ECON 323 EXAM 2 HW & LC

Lee has just started a lobster farm in a perfectly competitive market; it costs him $12 per pound to produce medium-sized lobsters. He knows that the farms nearby can produce lobsters at lower costs, $9 to $10 per pound. The market price for lobster in his area is $11 per pound. How much should Lee sell his lobster for assuming he already produced them?

11

If a firm has constant returns to scale and it doubles both capital and labor, by what factor should the firm's output change?

2

Demand is QD = 5,000 − 4P and supply is given by QS = 7P − 500. The equilibrium price is 500 and quantity is

3000

if a firm has decreasing returns to scale and it triples both capital and labor, by what factor might the firm see its output change?

<3.0

The correct equation for the price elasticity of demand is:

E^D = %ΔQ^D/%Δ^P

A company can produce two products disjointly or jointly. If the company produces the products disjointly, the cost function for the first product is C1(Q1) = 2Q12. The cost function for the second product produced disjointly is C2(Q2) = 4Q22. If the company produces the two products jointly, the cost function is C(Q1,Q2) = 2Q12 + 4Q22 - Q1Q2. Which of the following statements is correct?

Economies of scope exist for the company. The company can produce more cheaply jointly than producing the products disjointly.

Fleet Foot's average fixed cost is $25 and fixed cost represents 25% of Fleet Foot's total cost of $150,000. Which of the following statements is true?

Fleet Foot produced output of Q = 1,500

what is true about average total cost?

It is the sum of average variable cost and average fixed cost. It is not strictly decreasing as output rises. It is equal to (FC + VC) / Q.

for perfect complements, the curves are

L shaped right angles

Which of these is TRUE regarding producer surplus and profit?

Producer surplus includes no fixed costs, while profit does

Producer surplus in mathematical terms is PS =

TR - VC

Suppose the following is true for a firm in a perfectly competitive industry: P = 25, MC = 30, and AVCmin = 20. Which of the following statements is true?

The firm needs to decrease production in the short run to maximize profits

Average fixed cost

a firm's fixed cost per unit of output

A company produces a flying car; however, it is so expensive that no one is willing to buy it. The price they are charging is:

a price greater than or equal to the demand choke price

Many states require beauticians to be licensed before they can begin working with the public. This means that haircut services

are not; there are barriers to entry

marginal cost is greater than average variable cost when

average variable cost is increasing

specific capital

capital that cannot be used outside of its original application

increasing returns to scale

changing all inputs by the same proportion changes output more than proportionately

at higher output levels, marginal cost is above average total cost, causing total cost to rise more quickly than outputs does. Here, there are

diseconomies of scale

producer surplus for an industry

entire industries' surplus from producing units at a lower cost than the market price

Apples and Opals Boutique has stocked a large number of feather fans. Very few of the fans sell. This is an example of:

excess supply

increasing returns cannot be cause by

expansion paths

average fixed cost is the number of units of output per dollar of the firm's fixed cost

false

average fixed cost

firm's fixed cost per unit of output

the firm's cost-minimization problem is:

firm's goal of producing a specific quantity of output at minimum cost

average total cost

firm's total cost per unit of output

average variable cost

firm's variable cost per unit of output

the presence of capital rental and resale markets make costs less likely to be fixed, meaning more...

flexibility of input levels

In the short run, a firm should operate as long as its total revenue is:

greater than or equal to its variable cost

For a perfectly competitive firm, if output increases by 1 unit, total revenue:

increases by the market price

when a firm wants to increase its output quantity in the short run, it can do so by

increasing quantity of labor used

fixed cost

input cost that doesn't vary w/the amount of output quantity, even if that quantity is zero

what doesn't influence demand in product markets?

input prices

Because of what we know about the demand curve, the price elasticity of demand:

is always negative.

the price elasticity of supply:

is always positive

Cell phones have become nearly ubiquitous around the world, with sales of around 1.5 billion units per year. The cell phone industry

is not in a perfectly competitive market, in part because there are a small number of providers

curve that shows all the input combinations that yield the same cost is called a

isocost line

a curve representing all the combinations of inputs that allow a firm to make a particular quantity of output is called a

isoquant

Which of these is NOT true about the average total cost?

it rises and then falls as output rises

what is not true about a supply curve

it shows the relationship between the quantity demanded of a good and the price of the good

Chandi has just opened a bakery. In her first week of business, her firm produced 30 cakes. In her second week of business, the firm again produced 30 cakes, but Chandi noticed that less of each ingredient, such as flour and eggs, was consumed to produce the cakes. Chandi suspects this is because as the workers have gotten accustomed to their working environment, less of any ingredients have been wasted. This is an example of:

learning by doing

increasing returns to scale can be caused by

learning by doing, fixed costs, and any production process involving containers whose volume (output) increases faster than the surface area (input)

if inputs are perfect substitutes, the MRTS doesn't change at all with the amounts of the inputs used, and the isoquants are perfect

lines

The difference between the firm's total revenue and its total cost is largest when the firm produces the quantity of output at which:

marginal cost equals the market price.

In a perfectly competitive market, a firm will maximize profits by choosing a quantity of production where the

marginal cost is equal to the market price

In a perfectly competitive market, a firm will maximize profits by choosing a quantity of production where the marginal cost of production is equal to the:

market price

In a perfectly competitive market where firms have different costs, the long-run market price is equal to the

minimum average cost of the highest-cost firm in the industry

The slope of an isocost line is the:

negative ratio of the input prices.

Sophia decides to enter the perfectly competitive olive oil market where current market prices are $2.89/pint. Hoping to recover her start-up costs quickly, she decides to charge $3.19/pint for "Sophia's Select" olive oil. This decision will have

no effect on market prices, and Sophia will not sell any

In a perfectly competitive market, when the market price is less than the marginal cost, the firm should:

not make an extra unit of output.

Market equilibrium

occurs at the price that makes quantity supplied equal to quantity demanded

Producer surplus can be calculated by finding the area of the rectangle with width equal to production output and height equal to the difference between the price and average variable cost or by finding the area between the:

price line and marginal cost curve.

Producer surplus can be calculated by finding the area of the rectangle with a width equal to

production output and height is equal to the difference between price and AVC

economic rent

returns to specialized inputs above what firms paid for them.

for perfect substitutes, isoquants are

straight lines

The cross-price elasticity of demand between good A and good B is +2.5. That means A and B are:

substitutes

To economists, "search costs" are:

the costs incurred by buyers and sellers as they attempt to find each other

form of total factor productivity growth?

the development of a new machine that does a task at twice the speed of a worker

profit

the difference between a firm's revenue and its total cost.

an assumption of production theory is that if there is a well-functioning capital market...

the firm doesn't have a budget constraint

which is not an assumption of production theory?

the firm maximizes profits

Priya owns a turkey farm that is growing larger each year. Her industry is a perfectly competitive market, which means she will charge

the market price

Perfectly competitive markets are:

the most efficient markets

perfectly competitive firms will be able to decide

the quantity of output they produce

economies of scope

the simultaneous production of multiple products at a lower cost than if a firm made each product separately.

economies of scale exist when

total cost rises at a slower rate than output rises

constant economies of scale exist when

total cost rises at the same rate as output rises.

Economic rent is returns to specialized inputs above what firms paid for them

true

The inverse demand curve for M&B chardonnay (wine) is P = 200 − 0.1QD. When quantity demanded is 1,000, demand is said to be:

unit elastic (unique point where E=-1)