micro exam 2

what is the marginal cost of producing the third unit of output?

$22.00 (third unit's total variable cost-second unit's total variable cost/change in total output... 70-48=22 *in this case, it was no change in total output)

If fixed costs are $200,000 and variable costs are $30 per unit over the relevant range of output, when 10,000 units are produced, the average total cost will be

$50 ($30x10,000= 300,000+$200,000 = $500,000/10,000units= $50)

Using Figure 8-9, calculate the firm's approximate total cost when average total cost is at a minimum.

$600 (quantity=40 at lowest point on ATC curve, multiply by price at 15, =600)

If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent, your rate of economic profit is

10%

If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.

2; elastic

In Figure 8-9, which output would minimize the firm's average total cost of production?

40 (lowest point on ATC curve)

According to Figure 8-1, what is the firm's approximate total cost when it produces three units?

48 (ATC line @ 3 = 16 x3=48)

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is

8 units

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise?

When diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output

during the short-run period of the production process, a firm will be

able to vary only some of its factors of production

which of the following will become smaller and smaller as the firm expands output

average fixed cost

______ is total cost divided by the number of units produced

average total cost

the total variable cost divided by the numbers of units produced yields

average variable cost

If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should

decrease his spending on cola

If Noah thinks the last dollar spent on belts yields more satisfaction than the last dollar spent on socks, and Smith is a utility-maximizing consumer, he should

decrease his spending on socks and increase his spending on belts

Movement from point b to point c in Figure 8-13 indicates that the firm is experiencing

diseconomies of scale (b is lower on the curve)

When total revenue minus total economic cost is greater than zero, the firm is

earning above-average profit rate

The difference between the firm's total revenues and its total costs, including both the explicit and implicit cost components, is called

economic profit

if a firm doubles all of its inputs and its output triples, it is said to be experiencing

economies of scale

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

elastic

costs that a firm remaining in business will still incur even if it halts current production are called

fixed costs

suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is

inelastic

which of the following provides the best explanation for diseconomies of scale?

large management structures may be bureaucratic and inefficient

The basic economic principle that as the consumption of a product increases, the marginal utility derived from consuming more of it (per unit of time) will eventually decline is called the

law of diminishing marginal utility

The postulate that as more and more units of a variable resource are combined with a fixed amount of other resources, using additional units of the variable resource will eventually increase output only at a decreasing rate is called

law of diminishing returns

the _____ is a time period long enough to allow the firm to vary all of its factors or production

long run

_____ is the change in total cost required to produce an additional unit of output

marginal cost

as output rises, marginal product eventually diminishes and

marginal cost increases

which of the following must be true if average variable costs are decreasing?

marginal cost is less than average variable cost

______ is the increase in the total product resulting from a unit increase in the employment of a variable input.

marginal product

_________ is the additional utility, or satisfaction, derived from consuming an additional unit of a good.

marginal utility

Economists call the percentage change in the quantity of a product demanded divided by the percentage change in the price that caused the change in quantity the ________

price elasticity of demand

the price elasticity of demand is computed for two products, and product A measures 0.65, and product B measures 1.3, then

product B is more price elastic than product A

An increase in the consumption of a good resulting from a reduction in price that makes the good cheaper in relation to other goods is called the

substitution effect

The ________ is that part of an increase (decrease) in amount consumed that is the result of a good being cheaper (more expensive) in relation to other goods because of a reduction (increase) in price.

substitution effect

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the

substitution effect

the long run is a period of

sufficient length to allow a firm to alter its plant size and capacity and all other factors of production

which of the following is the best example of a fixed cost for a business?

the insurance payment for the protection of a building owned by the firm

After downing three glasses of lemonade on a hot summer afternoon, Todd says, "You would have to pay me to drink another glass!" This statement best illustrates

the law of diminishing marginal utility

After eating six chocolate candy bars in ten minutes, Mia says, "You would have to pay me to eat another chocolate candy bar!" This statement best illustrates

the law of diminishing marginal utility

the principle of diminishing marginal utility says that

the marginal utility of additional units consumed will decline

other things equal, the demand for a good tends to be more inelastic when

there are fewer available substitutes

which of the following describes a situation in which demand must be elastic?

total revenue decreases when the price of dish soap rises

average fixed costs...

will always decrease as output expands