Midterm #2 review

Refer to Table 13-10. What is the average fixed cost for the month if 9 instructional modules are produced?

$120

Refer to Table 13-10. What is the marginal cost of creating the tenth instructional module in a given month?

$2500

Refer to Table 13-8. What is the average variable cost of producing 5 units of output?

$40

Refer to Table 13-10. What is the average variable cost for the month if 6 instructional modules are produced?

$533.33

Refer to Table 13-8. What is the marginal cost of producing the fifth unit of output?

$70

1) What is the marginal cost of producing the fifth unit of output? 2) What is the value of B? 3) What is the value of C? 4) What is the value of D? 5) What is the value of E? 6) What is the value of F?

1) $50 2) $100 3)$100 4) $50 5) $100 6) $150

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?

15 bouquets

Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 181 units of output per day when 16 workers are hired, holding other inputs fixed. The marginal product of the 16th worker is

16 units

Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. William can arrange 18 bouquets per day. What would be the total daily output of Kate's firm if she hired her husband?

36 bouquets

Which of the following statements is true? a. All costs are variable in the long run. b. All costs are variable in the short run. c. All costs are fixed in the long run. d. All costs are fixed in the short run.

a. All costs are variable in the long run.

C6 Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls? a. The quality of apartments will improve. b. There may be long lines of buyers waiting for apartments. c. There will be a shortage of housing. d. Landlords may be offered bribes to rent apartments. e. Landlords may discriminate among apartment renters.

a. The quality of apartments will improve.

C7 Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of consumer surplus in this market? a. Two vases will be sold, and consumer surplus is $5. b. One vase will be sold, and consumer surplus is $30. c. Three vases will be sold, and consumer surplus is $0. d. One vase will be sold, and consumer surplus is $5. e. Three vases will be sold, and consumer surplus is $80.

a. Two vases will be sold, and consumer surplus is $5.

Which of the following expressions is correct? a. accounting profit = economic profit + implicit costs b. economic profit = accounting profit + explicit costs c. economic profit = total revenue − implicit costs d. accounting profit = total revenue − implicit costs

a. accounting profit = economic profit + implicit costs

A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100, a. average variable cost is $3. b. average total cost is $5. c. average fixed cost is $10. d. average total cost is $4.

a. average variable cost is $3.

A private good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

a. both rival in consumption and excludable.

C7 An increase in the price of a good along a stationary demand curve a. decreases consumer surplus. b. improves the material welfare of the buyers. c. increases consumer surplus. d. improves market efficiency.

a. decreases consumer surplus.

C6 Studies show that a 10 percent increase in the minimum wage a. decreases teenage employment by about 1 to 3 percent. b. decreases teenage employment by about 10 to 15 percent. c. increases teenage employment by about 1 to 3 percent. d. increases teenage employment by about 10 to 15 percent.

a. decreases teenage employment by about 1 to 3 percent.

C6 The burden of a tax falls more heavily on the buyers in a market when a. demand is inelastic and supply is elastic. b. demand is elastic and supply is inelastic. c. both supply and demand are elastic. d. both supply and demand are inelastic.

a. demand is inelastic and supply is elastic.

If a person can be prevented from using a good, the good is said to be a. excludable. b. rival in consumption. c. a common resource. d. a public good.

a. excludable.

A firm's opportunity costs of production are equal to its a. explicit costs + implicit costs. b. explicit costs + implicit costs + total revenue. c. implicit costs only. d. explicit costs only.

a. explicit costs + implicit costs.

C6 A tax placed on a good that is a necessity for consumers will likely generate a tax burden that a. falls more heavily on buyers. b. falls entirely on sellers. c. is evenly distributed between buyers and sellers. d. falls more heavily on sellers.

a. falls more heavily on buyers.

A difference between explicit and implicit costs is that a. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. b. explicit costs must be greater than implicit costs. c. implicit costs must be greater than explicit costs. d. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.

a. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's a. implicit costs. b. explicit costs. c. total revenue. d. marginal costs.

a. implicit costs.

C7 An increase in the price of a good along a stationary supply curve a. increases producer surplus. b. decreases producer surplus. c. improves market equity. d. does all of the above.

a. increases producer surplus.

An example of an explicit cost of production would be the a. lease payments for the land on which a firm's factory stands. b. lost opportunity to invest in capital markets when the money is invested in one's business. c. value of the time the business could've spent producing something else. d. cost of forgone labor earnings for an entrepreneur

a. lease payments for the land on which a firm's factory stands.

C6 A price floor a. sets a legal minimum on the price at which a good can be sold. b. always determines the price at which a good must be sold. c. sets a legal maximum on the price at which a good can be sold. d. is not a binding constraint if it is set above the equilibrium price.

a. sets a legal minimum on the price at which a good can be sold.

Public goods are difficult for a private market to provide due to a. the free-rider problem. b. the Tragedy of the Commons. c. the rivalness problem. d. the public goods problem.

a. the free-rider problem.

Which of the following illustrates the concept of a negative externality? a. A college professor plays a vigorous game of racquet ball with the racquet she recently purchased. b. A college student plays loud music on his new stereo system at 2:00 a.m. c. A flood wipes out a farmer's corn crop. d. A janitor eats a hamburger during his lunch break.

b. A college student plays loud music on his new stereo system at 2:00 a.m.

C6 Which of the following statements is true if the government places a price ceiling on gasoline at $4.00 per gallon and the equilibrium price is $3.00 per gallon? a. A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint. b. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint. c. There will be a surplus of gasoline. d. There will be a shortage of gasoline.

b. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard cannot provide any type of externality. b. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. c. A well-maintained yard conveys a positive externality because it increases the home's market value. d. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner.

b. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

Which of the following is an example of an implicit cost? a. Interest paid on the firm's debt b. The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm c. Wages paid to workers d. Rent paid by the firm to lease office space

b. The owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm

C6 Which of the following statements about a binding price ceiling is true?

b. The shortage created by the price ceiling is greater in the long run than in the short run.

Which of the following statements is not correct? a. Government policies may improve the market's allocation of resources when negative externalities are present. b. Without government intervention, the market will tend to undersupply products that produce negative externalities. c. A positive externality is an example of a market failure. d. Government policies may improve the market's allocation of resources when positive externalities are present.

b. Without government intervention, the market will tend to undersupply products that produce negative externalities.

Which of the following is an example of a common resource? a. iron ore b. a national park c. a fireworks display d. national defense

b. a national park

C7 Consumer surplus is the area a. above the demand curve and below the price. b. below the demand curve and above the price. c. below the supply curve and above the price. d. below the demand curve and above the supply curve. e. above the supply curve and below the price.

b. below the demand curve and above the price.

The Tragedy of the Commons is a parable that illustrates why a. public goods are underproduced. b. common resources are overconsumed. c. private goods are underconsumed. d. club goods are overconsumed.

b. common resources are overconsumed.

C6 The burden of a tax falls more heavily on the sellers in a market when a. demand is inelastic and supply is elastic. b. demand is elastic and supply is inelastic. c. both supply and demand are elastic. d. both supply and demand are inelastic.

b. demand is elastic and supply is inelastic.

Accounting profit is equal to total revenue minus a. implicit costs. b. explicit costs. c. the sum of implicit and explicit costs. d. marginal costs. e. variable costs.

b. explicit costs.

In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

b. inputs that were fixed in the short run become variable.

C7 Adam Smith's "invisible hand" concept suggests that a competitive market outcome a. minimizes total surplus. b. maximizes total surplus. c. generates equality among the members of society. d. does both b and c.

b. maximizes total surplus.

A public good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

b. neither rival in consumption nor excludable.

C6 Within the supply-and-demand model, a tax collected from the sellers of a good shifts the a. demand curve upward by the size of the tax per unit. b. supply curve upward by the size of the tax per unit. c. supply curve downward by the size of the tax per unit. d. demand curve downward by the size of the tax per unit.

b. supply curve upward by the size of the tax per unit.

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal a. $80 b. $90 c. $110 d. $100

c. $110

C7 If a buyer's willingness to pay for a new Honda is $30,000 and she is able to actually buy it for $28,000, her consumer surplus is a. $0. b. $58,000. c. $2,000. d. $28,000. e. $30,000.

c. $2,000.

Refer to Table 13-8. What is the average fixed cost of producing 5 units of output?

c. $4

Which of the following costs of publishing a book is a fixed cost? a. Shipping and postage expenses b. Author royalties of 5 percent per book c. Composition, typesetting, and jacket design for the book d. The costs of paper and binding

c. Composition, typesetting, and jacket design for the book

Suppose each of 20 neighbors on a street values street repairs at $3,000. The cost of the street repair is $40,000. Which of the following statements is true? a. It is not efficient to have the street repaired. b. It is efficient for each neighbor to pay $3,000 to repair the section of street in front of his home. c. It is efficient for the government to tax the residents $2,000 each and repair the road. d. None of the above is true.

c. It is efficient for the government to tax the residents $2,000 each and repair the road.

A congested toll road is a. a club good. b. a common resource. c. a private good. d. a public good.

c. a private good.

C6 A binding price ceiling creates a. a surplus. b. an equilibrium. c. a shortage. d. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price.

c. a shortage.

C6 Which of the following takes place when a tax is placed on a good? a. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold b. an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold c. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold d. a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold

c. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold

Negative externalities lead markets to produce a. smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. b. greater than efficient output levels and positive externalities lead markets to produce efficient output levels. c. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. d. efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

c. greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

Which of the following is an example of a public good? a. hot dogs at a picnic b. whales in the ocean c. national defense d. apples on a tree in a public park

c. national defense

Total revenue equals a. price/quantity. b. (price × quantity) − total cost. c. price × quantity. d. output − input.

c. price × quantity.

A common resource is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

c. rival in consumption but not excludable.

If one person's consumption of a good diminishes other people's use of the good, the good is said to be a. a club good. b. excludable. c. rival in consumption. d. a common resource.

c. rival in consumption.

C6 Which of the following is an example of a price floor? a. rent controls b. restricting gasoline prices to $2.00 per gallon when the equilibrium price is $3.00 per gallon c. the minimum wage d. All of the above are price floors.

c. the minimum wage

Economic profit is equal to total revenue minus a. marginal costs. b. implicit costs. c. the sum of implicit and explicit costs. d. explicit costs. e. variable costs.

c. the sum of implicit and explicit costs.

Marcus sells 300 candy bars at $0.50 each. His total costs are $125. His profits are a. $150. b. $125. c. $124.50. d. $25.

d. $25.

Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be a. $1,000 if she sells 100 candles. b. $200 if she sells 5 candles. c. $20 regardless of how many candles she sells. d. $500 if she sells 25 candles.

d. $500 if she sells 25 candles.

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? a. At the current output level, the marginal social cost exceeds the marginal private cost. b. A per-shot tax could turn an inefficient situation into an efficient one. c. The current output level is inefficiently high. d. At the current output level, the marginal social benefit exceeds the marginal private benefit.

d. At the current output level, the marginal social benefit exceeds the marginal private benefit.

Which of the following statements is not correct? a. A tax is a way for the government to reduce the production of a good with a negative externality. b. A tax that accurately reflects external costs produces the socially optimal outcome. c. A patent is a way for the government to encourage the production of a good with technology spillovers. d. Government policies cannot improve upon private market outcomes.

d. Government policies cannot improve upon private market outcomes.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a. The cost of internet advertising incurred each year b. The rent that the firm pays for office space in a suburb of St. Louis c. The $20 million payment that the firm pays each year for accounting services d. The cost of the steel that is used in producing automobiles

d. The cost of the steel that is used in producing automobiles

Which of the following is an example of a positive externality? a. Local high school teachers have pizza delivered every Friday for lunch. b. A college student buys a new car when she graduates. c. An avid fisherman buys new fishing gear for his next fishing trip. d. The mayor of a small town plants flowers in the city park.

d. The mayor of a small town plants flowers in the city park.

If a firm produces nothing, which of the following costs will be zero? a. Total cost b. Opportunity cost c. Fixed cost d. Variable cost

d. Variable cost

C7 Producer surplus is the area a. below the demand curve and above the supply curve. b. above the demand curve and below the price. c. below the supply curve and above the price. d. above the supply curve and below the price. e. below the demand curve and above the price.

d. above the supply curve and below the price.

The efficient scale of production is the quantity of output that minimizes a. average variable cost. b. marginal cost. c. average fixed cost. d. average total cost.

d. average total cost.

C7 Total surplus is the area a. below the supply curve and above the price. b. above the supply curve and below the price. c. below the demand curve and above the price. d. below the demand curve and above the supply curve. e. above the demand curve and below the price.

d. below the demand curve and above the supply curve.

C6 For a price ceiling to be a binding constraint on the market, the government must set it a. at any price because all price ceilings are binding constraints. b. above the equilibrium price. c. precisely at the equilibrium price. d. below the equilibrium price

d. below the equilibrium price

C6 Within the supply-and-demand model, a tax collected from the buyers of a good shifts the a. supply curve upward by the size of the tax per unit. b. supply curve downward by the size of the tax per unit. c. demand curve upward by the size of the tax per unit. d. demand curve downward by the size of the tax per unit.

d. demand curve downward by the size of the tax per unit.

C6 For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. clothing b. food c. housing d. entertainment

d. entertainment

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 a. lowers the social cost below the private cost. b. decreases the social value below the private benefit. c. increases the social value above the private benefit. d. increases the social cost above the private cost.

d. increases the social cost above the private cost.

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture a. creates a safety hazard for neighborhood children. b. is visually unappealing to Josiah's neighbors. c. increases the value of Josiah's home. d. increases the value of other properties in the neighborhood.

d. increases the value of other properties in the neighborhood.

When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. inefficient, but the equilibrium maximizes the total benefit to society as a whole. c. efficient, but the equilibrium does not maximize the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

When a firm experiences diseconomies of scale, a. long-run average total cost is minimized. b. short-run average total cost is minimized. c. long-run average total cost decreases as output increases. d. long-run average total cost increases as output increases.

d. long-run average total cost increases as output increases.

A club good is a. both rival in consumption and excludable. b. neither rival in consumption nor excludable. c. rival in consumption but not excludable. d. not rival in consumption but excludable.

d. not rival in consumption but excludable.

C6 A tax of $1.00 per gallon on gasoline a. decreases the price the sellers receive by $1.00 per gallon. b. increases the price the buyers pay by precisely $0.50 and reduces the price received by sellers by precisely $0.50. c. increases the price the buyers pay by $1.00 per gallon. d. places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.

d. places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.

A free rider is a person who a. fails to produce goods but is allowed to consume goods. b. pays for a good but fails to receive any benefit from the good. c. produces a good but fails to receive payment for the good. d. receives the benefit of a good but avoids paying for it.

d. receives the benefit of a good but avoids paying for it.

When negative externalities are present in a market a. private costs will be greater than social costs. b. only government regulation will solve the problem. c. the market will not be able to generate an equilibrium. d. social costs will be greater than private costs.

d. social costs will be greater than private costs.

C7 The seller's cost of production is a. the seller's consumer surplus. b. the seller's producer surplus. c. the maximum amount the seller is willing to accept for a good. d. the minimum amount the seller is willing to accept for a good. e. none of the above.

d. the minimum amount the seller is willing to accept for a good.

C6 When a tax is collected from the buyers in a market, a. the buyers bear the burden of the tax. b. the sellers bear the burden of the tax. c. the tax burden falls most heavily on the buyers. d. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.

d. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.

C7 If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then a. consumer surplus is maximized. b. the cost of production on the last unit produced exceeds the value placed on it by buyers. c. producer surplus is maximized. d. the value placed on the last unit of production by buyers exceeds the cost of production. e. total surplus is maximized.

d. the value placed on the last unit of production by buyers exceeds the cost of production.

C7 Suppose that the price of a new bicycle is $300. Sue values a new bicycle at $400. It costs $200 for the seller to produce the new bicycle. What is the value of total surplus if Sue buys a new bike? a. $400 b. $100 c. $300 d. $500 e. $200

e. $200

Which of the following is a variable cost in the short run? a. Salaries paid to upper management b. Payment on the lease for factory equipment c. Rent on the factory d. Interest payments on borrowed financial capital e. Wages paid to factory labor

e. Wages paid to factory labor

C7 If buyers are rational and there is no market failure, a. free market solutions are efficient. b. free market solutions generate equality. c. free market solutions maximize total surplus. d. all of the above are true. e. a and c are correct.

e. a and c are correct.

A person who regularly watches public television but fails to contribute to public television's fund-raising drives is known as a. an unwelcome rider. b. excess baggage. c. a costly rider. d. a common rider. e. a free rider.

e. a free rider.

C7 If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then a. consumer surplus is maximized. b. the value placed on the last unit of production by buyers exceeds the cost of production. c. producer surplus is maximized. d. total surplus is maximized. e. the cost of production on the last unit produced exceeds the value placed on it by buyers.

e. the cost of production on the last unit produced exceeds the value placed on it by buyers.