Practice Midterm 2 and Midterm 2 Questions

Optimal Choice of yogurt and Cheese. The price of yogurt is $2 per unit, and the price of cheese is $4 per pound. Haileys income is $16. If she spends all of her income on yogurt, the most she can buy ___ yogurts, and her total utility is____.

8 ; 144 16/2 = 8

Expenses associated with factors of production may be _____ costs.

All of these are expenses associated with factors of production.

Daniella's Consumption of Sparkling Water and Sushi. When Daniella maximizes her utility, her marginal utility per dollar spent (not price, but total cost of the sushi) on sushi equals _____ utils per dollar.

0.8 MU/Spent

Marginal Cost of Sweaters. The marginal cost of the second sweater is:

11 Change in total cost/ change in quantity

Short-Run Costs for Wallets. At 6 wallets, average variable cost is approximately:

115

16. (Table: Costs of Wedding Cakes) Use Table: Costs of Wedding Cakes. Assume that fixed costs are $10. What is the average variable cost of 2 wedding cakes?

12.50 AVC = VC/Q 25/2= 12.50

The Cost Curves for Charlie's Cookie Confections. The curve labeled Y represents the firm's _____ cost curve.

average fixed

In the short run, variable costs will ___ at any given level of output when a firm adds capital.

decrease

Gabriella's company produces wet suits for scuba divers. The long-run average total cost of producing 250 wet suits is $56, while the long-run average total cost of producing 270 wet suits is $36. These numbers suggest that between output levels of 250 and 270 wet suits, Gabriella is experiencing:

economies of scale

The Market for Apple AirPods. Assume that Sd represents the domestic supply curve, and Dd represents the domestic demand curve. If the world price equals $100, and there is free trade, domestic consumer surplus _____ and domestic producer surplus _____ compared with autarky.

increases; decreases

The Market for Apple AirPods. Assume that Sd represents the domestic supply curve, and Dd represents the domestic demand curve. If the world price equals $100, and there is free trade, domestic consumer surplus _____ and domestic producer surplus _____ compared with autarky.

increases; decreases World price moved line under autarky meaning consumer surplus grew producer surplus shrank.

When making a profit-maximizing "how much" decision, if the marginal benefit of a good or activity is greater than the marginal cost of that good or activity, then the individual can be made better off by:

increasing the quantity as long as the marginal benefit of one more unit exceeds the marginal cost.

Total profit is maximized when marginal benefit _____ marginal cost.

is equal to MB = MC

Suppose that Wendy gets 15 units of utility from one muffin and 23 units of utility from two muffins. The principle of diminishing marginal utility implies that Wendy's total utility from three muffins will be _____ units of utility.

less than 31 15-23 = 8 23+8 = 31

Jacob owns a bed and breakfast in Napa Valley. He pays $32,000 per year for insurance, $408,000 in wages, and $23,000 for supplies. He forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic ____ equaled ___.

losses; $35,000 460,000 - (32,000-408,000-23,000) - (32,000) = -35,000 Total Revenue Explicit direct cost Implicit indirect cost

When a country exchanges goods with another country, in the short run:

producers in the exporting industry may be better off

If marginal cost is GREATER than average total cost, then average total cost is:

rising

. A(n) ______ decision maker is willing to sacrifice some economic payoff to avoid a potential loss.

risk averse

India exports shirts, which are labor-intensive, to the United States. The likely source of India's comparative advantage in shirts is:

that, in comparison with the United States, India is a labor-abundant country.

Production Possibilities for the United States and Brazil. Both nations can produce automobiles and sugar. In _____, the opportunity cost of _____ automobiles is _____ pounds of sugar.

the United States; 1 million; 1 million

Which statement BEST describes the principle of diminishing marginal utility? As an individual consumes more of a good:

the addition to total utility obtained from the nth unit of the good will be less than that obtained from the n - 1th unit of the good.

Josephine's budget line reflects the _____ available to Josephine if she spends _____ of her income.

consumption bundles; all

The Market for iPads. Assume that PA is the autarky price, PW is the world price, and D and S represent domestic demand and supply, respectively. The loss of producer surplus when the market moves from autarky to free trade equals the area:

B

Total Cost and Output for All - Natural Frozen Yogurt, which describes Sasha's total costs for his perfectly competitive all -natural frozen yogurt firm. If the market price of a tub of frozen yogurt is $67.50, how much is Sasha's total cost at the profit- maximizing output?

$170.00 at the total cost of $170 the marginal cost is still below the market price of $67.50.

Variable, Fixed, and Total Costs for buckwheat. The marginal cost of increasing production from 64-75 is:

$18.18 MC= change in TC/Change in Q (1400-1200)/(75-64)

Total Cost and Output for All-Natural Frozen Yogurt, which describes Sasha's total costs for his perfectly competitive all-natural frozen yogurt firm. If the market price of a tub of frozen yogurt is $20, how much is Sasha's profit at the optimal short-run output?

$-10

Armand's accountant tells him that he made a profit of $21,300 running a pottery studio in Boston. Armand's wife, an economist, claims Armand lost $21,300 running his pottery studio. This means his wife is claiming that he incurred _____ in _____ costs.

$42,600; implicit

Scenario: Accounting and Economic Profit Casey recently inherited $100,000 from her grandmother. Rather than invest the money in a mutual fund that earns 5% per year, she quit her job as a translator for the United Nations, which paid $60,000 per year, and started Casey's Coffee Crush, a small café in Tribeca. The location she rented cost $20,000 for the year. The equipment, café furniture, and coffee machines cost another $60,000. Staff, sales help, and advertising cost yet another $40,000. In her first year, her revenue was $150,000. The implicit cost of capital of Casey's Coffee

$5,000

Sydney tutors five students in the introductory business class. The second column of the table shows each student's willingness to pay for a one- hour session. Sydney's estimated costs of providing tutoring hours (with no sunk costs) appear in the final column. If she can charge all students their willingness to pay, at the optimal number of hours of tutoring, Sydney's total profit will be:

$50

Labor and Output for Cappuccinos. The marginal product of the second worker is:

10.

Nardelli owns Nardelli's Grinder Shoppe in Connecticut and can produce 300 sandwiches per day with two workers and 400 sandwiches per day with three workers. The marginal product of the third worker is _____ sandwiches.

100 Change in q/ change in L

The Production Possibility Frontiers for Kansas and Wisconsin. In autarky, Kansas produces and consumes 30 gallons of milk and 80 bushels of corn, while Wisconsin produces and consumes 80 gallons of milk and 60 bushels of corn. Assume that each state specializes in the good in which it has a comparative advantage and that the price of 1 gallon of milk is 2 bushels of corn. If Kansas exports 120 bushels of corn to Wisconsin, then the new consumption point for Wisconsin after trade is _____ bushels of corn ____ gallons of milk

120 ; 140

The price of Cracker Jacks (a caramel-coated popcorn with peanuts) is $0.50 per box, and the price of macadamia nuts is $0.25 per bag. You have $10 to spend. You decide to purchase 8 bags of macadamia nuts. The maximum number of boxes of Cracker Jacks that you can purchase is:

16 Income = (Px * Qx + Py *Qy)/budget constraint

The Production Possibilities for Large Tractors and Petroleum. In the United States, the opportunity cost of producing 40 tractors is _____ barrels of petroleum.

20,000 Find the cost of each good at 1. 1 tractor = 40/80 = 1/2 of petroleum. Multiply 1 tractor(40) and 2 petroleum (40) 40 tractors is 20 petroleum.

Variable Costs for Garden Maintenance. During the summer, Emma runs a gardening service in a perfectly competitive industry. Assume that costs are constant in each interval; so, for example, the marginal cost of clearing weeds from each of the gardens 1 through 10 is $20. Also assume that she can only tend to the number of gardens given in the table (and not numbers in between). Her only fixed cost is $1,000 for a weeding machine. Her variable costs include fuel, her time, and hot coffee. If the price to clear a garden is $30, how many lots should Emma clear?

40

The Utility of California Rolls. The marginal utility of the fourth roll is:

5 Change in Utility/ Change in quantity

The Production Possibilities for Large Tractors and Petroleum. In Venezuela, the opportunity cost of producing 150,000 barrels of petroleum is _____ tractors.

50 1 petroleum = 60/80 = 1/3 tractor. 150 petroleum = 50 tractors

Total Cost for Peter's Plum Pantry. Peter is the largest producer of plums in California. He is also a price-taking profit maximizer. If the market price of plums is $3.50 per unit, the profit-maximizing output is _____ units.

7 How much does the total cost go up each time? Find where it is less than or equal to price.

Barbara's Production Function for Hockey Jerseys. The marginal product of labor of the second worker is _____ hockey jerseys.

75 change in Q/ Change in L

Output and Cost Curves for Buckwheat Farm. At what quantity of production is the farm earning zero profit?

8 or where ATC = MC

The Market for Notebooks. Assume that S and D are the domestic supply and demand curves and that the world price is PW. Identify the area of deadweight loss when a tariff raises the domestic price from the world price to PT.

D + F *little triangles outside of the box

Budget Lines for Bottled Water and Biscotti. For months now, Angela has had $20 per month to spend on bottled water and biscotti. The price of each cup of bottled water and each biscotti is $1. Which chart shows what will happen to her budget line if the price of a cup of bottled water falls to $0.50?

D - the demand for water will go up to a higher number and demand for biscotti won't move.

The Market for Tea in India. With trade, the price is PW, consumer surplus equals _____, and producer surplus equals _____.

F;G +H +I + J + K

The utility-maximizing principle of marginal analysis implies that, if Katerina maximizes her utility by spending all of her income on Lakers tickets and Uber rides, with prices equal to PTickets and PRides , respectively, then it must be the case that:

MUTickets/PTicket = MURides/PRides

The Market for Grapes in California. In autarky, If the price of Grapes in California is PA. When the economy is opened to trade, the price falls to PW, and the change in consumer surplus will be given by the area ______.

N + O + P

For a perfectly competitive firm in the short run, if the firm produces the quantity at which ___, the firm is earning_____.

P > ATC; economic profit

For a perfectly competitive firm in the short run, if the firm produces the quantity at which ____ the firm is earning _______

P > ATC; economic profits

The purpose of behavioral economics is to determine why:

People make decisions that appear to be irrational.

When a market begins to engage in international trade:

Producers in the exporting industry may be better off.

When deciding how much to work you must decide how much you value your leisure time and how much you want to consume (have to make money to buy things). The __________ effect says that if you get paid more you'll work more because your time is more valuable and the ___________ effect says if you get paid more you'll work less because you are now wealthier so leisure is more attractive.

Substitution; Income

Sri Lanka, which is labor-abundant, has a comparative advantage in t-shirt production, which is labor- intensive. Which model explains this pattern of comparative advantage?

The heckscher - Ohlin Model Only one we've learned about.

A firm is deciding how many workers to higher. The manager, Maggi, took some economics courses at college and remembers that firms should follow a rule to choose the optimal number of workers. She asks for your help and you tell her that she should hire workers if:

Wage = Value of MPL MB = MC Value of MPL = wage