Smartbook 6

The horizontal axis represents quantity (thousands of pounds per day) ranging from 0 through 50 in increments of 5, while vertical axis represents price (dollars per day) ranging from 0 through 5 in increments of 1. The data is as follows: The supply curve increases from (0, 0) to (45, 4.5) through (10, 1), (20, 2), (30, 3), and (40, 4). Note: All data is approximate. Given the figure on the right, if strawberries sell for $4 per pound, what's the maximum amount producers would be willing to pay, in the aggregate, to participate in this market?

$80,000 per day Reason: If price is $4, producer surplus will be $80,000 (=4×40,000/2). This is the maximum amount producers would be willing to pay, in the aggregate, to participate in this market.

The horizontal axis represents quantity (thousands of pounds per day) ranging from 0 through 50 in increments of 5, while vertical axis represents price (dollars per day) ranging from 0 through 5 in increments of 1. The data is as follows: The supply curve increases from (0, 0) to (45, 4.5) through (10, 1), (20, 2), (30, 3), and (40, 4). Note: All data is approximate. Given the figure on the right, if strawberries sell for $3 per pound, producer surplus is ________ dollars per day.

45,000, 45000, 45 thousand, forty five thousand, or forty-five thousand

For a firm that produces jeans, which of the following is likely to be a factor of production?

Denim Workers Sewing machines

Select all that apply Which of the following capture the conditions under which firms will shutdown?

If price is less than average variable cost even when the firm produces at the level of output that minimizes average variable cost. If the firm's revenue is less than the firm's variable cost at all levels of output.

If output can be varied continuously, then firms in a perfectly competitive market maximize their profits by choosing the level of output such that _____.

P=MC

A price-taking, profit-maximizing firm will always produce a level of output where ______.

Price = MC

Which of the following is correct as it applies to pollution mitigation and recycling programs?

Reaching zero pollution increases MC above MB in most cases.

An input used in the production of a good or service is called ______.

a factor of production

The demand curve facing a firm in a perfectly competitive market is

a horizontal line at the equilibrium price.

Technological innovations that decrease a firm's marginal cost lead to

an increase in supply. Reason: A reduction in marginal cost corresponds to a rightward shift in the supply curve (an increase in supply).

A factor of production is ______.

an input used in the production of a good or service

Suppose a recent announcement by the United States Department of Agriculture leads Mr. Zuckerman, who grows sugar cane, to believe that the price of sugar cane will increase sharply next year. Mr. Zuckerman's current supply of sugar cane is likely to _______.

decrease Reason: Expectations of future price increases lead current supply to decrease because suppliers prefer to sell their product when prices are high.

The sum of all payments made to the firm's fixed factors of production is the firm's _____.

fixed cost

The law of diminishing returns explains why marginal costs eventually _____.

increase

If the marginal cost of producing an additional unit of a good is less than price of that good, then the firm should

increase production.

If a firm's total revenue is greater than its total cost, then the firm _____.

is profitable

Suppose Elsa owns an ice cream shop. If she expects the price of ice cream to fall next month, then this should ______.

lead her current supply of ice cream to increase Reason: Expectations of future price decreases lead current supply to increase because suppliers prefer to sell their product when prices are high.

The period of time of sufficient length that all of the firm's factors of production are variable is known as the _____.

long run

At each point along a market supply curve, price measures each seller's _____.

marginal cost of production

If the marginal cost of producing the 500th unit of a good is greater than price of that good, then the firm should

not produce the 500th unit.

Firms in perfectly competitive markets face demand curves that are _____.

perfectly elastic

At each point along a market supply curve, _______ (one word) measures each seller's marginal cost of production.

price

At each point along a market supply curve, ________ (one word) measures each seller's marginal cost of production.

price

At each point along a market supply curve, _________ (one word) measures each seller's marginal cost of production.

price

Producer surplus is the amount by which:

price exceeds the seller's reservation price

The amount by which price exceeds the seller's reservation price is _____.

producer surplus

The difference between the total revenue of a firm and all costs (explicit and implicit) incurred by the firm is called _____.

profit

As the number of suppliers in the market increases, the market supply curve will shift to the _____.

right

If input prices decrease, supply will shift _____.

rightward Reason: A decrease in marginal cost corresponds to a increase (rightward shift) in supply.

Supply will increase as the number of _____.

sellers in the market increases Reason: An increase in the number of buyers in the market will lead to an increase in supply.

The period of time sufficiently short that at least some of the firm's factors of production are fixed is known as the _____.

short run

A firm's fixed cost is the sum of all payments made

to the firm's fixed factors of production.

Fixed cost + variable cost = _________ cost

total

The sum of all the payments made to the firm's fixed and variable factors of production is the firm's ___________ cost.

total

A firm is profitable if its total revenue exceeds its _____.

total cost

Profit equals _____.

total revenue minus total cost

The sum of all payments made to the firm's variable factors of production is the firm's ____

variable cost

The sum of all payments made to the firm's variable factors of production is the firm's _____.

variable cost

A firm's ___________ cost is the sum of all payments the firm makes to inputs whose quantities can be altered in the short run.

variable or total variable

The horizontal axis represents quantity (thousands of pounds per day) ranging from 0 through 50 in increments of 5, while vertical axis represents price (dollars per day) ranging from 0 through 5 in increments of 1. The data is as follows: The supply curve increases from (0, 0) to (45, 4.5) through (10, 1), (20, 2), (30, 3), and (40, 4). Note: All data is approximate. Given the figure on the right, if strawberries sell for $2 per pound, what will be total producer surplus in the market for strawberries each day?

$20,000 Reason: If price is $2, 20,000 pounds of strawberries will be purchased each day. Consumer surplus will be $20,000 (=2×20,000/2).

Suppose that when the price of apples is 25 cents each, there are 10 farmers who each supply 600 apples per day, and 2 farmers who each supply 1,000 apples per day. Thus, when the price of apples is 25 cents, the market supply of apples is __________ per day.

8000 or 8,000

As input prices increase, the cost of producing each additional unit of output increases, leading to

a decrease in supply. Reason: An increase in marginal cost corresponds to a decrease (leftward shift) in supply.

Marginal cost eventually increases because of _____.

diminishing returns Reason: Diminishing returns implies that it takes more of the variable input to produce each additional unit of output, which, in turn, implies that marginal cost is increasing.

The horizontal axis represents output (loaves of bread per day) ranging from 0 through 100 in increments of 10, while vertical axis represents cost (dollar per loaf) ranging from 0 through 6 in increments of 1. The data is as follows: The price curve begins from (0, 3) to (90, 3). The average total cost curve begins from (1, 3.9) to (84, 4.5), while average variable cost curve begins from (2, 2.3) to (83, 4). The marginal curve increases from (7, 1.2) to (63, 5.5), intersecting price curve at (50, 3). A shaded region is visible between (0, 2), (50, 2), (0, 3), and (50, 3) Note: All data is approximate. The picture on the right shows the cost curves for the West End Bakery. The light blue shaded area represents

the bakery's profit of $50 per day.

Suppose the automobile manufacturers in an economy use a similar set of inputs to produce cars and SUVs. If the market price of SUVs increases, which of the following is likely to happen to the supply of cars?

It will decrease. Reason: Automobile manufacturers will shift their resources away from producing cars and towards producing SUVs, so the supply of cars will decrease.

Select all that apply If recycling programs pay individuals and a reasonable amount for the collection of recycled raw materials, like aluminum, why do we have any litter at all?

Some recyclable materials are often discarded in remote areas that make the cost of retrieval very high. Total economic surplus is greatest when we recycle up to the point where MB = MC. Each additional unit of recyclable materials incurs an additional cost. At some point this money could be spent elsewhere.

The horizontal axis represents output (loaves of bread per day) ranging from 0 through 100 in increments of 10, while vertical axis represents cost (dollar per loaf) ranging from 0 through 6 in increments of 1. The data is as follows: The price curve begins from (0, 3) to (90, 3). The average total cost curve begins from (1, 3.9) to (84, 4.5), while average variable cost curve begins from (2, 2.3) to (83, 4). The marginal curve increases from (7, 1.2) to (63, 5.5), intersecting price curve at (50, 3). Note: All data is approximate. The picture on the right shows the cost curves for the West End Bakery. If the price of bread is $3 per loaf, then the profit maximizing level of output for the West End Bakery is _____.

50 loaves/day Reason: Yes! When the West End Bakery produces 50 loaves of bread per day, P=MC.

For a firm that produces bread, which of the following is likely to be a factor of production?

Bakers Flour Ovens Reason: Factors of production are the actual inputs used in producing a good or service, not the money used to buy the inputs.

Suppose Vera makes hand-knit scarves and sweaters that she sells on Etsy.com. If the price at which Vera can sell her scarves falls, what is likely to happen to Vera's supply of sweaters?

It will increase. Reason: Vera will shift her resources away from producing scarves and towards producing sweaters, so her supply of sweaters will increase.

Suppose that when the price of tomatoes is $2 per pound, there are 5 farmers each willing to supply 10 pounds per day, and 3 farmers each willing to supply 20 pounds per day. Thus, when the price of tomatoes is $2 per pound, the market supply of tomatoes is _________ pounds per day.

110, 110 pounds, or 110 lbs

In the short run, a profit-maximizing firm will not produce anything if

the firm's revenue is less than its variable cost at all levels of production.

The horizontal axis represents output (loaves of bread per day) ranging from 0 through 100 in increments of 10, while vertical axis represents cost (dollar per loaf) ranging from 0 through 6 in increments of 1. The data is as follows: The price curve begins from (0, 3) to (90, 3). The average total cost curve begins from (1, 3.9) to (84, 4.5), while average variable cost curve begins from (2, 2.3) to (83, 4). The marginal curve increases from (7, 1.2) to (63, 5.5), intersecting price curve at (50, 3). A shaded region is visible between (0, 2), (50, 2), (0, 3), and (50, 3) Note: All data is approximate. The picture on the right shows the cost curves for the West End Bakery. In this picture the bakery's profits equal _________ dollars per day (enter a number only).

50, fifty, $50, 50 dollars, or fifty dollars

Technological innovations in the production process tend to increase supply because they

decrease marginal cost. Reason: Technological innovations will reduce marginal cost (otherwise the firm would not adopt them). This corresponds to an increase in supply (a rightward shift).

If a firm in a perfectly competitive market chooses the level of output such that price equals marginal cost, then the firm is ______.

maximizing its profits