csm 403 exam 2

In the long run, a firm will enter a competitive industry if

total revenue exceeds total cost. the price exceeds average total cost. the firm can earn economic profits.

Raj opens up a lemonade stand for two hours. Her spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Rai has an accounting profit of _____________ and an economic profit of _____________.

$50, $10. Accounting profit= Total revenue -accounting cost Economic profit= Total revenue -economic cost Economic cost= accounting cost + opportunity cost

If Darren sells 300 glasses of iced tea at $0.50 each, his total revenues are

150

Claiborne is a gourmet. He makes it a point never to visit a restaurant a second time unless he has been served a superb meal on his first visit. He is puzzled at how seldom the quality of his second meal is as high as the first. Should he be? Please justify your answer

A "superb" meal at any restaurant is likely to be an unusually good one compared to the meals usually served there. On his next visit, Claiborne is likely to encounter a "normal" meal.

According to the rational choice model which of these two events should be valued more by rational consumers: 1) gift of mug valued at $10, 2) finding the mug you thought was lost, which cost you $10 to purchase

Both events should have the same value

What outcome from this game would conventional economic theory predict? Do experiments confirm the prediction? If not, explain why

Conventional economic theory predicts that Player A will offer only $1 to Player B and keep the remainder for himself. This is predicted to occur because Player A knows that Player B will be better off with $1 than with $0. However, in reality, Player B generally rejects small proposals that he considers unfair.

A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?

Marginal cost is $8, and average total cost is $5.

The cost of producing the typical unit of output is the firm's

average total cost.

A perfectly competitive firm

sets its price to undercut other firms selling similar products.

Based on the present-aim standard a person who drinks gasoline and subsequently dies could be consider rational as long as:

she really likes the taste of gasoline and death

Which of the following statements is correct? a. Assuming that explicit costs are positive, economic profit is greater than accounting profit. b. Assuming that implicit costs are positive, accounting profit is greater than economic profit. c. Assuming that explicit costs are positive, accounting profit is equal to economic profit. d. Assuming that implicit costs are positive, economic profit is positive.

b. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Which of the following would not be classified as a mechanism of self-control? a. Leaving a credit card at home when you walk in the mall with friends. b. Having an alarm system installed in your home. c. An overweight person joining a weight-watchers group. d. An alcoholic campaigning for higher liquor taxes.

b. Having an alarm system installed in your home.

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

continue to operate in the short run but shut down in the long run.

Which of the following statements is correct? a. If marginal cost is rising, then average total cost is rising. b. If marginal cost is rising, then average variable cost is rising. c. If average variable cost is rising, then marginal cost is minimized. d. If average total cost is rising, then marginal cost is greater than average total cost.

d. If average total cost is rising, then marginal cost is greater than average total cost.

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing

diminishing marginal product.

In order to avoid availability bias, an efficient manager will be one who:

does not put much weight on recent performance

If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit _____________ of scale and __________ average total cost.

economies, falling

Which of the following costs do not vary with the amount of output a firm produces

fixed costs

The average-fixed-cost curve

is always decreasing

The "self-interest theory" considers an act to be rational if

it efficiently promotes the ongoing material interest of the person who performs it without the requirement that social justice be achieved.

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of

lemons and sugar.

Economies of scale occur when a firm's

long-run average total costs are decreasing as output increases.

A competitive firm's short-run supply curve is part of which of the following curves?

marginal cost

A competitive firm maximizes profit by choosing the quantity at which

marginal cost equals the price

The amount by which total cost rises when the firm produces one additional unit of output is called

marginal cost.

At the profit-maximizing level of output,

marginal revenue equals marginal cost

A competitive firm's short-run supply curve is its ___________ cost curve above its _____________ cost curve.

marginal, average variable

Economists normally assume that the goal of a firm is to

maximize its profit.

According to the text, the procedure of "anchoring and adjustment:"

often leads to biased estimates,

In calculating accounting profit, accountants typically don't include

opportunity costs that do not involve an outflow of money.

The things that must be forgone to acquire a good are called

opportunity costs.

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will

shut down in the short run but return to production in the long run.

The Kahneman-Tversky value function is

steeper in losses than in gains.

Say one morning you are considering whether to take a taxi cab or riding the train to work. Both mediums would cost you about $4, but you have already paid in advance for the train (since you pay a flat fee at the beginning of the month). If the cab ride would take slightly less time than the train ride, and you are mostly concerned with the time it takes you to get to work, you should

take the cab

Weber and Fechner found

that the minimally perceptible difference is roughly proportional to the original intensity of the stimulus

Diminishing marginal product explains why, as a firm's output increases

the production function gets flatter, while the total cost curve gets steeper.

If the receiver in the "ultimate bargaining game" cares not just about his final wealth level but also about fairness,

the receiver will reject a one-sided proposal

In the long run, each firm in a competitive industry earns

zero economic profits.