Economics Exam 2 Study Guide

38. Given the data provided in Table 8.1, the profit for production at quantity (Q) level 7 equals ______.

A. -$10.00

27. ___________ refers to the additional revenue gained from selling one more unit.

A. Marginal revenue

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

A. Total revenue

28. An ______________________ is calculated by subtracting the firm's costs from its total revenues, ______________________.

A. accounting profit; excluding opportunity cost

11. If a firm is experiencing _____________________, then as the quantity of output rises, the average cost of production rises.

A. decreasing returns to scale

50. Refer to Figure 8.3. The marginal cost curve slopes upwards at larger quantities because of ___________.

A. diminishing returns

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

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

10. The term "constant returns to scale" describes a situation where

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

22. The cost of purchasing an oven for a pizza shop is an example of a ________.

A. fixed cost

3. 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.

A. fixed costs; do not change,

19. The economies-of-scale curve is a long-run average cost curve, because

A. it allows all factors of production to change.

13. Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

A. physical space for the gallery

31. If a perfectly competitive firm is a price taker, then

A. pressure from competing firms will force acceptance of the prevailing market price.

32. If the quality differences of similar products are mostly imperceptible to the average consumer's eyes, which of the following will most likely play a major role in influencing the decisions of purchasers?

A. price of competing products

20. Accounting profit is ________.

A. revenue minus explicit costs

14. If a paper mill shuts down its operations for three months so that it produces nothing, its __________________ will be reduced to zero?

A. variable costs

43. Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should ________________________________.

B. keep the business open in the short-run, but plan to go out of business in the long-run.

15. I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

B. $2.00

37. Given the data provided in Table 8.1, the marginal cost (MC) for production at quantity (Q) level 4 equals ______.

B. $4.00

23. Pita Pan produces delicious pita sandwiches. Last month, it produced 1000 sandwiches and sold each one for $5. To produce these 1000 sandwiches, the company incurred variable costs of $2000 and a fixed cost of $1000. Pita Pan's total revenue was _________.

B. $5000

44. Neil's Bakery is famous for its giant cinnamon buns. The bakery has fixed costs of $100. Neil must pay each worker a wage of $10.00 per hour and each works an 8 hour shift. He earns $2 for each cinnamon bun that is sold. The following table shows how many cinnamon buns he can sell, depending on the number of workers he hires. Refer to the table below. To maximize his profits in this competitive market, how many workers should he hire? Labor Quantity 1 75 2 140 3 200 4 210 5 215

B. 3 workers

4. ______________ include all of the costs of production that increase with the quantity produced.

B. Variable costs

1. In economics, a firm that faces no competitors is referred to as _________________.

B. a monopoly

21. Lebron James giving up his salary playing professional basketball to open up a taco stand is an example of an ________.

B. implicit cost

29. Economic profit can be derived from calculating total revenues minus all of the firm's costs, ______________.

B. including its opportunity costs.

24. Brewed Awakening is a coffee shop selling extra-caffeinated coffee. Last month, it produced 10,000 cups of coffee and sold each one for $6. To produce these 10,000 cups of coffee, the company incurred variable costs of $40,000 and a fixed cost of $10,000. The owner of Brewed Awakening also is an expert at knitting blankets and could have made $20,000 last month selling blankets. Brewed Awakening's accounting profits are _________.

B. positive $10,000

17. Which of the following should typically be ignored because spending has already been made and cannot be changed?

B. sunk costs

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

B. supply curve

7. In order to determine the average variable cost, the firm's variable costs are divided by _______________________.

B. the quantity of output

16. The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________.

B. upward-sloping; more costly to produce

36. Given the data provided in Table 8.1, the marginal revenue (MR) for production at quantity (Q) level 4 equals ______.

C. $5.00

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

C. Diminishing marginal returns

2. ________________________ arises where many firms are competing in a market to sell similar but differentiated products.

C. Monopolistic competition

42. If the price that a firm charges is higher than its _________ cost of production for that quantity produced, then the firm will earn profits.

C. average

41. Temperatures have persisted below freezing levels in Florida throughout the months of December and January. As a result, demand for electricity sharply increased and the price of electricity rose sharply. The price of coal also rose. In these circumstances, any resulting shifts in the supply curves for coal miners and electricity producers ________________________.

C. can also be interpreted as shifts of their respective marginal cost curves.

30. 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 $199.00, ___________________.

C. could likely result in a notable loss of sales to competitors

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

C. economies of scale

46. Refer to Figure 8.1. What will profit be for quantities greater than 100?

C. negative

49. Refer to Figure 8.3. Based on the information illustrated in this graph, what is the economic profit for this perfectly competitive firm?

C. negative

25. Brewed Awakening is a coffee shop selling extra-caffeinated coffee. Last month, it produced 10,000 cups of coffee and sold each one for $6. To produce these 10,000 cups of coffee, the company incurred variable costs of $40,000 and a fixed cost of $10,000. The owner of Brewed Awakening also is an expert at knitting blankets and could have made $20,000 last month selling blankets. Brewed Awakening's economic profits are _________.

C. negative $10,000

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

C. price taker

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

C. short run; losses are smallest

35. Given the data provided in Table 8.1, the total revenue (TR) for production at quantity (Q) level 4 equals ______.

D. $20.00

39. Given the data provided in Table 8.1, what will be the fixed costs for production at quantity (Q) level 7?

D. $9.00

6. In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

D. average cost

33. In the _________, the perfectly competitive firm will react to profits by ________________.

D. long run; increasing its production

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

D. marginal cost

48. Refer to Figure 8.2. Based on the information illustrated in this graph, which of the following is an accurate statement?

D. profits will be reduced by production in the zone where MC exceeds MR

47. Refer to Figure 8.2. In this instance, the marginal revenue curve

D. reflects each of the above

45. Refer to Figure 8.1. Which of the following explains the slope of the total revenue curve illustrated in this graph?

D. the slope of the total revenue curve is explained by both a and b above.