Econ Test 2

Which of the following will become smaller and smaller as the firm expands output

average fixed cost

. As one moves down a straight-line, down-sloping demand curve, price elasticity will

change from elastic, to unit elastic, then to inelastic

If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:

continue at its current output if P > AVC

afc is shown by

curvy L

Within different price ranges along a linear demand curve, elasticity's are

different.

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's

economic profit

The marginal revenue of a price taker is

equal to price

. If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is

inelastic

Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if

people spend an insignificant share of their income on the product

The price elasticity of demand for a vertical demand curve is

perfectly inelastic

29. Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the price elasticity of demand for Starbucks coffee is

1.25

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is:

2.5

. In the short run, a firm should shut down its business if price is less than

AVC

. A perfectly competitive market is characterized by highly advertised goods

False

positive

In the short run, if a perfectly competitive firm is producing at a price above average total cost, its economic profit must be

Which of the following best describes the law of diminishing returns

The principle that beyond some point the marginal product decreases as additional units of a variable factor (ex: labor) are added to a fixed factor (ex: a restaurant kitchen).

All of a firm's inputs are considered to be variable in the long run

True

What is the shape of the average total cost curve for a firm in the short run?

U-shaped

Long-run economies of scale exist when the long-run average cost curve

falls.

A perfectly competitive firm's short-run supply curve is its marginal cost curve below its average variable cost curve

false

Which of the following is not a characteristic of the structure of perfectly competitive markets?

few sellers

Diseconomies of scale exist for all of the following reasons except

firm size is too small

If a firm has no ability to select the price of its product, it:

has a horizontal individual demand curve

the price elasticity of demand coefficient for a good will be greater

if a close substitute exist

If marginal revenue exceeds marginal cost, profit maximizers should

increase output until they are equal

Economies of scale are created by greater efficiency of capital and by

increased specialization of labor.

A perfectly competitive firm in the short-run maximizes its profit by producing the output where

marginal cost equals price,marginal cost equals marginal revenue, and total revenue minus total cost is at a maximum

The increase in total output that results from a unit increase in one unit of a variable input is equal to the input's

marginal product

In the short run, a perfectly competitive firm is producing at a price below average total cost, its economic profit is:

negative

. Implicit costs are best thought of as

opportunity costs

When demand is price inelastic

price and total revenue move in the same direction

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is

price elastic

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

product B is more price elastic than product A

Elasticity measures how "sensitive" consumers are by measuring their change in ___ as the price of the product changes

quantity demanded

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as:

relatively elastic

The total fixed cost curve

remains constant regardless of output.

Another word for elasticity is

responsiveness.

Diseconomies of scale exist over the range of output for which the long-run average cost curve is

rising

what are explicit cost

salaries, sales tax, gas and electricity, and insurance

If the demand curve is unit elastic, this implies that

the percentage change in the quantity demanded = the percentage change in product price

Which of the following best illustrates a perfectly competitive market

soybean farmers

Tfc is shown by

straight line in the middle

The long run is a period of time

that is long enough to permit changes in all the firm's inputs, both fixed and variable

. The short run is a time period such that

the existing firms in the market do not have sufficient time to increase the size of their existing plant or build a new factory

which of the following is not an explicit cost

the firm owner's time

A product would be more demand price inelastic

the shorter the time the consumer has to adjust to price changes

atc is shown by

u shaped

There is no change in total revenue when the demand curve for a good is

unitary elastic