Ch. 4, 10, 11, & 12 Exam
Which of the following statements best describes the concept of consumer surplus?
"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket."
SCENARIO 7.1: You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return. Your economic profit was _____
$0
Figure 4.3 An example of an effective price ceiling would be government setting the price of pencils at
$0.40
Table 8.4 If David produces four figs, David's average total costs are:
$100
Table 8.4 If David produces three figs, David's total variable costs are:
$240
SCENARIO 7.1: You own and are the only employee of a company that writes computer software that gamblers use to collect sports data. Last year your total revenue was $90,000. Your costs for equipment, rent, and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a $40,000 a year return. Your accounting profit last year was _______
$40,000
Characteristics of indifference curves
-Indifference curves cannot intersect -The slope of an indifference curve is negative -Indifference curves are usually bowed in, or convex
perfect competition is characterized by
-homogeneous products -sellers are price takers -a horizontal demand curve for individual sellers
Characteristics of a perfectly competitive market structure
-there are no restrictions to entry by new firms -there are a very large number of firms that are small compared to the market -all firms sell identical products
A perfect competitive market meets all of the following conditions: ...
1) many buyers & sellers 2) all firms selling identical products 3) no barriers to new firms entering the market
Figure 6.8 The marginal utility of the second movie rental is
10
Figure 12.4 If the market price is $30, the firm's profit-maximizing output level is
180
If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is
2 chairs
Figure 4.2 What area represents the increase in producer surplus when the market price rises from P1 to P2?
A + B
Which of the following is an example of economies of scale?
A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially
Figure 4.6 What area represents the portion of consumer surplus that has been transferred to producer surplus as a result of the price floor?
B
Figure 10.5 Which of the following statements is true?
Bundles r and w are not affordable
Figure 4.6 What area represents the deadweight loss after the imposition of the price floor?
C + D
Which of the following statements explains the difference between diminishing returns and diseconomies of scale?
Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run
Jason, a high school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?
If Jason raises his price he would lose all his customers
What is an indifference curve?
It is a curve that shows the combinations of consumption bundles that gives the consumer the same utility
Which of the following is not a characteristic of indifference curves?
The closer to the origin, the greater the utility level
the period of time during which at least one of a firm's inputs is fixed
short run
Which of the following is explained by the law of diminishing marginal utility?
The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola.
Which of the following is not a characteristic of a perfectly competitive market structure?
There are restrictions on exit of firms
Which of the following statements is true? (about costs)
Total cost = fixed cost + variable cost
Figure 12.4 If the market price is $30, should the firm represented in the diagram continue to stay in business?
Yes, because it is covering part of its fixed cost
A market that meets all of the following conditions: 1) many buyers & sellers 2) all firms selling identical products 3) no barriers to new firms entering the market
a perfect competitive market
Where is price floor?
above the equilibrium
Where is surplus?
above the equilibrium
Where is consumer surplus?
above the market price or equilibrium & under the demand curve
A characteristic of the long run is
all inputs can be varied
The total of consumer plus producer surplus is greatest
at the market equilibrium
Figure 8.6 The vertical distance AB is Outdoor Equipment's
average fixed cost
afc =
average fixed cost = fixed cost/quantity
atc =
average total cost = total cost/quantity or average total cost = average fixed cost + average variable cost
avc =
average variable cost = variable cost/quantity
Where is price ceiling?
below the equilibrium
Where is shortage?
below the equilibrium
Where is producer surplus?
below the market price of equilibrium & above the supply curve
If the price of muffins, a normal good you enjoy, rises
both the income and substitution effects lead you to buy fewer muffins
the limited amount of income available to consumers to spend on goods and services
budget constraint
Suppose the consumer's income increases while the prices of the goods remain constant. Then the
budget constraint shifts outward parallel to the original budget constraint
mc =
change in total cost/change in quantity
the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays
consumer surplus
the reduction in economic surplus resulting from a market not being in competitive equilibrium
deadweight loss
the situation in which a firm's long run average costs rise as the firm increases output
diseconomies of scale
the situation when a firm's long-run average costs fall as it increases the quantity of output it produces
economies of scale
The average total cost of production
equals total cost of production divided by the level of output
at quantity = 0,...
everything is 0 except for fc & tc @ quantity = 0, fc = tc
a cost that involves spending money
explicit cost
costs that remain constant as output changes
fixed cost
Total cost =
fixed cost + variable cost
fc =
fixed costs = the same for every quantity
Perfect competition is characterized by all of the following except
heavy advertising by individual sellers
In a "black market"
illegal trading at market prices take place
______ are likely a fixed cost of a firm
lease payments for office space
the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant
long run
the change in a firm's total cost from producing one more unit of a good or service
marginal cost
Figure 8.6 Curve 1 is Outdoor Equipment's
marginal cost curve
Figure 12-10 The perfectly competitive firm's short0run supply curve is its
marginal cost curve from b and above
the change in total utility a person receives from consuming one additional unit of a good or service
marginal utility
at quantity = 1,...
mc = vc
Jon is consuming X and Y so that he is spending his entire income and MUx/Px=8 and MUy/Py=4. To maximize utility, he should consume
more X and less Y
a buyer or seller that is unable to affect the market price
price takers
the difference between the lowest price a firm is willing to accept for a good or service and the price it actually receives
producer surplus
economic profit =
revenues - all costs (even those that don't involve spending money)
accounting profit =
revenues - explicit costs (just those that involve spending money)
Figure 10.5 The consumer can afford consumption bundles
s, v, t and u
The processes a firm uses to turn inputs into outputs of goods and services is called
technology
Figure 11.11 For output rates greater than 20,000 picture frames per month
the firm will experience diseconomies of scale
Diseconomies of scale apply only to
the long run
Figure 11.2 The curve labeled "E" is
the marginal product curve
In perfect competition
the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic
Figure 10.9 The change in the budget constraint from BC1 to BC2 implies
the price of DVDs has increased and the price of CDs has decreased
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
law of diminishing returns
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
Diminishing returns apply only to
the short run
the cost of all of the inputs a firm uses in production
total cost
tc =
total cost = fixed cost + variable cost
Figure 6.13 If Arthur moves from indifference curve 1 to indifference curve 2, then Arthur's
total utility increases
The satisfaction a person receives from consuming goods and services is called
utility
costs that change as output changes
variable cost
Figure 8.6 Outdoor Equipment's average variable costs are minimized at the output level
where Curves 1 and 2 intersect
If, when you consume another piece of candy, your marginal utility is zero, then
you have maximized your total utility from consuming candy