Economics: UNIT: MICROECONOMICS: IMPACTS ON BUSINESS

To calculate profit, producers subtract their total production cost from their ____________________________.

✔ total revenue

When an oligopoly exists, how many producers dominate the market? none one a few many

✔ a few

In the United States, which type of industry is often considered part of an oligopoly? electric companies cell phone carriers mail delivery services denim companies

✔ cell phone carriers

Producers often work to maximize their _______________ and make them as large as possible.

✔ profits

In this lesson, you started by reviewing customer demand before choosing a business. What microeconomic factors point to the fact that your business should be successful? Be sure to provide evidence for your claim.

It is clear that consumers in the area are able and willing to purchase custom outdoor shoe equipment. Data from surveys and market research demonstrate that the standard of living is high enough for my product. These data also demonstrate that new coffee shops are not in demand in my community. A new coffee shop may be successful, but it would be a bigger risk considering the capital need and the amount of competition already present.

Think about Standard Oil's business practices. In three to four sentences, explain why there was such a strong negative feeling toward the Standard Oil monopoly. Use details from the lesson and reading.

Sample Response: Standard Oil was taking advantage of incentives that were being given to growing businesses at the time. The company was also ensuring that competition could not continue by lowering prices so much that other producers could not continue to make a profit. With little competition remaining in the market, consumers would be forced to pay the prices set by Standard Oil.

Think about what happened to Standard Oil. Write a paragraph in which you explain whether or not you agree with the actions taken by the government to interfere with the growth of Standard Oil as a monopoly. Use details from the lesson and reading.

Sample Response: The United States government was correct in interfering with the growth of Standard Oil. Not only was the company taking advantage of existing situations, but eventually it would have controlled the oil market entirely. If Standard Oil was able to gain control of the market for a long period of time, consumers could have had to pay extremely high prices for the oil that they needed, limiting their purchase of other goods. Or Sample response: The United States government should not have interfered with the growth of Standard Oil. Because the company had managed to reduce production costs, it was able to offer very low prices to consumers. This benefited many Americans. Without the company's production benefits, citizens were not able to take advantage of this infrastructure.

Write three to five sentences explaining which levels of production provide Alonzo's Cycling with the maximum profit.

Sample response: Based on the data in the graphs, Alonzo's Cycling should produce five or six bikes if it wants to maximize its profits. This is because the sixth bike is the point at which the marginal revenue matches the marginal cost. The company will make $90 in profit with the sale of its fifth or sixth bike each day. After that, the profit begins to fall with each sale.

Scenario: Hector runs a small graphic-design company. He has two assistants. Sasha is very good at producing computer-generated graphics, but she is not as talented at designing logos. The other assistant, Maurice, is skilled at designing logos with pen and paper, but is not very efficient when working on the computer. In the past, Hector had Sasha and Maurice each perform some design and some computer work. Now, Hector is wondering whether this is a wise use of his resources. Based on the information in the scenario, describe the absolute and comparative advantage held by each worker in Hector's office. Give your answer in the form of at least three sentences.

Sample response: Each employee has an absolute and comparative advantage in a category of work. Sasha has an absolute and comparative advantage when doing computer design-she is more efficient, and she is not giving up much of an opportunity cost. Maurice has an absolute and comparative advantage when doing logo design, for the same reasons.

Scenario: Hector runs a small graphic-design company. He has two assistants. Sasha is very good at producing computer-generated graphics, but she is not as talented at designing logos. The other assistant, Maurice, is skilled at designing logos with pen and paper, but is not very efficient when working on the computer. In the past, Hector had Sasha and Maurice each perform some design and some computer work. Now, Hector is wondering whether this is a wise use of his resources. How should Hector use specialization to solve his problem? Based on the scenario, recommend which employee should work on which task.

Sample response: Hector should have his employees specialize so that they can make use of their advantages. Because Sasha has an absolute and comparative advantage when doing computer work, this should be her task. This means that Maurice should spend his time on logo design. By making these changes, Hector will help his employees work more efficiently.

Demand for bikes has suddenly increased, and the market price has risen from $50 to $60. In three to five sentences, explain how this change will affect profits.

Sample response: If the market price of bikes rises from $50 to $60, then the company will want to produce a larger quantity of bikes. This is because the overall marginal revenue is now higher and will be maximized differently. Before profit was maximized at six bikes, now the profit will be maximized by producing more bikes, perhaps seven.

Now, use your research to decide which business is the best choice for this community. Explain your choice in two to three sentences, using factual evidence to support your claim.

The best business for this area is The Shoe Hut. This is the case for several reasons. First, there is less competition for custom sporting goods, as the supply in the area is lower. Survey data shows that there are more individuals who desire custom outdoor sporting goods than there are people who desire more coffee shops. Finally, the overall capital required to start and maintain The Shoe Hut is lower. Less equipment is needed, any building can be rented, and if an employee cannot be hired immediately, I can run the store on my own.

After you analyzed demand, you took steps to make sure your business made sense financially. How will thinking on the margin help increase the chance of long-term success for your business, even if additional competition enters your community?

Thinking on the margin will ensure that each pair of inserts produced is turning a profit. Once a profit is no longer being made on a pair of inserts, production must be cut back. Understanding these margins will also help me stay competitive in a market that is open to other producers. If additional producers enter the market, I know that I have the ability to lower prices or offer discounts while still maximizing profits.

The chart shows the marginal cost of producing soccer nets for Sabrina's Soccer. What is the marginal cost of producing a fifth soccer net? $1.00 $1.50 $2.00 $2.50

✔ $2.00

Brenda's Boards manufactures skateboards. Each skateboard sells for $45 and includes the following expenses: $3 for the wheels and mounts, $1 for the plastic board, $1 for the paint, and $10 for the labor. What is the total profit the company earns after selling 100 boards? $300 $350 $3,000 $3,500

✔ $3,000

Brenda's Boards manufactures skateboards. Each skateboard sells for $45 and includes the following expenses: $3 for the wheels and mounts, $1 for the plastic board, $1 for the paint, and $10 for the labor. What is the total revenue the company makes after selling 10 boards? $300 $350 $400 $450

✔ $450

The Shoe Hut will require about ___________ for the first month of business. Star's Coffee and Teas will require ___________ for inventory and equipment alone. _______________________________ has a lower barrier to entry.

✔ $6,000, ✔ $10,000, and ✔ The Shoe Hut

Production Possibilities for Al's Cafe If no salads are made, then ___ sandwiches can be made. If 6 sandwiches are made, then ___ salad(s) can be made. The opportunity cost of making 1 salad is ___ sandwiches.

✔ 10, ✔ 2, and ✔ 2

This table shows the production possibility schedule for several toothpaste companies. Toothpaste company: Sparkling Bright White Fresh! Mmmint Large tubes: 100 per hour 100 per hour 200 per hour 150 per hour Small tubes: 200 per hour 250 per hour 250 per hour 150 per hour Use the numbers to place the companies in order of greatest comparative advantage to least comparative advantage in producing small tubes of toothpaste. 2, 1, 3, 4 1, 2, 3, 4 4, 3, 1, 2 2, 1, 4, 3

✔ 2, 1, 3, 4

Using this table, calculate the profit at each level of running shoe inserts production. Pair 1: $ Pair 2: $ Pair 3: $ Pair 4: $ Pair 5: $

✔ 23, ✔ 51, ✔ 80, ✔ 109, and ✔ 137

Using this table, calculate the profit at each level of bicycle production. One bike: -$ Two bikes: $ Three bikes: $ Four bikes: $ Five bikes: $ Six bikes: $ Seven bikes: $

✔ 30, ✔ 3, ✔ 40, ✔ 70, ✔ 90, ✔ 90, and ✔ 80

Using the table, calculate the marginal cost of each quantity of shoe inserts. The first pair: $ The third pair: $ The fifth pair: $

✔ 7, ✔ 1, and ✔ 2

Using this table, calculate the marginal cost of each of these quantities of bikes. The first bike: $ The fourth bike: $ The sixth bike: $ The seventh bike: $

✔ 80, ✔ 20, ✔ 50, and ✔ 60

Which calculation helps determine which producer has the absolute advantage? Resources used multiplied by amount produced Amount produced divided by resources used Amount produced minus resources used Resources used divided by amount produced

✔ Amount produced divided by resources used

Marginal Cost of Bikes This graph shows the marginal cost of producing each bike. Select the correct answer from the options available. Based on this graph, which bike has a marginal cost of $20? Bike 1 Bike 2 Bike 3 Bike 4

✔ Bike 4

This table shows the production possibility schedule for several major manufacturing companies in the automobile industry. Manufacturing Company: Company A Company B Company C Company D Truck Parts: 10 per hr. 10 per hr. 15 per hr. 20 per hr. Car Parts: 20 per hr. 25 per hr. 15 per hr. 25 per hr. Which manufacturing company has the comparative advantage for car parts? Company A Company B Company C Company D

✔ Company B

Which best describes how consumers may benefit from specialization? Consumers can only purchase high-quality goods. Consumers have more price options. Consumers receive more sale offers. Consumers find products at lower prices.

✔ Consumers find products at lower prices.

Which helps enable an oligopoly to form within a market? Costs of starting a competing business are too high. The government restricts market entry. The number of options in a market confuses consumers. No competition exists between producers.

✔ Costs of starting a competing business are too high.

The chart shows a production possibilities schedule for Sabrina's Soccer. If the market for soccer balls is saturated and the market for soccer nets is open, which combination makes the most sense for Sabrina's Soccer? A C D F

✔ F

True or False? Higher opportunity costs equal a greater comparative advantage. True False

✔ False

Which aspect of monopolistic competition gives consumers more choice? Producers rely on consumer decisions to succeed. Price is not an important factor. Few barriers to market entry exist. Producers are more concerned about selection than profits.

✔ Few barriers to market entry exist.

It was President Roosevelt who began the campaign to break up Standard Oil. He argued that trusts cannot be controlled, and are likely to raise prices and gouge consumers. According to this passage, what was Roosevelt's real reason for breaking up Standard Oil? He believed that Standard Oil was unlikely to set high prices. He wanted to prevent Standard Oil from expanding overseas. He feared the control Standard Oil had in the market. He wanted to limit consumer choices in the market.

✔ He feared the control Standard Oil had in the market.

Read the factors of production for two businesses: In Case manufactures cases for smart phones, while Wrap It Up is a gift-wrapping service. In Case • $1,500 a month for rented building • Will need two new employees • $2,000 for inventory expenses • $4,500 for equipment expenses Wrap It Up • $1,500 a month for a rented store • Will need five new employees • $1,500 for inventory expenses • $2,500 for equipment expenses Which statement correctly compares the two businesses? In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term. In Case will require less capital in the long term, while Wrap It Up will require a less costly investment in labor. In Case will require a more costly investment in land, while Wrap It Up will have higher inventory costs. In Case will have higher inventory costs, while Wrap It Up will require a more costly investment in land.

✔ In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term.

According to the article, which of the following characteristics fit Standard Oil? Check all that apply. It practiced ruthless business techniques. It helped its competitors stay in business. It dominated the oil market. It controlled the transportation of oil. It successfully stopped journalists from writing about it.

✔ It practiced ruthless business techniques., ✔ It dominated the oil market., and ✔ It controlled the transportation of oil.

Read the results from a survey of consumers in Anytown. • Fourteen percent of participants desire a store that offers custom-made shoes. • Thirteen percent of participants plan to purchase a new phone in the next year. • Fifty-two percent of participants think an additional pizza place is needed. • Twenty-one percent of participants say they purchase bagels on a daily basis. Based on the survey data, what will occur if a new pizza place opens? It will result in excess supply. It will result in excess demand. It will help to reduce the supply. It will help to satisfy the demand.

✔ It will help to satisfy the demand.

Which of the following statements is a valid economic conclusion based on this information? Sam and KC should each spend about half their time on tax returns and sales calls. It would be best for Sam to work only on making sales calls. KC's time would be best spent on sales calls. Sam's time would be best spent on tax returns.

✔ It would be best for Sam to work only on making sales calls.

Sam and KC both work in a tax office. Both workers use the same number of resources to do their jobs. Use the production possibility schedule to complete each sentence. In this example, ____ has an absolute advantage in processing tax returns. ____ has an absolute advantage in completing sales calls.

✔ KC and ✔ Sam

This table shows the number of employees needed to fill lunch orders at several food trucks. Food Truck: Frank's Falafels Kimchi Kim's Deli Delight Lunch on the Go Number of Lunch Orders: 20 per hour 25 per hour 30 per hour 25 per hour Number of Employees: 2 3 3 2 Which food truck has the absolute advantage? Frank's Falafels Kimchi Kim's Deli Delight Lunch on the Go

✔ Lunch on the Go

What is the difference between marginal cost and marginal revenue? Marginal cost is the money a producer earns from selling one more unit, while marginal revenue is the money a producer pays for making one more unit. Marginal cost is the money a producer pays for making one more unit, while marginal revenue is the money a producer earns from selling one more unit. Marginal cost is the money a producer actually earns from selling more units, while marginal revenue is the money a producer might earn from one more unit. Marginal cost is the money a producer might earn from one more unit sold, while marginal revenue is the money a producer will earn from one more unit.

✔ Marginal cost is the money a producer pays for making one more unit, while marginal revenue is the money a producer earns from selling one more unit.

What is the difference between marginal cost and marginal revenue? Marginal cost is the money earned from selling one more unit of a good. Marginal revenue is the money paid for producing one more unit of a good. Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good. Marginal cost is the money a producer might make from one more unit. Marginal revenue is the money a producer actually makes from one more unit. Marginal cost is the money a producer actually makes from one more unit. Marginal revenue is the money a producer might make from one more unit.

✔ Marginal cost is the money paid for producing one more unit of a good. Marginal revenue is the money earned from selling one more unit of a good.

This graph shows the marginal costs of each pair of running shoe inserts produced. Select the correct answer from the options available. At what level of production are you making the greatest profit? Pair 2 Pair 4 Pair 6 Pair 7

✔ Pair 4

Marginal Cost of Running Shoe Inserts This graph shows the marginal cost of producing each additional pair of running shoe inserts. Based on the graph, which pair of shoes has a marginal cost of $3.00? Pair 2 Pair 4 Pair 6 Pair 7

✔ Pair 6

Which best describes how producers benefit from specialization? Producers can increase their profits. Producers can expand their market. Producers can offer a wider range of goods. Producers can increase sales.

✔ Producers can increase their profits.

Why is pure competition considered an unsustainable system? Price differentiation is often too minimal to matter. Few barriers exist to entry, meaning that the market inevitably floods. Consumers cannot distinguish between products. Producers cannot make a profit if they keep dropping their prices.

✔ Producers cannot make a profit if they keep dropping their prices.

What is the difference between profit and revenue? Revenue is the total amount producers receive after selling a good. Profit is the total amount producers earn after subtracting the production costs. Revenue is the total amount producers earn after subtracting the production costs. Profit is the total amount producers receive after selling a good. Revenue is the total amount producers pay to manufacture a good. Profit is the total amount producers earn after subtracting the production costs. Revenue is the total amount producers pay to manufacture a good. Profit is the total amount producers receive after selling a good.

✔ Revenue is the total amount producers receive after selling a good. Profit is the total amount producers earn after subtracting the production costs.

Based on the survey data, what can be concluded about the market for coffee shops in the area? According to the survey data, which business likely has the least supply in this town?

✔ Saturation has been reached. and ✔ shoe stores

____________________ is the act of limiting the types of goods and services produced.

✔ Specialization

Your research tells you that households earning $55,000 or more are most likely to be interested in a new shoe store. Households earning $25,000 or more are likely to visit coffee shops. __________________________ would have a larger potential customer base. __________________________ is geared toward individuals with more disposable income.

✔ Star's Coffee and Teas and ✔ The Shoe Hut

Based on the survey data, which business will most likely see higher consumer demand? Based on the survey data, what may occur if an additional coffee shop is opened?

✔ The Shoe Hut and ✔ excess supply

_____________________________ will require a less costly investment in labor. ______________________________ will require less capital in the long term. ______________________________ will probably require upgraded equipment and greater capital over the next five years.

✔ The Shoe Hut, ✔ The Shoe Hut, and ✔ Star's Coffee and Teas

[Rockefeller] was like a general who, besieging a city surrounded by fortified hills, views from a balloon the whole great field, and sees how, this point taken, that must fall; this hill reached, that fort is commanded. And nothing was too small: the corner grocery in Browntown, the humble refining still on Oil Creek, the shortest private pipe line. Which best summarizes Ida Tarbell's assessment of Standard Oil? The company was appreciated in its community. The company was interested in cooperating with other businesses. The company was ruthless in its drive to eliminate competition. The company was focused on establishing lower prices.

✔ The company was ruthless in its drive to eliminate competition.

Why are utilities, such as electricity and water, examples of natural monopolies? The cost of production restricts competition in the market. There are limited natural resources to meet demand. Consumers only trust known companies to provide these essentials. There is no need for alternative options.

✔ The cost of production restricts competition in the market.

Which best describes the availability of substitutes in a monopoly? Price points vary. There are no substitutes. There are different brands. Products have different features.

✔ There are no substitutes.

How can producers make the most profit? Check all that apply. They can work to increase their marginal cost. They can work to decrease their marginal cost. They can raise prices to increase marginal revenue. They can lower prices to decrease marginal revenue. They can keep marginal costs below marginal revenues. They can keep marginal revenues below marginal costs.

✔ They can work to decrease their marginal cost., ✔ They can raise prices to increase marginal revenue., and ✔ They can keep marginal costs below marginal revenues.

Carmen wants to open her own coffee shop. She has narrowed down a list of wholesale retailers and their cost per pound of coffee beans. Whole Sale Company: Café con Leche Beans Brothers Colombian Co. Turkish Coffee Company Cost per lb.: $8.50 $7.50 $11.25 $6.25 Which company has the comparative advantage in cost per pound of coffee? Café con Leche Beans Brothers Colombian Co. Turkish Coffee Company

✔ Turkish Coffee Company

This table shows the number of cookies several bakeries sell each day. Bakery: Mrs. Track's Chips The Bakeshop Uncle John's Number of Cookies Sold: 90 100 75 125 All else being equal, which bakery has the absolute advantage? Mrs. Track's Chips The Bakeshop Uncle John's

✔ Uncle John's

A monopoly is a market that has few competing businesses. many sellers of the same item. many sellers of a variety of products. a single supplier of a good or service.

✔ a single supplier of a good or service.

What can a producer gain by specializing? sales new customers absolute advantage opportunity costs

✔ absolute advantage

Look at the examples, and then determine which type of advantage each one describes. ________________ A producer can provide cable service more cheaply than another producer. ________________ A producer can produce salads while giving up fewer opportunities to make sandwiches than another producer. ________________ A producer can create more car parts than another producer, while using the same number of resources.

✔ absolute, ✔ comparative, and ✔ absolute

The graph shows the average household income for a community named Anytown. Anytown households that earn more than $75,000 tend to buy sports equipment, while households that earn less than $75,000 tend to buy TVs. Which new business would be most likely to succeed? a car dealership an electronics store an office supply store a sporting goods store

✔ an electronics store

The Davis family grows organic vegetables to sell at a local farmer's market. Which are factors that directly affect their profit? Check all that apply. an increase in the cost of farm equipment a rise in demand for organic produce an increase in customers at the market a change in the market price for non-organic fruit a sale on organic meats at the market

✔ an increase in the cost of farm equipment, ✔ a rise in demand for organic produce, and ✔ an increase in customers at the market

Your community has a total of approximately 100,000 households. What percentage of households would be potential customers for The Shoe Hut? What percentage of households would be potential customers for Star's Coffee and Teas?

✔ approximately 60% and ✔ approximately 75%

A survey of hobbies and purchases can help a producer assess demand to choose a business. identify the marginal benefit to make a profit. decide the production costs to make a good. determine the remaining supply to lower costs.

✔ assess demand to choose a business.

Marginal Cost of Bikes This graph shows the marginal costs of each bike, along with the market price. Select the correct answer from the options available. Based on this graph, at which level of production does the producer's profit stop increasing? bike 4 bike 5 bike 6 bike 7

✔ bike 7

Which best describes how the government enables government monopolies to exist? by issuing a patent by allowing natural monopolies to exist by creating and running a monopoly by owning the means of production

✔ by creating and running a monopoly

Which best describes how specialized producers decrease their opportunity costs? by reducing production costs by focusing on target markets by increasing production of certain items by limiting the types of goods produced

✔ by limiting the types of goods produced

Clark's Cleaners is a housekeeping service. The company's expenses include the money the company earns after paying all of its production costs. cleaning supplies and any equipment the company purchases. total amount of money the company receives from its customers. amount of money the company earns from an individual cleaning.

✔ cleaning supplies and any equipment the company purchases.

The chart shows a production possibilities schedule for Sabrina's Soccer. The schedule shows the __________________ of goods the business can produce.

✔ combination

Standard of living is the level at which producers sell certain goods. consumers buy certain goods. producers make desired goods. consumers enjoy desired goods.

✔ consumers enjoy desired goods.

The market for which item generally involves pure competition? cola corn jeans ice cream

✔ corn

To generate higher profits, producers must work to increase their total supply. increase their total expenses. decrease their customer base. decrease their production costs.

✔ decrease their production costs.

Which quality best describes a producer with an absolute advantage? efficient fast accurate prolific

✔ efficient

Profit equals the total amount of money made minus expenses. prices. revenue. supply.

✔ expenses.

Which is the best measurement to use to determine who might have the absolute advantage? high opportunity cost low opportunity cost low efficiency high efficiency

✔ high efficiency

What are the factors of production in business? land, labor, and capital land, capital, and interest land, labor, and customer base capital, customer base, and interest

✔ land, labor, and capital

Use the production possibility schedule to complete each sentence. Producers have a comparative advantage when they have a _____________ opportunity cost. ____ has a comparative advantage in processing tax returns. ____ has a comparative advantage in making sales calls.

✔ lower, ✔ KC, and ✔ Sam

South Avenue Publishing produces self-help books. The company's profit is the money the company earns after paying all of its production costs. paper, binding, and other supplies the company purchases. total amount the company receives from the sale of its books. amount of money the company earns from selling a single book.

✔ money the company earns after paying all of its production costs.

Production Possibilities for Al's Cafe At what points will Al be producing the most equal amounts of sandwiches and salads? At what point will Al not be using his resources efficiently? What point is not possible for production at this time?

✔ points C and D, ✔ Y, and ✔ X

In order to calculate marginal cost, producers must compare the difference in the cost of producing one unit to the cost of purchasing a unit. distributing that unit. producing the next unit. producing a different unit.

✔ producing the next unit.

In which way do producers try to differentiate themselves in monopolistic competition? price advertising product features image

✔ product features

The chart shows the marginal revenue of producing apple pies. According to the chart, the marginal revenue decreases by ten dollars as production increases. increases by ten dollars as production increases. falls to zero dollars as production increases. remains the same as production increases.

✔ remains the same as production increases.

In pure competition, producers compete exclusively on the basis of selling identical items. advertising heavily to promote their good. producing the unique features of their good. focusing on maintaining a positive image.

✔ selling identical items.

Market saturation results from excess __________.

✔ supply

Wellness Pharmaceuticals has released a new antidepressant, Lexabuzac. Which type of monopoly does the company most likely have on this medication? natural monopoly de facto monopoly government monopoly technological monopoly

✔ technological monopoly

Which is an example of a government monopoly in the United States? the US Postal Service the Internal Revenue Service (IRS) the US Environmental Protection Agency (EPA) the National Park Service

✔ the US Postal Service

What is the best definition of marginal revenue? the possible income from producing an additional item the price of producing one additional unit of a good the additional income gained from selling an additional good the financial gain from business activity minus expenses

✔ the additional income gained from selling an additional good

Motherboards, Inc., manufactures computer parts. The company's total revenue is the money the company earns after paying all of its production costs. the total wages the company pays workers in its factories and stores. the amount of money the company earns from selling an individual part. the amount the company receives from the sale of all of its computer parts.

✔ the amount the company receives from the sale of all of its computer parts.

The graph shows the marginal cost of producing soccer cleats for Sabrina's Soccer. At which level of production does the company make the least profit? the first pair of cleats the second pair of cleats the third pair of cleats the fourth pair of cleats

✔ the first pair of cleats

What is the best definition of marginal cost? the possible income from producing an additional item the price of producing one additional unit of a good the additional income gained from selling an additional good the financial gain from business activity minus expenses

✔ the price of producing one additional unit of a good