MULTIPLE CHOICE CHAPTERS 6, 7, 9

All firms in a perfectly competitive market are said to be​ __________.

price takers.

The goal of a business in a perfectly competitive market is to​ maximize:

profits

Social surplus is the​ ____________.

total value from trade in a market.

Martha runs a business that makes designer jeans. Each of the seamstresses she employs uses one of the sewing machines on the factory floor. In the short​ run, the seamstresses are a ________ factor of production and the sewing machines are a _________ factor of production. The output of each seamstress is considered the ________ product

variable; fixed; marginal

Fixing up old houses requires plumbing and carpentry. Jack​ (who is a jack of all trades but is a master of​ none) is a decent carpenter and a decent​ plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is ​$80,000 per year. Jack's average total cost of fixing up two old houses is ​________ George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up eight houses per year. Each earns a wage of ​$80 comma 000 per year. If George and Harriet work together and fix up eight old houses each​ year, their average cost is _______ This problem tells us that one of the sources of economies of scale is ____________

$40,000; $20,000; specialization

Social surplus is maximized when the​ ___________.

1) buyers and sellers as distinct groups are doing as well as they possibly can. 2) ​highest-value buyers are making a purchase and the​ lowest-cost sellers are selling. 3) competitive market is in equilibrium.

You are given the following information about the ABC Widget​ Company's short-run costs. Quantity Fixed Cost Variable Cost Total Cost 0 12 0 12 1 12 1 13 2 12 3 15 3 12 6 18 4 12 10 22 5 12 15 27 6 12 21 33 Given the table​ above, the average total cost of producing the fourth unit is ​______. The marginal cost of producing the sixth unit is ______. The marginal cost of producing the third unit is __________ the average total cost of the third unit. This means that producing the third unit causes the average total cost to ________.

5.5; 6; less than; decrease

In a command​ economy, a planning agency sets prices for various inputs and final goods. In a market​ economy, supply and demand decide the prices of various goods. In both​ cases, there is a set of prices operating in the economy. Then why are market economies considered more efficient than planned​ economies?

A. The prices set by central planners reflect their very incomplete knowledge regarding the multitude of factors that determine the interests and decisions of economic agents. B. The prices set by central planners tend to be​ inflexible, responding to changing conditions only when planners recognize that circumstances are changing and then figure out the significance of the underlying change. C. The price mechanism utilized by market economies reflects all that is collectively known and thus ensures that economic agents make trades that are in their best interest and maximize social surplus.

Under which of the following examples is it likely that the accounting profit is positive and the economic profit is​ negative? A. If you use a diamond mine as a tourist attraction instead of using it for mining. B. Using a store in the mall to sell clothes instead of shoes. C. Opening a McDonald's franchise in a college town. D. Such a​ scenario, where accounting cost is positive and economic profit is​ negative, is not possible.

A. If you use a diamond mine as a tourist attraction instead of using it for mining.

In assessing the performance of a perfectly competitive​ market, we can say that​ ____________.

A. no individual can be made better off without making someone else worse off. B. price efficiently allocates goods and services to buyers and sellers. C. any departure from the equilibrium necessarily reduces social surplus.

What is the difference between accounting profit and economic​ profit?

Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs.

Law of diminishing returns

Increases in inputs eventually lead to less additional output.

Physical Capital

Machines and equipment that can be used for production.

Long run

Period of time when all of a​ firm's inputs can be varied.

Short run

Period of time when at least one of a​ firm's inputs is fixed.

Marginal product

The change in total production associated with using one more unit of input

Production

The process of transforming inputs into output

Specialization

The result of workers developing a certain skill set in order to increase total productivity.

Would a​ profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short​ run?

Yes, but only if price stayed above average variable cost.

Is it possible for accounting profit to be positive and economic profit to be​ negative?

Yes, this could occur if explicit costs were modest and implicit costs were high.

In a perfectly competitive​ market, a seller ______ choose to raise the price of its good since all sellers in the market produce _________ ​, so raising the price would result in ________.

cannot, identical goods, losing all its customers

The price at which a buyer is indifferent between making a purchase and not doing so is known as her ​____________.

reservation price or willingness to pay