economics final

Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. Refer to Figure 12-9. Identify the short-run shut down point for the firm.

b

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. What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers?

$120

If the marginal cost curve is below the average variable cost curve, then

average variable cost is decreasing.

Which of the following is a common mistake made by consumers?

being overly optimistic about their future behavior

demand for a luxury item, such as a hatch, is likely to be

both income elastic & price elastic

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because

buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

We can derive the market demand curve for gold earrings

by adding horizontally the individual demand curves of each gold earring consumer.

Both monopolistically competitive firms and perfectly competitive firms maximize profits

by producing where marginal revenue equals marginal cost.

income elasticity measures how a good's quantity demanded responds to

change in buyers income

Marginal cost is equal to the

change in total cost divided by the change in output

Diminishing marginal product of labor occurs when adding another unit of labor

changes output by an amount smaller than the output added by the previous unit of labor.

which of the following products comes closest to having a perfectly inelastic demand?

cholesterol medication in general

Total utility is maximized in the consumption of two goods by

equating the marginal utility per dollar for each good consumed.

Marginal utility is the

extra satisfaction received from consuming one more unit of a product.

Average fixed costs of production

fall as long as output is increased.

Average fixed cost is equal to

fixed cost divided by the quantity of output produced.

An item has utility for a consumer if it

generates enjoyment or satisfaction.

Suppose Alexander is successful in establishing a profitable market for his vegan bakery in what is a monopolistically competitive industry. In the long run, Alexander will most likely find it ________ to remain profitable as he faces ________ competition in the vegan bakery market.

harder; more

Which of the following statements is true?

if the price of a good is raised and total revenue increases, demand is inelastic

Refer to Figure 11-1. The average product of the 4th worker

is 17

The price a perfectly competitive firm receives for its output

is determined by the interaction of all sellers and all buyers in the firm's market.

A firm has successfully adopted a positive technological change when

it can produce more output using the same inputs.

If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?

it falls

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

wants to consume more ankle socks and fewer bandanas.

Behavioral economics refers to the study of situations

where consumers and firms do not appear to be making choices that are economically rational.

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 increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is

$145

Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. Refer to Table 12-1. The firm will not produce in the short run if the output price falls below

$2.80

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 variable cost per day when she produces 50 gyros using two workers?

$220

Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

$3300

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?

$3960

Suppose a monopolistically competitive firm sells 25 units at a price of $10. Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9.

$4

If the market price is $40, the average revenue of selling five units is

$40

Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

$5.50

Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

$6000

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

1.62

Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc. Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of output?

10,000 picture frames

Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May. Refer to Table 11-1. What is the average product of labor when the farm hires 5 workers?

10.8 bushels

Refer to Figure 11-1. The marginal product of the 3rd worker is

15

refer to figure 6-11. what is the value of the price elasticity of supply between g & h?

2

Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy?

3 cups of soup and 4 sandwiches

Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May. Refer to Table 11-1. Diminishing marginal returns sets in when the ________ worker is hired.

3rd

Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. Refer to Table 10-2. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?

4 cups of soup and 5 sandwiches

Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May. Refer to Table 11-1. What is the marginal product of the 4th worker?

5 pounds

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

5 units

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

5 utility units

When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is

50

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

Refer to Figure 13-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?

Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.

Which of the following is a reason why a firm would experience diseconomies of scale?

As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.

What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.

Refer to Figure 13-18. Which of the following statements is true?

Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor.

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run.

Refer to Figure 11-5. Identify the curves in the diagram.

E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve.

Which of the following characteristics is common to monopolistic competition and perfect competition?

Entry barriers into the industry are low.

Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?

In the long run the firm will be able to charge a price that is greater than its average total cost.

Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production?

In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41.

Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

It is equal to the vertical distance c to g

Refer to Figure 11-2. Short run output is maximized at

L3.

Refer to Figure 13-5. The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa. Is this candy store maximizing its profit and if it is not, what would you recommend to the firm?

No, it is not; it should lower its price to Pb and sell Qb units

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules. Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?

P = $50; Q = 6 cases

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this?

The demand for tomatoes is price inelastic.

Refer to Figure 13-13. What is the area that represents the firm's profit?

P4edP2

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?

People measure the value of a good in terms of its purchase price.

Refer to Figure 13-13. What is the profit maximizing output level?

Q4 units

Figure 13-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-12. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?

Some firms will exit the market causing the demand to increase for firms remaining in the market.

The formula for total fixed cost is

TFC = TC - TVC

Which of the following statements is true?

The average product of labor is at its maximum when the average product of labor equals the marginal product of labor.

The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry. Refer to Figure 12-17. The graphs depicts a short-run equilibrium. How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.)

The firm's profit will be lower in the long run than in the short run.

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay in business?

Yes, because it is covering part of its fixed cost.

consider the following pairs of items: a) shampoo & conditioner b) iphones & earbuds c) laptop computer & a desktop computer d) beef & pork e) air travel & weed killer. which of the pairs will have a negative cross price elasticity?

a & b

Which of the following is the best example of a perfectly competitive firm?

a corn farmer in Illinois

An explicit cost is defined as

a cost that involves spending money.

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

a long-run average total cost curve.

The income effect due to a price decrease will result in an increase in the quantity demanded for

a normal good

which of the following would result in a higher absolute value of the price elasticity of demand for a product?

a wide variety of substitutes are available for the good

Refer to Figure 11-5. Curve G approaches curve F because

average fixed cost falls as output rises.

If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm

added more to total revenue than it added to total cost.

Refer to Figure 11-2. Diminishing returns to labor set in

after L1

Minimum efficient scale is defined as the level of output at which

all economics of scale are exhausted

A characteristic of the long run is

all inputs can be varied

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

sunk costs

are costs that have already been paid and cannot be recaptured in any significant way

Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples. Refer to Figure 12-6. If Jason maximizes his profit he will produce the output rate indicated by point ________ and his average profit will equal ________

d; $3 minus ATC at point d

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

declines

If production displays increasing marginal returns, then

each new worker hired adds more to output than previous hires.

The demand curve for each seller's product in perfect competition is horizontal at the market price because

each seller is too small to affect market price.

Economic costs of production differ from accounting costs in that

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not

Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. Refer to Table 11-8. Elegant Settings experiences

economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays

economies of scale.

if at a price of $24, octavia sells 36 homegrown orchids and at $30 she sells 24 homegrown orchids, the demand for her orchids is

elastic

refer to table 6-6. based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

elastic

For a firm in a perfectly competitive market, price is

equal to both average revenue and marginal revenue.

The average total cost of production

equals total cost of production divided by the level of output.

Refer to Figure 13-18. The diagram demonstrates that

it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation.

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

less than minimum efficient scale.

refer to figure 6-4. the inelastic segment of the demand curve

lies below the midpoint of the curve

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

loss of $1080

Economists assume that the goal of consumers is to

make themselves as well off as possible

In the short run, if marginal product is at its maximum, then

marginal cost is at its minimum

If marginal product is greater than average product, then

marginal product could either be increasing or decreasing.

A firm's total profit can be calculated as all of the following except

marginal profit times quantity sold.

For a perfectly competitive firm, at profit maximization

marginal revenue equals marginal cost.

Long-run cost curves are U-shaped because

of economies and diseconomies of scale.

Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

p2

Refer to Figure 12-14. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

panel A

Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

panel A

refer to figure 6-1. A perfectly inelastic demand curve is shown in

panel A

refer to figure 6-10. a perfectly elastic supply curve is shown in

panel b (straight line)

Which of the following is a fixed cost?

payment to hire a security worker to guard the gate to the factory around the clock

the price elasticity of an upward sloping supply curve is always

positive

Marginal utility can be

positive, negative, or zero.

The entry and exit of firms in a monopolistically competitive market guarantee that

price equals average total cost in the long run.

Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units. Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?

profit of $440

A budget constraint

refers to the limited amount of income available to consumers to spend on goods and services.

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

remain constant

Which of the following is an implicit cost of production?

rent that could have been earned on a building owned and used by the firm

The key characteristics of a monopolistically competitive market structure include

sellers selling similar but differentiated products.

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

should shut down in the short run

If a restaurant like Buffalo Wild Wings has higher costs than a comparable Hooters restaurant, the only way it can have higher profits is if

the demand for its food is higher than the demand for food at Hooters.

if the cross price elasticity of demand between beer and wine is 0.31, then beer & wine are

substitutes

If a firm shuts down in the short run it will

suffer a loss equal to its fixed costs.

Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

the area (A-D)

competitive firm in the market for designer watches. Refer to Figure 13-4. What is the area that represents the loss made by the firm?

the area P2cdP3

All of the following cost curves are U-shaped except one. Which curve is not U-shaped?

the average fixed cost curve

The substitution effect of an increase in the price of peaches is

the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

The income effect of an increase in the price of peaches is

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

the demand for salt is relatively inelastic

Increases in the marginal product of labor result from

the division of labor and specialization.

The law of diminishing marginal utility states that

the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.

The substitution effect of an increase in the price of Raisin Bran refers to

the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran.

What is always true at the quantity where a firm's average total cost equals average revenue?

the firm breaks even

Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc. Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

the firm will be operating efficiently

A very large number of small sellers who sell identical products imply

the inability of one seller to influence price.

Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

the income & substitution effects

The minimum efficient scale is

the level of operation where long-run average costs are lowest.

The long-run average cost curve shows

the lowest average cost of producing every level of output in the long run.

Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. Refer to Figure 12-9. Identify the firm's short-run supply curve.

the marginal cost curve from b and above

Refer to Figure 11-2. The curve labeled "E" is

the marginal product curve

Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore

the marginal product of the 5th worker is negative

The production function shows

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

suppose the demand curve for a product is represented by a typical downward-sloping curve. now suppose the demand for this product increases. which of the following statements accurately predicts the resulting increase in price?

the more elastic the supply curve, the smaller the price increase

If the demand for cell phone service is inelastic, then

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Total revenue is equal to

the price of a product multiplied by the number of units of the product sold.

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

the price of the product and hold everything else constant.

the income elasticity of demand measures

the responsiveness of quantity demanded to changes in income

What is the endowment effect?

the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.

In the long run, if price is less than average cost

there is an incentive for firms to exit the market.

What is the profit-maximizing rule for a monopolistically competitive firm?

to produce a quantity such that marginal revenue equals marginal cost

Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects

work in the same direction to decrease quantity demanded.

Average variable cost can be calculated using any of the formulas below except

Δ(TC - FC)/ΔQ.