Econ test 2

Refer to Table 8.1. The maximum profit available to the firm is:

$35

Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business?

$45k p/y

Refer to Figure 9.1.1 above. If the market is in equilibrium, total consumer and producer surplus is;

$800

Refer to Figure 9.1.1 above. If the government establishes a price ceiling of $20, total consumer and producer surplus will be:

$900

From Example 7.2, most pizza restaurants have large fixed costs and relatively low variable costs. What does this tell us about the average variable cost (AVC) of producing pizza?

AVC is relatively low

Which of the following statements is true regarding the differences between economic and accounting costs?

Accounting costs include only explicit costs.

The textbook for your class was not produced in a perfectly competitive industry because:

All of the above

Refer to Figure 9.1.2 above. At price 0H and quantity Q1, consumer surplus is the area:

BGC

We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?

C) A salaried manager who has a three-year employment contract

Refer to Figure 8.4.1 above. The shaded area in the graph shows:

C) the profit that could be made if output increases from 7 to 8 units of output.

Which of the following statements identifies a key difference between condominiums and cooperative housing?

Co-op owners have more control over who can move into their building.

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is:

Continue operating, but plan to go out of business

Use the following statements to answer this question: I. Markets that have only a few sellers cannot be highly competitive. II. Markets with many sellers are always perfectly competitive.

I & II are false

Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward. II. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.

I & II are false

Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the variable cost curve at that level of output.

I & II are false

Consider the following statements when answering this question: I. Employers are always hurt by minimum wage laws. II. Workers always benefit from minimum wage laws.

I & II are true

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II. There is no simple indicator that tells us when markets are highly competitive.

I & II are true

Which of the following statements correctly uses the concept of opportunity cost in decision making? I. "Because my secretary's time has already been paid for, my cost of taking on an additional project is lower than it otherwise would be." II. "Since NASA is running under budget this year, the cost of another space shuttle launch is lower than it otherwise would be."

I and II are both false.

Consider the following statements when answering this question. I. Increases in the rate of income tax decrease the opportunity cost of attending college. II. The introduction of distance learning, which enables students to watch lectures at home, decreases the opportunity cost of attending college.

I and II are both true.

Consider the following statements when answering this question: I. A firm's marginal cost curve does not depend on the level of fixed costs. II. As output increases the difference between a firm's average total cost and average variable cost curves cannot rise.

I is true, and II is false.

Consider the following statements when answering this question: I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers. II. Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers.

I is true, and II is false.

Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making? I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition." II. "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account."

II only

Marginal profit is equal to

MR-MC

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision?

Output decreases because the marginal cost curve shifts upward

Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions?

Ronny's decision depends on the circumstances -- if their profits are larger than $250 then the tax does not impact output; otherwise, Ronny's pizza House will shut down

Under a binding price ceiling, what does the change in consumer surplus represent?

The gain in surplus for those buyers who can still purchase the product at the lower price.

If a competitive firm has a U-shaped marginal cost curve then:

The profit maximizing output is found where MC = MR and MC is increasing.

If managers do not choose to maximize profit, but pursue some other goal such as revenue maximization or growth,

They are more likely to become takeover targets of profit-maximizing firms.

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of:

a fixed cost

Producer surplus is measured as the:

as the difference between the market price and the cost of production, as shown on the supply curve

Which of the following costs always declines as output increases?

average fixed cost

Refer to Figure 9.1.1 above. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:

fall by $300

The perfectly competitive firm's marginal revenue curve is:

horizontal

Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine's investment strategy is "buy low, sell high." Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a price lower than $150 per share he will have "bought high and sold low." Constantine's decision:

is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held of sold.

If a competitive firm's marginal cost curve is U-shaped, then:

its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve.

If a competitive firm's marginal cost curve is U-shaped, then: Which of the following costs may provide barriers to entry in a market?

its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve. A) High research and development expenditures B) License fees C) Sunk costs associated with specialized facilities

For national security reasons a government decides that all of its base metal industry should not be located in the same geographical region, as it presently is. The government decides to allocate production quotas to firms in different parts of the country, but does not restrict in any way the transactions between consumers and base metal producers. This scheme is:

likely to be inefficient as some of the industry's output is not produced by the firms with the lowest cost.

If current output is less than the profit-maximizing output, which must be true?

marginal revenue is greater than marginal cost

At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?

must have the same slope

At the price 0E and quantity Q*, producer surplus is the

none

A firm never operates:

on the downward-sloping portion of its AVC curve.

Refer to Figure 8.3.2 above. The demand of a price taker is illustrated:

panel A

The demand curve facing a perfectly competitive firm is

perfectly elastic.

An effective price ceiling causes a loss of:

producer surplus for certain and possibly consumer surplus as well.

In an unregulated, competitive market producer surplus exists because some:

producers are willing to sell at less than the equilibrium price.

Refer to Figure 8.4.2 above. If the farm produces 14 sacks of coffee when market price is $380,

the farmer has lost an opportunity for additional profit.

Under a binding price ceiling, what does the change in producer surplus represent?

the loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price

If the market price for a competitive firm's output doubles, then:

the marginal revenue doubles

The consumer's gain from the imposition of a price ceiling is higher when:

the own price elasticity of market demand is low and the price elasticity of market supply is low.

Refer to Figure 8.5.1 above. The dashed portion of the marginal cost curve refers to:

the supply curve of the firm.

If any of the assumptions of perfect competition are violated,

there may still be enough competition in the industry to make the model of perfect competition usable.

Producer surplus for the whole market can be thought of as:

total profit plus factor rents earned by lower cost firms

Higher input prices result in:

upward shifts on MC and reductions in output

The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Refer to Scenario 7.1. The total cost to produce 50 cookies is:

20

The total cost (TC) of producing computer software diskettes (Q) is given as: What is the fixed cost?

200

Refer to Table 8.1. The maximum profit available to the firm is:

35

The total cost (TC) of producing computer software diskettes (Q) is given as: What is the average total cost?

5 + (200/Q)

Refer to Figure 8.4.2 above. When profit is maximized, the total revenue of the farmer equals:

8360