ECON 2000 Exam 2 (Long Version)
Accounting costs and economic costs differ because a) Economic costs include implicit costs and accounting costs do not b) Economic costs include explicit costs and accounting costs do not c) Accounting costs include implicit costs and economic costs do not d) Accounting costs include explicit costs and economic costs do not
A
Ceteris paribus, the law of diminishing returns states that beyond some point, the a) Marginal physical product of a factor of production diminishes as more of that factor is used. b) Output of any good increases as more of a variable input is used. c) Returns on stocks and bonds diminish with higher security prices d) Addition to total utility diminishes as more units of a good are consumed.
A
If an additional unit of labor costs $20 and has a MPP of 15 units of output, the marginal cost is a) $1.33 b) $0.75 c) $30.00 d) $300.00
A
If an additional unit of labor costs $40 and has an MPP of 50 units of output, the marginal cost is: a) $0.80
A
The most desirable rate of output for a firm is the output that a) Maximizes total profit b) Minimizes total costs c) Maximizes total revenue d) Minimizes marginal costs
A
What is the total variable cost when output is 100 units in Figure 21.2? a) $20,000 b) $200 c) $9,600 d) $296
A
When the average total cost curve is rising, the marginal cost curve will be a) Above the average total cost curve b) Below the average total cost curve c) Falling with greater output d) Below the average fixed cost curve
A
what are the extreme of elasticity a) E = infiniti, E = 0
A
when Ep = 0 a) demand is perfectly inelastic, increase in price will not affect quantity demand
A
when Ep = infiniti a) demand is perfectly elastic, an increase in price will cause quantity demand to fall to 0
A
as average product (AP) rises
AVC falls
as average product (AP) falls
AVC rises
Accounting costs and economic costs differ because a) Economics costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays b) Accounting costs exceed economic whenever any factor is not paid an explicit wage c) Accounting costs include explicit costs, and economic costs do not d) Accounting costs include implicit costs, and economic costs do not
B
The best measure of the economic cost of doing your homework is a) The tuition paid for your education plus the cost of any required textbooks b) The most valuable opportunity you give up when you do your homework c) The economic cost plus the accounting cost of doing the homework d) The amount you would have to pay to get someone else to do it
B
The marginal cost curve intersects the minimum of the curve representing a) AFC b) ATC c) MPP d) TC
B
The marginal physical product of the third unit of labor in Figure 21.1 is a) 13.3 units per day b) 12.0 units per day c) 40.0 units per day d) 4.0 units per day
B
Which of the following is most likely a fixed cost? a) The electricity used to run packaging equipment b) The material used to make jackets c) The rent for a factory d) The labor on a automotive assembly line
C
Which of the following is the slope of the production function with respect to an input? a) the average product of the input b) the input price c) the unit cost of the input d) the marginal physical product of the input
D
the ATC curve has what shape and why
U-shape, law of diminishing returns
The price signal the consumer gets in a competitive market represents
an opportunity ost
when goods are at low prices, you __________ ____________ to price changes
arent sensitive
what are determinants of elasticity
availability of substitutes, income, time
when marginal product < average product
average product falling
when marginal product > average product,
average product rising
what is price equal to in perfect competition (two things)
average revenue and marginal revenue
________ is fixed in the short run
capital
driving force behind price productions and quality improvements is _____________
competition
when Ep of demand is inelastic
consumers are not sensitive to change in price
when Ep of demand is elastic
consumers are price-sensitive
measures the response of demand for one good to a change in the percentage of the other
cross price elasticity of demand
ATC has a U-shape because of the _________ of AFC and the _________ in AVC
decline, increase
in constant returns to scale, increases in the size (scale) ____________ reduce minimum average costs
doesn't
2 firms supply the entire market
duopoly
the value of all resources used to produce a good or service; opportunity cost
economic costs
if _____________ _____________ exist in an industry, more firms will want to enter it
economic profits
low entry barriers are critical to ___________ in a competitive market
efficiency
max output of a good from the resources used in production
efficiency
in the long run, a producer will build, buy, or lease a plant that is the most __________ for the anticipated rate of output
efficient
demand for luxuries is relatively
elastic
if Ep > 1, demand is
elastic
if there is a large number of substitutes, demand is
elastic
If Ep > 1 is demand elastic, inelastic, unitary elastic? what is the relationship between price elasticity of demand and total revenue?
elastic, when price rises total revenue decreases
_________ cause the market supply curve to shift to the left, which _____________ prices
exits, stabilize
name the type of cost dollar payments, rent, contracts
explicit
when MP rises, marginal cost _____
falls
_________ costs must be paid even if there is no output
fixed
costs of production that don't change when output is altered, basic plants and equipment
fixed costs
what does a perfectly elastic demand curve look like
horizontal slope
name the type of cost value of resources being used by a firm, no direct payment
implicit
waste of resources
inefficiency
If Ep < 1, demand is
inelastic
demand for necessities is relatively
inelastic
if there is a small number of substitutes, demand is
inelastic
If Ep < 1 is demand elastic, inelastic, unitary elastic? what is the relationship between price elasticity of demand and total revenue?
inelastic, when price rises total revenue increases
there is an exact _________ relationship between AVC and AP
inverse
what can be varied in the short run
labor
demand is _________ elastic in the short run
less
in a competitive market, consumers get more of the goods they desire at ________ prices
lower
_____________ __________ plays a critical role in the production decision of a competitive firm
marginal cost
increase in total cost associated with a one unit increase in production
marginal cost
there are enough firms to ensure some competition, but not so many as to preclude some limited monopoly-type power (like fast food restaurants)
monopolistic competition
demand is ________ elastic in the long run
more
when good have a higher price, the QD is __________ ___________ to price changes
more sensetive
if Exy is ___________, the goods are complements
negative
income elasticity of demand is ______ for inferior goods
negative
are there any fixed costs in the long run
no
a handful of firms dominate (like credit card services, Visa, MasterCard, American Express)
oligopoly
if Exy is _________, the goods are substitutes
positive
income elasticity of demand is ________ for normal goods
positive
numerical measure of consumer response to a change in price
price elasticity of demand
formula for total revenue
price x quantity
what is the profit maximizing rule in the short run
produce where MR = MC
what drives entry and exit decisions
profit motive
when __________ disappear, there is no incentive to enter the industry
profits
in economies of scale, larger facilities ________ minimum average costs
reduce
in diseconomies of scale, increasing size (scale) of a plant _________ operating efficiency
reduces
investment decisions shift the market supply curve to the _________ and drive down prices
right
when more firms enter an industry the supply curve shifts to the ___
right
when MP declines, marginal cost ______
rises
a stylized representation of how costs behaves, has MC curve, ATC curve, and AVC curve
short run cost curve
if there is a low price elasticity of supply, producers have a ________ response to price changes
slow
when economic profit disappears, entry and exit ________ and the market ___________
stop, stabilizes
items in perfect competition are ______________
substitutes
the production function represents maximum ___________ ___________
technical efficiency
market value of all the resources used to produce a good or service
total cost
name the type of cost explicit costs + implicit costs
total cost
true or false accounting profit is usually greater than economic profit
true
true or false individual firms count collectively
true
true or false the MC curve is the short run supply curve for a competitive firm
true
true or false the market mechanism works best under competitive pressure
true
true or false zero-profit limit is rarely ever reached
true
true or false: there is a direct inverse relationship between marginal product and marginal cost
true
If Ep = 1, demand is
unitary elastic
If Ep = 1 is demand elastic, inelastic, unitary elastic? what is the relationship between price elasticity of demand and total revenue?
unitary elastic, when price rises total revenue stays
costs of production that change when the rate of output is altered, labor and materials
variable costs
how fast total cost rises ONLY depends on
variable costs
what does a perfectly inelastic demand curve look like
vertical slope
if there is high price elasticity of supply, producers are ___________ responsive to price changes
very
can all inputs be varied in the long run
yes
once entry and exit stop there is _______ economic profit
zero
