Micro Final Studyset
The smartphone market is in long-run equilibrium. Then the demand for smartphones increases. Describe what happens in the market for smartphones. (a.) In the short run, firms will __________.
make an economic profit
What triggers entry in a competitive market? (a.) Entry is triggered in a competitive market when existing firms are __________.
making an economic profit
The market for pizza is perfectly competitive and has 1,000 firms. Each firm is identical. Describe each firm in long-run equilibrium.In long-run equilibrium, each firm is __________.
making zero economic profit
Perfect competition is a market in which there are __________ firms, each selling __________ product; many buyers; __________ to the entry of new firms into the industry; no advantage to established firms; and buyers and sellers __________ about prices.
many; identical; no barriers; are well informed
Sarah maximizes her total utility when she spends all her available income such that the ______________ utility per dollar is ______________ for all goods.
marginal; equal
Lin's makes fortune cookies. Anyone can make and sell fortune cookies, so there are dozens of producers. All fortune cookies are the same and buyers and sellers know this fact. In what type of market does Lin's operate?What determines the price of fortune cookies? What determines Lin's marginal revenue? (b.) The price of a fortune cookie is determined by __________. Lin's marginal revenue from a fortune cookie equals __________.
market demand and market supply; price
What is a firm's fundamental goal and what happens if the firm doesn't pursue this goal?The fundamental goal of a firm is to __________. If a firm fails in this goal, it is __________.
maximize profit; either eliminated or bought by other firms that do seek to maximize profit
The table shows alternative ways of laundering 100 shirts. If the wage rate is $1 and the rental rate of capital is $100, __________ is economically efficient. If the wage rate is $5 and the rental rate of capital is $50, __________economically efficient. A: 1 labor, 10 capital B: 5 labor, 8 capital C: 20 labor, 4 capital D: 50 labor, 1 capital
method D; methods C and D are
Why does a consumer spend the entire budget? A consumer spends the entire budget because ______________.
more consumption brings more utility, and thus only those choices that exhaust income can maximize utility
A monopoly that perfectly price discriminates is _____.
more efficient than a single-price monopoly
Explain why equalizing the marginal utility per dollar for all goods maximizes utility. (a.) If the marginal utility per dollar from hot chocolate exceeds the marginal utility per dollar from video games, buy ______________ hot chocolate and play ______________ video games to maximize total utility.
more; fewer
Explain why equalizing the marginal utility per dollar for all goods maximizes utility. (b.) If the marginal utility per dollar from video games exceeds the marginal utility per dollar from hot chocolate, play ______________ video games and buy ______________ hot chocolate to maximize total utility.
more; less
Monopoly is a market in which one firm sells a good or service that has __________ substitutes and __________ blocks the entry of new firms.
no close; a barrier
Points inside the production possibilities frontier are
not fully utilized or misallocated
In a day in the life of Jack, the following four things occur. Which is an example of resources being allocated by the command system?
His manager at McDonalds puts him on the drive-through window.
Which of the following is an example of product differentiation?
I prefer Nike shoes while my friend prefers Puma shoes.
Which of the following is an example of a price-discrimination?
IMAX charges $6 per movie ticket for children younger than 8, and $8.50 per movie ticket for adults.
The most Eric would be willing to pay to take a ski vacation over spring break is 2,000. He purchases a plane ticket, a room, and a ski pass for a total of $1,500. Suppose a friend says, "Sell me the travel, room, and lift tickets. I will pay you $2,500." Which of the following best describes the situation?
It is not rational for Eric to go skiing as the true cost has risen to $2,500 plus the value of what he would have done with his time.
A city passes a law that ice cream prices may not decrease. The ice cream market is currently in equilibrium. What will happen in that market if costs of producing ice cream decrease?
Less than the allocatively efficient amount will be produced.
Which of the following illustrates economies of scale, diseconomies of scale, and constant returns to scale? Liza's average total cost changes from $4.50 to $2.20 when she increases production from 7 to 9 units.Sam's average total cost changes from $1.30 to $2.80 when he increases production from 5 to 8 units.Tina's average total cost remains at $3 when she increases production from 12 to 13 units.
Liza faces economies of scale; Sam faces diseconomies of scale; Tina faces constant returns to scale.
Suppose that income decreases and at the same time the prices of inputs used in making a good decrease. The good is an inferior good. What will happen in the market for the good?
The equilibrium price may increase or decrease, but quantity will increase.
A market for butter has an equilibrium price of $1.50. There is also currently a price floor of $1. An increase in the price floor from $1 to $1.75 will do what to the quantity sold in the market and to the price of butter?
The price of butter will increase and fewer will be sold.
Consider the gardening books market. What will happen to the market for these books as gardening becomes more popular and simultaneously printing costs increase?
The price of gardening books definitely increases.
Suppose that the supply of new cars is elastic, while the supply of used cars in inelastic. Compare the results of a decrease in demand in both markets.
The price of new cars will change by less than the price of used cars. The quantity of new cars will change by more than the number of used cars.
Consider a good with a price floor that is above the equilibrium price. If demand decreases, what will happen to the price in the market and the quantity of exchanged in this market?
The price will stay the same and the quantity will decrease.
What relationships do a firm's short-run cost curves show? Indicate whether the following statement is true or false. The marginal cost curve intersects the average variable cost curve at its minimum.
True
What relationships do a firm's short-run cost curves show? Indicate whether the following statement is true or false. When marginal cost is greater than average variable cost, average variable cost is increasing.
True
What relationships do a firm's short-run cost curves show? Indicate whether the following statement is true or false. When marginal cost is less than average total cost, average total cost is decreasing.
True
which of the following will NOT shift the supply curve for pick-up trucks?
a change in the price of pick-up trucks
A firm can produce either Blank DVDs or prerecorded DVDs. An increase in the price of a blank DVD will lead to
a decrease in the supply of prerecorded DVDs
Distinguish between the short run and the long run. In the short run, __________. In the long run, __________.
a firm's plant is fixed; a firm can change its plant
While producing on the production possibilities frontier, if additional units of a good could be produced at a constant opportunity cost, the production possibilities frontier would be
a straight line
The law of diminishing returns says that as the firm uses more of __________, with a given quantity of __________, marginal product of the variable factor eventually diminishes.
a variable factor of production; the fixed factor of production
A market demand curve can be constructed by
adding the quantities that all consumers buy at each price
The table shows the utility that Jason receives from DVDs and spy novels.What two conditions are met when a consumer is maximizing utility? (a.) When Jason is maximizing his total utility he spends ______________.
all of his available income and equalizes his marginal utility per dollar for all goods
Total fixed cost =
all the cost of the building/machinery (fixed costs)
Total cost is the cost of __________ by a firm
all the factors of production used
A consumer equilibrium is a situation in which a consumer has allocated ______________ of her income in a way that ______________.
all; maximizes her total utility
Ricky and Lucy want to open a fitness club and operate it as a partnership. What is a partnership? A partnership is a firm with __________ who have __________ liability.
two or more owners; unlimited
How does an effective price ceiling affect consumer surplus as compared to before the price ceiling?
uncertain
Technological efficiency occurs when the firm produces a given output by __________.
using the least amount of inputs
The AFC curve has its shape because...
when output increases, the firm spreads its total fixed cost over a larger output
Producing Quantity is found...
where MR=MC
The price elasticity of demand for oranges ____ change if the units of the quantity was changed from pounds to kilograms and _____ change if the units of the price was changed from dollars to cents
would not; would not
Economic efficiency occurs when the firm produces a given output __________.
at the least cost
What is the lowest price at which a firm produces an output? Explain why.The lowest price at which a firm will produce is the price at minimum __________ because at this price its loss equals __________.
average variable cost; total fixed cost
Explain the relationship between marginal product and average product. When marginal product exceeds average product, __________ product is increasing.When average product exceeds marginal product, __________ product is decreasing.
average; average
A monopoly arises for two key reasons, which are ____.
barriers to entry and no close substitutes
Why can a monopoly make a positive economic profit even in the long run? A monopoly can make positive economic profit in the long run because _____.
barriers to entry prevent other firms from entering the market and sharing the profit
A diminishing marginal rate of substitution is a general tendency for a person to ______________.
be willing to give up less of good y to get one more unit of good x, while at the same time remaining indifferent as the quantity of x increases
The figure shows Phillip's budget line when he has $40 a week to spend on protein bars and movies.Which combinations of protein bars and movies can Phillip afford?Phillip can afford all combinations ______________ the budget line.
both on and inside
A budget line is a line that describes limits to consumption possibilities and that depends on a consumer's ______________ and ______________ of goods and services.
budget; prices
The idea of comparative advantage implies that people or countries
can gain from trading, should specialize in the production of goods, and can consume at a point outside their PPF
Why does a firm in perfect competition produce the quantity at which marginal cost equals price? A firm produces the quantity at which marginal cost equals price because when marginal cost is greater than price, the firm __________.
can increase economic profit by producing 1 less unit of output
A single-price monopoly _____.
can increase the quantity they sell only by lowering the price
Price discrimination increases a monopoly's economic profit by _____.
capturing consumer surplus
marginal utility per dollar
change in total Utility / change in price of that one unit
What is an indifference curve and how does a preference map show preferences? An indifference curve shows ______________.A preference map shows that a person prefers combinations ______________.
combinations of goods among which a consumer is indifferent; on higher indifference curves to combinations on lower indifference curves
Explain the key distinction between technological efficiency and economic efficiency. The key distinction between technological efficiency and economic efficiency is that technological efficiency __________ and economic efficiency __________.
concerns the quantity of inputs used in production for a given level of output; concerns the value of the inputs used
Perfect price discrimination is the price discrimination that extracts the entire _____ surplus by charging the _____ price that _____ are willing to pay for each unit.
consumer; highest; consumers
Cupcakes and granola bars are substitutes in consumption. The price of a granola bar increases. As a result, the demand for
cupcakes will increase, the is, the demand curve will shift rightward
McDonald's estimates that their customer's price elasticity of demand is -1.4. If McDonald's raised the price of burgers by 15 percent, then the quantity demanded will
decrease by 21 percent
Total fixed cost is the cost of the __________. Specifically, the cost of __________, __________, and __________.
firm's fixed factors of production; land, capital, entrepreneurship
Total variable cost is the cost of the __________. Specifically, the cost of __________.
firm's variable factor of production; labor
What is a characteristic of oligopoly? In an oligopoly, __________.
firms might produce almost identical products or they might produce differentiated products
The U shape of the average total cost curve arises because of spreading total __________cost over a larger output and eventually __________ returns.
fixed; diminishing
An indifference curve is a line that shows combinations of ______________ among which a ______________ is indifferent.
goods; consumer
Rent seeking is the lobbying for special treatment from the _____ to _____ or to divert consumer surplus or producer surplus away from others.
government; create economic profit
Roses and chocolates are substitutes.Russell spends all of his income on roses and chocolates and he is currently in consumer equilibrium. The price of roses falls.(a.) The marginal utility per dollar on roses is currently ______________ than the marginal utility per dollar on chocolates.
greater
factors of production include
land, labor, capital, entrepreneurship
Monopolistic competition is a market in which a __________ number of firms compete by making similar but slightly __________ products.
large; different
Grace makes twice as much money as her sister Eva. Both sisters equally love going to Disneyland. Suppose the ticket price of Disneyland rises from $200 to $300. Grace decreases the number of times she goes to Disneyland by 25%. Eva's price elasticity of demand (in absolute value) for Disneyland trips will for sure be ______.
larger than 0.625
If there is a positive externality associated with the production of cookies, then the unregulated competitive market produces
less than the socially efficient quantity, since the external benefits are not accounted for in the supply-equals-demand-equilibrium
Why does an indifference curve slope downward and why is it bowed toward the origin? (b.) An indifference curve is bowed toward the origin because the more of good x that you consume the ______________.
less you are willing to give up of good y to get more of good x and remain indifferent
Megan wants to increase her total revenue from her sales of sweaters. She knows that the demand for sweaters is price elastic, so Megan should
lower her price because she knows that the percentage increase in the quantity demanded will be greater than the percentage decrease in price.
Assume a firm faces a market where there are individuals with elastic demands and inelastic demands. What should it do if it wishes to maximize revenues? Assume this firm can engage in price discrimination.
lower prices for those with elastic demand and raise them for those with inelastic demand
Long-run average cost curve is a curve that shows the __________ average total cost at which it is __________ to produce each output when the firm has had sufficient time to change both its plant size and labor employed.
lowest; possible
Marginal cost of production
The change in total cost resulting from a one-unit increase in output
average variable cost
total variable cost / output
Tina employs 4 people in her pizza store, where she produces 12 pizzas an hour. Her total fixed cost, total variable cost, and total costs of pizza production per hour are $15, $19.40, and $34.40 respectively. Calculate Tina's average fixed cost, average variable cost and average total cost.
$1.25; $1.62; $2.87
When Sam increases smoothie production from 4 gallons to 5 gallons, his total cost of production increases from $32.50 to $36.85. Calculate Sam's marginal cost of producing smoothies.
$4.35
Tina's marginal utility from a notebook is 42 units. At a price of $8 per notebook, what is the marginal utility per dollar from a notebook?
$5.25
A city is debating whether or not to build a new park. The city already owns the land, having purchased it 50 years ago for $25,000. The total development costs for the new park would be $100,000. A local restaurant developer has offered to buy the land from the city for $700,000. It is rational for the city to build the new park only if the benefits of the new park exceed ___.
$800,000
Define the type of barrier to market entry: (Scenario A.) When economies of scale enable one firm to supply the entire market at the lowest possible cost, the firm is benefitting from a _____. (Scenario B.) JK Rowling's copyright on the Harry Potter series of books is an example of _____.
(A.) natural barrier ; (B.) legal barrier
If the price of soda increases from 75 cents to $1 and as a result the quantity demanded of sodas decrease from 10 to 9 per week, the price elasticity of demand (in absolute value) for sodas equals
0.37
Nancy bought a laptop for $1,260 on Thanksgiving 2012 and she plans to sell it for $750 on Thanksgiving 2013. Her economic depreciation for the laptop is $ __________.
510
Dell and Apple both sell personal computers. Apple lowers the price of their laptops by 15 percent. As a result, the quantity of Dell computers demanded at the current price decreases from 30,000 to 24,000 units. What is the cross elasticity of demand for Dell computers with respect to the price of Apple computers.
1.48
One year ago, Jack and Jill set up a vinegar-bottling firm (called JJVB). Use the question facts to calculate JJVB's opportunity cost of production during its first year of operation. JJVB's opportunity cost of production during its first year of operation is $ __________. (do not include any commas in your answer) Question Facts 1. Jack and Jill put $60,000 of their own money from their savings account into the firm. 2. There is a 6% interest rate for all money in their savings account. 3. They bought equipment for $50,000. 4. The market value of the equipment at the end of the year was $45,000. 5. They hired one employee at an annual wage of $25,000. 6. They bought $5,000 of services from other firms. 7. Jack gave up his previous job at which he earned $50,000. 8. Jill kept her old job which paid $25 an hour, but gave up 10 hours of leisure each week for 50 weeks to work for JJVB.
101,100.0
There are five firms in a market and the market shares of the firms are 30 percent, 25 percent, 20 percent, 15 percent, and 10 percent. What is the Herfindahl-Hirschman Index for this market?The Herfindahl-Hirschman Index for this market is __________.
2250.0
At one point along a PPF, 10 pizzas and 7 sandwiches can be produced. At another point along the same PPF, 9 pizzas and 10 sandwiches can be produced. The opportunity of 1 pizza between these points is ___ per pizza
3 sandwiches
The market for vases is perfectly competitive.The price of a vase is $30. When the firm increases the number of vases it produces from 4 to 5, its marginal revenue is $______.
30
The total utility obtained from three packs of potato chips is 36 utils, and the total utility obtained from two packs is 32 utils. The marginal utility from the third pack is ______________ unit(s).
4
The table shows alternative ways of laundering 100 shirts.If the wage rate is $50 and the rental rate of capital is $5, method __________ is economically efficient. A: 1 labor, 10 capital B: 5 labor, 8 capital C: 20 labor, 4 capital D: 50 labor, 1 capital
A
The table shows four methods of producing 10 computer desks a day. If the cost of a worker is $100 a day and the cost of capital is $100 a day, which of the following methods are economically efficient? If the cost of a worker is $100 a day and the cost of capital is $100 a day, economical efficiency occurs with method __________. A: 1 labor, 3 capital B: 2 labor, 3 capital C: 3 labor, 2 capital D: 4 labor, 1 capital
A
Choose the statement that is correct. (a) All firms that practice price discrimination are monopolies. (b) A monopoly that practices price discrimination is a price-taker. (c) A firm practices price discrimination when it sells different units of the same good or service for different prices. (d) If a monopoly wants to make an economic profit it must practice price discrimination
A firm practices price discrimination when it sells different units of the same good or service for different prices.
What is one of the constraints that a firm faces? __________ constraint limits a firm's maximum profit because __________.
A market; what a firm can sell and the price it can obtain are constrained by its customers' willingness to pay and by the prices and marketing efforts of other firms
Choose the statement that is correct.
A technologically inefficient method is never economically efficient.
The table shows alternative ways of laundering 100 shirts.Which methods are technologically efficient? A: 1 labor, 10 capital B: 5 labor, 8 capital C: 20 labor, 4 capital D: 50 labor, 1 capital
All methods
which of the following correctly describes how price adjustments eliminate a SURPLUS?
As the price falls, the quantity demanded increases while the quantity supplied decreases.
Which of the following illustrates diminishing marginal returns?
Hiring more workers decreases the productivity of each additional worker.
The table shows various methods of producing blue jeans. If labor costs $10 a unit and capital costs $100 a unit, which method is economically efficient? If labor costs $10 a unit and capital costs $100 a unit, method __________ is economically efficient. A: 1 labor, 10 capital B: 2 labor, 7 capital C: 3 labor, 3 capital D: 4 labor, 3 capital
C
Given the following data, what should the firm do? Current production = 1,000 Current price = $10 Marginal cost = $10 Total costs = $15,000 Fixed cost = $6,000
Continue to produce in the short run, but exit in the long run.
(b.) Given the following facts, what should the firm do in the short run? In the long run?Fixed costs are $50,000. Total costs are $90,000. Total revenues are $45,000.
Continue to produce in the short run; leave the industry in the long run.
The table shows various methods for producing blue jeans. Which method is technologically inefficient? Method __________ is technologically inefficient. A: 1 labor, 10 capital B: 2 labor, 7 capital C: 3 labor, 3 capital D: 4 labor, 3 capital
D
Harry produced 2 balloon rides and 4 boat rises an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides.
Harry is producing on his production possibilities frontier
What relationships do a firm's short-run cost curves show? Indicate whether the following statement is true or false. The marginal cost curve intersects the average fixed cost curve at its minimum.
False
Profit
First calculate Total Revenue, Price X Quantity at the point where MR=MC. Then subtract that number from the Total Cost, the price point that the q* meets the ATC curve at X quantity
Number of firms in market =
Market equilibrium quantity/the quantity correlated with the minimum ATC point. First, find the minimum individual ATC curve point. Using the same table, you have your minimum AC quantity. (number in the denominator). For the numerator, using the same minimum ATC point, find the corresponding long run equilibrium price. The firm will, ultimately, end up producing at the quantity associated with this minimum average cost point.
What triggers entry in a competitive market? (b.) Describe the process that ends further entry.
New firms enter, supply increases, and the price falls until in the long run all firms are making normal profit. Market output increases and the output of each individual firm decreases.
total product curve
Points that lie below the TP curve are attainable but they are inefficient.
Sara's income is $20 a week. The price of popcorn is $5 a bag, and the price of a smoothie is $4.Calculate the equation for Sara's budget line. is the quantity of smoothies and is the quantity of popcorn.
Qp = 4 - 0.8Qs
What triggers exit in a competitive market? (b.) Describe the process that ends further exit.
Some firms exit, supply decreases, and the price rises until in the long run all firms are making normal profit. Market output decreases and the output of each remaining firm increases.
Which of the following are examples of short run and long run decisions?
Starbucks' has hired more labor to meet the increasing demand; Starbucks' has opened another store to meet the increasing demand.
Utility Maximization Info given: Income, Prices of goods, and marginal utility chart
Step 1: Find all the "just affordable" bundles Step 2: Equalize the marginal utility per dollar for all goods
Utility Maximization Info given: Income, Prices of goods, and total utility chart
Step 1: Find all the "just affordable" bundles (on the budget line) Step 2: Calculate the total utility for each bundle and pick the maximum
A government is considering whether to tax each firm in a competitive market directly on each unit of output or to charge the same tax on each of its consumers for each unit of output? What will happen?
The after-tax equilibrium quantities will be the same in both cases.
Consider Molly, who consumes only tea and coffee. Molly is currently in consumer equilibrium. For Molly, tea and coffee are substitutes. Suppose the price of tea suddenly increases. The increase in the price of tea will immediately _____ the marginal utility per dollar for tea. Molly adjusts her consumption of tea and coffee in response to this price change. As Molly adjusts to her new consumer equilibrium, her marginal utility per dollar for the _____.
decrease; increases
Diminishing marginal utility is the general tendency for marginal utility to ______________ as the quantity of a good consumed ______________.
decrease; increases
Minnie will not produce a quantity at which the market demand for water is inelastic because when demand is inelastic she can _____ the quantity produced, which _____.
decrease; increases total revenue, decreases total cost, and increases economic profit
What is the key assumption about marginal utility?The key assumption about marginal utility is that marginal utility ______________.
decreases as consumption increases
A decrease in the expected future price of cars
decreases the current demand for cars
When the price of a good falls and the prices of other goods and a consumer's income remain the same, explain what happens to the consumption of the good whose price has fallen and to the consumption of other goods. The price of a movie falls.(b.) To adjust to the new consumer equilibrium, Ben ______________ the number of video games he plays.As Ben approaches his new consumer equilibrium, his marginal utility per dollar for movies ______________.
decreases; decreases
The equilibrium price will fall and the equilibrium quantity might increase, decrease, or stay the same when the
demand for a good decreases and the supply of it increases
The principal-agent problem is the problem of __________.
devising compensation rules that induce an agent to act in the best interest of a principal
Indifference curves ______________.
do not intersect
Any profit-maximizing firm produces where the marginal cost equals the marginal revenue in
each of the above types of markets.
Why do accountants and economists calculate a firm's costs and profit in different ways? An accountant calculates a firm's cost and profit to __________. An economist calculates a firm's cost and profit to __________.
ensure that the firm pays the correct amount of income tax and to show its investors how their funds are being used; enable them to understand and predict the firm's decisions
The smartphone market is in long-run equilibrium. Then the demand for smartphones increases. Describe what happens in the market for smartphones. (b.) Some firms will __________ the market, and the market supply curve will shift __________.
enter; rightward
Ricky is in a consumer equilibrium.Given the prices of goods, Ricky has allocated all his income such that his marginal utility per dollar is ______________ for ______________ goods.
equal; all
The market for portable CD players is in long-run equilibrium.Then the demand for portable CD players decreases.Describe what happens in the market for portable CD players. As a result, firms will __________ the market, and the market supply curve will shift __________.
exit; leftward
the marginal rate of substitution is...
greater the steeper is the indifference curve at a given point
The short-run market supply curve is __________.
horizontal at the shutdown price
What decisions must a firm make to maximize profit? To maximize profit, a firm in perfect competition must decide __________.
how to produce at minimum cost, what quantity to produce, and whether to enter or exit a market
As Ben approaches his new consumer equilibrium, his marginal utility per dollar for video games
increases
Under perfect price discrimination, economic profit _____ relative to a single-price monopolist setting.
increases
Explain how the marginal product and average product of labor change initially as the labor employed increases and, then, how they change eventually. As the labor employed increases, marginal product of labor initially __________.As the labor employed increases, the average product of labor initially __________.
increases and eventually decreases; increases and eventually decreases
Roses and chocolates are substitutes.Russell spends all of his income on roses and chocolates and he is in consumer equilibrium. The price of roses falls. (b.) In response to the price change, Russell ______________ roses and ______________ chocolate.
increases his quantity demanded of; decreases his demand for
Starting from a point of consumer equilibrium, a rise in income ______________.
increases total utility
If marginal cost exceeds average total cost and output increases, average total cost __________ and average variable cost __________.
increases; increases
When the price of a good falls and the prices of other goods and a consumer's income remain the same, explain what happens to the consumption of the good whose price has fallen and to the consumption of other goods. Consider Ben, who consumes only movies and video games and is currently in consumer equilibrium. For Ben, movies and video games are substitutes.(a.) The price of a movie falls which ______________ the marginal utility per dollar from movies.To adjust to the new consumer equilibrium, Ben ______________ the number of movies he sees.
increases; increases
Initially the consumer is maximizing utility. Then the price of one good falls.The marginal utility per dollar from that good immediately ______________. The consumer responds to the fall in the price and ______________.
increases; the quantity demanded of that good increases
The shape of the AVC curve arises because of __________.
increasing returns initially and eventually diminishing returns
Shawn drinks tea and hot chocolate throughout the winter. For Shawn, tea and hot chocolate are substitutes.When the price of a mug of hot chocolate falls, Shawn responds by ______________, which ______________ his marginal utility per dollar from hot chocolate.
increasing the quantity of hot chocolate he buys; decreases
Most production processes experience __________marginal returns initially, but all production processes eventually reach a point of __________ marginal returns.
increasing; diminishing
What triggers exit in a competitive market? (a.) Exit is triggered in a competitive market when existing firms are __________.
incurring an economic loss
A profit-maximizing monopoly never produces an output in the _____ range of its _____ curve.
inelastic; demand
Complete the sentence.In perfect competition, each firm __________.
is a price taker
Making a product slightly different from the product of a competing firm __________.
is called product differentiation
What is economic profit? Economic profit __________.
is equal to total revenue minus both the explicit and implicit costs of production.
What are the items that make economists' measure of cost differ from an accountant's measure of cost? Consider how the following, which are part of a firm's opportunity cost of production, are treated by accountants. Economic depreciation __________ in an accountant's measure of cost. Interest forgone __________ in an accountant's measure of cost.
is not included ; is not included
Is a firm technologically efficient if it uses the latest technology? Why or why not? A firm that uses the latest technology __________ technologically efficient because __________.
is not necessarily; the firm might not use the least amount of inputs to produce a given output
marginal utility
is the change in total utility that results from a one-unit increase in the quantity of a good consumed.
Total utility ______________.
is the total happiness that a person gets from the consumption of all the different goods and services.
When a firm is producing a given output at the least possible cost, __________.
it is operating on its long-run average cost curve
Why is a firm in perfect competition a price taker? A firm in perfect competition is a price taker because __________.
it produces a tiny proportion of the total output of a particular good and buyers are well informed about the prices of other firms
Why does an indifference curve slope downward and why is it bowed toward the origin? (a.) An indifference curves slopes downward because ______________.
it shows that when a person gives up some of good x they must increase their consumption of good y to remain indifferent
The figure illustrates the labor market for fast food restaurants in a small city in Peru. What would be the effects of a minimum wage imposed at $4 per hour?
nothing because the minimum wage has no effect of the equilibrium price and quantity
Scarcity exists because
our wants exceed the resources available to satisfy them
Total variable cost =
output X variable costs
Three ways of attempting to cope with the principal-agent problem are __________.
ownership, incentive pay, and long-term contracts
The term human capital refers to
people's knowledge and skill
Lin's makes fortune cookies. Anyone can make and sell fortune cookies, so there are dozens of producers. All fortune cookies are the same and buyers and sellers know this fact. In what type of market does Lin's operate?What determines the price of fortune cookies? What determines Lin's marginal revenue? (a.) Lin's fortune cookies operates in a __________ market.
perfectly competitive
Kendall loves chocolate chip cookies. As the price of a cookie increases from $0.50 to $1 to $1.50, Kendall continues to buy a dozen cookies every week. Kendall's demand for cookies is _______
perfectly inelastic
Efficiency
pick the line that is lowest at the quantity point
Complete the sentence.In perfect competition, a firm maximizes its economic profit if it produces the output at which __________.
price equals marginal cost
How does a single-price monopoly determine the price it will charge its customers? (a.) A single-price monopoly _____.
produces the quantity at which marginal revenue equals marginal cost, MR=MC, and charges the highest price consumers will pay for that quantity from the demand curve
Total product is the total __________ of a good produced in a given period.Marginal product is the change in __________ product that results from a one-unit increase in the __________.Average product is the total product divided by the __________.
quantity; total; quantity of labor employed; quantity of a factor of production
Increasing opportunity cost occurs along a production possibilities frontier because
resources are not equally productive in all activities
When your marginal grade exceeds your GPA, your GPA __________.
rises
What are the two measures of concentration? Explain how each measure is calculated. (a.) The four-firm concentration ratio is the percentage of the value of __________ accounted for by the four largest firms in an industry.
sales
Amy has $20 a week to spend on coffee and cake. The price of coffee is $4 a cup, and the price of cake is $2 a slice. Then Amy's income increases to $24 a week and the prices of coffee and cake remain unchanged. What happens to Amy's budget line when her income increases and the prices of coffee and cake remain unchanged?Amy's new budget line will ______________.
shift outward and have the same slope as the original budget line
Sue's Surfboards rents a factory. If the rent rises by $200 a week and other things remain the same, how do Sue's Surfboards' short-run average cost curves and marginal cost curve change? (a.) If other things remain the same, the average fixed cost curve __________ and the average variable cost curve __________.
shifts upward; does not change
Sue's Surfboards rents a factory. If the rent rises by $200 a week and other things remain the same, how do Sue's Surfboards' short-run average cost curves and marginal cost curve change? (b.) If other things remain the same, the average total cost curve __________, and the marginal cost curve __________.
shifts upward; does not change
If total fixed cost increases, then the average total cost curve __________ and the marginal cost curve __________.
shifts upward; does not shift
If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 12,000 per year, there is a ____ in the market and the price will ______.
shortage; rise
(a.) A firm producing where price equals marginal cost that has variable costs equaling $60 million; fixed costs equaling $40 million; and revenues equaling $50 million should:
shut down now and leave the industry in the long run.
What are the two measures of concentration? Explain how each measure is calculated. (b.) The Herfindahl-Hirschman Index is the __________ of the percentage market share of each firm summed across the largest __________ firms (or summed across all the firms if there are fewer than __________) in a market.
square; 50; 50
The figure shows the market for anti-freeze. The government imposes a tax on sellers. Anti-freeze sellers would pay a larger part of this tax than what is currently shown in the figure if
supply were more inelastic.
A firm's opportunity cost of production includes ______.
the cost of using resources bought in the market, owned by the firm, and supplied by the firm's owner
When a firm practices perfect price discrimination _____
the demand curve becomes the marginal revenue curve
Why does a single-price monopoly produce a smaller output and charge more than the price that would prevail if the market were perfectly competitive? A single-price monopoly produces a smaller output and charges more than the price that would prevail if the market were perfectly competitive because _____.
the demand curve is downward sloping and a single-price monopoly produces the quantity at which marginal revenue equals marginal cost
Sam's Surfboards is the sole renter of surfboards on Big Wave Island. If marginal revenue is positive at the actual number of surfboard rentals made each hour, then _____.
the demand for surfboard rentals is elastic
The shape of the ATC curve arises because of __________.
the influence of two opposing forces—spreading total fixed cost over a larger output and eventually diminishing returns
Andy drinks hot chocolate every week throughout the winter. The curve illustrates Andy's total utility from hot chocolate.Total utility depends on ______________.
the level of consumption
What do we call the magnitude of the slope of an indifference curve?The magnitude of the slope of the indifference curve is ______________.
the marginal rate of substitution
What is a major disadvantage of a proprietorship? A major disadvantage of a proprietorship is that __________.
the owner's entire wealth is at risk
What is price discrimination and how is it used to increase a monopoly's profit? Price discrimination is _____.
the practice of selling different units of a good or service for different prices according to the consumers' willingness to pay
If a consumer's income increases and if all goods are normal goods, explain how the quantity bought of each good changes. If a consumer's income increases and if all goods are normal goods, ______________.
the quantity bought of each good increases because the consumer maximizes utility by spending all available income and marginal utility per dollar, which decreases as more is consumed, must be equal for all goods
A monopoly that can perfectly price discriminate has a marginal revenue curve that is _____ the demand curve for the good that the monopoly produces. If a monopoly can perfectly price discriminate, it produces _____ deadweight loss.
the same as; no
Explain why equalizing the marginal utility per dollar for all goods maximizes utility. (c.) When the last dollar spent on each good gives ______________.
the same marginal utility, then total utility cannot be increased by changing the consumption combination
A perfect price discriminating monopoly produces _____.
the same quantity of output as a perfectly competitive market
In perfect competition, firms will be able to earn economic profits in:
the short run, only.
The "law of demand" refers to the face that, all other things remaining the same, when the price of a good rises
there is a movement up along the demand curve
average total cost
total costs / output
Total costs =
total fixed costs + total variable costs
average fixed cost
total fixed costs / output
