Econ Test 2

To produce 150 units of output, a firm must use 3 employee-hours. to produce 300 units of output a firm must use 8 employee-hours. The firm is

experiencing diminishing returns

An imperfectly competitive firm is one that

has at least some influence over the market price

A price-taker faces a demand curve that is

horizontal at the market price

If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be

inelastic

If demand is " " with respect to price, a price increase will " " total revenue

inelastic; increase

A variable factor of production

is a variable in both the short run and long run

As the market price of a service increases, more potential sellers will decide to perform that service because

more potential sellers will find that the market price exceeds their reservation price

Total revenue minus both explicit and implicit costs defines a firms

profit

perfectly inelastic

0

inelastic

0-1

unit elastic

1

elastic

1-infinity

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to

3.

If the price elasticity of demand for cigarette is 0.55 and the price of cigarette increases by 10 percent, then the quantity of cigarettes demanded will fall by

5.5 percent

The short run is best defined as

A period of time sufficiently short that at least one factor of production is fixed

Which of the following is a defining characteristic of all perfectly competitive markets

All firms sell the same standardized product

One implication of the shape of the demand curve facing a perfectly competitive firm is that

If the firm increases its price above the market price, it will earn zero revenue

Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi one, the price elasticity of demand for Diet coke "" and Cokes ability to raise revenues through price increases ""

Increased; was reduced

Which of the following is NOT true of a perfectly competitive firm

It seeks to maximize revenue

Which of the following is likely to have the highest price elasticity of demand

Nike running shoes

The price elasticity of demand is a measure of

The change in quantity demanded of a good that results from a change in its price

When Taylor raised the price of earrings at Taylors Boutique, her total revenue from selling earrings increased. This suggest that

The demand for Taylors earrings at the original price was inelastic

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true

The firm should shutdown if its total revenue is less than its variable cost

Which of the following is the most likely to be a fixed factor of production at a farm

The land on which the farm is located

The government taxes sodas sweetened with high-fructose corn syrup

The market supply curve would NOT SHIFT

The opportunity cost of a farmers time increases

The market supply curve would shift to the left

Which of the following is the most likely to be a variable factor of production at a university

The number of librarians

One reason that variable factors of production tend to show diminishing returns in the short run is that

There is only so much that can be produced using additional variable inputs when some factors of production are fixed

To increase total revenue, firms with "" demand should lower price, and firms with "" demand should increase price

elastic; inelastic

Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget on food. All else equal, this suggest that the price elasticity of demand for food

is probably lower now than it was in 1900

The lemonade market is perfectly competitive and Jenny is charging the equilibrium price, then jenny can increase her revenue if she

keeps the price of her lemonade the same and increases her output

Jeans in general have few close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be

less elastic

A firm that produces a good with many substitutes will most likely find that

lowering its price will increase total revenue

If the demand for a good is highly elastic, that good is likely to have

many close substitutes

The primary objective of most private firms is to

maximize profit

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently durable goods are

normal goods

A profit-maximizing perfectly competitive firm must decide

only how much to produce, taking price as fixed

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically

positive

The percentage change in quantity demanded that result from a 1 percent change in price is know as the

price elasticity of demand

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion they survey team might draw from this result is that:

ramen noodles are an inferior good

If a firms total revenue is less than its variable cost when the firm produces the level of output at which price equals marginal cost, then the firm should

shut down

The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are

substitutes

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that

the demand for her large pizzas is elastic with respect to price

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggest that

the market for vegetables is perfectly competitive `

In general, when the price of a fixed factor of production increases

the profit-maximizing level of output does not change

In general, when the price of a variable factor of production increases

the profit-maximizing level of output falls

Individual supply curves generally slope "" because ""

upward; of increasing opportunity costs

Individual supply curves generally slope "" because "'

upward; of increasing opportunity costs

if the slope of a demand curve is infinite, then the price elasticity of demand is

zero