Econ Final Set B
The law of diminishing marginal returns
explains why the average total cost and marginal cost curves are U−shaped in the short run.
Average fixed costs of production
falls as long as output is increased.
Refer to the diagram to the right. Curve G approaches curve F because
average fixed costs falls as output rises.
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
At a price of $100, Beachside Canoe Rentals rented 11 canoes. When it increased its rental price to $125, 9 canoes were rented. Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.
0.9
Refer to the table to the right which shows cost data for Lotus Lanterns, a producer of whimsical night lights. What is the total variable cost of production when the firm produces 115 lanterns?
1,157
If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is
2 chairs
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per gyro when she produces 50 gyros using two workers?
2.40
Refer to the table to the right which shows the technology of production at the Matsuko's Mushroom Farm for the month of May. What is the marginal product of the 4th worker?
5 pounds
If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is
700.
The figure to the right shows the cost structure for a firm. If output is 100 units what is the fixed cost of production?
800
Suppose the value of the price elasticity of supply is 4. What does this mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
Which of the following equations is incorrect?
ATC = AVC − AFC
If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
Average cost will fall.
Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve?
It is elastic at high prices and inelastic at low prices.
Refer to the diagrams above. A perfectly inelastic demand curve is shown in
Panel A Vertical
Refer to the diagrams above. A perfectly elastic supply curve is shown in
Panel B. Horizontal
Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peets' Coffee.
Peets' Coffee, coffee, hot beverages
Which of the following statements is true?
The more narrowly we define a market, the more elastic the demand for a product will be.
An explicit cost is defined as
a cost that involves spending money.
Economic cost of production differ from accounting costs in that
economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.
If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is
elastic.
The long run refers to a time period
long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant.
The larger the share of a good in a consumer's budget, holding everything else constant, the
more price elastic is a consumer's demand.
Cross−price elasticity of demand is calculated as the
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor. This is an example of
positive technological change.
When there few close substitutes available for a good, demand tends to be
relatively inelastic.
If the demand for a lifesaving drug were perfectly price inelastic and the price doubled, the quantity demanded would
remain constant.
The law of diminishing marginal returns states
that at some point, adding more of a variable input to a given amount of a fixed input, will cause the marginal product of the variable input to decline.
As output increases
the difference between average total cost and average variable cost decreases.
When the marginal product of labor rises
the marginal cost of production falls.
The production function shows
the maximum output that can be produced from each possible quantity of inputs.
Holding everything else constant, the demand for a good tends to be more elastic
the more substitutes there are for the good.
The price elasticity of demand is equal to
the percentage change in quantity demanded divided by the percentage change in price.
The price elasticity of supply is equal to
the percentage change in quantity supplied divided by the percentage change in price.
The basic activity of a firm is
to use inputs to produce outputs of goods and services.
Average total cost is
total cost divided by the quantity of output produced.
When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increased to $9.4 million. Within this range, the marginal cost of an additional unit of output is
$145.