Microeconomics Exam 2
Which of the following characteristics relate to decreasing returns to scale?
A situation in which as that quantity of output rises, the average cost of production rises
I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was
$1.00
'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was
$2.43
In figure H-9, the marginal revenue from adding the fifth unit of output (i.e. last one listed in the table) is
$20
Myron worked at a factory where he earned $20,000 per year. One day, he quit his job and opened a bumper sticker business. After one year, his business earned $60,000 in sales revenue and he incurred $30,000 in direct business expenses. If he received no salary from the new business, what is his economic profit?
$30,000
Given the data provided in the table below, what will the marginal cost equal for production at quantity level 4
$4.00
In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost
$50
Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4
$9.00
Suppose that Trey spends all of his income on vacation trips and textbooks. If the price of a trip is $200 and the price of a textbook is $50, then the slope of his budget line (assuming vacation trips are measured on the vertical axis) would be
-0.25
Janie works for an accounting firm. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. Before her raise, if Janie decreases her hours of work from 30 to 20 hours per week, the marginal utility gain from having more leisure is:
21
Which of the following characteristics relate to variable costs?
Costs of production that increase with the quantity produced
Q= (production function)
F(K,L)
TVC=
TC/Q
ATC=
TC/Q AFC+AVC AVC+(TFC/Q)
TC=
TFC+TVC
AFC=
TFC/Q
MR=
TR-(PQ)
Max profit =
TR-(TFC-TVC)
AVC=
TVC/Q TFC/Q
Which of the following formulas in not correct?
TVC= TC/Q
What is meant by marginal cost?
The additional cost of producing one more unit
MUm / Pm=
MUc/Pc
what is meant by income effect?
a change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually an incentive to buy lead. and a lower price meaning that the buying power of income has been increased, so there is an incentive to buy more
In terms of microeconomic analysis, what is the function of utils?
a measurement of utility
A business operating in a perfectly competitive market qualifies as which of the following
a price taker
The ____________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
a substitution effect
economic theory offers _______ about the full range of possible events and responses, which can prevent _______ about how households will respond to changes in price or incomes
a systematic way of thinking; misguided conclusions
MPL=
change in Q/change in L
MC=
change in TC/change in Q
The vertical distance between a firms average total cost curve and its average variable cost curve is its
average fixed cost
Marginal utility can
be positive, negative, or zero
For the total product curve shown in figure G-3, diminishing marginal returns to labor
begin with the third unit of labor
What term is used to describe the construct of utility maximization which describes all of the combinations of goods and services that the consumer can afford?
budget constrain framework
the market demand curve for a good is found by
adding up the quantities demanded by all consumers at different prices of that good
The most common practice for marginal utility is
diminishing marginal utility
The term ______ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit
diminishing marginal utility
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be
Firms are assumed to be price takers in a perfectly competitive market because
each firm is too small to influence the market price
the term _______ describes a situation where the quantity of output rises, but the average cost of production falls
economies of sale
The term ___________ describes a situation where the quantity of output rises, but the average cost of production falls
economies of scale
In order to calculate marginal cost, the change in _______ is divided by the amount of change in quantity
either total cost or variable cost
In order to calculate marginal cost, the change in ________ is divided by the amount of change in quantity
either total cost or variable cost
If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output
expanding output levels at any given price will be profitable
What name is given to expenditures that must be made before production starts and that do not change regardless of the level of production?
fixed costs
Economic profit can be derived from calculating total revenues minus all of the firm's costs
including its opportunity costs
the term ______ describes a situation where a _____ causes a reduction in the buying power of income, even though actual income has not changed
income effect; higher price
the key assumption that accompanies the use of numbers for measuring utility is that
individuals choose based on their subjective preferences
if the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is an
inferior good
Carla's Candy Store is maximizing profits by producing 1,000 pounds of candy per day. If Carla's fixed costs unexpectedly increase and the market price remains constant, then the profit-maximizing level of output
is still 1,000 pounds
the term _______ is used to describe the additional cost of producing one more unit
marginal cost
If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased , then
marginal cost is below average variable cost
a firms production function indicates the
maximum level of output that could be produced with different combinations of inputs
The demand curve facing a firm shows the
maximum price the firm can charge and still sell any given amount of output
A perfection competition market structure features how many barriers to entry?
no barriers
Refer to the diagram above, Based on the info illustrated in the graph, which of the following is correct?
the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AV curve
Under perfect competition
sellers offers a standardized product
Fixed costs are important because, at least in the _____, the firm _____
short run; cannot alter them
In the _________ if profits are not possible, the perfectly competitive firm will seek out the quantity of output where ___________
short run; losses are smallest
If a firm's revenues do not cover its average variable costs, then that firm has reached its _______.
shutdown point
______ include all spending on labor. machinery, tools, and supplied purchased from other firms
total costs
Is a firm is experiencing diminishing marginal productivity of labor, then
total output rises more slowly as additional workers are added
Whatever the firm's quantity of production, _______ must exceed total costs if it is to earn a profit
total revenue
____ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price
total revenue
the typical pattern revealed in a budget constraint model shows that as quantity consumed rises,
total utility rises, but marginal utility falls
ignoring all other goods, if Yong's marginal utility per pound of bread is 10 utils and per pound of cheese is 30 utils, his
total utility would be maximized if the price per pound of cheese is triple the price per pound of bread
The marginal cost curve is generally ________, because diminishing marginal productivity implied that additional units are ______
upward-sloping; more costly to produce
The ability of a good or service to satisfy wants
utility
If a paper mill shuts down its operations for three months so that it produces nothing, its _______ will be reduced to zero
variable costs
If a paper mill shuts down its operations for three months so that it produces nothing, its ________ will be reduced to zerp
variable costs
When dealing with the costs and operation of a typical business firm, the short run is a planning period in which the firm would usually
vary output but not factory size
For a perfectly competitive firm, the marginal cost curve above the minimum of its average variable cost curve is identical to the firms ______
supply curve
which of the following is most likely to be a fixed input in the short run for Joes Garage?
that garage used to repair cars
Firms operating in a market situation that creates _________, sell their product in a market with other firms who produce identical products
perfect competition
Justina's operates in a perfectly competitive market. Which of the following is its short-run supply curve?
the MC curve above its point of intersection with the AVC curve
which of the following most clearly illustrates the law of diminishing marginal utility
the additional satisfaction from consuming a good falls as more of the good is consumed
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
physical space for the gallery
A consumer's budget line shows
the combinations of two goods that an individual is able to purchase, given prices and income
If a perfectly competitive firm is a price taker, then
pressure from competing firms will force acceptance of the prevailing market price
why would labor be treated as a variable cost
producing larger quantities of a good or service generally requires more workers
Idaho farmers can sell as large a quantity of their potato crop as they wish,
provided each is willing to accept the prevailing market price
If a graph is used to compare total revenue and total cost of a perfectly competitive firm ; then the horizontal axis of the graph will represent the _____ and the vertical axis will represent _________.
quantity produced; both total revenue and total costs, measured in dollars
suppose that Carlas candy shop finds that at the current level of output, marginal revenue is below marginal cost and average variable cost is below price. If the market price is held constant, Carlas candy shop should _____________ in order to maximize profits
reduce output
When a firm incurs losses in the short run, the most important consideration in determining whether to continue producing is if
revenues cover sone of its fixed costs and all of its variable cost
If P > ATC for a perfectly competitive firm then
the firm is making a profit
When marginal cost exceeds marginal revenue
the firm will lower profits by increasing output
which of the following characteristics relate to utility?
the level of satisfaction or pleasure that people receive from their choices
A consumer will maximize utility when
the marginal utility each good relative to its price is equal to that of all other goods being purchased
Jims Shoe Shine shop operates in a perfectly competitive market, If its marginal revenue is $5 per shine, then
the market price per shine is $5
What is meant by average cost?
Total cost divided by the quantity of output
which of the following occurs simultaneously with an income effect?
substitution effect
economists are able to determine total utility by
summing up the marginal utilities of each unit consumed
"You're wrong," says Jerry. "The marginal utility of the cake should equal the marginal utility of the pickle." You are seated in the next table and they ask you what they should do. For rational consumer choice,
George should heed Elaine's advice and get that amount for which the marginal utility divided by the price is equal for the carrot cake and the pickle.
Java Joe sells 200 cups of coffee each day in a perfectly competitive market at the market price of $1.00 per cup. If Java Joe independently decreased its price per cup to $0.75
Its revenue would decrease
What term is used to describe when the marginal gain in output diminishes as each additional unit of input is added?
diminishing marginal returns
A perfectly competitive industry is a
hypothetical extreme
The marginal utility of two goods changes
with the quantities consumed
