Econ HW6
Increasing marginal cost:
Each additional unit costs more to produce than the previous one (for example, because of paying costly overtime wages).
Constant marginal cost
Each additional unit costs the same to produce as the previous one (in plant nurseries, for example, the cost of growing one more plant is the same regardless of how many plants have been produced).
production function
is an input whose quantity is fixed for a period of time and cannot be varied.
Marginal product of labor (MPL)
is the change in output resulting from a one-unit increase in the amount of labor input (ΔQ/ΔL)
marginal cost
is the change in total cost generated by one additional unit of output. MC = ΔTC/ΔQ where Δ = change, TC = total cost, and Q = quantity of output
implicit cost of capital
is the opportunity cost of the use of one's own capital; that is, the income earned if the capital had been employed in its next best alternative use (e.g., forgone interest income).
The total cost of producing a given quantity of output
is the sum of the fixed cost and the variable cost of producing that quantity of output. TC = FC + VC
When an individual continues to eat more Beyond Meat burgers, if the principle of diminishing marginal utility applies, each additional burger yields:
less marginal utility okay
A monopolist is likely to produce _____ and charge _____ than a comparable perfectly competitive firm.
less, more
Compared with autarky, international trade leads to _____ domestic production in import-competing industries and _____ domestic production in exporting industries.
lower higher
arguments for trade protection
national security, job creation, infant industry argument
According to the infant industry argument:
new industries need protection from foreign competition until they become established.
in the model of perfect competition
no individual or firm has enough power to affect price
Lilly's Patisserie operates in a perfectly competitive industry and has a standard cost curves. Suppose the firms variable cost rise, causing its AVC and ATC curves to shift upward. The demand for Lilly's pastries does not change, nor does the firm shut down. To maximize profits after the rise in variable costs. Lilly's will ____ it's price and _____ it's level of production
not change;decrease
increasing returns
occur when hiring new workers causes marginal product to increase
Marginal cost
of producing a good or service is the additional cost incurred by producing one more unit of that good or service.
All of the following are considered implicit costs, except:
paying rent on a building
Thomas Malthus (1766-1834)
predicted that as population grew, the economy's diminishing ability to produce food from a given set of resources would necessarily lead to insufficient food. However, population continues to grow, and so does food production.
as demand increases
price increases, quantity increases
In the short run if AVC<P<ATC a perfectly competitive firm
produces output and incurs economic loss
Public policy toward monopoly in the United States often consists of
regulation of natural monopolies
Jill, a careful utility maximizer, consumes peanut brittle and frozen yogurt. Assume that both peanut brittle and frozen yogurt are normal goods. Right after she achieves the utility-maximizing level of consumption of the two goods, the price of peanut brittle increases. As she adjusts to this event, the marginal utility of peanut brittle _____, and that of frozen yogurt _____.
rises, falls
utility
satisfaction, usefulness, or value one obtains from consuming goods and services
marginal benefit curve
shows how the benefit from producing one more unit depends on the quantity that has already been produced
marginal cost curve
shows how the cost of producing one more unit depends on the quantity that has already been produced
total product curve
shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
The total cost curve
shows how total cost depends on the quantity of output The total cost curve becomes steeper as more output is produced, a result of diminishing returns.
Marginal cost slopes
slopes upward because of diminishing returns.
Average variable cost slopes
slopes upward but is flatter than the marginal cost curve.
if a california grape wholesaler operates in a perfectly competitive market that wholesaler will have a ____ share of the market and consumers will consider her grapes and her competitors grapes to be___. Therefore,_____ advertising will take place in this market.
small:standardized:little or no
At high levels of output the spreading effect is:
stronger than the diminishing returns effect. b)weaker than the diminishing returns effect.
India exports shirts, which are labor-intensive, to the United States. The likely source of India's comparative advantage in shirts is:
that, in comparison with the United States, India is a labor-abundant country.
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Which statement BEST describes the principle of diminishing marginal utility? As an individual consumes more of a good:
the addition to total utility obtained from the nth unit of the good will be less than that obtained from the n - 1th unit of the good.
MARGINAL BENEFIT
the additional benefit to a consumer from consuming one more unit of a good or service
price discrimination
the business practice of selling the same good at different prices to different customers
marginal product
the increase in output that arises from an additional unit of input
Profit-maximizing principle of marginal analysis
the largest quantity at which the marginal benefit is greater than or equal to marginal cost
At the optimal consumption bundle:
the marginal utility per dollar spent is equalized across all goods consumed.
if jimmy sells 300 pens in a perfectly competitive market for $1 each, then his marginal revenue is
$1
Suppose that Intel (a monopoly computer chip maker) increases production from 10 microchips to 11 microchips, causing the market price to fall from $30 per unit to $29 per unit. Marginal revenue from the 11th unit is:
$19
Sophia buys a Gatorade and an ice cream cone. Her marginal utility from Gatorade is 40, and the price of a Gatorade is $1. Her marginal utility from an ice cream cone is 80. Assume Sophia is successfully maximizing his utility. The price of an ice cream cone is:
$2
Average total cost
(often referred to simply as average cost) = total cost per unit of output produced. ATC = TC/Q
Sandy owns a firm with annual revenue of $1 million. Wages, rent, and other costs are $900,000. Suppose that instead of being an entrepreneur, Sandy could get a job with an annual salary of $250,000. Assume that a job would be as satisfying to Sandy as being an entrepreneur. Calculate Sandy's economic profit.
-150,000
Increasing output has two opposing effects on average total cost:
-The spreading effect: The larger the output, the more output over which fixed cost is spread, leading to lower average fixed cost. -The diminishing returns effect: The larger the output, the more variable input required to produce additional units, which leads to higher average variable cost.
Eve has a monthly income of $20 that can be spent on brie (B) and plums (P). The price of a wheel of brie is $5, and the price of a plum is $0.50. Which bundle of brie and plums is affordable for Eve but does not use all her income?
1 wheel of brie and 22 plums
•If one worker makes 14 baskets, •two workers make 34 baskets, •three workers make 45 baskets, and •four workers make 50 baskets, which worker yielded the highest marginal product?
2
if a perfectly competitive firm increases production from 100 units to 110 units and the market price is $20 per unit the firms total revenue will be
2200
difference between absolute advantage and comparative advantage
Absolute Advantage: The ability of an actor to produce more of a good or service than a competitor. Comparative Advantage: The ability of an actor to produce a good or service for a lower opportunity cost than a competitor.
variable input
Any resource for which the quantity can change during the period of time under consideration
Four reasons people might rationally choose a worse payoff:
Concerns about fairness: Providing for others sometimes trumps self-interest. 2.Nonmonetary rewards: Experiences that feel good such as travel, quality time spent with family and friends, playing a sport, etc. 3.Bounded rationality: Making a choice that is close to but not exactly the one that gives you the best payoff
diminishing marginal utility
Decreasing satisfaction or usefulness as additional units of a product are acquired
differentiated advertising
Differentiated marketing occurs when a company creates campaigns that appeal to two or more different target audiences, demographics, or marketing segments. By targeting multiple well-defined customer profiles, a brand can build its customer base, master its niche, and begin to organically build brand awareness.
Decreasing marginal cost
Each additional unit costs less to produce than the previous one (often due to learning effects in production when workers gain skills and experience).
There are seven common mistakes in economic decision-making:
Misperceptions of opportunity costs 2.Overconfidence 3.Unrealistic expectations 4.Counting dollars unequally 5.Loss aversion 6.Framing bias 7.Status quo bias
NAFTA
North American Free Trade Agreement; allows open trade with US, Mexico, and Canada.
(Figure: Optimal Selection of Cola (c) and Sushi Rolls (r)) Use Figure: Optimal Selection of Cola (c) and Sushi Rolls (r). If the consumer is at point C, what should the consumer do to maximize utility?
Nothing, since utility is already maximized.
Which trade pattern is BEST explained by increasing returns?
Taiwan exports cars to the United States, and the United States exports airplanes to Taiwan.
production
The process of creating goods and services
Principle of "either-or" decision making
When faced with an "either-or" choice between two activities (all else equal), choose the one with the positive economic profit.
diminishing returns output
With diminishing returns, additional units of output require more and more labor; therefore the cost increases.
fixed cost
a cost that does not change, no matter how much of a good is produced
variable cost
a cost that rises or falls depending on how much is produced
productions possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
If a product's usefulness increases with the number of users, it:
a network externalities
autarky
a situation in which a country does not trade with other countries
network externalities
a situation in which the usefulness of a product increases with the number of consumers who use it
unskilled labor gives
absolute advantage
tariffs______ price which _____ demand increasing domestic quantity supplied
adds reduces
trade agreement
agreement by a group of countries to promote trade among them
in a perfectly competitive long run equilibrium:
all firms produce at the minimum point of their average total cost curves.
Diminishing returns to an input
an increase in the quantity of that input, holding the levels of all other inputs fixed, reduces that input's marginal product.
firm
an organization that uses resources to produce a product, which it then sells
monopolies are hard to find in america because
antitrust laws
barriers to entry
business practices or conditions that make it difficult for new firms to enter the market ie technological superiority, network externalities, patents and copyright
Marginal analysis
comparing the benefit of doing a little bit more of something with the cost of doing little bit more of something—comparing marginal benefit with marginal cost.
If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
continue to produce at a profit
diamond necklaces are relatively scarce because
diamond producers limit the quantity supplied to the market
You own a deli. Which of the following is most likely a fixed input at your deli? a)the dining room b)the bread used to make sandwiches c)the tomato base used to make soups d)the employees
dining room
average fixed cost slopes
downward because of the spreading effect.
marginal revenue
equals the market price in perfect competition
If Bangladesh removes a tariff on imported shoes, the price of shoes in Bangladesh will likely _____, and the quantity of shoes purchased in the domestic market will likely _____.
fall rise
Average fixed cost
fixed cost per unit of output produced. AFC = FC/Q
Under monopoly, the loss of consumer surplus is _____ the monopolist's gain in profit.
greater than
According to the Heckscher-Ohlin model, Chile will have a comparative advantage in lemons if lemons are _____ in the factors in which Chile is _____.
intensive , abundant
Sweden and Denmark both produce salted cod and automobiles with constant opportunity costs. Sweden will have a comparative advantage in salted cod if:
the opportunity cost of salted cod production is lower in Sweden than in Denmark.
short run
the period of time during which at least one of a firm's inputs is fixed
Optimal quantity
the quantity that generates the highest possible total profit
BEHAVIORAL ECONOMICS
the study of situations in which people make choices that do not appear to be economically rational
long run
the time period in which all inputs can be varied
standardized advertising
the use of one promotional approach in all geographic regions
Marginal product is the slope of the:
total product curve
accounting profit
total revenue - explicit costs
economic profit
total revenue - explicit costs - implicit costs
Adam is an economist working at the Federal Reserve Bank of Boston. For Adam, the satisfaction an individual derives from the consumption of goods and services is BEST described as:
utility
Average variable cost
variable cost per unit of output produced. AVC = VC/Q
increasing returns to scale
when long-run average total cost declines as output increases
in a long run equilibrium economic profits in. perfectly competitive industry are
zero