Econ Exam 2 Review

long-run supply curve

relationship between market price and quantity supplied

23. A perfectly elastic supply curve is a. horizontal. b. vertical. c. upward sloping. d. none of the above.

a

If the goal cost of producing 3 units of output is $2,127, and the total cost of producing four units of output is $3,246, the fourth unit is $_________.

1,119

Profit Formula

= (P-ATC)*Q

A firm might experience economies of scale because

managers become more specialized, enabling them to become more productive, as output expands

Isocost line

All the combinations of 2 inputs, such as capital and labor, that have the same total cost

24. On the lower part of a linear demand curve, below the midpoint, the price elasticity of demand in absolute value a. is less than 1. b. is greater than 1. c. equals to 1. d. is none of the above.

a

Marginal Cost Formula

Change in Total Cost/ Change in Quantity

Average Fixed Cost Formula

Fixed Cost/ Quantity

What is a perfectly competitive market?

Have many buyers and sellers: firms must be producing identical products: and there emus be no barriers no entry of new firms.

Profit

The difference b/w total revenue and total cost.

Average Revenue

TR/ Q of product sold.

A firm produces output using capital and labor. The firm's Marginal product of labor is 30 and its marginal product of capital is 21. Suppose the wage per unit of labor is $14 and the cost per unit of capital is $7. Is the firm minimizing the cost of production? what should the firm do, if anything to produce the same level of output at lower cost?

The firm is minimizing the cost of production and should use less capital and less labor.

Economies of scale

The situation when a firm's long-run costs fall as it increases output

22. When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand? a. 0 b. 1 c. a number between 0 and 1 d. a negative number

a

Average Variable Cost Formula

Variable Cost/ Quantity

1. Price elasticity of demand is a measure of responsiveness of the change in the quantity demanded of a good to the change a. in its price. b. in income. c. in the price of another good. d. in none of the above.

a

11. In perfect competition, a. marginal revenue, average revenue, and price are all equal. b. marginal revenue equals average revenue, but average revenue is greater than the price. c. average revenue equals price, but marginal revenue is greater than the price. d. none of the above occurs.

a

11. What happens when the quantity demanded is very responsive to changes in price? a. The percentage change in quantity demanded will be greater than the percentage change in price. b. The percentage change in quantity demanded will be less than the percentage change in price. c. The percentage change in quantity demanded will be equal to the percentage change in price. d. The percentage change in quantity demanded will be unrelated to the percentage change in price.

a

21. Along a linear demand curve, total revenue is maximized when the price elasticity of demand, in absolute value, a. equals to 1. b. is greater than 1. c. is less than 1. d. none of the above.

a

27. The price elasticity of demand for a particular brand of raisin bran is, in absolute value, a. larger than the price elasticity of demand for all breakfast cereals. b. the same as the price elasticity of demand for all breakfast cereals. c. smaller than the price elasticity of demand for all types of breakfast cereals. d. neither larger nor smaller than the price elasticity of demand for any other type of cereal.

a

28. Fill in the blanks. In general, the price elasticity of demand for a good will be _________ elastic the ___________ the share of the good in the average consumer's budget. a. less; smaller b. more; smaller c. less; larger d. unit; larger

a

3. A perfectly inelastic demand curve is a. vertical b. horizontal. c. downward sloping. d. none of the above.

a

30. market demand shifts to the right, how will a competitive firm's level of output change? a. The firm will increase its output, and its profits will increase. b. The firm will need to decrease its output and suffer losses. c. The firm will keep its output constant, but its profits will increase. d. The firm will decrease its output, which will increase its profit.

a

31. Fill in the blanks. On the lower part of a linear demand curve below the midpoint, the demand is ________ and raising the price causes total revenue to _________. a. inelastic; increase b. inelastic; decrease c. elastic; increase d. elastic; decrease

a

36. In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to ________ and the market price to________. a. increase; decrease b. decrease; increase c. increase; increase d. decrease; decrease

a

39. Which of the following terms best describes a state of the economy in which production reflects consumer preferences? a. allocative efficiency b. productive efficiency c. capitalism d. consumer equilibrium

a

40. Price elasticity of supply is measured as the percentage change in the quantity supplied of a good divided by the percentage change a. in its price. b. in its price. c. in income. d. in none of the above.

a

43. If amazon.com raises its prices by 10% and as a result the Q of books demanded on XYZ company increases by 35%, what do the consumers consider the 2 web sites to be? a. close substitutes b. close complements c. unrelated d. identical

a

46. Price elasticity of supply a. increases as the firm has longer time to respond to a price change. b. increases as the firm has less time to respond to a price change. c. is unaffected by time. d. none of the above.

a

7. If the price elasticity of demand is zero, then the demand for this good is a. perfectly inelastic with respect to price. b. perfectly elastic with respect to price. c. unit elastic with respect to price. d. none of the above.

a

9. Which of the following is true about the value of the price elasticity of demand? a. The value is always negative. b. The value is always positive. c. The value may be positive or negative depending on the value of the slope of the demand curve. d. The value is positive when the slope is negative and negative when the slope is positive.

a

expansion path

a curve that shows a firm's cost=minimizing combination of inputs for every level of output

10. If we find that the price of demand for hamburgers is -1.3 while the price of elasticity of demand for textbooks is -.6, hooch of the following can we say is true? a. The law of demand is violated in both the market for hamburgers and the market for textbooks. b. The demand for hamburgers is more elastic than the demand for textbooks. c. A 10 percent increase in the price of hamburgers will result in a 13 percent increase in the quantity of hamburgers demanded. d. Consumers like hamburgers more than they like textbooks.

b

12. If a 10 percent increase in the price of one good leads to a 10 percent reduction in the quantity demanded, then the demand for that good is a. elastic. b. unitelastic. c. inelastic. d. none of the above.

b

2. Because of the law of demand, the sign of the price elasticity of demand a. is always positive. b. is always negative. c. cannot be determined. d. is none of the above.

b

20. Which of the following would occur when calculating price elasticity between two points on a demand curve if we are not using the midpoint formula? a. The value of elasticity we would get would be the same whether we apply it to price increases or to price decreases. b. We would get a different value for price increases than for price decreases. c. The values we would get would be the same if the demand curve is downward sloping. d. The values would always coincide with the value of the slope of the demand curve, especially if the demand curve is linear.

b

24. If the demand curve for a perfectly competitive firm is above its average total cost curve, then this firm's profit is a. negative. b. positive. c. zero. d. none of the above.

b

25. The demand curve facing a perfectly competitive firm is a. perfectly inelastic. b. perfectly elastic. c. unit elastic. d. none of the above.

b

48. Fill in the blanks. The income elasticity of demand for a normal good is _____ and for an inferior good is ______. a. positive; positive b. negative; negative c. positive; negative d. none of the above

c

29. Sarah spends 2 percent of her weekly budget on chewing gum, and she spends 50 percent of her weekly budget on books. All else equal, we would expect her demand for chewing gum to be a. more elastic than her demand for books. b. less elastic than her demand for books. c. elastic. d. unitelastic.

b

31. Perfectly competitive firm is losing money in the short run, and its total revenue is less than its total variable cost. In order to minimize its losses in the short run, this firm should a. continue production. b. shut down. c. either continue production or shut down. d. do none of the above.

b

33. perfectly competitive firm will shut down in the short run if price is less than a. marginal cost. b. average variable cost. c. average revenue. d. None of the above is true.

b

38. Which of the following terms best describes how the result of the forces of competition drives the market price to the minimum average cost of the typical firm? a. allocative efficiency b. productive efficiency c. decreasing-cost industry d. competitive markdown

b

44. The price elasticity of supply always has a. a negative value. b. a positive value. c. a zero value. d. none of the above.

b

45. If the income elasticity of SUVs is greater than 1, what is the good considered? a. a necessity b. a luxury c. a substitute good d. an inferior good

b

47. What is true about quantity demanded if a good is considered a necessity? a. It is very responsive to changes in income. b. It is not very responsive to changes in income. c. It is unrelated to changes in income. d. It is always the same regardless of price changes.

b

5. A perfectly elastic demand curve is a. vertical. b. horizontal. c. downward sloping. d. none of the above.

b

6. As the price of the good increases, its price elasticity of demand, in absolute value a. decreases. b. increases. c. stays the same. d. none of the above.

b

8. The equilibrium level of output in perfect competition is where a. total revenue equals total cost. b. price equals marginal cost. c. average revenue is greater than the price. d. none of the above.

b

8. Which of the following statements about the slope and the price elasticity of demand is correct? a. The slope is calculated using percentage changes in quantity and price, whereas elasticity is calculated using simple numerical changes. b. The slope is calculated using changes in quantity and price, whereas elasticity is calculated using percentage changes. c. Both the slope and elasticity must be calculated using percentage changes. d. Neither the slope nor the value of elasticity can be calculated using simple numerical changes.

b

9. perfect competition, the long-run equilibrium happens when a. profit per unit is positive. b. profit per unit is zero. c. profit per unit is negative. d. none of the above.

b

Your company incurs a cost for machinery, which, in the short run, is fixed. What happens to this cost in the long run?

becomes a variable cost

14. If a 20 percent increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25 percent, the price elasticity of demand is a. −25. b. −0.8. c. −1.25. d. −20.

c

15. The sign of the cross-price elasticity of demand is a. positive. b. negative. c. can be either positive or negative. d. none of the above.

c

32. Profit is measured as a. total revenue minus total cost. b. profit per unit multiplied by the quantity sold. c. both a and b. d. none of the above.

c

4. Who benefits from the concept of elasticity? a. business managers b. policymakers c. both business managers and policymakers d. neither business managers nor policymakers; only economists benefit

c

40.Long-run equilibrium in perfect competition results in a. productive efficiency. b. allocative efficiency. c. both (a) and (b). d. none of the above.

c

42. If the price elasticity of demand for the iPod is -2.5, this means a. that the iPod is a normal good. b. that the iPod is an inferior good. c. that the iPod has an elastic demand with respect to price. d. none of the above.

c

50. Fill in the blanks. When demand increases, equilibrium price will rise ____________ when supply is _________ elastic. a. more; more b. less; less c. more; less d. None of the above. Supply elasticity does not affect the impact of a shift in demand on the equilibrium price.

c

Marginal Revenue

change in TR from selling one more unit.

Sunk Cost

cost that has already been paid and that connote be recovered.

13. Which of the following is true if quantity demanded is not very responsive to price? a. The percentage change in quantity demanded will be less than the percentage change in price. b. The price elasticity of demand will be less than 1 in absolute value. c. Demand is inelastic. d. All of the above are true.

d

19. What is the term given to a cost that has already been paid and cannot be recovered? a. unrecoverable cost b. variable cost c. implicit cost d. sunk cost

d

41. Fill in the blanks. An increase in the price of a complement for DVDs will lead to _________ in the quantity demanded of DVDs, so the cross-price elasticity of demand will be _________. a. an increase; positive b. an increase; negative c. a decrease; positive d. a decrease; negative

d

49. Suppose that an innovation in harvesting technology increases the supply of corn. Corn farmers will experience an increase in total revenue when a. the supply of corn is inelastic. b. the supply of corn is elastic. c. the demand for corn is inelastic. d. the demand for corn is elastic.

d

5. equilibrium level of output is where a. total revenue = TC b. MR = MC c. slope of TR equals slope of total cost d. both B&C

d

Suppose a company produces 13,000 motors per month. Is it experiencing Economies of scale, diseconomies of scale, or constant returns to scale?

diseconomies of scale

The demand curve for a good or service produced in a perfectly competitive market is ________ sloping

downward

Economic loss

firm's TR < TC

productive efficiency

goods and services are produced at the lowest possible cost

allocative efficiency

goods and services are produced up to the point where the last unit provides a marginal benefit tot consumers equal to the marginal cost of producing it.

The demand curve for the output of the perfectly competitive market is a ______ line at the market price

horizontal

Shut down point

minimum point on the firm's AVC curve.

The cost-minimizing combination of inputs depends on

technology and input prices

Long-run competitive equilibrium

the situation in which the entry and exit of firms has resulted in the typical firm breaking even.