Microeconomics chapter 6, 7, 8

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Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ______ per day.

$250

In which of the following markets do firms sell the same standardized product?

2% milk

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's profit-maximizing level of output is ______.

If a firm is earning zero economic profit, then its accounting profit will:

be positive

A good is characterized by network economies if it:

becomes more valuable as more people own it.

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. As you increase your production of t-shirts, your average fixed cost ______ and your marginal cost ______.

decreases; stays the same

Price discrimination means charging:

different prices to different buyers for essentially the same good or service.

A perfectly price discriminating monopolist charges each buyer:

exactly his or her reservation price.

Suppose that when a firm produces the level of output at which price equals marginal cost, the firm's total revenue is less than its variable cost. In this case, the firm should:

shut down.

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:

shut down.

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit of output is $30, this firm's total revenue at its profit-maximizing level of output is ______.

$2,400

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 25 pizzas a day, its average fixed cost is ______.

$20

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If S3 is the market supply curve, then each firm in this market will earn an economic loss of ______ per week.

$2000

Barriers to entry are forces that:

limit new firms from joining an industry.

In a free market economy, the decisions of buyers and sellers are:

guided by prices.

An imperfectly competitive firm is one that:

has at least some influence over the market price.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At this monopolist's profit-maximizing level of output, consumer surplus is ______.

$2,000

The figure below shows the supply and demand curves for oranges in Smallville. At the price of $4 per pound, sellers offer ______ pounds of oranges per day, and buyers want to purchase ______ pounds of oranges a day.

10;30

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, each with the same opportunity cost as the seller depicted in the figure, then how many units would be supplied in the market at a price of $14 per unit?

17,500

Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table shows the reservation prices of the eight students enrolled in the class. If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then how many in total books will the bookstore sell?

The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm:

faces a downward-sloping demand curve.

If a firm is experiencing economies of scale, then as the firm's output rises, its average total cost _____.

falls

In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:

firms will produce the quantity that minimizes average total costs in the long run.

A price setter is a firm that:

has some degree of control over its price

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

her final salary and the least she would be willing to accept to star in the movie.

Natural monopolies are most likely to arise when firms have:

high start-up costs and low marginal costs.

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

if the firm increases its price above the market price, it will earn zero revenue.

If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the:

extra benefit of the last unit produced is greater than the extra cost.

Airlines that charge higher prices for customers who purchase their tickets at the last minute are:

price discriminating by identifying passengers with higher reservation prices.

The difference between the price a seller actually receives for a good and the seller's reservation price is:

producer surplus

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:

producer surplus.

Suppose the accompanying figure illustrates the demand curve facing a monopolist. If the monopolist decreases its price from $12 to $10, its total revenue will ______.

increase by 600

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, how much profit will each firm in this industry earn each week?

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. With no subsidy, what is producer surplus?

$0 per day

Suppose a monopolist faces the following demand curve. If the monopolist were to sell 20 units of output, its total revenue would be:

$1,000

Average total cost is defined as:

Total cost divided by total output

Economies of scale arise from:

increasing returns to scale.

A price ceiling that is set above the equilibrium price will result in:

no change in total economic surplus.

Refer to the accompanying table. It is clear that diminishing returns sets in after ______ workers per day.

Total revenue minus both explicit and implicit costs defines a firm's:

Profit

Subsidies are most likely to:

reduce total economic suprlus

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, the equilibrium price of sugar will be ______ per ton, and the equilibrium quantity will be ______ tons per day.

$1000; 12

The figure below shows the supply and demand curves for oranges in Smallville. The marginal buyer values the tenth pound of oranges at ______.

$12

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. When the firm uses 9 employee-hours per day, its total revenue each day is:

$240

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas a day, its fixed cost is ______ and its total cost is ______.

$500; $1,350

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's explicit costs were ______, and her implicit costs were ______.

$51,000; $40,000

Refer to the accompanying table. To increase output from 33 to 66 units requires ______ extra employee(s) per day; to increase output from 66 to 99 units requires ______ extra employee(s) per day.

1;2

Refer to the accompanying table. To increase output from 99 to 132 units requires ______ extra employees per day; to increase output from 132 to 165 units requires ______ extra employees per day. output 0 employees 0 33 -1 66-2 99-4 132-7 165-11

3; 4

The accompanying graph shows the cost curves for Moe's mushroom gathering business, which is perfectly competitive. In the graph above, the average variable cost curve is labeled _____, the average total cost curve is labeled _____, and the marginal cost curve is labeled ______.

C; B; A

When the market is unregulated, producer surplus is represented by the area:

DBC

economics of scale arise from:

Increasing returns to scale.

Which of the following is NOT an example of the hurdle method of price discrimination?

Permanently reducing all prices by 10 percent.

The short run is best defined as:

a period of time sufficiently short that at least one factor of production is fixed.

A pure monopoly exists when:

a single firm produces a good with no close substitutes.

A market equilibrium is only efficient if:

all relevant costs and benefits are reflected in the market supply and demand curves.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4,000 + 200Q For both firms, average total cost:

declines as quantity increases.

A price-taker faces a demand curve that is:

horizontal at the market price.

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $95 each, then at her profit-maximizing level of output, Sarah will earn a ______ of ______ per day.

loss $15

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ______.

low

Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:

lower its price.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q Generic Industries: TC = 500 + 3Q When each firm is producing the same quantity, Acme's average total cost is:

lower than Generic's average total cost.

To sell an extra unit of output, a perfectly competitive firm ______, and an imperfectly competitive firm ______.

need not alter its price; must lower its price

Imperfect price discrimination occurs when a monopolist:

price discriminates but some buyers pay less than their reservation price.

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. If Casey's decision to change careers did not affect the price of vegetables at the farmers market, then this suggests that:

the market for vegetables is perfectly competitive.

Economic profit is equal to:

total revenue minus the sum of explicit and implicit costs.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. What is the lowest price per window that would induce John to spend at least one hour per day cleaning windows?

$1,000

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. Chris's fixed cost is ______ per day.

$10

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 1,000 t-shirts, your average total cost is ______.

$10.30

$100

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then at her profit-maximizing level of output, Sarah's profit will be ______ per day.

$105

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______.

$13

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. When Ben makes 2 kites per day, what is his average variable cost?

$13

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. John's benefit from his first hour cleaning windows is:

$14

If this market is unregulated, the economic surplus received by producers is: Graph explanation Price $10 quantity 0 to price $0 quantity 20 for line D Line S Price $2 to something Crosses at $6 and quantity at 8

$16

The figure below shows the supply and demand curves for oranges in Smallville. When this market is in equilibrium, total economic surplus is ______ per day.

$160

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is:

$3,750.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. What is the lowest price per window that John would be willing to accept to spend 4 hours per day cleaning windows?

$3.50

Suppose Lydia owns the only lawn-mowing business in the small town of Pleasant Pastures. There are 8 people each week whose lawns she might cut, each with a reservation price given in the accompanying table. Assume that the marginal cost of mowing each lawn is constant and equal to $25. If Lydia charges the same price to all of her customers, then what price should she charge if she wants to maximize her profit.

$32

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is _______, and Pat's economic profit is _______.

$34,000; −$1,000

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. For Christine to earn a normal profit as a consultant, her accounting profit would have to be ______.

$40,000

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table. Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island Bikes charges a different price in the morning and in the afternoon, then what will be the total economic surplus?

$49

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. When Chris produces 5 mugs per day, his average variable cost is ______.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. A second hour cleaning windows will yield additional earnings of ______.

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ______ per unit.

Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's economic profit each month?

-$150

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table. Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the afternoon, it will rent out ______ bike(s) and charge ______ per bike.

2; $6

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit.

4; $18

500

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves. The long-run market equilibrium quantity in this industry is:

500

6 Units

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. When this monopolist maximizes its profit, consumer surplus equals the area:

ABJ

Which of the following statements is true?

Accounting profit is greater than or equal to economic profit.

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing price for this monopolist to charge is:

If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______.

GAEF

A perfectly price discriminating monopolist's profit is ______ the profit of a monopolist who charges the same price to all of its customers.

Higher than

The most important challenge facing a firm in a perfectly competitive market is deciding:

How much to produce

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. At the monopolist's profit-maximizing level of output, deadweight loss equals the area:

JLN

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

Marginal revenue

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. Should John spend a third hour cleaning windows? 0-0 1-7 2-11 3-14 4-16 5-17

No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7.

The profit-maximizing level of output for a perfectly competitive firm is socially efficient, while the profit-maximizing level of output for a monopolist is not because under perfect competition ______, while under monopoly ______.

P = MC; P > MC

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost.

Which of the following is NOT an example of an explicit cost?

The income the owner could have earned in his or her next best employment opportunity.

Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?

The size of the seating area

Which of the following statements about explicit costs is true?

They appear on the firm's balance sheet.

Which of the following statements about implicit costs is true?

They measure the forgone opportunities of the firm's owners.

In an industry with free entry and exit, positive economic profit:

cannot be sustained indefinitely.

Factors of production are the most likely to earn economic rent when they:

cannot easily be duplicated

Suppose a market is in equilibrium. The area below the demand curve and above the market price is:

consumer surplus

If a monopolist calculates its marginal revenue to be $15 and marginal cost to be $16, then the monopolist should:

decrease its output

Refer to the accompanying figure. Suppose a law is passed requiring restaurants to charge no more than $25 per meal. This law would:

decrease producer surplus

Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should:

decrease production.

A firm whose production process exhibits constant returns to scale would find that if it doubled all of its inputs, its output would ______.

double

An imperfectly competitive firm faces a demand curve that is ______, while a perfectly competitive firm faces a demand curve that is ______.

downward-sloping; perfectly elastic.

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:

each lemonade stand sells the same kind of lemonade.

If the owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, then they are:

earning a normal profit.

In the long run, in a perfectly competitive industry:

economic profit and loss are driven to zero by entry and exit.

Generally, ______ motivates firms to enter an industry, while ______ motivates firms to exit an industry.

economic profit economic loss

Entry into a perfectly competitive industry occurs whenever:

economic profit is greater than zero.

According to the textbook, the most important and enduring source of market power is:

economics of scale

A natural monopoly is a monopoly that arises from:

economies of scale

Patents, which confer market power, are intended to:

encourage innovation by helping firms recoup the costs of research and development.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.

exit the market, leading the market supply curve to shift back to S2.

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should:

increase production.

Suppose a monopolist faces the following demand curve. If you were to draw the monopolist's marginal revenue curve, it would:

intersect the horizontal axis at 35.

Suppose the accompanying table describes the demand for a good produced by monopolist. The monopolist's marginal revenue from selling the 4th unit of output is less than $7 because:

it has to charge $1 less for each of the first 3 units of output.

If a natural monopoly increases the quantity of output it produces, then:

its average cost will decrease.

If a natural monopoly decreases the quantity of output it produces, then:

its average cost will increase.

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

its exclusive ownership of South African diamond mines.

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive, and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

keeps the price of her lemonade the same and increases the output.

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively:

larger and larger quantities of the variable factors of production.

Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:

leave production unchanged

The main problem with price subsidies is that they:

lower total economic surplus.

In general, perfectly competitive firms maximize their profit by producing the level of output at which:

marginal cost equals price.

If a production process exhibits diminishing returns, then as output rises:

marginal cost will eventually increase.

The accompanying table describes the relationship between the number of workers hired by a call center each hour and the number of calls the call center can make each hour. The call center has only 1 telephone. The telephone costs the firm $5/hour (regardless of how many calls are made), and each worker is paid $10 per hour. If the price of a telephone increases to from $5 to $10 an hour and nothing else changes, then:

marginal cost would not change.

If the demand curve facing a monopolist shifts, then the monopolist's:

marginal revenue curve and profit-maximizing level of output will change.

The monopolist will maximize profits at the output level for which:

marginal revenue equals marginal cost.

Relative to a single price monopolist, a price discriminating monopolist generates:

more total surplus

The No-Cash-on-the-Table Principle states that there are:

never unexploited opportunities available to individuals in equilibrium.

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. If Chris's fixed costs decrease, then in the short run, his profit-maximizing level of output will:

not change

A situation is efficient if it is:

not possible to find a transaction that will make at least one person better off without harming others.

Airlines that charge higher prices for seats in the first class cabin are:

not price discriminating because the product is not the same.

Suppose a monopolist produces two different products. If the marginal cost of producing one is lower than the marginal cost of producing the other, and the monopolist charges a different price for the two goods, then the monopolist is:

not price discriminating.

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. When the pizzeria makes 100 pizzas per day, it earns an economic ______ of ______.

profit; $650

The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves. A starting assumption about this industry was that all of the firms in the market had identical cost curves. This assumption is:

realistic because any cost-saving innovation adopted by one firm will be quickly adopted by others.

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. Economists would consider the environmental damage that results from the production of cotton to be a(n):

relevant cost of production.

Monopolists use the hurdle method of price discrimination in order to:

separate consumers on the basis of their reservation prices.

When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.

start-up costs; variable costs

The figure below shows the supply and demand curves for jeans in Smallville. At a price of $60 per pair, there will be an excess ______ of ______ pairs of jeans per day.

supply; 16

Suppose farmers in a given market can either grow soy beans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. All else equal, an increase in the price of corn creates an incentive for farmers to:

switch away from growing soy beans and into growing corn.

Consumer surplus is the cumulative difference between:

the amount consumers are willing to pay and the price they actually pay.

Economies of scale exist when:

the average cost of production falls as output rises.

Marginal cost is calculated as:

the change in total cost divided by the change in output.

Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog each day is equal to:

the value you place on one hour of leisure.

Efficiency is an important goal because when markets are efficient:

there are more resources available to achieve other goals.

One reason that variable factors of production tend to show diminishing returns in the short run is that:

there is only so much that can be produced using additional variable inputs when some factors of production are fixed.

When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______.

total revenue always rises; total revenue could rise, fall, or remain unchanged

The sum of producer surplus and consumer surplus is:

total surplus

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs.

Refer to the accompanying graph. If this firm is a price taker, then when the price of each unit if output is $15, what is this firm's profit-maximizing level of output?

$158

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. The marginal revenue of the fifth unit of output is:

$33

Refer to the accompanying table. The law of diminishing marginal returns becomes evident after ______ units of output are produced.

For a given seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?

If an individual consumer is willing to pay $11 for one unit of a good but is able to purchase it for $7, then his or her consumer surplus from the purchase of that unit would be:

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each.Between 25 and 50 pizzas per day, the pizzeria's marginal cost is ______. Between 25 and 50 pizzas per day, the pizzeria's marginal cost is ______.

The figure below shows the supply and demand curves for oranges in Smallville. What is the marginal cost of producing the tenth pound of oranges?

$50

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, then the cost of subsidy, which must be borne by taxpayers, will be ______ per day.

$6000

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. The first hour John spends cleaning windows costs him ______ that he could have earned in the grocery store.

Which of the following is NOT an example of a good with network economies?

A computer printer

Which of the following is NOT an example of the hurdle method of price discrimination?

A lower price on strawberries when they are in season.

If the demand curve facing the monopolist is P = 70 − 14Q, then the slope of its marginal revenue curve is:

-28

Which of the following will cause an increase market supply?

A technological innovation that lowers the marginal cost of producing the good.

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist. If the marginal cost of producing each unit of output is $5, then at the monopolist's profit-maximizing level of output, the monopolist produces ______ units of output than is socially optimal. 1-10 2-9 3-8 4-7 ETC.

3 Fewer

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. Your fixed cost is $______, and your marginal cost is $______.

300; 10

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table. Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the morning, it will rent out ______ bike(s) and charge ______ per bike.

3; $12

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table. Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island bikes can charge a different price in the morning and in the afternoon, then in the morning, it will rent out ______ bike(s) and charge ______ per bike.

3; $12

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ______ mugs per day.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4,000 + 200Q When each firm produces 8 units, ______ has a lower total cost, and when each firm produces 12 units, ______ has a lower total cost.

Big Inc; Mega Corp

Which of the following is an example of the rationing function of price?

Bill Gates purchasing the Mona Lisa for $5 billion

Which of the following statements is true for both Microsoft and a locally owned restaurant?

Both seek to maximize profits.

If a price ceiling were imposed at point G, then producer surplus would be represented by the area ______. Line D* starts at A going though E,C,I Line S* goes through F, C Vertical side reads as A,J,B,G,D

DGF

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Eventually prices will equalize across all three lemonade stands.

Assume that each day a firm uses 13 employee-hours per day and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______.

Profit; $170

Profit; $64

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then at this firm's profit maximizing level of output, the firm will earn an economic ______ of ______ per day.

Profit; $8

The price equals marginal cost rule for profit maximization is a specific example of which core principle?

The Cost-Benefit Principle

The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle?

The No-Cash-on-the-Table Principle

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist.

When this monopolist maximizes its profit, consumer surplus equals the area:

A technological innovation that reduces a firm's cost of producing additional units of output will lead to:

an increase in the firm's supply.

Start-up costs

are the one-time costs incurred when beginning the production of a new product.

If resources are misallocated in a perfectly competitive market, then, in the long run, profit opportunities will:

bring about a more efficient allocation of resources.

Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando's monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance. In the long run, we would expect Lando to:

join the Rebel Alliance since his economic profit from smuggling is negative.

Economic theory assumes that a firm's goal is to:

maximize its economic profit.

The primary objective of most private firms is to:

maximize profit

Unlike economic profit, economic rent:

may not be driven to zero by competition.

explicit cost

measure the payments made to the firm's factors of production.

If a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes.

Fred runs a fishing lodge and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Fred should keep the lodge open:

only during those months in which his total revenue exceeds his variable cost.

A seller's supply curve shows the seller's:

opportunity cost of producing an additional unit of output at each quantity.

If you were to start your own business, your implicit costs would include the:

opportunity cost of the time you spend working at the business.

Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n):

perfect competitor

If the market for butter is perfectly competitive, then the demand curve facing a firm that produces butter will be:

perfectly elastic.

A price ceiling that is set below the equilibrium price will cause:

producer surplus to fall.

Economic rent is:

the difference between the payment made to the owner of a factor of production and the owner's reservation price.

When the price of a perfectly competitive firm's output rises:

the firm will produce more.

When more firms enter an industry:

the industry supply curve will shift right.

Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:

the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist.

Suppose a monopolist faces the following demand curve. This demand curve can be used to determine:

the monopolist's total revenue at different price and quantity combinations.

The figure below shows the supply and demand curves for jeans in Smallville. The equilibrium price will NOT lead to the largest possible total economic surplus if:

the production of jeans generates air pollution.

Average variable cost is defined as:

variable cost divided by total output

Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its:

variable cost.

The fact that price subsidies reduce economic surplus implies that:

we can find an alternative policy that will make both the rich and the poor better off.

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