ECON 1001 Chapter 6 Homework
When the owners of a local brewery increase their output from 4 to 6 kegs of beer per day, their total cost increases from $310 to $360 per day. This implies that the marginal cost of producing an additional keg of beer is ________.
$25 (360-310)/(6-4) = 25
If Mitch's surf shop has $30,000 in revenue each month and the total cost of running it would be $26,000, how much profit would he make monthly?
$4,000
If Marjory goes from painting 6 to 8 paintings each month, her total costs increase from $620 to $720 per month. This implies that the marginal cost of one additional painting is:
$50 (720-620)/(8-6) = 50
Consider the table on the right, which shows the total cost of producing wedding cakes at Crumby Bakery. If the market price of a wedding cake is $350, and Crumby Bakery is a price-taker, how many wedding cakes should the bakery make each day?
4 marginal benefit of making cakes is an additional $350, they should expand output to 4 cakes per day. if it produced the 5th wedding cake, the resulting marginal cost ($400) would exceed marginal benefit.
For a firm that produces jeans, which of the following is mostly likely a factor of production?
Denim; Workers; Sewing Machines
Which of the following are characteristics of perfectly competitive markets?
The market has many sellers, each of which sells only a small fraction of the total quantity sold in the market. Buyers are well informed about the prices different firms change.
profit-maximizing firm
a firm whose primary goal is to maximize the difference between its total revenues and total costs
profitable firm
a firm whose total revenue exceeds its total cost
Average variable cost is:
a firm's total cost divided by total output
Average variable cost is:
a firm's variable cost divided by total output
perfectly competitive market
a market in which no individual supplier has significant influence on the market price of the product
Total cost divided by total output is:
average total cost
Technological innovations in the production process tend to increase supply because they
decrease marginal cost
Technological innovations in the production process tend to increase supply because they _____.
decrease marginal cost
Marginal cost eventually increases because of _____.
diminishing returns
Which of the following capture the conditions under which firms will shutdown?
if the firm's revenue is less than its variable cost at all levels of output; if the price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost.
The law of diminishing returns explains why marginal costs eventually _________.
increase
If the marginal cost of producing an additional unit of a good is less than the price of the good, the firm should
increase production
If a firm is profitable, then at its profit maximizing level of output, its total revenue:
is greater than its total cost
If a firm's total revenue exceeds its total cost, then the firm ________.
is profitable
In a perfectly competitive market, the supply curve for a firm
is the portion of the marginal cost curve that lies above the average variable cost curve.
Suppose the automobile manufacturing companies in an economy use a similar set of inputs to produce cars and SUVs. If the market price of SUVs increases, which of the following is likely to happen to the supply of cars?
it will decrease
Suppose Elsa owns an ice cream shop. If she expects the price of ice cream to fall next month, then this should _____.
lead her current supply of ice cream to increase
Suppose Elsa owns an ice cream shop. If she expects the price of ice cream to fall next month, then this should ________.
lend her current supply of ice cream to increase
The period of time of sufficient length that all the firm's factors of production are variable is known as the _________.
long run
Suppose the owners of a local brewery decide to produce one additional keg of beer, the resulting increase in their total cost is the _________ of producing an additional keg.
marginal cost
Along each of a market supply curve, price measure's each sellers ________.
marginal cost of production
At each point along a market supply curve, price measures each sellers _____.
marginal cost of production
If the marginal cost of producing the 500th unit of a good is greater than the price of that good, then the firm should
not produce the 500th unit.
A firm cannot be profitable unless _____.
price is greater than average total cost for some level of output
A firm cannot be profitable unless:
price is greater than the average total cost for some level of output
As the number of suppliers in a market increases, the market supply curve will shift to the ________.
right
If input prices decrease, supply will shift _____.
rightward
If input prices decrease, the supply will shift ________.
rightward
In a perfectly competitive market, the portion of the marginal cost curve that lies above the average variable cost curve is the:
supply curve
producer surplus
the amount by which price exceeds the seller's reservation price
total cost
the sum of all payments made to the firm's fixed and variable factors of production
Marginal cost is the change in:
total cost as output moves from one level to another divided by the corresponding change in output.
average total cost
total cost divided by the quantity of output
Average cost is total cost divided by:
total output
Profit equals ________.
total revenue - total cost
Profit is equal to:
(P - ATC) * Q area of the shaded triangle on the graph
Which of the following are characteristics of perfectly competitive markets?
All firms sell the same standardized product. Firms can easily enter and exit the market.
long run
a period of time of sufficient length that all the firm's factors of production are variable
short run
a period of time sufficiently short that at least some of the firm's factors of production are fixed
law of diminishing returns
a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it; says that when some factors of production are fixed, increased production of the good eventually requires ever-larger increases in the variable factor
In the short run, a profit-maximizing firm will not produce anything if:
the firm's revenue is less than the variable cost at all levels of production
marginal cost
the increase in total cost that results from carrying out one additional unit of an activity
fixed cost
the sum of all payments made to the firm's fixed factors of production
variable cost
the sum of all payments made to the firm's variable factors of production
profit
the total revenue a firm receives from selling its product minus the total cost of producing it total revenue - total costs
A firm's fixed cost is the sum of all payments made
to the firm's fixed factors of production
Fixed cost + Variable cost =
total cost
A ________ factor of production is an input whose quantity can be altered in the short run.
variable
A firm's _____ cost is the sum of all payments the firm makes to inputs whose quantities can be altered in the short run.
variable
The sum of all payments made to the firm's variable factors of production is the firm's _____.
variable cost
The sum of all payments made to the firm's variable factors of production is the firm's ________.
variable cost
A fixed factor of production is
an input whose quantity cannot be changed in the short run
imperfectly competitive firm
aka price setter; a firm that has at least some control over the market price of its product
A factor of production is
an input used in the production of a good or service
factor of production
an input used in the production of a good or service
variable factor of production
an input whose quantity can be altered in the short run
fixed factor of production
an input whose quantity cannot be altered in the short run
