Gjerde Exam Review

12) Refer to Table 7-8. The price that Chad paid for a latte on the second day is

$0.50 less than the amount he paid on the first day

25) Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements? (i) shoe polish (ii) rent on the shoe stand (iii) wages Pete could earn delivering newspapers (iv) interest that Pete's money was earning before he spent his savings to set up the shoe-shine business a. (i) only b. (i) and (ii) only c. (iii) and (iv) only d. (i), (ii), (iii), and (iv)

(i) and (ii) only

3) Refer to Figure 7-9. If the price of the good is $14, then producer surplus is

20.50

32) Refer to Figure 14-10. If there are 700 identical firms in this market, what is the value of Q1?

210,000

31) Refer to Table 14-2. For this firm, the marginal revenue from selling the 3rd unit is

3

19) If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-17. Farmer Brown's marginal cost of producing 9 units of output (using 2 bags of seed) is

30

22) Doreen's Dairy produces and sells Swiss cheese. Last year, it produced 7,000 pounds and sold each pound for $6. In producing the 7,000 pounds, the dairy incurred variable costs of $28,000 and a total cost of $40,000. Refer to Scenario 13-19. In producing the 7,000 pounds of cheese, the firm's average variable cost was

4.00

7) Refer to Table 7-16. The equilibrium price is

4.00

35) Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above

4.50

23) Bubba is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Bubba's annual opportunity cost of the financial capital that he invested in his business?

40

26) Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 2 workers, the total cost of production is $100. When the firm hires 3 workers, the total cost of production is $120. In addition, assume that the variable cost per unit of labor is the same regardless of the number of units of labor that are hired. What is the firm's fixed cost?

60

2) Refer to Figure 7-11. If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus due to new producers entering the market?

625

11) Refer to Table 7-16. Both the demand curve and the supply curve are straight lines. At equilibrium, total surplus is

72

20) Refer to Table 13-15. What is variable cost when output equals 30 units?

90

1) Refer to Figure 7-26. At the equilibrium price, consumer surplus is

900

38) Refer to Figure 14-9. Which line segment best reflects the long-run supply curve for this firm?

ABCD

8) Refer to Figure 7-10. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

ABGD

21) Which of the following statements is not correct?

Average fixed costs are constant

5) All else equal, what happens to consumer surplus if the price of a good increases?

Consumer surplus decreases

13) Refer to Figure 7-23. At equilibrium, producer surplus is represented by the area

D+H+F

9) Refer to Table 7-14. You and your best friend want to hire a professional photographer to take pictures of your two families. The table shows the costs of the four potential sellers in the local photography market. You and your friend agree to offer $500 for each session. Who accepts the offer, and what is the total producer surplus in the market?

Kevin and Steve; $150

24) Variable cost divided by the change in quantity produced is a. average variable cost. b. marginal cost. c. average total cost. d. None of the above is correct

None of the above is correct

4) Refer to Figure 7-7. What happens to the consumer surplus if the price rises from $100 to $150?

The new consumer surplus is 25 percent of the original consumer surplus.

14) In order to calculate consumer surplus in a market, we need to know willingness to pay and price

True

40) A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

True

16) Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level Refer to Scenario 13-20. Average total cost will be

U-shaped

39) 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

36) In a long-run equilibrium, the marginal firm has a. price equal to average total cost. b. total revenue equal to total cost. c. economic profit equal to zero. d. all of the above are correct.

all of the above are correct

37) If your local gasoline station raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station a. has little or no market power. b. is small relative to the size of the gasoline market. c. is a competitive firm. d. all of the above are correct

all of the above are correct

27) An entrepreneur's motivation to start a business arises from a. an innate love for the type of business that he or she starts. b. a desire to earn a profit. c. an altruistic desire to provide the world with a good product. d. all of the above could be correct.

all of the above could be correct

30) Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

competitive market

6) Which of the following is not equal to total surplus?

consumer surplus - producer surplus

34) Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?

exactly $2.50

17) The long-run average total cost curve is always

flatter than the short-run average total cost curve, but not necessarily horizontal

18) If marginal cost is below average total cost, then average total cost

is falling

28) The firm will make the most profits if it produces the quantity of output at which

marginal revenue equals marginal cost

33) The long-run supply curve for a competitive industry

may be upward-sloping if higher-cost firms enter the industry

29) Refer to Figure 14-12. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) most likely reflects

perfectly elastic long-run market supply

15) Suppose that a given firm experiences decreasing marginal product of labor with the addition of each worker regardless of the current output level Refer to Scenario 13-20. Marginal cost will be

rising at all points

10) If the price a consumer pays for a product is equal to a consumer's willingness to pay, then the consumer surplus relevant to that purchase is

zero