Top Hat Exam #2

Suppose your company has $1 million in explicit costs, and could rent out its buildings to earn a revenue of $0.5 million. Its equipment could be rented out for another $0.25 million. What is your economic cost?

$1.75 million

income elasticity of demand

% change in quantity demanded / % change in income

things to remember about ATC and AVC

- Marginal Cost passes through the minimum of AVC and ATC. - Average Total Cost is the sum of Average Variable Cost and Average Fixed Cost.

Equilibrium is efficient because

- Total surplus is maximized. - Marginal benefit equals marginal cost. - Every unit that is produced has a benefit to consumers greater than (or equal to) the cost of its production

In equilibrium

- total surplus is maximized. - quantity supplied equals quantity demanded. - supply intersects demand

Your company produces 5000 doodads at a total accounting cost of $2 million. It sells them for $600 each. If you changed your business to produce thingies instead, you would earn a $5 million accounting profit. What is your company's economic profit?

-$4 million

The price of internet access rises from $50 per month to $70 per month. The quantity of streaming service subscriptions falls from 200 million to 175 million. What is the Arc Cross-Price Elasticity of Demand?

-0.4

Your height is 60 inches, but you lose your shins in a tragic gardening accident. As a result, your new height is 48 inches. The percent change in your height is

-20%

perfectly inelastic

0

You are repainting your house, and currently can paint one room each day. You call a friend in , and now you can paint 1.5rooms per day. The marginal product of your friend is

0.5 rooms per day

unit elastic

1

Suppose you have a box that has a height of 40 inches and a width of 10 inches. What is its area?

400 square inches

Suppose you're a monopolist. You currently sell 4 units of output every month. You want to sell 8 per month. To do this, youwill have to lower the price from $15 to $10, and this lower price will apply to every unit you sell.What is your Marginal Revenue? That is, what is Marginal Revenue when output goes from 4 units to 8 units?

5

You are operating a house painting business (because you got so good at it from painting your own house). You currently have yourself and two other employees, and you can paint a total of 2 rooms per day. Adding a fourth worker will allow you to paint an additional 0.5 rooms per day. What does adding the fourth worker do to your average product?

Average product falls

Suppose you are going to a movie. You're excited to go to this; you would have paid up to $30 to go to this movie, though you actually paid $12. For simplicity, assume you are going alone. Yes, it's sad, but you have unusual taste in movies, so no one wants to join you.While you are driving to the theater, you get a call from a friend, who excitedly tells you that your favorite musical artist is performing a surprise show at a local tavern. If you turn around right now, you can make it before the music starts.It will cost you $12 to get into the tavern. You would be willing to pay up to $120 to see this artist.What is the economically rational thing to do? In case it matters to you, you've already paid for your movie ticket, and can't get your money back. You can't scalp your tickets

Go to the musical performance

Which of the following goods (or services) is likely to have inelastic supply?

Higher education, which requires instructors with a PhD (which usually take 4 to 6 years to complete), This is because it is a long and difficult process to receive a degree in higher education

What is the rule for profit maximization for a monopolist?

Marginal Revenue = Marginal Cost

Which market structure is most likely to result in positive economic profits that cannot be competed away?

Monopoly

The efficient amount of output is where the marginal cost to society is equal to the marginal benefit to society. Is this where the monopolist produces?

No, the efficient output is where MC = D, because Demand represents the marginal benefits to society.

zero economic profit

P=ATC

The shutdown rule implies that only the Marginal Cost Curve above Average Variable Costs is relevant. This section of the Marginal Cost Curve is upward sloping, and the Equimarginal Principle means that as price rises, the quantity of output a firm produces will rise. This relationship between price and quantity produced is known as...

The Law of Supply

Producer Surplus is

The area above the supply curve and below the price

A $1 per pound tax is imposed on cucumbers. The own-price elasticity of demand for cucumbers is 1.5, and the elasticity of supply for cucumbers is 0.7. Which of the following is correct?

The burden of the tax will fall mostly on producers.

A tornado destroys several carpet factories in North Georgia. Which of the following occurs?

The carpet supply curve shifts to the left

Consumer Surplus is

The difference between what consumers are willing to pay and what they actually pay

Your income rises by 10%, and the quantity of raisins that you purchase falls by 5%. Which of the following is correct?

The income elasticity of demand for raisins is -0.5, and raisins are an inferior good.

Suppose it is 2,500 B.C.E. and the market for wheat in Egypt is in equilibrium. Two things then happen at the same time. First, the Nile fails to flood that year, so it does not deliver vital nutrients to the land around the river. Second, the Pharaoh imposes a tax of one senyu per bushel on wheat, to be paid by consumers. Which of the following is correct?

The price is indeterminate and quantity falls

Suppose the equilibrium price of toilets is $250. The government imposes a $600 minimum price for each toilet. Which of the following is not likely to occur?

Toilet manufacturers produce the lowest-quality toilets possible, while also complying with regulations.

positive economic profit

Total Revenue is greater than total costs when total costs include all opportunity costs.

Suppose the government imposes a maximum annual tuition on bachelor's degree-granting institutions of $2,000 per year.Which of the following is not likely to occur?

Universities will compete for students more intensely, resulting in more and larger scholarships

what is economic cost

explicit + implicit cost

elastic

greater than 1

When profit is positive, price must be

greater than average total cost

A country with a comparative advantage in producing a good.

has the lowest opportunity cost of production

relatively inelastic

less than 1

The value of the best thing you give up to get something is

opportunity cost

what is average product

output per unit of input, total product/input

second degree price discrimination

practice of charging different prices per unit for different quantities of the same good or service

third degree price discrimination

practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group

Suppose the price of tomato sauce is $4 per jar, but then rises to $7 per jar. The Law of Demand states that

quantity demanded will fall

Here's a question straight off of an old exam: In a decreasing cost industry, as firms exit the industry and industry output decreases, costs will...

rise

Consider the supply curve for sour cream. If the price of sour cream falls, then

the quantity supplied will fall

negative economic profit

total revenue is less than total costs, including opportunity costs. P>ATC

inelastic graphs are

vertical

In the long run in a perfectly competitive market, economic profit will tend to converge toward, and stay around,

zero economic profit

Suppose the market for potato chips is in equilibrium, and then two things happen at the same time: The price of potatoes (which are used to make potato chips ) goes up, and a big sporting and social event occurs. Eating lots of potato chips is traditional at this big sporting event. Which of the following is correct?

Price rises, quantity is indeterminate

A monopoly produces at MC=MR, resulting in a price of $50, quantity of 1,000 units, ATC of $30, and AVC of $20. What should this firm do?

Produce in the short run and the long run

If the price of chicken feed (which is fed to chickens) goes up, which of the following will happen in the market for chicken sandwiches?

Supply will shift to the left, and price will rise

Your company produces 5000 doodads at a total cost of $2 million. It sells them for $600 each. What is your company's profit?

$1 million

The opportunity cost for you to prepare a decent meal is one hour of work, which would earn you $10. The opportunity cost for Chef Enzo to prepare a decent meal is five minutes of work, which would earn him $2. Which of the following terms of trade would benefit you and Chef Enzo?

Chef Enzo prepares a meal for you for more than $2 but less than $10

Which of the following goods best fits the assumptions underlying perfect competition?

Common wheat

Suppose the market for wheat is in equilibrium, with firms earning zero economic profit. Scientists discover that eating lots of carbohydrates is actually good for you, and everyone begins eating a lot more bread. Which of the following will occur?

Demand for wheat rises, driving the price up, and causing firms to enjoy positive economic profits.

Suppose the market for coffee is in equilibrium. An FDA report is released documenting a variety of significant health benefits of drinking coffee every day. What happens in the market for coffee (the drink—not the bean)?

Demand shifts to the right, price rises, quantity rises

Suppose the market for smartphones is in equilibrium. A new battery technology is invented which makes phones last a week without needing to be recharged. What happens in the market for smartphones?

Demand shifts to the right, price rises, quantity rises

Suppose the market for onions is perfectly competitive, and it's an increasing cost industry. Also suppose that right now, firms are making positive economic profits. When this market reaches a long run equilibrium, will the price be higher or lower than it is right now?

The price will be lower.

Suppose the administration of FSU decides to fire all advisors and administrators, leaving only faculty, cleaning staff, and support staff, and by doing so it manages to cut costs significantly. The price of one year's tuition at FSU falls from $6,500 to $4,000.

The quantity of students who choose to attend FSU will rise

A new program to teach computer science more effectively graduates its first class of computer scientists, resulting in a significant increase in the number of programmers and software engineers available. Which of the following will occur?

The supply of software will shift to the right

For every hour you spend studying for your economics exam, you will improve your grade by 3 points. For every hour you spend studying for your Physics exam, you will improve your grade by 4 points. For every hour your friend Albert spends studying for his economics exam, his grade will improve by 8 points. For every hour he spends studying for his physics exam, his grade will improve by 16 points.

Your opportunity cost of studying enough to improve your grade on your economics exam by 1 point is 1 1/3 points on your physics exam, and you have a comparative advantage in economics

first degree price discrimination

charging each individual customer a different price based on their willingness to pay