Micro Exam 2

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

1

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

2

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point?

2 pizzas, 4 burgers

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

2.43

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

4.25

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal

5 units.

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

Diminishing marginal returns

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

Monopolistic competition

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

a monopoly

Economic theory offers ____________________ about the full range of possible events and responses, which can prevent __________________ about how households will respond to changes in prices or incomes.

a systematic way of thinking; misguided conclusions

In the U.S., the amount in savings contributed to IRAs rose from $239 billion in 1992 to $3,667 billion by 2005, while overall savings actually dropped from low to lower. Evidence suggests that, in the economy as a whole, increased savings in these retirement accounts:

are being offset by negative savings or less savings in other kinds of accounts.

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

Which of the following is most likely to cause variation in American household spending patterns?

each of the above will cause a variation

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.

Youth smoking seems to be more __________ than adult smoking-that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

elastic

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

equal to infinity.

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

equal to zero.

Even with wage increases, the supply curve of labor is most often inelastic for which of the following?

full-time workers

The term _____________ describes a situation where a ________________ causes a reduction in the buying power of income, even though actual income has not changed.

income effect; higher price

When economists attempt to predict the spending patterns of U.S. households, they will typically view the _____________________ as a primary determining factor that influences the individual consumption choices that each will make.

income level of each household

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.

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________.

inelastic

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 _________________ budget constraint shows the tradeoff between present and future consumption.

intertemporal choice

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

it allows all factors of production to change.

The term _________________ refers to the additional utility provided by one additional unit of consumption.

marginal utility

A decrease in consumer preference for a product, other things being equal, will cause:

market demand to shift to the left.

The price elasticity of demand measures the:

responsiveness of quantity demanded to a change in price.

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to

rise and the equilibrium quantity to stay the same.

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to

stay the same and the equilibrium quantity to fall.

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

substitution effect

Which of the following occurs simultaneously with an income effect?

substitution effect

Which of the following is considered to be a tell-tale signal that the point with the highest total utility has been found?

the marginal utility per dollar is the same for both goods

Price elasticity of demand is defined as

the percentage change in quantity demanded divided by the percentage change in price.

If cola and iced tea are good substitutes for consumers, then it is likely that:

their cross price elasticities are greater than zero.

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

total revenue will decrease

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price.

unit elastic