Micro Test 3- Everything
Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. a. If the current equilibrium price in the pencil market is $1.60, what price will Frances charge?
$1.60
A company mows yards using labor and equipment. Suppose the cost of renting equipment (a lawn mower) is $1 comma 000 per season and the cost of each worker is $35 comma 000 in wages per season. The firm's isocost line is illustrated in the figure to the right. What is the slope of the firm's isocost line? The slope of the firm's isocost line is minus 35.00. (Enter your response rounded to two decimal places.)
-35
Suppose the equilibrium price of basketballs is $2.50. In the short run, how many basketballs will Andy produce? 0 (enter a whole number). How much profit (or loss) will he make? $ negative 10 per day (round your answer to the nearest penny, and express a loss as a negative number).
0 -10
A firm uses land and labor to produce flowers. The isoquant graph to the right illustrates the firm's technology with isoquants. A couple of input combinations are also indicated in the figure. What is the firm's marginal rate of technical substitution (MRTS) between input bundles A and B? The firm's marginal rate of technical substitution between bundles A and B (in absolute value) is 1.00. (Enter your response rounded to two decimal places.) Were the firm to use more labor (and less land) holding output constant, then the marginal rate of technical substitution would be lower (in absolute value).
1.00 lower
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
The graph to the right shows your weekly demand for pizza. How was this demand curve constructed?
By computing your optimal consumption of pizza at the various prices shown, all other variables that affect your demand for pizza held constant.
In deciding between consuming more goods now or saving money, consumers should do which of the following?
Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.
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?
Consumption of good X should increase, and consumption of good Y should decrease.
How are efficiencies realized when combining two firms?
Cutting the overlap between the two firms and leveraging fixed costs across greater quantities.
When are firms likely to enter an industry? When are they likely to exit?
Economic profits attract firms to enter an industry, and economic losses cause firms to exit an industry.
What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?
Firms have difficulty coordinating production.
Consumer advocacy groups charged at a press conference yesterday that there is widespread price gouging in the sale of pencils. They released a study showing that whereas the average retail price of pencils was $1.00, the average cost of producing pencils was only $0.50. "Pencils can be produced without complicated machinery or highly skilled workers, so there is no justification for companies charging a price that is twice what it costs them to produce the product. Pencils are too important in the life of every American for us to tolerate this sort of price gouging any longer," said George Grommet, chief spokesperson for the consumer groups. The consumer groups advocate passage of a law that would allow companies selling pencils to charge a price no more than 20 percent greater than their average cost of production. Which of the following is not likely to happen in the pencil market?
Firms will charge a price above marginal cost in the long run.
In the ultimatum game, when the allocator and the recipient care about fairness, how does that affect the distribution of $20.00?
Recipients usually reject offers of less than a 10 percent share.
How does the fact that consumers apparently value fairness affect the decisions that businesses make?
Firms will not raise prices in response to an increase in demand.
Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a great seat in the sun on a hot, humid day: "Granted, I could have moved under the overhang and enjoyed today's contest from a nice, cool, shady seat. But when you paid forty-five dollars for a ticket in the fourth row, it's tough to move back to the twenty-fourth [row]." Source: Rob Neyer, Feeding the Green Monster, New York: iPublish.com, 2001, p.50. What should Rob do?
He should weigh the marginal cost of moving into the shade (a less desirable view) versus the marginal benefit of being under the shade.
"I believe that a firm will want to produce at Upper Q 1, not Upper Q 2. At Upper Q 1, the distance between price and marginal cost is the greatest. Therefore, at Upper Q 1, the firm will be maximizing its profits." Is the student's argument correct or incorrect?
Incorrect. Profits are maximized at the quantity where marginal revenue equals marginal cost.
According to the model of perfectly competitive markets LOADING..., the demand for wheat should be a horizontal line. But this can't be true: When the price of wheat rises, the quantity of wheat demanded falls, and when the price of wheat falls, the quantity of wheat demanded rises. Therefore, the demand for wheat is not a horizontal line."
Incorrect. The commentator is confusing the market demand for wheat with the demand line facing the representative firm.
How can BlackBerry best maximize its profit?
Increase revenues and cut costs.
Which of the indicated input bundles would produce more output
Input combination Upper A would produce more output because it is on a higher isoquant
When does the law of diminishing marginal utility LOADING... hold true?
It holds true in most situations involving the consumption of a good.
The following excerpt is from a letter sent to a financial advice columnist: "My wife and I are trying to decide how to invest a $250,000 windfall. She wants to pay off our $114,000 mortgage, but I'm not eager to do that because we refinanced only nine months ago, paying $3,000 in fees and costs." Source: Liz Pulliam, Los Angeles Times advice column, March 24, 2004. How should the $3,000 in fees and costs be considered?
It is a sunk cost and should not be taken into account when deciding to pay off the mortgage.
What is a budget constraint?
It is the limited amount of income available to consumers to spend on goods and services.
Long-run equilibrium in perfect competition results in
both A and B
What is the definition of marginal utility?
The change in utility from consuming an additional unit of a good or service.
Economies of scale happen when the firm's long run average total cost ________ as output increases.
decreases
What is the difference in the short run and the long run? In the short run,
at least one of the firm's inputs is fixed, while in the long run, the firm is able to vary all its inputs, adopt new technology, and change the size of its physical plant.
Long-run equilibrium in perfect competition results in:
both productive and allocative efficiency
Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs decreases as output increases.
decreases as output increases
Considering only the income effect LOADING..., if the price of an inferior good increases, would a consumer want to buy a larger quantity or a smaller quantity of the good?
if the price of a good increases, the consumer has less purchasing power, so he would want to purchase more of an inferior good
Marginal utility is more useful than total utility in consumer decision making because
optimal decisions are made at the margin.
What is the supply curve for a perfectly competitive firm in the short run? The supply curve for a firm in a perfectly competitive market in the short run is
that firm's marginal cost curve for prices at or above average variable cost.
What is path dependence? Path dependence is where
the technology that was first available has advantages over better technologies that were developed later.
What is the difference between total cost and variable cost in the long run? In the long run,
the total cost of production equals the variable cost of production.
The disadvantages of using Snoopy are that he appears to be
too cute and cuddly to be giving insurance advice.
If the income effect of a price change for an inferior good is larger than the substitution effect, the demand curve will be:
upward sloping
In a perfectly competitive industry with increasing average costs, the long-run supply curve will be
upward sloping
As output increases, the vertical distance between average total cost and average variable cost curves gets _______ and equals _______.
smaller; average fixed cost
The result of the strategy was
a signficant drop in sales and the firing of Johnson.
in consumer decision-making, sun costs should
be ignored
Your company incurs a cost for fire insurance, which, in the short run, is fixed. What happens to this cost in the long run? In the long run, the cost of fire insurance
becomes a variable cost
As the level of output increases, what happens to the difference between the value of average total cost and average variable cost? As the level of output increases, the difference between the value of average total cost and average variable cost
decreases because average fixed cost decreases as output increases.
Which of the following are sometimes called accounting costs?
explicit
Rules of thumb are guides to decision making that always produce optimal choices.
false
In the short-run, the cost that is independent of the amount of output produced is called __________.
fixed costs
If the average total cost curve is above the demand curve, then this firm is:
having economic losses
Thaler's behavior is inconsistent because
he was ignoring the nonmonetary opportunity cost of the wine.
According to the law of diminishing marginal utility, as the consumption of a particular good increases,
marginal utility decreases.
What determines entry and exit of firms in a perfectly competitive industry in the long run? In a perfectly competitive industry in the long run,
new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.
does it apply to the long run
no
If the total utility increases with additional consumption of a good, then the marginal utility is:
positive
Does the market system result in productive efficiency? In the long run, perfect competition
results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost.
The quote describes logical behavior of solar panel firms in the
short run
The budget line shows:
the affordable combinations of goods and services you can buy with your income
What is the economic definition of utility? Utility is
the enjoyment or satisfaction people receive from consuming goods and services.
why are firms willing to accept losses in the short run but not in the long run?
there are fixed costs in the short run but not in the long run
Economies of scale occur
when a firm's long-run average costs decrease with output.
What are diseconomies of scale? Diseconomies of scale is
when a firm's long-run average costs increase with output.
Should the owner's decision about whether or not to sell depend on what price he originally paid for the townhouse? The owner's decision about whether or not to sell should
depend on the price he originally paid for the townhouse because that is a relevant monetary cost.
Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the graph?
The marginal product of labor initially increases due to division of labor and then decreases due to diminishing returns. and Whenever the marginal product of labor is greater than the average product of labor, it pulls the average product of labor up.
If increasing your consumption of pizza from 3 to 4 slices increases your utility, which of the following must be true?
The marginal utility of the fourth slice of pizza must be positive.
What are implicit costs? An implicit cost is
a nonmonetary opportunity cost
In early 2015, gasoline prices in many parts of the United States had fallen to below $2.00 per gallon, which a news story called "one of the swiftest declines on record." Source: Nick Timiraos, "As Gasoline Heads Toward $2, the Benefits Start to Trickle Down," Wall Street Journal, January 22, 2015. For most people, gasoline is likely to be
a normal good because as incomes increase people drive more
A buyer or seller that is unable to affect the market price is called
a price taker
Suppose a company mows yards with workers and lawn-mowing equipment. The firm's isocost line will show
all the combinations of workers and equipment that have the same total cost.
Which of the following terms best describes a state of the economy in which production reflects consumer preferences?
allocative efficiency
When marginal cost is less than average total cost, average total cost must be
decreasing
Explain why it is true that for a firm in a perfectly competitive market that P = MR = AR. In a perfectly competitive market, P = MR = AR because
firms can sell as much output as they want at the market price
If the firm's marginal costs are $5 at every level of output, what shape will the firm's average total cost have? The firm's average total cost curve will be
horizontal
In a perfectly competitive industry with constant costs, the long-run supply curve will be
horizontal
Can indifference curves LOADING... ever cross? In consumer theory,
indifference curves cannot cross because this would violate the assumption of transitivity.
What effect will firms exiting have on the market price? When firms exit,
market supply will decrease, increasing price
What effect will firms exiting have on the market price? When firms exit,
market supply will decrease, increasing price.
How does using 'rules of thumb' impact the likelihood of a consumer making an optimal choice? Consumer utility
may be sub-optimized because rules of thumb may not reflect current reality.
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the
production function
The relationship between the inputs used by the firm and the maximum output it can produce is known as the:
production function
Which of the following terms best describes the result of the forces of competition driving the market price to the minimum average cost of the typical firm?
productive efficiency
Karl's firm illustrates
productive efficiency because price equals average total cost and allocative efficiency because marginal revenue equals marginal cost.
Economists assume that firms search for the cost-minimizing combination of inputs that will allow them to produce a given level of output. On what two factors does the cost-minimizing combination of inputs depend? The cost-minimizing combination of inputs depends on
technology and input prices
What is the difference between technology and technological change?
technology is the process of using inputs to make output, while technological change is when a firm is able to produce more output using the same inputs
An article in the Wall Street Journal described the Chinese automobile industry as "a hodgepodge of companies," most of which produce fewer than 100,000 cars per year. Ford Chief Executive Alan Mulally commented on the situation by saying, "If you don't have scale, you just won't be able to be competitive." Source: Colum Murphy, "Chinese Car Makers Struggle to Lure Buyers," Wall Street Journal, April 19, 2014. a. Mulally meant that Chinese firms
that aren't producing at minimum efficient scale will have higher costs than their competitors.
What does the short-run production function hold constant? A short-run production function holds constant
the amount of capital
when the price of pizza falls along the demand curve for pizza
the consumer adjusts the consumption of both pizza and coke following the rule of equal marginal utility per dollar
Next, suppose a consumer prefers a chicken sandwich to a slice of pizza and a slice of pizza to a taco. If the consumer's preferences are transitive, then
the consumer will prefer a chicken sandwhich to a taco
Suppose bundle A contains 5 CDs and 5 DVDs and bundle B contains 2 CDs and 7 DVDs. If a consumer is able to rank different combinations of goods and services in terms of how much utility they provide, then
the consumer will prefer bundle B to bundle A. B. the consumer will prefer bundle A to bundle B. C. the consumer will be indifferent between bundle Upper A and bundle Upper B the consumer will be indifferent
What happens when consumption of a product is path dependent?
the cost of switching to a product with a better technology gives the product with the initial technology an advantage.
How should firms in perfectly competitive markets LOADING... decide how much to produce? Perfectly competitive firms should produce the quantity where
the difference between total revenue and total cost is as large as possible.
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
Explain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum. The marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum because
when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the averge, it pulls the average up.
The optimal combination of pizza and coke you should consume is the one
where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke.
Would a firm earning zero economic profit continue to produce, even in the long run? In long-run competitive equilibrium, a firm earning zero economic profit
will continue to produce because such profit corresponds with positive accounting profit
Suppose that last semester your semester GPA was 1.90 and your resulting cumulative GPA was 2.56. Next, suppose that this semester your semester GPA will be 2.10. If so, then your cumulative GPA
will decrease because your "marginal" GPA will be below your cumulative GPA
Suppose that last semester your semester GPA was 3.90 and your resulting cumulative GPA was 2.87. Next, suppose that this semester your semester GPA will be 3.50. If so, then your cumulative GPA
will increase because your "marginal" GPA will be above your cumulative GPA.
What is likely to happen in the long run to firms that do not reach minimum efficient scale? A firm that does not reach its minimum efficient scale
will lose money if it remains in business
Assume the market for oranges is perfectly competitive. If the demand for oranges increases, will the market supply additional oranges? If the demand for oranges increases, then the market
will supply additional oranges because producers seek the highest return on their investments.
Maya spends her $50 budget on two goods, cans of tuna and bottles of ginger ale. Initially, the marginal utility per dollar she spends on tuna is equal to the marginal utility per dollar she spends on ginger ale. Then the price of ginger ale decreases, while her income and the price of tuna does not change. a. Her marginal utility from consuming ginger ale does not change . b. The marginal utility per dollar she spends on ginger ale increases . c. Because of the substitution effect, Maya will buy more ginger ale. Can we conclude that ginger ale is a normal good? A. No, because normal and inferior good designations are related to the income effect, not the substitution effect. This is the correct answer.B. Yes, ginger ale must be a normal good. C. No, because ginger ale is a Giffen good. D. No, because ginger ale is an inferior good. Your answer is not correct. d. As Maya adjusts to the change in the price of ginger ale, her marginal utility per dollar spent on tuna will A. decrease because she will buy less tuna. B. increase because she will buy less tuna. Your answer is correct.C. increase because she will buy more tuna. D. decrease because she will buy more tuna.
-does not change -increases -no, because normal and inferior good designations are related to the income effect, not the substitution effect -increase because she will buy less tuna
Consider a form of public consumption LOADING... such as wearing jewelry. An individual's demand for jewelry depends on
-the individual's taste -the cost of the jewelry -other consumers' consumption of jewelry
Refer to the to graph on the right. Which level of output in the graph below represents the minimum efficient scale? A. 1,000 books B. 20,000 books Your answer is correct.C. 40,000 books D. 80,000 books Which size bookstore is more likely to experience diseconomies of scale? A. A bookstore selling 1,000 books per month B. A bookstore selling 20,000 books per month C. A bookstore selling 40,000 books per month D. A bookstore selling 80,000 books per month
20,000 \ 80,000
Suppose it is October 1. You have paid $12 comma 000 in tuition and have been attending college classes. However, you are offered a full-time job paying $22 comma 500 for the next two months. If you take the job, you'll have to stop attending classes and withdraw from college for the semester. Unfortunately, at this point in the semester, tuition is no longer refundable. You must decide whether to remain enrolled in college. What is the relevant cost of staying in school? When deciding whether to remain in school, the relevant cost of staying in school is $
22,500
Charles has decided to open a lawn-mowing company. To do so, he purchases mowing equipment for $5 comma 000, buys gasoline ($2.10 in gas is required to mow each yard), and pays a helper $10.00 per yard. Prior to opening the lawn company, Charles earned $4 comma 000 as a lifeguard at the neighborhood swimming pool. Assume the money he used to purchase the mowing equipment could otherwise have earned 1 percent per year in the bank and that the mowing equipment depreciates at 20 percent per year. Charles plans to mow 250 yards per year. What is Charles's implicit cost LOADING... of production? Charles's implicit cost of production is $ nothing per year. (Enter your response as an integer.)
5050
According to the inequality, the marginal utility per dollar spent on good X is less than the marginal utility per dollar spent on good Y. According to the rule of equal marginal utility per dollar spent, what can a consumer do to increase total utility for a given budget from consumption of goods X and Y?
A consumer can increase total utility for a given budget by consuming more good Y and less good X.
List the errors in the graph to the right (where AFC is average fixed cost, AVC is average variable cost, ATC is average total cost, and MC is marginal cost).
AFC should be MC, ATC should be AVC, and AVC should be ATC.
What is the difference between the average cost of production (ATC) and marginal cost of production (MC)?
ATC=TC/Q and MC= change TC/ change quantity .
Someone who owns a townhouse wrote to a real estate advice columnist to ask whether he should sell his townhouse or wait and sell it in the future when he hoped that prices would be higher. The columnist replied: "Ask yourself: would you buy this townhouse today as an investment? Because every day you don't sell it, you're buying it." Source: Edith Lane, "Contract Exclusion OK?" (Allentown, PA) Morning Call, May 22, 2011. Do you agree with the columnist? In what sense are you buying something if you don't sell it?
Agree. Every day the owner uses the house, there is an opportunity cost involved that is equal to the cost of not selling the house.
One description of the costs of operating a railroad makes the following observation: "The fixed . . . expenses which attach to the operation of railroads . . . are in the nature of a tax upon the business of the road; the smaller the [amount of] business, the larger the tax." Source: Quoted in Alfred D. Chandler, Jr., Thomas K. McCraw, and Richard Tedlow, Management Past and Present, Cincinnati: South-Western, 2000, pp. 2-27. In what sense is this tax smaller when the amount of business is larger?
As production increases, fixed costs can be allocated over a greater amount of output, decreasing the average cost of the tax.
Which of the following best explains why firms don't maximize LOADING... revenue rather than profit LOADING...?
At the point where revenue is maximized, the difference between total revenue and total cost may not be maximized.
What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve?
A firm's marginal cost curve is equal to its supply curve for prices above average variable cost.
Why are consumers so powerful in a market system?
Because it is consumers' demand that influences the market price and dictates what producers will supply in the market.
Although New York State is second only to Washington State in production of apples, its production has been declining during the past 20 years. The decline has been particularly steep in counties close to New York City. In 1985, there were more than 11,000 acres of apple orchards in Ulster County, which is 75 miles north of New York City. Today, only about 6,000 acres remain. As it became difficult for apple growers in the county to compete with lower-cost producers elsewhere, the resources these entrepreneurs were using to produce appleslong dashparticularly landlong dashbecame more valuable in other uses. Many farmers sold their land to housing developers. Suppose a revolutionary new diet is developed that involves eating 10 apples per day, and the new diet becomes wildly popular.
Because of the popularity of the diet, the number of apple orchards within 100 miles of New York City will likely increase . Housing prices in the area will increase because less land will be available for housing. increase increase
Eating too much today based on an expectation that you will reduce your food intake at some later date in order to lose weight is an example of what type of flaw in decision making?
Being unrealistic about future behavior.
According to the graph, what size bookstore is more likely to experience diseconomies of scale?
Bookstores that sell more than 80,000 books per month
For which of the following reason(s) may firms experience economies of scale?
Both managers and workers may become more specialized and hence more productive as output expands. B. Firm's production may increase with a smaller proportional increase in at least one input. C. Large firms may be able to purchase inputs at lower costs than smaller competitors; they can also borrow money at a lower interest rate.
b. Although most books were published as scrolls in the first century A.D., by the third century, most were published as codices. Considering only the factors mentioned in this problem, explain why this change may have taken place.
By the third century, enough books were being published such that the average cost of producing a book as a codex was lower than the average cost of producing a book as a scroll.
What is the difference between the short run and the long run?
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
A student argues: "To maximize profit LOADING..., a firm should produce the quantity where the difference between marginal revenue LOADING... and marginal cost is the greatest. If a firm produces more than this quantity, then the profit made on each additional unit will be falling." Is the above statement true or false?
False. Profit is maximized at the output level where marginal revenue equals marginal cost.
In which of the following situations does the law of diminishing marginal utility not hold?
For methamphetamine addicts, the more dosages of the illegal drug, the more euphoric they become.
Suppose that Henry Ford had continued to experience increasing returns to scale, no matter how large an automobile factory he built. Discuss what the implications of this would have been for the automobile industry. A.
Ford could have profitably sold his cars at a lower price than competitors. B. Ford would have been able to produce his cars at lower long-run average cost than competitors.
Another scholar points out that a significant fixed cost was involved in producing a codex: "In order to copy a codex...the amount of text and the layout of each page had to be carefully calculated in advance to determine the exact number of sheets...needed. No doubt, this is more time-consuming and calls for more experimentation than the production of a scroll would. But for the next copy these calculations would be used again." Source: T. C. Skeat,"The Length of the Standard Papyrus Roll and the Cost-Advantage of the Codex,"Zeitschrift fur Papyrologie and Epigraphik, 1982, p 175; and David Trobisch, The First Edition of the New Testament, New York: Oxford University Press, 2000, p 73. a. Suppose that the fixed cost of preparing a codex was 58 drachmas and that there was no similar fixed cost for a scroll. Would an ancient book publisher who intended to sell 5 copies of a book be likely to publish it as a scroll or as a codex? What if he intended to sell 10 copies? Briefly explain. A.
If a publisher intended to sell 5 copies, he would publish the book as a scroll because the average cost would be lower than as a codex. If he intended to sell 10 copies, he would publish the book as a codex because the average cost would be lower than as a scroll.
According to the endowment effect, people appear to be behaving irrationally when they are unwilling to sell a good they already own in which of the following situations?
If they are offered a price greater than the price they would pay if they did not already own the good.
As the market demand shifts to the left, how will the firm's level of output change?
The firm will decrease its output and suffer losses.
Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for $4,000 per month. Jill is considering selling her building and renting space in the suburbs for $3,000 per month. Jill decides not to make the move. She reasons, "I would like to have a restaurant in the suburbs, but I pay no rent for my restaurant now, and I don't want to see my costs rise by $3,000 per month." What do you think of Jill's reasoning?
Jill is incorrectly ignoring the opportunity cost of using the building she owns.
Which of the following statements is true when the difference between TR and TC is at its maximum positive value?
MR = MC Slope of TR = Slope of TC
What would need to be true for a demand curve to be upward sloping?
The good would have to be an inferior good, and the income effect would have to be larger (in absolute value) than the substitution effect.
Miriam consumes tacos and Coke. Suppose the price of a taco is $3.80, the price of a Coke is $3.00, and that Miriam is currently consuming tacos and Coke such that her marginal utility of tacos is 100 and her marginal utility of Coke is 8. Is Miriam behaving optimally? If not, then what should she do?
Miriam is not maximizing utility; she should instead consume more tacos and less coke
Is the amount of time that separates the short run from the long run the same for every firm?
No
c. If next week the equilibrium price of desk lamps drops to $30, should Edward shut down
No because price is greater than minimum AVC.
Is it possible for a firm to experience a technological change that would increase the marginal product of labor while leaving the average product of labor unchanged? Explain.
No. An increase in the marginal product of labor will increase the average product of labor.
"In a perfectly competitive market, in the long run consumers benefit from reductions in costs, but firms don't." Don't firms also benefit from cost reductions because they are able to earn greater profits?
No. Because short-run profits encourage entry, firms earn zero economic profit in the long run.
A student looks at the data in the table to the right and draws this conclusion: "The marginal product of labor is increasing for the first 3 workers hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor workers." Do you agree with the student's analysis? Briefly explain.
No. Marginal product initially increases due to division of labor and then decreases due to the law of diminishing returns
Suppose a firm has no fixed costs, so all of its costs are variable, even in the short run. If the firm's marginal costs are continually increasing (that is, marginal cost is increasing from the first unit of output produced), will the firm's average total cost curve have a U shape?
No. The average total cost curve will be continually increasing.
In the short run, the firm should:
Operate if price > average variable cost.
The Economist magazine offered the following two options for subscribing: 1. $56 per year for an online only subscription 2. $125 per year for print plus online access subscription A large majority of subscribers chose option 1. But the magazine would have preferred to sell more $125 subscriptions because it can charge higher rates to advertisers in the print magazine than it can online. The magazine decided to rely on insights from behavioral economics to try to increase the number of people choosing the $125 subscriptions. It began offering the following three options: 1. $56 per year for an online only subscription 2. $125 print plus online access subscription only 3. $125 print-only subscription A large majority of subscribers now chose option 2 rather than option 1. Source: Mukul Patki, "5 Behavioral Economics Principles Marketers Can't Afford to Ignore," Forbes, March 1, 2013. What insights from behavioral economics that were discussed in this chapter can help explain this result?
Option 1 looked good compared to option 2; but when option 3 was offered, option 2 looked better.
In considering consumers' attitudes towards fairness, which of the following have economists found to be true?
People attempt to treat others fairly, even if doing so makes them worse off financially.
In considering the attitudes of consumers toward fairness, which of the following have economists found to be true?
People attempt to treat others fairly, even if doing so makes them worse off financially. Your answer is correct.
What is the relationship between price, average revenue, and marginal revenue for a firm in a perfectly competitive market?
Price is equal to both average revenue and marginal revenue.
Briefly discuss the difference between these two concepts.
Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries.
Which of the following is an expression of profit for a perfectly competitive firm? Profit for a perfectly competitive firm can be expressed as
Profit=(P-ATC)*Q, where P is price, Q is output, and ATC is average total cost.
An article in the New York Times notes that classic rock star Tom Petty likes to perform in smaller venues that don't have as many seats as large venues such as Madison Square Garden in New York. According to the article, Petty insists that tickets to his concert be sold "below market price." The author of the article wondered why "Petty and his promoter would price tickets so low when there were clearly people willing to pay much, much more." Source: Adam Davidson, "How Much Is Michael Bolton Worth to You?" New York Times, June 4, 2013. What is the best indicator that Petty sells tickets below market price?
Scalpers are able to sell many tickets high above the original price.
In recent years, the United States has experienced large increases in oil production. The increases in oil production are due in large part to a new technology, hydraulic fracturing ("fracking"). Fracking involves injecting a mixture of water, sand, and chemicals into rock formations at high pressure to release oil and natural gas. A news story indicates that economies of scale in fracking may be considerably smaller than in conventional oil drilling. Source: Russell Gold and Theo Francis, "The New Winners and Losers in America's Shale Boom," Wall Street Journal, April 20, 2014. If this view is correct, what would the likely consequences be for the number of firms drilling for oil in the United States?
Since firms can reach minimum efficient scale at a relatively low output rate, there will continue to be a large number of firms drilling for oil in the United States.
Which of the following factors best explains why consumers might prefer to go to a restaurant that was identical to another in terms of décor, food choices and price but had more customers?
Some people receive utility from goods they believe are popular.
Andrea grew up enjoying her Italian grandmother's home-cooked meals. Chicken and pasta with meatballs were her favorite foods. But after Andrea graduated from college, found a job, and got married, she became a vegetarian and no longer ate chicken or meatballs. Which of the following statement(s) provides the most likely explanation of Andrea's decision to become a vegetarian? i. When Andrea was young she was unrealistic about her future behavior. Therefore, she did not act rationally. ii. Andrea was not working when she was young. After she graduated from college and became employed her income rose. We can conclude that for Andrea, chicken, meatballs, and other meat products are inferior goods. iii. Social influences explain Andrea's decision to become a vegetarian. More people, including celebrities from the entertainment field, have become vegetarians. Andrea became a vegetarian because she now feels a kinship with these celebrities and being a vegetarian makes her appear to be fashionable.
Statement iii, because Andrea's preferences changed over time so that she preferred to eat no meat, regardless of her income changes.
Richard Thaler, an economist at the University of Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on the object if not currently owned. According to an article in the Economist: Dr Thaler, who recently had some expensive bottles of wine stolen, observed that he is "now confronted with precisely one of my own experiments: these are bottles I wasn't planning to sell and now I'm going to get a cheque from an insurance company and most of these bottles I will not buy. I'm a good enough economist to know there's a bit of an inconsistency there." Source: "It's mine, I tell you," Economist, June 19, 2008. Based on Thaler's statement, how do his stolen bottles of wine illustrate the endowment effect, and why does he make the statement: "I'm a good enough economist to know there's a bit of an inconsistency there"? Thaler's stolen bottles of wine illustrate the endowment effect because
Thaler places a higher value on bottles of wine when he owns them than when he does not own them.
Adam Smith's idea of the gains to firms from the division of labor makes a lot of sense when the good being manufactured is something complex like automobiles or computers, but it doesn't apply in the manufacturing of less complex goods or in other sectors of the economy, such as retail sales.
The argument is incorrect. Gains from division of labor will occur whenever production of a good or provision of a service has multiple tasks.
Older oil wells that produce fewer than 10 barrels of oil a day are called "stripper" wells. Suppose that you and a partner own a stripper well that can produce eight barrels of oil per day and you estimate that the marginal cost of producing another barrel of oil is $80. In making your calculation, you take into account the cost of labor, materials and other inputs that increase when you produce more oil. Your partner looks over your calculation of marginal cost and says: "You forgot about that bank loan we received two years ago. If we take into account the amount we pay on that loan, its adds $10 per barrel to our marginal cost of production." Which of the following statements is most true?
The bank loan should not be included in marginal cost because it cannot be avoided by not producing another barrel.
Refer to the graph to the right of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the following?
The firm can sell any amount of output as long as it accepts the market price of $7.00.
The financial writer Andrew Tobias has described an incident when he was a student at Harvard Business School: Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strategy for the firm. Most of the students spent hours preparing their answers and came to class carrying many sheets of paper with their calculations. When his professor called on him in class for an answer, Tobias stated, "The case said the XYZ Company was in a very competitive industry . . . and the case said that the company had all the business it could handle." Source: Andrew Tobias, The Only Investment Guide You'll Ever Need, San Diego: Harcourt, 2005, pp. 6-8. Given this information, what price do you think Tobias argued the company should charge? (Tobias says the class greeted his answer with "thunderous applause."
The market price.
Refer to the to graph on the right. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range?
The output range greater than about 525 pizzas per day
A student in a principles of economics course makes the following remark: "The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long run, a firm in a perfectly competitive market will earn no profits. No firm in the real world would stay in business if it earned zero profits." Is this remark correct or incorrect?
The remark is incorrect because the student has confused accounting profit and economic profit. Firms in a perfectly competitive market earn accounting profit, but no economic profit.
When the DuPont chemical company first attempted to enter the paint business, it was not successful. According to a company report, in one year it "lost nearly $500,000 in actual cash in addition to an expected return on investment of nearly $500,000, which made a total loss of income to the company of nearly a million." Why did this report include as part of the company's loss the amount it had expected to earn -- but didn't -- on its investment in manufacturing paint? Source: Alfred D. Chandler, Jr., Thomas K. McCraw, and Richard Tedlow, Management Past and Present, Cincinnati: South-Western, 2000, pp. 3-92.
The report sought to include implicit costs because DuPont could have invested its money elsewhere and earned $500,000.
Briefly explain whether you agree with the following observation: "Technological change refers only to the introduction of new products, so it is not relevant to the operations of most firms."
The statement is incorrect. Technology includes firm operations such as the training of its workers. The statement is incorrect. Technology includes firm operations such as the speed of its machinery.
If pizza is an inferior good and its price falls, which of the following will most likely occur?
The substitution effect causes you to want to eat more pizza.
What happens when network externalities are present?
The usefulness of a product increases with the number of consumers who use it.
The Statistical Abstract of the United States is published each year by the U.S. Census Bureau. It provides a summary of business, economic, social, and political statistics. It is available for free online, and a printed copy can also be purchased from the U.S. Government Printing Office for $39. Because government documents are not copyrighted, anyone can print copies of the Statistical Abstract and sell them. Each year, one or two companies typically will print and sell copies for a significantly lower price than the U.S. Government Printing Office does. The copies of the Statistical Abstract that these companies sell are usually identical to those sold by the government, except for having different covers. How can these companies sell the same book for a lower price than the government and still cover their costs?
These companies decrease their average cost of production by increasing production from low levels.
Las Vegas is one of the most popular tourist destinations in the United States. In November 2008, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to $5.99 for local residents, while keeping the regular price of $14.99 for nonlocals. Source: Las Vegas Advisor, November, 2008. Why would the restaurant do this?
They were willing to trade off some profits to keep their regular customers happy.
Does purchasing a smaller (larger) quantity demanded when price falls (rises) mean that demand curves for inferior goods should slope upward?
This does not mean that the demand curves for inferior goods should slope upward as we must also take into account the substitution effect.
In the figure to the right, Sacha Gillette reduces her output from 7250 to 5250 dozen eggs when the price falls to $2.00. At this price and this output level, she is operating at a loss. What option does Gillette have in this situation?
Try to cut her costs of production to decrease the loss in the short run.
Explain how a downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.
When the price of a good rises, the ratio of the marginal utility to price falls, leading consumers to buy less of that good.
Which of the following is true of the relationship between the average product of labor and the marginal product of labor LOADING...?
Whenever the marginal product of labor is less than the average product of labor, the average product of labor must be decreasing.
The chapter states, "Firms will supply all those goods that provide consumers with a marginal benefit at least as great as the marginal cost of producing them." A student objects to this statement by making the following argument: "I doubt that firms will really do this. After all, firms are in business to make a profit; they don't care about what is best for consumers." After reminding the class that we are assuming a competitive market, your professor would most likely give the following reply.
While it's true that firms don't care about consumer welfare, they do maximize profits by producing the efficient level of output.
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.
Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.
Which of the following mistakes do consumers commonly commit when making decisions?
all of the above
Suppose that Uber decides that its strategy of using surge pricing during times of high demand is causing the company to receive too much bad publicity. It decides that it will maintain its regular prices even during periods of high demand. a. If you are trying to get a ride through Uber at the end of a football game or on New Year's Eve, will you benefit from Uber's change in policy?
You will benefit only if you can get a ride, because the wait times will be long.
The marginal cost of production shows the change in a firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost curve? Graphically, the marginal cost curve is
a U shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.
If households in the Northeast decreased their consumption of heating oil in the winter for 2014-15, we can conclude that for these households heating oil is
a giffen good because when the price fell less was consumed
A firm can use anchoring to influence consumer choices so as to increase sales by marking
a high "regular price" on a product, which makes the discounted "sale price" appear to be a bargain.
Discuss the shape of the long-run supply curve in a perfectly competitive market. The long-run supply curve is
a horizontal line equal to the minimum point on the typical firm's average total cost curve.
A market demand curve is derived by
adding horizontally the individual demand curves
What is the law of diminishing returns? The law of diminishing returns states that
adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline.
Minimum efficient scale is the level of output at which:
all economics of scale have been echausted
an example of technological change is
all of the above
How do specialization and division of labor typically affect the marginal product of labor? In the initial stages of production, specialization and division of labor lead to an increasing marginal product for workers,
allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently.
Are consumers only interested in making themselves as well off as possible in a material sense?
also concerned with fairness as exemplified by tipping in restaruants that will never be vistited again
UPS has reorganized the routes its drivers take to deliver packages to homes. According to an article in the Wall Street Journal, "The company can save $50 million a year by reducing by one mile the average aggregated daily travel of its drivers." Source: Steven Rosenbush and Laura Stevens, "At UPS, the Algorithm Is the Driver," Wall Street Journal, February 16, 2015. a. This cost saving is
an example of positive technological change
how are implicit costs different from explicit costs?
an explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost
According to the figure, hamburgers for Pam are
an inferior good the more money she makes the less hamburgers she buys
if a good has an upward-sloping demand curve, then it has to be
an inferior good, and the income effect would have to be larger than the substitution effect.
According to a news story, the Web site Stickk offers a service where you give them money that they will donate to charity if you fail to go to the gym as often as you promise to. (You can even have the money donated to an anti-charitylong dasha cause you disapprove of.) Source: Josh Barro, "How to Make Yourself Go to the Gym," New York Times, January 10, 2015. Why would anyone use this service? People who fail to go to a gym to work out as often as they promise
are overly optimistic about their future behavior in attending the gym regularly and Stickk provides a financial incentive for them to reach these goals.
For what types of products are network externalities likely to be important? Network externalities are likely to be important for products that
are widely used use inferior technology
Firms experience economies of scale LOADING... for several reasons. What is one such reason? A firm might experience economies of scale because
as a firm expands, it may be able to borrow money more inexpensively
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 a fixed cost
Assume that a consumer buys only two goodslong dashpizza and Coke. He is faced with a budget constraint because he has a limited amount of income to spend on the two goods. All of the following statements regarding the individual's demand curve for pizza are true except that
at each point on the demand curve, marginal utility from the consumption of pizza equals marginal utility from the consumption of Coke.
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 variable
As production levels increase, the Nook would become more profitable because
average cost per unit will fall.
All of the following cost measures reach their minimum points when they are equal to the value of marginal cost, except one. Which cost measure is the exception?
average fixed cost
What cost measure is equal to AFC plusAVC?
average total cost
What is the difference between a firm's shutdown point in the short run and its exit point in the long run? In the short run, a firm's shutdown point is the minimum point on the
average variable cost curve, while in the long run, a firm's exit point is the minimum point on the average total cost curve.
Suppose that the market for gluten-free spaghetti is in long-run equilibrium at a price of $3.50 per box and a quantity of 4 million boxes sold per year. Assume that the production of gluten-free spaghetti is a constant-cost industry. If the demand for gluten-free spaghetti increases permanently, which of the following combinations of equilibrium price and equilibrium quantity would you expect to see in the long run? a. A price of $3.50 per box and a quantity of 4 million boxes. b. A price of $3.50 per box and a quantity of more than 4 million boxes. c. A price of more than $3.50 per box and a quantity of more than 4 million boxes. d. A price of less than $3.50 per box and a quantity of less than 4 million boxes.
b. After demand increases, and supply increases, the quantity will be more than 4 million boxes, but the price will return to its initial level.
Suppose you bought a ticket to a football game. The ticket is nonrefundable (and can't be resold) and must be used on Saturday. Then, a friend calls and invites you to a basketball game on Saturday. You only have time to attend one of the events, and your friend offers to pay the cost of going to the basketball game. If you prefer basketball games over football games, then you should attend the
basketball game
A study analyzed a pharmaceutical firm's costs to develop a prescription drug and receive government approval. An article in the Wall Street Journal describing the study noted that included in the firm's costs was "the return that could be gained if the money [used to develop the drug] were invested elsewhere." Source: Ed Silverman, "Can It Really Cost $2.6 Billion to Develop a Drug?," Wall Street Journal, November 21, 2014. This return sho
be included in the firm's costs because it is the opportunity cost of not investing those funds elsewhere.
Why might consumers not act rationally? Consumers might
be overly optimistic about their future behavior
How does perfect competition lead to allocative and productive efficiency? Perfect competition leads to allocative and productive efficiency
because prices reflect consumer preferences. B. because firms are motivated by profit.
In what sense did J.C. Penney "pull up the anchor"? J.C. Penney
began charging 'everyday low prices' instead of the typical marking down process.
In recent years, some economists have begun studying situations in which people do not appear to be making choices that are economically rational. This new area of economics is called
behavioral economics
What do economists call the study of situations in which people act in ways that do not appear to be economically rational?
behavioral economics
Behavioral economists LOADING... attribute some consumer behavior to the endowment effect. Which of the following is an example of the endowment effect? An example of the endowment effect is
being unwilling to sell a painting for a price that is greater than the price you would be willing to pay to buy the painting if you didn't already own it.
Petty and his manager might want tickets to have prices below the market price because
below market prices allow poorer fans to attend the concert.
How is the market supply curve derived from the supply curves of individual firms? The market supply curve is derived
by horizontally adding the individual firms' supply curves.
Suppose a consumer is trying to decide how much to spend on clothing and how much to spend on all other (non-clothing) consumption. The economic model of consumer behavior predicts that the consumer will
choose the combination of clothing and non-clothing consumption that makes her as well off as possible from among the combinations of clothing and non-clothing items she can afford
In which of the following situations are social influences on consumer decision making likely to be greater: choosing a restaurant for dinner or choosing a brand of toothpaste to buy? Consumer decision making is likely to be more affected by social influences when
choosing a restaurant because it takes place publically
b. Uber received criticism for using surge pricing following a severe snowstorm in Boston. Some people would be more critical of Uber's using surge pricing after a snowstorm than using this pricing strategy on New Year's Eve because it is
considered fair for producers to raise their prices following an increase in their costs, but not when price increases follow increases in demand, such as those caused by snowstorms.
The law of diminishing marginal utility suggests that
consumers experience diminishing additional satisfaction as they consume more of a good or service.
What explanations have economists offered for why firms don't raise prices when doing so would seem to increase profits? Firms might not raise prices when doing so might increase profits becau
consumers find it unfair for firms to increase prices after an increase in demand.
What effect does a network externality have on the market for a product? If a network externality is present for a product, then
consumers may be more likely to buy the product because it is more useful.
According to a news story, the Boston-based game company Proletariat launched its first mobile game, World Zombination, after having "spent nearly 18 months and $2 million to develop it." In the first three months following the game's release in February 2015, it was downloaded more than three 3 million times. Yet the firm was just breaking even on the game. Source: Sarah E. Needleman, "Mobile-Game Makers Try to Catch More 'Whales' Who Pay for Free Games," Wall Street Journal, May 10, 2015. If game companies can only break even on the mobile games they develop, in the long run, we would expect them to
continue to develop mobile games because they can cover all costs of production if they break even.
Which of the following is most likely to a variable cost for a business firm?
cost of shipping products
A news story discussed the financial results for BlackBerry, the smartphone and software company: "Revenue tumbled 32% from a year earlier to $658 million in the quarter ended May 30 from $966 million a year earlier...BlackBerry posted profit of $68 million...up from $23 million a year earlier." Source: Ben Dummett, "BlackBerry Results Miss Expectations," Wall Street Journal, June 23, 2015. It is possible for profits to increase even if revenue decreases if
costs decrease more than revenue decreases.
Behavioral economist Richard Thaler has studied several examples of how businesses make use of inconsistencies in consumer decision-making. Which of the following is an example of this? An example of businesses taking advantage of inconsistencies in consumer decision-making is
credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash.
As we move down an indifference curve, the MRS
decreases
The figure to the right illustrates the long-run average cost curve for a company that makes motors. Suppose the company produces 13 thousand motors per month. Is it experiencing economies of scale, diseconomies of scale, or constant returns to scale? If the company produces 13 thousand motors, then it experiences diseconomies of scale . At what level of output does the firm experience the minimum efficient scale? The minimum efficient scale occurs when the firm produces 5 thousand motors.
diseconomics of scale 5 thousand
In his autobiography, T. Boone Pickens, a geologist, entrepreneur, and oil company executive, wrote: It's unusual to find a large corporation that's efficient ... When you get an inside look, it's easy to see how inefficient big business really is. Most corporate bureaucracies have more people than they have work. Source: T. Boone Pickens, The Luckiest Man in the World, Washington, DC: Beard Books, 2000, p. 275. Pickens was describing
diseconomies of scale, because he is referring to the inefficieny of a large scale business operation.
Suppose the market for cotton is perfectly competitive and that input prices decrease as the industry expands. Characterize the industry's long-run supply curve. The cotton industry's long-run supply curve will be
downward sloping because the long-run average cost of production will be decreasing
The demand curve for an inferior good is __________ sloping while the demand curve for a Giffen good is __________ sloping.
downward, upward
The downward sloping part of the long run average total cost curve is where the firm is achieving:
economics of scale
Anchoring is relating a value to some other known value
even if the second value is irrelevant
The figure to the right represents the cost structure for a perfectly competitive firm with its average total cost (ATC) curve, average variable (AVC) curve, and marginal cost (MC) curve. Suppose the market price is $8.00 per unit. Will firms enter or exit the industry in the long run? If market price is $8.00, then firms will exit the market in the long run.
exit
which of the following are sometimes called accounting costs?
explicit costs
The marginal utility from consuming the second ice cream cone is the:
extra satisfaction you get from consuming the second ice cream cone
According to an article in the Wall Street Journal, as a result of U.S. consumers increasing their demand for beef, in 2015 world beef prices increased. For example, according to the article, "Australian beef prices are up 40% this year, while New Zealand prices are 17% higher." The article observed, "The gains show no signs of stopping, given the [increasing] U.S. demand...." Source: Lucy Craymer, "Beef Prices Sizzle With U.S. Demand," Wall Street Journal, September 10, 2015. If U.S. demand for beef continues to increase, in the long run, beef prices will
fall because the supply of beef will increase as new firms enter the industry.
Utility refers to how much consumers utilize a product or service.
false
Which of the following products is most likely to have significant network externalities
fax machines
If Uber decided not to use surge pricing during snowstorms or other weather- related situations, then
few consumers would benefit because of high demand, most would not get rides.
b. We can predict that, as the Chinese automobile industry develops over the next 10 years, there should be
fewer firms in the industry and the remaining firms will likely be larger.
For Jill Johnson's pizza restaurant, explain whether each of the following is a fixed or variable cost. The payment she makes on her fire insurance policy is a fixed cost. The payment she makes to buy pizza dough is a variable cost. The wages she pays her workers is a variable cost. The lease payment she makes to her landlord who owns the building where her store is located is a fixed cost. The $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a fixed co
fixed variable variable fixed fixed
Any cost that remains unchanged as output changes represents a firm's
fixed cost
According to an article in the New York Times, interest payments on bank loans make up more than half the costs of the typical solar panel manufacturer. The owner of a firm that imports solar panels made this observation about solar panel manufacturers: "So as long as companies can cover their variable costs and earn at least some revenue to put toward interest payments, they will continue to operate even at a loss." Source: Diane Cardwell, "Solar Tariffs Upheld, but May Not Help in U.S.," New York Times, November 7, 2012. The interest payments these firms make are a
fixed cost since they do not vary with output
The chapter states that: "When the price of an inferior good falls, the income LOADING... and substitution LOADING... effects work in opposite directions." This statement means:
if the price of an inferior good falls, the income effect will decrease quantity demanded while the substitution effect will increase quantity demanded, so these two effects are n the opposite directions
Three mistakes consumers often make are
ignoring nonmonetary opportunity costs, failing to ignore sunk costs, and being overly optimistic about the future.
What is a production function? A firm's production function is best described as
illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.
The short-run average cost can never be less the long-run average costs because
in the long run, all inputs are adjusted including the ones that are fixed in the short run.
The law of diminishing returns applies
in the short run
A budget constraint:
indicates the limited amount of income available to consumers to spend on goods and services.
Explain how the listed events would affect the following at Southwest Airlines: i. Marginal cost ii. Average variable cost iii. Average fixed cost iv. Average total cost Southwest signs a new contract with the Transport Workers Union that requires the airline to increase wages for its flight attendants. Marginal cost would increase , average variable cost would increase , average fixed cost would remain unchanged , and average total cost would increase
increase increase remain unchanged increase
The federal government starts to levy a $20 per passenger carbon emissions tax on all commerical air travel. Marginal cost would increase , average variable cost would increase , average fixed cost would remain unchanged , and average total cost would increase .
increase increase remain unchanged increase
s the demand for cage-free eggs increases, other things equal, the price would increase so firms will earn higher profits. This will attract more farmers into the industry and cause the industry supply curve to shift to the right . If this is a constant-cost industry, the price will decrease in the long-run to what it was prior to the increase in demand.
increase higher supply right a constant-cost
In 2012, then Barnes & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its Nook tablet, "the Nook business will scale in fiscal 2013, reducing losses from last year." When Lynch said that "the Nook business will scale," he meant the Nook business wi
increase in size gaining economy of scale advantages.
Why is your answer important for predicting how much the quantity of gasoline demanded will increase as a result of the price decline? When the price of a good declines, the income effect tells us that the quantity demanded will ▼ decrease more decrease less increase more increase less if the good is a normal good than if it is an inferior good.
increase more
The marginal utility per dollar you are spending on iTunes music downloads is less than the marginal utility per dollar you are spending on Red Bull. According to the rule of equal marginal utility per dollar spent, what can you do to increase your total utility from consumption of music downloads and Red Bull?
increase your consumption of red bull
Network externalities are present when the usefulness of a product
increases when the number of consumers who use it
When the marginal product of labor is greater than the average product of labor, then the average product of labor must be:
increasing
When the marginal product of labor is greater than the average product of labor, then the average product of labor must be
increasing
A firm uses capital and labor to produce output. The isoquant graph to the right illustrates the firm's technology with isoquant curves. A couple of input combinations are also indicated in the figure. Suppose the firm is currently using a combination of inputs indicated by point Upper C. Which of the indicated input bundles would produce the same amount of output (as input combination Upper C)?
input combination Upper B would produce the same amount of output because it is on the same isoquant.
Which of the following is most likely to be a fixed cost for a farmer?
insurance premiums on property
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
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
When the ultimatum game experiment is carried out, both allocators and recipients act as if fairness
is important
Is it possible for technological change to be negative? If so, give an example.
is it possible for technological change to be negative. an example is when a hurricane damages a firm's facilities
Which of the following are examples of a firm experiencing positive technological change? a. A firm is able to cut each worker's wage rate by 10 percent and still produce the same level of output. This is not an example of positive technological change. b. A training program makes a firm's workers more productive. This is an example of positive technological change. c. An exercise program makes a firm's workers more healthy and productive. This is an example of positive technological change. d. A firm cuts its workforce and is able to maintain its initial level of output. This is an example of positive technological change. e. A firm rearranges the layout of its factory and finds that by using its initial set of inputs, it can produce exactly as much as before. This is not an example of positive technological change.
is not is is is is not
A firm produces output using capital and labor. The firm's marginal product of labor (MP Subscript Upper L) is 10 and its marginal product of capital (MP Subscript Upper K) is 2. Suppose the wage per unit of labor (w) is $14.00 and the cost per unit of capital (r) is $7.00. Is the firm minimizing the cost of production? What should the firm do, if anything, to produce the same level of output at lower cost? The firm
is not minimizing the cost of production and should use more labor and less capital
What is meant by allocative efficiency? Allocative efficiency is when every good or service
is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it
When the price of a product changes,
it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.
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 GPA you earn in a particular semester is your ________ GPA, and your cumulative GPA for all completed semesters is your ________ GPA.
marginal; average
The late Nobel Prize-winning economist George Stigler once wrote, "the most common and most important criticism of perfect competition... [is] that it is unrealistic." Source: George Stigler, "Perfect Competition, Historically Contemplated," Journal of Political Economy, Vol. 55, No. 1, (February 1957), pp. 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to entry, economists believe that the model of perfect competition is important because
it is a benchmarklong dasha market with the maximum possible competitionlong dashthat economists use to evaluate actual markets that are not perfectly competitive.
When are firms likely to be price takers? A firm is likely to be a price taker when
it sells a product that is exactly the same as every other firm
Penney followed this strategy because
it sold almost three-quarters of its products at prices marked down by at least 50 percent.
If a firm decided to maximize revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing profit? The firm would produce a larger quantity of output.
larger
Suppose ham is a normal LOADING... good. How will consumers adjust their buying decisions if the price of ham changes? If the price of ham increases, then consumers will demand
less ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.
An article in the Wall Street Journal discussed the purchase of the small Zipcar rental car firm by the much larger Avis. The article predicted that the purchase would be successful because of the "efficiencies gained by putting the two companies together." The article also observed that: "On its own, Zipcar is too small to achieve economies of scale." Source: Rolfe Winkler, "Avis Puts Some Zip in Its Weekend," Wall Street Journal, January 2, 2013. A rental car company can realize benefits from economies of scale by
leveraging its purchasing power when buying new cars.
According to an article in Forbes, the cost of materials in Apple's iPhone 6 with 16 gigabytes of memory was estimated to be $227. Apple was selling the iPhone 6 for $650. Most phone carriers, like AT&T and Verizon, made payments to Apple that reduced the price to consumers to $200. Source: Chuck Jones, "Apple's iPhone 6 Teardown And and Other Costs Analysis," Forbes, September 24, 2014. Can we conclude from this information that Apple is making a profit of about $423 per iPhone? Briefly explain. Apple's profit is
likely less than $423 per iPhone because Apple also has fixed costs of production.
Speaking about a recent trip to Switzerland, Daniel Hammermesh made the following comment in the New York Times: A waste of time! After arriving at our hotel in Switzerland at 7 p.m., my wife and I had both hoped to work on our computerslong dashbut we couldn't. Although we had bought universal plug adapters (which convert American plugs to European, Australian, and English outlets), it turns out that Switzerland has its own unique three-prong plug. Why? This kind of plug adapter is not sold with standard adapter sets. Why does Switzerland renounce the network externalities that would come with using standard European plugs with their standard 220-volt electricity? Source: Daniel Hammermesh, "If Switzerland Would Only Change Its Plugs," New York Times, September 23, 2008. How is Switzerland "renouncing network externalities" by not using standard European plugs? Switzerland is "renouncing network externalities" by
limiting the usefulness of the standard European plug.
Which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long run, when no inputs are fixed?
long-run average cost curve
What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be
many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.
What is the name for the additional output that a firm produces as a result of hiring one more worker?
marginal product of labor
The increase in total revenue that results from selling one more unit of output is
marginal revenue
According to the law of diminishing marginal utility, as the consumption of a particular good increases:
marginal utility decreases
The marginal cost curve intersects both the average variable cost and the average total cost curves at their
minimum points
nstead, suppose ham is an inferior good. If the price of ham increases, then consumers will demand more ham due to the income effect and less ham due to the substitution effect.
more less
Suppose ham is an inferior LOADING... good. How will consumers adjust their buying decisions if the price of ham changes? If the price of ham increases, then consumers will demand
more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.
In studying the consumption of very poor families in China, Robert Jensen and Nolan Miller found that in both Hunan and Gansu "Giffen behavior is most likely to be found among a range of households that are poor (but not too poor or too rich)." Source: Robert T. Jensen and Nolan H. Miller, "Giffen Behavior and Subsistence Consumption," American Economic Review, Vol. 98, No. 4, September 2008, p. 1569. a. "Giffen behavior" describes the purchase of
more of a good when the price rises
when positive technological change occurs
more output can be produced from the same inputs the same output can be produced with fewer inputs
What affects the desirability of a product? Products become more desirable when
movie stars use a product celebrities use a product professional athletes use a product
Small business owner Jay Goltz described several decisions he made to reduce the fixed costs of his businesses, including replacing halogen lamps with LED lamps. Goltz noted, "...I'm guessing that many business owners could save a lot more than pennies on their fixed costs, and those savings...fall right to the bottom line." Source: Jay Goltz, "Not All Fixed Costs Are Truly Fixed," New York Times, May 25, 2011. a. The cost of electricity used to power the lights used in Mr. Goltz' businesses are fixed costs because these costs
must be paid regardless of the volume of output.
The income effect for a normal good is __________ while the income effect for an inferior good is __________.
negative; positive
In 2015, some beer drinkers filed a lawsuit against Anheuser-Bucsh, the brewer of Beck's beer. The beer drinkers claimed that Beck's was marketed as an authentic German beer, but was actually brewed in St. Louis. Other breweries have established facilities in Canada so they can truthfully claim that their beers are "imported." Source: Jacob Greshman and Tripp Mickle, "Trouble Brews for 'Imported' Beers Brewed in America," Wall Street Journal, June 24, 2015. If the market for beer were perfectly competitive, the location of breweries would
not matter to consumers since the product would be homogeneous.
Marty and Ann discussed the rule of equal marginal utility per dollar spent, a topic that was recently covered in the economics course they were both taking: Marty: "When I use my calculator to divide the marginal utility of pizza by a price of zero, I don't get an answer. This result must mean that if pizza were being sold for a price of zero the quantity demanded would be infinite." Ann: "Marty, that can't be true. No producer would be willing to sell pizza, or any other product, for a zero price. Quantity demanded cannot be infinite, so zero prices cannot appear on demand curves and demand schedules." Assume that Marty and Ann ask you for advice. Which of their statements is correct? A. Marty is correct.
neither is correct
is utility measurable
no
According to the U.S. Energy Information Administration, the average price of heating oil fell to under $3.00 a gallon during the winter of 2014-2015, the lowest price in more than four years. About 6.2 million U.S. households in the Northeast rely on the fuel to heat their homes. For the following questions, assume that no factor that affects the demand for heating oil, other than its price, changed during the winter of 2014-2015. Source: Jon Kamp, "Cheaper Hearing Oil Fuels Billions in Savings in Northeast," Wall Street Journal, January 16, 2015. If households in the Northeast decreased their consumption of heating oil in the winter of 2014-2015, can we conclude that for these households, heating oil was an inferior good?
no. to conclude that heating oil is an inferior good, we would have to know that less heating oil was consumed as the incomes of northeast households rose
The following questions are about long-run equilibrium in the market for cage-free eggs. Source: John Kell, "Dunkin' Donuts Considers Using Only Cage-Free Eggs," fortune.com, March 30, 2015. a. As described in the chapter opener, the market for cage-free eggs in 2015 was
not in equilibrium because farmers who were raising cage-free chickens were earning higher profits than farmers who raised chickens using more traditional methods.
Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of $5.00 per movie and to purchase 5 CDs per month at a cost of $10.00 per CD. Your marginal utility LOADING... from the fifth movie is 20 and your marginal utility from the fifth CD is 30. Are you maximizing utility? You are What could you do to increase utility? You could increase utility by consuming more movies and fewer CDs .
not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs movies and CDs
Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of $5.00 per movie and to purchase 5 CDs per month at a cost of $10.00 per CD. Your marginal utility LOADING... from the fifth movie is 30 and your marginal utility from the fifth CD is 68. Are you maximizing utility? You are
not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs.
Refer to the to graph on the right. From the origin up until point A, A. output increases at a decreasing rate. B. the effect of diminishing returns is greater than the effect of specialization. C. output increases at a constant rate. D. output increases at an increasing rate. Your answer is correct. From point A up until point B, A. output increases at an increasing rate. B. output decreases. C. output increases at a decreasing rate. Your answer is correct.D. output increases at a constant rate.
output increases at an increasing rate output increases at a decreasing rate
In perfect competition, the marginal revenue is the same as:
price
A firm in perfect competition earns profit if:
price is greater than average total cost
What is meant by productive efficiency? Productive efficiency is
produced at lowest price possible
Consider a firm in each of the following three situations, and explain whether the firm will produce in the short run or shut down in the short run.
produce 1,000 units of output and break even with a price of $10.00. produce 1,000 units of output at a loss since the price is less than the average total cost. shut down since the price is less than the average variable cost.
Many people donate to charity and leave tips to servers in restaurants even when they will never visit the restaurant again. Economists consider this type of behavior to be:
rational, because it shows people value fairness
What role does utility LOADING... play in the economic model of consumer behavior? When modeling consumer behavior, utility
reflects the satisfaction a consumer receives from consuming a particular set of goods and services
An article in the New York Times about J.C. Penney's pricing strategy under former CEO Ron Johnson observes: "Penney had pulled up the anchor, only to see many of its customers sail away." Source: Stephanie Clifford and Katherine Rampell, "Sometimes We Want Prices to Fool Us," New York Times, April 13, 2013. In behavioral economics, an "anchor" is
relating an unknown value or price to another similar known value or price.
Southwest decides on an across-the-board 10 percent cut in executive salaries. Marginal cost would remain unchanged , average variable cost would remain unchanged , average fixed cost would decrease , and average total cost would decrease
remain unchanged remain unchanged decrease decrease
Southwest decides to cut its television advertising budget. Marginal cost would remain unchanged , average variable cost would remain unchanged , average fixed cost would decrease , and average total cost would decrease .
remain unchanged remain unchanged decrease decrease
southwest decides to double its television budget
remain unchanged remain unchanged increase increase
Does the market system result in allocative efficiency? In the long run, perfect competition
results in allocative efficiency because firms produce where price equals marginal cost.
Suppose that UPS saves $50 million per year because of lower gasoline prices. Would that cost saving be due to technological change at the firm? Briefly explain. If UPS saved $50 million annually due to a decrease in gasoline prices, this would be
saving that results from the use of lower priced inputs.
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
Suppose Sheri owns a restaurant that serves pizza using three inputs: workers, restaurant space (and layout), and ovens. If workers are fixed, restaurant space (and layout) is fixed, and ovens are variable, then Sheri is producing pizza in the
short run
A study analyzed the costs to a pharmaceutical firm of developing a prescription drug and receiving government approval. An article in the Wall Street Journal noted that included in the firm's costs was "the return that could be gained if the money [used to develop the drug] were invested elsewhere." Briefly explain whether you agree that this return should be included in the firm's costs. Source: Ed Silverman, "Can It Really Cost $2.6 Billion to Develop a Drug?," Wall Street Journal, November 21, 2014. This return
should be included in the firm's costs because the opportunity cost of the firm's investment is one of the firm's implicit production costs.
If the market price for wheat were indeed $3 per bushel, should the wheat farmer exit the industry in the long run? In the long run, the wheat farmer
should continue to produce wheat because breaking even is as high a return as she could earn elsewhere.
A perfectly competitive firm is losing money in the short run, and its price is less than its average variable cost. In order to minimize its losses in the short run, this firm should
shut down
Behavioral economics is the study of
situations in which people make choices that do not appear to be economically rational.
in an article in the Quarterly Journal of Economics, Ted O'Donoghue and Matthew Rabin make the following observation: "People have self-control problems caused by a tendency to pursue immediate gratification in a way that their 'long-run selves' do not appreciate." Source: Ted O'Donoghue and Matthew Rabin, "Choice and Procrastination," Quarterly Journal of Economics, February 2001, pp. 125-26. Which of the following is an example of pursuing a goal which is in a person's long-term interest?
succeeding in school
Economically rational means that consumers and firms
take actions that are appropriate to reach goals given available information.
Marvin visits his aunt and uncle who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during Marvin's visit. An online broker has a ticket for sale in Section 212 of the arena where the game will be played but the price, $75, is more than Marvin is willing to pay. From another online ticket broker he buys a ticket for $50 for a seat in Section 212 of the arena. On the day of the game, a friend of Marvin's uncle offers to pay Marvin $75 for his ticket. He declines the offer. Marvin's refusal to sell his ticket can be explained b
the endowment effect in which Marvin is not considering the nonmonetary opportunity cost of the ticket.
b. In the long run in the market for cage-free eggs, we would expect
the equilbrium price to decrease and the equilibrium quantity to increase, as more firms enter.
which of the following costs are implicit costs?
the forgone salary and interest
What is the production function? The production function is the relationship between
the inputs employed by a firm and the maximum output it can produce with those inputs.
What is minimum efficient scale? Minimum efficient scale is
the level of scale in which all economics of scale are exhausted
If the marginal product of labor is falling, is the marginal cost of production rising or falling? Briefly explain. If the additional output from each new worker is falling,
the marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition MR = MC is equivalent to the condition P = MC. When maximizing profits, MR = MC is equivalent to P = MC because
the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.
Quantity Price 3 3 6 7 8 12 10 $21 The image is the first diagram in the panel that shows two upward-sloping supply curves. The horizontal axis measures the quantity and the vertical axis measures the price in dollars. In the graph, there is an upward-sloping supply curve that is convex to the horizontal axis. There are four points marked on the supply curve. These points correspond to the quantity and price combinations of (3, $3), (6, $7), (8, $12), and (10, $21) respectively. Quantity Price 300 3 600 7 800 12 1,000 $21 The image is the second diagram in the panel that shows two upward-sloping supply curves. The horizontal axis measures the quantity and the vertical axis measures the price in dollars. In the graph, there is an upward-sloping supply curve that is convex to the horizontal axis. There are four points marked on the curve. These points correspond to the quantity and price combinations of (300, $3), (600, $7), (800, $12), and (1,000, $21) respectively. Refer to the graphs above. Suppose the graph on the left represents a typical firm's supply curve in a perfectly competitive industry, and there are 100 identical firms in the industry. What does the graph on the right represent?
the market supply curve
The poorest of the poor would be less likely to exhibit this behavior than people with slightly higher incomes because
the poorest of the poor often cannot purchase more of a good when the price rises
what is technology
the processes a firm uses to turn inputs into outputs of goods and services.
When network externalities are present, the usefulness of:
the product increases as more consumers use it
AXA's actions could make economic sense in the long run if AXA's
total cost per square foot is equal to $40 or less.
Characterize utility maximization. When consumers maximize utility,
they consume each good up to the point where the marginal utility per dollar spent is the same for each good. B. the slope of the indifference curve equals the slope of the budget constraint at the point of optimization. C. the marginal rate of substitution equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis at the point of optimization. D. both a and b.t
What explanation might an economist provide why some people smoke cigarettes when such behavior can lead to health consequences? Some people likely smoke cigarettes because
they underestimate the future costs of current choices
LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility LOADING... of the fourth bag of corn chips is 10, and the marginal utility of the fifth bottle of soda is also 10. Is LaToya maximizing utility?
this cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda
If people are uncertain whether the price of a product is high or low, they often compare the price to the previous price of the product.
true
In many cases, the popularity of people who use a product can make the product desirable.
true
The economic model of consumer behavior predicts that consumers will choose to buy the combination of goods and services that makes them as well off as possible from among all the combinations that their budgets allow them to buy.
true
Any cost that changes as output changes represents a firm's
variable cost
According to an article in the Wall Street Journal, in 2007 the insurance company AXA Equitable signed a long-term lease on 2 million square feet of office space in a skyscraper on Sixth Avenue in Manhattan in New York City. In 2013, AXA decided that it only needed 1.7 million square feet of office space, so it subleased 300,000 square feet of space to several other firms. Although AXA is paying a rent of $88 per square foot on all 2 million square feet it is leasing, it is only receiving $40 per square foot from the firms subleasing the 300,000 square feet. Source: Molly Hensley-Clancy, "A Slump on Sixth Avenue," Wall Street Journal, June 16, 2013. AXA's actions might make economic sense in the short run if AXA's
variable cost per square foot was equal to or less than $40.
Which costs are affected by the level of output produced?
variable costs
Which of these costs are affected by the level of output produced?
variable costs
When graphing a conventional short-run production function, we place __________ on the horizontal axis and __________ on the vertical axis.
variable input, output
The following problem is somewhat advanced. Using symbols, we can write that the marginal product of labor is equal to Upper Delta Upper Q divided by Upper Delta Upper L. Marginal cost is equal to Upper Delta TC divided by Upper Delta Upper Q. Because fixed costs by definition don't change, marginal cost is also equal to Upper Delta VC divided by Upper Delta Upper Q. If Jill Johnson's only variable cost is labor cost, then her variable cost is just the wage times the quantity of workers hired, or w times L. If the wage Jill pays is constant, then what is Upper Delta VC in terms of w and L?
w * change of L
Use your answer above and the expressions given for the marginal product of labor and the marginal cost of output to find an expression for marginal cost, Upper Delta TC divided by Upper Delta Upper Q, in terms of the wage, w, and the marginal product of labor, Upper Delta Upper Q divided by Upper Delta Upper L. Marginal cost equals w divided by left parenthesis Upper Delta Upper Q divided by Upper Delta Upper L right parenthesis
w/change Q/change W
[Related to Solved Problem #4] Suppose you decide to open a copy store. You rent store space (signing a one-year lease), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months later, a large chain opens a copy store two blocks away from yours. As a result, the revenue you receive from your copy store, while sufficient to cover the wages of your employees and the costs of paper and utilities, doesn't cover all of your rent and the interest and repayment costs on the loan you took out to purchase the copiers.
yes, because you are covering variable costs
Which of the following are perfectly competitive markets corn farming sub sandwich shop manufacturing computers bridge building
yes, many, identical, high no many differentiated high no few differentiated low no few differentiated low
Suppose that you are a big fan of the Harry Potter books. You would love to own a copy of the very first printing of the first book, but unfortunately you can't find it for sale for less than $5,000. You are willing to pay at most $200 for a copy, but can't find one at that price until one day in a used bookstore you see a copy selling for $10, which you immediately buy. If you keep the copy rather than sell it, then all of the following are correct except
you are making a rational choice since the opportunity cost of the book is $5,000.
what could you do to increase utility?
you could consumer more CDs and fewer movies
In perfect competition, long-run equilibrium occurs when the economic profit is
zero
The graph at right represents the situation of Karl Kumquats, a kumquat grower. Karl is earning
zero economic profit, but could have a positive accouting profit.
In the ultimatum game, if neither the allocator nor the recipient cared about fairness, what would be the optimal distribution of $20.00? A.
$19.99 for the allocator and $0.01 for the recipient.
Is Jill Johnson correct when she says the following: "I am currently producing 10,000 pizzas per month at a total cost of $40 comma 000. If I produce 10,001 pizzas, my total cost will rise to $40 comma 050. Therefore, my marginal cost of producing pizzas must be increasing."
Jill's average total cost of production is increasing, so her marginal cost of producing pizzas must be increasing.
The Washington National Football League team paid a very high price to select Baylor quarterback Robert Griffen III in the 2012 player draft. In addition to paying Griffen a high salary, the team made a trade with the St. Louis team in which they had to give up the rights to select several other highly ranked players. According to a news story, by 2014, the team's coaches seemed to view the team's backup quarterback as a better player than Griffen, "but had to go with Griffin because the organization was so committed to him." The story described the price the team had paid "the highest price ever to draft an N.F.L. player." Source: Neil Irwin, "Robert Griffin III and the Sunk Cost Fallacy," New York Times, September 15, 2014. Should the price the team paid matter to its decision as to whether Griffen or his backup should start for the team?
No, the quarterback who the coaches believe is best suited to be the starter should start for the team.
Which of the following reasons do economists use to explain why people are overweight?
People's preferences are not consistent over time. B. People undervalue the utility to be received in the future. C. People overvalue the utility from current choices
Sally looks at her college transcript and says to you, "How is this possible? My grade point average (GPA) for this semester's courses is higher than my GPA for last semester's courses, but my cumulative GPA still went down from last semester to this semester." Explain to Sally how this is possible.
Sally's GPA for this semester is lower than her cumulative GPA.
If Avis and Zipcar, before the merger, each were already as efficient as possible as stand alone companies, would a merger provide any additional possible efficienies for the combined company?
Yes, because economies of scale would increase.
An article in the Wall Street Journal discusses the visual effects industry, which is made up of firms that provide visual effects for films and television programs. The article notes that: "Blockbusters... often have thousands of visual effects shots. Even dramas and comedies today can include hundreds of them." But the article notes that the firms producing the effects have not been very profitable. Some firms have declared bankruptcy, and the former general manager of one firm was quoted as saying: "A good year for us was a 5% return." Source: Ben Fritz, "Visual Effects Industry Does a Disappearing Act," Wall Street Journal, February 22, 2013. What dynamics best describe the factors at play in this market? Market entry for visual effect companies is relatively
easy, so firms can expect to earn zero economic profit in the long run.
In an opinion survey, Snoopy was found to be the most appealing celebrity endorser. The beagle from the popular Peanuts comic strip appeared in commercials for the insurance company MetLife. Source: Jeff Bercovici, "America's Most Loved Spokespersons," Forbes, March 14, 2011. The advantages of using Snoopy are that he always appears to be
lovable, funny and he has a reassuring aura.
b. Goltz wrote that reducing fixed costs results in savings that "fall right to the bottom line" because
profit, the bottom line, is revenue minus fixed costs minus variable costs, so a reduction in fixed costs increases profit.