Econ 206 Final

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Scenario A: The following table shows Whatcom Print Shop's (short-run) total cost of producing the output levels shown in the first column. Q (Number of books) Total Cost (TC) 0 $ 1,000 50 $ 2,000 100 $ 2,800 200 $ 4,500 400 $ 9,000 800 $24,000 What is the firm's total fixed cost?

$1,000

Scenario C: A single-price monopolist faces the following straight-line demand curve: P = 140 - 2.5 Q, where P is the price in dollars, and Q is the output (per hour). The marginal cost curve is MC = 14 + 2 Q. What is the Consumer Surplus in this market?

$405

Scenario I: In the table below we have several cost measures for a bakery: Output (Cakes) Fixed Cost Variable Cost 0 $500 $0 50 $500 $150 100 $500 $280 150 $500 $500 200 $500 $750 When the bakery is producing 100 cakes, what is the average total cost?

$7.80

In the perfectly competitive market for Squiggles, demand is given by Q = 420 - 2P, and the market supply curve is given by Q = 20 + 3P. What is the equilibrium price in the market for Squiggles?

$80

With a vertical demand curve, the price elasticity of demand is...

Scenario B: Canela's Farm grows and sells cinnamon, which is sold in a perfectly competitive market. The table below shows short-run cost figures for several levels of output. Output (pounds) Marginal Cost Average Variable Cost Average Total Cost 100 $22 $22.50 $42.50 200 $17 $20 $30 300 $14 $18.33 $25 400 $13 $17 $22 500 $15 $16.50 $20.50 600 $17 $16.50 $19.83 700 $19 $16.79 $19.64 800 $21 $17.25 $19.75 900 $23 $17.83 $20.32 1,000 $27 $18.65 $20.65 If the price of cinnamon is $19 per pound, what is the profit-maximizing output level?

700

Scenario II: Mortimer has a total of 5 hours to devote to ironing shirts and polishing shoes. In past weeks, he has used 3 hours for ironing shirts and 2 hours for polishing shoes. Hours per week spent ironing shirts Ironed shirts Hours per week spent polishing shoes Polished shoes 1 15 1 10 2 28 2 18 3 39 3 24 4 48 4 28 5 55 5 30 If Mortimer chooses to devote a fourth hour to ironing shirts, what is the opportunity cost of doing so?

8 polished shoes

In the market for navel oranges, the price is currently $2.29 per pound, the quantity supplied is 5,000 pounds per day, and the quantity demanded is 3,000 pounds per day. What is likely to happen in this market?

The price of navel oranges will fall because there is excess supply.

Scenario D: When the price of apples at a local market rose from $1.20 to $1.30 per pound, the quantity of apples sold fell from 1000 to 900 pounds per week. The total expenditure on apples (=the total revenue received by the apple sellers) ...

fell by $30.

Economies of scale happen when increases in output result in ...

lower average costs.

Compared with a perfectly competitive industry with the same cost conditions, a monopoly will produce

lower output, a higher price, and a loss in economic surplus

Faced with same cost conditions as a perfectly competitive industry, a monopoly will lead to ...

lower output, a higher price, and a loss in economic surplus.

Earnings distributions tend to be positively skewed, so median earnings will be

lower than mean earnings

A profit-maximizing firm will keep adding labor until the...

marginal revenue product equals the marginal cost of labor

13.4Consider a good produced in a competitive market that has external costs. In an unregulated market, too ... of the good will be produced for economic efficiency, and the price will ... than the price that will convince consumers to purchase the efficient amount.

much; lower

Which of the following goods or services is likely to be non-excludable and non-rivalrous?

national defense

If it is not possible to prevent potential users from consuming a good, that good is...

non-excludable

4.6 In Scenario B, what would happen to the demand curves of both products? The demand curve for ball-point pens would ______________ ; the demand curve for "rollerball" pens would ______________.

shift to the right; not change

A consumer's utility is maximized when ...

the ratio of marginal utilities equals the price ratio.

A consumer's utility is maximized when...

the ratio of marginal utilities equals the price ratio.

Suppose each dollar of your income is taxed at the same rate. Then your marginal tax rate is

the same as your average tax rate.

When economists model consumers' decisions, they assume that consumers are trying to maximize...

their utility

When economists model consumers' decisions, they usually assume that consumers are trying to maximize

their utility.

One difference between 'perfect competition' and 'monopolistic competition' is that

there is product differentiation in monopolistic competition

11.5 One difference between 'perfect competition' and'monopolistic competition' is that

there is product differentiation in monopolistic competition.

In a market in equilibrium, the area above the supply curve but below the equilibrium price represents the

total producer surplus

At Sohle's shoe factory, the marginal product (MP) of labor is currently 20 shoes, and the MP of capital is 24 shoes. An hour of labor costs $20, while an hour of capital (machinery) costs $28. In order to minimize the cost of producing its current output, this firm should

use more labor and less capital

Grace's Mushroom Farm produces 1000 pounds of mushrooms per day. At its current use of inputs, the MP (marginal product) of capital is 10 pounds, and the MP of labor is 20 pounds. An hour of capital costs $15, and an hour of labor costs $20. If the company wants to continue producing its current level of output, which of the following should it do?

use more labor and less capital.

1.4 When economists try to explain economicdecisions, theyassume that consumers aim to maximize their

utility

At the shut-down price, a perfectly competitive firm can just (barely) cover its...

variable costs.

At the shut-down price, a perfectly competitive firm can just cover its

variable costs.

Scenario B: Canela's Farm grows and sells cinnamon, which is sold in a perfectly competitive market. The table below shows short-run cost figures for several levels of output. Output (pounds) Marginal Cost Average Variable Cost Average Total Cost 100 $22 $22.50 $42.50 200 $17 $20 $30 300 $14 $18.33 $25 400 $13 $17 $22 500 $15 $16.50 $20.50 600 $17 $16.50 $19.83 700 $19 $16.79 $19.64 800 $21 $17.25 $19.75 900 $23 $17.83 $20.32 1,000 $27 $18.65 $20.65 If the price of cinnamon is $21 per pound, what is the total profit for this firm?

$1,000

Scenario I: In the table below we have several cost measures for a bakery: Output (Cakes) Fixed Cost Variable Cost 0 $500 $0 50 $500 $150 100 $500 $280 150 $500 $500 200 $500 $750 What is the total cost of producing 200 cakes?

$1,250

1.3 [Computingeconomic profitsmeans all costs(including opportunity costs)must betaken into account.] I started a business last year. My revenues were $100,000. My rent and materials costs were $60,000. My best alternative was and is to go to work for a company in a job that wouldpay me $30,000. The economic profitsfrom my business were _____.

$10,000.

$17.00

$2,000

7.4 The fixed cost of producing surfboards is $5,000 per month. The total variable cost of producing 15 surfboards is $36,000 per month. The average total cost of producing 15 surfboards in a month is _____

$2,733.33

7.3 Alicia is currently spending $6,000 per week on total variable costs to produce 500 hats. To produce 505 hats per week she would have to spend $6,100 per week. The marginal cost per hat is ______.

$20

Joon is willing to pay $300 for a new washer while Mohammad is willing to pay $400. If the price of a washer is $250, what is the total consumer surplus?

$200

Sumanta is willing to pay $300 for a new mattress while Leroy is willing to pay $400. If the price of a mattress is $250, what is the total consumer surplus?

$200

Juanita's farm grows (and sells) blueberries, which are sold in a perfectly competitive market. The table below shows short-run cost figures for several levels of output. Output (pounds)Marginal CostAverage Variable CostAverage Total Cost50 $ 11.00 $ 11.25 $ 21.25100 $ 8.50 $ 10.00 $ 15.00150 $ 7.00 $ 9.17 $ 12.50200 $ 6.50 $ 8.50 $ 11.00250 $ 7.50 $ 8.25 $ 10.25300 $ 8.50 $ 8.25 $ 9.92350 $ 9.50 $ 8.40 $ 9.82400 $ 10.50 $ 8.63 $ 9.88450 $ 11.50 $ 8.92 $ 10.16500 $ 13.50 $ 9.33 $ 10.33 If the price of a pound of blueberries is $10.50 and Juanita produces the profit-maximizing output level, what is their total profit?

$248.00

Scenario C: The supply and demand schedules for haircuts are given by the following: Price Quantity Supplied (per week)Quantity Demanded (per week)$00900$10200800$20400700$30600600$40800500$501,000400$601,200300 A new state law says hair salons must charge at least $50 per haircut. What is the loss in economic surplus caused by this law?

$3,000

6.6 Suppose Nat is willing to pay $89 for a new pair of shoes and Flo is willing to pay $60. What is the gain in total consumer surplus if the price of the shoes falls from $70 to $50?

$30

You purchased a $25 ticket to an event, but you lost your ticket on the bus. If you still want to attend the event, you will have to purchase a $30ticket at the door. What is the opportunity cost of attending the event?

$30, plus the opportunity cost of your time.

Consider a monopsonistic labor market. 10 units of labor will be supplied if the wage rate is $13, and 11 units of labor will be supplied if the wage rate is $15. For the 11thunit, the marginal cost of labor is

$35

$4.40

The firm "Finest Cabinetry" produces 100 tables per week, at a total cost of $10,000 and total fixed cost of $6,000. We can conclude that average variable cost is

$40

I bought a ticket to a game for $25 dollars and I cannot get a refund. When I arrive at the stadium somebody offers me $40 for the ticket. What is my opportunity cost of attending the gaterm-171me?

$40 plus the value of my time

You purchased a $30 ticket to a concert. When you arrive at the concert, you realize that you lost your ticket on the bus. If you still want to attend the concert, you will have to purchase a $40 ticket at the door. What is the opportunity cost of attending the concert?

$40, plus the opportunity cost of your time.

The (competitive) market for ibuprofenis described by the following two equations: QD= 230 -20 P QS= 80 +10 Pwhere P is the price of a bottle of ibuprofen. What is the equilibrium price in this market?

$5.00

Sergio's Cafe is producing 1,000 sandwiches, at a total cost of $1,500 and an average fixed cost of $1. We can conclude that Sergio's total variable cost is

$500

Scenario B: The market for sharp Cheddar cheese is described by the following two equations: Supply: QS = 250 +150 P Demand: QD = 1750 - 100 P, where P is the price per pound of cheese. What is the equilibrium price in this market?

Assume that bookscost $15 each, and restaurant dinners cost$45each. Lesliehas $300 to spend. Which of the following combinations will maximize Leslie's utility?

(A) We want the ratio of marginal utilities to match the price ratio (=$15/$45 = 1/3).

Scenario D: When the price of apples at a local market rose from $1.20 to $1.30 per pound, the quantity of apples sold fell from 1000 to 900 pounds per week. What is the price elasticity of demand?

- 1.2000

Juanita's farm grows (and sells) blueberries, which are sold in a perfectly competitive market. The table below shows short-run cost figures for several levels of output. Output (pounds)Marginal CostAverage Variable CostAverage Total Cost50 $ 11.00 $ 11.25 $ 21.25100 $ 8.50 $ 10.00 $ 15.00150 $ 7.00 $ 9.17 $ 12.50200 $ 6.50 $ 8.50 $ 11.00250 $ 7.50 $ 8.25 $ 10.25300 $ 8.50 $ 8.25 $ 9.92350 $ 9.50 $ 8.40 $ 9.82400 $ 10.50 $ 8.63 $ 9.88450 $ 11.50 $ 8.92 $ 10.16500 $ 13.50 $ 9.33 $ 10.33 If the price of a pound of blueberries is $9.50 and Juanita produces the profit-maximizing output level, what is their total profit?

-$112.00

Scenario I: The following table shows five points on a small economy's production possibilities boundary: Point Production of Coffee (in tons) Production of Cars A 1150 0 B 950 2,000 C 700 4,000 D 400 6,000 E 0 8,000 Going from point D to point E, the economy adds 2000 cars. What is the opportunity cost per additional car?

0.2 tons of coffee

As the price of a magazine increased from $5.00 to $6.00 per issue, quantity demanded fell from 9,000 to 8,000 per week. For this segment of the demand curve, the (absolute value of the) price elasticity of demand is

0.56

Scenario B: The market for sharp Cheddar cheese is described by the following two equations: Supply: QS = 250 +150 P Demand: QD = 1750 - 100 P, where P is the price per pound of cheese. If the local government imposes a price ceiling of $5, what will be the quantity exchanged?

1,000

1,150

2.1The table to the left provides the different output levels of two goods that workers could produce. Assume the firm has 6 workers, with three workers producing handbags and three workers producing phones. If an additional worker changes from handbag production to phone production, what is the marginal cost of producing one additional phone?

1.25 handbags.

Scenario A: Pancakes and waffles are equally easy to produce. Three workers can produce 60 pancakes, four workers can produce 75 pancakes, and five can make 85. Similarly, three workers can produce 60 waffles, four workers can make 75 waffles, and five can make 85 waffles. Suppose you have only eight workers in total, and currently three of them are making pancakes. If you assign a fourth worker to pancake production, what is the opportunity cost of doing so?

10 waffles

Scenario A: The following table shows the number of books (per hour) that can be printed with a fixed amount of capital and the varying numbers of worker-hours shown in the table. Number of worker-hours (L)Books (Q) 22045081201624032400 When 16 worker-hours are used, what is the average product of labor?

15 books

Scenario A: The following table shows the number of books (per hour) that can be printed with a fixed amount of capital and the varying numbers of worker-hours shown in the table. Number of worker-hours (L)Books (Q) 22045081201624032400 When 4 worker-hours are used, what is the marginal product of labor?

15 books

Smart phones have a price elasticity of 1.8. This means that a 10% decrease in the price of smart phones would raise the quantity demanded by ...

18%

1.1 Xiao has a budget of $20. With this budget, Xiao can afford at most 40 candy bars. Alternatively, the entire budget could be spent on 20 cups of tea. What is the opportunity cost of one cup of tea?

2 candy bars.

Morgan has a budget of $30. With this budget, Morgan can afford at most 10sandwiches. Alternatively, the entire budget could be spent on 20sodas. What is the opportunity cost of one sandwich?

2 sodas.

2/3 of a waffle

Scenario I: The following table shows five points on a small economy's production possibilities boundary: Point Production of Coffee (in tons) Production of Cars A 1150 0 B 950 2,000 C 700 4,000 D 400 6,000 E 0 8,000 Going from point B to point C, the economy adds 2000 cars. What is the opportunity cost of doing so?

250 tons of coffee

Scenario D: A perfectly competitive market has the following straight-line demand curve: P = 140 - 2.5 Q, where P is the price in dollars, and Q is the output (per hour). The supply curve is P = 14 + 2 Q. What is the output level produced in this market?

350 pounds

Consider the case of a shared paved sidewalk. To be useful it must run the entire block, but the width depends on the neighbors' willingness to pay for it. The table shows the marginal benefit for the two neighbors living on this block, Noel and Liam, along with the marginal cost of each foot of paved sidewalk. Width of paved sidewalk (ft.) 1 2 3 MBlNoel $125 $100 $ 75 MBLiam $125 $100 $ 75 MC $130 $140 $150 What is the (allocatively) efficient width of the shared paved sidewalk?

3ft.

400

Scenario C: The supply and demand schedules for haircuts are given by the following: Price Quantity Supplied (per week)Quantity Demanded (per week)$00900$10200800$20400700$30600600$40800500$501,000400$601,200300 A new state law says hair salons must charge at least $50 per haircut. What will be the new quantity (of haircuts) actually sold?

400

400 tons of coffee

Scenario II: Mortimer has a total of 5 hours to devote to ironing shirts and polishing shoes. In past weeks, he has used 3 hours for ironing shirts and 2 hours for polishing shoes. Hours per week spent ironing Ironed shirts Hours per week spent polishing shoes Polished shoes 1 15 1 10 2 28 2 18 3 39 3 24 4 48 4 28 5 55 5 30 If Mortimer chooses to devote a fourth hour to ironing shirts, what is the opportunity cost per additional shirt?

8/9 polished shoes

Scenario B: Canela's Farm grows and sells cinnamon, which is sold in a perfectly competitive market. The table below shows short-run cost figures for several levels of output. Output (pounds) Marginal Cost Average Variable Cost Average Total Cost 100 $22 $22.50 $42.50 200 $17 $20 $30 300 $14 $18.33 $25 400 $13 $17 $22 500 $15 $16.50 $20.50 600 $17 $16.50 $19.83 700 $19 $16.79 $19.64 800 $21 $17.25 $19.75 900 $23 $17.83 $20.32 1,000 $27 $18.65 $20.65 If the price of cinnamon is $21 per pound, what is the profit-maximizing output level?

800

Osvaldo's Corn Farm faces a price of $7 per bushel of corn. Given the information below, which of these output levels produces the highest profit? (Careful!) Answer Output Average Variable Cost Marginal Cost A) 0 -- $2 B) 1,000 $10 $3 C) 2,000 $9 $4 D) 3,000 $8 $7

Suppose a firm is producing 100 units of output, with a total cost of $6,000 and total variable cost of $2,000. We conclude that average fixed cost is

AFC = (TC -TVC) / Q = ($6,000 -$2,000) / 100 = $40.

Which of the following events would not shift the demand curve for Sierra Mist (a soft drink)?

Aluminum cans become more expensive.

Which of the following events would NOT lead to a shift in the supply curve for oats?

Average consumer income increases

11.4 Tony's Gas Station and Robert's Gas Station are the only two gas station in the small town of Westville. If Tony and Robert collude to earn more profits, which of the following would be true:

Both limit the amount of gasoline available and raise prices

Scenario A: For many people, peanut butter and jelly are complementary goods. Their ingredients are grown in different parts of the country. For a variety of reasons an unusually large amount of cheap peanuts has become available. What can we expect to happen to the equilibrium price and quantity of jelly?

Both the equilibrium price and the equilibrium quantity will rise.

Which of the following goods or services is excludable but nonrival?

Cable television

Which of the following will NOT shift the supply curve for a product?

Changes in consumers' tastes.

Izzy spends their entertainment budget on some combination of tickets to movies and live concerts. Admission to a movie costs $10, while admission at a concert costs $20. The following table shows five different possible combinations that use up Izzy's entire entertainment budget. CombinationNumber of moviesMarginal Utility of moviesNumber of concerts Marginal Utility of concerts A 12 400 2 1400 B 10 450 3 1350 C 8 500 4 1250 D 6 600 5 1200 E 4 700 6 1050 Which of the five combinations (in the table) maximizes Izzy's utility?

Assume that tastes change so that tennis is no longer as desirable to play as it is now. What would happen to the market for tennis balls?

Demand decreases, the equilibrium quantity falls, and the equilibrium price falls.

2.3Increasing marginal cost is a direct result of __________.

Diminishing marginal returns.

8.5 A long-run average cost curve that rises through all possible levels of output represents which effect?A The law of diminishing marginal returns

Diseconomies of scale

A strategy that is always preferable, no matter what the other player is doing, is called a/an

Dominant strategy

7.2 Currently, the marginal product of labor is 32 units per week. The average product of labor at the current level of output is 48 units per week. If the employer hires one more worker, the marginal product of labor will be 30 units per week. The average product of labor will ______________.

Fall

The following payoff matrix below shows the profits (in thousands of dollars) for two firms (Google and Apple) when producing different levels of output. Apple produces 500 laptops Apple produces 1,000 laptops Google produces 800 laptops G: 100, A: 100 G: 80, A: 130 Google produces 1,200 laptops G: 120, A: 90 G: 90, A: 60 What is the Nash equilibrium in this game?

Google produces 1,200 units and Apple produces 500 units.

A monopolist's demand curveis P = 80 -Q; its marginal cost is MC = 20+2Q. The profit-maximizing quantity is

Here MR=80-2Q. Setting MR=MC means 80-2Q=20+2Q or 60=4Q, or Q = 15.

8.2 The marginal product of an automobile assembly line worker is currently one automobile per month. The wage and benefits of that typical worker is currently $4,000 per month. A new robot will cost $20,000 to rent per month, and its marginal product is four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do?

Hire more labor and buy fewer robots

6.2 If a consumer is currently maximizing her satisfaction, what will happen to the marginal utility of a good when its priceincreases? The marginal utility will __________.

Increase, because the consumer will decrease her consumption of the good.

8.3 Suppose that the cost of capital decreases and the firm must now adjust its inputs accordingly. As the firm adjusts which of the following best describes the effect on inputs? The marginal product of labor will _____ and the marginal product of machines will ______.

Increase; decrease

Coal and natural gas are substitutes. When natural gas becomes more cheaper, what will be the effect on the market for coal?

It will reduce both the equilibrium price and the equilibrium quantity.

Butter and "I Can't Believe It's Not Butter" are substitutes. Now suppose that there is an increase in the price of "I Can't Believe It's Not Butter." What effect will this have on the demand for butter?

It will shift the demand curve to the right

In the short run, how would higher fixed costs affect a firm's output level?

It would lead to no change in output

In one hour of work, Jordan could chop 4 pounds of onions or type 12 pages, while Parker could chop 5 pounds of onions or type 16 pages. Who has the lower opportunity cost per pound of onions chopped?

Jordan

1.2 In a day's work, Chris could bake 12 cakes or weave 20 square feet of carpet, while Kim could bake 16 cakes or weave 24 square feet of carpet. Who has the lower opportunity cost per cake?

Kim

Which of the following is likely to have the most elastic demand?

Levi's Jeans

8.4 Economies of scale happen when increases in output result in _________.

Lower average costs

When a company experiences economies of scale, an increase in output results in ...

Lower average costs

6.1 If David buys more coffee and less ice cream, the marginal utilityof coffee will fall, and the marginal utilityof ice cream willrise.

Marginal utility; fall; marginal utility; rise

If Bomani buys more soda and less ice cream, the ______________ of soda will ______________ , and the ___ of ice cream will ______________.

Marginal utility; fall; marginal utility; rise

In one hour of work, Mary could chop 40 pounds of firewood or type 12 pages, while Abe could chop 50 pounds of firewood or type 16 pages. Who has the lower opportunity cost per pound of firewood chopped?

Mary

2.4If aneconomy is producing at a point inside (below) the production possibilities frontier, which of the following must be true?

More of both goods can be produced.

In the short run, a price-taking firm will produce the output level where

P = MC, provided that P is greater than or equal to AVC.

11.2 In which of the following market structures do sellers act as price takers?

Perfect Competition

At the profit-maximizing output level for a monopolist, the following numbers are observed: P=$35, MR=$25, MC=$25, ATC=$20, Q=200. What is the monopolist's profit?

Profit = (P -ATC) *Q = ($35 -$20) * 200 = $3,000

9.5A perfectly competitive firm is experiencing the following short-run price and costs: P= $0.80, ATC= $2.20, AVC= $$1.30, MC = $0.80. What decision should this firm make in the short run?

Shut down production

4.5In Scenario B, what is therelationship between "rollerball" pens and ball-point pens? They likely are...A)Complementary goods

Substitute goods

What is the allocatively efficient number of streetlamps?

The allocatively efficient quantity is where the sum of our marginal benefits matches the marginal cost. That happens with 3 streetlamps, where $125 + $75 = $200.

Xilong's garage was using 20 units of labor and 20 units of capital to fix 50 cars per day. After it doubled both inputs, its output rose to 87 fixed cars per day. This firm experienced ...

diseconomies of scale.

Ibuprofen and aspirin are both painkillers, but they have different ingredients. An increase in the cost of producing ibuprofen will likely cause which of the following changes in the equilibrium price of aspirin?

The equilibrium price of aspirin will increase.

Rice and pasta are considered substitutes for most consumers. An increase in the cost of producing rice will likely cause which of the following changes in the equilibrium price of pasta?

The equilibrium price of pasta will rise

In a perfectly competitive industry, a typical small firm observed the following numbers in the short run: Price = $11; ATC = $9; AVC = $8, MC = $11. What is likely to happen in the long run?

The industry will expand because of economic profits

Suppose that lumber is sold in a perfectly competitive market, and the following short-run figures are observed for a typical firm: P = $20, AVC = $15, ATC = $18, MC = $20. What is going to happen in the long run?

The industry will expand, as new firms enter the industry.

7.6 What is meant by a firm's capacity?

The output level where ATC are minimized.

What is meant by a firm's capacity?

The output level where ATC are minimized.

Scenario A: For many people, peanut butter and jelly are complementary goods. Their ingredients are grown in different parts of the country. For a variety of reasons an unusually large amount of cheap peanuts has become available. How does this affect the supply and demand curves for jelly?

The supply curve remains in place but the demand curve shifts to the right.

Scenario A: For many people, peanut butter and jelly are complementary goods. Their ingredients are grown in different parts of the country. For a variety of reasons, an unusually large amount of cheap peanuts has become available. How does this affect the supply and demand curves for peanut butter?

The supply curve shifts to the right while the demand curve remains in place.

Which of the following is NOT an assumption of the model of Perfect Competition?

There are barriers to entry.

4.7 In your life, what is likely to be an inferior good? Imagine this scenario: you graduate from Western, get awell-paying full-time job, and suddenly have a lot more money than you did as a student. There are things you will consume more, or more often; these are called "normal goods." But there are also some things that you would buy less often than now, or stop consuming them altogether.

There are many correct answers to this; the answer I hear most frequently is "Top Ramen."

If an individual in this economy had a taxable incomeof $80,000, how much income tax would be due?

This person pays 10% of their first $10,000, or (0.1)*$10,000 = $1,000.They also pay 20% of the next $30,000, or (0.2)*$30,000 = $6,000.The remaining $40,000 are taxed at a rate of 30%, or (0.3)*$40,000 = $12,000.Adding up, the income tax is $1,000 + $6,000 + $12,000 = $19,000.

6.3 Assume that sodas cost $1.50 each, and sandwiches cost $4.50 each. Bradford has $30 to spend. Which of the following combinations will maximize Bradford's utility?

We want the ratio of marginal utilities to match the price ratio.Here the price ratio is $1.5/$4.5 = 0.333.The ratio of marginal utilities is 0.333 for only one of these combinations, and it is B.

4.8During an unusually cool summer, the price of peaches rose substantially while the amount of peaches sold fell. Was this a shift in demand, a shift in supply, or a shift in neither?

Whenever we see an increase in the equilibrium price combined with a decrease in the equilibrium quantity, we know that supply must have shifted to the left (i.e. a decrease in supply).

13.2Which of the following description best characterizes public goods?

You cannot keep non-payers from using the good and their use does not diminish others' ability to use it.

9.3Because there are no entry barriers in Perfect Competition, in the long run

a firm's economicprofits will tend toward zero.

Assume that ice cream is sold in a competitive market, with the typical supply and demand curves. If the price of milk (which is used in the production of ice cream) increases, then the new equilibrium in the market for ice cream will have...

a higher price and a smaller quantity.

Consider a regular supply and demand model for rice. If water(which is needed in the production of rice) becomes scarce, then the new equilibrium will have

a higher price and a smaller quantity.

Relative to a competitive labor market, the outcome in a monopsonisticlabor market will have

a lower level of employment and a lower wage

In the market for a normal good, a fall in average household income leads to a new equilibrium with You Answered

a lower price and a smaller quantity

In a competitive market without a price floor or a price ceiling, a shortage (or excess demand) is eliminated by ...

a price increase

A binding price ceiling leads to

a reduction in economic surplus

We have external costs whenever ...

a third party bears the costs of somebody's actions.

A price floor is only binding if it is set

above the free-market equilibrium price.

Considering a firm's decision-making, the long run refers to a period in which

all factors of production are variable

In an unregulatedbut competitive market, a shortage is eliminated by

an increase in the price

Which of the following will NOT cause a shift in the supply curve of potatoes?

an increase in the price of steaks.

Among the following, which will have the least elastic (or most inelastic) demand?

beverages

6.4 Lou consumes a lot of tea, which is a normal good for this consumer. When the price of tea increases,

both income and substitution effects cause her to consume less tea.

We use the term 'marginal utility' to describe the

change in total satisfaction caused by consumption of an additional unit of a good

An economy in which production decisions are largely determined by a central authority is called a/an

command economy

1.5An economy in which production decisions are largely determined by a central authority is called a/an

command economy.

9.2From the perspective of a firm in perfect competition, marginal revenue is always

constant.

In a supply‐and‐demand graph, the area under the demand curve but above the price shows the amount of ...

consumer surplus.

In microeconomics, the term fixed costs refers to

costs that do not vary with the level of output produced.

In the long run, the typical firm in a perfectly competitive market will have ...

economic profits of $0.

Ayear ago, Wheelzwas using 20 workers and 20 machines to produce 50 skateboards per hour.Recently, afterWheelz used 50% more of all inputs, the output rose to 85skateboards per hour. This firm experienced

economies of scale

With 10 units of capital and 10 units of labor, Swatches' Fabrics produced 300 yards of fabric per day. After both inputs were raised to 15 units of each, the firm produced 500 yards per day. This factory experienced...

economies of scale.

If the price of a phone rises and the total expenditure on the phone falls, the demand for this phone is

elastic.

Economic profits in a perfectly competitive industry usually do not last because of the

entry of new firms.

A private good is...

excludable and rival.

A private goodis

excludable and rivalrous.

Boss and Gouge, the only two landlords in a town, have signed a contract that says neither will make any apartment available for less than $900/month. They are engaged in

explicit collusion.

4.9New technology lowering the costs of production will cause the equilibrium price to _____ and the equilibrium quantity to ______.

fall, rise.

For a given level of output, a firm's costs of production are minimized when ...

its marginal product of labor per dollar equals its marginal product of capital per dollar.

4.10Let's say that in the market for hand sanitizer, supply decreases while at the same time demand increases. The equilibrium price in the market will...

increase

Currently, a bakery's marginal product (MP) of labor is 12 loaves of bread, and the MP of capital is 10 loaves. An hour of labor costs $15, while an hour of capital costs $20. If the firm wants to maintain its current output level and minimize the cost of producing it, this firm should...

increase labor and decrease capital.

When the percentage change in quantity demanded is smaller than the percentage change in price that brought it about, we say demand is...

inelastic

Suppose the price of textbooks increased, and as a result the total expenditure on textbooks increased, too. Then we know that the demand for textbooks was...

inelastic.

With a hlrizontal demand curve, the price elasticity of demand is...

infinite

If a demand curve is a horizontal straight line, then the (absolute value of the) price elasticity of demand is

infinite.

9.1If total revenue is increasing as more units are sold, then marginal revenue must be

positive

When a firm has economic profits of exactly $0, its accounting profits will be ...

positive

When a firm's economic profits are $0, its accounting profits will be ...

positive

If selling more units raises total revenue, then marginal revenue must be ...

positive.

One important goal for an economy is the idea of allocative efficiency. This refers to the question of whether we are ...

producing right amount of each good or service.

2.5 One important goal for an economy is the idea of allocative efficiency. This refers to the question of whether we are

producing the right mix of outputs (goods and services)

One important goal for an economy is the idea of allocative efficiency. This refers to the question of whether we are

producing the right mix of outputs (goods and services).

If marginal cost exceeds average total cost, then producing one additional unit of output will...

raise the average total cost.

The following table contains information on the demand for arabica coffee beans in the months of February and March. Price (dollars per kilogram) Quantity demanded (in kilograms) in February Quantity demanded (in kilograms) in March $3.00 12,000 11,500 $2.75 12,500 12,000 $2.50 13,000 12,500 $2.25 13,500 13,000 $2.00 14,000 13,500 If, in the month of February, the price falls from $2.75 to $2.25 this will

raise the quantity demanded by 1,000 kilograms.

A tax preparer calculated that the demand for their services has a price elasticity of 1.4. If their goal is to increase revenues, they should...

reduce prices.

Suppose that Marginal Cost is currently below Average Cost. Producing one more unit of output will

reduce the average cost.

A tax that takes a lower fraction of income from people with higher incomes is called a

regressive tax

If the price of a normal good changes, the income effect will..

reinforce the substitution effect.

When the price of a normal good changes, the income effect will...

reinforce the substitution effect.

Jorge has 8 employees. The marginal product of the 8th worker is 25 units per week. The average product of the 8 workers is 20 units per week. If Jorge hires one more worker, the marginal product of the 9th worker will be 23 units per week, and the average product of labor will...

rise

If I am currently maximizing my utility, what will happen to the marginal utility of a good I consume when its price increases? The marginal utility will __________.

rise because I will decrease my consumption of the good.

Francine has 10 employees. The marginal product of the 10thworker is 25 units per week. The average product of the 10 workers is 20 units per week. If Francine hires one more worker, the marginal product of the 11th worker will be 23 units per week. The average product of labor will...

rise.

11.3 Suppose that a local Italian restaurant is operating in a monopolistically competitive environment and is maximizing its profit. The price of spaghetti with pesto sauce is $10 and the average total cost is $7. Based on this information, the firm is operating in the .... and we can expect ....

short run, firms to enter the market

Suppose that a local coffee shop is operating in a monopolistically competitive environment and is maximizing its profit. The price of a large latte is $4 and the average total cost is $2.50. Based on this information, the firm is operating in the .... and we can expect ....

short run, firms to enter the market

9.4Consider a perfectly competitive firm. When the market price is greater than both the firm's marginal cost and the average variable cost, the firm ...

should increase its level of output

When it comes to production, the short run is the period when

some of a firm's inputs are fixed.

Stan consumes a lot of milk, which is a normal good for this consumer. When the price of milk increases,

the income effect causes him to consume less milk.

A homeowner decides to buy three large dogs that sleep outdoors and howl at the moon. An external cost associated with this decision is

the neighbors' lost sleep.

When you are moving from one point on your production possibilities frontier to another point on the frontier,

you are giving up production of one good to produce more of another good.

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