Econ 102 M2 Review
Which of the following equations calculates the profits of a firm?
Total revenues minus Total costs
For economists, the "buyer's problem" refers to __________.
how consumers arrive at a choice as to what to purchase.
Pries direct
the invisible hand
Price elasticity of demand is
the percentage change in quantity demanded divided by the percentage change in price
Consumer Surplus is
the price minus the market price
What is the difference between the industry demand curve for a typical good and the demand curve for an individual firm in the market, assuming the market is in perfect competition? 1.) Using the line drawing tool, draw the industry demand curve for a typical good in a perfectly competitive market. Label your curve 'Demand'. Using your graph, the slope of the industry demand curve demonstrates _________
the realistic assumption that the Law of Demand holds for the good under consideration.
Deadweight loss is
the reduction in social surplus resulting from a market intervention
Suppose there is a firm in a perfectly competitive market that has a market equilibrium price of $3 Use a graph to show the demand curve faced by this perfectly competitive firm. 1.) Using the line drawing tool, draw the demand curve for a firm in a perfectly competitive market where the market price is $3 Label your curve 'D'. Using your graph, demand for this perfectly competitive firm is _________. This occurs because __________.
there are many producers all selling identical goods, meaning no one firm can impact the market price
The Average total cost (ATC) is the
total cost divided by the total output
The average variable cost (AVC) is the
variable cost divided by the total output
The long-run average total cost curve is __________ and is found by using the ___________.
U-shaped; minimum point across all possible ATC curves for a given quantity.
Fixing up old houses requires plumbing and carpentry. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is $50 000 per year. Jack's average total cost of fixing up two old houses is _______ (Round your response to the nearest dollar.) George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up seven houses per year. Each earns a wage of $50 000 per year. If George and Harriet work together and fix up seven old houses each year, their average cost is ______. (Round your response to the nearest dollar.) This problem tells us that one of the sources of economies of scale is ______.
$25000, $14285, specialization
If the percentage change in quantity demanded for a good is an increase of 25 %, when the price of its substitute increases by 30 %, the cross-price elasticity is_______ (Round your response to the nearest hundredth.)
.83
The graph to the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) curves for a firm in a perfectly competitive market. In order to maximize profits, this firm should produce approximately _________ units of output.
11
Consider the given graph to fill in the following blanks. Economies of scale occur at point _______. Dis-economies of scale occur at point _______. In the long-run, the firm will exit the industry when it is at point ______.;
A,C,B
A negative income elasticity would indicate ______ good. If your income increased 10% and your demand for diamond jewelry increased 15%, diamond jewelry would be considered ______ good.
an inferior, a luxury
For a firm, constant returns to scale occur when the ___ for the firm ___ as the quantity produced increases
ATC, does not change
All of the following could cause an increase in producer surplus except:
an upward shift in the marginal cost curve.
Which of the following is not one of the three conditions that characterizes a perfectly competitive market?
Firms have pricing power and can set their prices freely.
Which of the following best describes why consumers are price takers?
Individual transactions are too small to have much impact on the market price.
Fixed factor of production is when
Input that cannot be changed in the short run and that status the same. Regardless of how much output is produced.
Assume that the market for chocolates is perfectly competitive.Which of the following statements would be true in this case?
Jill starts to produce chocolates today, but the addition of her supply into the market does not decrease the market price.
Conditions of a perfect competitive market are
No buyer or seller in the market is big enough to influence the market price Sellers in the market produce identical goods There is free entry and exit in the market.
In the long run, which of the following factors of production is fixed for a firm?
None of the above.
Which of the following are necessary ingredients to the buyer's problem? (Check all that apply.)
Prices of goods and services. Amount of money the consumer has to spend. Consumer's tastes and preferences.
What are the 3 parts to the buyers problem?
What you like. prices, and your budget.
The supply curve reflects
Willingness to sell a good or service at various price levels
Long run is the period of time in which
all of the firms inputs can be changed
The variable factor of production is when
an Input that can be changed in a certain period of time and that changes if the level of output changes
An individual demand curve reflects
an ability and willingness to pay for a good or service
To the right is the average total cost curve for a competitive firm. What is the relationship between the average total cost curve (ATC) and the marginal cost curve (MC)? 1.) Using the 3-point curve drawing tool, draw the marginal cost curve for this firm in a competitive market. Label your curve 'MC'. When the ATC curve is decreasing, we know that the MC curve is _________ , and when the ATC curve is increasing, we know that MC _______ .
below the ATC curve, is above the ATC curve
On the graph shown, consumer surplus would be the area:
below the market demand curve and above the market price.
Marginal cost (MC) is the
change in total cost associated with producing one more unit of output
A firm is producing goods in a market where the market price is less than the firm's average total cost but greater than its average variable cost. At this point the firm should:
continue to operate at a loss.
Consumer Surplus is the
difference between what a buyer is willing to pay for a good and what the buyer actually pays
The invisible hand leads to
efficient production within an industry
The average fixed cost (AVC) is the
fixed cost divided by total output Total cost/Q=variable cost/q+fixed cost/Q
Which of the following criteria would most likely influence an optimizing buyer's purchasing decisions?
highest marginal benefit per dollar spent
Optimizing buyers
make decisions at the margin
An optimizing seller makes decisions at the
margin
Marginal cost can be written as
marginal cost=change in total cost/change in output.
Consider a perfectly competitive market and fill in the following blanks. In the long-run, there are _______. The long run average total cost curve (ATC) lies ____ the short run ATC. The long run supply curve is the portion of the marginal cost (MC) curve that lies above the ______ curve.
no fixed factors of production, below, average total cost
Pareto efficiency is when
no one person can be made better off without making someone else worse off.
Marginal benefit is
price
Total benefit is
price of marginal benefit added
The demand curve graphs a consumers responsiveness to a change in _______. The points on the curve can be verified through _________.
price, marginal analysis
What are the three parts to the sellers problem?
production, cost, and revenues
Sellers enter and exit markets based on
profit opportunities
sellers enter and exit markets based on
profit opprotunities
The invisible hand efficiently allocates
resources across industries and goods and services to buyers and sellers (true and only true if in a completely competitive market)
Elasticity measures a variables
responsiveness to change in another variable
The graph on the right shows the long-run average cost curve and marginal cost curve for a firm in a perfectly competitive market. Based on the graph to the right, the long-run supply curve is __________.
segment BC, since at prices below B the firm would shut down in the long run.
Short run is the period of time in which
some of the firms inputs cannot be changed
If a cross-price elasticity is positive, then the two goods are______. If the price of coffee goes up, and as such, the demand for Coffee Mate decreases, this would indicate a_________ cross-price elasticity and that the two goods are___________
substitutes, negative, complements
Social surplus is the
sum of consumer and producer surplus (ex: 60CS+60PS=120 Social surplus)
Producer surplus on a graph is
the area below the price but adobe the supply (MC)
Producer surplus is
the difference between the market price and the marginal cost curve
