ECO 215 HOMEWORK 4 & 5
Europe's population fell by 30 to 60 percent following an outbreak of bubonic plague, also known as the Black Death, in the fourteenth century. As a result, Europe's production possibilities curve would ____________. A. bow inward, becoming concave to the origin. B. shift outward C. rotate along either the x- or y-axis. D. remain unchanged. E. shift inward
E. shift inward
Suppose there is a product that is being sold in a perfectly competitive market. If the demand for the product increases demand for the product increases, producer surplus will __________since this change results in a higher price, which means there is _______ area between the supply curve and the market price for the good.
Increase; more
For a firm, economies of scale occur when the __________ for the firm _______________ as the quantity produced increases.
Average total cost; decreases
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market? A. It would make all firms in the market less competitive, since any artificial barrier hurts the market overall. B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. C. It would create downward pressure on prices, causing firms to exit the market. D. There would be no effect on the market, since there are no barriers to entry in perfectly competitive markets.
B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run.
The amount of money the firm brings in from the sale of its outputs is called ______________, while the change in total revenue associated with producing one more unit of output is called _______________ .
revenue; marginal revenue
Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are price-takers. The domestic equilibrium price of a badminton racket in the United States is $85 and the world price is $100. From the U.S.'s perspective, initially the market consists solely of U.S. buyers and sellers. If the U.S. government decides to open its economy to free trade, it becomes an ________ of rackets.
exporter
When comparing the accounting profit with economic profit, it must be true that the accounting profit is ________________ economic profit.
greater than or equal to
A perfectly competitive firm will choose to shut down when the ______________ intersects the marginal cost curve below the _____________ .
price (marginal revenue) ;average variable cost curve
Every candle maker in Town A must have a license. The cost of a license is the same regardless of the number of candles a business produces. Assume that the candle market is perfectly competitive. i. Does this license shift a candle maker's short-run average fixed cost curve? ii. Does this license shift a candle maker's short-run average variable cost curve? iii. Does this license shift a candle maker's short-run profit-maximizing choice of the number of candles to produce? With the license, the short-run average fixed cost curve_____________ and the short-run average variable cost curve_______________ .
shifts up; remains unchanged
In contrast, suppose Louis Corporation wouldn't be able to increase its profits if it decided to shift from the clothing industry to the IT industry. In this case, the economic profits of Louis Corporation in the clothing industry are _______ .
zero
There are many identical firms with a simple cost structure: Total cost for Q = 0 is $6 and total cost for Q = 1 is $8. Each firm is incapable of producing anything more; in other words, total cost is infinite for any Q larger than 1. In the given scenario, the fixed cost for each firm is $____ In the short run, the equilibrium price will be ______ . If firms are free to enter and exit this market, the long-run price will be ______ .
$6; $2; $8
A decreasing production pattern where successive increases in inputs lead to a decrease in marginal product is called the Law of: A. Diminishing Returns. B. Variable Costs. C. Marginal Productivity. D. Specialization.
A. Diminishing Returns.
Town B is considering imposing a $1 tax on each hamburger sold; the tax is to be paid by the hamburger stands in the town. Assuming that the market for hamburgers is perfectly competitive, which of the following are true? (Check all that apply.) A. It would change a hamburger stand's short-run profit-maximizing choice of the number of hamburgers to produce. B. The tax would shift a hamburger stand's short-run average fixed cost curve. C. The tax would shift a hamburger stand's marginal cost curve. D. The tax would shift a hamburger stand's short-run average variable cost curve.
A. It would change a hamburger stand's short-run profit-maximizing choice of the number of hamburgers to produce. C. The tax would shift a hamburger stand's marginal cost curve. D. The tax would shift a hamburger stand's short-run average variable cost curve.
All of the following could cause an increase in producer surplus except: A. an upward shift in the marginal cost curve. B. a shift in the market demand curve. C. a downward shift in the marginal cost curve. D. a higher equilibrium price.
A. an upward shift in the marginal cost curve.
In the long run, the supply curve for a perfectly competitive firm is represented by __________. A. the portion of the marginal cost curve above average total cost. B. the portion of the marginal cost curve above average variable cost. C. the portion of the average variable cost curve below marginal cost. D. the portion of the average variable cost curve above marginal cost.
A. the portion of the marginal cost curve above average total cost.
Therefore, the short-run supply curve for a perfectly competitive firm is represented by __________. A. the portion of the marginal cost curve above average variable cost. B. the portion of the average variable cost curve below marginal cost. C. the portion of the average variable cost curve above marginal cost. D. the portion of the marginal cost curve above average total cost.
A. the portion of the marginal cost curve above average variable cost.
The production function is: A. the relationship between the quantity of inputs used and the quantity of outputs produced. B. the process by which the transformation of inputs to outputs occurs. C. the purpose of any good, including machines and buildings, used for production. D. a formula for calculating the cost of production.
A. the relationship between the quantity of inputs used and the quantity of outputs produced.
Which of the following describes the long-run competitive market if demand were to increase? A. Market price decreases, economic profits decrease, short-run market supply decreases, long-run supply settles at minimum AVC B. Market price increases, economic profits increase, short-run market supply increases, long-run supply settles at minimum ATC C. Market price increases, economic profits increase, short-run market supply decreases, long-run supply settles at minimum AVC D. Market price decreases, economic profits decrease, short-run market supply increases, long-run supply settles at minimum ATC
B. Market price increases, economic profits increase, short-run market supply increases, long-run supply settles at minimum ATC
Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit? A. Produce until marginal cost is furthest below average total cost. B. Produce until marginal revenue equals marginal cost. C. Produce up to the point where price equals average total cost. D. All of the above.
B. Produce until marginal revenue equals marginal cost
Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are price-takers. The domestic equilibrium price of a badminton racket in the United States is $85 and the world price is $100. Based on the above scenario, which of the following statements regarding winners and losers from free trade is true? (Check all that apply.) A. The U.S. producers are worse off because they are selling fewer badminton rackets at a lower price per unit. B. The U.S. producers are better off because they are selling more badminton rackets at a higher price per unit. C. The U.S. buyers are better off because they are purchasing more badminton rackets at a lower price per unit. D. The U.S. buyers are worse off because they are purchasing fewer badminton rackets at a higher price per unit.
B. The U.S. producers are better off because they are selling more badminton rackets at a higher price per unit. D. The U.S. buyers are worse off because they are purchasing fewer badminton rackets at a higher price per unit.
Town A is considering imposing a lump-sum tax of $300 on each hamburger stand in the town. Assuming that the market for hamburgers is perfectly competitive, which of the following would occur? A. The tax would shift a hamburger stand's marginal cost curve. B. The tax would shift a hamburger stand's short-run average fixed cost curve. C. The tax would shift a hamburger stand's short-run average variable cost curve. D. It would change a hamburger stand's short-run profit-maximizing choice of the number of hamburgers to produce.
B. The tax would shift a hamburger stand's short-run average fixed cost curve.
The difference between accounting profits and economic profits is: A. goodwill. B. implicit costs. C. explicit costs. D. income taxes
B. implicit costs.
If it costs a firm $3,000 to produce 400 shirts and $6,500 to produce 900 shirts, then: A. the firm is experiencing constant returns to scale. B. the firm is experiencing economies of scale. C. the firm is experiencing diseconomies of scale. D. the firm is experiencing long-run efficiency problems.
B. the firm is experiencing economies of scale.
Suppose one firm accounts for 55 percent of the global market share for a product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and sellers, is this market likely to be competitive? A. Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. B. No, even though there are many firms in the market, there is one firm large enough to influence the market price. C. Yes, a competitive market is characterized by having many firms, regardless of size. D. No, even with such a large number of buyers and sellers, there must be barriers to entry for this market to stay competitive.
B. No, even though there are many firms in the market, there is one firm large enough to influence the market price.
Is it possible for accounting profit to be positive and economic profit to be negative? A. No, economic profit and accounting profit will always end up being the same. B. Yes, this could occur if explicit costs were modest and implicit costs were high C. Yes, this could occur if implicit costs were modest and explicit costs were high. D. No, economic profit must always be larger than accounting profit.
B. Yes, this could occur if explicit costs were modest and implicit costs were high.
What is the difference between accounting profit and economic profit? A. Accounting profit subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs. B. Economic profit only subtracts implicit costs from total revenue, while accounting profit only subtracts explicit costs. C. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs. D. Accounting profit only subtracts implicit costs from total revenue, while economic profit only subtracts explicit costs.
C. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs.
Under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative? A. Using a store in the mall to sell clothes instead of shoes B. Opening a bank branch near a university campus C. If you open an amusement park in the middle of New York City D. Such a scenario, where accounting cost is positive and economic profit is negative, is not possible.
C. If you open an amusement park in the middle of New York City
Salmon fishing in Alaska is a seasonal business; May through September is the best time to bait salmon and halibut. Toland Fisheries, a small commercial fishery, recorded its highest ever catch last year. They started this year's fishing season with the same number of workers and equipment. With the new season also starting well, Toland has increased hiring substantially. However, the fishery did not make any additional investment in trawlers and other fishing equipment. Other things remaining unchanged, what is likely to happen to the marginal product of each new worker in the short run? A. It will be the same as the previous workers hired, meaning each additional worker will have the same marginal product of labor as the previous one hired. B. It will be increasing at an increasing rate, meaning each additional worker will have a higher marginal product of labor than the previous one hired. C. It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired. D. It will change cyclically, meaning that it will cycle up and down as more workers are hired.
C. It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.
Assume that the market for chocolates is perfectly competitive. Which of the following statements would be true in this case? A. Terry uses soy milk for producing his chocolates, while Donna uses almond milk for producing hers. B. Jessica, a chocolate seller, sometimes sets her price lower or higher than the price at which other sellers sell their chocolates. C. Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price. D. Pam wants to produce chocolates but she is unable to as Roy controls all the cocoa farms in the region.
C. Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price.
Which of the following is not a source of a country's comparative advantage? A. Climate B. Relative abundance of labor and capital C. Quotas D. Natural resources
C. Quotas
A firm is producing goods in a market where the market price is less than the firm's average total cost but greater than its average variable cost. At this point the firm should: A. shutdown production. B. decrease production. C. continue to operate at a loss. D. increase price.
C. continue to operate at a loss.
In the long run, if Toland Fisheries would like to increase the productivity of its workers, it will need to ____________. A. charge less for its services. B. hire more workers. C. increase its amount of capital and equipment. D. charge more for its services
C. increase its amount of capital and equipment.
The long-run average total cost curve is __________ and is found by using the ___________. A. upward-sloping; minimum point across all possible ATC curves for a given quantity. B. upward-sloping; maximum points along the MC curve at various marginal revenues. C. U-shaped; minimum point across all possible ATC curves for a given quantity. D. U-shaped; maximum points along the MC curve at various marginal revenues.
C. U-shaped; minimum point across all possible ATC curves for a given quantity.
In a perfectly competitive market, all of the following statements are true except: A. Marginal revenue is the change in total revenue associated with producing one more unit of output. B. The marginal revenue curve is the same as the demand curve facing sellers. C. Marginal revenue is the same as price. D. Marginal revenue is equal to price times quantity.
D. Marginal revenue is equal to price times quantity.
In the long run, which of the following factors of production is fixed for a firm? A. Capital. B. Labor. C. Technology. D. None of the above.
D. None of the above.
In which of the following scenarios would a country export a good? A. The world demand for the good is lower than the domestic demand. B. The world price for the good is below the domestic price. C. The domestic demand for the good is lower than the domestic supply. D. The domestic price for the good is below the world price.
D. The domestic price for the good is below the world price.
Which of the following equations calculates the profits of a firm? A. Total costs −Fixed costs B. Total revenues + Total costs C. Total revenues −Fixed costs D. Total revenues- Total costs
D. Total revenues- Total costs
According to the principle of comparative advantage, both parties will engage in a trade if the trading price: A. is higher than the seller's cost to produce. B. is below the market price. C. is lower than the buyer's cost to produce. D. lies between their opportunity costs.
D. lies between their opportunity costs.
The long-run supply curve in a perfectly competitive market states that _____. A. both the long-run quantity and the equilibrium price increase B. both the long-run quantity and the equilibrium price decrease C. the long-run quantity remains the same while the equilibrium price varies D. the long-run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost
D. the long -run quantity can vary while the equilibrium price returns to the price at the minimum of the average total cost
Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are price-takers. The domestic equilibrium price of a badminton racket in the United States is $85 and the world price is $100. In the above situation, suppose it is possible to tax the producers of a badminton racket and transfer the revenues to the domestic consumers of the racket. In this case, the U.S. is _________ as a whole because of trade.
better off
You read a story in the newspaper about a car company that has recently been fined five billion dollars by government regulators. The fine is for past infractions that are no longer relevant to how the firm will produce cars going forward. The story contains the statement "clearly, the company will now need to raise prices in order to recover this loss." If it is impossible for the company to pay its obligations, the company should ____
file for bankruptcy
The long -run supply curve in a perfectly competitive market is _______
horizontal
Consider a market for badminton rackets. Suppose all of the rackets are identical and that the buyers and sellers are price-takers. The domestic equilibrium price of a badminton racket in the United States is $85 and the world price is $100. In this case, the U.S. suppliers will _____ their production and the U.S. consumers will _____ their quantity demanded. This situation leads to an _______ of badminton rackets in the U.S.
increase; decrease; excess supply
The lower minimum wage _______________ the short-run profit-maximizing quantity of candles to produce.
increases
If firms in a perfectly competitive market are earning profits or incurring losses in the short run, then in the long run these profits or losses will either cause new firms to enter or existing firms to leave the market. This will result in a shift in the ________ until profits are _______ .
industry supply curve; zero
Suppose Louis Corporation could increase its profits considerably if it decided to shift from the clothing industry to the IT industry. In this case, the economic profits of Louis Corporation in the clothing industry are ______ .
negative
Candle makers in Town B do not need a license. Town B, however, has passed a new minimum wage law that decreases decreases the minimum wage that candle makers in Town B pay their workers. Assume that the candle market is perfectly competitive. i. Does this lower lower minimum wage shift a candle maker's short-run average fixed cost curve? ii. Does this lower lower minimum wage shift a candle maker's short-run average variable cost curve? iii. Does this lower lower minimum wage shift a candle maker's short-run profit-maximizing choice of the number of candles to produce? With the lower minimum wage, the short-run average fixed cost curve____________ and the short-run average variable cost curve_________ .
remains unchanged; shifts down
