Homework: ASSESS Chapter 6 Homework

marginal product

the marginal product or marginal physical productivity of an input is the change in output resulting from employing one more unit of a particular input, assuming that the quantities of other inputs are kept constant.

how to calculate producer surplus

Area under market price and above marginal cost curve, 1/2 x base x height

central planning

A communist economic system in which the state explicitly allocates resources by planning what should be produced and in what amounts, the final prices of goods, and where they should be sold

tariff

A government tax on imports or exports, which increases its market price

Marginal Revenue (MR)

the change in total revenue from selling one more unit of a product

How to expand the PPC curve

more resources, better quality resources, and better resources

You are one of 5 identical firms​ (i.e., you all have the same​ costs) that sell widgets. Each day you have a fixed cost of​ $9 to operate. The marginal cost of your first widget is​ $1; second is​ $2; third​ $3; fourth​ $7; and for the fifth it is​ $8. You have a capacity constraint of​ 5, and you can only produce a whole number of widgets. The average variable cost​ (AVC) for a firm that produces 2 widgets is ​$_____

$1.50

Fixing up old houses requires plumbing and carpentry. Jack​ (who is a jack of all trades but is a master of​ none) is a decent carpenter and a decent​ plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is ​$50,000 per year Jack's average total cost of fixing up two old houses is $_____

$25000

there are four hospitals (consumers in this example) willing to pay the following amounts for a ventilator: hospital W : $100,000 hospital X: $40,000 hospital Y: $20,000 there are producers that can produce at most 1 ventilator each at the following costs: producer A: $15,000 producer B: $35,000 producer C: $55,000 according to this graph, what is a possible equilibrium price for this market?

$37,500

You are one of 5 identical firms​ (i.e., you all have the same​ costs) that sell widgets. Each day you have a fixed cost of​ $9 to operate. The marginal cost of your first widget is​ $1; second is​ $2; third​ $3; fourth​ $7; and for the fifth it is​ $8. You have a capacity constraint of​ 5, and you can only produce a whole number of widgets. If firms are perfectly​ competitive, the equilibrium price in the long run will be_______________

$5 and the equilibrium quantity will be 3 units

You are one of 5 identical firms​ (i.e., you all have the same​ costs) that sell widgets. Each day you have a fixed cost of​ $9 to operate. The marginal cost of your first widget is​ $1; second is​ $2; third​ $3; fourth​ $7; and for the fifth it is​ $8. You have a capacity constraint of​ 5, and you can only produce a whole number of widgets. Suppose the​ market-level demand is fixed at 18. In other​ words, there is perfectly inelastic demand. In the short​ run, the equilibrium price will be ______

$7

social surplus is maximized when the _____

- buyers and sellers as distinct groups are doing as well as they possibly can - competitive market is in equilibrium - highest value buyers are making a purchase and the lowest cost sellers are selling

why would a country be against free trade?

- national security concerns - fear of globalization on a nation's culture - environmental and resource concerns - infant industry arguments - potential negative effects on local wages/jobs

shifts in supply curve

1. input prices 2. technology 3. expectations 4. number of sellers

points on the ppc

attainable and efficient

conditions of a perfectly competitive market

1. many buyers and sellers 2. all firms selling identical products 3. no barriers to new firms entering the market

Calculate the price elasticity of supply in the following​ examples, then determine if supply is relatively elastic or​ inelastic, or perfectly elastic or inelastic. When the price of a pen increased from ​$3.00 to ​$4.00​, the quantity supplied by a firm increased from 100 to 150 pens. The price elasticity of supply is __________. ​(Round your response to two decimal In this​ case, the price elasticity of supply is ___________ (perfectly inelastic, perfectly elastic relatively elastic relatively inelastic) .When the price of bottled water increased from ​$2.00 to ​$2.25​, the quantity supplied by a firm increased from 300 to 320 bottles. The price elasticity of supply is nothing. ​(Round your response to two decimal

1.38, relatively elastic

the graph to the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) curves for firm in a perfectly competitive market in order to maximize profits, this firm should produce approximately ___ units of output

11

minimum efficient scale is the lowest level of output where long run average total cost is minimized. firm 3's minimum efficient scale occurs when the output is ___ units

3

there are four hospitals (consumers in this example) willing to pay the following amounts for a ventilator: hospital W : $100,000 hospital X: $40,000 hospital Y: $20,000 there are producers that can produce at most 1 ventilator each at the following costs: producer A: $15,000 producer B: $35,000 producer C: $55,000 what is the equilibrium quantity of ventilators sold?

3 units

what does a supply curve that is unit-elastic look like? (horizontal line, vertical line, 45 degree angle)

45 degree angle

gains from trade depend on ________ advantage, not ________ advantage

absolute, comparative

When the ATC curve is​ decreasing, we know that the MC curve is___________ below the ATC curve, above the ATC curve) and when the ATC curve is​increasing, we know that MC is _____________ (above the ATC curve, below the ATC curve).

below the ATC curve, above the ATC curve

What is the difference between accounting profit and economic​ profit?

economic profit subtracts both explicit and implicit costs from total​ revenue, while accounting profit only subtracts explicit costs

elasticity

elasticity measures the responsiveness of one economic variable to a change in another. If the price elasticity of the demand of something is -2, a 10% increase in price causes the quantity demanded to fall by 20%

under free trade, the price of a good in the country will be ______ the world price

equal to

Suppose ventilator manufacturers are​ profit-maximizing firms with costs outlined in this chapter​ (large fixed cost and increasing marginal​ costs). These firms typically operate in a competitive​ market, though the government is considering the following policies to boost production. For each​ policy, explain whether production will in fact increase. the government gives each firm a large sum of money with no strings attached. will ventilator production increase?

no, a no strings attached sum of money will not impact marginal revenue or marginal cost, so production will remain unchanged

short run atc

represent different scales of plant that cannot be changed in the short run. They are all above the LRAC because firms have less flexibility in the short run and costs are higher. Each tangency point is the cost-minimizing point for that level of output.

production possibilities curve (ppc)

shows the relationship between the maximum production of one good for a given level of production for another

george is an excellent plumber and harriet is an excellent carpenter. george can do all the plumbing and harriet can do all the carpentry to fix up 8 houses per year. each earns a wage of $50,000 per year. their average cost per year to fix up 8 houses is $12500 this problem tells us that one of the sources of economies of scale is ________

specialization

Which of the following equations calculates the profits of a​ firm? A. Total revenuesminus−Total costs B. Total revenuesminus−Fixed costs C. Total revenues​ + Total costs D. Total costsminus−Fixed costs

total revenues-total costs

what does a perfectly inelastic supply curve look like? (horizontal line, vertical line, 45 degree angle)

vertical line

Is it possible for accounting profit to be positive and economic profit to be​ negative?

yes, this could occur if explicit costs were modest and implicit costs were high

You are one of 5 identical firms​ (i.e., you all have the same​ costs) that sell widgets. Each day you have a fixed cost of​ $9 to operate. The marginal cost of your first widget is​ $1; second is​ $2; third​ $3; fourth​ $7; and for the fifth it is​ $8. You have a capacity constraint of​ 5, and you can only produce a whole number of widgets. The​ market-level quantity supplied given the market price of a widget is​ $2.50 is _____

10 widgets

the graph shows the long run average total cost curve for a perfectly competitive firm refer to points A B and C on the graph and identify where the firm would experience economies of scale, constant returns of scale, and diseconomies of scale at point A, the firm experiences _____ at point B, the firm experiences _____ at point C, the firm experiences _____

A: economies of scale B: constant returns of scale C: diseconomies of scale

Under which of the following examples is it likely that the accounting profit is positive and the economic profit is​ negative?

If you use a diamond mine as a tourist attraction instead of using it for mining

features of a market economy

Private property and markets, limited government involvement, voluntary exchange in markets, competition and consumer sovereignty, specialization and markets

comparative advantage

the ability of one economic agent to produce at a lower opportunity cost than another

absolute advantage

the ability of one economic agent to produce more output than another agent with the same resources

Suppose ventilator manufacturers are​ profit-maximizing firms with costs outlined in this chapter​ (large fixed cost and increasing marginal​ costs). These firms typically operate in a competitive​ market, though the government is considering the following policies to boost production. For each​ policy, explain whether production will in fact increase. Via tax​ subsidies, the government reduces the cost of labor and parts. Does this increase ventilator​ production?

Yes, the subsidy will lower cost and encourage entry into the market causing production to increase.

production function

a mathematical function stating the relationship between the inputs and the outputs of the goods in production by a firm. Entrepreneurship, labor, land, and capital are major factors of input that can determine the maximum output for a certain price.

law of diminishing returns

a principle stating that profits or benefits gained from something will represent a proportionally smaller gain as more money or energy is invested in it.

buyers and sellers reservation values

a reservation (or reserve) price is a limit on the price of a good or a service. On the demand side, it is the highest price that a buyer is willing to pay; on the supply side, it is the lowest price a seller is willing to accept for a good or service.

the graph displays the market for video game consoles, where nine buyers are interacting with nine sellers.

according to this figure, the equilibrium price is $250, and at that price, the equilibrium quantity is $5

A firm is experiencing economies of scale when it's ___________ declines as more output is produced.

average total cost

In a perfectly competitive​ market, a seller ________ (cannot, can) choose to raise the price of its good since all sellers in the market produce _________ (different goods, identical goods) so raising the price would result in ________ (earning long-run profits, losing all its customers)

cannot, identical goods, losing all its customers

how to calculate social surplus

consumer surplus + producer surplus; social surplus is found by computing the cumulative value of buyers' reservation values over sellers' reservation values on those trades that take place

economies of scale

cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods.

If domestic price < world price

export CS goes down, PS goes up, SS goes up

When comparing the accounting profit with economic​ profit, it must be true that the accounting profit is ___________ (exactly equal to, less than or equal to, greater than or equal to economic profit.

greater than or equal to

what does a perfectly elastic supply curve look like? (horizontal line, vertical line, 45 degree angle)

horizontal line

what makes an outcome pareto efficient

if no individual can be made better off without making someone else worse off (equilibrium)

If domestic price > world price

import product CS goes up, PS goes down, SS goes up

shifts in the demand curve

income, prices of related goods, tastes, expectations, number of buyers

when some sellers exit a competitive market, the equilibrium price ________ and the equilibrium quantity ________

increases, decreases

long-run average total cost

is a business metric that represents the average cost per unit of output over the long run, where all inputs are considered to be variable and the scale of production is changeable.

marginal product vs marginal cost

marginal cost is the mirror image of marginal product. When marginal product is rising, the marginal cost of producing another unit of output is declining and when marginal product is falling marginal cost is rising.

arc elasticity

measure of elasticity based on percentage changes relative to the average value of each variable between two points

points above the ppc

not possible given the productive capacity

increasing marginal returns

occurs when the addition of a variable input (like labor) to a fixed input (like capital) enables the variable input to be more productive. In other words, two workers are more than twice as productive as one worker and four workers are more than twice as productive as two worke

points below the ppc

possible but inefficient

Producer surplus is the difference between the __________ and the __________ .

price consumers pay, supply curve

All firms in a perfectly competitive market are said to be​ __________.

price takers

the graph on the right depicts the supply and demand curves for a market in competitive equilibrium. the blue area is producer surplus

producer surplus is 4.5

Months ago you spent​ $30 on a ticket to see your favorite musician.​ However, you start having doubts the day of the show because you do not feel prepared for an exam the following day. Which of the following bits of information should​ (according to the ideas about sunk costs discussed in the​ chapter) influence your final​ decision? you thought there was no hope of reselling the ticket, though your roommate just offered to buy it for $10

the ability to resell the ticket means it is no longer a sunk cost and skipping the show brings you an additional $10 in benefit, making you more likely to skip the show

how to calculate consumer surplus

the area below the demand curve and above the market price, 1/2 x base x height of triangle

world price

the average price for goods in a world market

marginal cost

the cost of producing one more unit of a good

the slope of the ppc represents

the opportunity cost of producing the good on the x axis

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

diminishing returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases ex: Farmers usually have a finite acreage of land on which they can add an infinite number of laborers to increase crop yields. However, there is a point where an additional worker produces less of an increase in crop yields than the last worker added.

Deadweight Loss (DWL)

the reduction in total surplus that occurs as a result of a market inefficiency

protectionism

the view that governments should control trade due to harmful effects of free trade

earlier in the day you found a $10 bill on the ground, which makes you feel less guilty about spending $10 on dinner

this does not impact your decision since it is still a sink cost

Months ago you spent​ $30 on a ticket to see your favorite musician.​ However, you start having doubts the day of the show because you do not feel prepared for an exam the following day. Which of the following bits of information should​ (according to the ideas about sunk costs discussed in the​ chapter) influence your final​ decision? you notice a mistake on your credit card statement! you paid $20 for the ticket, not $30

this does not impact your decision since it is still a sunk cost

Months ago you spent​ $30 on a ticket to see your favorite musician.​ However, you start having doubts the day of the show because you do not feel prepared for an exam the following day. Which of the following bits of information should​ (according to the ideas about sunk costs discussed in the​ chapter) influence your final​ decision? you learn there will be free pizza at the concert; thus, you will no longer have to spend $10 on dinner

this lowers the cost of attending the concert, making you more likely to attend the show

Suppose ventilator manufacturers are​ profit-maximizing firms with costs outlined in this chapter​ (large fixed cost and increasing marginal​ costs). These firms typically operate in a competitive​ market, though the government is considering the following policies to boost production. For each​ policy, explain whether production will in fact increase. the government promises to buy ventilators at an above market price. will ventilator production increase?

yes, when price rises, the quantity supplied will rise