ECON Ch. 6, 7, 8
A rise in the price of Pepsi that causes a household to shift its purchasing pattern toward Coke and away from Pepsi is the ________ effect of a price change.
substitution
The main decision for a profit maximizing perfectly competitive firm is not what ________ but what ________.
price to charge; level of output to produce
Refer to the information provided in the figure at right to answer the question that follows. This farmer's profit-maximizing level of output is _____ units of output.
1,000
If the marginal product of labor is greater than the average product of labor, then the
average product must be increasing.
The marginal cost curve intersects the ________ at its minimum.
average total cost curve
If the marginal cost curve is below the average variable cost curve, then
average variable costs are decreasing
The law of diminishing marginal utility refers to
a consumer's decrease in additional satisfaction as she consumes more and more units of a good.
When the marginal product of labor ________ the average product of labor, then the average product is maximized.
equals
Marginal cost is ________ average variable cost when ________.
equal to; average variable cost is minimized.
Diminishing marginal utility sets in after the _____ soda per day.
first
In the short run, a firm
has at least one fixed factor of production
Marginal revenue for a perfectly competitive firm is
horizontal
A perfectly competitive industry consists of firms that produce ________ products.
identical
Assuming that households confine their choices to products that improve their well-being, a decline in the price of any product, ceteris paribus:
makes the household unequivocally better off.
The added revenue that a firm takes in when it increases output by one additional unit is ________ revenue.
marginal
Kathy eats five slices of pizza on a Saturday night but admits each slice of pizza doesn't taste as good as the previous one. This suggests that for Kathy the
marginal utility of a slice of pizza is positive but decreasing.
A person maximizes utility when he equalizes the ________ across products.
marginal utility per dollar spent
Joe's Butcher Shop is producing where MR = MC, Joe's Butcher Shop must be
maximizing profits
When total product is maximized, marginal product
is zero but average product is positive.
Average fixed costs
falls as output rises
In the long run,
there are no fixed factors of production.
If a firm's total costs are $80 when 10 units of output are produced and $90 when 11 units of output are produced, the marginal cost of the 11th unit is
$10
Refer to the information provided in the table below to answer the question that follows. Number of Earrings .... If Sherry produces zero earrings, her total fixed costs are
$100
If the average variable cost of the fifth hat is $30, then the total variable cost of five hats is
$150
Jane has $500 a week to spend on clothing (c) and food (f). The price of clothing is $25 and the price of food is $10. What is the equation for Jane's budget constraint?
$25 x Clothing + $10 + Food = $500
Darius has $1,200 a month to spend on clothing (c) and food (f). The price of clothing is $60 and the price of food is $10. What is the equation for Darius's budget constraint, assuming he spends his entire budget?
$60 times× Clothing + $10 times× Food = $1,200
Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?
$800
You own and are the only employee of a company that customizes bicycles. Last year your total revenue was $60,000. Your costs for rent and supplies were $25,000. To start this business you invested an amount of your own capital that could pay you a $45,000 a year return. Your economic profit last year was
-10,000
A lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day, respectively. The marginal product of the fourth worker is
2
The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are
3,000
You are the owner and only employee of a company that sets odds for sporting events. Last year you earned a total revenue of $100,000. Your costs for rent and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a return of $20,000 a year. Your economic profit last year was
30,000
You own and are the only employee of a company that customizes bicycles. Last year your total revenue was $60,000. Your costs for rent and supplies were $25,000. To start this business you invested an amount of your own capital that could pay you a $45,000 a year return. Your accounting profit last year was
35,000
At the Pampered Pet Salon the marginal products of the first, second, and third workers are 20, 16, and 10 dogs washed, respectively. The total product (number of dogs washed) of the two worker is
36
At the Larson Bakery the marginal products of the first, second, and third salesclerks are 20, 17, and 11 customers served, respectively. The total product (number of customers served) of the two salesclerks is
37
A lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day, respectively. The average product of labor with three workers is
4
Assume the total product of three workers is 120 and the total product of four workers is 160. The average product of four workers is ________, and the marginal product of the fourth worker is ________.
40;40
A lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day, respectively. The marginal product of the second worker is
5
You own and are the only employee of a company that customizes bicycles. Last year your total revenue was $60,000. Your costs for rent and supplies were $25,000. To start this business you invested an amount of your own capital that could pay you a $45,000 a year return.
70,000
The profit-maximizing level for all firms, regardless of industry structure, is the output level where
MC=MR
A utility-maximizing consumer buys so as to make ________ for all pairs of goods.
MUx Px ------ = ------ MUy Py
The formula for AVC is
TVC/q
The version of the law of diminishing returns that applies to production
applies only in the short run
If the marginal product of labor is less than the average product of labor, then the
average product must be decreasing. C. marginal product must be decreasing. D. Both B and C
Total variable cost ________ as output increases, and total fixed cost ________ as output increases.
increase, does not change
Marginal cost
is the increase in total cost resulting from producing one more unit.
________ are likely a fixed cost of a firm.
lease payments for office space
If an individual perfectly competitive firm charges a price above the industry equilibrium price, it will
not sell any of what it produces
In perfect competition,
price always equals marginal revenue.
The process by which inputs are combined, transformed, and turned into outputs is called
production
Total revenue minus total cost is equal to
profit
Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. It follows that producing one more robot will cause this firm's
profits to increase
If an individual perfectly competitive firm charges a price below the industry equilibrium price, it will
sell all that it produces but gain less revenue than competing firms will.
In the short run, as output increases,
the difference between average total cost and average variable cost decreases.
A firm has no fixed factors of production in
the long run
Tyrell is consuming X and Y so that he is spending his entire income and MUx/Px = 7 and MUy/Py = 7. To maximize utility, he should consume
the same amount of X and Y since he is already maximizing utility.
A fall in the price of a product might cause a household to shift its purchasing pattern away from substitutes toward that product. This shift is called:
the substitution effect of a price change.
Total utility is
the total amount of satisfaction yielded by the consumption of a good or service.
A lawn service company has the following production possibilities. With one, two, three, and four workers, the company can mow 4, 9, 12, and 14 lawns per day, respectively. Diminishing returns to labor set in with the _____ worker.
third
Profit-maximizing firms want to maximize the difference between
total revenue and total cost
If labor is a variable input in production, the law of diminishing marginal returns implies that in the short run
labor's marginal product decreases after a certain point.
You own a building that has four possible uses: a tailor shop, a pharmacy, a sports bar, and an antique mall. The building's value in each use is $4,000; $6,000; $8,000; and $10,000, respectively. You decide to open a sports bar. The opportunity cost of using this building for a sports bar is
$10,000, the value if you rented the building to someone else to use as an antique mall.
Jim has $600 a week to spend on clothing and food. The price of clothing is $30 and the price of food is $5. The clothing and food pairs in Jim's choice set include ________ units of clothing and ________ units of food.
10; 60
Marginal utility is the ________ satisfaction gained by consuming ________ of a good.
additional; one more unit
Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $15. To maximize profits, Exotic Fruit should sell _____ fruit basket(s) and their profit is _____.
five; −$21
If the price of a normal good falls, the substitution effect suggests that we will purchase ________ of that good, and the income effect suggests that we will purchase ________ of that good.
more; more