Micro- Exam Three
Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba's annual total revenue is
$20,000
Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are
$25
Total revenue minus only explicit costs is called
Accounting profit
Total Costs
The market value of all the inputs that a firm uses in production - TC = FC+VC
When a certain competitive firm produces and sells 100 units of output, marginal revenue is $80. When the same firm produces and sells 200 units of output, what is average revenue?
$80
Which of the following statements about a well-maintained yard best conveys the general nature of the externality?
A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood
Foregone investment opportunities are an example of
An implicit cost
Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?
At the current output level, the marginal social benefit exceeds the marginal private benefit
For an individual firm operating in a competitive market, marginal revenue equals
Average revenue and the price for all levels of output
Corrective taxes
Because corrective taxes correct market externalities, they take into consideration the well-being of bystanders Corrective taxes differ from most other taxes in that corrective taxes do not cause deadweight losses Corrective taxes provide incentives to develop cleaner technologies
Characteristic of a competitive market
Buyers and sellers are price takers
When firms are said to be price takers, it implies that if a firm raises its price,
Buyers will go elsewhere
Two types of private solutions to the problem of externalities are
Charities and the golden rule
If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a
Command-and-control policy
Which of the following statements is not correct about corrective taxes?
Corrective taxes require the government to set a target level of pollution
Implicit Costs
Costs that do not require an outlay of money by the firm
Fixed Costs
Costs that do not vary with the quantity of output produced - FC
Explicit Costs
Costs that require an outlay of money by the firm
Variable Costs
Costs that vary with the quantity of output produced - VC
Which of the following industries is most likely to exhibit the characteristic of free entry?
Dairy farming
When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing
Diminishing marginal product
Total revenue minus both explicit and implicit costs is called
Economic profit
Average Fixed Costs
Fixed cost divided by the quantity of output - AFC = FC/Q
Competitive markets are characterized by
Free entry and exit by firms
In a competitive market, the actions of any single buyer or seller will
Have a negligible impact on the market price
A production function describes
How a firm turns inputs into outputs
Industrial organization is the study of
How firms' decisions regarding prices and quantities depend on the market conditions they face
A difference between explicit and implicit costs is that
Implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do
When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip
Increases the social cost above the private cost
When an externality is present, the market equilibrium is
Inefficient, and the equilibrium does not maximize the total benefit to society as a whole
If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then
Its average total cost is less than $10
Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should
Make more than 20 wedding cakes per month
The competitive firm's short-run supply curve is its
Marginal cost curve, but only the portion above the minimum of average variable cost
Profit is defined as total revenue
Minus total cost
Free entry means that
No legal barriers prevent a firm from entering an industry
An externality is the uncompensated impact of
One person's actions on the well-being of a bystander
When positive externalities are present in a market
Social benefits will be greater than private benefits
If a sawmill creates too much noise for local residents,
The government can raise economic well-being through noise-control regulations
Marginal Costs
The increase in total cost that arises from an extra unit of production - MC = ^TC/^Q
Average Total Costs
Total cost divided by the quantity of output - ATC = TC/Q
Average Variable Costs
Variable cost divided by the quantity of output - AVC = VC/Q
Which of the following firms is the closest to being a perfectly competitive firm?
Wheat farmer in Kansas
Which of the following is an example of a positive externality?
Your neighbor plants a nice garden in front of his house