micro final
We would expect an industry to expand if firms in that industry are
earning economic profits.
If the output of product X is such that marginal benefit equals marginal cost
the correct amount of resources is being allocated to X's production.
The market system's answer to the fundamental question "What will be produced?" is essentially
"Goods and services that are profitable."
Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is
$1.
Price Number of Baskets Sold $20 3 18 5 16 7 14 10 12 15 10 30 The table shows the demand schedule facing Nina, a monopolist selling baskets. If Nina had no production costs, what price would she charge to maximize profits?
$10
Output Total Cost 0 $ 2,500 1 2,700 2 3,100 3 3,700 4 4,500 5 6,000 The table shows the total costs for a purely competitive firm. If the firm shuts down in the short run, the total cost will be
$2,500
The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's total economic costs are
$286,000.
Output Total Revenue Total Cost 0 $ 0 $50 1 40 74 2 80 94 3 120 117 4 160 142 5 200 172 The table gives data for a purely competitive firm. The market price of the product in the short run is
$40.
Price Quantity Demanded $ 5 10 4 13 3 15 2 19 1 25 At a price of $3, the total revenues of sellers will be
$45
The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be
$8
Ouput Total Cost 0 $ 24 1 33 2 41 3 48 4 54 5 61 6 69 The average variable cost of producing 3 units of output is
$8.
Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is approximately
1.37
Which of the following is correct?
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
Which of the following statements concerning a public good is false?
All benefits associated with the production and use of a public good are received by the government.
Which of the following statements best reflects how a behavioral economist views individual decision making?
Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.
Which of the following is a reason why individual firms under pure competition would not find it gainful to advertise their product?
Firms produce a homogeneous product.
Which of the following is an illustration of a microeconomic question?
Is the volume of wine produced in one year dependent upon the price of wine?
Which of the following best explains the difference between neoclassical economics and behavioral economics?
Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
Product % Change in Income % Change in Quantity Demanded W −1 −1 X +6 +3 Y −1 +1 Z +4 +8 Refer to the above table. Which product is most responsive to a change in income?
Product Z
What two conditions must hold for a competitive market to produce efficient outcomes?
Supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay.
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
Project Marginal Cost Marginal Benefit A $ 1 Billion $ 2 Billion B 2 Billion 3 Billion C 5 Billion 7 Billion D 7 Billion 8 Billion Suppose that the government chooses to do project C. What is the total cost and total benefit of doing project C?
Total cost is $8 billion, and total benefit is $12 billion.
Which of the following statements about utility is true?
Utility is difficult to measure quantitatively.
If consumer desire for product X increases, all of the following will occur except
a decrease in the quantity of resources employed in industry X.
Pure monopoly refers to
a single firm producing a product for which there are no close substitutes.
Two major virtues of the market system are that it
allocates resources efficiently and allows economic freedom.
Economists would describe the U.S. automobile industry as
an oligopoly.
Fixed cost is
any cost that does not change when the firm changes its output.
in a market system, employees and suppliers
are usually shielded from risk, but at the cost of not sharing in the profits of the firm.
In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if price is below
average variable cost.
Assume that Abby, Ben, and Clara are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good is $400 each to Abby, Ben, and Clara. Based on economic analysis, the public good should
be produced, because the benefits are greater than the costs.
Economics is a social science that studies how individuals, institutions, and society may
best use resources to maximize satisfaction of economic wants.
The law of diminishing marginal utility states that
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
Which of the following is a distinguishing feature of a command system?
central planning
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output.
Command systems are also known as
communism.
The demand for a product is inelastic with respect to price if
consumers are largely unresponsive to a per unit price change.
An increase in the price of a product will reduce the amount of it purchased because
consumers will substitute other products for the one whose price has risen.
In a market system, self-interest is the motivating force that
coordinates and creates consistency in the operations of various parts of the economy.
Private property
encourages owners to maintain or improve their property to preserve or enhance value.
Economic profits are calculated by subtracting
explicit and implicit costs from total revenue.
The monopolistic competition model assumes that
firms will engage in nonprice competition.
A normal good is one
for which its consumption varies directly with income.
Which of the following is most likely to be an implicit cost for Company X?
forgone rent from the building owned and used by Company X
Number Consumed Total Utility 0 0 1 5 2 11 3 18 4 24 5 30 6 35 7 32 This consumer begins to experience diminishing marginal utility when consuming the
fourth candy bar.
One major part of the opportunity costs of one's decision to go to college after high school graduation is the
full-time job that one could have gotten instead of going to college.
The term "laissez-faire" suggests that
government should not interfere with the operation of the economy.
Accounting profits are typically
greater than economic profits because the former do not take implicit costs into account.
"Consumer sovereignty" refers to the
idea that the decisions of producers must ultimately conform to consumer demands.
A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5, and the price of product Beta is $10. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should
increase consumption of product Alpha and decrease consumption of product Beta.
Price floors and ceiling prices both
interfere with the rationing function of prices.
A market
is an institution that brings together buyers and sellers.
The marginal revenue curve of a purely competitive firm
is horizontal at the market price.
The utility of a good or service
is the satisfaction or pleasure one gets from consuming it.
Monopolistic competition means
many firms producing differentiated products.
From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the
marginal benefit of more insurance coverage is greater than the marginal cost.
An industry comprising 40 firms, each with about 2-3 percent of the total market for a differentiated product, is an example of
monopolistic competition.
The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one
more worker will decrease the average amount of output per worker.
Economics involves marginal analysis because
most decisions involve changes from the present situation.
Large minimum efficient scale of plant combined with limited market demand may lead to
natural monopoly.
Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called
nonexcludability.
An inferior good is
not accurately defined by any of these statements.
The Latin term "ceteris paribus" means
other things equal.
The market for agricultural products such as wheat or corn would best be described by which market model?
pure competition
In which of the following industry structures is the entry of new firms the most difficult?
pure monopoly
In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed?
pure monopoly, oligopoly, monopolistic competition, pure competition
Production costs to an economist
reflect opportunity costs.
Economists call the pursuit of extra profit or income by influencing government policies,
rent-seeking behavior.
If the price of bottled water is $2 and the marginal cost of producing it is $2.5
resources are being overallocated to bottled water.
Firm Market Share (%) A 40 B 30 C 20 D 5 E 5 Refer to the data. If Firm B merged with Firm E, the industry's four-firm concentration ratio would ____ and its Herfindahl index would
rise; rise
Neoclassical economics assumes the following as major motivators of decisions and actions, except
sense of fairness.
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 200 units is $4.00. The average variable cost is $3.50. The market price of the product is $3.00. To maximize profits or minimize losses, the firm should
shut down.
The economic function of profits and losses is to
signal that resources should be reallocated.
Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except
taxing the sellers of the product.
The economizing problem is
the need to make choices because economic wants exceed economic means.
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?
use of savings to pay operating expenses instead of generating interest income
In economics, the pleasure, happiness, or satisfaction received from a product is called
utility.
In constructing the demand graph to show how the price of a good price affects how much of it the buyers will buy, the convention that economists follow is to measure price on the
vertical axis even though it is the independent variable.
Where total utility is at a maximum, marginal utility is
zero
