication with potential customers in a public medium, such as newspapers and television.
Advertising
Which of the following is an example of a profit-maximizing business?
An accountant who makes her living preparing tax returns for other people
Inputs to production do NOT include
Average product
If June can earn $1,500 in revenue from painting two houses, how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters, and that she can easily find a third customer.)
Exactly $2.250
A small business makes 1970s-style lava lamps. There aren't many competitors. The business can sell the first few lamps for $30 each, but the business owners have found that they need to reduce the price if they want to sell more. 10 30 300 - 20 25 500 20 30 20 600 10 40 15 600 0 50 10 500 -10 B) Suppose the marginal cost of making each lamp is 10$ The business should make
B) 30
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If the current market price for barley is $1.00 per bushel, how much barley should Farmer McColl produce?
Between 30 and 40 bushels
The technology or knowledge necessary for the production process is called?
Business know-how
The technology or knowledge necessary for the production process is called
Business- know- how
The long-lived physical equipment and structures that a business uses in its production process are called
Capital
If two or more oligopolistic companies work together to keep their prices high and split the market between them, this is called
Collusion
Profit is the difference between revenue and
Cost
What word describes the money that a business pays for its inputs?
Cost
If June can earn $1,500 in revenue from painting two houses, how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters, and that she can easily find a third customer.)
Exactly $2,250
Businesses will generally shut down if they lose money for one or two years.
False
Cost is what a business receives after subtracting expenses from revenue.
False
Inputs for a business are the goods and services that it sells to its customers.
False
Marginal revenue is the additional revenue a business gets from producing or selling one more unit of input.
False
Marshall Field's and Sterns Department Stores are examples of low-cost producers in a perfect competition market.
False
Outputs are always good
False
Perfect competition requires a nonstandard product.
False
The average product is calculated by dividing input by the number of hours worked.
False
Below is the cost function for a business producing beach chairs: 0 3 - 1 13 10 2 24 11 3 36 12 4 49 13 5 63 14
If the market price is $13 per chair, the business will produce 4 chairs. The total profit of the business is $3. If the market price is $14 per chair, the business will produce 5 chairs. The total profit of the business is $7
_________ collusion can occur even when oligopolistic businesses do not directly communicate with each other.
Implicit
Here is the cost function for a bicycle repair shop, including the labor cost for the repair technicians:
The Marginal cost is -Increasing 0 100 0 0 0 1 150 50 80 80 2 200 50 160 80 3 260 60 240 80 4 330 70 320 80 5 410 80 400 80 6 500 90 480 80 7 600 100 560 80 8 710 110 640 80
______ shows the potential cost for each level of output.
The cost function
A business can escape perfect competition by building a better, more innovative product.
True
Advertising a brand can help create a reputation effect.
True
Businesses have two types of cost: fixed and variable.
True
Businesses will generally shut down if they lose money for one or two years.
True
Which of the following is most likely to be sold in a perfectly competitive market?
Wheat
The profit-maximizing rule says that a seller will expand output up to the point
Where marginal revenue equals marginal cost
Does the stock market resemble a perfectly competitive market?
Yes, the stock market does resemble a perfectly competitive market.
What is the quantity demanded if the cars sell for 20,000 each? b) under conditions of perfect competition, how many cars are bought if the marginal cost of producing a car is 40,000 C) How many cars are bought if the marginal cost of producing a car falls to 35,000?
a) 5 B) 2 C) 3
A medical office does MRI (magnetic resonance imaging) scans on patients. It has two MRI machines. Each scan requires a technician to run the MRI machine. Below is the production function for the office, which shows how many patients the technicians can scan.
a) To do 10 scans in a day, how many technicians are need? 2 b) What ist he labor cost of doing 10 scans in a day? 400$ c) What is the total cost of doing 10 scans per day? 700$ d) What is the variable cost of doing 17 scans in a day? 800$ E) What is the fixed cost of doing 17 scans in a day? 300$
An example of an oligopoly is the
airline industry
An oligopoly occurs when there
are a few sellers in a market
Monopolies generally _____________ technology and globalization.
are reduced in number by
Inputs to production do NOT include
average product
Output divided by the number of hours worked or by the number of workers is called
average product
A __________ is anything that might make it more difficult for a competitor to enter a market.
barrier to entry
A ___________ makes it more difficult for a competitor to enter a market.
barrier to entry
Government regulations, such as zoning laws, can act as
barriers to entry
The difference between long-term and short-term profit maximization is that in the short term,
businesses focus on achieving as much profit as they can, given that fixed costs cannot be changed.
If two drugstores in a market agree that they will both sell Fritos at a higher price, and neither will undercut the other, this is called
collusion
If two or more oligopolistic companies work together to keep their prices high and split the market between them, this is called
collusion
If you add too many inputs, your business may experience
diminishing marginal product
Many times, technology is _____ in the equipment a company buys.
embodied
The short-term cost function assumes that
fixed costs can't be changed