Microecon

Scenario 13-10 Walter builds birdhouses. He spends $5 on the materials for each birdhouse. He can build one in 30 minutes. He is semi-retired but earns $8 per hour at the local hardware store. He can sell a birdhouse for $20 each. Refer to Scenario 13-10. An economist would calculate the total profit for one birdhouse to be

$11

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that marginal cost of the third worker hired is $40, and the average total cost when three workers are hired is $50. What is the total cost of production when three workers are hired?

$150

Calvin wants to start his own business making candles. He can purchase a candle factory that costs $400,000. Calvin currently has $500,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-1. Suppose Calvin purchases the factory using $200,000 of his own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Calvin's annual opportunity cost of purchasing the factory?

$18,000

Zach has decided to start his own photography studio. To purchase the necessary equipment, Zach withdrew $10,000 from his savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Zach's annual opportunity cost of the financial capital that has been invested in the business?

$700

Scenario 13-7 Wanda owns a lemonade stand. She produces lemonade using five inputs: water, sugar, lemons, paper cups, and labor. Her costs per glass are as follows: $0.01 for water, $0.02 for sugar, $0.03 for lemons, $0.02 for cups, and $0.10 for the opportunity cost of her labor. She can sell 300 glasses for $0.50 each. Refer to Scenario 13-7. What are Wanda's total economic profits?

$96

Before considering any public project, the government should (i) compare the total cost and total benefits of the project. (ii) conduct a cost-benefit analysis. (iii) infer that citizens who vote for a project are willing to pay equally for it.

(i) and (ii) only

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 5, Q = 125) and (L = 6, Q = 162). Then the marginal product of the 6th worker is

37 units of output

Scenario 13-8 Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.

80,500

The best remedy for market failure is often

A market based solution

The town of Isle is on a small island connected to Big City by a single bridge. Most of the residents of Isle work in Big City. As a result, the bridge becomes very congested for 2 hours each day at the typical morning and evening commute times. Which of the following policies considered by the mayor of Isle would likely be most effective in alleviating the congestion?

A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times.

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000. Which of the following statements is correct?

Bev's economic profit is $4,700.

Which of the following statements is correct?

Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.

Emma is a writer who works from her home. Emma lives next door to Clay, the drummer for a local band. Clay needs lots of practice to earn his share of the band’s profit, which will amount to $250. Emma gets distracted by Clay’s drumming but needs to get her writing done to earn $500 for her current article. If Emma needs to hire a lawyer to help her reach an agreement with Clay, then what price is Emma willing to pay the lawyer?

Less than $250

Which of the following is not a reason that the findings of cost-benefit analyses on public goods are only rough approximations?

People value goods differently if they are publicly provided rather than privately provided.

Labor is a

Private good

Randy is a minor-league baseball player. His current cumulative batting average is 0.270. Randy believes that if he can raise his cumulative batting average to 0.300, he will have a chance to play in the major leagues. Which of the following statements is correct?

Randy must get more than 30 hits out of his next 100 at bats in order to raise his cumulative batting average to 0.300.

Which of the following is not a negative externality associated with driving cars?

Repairs

Which of the following statements is not correct?

The Tragedy of the Commons illustrates the underuse of a common resource.

Harry's Hotdogs is a small street vendor business owned by Harry Huggins. Harry is trying to get a better understanding of his costs by categorizing them as fixed or variable. Which of the following costs are most likely to be considered fixed costs?

The cost of bookkeeping services

Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that

The current situation is efficient

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

The equilibrium quantity is less than the socially optimal quantity.

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

The equilibrium quantity is less than the socially optimal quantity.

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs but not the size of its factory.

Table 13-5 Number of Workers Output 0 0 1 1,000 2 2,000 3 2,700 4 3,200 5 3,500 6 3,600 Refer to Table 13-5. Assume that fixed costs are $500, and variable costs are $100 per worker. For this firm, what are the shapes of the production function and the total-cost curve?

The production function is increasing at a decreasing rate, whereas the total-cost function is increasing at an increasing rate.

Under which of the following scenarios would a park be considered a public good?

Visitors can enter the park free of charge and there are always plenty of empty picnic tables.

Which of the following would not be considered a negative externality?

You have an adverse reaction to a medication your doctor prescribed for you.

Which of the following goods is rival in consumption and excludable?

a can of Coca-Cola

When the production of a good results in a positive externality, the social value curve is

above the demand curve, indicating that the total value to society is greater than the private benefit.

When an infinite value is placed on human life, policymakers who rely on cost-benefit analysis

are forced to pursue any project in which a single human life is saved.

Each of the following is likely to be a successful way for the government to solve the problem of overuse of a common resource except

asking individuals to voluntarily reduce their use of the resource.

If marginal cost is equal to average total cost, then

average total cost is minimalized

At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the

average total cost of 21 pairs of boots is $23.

Corrective taxes differ from most taxes in that corrective taxes

enhance economic efficiency.

A pizza is

excludable and rival in consumption.

Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are unionized. The union at The Electric Co. has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Pete receives all the benefits that the union has negotiated. Pete's behavior is an example of

free riding

Consider a good for which the number of people who benefit from the good is large and the exclusion of any one those people is impossible. In this case, the market for this good will likely

have a free-rider problem.

Tradable pollution permits

have helped reduce sulfur dioxide emissions. have helped reduce carbon emissions. are widely viewed as a cost-effective way to reduce pollution.

The goal of industrial policy should be that

industries yielding the largest positive externalities should receive the biggest subsidies.

The length of the short run

is different for different types of firms

The Tragedy of the Commons

is eliminated when property rights are assigned to individuals.

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

is needed when private solutions fail to arise.

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of

lemons and sugar

Diseconomies of scale occur when

long-run average total costs rise as output increases.

The cost of producing an additional unit of output is the firm's

marginal cost

Diminishing marginal product suggests that

marginal cost is upward sloping.

One drawback to industrial policy is that

measuring the size of spillovers from different markets is difficult.

Total revenue minus only implicit costs is called

not economic profit, opportunity cost or accounting profit

A congested side street in your neighborhood is

not excludable and rival in consumption.

Because public goods are

not excludable, people have an incentive to be free riders.

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case?

private good

Most goods in the economy are

private goods

Patents do not

protect the rights of inventors for their lifetimes.

A sidewalk runs across Milton's front yard near the street. By law, anyone has the right to use the sidewalk. When Milton shovels the sidewalk after a heavy snow, he is providing a

public good

In Singapore, littering fines are strictly enforced. This is an example of a policy that

relies on incentives to reduce the pollution externality.

A vacation home in Malibu is

rival in consumption and excludable.

The Tragedy of the Commons results when a good is

rival in consumption and not excludable.

Dioxin emission that results from the production of paper is a good example of a negative externality because

self-interested paper producers will not consider the full cost of the dioxin pollution they create.

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

shift down by an amount equal to the subsidy.

The Tragedy of the Commons occurs because

social and private incentives differ.

That some firms are engaged in more than one type of business is explained, in some cases, by

the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.

The marginal cost curve crosses the average total cost curve at

the minimum point on the average total cost curve. a point where the marginal cost curve is rising. the efficient scale

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

their respective markets would move closer to the social optimum.

The goal of requiring licenses for hunting and fishing is

to reduce the use of a common resource.

Average total cost is equal to

total cost/output.

Which of the following is not a way for the government to solve the problem of excessive use of common resources?

turning the common resource into a public good

Which of the following represents a potential solution to the problem of environmental pollution?

well established property rights corrective taxes government regulation

In the short run, a firm incurs fixed costs

whether it produces output or not.

The Coase theorem suggests that private solutions to an externality problem

will usually allocate resources efficiently if private parties can bargain without cost.