micro final
When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is
$145
Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3 color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is the marginal cost of moving up from the 1-color application to the 3 color application?
$40
Allison's Auto Art is a company that applies pinstripes to vehicles. Allison's cost for a basic 1-color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3 color pinstripe application to an automobile, a service that adds an additional $40 to the total cost of the package. What is Allison's marginal benefit if she sells a basic 1 color job?
$95
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
.5 (4/8)
Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.
.6
The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by
15% (15/10)
Suppose that when the price per ream of recycled pr inter paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?
2.43
Which of the following would result in a higher absolute value of the price elasticity of demand for a product
A wide variety of substitutes are available for the good.
Which of the following statements is true about advertising by a monopolistically competitive firm?
Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.
Which of the following best illustrates the free rider problem?
All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute.
Medical research that results in a cure for a serious disease produces positive externalities. What is the impact of this positive externality on economic efficiency?
At equilibrium, less than the economically efficient quantity of medical research is produced
Assume that Bulgaria has a comparative advantage in producing sandals and Finland imports sandals from Bulgaria. We can conclude that
Bulgaria has a lower opportunity cost of producing sandals relative to Finland.
What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?
Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.
What would happen in the market for knee replacement surgery if insurance companies started to cover a smaller portion of the cost of the surgery, and fewer doctors decide to enter the field of joint replacement surgery?
Demand and supply will both decrease.
Goods with upward sloping demand curves are referred to as
Giffen goods.
Zane's Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s-era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What should he do?
He should finish the restoration and then sell the weather vane.
Suppose there is some unemployment in the economy and society decides that it wants m ore of one good. Which of the following statements is true?
It can increase output without giving up another good by employing more resources.
The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." Based on this quote, what must be true of the plant's average cost of production curve?
It is upward-sloping.
Buyers scrambled to secure stocks of Australian wool following a forecast of an 11 percent decline in wool production. What happens in the Australian wool market as a result of this
The demand curve for Australian wool shifts to the right in anticipation of higher prices in the future.
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones. Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and by how much?
Its profit will be $700 higher.
A firm could continue to operate for years without ever earning a profit as long as it is producing an output where
MR > AVC
Which of the following could be evidence of a market failure?
Market prices do not reflect true production costs.
Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost. Will Jason's strategy necessarily maximize profits for his pastry shop?
Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.
Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?
People measure the value of a good in terms of its purchase price.
Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true?
The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.
How does the decreasing use of DVD players affect the market for prerecorded DVDs?
The demand curve for prerecorded DVDs shifts to the left.
Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work.
The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall. Holding everything else constant, how would this affect the market for wheat (a substitute for corn)?
The demand for wheat would decrease and the equilibrium price of wheat would decrease.
At the profit-maximizing level of output for a perfectly competitive firm, price equals marginal cost. Which of the following is also true?
The difference between total revenue and total cost is the greatest.
Over longer periods of time, increases in oil prices provide firms with incentives to explore and recover oil. What does this indicate about the long-run price elasticity of supply for oil?
The elasticity coefficient is likely to be higher in the long run than in the short run.
If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?
The firm will not sell any output.
The U.S. government has frequently used a "command -and-control" approach in dealing with pollution. Which of the following describes this approach?
The government imposes quantitative limits on the amount of pollution firms are allowed to generate.
Several studies have shown promising links between green tea consumption and cancer prevention How does this affect the market for green tea?
The green tea demand curve shifts to the right because of a change in tastes in favor of green tea.
Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution. This is the only way to ensure that none of our citizens suffer the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated, which of the following would be true?
The marginal cost from pollution reductions would exceed the marginal benefit.
Assume there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?
The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease.
He tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost."
The publisher's analysis is correct only if the demand is perfectly inelastic.
Which of the following is evidence of a shortage of chocolate?
The quantity of chocolate demanded is greater than the quantity supplied.
Which of the following is evidence of a shortage of walnuts?
The quantity of walnuts demanded is greater than the quantity supplied.
The popularity of digital cameras has enticed large discount stores like Wal-Mart and Costco to offer digital photo printing services. How does this affect the digital photo printing market?
The supply curve for digital photo printing services shifts to the right.
In April, market analysts predict that the price of titanium will fall in May. What happens in the titanium market in April, holding everything else constant?
The supply curve shifts to the right.
If the United States lifts the embargo on Cuban products, what will happen in the U.S. market for Cuban cigars?
The supply curve will shift to the right.
Assume that the four-firm concentration ratio in an industry is 85 percent. Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?
The threat of entry into this industry can cause firms in the industry to lower their prices and profits in order to deter entry.
How are the firms in this advertising game caught in a prisoner's dilemma?
They would be more profitable if they refrained from advertising but each fears that if it does not advertise, it will lose customers.
Which of the following is an example of a Pigovian tax?
a tax imposed on a utility that internalizes the cost of externalities caused by the utility
Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?
access to the commons can be restricted through community norms and laws
Farmers can raise either goats or ostriches on their land. Which of the following would cause the supply of goats to decrease?
an increase in the price of ostriches
Which of the following would cause a decrease in the supply of peanut butter?
an increase the price of peanuts
Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.
an inferior good; very large
Economies of scale exist as a firm increases its size in the long run because of all of the following except
as a firm expands its production, its profit margin per-unit of output increases.
Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that
beer and wine are complements and wine is a luxury good.
Diminishing marginal product of labor occurs when adding another unit of labor
changes output by an amount smaller than the output added by the previous unit of labor.
Assume Nadia's Neckties only produces ascots and bowties. Nadia faces _______ opportunity costs in the production of ascots and bowties.
constant
The "Buy American" provision in the 2009 stimulus package required that stimulus money be spent only on U.S.-made goods, effectively acting as a quota of zero imports when stimulus money was being spent. The "Buy American" provision would ________ consumer surplus and ________ producer surplus for industries that produced protected products in the United States.
decrease; increase
Nike has used Michael Jordan to create the impression that Air Jordan basketball shoes are superior to any other basketball shoes. Nike is attempting to
differentiate Air Jordan basketball shoes from other types of basketball shoes.
Which of the following would shift a nation's production possibilities frontier outward?
discovering a more efficient process to desalinate water
n August 2008, Ethan Nicholas developed the iShoot application for the Apple iPhone 3G, and within five months had earned $800,000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market
earning an economic profit in the long run is extremely difficult.
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
elatively elastic. 42/35=1.2
The opportunity cost of taking an on-line history class is
equal to the highest value of an alternative use of the time and money spent on the class.
If fixed costs do not change, then marginal cost
equals the change in variable cost divided by the change in output.
Marginal cost will equal average total cost when marginal cost is at its lowest point.
false
For a demand curve to be upward sloping, the good would have to be an inferior good, and
he income effect would have to be larger than the substitution effect.
Along a downward-sloping linear demand curve
he marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
Holding everything else constant, the demand for a good tends to be more elastic
he more substitutes there are for the good.
Buffalo Wild Wings CEO Sally Smith decided to spend more than $200 million on restaurant renovations in an attempt to attract more lunch customers and more families. Like CEOs of other monopolistically competitive firms, Smith knew that without innovating
her firm's profits would eventually be competed away by other firms.
According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low?
here are few close substitutes for toothpaste.
Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that
in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs.
The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following?
income and substitution effects
Which of the following is a source of market failure?
incomplete property rights or inability to enforce property rights
If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?
increase output
The price a perfectly competitive firm receives for its output
is determined by the interaction of all sellers and all buyers in the firm's market.
When a negative externality exists, the private market produces
more than the economically efficient output level.
Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is
negative, so Sefton considers potatoes to be an inferior good.
Private producers have no incentive to provide public goods because
once produced, it will not be possible to exclude those who do not pay for the good.
Suppose that when the price of oranges decreases, Sarita decreases her purchases of peaches. To Sarita
oranges and peaches are substitutes.
Suppose that when the price of pickles decreases, Teddy increases his purchase of ketchup. To Teddy
pickles and ketchup are complements.
If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then
price exceeds average total cost.
Because producers do not bear the external cost of pollution
private production exceeds the economically efficient level.
Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should
produce a smaller level of output.
If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education. In making his decision, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a
rational decision to ignore these sunk costs.
If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is
relatively inelastic.
When there few close substitutes available for a good, demand tends to be
relatively inelastic.
Uber uses what is known as surge pricing to set prices based on the number of people who request rides at a given time in a given area. Based on this pricing method, prices will
rise when demand increases.
According to the production possibilities model, if more resources are allocated to the production of physical and human capital, then all of the following are likely to happen except
the country's total production will fall.
The profit-maximizing level of output and the profit -maximizing price for an oligopolist cannot be calculated when we don't know
the demand curve and the marginal revenue curve of the oligopolist.
Because new plastic and recycled plastic are substitutes, as the price of newly produced plastic increases,
the demand curve for recycled plastic shifts to the right.
Select the phrase that correctly completes the following statement. "A decrease in the expected future price caused an increase in the supply of smartphones. As a result
the price of smartphones decreased and the quantity of smartphones demanded increased."
Suppose a drought resulted in a major reduction in the California lettuce crop. In the market for lettuce
the supply curve shifted to the left resulting in an increase in the equilibrium price.
If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that
the two brands of detergent are close substitutes.
If there are no externalities, a competitive market achieves economic efficiency. If there is a negative externality, economic efficiency will not be achieved because
too much of the good will be produced.
Productive efficiency and allocative efficiency are both achieved in PC markets. Neither is achieved in MC markets.
true
The current market price is $3 but the price will fall in the long run as new firms enter the market.
true
When a firm lowers its price its total revenue may either increase or decrease.
true
When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.
true
When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price of pistachio nuts is $9.00 per lb. the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is
unit elastic.
how do you find opportunity cost?
what you are giving up/what you are gaining
If, when you consume another piece of candy, your marginal utility is zero, then
you have maximized your total utility from consuming candy.