ECON 2000 Exam 2 (Long Version)

Accounting costs and economic costs differ because a) Economic costs include implicit costs and accounting costs do not b) Economic costs include explicit costs and accounting costs do not c) Accounting costs include implicit costs and economic costs do not d) Accounting costs include explicit costs and economic costs do not

A

Ceteris paribus, the law of diminishing returns states that beyond some point, the a) Marginal physical product of a factor of production diminishes as more of that factor is used. b) Output of any good increases as more of a variable input is used. c) Returns on stocks and bonds diminish with higher security prices d) Addition to total utility diminishes as more units of a good are consumed.

A

If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is a) $1.33 b) $0.75 c) $30.00 d) $300.00

A

If an additional unit of labor costs $40 and has an MPP of 50 units of output, the marginal cost is: a) $0.80

A

The most desirable rate of output for a firm is the output that a) Maximizes total profit b) Minimizes total costs c) Maximizes total revenue d) Minimizes marginal costs

A

What is the total variable cost when output is 100 units in Figure 21.2? a) $20,000 b) $200 c) $9,600 d) $296

A

When the average total cost curve is rising, the marginal cost curve will be a) Above the average total cost curve b) Below the average total cost curve c) Falling with greater output d) Below the average fixed cost curve

A

what are the extreme of elasticity a) E = infiniti, E = 0

A

when Ep = 0 a) demand is perfectly inelastic, increase in price will not affect quantity demand

A

when Ep = infiniti a) demand is perfectly elastic, an increase in price will cause quantity demand to fall to 0

A

as average product (AP) rises

AVC falls

as average product (AP) falls

AVC rises

Accounting costs and economic costs differ because a) Economics costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays b) Accounting costs exceed economic whenever any factor is not paid an explicit wage c) Accounting costs include explicit costs, and economic costs do not d) Accounting costs include implicit costs, and economic costs do not

B

The best measure of the economic cost of doing your homework is a) The tuition paid for your education plus the cost of any required textbooks b) The most valuable opportunity you give up when you do your homework c) The economic cost plus the accounting cost of doing the homework d) The amount you would have to pay to get someone else to do it

B

The marginal cost curve intersects the minimum of the curve representing a) AFC b) ATC c) MPP d) TC

B

The marginal physical product of the third unit of labor in Figure 21.1 is a) 13.3 units per day b) 12.0 units per day c) 40.0 units per day d) 4.0 units per day

B

Which of the following is most likely a fixed cost? a) The electricity used to run packaging equipment b) The material used to make jackets c) The rent for a factory d) The labor on a automotive assembly line

C

Which of the following is the slope of the production function with respect to an input? a) the average product of the input b) the input price c) the unit cost of the input d) the marginal physical product of the input

D

the ATC curve has what shape and why

U-shape, law of diminishing returns

The price signal the consumer gets in a competitive market represents

an opportunity ost

when goods are at low prices, you __________ ____________ to price changes

arent sensitive

what are determinants of elasticity

availability of substitutes, income, time

when marginal product < average product

average product falling

when marginal product > average product,

average product rising

what is price equal to in perfect competition (two things)

average revenue and marginal revenue

________ is fixed in the short run

capital

driving force behind price productions and quality improvements is _____________

competition

when Ep of demand is inelastic

consumers are not sensitive to change in price

when Ep of demand is elastic

consumers are price-sensitive

measures the response of demand for one good to a change in the percentage of the other

cross price elasticity of demand

ATC has a U-shape because of the _________ of AFC and the _________ in AVC

decline, increase

in constant returns to scale, increases in the size (scale) ____________ reduce minimum average costs

doesn't

2 firms supply the entire market

duopoly

the value of all resources used to produce a good or service; opportunity cost

economic costs

if _____________ _____________ exist in an industry, more firms will want to enter it

economic profits

low entry barriers are critical to ___________ in a competitive market

efficiency

max output of a good from the resources used in production

efficiency

in the long run, a producer will build, buy, or lease a plant that is the most __________ for the anticipated rate of output

efficient

demand for luxuries is relatively

elastic

if Ep > 1, demand is

elastic

if there is a large number of substitutes, demand is

elastic

If Ep > 1 is demand elastic, inelastic, unitary elastic? what is the relationship between price elasticity of demand and total revenue?

elastic, when price rises total revenue decreases

_________ cause the market supply curve to shift to the left, which _____________ prices

exits, stabilize

name the type of cost dollar payments, rent, contracts

explicit

when MP rises, marginal cost _____

falls

_________ costs must be paid even if there is no output

fixed

costs of production that don't change when output is altered, basic plants and equipment

fixed costs

what does a perfectly elastic demand curve look like

horizontal slope

name the type of cost value of resources being used by a firm, no direct payment

implicit

waste of resources

inefficiency

If Ep < 1, demand is

inelastic

demand for necessities is relatively

inelastic

if there is a small number of substitutes, demand is

inelastic

If Ep < 1 is demand elastic, inelastic, unitary elastic? what is the relationship between price elasticity of demand and total revenue?

inelastic, when price rises total revenue increases

there is an exact _________ relationship between AVC and AP

inverse

what can be varied in the short run

labor

demand is _________ elastic in the short run

less

in a competitive market, consumers get more of the goods they desire at ________ prices

lower

_____________ __________ plays a critical role in the production decision of a competitive firm

marginal cost

increase in total cost associated with a one unit increase in production

marginal cost

there are enough firms to ensure some competition, but not so many as to preclude some limited monopoly-type power (like fast food restaurants)

monopolistic competition

demand is ________ elastic in the long run

more

when good have a higher price, the QD is __________ ___________ to price changes

more sensetive

if Exy is ___________, the goods are complements

negative

income elasticity of demand is ______ for inferior goods

negative

are there any fixed costs in the long run

no

a handful of firms dominate (like credit card services, Visa, MasterCard, American Express)

oligopoly

if Exy is _________, the goods are substitutes

positive

income elasticity of demand is ________ for normal goods

positive

numerical measure of consumer response to a change in price

price elasticity of demand

formula for total revenue

price x quantity

what is the profit maximizing rule in the short run

produce where MR = MC

what drives entry and exit decisions

profit motive

when __________ disappear, there is no incentive to enter the industry

profits

in economies of scale, larger facilities ________ minimum average costs

reduce

in diseconomies of scale, increasing size (scale) of a plant _________ operating efficiency

reduces

investment decisions shift the market supply curve to the _________ and drive down prices

right

when more firms enter an industry the supply curve shifts to the ___

right

when MP declines, marginal cost ______

rises

a stylized representation of how costs behaves, has MC curve, ATC curve, and AVC curve

short run cost curve

if there is a low price elasticity of supply, producers have a ________ response to price changes

slow

when economic profit disappears, entry and exit ________ and the market ___________

stop, stabilizes

items in perfect competition are ______________

substitutes

the production function represents maximum ___________ ___________

technical efficiency

market value of all the resources used to produce a good or service

total cost

name the type of cost explicit costs + implicit costs

total cost

true or false accounting profit is usually greater than economic profit

true

true or false individual firms count collectively

true

true or false the MC curve is the short run supply curve for a competitive firm

true

true or false the market mechanism works best under competitive pressure

true

true or false zero-profit limit is rarely ever reached

true

true or false: there is a direct inverse relationship between marginal product and marginal cost

true

If Ep = 1, demand is

unitary elastic

If Ep = 1 is demand elastic, inelastic, unitary elastic? what is the relationship between price elasticity of demand and total revenue?

unitary elastic, when price rises total revenue stays

costs of production that change when the rate of output is altered, labor and materials

variable costs

how fast total cost rises ONLY depends on

variable costs

what does a perfectly inelastic demand curve look like

vertical slope

if there is high price elasticity of supply, producers are ___________ responsive to price changes

very

can all inputs be varied in the long run

yes

once entry and exit stop there is _______ economic profit

zero