Econ 102 Midterm 2
Is the producer surplus same as the profit?
No they are different because the producer surplus does not take into account the fixed cost
In a perfectly competitive market, sellers are ________
Price Takers
In the long run, a firm should exit from a market when ________
Price is less than average total cost (ATC)
For 14,500 units of production (M), the total variable cost (TVC) is $275,500. For the 14,501st unit of production, the total variable cost (TVC) increases to $275,520. The average variable cost (AVC) per unit is _____ and the marginal cost (MC) for the 14,501st unit is _____.
AVC = TVC/M = 275500/14500 = 19 MC = dTVC (change in total variable cost) = 275520 - 275500 = 20
If you produce at a point inside your PPC, then you are producing at a point that is ________ A. attainable but inefficient B. attainable and efficient C. unattainable D. attainable if resource prices fall
Answer: A
The license _______ the short run profit maximizing quantity of candles to produce.
does not change
Which of the following is NOT one of the three conditions that characterizes a perfectly competitive market? A. Sellers Produce identical goods B. There are no barriers to enter or exit the market C. Firms have pricing power and can set prices freely D. Buyers are price takers and cannot influence the price charged
Answer is C: Firms do not have pricing power and therefore cannot set prices freely
Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit? A. Produce until marginal revenue is equal to marginal cost B. Produce up to the point where price equals average total cost C. Produce until marginal cost is far below average total cost D. All of the above
Answer: A Produce until marginal revenue is equal to marginal cost
In a perfectly competitive market, all of the following are true except: A. The market supply cannot affect the retail price B. Entry into the market is unrestricted C. The products sold are basically homogeneous D. Sellers are price takers
Answer: A The market supply can affect the retail price. Greater supply means more quantity and less price.
A difficult problem for central planners is bringing together those economic agents whose interests coincide in order to trade. This is known as the _______ problem. A. communication B. incentive C. coordination D. collaboration
Answer: C
Social surplus is the ______ A. difference between the amount that buyers actually pay and what they wish to pay B. gain to society from having a trade surplus with other countries C. sum of consumer surplus and producer surplus D. excess of aggregate demand over aggregate supply
Answer: C
The government of a certain country decides that all its citizens should be equally well off. It decides to redistribute money so that each person has roughly equal share of the total income. How would this policy affect economic activity in the country? A. it would be enhanced by the euphoria and sense of unity brought about by the creation of an egalitarian society B. it would be adversely affected since the poor are generally incapable of wisely investing money C. it would be adversely affected since incentives to work or seek profits would be greatly diminished D. it would be boosted since the poor will now be spending funds the rich would have otherwise saved
Answer: C
A production possibilities curve (PPC) __________ A. shows the combinations of inputs that can create a specific level of output B. determines the levels of imports and exports within a country C. shows the trade off between price and quantity of produced goods or services D. shows the relationship between the maximum production of one good for a given level of production of another good
Answer: D
Are all efficient outcomes also equitable? Explain. A. No, only those efficient outcomes that produce a rich to poor income ratio less than 5.0 are equitable B. No, the only efficient outcome that is equitable is the one that results in an equal distribution of goods across society. C. Yes, if an outcome is efficient, then by definition, it maximizes social surplus and consequently must be equitable D. There is really no definitive answer to this question since issues surrounding efficiency and equity are the domain of normative economics, where subjective value judgments are made
Answer: D
Once planners have successfully brought economic agents together, a second problem of aligning the interests of the economic agents must be solved. This is known as the ________ problem. A. alignment B. coordination C. integration D. incentive
Answer: D
Social surplus is maximized when the ________ A. competitive market is in equilibrium B. highest value buyers are making a purchase and the lowest cost sellers are selling C. buyers and sellers as distinct groups are doing as well as they possibly can D. All of the above
Answer: D
A linear PPC would show ______ and a PPC that is curved away from the origin would show ______
constant opportunity costs, increasing opportunity costs
You are planning to build an apartment building. Your market research department estimates that your revenues will be $850,000. Your engineering department estimates the costs will be $550,000. You started construction and spent $200,000 to build the foundation when the recession begins. This causes your market research department to revise their revenue estimate downward to $349,950. Should you complete the apartment building? A. No, the cost to build is still $550,000 (which includes the $200,000 you already spent leaving $350,000 in costs remaining) and you only expect to make $349,950. B. Yes, the $200,000 is a fixed cost of production so you must complete the building to cover these costs. C. Yes, since you have already spent $200,000, you can't stop since that money will be wasted D. No, the remaining cost to build is $350,000 and you only expect to make $349,950. The $200,000 is a sunk cost.
Answer: D (The $200,000 is a sunk cost and should not be considered in future decisions which makes D the better answer since it identifies the sunk cost)
The price at which a buyer is indifferent between making a purchase and not doing so is known as his __________ A. reservation price B. break even point C. willingness to pay value D. all of the above E. A and C only
Answer: E
Is the producer surplus always the same as the profit?
Producer surplus equals profit only when marginal cost (MC) and average total cost (ATC) can be represented with the same curve
Every candle maker in town A must have a license. The cost of a license is the same regardless of the number of candles produced. Assume the candle market is a perfectly competitive market. With the license, the short-run average fixed cost curve ________ and the short run average variable cost curve ________
Shifts up, remains unchanged (a license is a fixed cost and not a variable cost)
The international space station (ISS) is a habitable satellite that was launched by NASA and space agencies of other countries. In 2009, NASA was considering shutting down the ISS within the next 5-6 years. Among those who were opposed to this idea of de-orbiting the ISS was Senator Bill Nelson who was quoted as saying "If we spent 100 billion dollars, I don't think we want to shut it down in 2015. The 100 billion dollars that Senator Nelson is referring to is known as ______________. Given this information, the Senator's comment is ________, since these types of costs __________ affect current and future decisions.
a sunk cost, flawed, should not
The higher minimum wage ______ the short run profit maximizing quantity of candles produced
decreases (more money paid to workers so less paid on supplies to produce candles therefore less candles produced)
All else being equal, the steeper the demand curve, the _______ the social surplus in a market
larger
All else being equal, the steeper the supply curve, the ________ the social surplus in a market
larger
Candle makers in town B do not need a license. Town B, however, has passed a new minimum wage law that increases the minimum wage that candle makers in town B pay their workers. Assume still, a perfectly competitive market. With the higher minimum wage, the short run average fixed cost curve ______ and the short run average variable cost curve ______
remains unchanged, shifts up (wages are a variable cost, not a fixed cost)
Marginal Cost is the change in _________
total cost associated with producing one more unit of output.
