ECO 215 HOMEWORK 4 & 5

Europe's population fell by 30 to 60 percent following an outbreak of bubonic plague, also known as the Black Death, in the fourteenth century. As a result, Europe's production possibilities curve would ​____________. A. bow​ inward, becoming concave to the origin. B. shift outward C. rotate along either the x​- or y​-axis. D. remain unchanged. E. shift inward

E. shift inward

Suppose there is a product that is being sold in a perfectly competitive market. If the demand for the product increases demand for the product increases​, producer surplus will __________since this change results in a higher ​price, which means there is _______ area between the supply curve and the market price for the good.

Increase; more

Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are​ price-takers. The domestic equilibrium price of a badminton racket in the United States is​ $85 and the world price is​ $100. In the above​ situation, suppose it is possible to tax the producers of a badminton racket and transfer the revenues to the domestic consumers of the racket. In this​ case, the U.S. is _________ as a whole because of trade.

better off

There are many identical firms with a simple cost​ structure: Total cost for Q​ = 0 is​ $6 and total cost for Q​ = 1 is​ $8. Each firm is incapable of producing anything​ more; in other​ words, total cost is infinite for any Q larger than 1. In the given​ scenario, the fixed cost for each firm is ​$____ In the short​ run, the equilibrium price will be ______ . If firms are free to enter and exit this​ market, the​ long-run price will be ______ .

$6; $2; $8

A decreasing production pattern where successive increases in inputs lead to a decrease in marginal product is called the Law​ of: A. Diminishing Returns. B. Variable Costs. C. Marginal Productivity. D. Specialization.

A. Diminishing Returns.

Town B is considering imposing a​ $1 tax on each hamburger​ sold; the tax is to be paid by the hamburger stands in the town. Assuming that the market for hamburgers is perfectly​ competitive, which of the following are​ true? ​(Check all that apply.​) A. It would change a hamburger​ stand's short-run​ profit-maximizing choice of the number of hamburgers to produce. B. The tax would shift a hamburger​ stand's short-run average fixed cost curve. C. The tax would shift a hamburger​ stand's marginal cost curve. D. The tax would shift a hamburger​ stand's short-run average variable cost curve.

A. It would change a hamburger​ stand's short-run​ profit-maximizing choice of the number of hamburgers to produce. C. The tax would shift a hamburger​ stand's marginal cost curve. D. The tax would shift a hamburger​ stand's short-run average variable cost curve.

All of the following could cause an increase in producer surplus​ except: A. an upward shift in the marginal cost curve. B. a shift in the market demand curve. C. a downward shift in the marginal cost curve. D. a higher equilibrium price.

A. an upward shift in the marginal cost curve.

In the long​ run, the supply curve for a perfectly competitive firm is represented by​ __________. A. the portion of the marginal cost curve above average total cost. B. the portion of the marginal cost curve above average variable cost. C. the portion of the average variable cost curve below marginal cost. D. the portion of the average variable cost curve above marginal cost.

A. the portion of the marginal cost curve above average total cost.

Therefore, the​ short-run supply curve for a perfectly competitive firm is represented by​ __________. A. the portion of the marginal cost curve above average variable cost. B. the portion of the average variable cost curve below marginal cost. C. the portion of the average variable cost curve above marginal cost. D. the portion of the marginal cost curve above average total cost.

A. the portion of the marginal cost curve above average variable cost.

The production function​ is: A. the relationship between the quantity of inputs used and the quantity of outputs produced. B. the process by which the transformation of inputs to outputs occurs. C. the purpose of any​ good, including machines and​ buildings, used for production. D. a formula for calculating the cost of production.

A. the relationship between the quantity of inputs used and the quantity of outputs produced.

For a​ firm, economies of scale occur when the __________ for the firm _______________ as the quantity produced increases.

Average total cost; decreases

How would the introduction of legal or technical barriers to entry affect the​ long-run equilibrium in a perfectly competitive​ market? A. It would make all firms in the market less​ competitive, since any artificial barrier hurts the market overall. B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. C. It would create downward pressure on​ prices, causing firms to exit the market. D. There would be no effect on the​ market, since there are no barriers to entry in perfectly competitive markets.

B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run.

Candle makers in Town B do not need a license. Town​ B, however, has passed a new minimum wage law that decreases decreases the minimum wage that candle makers in Town B pay their workers. Assume that the candle market is perfectly competitive. i. Does this lower lower minimum wage shift a candle​ maker's short-run average fixed cost​ curve? ii. Does this lower lower minimum wage shift a candle​ maker's short-run average variable cost​ curve? iii. Does this lower lower minimum wage shift a candle​ maker's short-run​ profit-maximizing choice of the number of candles to​ produce? With the lower minimum​ wage, the​ short-run average fixed cost curve____________ and the​ short-run average variable cost curve_________ .

remains unchanged; shifts down

The amount of money the firm brings in from the sale of its outputs is called ______________, while the change in total revenue associated with producing one more unit of output is called _______________ .

revenue; marginal revenue

Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are​ price-takers. The domestic equilibrium price of a badminton racket in the United States is​ $85 and the world price is​ $100. From the​ U.S.'s perspective, initially the market consists solely of U.S. buyers and sellers. If the U.S. government decides to open its economy to free​ trade, it becomes an ________ of rackets.

exporter

You read a story in the newspaper about a car company that has recently been fined five billion dollars by government regulators. The fine is for past infractions that are no longer relevant to how the firm will produce cars going forward. The story contains the statement​ "clearly, the company will now need to raise prices in order to recover this​ loss." If it is impossible for the company to pay its​ obligations, the company should ____

file for bankruptcy

When comparing the accounting profit with economic​ profit, it must be true that the accounting profit is ________________ economic profit.

greater than or equal to

The long -run supply curve in a perfectly competitive market is _______

horizontal

Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are​ price-takers. The domestic equilibrium price of a badminton racket in the United States is​ $85 and the world price is​ $100. In this​ case, the U.S. suppliers will _____ their production and the U.S. consumers will _____ their quantity demanded. This situation leads to an _______ of badminton rackets in the U.S.

increase; decrease; excess supply

The lower minimum wage _______________ the​ short-run profit-maximizing quantity of candles to produce.

increases

If firms in a perfectly competitive market are earning profits or incurring losses in the short​ run, then in the long run these profits or losses will either cause new firms to enter or existing firms to leave the market. This will result in a shift in the ________ until profits are _______ .

industry supply curve; zero

Suppose Louis Corporation could increase its profits considerably if it decided to shift from the clothing industry to the IT industry. In this​ case, the economic profits of Louis Corporation in the clothing industry are ______ .

negative

A perfectly competitive firm will choose to shut down when the ______________ intersects the marginal cost curve below the _____________ .

price (marginal revenue) ;average variable cost curve

Every candle maker in Town A must have a license. The cost of a license is the same regardless of the number of candles a business produces. Assume that the candle market is perfectly competitive. i. Does this license shift a candle​ maker's short-run average fixed cost​ curve? ii. Does this license shift a candle​ maker's short-run average variable cost​ curve? iii. Does this license shift a candle​ maker's short-run​ profit-maximizing choice of the number of candles to​ produce? With the​ license, the​ short-run average fixed cost curve_____________ and the​ short-run average variable cost curve_______________ .

shifts up; remains unchanged

In​ contrast, suppose Louis Corporation​ wouldn't be able to increase its profits if it decided to shift from the clothing industry to the IT industry. In this​ case, the economic profits of Louis Corporation in the clothing industry are _______ .

zero

Which of the following describes the​ long-run competitive market if demand were to​ increase? A. Market price​ decreases, economic profits​ decrease, short-run market supply​ decreases, long-run supply settles at minimum AVC B. Market price​ increases, economic profits​ increase, short-run market supply​ increases, long-run supply settles at minimum ATC C. Market price​ increases, economic profits​ increase, short-run market supply​ decreases, long-run supply settles at minimum AVC D. Market price​ decreases, economic profits​ decrease, short-run market supply​ increases, long-run supply settles at minimum ATC

B. Market price​ increases, economic profits​ increase, short-run market supply​ increases, long-run supply settles at minimum ATC

Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its​ profit? A. Produce until marginal cost is furthest below average total cost. B. Produce until marginal revenue equals marginal cost. C. Produce up to the point where price equals average total cost. D. All of the above.

B. Produce until marginal revenue equals marginal cost

Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are​ price-takers. The domestic equilibrium price of a badminton racket in the United States is​ $85 and the world price is​ $100. Based on the above​ scenario, which of the following statements regarding winners and losers from free trade is​ true? ​(Check all that apply​.) A. The U.S. producers are worse off because they are selling fewer badminton rackets at a lower price per unit. B. The U.S. producers are better off because they are selling more badminton rackets at a higher price per unit. C. The U.S. buyers are better off because they are purchasing more badminton rackets at a lower price per unit. D. The U.S. buyers are worse off because they are purchasing fewer badminton rackets at a higher price per unit.

B. The U.S. producers are better off because they are selling more badminton rackets at a higher price per unit. D. The U.S. buyers are worse off because they are purchasing fewer badminton rackets at a higher price per unit.

Town A is considering imposing a​ lump-sum tax of​ $300 on each hamburger stand in the town. Assuming that the market for hamburgers is perfectly​ competitive, which of the following would​ occur? A. The tax would shift a hamburger​ stand's marginal cost curve. B. The tax would shift a hamburger​ stand's short-run average fixed cost curve. C. The tax would shift a hamburger​ stand's short-run average variable cost curve. D. It would change a hamburger​ stand's short-run​ profit-maximizing choice of the number of hamburgers to produce.

B. The tax would shift a hamburger​ stand's short-run average fixed cost curve.

The difference between accounting profits and economic profits​ is: A. goodwill. B. implicit costs. C. explicit costs. D. income taxes

B. implicit costs.

If it costs a firm ​$3,000 to produce 400 shirts and ​$6,500 to produce 900 ​shirts, then: A. the firm is experiencing constant returns to scale. B. the firm is experiencing economies of scale. C. the firm is experiencing diseconomies of scale. D. the firm is experiencing​ long-run efficiency problems.

B. the firm is experiencing economies of scale.

Suppose one firm accounts for 55 percent of the global market share for a​ product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and​ sellers, is this market likely to be​ competitive? A. ​Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. B. ​No, even though there are many firms in the​ market, there is one firm large enough to influence the market price. C. ​Yes, a competitive market is characterized by having many​ firms, regardless of size. D. ​No, even with such a large number of buyers and​ sellers, there must be barriers to entry for this market to stay competitive.

B. ​No, even though there are many firms in the​ market, there is one firm large enough to influence the market price.

Is it possible for accounting profit to be positive and economic profit to be​ negative? A. ​No, economic profit and accounting profit will always end up being the same. B. ​Yes, this could occur if explicit costs were modest and implicit costs were high C. ​Yes, this could occur if implicit costs were modest and explicit costs were high. D. ​No, economic profit must always be larger than accounting profit.

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

What is the difference between accounting profit and economic​ profit? A. Accounting profit subtracts both explicit and implicit costs from total​ revenue, while economic profit only subtracts explicit costs. B. Economic profit only subtracts implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. C. Economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs. D. Accounting profit only subtracts implicit costs from total​ revenue, while economic profit only subtracts explicit costs.

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

Under which of the following examples is it likely that the accounting profit is positive and the economic profit is​ negative? A. Using a store in the mall to sell clothes instead of shoes B. Opening a bank branch near a university campus C. If you open an amusement park in the middle of New York City D. Such a​ scenario, where accounting cost is positive and economic profit is​ negative, is not possible.

C. If you open an amusement park in the middle of New York City

Salmon fishing in Alaska is a seasonal​ business; May through September is the best time to bait salmon and halibut. Toland​ Fisheries, a small commercial​ fishery, recorded its highest ever catch last year. They started this​ year's fishing season with the same number of workers and equipment. With the new season also starting​ well, Toland has increased hiring substantially.​ However, the fishery did not make any additional investment in trawlers and other fishing equipment. Other things remaining​ unchanged, what is likely to happen to the marginal product of each new worker in the short​ run? A. It will be the same as the previous workers​ hired, meaning each additional worker will have the same marginal product of labor as the previous one hired. B. It will be increasing at an increasing​ rate, meaning each additional worker will have a higher marginal product of labor than the previous one hired. C. It will be increasing at a decreasing​ rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired. D. It will change​ cyclically, meaning that it will cycle up and down as more workers are hired.

C. It will be increasing at a decreasing​ rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.

Assume that the market for chocolates is perfectly competitive. Which of the following statements would be true in this​ case? A. Terry uses soy milk for producing his​ chocolates, while Donna uses almond milk for producing hers. B. ​Jessica, a chocolate​ seller, sometimes sets her price lower or higher than the price at which other sellers sell their chocolates. C. Jill starts to produce chocolates​ today, but the addition of her supply into the market does not decrease the market price. D. Pam wants to produce chocolates but she is unable to as Roy controls all the cocoa farms in the region.

C. Jill starts to produce chocolates​ today, but the addition of her supply into the market does not decrease the market price.

Which of the following is not a source of a​ country's comparative​ advantage? A. Climate B. Relative abundance of labor and capital C. Quotas D. Natural resources

C. Quotas

A firm is producing goods in a market where the market price is less than the​ firm's average total cost but greater than its average variable cost. At this point the firm​ should: A. shutdown production. B. decrease production. C. continue to operate at a loss. D. increase price.

C. continue to operate at a loss.

In the long​ run, if Toland Fisheries would like to increase the productivity of its​ workers, it will need to​ ____________. A. charge less for its services. B. hire more workers. C. increase its amount of capital and equipment. D. charge more for its services

C. increase its amount of capital and equipment.

The​ long-run average total cost curve is​ __________ and is found by using the​ ___________. A. ​upward-sloping; minimum point across all possible ATC curves for a given quantity. B. ​upward-sloping; maximum points along the MC curve at various marginal revenues. C. ​U-shaped; minimum point across all possible ATC curves for a given quantity. D. ​U-shaped; maximum points along the MC curve at various marginal revenues.

C. ​U-shaped; minimum point across all possible ATC curves for a given quantity.

In a perfectly competitive​ market, all of the following statements are true​ except: A. Marginal revenue is the change in total revenue associated with producing one more unit of output. B. The marginal revenue curve is the same as the demand curve facing sellers. C. Marginal revenue is the same as price. D. Marginal revenue is equal to price times quantity.

D. Marginal revenue is equal to price times quantity.

In the long​ run, which of the following factors of production is fixed for a​ firm? A. Capital. B. Labor. C. Technology. D. None of the above.

D. None of the above.

In which of the following scenarios would a country export a​ good? A. The world demand for the good is lower than the domestic demand. B. The world price for the good is below the domestic price. C. The domestic demand for the good is lower than the domestic supply. D. The domestic price for the good is below the world price.

D. The domestic price for the good is below the world price.

Which of the following equations calculates the profits of a​ firm? A. Total costs −Fixed costs B. Total revenues​ + Total costs C. Total revenues −Fixed costs D. Total revenues- Total costs

D. Total revenues- Total costs

According to the principle of comparative​ advantage, both parties will engage in a trade if the trading​ price: A. is higher than the​ seller's cost to produce. B. is below the market price. C. is lower than the​ buyer's cost to produce. D. lies between their opportunity costs.

D. lies between their opportunity costs.

The long-run supply curve in a perfectly competitive market states that​ _____. A. both the long-run quantity and the equilibrium price increase B. both the long-run quantity and the equilibrium price decrease C. the long-run quantity remains the same while the equilibrium price varies D. the long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost

D. the long -run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost