Intermediate Micro Tophat Q&A's

Which of the following is NOT an expression for the cost minimizing combination of inputs?

MRTS = MPL /MPK

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,

marginal cost is below average variable cost.

A firm never operates:

on the downward-sloping portion of its AVC curve.

To understand consumer behavior and how consumer decisions are made, it is necessary and/or sufficient to work with:

ordinal utility functions only.

Indifference curves are convex to the origin because of:

the assumption of a diminishing marginal rate of substitution.

If a consumer prefers basket A to basket B and basket B to basket C, then the consumer also prefers A to C. This assumption is called:

transitivity.

Refer to Figure 4.1.2. From the information on the figure, we can obtain:

two points on a downward-sloping individual demand curve.

If current output is less than the profit-maximizing output, then the next unit produced

will increase revenue more than it increases cost.

An L-shaped isoquant:

would indicate that capital and labor cannot be substituted for each other in production.

Writing total output as Q, change in output as △Q, total labor employment as L, and change in labor employment as △L, the marginal product of labor can be written algebraically as:

ΔQ / ΔL

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?

$70,000 per year

If the demand function for X is X = αI/Px, then, the price elasticity of X = _, and the income elasticity of X = ____

-1; 1

Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be:

-4/5.

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because:

-the market value of the firm is based on long-run profits. -managers will not focus on increasing short-run profits at the expense of long-run profits. -this would more closely align the interests of owners and managers. all of the above are correct

When different indifference curves are placed in the Cartesian plane,

-the result is called an indifference map. -the curves cannot intersect. -the curves that occupy a place farther away from the origin yield more utility than curves closer to the origin. all of the above are correct

Bob views apples and oranges as perfect substitutes in his consumption, and MRS = 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget is $30 per week. What is Bob's utility maximizing choice between these two goods?

15 pounds of apples and no oranges

Scenario 2.1: The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P Refer to Scenario 2.1. What is the equilibrium price of books?

20

Sue views hot dogs and hot dog buns as perfect complements in her consumption, and the corners of her indifference curves follow the 45-degree line. Suppose the price of hot dogs is $5 per package (8 hot dogs), the price of buns is $3 per package (8 hot dog buns), and Sue's budget is $48 per month. What is her optimal choice under this scenario?

6 packages of hot dogs and 6 packages of buns

Suppose your utility function for food (F) and clothing (C) is u(F,C) = F+ 4C. If you reduce your clothing consumption by 2 units, how much do you have to increase your food consumption in order to maintain the same utility level?

8 units

From 1970 to 2017, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment?

A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education

Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output. II. The average cost curve and the marginal cost curve reach their minima at the same level of output.

Both I and II are false.

Carolyn knows average total cost and average variable cost for a given level of output. Which of the following costs can she not determine given this information?

Carolyn can determine all of the above costs given the information provided.

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 and II are both true.

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 and II are false.

Consider the following statements when answering this question: I. Suppose a semiconductor chip factory uses a technology where the average product of labor is constant for all employment levels. This technology obeys the law of diminishing returns. II. Suppose a semiconductor chip factory uses a technology where the marginal product of labor rises, then is constant and finally falls as employment increases. This technology obeys the law of diminishing returns.

I is false, and II is true.

Use the following two statements to answer this question: I. Isoquants cannot cross one another. II. An isoquant that is twice the distance from the origin represents twice the level of output.

I is true, and II is false.

Which of the following would cause a shift to the right of the supply curve for gasoline? I. A large increase in the price of public transportation. II. A large decrease in the price of automobiles. III. A large reduction in the costs of producing gasoline.

II and III only

Suppose a firm has unavoidable fixed costs of $500,000 per year, and it decides to shut down. What is the firm's producer surplus?

PS is negative in this case, but we cannot determine the value based on the given information.

Refer to Figure 2.1.1 above. Lower material costs—indeed lower costs of any kind—make production more profitable. Starting at point A, which of the following best represents this assertion?

The move from A to C

Refer to Figure 2.1.1 above. Starting from point A, how do the firms in the market react when the price of coffee increases from $6.00 to $7.50 per pound?

The supply curve does not shift, but the quantity supplied increases from 7 to 9 million pounds per year.

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

They must have the same slope.

If U(X, Y) = min{X, Y}, i.e., X and Y are perfect complements. A consumer maximizes U(X, Y) s.t. PX X + PY Y = I, where let PX = price of X and PY = price of Y, and I = income. Then, we have demand function for X as follows:

X = I/(Px + Py)

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.

A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called:

a production function.

Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis. Under price-taking behavior, the total revenue curve should be:

a straight line from the origin with slope equal to the market price.

The short run is:

a time period in which at least one input is sunk.

Refer to Figure 4.1.3 above. The connection of points Aand Bon the graph yields:

an income-consumption curve.

A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:

an indifference curve.

Prospective costs:

are relevant to economic decision-making.

The theory of consumer behavior assumes that consumers can compare and rank all possible market baskets. This assumption is called:

completeness.

Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should:

continue producing in the short run, but plan to go out of business in the long run.

As long as the actual market price exceeds the equilibrium market price, there will be:

downward pressure on the market price.

Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will:

exceed the profit-maximizing level of output.

Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). The expansion path for this business will:

follow the 45-degree line from the origin.

The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that:

goods A and B are complements.

Envision a graph with meat on the horizontal axis and vegetables on the vertical axis. A strict vegetarian would have indifference curves that are:

horizontal lines.

An Engel curve shows combinations of:

income and the quantity consumed of one good.

Refer to Figure 4.1.4 above. The curves that connect points A and Bon both graphs are:

income-consumption curves.

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

the marginal revenue doubles.