Test 2

A business produces 10 pairs of eyeglasses. It incurs $30 in average variable cost and $35 in average total cost. The total fixed cost of producing 10 pairs of eyeglasses is:

$50

When marginal cost is above average total cost, average total cost must be falling.

FALSE

An increase in fixed cost increases marginal cost

False

Diminishing returns are one explanation for diseconomies of scale.

False

Farmers in the United States grow about three times as much wheat per acre as do farmers in Western Europe.

False

In the long run, every input available to a manufacturer is a fixed input.

False

Joan adds one more employee to her construction company. The additional output produced by this employee represents the average product of this employee.

False

The advantage of specialization in production is one of the primary reasons for decreasing returns to scale.

False

When the long-run average total cost curve is downward-sloping as output increases, the firm has diseconomies of scale.

False

An assumption of the model of perfect competition is:

Identical goods

If Marie Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be:

Increasing

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

Increasing

Buffalo Aircraft doubles the amount of all of the inputs it uses—the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:

Increasing marginal cost

A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm exhibiting:

Increasing return to scale

The _____ curve shows the additional cost of producing each additional unit of output.

Marginal Cost

At the long-run quantity of output, where the long-run average total cost curve is at its lowest point, it is tangent to the _____ of the corresponding short-run average total cost curve.

Minimum

Which of the following is a positive externality?

Sam buys a dilapidated house, renovates it, and increases the property values of all houses in the neighborhood.

As production increases and the fixed cost is divided by larger quantities of output, average fixed cost drops. This is referred to as the _____ effect.

Spreading

The larger the output, the more output over which fixed cost is distributed. Called the _____ effect, this leads to a ______ average _____ cost.

Spreading; higher; fixed

Which of the following is a solution to externalities?

The government offers free childhood immunizations. The externality is that an immunized child cannot transmit disease to others.

Suppose government officials have set an emissions tax to reduce pollution. Further suppose that with the emissions tax, the marginal social cost of pollution exceeds the marginal social benefit of pollution. The emissions tax is:

Too low

Average variable cost is:

Total variable cost divided by output

In the short run, the fixed costs of running a farm should play no role in determining the level of production.

True

When a firm adds physical capital, its variable cost will decrease in the long run.

True

When the long-run average total cost curve is upward-sloping as output increases, the firm has diseconomies of scale

True

The term diminishing returns refers to:

a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

Which of the following is an environmental policy based on tradable pollution permits?

allowing automobile drivers to buy and sell the right to a certain level of automobile emissions

The marginal social benefit of pollution:

can be measured as the additional gain to society from one additional unit of pollution.

For a nonrival good like pay-per-view television programs, the private market will lead to

consumption of too little of the good.

Zoe's Bakery determines that P < ATC and P > AVC. In the short run, Zoe should:

continue to operate even though she is taking an economic loss.

When Caroline's dress factory hires two workers, the total product is 50 dresses. When she hires three workers, total product is 48, and when she hires four workers, total product is 45. The marginal product of the third and fourth workers is:

decreasing and negative

When Caroline's dress factory hires two workers, the total product is 50 dresses. When she hires three workers, total product is 60, and when she hires four workers, total product is 65. The slope of the marginal product curve when two to four workers are hired is:

downward

A farm can produce 1,000 bushels of wheat per year with two workers or 1,300 bushels of wheat per year with four workers. The marginal product of the fourth worker is _____ bushels.

150 (300/2)

(Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are no external benefits or costs, the output at Q will be:

efficent

Whether or not they pay for them, people cannot be excluded from receiving the benefits of:

either public goods or common resources.

When government attempts to reduce climate change by establishing a minimum level of fuel efficiency on new cars, it is using a(n):

environmental standard

Pigouvian taxes are designed to reduce:

external costs

If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your production exhibits

increasing returns to scale

When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5. When 11 pork sandwiches are produced, the total cost rises to $6. From this we know that the marginal cost of the eleventh pork sandwich:

is greater than the average cost of 11 sandwiches

The marginal cost curve intersects the average variable cost curve at:

its lower point

Decreasing and increasing returns to scale account for the shape of the:

long-run average total cost curve

Suppose the marginal cost curve in the short run first decreases and then increases. If marginal cost is increasing, _____ must be _____.

marginal product; decreasing

When a firm adds capital, in the short run workers will be:

more productive, since they have more equipment

In the short run, a perfectly competitive firm produces output and earns profit if

p (greater than) ATC

Stephanie stops at a gas station to fill up the tank of her car. The unleaded gasoline in her tank is best described as a(n):

private good

The Coase theorem states that in the presence of externalities, a market economy will

reach an efficient solution if transaction costs are sufficiently low and property rights are well-defined.

Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run, the:

short-run industry supply curve will shift to the left.

The table Externalities from Parks shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park. If the government wants to achieve the optimum amount of land for the park, it could use a Pigouvian _____ of _____.

subsidy; $150

A firm's shut-down point is the minimum value of

AVC

If marginal cost is GREATER THAN average total cost:

Average total cost is increasing

When productivity growth is positive, what happens to the total product curve and the marginal product of labor curve?

Both curves shift upward

In the short run, as output gets larger:

the average variable cost curve gets closer to the average total cost curve.

Which of the following is a negative externality?

the risks to nonsmokers from second-hand smoke

An advantage of tradable emissions permits is that:

they provide incentives for firms to develop technologies that are less polluting.

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:

too much of society's resources is being used to produce copper.

Tankao makes Bluetooth sets for mobile devices. When 50 Bluetooth sets are produced in the short run, the average variable cost is $30. Tankao's average _____ cost is _____.

total; greater than 30

Average total cost is the ratio of _____ cost to _____.

total; quantity of output

Average variable cost equals all of the following EXCEPT:

variable cost times output

Diminishing returns to an input occur:

when some inputs are fixed and some are variable

Buford Bus Manufacturing installs a new assembly line. As a result, the output per worker increases. The marginal cost of output at Buford:

will decrease (the MC curve will shift down)

If two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital:

will lie above the total product curve for the firm with less capital.

Look at the figure Pollution and Efficiency. In this market, where sulfur emissions are a result of production, an efficient solution takes place at a price of _____ and a quantity of _____.

$15; 30

If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is:

$30

The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. At the efficient quantity of pollution the marginal social benefit of pollution is:

$400