ECON exam 2 review

Equal Marginal Principle

- In economics, comparing the marginal utility of each dollar spent and continuing action to equalize them out is known as the equal marginal principle. - If the MU/P of a current item ever becomes higher than the other item, you will buy more of the other item and less of the current item, because your dollar goes further in terms of utility on the other item. - 10/$1 = 20/$2 >>>10/$1=10/$1

Perfect Competition Characteristics:

- Large number of sellers - Standardized product - Price takers - Easy entry and exit

Price Elasticity of Demand Hint

The price of elasticity of demand will always be negative.

The MR = MC rule

applies both to pure monopoly and pure competition

The MR = MC rule

applies both to pure monopoly and pure competition.

In monopolistically competitive markets, entry barriers: a. do not exist. b. are more prevalent than in perfectly competitive markets but less than in monopoly markets. c. are more prevalent than in monopoly markets but less than in perfectly competitive markets. d. are blocked.

do not exist.

Which set of characteristics below best describes the basic features of monopolistic competition? a. easy entry, many firms, and standardized products b. barriers to entry, few firms, and differentiated products c. easy entry, many firms, and differentiated products d. easy entry, few firms, and standardized products

easy entry, many firms, and differentiated products

Consumers can be ________________ in their demand for a product when many substitutes exist. a. inelastic b. perfectly elastic c. unit-elastic d. elastic

elastic

In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is

equal to price

In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is

equal to price.

Cash expenditures a firm incurs to pay for resources are called A) explicit costs. B) implicit costs. C) normal profit. D) opportunity costs.

explicit costs

Monetary payments a firm makes to pay for resources are called

explicit costs

Monetary payments a firm makes to pay for resources are called

explicit costs.

Oscar makes purchases of an existing product (X) such that the marginal utility of the last unit he consumes is 10 utils and the price is $5. He also tries a new product (Y) and the marginal utility of the last unit he consumes is 8 utils and the price is $1. The equal marginal principle suggests that Oscar should

increase his consumption of product Y and decrease his consumption of product X.

The demand for necessities tends to be: a. inelastic. b. elastic. c. perfectly inelastic. d. unit-elastic.

inelastic

A monopolistically competitive firm's marginal revenue curve

is downward-sloping and lies below the demand curve.

The demand curve faced by a monopolistically competitive firm

is more elastic than the monopolist's demand curve.

Average product

is the average amount of output produced per unit of a resource employed; total product divided by the number of units of a resource employed.

The demand curve faced by a perfectly competitive firm

is the same as its marginal revenue curve.

A monopolist's demand curve: a. is the same as the market demand curve. b. is perfectly inelastic. c. is perfectly elastic. d. is the same as the marginal revenue curve.

is the same as the market demand curve.

A perfectly competitive firm does not try to sell more of its product by lowering its price below the market price because

it can sell all it wants to at the market price.

When total product is rising: a. marginal product is positive. b. marginal product is zero. c. marginal product is negative. d. average product is decreasing.

marginal product is positive.

The demand curve is downward sloping because: a. when more of a good is purchased, total utility falls and marginal utility increases. b. marginal utility decreases as more of a product is consumed. c. income becomes more valuable as more of a product is purchased. d. the impact of the income effect is cancelled out by the substitution effect.

marginal utility decreases as more of a product is consumed.

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

marginal utility is positive for the fourth slice and negative for the fifth slice.

In general, accounting costs represent

only explicit costs

The basic formula for the price elasticity of demand coefficient is

percentage change in quantity demand / percentage change in price.

The basic formula for the price elasticity of demand coefficient is

percentage change in quantity demanded / percentage change in price.

Marginal utility is: a. negative, but never positive. b. positive or negative, but never zero. c. positive, negative, or zero. d. increasingly negative.

positive, negative, or zero.

At the profit-maximizing level of output for a pure monopoly ____.

price is greater than marginal cost

The goal of product differentiation and advertising in monopolistic competition is to make

price less of a factor and product differences more of a factor in consumer purchases.

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because

product differentiation allows each firm some degree of monopoly power.

Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa / Pa = 8 and MUb / Pb = 4. To maximize utility without spending more money, Alex should

purchase more of product A and less of product B.

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by

reducing output and raising price.

Which of the following best approximates a pure monopoly? a. the NFL b. the steel market c. the oil market d. the fast food market

the NFL

The concept of price elasticity of demand measures

the sensitivity of consumer purchases to price changes.

The larger the implicit costs of a business: A) the smaller the explicit costs will be. B) the greater accounting profit will be. C) the more likely it will be a successful venture. D) the smaller economic profit will be.

the smaller economic profit will be.

Average total cost is __________ divided by the number of units of output.

total cost

Marginal cost describes a change in _________ when output is expanded by one more unit. a. average total cost b. total cost c. average variable cost d. total fixed cost

total cost

Marginal product: a. declines across all levels of output, except the first unit. b. usually increases then decreases, but stays a positive value. c. usually increases then decreases and may become negative. d. is always more than total product.

usually increases then decreases and may become negative.

Which of the following would be an example of an explicit cost? a. utilities b. forgone interest income c. interest on a loan d. both a & b e. the salary you could have earned at a firm instead of running your own business

utilities

The ability if a good or service to satisfy wants is called

utility

The ability of a good or service to satisfy wants is called

utility

The ability of a product to provide satisfaction is known as: a. marginal utility. b. opportunity cost. c. utility. d. equal marginal principle.

utility

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets? A) $300 B) $305 C) $500 D) $800 E) no correct answer given

$800

Compare and contrast the characteristics of monopolistically competitive, monopolistic, and perfectly competitive markets.

- Monopolistically competitive markets have many characteristics that are similar to both perfectly competitive and monopolistic markets. - Number of firms: Monopolistically competitive markets are made up of a large number of firms, which is similar to perfectly competitive markets. A monopolistic market contains only one firm: the monopolist. - Product differentiation: Monopolistically competitive markets sell products that are alike, but differentiated, which is similar to monopolies (which sell products that are unique, with no close substitutes). One key difference is that the products in monopolistically competitive markets require advertising to illustrate the differences between the various competitors' products. On the other side, perfectly competitive markets sell products that are perfect substitutes. - Entry and exit: Firms can pretty easily enter and exit the monopolistically competitive market, similar to perfectly competitive markets. Monopolies have no competition due to blocked entry or high barriers to entry. - Price setting: Monopolistically competitive firms have some control over price, since they produce slightly different versions of a product. They have less control than monopolists (who are price makers) but more control than perfectly competitive firms (who are price takers).

Decision Making Process Assumptions

- Rational Behavior - Ranked Preferences - Limited Income - Prices

Monopolistic Competition Characteristics:

- Relatively large number of sellers - Differentiated product - Some control over price - Relatively easy entry and exit

Second-Degree Price Discrimination Monopolist: Summary

- Sells bundles in ever increasing quantities at decreasing per unit prices. - Seeks to encourage buyers to purchase more goods or services than they normally would.

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is

8 units of utility. (18+12=30; 38-30-8)

For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue (MR) at this output level will be _____.

<$8

Increasing Marginal Returns

A characteristic of production whereby the MP of the next unit of a variable resource utilized is greater than that of the previous variable resource. (When MP is increasing)

Elasticity

A measure of how responsive one variable is to a change in another variable.

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

Mrs. Arnold should spend more on soda and less on pretzels.

Which of the following is true under conditions of perfect competition? a. No single firm can influence the market price. b. Each individual firm has the ability to set its own price. c. There are differentiated products. d. The market demand curve is perfectly elastic.

No single firm can influence the market price.

Zero Explicit Costs; You are a firm that runs a fancy restaurant in the first floor of a nice building in the city. You own the space outright (you are not making any payments on a mortgage) and therefore have no explicit costs for the space. Does this mean you face zero costs running the restaurant for the space?

No; the space could be used as a night club instead of a restaurant. You still face opportunity costs

Second-Degree Price Discrimination

The practice of charging different prices per unit for different quantities, or blocks, of a good, or service. (block pricing)

First-Degree Price Discrimination

The practice of charging each and every consumer the price that he/she is willing and able to for a good or service. (perfect price discrimination)

Third-Degree Price Discrimination

The practice of dividing market participants into groups based on their elasticities of demand in order to charge each group a different price for the same good or service.

Average Fixed Costs (AFC)

Total fixed cost divided by the amount of output produced. (Fixed cost per unit.)

Average Variable Costs (AVC)

Total variable cost divided by the amount of output produced. (In other words, it is the variable cost per unit.)

A pure monopoly may generate economic profits because _____.

barriers to entry

Firms that engage in first-degree price discrimination charge different prices to customers ___________.

based on their willingness and ability to pay for the good or service.

To practice third-degree price discrimination, a pure monopoly must _____________.

be able to separate buyers into different groups with different price elasticities.

The law of diminishing marginal utility states that

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

Buying in bulk to save money is an example of ____________

block pricing

In a perfectly competitive industry, each firm

can easily enter or exit the industry

Fixed costs are: A) costs that are negotiated to stay the same throughout the life of a contract. B) costs that depend on the quantity of output produced. C) inputs costs that stay the same price per unit. D) costs that don't depend on the quantity of output produced.

costs that don't depend on the quantity of output produced.

Average fixed cost A) graphs as a U-shaped curve. B) declines continually as output increases. C) equals marginal cost when average total cost is at its minimum. D) may be found for any output by adding average variable cost and average total cost.

declines continually as output increases.

Generally, accounting profits are:

greater than economic profits, because accounting profits do not consider implicit costs.

If the price elasticity of demand for a product is _________________, it is considered elastic. a. zero b. greater than one c. equal to one d. less than one

greater than one

The price of a camera decreases from $200 to $180, and in response to the price change the quantity demanded increases from 60 to 65 units. Therefore, demand for cameras in this price range: a. has declined. b. is unit-elastic. c. is inelastic. d. is elastic.

is inelastic

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 4 and MUb/Pb = 7. Ben should purchase:

more of B and less of A

A unique feature of an oligopolistic industry is

mutual independence

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This firm's A) total cost is $30. B) total cost is $270. C) ATC is $57. D) ATC is $35.

total cost is $270.

Marginal Utility is the

total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

Marginal utility is the

total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

Assuming that all other factors of production are held constant, marginal product is the change in ____________ output resulting from a one-unit change in ______________.

total; a variable input

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What are Winston's accounting profits?

$142,000

The marginal utility of the last unit of apples consumed is 24, and the marginal utility of the last unit of bananas consumed is 16. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium? a. $8 and $12 b. $6 and $4 c. $16 and $9 d. $4 and $6

$6 and $4 (24/6=4; 16/4=4)

If you know that when a firm produces 10 units of output, total cost is $1,030 and average fixed cost is $10, then total variable cost is

$930

Suppose that a business incurred explicit costs of $1.5 million and implicit costs of $300,000 last year. If the firm sold 4,500 units of its output at $450 per unit, its accounting profits were ____________ and its economic profits were _____________.

- $525,000; $225,000

Total Cost (TC)

- A firm's variable costs and fixed costs combined equal its total costs. - The total cost curve is parallel to the total variable cost curve.

Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara's marginal revenue generated from selling an additional unit of tomatoes is always equal to

price.

Matt quits his job, at which he was earning $50,000 per year, and opens a small business. In the first year, the business has sales of $75,000 and explicit costs of $45,000. What is Matt's economic profit?

$-20,000 (TR-EC(explicit and implicit); 75,000-95,000=-20,000)

The sole proprietor of the Milwaukee Machine Company generates an annual accounting profit of $78,000. She has a standing salary offer of $35,000 a year to work for a large corporation. If she had invested her capital outside her own company, she estimates it would have returned $22,000 this year. What is the sole proprietor's economic profit?

$21,000

Marginal Revenue Summary

- A monopolist must lower the selling price to sell more goods or services. - Marginal revenue is lower than the selling price. - The marginal revenue curve is always below the demand curve.

Profit Maximization Summary

- A pure monopolist produces the quantity of output where MR=MC. - As price makers, they set the price using the demand curve at the MR=MC level of output. - As they change output, the selling price changes. - Monopolist can earn an economic profit, normal profit, or loss.

Average Total Costs

- Average total cost will decline initially and then will start to increase. - The difference between average variable cost and average total cost is the average fixed cost.

Variable Costs

- Costs that change with the amount of output produced, increasing as production increases and decreasing as production decreases. Directly related to the production of a particular good. - The number of workers you hire or the amount of hours your employees work can often fluctuate in the short run. This is a variable cost.

Explicit and Implicit Costs

- If you run a firm you face explicit and implicit costs. - Explicit: The monetary payments you must make to operate. - Implicit: The opportunity cost of your time and use of other owned resources.

MR = MC

- Like perfect competition and pure monopoly, each monopolistically competitive firm will still continue to expand output until the marginal revenue is equal to marginal cost. - If it did not, it would be leaving transactions unfulfilled that bring in more revenue than cost.

Explicit Costs

- Monetary payments made by individuals, firms, and governments for the use of resources owned by others. - Explicit costs are the monetary payments made by firms. - Resources include land, labor, capital, and entrepreneurial ability.

First-Degree Price Discriminating Monopolist: Summary

- Sells each unit of output at the buyer's maximum willingness-to-pay price - Produces the quantity where MC = D - Generates more profit - There is no consumer surplus.

Pure Monopoly Characteristics:

- Single seller - Product has no close substitutes - Price makers - Barriers to entry

Marginal Cost (MC)

- The additional cost associated with 1 more unit of an activity. - MC is equal to a change in total cost divided by the change in output.

Equal Marginal Principle:

- The idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal. - The mathematical concept we will use sounds confusing, but before we transfer it to an equation it is best simplified with an example.

Implicit Cost

- The opportunity costs of using owned resources. - Costs for which no monetary payment is explicitly made. - Foregone opportunities.

Utility Maximization

- The process of obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers preferences, incomes, and prices. - If we are to maximize utility, as consumers we can see that we have to take into consideration not just the benefits but also the costs of activities.

Short Run

- The time period in which at least one input of production is fixed but other inputs can be changed. - Look at all your inputs and at least one of those is fixed.

Total Product (TP)

- The total amount of output produced with a given amount of resources. - To understand what happens in the short run for firms, we have to understand how much they can produce without adjusting that fixed input. - "When we see the words total product it means what we produced"

Opportunity Cost

- The value of the next-best foregone alternative. - The value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another.

Total Variable Cost (TVC)

- Variable costs will increase as you produce more units. Cost increases with increased quantity. - Connection to other material: The rate at which total variable cost increases can change due to increasing marginal returns and the law of diminishing returns, but it is always increasing.

Marginal product (MP);

- is equal to the change in total product divided by the change in labor. - It is additional output produced as a result of utilizing 1 more unit of a variable resource.

Firms Decision Making Process

1. Produce where MR=MC, (Q*) 2. Determine selling price at Q* 3. Determine ATC at Q* 4. Determine unit profit, loss, P - ATC > 0, P - ATC < 0 Total profit: (P-ATC)Q* or TR-TC 5. If P-ATC < 0, determine AVC at Q* 6. If P ≥ AVC at Q*, then produce If P < AVC at Q*, then SHUT DOWN

The price elasticity of demand for widgets is 9.6 percent. Assuming no change in the demand curve for widgets, a -0.80 percent increase in sales implies a

12 percent reduction in price. 9.6/-.80

A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is:

300 bushels

If the price elasticity of demand for a product is equal to -0.5, then a 10 percent decrease in price will increase quantity demanded by

5%

Decreasing Marginal Returns

A characteristic of production whereby the marginal product of the next unit of a variable resource utilized is less than that of the previous variable resource. ( When MP is decreasing)

The Law of Diminishing Marginal Utility

A law in economics that states that the marginal utility associated with consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period.

What represents a case of third-degree price discrimination?

A major airline sells ticket to senior citizens at lower prices than to other passengers.

Which case below best represents a case of third-degree price discrimination? a. An insurance company offers discounts to safe drivers. b. A major airline sells tickets to senior citizens at lower prices than to other passengers. c. A professional baseball team pays two players with identical batting averages different salaries. d. A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.

A major airline sells tickets to senior citizens at lower prices than to other passengers.

Price Elasticity of Demand (Ed)

A measure of how responsive quantity demand is to a change in price.

Other things equal, if the wage rates paid to a firm's labor inputs were to rise, we would expect the A) AFC, AVC, ATC, and MC curves all to rise. B) AVC, ATC, and MC curves all to rise. C) MP curve to fall. D) AFC and ATC curves to fall.

AVC, ATC, and MC curves all to rise

If a firm increases production, then its: A) total costs increase. B) variable costs rise. C) fixed costs stay the same. D) All of these are true.

All of these are true (total costs increase, variable cost rise, and fixed cost stay the same)

How is the slope of a linear demand curve different from its elasticity? a. Along a linear demand curve, slope changes. b. Along a linear demand curve, elasticity stays the same. c. Along a linear demand curve, elasticity changes. d. There are no differences between slope and elasticity.

Along a linear demand curve, elasticity changes.

Describe a real life example of third-degree price discrimination.

Anytime you've gone somewhere and gotten a student discount (maybe at the movies, pizza, wing-night, etc.) is an example of third-degree price discrimination. Whenever a firm splits the population into subgroups by age, gender, occupation, etc. and charges the different groups a different price, third-degree discrimination is being used to increase profits

Utils

Are a subjective measure of the utility associated with consuming a good or service.

Fixed Costs

Costs that do not change with the amount of output produced. - Ex. The insurance you must pay for owning a car does not change with how much you use the care. This is a fixed cost.

Price Takers

Firms that take or accept the MARKET price and have no ability to influence that price.

Total Fixed Cost (TFC)

Fixed costs are constant no matter how many units you produce. Cost does not increase with increased quantity.

Which of the following constitutes an implicit cost to the Asarta Manufacturing Company? a. Payments of wages to its office workers b. Rent paid for the use of equipment owned by the Butters Machinery Company c. Foregone interest income from using savings to pay for operating expenses d. Payments using economic profits resulting from current production

Foregone interest income from using savings to pay for operating expenses

If the change in price is 20% and the change in quantity demanded is 10%, what type of elasticity is present? a. Elastic b. Inelastic c. Unit-Elastic

Inelastic - 10%/20%=.5 If less than 1, we have an inelastic demand

Which of the following is not a characteristic of monopoly? a. It produces a unique product. b. Entry to the market is blocked. c. Its demand curve is downward sloping. d. Its demand curve is perfectly elastic.

Its demand curve is perfectly elastic.

Profit Maximization

Just like a perfectly competitive firm, pure monopolies MR should equal MC to maximize profit.

An unregulated pure monopolist will maximize profits by producing that output at which

MR = MC

An unregulated pure monopolist will maximize profits by producing that output at which:

MR = MC

Normal profits occur at the point where

MR/AR/Price=MC=ATC.

Which of the following is not associated with the monopoly market structure?

Many sellers

Which of the following is not associated with the monopoly market structure? a. Many sellers. b. A single seller. c. A unique product. d. Impossible entry into the market.

Many sellers

How much did the total cost change when we added one more unit to production?

Marginal cost is the additional cost associated with the production of an additional unit.

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

More of B and less of A.

Which of the following is true under conditions of perfect competition?

No single firm can influence the market price.

Describe a real life example of second-degree price discrimination.

Second-degree price discrimination can often be seen when shopping. Often, stores will advertise that you can buy a shirt (or whatever item) for $10 or 2 for $8 each. Shoe stores will advertise for BOGO (buy one get one) sales where a person buys one pair of shoes and the second one is half off (or free). This is also called price blocking where certain quantities are sold for different prices.

What is the market structure of monopoly?

Single firm that is a price maker.

Which of the following is a market structure of monopoly? a. Few firms operating as price takers. b. Single firm operating as a price taker. c. Single firm that is a price maker. d. All of these are true.

Single firm that is a price maker.

Pure Monopoly

Single producer of a good who has no close substitutes and as a result they cannot pick the price. This is why there are barriers to entry.

Susan spends all her income buying tortilla chips and guacamole. The last bag of tortilla chips purchased results in a marginal utility of 3 utils. The last tub of guacamole purchased results in a marginal utility of 4 utils. The price of each bag of tortilla chips is $1.50 and the price of each tub of guacamole is $2. In this situation: a. tortilla chips and guacamole are substitute goods. b. Susan should buy fewer tortilla chips and more guacamole. c. Susan should buy more tortilla chips and less guacamole. d. Susan should buying tortilla chips and guacamole in the equal marginal principle amounts.

Susan should buying tortilla chips and guacamole in the equal marginal principle amounts

Monopoly Power

The ability of a monopoly to influence prices by controlling the quantities that it produces in the marker. (price maker) - The closer we are to a pure monopoly, the more monopoly power a firm posses.

Marginal Utility

The additional satisfaction or happiness received from the consumption unit of a good or service.

Which of the following statements is correct when the price of elasticity of demand is inelastic? a. The percentage change in quantity demanded is greater than the percentage change in price. b. Buyers are relatively sensitive to price changes. c. Total revenue decreases if price increases. d. The elasticity coefficient is less than one.

The elasticity coefficient is less than one.

Suppose Bev's Bags makes two kinds of handbags-large and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra needles, thread and buttons, and labels. Which of the following would be considered a variable cost of this company? A) The cutting shears B) The rent C) The fabric D) None of these would be considered a variable cost.

The fabric

Utility

The satisfaction or happiness received from the consumption of goods and services.

Total Utility

The sum of all marginal utilities received from goods and services consumed.

Total Costs (TC)

The sum of fixed and variable costs of production.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

They are all barriers to entry.

Discounted tickets for children into events is what type of price discrimination?

Third-degree price discrimination

Average Total Costs (ATC)

Total cost divided by the amount of output produced. (TC/Q) In other words, it is the total cost per unit.

Total revnue

Total out put times price

Accounting and Economic Profit

When looking at the decisions that firms and producers make, it is important to understand the difference between accounting and economic profit.

The theory of consumer behavior assumes that

consumers behave rationally, attempting to maximize their satisfaction.

In the short run, the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs A) are $1,100. B) are $1,250. C) are $2.50. D) are $750.

are $1,250.

Economic Costs

are the costs associated with the use of resources; the sum of explicit and implicit costs.

A perfectly competitive firm trying to maximize profits in the short run will expand output

as long as marginal revenue is greater than marginal cost.

The marginal cost curve crosses the: a. average variable and average fixed cost curves at their highest points. b. average variable and average total cost curves at their lowest points. c. average variable and average total cost curves at their highest points. d. average variable cost curve at its lowest point.

average variable and average total cost curves at their lowest points.

In a perfectly competitive industry, each firm

can easily enter or exit the industry.

Marginal cost is the A) rate of change in total fixed cost that results from producing one more unit of output. B) change in average variable cost that results from producing one more unit of output. C) change in average total cost that results from producing one more unit of output. D) change in total cost that results from producing one more unit of output.

change in total cost that results from producing one more unit of output.

Accounting Profit

considers the total revenue and only the explicit costs.

Economic profit

considers the total revenue and the explicit and implicit costs (economic costs)

The theory of consumer behavior assumes that: a. consumers behave rationally, maximizing their satisfactions. b. consumers have unlimited incomes. c. consumers do not know how much marginal utility they'll obtain from successive units of various products. d. marginal utility is constant.

consumers behave rationally, maximizing their satisfactions.

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 500 units is $1.50. The market price of the product is $1.50 and the minimum possible average variable cost is $1. To maximize profits, the firm should

continue producing 500 units

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should

lease price unchanged and increase output.

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should

leave price unchanged and increase output.

A monopolist's marginal revenue curve: a. is perfectly inelastic. b. is perfectly elastic. c. lies below the demand curve. d. lies above the demand curve.

lies below the demand curve

To maximize utility, a consumer should allocate money income so that the

marginal utility obtained from the last dollar spent on each product is the same.

Economists assume the central goal of any business is to:A) maximize profit. B) minimize costs. C) maximize revenues. D) maximize market share.

maximize profit

If total utility is decreasing, marginal utility: a. is negative. b. must be increasing. c. may be either positive or negative. d. is increasing at a high rate.

may be either positive or negative.

Michael chooses to purchase a $125 ticket to a New York Knicks basketball game rather than a $150 ticket for The Lion King, a Broadway musical. Michael: a. does not like musicals. b. receives more marginal utility from the musical than from the basketball game. c. receives more marginal utility from the basketball game than from the musical. d. recently attended several other Broadway musicals.

receives more marginal utility from the basketball game than from the musical.

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 200 units is $4. The minimum possible average variable cost is $3.50. The market price of the product is $3. To maximize profits or minimize losses, the firm should

shut down.

A monopolist faces a downward-sloping demand curve because:

the entire market demand curve is the monopolist's demand curve.

Suppose Sam's Shoe Co. makes one kind of shoe. An example of a variable cost for this company would be: A) the leather needed to make the shoes. B) the lease to the factory building. C) the design pattern for the shoes. D) All of these are examples of variable costs.

the leather needed to make the shoes.

Assuming that all other factors of production are held constant, marginal product is the change in ________________ output resulting from a one-unit change in __________________.

total; a variable input

If the price of a good falls from $5 to $4, and the quantity demanded increases from 4 units to 5 units, the price elasticity of demand is: a. elastic. b. inelastic. c. unit-elastic. d. perfectly elastic.

unit-elastic