Econ 2303 Chapter 6
The license ▼ decreases does not change increases the short-run profit-maximizing quantity of candles to produce.
does not change
The last firm to enter earns ___________.
zero economic profits
Using your graph, calculate the producer surplus in this market. Producer surplus is
.5(base of triangle x height of triangle) = 8
Even though the price of an acre of land increased from $6,000 to $10,000, the quantity supplied did not change. The price elasticity of supply is
0
When the price of bottled water increased from $3.003.00 to $4.004.00, the quantity supplied by a firm increased from 200200 to 216216 bottles. The price elasticity of supply is
0.27
When the price of bottled water increased from $2.50 to $3.00, the quantity supplied by a firm increased from 100 to 110 bottles. The price elasticity of supply is nothing.
0.52
For this firm to maximize profits, it should _____ T-shirts.
100
The graph on the right shows the cost curves of a perfectly competitive firm. If the market price is $14 per unit, then this firm will produce approximately ▼ 12 4 0 units and will have ▼ negative zero positive economic profits.
12; positive
Larry Krovitz is a salesman who works at a used-car showroom in Sydney, Australia. It's the last week of July, but he is yet to meet his sales target for the month. A customer, Harold Kumar, who wants to buy a Ford Fiesta, walks into the showroom. After taking one of the cars for a test drive, Harold decides to buy it. While $11,000 was the least that Larry would have been willing to accept for that car, he quotes a price of $17,000. After some bargaining, the car is sold for $14,000. In this case, the producer surplus is $_.
17,000-14,000=3,000
If the cost of the car to Larry is $11,000, his profit is $______.
17,000-14,000=3000
George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up sevenseven houses per year. Each earns a wage of $40 comma 00040,000 per year. If George and Harriet work together and fix up sevenseven old houses each year, their average cost is $ nothing.
40,000 x 2= 80,000 80,000/7= 11,429
Fixing up old houses requires plumbing and carpentry. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is $40 comma 00040,000 per year. Jack's average total cost of fixing up twotwo old houses is $ nothing.
40,000/2= $20,000
Using the same table , what is the marginal cost of the firstfirst unit produced? A. 1111. B. 1515. C. 55. D. 0.
5
Crabby Bob's is a seafood restaurant in a beach resort in Delaware. Crabby Bob's earns a profit each month from May through September, suffers losses in October, November, and April but remains open, and remains closed from December through March. Given that the restaurant market in this town is perfectly competitive, which of the following must be true? (Check all that apply.) A. From May through September, Crabby Bob's average revenue is above average total cost. B. From December through March, Crabby Bob's average revenue is below ATC but is greater than AVC. C. From December through March, Crabby Bob's average revenue is below average variable cost. D. In April, October, and November, Crabby Bob's average revenue is above average total cost. E. In April, October, and November, Crabby Bob's average revenue is below ATC but is greater than AVC.
A,C,E
Is producer surplus always equal to profit? A. Producer surplus is equal to profit when marginal cost is equal to average total cost. B. Producer surplus is equal to profit when marginal cost is equal to fixed costs. C. Producer surplus can never equal profit, since profit and producer surplus are based off of different curves. D. Producer surplus will always equal profit, since both profit and producer surplus measure the same concept.
A. Producer surplus is equal to profit when marginal cost is equal to average total cost.
Suppose the market demand for this good declines substantially and the price falls to $8 per unit. If the price is $8 per unit, the firm should ___________. A. produceproduce, because price is greatergreater than the average variable cost of production. B. produce, because price is greater than the average fixed cost of production. C. produce, because average fixed costs are decreasing. D. not producenot produce, because total revenue is greatergreater than the total variable costs of production.
A. produceproduce, because price is greatergreater than the average variable cost of production.
Using your graph (a demand curve), the slope of the industry demand curve demonstrates __________. A. the realistic assumption that the Law of Demand holds for the good under consideration. B. the Law of Diminishing Returns holds for this good. C. the realistic assumption that the quantity demanded of a good will drop as the price of that good drops. D. the fact that the assumptions of perfect competition are not realistic and therefore do not hold for the industry as a whole.
A. the realistic assumption that the Law of Demand holds for the good under consideration.
Is it possible for accounting profit to be positive and economic profit to be negative? A. Yes, this could occur if explicit costs were modest and implicit costs were high. B. Yes, this could occur if implicit costs were modest and explicit costs were high. C. No, economic profit must always be larger than accounting profit. D. No, economic profit and accounting profit will always end up being the same.
A. Yes, this could occur if explicit costs were modest and implicit costs were high.
What is the difference between accounting profit and economic profit? A. Accounting profit subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs. B. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs. C. Accounting profit only subtracts implicit costs from total revenue, while economic profit only subtracts explicit costs. D. Economic profit only subtracts implicit costs from total revenue, while accounting profit only subtracts explicit costs.
B. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs.
How would the introduction of legal or technical barriers to entry affect the long-run equilibrium in a perfectly competitive market? A. It would create downward pressure on prices, causing firms to exit the market. B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run. C. It would make all firms in the market less competitive, since any artificial barrier hurts the market overall. D. There would be no effect on the market, since there are no barriers to entry in perfectly competitive markets.
B. It would reduce any downward pressure on prices from entry and allow economic profits in the long run.
Which of the following is true about how a firm in a competitive market decides what level of output to produce in order to maximize its profit? A. Produce up to the point where price equals average total cost. B. Produce until the additional revenue from one extra unit equals the additional cost of each unit. C. Produce until marginal cost is furthest below average total cost. D. All of the above.
B. Produce until the additional revenue from one extra unit equals the additional cost of each unit.
Which of the following equations calculates the profits of a firm? A. Total costsminus−Fixed costs B. Total revenuesminus−Total costs C. Total revenuesminus−Fixed costs D. Total revenues + Total costs 6.2.4 concept question
B. Total revenuesminus−Total costs
You are planning to build an apartment building. Your market research department estimates that your revenues will be $800 comma 000800,000. Your engineering department estimates the cost will be $600 comma 000600,000. You started construction and spent $150 comma 000150,000 to build the foundation when the recession begins. This causes the market research department to revise its revenue estimates downward to $449 comma 950449,950. Should you complete the apartment building? A. No, the cost to build is still 600,000 (which includes the $150,000 you spent already and the $450,000 remaining) $449,950. B. No, the remaining cost to build is $450,000 and you only expect to earn $449,950; you will ignore the 150,000 spent since it is a sunk cost. C. Yes, the $150,000 is a fixed cost of production so you must complete the building to cover these fixed costs. D. Yes, since you have already spent $150,000, you cannot stop construction since that money would be wasted.
B. No, the remaining cost to build is $450,000 and you only expect to earn $449,950; you will ignore the 150,000 spent since it is a sunk cost.
Minimum efficient scale is the lowest level of output where long-run average total cost is minimized. Firm 3's minimum efficient scale occurs when the output is ______ unit(s). A. 1. B. 3. C. 2. D. 4.
B. 3
The graph to the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) curves for a firm in a perfectly competitive market. In order to maximize profits, this firm should produce approximately _________ units of output. A. 15 B. 7 C. 11 D. 8
C. 11
Under which of the following examples is it likely that the accounting profit is positive and the economic profit is negative? A. Using a restaurant you purchased to sell Mexican food instead of Italian food. B. Opening a bank branch near a university campus. C. If you open an amusement park in the middle of New York City. D. Such a scenario, where accounting cost is positive and economic profit is negative, is not possible.
C. If you open an amusement park in the middle of New York City.
If demand shifts to the left (decreases), the last firm that entered ____________. A. earns positive economic profits, leading to new firms entering the market. B. is indifferent between producing or exiting the market and so the outcome is indeterminate. C. earns negative economic profits and so exits the market. D. earns negative economic profits and thus undertakes cost-cutting measures to return to profitability.
C. earns negative economic profits and so exits the market.
Suppose the market demand for this good declines substantially and the price falls to $44 per unit. If the price is $44 per unit, the firm should ___________. A. produce, because price is greater than the average fixed cost of production. B. produce, because average fixed costs are decreasing. C. not produce, because price is less than the average variable cost of production. D. produce, because total revenue is lessless than the total variable costs of production.
C. not produce, because price is lessless than the average variable cost of production.
Using what you have found in the previous two questions, what would be the firm's average variable costs if it produced at the profit-maximizing quantity? A. $100. B. $400400. C. $10. D. $0.10.1.
C. $10.
The graph on the right shows the cost curves for a random firm competing in a perfectly competitive market. Given the shape of the curves, we know that curve A represents __________, curve B represents __________, and curve C represents _________. A. AFC; ATC; AVC B. ATC; AVC; MC C. MC; ATC; AVC D. MC; AVC; AFC
C. MC; ATC; AVC
Suppose one firm accounts for 55 percent of the global market share for a product, while 147 other firms account for the remaining 45 percent of the market. With such a large number of buyers and sellers, is this market likely to be competitive? A. Yes, markets are only competitive if there is at least one firm large enough to act as a price setter for all other firms. B. Yes, a competitive market is characterized by having many firms, regardless of size. C. No, even though there are many firms in the market, there is one firm large enough to influence the market price. D. No, even with such a large number of buyers and sellers, there must be barriers to entry for this market to stay competitive.
C. No, even though there are many firms in the market, there is one firm large enough to influence the market price.
Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run? A. Yes, firms should keep producing until price falls below marginal cost. B. No, a firm should never produce if its price falls below average total cost. C. Yes, but only if price stayed above average variable cost. D. Yes, but only if price was below average variable cost.
C. Yes, but only if price stayed above average variable cost.\ check out screenshot 6.3 review problem 9
Which of the following equations represents the firm's average variable cost? A. 400+0.1q. B. 400/q + 0.1q C. 0.1q2. D. 0.1q.
D. 0.1q.
Salmon fishing in Alaska is a seasonal business; May through September is the best time to bait salmon and halibut. Toland Fisheries, a small commercial fishery, recorded its highest ever catch last year. They started this year's fishing season with the same number of workers and equipment. With the new season also starting well, Toland has increased hiring substantially. However, the fishery did not make any additional investment in trawlers and other fishing equipment. Other things remaining unchanged, what is likely to happen to the marginal product of each new worker in the short run? A. It will change cyclically, meaning that it will cycle up and down as more workers are hired. B. It will be increasing at an increasing rate, meaning each additional worker will have a higher marginal product of labor than the previous one hired. C. It will be the same as the previous workers hired, meaning each additional worker will have the same marginal product of labor as the previous one hired. D. It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.
D. It will be increasing at a decreasing rate, meaning each additional worker will have a lower marginal product of labor than the previous one hired.
In the long run, if Toland Fisheries would like to increase the productivity of its workers, it will need to ____________. A. charge more for its services. B. charge less for its services. C. hire more workers. D. increase its amount of capital and equipment.
D. increase its amount of capital and equipment.
Suppose the market demand for this good declines substantially and the price falls to $2 per unit. If the price is $2 per unit, the firm should ___________. A. produce, because average fixed costs are decreasing. B. produceproduce, because total revenue is lessless than the total variable costs of production. C. produce, because price is greater than the average fixed cost of production. D. not producenot produce, because price is lessless than the average variable cost of production.
D. not producenot produce, because price is lessless than the average variable cost of production.
Suppose the market for T-shirts in the country of Argonia is perfectly competitive, and the price of a T-shirt is $20. A producer in this market has the following total cost and marginal cost functions: TC(q)=400+0.1q2 MC(q)=0.2q What part of the total cost function represents fixed costs? A. 0.2 B. 0.1q2 C. 0.1 D. 400
D. 400
Supply curves can have varying degrees of price elasticity. Show graphically a perfectly elastic, a perfectly inelastic, and a unit-elastic supply curve. 1.) Using the line drawing tool, draw a supply curve that is perfectly elastic. Label your curve 'SPerfectly Elastic'. 2.) Using the line drawing tool, draw a supply curve that is perfectly inelastic. Label your curve 'Upper S Subscript Perfectly InelasticSPerfectly Inelastic'. Carefully follow the instructions above and only draw the required object. 3.) Using the line drawing tool, draw a supply curve that is unit-elastic. Label your curve 'Upper S Subscript Unit minus ElasticSUnit−Elastic'.
Perfectly elastic: straight horizontal Perfectly inelastic: vertical unit elastic: start at (0,0) and go up with a slope of 1
Is the firm making any profit when it produces at the profit-maximizing output level? The firm would make $____
PxQ= 20x100 = $2,000 TC(100)=400 + 0.1(100)^2= 1,400 2,000-1,400=600
Suppose there is a product that is being sold in a perfectly competitive market. If the demand for the product decreases, producer surplus will ▼ decrease increase since this change results in a lowerlower price, which means there is ▼ more less area between the supply curve and the market price for the good.
decrease; less
The higher minimum wage ____________ the short-run profit-maximizing quantity of candles to produce.
decreases
According to your graph, when some sellers enterenter a competitive market, the equilibrium price ▼ and the equilibrium quantity ▼ .
decreases; increases
Some cities have much stricter zoning laws and regulatory controls than other cities (zoning laws regulate the uses of land in a city). A recent study found that increases in the demand for housing in cities with strict zoning laws led to large increases in the price of housing. It also claimed that in cities with lax zoning laws, increases in the demand for housing led to much smaller increases in the price of housing. This likely occurred since stricter zoning laws and regulatory controls __________. A. impact the demand for construction, causing the demand curve to decrease (shift left). B. limit the availability of land for construction, causing the price elasticity of supply to increase (become more elastic). C. impact the demand for construction, causing the demand curve to increase (shift right). D. limit the availability of land for construction, causing the price elasticity of supply to decrease (become more inelastic).
Stricter zoning laws and regulatory controls on residential construction limit the availability of land in the housing market. A restriction on the total land available for housing is likely to reduce the price elasticity of supply for housing. So, as the demand for housing increases, supply is unable to fully respond to the increased demand, leading to a steeper increase in prices. D. limit the availability of land for construction, causing the price elasticity of supply to decrease (become more inelastic).
When this firm produces the profit-maximizing quantity of T-shirts, its average total cost equals $___.
TC(100)= 400+0.1(100)^2=1,400 1,400/total cost of 100 = 14
To the right is the average total cost curve for a competitive firm. What is the relationship between the average total cost curve (ATC) and the marginal cost curve (MC)? 6.2 review Question 4
When the ATC curve is decreasing, we know that the MC curve is below the ATC curve, and when the ATC curve is increasing, we know that MC is above the ATC curve .
The International Space Station (ISS) is a habitable satellite that was launched by NASA and space agencies of other countries. In 2009, NASA was considering shutting down the ISS within the next 5 to 6 years. Among those who were opposed to this idea of de-orbiting the ISS was Senator Bill Nelson, who was quoted as saying "If we've spent a hundred billion dollars, I don't think we want to shut it down in 2015." The "hundred billion dollars" that Senator Nelson is referring to is known as ▼ a sunk cost an opportunity cost a marginal cost .
a sunk cost
A firm is experiencing economies of scale when its ▼ average total cost total cost marginal cost declines as more output is produced. for more: screenshot 6.text problem 12
average total cost
Consider a market where there are many firms with different cost structures. When determining which firms enter the market first, we look at ____________. A. marginal cost. B. fixed costs. C. average variable cost. D. average total cost.
average total cost
In a perfectly competitive market, a seller ▼ can cannot choose to raise the price of its good since all sellers in the market produce ▼ different goods identical goods , so raising the price would result in ▼ earning long-run profits losing all its customers.
cannot identical goods losing all its customers
The graph on the right shows the long-run average total cost curve for a perfectly competitive firm. Refer to points A, B, and C on the graph and identify where the firm would experience economies of scale, constant returns to scale, and diseconomies of scale. At point A, the firm experiences ▼ constant returns to scale economies of scale diseconomies of scale At point B, the firm experiences ▼ economies of scale constant returns to scale diseconomies of scale At point C, the firm experiences ▼ economies of scale constant returns to scale diseconomies of scale 6.5 Review question 12
economies of scale constant returns to scale diseconomies of scale
Given this information, the senator's comment is ▼ flawed accurate , since these types of costs ▼ should not should affect current and future decisions.
flawed; should not
When comparing the accounting profit with economic profit, it must be true that the accounting profit is ▼ less than or equal to exactly equal to greater than or equal to economic profit.
greater than or equal to
According to your graph, when some sellers exitexit a competitive market, the equilibrium price ▼ decreases increases and the equilibrium quantity ▼ decreases increases .
increase; decreases
accounting profit
is the difference between a firm's revenues and explicit costs.
Economic profit
is the difference between a firm's revenues and the sum of its implicit and explicit costs.
Using the same tabl , what is the marginal cost of the secondsecond unit produced? A. 5 B. 15 C. 11 D. 0.
mc= Change in total cost/change in output 11
Calculate the price elasticity of supply in the following examples, then determine if supply is relatively elastic or inelastic, or perfectly elastic or inelastic. When the price of a pen increased from $2.502.50 to $3.003.00, the quantity supplied by a firm increased from 100100 to 150150 pens. The price elasticity of supply is nothing.
midpoint formula 2.20
In this case, the price elasticity of supply is ▼ perfectly elastic perfectly inelastic relatively elastic relatively inelastic .
perfectly inelastic
In this case, the price elasticity of supply is ▼ perfectly inelastic relatively inelastic relatively elastic perfectly elastic .
perfectly inelastic
Producer surplus is the difference between the ▼ and the ▼ supply curve price consumers pay demand curve chapter 6. review Question 10
price consumers pay; supply curve
Producer surplus is the difference between the ▼ demand curve price consumers pay and the ▼ price consumers pay demand curve supply curve The graph on the right depicts the supply and demand curves for a market in competitive equilibrium. 1.) Using the triangle drawing tool, highlight the area on the graph that represents producer surplus. Label this area 'PS'. 6.4 Review Question 10
price consumers pay; supply curve
All firms in a perfectly competitive market are said to be __________. A. price leaders. B. price neutral. C. profitable in the long run. D. price takers.
price takers
In this case, the price elasticity of supply is ▼ relatively inelastic relatively elastic perfectly elastic perfectly inelastic .
relatively elastic (it is greater than 1)
In this case, the price elasticity of supply is
relatively inelastic
In this case, the price elasticity of supply is ▼ relatively inelastic perfectly elastic relatively elastic perfectly inelastic .
relatively inelastic (it is less than 1)
Candle makers in Town B do not need a license. Town B, however, has passed a new minimum wage law that increasesincreases the minimum wage that candle makers in Town B pay their workers. Assume that the candle market is perfectly competitive. i. Does this higher minimum wage shift a candle maker's short-run average fixed cost curve? ii. Does this higher minimum wage shift a candle maker's short-run average variable cost curve? iii. Does this higher minimum wage shift a candle maker's short-run profit-maximizing choice of the number of candles to produce? With the higherhigher minimum wage, the short-run average fixed cost curve ▼ shifts up shifts down remains unchanged and the short-run average variable cost curve ▼ shifts up shifts down remains unchanged.
remains unchanged; shifts up
If some sellers exitexit a competitive market, how will this affect its equilibrium? 1.) Using the 3-point drawing tool, show the impact if some sellers exitexit a competitive market. Label your new curve appropriately. 2.) Using the point drawing tool, show the new equilibrium price and quantity. Label this point 'A'.
screenshot 6. Review Question 14
If some sellers enterenter a competitive market, how will this affect its equilibrium? 1.) Using the 3-point drawing tool, show the impact if some sellers enterenter a competitive market. Label your new curve appropriately. 2.) Using the point drawing tool, show the new equilibrium price and quantity. Label this point 'A'.
screenshot 6.14
click not he table icon
screenshot 6.2.2
Every candle maker in Town A must have a license. The cost of a license is the same regardless of the number of candles a business produces. Assume that the candle market is perfectly competitive. i. Does this license shift a candle maker's short-run average fixed cost curve? ii. Does this license shift a candle maker's short-run average variable cost curve? iii. Does this license shift a candle maker's short-run profit-maximizing choice of the number of candles to produce? With the license, the short-run average fixed cost curve ▼ shifts down shifts up remains unchanged and the short-run average variable cost curve ▼ shifts up remains unchanged shifts down.
shifts up; remains unchanged
If the total fixed costs of production increase, then the average total cost curve ▼ shifts down remains unchanged shifts up , the average variable cost curve ▼ shifts up remains unchanged shifts down , and the marginal cost curve ▼ shifts down remains unchanged shifts up.
shifts up; remains unchanged; remains unchanged
This problem tells us that one of the sources of economies of scale is ▼ fixed costs specialization diminishing returns .
specialization