Econ Study for Exam

⦁ In the short run a firm's total product is increasing, then its:

marginal product could either be increasing or decreasing.

⦁ 45 Marginal Product is:

the change in total output attributable to the employment of one more worker.

⦁ When diseconomies of scale occure:

the long-run average total cost curve rises.

⦁ Susie buys two goods: rounds of golf and massages. Suppose that the price of a round of golf is $20 and the price of a massage is $30. In a typical week, Susie will play two rounds of golf, getting 20 utils of satisfaction from the second round. She normally buys three massages each week, with the third giving her 30 utils of satisfaction. If she were to buy a fourth massage in a week, it would give her 20 utils of satisfaction. If the price of massages is reduced to $15, which of the following outcomes might we expect to occur?

⦁ Answer: Susie would buy more massages and fewer rounds of golf, as predicted by the substitution effect.

⦁ ? On a diagram, total product is at the maximum at Q3 on this diagram where it lines up with

Marginal Product hitting zero and average product on the way down.

⦁ Variable costs are costs that DO change directly with

OUTPUT

⦁ True or False? Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges.

True.

⦁ True or False? Demand tends to be elastic at high prices and inelastic at low prices.

True.

⦁ True or False? Total revenue will not change if price varies within a range where the elasticity coefficient is unity.

True.

⦁ True or false? If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic.

True.

In the long run all costs are:

Variable Costs

⦁ When the percentage chane in price is greater than the resulting percentage change in quantity demanded:

an increase in price will increase total revenue.

Average Fixed Cost

declines continually as output increases.

⦁ If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:

decrease.

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded

decreased by 7 percent.

⦁ The total revenue test for elasticity:

does not apply to supply, because price and total revenue have a positive correlation.

⦁ Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's: total cost is

$270

Total Cost:

Averate Total Cost (Average Variable Cost + Average Fixed Cost) multiplied by output unit.

True or False? A steep slope means demand is inelastic; a flat slope means demand is elastic.

False.

⦁ True or False? In the range of prices in which demand is elastic, total revenue will diminish as price decreases

False.

⦁ Total Variable Cost =

Quantity of Output x Variable Cost Per Unit

⦁ We would expect the cross elasticity of demand between dress shirts and ties to be:

negative, indicating complementary goods.

⦁ When the total product is increasing at a decreasing rate, marginal product is:

positive and increasing.

⦁ In the range of prices in which demand is elastic, total revenue will NOT diminish as

price decreases.

⦁ In which of the following cases will total revenue increase? Answer:

price rises and demand is: inelastic