Micro Test #3 true/false
Jose finds that anytime he eats bananas a second banana provides less satisfaction than the first banana. Therefore, if he wants to maximize his satisfaction he should not eat more than one banana at a time.
False, Jose is experiencing diminishing marginal utility. But, as long as the additional utility per dollar of the second banana is greater than the additional marginal utility per dollar he might receive from other options he may still be happier by eating more than one banana at a time.
If a firm's accounting profit is positive, then its economic profit must also be positive.
False, accounting profit only accounts for explicit cost, while economic profit deals with explicit and implicit costs.
A perfectly competitive market that is in long-run equilibrium experiences a decrease in demand. Assuming no other changes outside of this market, we should expect the price to be lower when this market returns to its new long-run equilibrium.
False, firms will exit the market until P= min ATC. They will leave due to competitive prices and it will drive the price up.
Putski Concrete Co. hires one additional worker. Output goes up by 10 units per day. This must have been a good hiring decision.
False, it may or may not have been. It depends on the price of each unit of output and the wage the worker receives. If the workers wage is greater than 10x the price of output, the decision will decrease profits.
A firm's marginal cost of producing one more unit of output is $20. Its average total cost of production is $32 at the current level of output. Average total cost will rise if the firm produces one more unit.
False, it will fall because ATC > MC. Since MC is less than ATC, it will make the ATC fall when the firm produces 1 more unit
A firm currently produces 100 units of a good per day. Its total cost of production is $21,500 per day. The marginal cost of producing the 101st unit is $220. Increasing output by one unit per day will increase the firm's average total cost.
True, At Q=100, ATC= $21,500/100= $125. If MC= $220 producing one more unit will pull up ATC(you can show this by adding the additional cost to the total cost and dividing by 101 units as well)
If a particular war of producing a good is economically efficient it must also be technically efficient
True, economic efficiency is a subset of technical efficiency. you can not be economically efficient while using redundant inputs, because economic efficiency means operating at minimal cost.
Barbara likes diamond rings and sapphire necklaces(in fact, they are the only things she consumes). If Barbara is perfectly rational and the price of sapphire necklaces rises we would expect Barbara to sell some of her necklaces and buy more diamond rings.
True, the increase in the price of sapphire necklaces relative to the price of diamond rings will make the marginal utility of sapphire necklaces per dollar lower to the marginal utility of diamond rings per dollar (at her level of consumption before the price change). To bring her back to the point where MUs/Ps - MUd/Pd she will have to switch some of her consumption from sapphire necklaces (increasing MUs in the process) and increase consumption of diamond rings (decreasing Mud in the process)
In the short run with a fixed level of capital the marginal productivity of the 10th worker is 4 units of output per day. The market price of the output is $8 per unit and the market wage is $20 per day. Under these conditions a profit-maximizing firm would want to hire the 10th worker.
True, they would hire him because he makes $32 worth of goods, while only making $20 a day. He makes the company $12, so they would hire him.
A combination of economically efficient inputs may no longer be economically efficient if inputs prices change
True, while technical efficiency is not a function of input prices, economic efficiency is: MPl/W=MPk/r
