Eco 2305

To produce 150 units of output, a firm must use 3 employee-hours. To produce 300 units of output, the firm must use 8 employee-hours. Apparently, the firm is:

experiencing diminishing returns.

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will:

have little effect on the number of trained orthopedic surgeons.

A price-taker faces a demand curve that is:

horizontal at the market price

One reason that variable factors of production tend to show diminishing returns in the short run is that:

there is only so much that can be produced using additional variable inputs when some factors of production are fixed.

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee- hours per day 0 1 4 9 15 23 Out per day 0 40 80 120 160 200 When the firm uses 9 employee-hours, its total revenue each day is:

$240

Refer to the figure below. What is the slope of the supply curve? 2,4 4,8 6,12

1/2

For a single seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 50 identical sellers, how much would be supplied in the market at a price of $14 per unit?

17500

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Hours per daycleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17 How many hours a day should John spend cleaning windows?

2

In which of the following markets do firms sell the same standardized product?

2% milk

Refer to the table below. The law of diminishing marginal returns becomes evident after ______ units of output are produced. OutPut per day 0 33 66 99 132 165 Number of employee hours per day 0 1 2 4 7 11

66

The inputs used to produce cupcakes (e.g., flour, sugar, butter, and labor) are also used to produce cookies, cakes, muffins, pies and many other goods. This suggests that:

The elasticity of supply of cupcakes is relatively high

If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the:

extra benefit of the last unit produced is greater than the extra cost.

total revenue minus both explicit and implicit costs defines a firm's:

profit

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-hours per day 0 1 4 9 15 23 Output per day 0 40 80 120 160 200 When the firm uses 9 employee-hours, it earns a daily ______ of ______.

profit $64

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Hours per daycleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17 What is the lowest price per window that would induce John to spend at least one hour per day cleaning windows?

$1

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-hours per day 0 1 4 9 15 23 Output per day 0 40 80 120 160 200 When the firm uses 9 employee-hours, its total labor cost each day is:

$126

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Hours per dayccleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17 John's benefit from his first hour cleaning windows is:

$14

When Acme Dynamite produces 250 units of output, its variable cost is $2,000, and its fixed cost is $500. It sells each unit of output for $25. When Acme Dynamite produces 250 units of output, its profit is:

$3750

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Hours per dayccleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17 The first hour John spends cleaning windows costs him ______ that he could have earned in the grocery store

$7

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: What is John's opportunity cost of cleaning windows for an hour? Hours per dayccleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17

$7

Refer to the figure below. What is the price elasticity of supply at point A? 2,4 4,8 6,12

1

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______.

3/2 elastic

If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.

5

Which of the following is a defining characteristic of all perfectly competitive markets?

All firms sell the same standardized product.

Which of the following is NOT true of a perfectly competitive firm?

It seeks to maximize revenue.

A technological innovation that reduces a firm's marginal cost will lead to:

an increase in the firm's supply.

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:

each lemonade stand sells the same kind of lemonade.

Suppose a profit-maximizing firm in a perfectly competitive market is collecting $1,999 in total revenues. If the total cost of its fixed factors of production falls from $500 to $400, the firm will:

earn greater profits or smaller losses.

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit.

One implication of the shape of the demand curve facing a perfectly competitive firm is that:

if the firm increases its price above the market price, it will earn zero revenue.

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should:

increase production

Suppose that each serving of Mac and Cheese costs $0.50 to make no matter how many servings are produced. This means that the price elasticity of supply for Mac and Cheese is ______ and the supply curve is ______.

infinite; perfectly elastic

A variable factor of production:

is variable in both the short run and the long run.

For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short run than in the long run.

lower

The primary objective of most private firms is to:

maximize profit

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ______ compared to the supply at a pizza restaurant that does not serve calzones.

more price elastic

Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ______ in the short run, and will ______ in the long run.

not shut down; exit the industry

The Cost-Benefit Principle tells us that a firm should continue to expand production as long as:

price of the good is greater than its marginal cost.

An increase in consumers' demand for espresso will lead to an increase in ______, while an increase in the number of firms producing espresso will lead to a(n) ______.

quantity supplied; increase in supply

Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is ______.

relatively inelastic

Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog is equal to:

the value of one hour of leisure, which is greater than zero.

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. Employee-hours per day 0 1 4 9 15 23 Output per day 0 40 80 120 160 200 This firm's fixed cost each day is:

$50

The table below shows a pizzeria's fixed cost and variable cost at different levels of output. Pizza's sell for $20 each. Number of Pizzas per day 0 25 50 75 100 125 Fixed Cost ($/Day) 500 500 500 500 500 500 Variable Cost ($/day) 0 150 250 450 850 1650

2500

If crude oil is a variable factor of production for a firm, then an increase in the price of crude oil will lead to:

a decrease in the firm's supply.

The long run is best defined as:

a period of time sufficiently long that all factors of production are variable.

The short run is best defined as:

a period of time sufficiently short that at least one factor of production is fixed.

For a given seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller's reservation price for the 250th unit?

$4

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Hours per dayccleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17 A second hour cleaning windows will yield additional earnings of

$8

Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.

3/4: inelastic

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the table below Number of mugs per day 0 1 2 3 4 5 6 Total cost per day $10 $14 $19 $25 $32 $40 $49 If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ______ mugs per day.

4

Which of the following statements is true for both Microsoft and a locally owned restaurant?

Both seek to maximize profits.

Last year, Casey grew fresh vegetables, which she sold at her local farmers market, but this year, Casey did not plant any vegetables and went to work at a bank instead. Which of the following best explains Casey's career change?

Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at the bank.

Suppose a profit-maximizing firm in a perfectly competitive market is earning an economic profit of $1,345. If the firm's fixed cost increases from $200 to $300, the firm will:

Earn a smaller profit

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?

Eventually prices will equalize across all three lemonade stands.

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: Hours per daycleaning windows 0 1 2 3 4 5 Total number of windows cleaned 0 7 11 14 16 17 Should John spend a third hour cleaning windows

No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7

Assume that each day a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ______ of ______.

Profit $170

Suppose a firm produces the level of output at which the marginal cost of the last unit produced equals the price of the good. Which of the following statements is always true?

The firm should shutdown if its total revenue is less than its variable cost.

Which of the following is the most likely to be a fixed factor of production at a farm?

The land on which the farm is located.

You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2050 population of earth, but that after 2050 there will be massive starvation. This prediction appears to assume that:

The long-run supply of food is perfectly inelastic

Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell?

The opportunity cost of picking up cans is higher for wealthy people than for poor people.

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

is perfectly inelastic

Suppose a perfectly competitive firm is producing 1,000 units of output and the marginal cost of the 1,000th unit is $7. If the firm can sell each unit of output for $7 and the firm's revenue is sufficient to cover its variable cost, the firm should:

leave production unchanged

Assume that the production technology required to produce goods X and Y is very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:

shift into producing good Y

Suppose that when a perfectly competitive firm produces 1,000 units of output, its total variable cost is $1,900. If the marginal cost of producing the 1,000th unit is $1.70, and if the market price of each unit of output is $1.70, then the firm should:

shut down

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

water production is characterized by increasing opportunity costs.