Econ Final Set B

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The law of diminishing marginal returns

explains why the average total cost and marginal cost curves are U−shaped in the short run.

Average fixed costs of production

falls as long as output is increased.

Refer to the diagram to the right. Curve G approaches curve F because

average fixed costs falls as output rises.

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

0.5

At a price of​ $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to​ $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe​ rentals, using the midpoint formula.

0.9

Refer to the table to the right which shows cost data for Lotus​ Lanterns, a producer of whimsical night lights. What is the total variable cost of production when the firm produces 115​ lanterns?

1,157

If four workers can produce 18 chairs a day and five can produce 20 chairs a​ day, the marginal product of the fifth worker is

2 chairs

Vipsana's Gyros House sells gyros. The cost of ingredients​ (pita, meat,​ spices, etc.) to make a gyro is​ $2.00. Vipsana pays her employees​ $60 per day. She also incurs a fixed cost of​ $120 per day. Calculate​ Vipsana's average fixed cost per gyro when she produces 50 gyros using two​ workers?

2.40

Refer to the table to the right which shows the technology of production at the​ Matsuko's Mushroom Farm for the month of May. What is the marginal product of the 4th​ worker?

5 pounds

If average total cost is​ $50 and average fixed cost is​ $15 when output is 20​ units, then the​ firm's total variable cost at that level of output is

700.

The figure to the right shows the cost structure for a firm. If output is 100 units what is the fixed cost of​ production?

800

Suppose the value of the price elasticity of supply is 4. What does this​ mean?

A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.

Which of the following equations is incorrect​?

ATC​ = AVC − AFC

If the 15th unit of output has a marginal cost of​ $29.50 and the average cost of producing 14 units of output is​ $30.23, what will happen to the average cost of production if the 15th unit is​ produced?

Average cost will fall.

Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand​ curve?

It is elastic at high prices and inelastic at low prices.

Refer to the diagrams above. A perfectly inelastic demand curve is shown in

Panel A Vertical

Refer to the diagrams above. A perfectly elastic supply curve is shown in

Panel B. Horizontal

Rank these three items in terms of the elasticity of the demand for them at any given​ price, from most elastic to least​ elastic: hot​ beverages, coffee and​ Peets' Coffee.

Peets' Coffee,​ coffee, hot beverages

Which of the following statements is true​?

The more narrowly we define a​ market, the more elastic the demand for a product will be.

An explicit cost is defined as

a cost that involves spending money.

Economic cost of production differ from accounting costs in that

economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.

If at a price of​ $24, Octavia sells 36​ home-grown orchids and at​ $30 she sells 24​ home-grown orchids, the demand for her orchids is

elastic.

The long run refers to a time period

long enough for a firm to vary all of its​ inputs, to adopt new technology and change the size of its physical plant.

The larger the share of a good in a​ consumer's budget, holding everything else​ constant, the

more price elastic is a​ consumer's demand.

Cross−price elasticity of demand is calculated as the

percentage change in quantity demanded of one good divided by percentage change in price of a different good.

A firm increased its production and sales because the​ firm's manager rearranged the layout of his factory floor. This is an example of

positive technological change.

When there few close substitutes available for a​ good, demand tends to be

relatively inelastic.

If the demand for a lifesaving drug were perfectly price inelastic and the price​ doubled, the quantity demanded would

remain constant.

The law of diminishing marginal returns states

that at some​ point, adding more of a variable input to a given amount of a fixed​ input, will cause the marginal product of the variable input to decline.

As output increases

the difference between average total cost and average variable cost decreases.

When the marginal product of labor rises

the marginal cost of production falls.

The production function shows

the maximum output that can be produced from each possible quantity of inputs.

Holding everything else​ constant, the demand for a good tends to be more elastic

the more substitutes there are for the good.

The price elasticity of demand is equal to

the percentage change in quantity demanded divided by the percentage change in price.

The price elasticity of supply is equal to

the percentage change in quantity supplied divided by the percentage change in price.

The basic activity of a firm is

to use inputs to produce outputs of goods and services.

Average total cost is

total cost divided by the quantity of output produced.

When a firm produces​ 50,000 units of​ output, its total cost equals​ $6.5 million. When it increases its production to​ 70,000 units of​ output, its total cost increased to​ $9.4 million. Within this​ range, the marginal cost of an additional unit of output is

​$145.


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