Econ Midterm

Carla buys one soft drink a day regardless of the price. Which of the following statements is correct about Carla?

Price elasticity of demand for soft drinks is 0.

Price is the same as

average revenue

Marginal total cost is the

cost of all resources divided by the quantity of output.

Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 4 percent, the quantity demanded of bread decreases to 45 loaves, which means

demand is elastic.

When a university increased tuition by 10 percent, the number of students enrolled in fell by 15 percent. This university is faced with a(n) ____ demand.

elastic

More competitors will increase the market supply, thus

resulting in lower prices.

A price elasticity of demand greater than 1 means that

total revenue (or total consumer expenditures) will rise if price rises.

Average revenue is

total revenue divided by the number of units of the product sold.

In the long run, if a perfectly competitive firm is incurring an economic loss, the firm will

will leave the industry.

What would be the consequences of a 10 percent decrease in price for a good whose price elasticity of demand is 5?

A 50 percent increase in quantity demanded

Which of the following does not change with the level of output?

Total fixed cost

The law of diminishing returns causes the shape of the average-total-cost curve to be

U-shaped.

Competition is exemplified by:

Walmart offers lower prices due to its economies of scale, Nordstrom focuses on superior customer service, Sharper Image attempts to be the first to offer a product, Apple focuses on innovation and offers products that others do not have

If demand is unit elastic, a 25 percent increase in price will result in

a 25 percent decrease in the quantity demanded.

A price taker is:

a buyer who cannot affect the market price

A monopoly is a market structure characterized by:

a single seller and barriers to entry/exit.

The average total cost curve indicates that

as more output is produced in the short run, average total costs must increase.

Demand provides a great deal of information to a business. A business can learn about the demand for its products by conducting a survey

asking people what they would be willing to pay for one unit of a certain product., carried out at dinnertime asking about the prices of various goods. conducted in a shopping mall asking about various goods. in a focus group.

Average total cost is the

change in the cost of all resources divided by the change in the quantity of output.

If a firm is producing at a point where marginal revenue is greater than marginal cost, it should

continue producing at the current level.

If demand is perfectly inelastic, then the

demand curve will be a vertical line.

After hiring three new employees, a manager sees that total output increases. If the manager hires two additional employees and discovers total output has fallen, the result is due to

diminishing marginal returns.

To calculate a price elasticity of demand, we need to

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

All of the following are characteristics of the market for a commodity product except

economic profit is zero, price is driven down to just equal opportunity costs, consumers perceive the goods to be identical no matter who supplies them, entry by new firms is easy.

If the percentage change in quantity demanded of a good is less than infinite and is greater than the percentage change in price that caused it, then the demand for the good is

elastic.

f 100 units of product L are sold at a unit price of $10 and only 25 units are sold at a unit price of $20, one can conclude that demand for L is

elastic.

As competitors enter a market, demand becomes more ____, meaning the demand curve shifts ____ and becomes ____.

elastic; in; flatter

Suppose that the price elasticity of demand for firms A, B, C, and D is 0, 0.5, 1, and 1.5, respectively. An increase in the price would lead to a reduction in the quantity demanded for

firm D.

The demand curve facing a perfectly competitive firm is

horizontal

The price elasticity of demand for a product measures

how much price changes given a change in demand.

The price elasticity of demand for a product is 2, which implies that

if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.

In the long run, if a perfectly competitive firm cannot cover its costs, the profit-maximizing firm will

increase output and lower price.

If the percentage change in quantity demanded for a product is greater than zero and is smaller than the percentage change in price that caused it, then demand for the good is

inelastic

Most economists like perfect competition because

it raises profits.

Total cost is the cost of

land, labor, and capital.

A perfectly competitive market is characterized by

large numbers of producers of commodities with ease of entry.

The law stating that added quantities of a variable resource will eventually result in less additional output is called the

law of diminishing marginal returns.

When diminishing marginal returns occurs, the

marginal cost starts to rise.

When perfectly competitive firms produce at a quantity where marginal revenue equals marginal costs, they are

maximizing output.

A brand new store, Billy's Boards, opens and business takes off. We would expect:

new firms will enter the board business.

A monopolist will earn

normal profit in the long run.

Demand provides a great deal of information to a business. A business can learn about the demand for its products by comparing

number of customers, price and quantities of different products, prices and quantities at different times and levels of income.

The formula for the price elasticity of demand is the

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

The short run is a

period of time when plant size cannot be changed.

total revenue

price at which a product is sold multiplied by the number of units of the product that is sold.

The transformation of resources into economic goods and services is called

production.

If, at the current level of output, the extra revenue received from producing and selling the last unit of output is less than the extra cost of producing that output, the firm should

reduce output to the point where the extra revenue just equals the extra cost.

Labor, land, and capital used in production are

resources

As output rises unit by unit, costs ____ relatively ____ at first, but then ____ more ____.

rise; slowly; increase; rapidly

Marginal cost is calculated by dividing

the change in total cost by the change in the quantity of output produced.

Average total cost is calculated by dividing

the change in total cost by the change in the quantity of output.

marginal revenue

the change in total revenue divided by the change in quantity sold.

If demand for a good is inelastic, one can conclude that

the good is a necessity.

Marginal cost (MC) is equal to average total cost (ATC) at

the minimum point of the ATC.

average total cost

the per-unit cost and is derived by dividing total cost by the quantity of output.

Price elasticity of demand is the

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

"Creative destruction" is:

the process by which new firms and new products replace existing dominant firms and products.

If the price of a product decreases by 10 percent and the quantity demanded increases by 5 percent, then

the producer should raise the price higher than where it was to experience higher total revenue.

To sell one more unit of output, the seller must make one more and sell it for

the same price as the last unit sold

The results of competition will be different depending on

the type of product being produced.

A product is turned into a commodity when

there is no more incentive for new businesses to enter

If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, the price elasticity of demand is

unit elastic.

If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units, one can conclude that demand for the product is

unit elastic.

Economic profits are earned

when price exceeds average total cost.

If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245, what is the marginal cost of producing the seventh unit?

%17

When the price of a good increases by 50 percent, quantity demanded decreases by 2 percent. What is the price elasticity of demand?

1/25

Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a

2 percent decrease in the quantity demanded.

Suppose 200 DVDs are rented when the price is $4. If the price drops by $.80, the number of DVDs rented increases to 220. Which of the following statements about the price elasticity of demand is true?

Demand is inelastic.

Economic goods and services produced by business firms are

Economic goods and services produced by business firms are

Competition benefits individuals because

Firms must continually work to improve their products, Technology continually improves, Consumers get the goods and services at the lowest possible price, Resources are allocated to their highest-valued use.

Which of the following does not refer to diminishing marginal returns?

Increasing the number of assistant vice presidents as the size of the firm increases

Which of the following goods or services will most likely have an inelastic demand?

Insulin (medication used to treat diabetes)

A monopolistically competitive firm will maximize profits where

MR = MC.

Which of the following is least likely to be a monopolistically competitive market in the United States?

Mobile telephone service

Which of the following is most likely to be a monopoly market in the United States?

Patented pharmaceuticals