Econ Test 2

Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=50, the total variable cost is

$1,500

Figure 9.3 shows the cost structure of a firm in a perfectly competitive market. The firm will stay in the market in the long run only if the market price is greater than or equal to

$10

Table 8.4 presents the cost schedule for David's Figs. If David produces zero fig, David's total costs are

$100

Refer to Table 8.5. The total fixed cost of producing two units is

$15

Refer to the figure on the right. Suppose the output of a large aluminum firm drops from 2 million pounds to 0.5 million pounds per year. The long-run average cost of producing aluminum will go from $ _____ to $ _____.

1.60; 2.80

Suppose that Helen has $50 to spend. Tacos cost $2 and burritos cost $5. Which of the following combinations is NOT on his budget line?

10 burritos and 3 tacos

Figure 8.2 presents a firm's marginal, average total, average fixed, and average variable cost curves. The firm minimizes average variable costs by producing _____ units.

100

Refer to Table 8.1, which gives a firm's production function. Assume that all non-labor inputs are fixed. The marginal product of the fourth worker is

11 units

Suppose Mario is given a monthly income of $400 to spend on food while at college. Further, suppose the price of a frozen meal is $8 and the price of a cup of soup is $4. Which one of the following consumption combinations is possible given these prices and income?

20 frozen meals, 60 cups of soup

Which of the following are included in calculating economic costs?

All of the above are correct

Brodie sells fish in a perfectly competitive market. Suppose the current market price of fish is $4.50 per pound.

Brodie can sell as many fish as he can catch at $4.50 per pound.

Which of the following statements about a perfectly competitive market is incorrect?

Buyers and sellers cannot enter exit the market freely.

Which of the following statements regarding diseconomies of scale and diminishing returns is true?

Diseconomies of scale is caused by coordination problems and higher input costs.

Figure 9.5 shows the short-run and long-run effects of an increase in demand of an industry with increasing cost. The market is in equilibrium at point A, there 100 identical firms produce 6 units of product per hour. If the market demand curve shifts to the right, what will happen to an individual firm's profit?

Each firm earns a positive profit at point B

A perfectly competitive firm has no control over the price that it charges.

True

In the long run

all factors of production are variable

Which of the following is a characteristic of a perfectly competitive market?

all of the above (no barriers of entry, selling standardized product, large number of firms)

A decrease in a consumer's budget set can be caused by

an increase in prices

If the firm has already reached the minimum efficient scale, then

any additional output will not result in a lower long run average cost.

Diminishing marginal utility implies

as the consumption of a good increase marginal utility decreases.

Average total cost equals

average fixed cost plus average variable cost.

A firm will not shut down in the short run as long as price exceeds

average variable cost at the level of output where marginal revenue equals marginal cost.

Refer to Figure 8.1, which shows a family of average cost curves. The average fixed cost curve is represented by

curve 3

Average fixed costs in the short run

decrease as the quantity produced increases

When at least one factor of production is fixed, firms require more and more workers to produce each additional unit of output. This describes

diminishing marginal returns

Suppose that Gigantic Company is increasing in size. As Gigantic Company grows, demand for inputs causes input prices to rise. It is likely that continued growth will result in

diseconomies of scale

A price taker is a buyer or seller who

takes the market price as given

Suppose that John has a monthly fixed amount of $200 of his income allocated to buy beer and cigarettes. Suppose that there is an increase in the price for cigarettes and in the price for beer, this will shift

the budget line to the left.

Marginal cost is defined as

the change in total variable cost resulting from a one-unit increase in the change in quantity

Table 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $3,

the firm suffers a loss and is better off shutting down

How is utility defined as?

the satisfaction experienced from consuming a good.

In long-run equilibrium for a competitive firm economic profits

will be zero

If the market demand decreases for a good sold in a perfectly competitive market, firms in the market

will receive a lower price for their product

In the short run, the marginal cost of the first unit of output is $20, the average variable cost of producing three units of output is $16, and the marginal cost of producing the second unit of output is $16. What is the marginal cost of producing the third unit of output?

$12

In the short run, the marginal cost of the first unit of output is $40, the average variable cost of producing three units of output is $32, and the marginal cost of producing the second unit of output is $32. What is the marginal cost of producing the third unit of output?

$24

Table 8.4 presents the cost schedule for David's Figs. If David produces three figs, David's total variable costs are

$240

Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. The firm's total fixed cost is

$3,000

Jane is a student at a university. She pays $10,000 per year in tuition, $4,000 per year in living expenses, and $800 per year for books. Were she not in school, she could earn $20,000 per year working as a bookkeeper and she would not live with her parents. What is her economic cost of a year in college?

$30,800

Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=50, the total cost is

$4,500

Figure 9.3 shows the cost structure of a firm in a perfectly competitive market. The price at which the firm is just as well off either operating or shutting down is

$4.5

Figure 8.2 presents a firm's marginal, average total, average fixed, and average variable cost curves. The firm faces fixed costs of

$4000

Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q=50, the average fixed is

$60

Refer to Table 8.5. The marginal cost of the third unit of output is

$7

Refer to Table 8.5. The average variable cost of producing five units of output is

$8.60

Table 8.4 presents the cost schedule for David's Figs. If David produces two figs, David's marginal costs are

$80

Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is

$9,000

Suppose Carolyn is on a fixed monthly income of $200 to spend on food while she is in medical school. Further, suppose the price of a single-serving macaroni and cheese is $4 and the price of a baguette is $2. Which one of the following consumption combinations is possible given these prices and income?

20 macaroni and cheeses, 60 baguettes

If maria gets 80 utils from consuming five cookies, 100 utils from consuming six cookies and 120 utils from consuming seven cookies, then Maria's marginal utility from the sixth cookie is

20 utils

Refer to Table 8.2, which gives a firm's production function. Assume that all non-labor inputs are fixed. The marginal product of the fourth worker is

30 units.

A firm's short-run supply curve is its marginal cost curve above the it average total cost curve.

False

Diminishing marginal utility is when total utility declines as a consumer consumes more of a good

False

Firms earning negative profits in the short run should always shut down.

False

If a firm has reached the minimum efficient scale, any additional output produced by the firm will result in a lower average cost in the long run.

False

If the firm is incurring losses in the short run, then which of the following is true?

P<ATC

A firm will not shut down in the short run as long as at the point where MR = MC:

P>AVC

What set of all possible combinations does the budget line show?

The set of all possible combinations that can be purchased, given the consumer's income and the price of the goods.

A perfectly competitive firm that is maximizing profit produces the quantity of output at which price equals marginal cost.

True

In the long run, each firm in a perfectly competitive market earns zero economic profit.

True

One reason for increasing costs industries is that as an industry grows, it drives up the prices of inputs.

True

Perfect competition is characterized by many firms and no barriers to entry

True

The law of diminishing marginal utility is that as the consumption of a particular product increases, marginal utility decreases.

True

There are no fixed costs in the long run.

True

Which of the following is a long-run adjustment?

Two firms exit the asbestos removal industry.

A change in the slope of a budget line reflects

a change in the relative prices of the two goods

Refer to Figure 7.3. The change in the budget line from line 1 to line 2 could be due to

a decrease in the price of burritos.

When marginal costs are increasing

a firm is experiencing diminishing returns.

Which of the following is NOT a characteristic of a perfectly competitive market?

a small number of firms in a market

If a firm has already paid or has agreed to pay for something we call it

a sunk cost

If a firm in a perfectly competitive market is currently producing the output where price = marginal cost = average total cost, the firm is

earning a zero economic profit

Suppose that Gigantic Company is increasing in size. As Gigantic Company grows, they are able to buy inputs in bulk, resulting in lower input prices. It is likely that continued growth will result in

economies of scale

In Figure 9.6 if price is P3 then the industry will

expand

In a perfectly competitive industry, in the long run

firms earn zero economic profit

A perfectly competitive industry is in long-run equilibrium. If demand for the product increases, we can expect

firms to enter the market

In Figure 8.4, the difference between total costs and variable cost is

fixed cost

Refer to Table 8.5. The firm experiences diminishing returns beginning with the _____ unit.

fourth

The budget line will shift parallel to the right if

income increases

Under which conditions might diseconomies of scale result?

increased bureaucracy

A consumer's budget set

is the set of all affordable combinations of two goods.

Average total costs are minimized when

marginal cost equals average total cost

Marginal product in the short run

may initially increase, then eventually decrease

If the demand curve faced by a firm is horizontal, then the firm is _____ and a _____.

perfectly competitive; price taker

For the perfectly competitive firm

price always equals marginal revenue

If individual firms face a horizontal demand curve at a given market price,

price is equal to marginal revenue

In the short run, the firm should shut down when

price is less than the minimum of the average variable cost of production.

In short-run equilibrium for a competitive firm

price will equal marginal cost

A perfectly competitive firm can

sell as much as it can produce at the market price.

A perfectly competitive firm's marginal cost curve above the minimum of the average variable cost curve is its

short-run supply curve

If your firm is producing a good at a level where marginal revenue equals marginal cost, and price is less than average variable cost, then in the short run your firm should

shut down and suffer a loss equal to your fixed costs.

In the short run

some factors of production are variable, while at least one factor of production is fixed.

A firm's marginal cost curve above the minimum of the average variable cost curve is also

the firm's short-run supply curve.

Which of the following is an example of something that economists would consider a cost but accountants would not?

the interest income foregone by the firm's owner because the owner invested funds into the firm

Average fixed cost is defined as

total fixed cost divided by quantity

Marginal revenue is equal to price for a perfectly competitive firm because

total revenue increases by the price of the good when an additional unit is sold

Which of the following is an example of an indivisible output?

train tracks between two cities

_____ is a cost that changes with the quantity produced by the firm and is incurred by the firm in the short run.

variable cost