Econ Test #3

Price is constant to the individual firm selling in a purely competitive market because

each seller supplies a negligible fraction of total supply.

Long-run adjustments in purely competitive markets primarily take the form of

entry or exit of firms in the market.

When a firm is maximizing profit, it will necessarily be

maximizing the difference between total revenue and total cost.

(Consider This) In the market for superstars,

small differences in talent get magnified into huge differences in pay.

The marginal revenue product schedule is

the firm's resource demand schedule.

The diagram portrays

the equilibrium position of a competitive firm in the long run.

Economists use the term imperfect competition to describe

those markets that are not purely competitive.

Unit of Labor Total Product Product Price 0 0 $2.20 1 15 2.00 2 28 1.80 3 39 1.60 4 48 1.40 5 55 1.20 6 60 1.10 Refer to the table, which gives data for a firm that is hiring labor in a purely competitive market. If the wage rate is $20, how many workers will the firm choose to employ?

2

A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired, 32 when two workers are hired, 37 when three are hired, and 40 when four are hired. The farmer's product sells for $3 per unit, and the wage rate is $13 per worker. What is the farmer's profit-maximizing output?

37

At P1 in the accompanying diagram, this firm will produce

47 units and realize an economic profit.

The MR = MC rule applies

in both the short run and the long run.

A decline in the price of resource A will

increase the demand for complementary resource B.

If one worker can pick $30 worth of grapes and two workers together can pick $50 worth of grapes, the

marginal revenue product of the second worker is $20.

At P3 in the accompanying diagram, this firm will

produce 40 units and incur a loss.

Marginal product is

the amount an additional worker adds to the firm's total output.

Marginal resource cost is

the increase in total resource cost associated with the hire of one more unit of the resource.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. At 3 units of output, total variable cost is ____ and total cost is ____.

$60; $210

Output Marginal Revenue Marginal Cost 0 -- -- 1 $16 $10 2 16 9 3 16 13 4 16 17 5 16 21 Refer to the data in the accompanying table. If the firm's minimum average variable cost is $10, the firm's profit-maximizing level of output would be

3

Refer to the diagram for a purely competitive producer. The firm's short-run supply curve is

bcd segment and above on the MC curve.

(Last Word) The case of ATMs and bank tellers illustrates that

capital is, overall, a complement for labor, not a substitute.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

new firms will enter this market.

Creative destruction is least beneficial to

workers in the "destroyed" industries.

Which of the following statements is correct

Economic profits induce firms to enter an industry; losses encourage firms to leave.

Which of the following statements applies to a purely competitive producer?

It will not advertise its product.

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $150.00 $25.00 $175.00 $ 25.00 2 75.00 23.00 98.00 21.00 3 50.00 20.00 70.00 14.00 4 37.50 21.00 58.50 24.00 5 30.00 23.00 53.00 31.00 6 25.00 25.00 50.00 35.00 7 21.43 28.00 49.43 46.01 8 18.75 33.00 51.76 68.07 9 16.67 39.00 55.67 86.95 10 15.00 48.00 63.00 128.97 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for this firm's product is $24, it will produce

4 units at a loss of $138.

According to the accompanying diagram, at the profit-maximizing output, the firm will realize

an economic profit of ABGH.

An increasing-cost industry is associated with

an upsloping long-run supply curve.

Employers will hire more units of a resource if the

productivity of the resource increases.

When economists say that the demand for labor is a derived demand, they mean that it is

related to the demand for the product or service labor is producing.

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. Units of Labor Total Product Marginal Product Total Revenue 0 0 1 14 14 $42 2 10 3 30 90 4 35 5 39 117 6 126 7 44 2 132 If the wage rate is $11 and Manfred's only fixed input is capital, the total cost of which is $30, then what will be his economic profit?

$32

Which of the following statements best illustrates the concept of derived demand?

A decline in the demand for shoes will cause the demand for leather to decline.

A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired, 32 when two workers are hired, 37 when three are hired, and 40 when four are hired. The farmer's product sells for $3 per unit, and the wage rate is $13 per worker. The marginal revenue product of the second worker is

$24

Assume Manfred's Shoe Shine Parlor hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively. Units of Labor Total Product Marginal Product Total Revenue 0 0 1 14 14 $42 2 10 3 30 90 4 35 5 39 117 6 126 7 44 2 132 What is the marginal product of the sixth worker?

3 units

Total Product Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 1 $100.00 $17.00 $117.00 $17 2 50.00 16.00 66.00 15 3 33.33 15.00 48.33 13 4 25.00 14.25 39.25 12 5 20.00 14.00 34.00 13 6 16.67 14.00 30.67 14 7 14.29 15.71 30.00 26 8 12.50 17.50 30.00 30 9 11.11 19.44 30.55 35 10 10.00 21.60 31.60 41 11 9.09 24.00 33.09 48 12 8.33 26.67 35.00 56 The accompanying table gives cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $32, the competitive firm will produce

8 units at an economic profit of $16.

Which of the following will not cause a shift in the demand for resource X?

a decline in the price of resource X

A firm will find it profitable to hire workers up to the point at which their

marginal resource cost is equal to their MRP.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

marginal revenue and marginal cost

The demand for a resource depends primarily on

the demand for the product or service that it helps produce.

The demand for airline pilots results from the demand for air travel. This fact is an example of

the derived demand for labor.

The change in a firm's total revenue that results from hiring an additional worker is measured by

the marginal revenue product.