EXAM II- Chapters 6,7,8,9

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

a 5 percent increase in the price of the good

The cross-price elasticity of demand between goods X and Y

both a and c

The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4 implies that

both a and c

Total revenue increased for a firm operating in the elastic range of its demand curve. Which of the following statements is correct?

both b anc c

Firm A and firm B both have total revenues of $200,000 and total costs of $250,000; firm A has total fixed costs of $40,000, while firm B has total fixed costs of $70,000. Which of the following statements are true in the short run?

both b and c

Marginal Cost:

both b and c

The demand for good X will be more elastic than the demand for good Y when

both b and c

Which of the following would tend to DECREASE the elasticity of demand for good X?

both b and c

When marginal revenue is zero,

both c and d

Marginal revenue

is the change in total revenue when output increases by one unit.

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

long-run average cost decreases as more is produced

Economies of scale exist when

long-run average cost decreases as output increases

If a firm is producing the level of output at which long-run average cost equals long-run marginal cost, then

long-run average cost is at its minimum point

Charlene sells cotton candy. The cotton candy industry is competitive. Charlene hires a business consultant to analyze her company's financial records. The consultant recommends that Charlene increase her production. The consultant must have concluded that Charlene's

marginal revenue exceeds her marginal costno

The marginal product of labor

measures how output changes as the wage rate changes.

Consider a firm that employs some resources that are owned by the firm. When accounting profit is zero, economic profit

must also equals zero

If average product is increasing, then marginal product

must be less than average product.

When marginal cost is rising, average variable cost

must be raising

If market price is $60, how many units of output will the firm produce?

none of the above

The next 2 questions refer to the following: If capital is fixed at two units, what is the marginal product of the fourth unit of labor?

none of the above

What is average fixed cost when 300 units of output are produced?

none of the above

Suppose that a profit-maximizing monopolist has a plant of the optimal size and is producing a level of output at which price is $30, average total cost is $55, and average fixed cost is $40. The firm should

operate in the short run

Which of the following is NOT a characteristic of long-run equilibrium for a perfectly competitive firm?

Price is greater than long-run average cost

If there are no fixed costs in the long run, how can it be said that economies of scale arise from spreading fixed costs over more units of output?

Average fixed costs decline continuously as output rises

A firm is currently producing 10 units of output: marginal cost is $24 and average total cost is $6 at this level of output. The average total cost at 9 units of output is:

$4

What is average total cost when 200 units of output are produced?

$4.80

Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is 30, the last worker added 12 units of output, and the total fixed cost is $3,600. What is marginal cost?

$5

The next 4 questions refer to the following: What is the total fixed cost when 400 units of output are produced?

$500

A monopoly firm faces a demand function P = 30 - 0.075Q and the corresponding MR function, MR = 30 - 0.15Q. At any price above $______ demand is elastic.

$20

A monopoly firm faces a demand function P = 30 - 0.075Q and the corresponding MR function, MR = 30 - 0.15Q. If production costs are constant and equal to $10 (i.e., LAC = LMC = $10), what price will the monopoly charge?

$20

What is the marginal fixed cost when 250th units of output?

$7.40

Suppose a firm is hiring 20 workers at a wage rate of $60. The average product of labor is 30, the last worker added 12 units of output, and the total fixed cost is $3,600. What is the average total cost?

$8

A firm's marginal cost has a minimum value of $50, its average variable cost has a minimum value of $80, and its average total cost has a minimum value of $90. Then the firm will shut down if the price of its product falls below

$80.

If market price is $60, what is the maximum profit the firm can earn?

$85

When the price of corn dogs is $0.60, 10,000 corn dogs are demanded. When the price of corn dogs is $1.00, 6,000 are demanded. What is the interval (or arc) price elasticity of demand for corn dogs?

-0.8

Jerry drives up to a gas station. Before looking at the price, he places an order and says, "I'd like $10 of gas." What is Jerry's price elasticity of demand (in absolute value)?

1

A firm is using 500 units of labor and 100 units of capital to produce 100 units of output. The price of labor is $5 per unit and the price of capital is $20 per unit. At these input levels, another unit of labor adds 50 units of output, while another unit of capital adds 400 units of output. The firm could increase output by

10 units by spending $1 more than on capital and $1 less on labor

The next five questions are based on the following tables. The market demand schedule for noodles is as follows: The market is perfectly competitive with constant input prices, and each firm has the same cost structure, described in the following table: What is the number of firms in the long-run equilibrium?

100

If market price is $30, how many units of output will the firm produce?

3

If labor is fixed at three units, how much does the third unit of capital add to total output?

60

Suppose Marv, the owner-manager of Marv's Hot Dogs, earned $72,000 in revenue last year. Marv's explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $30,000 annually as a mechanical engineer.

Marv's economic profit is $6,000.

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The relevant time horizon is short.

A monopolist

a. both a and b

Which of the following statements is correct?

all of the above

An industry is in long-run competitive equilibrium. The price of a substitute good increases.

all the above

Short-run average cost is

always greater than long-run average cost

A short-run production function assumes that

at least one input is a fixed input.

Which of the following CANNOT be true at any output along a perfectly competitive firm's short-run supply curve?

average variable cost is greater than marginal cost

A firm with market power

both a and b

A sofa manufacturer currently is using 50 workers and 30 machines to produce 5,000 sofas a day. The wage rate is $200 and the rental rate for a machine is $1,000. At these input levels, another worker adds 200 sofas, while another machine adds 500 sofas. Assuming that the marginal product of labor is constant between 45 and 50 workers and the marginal product of capital is constant between 30 and 31 machines, if the firm uses 45 workers and 31 machines instead, then its

cost will be unchanged, and its output will decrease by 500 units

If an increase in income results in a rightward parallel shift of the demand curve, then at any given price, the price elasticity of demand will have

decreased in absolute terms.

All of the following could be a barrier to entry EXCEPT:

decreasing long-run average cost

A profit-maximizing firm with market power will always produce a level of output where

demand is elastic

The market demand for wheat is Q = 100 - 2P + 1Pb, where Q is the quantity demanded of wheat, P is the price of wheat, and Pb is the price of barley. The cross-price elasticity of demand for wheat with respect to barley

equals 1

diseconomies of scale

exist when long-run average cost increases as output increases

A monopolist which suffers losses in the short run will

exit in the long run if there is no plant size that will result in economic profit that is greater than or equal to zero.

Which of the following is an example of an implicit cost for a firm?

forgone rent on property owned by firm

Being a price taker in a market means that the seller

has no choice but to charge the equilibrium price that results from the market supply and demand curves

A firm in a competitive industry faces a market price for output of $25 and a wage rate of $750. At the current level of employment (50 units of labor), the marginal product of labor is 20. In order to maximize profit, the firm should

hire less labor because hiring the last unit of labor decreased profit by 250

A monopolist is currently hiring 5,000 units of labor. At this level, the marginal revenue of output is $10, the (fixed) wage rate is $300, and the marginal product of labor is 50. In order to maximize profit, the firm should

hire less labor because the last unit of labor added more to total cost ($300) than to total revenue ($10).

The demand for heart surgery is price inelastic. So it follows that

if the price of heart surgery increases, total expenditure by consumers on heart surgery will rise.

If the price elasticity of demand for Harley-Davidson motorcycles is -1.2 and quantity demanded increases by 24%, price must have

increased by 20%.

A dry cleaner currently has 10 workers and 4 machines. The workers' wage rate is $300 per worker and the rental rate for a machine is $500. The last worker added 600 units to total output and the last machine also added 600 units to total output. Assuming that the marginal product of labor is constant between 10 and 11 workers and the marginal product of capital is constant between 3 and 4 machines, if the dry cleaner uses 11 workers and 3 machines instead, then

output will be unchanged and cost will decrease by $200

A monopolist is producing a level of output at which price is $65, marginal revenue is $35, average total cost is $35, and marginal cost is $50. In order to maximize profit, the firm should

produce less

In a competitive industry the market-determined price is $12.

produce less because the last unit of output decreased profit by $3

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that the

production of the 100th unit of output increases the firm's profit by $3

If the price elasticity of DVD recorders is -0.3 and price increases 20%, what happens to the quantity of DVD recorders demanded?

quantity decreases by 6%

Suppose that you run a house-painting company and currently have 2 workers painting a total of 4 houses per month. If you hire a third worker, 6 houses can be painted per month. If you hire a fourth worker, 9 houses can be painted, and a fifth and sixth worker will increase the number of houses painted to 13 and 15, respectively. Diminishing returns:

set in when the sixth worker is hired.

At the current level of output a firm's marginal cost equal 16 and marginal revenue equals 10. The firms

should produce less

A monopoly is producing a level of output at which price is $80, marginal revenue is $40, average total cost is $100, marginal cost is $40, and average fixed cost is $10. In order to maximize profit, the firm should

shut down

. As we move downward and to the right along a linear, downward-sloping demand curve

slope remains constant but elasticity changes.

For a good that is a luxury, demand

tends to be elastic

Which of the following will NOT affect the elasticity of demand for a product?

the cost of producing the product

There are very few, if any, good substitutes for motor oil. Therefore,

the demand for motor oil would tend to be inelastic.

Economic profit is the best measure of a firm's performance because

the opportunity cost of using ALL resources is subtracted from total revenue

When demand is elastic,

the percentage change in price exceeds the percentage change in quantity.

Which of the following is likely to have the most price inelastic demand?

toothpaste

In a perfectly competitive market

when a firm sells another unit of output, the addition to total revenue is equal to market price

If a firm is producing the level of output at which short-run average cost equals long-run average cost, then

with a fixed amount of capital, short-run average cost is greater than long-run average cost at any other level output

E1 is demand elasticity for Minutemaid orange juice, E2 is demand elasticity for all orange juice, and E3 is demand elasticity for all fruit drinks. Then

|E1| > |E2| > |E3|