ECON 2106- Quiz 4

Tina's Tackle and Fishing Shop has a total fixed cost of $12,000 per year. The shop's average variable cost is $800 for 8 fishing rods. At this level of output, the shop's average total cost equals ___.

$2,300 Avg. Cost = Avg. Fixed Cost + Avg. Variable Cost Avg. Cost = ($12,000/8) + $800 Avg. Cost = $1,500 + $800 = $2,300

Bob's Bakery has a total fixed cost of $600 per year. The bakery's average variable cost is$2.00 for 24 brownies. At this level of output, the bakery's total costs equal ___.

$648 Total Cost = Fixed Cost + Variable Cost Total Cost = $600 + ($2.00 x 24) Total Cost = $600 + $48 = $648

Each graph shows a firm in a different market structure. From left to right: Monopoly, Perfect Competition, Imperfect Competition. If each firm's goal is to maximize its profits, then the firm in Graph A should sell ____, the firm in Graph B should sell approximately____, and the firm in Graph C should sell ____.

3 units; 5.1 units; 4 units profit maximizing = point where marginal revenue equals marginal cost (MR = MC)

Table 1 shows the marginal benefit and marginal cost to Jisoo for each hour she studies for her upcoming Chemistry quiz. If Jisoo wants to use her limited time in the most optimal manner, how many does she study for?

5 hours Most optimal manner --> MB=MC

What of the following illustrates the concept of diminishing marginal benefit?

A consumer experiences decreasing satisfaction from consuming each additional unit of a good NOT producer, NOT increasing

Quantity discounts are...

A form of hurdle pricing, where the hurdle that gets you a discount on additional units of a good is buying more of that good. NOT cementing customer loyalty, NOT bundling, NOT price discrimination

Which of the following scenarios BEST describes price discrimination?

A movie theater offering discounted tickets for student. NOT providing different product for different prices NOT different prices for the same produce in different locations NOT higher fees during peak season

What does the point of tangency between an indifference curve and a budget line represent? Select multiple

A point where the consumer's budget is exhausted The point where the consumer's utility is maximized given their budget. NOT equilibrium, NOT preference change

Which of the following correctly describes the relationship between Average Cost (AC), Average Variable Cost (AVC), and Average Fixed Cost (AFC) for a firm operating in perfect competition?

AC is always greater than AVC and AFC.

A luxury car manufacturer increases the price of its vehicles, and despite the increase, total revenue from care sales increased. What can be inferred about the elasticity of demand for luxury cars?

Demand is inelastic Consumers will buy the product at any price because they desire the product that much, no matter the price demand does NOT fluctuate making it inelastic.

In a perfectly competitive market, what condition must hold true in the long run equilibrium?

Economics profit equals zero for all firms.

A decrease in consumer income leads to a reduction in the demand for luxury goods. How will this effect the equilibrium in the market for luxury watches?

Equilibrium price and quantity both decrease luxury watches are normal goods... income/demand decreases --> price and quantity decreases (act synonymously)

A technological advancement in agriculture leads to a significant increase in the amount of wheat harvested. What effect will this likely have on the equilibrium price and quantity of wheat?

Equilibrium price will decrease, but quantity will increase. Advancement in tech affects every producer in the market... price will decrease as it becomes more competitive, quantity will increase as they are able to produce more.

Upheaval in the oil supply chain due to political unrest in a major oil-producing country will likely do what to the market for gasoline?

Equilibrium price will increase, but quantity will decrease. Decrease of supply... remaining gas will be marked up, but the quantity will decrease as there is little gas to supply.

Which of the following statements about opportunity cost is TRUE?

It helps evaluate trade-offs in the decision-making process. NOT its the same for everyone, NOT only applicable involving money, NOT it can be zero

How does understanding opportunity cost influence decision-making?

It helps individuals realize that every decision involves sacrificing something of value.

In the short run, if a competitive firm is (1) producing its profit-maximizing level of output, (2) is experiencing positive economic profit, then which of the following must be TRUE? Select Multiple:

MR = MC Price > AC (1) Producing profit-maximizing... Marg Rev = Marg Cost (2) Positive economic profit Price > Average Cost

Opportunity cost is often represented in terms of:

Money Time Resources All of the above

How would the implementation of an effective quota impact producer surplus?

Producer surplus would decrease. Quota = policy to reduce quantity

Suppose the market for smartphones experiences a sudden increase in demand due to the release of a highly anticipated new model. Which of the following best describes the likely outcome in this scenario?

Shortage: Some consumer will be unable to purchase smartphones at the prevailing market price due to insufficient quantity supplied

What does the budget line represent in consumer theory?

The consumer's income constraint in purchasing goods.

What does marginal cost measure?

The cost incurred by producing one additional unit of a good or service NOT average, NOT fixed

What is consumer surplus?

The difference between the price consumers are willing to pay and the price theyactually pay. NOT total amount spent on a good, NOT total profit earned by consumers, NOT additional utility

Car manufacturers expect the future prices of cars to fall next quarter. All else equal, which of the following is true?

The equilibrium price of cars decreases, and the equilibrium quantity increases. PRODUCERS expect future prices to fall (consumers don't know this yet), so they will try to sell their current inventory now since it will be cheaper later.

At your bakery, brownies are a substitute in production for chocolate cupcakes. All else equal, if the price of brownies increases, which of the following is true?

The equilibrium price of chocolate cupcakes increases, and the equilibrium quantity decreases. Subs in production... if you make one you sacrifice the other, so the remaining cupcakes left will be marked up, but the quantity will decrease as they're not making anymore.

All else equal, if a firm decreases the price of its good by 7% and sells 7% more units, which of the following is true?

The firm's product has a unit elastic demand, and its revenue does not change. Because the price decreased, consumers are now willing to pay (they are price sensitive) making it elastic -7 +7 balances to 0... revenue does not change

All else equal, if a firm increases the price of its good by 16% and sells 8% fewer units, which of the following is true?

The firm's product has an inelastic demand, and its revenue increases. %changeQ / %changeP = 0.5 less than 0 = inelastic +16 -8 overall making money so revenue increases

If the cross-price elasticity between smartphones and phone cases is -1.2, then it means that:

The two goods are complements. - (neg) ... complements + (pos) ... substitutes - (neg) ... inferior + (pos) ... normal less than 0 = inelastic more than 0 = elastic

What is the primary purpose of indifference curves in consumer theory?

To show the preferences of consumers for different combinations of goods.

Emily is deciding between her two favorite restaurants. One makes Indian food and the other makes Chinese food. The Indian restaurant has just raised its prices. The opportunity cost of Chinese food has...

decreased

If there is a sudden increase in the popularity of electric vehicles, then the equilibrium price of gasoline-powered cars will...

decreases, and the equilibrium quantity decreases electric vehicles & gas cars are substitutes... demand increases for one, price and quantity decrease for the other

People love eating stores during the summer! You just need to buy three ingredients from the grocery store to make stores: marshmallow, graham cracker, and chocolate. If the price of marshmallows rises, then the equilibrium price of graham crackers will...

decreases, and the equilibrium quantity decreases marshmallows and graham crackers are complements... price increases for one, price and quantity will decrease for the other

Companies release alternative versions of the same product to...

generate hurdles and segment the market. NOT confuse competitor, NOT comply with government regulations, NOT increase competition

Ki Juana has to take time off work to study. Since her wage has increased from $10 per hours to $15 per hours, the opportunity cost of studying has...

increased

If consumers expect gas prices to be higher next week, then the equilibrium price of gas...

increases, and equilibrium quantity increases Affect of future market... price in future rises, current price and quantity increase

How does a decrease in the price of one good affect the budget line?

it causes the budget line to rotate outward, illustrating an increase in the consumer's purchasing power. increase in the price = rotate inward

Any firm that wishes to maximize profits will produce the quantity at which...

marginal revenue equals marginal cost.

Consumers consider raspberries and blueberries to be substitutes. All else equal, if the price of blueberries falls, we...

move down and to the right along the demand curve for blueberries. question and answers is only referring to blueberries

Suppose donuts and donut holes are complements in production for a baker. All elseequal, if the price of donuts rise, we...

move up and to the right along the supply curve for donuts. question and answers only refer to donuts.

A shortage occurs when...

quantity demanded exceeds quantity supplied at a given price.

Cross-price elasticity of demand measures the responsiveness of...

quantity demanded of one good to changes in the price of another good. Cross = two goods

Consumers consider blue and black ink pens to be substitutes. All else equal, if the price of blue ink pens rise, we...

shift the demand curve for black pens to the right. substitutes... if the price of blue ink pens rise, people won't want to pay for that and will buy black pens instead. demand for black pens increases, shifting the curve right.

Suppose donuts and donut holes are complements in production for a baker. All else equal, if the price of donuts rise, we...

shift the supply curve for donut holes to the right. complements in production... if the price of one rises, the supply curve for the other follows (shifts right)

If the price of airline tickets is below its equilibrium price, there will be a...

shortage of airline tickets, and the price will rise.

If the price of airline tickets is above its equilibrium price, there will be a...

surplus of airline tickets, and the price will fall.

Select multiple: Deadweight loss in a market occurs when...

the quantity exchanged is below the socially efficient equilibrium quantity. the quantity exchanged is above the socially efficient equilibrium quantity. NOT any choices with surplus