Principles of Economics - Modules 4-7 Review

A specialty motorcycle manufacturer created a table to display its costs as seen below: Number of Workers 1 2 3 Number of Motorcycles 15 32 50 Total Costs $30,000 $62,000 $90,000 What is the marginal cost of each motorcycle when increasing from 32 motorcycles to 50?

$1,555.55

Shore Lightning Inc. is the manufacturer of LED light bulbs used in stadium scoreboards around the world. They are looking into opportunities in England and Thailand. Based on their analysis, they think the two options will deliver the following annual results: England Thailand Revenues: $750,000 $600,000 Labor/Material Costs: $200,000 $150,000 Profit: $550,000 $450,000 The daily costs for the opportunity in England are broken down as follows: Labor Cost: $2.50 per light bulb Material Cost: $4.50 per light bulb Machine Cost: $1.50 per light bulb Daily fixed costs: $2,000 Over the next 10 years, the company wants to expand the amount of technology it uses in order to reduce its labor costs in the production of light bulbs. They believe that the new technology will allow them to triple the output of light bulbs daily with only a slight increase in the amount of labor hours. Labor per light bulb will decrease from the current rate of $2.50 to $1.50 per light bulb because of the increase in production. What is the opportunity cost of operating in Thailand instead of England?

$100,000

A pizza shop plans to sell 12,000 pizzas. Each pizza costs the shop $7 in labor and ingredients. The shop has the following annual costs: Rent: $18,000 Utilities: $7,000 Insurance: $5,000 What is this pizza shop's expected total costs?

$114,000

Shore Lightning Inc. is the manufacturer of LED light bulbs used in stadium scoreboards around the world. They are looking into opportunities in England and Thailand. Based on their analysis, they think the two options will deliver the following annual results: England Thailand Revenues: $750,000 $600,000 Labor/Material Costs: $200,000 $150,000 Profit: $550,000 $450,000 The daily costs for the opportunity in England are broken down as follows: Labor Cost: $2.50 per light bulb Material Cost: $4.50 per light bulb Machine Cost: $1.50 per light bulb Daily fixed costs: $2,000 Over the next 10 years, the company wants to expand the amount of technology it uses in order to reduce its labor costs in the production of light bulbs. They believe that the new technology will allow them to triple the output of light bulbs daily with only a slight increase in the amount of labor hours. Labor per light bulb will decrease from the current rate of $2.50 to $1.50 per light bulb because of the increase in production. What is the average daily fixed costs to produce 1,000 light bulbs?

$2.00

A company produces and plans to sell 13,000 small, electronic devices. They will need to pay $17 for materials and labor cost for each device produced. The firm also has the following annual costs: Rent: $12,000 Utilities: $6,000 Insurance: $3,000 What is the company's expected total costs?

$242,000

Shore Lightning Inc. is the manufacturer of LED light bulbs used in stadium scoreboards around the world. They are looking into opportunities in England and Thailand. Based on their analysis, they think the two options will deliver the following annual results: England Thailand Revenues: $750,000 $600,000 Labor/Material Costs: $200,000 $150,000 Profit: $550,000 $450,000 The daily costs for the opportunity in England are broken down as follows: Labor Cost: $2.50 per light bulb Material Cost: $4.50 per light bulb Machine Cost: $1.50 per light bulb Daily fixed costs: $2,000 Over the next 10 years, the company wants to expand the amount of technology it uses in order to reduce its labor costs in the production of light bulbs. They believe that the new technology will allow them to triple the output of light bulbs daily with only a slight increase in the amount of labor hours. Labor per light bulb will decrease from the current rate of $2.50 to $1.50 per light bulb because of the increase in production. What is the total daily variable cost to produce 500 light bulbs?

$4,250

A specialty watch manufacturer has the following costs: Number of Workers 1 2 3 Number of Watches 12 30 50 Total Costs $6,000 $12,000 $15,000 What is the average cost per watch when producing 30 watches?

$400

A market for a product has only a small number of sellers and an equally small number of buyers. Buyers have trouble determining market quality. What will be the outcome of this situation?

A thin market with volatile market prices

Which measure combines the four sources of expenditures in the circular flow model?

Aggregate demand

Shore Lightning Inc. is the manufacturer of LED light bulbs used in stadium scoreboards around the world. They are looking into opportunities in England and Thailand. Based on their analysis, they think the two options will deliver the following annual results: England Thailand Revenues: $750,000 $600,000 Labor/Material Costs: $200,000 $150,000 Profit: $550,000 $450,000 The daily costs for the opportunity in England are broken down as follows: Labor Cost: $2.50 per light bulb Material Cost: $4.50 per light bulb Machine Cost: $1.50 per light bulb Daily fixed costs: $2,000 Over the next 10 years, the company wants to expand the amount of technology it uses in order to reduce its labor costs in the production of light bulbs. They believe that the new technology will allow them to triple the output of light bulbs daily with only a slight increase in the amount of labor hours. Labor per light bulb will decrease from the current rate of $2.50 to $1.50 per light bulb because of the increase in production. Which factor is important for the company to remember about costs in the long run when looking at different technologies?

All costs are variable.

A mid-sized agribusiness company in the U.S. is exploring new opportunities of expansion. It currently focuses on growing wheat, corn, and soybeans for human consumption, along with supplying feed products to farmers who raise and sell chickens. The company is exploring adding dairy products to their business line by investing in dairy farms. The U.S. government has set the price of milk that dairy farmers can charge at $1.75 per gallon. At this price, farmers are unwilling to supply enough milk to meet the demand. As part of the expansion into dairy products, the company is trying to determine the states where the dairy farms should be located. In a western state that has many dairy farms, the state minimum wage rate is $12 per hour. This wage rate is higher than the average national labor wage rate. The company wants to focus on organic dairy products because of there is increased demand in the organic market and willingness of consumers to pay more. The organic market is a challenging market for consumers since it is difficult to determine which products are truly organic and which are not. To help ease consumers' concerns, the company plans on labeling its dairy products as organic and will work with dairy farms that specialize in organic farming. During the exploration phase, the company discovered that a dairy farm in the western state had accidentally destroyed the natural habitat of a federally protected bird. The farm was mandated by the government to replant trees on 50 acres of land in hopes of reestablishing the habitat. The cost of replanting the trees resulted in an increase in the cost of producing a gallon of milk at this farm. Which strategy should the company use to help ease consumers' concerns in the organic dairy market?

Better labeling

A mid-sized agribusiness company in the U.S. is exploring new opportunities of expansion. It currently focuses on growing wheat, corn, and soybeans for human consumption, along with supplying feed products to farmers who raise and sell chickens. The company is exploring adding dairy products to their business line by investing in dairy farms. The U.S. government has set the price of milk that dairy farmers can charge at $1.75 per gallon. At this price, farmers are unwilling to supply enough milk to meet the demand. As part of the expansion into dairy products, the company is trying to determine the states where the dairy farms should be located. In a western state that has many dairy farms, the state minimum wage rate is $12 per hour. This wage rate is higher than the average national labor wage rate. The company wants to focus on organic dairy products because of there is increased demand in the organic market and willingness of consumers to pay more. The organic market is a challenging market for consumers since it is difficult to determine which products are truly organic and which are not. To help ease consumers' concerns, the company plans on labeling its dairy products as organic and will work with dairy farms that specialize in organic farming. During the exploration phase, the company discovered that a dairy farm in the western state had accidentally destroyed the natural habitat of a federally protected bird. The farm was mandated by the government to replant trees on 50 acres of land in hopes of reestablishing the habitat. The cost of replanting the trees resulted in an increase in the cost of producing a gallon of milk at this farm. How does the company anticipate that consumers will respond to the company's decision if it moves forward on its proposed labeling procedures of dairy products?

Buy more dairy products labeled as organic

Which description illustrates a monopoly's pricing strategy?

Consumer demand constrains price.

Which term describes the average price of goods and services most commonly purchased in the United States?

Consumer price index

Which form of spending contributes the greatest amount to gross domestic product (GDP) in the United States?

Consumption expenditures

An employer has agreed to give a 3% pay raise to all employees because inflation for the past year was 3%. What is the term used for this type of pay raise?

Cost of living adjustment

Many economists are worried about the potential for an increase in unemployment that would occur if there is a major recession. Which problem is causing this concern?

Cyclical unemployment

A reporter is discussing current record low unemployment, and an economist mentions that the numbers being reported leave out individuals who have stopped looking for work. Which group is being referred to by the economist?

Discouraged workers

Shore Lightning Inc. is the manufacturer of LED light bulbs used in stadium scoreboards around the world. They are looking into opportunities in England and Thailand. Based on their analysis, they think the two options will deliver the following annual results: England Thailand Revenues: $750,000 $600,000 Labor/Material Costs: $200,000 $150,000 Profit: $550,000 $450,000 The daily costs for the opportunity in England are broken down as follows: Labor Cost: $2.50 per light bulb Material Cost: $4.50 per light bulb Machine Cost: $1.50 per light bulb Daily fixed costs: $2,000 Over the next 10 years, the company wants to expand the amount of technology it uses in order to reduce its labor costs in the production of light bulbs. They believe that the new technology will allow them to triple the output of light bulbs daily with only a slight increase in the amount of labor hours. Labor per light bulb will decrease from the current rate of $2.50 to $1.50 per light bulb because of the increase in production. The firm is able to take advantage of cost-saving technologies as it expands its output and reduces labor costs from $2.50 to $1.50 per light bulb. What does this advantage represent?

Economies of scale

What are firms paying for when they make payments to households in the circular flow model?

Factors for production

The current market price for soybeans is $8 per bushel. Legislators are considering imposing a $10 price support and buying the surplus soybeans. How will this action impact soybean farmers' sales?

Farmers will sell more soybeans since the government will be buying the surplus.

The market price of a product is lower than the average total cost to produce the product. Which outcome stems from this type of market?

Firms will leave the market.

An economist is conducting a study on the number of people without work because they have left one job to look for another that is a better match for their skills. Which topic is this economist studying?

Frictional unemployment

An economist is interested in identifying individuals who may have employment but who cannot access the employment they desire. Which topic is this economist studying?

Hidden unemployment

What is the highest weighted factor in the consumer price index (CPI)?

Housing

Which statement accurately describes the impact of successful advertising in a monopolistic competitive market?

It causes the demand to increase.

How does the expanded circular flow diagram incorporate interactions with other countries?

It incorporates imports and exports.

An individual moves to a city that imposes rent control on apartment rentals. If rental controls were not imposed, the market price would be $800 per month. The rent control price is $600 per month. What is the likelihood that an individual will easily find an apartment for rent under these conditions?

It is unlikely because a shortage will persist in the market.

How will the arrival of a new company that generates high levels of pollution affect the economic environment?

It will generate negative externalities and increase social costs in the local community.

A firm has estimated the levels of production it will need in the future. It has determined that over its likely range of output, long-run average costs will decrease up to a point and afterward remain constant. Which region description is consistent with the firm's operating plans?

It will remain in the constant returns to scale range without change.

What does the circular flow diagram illustrate?

Macroeconomic payments

Retail stores operating in a country with high inflation experience added costs and must keep changing their prices to account for the effects of inflation. Which factor is being managed by these retail stores?

Menu costs

A new fast food restaurant owner recently opened a location in a town with low costs to open that type of establishment. There are many other restaurants in the town that sell a variety of food types. What type of market type is the owner entering?

Monopolistic competition

A utility company is the only electricity provider in its market. The local government allows the company to determine prices and has created regulations that make it difficult for competitors to enter the market. What type of market is this company working in?

Monopoly

A salesperson is salaried and is not evaluated based on the number of sales closed; he is evaluated on customer satisfaction. The sales manager assigns him to contact a startup business to introduce the product line and secure a sale by the end of the month. He chooses to wait until the following sales cycle to contact the business. Which behavior is the salesperson exhibiting?

Moral hazard related to performance

A new landfill was recently announced near a small city. Homeowners in the city, who were not involved in the decision to open the landfill, recognized an immediate decrease in home values following the announcement. What have the homeowners experienced?

Negative externality

Farmers are ready to sell soybeans, and the current market price is $8 per bushel. Legislators are considering imposing a $12 per bushel price floor on the soybean market. Will this action help the farmers sell more soybeans?

No, a surplus would emerge, and more soybeans will be produced than are sold.

A 22-year-old recent college graduate feels confident that she will not have to worry about unemployment as much as other age groups. The graduate believes that because she is young, she can be more versatile and that she will more easily avoid unemployment. Is this college graduate correct in this assumption?

No, because individuals in the 55+ age group have the lowest unemployment rate over time

The unskilled labor market wage rate equilibrium is $7 per hour. Legislators are considering imposing a $20 per hour minimum wage. Will this action help unskilled workers who want to work more hours?

No, since this will motivate employers to hire fewer workers for less hours.

There are a few firms providing cloud services, and these firms directly respond to each other's pricing strategies. It is expensive for other firms to enter the market. What type of market are these firms operating in?

Oligopoly

A consumer is deciding between shopping in-store or online for a personalized sweater that will require the consumer to identify size, type of image, and style of stitching desired without seeing the final product before production. All purchases are final. Which venue will present the greatest level of uncertainty for the consumer?

Online retail venue

Which statement represents an implicit cost?

Owner's time and effort

A new electronics company recently began selling an identical product to other competitors in a market that has many buyers and sellers. They entered the market because there are relatively few barriers to entry, and they know that they can easily leave. Which market structure is this company entering?

Perfectly competitive

A few major companies recently announced plans to move to a midsized city. Homeowners in that city, who are not connected to any of the new companies, recognized an immediate increase in home values. What have the homeowners experienced?

Positive externality

A mid-sized agribusiness company in the U.S. is exploring new opportunities of expansion. It currently focuses on growing wheat, corn, and soybeans for human consumption, along with supplying feed products to farmers who raise and sell chickens. The company is exploring adding dairy products to their business line by investing in dairy farms. The U.S. government has set the price of milk that dairy farmers can charge at $1.75 per gallon. At this price, farmers are unwilling to supply enough milk to meet the demand. As part of the expansion into dairy products, the company is trying to determine the states where the dairy farms should be located. In a western state that has many dairy farms, the state minimum wage rate is $12 per hour. This wage rate is higher than the average national labor wage rate. The company wants to focus on organic dairy products because of there is increased demand in the organic market and willingness of consumers to pay more. The organic market is a challenging market for consumers since it is difficult to determine which products are truly organic and which are not. To help ease consumers' concerns, the company plans on labeling its dairy products as organic and will work with dairy farms that specialize in organic farming. During the exploration phase, the company discovered that a dairy farm in the western state had accidentally destroyed the natural habitat of a federally protected bird. The farm was mandated by the government to replant trees on 50 acres of land in hopes of reestablishing the habitat. The cost of replanting the trees resulted in an increase in the cost of producing a gallon of milk at this farm. What does the $1.75 price of a gallon of milk represent?

Price ceiling

A mid-sized agribusiness company in the U.S. is exploring new opportunities of expansion. It currently focuses on growing wheat, corn, and soybeans for human consumption, along with supplying feed products to farmers who raise and sell chickens. The company is exploring adding dairy products to their business line by investing in dairy farms. The U.S. government has set the price of milk that dairy farmers can charge at $1.75 per gallon. At this price, farmers are unwilling to supply enough milk to meet the demand. As part of the expansion into dairy products, the company is trying to determine the states where the dairy farms should be located. In a western state that has many dairy farms, the state minimum wage rate is $12 per hour. This wage rate is higher than the average national labor wage rate. The company wants to focus on organic dairy products because of there is increased demand in the organic market and willingness of consumers to pay more. The organic market is a challenging market for consumers since it is difficult to determine which products are truly organic and which are not. To help ease consumers' concerns, the company plans on labeling its dairy products as organic and will work with dairy farms that specialize in organic farming. During the exploration phase, the company discovered that a dairy farm in the western state had accidentally destroyed the natural habitat of a federally protected bird. The farm was mandated by the government to replant trees on 50 acres of land in hopes of reestablishing the habitat. The cost of replanting the trees resulted in an increase in the cost of producing a gallon of milk at this farm. What does the wage rate of the western state represent?

Price floor

An economist wants to compare the standard of living between different countries. Which measure should be used for this purpose?

Real GDP per capita

Individuals living in a country experiencing hyperinflation are spending much of their time traveling back and forth to the bank so they can hold less cash to battle the effects of inflation. Which term describes what this group is experiencing?

Shoe leather costs

An economist is doing research to consider the total gains, both private and external, that result from making particular investments. What is this economist identifying?

Social benefit

A mid-sized agribusiness company in the U.S. is exploring new opportunities of expansion. It currently focuses on growing wheat, corn, and soybeans for human consumption, along with supplying feed products to farmers who raise and sell chickens. The company is exploring adding dairy products to their business line by investing in dairy farms. The U.S. government has set the price of milk that dairy farmers can charge at $1.75 per gallon. At this price, farmers are unwilling to supply enough milk to meet the demand. As part of the expansion into dairy products, the company is trying to determine the states where the dairy farms should be located. In a western state that has many dairy farms, the state minimum wage rate is $12 per hour. This wage rate is higher than the average national labor wage rate. The company wants to focus on organic dairy products because of there is increased demand in the organic market and willingness of consumers to pay more. The organic market is a challenging market for consumers since it is difficult to determine which products are truly organic and which are not. To help ease consumers' concerns, the company plans on labeling its dairy products as organic and will work with dairy farms that specialize in organic farming. During the exploration phase, the company discovered that a dairy farm in the western state had accidentally destroyed the natural habitat of a federally protected bird. The farm was mandated by the government to replant trees on 50 acres of land in hopes of reestablishing the habitat. The cost of replanting the trees resulted in an increase in the cost of producing a gallon of milk at this farm. What is the impact of the government imposing corrective action for the destruction of natural habitat on the quantity of milk sold in the market?

Supply will be reduced

Which description illustrates the nature of an oligopoly?

Tacit collusion is possible.

Which two developments have made it increasingly difficult to define markets for the purpose of determining concentration of market power?

Technology advances and globalization of markets

The Herfindahl-Hirschman Index (HHI) is calculated using the sum of the squares of the market share of each firm in an industry. Then the Federal Trade Commission (FTC) historically uses the results to decide whether there is an antitrust concern. Which statement accurately describes how the FTC determined the presence of a concern in the 1980s?

The FTC would try to halt a merger if the merger would put the HHI over 1,800.

A manufacturer is producing its product in two different plants that are located in two different countries. The main difference between the two countries is that labor cost is lower in one of the countries. Which statement is true of the lower labor cost country?

The LRAC for the plant will be vertically lower.

What are the two methods used to calculate the monopoly power of an industry?

The concentration ratio and the Herfindahl-Hirschman index

An entrepreneur is considering opening a fast food restaurant that is similar to various fast food restaurants in the area. The entrepreneur researches the other restaurants and learns that they are producing the same quantity of output. What does this suggest about the constant returns to scale range of restaurants in this industry?

The flat area of their long-run average cost curves is very small.

How should the the four-firm concentration ratio be calculated?

The market share of the four largest firms in an industry are added together.

Which description illustrates a business cycle that starts from a trough?

The output of the economy moves from a trough to an expansion, then to a peak followed by a recession until it returns to another trough.

A consumer buys a bed for $1,000. The bed is assembled in the United States, but the manufacturer used $200 worth of materials that were imported from another country. In addition, the manufacturer used $300 of materials that were bought from suppliers in the United States. How is the value of the bed counted in gross domestic product (GDP) for the United States using the expenditure approach?

The purchase price of $1,000 is counted in consumption expenditures, and $200 of the material imported is subtracted from net export expenditures.

A tire manufacturer is deciding the quantity of tires to produce over the next year. The firm is operating in a leased factory, has two years left on its lease, and has no other contractual obligations that would prevent it from altering its production technology. Which time frame should the tire manufacturer consider given this set of circumstances?

The short run since it has a fixed input in the period under consideration.

Which equation reflects total economic profit?

Total Revenue - (Explicit Cost + Implicit Cost)

Which equation reflects accounting profit?

Total Revenue - Explicit Cost

When are all costs variable costs?

When planning for the long run

A used car dealership is trying to specialize in selling exceptionally well-maintained used cars. However, the maintenance of its used cars is unverifiable to buyers. The dealership would like to convince buyers to pay a higher price than found in the market for its used cars based on the idea that they will last longer. Is it possible for the dealership to convince buyers of this fact?

Yes, if the dealership offers a low-cost service contract to overcome the asymmetric information problem