econ 323 exam 2

Which of the following statements best summarizes the law of diminishing marginal returns

In the short run, as more labor is hired, output increases at a diminishing rate

Does it make sense to consider the returns to scale of a production function in the short run?

No, we cannot change all of the production inputs in the short-run

Three techniques are possible to product 100 units of output, identify the technically inefficient one

Technique B requires 16 units of labor and 21 units of capital

at every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because

There are at least as many possibilities for substitution between factors of production in the long run as in the short run

Joey cuts grass during the summer. He rents a lawn mover from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey?

When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.

in an unregulated, competitive market consumer surplus exists because some

consumers are willing to pay more than the equilibrium price

In the opening of free trade, if world prices of a good are less than domestic prices of that same good,

domestic prices will drop to the world price level

Under perfect competition, if an industry is characterized by positive economic profits in the short run

firms will enter the market in the long run and the short run supply curve will shift outward

At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you

how increasing labor use alters the average product of labor

If a competitive firm's marginal cost curve is U-shaped then

its short run supply curve is the upward sloping portion of the marginal cost curve that lies above the short run average variable cost curve (found where MC=MR and MC is increasing)

A deadweight loss of consumer and/ or producer surplus occurs when

mutually beneficial transactions cannot be completed

the perfectly competitive model makes a lot of fairly unrealistic assumptions. Why do economic textbooks still talk a lot about this model?

perfectly competitive markets maximize societal welfare, many markets are close to being perfectly competitive, and it is an important model to use as a benchmark to compare other market structures to

the shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

producer surplus is positive

When the market price is held above the competitive level, the deadweight loss is composed of

producer surplus losses associated with units that used to be traded on the market but are no longer exchanged

In the very short run

quantity supplied is absolutely fixed

A price support may be pictured by

shifting the demand curve to the right by the amount of the government purchase

producer surplus in a perfectly competitive industry is

the difference between revenue and variable cost

If a graph of a perfectly competitive firm shows that P=MC point occurs where P is above AVC but below ATC,

the firm is earning negative profit, but will continue to produce where P = MC in the short run

In a competitive market, an efficient allocation of resources is characterized by

the largest possible sum of consumer and producer surplus

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

the rent the firm could earn if rented the building to another firm

If current output is less than the profit-maximizing output, the next unit produced

will increase revenue more than it increases cost

An L-shaped Isoquant

would indicate that capital and labor cannot be substituted for each other in production