Microeconomics Ch. 8

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You purchased an automobile a year ago for $10,000. Its current market price is $6,000, and the expected market value one year from now is $4,000. If the interest rate is 10 percent, how much will it cost you to keep the car for an additional year (over and above operation and maintenance costs)?

$2,600

Sally leaves her $34,000 secretarial position and invests her savings of $15,000 (on which she was earning 6 percent interest) to start her own agency. After expenses, her net income was $38,900. Her economic profit was

$4,000.

A family has decided to go away for the summer. The monthly mortgage payment on the family's house is $1,000. Water, electricity, natural gas, and maintenance bills, to be paid by the family, will be $700 per month if the house is occupied and zero otherwise. If the family wishes to minimize losses from being away, it should rent the house for as much as the market will bear, as long as the monthly rent is above which of the following? (Assume wear and tear to be the same whether or not the house is occupied.)

$700

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 percent.

As output is expanded, if MC is less than ATC,

ATC must be decreasing.

Which of the following is an implication of the law of diminishing returns?

In the short run, expansion of output will eventually lead to increases in marginal cost and average total cost.

Which of the following must be true if average total costs are rising?

Marginal costs must be greater than average total costs.

If the government levies a $1 excise tax on each unit of a good sold, what will happen to the producer's cost curve?

The average total cost and marginal cost curves will shift upward by the amount of the tax

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.

The owners of a business

are residual income claimants.

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

at small output rates, AFC will be high, while at large output rates, MC will be high.

If a firm increases its output and finds that its average total cost decreases as a result, this implies that

average total cost exceeds marginal cost.

Ron works for Betty at Betty's Pizza Palace. Betty has many work rules, and Ron believes if there were fewer rules and more flexibility, he could do a better job. Betty probably has the rules because

due to the principal-agent problem, some employees are likely to shirk when the owner is absent.

The difference between zero accounting profit and zero economic profit is that

economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero accounting profit.

Larger firms will often have lower minimum per-unit costs than smaller firms because

large-scale output allows greater specialization for both labor and machines in the production process.

Al's Donuts produces about 600 dozen doughnuts daily. If flour prices increase 20 percent

marginal cost, average variable cost, and average total cost will shift up

The three basic legal forms of business enterprise are

proprietorships, partnerships, and corporations.

Long-run diseconomies of scale exist over the range of output for which the long-run average cost curve is

rises.

Which of the following provides the strongest evidence that the corporate form of business structure is relatively cost efficient in many industries?

the ability of the corporate business structure to compete effectively in most industries with other forms of business structure

Normal profit is a term for

the competitive rate of return.

One advantage of team production over contracting out is that

the cost of negotiating and enforcing contracts is generally lower with team production than with contracting out

Which of the following factors is most likely to shift the cost curves of an Iowa corn farmer downward?

the development of a new, more efficient corn harvester

In the short run, a firm will eventually experience rising per-unit costs because of

the law of diminishing returns.

When the owner of a business invests his or her own money in the business, they give up the interest this money could be earning in the bank. This forgone interest is called

the opportunity cost of equity capital.

If you paid $100 for a truckload of cabbage on Monday, how much should you be willing to sell it for on Friday, the day before it spoils?

whatever you can get for it


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