Econ final review test 2-4

Consider a piano-making firm that has enough resources to produce up to 4 pianos. Suppose it costs that firm $1000 to make just one piano; $2000 to make 2 pianos; $4000 to make 3 pianos; $7000 to make 4 pianos. How many pianos will the firm make if the market price for pianos is $1500?

2 pianos.

Consider the following scenario: A increase in the average price of the Toyota Camery from $30,000 to $35,000 resulted in a decrease in quantity demanded for that car from 3.0 million to 2.0 million. What is the absolute value of the price elasticity of demand for this car?

2.60.

Julie is the owner/operator of a massage parlor in Carmel. Last year she earned $400,000 in total revenue. Her explicit costs were $200,000. During the year she received offers to work for other massage parlors. One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year. Julie's accounting profit is equal to:

200,000

If the price for airline tickets between Indianapolis and Chicago increases by 5 percent and the quantity demanded for the flights between these two cities falls by 15 percent, then the price elasticity of demand in absolute value is:

3

Answer this question based on the table above. Assume that the product price is $4 per unit and that the hourly wage for workers is $12. Neither price nor wage changes with output. In Table above, how many workers should be hired?

5

In your opinion, which of the following examples best describes a real-world situation that is the result of a problem known as "excess capacity?"

A retail auto battery store that orders too much inventory.

Economists believe that accounting costs differ from the economic costs for the following reason

Accounting costs include actual dollar payments for expenses, while economic costs include the opportunity costs of all kinds of resources.

The demand with respect to which of the following examples is most likely price elastic?

American Airline travel ticket in the long run.

When asked "who ends up paying for cleaning the environment", the economists answer that costs of pollution control will:

Be distributed between the producer and the consumer.

Suppose China can produce either 600 telephones or 400 DVD players, and Japan can produce either 400 telephones or 200 DVD players. Implicitly, China has

Both an absolute and a comparative advantage in DVD players.

Unlike competitive market structure, a monopolistically competitive firm has some market power, which means it can raise the price it charges, only to a certain degree, without fear of losing many customers because of:

Brand loyalty that customers might develop for the products produced by this market.

Assume the apple market is competitive. If citizens want wages and the number of available jobs for apple pickers to increase, the best strategy would be to

Buy more apples.

Assume a profit-maximizing corn farmer produces 1,000,000 bushels of corn with marginal cost = $2.00, and sells each bushel for $3.00, then the farmer:

Can increase its profit by increasing output.

Ceteris paribus, Sellers are expected to make more money if they could price discriminate,because:

Charging different customers different prices, based on their willingness to pay, can increase revenues without increasing costs.

Which of the following statements best identifies the concept known as "product differentiation" in monopolistically competitive industry?

Coffee from Starbucks and Caribou differ only in their labels, but consumers pay about $1.00 more for the label they recognize.

Assume two satellite radio providers (XM Satellite and Sirius Satellite) merge, establishing a single satellite radio company in the country. Under the terms of the deal, both XM Satellite and Sirius Satellite agree not to raise prices for the next few years. Why is it necessary for this merger not to raise the price for a few years?

Compared to pre-merging condition, merging restricts output and charges higher prices.

In your opinion, why would a competitive market structure be better for the wellbeing of a society than a monopoly market?

Competitive market produces more goods at a lower price than monopoly market, ceteris paribus.

Vibha used to work at the local Starbucks for $20,000 per year but quit to start her own financial management firm. To buy the necessary equipment, she withdrew $50,000 from her inheritance (which paid 6 percent interest). Last year she paid $100,000 in wages to her office workers and $3,000 per month rent. The total annual revenue for Vibha's financial management firm was $300,000. She asked her mom the accountant, and her dad the economist to calculate her annual profit for her.

Dad says her profit is $141,000 and Mom says her profit is $164,000.

Assume there are two polluting firms in Indianapolis. Firm A, which is big, finds it very expensive to reduce its sulfur dioxide emissions, while Firm B, which is small, finds it very cheap to reduce its sulfur dioxide emissions. If a program of tradable pollution permits was enacted, we would most likely expect:

Firm B sell its permit to pollute to firm A.

Moe's Burger shop has combined fixed and variable costs (or total costs) of $3,500 a month when it is NOT producing any burgers. This means that:

Fixed costs for Moe's Burger shop are $3,500 per month.

Let's assume the price of a cup of green tea rises by 10 percent and, as a result, the sales of a cup of black coffee go up by 20 percent. We can conclude that:

Green tea and black coffee are substitute goods because the cross-price elasticity is +2.

A country with a comparative advantage in producing computer chips

Has a lower opportunity cost of producing computer chips than its trading partners.

Which of the following explains why a single corn farmer in Martinsville, Indiana is not able to change the price of corn in the country?

His corn production represents such a small portion of the total corn produced in the country.

The application of the law of diminishing returns depends on whether the number of resources is being kept fixed or not. In your opinion, which of the following is the best explanation why the law of diminishing returns applies only in the short run?

In the long run, firms can increase the availability of space and equipment to keep up with the increase in variable inputs.

If the demand for hair gel increases, the effect on the hair gel manufacturing job market will be to

Increase the demand for labor and increase equilibrium wages.

Suppose the production of 12 tons of copper in the United States requires the same amount of resources as the production of 3 tons of aluminum. In Mexico, 12 tons of copper requires the same amount of resources as the production of 2 tons of aluminum. Implicitly

Mexico has a comparative advantage in producing copper.

Assume a chemical-producing company is located just upstream from an electric power plant in Indianapolis. In an attempt to save money, the chemical-producing firm begins dumping its waste into the stream. This causes increased costs for the power plant, which uses water from the stream to cool its turbines. From society's viewpoint, the chemicalproducer's pollution causes an:

Overproduction of chemicals but an underproduction of electric power.

When Calvin Klein company is producing a level of output at which MC is greater than the price per pair of pants, from society's standpoint the Calvin Klein company is producing too:

Place filler not sure

Which of the following statements is true about a firm in a monopolistically competitive industry?

Place filler not sure

Herbert Simon, the owner of the Indiana Pacers basketball conducted a consumer survey that indicates that the price elasticity of demand for his team is 0.95. You would advise Mr. Simon to:

Raise his price to increase revenue.

If the firm shown in this figure produces 320 units, then:

Social costs exceed private costs at this rate of output.

Let's assume that in a competitive market, in the short run, firms are currently earning economic losses. Which of the following should be expected as the industry moves to long-run equilibrium, ceteris paribus?

Some firms will leave, and prices will go up.

When the price of the Folgers "100% Colombian" coffee increased in the U.S. last month, it caused the demand for Folgers "Classic Roast" coffee to increase. "100% Colombian" and "Classic Roast" are therefore:

Substitutes for one another.

An individual corn farmer will shut down his corn production when:

The Price per bushel of corn falls below AVC. (average variable cost)

If the MPP of an additional unit of labor is 3 units per hour, product price is constant at $8 per unit, and the wage rate is $26 per hour, then

The additional unit of labor should not be employed because it costs more than it is worth. not sure

When consumers pay less than they are willing to pay for a concert, we say they have obtained consumer surplus. The concept of total consumer surplus can be shown on a graph as:

The area under the demand curve and above the actual price for that concert.

Unlike a monopoly market, for a competitive market in the long run,

The existence of economic profits induces firms to enter until profits are "normal profits."

Which of the following is likely to occur if government breaks an existing monopoly and allows a couple of competitors, producing similar goods, to enter the market?

The market price of the product will fall.

One way to explain why the demand curve slopes downward is through the existence of the law of diminishing marginal utility. This law means:

We are willing to pay a higher price when marginal utility is high.

The United States is capable of producing many goods and services that it imports, but it does not because

We can import those goods at a lower opportunity cost than if we make them ourselves.

You are willing to pay $800 for Galaxy 22+ cell phone that you really like, but the actual price is $1,100. This means:

You will not buy the Phone

Ceteris paribus, if income increases and as a result, the demand for children falls (Evidence shows that richer people as well as richer countries, on average, tend to have fewer children compared to poorer people and poorer nations), and the demand for automobiles rises, then:

children are considered as "inferior goods" and automobile as "normal goods".

Heather will work fewer hours if her salary increases. For Heather, the ________ effect must outweigh the ________ effect.

income; utility

Suppose Canada can produce either 300 tons of paper or 200 HDTVs, and India can produce either 200 tons of paper or 100 HDTVs. The terms of trade between the two countries will lie between

1/2 and 2/3 of an HDTV per ton of paper.

When the owner of a movie theater is selling the same ticket to an adult at a higher price than to a child under the age of 12, that is called price discrimination. This seller is price discriminating because:

He is trying to charge a price that is the maximum price the adult and the child, each, is willing to pay.

Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Which of the following groups would be worse off if these countries specialize and trade?

Mexican coffee producers.

Refer to Figure above, for a perfectly competitive firm, to answer the below question. Given this information, this firm should shut down at any price below:

Place filler not sure

Suppose a corn farmer in a perfectly competitive market is currently experiencing zero economic profit. To make profit, the farmer decides to spend money on advertising for his corn. The most likely short-run result of this advertising campaign, ceteris paribus, would be:

Place filler not sure

You are the proud owner of an ice cream parlor in Indianapolis. You sell only vanilla ice cream. If you are interested to increase total revenue and the price elasticity of demand for your ice cream is less than 1, you should:

Raise the price of your ice cream.

Economists make a distinction between short run and long run costs. Which of the following is likely to be a variable cost in the long run?

Rent, wages, costs of raw materials and all other costs are variable in the long run.

Because of the law of diminishing returns, as additional workers are hired, total output

Rises at a diminishing rate initially and eventually falls.

If the equilibrium price in a perfectly competitive market for corn is $2.00 per bushel, then a single farmer in this market can:

Sell additional bushels of corn at $2.00 per bushel.

Based on the information in Table above, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. From the information in Table above, it is clear that

The United States has an absolute advantage in both goods.

It is never free to remove pollution from air or water. In economics, the costs of environmental protection is measured by:

The opportunity cost of resources used to protect the environment.

Jim used to work as a bartender for $45,000 per year in a local bar but quit to start his own bar. To buy the necessary equipments, he withdrew $100,000 from his money market account (which paid 4 percent interest in a year). Last year he paid $75,000 for ingredientsand $1,000 per month rent but had revenue of $250,000. He asked his dad, the accountant, and his mom, the economist, to calculate the costs of his business for him.

Dad says his cost is $87,000 and Mom says his cost is $136,000.

If you are 30 years old and your income rises by 10 percent and your quantity demanded for dining out rises by 15 percent, then for you:

Dining out is a normal good, and the income elasticity is +1.5.

When a country has a lower opportunity cost in producing a good than any other country,

It has favorable terms of trade in producing the good. not sure yet

Butler university in Indianapolis has increased its tuition by 6 percent for 2023, and as a result the enrollment of students decreased by 3 percent in the spring semester. From this we may conclude that the absolute value of the price elasticity of demand for the students in

Less than 1.

There are a few factors that contribute to the existence of a monopoly market. Which of the following factors does not contribute to a firm maintaining a monopoly?

The product produced by the firm is not unique. You may be able to find close substitutes.

If there is an increase in immigration into a specific labor market, then

The supply of labor shifts rightward, and the equilibrium wage will fall.

If the price of Bob's Red Mill oats rises by 15 percent and quantity demanded falls by 10 percent, we can predict that:

The total revenue for Bob's Red Mill company will increase.

Which of the following is not consistent with a minimum wage?

There will be no unemployment.

Which of the following statements about a firm in monopolistic competition is NOT true.

Unlike firms in competitive market, It can earn economic profits in the long run.

If you are invited to an event where you can eat at no charge to you (Price is zero), and assuming that you are a rational person, you should eat:

Until the marginal utility of the last bite you eat becomes zero.

When you buy a product, the price you are willing to pay for that product may be different than the price the seller is asking. This gives rise to the concept of consumer surplus. Which of the following examples best captures the concept of consumer surplus?

"I was willing to pay $25.00 for a pair of gloves, but I purchased them for $18.00."

Suppose a swimming pool contractor, who is a monopolist, builds 20 swimming pools per month for $10,000 each. To increase sales to 21 swimming pools, the contractor must lower the price of swimming pools to $9,600. The marginal revenue of the 21st swimming pool is:

$1,600.

In the table above, the number of labor and their respective marginal physical products, in a local taco bell restaurant are given. With respect to which unit of labor in this fast-food restaurant do diminishing marginal returns first appear?

0 - 0 1 - 15 2 - 35 3 - 45 4 - 52 the answer is the third unit of labor because it increases but at a low rate

Unlike small firms, a large firm that has economies of scale will:

Be able to produce at a lower average total cost (ATC), through expanding its production.

Let's assume that in a competitive market for wheat, the price per bushel of wheat is equal to the minimum point of the firm's ATC curve. The firm can earn economic profits by:

Decreasing production costs ATC stands for average total cost curve

If the price of the output produced by a particular type of labor decreases, which of the following shifts should occur in the labor market for the particular type of labor?

Demand for labor should shift to the left.

When tariffs are imposed, the losers include

Domestic consumers and foreign producers.

Marginal physical product diminishes as additional workers are hired because

Each worker has an increasingly smaller amount of fixed factors with which to work.

Refer to Figure above to answer below question. If the price charged by this firm is set at the output level Q4, where MC = D, Then this so-called "marginal cost pricing" will result in:

Economic losses.

Refer to Figure above, for a perfectly competitive firm, to answer below question If the market price is $15,

Economic profits are zero.

What should happen to the equilibrium price and quantity in a market as a result of a tariff on imports?

Equilibrium price should go up, and equilibrium quantity should go down.