Econ Exam 2 Assignment 4

The Cost-Benefit Principle tells us that a firm should continue to expand production as long as: the firm's profit is positive. price of the good is greater than its marginal cost. it can sell another unit of the good. the supply curve is upward sloping.

price of the good is greater than its marginal cost.

The percentage change in quantity supplied that results from a 1 percent change in price is known as the: cross-price elasticity of supply. slope of the supply curve. price elasticity of supply cross-price elasticity of demand

price elasticity of supply

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 Output Per Day 0 0 1 40 4 80 9 120 15 160 23 200 When the firm uses 9 employee-hours, its total cost each day is: $126 $64 $56 $176

$176

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 Total Cost Per Day 0 $10 1 $14 2 $19 3 $25 4 $32 5 $40 6 $49 If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then Chris should make ______ mugs per day. 0 4 5 6

4

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

Refer to the table below. The law of diminishing marginal returns becomes evident after ______ units of output are produced. Output Per Day Number of Employee Hours Per Day 0 0 33 1 66 2 99 4 132 7 165 11 33 66 99 132

66

The short run is best defined as: one year or less. a period of time sufficiently short that all factors of production are variable. the period of time between quarterly accounting reports. a period of time sufficiently short that at least one factor of production is fixed.

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

Which of the following is a defining characteristic of all perfectly competitive markets? Each firm in the market faces a perfectly inelastic demand curve. The market demand curve is perfectly elastic. All firms sell the same standardized product. Consumers display strong brand loyalty.

All the firms sell the same standardized product.

A price-taker faces a demand curve that is: vertical at the market price. upward sloping. downward sloping. horizontal at the market price.

Horizontal at the market price

The most important challenge facing a firm in a perfectly competitive market is deciding: whether to maximize its profits. how much to produce. what price to charge. whether to advertise.

How much to produce

The primary objective of most private firms is to: maximize revenue. maximize profit. minimize cost. maximize output.

Maximize profit

Total revenue minus both explicit and implicit costs defines a firm's: gross earnings. profit. marginal earnings. net worth.

Profit

In general, when the price of a variable factor of production increases: total cost falls. the profit maximizing level of output rises. the profit-maximizing price falls. the profit-maximizing level of output falls.

The profit-maximizing level of output falls.

According to the law of diminishing returns, when some factors of production are fixed, in order to increase production by a given amount, a firm will eventually need to add successively: smaller and smaller quantities of the variable factors of production. constant quantities of the variable factors of production. larger and larger quantities of the variable factors of production. larger and larger quantities of the fixed factor of production.

larger and larger quantities of the variable factors of production.

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 Output Per Day 0 0 1 40 4 80 9 120 15 160 23 200 When the firm uses 9 employee-hours, it earns a daily ______ of ______. loss; $64 profit; $64 loss; $114 profit; $114

profit; $64

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 Output Per Day 0 0 1 40 4 80 9 120 15 160 23 200 This firm's fixed cost each day is: $66 $64 $50 $14

$50

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 Day Cleaning Windows Total Number of Windows Cleaned 0 0 1 7 2 11 3 14 4 16 5 17 $14 $8 $7 $2

$7 because: Opportunity cost = Explicit + Implicit cost.

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 Day Cleaning Windows Total Number of Windows Cleaned 0 0 1 7 2 11 3 14 4 16 5 17 A second hour cleaning windows will yield additional earnings of ______. $2 $14 $8 $7

$8 Because 2x11=22 2x7=14. 22-14=8

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 Day Cleaning Windows Total Number of Windows Cleaned 0 0 1 7 2 11 3 14 4 16 5 17 Should John spend a third hour cleaning windows? Yes, because he would earn $28. Yes, because the additional amount he would earn is $14, which is greater than his opportunity cost of $7. No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7. Yes, because the additional amount he would earn is $6, which is better than earning nothing.

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