Intro To MicroEcon Test 2

In order to effectively price discriminate, one requirement is that a seller must be able to:

identify customers with different reservation prices.

Relative to a monopolist charging a single price to all consumers, price discrimination ______ total economic surplus.

increases

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ______ producer surplus and ______ consumer surplus.

increases; decreases

One problem with cost-plus regulation is that:

it blunts regulated firms' incentives to cut costs.

The term marginal utility denotes the amount by which ______ changes when consumption changes by ______ unit(s).

total utility: 1

Refer to the figure below. If a price ceiling were imposed at point G, the consumer surplus would be represented by the area ______.

GAEF

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The socially optimal level of output is ______ units per day.

H

If you were to start your own business, your implicit costs would include the:

opportunity cost of the time you spend working at the business.

The primary objective of an imperfectly competitive firm is to:

maximize profit.

A price ceiling that is set below the equilibrium price will result in:

a shortage of the good.

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day | Output Per Day 0 | 0 1 | 40 4 | 80 9 | 120 15 | 160 23 | 200 What is the marginal cost of production between 80 and 120 units of output each day?

$1.75

Refer to the table below. An output level of 15 units, this firm's accounting profit is ______, and its economic profit is ______. Quantity | Total Revenue | Explicit Costs | Implicit Coats 10 | 50 | 36 | 5 15 | 75 | 63 | 6 20 | 100 | 93 | 7 25 | 125 | 125 | 8 30 | 150 | 161 | 9

$12; $6

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day | Output Per Day 0 | 0 1 | 40 4 | 80 9 | 120 15 | 160 23 | 200 This firm's fixed cost each day is:

$50

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The accompanying table describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-Hours Per Day | Output Per Day 0 | 0 1 | 40 4 | 80 9 | 120 15 | 160 23 | 200 This firm's fixed cost each day is:

$50.

Last year Christine worked as a consultant. She hired an administrative assistant for $15,000 per year and rented office space (utilities included) for $3,000 per month. Her total revenue for the year was $100,000. If Christine hadn't worked as a consultant, she would have worked at a real estate firm earning $40,000 a year. Last year, Christine's explicit costs were ______, and her implicit costs were ______.

$51,000; $40,000

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, then the cost of subsidy, which must be borne by taxpayers, will be ______ per day.

$6,000

Refer to the accompanying table. If the price of a t-shirt is $10 and the price of a sweater is $40, then the rational spending is satisfied when the consumer purchases ______ t-shirts and ______ sweaters. Units | Utils Per Year from T-shirts | Utils Per Year from Sweaters 0 | 0 | 0 1 | 75 | 400 2 | 135 | 720 3 | 180 | 960 4 | 210 | 1120

2; 3

Suppose Lydia owns the only lawn-mowing business in the small town of Pleasant Pastures. There are 8 people each week whose lawns she might cut, each with a reservation price given in the accompanying table. Assume that the marginal cost of mowing each lawn is constant and equal to $25. Customer | Reservation Price A | $36 B | $34 C | $32 D | $30 E | $28 F | $26 G | $24 H | $22 If Lydia charges the same price to all of her customers, then how many lawns should she mow each week?

3

The accompanying figure below shows a single consumer's demand for ice cream at the student union. During a regular semester, there are 500 students on campus. Each student's weekly demand for ice cream is shown above. When the price of ice cream is $2.00 per scoop, those 500 students purchase a total of _____ scoops per week from the student union.

3,000

Refer to the accompanying table. As the firm increases the number of employees per day each day from 1 to 2, output increases by: Output Per Day | Number of Employees Per Day 0 | 0 33 | 1 66 | 2 99 | 4 132 | 7 165 | 11

33 units.

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. Number of Mugs Per Day | Total Cost Per day 0 | $10 1 | $14 2 | $19 3 | $25 4 | $32 5 | $40 6 | $49 If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ______ mugs per day.

4

Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market then at a price of $2.50 per pound, the market demand for hamburger is:

4.5 pounds per week

Refer to the accompanying figure. If Laura and Chris are the only two consumers in this market, then at a price of $2.00 per pound, the market demand for hamburger is:

6 pounds per week.

Which of the following is NOT an example of the hurdle method of price discrimination?

A lower price on strawberries when they are in season.

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Acme Manufacturing: TC = 100 + 3Q. Generic Industries: TC = 500 + 3Q. Which of the following statements is true?

Acme and Generic have the same marginal cost.

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing price for this monopolist to charge is:

B.

Which of the following would be considered a factor of production in the provision of bus service?

Bus drivers

Suppose Chris's marginal utility from the first taco he eats is 15, and his marginal utility from the second taco he eats is 12. One can infer that:

Chris's total utility from eating two tacos is 27.

If a consumer reallocates his or her spending away from Good B and towards Good A, then the consumer's total utility will increase if:

MUa/Pa > MUb/Pb

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q Big Inc: TC = 4,000 + 200Q ______ has a higher fixed cost and ______ has a higher marginal cost.

Mega Corp; Big Inc

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day | Total Cost Per Day ($) 0 | 100 1 | 110 2 | 126 3 | 148 4 | 172 5 | 200 6 | 235 Should Ben shut down?

No, because he can earn enough revenue to cover his variable cost.

Suppose that at Miles's current level of consumption, his marginal utility from a pizza is 10 utils, and his marginal utility from a pint of ice cream is 16 utils. If the price of a pizza is $8, and the price of a pint of ice cream is $5, is Miles maximizing his utility?

No. He should shift his spending away from frozen pizza and towards ice cream.

The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle?

The No-Cash-on-the-Table Principle

Which of the following statements about implicit costs is true?

They measure the forgone opportunities of the firm's owners.

According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be:

an efficient allocation of resources.

Refer to the accompanying table. The law of diminishing marginal utility: Units | Marginal Utility of Good A | Marginal Utility of Good B 1 | 30 | 40 2 | 27 | 33 3 | 15 | 24 4 | 8 | 14

applies to both Good A and Good B.

According to the law of diminishing marginal utility:

as you consume less of something, your marginal utility from consuming that good will increase.

Suppose a cup of tea costs $0.60 and a scone costs $1.20. If Edith spends all of her income on these two goods, and at her current level of consumption, she receives a marginal utility of 6 utils from the last cup of tea she buys and a marginal utility of 24 utils from the last scone she buys, then Edith should:

buy less tea and more scones.

Suppose that in an effort to help single parents, the government decides to pay part of the cost of childcare. This measure would increase ______ in the market for childcare.

consumer surplus

Refer to the accompanying figure. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, then, relative to before the price controls, total consumer surplus in the market would:

decease.

Suppose a small island nation imports sugar for its population at the world price of $1,500 per ton. The domestic market for sugar is shown below. If the government provides a subsidy of $500 per ton, then relative to before the subsidy, total economic surplus will ______ by ______ per day.

decrease; $1,000

If the demand curve fails to capture all of the benefits of consumption, then the:

equilibrium price will be inefficiently low.

An increase in the price a firm receives for its output will lead the firm to:

expand output.

Refer to the accompanying figure. As Jeff watches more movies, his marginal utility:

gets smaller.

An imperfectly competitive firm is one that:

has at least some influence over the market price.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At the socially optimal level of output, this monopolist would:

incur an economic loss of $64.

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then this firm should:

produce 80 doughnuts.

The difference between the price a seller actually receives for a good and the seller's reservation price is:

producer surplus.

Sven likes to water ski, but can only water ski during the one week each year when he is on vacation. Therefore, he plans to ski every day, for eight hours a day. The first day, Sven skied for eight hours and enjoyed every hour. The second day, Sven slept in and then skied for seven hours, which was fun but not as much fun as the first day. The third day, Sven skied for six hours, but was starting to get a bit bored by the end. The fourth day, Sven skied for four hours and then took a nap. On the fifth day of Sven's vacation, Sven went blueberry picking all day. On the fifth day of Sven's vacation, he had decided that another hour of skiing would yield:

less utility than blueberry picking.

In general, perfectly competitive firms maximize their profit by producing the level of output at which:

marginal cost equals price.

If the demand curve facing a monopolist shifts, then the monopolist's:

marginal revenue curve and profit-maximizing level of output will change.

In exchange for a share of the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for:

more than 75 cents because CheapFizz is the only company that can sell soda on campus.

Suppose Ben owns a small company that makes kites. The market for kites is perfectly competitive, and kites sell for $25 each. Ben's total production costs vary depending on the number of kites he makes each day, as shown in the accompanying table. Number of kites Per Day | Total Cost Per Day ($) 0 | 100 1 | 110 2 | 126 3 | 148 4 | 172 5 | 200 6 | 235 If Ben's fixed cost rises, then in the short run, his:

profit-maximizing level of output will not change.

"Market power" refers to a firm's ability to:

raise its price without losing all of its sales.

The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ______ function of price.

rationing

Subsidies are most likely to:

reduce total economic surplus.

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. Economists would consider the environmental damage that results from the production of cotton to be a(n):

relevant cost of production.

The goal of utility maximization is to allocate your ______ in order to maximize your ______.

resources; satisfaction

Monopolists use the hurdle method of price discrimination in order to:

separate consumers on the basis of their reservation prices.

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:

shift into producing good Y.

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 10 cents, then this firm:

should produce 50 doughnuts.

Marginal cost is calculated as:

the change in total cost divided by the change in output.

Efficiency is an important goal because when markets are efficient:

there are more resources available to achieve other goals.

Accounting profit is equal to:

total revenue minus explicit costs.

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs

According to economists, the satisfaction people get from their consumption activities is called:

utility.

Average variable cost is defined as:

variable cost divided by total output.

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day | Total Cost Per Day 0 | $100 1 | $180 2 | $220 3 | $300 4 | $400 5 | $520 6 | $660 If Sarah's fixed costs double, then in the short run, her profit-maximizing level of output:

will not change.

Refer to the table below. An output level of 25 units, this firm's accounting profit is ______, and its economic profit is ______. Quantity | Total Revenue | Explicit Costs | Implicit Costs 10 | 50 | 36 | 5 15 | 75 | 63 | 6 20 | 100 | 93 | 7 25 | 125 | 125 | 8 30 | 150 | 161 | 9

zero; -$8

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. The long-run equilibrium price in this industry is:

$10.

Suppose Sarah owns a small company that makes wedding cakes. The accompanying table shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. Number of Cakes Per Day | Total Cost Per Day 0 | $100 1 | $180 2 | $220 3 | $300 4 | $400 5 | $520 6 | $660 Sarah's fixed cost is ______ per day.

$100

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. If you make 100 t-shirts, your average total cost is ______.

$13

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Number of Pizzas Per Day | Fixed Cost ($/Day) | Variable Cost ($/Day) 0 | 500 | 0 25 | 500 | 150 50 | 500 | 250 75 | 500 | 450 100 | 500 | 850 125 | 500 | 1,650 When the pizzeria makes 50 pizzas a day, its average total cost is ______.

$15

Refer to the figure below. If this market is unregulated, the economic surplus received by consumers is:

$16

Suppose Lydia owns the only lawn-mowing business in the small town of Pleasant Pastures. There are 8 people each week whose lawns she might cut, each with a reservation price given in the accompanying table. Assume that the marginal cost of mowing each lawn is constant and equal to $25. Customer | Reservation Price A | $36 B | $34 C | $32 D | $30 E | $28 F | $26 G | $24 H | $22 If Lydia charges the same price to all of her customers, then what price should she charge if she wants to maximize her profit.

$32

Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando's monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance. Fuel | $4,000 Maintenance | $12,000 Weapons | $6,000 Bribes | $3,000 What is Lando's accounting profit each month?

$5,000

Refer to the accompanying figure. What is the equilibrium price of bananas in this market?

$5/pound

The accompanying table shows a pizzeria's fixed cost and variable cost at different levels of output. Pizzas sell for $20 each. Numbers of Pizzas Per Day | Fixed Cost ($/Day) | Variable Cost ($/Day) 0 | 500 | 0 25 | 500 | 150 50 | 500 | 250 75 | 500 | 450 100 | 500 | 850 125 | 500 | 1,650 When the pizzeria makes 100 pizzas a day, its fixed cost is ______ and its total cost is ______.

$500; $1,350

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the accompanying table. Number of Mugs Per Day | Total Cost Per Day 0 | $10 1 | $14 2 | $19 3 | $25 4 | $32 5 | $40 6 | $49 The marginal cost if the 4th mug per day is ______.

$7

Refer to the accompanying figure. At the equilibrium price, total consumer surplus is:

$7.50 per day.

Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's accounting profit each month?

$900

At her current level of consumption, Wiebke's marginal utility from an additional pencil is 15 utils, and her marginal utility from an additional pen is 10 utils. This implies that Wiebke would be willing to give up at most _____ pencils for an additional pen.

0.66

The accompanying figure shows a single consumer's demand for ice cream at the student union. The student union sells a total of 7,200 scoops of ice cream each week at a price of $2.00 per scoop. If every student who buys ice cream has the demand curve shown above, then there must be ______ students purchasing ice cream each week.

1,200

A consumer goes to purchase a TV advertised for $300. As he is checking out, the clerk informs him of a $20 rebate offer for the TV, which he fills out and receives in 3 months. What can one can infer about the consumer's reservation price?

It was at least $300.

Refer to the accompanying graph. If this firm is a price taker and the price of each unit of output is $15, then at this firm's profit-maximizing level of output, it will earn a ______ of ______.

loss, $60

Relative to a single price monopolist, a price discriminating monopolist generates:

more total surplus.

The demand curve for a perfectly competitive firm is ______, while the demand curve for a monopolist is ______.

perfectly elastic; downward-sloping

Consumer surplus measures:

the difference between the most a buyer would be willing to pay for a product and the price actually paid.

When more firms enter an industry:

the industry supply curve will shift right.

Suppose Campus Books, a profit-maximizing firm, is the only supplier of the textbook for a given class. The marginal cost of supplying each book is constant and equal to $10, and Campus Books has no fixed costs. The table shows the reservation prices of the eight students enrolled in the class. Customer | Reservation Price ($/Book) Q | 60 R | 54 S | 48 T | 42 U | 36 V | 30 W | 24 X | 18 If Campus Books is permitted to charge 2 prices, and the bookstore knows customers with a reservation price above $30 never bother with coupons, whereas those with a reservation price of $30 or less always use them, then what will be the bookstore's total economic profit?

$158

Refer to the figure below. If a price ceiling were imposed at point G, then producer surplus would be represented by the area ______.

DGF

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The profit-maximizing level of output for this monopolist is ______ units per day.

F

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Eventually prices will equalize across all three lemonade stands.

Pat's total utility after eating 99 Reese's Peanut Butter Cups was greater than his total utility after eating 100 Reese's Peanut Butter Cups. Therefore, Pat's marginal utility from the 100th peanut butter cup was:

negative.