econ ch.13 and 14

firms producing 20 units with average total cost of $25 and marginal cost of $15. if it were to increase production to 21 units, what will occur?

average total cost will decrease

variable cost divided by the quantity of output is

average variable cost

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

exactly $2.50

assume firm in competitive market is producing Q=1,000 units of output. at Q=1,000 firms marginal cost is $15 and its average total cost is $11. firms sells output for $12 per unit at Q=999, firms profit equals

$1,003

C wants to start business making candles. can produce candle factory that cost $400,000. C currently has $500,000 in bank earning 3% interest a year. if C purchases factory with his own money, what is annual implicit opportunity cost of purchasing the factory

$12,000

farmer plants no seeds and gets no harvest. if he plants 1 bag of seeds, he gets 5 bushes of wheat. if he plants 2 bags of seeds, he gets 9 bushes of wheat. if he plants 3 bags of seeds, gets 12 bushes of wheat. bag of seeds cost $120 and seeds are only cost. what is farmer marginal cost of producing 9 units of output (using 2 bags of seeds)

$30

X opens lemonade stand for 2 hours. he spends $10 for ingredients and sells $60 worth of lemonade. in same 2 hours, he could have mowed neighbor's lawn for $40. X has accounting profit of ____ and econ profit of ____

$50 , $10

suppose for particular firm the only variable input into production process is labor and that output equals 0 when no workers are hired. also suppose when firm hires 2 workers, total cost of production is $100. when firm hires 3 workers total cost of production is $120. also assume that variable cost per unit of labor is same regardless of number of units of labor hired. what is firms fixed cost

$60

in long run, firm will enter competitive industry if

-firm can earn econ profit -total revenue exceeds total cost -price exceeds average total cost

what describes a firms profit-max decision rule

-if marginal revenue is less than marginal cost, firm should decrease its output -if marginal revenue is greater than marginal cost, firm should increase its output -if marginal revenue equals marginal cost, firm should continue producing current level output

marginal cost curve crosses the average total cost curve at

-the efficient scale -the point where marginal cost curve is rising -minimum point on average total cost curve

a seller in a competitive market

-will loose all consumers if HE raises price -considers markets to be "take it or leave it" price -can sell all he wants at going price, so he has little reason to charge less

If Cathy's Coffee Emporium sells its product in a competitive market, then

Cathy's Coffee Emporium's total revenue must be proportional to its quantity of output.

you purchase $30 nonrefundable ticket to play. 10 mins in you realize the show isnt good and place $10 value on seeing rest of it. alternatively you could go home and watch tv or read book. you put $8 value on tv and $12 value on reading book. you should

Go home and read a book

The firm will make the most profits if it produces the quantity of output at which

marginal revenue equals marginal cost

assuming implicit cost are positive

accounting profit is greater than econ profit

for individual firm operating in a competitive market, marginal revenue equals

average revenue and price for all levels of output

The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?

average total cost and average fixed cost

what is a characteristic of a competitive market

buyers and sells are price takers

in long run Irene's ice cream parlor incurs total cost of $2,500 when output is 1250 and $4,000 when output is 1500 units. Irene's exhibits

diseconomies of scale

in long run firm A incurs total cost of $1,050 when output is 30 units and $1,200 when output is 40 units. firm A exhibits

economies of scale because average total cost is falling as output rises

if high level of production allows workers to specialize in particular tasks, a firm will likely exhibit____ of scale and ____ average total cost

economies, falling

only for competitive markets does average revenue

equal marginal revenue

In a competitive market, the actions of any single buyer or seller will

have negligable impact on market price

what best reflects price-taking firms

if firm were to change more than the going price, it will sell none of its good

entry of new firms into competitive markets will

increase market supply and decrease market price

suppose "doggie day care" firm uses only 2 inputs: hourly workers (labor) and a building (capital). in short run, the firm most likely considers

labor- variable cost capital- fixed cost

Jan started small lemonade stand business last month. variable cost for Jan's lemonade stand now includes the cost of

lemons and sugar

diseconomies of scale occurs when

long run average total cost rises as output increases

firm is producing 1,000 units at total cost of $5,000. if it were to increase production to 1,001, its total cost would rise to $5,008. what does this tell you about the firm

marginal cost is $8 average total cost is $5

diminishing marginal product suggests that

marginal cost is upward sloping

Max sells maps in competitive industry. Max hires business consultant to analyze his companies financial records. consultant recommends Max increases production. Consultant must have concluded that Max's

marginal revenue exceeds his marginal cost

When new entrants into a competitive market have higher costs than existing firms,

market price will rise

what industry is least likely to exhibit characteristic of free entry

municipal water and sewer

Bill operates boat rental business in competitive market. he owns 10 boats and pays $1,000 per month on loan he took out to buy them. he rents each boat for $200 per month. the variable for for each boat rental is $50. in off season, Bill should

operate his business as long as he rents at least 1 boat per month

diminishing marginal product explains why, as firms output increases

production function gets flatter, while total cost curve gets steeper

the marginal product of an input in the production process is the increase in

quantity of output obtained from an additional unit of that output

when marginal cost is greater than average cost, average cost is

rising

suppose that a given firm experiences decreasing marginal product of labor with each additional worker regardless of current output level. average variable cost will be

rising at all points

Pete owns shoe-shine business. what will be his financial statement

shoe polish and rent on shoe stand

in market with 1,000 identical firms, short run market supply is the

sum of quantities supplied by each of the 1,000 individual firms at each price

When price is greater than marginal cost for a firm in a competitive market,

there are opportunities to increase profit by increasing production

If the profit-maximizing quantity of production for a competitive firm occurs at a point where the firm's average total cost of production is falling as production increases, then the firm

will have econ profit less than 0 at profit-max quantity