micro terms from quizzes
When the indifference curve is tangent to the budget constraint,
a consumer cannot be made better off without an increase in her income or a price decrease in one of the goods she consumes.
why doesn't the total cost curve begin at the origin (the point 0,0)?
because fixed costs are positive when the output is zero
Some costs do not vary with the quantity of output produced. Those costs are called
fixed costs
A decrease in a consumer's income
has no effect on the slope of the consumer's budget constraint.
A good is an inferior good if the consumer buys more of it when
his income falls
Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags, she gets 800 pumpkins. If she plants 3 bags, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Joan's total cost curve is
increasing at an increasing rate.
The slope of an indifference curve is
marginal rate of substitution
At the profit-maximizing level of output,
marginal revenue equals marginal cost.
Frannie spends her income on rice and beans. At her optimum, Frannie's
marginal utility per dollar spent on rice equals her marginal utility per dollar spent on beans.
The opportunity cost of current household consumption is the
market interest rate
The efficient scale of the firm is the quantity of output that
minimizes average total cost
If we observe that a consumer's budget constraint has shifted outward, we can assume that the consumer will buy
more normal goods and fewer inferior goods
If Kevin's children run a lemonade stand for a day and sell 200 glasses of lemonade at $0.50 each, their total revenues are
$100
Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are
$100, and her economic profit is $0
The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5 for 10,000 widgets. At that level of output, the firm's average total costs equal
$15
tony's taco truck has an average variable cost of $1 and average fixed cost of $2 when it produces 50 units of output (tacos). the truck's total cost at 50 units of output is
$150
Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce. An economist would calculate Ziva's total cost for the day of farming to equal
$380
Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each.
$5
Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day?
$520
Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business?
$700
When a profit-maximizing firm is earning profits, those profits can be identified by
(P - ATC) × Q.
The goal of the consumer is to
- Maximize utility - be on the highest indifference curve - maximize satisfaction
Scott knows that he will ultimately face retirement. Assume that Scott will experience two periods in his life, one in which he works and earns income, and one in which he is retired and earns no income. Scott can earn $250,000 during his working period and nothing in his retirement period. He must both save and consume in his work period with an interest rate of 10 percent on savings.
- Scott will decrease his savings in the work period if the income effect is greater than the substitution effect for him. - Scott will increase his savings in the work period if the substitution effect is greater than the income effect for him.
At low levels of production, the firm
-benefits from increased size because it can take advantage of greater specialization -has the potential for economies of scale -is unlikely to experiences acute problems with coordination
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?
15 bouquets
What is an individual's marginal rate of substitution between nickels and dollar bills? Assume the individual only cares about the monetary value of each bundle.
20
average total cost (atc) is calculated as follows:
ATC = (total cost)/(quantity of output)
When Stanley has an income of $1,000, he consumes 30 units of good A and 50 units of good B. After Stanley's income increases to $1,500, he consumes 60 units of good A and 45 units of good B. Which of the following statements is correct?
Good A is a normal good, and good B is an inferior good.
Which of the following statements best expresses a firm's profit-maximizing decision rule?
If marginal revenue is greater than marginal cost, the firm should increase its output.
Suppose that a firm operating in perfectly competitive market sells 100 units of output. Its total revenues from the sale are $500. Which of the following statements is correct?
Marginal revenue equals $5, Average revenue equals $5, Price equals $5.
When average cost is greater than marginal cost, marginal cost must be
The direction of change in marginal cost cannot be determined from this information.
Which of these assumptions is often realistic for a firm in the short run?
The firm can vary the number of workers it employs but not the size of its factory.
In a competitive market with free entry and exit, if all firms have the same cost structure, then
all firms will operate at their efficient scale in the long run.
Which of the following statements is not correct? - fixed costs are constant - variable costs change as output changes - average fixed costs are constant - average total costs are typically U-shaped
average fixed costs are constant
when marginal cost exceeds average total cost,
average total cost must be rising
Given a consumer's indifference map, the demand curve for a good can
be derived by moving a consumer's budget constraint as the market price of one good changes.
When two goods are perfect complements, the indifference curves will
be right angles.
In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak company exhibits
constant returns to scale because average total cost is constant as output rises.
A Giffen good is one for which the quantity demanded rises as the price rises because the income effect
counteracts and is greater than the substitution effect
Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will
decrease his revenue, since his output has decreased and the price remains the same.
As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters
diminishing marginal product
economists usually assume that the goal of a firm is to
earn profits as large as possible, even if that means reducing output
if marginal cost is below average total cost, then average total cost is
falling
A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.
false
A typical indifference curve is upward sloping.
false
If the marginal cost of producing the fifth unit of output is higher than the marginal cost of producing the fourth unit of output, then at five units of output, average total cost must be rising.
false
Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.
false
the average total cost curve is unaffected by diminishing marginal product
false
The two characteristics of a competitive market are 1) many buyers and sellers in the market and 2) the goods offered by the various sellers are highly differentiated.
false goods
All Giffen goods are
inferior goods, but not all inferior goods are Giffen goods.
The length of the short run
is different for different types of firms
firms may experience diseconomies of scale when
large management structures are bureaucratic and inefficient.
when a firm experiences constant returns to scale,
long-run average total cost is unchanged, even when output increases.
For a firm, the relationship between the quantity of inputs and quantity of output is called the
production function
When the price of a good increases, all else equal, the higher price
reduces the consumer's set of buying opportunities.
Consider two goods: peanuts and crackers. The slope of the consumer's budget constraint is measured by the
relative price of peanuts and crackers
When price is below average variable cost, a firm in a competitive market will
shut down and incur fixed costs
how do you calculate marginal product?
subtract what one worker made from what the person above him made
Which of these types of costs can be ignored when an individual or a firm is making decisions?
sunk costs
In a long-run equilibrium, the marginal firm has
total revenue equal to total cost.
profit is defined as
total revenue minus total cost
A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.
true
At a consumer's optimal choice, the consumer chooses the combination of goods such that the ratio of the marginal utilities equals the ratio of the prices.
true
In the long run, when price is greater than average total cost, some firms in a competitive market will choose to enter the market.
true
Katie wins $3 million in her state's lottery. If Katie drastically reduces the number of hours she works after she wins the money, we can infer that the income effect is larger than the substitution effect for her.
true
The income effect in the work-leisure model induces a person to work less in response to higher wages, which tends to make the labor-supply curve slope backward.
true
The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.
true
The marginal rate of substitution is the slope of the indifference curve.
true
Suppose a consumer knows that at her current bundle, MUx/Px > MUy/Py. Is this individual choosing a bundle that maximizes utility?
No. This individual should shift consumption from good Y to good X.
Suppose good X is on the horizontal axis, good Y is on the vertical axis, and the slope of an individual's budget line is -2. Which of the following is true?
The consumer gives up two units of good Y for each unit of good X she purchases.