ECO 202 Final

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers?

$120

When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is

$145

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

$220

Which of the following statements is true?

If the price of a good is raised and total revenue increases, demand is inelastic.

Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production?

In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41.

Short run output is maximized at

L3

Refer to Figure 6-1. A perfectly inelastic demand curve is shown in

Panel A.

Refer to Figure 6-10. A perfectly elastic supply curve is shown in

Panel B

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?

People measure the value of a good in terms of its purchase price.

The formula for total fixed cost is

TFC = TC - TVC.

Which of the following statements is true?

The average product of labor is at its maximum when the average product of labor equals the marginal product of labor.

The average total cost of production

equals total cost of production divided by the level of output.

Total utility is maximized in the consumption of two goods by

equating the marginal utility per dollar for each good consumed.

Marginal utility is the

extra satisfaction received from consuming one more unit of a product.

Average fixed costs of production

fall as long as output is increased.

Average fixed cost is equal to

fixed cost divided by the quantity of output produced.

An item has utility for a consumer if it

generates enjoyment or satisfaction.

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

less than minimum efficient scale

The inelastic segment of the demand curve

lies below the midpoint of the curve.

Economists assume that the goal of consumers is to

make themselves as well off as possible.

In the short run, if marginal product is at its maximum, then

marginal cost is at its minimum.

If marginal product is greater than average product, then

marginal product could either be increasing or decreasing.

Long-run cost curves are U-shaped because

of economies and diseconomies of scale.

Which of the following is a fixed cost?

payment to hire a security worker to guard the gate to the factory around the clock

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are

substitutes

All of the following cost curves are U-shaped except one. Which curve is not U-shaped?

the average fixed cost curve

The substitution effect of an increase in the price of peaches is

the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

What is the endowment effect?

the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

wants to consume more ankle socks and fewer bandanas.

Behavioral economics refers to the study of situations

where consumers and firms do not appear to be making choices that are economically rational.

Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects

work in the same direction to decrease quantity demanded.

Average variable cost can be calculated using any of the formulas below except

Δ(TC - FC)/ΔQ.

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.

10,000 picture frames

What is the average product of labor when the farm hires 5 workers?

10.8 bushels

The marginal product of the 3rd worker is

15

Refer to Figure 6-11. What is the value of the price elasticity of supply between g and h?

2

Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy?

3 cups of soup and 4 sandwiches

Diminishing marginal returns sets in when the ________ worker is hired.

3rd

Refer to Table 10-2. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?

4 cups of soup and 5 sandwiches

What is the marginal product of the 4th worker?

5 pounds

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

5 units

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

5 utility units

When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is

50

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

A wide variety of substitutes are available for the good.

Which of the following is a reason why a firm would experience diseconomies of scale?

As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.

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

Identify the curves in the diagram.

E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this?

The demand for tomatoes is price inelastic.

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price?

The more elastic the supply curve, the smaller the price increase.

Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity?

a and b only

An explicit cost is defined as

a cost that involves spending money.

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

a long-run average total cost curve

The income effect due to a price decrease will result in an increase in the quantity demanded for

a normal good.

Diminishing returns to labor set in

after L1

Minimum efficient scale is defined as the level of output at which

all economies of scale are exhausted.

A characteristic of the long run is

all inputs can be varied.

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

Sunk costs

are costs that have already been paid and cannot be recaptured in any significant way.

Curve G approaches curve F because

average fixed cost falls as output rises.

If the marginal cost curve is below the average variable cost curve, then

average variable cost is decreasing.

Which of the following is a common mistake made by consumers?

being overly optimistic about their future behavior

Demand for a luxury item, such as a yacht, is likely to be

both income elastic and price elastic.

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because

buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

We can derive the market demand curve for gold earrings

by adding horizontally the individual demand curves of each gold earring consumer.

Income elasticity measures how a good's quantity demanded responds to

change in buyers' incomes.

Marginal cost is equal to the

change in total cost divided by the change in output.

Diminishing marginal product of labor occurs when adding another unit of labor

changes output by an amount smaller than the output added by the previous unit of labor.

Which of the following products comes closest to having a perfectly inelastic demand?

cholesterol medication in genera

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

declines

If production displays increasing marginal returns, then

each new worker hired adds more to output than previous hires.

Economic costs of production differ from accounting costs in that

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.

Elegant Settings experiences

economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays

economies of scale.

Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

elastic

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

elastic

The average product of the 4th worker

is 17

A firm has successfully adopted a positive technological change when

it can produce more output using the same inputs.

If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?

it falls.

The price elasticity of an upward-sloping supply curve is always

positive

Marginal utility can be

positive, negative, or zero.

A budget constraint

refers to the limited amount of income available to consumers to spend on goods and services.

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

remain constant

Which of the following is an implicit cost of production?

rent that could have been earned on a building owned and used by the firm

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

the demand for salt is relatively inelastic.

Increases in the marginal product of labor result from

the division of labor and specialization.

The law of diminishing marginal utility states that

the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.

The substitution effect of an increase in the price of Raisin Bran refers to

the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran.

If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

the firm will be operating efficiently

Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

the income and substitution effects.

The minimum efficient scale is

the level of operation where long-run average costs are lowest.

The long-run average cost curve shows

the lowest average cost of producing every level of output in the long run.

The curve labeled "E" is

the marginal product curve.

Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore

the marginal product of the 5th worker is negative.

The production function shows

the maximum output that can be produced from each possible quantity of inputs.

If the demand for cell phone service is inelastic, then

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Total revenue is equal to

the price of a product multiplied by the number of units of the product sold.

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

the price of the product and hold everything else constant.

The more elastic the supply curve, the smaller the price increase.

the responsiveness of quantity demanded to changes in income.