Econ Test 2

The units of an elasticity are: A dollars. B dollars/physical unit. C it depends on the definition of 'Q' D physical unit/dollar. E none of the above

E. None of the above

Q: 0 1 2 3 4 5 6 7 P: 5 5 5 5 5 5 5 5 TC:9 10 12 15 19 24 30 37 Using Example 1 (above), you can see that MR: A rises with 'Q' B falls as 'Q' rises. C is less than price. D is greater than price. E is constant.

E is constant

Quantity - 0 1 2 3 Variable Cost - 0 5 15 A Fixed Cost - 40 40 40 40 Total Cost - 40 B C 60 A Variable Cost ($ per unit) - 0 5 D 6.67 Marginal Cost ($ per unit) - - E F G

Marginal Cost with Q = 3 ('G') is: *A $5 B $10 C $15 D $20 E $25

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. The price elasticity of demand is (point formula): a. -1.25 b. -1 c. -0.8 d. -0.6

c. -0.8

Two very close (easily swapped out) consumption substitutes will: From which of the following elasticities might we conclude that a one-product business is recession-proof:

low income elasticity of demand

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect ________________ and ________________ .

marginal revenue; marginal cost

If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the _______________ and the vertical axis will represent ______________________ .

quantity produced; both total revenue and total costs, measured in dollars.

In their calculation of profit, accountants typically do not take into account:

opportunity costs.

As the _____________ complement for high-skill labor becomes cheaper, the demand curve for high-skill labor will shift to the right.

technology

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was A. $1.50 B. $1.23 C. $2.25 D. $2.43 E. none of the above

$2.43

1. Use the numbers above to answer the next 5 questions. Q = tons/day. P= price per ton. Assume these data hold for the long-run. TR = total revenue in $$/day. For this question, determine at which price the price elasticity of demand is closest to one in absolute value. Q 5 6 7 8 9 10 11 12 13 14 15 16 P 30 28 26 24 22 20 18 16 14 12 10 8 TR A $26 B $24 C $22 D $20 E $18

$20

If minimum wage (WMIN) = $5.75 the employer will actually pay (WA) _____, and try to hire (QD) _____ employees. Wage QS QD $5.25 650 1,490 $5.50 710 1,410 $5.75 770 1,330 $6.00 830 1,250 $6.25 890 1,170 $6.50 950 1,090 $6.75 1,010 1,010 $7.00 1,070 930 $7.25 1,130 850 A $6.75; 1010 B $5.75; 1330 C $5.75; 770 D $6.75; 1330 E $6.75; 770

$6.75; 1010

Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 7? Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $37

$7

A key ingredient of a perfectly competitive market is:

- members sell identical goods. - there are many buyers and sellers. - entry into the industry is easy (not costly). - members are well informed and mobile.

When the minimum wage rises, the losers (those who suffer) are:

- some unskilled workers. - the general public through lower total income. - businesses that employ unskilled labor. - potential crime victims.

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 120 tons/day. Using the point formula, you determine the price elasticity of demand to be:

-2

Quantity - 0 1 2 3 Variable Cost - 0 5 15 A Fixed Cost - 40 40 40 40 Total Cost - 40 B C 60 A Variable Cost ($ per unit) - 0 5 D 6.67 Marginal Cost ($ per unit) - - E F G

Average Cost with Q = 3 is: A $5 B $10 C $15 *D $20 E $25

___________ tells a firm whether it can earn profits given the price in the market.

Average cost

In economics, labor demand is synonymous with

derived demand.

Improvements in the productivity of labor will tend to:

increase wages.

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale

A monopoly may be found selling its output at a price at which demand is elastic because:

it maximizes profit by choosing a price on the elastic half of the demand line.

The term _____________ is used to describe the additional cost of producing one more unit.

marginal cost

In PRICE elasticity the absolute value...

matters

5. Suppose the current price is $28/ton. You should lower the price ___________.

maybe; it depends on the economic golden rule.

A natural monopoly may be found selling its output at a price at which demand is very inelastic because:

of regulation.

If a firm's revenues do not cover its average variable costs, then that firm has reached its _________________ .

shutdown point

A $50/ton tax increases the market equilibrium price from $300/ton to $340/ton, which means that:

the buyers' share of the tax burden is 80%.

Marcie quit her job as a preschool teacher, which paid an annual salary of $58,000, and became a street food vendor. She used $10,000 out of her savings account that paid an 8% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $12,000 on food and supplies (napkins, cups, plates, etc.) and earned a total revenue of $77,000. Marcie's accounting profit is and economic profit is: A $55,000; -$3000 B $65,000; $6200 C $54,200; $6200 D $65,000; -$3000 E none of the above

?

Q: 0 1 2 3 4 5 6 7 P: 5 5 5 5 5 5 5 5 TC:9 10 12 15 19 24 30 37 [Still Example 1] The maximum profit is: A $0 B $1 C $2 D $3 E -$2

??

The maximum profit can be a loss that does not lead to immediate closure of the business firm when:

AC > P > AVC

For apples (A) and oranges (B), you expect a cross price elasticity of demand (εAB) around: A 4.0 B 2.0 C 0.4 D -1.0 E -0.1

C 0.4

For sugar (A) and coffee (B), you expect a cross price elasticity of demand (εAB) around: A 4.0 B 1.0 C 0.4 D -1.0 E -0.1

E -0.1

The term _________________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

Price Taker

Quantity - 0 1 2 3 Variable Cost - 0 5 15 A Fixed Cost - 40 40 40 40 Total Cost - 40 B C 60 A Variable Cost ($ per unit) - 0 5 D 6.67 Marginal Cost ($ per unit) - - E F G

The profit with P = $22, and Q =3, is: Still use the table above. A $0 B $3 *C $6 D $9 E $66

Quantity - 0 1 2 3 Variable Cost - 0 5 15 A Fixed Cost - 40 40 40 40 Total Cost - 40 B C 60 A Variable Cost ($ per unit) - 0 5 D 6.67 Marginal Cost ($ per unit) - - E F G

Variable Cost with Q = 3 ('A') is: A $5 B $10 C $15 *D $20 E $25

It is true that ______________ include all of the costs of production that increase with the quantity produced

Variable costs

3. Suppose the current price is $12/ton. To increase profit, you should raise the price ___________

a lot for sure immediately.

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. At the new equilibrium, total revenue equals a. $972 b. $1000 c. $1028 d. $1250

a. $972

Which of the following results in a rightward shift of the market demand curve for labor?

an increase in demand for the firm's product

As the price decreases, typically the price elasticity of demand (think absolute value):

decreases

If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can't be changed in the short run and variable costs that can be

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will

do so regardless of what type of competition exists in a market.

In an industry in long-run equilibrium: a. typical firms make an economic profit. b. the long-run supply line is flat; constant cost industry. c. profit is maximized with MR = MC and P = AVC. d. firms have maximized the difference between MR and MC. e. none of the above

e. none of the above

The phrase __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

When __________________ exist, doubling of all inputs will result in more than doubling output, which means __________________________________________.

economies of scale; a larger factory can produce at a lower average cost than a smaller company

If the supply curve for a product is vertical, then the elasticity of supply is:

equal to zero.

A really low price elasticity of demand (again, think absolute value) for a competitively provided good is an indication that:

equilibrium is on the lower half of the demand line.

"Constant returns to scale" describes a situation where

expanding all inputs does not change the average cost of production.

Because of the nature of perfect competition, a $41/ton price will cause the X producer to:

expect additional competition in the near future.

A firm's ___________ consist of expenditures that must be made before production starts that typically, over the short run, _______________ regardless of the level of production.

fixed costs; do not change,

Businesses selling goods with an income elasticity of demand equal to 3.0 can expect sales to:

fluctuate much more than the business cycle.

Why are some producers forced to sell their products at the prevailing market price?

high degree of similarity to competitor's products

Total cost incorporates:

implicit and explicit costs.

If the demand curve is perfectly elastic, then an increase in supply will:

increase the quantity exchanged but result in no change in the price.

If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.

increases; fall

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves.

inelastic; elastic

The most significant trade-off created by a minimum wage policy is that:

it gives some workers a raise, but costs others their jobs

Typically, the price elasticity of demand is ____ for ____ time frames (again, think absolute value)

larger; longer

In the ________, the perfectly competitive firm will react to losses by __________________________ .

long run; reducing production or shutting down

If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then

marginal cost is below average variable cost.

Diminishing ______________ ______________ occur when the marginal gain in output diminishes as each additional unit of input is added.

marginal returns

What happens in a perfectly competitive industry when economic profit is greater than zero?

new firms may enter the industry and all of the above

Nearly always, to maximize profit, a firm's price should be:

on an elastic section of the firm's demand line.

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. The initial equilibrium apparently was:

on the lower half of a straight demand line

4. Suppose the current price is $16/ton. You should lower the price ___________.

only if you're insane (you want lower profits).

A $50/ton tax increases the market equilibrium price from $300/ton to $340/ton, which means that:

price elasticity of supply is higher than price elasticity of demand (again, think absolute value).

Firms will enter an industry when the:

price rises above the minimum of the average total cost curve.

As a result of the $41 price for a ton the X producer will earn an economic _____ of _____ per month.

profit; $22

Idaho farmers can sell as large a quantity of their potato crop as they wish,

provided each is willing to accept the prevailing market price.

A low negative cross price elasticity of demand is what we would expect for...

rarely combined consumption complements.

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 108 tons/day. The supply increase will cause the typical seller to:

see decreased profits.

In the _________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where _____________________ .

short run; losses are smallest

The ACTUAL job loss from WMIN > WE will exceed the NET job loss because:

some newcomers will get hired

As the __________ substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left.

technology

If the TR is constant at the market price then

the firm is a competitive firm

A tax on a good, say Concrete, will impose a larger short-term (same long-term) burden on Concrete consumers:

the lower the price elasticity of demand for Concrete

_____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

total revenue

Another term for excess labor supply is

unemployment

If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals

whether the firm is earning profit if fixed costs are left out of the calculation.

"Normal profit":

yields net revenue equal to implicit opportunity costs (normal profit is the minimum level of profit needed for a company to remain competitive in the market.)

For a perfectly competitive firm, the marginal cost curve is identical to the firm's ________________ .

Supply curve

Again, using the Table above, which of the following statements is correct? Q VC FC TC AVC MC 0 0 30 30 0 - 1 12 H B 12 E 2 25 C D F 3 A 72 14 G A. B = 42; C = 55 B. D = 12.5; F = 13 C. G = 17, H = 30 D. diminishing returns are evident in rising per unit costs E. all of the above

Answers: B = 42; C = 55 D = 12.5; F = 13 G = 17, H = 30 diminishing returns are evident in rising per unit costs

Firms earn 'economic profit' when...

P > Average Total Cost (AC) with MR = MC.

Quantity - 0 1 2 3 Variable Cost - 0 5 15 A Fixed Cost - 40 40 40 40 Total Cost - 40 B C 60 A Variable Cost ($ per unit) - 0 5 D 6.67 Marginal Cost ($ per unit) - - E F G

To maximize profit (or minimize loss) with P = $22, the firm should produce (Q = ): A 0 B 1 C 2 D 3 *E Way more than 3 F Not information to tell; not much more than Q = 3

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

Given the data provided in the table below, the total revenue (TR) for production at quantity (Q) level 4 equals: Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $45

$20.00

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 120 tons/day. In the new equilibrium, the total revenue spent/collected is: a. $1080 b. $1000 c. $900 d. $800

$1080

Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $45,000. Marcie's accounting profit is ______ and economic profit is ______.

$35,000; $6680

Given the data provided in the table below, what will the marginal revenue equal for production at quantity (Q) level 4? Q P TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $5 $12 3 $5 $15 4 $5 $19 5 $5 $24 6 $5 $30 7 $5 $45

$5

You typically get an income elasticity of demand around 0.2 for:

'basic' goods

Q: 0 1 2 3 4 5 6 7 P: 5 5 5 5 5 5 5 5 TC:9 10 12 15 19 24 30 37 Use the Table below (Example 1). With Q = 7, MR = A $35 B $2 C $5 D $7 E none of the above

*C $5

Past increases in the federal minimum wage have appeared to have little or no impact on employment levels because _____.

- the federal WMIN can directly affect only a tiny share of total employment - typical job growth (increases in demand) offsets the decrease in quantity demanded resulting from the higher minimum wage - the federal WMIN was irrelevant in many regional labor markets

The maximum profit can be a loss that leads to immediate closure of the business firm when:

- that loss is more than fixed costs. - revenue does not cover operating expenses. - P < Average Variable Cost (AVC) - MR = MC with MC < AVC

2. If the price is $30, the price elasticity of demand is _____. Use the mid-point formula. A 2.64 B 2.33 C 2 D 1.667 E 1.33

2.64

Firm G Firm H Firm J Q TR TC TR TC TR TC 1 10 13 14 21 24 16 2 19 19 28 30 46 36 3 27 27 42 41 66 60 4 34 37 56 54 84 88 5 40 49 70 69 100 120 The perfectly competitive firm, H, will maximize profit producing at Q = A 0 B 1 C 2 D 3 E 4 F 5

4

If WMIN = $5.75, employers will actually hire (QD) ___, and the shortage or surplus will be ___. A 1010; zero B 770; 560 C 1010; 560 D 770; zero E 1330; 560

A 1010; zero

The table below sets out cost information for the production of volley balls. Some of the missing values are represented by bold-face letters (A - G). Which of the following statements is correct? Q VC FC TC AVC MC 0 0 30 30 0 - 1 12 H B 12 E 2 25 C D F 3 A 72 14 G Answers: A. A = 42; E = 40 B. A = 70; E = 40 C. A = 42, E = 12 D. A = 70; E = 12 E. A = 39; E = 42

A = 42, E = 12

Quantity - 0 1 2 3 Variable Cost - 0 5 15 A Fixed Cost - 40 40 40 40 Total Cost - 40 B C 60 A Variable Cost ($ per unit) - 0 5 D 6.67 Marginal Cost ($ per unit) - - E F G

Average Variable Cost with Q = 2 ('D') is: A $5 B $6 C $6.3 D $6.67 *E $7.5

If WMIN = $7.25, employers will actually pay (WA) _____, and try to hire (QD) _____ . A $7.25; 280 B $7.25; 850 C $5.25; 1130 D $6.50; 1010 E $6.50; 850

B $7.25; 850

Based on this information, create an Income (Labor)-Leisure Budget Constraint. The weekly hours available for paid employment is 70. Kate earns $20/hour. A full-time job (40 hrs/week) yields Kate: (note that a week has 168 hours). A $1400/week and 30 hours of additional leisure. B $800/week and 30 hours of additional leisure. C $1400/week and 128 hours of leisure. D $600/week and 40 hours of paid work. E $800/week and 118 hours of leisure.

B $800/week and 30 hours of additional leisure.

You pay a consulting firm to determine the price elasticity of demand. They determine that an 8% change in price will lead to a 6% change in the amount you sell. The price elasticity of demand is ____. A price cut would _____ total revenue. A +2.0; increase B -2.0; decrease C -0.75; decrease D -1.33; increase E 0.75; increase

C -0.75; decrease

If WMIN = $5.75, workers will offer to sell (QS) _____ hours/month, resulting in _____. A 1330; equilibrium B 770; a shortage C 1010; equilibrium D 560; a shortage E 560; a surplus

C 1010; equilibrium

If WMIN = $7.25, workers will offer to sell (QS) _____ hours/month, resulting in _____ of unskilled labor. A 280; a surplus B 1010; equilibrium C 1130; a shortage D 1130; a surplus E 280; a shortage

D 1130; a surplus

If WMIN = $7.25, employers will actually hire (QD) _____, and the shortage or surplus is _____ hours/month. A 850; zero B 1130; 280 C 1010; zero D 850; 280 E 1010; 280

D 850; 280

Firm G Firm H Firm J Q TR TC TR TC TR TC 1 10 13 14 21 24 16 2 19 19 28 30 46 36 3 27 27 42 41 66 60 4 34 37 56 54 84 88 5 40 49 70 69 100 120 Look at Example 2 (above). Which firm is perfectly competitive? A G B H C J D all of them E none of them

H is perfectly competitive

Suppose Kate is working 40 hours per week. Then she gets a raise to $25/hour, and then Kate opts for income at $900.

Kate must be on the backward bending part of her labor supply curve.

The term, ___________________________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

Which of the following probably has a low price elasticity of supply: a. an inferior good b. antique furniture c. consumption substitutes d. production complements e. all of the above will have low price elasticities of supply

b. antique furniture

It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $179.00 to $181.00, ____________________.

could likely result in a notable loss of sales to competitors

Supply Increases causing the equilibrium price to fall from $10/ton to $9/ton, which increases the equilibrium quantity from 100 tons/day to 120 tons/day. You expect typical sellers of the good to: a. shutdown immediately b. see reduced profits c. see increased profits d. face increased competition, soon. e. not enough information given for 'a' - 'd' to be selected

e. not enough information given for 'a' - 'd' to be selected

Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its Q P TR MR TC MC 0 $30 0 --- $15 --- 1 $30 $30 $30 $25 $10 2 $30 $60 $30 $40 $15 3 $30 $90 $30 $60 $20 4 $30 $120 $30 $85 $25 5 $30 $150 $30 $115 $30 6 $30 $180 $30 $150 $35

marginal revenue is constant.

The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied.

price

The tax revenue yield of a tax on a good, say Concrete, will be larger:

the lower the price elasticity of demand for Concrete.