Microeconomics Chapters 6,7,8

As a person consumes more of a particular good or service, the total level of utility derived from that consumption will: A) increase at an increasing rate. B) increase at a decreasing rate. C) remain constant. D) increase at a constant rate

B) increase at a decreasing rate.

If a competitive firm can increase its profits by increasing its output, then the firm's: A) P > MC. B) MR < MC. C) MC > P. D) P > MR.

A) P > MC

The calculation for economic profit is total revenue minus: A) implicit and explicit costs. B) explicit costs. C) normal profits. D) implicit costs.

A) implicit and explicit costs.

Marginal utility: A) is the change in total satisfaction derived from consuming one more unit of a good. B) is the total satisfaction derived from the consumption of a given quantity of a good. C) increases with the consumption of each additional good. D) is the change in marginal satisfaction derived from consuming one more unit of a good.

A) is the change in total satisfaction derived from consuming one more unit of a good.

As an individual consumes slices of pizza, the _____ is the amount of satisfaction that he receives from each additional piece of pizza. A) marginal utility B) absolute utility C) consumption availability D) total utility

A) marginal utility

Which characteristic is found in a perfectly competitive market? A) no barriers to market entry or exit B) mutually interdependent decisions C) no close substitutes for the product D) potential for long-run economic profit

A) no barriers to market entry or exit

What market structure has many relatively small buyers and sellers, a standardized product, good information to both buyers and sellers, and no barriers to entry or exit? A) perfect competition B) monopoly C) monopolistic competition D) oligopoly

A) perfect competition

The demand curve for an individual perfectly competitive firm is: A) perfectly elastic. B) identical to the market demand curve. C) perfectly inelastic. D) equal to the firm's average variable cost curve

A) perfectly elastic

The reason price equals marginal revenue in a perfectly competitive market is that: A) since price is constant, the added revenue from selling one more unit is the price. B) the law prohibits marginal revenue from diverging from market price. C) marginal revenue is always equal to marginal cost. D) consumer advocacy groups maintain a steady price

A) since price is constant, the added revenue from selling one more unit is the price

A consumer is in equilibrium when: A) the addition to total utility per dollar is the same for every commodity. B) marginal utilities are equal. C) an equal amount is spent on every commodity. D) the same total utility is derived from each commodity.

A) the addition to total utility per dollar is the same for every commodity.

All of these are explicit costs, EXCEPT: A) the salary an entrepreneur could have earned in a corporate job. B) business taxes paid by an entrepreneur. C) money paid for raw materials. D) salaries paid to employees.

A) the salary an entrepreneur could have earned in a corporate job.

Marginal utility is NOT: A) the same for all units of a commodity consumed. B) measured in utils. C) a measure of satisfaction. D) used to explain how consumers make decisions.

A) the same for all units of a commodity consumed.

A normal profit exists when: A) total revenue equals total costs. B) marginal revenue equals average marginal costs. C) marginal revenue equals average variable costs. D) marginal revenue is decreasing

A) total revenue equals total costs

Profits are equal to the difference between _____ and _____. A) total revenue; total costs B) total revenue; explicit costs C) marginal revenue; marginal costs D) total revenue; marginal costs

A) total revenue; total costs

Normal profits are equal to: A) zero economic profits B) marginal revenue C) negative economic profits D) marginal cost

A) zero economic profits

The profit-maximizing rule states that a perfectly competitive firm A) should stop production as soon as it experiences diminishing marginal returns B) should produce that level of output at which MR = MC C) produces too much if MR = MC D) should not produce a unit if its MC < MR

B) should produce that level of output at which MR = MC

In economic terms, the short run is: A) no more than two years. B) the time over which at least one factor of production is fixed. C) the time period in which factors of production are variable. D) no more than six months.

B) the time over which at least one factor of production is fixed.

A normal profit is equal to: A) explicit cost minus implicit cost. B) zero economic profit. C) revenue minus opportunity cost. D) revenue minus explicit cost.

B) zero economic profit.

Long Run

all factors of production are variable, firms enter in response to profits and exit in response to losses

Short Run

at least one factor of production is fixed ( Such as plant size)

explicit costs

expenses paid directly to some entity ( wages, lease payments, raw materials, taxes, etc.)

Firm demand curve

horizontal line and perfectly elastic

At 500 units of output, total cost is $50,000 and variable cost is $5,000. What does fixed cost equal at 500 units? A) $9,000 B) $5,000 C) $45,000 D) $50,000

C) $45,000

Among perfectly competitive firms, profit maximizing will always operate where: A) MC > MR. B) It will vary across different firms. C) MC = MR. D) MC < MR.

C) MC = MR

Marginal product is defined as the: A) total output divided by the number of workers hired. B) change in the number of workers divided by the change in output. C) change in output from hiring an extra worker. D) number of workers hired divided by the total output.

C) change in output from hiring an extra worker

Money that a firm spends on health care for employees is a(n): A) implicit cost. B) opportunity cost. C) explicit cost. D) surplus cost.

C) explicit cost.

A typical total product curve goes through four stages. What is the correct order for these stages? A) increases at a decreasing rate, increases at an increasing rate, reaches a maximum, decreases B) increases at an increasing rate, reaches a maximum, increases at a decreasing rate, decreases C) increases at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases D) increases at an increasing rate, increases at a decreasing rate, decreases, reaches a maximum

C) increase at an increasing rate, increases at a decreasing rate, reaches a maximum, decreases

Marginal product

Change in Quantity / Change in Labor

Marginal Cost

Change in total cost / change in quantity

Which characteristic is an assumption i a perfectly competitive market structure? A) significant barriers to entry and exit B) products with labels C) a few large buyers and a few large sellers D) perfect information about the markets

D) perfect information about the markets

Marginal product is: A) the change in total costs, given a change in labor input. B) total output divided by total input. C) input divided by output. D) the change in total output, given a change in labor input.

D) the change in total output, given a change in labor

When perfectly competitive firms are earning short-run economic profits, all of these happen, EXCEPT: A) supply increases. B) firms are attracted to the industry by the profits. C) market prices fall. D) the number of firms in the industry will fall

D) the number of firms in the industry will fall

Competitive firm earning profit

Profit = (P - ATC) x Q

Average product

Quantity / Labor

Steps to maximizing profit

- Find MR = MC - Find optimal Q - Find optimal P - Find ATC - Find Profit

Pertnership

- more than one owner - can divide tasks across partners (division of labor) - Personal assets of all owners subject to unlimited liability

Sole Proprietorship

- one owner - easy to start - limited access to financial capital - owner's personal assets are subject to unlimited liability

Corporations

- owners are called stockholders - have legal rights ( much like an individual) - can raise money by issuing stocks and bonds - owners a re protected by limited liability

Marginal Utility

An additional amount of satisfaction from consuming one more unit of a good or service

If a perfectly competitive firm has total revenue that is equal to $400 when it produces one hundred units, and if its total revenue rises to $404 when it produces one hundred and one units, the marginal revenue of the one hundred and first unit is: A) $404. B) $4. C) $1. D) $0.25

B) $4

The Wonderful Gadget Company produces 500 gadgets per week with 50 employees. It hires an additional worker and output rises to 507 gadgets. The marginal product of the last worker hired is _____ gadget(s). A) 500 B) 7 C) 1 D) 507

B) 7

If the variable cost for five shoes is $50 and the variable cost of six shoes is $80, which statement is true? A) The marginal cost for the sixth shoe is $80. B) Average variable cost for the fifth shoe is $10. C) Total costs for the sixth shoe is $130. D) Average variable cost of the sixth shoe is $10.

B) Average variable cost for the fifth shoe is $80.

_____ is the change in total revenue that results from the sale of one added unit of product. A) Total output B) Marginal revenue C) Total revenue D) Marginal product

B) Marginal Revenue

Astrid currently consumes only milk and honey. She drinks four quarts of milk priced at $3 per quart and gets 30 utils for the last quart. She consumes thirteen jars of honey at a price of $0.75 per jar and gets 7.5 utils for the last jar. Is Astrid maximizing her utility? A) No. She should consume more milk. B) Yes. C) No. She should consume more honey. D) No. She should consume less milk.

B) Yes.

Which firm is MOST likely to operate in a perfectly competitive market? A) a cable TV company B) a maple syrup company C) an automobile company D) an electric utility company

B) a maple syrup company

Marginal cost (MC) will equal average total cost (ATC) at the point where the: A) average variable cost is the lowest. B) average total cost is the lowest. C) marginal cost is the lowest. D) fixed cost is the lowest.

B) average total cost is the lowest

All of these are necessary for perfect competition, EXCEPT: A) no control over price. B) differentiated products. C) many buyers and sellers. D) no barriers to market entry or exit

B) differentiate products

Mary started out in a consumer equilibrium. Later Mary discovers that her marginal utility per dollar spent on root beer is more than the marginal utility per dollar spent on gasoline. She knows then that the price of: A) root beer must have increased. B) gasoline must have increased or the price of root beer must have decreased. C) gasoline must have decreased. D) gasoline must have decreased or the price of root beer must have increased.

B) gasoline must have increased or the price of root beer must have decreased.

The marginal cost curve: A) intersects the average fixed cost curve at its minimum point. B) always declines. C) intersects the average total cost curve at its minimum point. D) disappears in the long run.

C) intersects the average total cost curve at its minimum point.

In a competitive market, price is always equal to: A) marginal product. B) marginal cost. C) marginal revenue. D) Many factors go into determining price

C) marginal revenue

A perfectly competitive firm is a: A) price maker; it has the freedom to set the selling price. B) price participant; it can coordinate its pricing decisions with other firms. C) price taker; it must accept the market equilibrium price. D) price leader; it can change its price and other firms will adjust.

C) price taker; it must accept the market equilibrium price

The law of diminishing marginal utility states: A) average utility increases as more of a product is consumed. B) total utility increases at an increasing rate as more of a product is consumed. C) that as a consumer consumes more of a given product, the added utility from consuming an additional unit declines. D) total utility falls as consumption of a good increases.

C) that as a consumer consumes more of a given product, the added utility from consuming an additional unit declines.

Which curve is NOT bowl-shaped? A) the average variable cost curve B) the short-run average cost curve C) the average fixed cost curve D) the long-run average cost curve

C) the average fixed cost curve

Price per unit times the total quantity sold is: A) price per unit. B) average total revenue. C) total revenue. D) marginal revenue

C) total revenue

Staci's Sign Shoppe makes signs for businesses. Staci is currently producing 210 signs per week with three employees. She hires an additional worker and total output per week rises to 328 signs. The marginal product of the last worker is _____ signs. A) 82 B) 210 C) 378 D) 118

D) 118

Jeremy's level of satisfaction from consuming the first cookie was 25 utils. The second cookie increased the level of satisfaction by 20 utils. Jeremy's total level of satisfaction after three cookies was 60. Thus, the marginal utility for the third cookie is: A) 45. B) 60. C) 25. D) 15.

D) 15.

_____ is found by dividing total output by the number of workers employed to produce that output. A) Average cost B) Marginal cost C) Marginal product D) Average product

D) Average product

The main characteristic of the perfectly competitive market that causes economic profits and losses to go zero in the long run is A) homogeneous products B) many buyers and sellers C) known prices D) free entry and exit

D) Free entry and exit

Suppose the marginal utility for the last pencil you buy is 36 and each costs $1, whereas the marginal utility of the last pad of paper you buy is 300 and costs $2. Are you maximizing utility? A) Yes. B) No. You need to buy less paper and fewer pencils. C) No. You need to buy more pencils and less paper. D) No. You need to buy more paper and fewer pencils.

D) No. You need to buy more paper and fewer pencils.

Marginal utility: A) is the sum of all the total utilities. B) is always positive. C) is the same for all units of a commodity consumed. D) declines with each additional unit consumed.

D) declines with each additional unit consumed.

Utility measures: A) the market value of a product. B) the productive efficiency of a good or service. C) how easy it is for one good to substitute for another. D) how much satisfaction is gained from the consumption of a good or service.

D) how much satisfaction is gained from the consumption of a good or service.

When new firms enter a perfectly competitive market, it will cause a(n): A) decrease in supply. B) decrease in demand. C) increase in demand. D) increase in supply

D) increase in supply

Suppose the MU/P for bottled water is greater than the MU/P for bags of chips. To maximize total utility, the consumer should buy: A) more of both goods. B) more bags of chips and less bottled water. C) less of both goods. D) more bottled water and fewer bags of chips.

D) more bottled water and fewer bags of chips.

Sunk Cost Fallacy

Decisions are influenced by costs already incurred instead of how the decision affects current well-being EX- refusing to drop a class because tuition is already paid

Monopoly

EX- NFL

Oligopoly

EX- Walmart vs Target

Prefect Competition

EX- corn and wheat industry

Overvaluing the present relative to the future

EX- not saving enough for retirement and spending it now

Monopolistic Competition

EX- restaurants

Altruism

EX- why leave a generous tip if it won't affect your service already provided?

Average fixed cost

Fixed cost / Quantity

Total Cost

Fixed costs + Variable costs

Framing Bias

Techniques used to steer individuals to making one decision over another EX- buy one get one 50% off vs. 25% off entire purchase

Total Utility

The total amount of satisfaction obtained from consumption of a good or service

Average total cost

Total Cost / Quantity

Accounting Profit

Total Revenue - Explicit Costs

Economic Proft

Total Revenue - Explicit Costs - Implicit Costs

Average variable cost

Variable cost / Quantity

MC > MR

produce less because we lost money

MC < MR

produce more b/c we are making money

implicit costs

the opportunity costs of using resources (depreciation, asset depletion, forgone wages)

Overconfidence

the tendency to be more confident than correct EX- buying a gym membership and not going

MC = MR

where profit is maximized