Econ test 3

Average total cost is very high when a small amount of output is produced because

average fixed cost is high.

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100,

average variable cost is $3

When marginal revenue equals marginal cost, the firm

may be minimizing its losses rather than maximizing its profit.

a traffic light at an intersection is

not rival and not excludable in consumption

a good is excludable if

people can be prevented from using it

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal

$110

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

Ziva is an organic lettuce 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 $25 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 lettuce. Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Ziva spent in the field planting lettuce?

$380

Jane was a partner at a law firm earning $223,000 per year. She left the firm to open her own law practice. In the first year of business she generated revenues of $347,000 and incurred explicit costs of $163,000. Jane's economic profit from her first year in her own practice is

-$39,000

A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income;30 percent of all her income above $40,000. The taxpayer faces

an average tax rate of 22.0 percent when her income is $50,000.

Marginal cost is equal to average total cost when

average total cost is at its minimum

Governments can improve market outcomes for

both public goods and common resources

For a firm, marginal revenue minus marginal cost is equal to

change in profit

Which of the following industries is most likely to exhibit the characteristic of free entry?

dairy farming

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except

each dish would be both excludable and rival in consumption

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will

exactly triple

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is a common resource because

if too many people use it, one persons use diminishes other peoples use

A difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

In the United States, the marginal tax rate on individual federal income tax

increases as income increases.

A person's marginal tax rate equals

the increase in taxes she would pay as a percentage of the rise in her income.

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output.

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

12 percent

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?

15 bouquets

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

2 per unit

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?

20 percent and 12 percent, respectively

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is 0.016. The cost of imposing a regulation that would ban the chemical is $32 million. If the value of a human life is equal to $5 million, how many people must the policy affect in order for the benefits to exceed the costs?

401

In which of the following tax systems does total tax liability increase as income increases?

Both proportional and progressive

With a lump-sum tax, the

Marginal tax rate is always less than the average tax rate

Which of the following is not a reason why government agencies subsidize basic research?

The government wants to attract the brightest researchers away from private research firms.

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits

economies of scale because average total cost is falling as output rises.

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale.

When new firms enter a perfectly competitive market,

existing firms may see their costs rise if more firms compete for limited resources.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

Which of the following explains why long-run average total cost at first decreases as output increases?

gains from the specialization of inputs

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will

increase price in the short run but not in the long run.

When a factory is operating in the short run,

it cannot adjust the quantity of fixed inputs

A country is using a proportional tax when

its marginal tax rate equals its average tax rate

Ms. Joplin sells colored pencils. The colored-pencil industry is competitive. Ms. Joplin hires a business consultant to analyze her company's financial records. The consultant recommends that Ms. Joplin increase her production. The consultant must have concluded that, at her current level of production, Ms. Joplin's

marginal revenue exceeds her marginal cost.

The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times. What type of good would the Turnpike be classified as in this case?

private good

A free rider is a person who

receives the benefit of a good but avoids paying for it

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to

remain unchanged