ap econ unit 3
#2. Figure A shows the number of workers and quantity of burgers produced in one hour. The marginal product of the sixth worker is: A. 180 units of output B. 30 units of output C. 15 units of output D. negative E. cannot be calculated
C
#5 Refer to Figure B. The marginal cost of producing the 4th output is: A. $1.50 B. $13.50 C. $6.00 D. $54.00 E. $216.00
C
#15 Refer to Graph 1. At the profit-maximizing output,the firm will realize: A. loss equal to HJEF B. loss equal to JZCF C. economic profit of HZCF D. economic profit of HJEF E. economic profit of HKDG
D
#20 The table in Figure D gives the short-run total cost function for a typical firm in perfectly competitive industry. If the price the firm receives for its product is $20,which of the following statements is true in the short-run? A. The firm will shut down until the market price is greater than its fixed costs B. The firm will produce 1 unit and make a loss of $7 C. The firm will produce 2 units and make a loss of $18 D The firm will produce 4 units and make a profit of $8 E. The firm will produce 3 units and make a profit of $7
D
At a firm's current rate of output, the marginal cost is $15, the average variable cost is $10,the average fixed cost is $5, and the product price is $15. Which of the following statements is true for the firm? A. Accounting profits are negative because total revenue is less than total cost B. Economic profits are zero because marginal revenue equals marginal cost C. Accounting profits are negative because price is greater than average variable cost D. Economic profits are zero because price equals average total cost E. Economic profits are positive because total revenue is greater than total cost
D
Chiquita produces bananas in a constant-cost perfectly competitive industry that is currently in long-run equilibrium. If the demand for bananas decreases, Chiquita's profit-maximizing output will change in which of the following ways in the short-run and the long-run? A. Increase, Increase B. Increase, Decrease C. Decrease, Increase D. Decrease, Return to original level E. Increase, Return to original level
D
#3. Refer to Figure A. With which worker does the Law of Diminishing Marginal Returns first set in? A. 1st B. 2nd C. 5th D. 4th E. 3rd
E
What must be true for accounting profit if economic profit is 0?
No Economic Profit = Normal Profit
total revenue
P x Q
shifters of supply
Prices/Availability of inputs (resources) Number of sellers Technology Government action Expectations of future profit
allocative efficiency
Producing at the amount most desired by society Graphically it is where price = MC
productive efficiency
Producing at the lowest possible cost (minimum amount of resources are being used) Graphically it is where price = minimum ATC
The law of diminishing marginal returns
as variable resources (workers) are added to fixed resources, the additional output produced from each additional worker will eventually fall
what kind of efficiency does a long-run equilibrium for a perfectly competitive firm
both productive and allocative
AFC
fixed costs / quantity
If variable costs decrease...
it shifts down, and supply increases
If variable costs increase...
it shifts up, and supply decreases
If a firm's average total cost decreases as the firm increases its output, the firm's output...
must be less than the marginal cost
ATC
total costs / quantity
If a firm's average total cost decreases as the firm increases its output,the firms's marginal cost must be... A. less than the average total cost B. less than C. greater than the average variable cost D. decreasing E. negative
A
#14 Refer to Graph 1. To maximize profit or minimize losses this firm will produce: A. A units at price H B. C units at price H C. B units at price H D. B units at price K E. C units at price J
B
Profit maximizing rule
MR = MC
In equilibrium, if demand increases, what happens in the short-run and how does it return to the long run?
--In the short-run, the price would increase and quantity increases--profit is made, demand moves right --In the long-run, supply moves to right
in the long-run...
1. Price = MC = minimum ATC--firm is making NO economic profit, but firm is making positive accounting profit 2. In the industry, supply shifts to right and price decreases and quantity increases 3. In the firm, price decreases and quantity decreases
If a perfectly competitive industry is in long-run equilibrium, which of the following statements is most likely to be true? A. Some firms can be expected to leave the industry B. Firms are earning a return on investment that is equal to their opportunity costs C. Individual firms are not operating at the minimum points on their average total cost curves D. Some factors are not receiving a return equal to their opportunity costs E. Consumers can anticipate prince increases
A
Lil' Clifford's Diaper Service is a profit-maximizing firm currently experiencing short-run economic losses. Under which of the following conditions should Lil' Clifford's Diaper Service shut down production? A. Average revenue is less than average variable cost B. Marginal cost is greater than average total cost C. Marginal cost is less than marginal revenue D. Average revenue is less than average total cost E. Total revenue is less than total cost
A
The demand curve in a purely competitive industry is ______,while the demand curve to a single firm in that industry is ______. A. downward sloping, perfectly elastic B. perfectly inelastic, perfectly elastic C. downward sloping, perfectly inelastic D. perfectly elastic, downward sloping E. perfectly elastic, upward sloping
A
"Barriers to entry"
A market with low barriers has more competition and individual firms make less profit
long-run
ALL resources are variable NO fixed resources Plant capacity/size is changeable
What happens to marginal product as you hire more workers?
Adding workers hurt production because of the law of diminishing marginal returns.
perfectly competitive firms are always what kind of efficiency?
Allocative efficiency P = MR
Why does the marginal cost curve go down then up?
As more workers are hired their marginal product increases and eventually decreases because of the law of diminishing returns
#21 The table in Figure D gives the short-run total cost function for a typical firm in a perfectly competitive industry. If the price the firm receives for its product is $20, which of the following statements is true in the long-run? A. The number of firms in this industry will decrease B. The number of firms in this industry will increase C. The typical firm must raise its price in order to make a profit D. The typical firm will shut down E. The typical firm will begin to differentiate its product in order to gain market share
B
The short-run supply curve for a firm in a perfectly competitive industry is... A. Its entire marginal cost curve B. Its marginal cost curve above the minimum point of its average variable cost curve C. Its average total cost curve above its marginal cost curve D. Its marginal cost curve above the minimum point of its average total cost curve E. Its average variable cost curve above its marginal cost curve
B
A constant-cost, perfectly competitive widget industry is in long-run equilibrium. A decrease in the price of gadgets, a substitute for widgets, will most likely result in... A. an increase in the demand for widgets, followed by a decrease in the supply of widgets B. higher short-run and long-run price for widgets C. short-run losses for widget producers, followed by the exit of some firms D. an upward shift in all short-run cost curves, followed by a higher long-run price for widgets E. a higher short-run price for widgets, followed by an increase in the quantity produced
C
If the average variable cost of producing 4 burritos is $20 and the average variable cost of producing 5 burritos is $25, then the marginal cost of increasing output from 4 to 5 burritos is... A. $5 B. $25 C. $45 D. $30 E. $50
C
The vertical distance between ATC and AVC reflects: A. the law of diminishing returns B. total fixed costs C. the average fixed cost at each level of output D. marginal cost at each level of output E. the presence of specialization
C
marginal product
Change in total product / change in inputs
#6 Refer to Figure B. The average total cost of producing 3 units of output is: A. $7 B. $12 C. $144 D. $24 E. $16
E
#7 Refer to Figure B. The total variable cost of producing 5 units is: A. $61 B. $48 C. $7 D. $24 E. $37
E
Marginal revenue is the: A. change in product price associated with the sale of one more unit of output B. change in average revenue associated with the sale of one more unit of output C. difference between product price and average total cost D. additional cost associated with the sale of one more unit of output E. change in total revenue associated with the sale of one more unit of output
E
increasing cost industry
Firms enter to earn profit but fight for resources causing costs to increase. Cost of production increases. Cost increases. MC and ATC increases -- the curves are all going to shift up
demand curve (long-run)
MR=D=AR=P
3 Stages of Returns--stage 1
Stage 1: increasing marginal returns Marginal productivity rising. Total production increases at an increasing rate because of specialization
3 Stages of Returns--stage 2
Stage 2: decreasing marginal returns Marginal productivity falling. Total production increases at a decreasing rate because of fixed resources. Each worker adds less and less
3 Stages of Returns--stage 3
Stage 3: negative marginal returns Marginal productivity is negative. Total production is decreasing.
Shifters of demand
Taste and preferences Number of consumers Price of related goods Income Future expectations
supply
The MC above the average variable cost
What happens to quantity if fixed costs increase?
The cost of making one more is unchanged. Quantity stays the same. MR stays the same. The ATC curve moves up a little bit.
Why isn't a perfectly competitive firm productively efficient when earning a positive economic profit in the short run?
They are producing a quantity greater than minimum ATC
average product
Total product / units of labor
profit
Total revenue - total cost
a per-unit tax affects...
VARIABLE COST so MC, AVC, and ATC will shift This WILL affect the quantity produced
Why does ATC go down then up?
When MC is above the average, it pulls the average up. When mc is below the average, it pulls the average down
Shut down rule
a firm should continue to produce as long as the price is above the AVC (short-run)
short-run
a period in which at least one resource is fixed
marginal cost
change in total costs / change in quantity
In a constant cost industry, the long run supply is
horizontal
implicit costs
the opportunity costs that firms "pay" for using their own resources
long-run -- if output more than doubles...
then you have Increasing Returns to scale (your output exceeds your input)
accounting profit
total revenue - accounting costs (explicit only)
explicit costs
total revenue - economic costs (explicit and implicit)
AVC
variable costs / quantity
total revenue test
when price increases and revenue increases--inelastic when price increases and revenue decreases--elastic
MotorCorp, Inc. is a multinational producer of automobiles that is currently experiencing constant returns to scale. Which of the following describes what happens as the firm increases its output? A. Long-run average total cost decreases as the firm's output increases B. Long-run average total cost increases as the firm's output increases C. Proportionate increases in inputs result in proportionate increases in output D. Economic profits decrease as the firm increases E. Proportionate increases in inputs result in greater-than-proportionate increases in output
C
Marginal product is: A. total product divided by the number of workers employed B. the increase in total revenue attributable to the employment of one more worker C. the increase in total cost from producing one additional output D. the increase in total output attributable to the employment of one more worker E. the percent change in quantity divided by the percent change in price
D
Smokey's Smoke Detectors, Inc. operates in a perfectly competitive market for smoke alarms.Smokey is currently earning short-run positive economic profits. Which of the following statements best describes what Smokey will experience as the industry adjusts to the long-run equilibrium? A. Firms will enter the industry, market price will decrease, economic profits will increase B. Firms will exit the industry, market price will increase, economic profits will increase C. Firms will exit the industry, market price will decrease, economic profits will increase D. Firms will exit the industry, market price will increase, economic profits will decrease E. Firms will enter the industry, market price will decrease, economic profits will decrease
E
Which of the following statements applies to a purely competitive producer? A. High barriers to entry exist B. In long-run equilibrium it will earn an economic profit C. Its product will have a brand name D. Its product is slightly different from those of its competitors E. It will not advertise its product
E
lump sum tax affects...
FIXED COSTS so only AFC and ATC will shift. MC stays the same. This WILL NOT affect the quantity produced
long-run -- if output doubles...
then you have Constant Returns to Scale (your output is the same as input)
long-run -- if output less than doubles...
then you have Decreasing Returns to Scale (output is less than input)
