Eco 01 Hw 3 (Ch 10, 11, 12, & 15)

The law of diminishing marginal utility

consumers experience diminishing additional satisfaction as they consume more of a good or service.

variable costs

costs that are affected by the level of output​ produced

allocative efficiency

describes a state of the economy in which production reflects consumer​ preferences

Natural monopoly

develops automatically due to economies of scale.

marginal product of labor

difference between output values

The lease payment she makes to her landlord who owns the building where her store is located is a ____ cost

fixed cost

The payment she makes on her fire insurance policy is a ______ cost.

fixed cost

The​ $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a ____ cost.

fixed cost

Total profit on a graph

represents the rectangle of the length til the MC curve intersects with the demand line and the ATC curve intersects with the demand curve until the y=0 line of the origin.

Profit on a graph

represents the vertical distance between the demand line and the ATC curve

Minimum efficient scale is

the level of output at which the long minus run average cost of production no longer decreases with output.

Average product of labor

total output divided by the number of workers

The payment she makes to buy pizza dough is a _____ cost.

variable cost

The wages she pays her workers is a ____ cost.

variable cost

Diseconomies of scale is

when a​ firm's long-run average costs increase with output.

Shut down point for a firm is

when the demand line intersects the AVC curve at the lowest possible point.

profit maximizing point

where the MC curve intersects the MR line and then follow it up to the demand line

A firm cuts its workforce and is able to maintain its initial level of output.

IS an example of positive technological change.

A training program makes a​ firm's workers more productive.

IS an example of positive technological change.

An exercise program makes a​ firm's workers more healthy and productive.

IS an example of positive technological change.

Natural monopolies are ____ public franchise

NOT

public franchise are ____ natural monopolies

NOT

A firm is able to cut each​ worker's wage rate by 10 percent and still produce the same level of output.

NOT an example of positive technological change.

A firm rearranges the layout of its factory and finds that by using its initial set of​ inputs, it can produce exactly as much as before.

NOT an example of positive technological change.

Constructing New homes

Not perfectly competitive Few firms Differentiated product low ease of entry

Sub sandwich shops

Not perfectly competitive Many firms differentiated product high ease of entry

manufacturing cell phones

Not perfectly competitive few firms Differentiated product Low ease of entry

Example Corn Farming

Perfectly competitive Many Firms Identicial product High ease of entry

Suppose it is October 1. You have paid ​$10,000 in tuition and have been attending college classes. ​ However, you are offered a​ full-time job paying ​$22,500 for the next two months. If you take the​ job, you'll have to stop attending classes and withdraw from college for the semester. ​ Unfortunately, at this point in the​ semester, tuition is no longer refundable. You must decide whether to remain enrolled in college. What is the relevant cost of staying in​ school?

$22,500

How are implicit costs different from explicit​ costs? A. An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost. B. An explicit cost is not an opportunity​ cost, while an implicit cost is an opportunity cost. C. An explicit cost is a cost incurred as output changesas output changes​, while an implicit cost is a cost incurred holding output constantholding output constant. D. An explicit cost is a cost incurred in the longlong ​run, while an implicit cost is a cost incurred in the shortshort run. E. Both a and b.

A. An explicit cost is a cost that involves spending​ money, while an implicit cost is a nonmonetary cost.

The following excerpt is from a letter sent to a financial advice​ columnist: ​"My wife and I are trying to decide how to invest a​ $250,000 windfall. She wants to pay off our​ $114,000 mortgage, but​ I'm not eager to do that because we refinanced only nine months​ ago, paying​ $3,000 in fees and​ costs." ​Source: Liz​ Pulliam, Los Angeles Times advice​ column, March​ 24, 2004. How should the​ $3,000 in fees and costs be​ considered? A. It is a sunk cost and should not be taken into account when deciding to pay off the mortgage. B. It is an explicit cost of paying off the mortgage. C. It should be taken into consideration in the decision as to whether or not to pay off the mortgage. D. It is a sunk cost and should be taken into account when deciding to pay off the mortgage

A. It is a sunk cost and should not be taken into account when deciding to pay off the mortgage.

If you own the only hardware store in a small​ town, do you have a​ monopoly? A. Yes. You would have a monopoly if your profits are not competed away in the long run. B. Yes. You have a monopoly because there are no substitutes for hardware. C. No. You do not have a monopoly because there are substitutes for hardware. D. No. You would not have a monopoly if you could not ignore the actions of competitors. E. Both a and b.

A. Yes. You would have a monopoly if your profits are not competed away in the long run.

When a monopoly maximizes​ profit, deadweight loss will be larger if demand is A. inelastic because price will be farther from marginal cost. B. inelastic because less surplus will be transferred from consumers to producers. C. elastic because price will be farther from marginal cost. D. elastic because more surplus will be transferred from consumers to producers. E. both a and b

A. inelastic because price will be farther from marginal cost.

Why might a monopoly​ arise? One firm will be present when A. only one firm has control of a key raw material necessary to produce a good. B. it can supply the entire market at lower average fixedaverage fixed cost than can two or more firms. C. the possibility for product differentiation is limited to only a couple of other firmsthe possibility for product differentiation is limited to only a couple of other firms. D. there exists no possibility for network externalities with other firms. E. All of the above.

A. only one firm has control of a key raw material necessary to produce a good

The average total cost curve and the marginal cost curve are related in that A. the MC curve passes through the minimum point of the ATC curve. .B. the ATC curve passes through the minimum point of the MC curve. C. the ATC and MC curves both rise and fall together. D. the MC curve rises when the ATC curve falls.

A. the MC curve passes through the minimum point of the ATC curve.

A firm that does not reach its minimum efficient scale A. will lose money if it remains in business. B. will be experiencing constant returns to scale. C. will earn positive profits if it remains in business. D. will become a natural monopoly. E. both a and b.

A. will lose money if it remains in business.

Average Variable Cost

ATC-AFC

When a​ firm's demand curve slopes downward and the firm decides to cut​ price, which of the following​ happens? A. It sells more units and receives higher revenue per unit. B. It sells more units but receives lower revenue per unit. C. It sells fewer units and receives lower revenue per unit. D. It sells fewer units but receives higher revenue per unit

B. It sells more units but receives lower revenue per unit.

Las Vegas is one of the most popular tourist destinations in the United States. In November​ 2008, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to​ $5.99 for local​ residents, while keeping the regular price of​ $14.99 for nonlocals. ​Source: Las Vegas Advisor​, ​November, 2008. Why would the restaurant do​ this? A. They wanted to appear unfair to tourists. B. They were willing to trade off some profits to keep their regular customers happy. C. They had a more difficult time raising prices when it was justified by cost increases. D. Tourists will return often to the restaurants.

B. They were willing to trade off some profits to keep their regular customers happy.

Are perfectly competitive markets allocativelyallocatively efficient in the long​ run? A. Yes comma because firms produce at the lowest average cost possibleYes, because firms produce at the lowest average cost possible. B. Yes comma because firms produce where the marginal benefit to consumers equals the marginal cost of production C. ​No, because firms earn zero economic profits. D. ​No, because firms will not shut down unless price is less than the average variable cost of production. E. Both a and b.

B. Yes comma because firms produce where the marginal benefit to consumers equals the marginal cost of production

The​ long-run supply curve is A. an​ upward-sloping line equal to the sum of each​ firm's supply curve. B. a horizontal line equal to the minimum point on the typical​ firm's average total cost curve. YoC. an​ upward-sloping line equal to the sum of each​ firm's marginal cost curve. D. a horizontal line equal to the minimum point on the typical​ firm's average variable cost curve. E. an​ upward-sloping line equal to the sum of the portion of each​ firm's marginal cost curve that is above minimum average variable cost.

B. a horizontal line equal to the minimum point on the typical​ firm's average total cost curve.

For a market to be perfectly​ competitive, there must be A. many buyers and a small number of firms that​ compete, selling identicalidentical ​products, and barriers to new firms entering the market. B. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market. C. many buyers and​ sellers, with firms selling similar but not identical​ products, with low barriers to new firms entering the market. D. many buyers and one​ seller, with the firm producing a product that has no close​ substitutes, and barriers to new firms entering the market. E. many buyers andnothing​sellers, with all firms selling identical​ products, and substantialsubstantial barriers to new firms entering the

B. many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

Marginal utility is more useful than total utility in consumer decision making because A. it is possible to measure marginal utility but not total utility. B. optimal decisions are made at the margin. C. consumers maximize utility by maximizing marginal utility from each good. D. optimal decisions are made by consuming until marginal utility becomes negative. E. consumers maximize utility by equalizing marginal utility from each good.

B. optimal decisions are made at the margin.

Which of the following terms best describes the result of the forces of competition driving the market price to the minimum average cost of the typical​ firm? A. ​decreasing-cost industry B. productive efficiency C. allocative efficiency D. competitive markdown

B. productive efficiency

Which of the following products is most likely to have significant network externalities​? A. LCD television sets B. smartphones C. 3D television sets D. Dog food

B. smartphones

Which of the following rights is given to the holder of a​ patent? A. control over a key resource used in production of a good or service B. the exclusive right to a new product for a limited period .C. a public franchise D. the right to earn profits from creation of the product indefinitely

B. the exclusive right to a new product for a limited period

Economies of scale occur A. when the marginal product of labor increases with output. B. when a​ firm's long-run average costs decrease with output. C. when a​ firm's long-run average costs increase with output. D. when the marginal cost of production decreases with output.

B. when a​ firm's long-run average costs decrease with output.

What is the relationship between a​ monopolist's demand curve and the market demand​ curve? A. A​ monopolist's demand curve is upwardupward sloping and the market demand curve is downwarddownward sloping. B. The market demand curve is the sum of the demand curves for all firms in the market. C. A​ monopolist's demand curve is the same as the market demand curve. .D. The market demand curve has twice the slope of a​ monopolist's demand curve. E. A​ monopolist's demand curve is greater than the market demand curve.

C. A​ monopolist's demand curve is the same as the market demand curve.

What is the relationship between a​ monopolist's demand curve and its marginal revenue​ curve? A. A​ monopolist's marginal revenue curve has twice the slope of its demand curve due to economies of scaleeconomies of scale. B. A​ monopolist's marginal revenue curve has half the slope of its demand​ curve, because to sell more​ output, a monopoly must lower price. C. A​ monopolist's marginal revenue curve has twice the slope of its demand​ curve, because to sell more​ output, a monopoly must lower price. D. A​ monopolist's demand curve is downward sloping and its marginal revenue curve is horizontalhorizontal. E. A​ monopolist's demand curve is the same as its marginal revenue curve.

C. A​ monopolist's marginal revenue curve has twice the slope of its demand​ curve, because to sell more​ output, a monopoly must lower price.

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory? A. Fixed costs become too large. B. Firms exhaust the benefits of specialization. C. Firms have difficulty coordinating production. D. The marginal product of labor begins to decrease according to the law of diminishing returns. E. Higher output levels result in lower market prices.

C. Firms have difficulty coordinating production.

Is it possible for technological change to be​ negative? If​ so, give an example. A. No. Technological change is always positive because it refers to the development of new products. B. No. Technological change is neither positive or negative because it refers to a process. C. It is possible for technological change to be negative. An example is when a firm hires less minus skilled workers D. It is possible for technological change to be negative. An example is when a firm installs faster machinerya firm installs faster machinery. E. It is possible for technological change to be negative. An example is when a firm installs more reliable equipment.

C. It is possible for technological change to be negative. An example is when a firm hires less−skilled workers.

In the figure to the​ right, Sacha Gillette reduces her output from 7000 to 5000 dozen eggs when the price falls to ​$1.80 At this price and this output​ level, she is operating at a loss. What option does Gillette have in this​ situation? A. Continue producing 7000 dozen eggs. B. Raise her price back up to $2.05. C. Try to cut her costs of production to decrease the loss in the short run. D. Increase the quantity produced.

C. Try to cut her costs of production to decrease the loss in the short run.

Economists have developed broad and narrow definitions to identify monopolies. What is a characteristic that supports a firm being classified as a​ monopoly? Economists could find that a firm is a monopoly if A. it produces a largelarge quantity. B. it is a price taker. C. it earns profits in the long run. D. it achieves allocativeallocative efficiency. E. its production decisions are unresponsive to price.

C. it earns profits in the long run.

What are the four most important ways a firm becomes a​ monopoly? The four main reasons a firm becomes a monopoly​ are: A. antitrust​ legislation, control of a key​ resource, no close​ substitutes, and economies of scale. B. antitrust​ legislation, control of a key​ resource, arbitrage, and economies of scale. C. the government blocks​ entry, control of a key​ resource, network​ externalities, and economies of scale. .D. the lack of patents and​ copyrights, control of a key​ resource, network​ externalities, and economies of scale. E. the government blocks​ entry, control of a key​ resource, network​ externalities, and diseconomies of scale.

C. the government blocks​ entry, control of a key​ resource, network​ externalities, and economies of scale.

Marginal Cost (MC)

Change in total cost divided by change in quantity (MC = ∆TC/∆Q)

Which of the following are effects of​ monopoly? A. Monopoly causes a reduction in economic efficiency. B. Monopoly causes an increase in producer surplus. C. Monopoly causes a reduction in consumer surplus. D. All of the above are effects of monopoly.

D. All of the above are effects of monopoly.

For which of the following​ reason(s) may firms experience economies of​ scale? A. Large firms may be able to purchase inputs at lower costs than smaller​ competitors; they can also borrow money at a lower interest rate. B. ​Firm's production may increase with a smaller proportional increase in at least one input. C. Both managers and workers may become more specialized and hence more productive as output expands. D. All of the above.

D. All of the above.

The government can block the entry to a market through A. granting a patent. B. granting a public franchise. C. granting a copyright. D. All of the above.

D. All of the above.

Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the​ graph? A. The marginal product of labor initially increases due to specializationspecialization and then decreases due to diminishing returns. B. Whenever the marginal product of labor is lessless than the average product of​ labor, it pulls the average product of labor downdown. C. The average product of labor equals the marginal product of labor when the marginal product of labor is at its maximum. D. Both a and b. .E. All of the above.

D. Both a and b.

In deciding between consuming more goods now or saving​ money, consumers should do which of the​ following? A. Allocate their spending to which of the two they like best. B. Choose an amount of current spending which gives them the highest total utility. C. Weigh the additional utility they get from consumption. D. Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.

D. Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.

What is the difference between technology and technological​ change? A. Technology is the development of new​ products, while technological change is when a firm is able to produce more output with the same inputs. B. Technology is the development of new​ products, while technological change is when a firm is able to produce the same output with fewer inputs. C. Technology is the process of using inputs to make​ output, while technological change is when a firm is able to produce more output using more inputs. D. Technology is the process of using inputs to make​ output, while technological change is when a firm is able to produce the same output using fewer inputs. E. Technology is when a firm is able to produce moremore output using the samethe same ​inputs, while technological change is the process of using inputs to make output.

D. Technology is the process of using inputs to make​ output, while technological change is when a firm is able to produce the same output using fewer inputs.

What would need to be true for a demand curve to be upward​ sloping? A. The income effect would have to be larger​ (in absolute​ value) than the substitution effect. B. The good would have to be an inferior​ good, and the income effect would have to be smaller​ (in absolute​ value) than the substitution effect. C. The good would have to be an inferior goodwould have to be an inferior good. D. The good would have to be an inferior​ good, and the income effect would have to be larger ​(in absolute​ value) than the substitution effect. E. The good would have to be a normal​ good, and the substitutionsubstitution effect would have to be smallersmaller ​(in absolute​ value) than the incomeincome effect.

D. The good would have to be an inferior​ good, and the income effect would have to be larger ​(in absolute​ value) than the substitution effect.

The average total cost curve and the marginal cost curve are A. horizontal. B. L shaped. C. upward sloping. D. U shaped.

D. U shaped.

What role does economic research suggest fairness plays in consumer​ choices? Research suggests that fairness plays A. no role because consumers do not tip at restaurants​ they'll never visit again. B. a role only when it is required. C. a role only when it provides a financial benefit. D. a role because consumers donate money to charity. E. a role because it generates network externalities.

D. a role because consumers donate money to charity.

According to behavioral​ economists, why might consumers or businesses not act​ rationally? People might not act rationally because they A. are too realistic about their future behavior. B. account for monetary costs. C. ignore sunk costsignore sunk costs. D. ignore non-monetary opportunity costs E. experience no endowment effect.

D. ignore non-monetary opportunity costs

When the price of a product​ changes, A. it changes the relative price of the product causing a network effect and at the same time it changes the purchasing power of the buyer causing an income effect as well. B. it only causes an income effect by changing the purchasing power of the consumer. C. it only causes a substitution effect by changing the relative price of the product. D. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

D. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

A monopolist is a price maker because A. when price makers raise their​ prices, they lose all customers. B. a monopolist can charge any price it​ wants, regardless of demand. C. a​ monopolist's price and marginal revenue are the same. D. when a monpolist raises its​ prices, it loses some but not all customers.

D. when a monpolist raises its​ prices, it loses some but not all customers.

What affects the desirability of a​ product? Products become more desirable when A. movie starsmovie stars use a product because consumers who use the same product may feel more fashionable. B. celebritiescelebrities use a product because consumers who use the same product may feel closer to famous people. C. professional athletesprofessional athletes use a product because consumers perceive them to be particularly knowledgeable about it. D. both a and b. E. all of the above.

E. all of the above.

Perfect competition leads to allocative and productive efficiency A. because prices reflect consumer preferences. B. because firms are motivated by profit. C. under the planning of government bureaucrats. D. under the direction of associations of firms. E. both a and b.

E. both a and b.

Does a monopolist have a supply​ curve? Briefly explain. ​(​Hint: Look again at the definition of a supply curve in Chapter 3 and consider whether this applies to a​ monopolist.) A monopolist A. does not have a supply curve because it does not maximize profits. B. has a supply curve equal to its marginal cost curve. C. has a supply curve equal to its marginal revenue curve. D. does not have a supply curve because it does not have a demand curve. E. does not have a supply curve because it is a price maker with one​ profit-maximizing price-quantity combination.

E. does not have a supply curve because it is a price maker with one​ profit-maximizing price-quantity combination.

A firm is likely to be a price taker when A. firms in the industry collude. B. it has market power. C. barriers to entry are substantial. D. it sells a differentiated productit sells a differentiated product. E. it represents a small fraction of the total market

E. it represents a small fraction of the total market

Maximizing Utility

Solve for MU/P and find the value which the two products are equal and make sure it equals the total number of products/price allotted.

marginal​ utility

The change in utility from consuming an additional unit of a good or service

Network externalities

This situation where the usefulness of a product increases with the number of consumers who use it.

Average total cost (ATC)

Total cost divided by quantity (ATC= TC/Q)

public franchise

a firm designated by the government as the only legal provider of a good or service.

monopoly

a firm that is the only seller of a good or service that does not have a close substitute.

A price taker is

a firm that is unable to affect the market price.

Implicit cost

a non-monetary opportunity cost.

explicit cost

all costs involving money

​Long-run equilibrium in perfect competition results in

allocative and productive efficiency