Micro-Econ Review Test 3

The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by

Psocial - Pconsumer (P4a − P4b)

Suppose that Charles's math tutoring company has a fixed cost of $50 per month for his cell phone. Each worker costs Charles $60 per day. As output increases from 45 to 70 students, Charles's total cost curve

increases and gets steeper

If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a

cost-benefit analysis

In the long run,

inputs that were fixed in the short run become variable

A firm's opportunity costs of production are equal to its

explicit costs + implicit costs

average fixed cost

fixed cost divided by the quantity of output

A firm that shuts down temporarily has to pay

its fixed costs but not its variable costs

If the figure in graph (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in graph (b) most likely reflects

perfectly elastic long-run market supply

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

When the market is in long-run equilibrium at point W in graph (b), the firm represented in graph (a) will

have a zero economic profit

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

Markets fail to allocate resources efficiently when

property rights are not well established

Corrective taxes do NOT

require the government to set a target level of pollution

The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker?

the sixth worker

What is the marginal revenue from selling the 3rd unit?

$120

Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?

$170

What is the value of B?

$25

What is the average variable cost of producing 5 units of output?

$40

Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is

$50

Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day?

$520

Ziva is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $25 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.

-$80

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

16 units of output

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air

The socially optimal quantity of output is

5 units

Suppose a firm in a competitive market, like the one depicted in graph (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

An increase in market demand from D0 to D1

The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

Q0 to point Q1 (Q3 to Q2)

The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Q3 (Q5)

Education yields positive externalities. For example,

a more educated population tends to result in lower crime rates

Goods that are rival in consumption include both

common resources and private goods

If the market price is $10, the firm will earn

negative economic profits in the short run but remain in business

Which firm has constant returns to scale over the entire range of output?

Firm 3

A firm produces 400 units of output at a total cost of $1,200. If total variable costs are $1,000,

average fixed cost is 50 cents

When marginal cost is less than average total cost,

average total cost is falling

Which of the following is not a reason why government agencies subsidize basic research?

The government wants to attract the brightest researchers away from private research firms

Before considering any public project, the government should

conduct a cost-benefit analysis and compare the total cost and total benefits of the project

Private companies are most likely to invest in medical research if

they will produce a specific product for which they may receive a patent

The analysis of competitive firms sheds light on the decisions that lie behind the

way firms make pricing decisions in the not-for-profit sector of the economy