econ final ch. 8-15

Scenario 1: Use the following information to answer this question. Kim decides to quit her old job that paid $1,000 a month to open a flower shop in downtown Omaha. Suppose she opens her shop in a building she owns, which she could be renting out to someone else for $1,000 a month. In addition, A to Z Rental required her to sign a one year lease on the coolers needed for her shop and the rent is $200 a month. Hiring three assistants costs her $1,800 a month. Finally, the flowers, vases and other material needed for making flower arrangements average $5,000 a month. Kim's long run fixed costs are:

$0 per month

The equlibrium price of burritos in Omaha is $8. At this price 800 burritos are sold in a day. A $2 dollar tax is then levied on burritos in Omaha. With this tax output is reduced to 600 burritos per day, sold at a price of $9. What is the revenue generated by the tax?

$1,200

Scenario 1: Use the following information to answer this question. Kim decides to quit her old job that paid $1,000 a month to open a flower shop in downtown Omaha. Suppose she opens her shop in a building she owns, which she could be renting out to someone else for $1,000 a month. In addition, A to Z Rental required her to sign a one year lease on the coolers needed for her shop and the rent is $200 a month. Hiring three assistants costs her $1,800 a month. Finally, the flowers, vases and other material needed for making flower arrangements average $5,000 a month. Kim's short run fixed costs are:

$1,200 per month

Look at figure 1. What is the average total cost at 8 units of production?

$1.30

Table 13-7The following table shows the production costs for The Flying Elvis Copter Rides. ​ Output (Helicopter rides) Total Cost (Dollars) Fixed Cost (Dollars) Variable Cost (Dollars) Marginal Cost (Dollars) Average Fixed Cost (Dollars per ride) Average Variable Cost (Dollars per ride) Average Total Cost (Dollars per ride) 050500--------1150ABCDEF2GHI120JKL3MNOPQ120R

$100

Table 14-3The table represents a demand curve faced by a firm in a competitive market. ​ Quantity Demanded (Units) Total Revenue (Dollars) 1314316176192092224225275 Refer to Table 14-3. For this firm, the average revenue when 19 units are produced and sold is

$11

Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be

$12

Table 1 contains a production schedule for West Sixth Brewery's Smithtown Brown beer by barrels produced. What is the marginal cost of increasing production from 2 barrels to 3 barrels?

$15

Table 14-2The table represents a demand curve faced by a firm in a competitive market. ​ Price (Dollars per unit) Quantity Demanded (Units) 150151152153154155 ​ Refer to Table 14-2. For this firm, the marginal revenue from selling the next unit is

$15

Scenario 14-2 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $23. • When the firm produces and sells 151 units of output, its average total cost is $23.05. Refer to Scenario 14-2. When the firm produces 150 units of output, its profit is

$2,550.00

The equilibrium price of burritos in Omaha is $8. At this price 800 burritos are sold in a day. A $2 dollar tax is then levied on burritos in Omaha. With this tax output is reduced to 600 burritos per day, sold at a price of $9. What is the deadweight loss of the tax?

$200

The Bow Wow company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog bed can be sold for a price of $60. Bow Wow's total costs are

$25,000

Look at figure 1. What is the average fixed cost at 1 unit of production?

$3.00

The firm is the figure would shut down at any price below: a) $10 b) $8 c) $6 d) $4 e) $2

$4

Goodfellas has fixed costs of $1000 for their location downtown. Table 1 contains the schedule for their variable costs. What is the average total cost if they produce 400 pizzas?

$4.63

Scenario 13-3 Ziva is an organic watermelon farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $50 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of watermelon. Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Ziva spent in the field planting watermelon?

$550

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above

$6

Before considering any public project, the government should (i) compare the total cost and total benefits of the(ii) conduct a cost-benefit(iii) infer that citizens who vote for a project are willing to pay equally for

(i) and (ii) only

Scenario 13-3 Ziva is an organic watermelon farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $50 an hour for her home-organization services. One spring day, Ziva spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of watermelon. Refer to Scenario 13-3. Ziva's economic profit from farming equals

-$330

What are the total fixed costs of producing 4 Burritos-As-Big-As-Your-Head?

10

What are the total variable costs of producing 2 Burritos-As-Big-As-Your-Head?

14

Refer to Table 11-4. Suppose the cost to plant each tree is $120 and the 4 homeowners have agreed to split all tree-planting costs equally. How many trees would Adams prefer to plant?

2

Refer to Table 11-4. Suppose the cost to plant each tree is $300. How many trees should be planted to maximize the total surplus of the four homeowners?

2

Table 13-12 ​ Quantity Long-Run Total Cost (Dollars) Firm 1Firm 2Firm 3Firm 41180120150210235025030034035103904504904660540600660580070075085069308709001,06071,0501,0501,0501,290 ​ ​ Refer to Table 13-12. Firm 4's efficient scale occurs at what quantity?

3

Figure 14-4 In the following figure, graph (a) depicts the linear marginal cost (MC) of a firm in a competitive market, and graph (b) depicts the linear market supply curve for a market with a fixed number of identical firms. ​ Graph (a): FirmGraph (b): Market Refer to Figure 14-4. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?

30,000

Table 14-6Suppose that a firm in a competitive market faces the following revenues and costs: ​ Quantity (Units) Total Revenue (Dollars) Total Cost (Dollars) 00316521283181242417530236363074238 ​ ​ Refer to Table 14-6. The firm should not produce an output level beyond

5 units

Table 14-6Suppose that a firm in a competitive market faces the following revenues and costs: ​ Quantity (Units) Total Revenue (Dollars) Total Cost (Dollars) 00316521283181242417530236363074238 ​ ​ Refer to Table 14-6. In order to maximize profits, the firm will produce

5 units of output because marginal revenue equals marginal cost.

Figure 14-5 Refer to Figure 14-5. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? ​ Point Price (Dollars) Quantity (Units) A416B432C66D864

A only

Refer to Table 11-4. Suppose the cost to plant each tree is $340 and the 4 homeowners have agreed to split all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 1 tree?

Adams, Benitez, Chen, and Davis

The Toyota plant is considering adjusting their production inputs to produce more Camry's. Which of the following is a long run adjustment?

Adding an assembly line dedicated to the Camry

Rhino horn is highly valued in many Asian countries. As a result, many countries in Africa are seeing declining Rhino populations and dangerous skirmishes between poachers and law enforcement. Which of the following, as an economist, would you recommend to policymakers as the best policy to save the rhino population?

Allow farmers to own and raise rhinos

Cengage produces textbooks that students purchase. Currently there is a 10% tax on textbooks in the State of Nebraska. Governor Ricketts is considering abolishing the tax. If the tax is abolished, who will gain surplus from this?

Both Cengage and Students

Table 13-12 ​ Quantity Long-Run Total Cost (Dollars) Firm 1Firm 2Firm 3Firm 41180120150210235025030034035103904504904660540600660580070075085069308709001,06071,0501,0501,0501,290 ​ ​ Refer to Table 13-12. Which firm has economies of scale and then diseconomies of scale as output increases from 1 to 7?

Firm 4

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The change in consumer surplus is equal to

L + Y

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Markets fail to produce the maximum total benefit to society when positive or negative externalities are present.

Which of the following is most likely to cause a negative externality experienced by students?

Phones going off during lecture

Refer to Figure 10-4. The socially optimal quantity would be

Q2

Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Q3

From society's point of view, by how much is this good "over-provided" in the market as a result of the negative externality depicted in the graph above?

Q3-Q2

Which of the following would you expect the market to provide too little of from society's point of view?

Restored historic buildings

Scenario 3: Irving and his wife Gertrude decide to take their life savings of $20,000 to buy a small retail shop. They plan to make and sell tie-dyed Creighton University T-shirts. They hire a professional tie-dyer for $6.00 an hour who makes 20 t-shirts per hour. The following are needed to produce the shirts: dye, costing $1 per shirt, plain white t-shirts costing $1 each and an industrial washing machine for $1000. The following represent fixed inputs in the short run for Irving and Gertrude:

Retail shop and washing machine.

The deadweight loss of a tax is relatively large when

Supply is relatively elastic or demand is relatively elastic

The Laffer Curve shows that

Tax revenue first increases, then decreases with tax size

When a good can potentially harm consumers and producers are aware of this and consumers are not, then we would typically say that the market outcome is inefficient because

The actual market output level will be higher than the socially optimal output level.

When we say that a tax is inefficient we mean that

The deadweight loss is greater than the revenue generated

Suppose that a Creighton MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies to the Creighton for MBAs, then which of the following statements is correct?

The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.

On a 250-acre farm, a farmer is able to produce 4,000 bushels of wheat when he hires 2 workers. He is able to produce 5,600 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 6,720 bushels of wheat when he hires 4 workers.

If taxed, which of the following markets is likely to experience a high deadweight loss:

The market for Mercedes-Benz cars

When a tax is imposed on producers

The supply curve shifts upward

Which of the following government interventions sets a quantity limit in the face of a negative externality and allows the market to determine the price?

Tradable permits

Scenario 14-2 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $23. • When the firm produces and sells 151 units of output, its average total cost is $23.05. Refer to Scenario 14-2. Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units?

Yes, because the marginal revenue exceeds the marginal cost.

When the social cost curve is above a product's supply curve,

a negative externality exists in the market.

Refer to Figure 10-4. This market is characterized by

a negative externality.

The marginal product of labor is the change in total product caused by

a one-unit increase in the quantity of labor employed, holding the quantity of capital constant.

The impact of one person's actions on the well-being of a bystander is called

an externality

The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could

auction off a limited number of sheep-grazing permits.

Scenario 14-2 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $23. • When the firm produces and sells 151 units of output, its average total cost is $23.05. Refer to Scenario 14-2. Let Q represent the quantity of output. Which of the following magnitudes has the same value at Q = 150 and at Q = 151?

average revenue

Market failure associated with the free-rider problem is a result of

benefits that accrue to those who don't pay.

Cozumels begins experiencing diminishing marginal returns

between the 3rd and 4th Burrito-As-Big-As-Your-Head.

Alan, Betty, and Craig live in Hazard County and Dean, Ed, and Francesca live in Graves County. Alan values a new hiking trail at $200, Betty values a new hiking trail at $150 , Craig values a new hiking trail at $175, Dean values a new hiking trail at $150, Ed values a new hiking trail at $275, and Francesca values a new hiking trail at $100. A new hiking trail costs $400. According to cost-benefit analysis, where will a hiking trail be built?

both hazard and graves

The externality associated with technology spillovers

can be internalized, potentially, through patent protection.

The best way for Government to solve the "free rider"problem is to:

collect taxes to provide services because of the non excludable nature of public goods

Figure 13-2 ​ Refer to Figure 13-2. Which of the curves is most likely to represent marginal cost?

curve B

Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

decreased to Q2

A good is rival is one person's use of it___________ the quantity others can use of it

decreases

If Pazzo's installs more pizza machines in the long run, average total cost will rise. Pazzo's thus faces

diseconomies of scale

Suppose that in a competitive market the equilibrium price to see Jim Gaffigan at Singletary Center is $2.50. What is marginal revenue for the last ticket sold in this market?

exactly $2.50

Neither public goods nor common resources are

excludable, but only public goods are not rival in consumption.

The "Tragedy of the Commons" is

exhaustion of resources that are collectively owned.

Diminishing Marginal Product of Labor shows that the slope of the production functions becomes more steeper.

false

Economic profit is higher than accounting profit

false

In economics study, we care accounting profit but not economic profit.

false

When the producers increase the number of workers in the short run, it can always lead to an increase in the marginal production.

false

Figure 13-4 ​ Figure 1Figure 2Figure 3Figure 4 ​ ​ Refer to Figure 13-4. Which of the figures represents the total cost curve for a typical firm?

figure 2

Which of the following statements best expresses a firm's profit maximizing decision rule?

if marginal revenue is less than marginal cost the firm should decrease its output, if marginal revenue is greater than marginal cost the firm should increase its output, if marginal revenue equals marginal cost the firm should continue producing its current level of output

The entry of new firms into a competitive market will

increase market supply and decrease market price.

Table 13-4 The following table shows the production possibilities for Charles' math tutoring company. ​ Labor (Number of tutors) Output (Number of students tutored per week) 00120245360470 ​ Refer to Table 13-4. Suppose that Charles's math tutoring company has a fixed cost of $50 per month for his cell phone. Each worker costs Charles $60 per day. As output increases from 45 to 70 students, Charles's total cost curve

increases and gets steeper

Scenario 14-2 The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $23. • When the firm produces and sells 151 units of output, its average total cost is $23.05. Refer to Scenario 14-2.When the firm increases its output from 150 units to151units, its profit

increases by $9.45

Table 13-9 ​ Labor (Number of workers) Output (Units) Fixed Cost (Dollars) Variable Cost (Dollars) 003001100301521803030324030454280306053003075 ​ Refer to Table 13-9. For the firm whose production function and costs are specified in the table, its average-variable-cost curve is

increasing

Suppose that the president of Creighton University decides to host a private fireworks show in his backyard on campus. Assuming that students love to watch fireworks, this would be an example of a positive externality because it

is a benefit to a market bystander.

A competitive firm's long-run supply curve is its ______ cost curve above its _____cost curve.

marginal-; average-total-

A competitive firm's short-run supply curve is its ______ cost curve above its _____cost curve.

marginal-; average-variable-

In a market economy, government intervention

may improve market outcomes in the presence of externalities.

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. If the market price falls below $6, the firm will earn

negative economic profits in the short run and shut down.

When Dodge Street is congested, then use of that road by an additional person would lead to a

negative externality

Reaching an efficient bargain is difficult when the

number of interested parties is large.

Refer to Table 11-4. Suppose the cost to plant each tree is $380 and the 4 homeowners have agreed to split all tree-planting costs equally. Which homeowner(s) would be opposed to planting any trees?

only Davis

A good is excludable if

people can be prevented from using it

Which of the following is not a determinant of deadweight loss due to taxation?

price

a vacation home in Florida is

rival in consumption and excludable

a common resource is

rival in consumption but not excludable

The distance between the average total cost curve and the average variable cost curve is:

the average fixed cost

Omaha plans to hold a free music festival for its citizens. Citizens from Lincoln hear about it and come to the festival. This is an example of...

the free-rider problem

If college education in Nebraska produces positive externalities, we would expect

the government to subsidize education.

A short-run production function assumes that...

the usage of capital and technology is fixed

When marginal product is rising we know that

total product is increasing at an increasing rate.

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that

weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.

Tradable pollution permits

will be more valuable to firms that can reduce pollution only at high costs.

You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $12 value on reading a book.

you should go home and read a book