Econ 1-B Chapter 11 Final Review

Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment). Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day which reflects Julius' increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day?

7

Why can't marginal cost decrease forever?

At some point, firms encounter physical limits of production.

Which of the following statements is TRUE? Economists normally assume that the goal of the firm is to: I. sell as much of their product as possible. II. set the price of their product as high as possible. III. maximize profit.

III only

Which of the following best describes a competitive industry?

Its firms sell similar products and have little control over their prices; there are many buyers and sellers and each is relatively small compared with the overall market.

Which of the following is an example of a fixed cost?

Research and development costs for a new medicine

When competitive firms do not have influence over the price of their product, all of the following are true EXCEPT which condition?

The product appeals more strongly to some consumers than others.

At a ski resort located over one hour from the nearest large town, there is only one grocery store and it charges prices more than 200% percent above the typical retail prices. In the long run, we would expect that:

another store will open that will charge lower prices.

To maximize profits, a firm in a highly competitive industry should set its price:

at the market price.

When the level of production is relatively low, the average cost per unit of output would ________ if output increased.

decrease

If marginal revenue is less than marginal cost, a firm should:

decrease output.

An industry is said to be perfectly competitive when:

each firm has virtually no influence over the price of its product.

According to the text, the demand curve for oil from a particular stripper well is:

flat.

When opportunity cost is positive, economic profit ______ accounting profit.

is less than

If a single supplier produces a good with many good substitutes, then:

it will have little control over the market price.

When deciding on the profit maximizing level of output, firms compare ______ of an additional unit of output to the ______.

marginal revenue; marginal cost of producing the additional unit of output

A market becomes more competitive as there are ______ buyers and ______ sellers.

more; more

If Homer operates a small bakery and sells donuts for $4/dozen, he should:

sell an additional dozen donuts as long as the marginal cost of producing an additional dozen donuts is less than $4.

Marginal cost is:

the change in total cost from producing one more unit of output.

When there are many buyers and sellers of a good and the product sold is identical across firms,:

the demand curve for each firm's output is perfectly elastic.

Economists call the time after all exit or entry has occurred:

the long run.

The short run is defined as:

the period before entry or exit can occur.

Profit is defined as:

total revenue minus total cost.

The total amount of money that a firm receives from sales of its output is called:

total revenue.

Which of the following is NOT a key decision that a firm must make?

where to produce