Acct 2100

The basic difference between the short run and the long run is that

atleast one resource is fixed in the short run, while all resources are variable in the long run

The marginal rate of substitution measures the

consumer's willingness to substitute one product for another so that total utility will remain constant.

To the economist, total cost includes

explicit and implicit costs

Economic profits are calculated by subtracting

explicit and implicit costs from total revenue

When total utility is at a maximum, marginal utility is zero

True

If MR > MC for a competitive firm, it should reduce its level of output in order to makeMR equal to MC.

false

In the short run, a competitive firm will not produce unless price is at least equal toaverage total costs.

false

In the short run, fixed costs are important in determining a competitive firm's optimallevel of output.

false

A consumer's demand curve for a product is downsloping because

marginal utility diminishes as more of a product is consumed

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is 15) spending all her money income should buy

more of X and/or less of Y

Most economists contend that

noncash gifts are less efficient than cash gifts

Behavioral economists believe that people

often succumb to temptation.

Marginal utility can be

positive, negative, or zero

The slope of a budget line reflects the

price ratio of the two products

Normal profit is

the return to the entrepreneur when economic profits are zero

Average fixed costs for a given level of output can be determined graphically by

the vertical distance between ATC and AVC

The MR = MC rule applies

to firms in all types of industries

Accounting profits equal total revenue minus

total explicit costs

The following is cost information for the Creamy Crisp Donut Company

$136,000.

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp's explicit costs

$150,000

suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in aspecific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

$200,000 and its economic profits were $0

When the price of a product falls, the income effect induces the consumer to purchase 21) more of it, while the substitution effect prompts her to buy less.

False

The average product (AP) when two units of labor are hired is

9

Which of the following is a short-run adjustment

A local bakery hires two additional bakers

Which of the following statements concerning the relationships between total product(TP), average product (AP), and marginal product (MP) is not correct?

AP continues to rise so long as TP is rising

Refer to the short-run data in the accompanying graph. Which of the following is correct

Any level of output between 100 and 440 units will yield an economic profit

Marginal cost is

Change in TVC/Change in Q

Which of the following best explains why most people don't consume units of goods to the point that their marginal utility falls to zero

Consumers face budget constraints that limit how much they can purchase.

Which of the following definitions is correct?

Economic profit = accounting profit - implicit costs.

If marginal utility is diminishing, total utility must also be declining

False

Marginal utility is total utility divided by the number of units consumed.

False

Which of the following is correct?

If marginal utility is diminishing and is a positive amount, total utility will increase

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.

Refer to the budget line shown in the diagram. If the consumer's money income is $20 the

Price of C is $4 and the price of D is $2.

Answer the question on the basis of the following information

TFC/Q

When a consumer shifts purchases from product X to product Y, the marginal utility of

X rises and the marginal utility of Y falls

A purely competitive seller is

a "price taker.

Economic cost can best be defined as

a payment that must be made to obtain and retain the services of a resource

For a purely competitive seller, price equals

all of these

Heuristics

are shortcuts that save time and energy in decision making.

The law of diminishing returns indicates that

as extra units of a variable resource are added to a fixed resource, marginalproduct will decline beyond some point.

In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain. Which branch of economics would most likely have expected to predict this?

behavioral economics

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.

Increases in product prices shift the consumer's

budget line to the left

Marginal utility is the

change in total utility obtained by consuming one more unit of a good.

Suppose you find that the price of your product is less than minimum AVC. You should

close down because, by producing, your losses will exceed your total fixed costs

Which of the following is not a basic characteristic of pure competition

considerable nonprice competition

The law of diminishing marginal utility explains why

demand curves slope downward

The demand curve in a purely competitive industry is ________, while the demandcurve to a single firm in that industry is ________.

downsloping; perfectly elastic

The short run is characterized by

fixed plant capacity

Marginal utility becomes negative beginning with the

fourth unit

Which of the following is most likely to be a variable cost?

fuel and power payments

If total utility is increasing, marginal utility

is positive but may be either increasing or decreasing.

The utility of a good or service

is the satisfaction or pleasure one gets from consuming it.

The data illustrate the

law of diminishing marginal utility

A consumer who has a limited budget will maximize utility or satisfaction when the

ratios of the marginal utility of each product purchased divided by its price are equal.

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 16) units of A and 8 units of B at prices of $2 and $4, respectively. The marginal utility of the last units of A and B are 16 and 24, respectively. These data suggest that Ms. Thomson

should buy less B and more A

Total utility may be determined by

summing the marginal utilities of each unit consumed.

The long run is characterized by

the ability of the firm to change its plant size

Marginal product is

the change in total output attributable to the employment of one more worker

For a purely competitive firm

the demand and marginal revenue curves will coincide.

Implicit and explicit costs are different in that

the former refer to nonexpenditure costs and the latter to monetary payments

the lowest point on a purely competitive firm's short-run supply curve corresponds to

the minimum point on its AVC curve

A change in the slope of a budget line is solely the result of a change in

the price of one good relative to the other.