ECO232 - Exam #4 Study Guide

Refer to question 44: Tony's accountant would most likely figure the total cost of his wheat planting to equal...

$130

Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called what type of tax?

Excise

As a general rule, when accountants calculate profit they count what?

Explicit costs, ignore implicit costs

Patent and copyright laws are major sources of...

government created monopolies

A budget deficit occurs when the...

government receipts are less than spending

In a competitive market, the actions of any single buyer or seller will...

have a negligible impact on market price

XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95. Total revenue for the XYZ corporation would be...

$26,125

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output?

$32.00

Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat. What is the total opportunity cost of the day that Farmer Tony incurred for his spring day in the field planting wheat?

$380

When a firm in a competitive market produces 10 units of output, it has a marginal revenue of $8.00. What would be the firm's total revenue when it produces 6 units of output?

$48.00

Charles Charles's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is...

$500

Samantha has been working for a law firm and earning an annual salary of $80,000. She decides to open her own practice. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500. Assuming that there are no additional expenses, Samantha's annual implicit costs will equal...

$80,500

Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is...

132 units of output

For a large form that produces and sells automobiles, which of the following costs would be a variable cost?

All of the above are correct

Which of the following is NOT a characteristic of a perfectly competitive market?

Firms have difficulty entering the market

Which of the following statements regarding a competitive firm is true?

For all firms, average revenue equals the price of the good

A sunk cost is one that?

Once paid in the past won't change

Which of the following is not a characteristic of a monopoly?

One buyer

One of the defining characteristics of a perfectly competitive market is what type of product?

Standardized product

What is the definition of total cost?

The amount of money that a firm pays to buy inputs

When calculating marginal cost, what must the firm know?

Variable Cost

If a firm produces nothing, which of the following costs will be zero?

Variable cost

Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and ATC = $40 per tire at the profit-maximizing output level, then in the long run, will more firms be willing to enter the market?

Yes

When a firm has little ability to influence market prices it is said to be in...

a competitive market

A firm that is the sole seller of a product without close substitutes is...

a monopolist

A firm that is a natural monopoly...

all of the above are correct

Natural monopolies differ from other forms of monopoly because they...

are generally not worried about competition eroding their monopoly position in the market

Some costs do not vary with the quantity of output produced. Those costs are called...

fixed costs

The fundamental source of monopoly power is...

barriers to entry

The government finances the budget deficit by...

borrowing from the public

An example of an implicit cost of production would be the income an entrepreneur...

could have earned working for someone else

Accountants are primarily interested in the...

flow of money into and out of firms

Drug companies are allowed to be monopolists in the drugs they discover in order to...

encourage research

For a firm in a perfectly competitive market, the price of a good is always...

equal to marginal revenue

A firm's opportunity costs of production amounts to its...

explicit + implicit costs

Susan used to work as a telemarketer, earning $25,000 per year. She gave up that job to start a catering business. In calculating the economic profit of her catering business, the $25,000 income that she gave up is counted as part of the catering firm's...

implicit cost

The largest source of income for the federal government is...

individual income tax

When a competitive firm triplets the amount of output it sells,

its total revenue triples

In order to sell more of its product, a monopolist must...

lower its price

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

marginal cost

The cost of producing an additional unit of output is the firm's...

marginal cost

The firm will make the most profits if it produces the quantity of output for which...

marginal revenue = marginal cost

For a monopolist,

marginal revenue is always less than the price of the good

Explicit cost requires an outlay of...

money by the firm

Fixed cost can be defined as costs that...

occur even if nothing is produced

The simplest way for a monopoly to arise is for a single firm to...

own a key resource

According to the law of supply,...

price and quantity are directly related (as price goes up, quantity goes up, and as price goes down, quantity goes down)

A monopoly is a...

price maker

A competitive firm is a...

price taker

A monopolist maximizes profits by...

producing an output level where marginal revenue equals marginal cost

Economists assume that monopolists behave as...

profit maximizers

The U.S. income tax discourages...

saving

When total revenue is less than variable costs, a firm in a competitive market will...

shut down

When economists refer to a production cost that has already been committed and cannot be recovered, they use the term...

sunk cost

Profit is defined as...

total revenue minus total cost

The marginal product of labor is equal to...

the increase in output obtained from a one unit increase in labor

A natural monopoly arises when...

there are economies of scale over the relevant range of output

When buyers in a competitive market take the selling price as given,

they are said to be price takers

The three average total cost curves on the diagram correspond to...

three different factory sizes

Average total cost is equal to...

total cost/output

The amount of money a firm receives from the sale of its outputs is called...

total revenue

Accounting profit is equal to...

total revenue minus the explicit cost of producing goods and services

Economic profit is equal to...

total revenue minus the opportunity cost of producing goods and services