MICRO exam 2
implicit cost
A cost that represents the value of resources used in production for which no actual (monetary) payment is made.
long-run average total cost (LRATC) curve
A curve that shows the lowest (unit) cost at which a firm can produce any given level of output.
public franchise
A firm's government-granted right that permits the firm to provide a particular good or service and that excludes all others from doing so.
long-run (industry) supply (LRS) curve
A graphic representation of the quantities of output that an industry is prepared to supply at different prices after the entry and exit of firms are completed.
cross elasticity of demand
A measure of the responsiveness in quantity demanded of one good to changes in the price of another good.
Income elasticity of demand
A measure of the responsiveness of quantity demanded to changes in income.
price elasticity of demand
A measure of the responsiveness of quantity demanded to changes in price.
Price elasticity of supply
A measure of the responsiveness of quantity supplied to changes in price.
long run
A period during which all inputs in the production process can be varied. (No inputs are fixed.)
short run
A period during which some inputs in the production process are fixed.
monster
A person in a business firm who coordinates team production and reduces shirking.
second-degree price discrimination
A price structure in which the seller charges a uniform price per unit for one specific quantity, a lower price for an additional quantity, and so on.
price discrimination
A price structure in which the seller charges different prices for the product it sells and the price differences do not reflect cost differences.
third-degree price discrimination
A price structure in which the seller charges different prices in different markets or charges different prices to various segments of the buying population.
perfect price discrimination
A price structure in which the seller charges the highest price that each consumer is willing to pay for the product rather than go without it.
price taker
A seller that does not have the ability to control the price of the product it sells; the seller "takes" the price determined in the market.
price searcher
A seller that has the ability to control, to some degree, the price of the product it sells.
perfect competition
A theory of market structure based on four assumptions: (1) There are many sellers and buyers; (2) the sellers sell a homogeneous good; (3) buyers and sellers have all relevant information; (4) entry into, and exit from, the market is easy.
monopoly
A theory of market structure based on three assumptions: There is one seller, it sells a product that has no close substitutes, and the barriers to entry are extremely high.
A perfectly competitive firm will continue to increase its production as long as marginal a.cost is rising. b.revenue is rising. c.revenue is less than marginal cost. d.revenue is greater than marginal cost.
d
sunk cost
A cost incurred in the past that cannot be changed by current decisions and therefore cannot be recovered.
explicit cost
A cost incurred when an actual (monetary) payment is made.
rent seeking
Actions of individuals and groups that spend resources to influence public policy in the hope of redistributing (transferring) income to themselves from others.
Utils
An artificial construct used to measure utility.
business firm
An entity that employs factors of production (resources) to produce goods and services to be sold to consumers, other firms, or the government.
decreasing-cost industry
An industry in which average total costs decrease as output increases and increase as output decreases when firms enter and exit the industry, respectively.
constant-cost industry
An industry in which average total costs do not change as (industry) output increases or decreases when firms enter or exit the industry, respectively.
increasing-cost industry
An industry in which average total costs increase as output increases and decrease as output decreases when firms enter and exit the industry, respectively.
variable input
An input whose quantity can be changed as output changes.
fixed input
An input whose quantity cannot be changed as output changes.
law of diminishing marginal returns
As ever larger amounts of a variable input are combined with fixed inputs, the marginal physical product of the variable input eventually will decline.
fixed costs
Costs that do not vary with output; the costs associated with fixed inputs.
variable costs
Costs that vary with output; the costs associated with variable inputs.
Arbitrage
Buying a good at a low price and selling it for a higher price.
Interpersonal Utility Comparison
Comparing the utility one person receives from a good, service, or activity with the utility another person receives from the same good, service, or activity.
Marginal utility
The additional utility a person receives from consuming an additional unit of a good.
economies of scale
Economies that exist when inputs are increased by some percentage and output increases by a greater percentage, causing unit costs to fall.
profit
The difference between total revenue and total cost.
minimum efficient scale
The lowest output level at which average total costs are minimized.
residual claimant
Persons who share in the profits of a business firm.
total revenue (TR)
Price times quantity sold.
profit maximization rule
Profit is maximized by producing the quantity of output at which MR=MC.
shirking
The behavior of a worker who is putting forth less than the agreed-to effort.
marginal physical product (MPP)
The change in output that results from changing the variable input by one unit, with all other inputs held fixed.
marginal revenue
The change in total revenue (TR) that results from selling one additional unit of output (Q).
long-run competitive equilibrium
The condition in which P=MC=SRATC=LRATC. Economic profit is zero, firms are producing the quantity of output at which price is equal to marginal cost, and no firm has an incentive to change its plant size.
natural monopoly
The condition in which economies of scale are so pronounced that only one firm can survive.
income unit elastic
The condition that exists when the percentage change in quantity demanded of a good is equal to the percentage change in income.
income elastic
The condition that exists when the percentage change in quantity demanded of a good is greater than the percentage change in income.
income inelastic
The condition that exists when the percentage change in quantity demanded of a good is less than the percentage change in income.
diseconomies of scale
The condition when inputs are increased by some percentage and output increases by a smaller percentage, causing unit costs to rise.
constant returns to scale
The condition when inputs are increased by some percentage and output increases by an equal percentage, causing unit costs to remain constant.
perfectly elastic demand
The demand that exists when a small percentage change in price causes an extremely large percentage change in quantity demanded (from buying all to buying nothing).
perfectly inelastic demand
The demand that exists when quantity demanded does not change as price changes.
unit elastic demand
The demand that occurs when the percentage change in quantity demanded is equal to the percentage change in price. Quantity demanded changes proportionately to price changes.
elastic demand
The demand that occurs when the percentage change in quantity demanded is greater than the percentage change in price. Quantity demanded changes proportionately more than price changes.
inelastic demand
The demand that occurs when the percentage change in quantity demanded is less than the percentage change in price. Quantity demanded changes proportionately less than price changes.
economic profit
The difference between total revenue and total cost, including both explicit and implicit costs.
market structure
The environment whose characteristics influence a firm's pricing and output decisions.
consumer equilibrium
The equilibrium that occurs when the consumer has spent all of his or her income and the marginal utilities per dollar spent on each good purchased are equal: MUA/PA=MUB/PB=⋯=MUZ/PZ, where the letters A-Zrepresent all the goods a person buys.
short-run market (industry) supply curve
The horizontal sum of all existing firms' short-run supply curves.
X-inefficiency
The increase in costs, due to the organizational slack in a monopoly, resulting from the absence of competitive pressure to push costs down to their lowest-possible level.
deadweight loss of monopoly
The net value (the value to buyers over and above the costs to suppliers) of the difference between the competitive quantity of output (where P=MC ) and the monopoly quantity of output (where P>MC ); the loss due to not producing the competitive quantity of output.
Diamond-Water Paradox
The observation that things with the greatest value in use sometimes have little value in exchange and things with little value in use sometimes have the greatest value in exchange.
short-run (firm) supply curve
The portion of the firm's marginal cost curve that lies above the average variable cost curve.
market coordination
The process in which individuals perform tasks, such as producing certain quantities of goods, on the basis of changes in market forces, such as supply, demand, and price.
productive efficiency
The situation in which a firm produces its output at the lowest-possible per-unit cost (lowest ATC).
resource allocative efficiency
The situation in which firms produce the quantity of output at which price equals marginal cost: P=MC.
total utility
The total satisfaction a person receives from consuming a particular quantity of a good.
Refer to the exhibit. The average fixed cost at 3 units is ____________ and the average variable costs at 5 units are ______________. Output Total Cost 0 $30 1 40 2 60 3 90 4 110 5 125 6 135 7 140 a.$10, $19 b.$20, $22 c.$18, $5 d.$11, $21 e.There is not enough information to answer the question.
a
Average Total Cost (ATC), or Unit Cost
Total cost divided by quantity of output: ATC=TC/Q
average total cost (ATC)
Total cost divided by quantity of output: ATC=TC/Q
average fixed cost (AFC)
Total fixed cost divided by quantity of output: AFC=TFC/Q.
average-marginal rule
When the marginal magnitude is above the average magnitude, the average magnitude rises; when the marginal magnitude is below the average magnitude, the average magnitude falls.
normal profit
Zero economic profit, the level of profit necessary to keep resources employed in a firm. A firm that earns normal profit is earning revenue equal to its total costs (explicit plus implicit costs).
10. If total utility of a good is high while the price of the good is low, it is likely that the good a. is plentiful. b. is inferior. c. is rare. d. has high marginal utility.
a
11. The MU/P ratio for good X is greater than the MU/P ratio for good Y. To achieve consumer equilibrium, the consumer reallocates dollars from the purchase of good Y to the purchase of good X. If the law of diminishing marginal utility holds, the marginal utility of good X __________ and the marginal utility of good Y __________. a. falls, rises b. rises, falls c. rises, stays constant d. falls, stays constant e. stays constant, rise
a
14. If the average variable cost curve (AVC) is falling, a. the MC curve must be below it. b. marginal cost is greater than average variable cost .c. the MC curve is necessarily falling. d. the MC curve is necessarily horizontal (neither rising nor falling). e. the MC curve is necessarily rising.
a
18. According to economists Alchian and Demsetz, firms are formed when a. the sum of what individuals can produce as a team is greater than the sum of what individuals can produce working alone. b. the sum of what individuals can produce working alone is greater than the sum of what individuals can produce as a team. c. what each individual can produce as a member of a team is less than what each individual can produce working alone. d. the sum of what individuals can produce as a team is equal to the sum of what individuals can produce working alone.
a
22. At the quantity of output for which total revenue equals total cost, a. economic profit is zero. b. cost is minimized .c. cost is maximized. d. quantity is minimized. e. profit is maximized.
a
23. An increasing-cost industry is characterized by a. an upward-sloping long-run supply curve. b. a downward-sloping long-run supply curve. c. a perfectly elastic long-run supply curve. d. perfectly elastic short-run and long-run supply curves. e. a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve.
a
4. Suppose the demand for a particular good is perfectly inelastic and the government decides to impose a tax on the production of this good. Who will pay the greater share of such a tax? a. The buyers will pay the entire share .b. The sellers will pay the entire share. c. The buyers and the sellers will pay equal shares d. The sellers will bear the greater share of the tax.
a
6. Which of the following is true? a. The price elasticity of demand for Royal Crown Cola is higher than the price elasticity of demand for soft drinks in general. b. .The price elasticity of demand for Royal Crown Cola is lower than the price elasticity of demand for soft drinks in general . c. The price elasticity of demand for Royal Crown Cola is equal to the price elasticity of demand for soft drinks in general. d. It is invalid to make inter-industry elasticity comparisons.
a
As we move from lower to higher prices along a straight-line demand curve, price elasticity of demand becomes _____________. a.lower b.greater c.does not change d.There is not enough information provided to answer this question.
a
Assuming the quantity supplied of a good can change over time, the ____________ the period of adjustment to a price change the __________________________ . a.longer, higher the price elasticity of supply will be. b.shorter, more likely supply will change from inelastic to elastic. c.longer, lower the price elasticity of supply will be. d.shorter, higher the price elasticity of supply will be.
a
Average total cost is equal to a.average fixed cost plus average variable cost. b.total cost divided by the change in quantity of output. c.the change in total cost resulting from the production of one more unit of output. d.total variable cost divided by quantity of output.
a
Consider the following information about a business Jackie opened last year: price = $12, quantity sold = 150,000; implicit cost = $155,000; explicit cost = $660,000. What was Jackie's economic profit last year? a.$985,000 b.$1,140,000 c.$1,645,000 d.$1,295,000
a
Constant returns to scale exist when inputs are increased by some percentage and output increases by __________ percentage, causing unit costs to __________. a.an equal, remain constant b.a greater, fall c.a smaller, fall d.a greater, rise e.a smaller, rise
a
If the marginal utility derived from consuming a good is negative then ____________________ and if the marginal utility derived from consuming a good is positive then ____________________. a.total utility must be falling, total utility must be rising b.total utility must be rising, total utility must be falling c.total utility must be negative, total utility must be positive d.marginal utility per dollar must be positive, marginal utility per dollar must be negative
a
If the price of good X rises and the demand for good X is inelastic, then the percentage fall in quantity demanded is ____________ the percentage change in price, and total revenue _________. a.less than, rises b.greater than, rises c.equal to, falls d.greater than, falls e.less than, falls
a
Refer to the exhibit. What is the change in profit that would result if the firm produced and sold 12 units instead of 11 units of this good? Price Quantity Sold Total Cost $9 10 $99 $9 11 $101 $9 12 $106 $9 13 $114 $9 14 $123 $9 15 $135 $9 16 $150 a.$4 b.$2 c.$6 d.$8 e.There is not enough information provided to answer this question.
a
Refer to the table. What value belongs in blank (A)? Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 120 120 2 (A) 80 3 (B) 70 4 320 (C) a.200 b.240 c.160 d.100 e.There is not enough information provided to answer this question.
a
The theory of perfect competition assumes that a.each buyer and each seller may act independently of other buyers and sellers, respectively. b.each buyer acts independently of other buyers, but each seller does not act independently of other sellers. c.each seller acts independently of other sellers, but each buyer does not act independently of other buyers. d.neither buyers nor sellers act independently of other buyers and sellers.
a
Why must firms earn zero economic profit in long-run competitive equilibrium? a.If firms are not earning zero economic profit, there will be entry into or exit from the market. b.If firms are not earning zero economic profit, marginal revenue must rise. c.If firms are not earning zero economic profit, marginal cost must fall. d.If firms are not earning zero economic profit, marginal revenue must fall.
a
15. In the long run, if inputs are increased by 10 percent and output increases by 20 percent, then __________ are said to exist. a. economies of scale b. constant returns to scale c. diseconomies of scale d. diminishing marginal returns
a.
25. Resource allocative efficiency exists for a perfectly competitive firm because a. price equals average total cost and the firm equates marginal revenue and average total cost to maximize profits. price is greater than marginal revenue and the firm equates marginal revenue with average total cost to maximize profits. price is less than marginal revenue and the firm equates marginal cost and marginal revenue to maximize profits. none of the above
a.
ANSWER: aUnits of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 20 20 2 30 (A) 3 (B) 8 4 (C) 6 5 (D) 3 12. Refer to the above Exhibit. What value goes in blank (D)? a. 47 b. 15 c. 35 d. 60 e. There is not enough information to answer this question.
a.
Based on the information in the table, the marginal revenue resulting from the last unit produced by this profit-maximizing single-price monopolist is equal to Output (Q) Total Revenue Total Cost 10 $100 $125 20 180 135 30 195 150 40 200 180 a.$1.50. b.$15.00. c.$5.00. d.$0.50. e.$2.00.
a.
Maximizing profit is the same as maximizing revenue only when the firm a.has no variable costs. b.has no fixed costs. c.is minimizing average variable costs. d.Is minimizing average fixed costs.
a.
Perfectly competitive firms are price takers for all of the following reasons except a.each firm produces and sells a differentiated product. b.each firm produces and sells a homogeneous product. c.each firm is very small in relation to the total market supply. d.buyers and sellers have all relevant information about prices, etc.
a.
Price elasticity of demand is equal to the ____________ change in the quantity demanded of a good divided by the __________change in the price of the good and slope and price elasticity of demand ____________. a.percentage, percentage, are not the same b.absolute, absolute, are not the same c.percentage, absolute, are the same d.absolute, percentage, are not the same
a.
Refer to the exhibit. Which area represents the marginal revenue this firm will earn from selling q1 units rather than q2 units? a.the area of rectangle q2CAq1 minus the area of rectangle P2BCP1 b.the area of triangle ABC c.the area of rectangle P2BCP1 plus the area of rectangle q2CAq1 d.the area of rectangle 0P1Aq1 minus the area of rectangle P2BCP1
a.
Refer to the table. Which of the following statements is true? Units of Cookies Total Utility of Cookies (utils) 1 40 2 70 3 85 4 95 a.The law of diminishing marginal utility applies in this situation. b.The marginal utility of the second cookie is 15 utils. c.The marginal utility of the fourth cookie is 2.5 utils. d.The law of diminishing marginal utility does not apply in this situation.
a.
The marginal utility (MU) curve for units 9 through 12 of good ABC lies below the horizontal axis. What does this imply must be true about the total utility curve for units 9 through 12 of good ABC? a.That portion of good ABC's total utility (TU) curve must be downward sloping. b.That portion of good ABC's total utility (TU) curve must be upward sloping. c.That portion of good ABC's total utility (TU) curve must be horizontal. d.That portion of good ABC's total utility (TU) curve must also lie below the horizontal axis.
a.
The sellers of a good will pay the full tax that is placed on the sale of that good if demand is _________________ or supply is ______________________. a.perfectly elastic, perfectly inelastic b.elastic, inelastic c.perfectly inelastic, perfectly elastic d.unit elastic, unit elastic e.perfectly elastic, unit elastic
a.
The shorter the period of time consumers have to adjust to a price change, the _____________ will be the price elasticity of ______________. a.lower, demand b.higher, demand c.lower, supply d.higher, supply
a.
The situation in which firms produce the level of output at which price is equal to marginal cost is termed a.resource allocative efficiency. b.zero economic profit. c.price efficiency. d.productive efficiency.
a.
Total utility is defined as the a.total amount of satisfaction a person receives from consuming a given level of a good. b.change in total utility a person derives from the consumption of a good divided by the good's price. c.change in marginal utility a person derives from the consumption of a good. d.the price of a good times the marginal utility of the good.
a.
Which of the following statements is false? a.If marginal utility is falling, then total utility must also be falling. b.If marginal utility is a positive value, then total utility must be rising. c.If marginal utility is rising, then total utility must also be rising. d.The law of diminishing marginal utility implies that total utility must decline as more units of a good are consumed.
a.
Positive economic profit serves as a.an incentive for individuals to produce less output. b.a signal identifying where resources are most welcome. c.a signal for firms to exit a market. d.none of the answers given represent a function of positive economic profit
b, d
17. An economist might say, "The market guides and coordinates individuals' actions." Which of the following is an example of this happening? a. An employer tells an employee to get to work early. b. As the price of oranges rises, more individuals begin to produce oranges. c. The manager of a plant issues a directive that there will be no more smoking in the cafeteria. d. a and c e. a,b,and c
b
19. Which of the following is not an assumption of the theory of perfect competition? a. There are many sellers and many buyers, none of which is large in relation to total sales or purchases. b. Each firm produces and sells a differentiated product. c. Buyers and sellers have all relevant information with respect to prices, product quality, and sources of supply. d. There is easy entry and exit.
b
9. Suppose that a consumer purchases a combination of X and Y such that MUX/PX = 17 utils per dollar and MUY /PY = 13 utils per dollar. To maximize utility, the consumer should buy a. less of X and more of Y. b. more of X and less of Y. c. more of both X and Y. d. less of both X and Y. e. neither X nor Y.
b
Consider the following: Alex is one of the leading widget producers in the country. His total costs amount to $10,000, total fixed costs are $2,000, and average variable costs are $400. How many widgets is Alex producing? a.10 b.20 c.40 d.60 e.There is not enough information provided to answer the question.
b
If the average total cost curve is falling, a.the MC curve is necessarily rising. b.the MC curve must be below it. c.marginal cost is greater than average total cost. d.fixed cost is rising. e.average fixed cost is constant.
b
If the price of good X falls and the demand for good X is elastic, the percentage ____________ in quantity demanded is _______________ the percentage change in price, and total revenue __________. a.rise, less than, falls b.rise, greater than, rises c.fall, greater than, rises d.fall, less than, falls
b
If the price of good X falls by 5 percent and as a result the quantity demanded of good Y rises by 4 percent, the cross elasticity of demand for goods X and Y is _____________ and goods X and Y are _______________________. a.- 0.80, substitutes b.- 0.80, complements c.- 1.25, complements d.- 1.25, substitutes e.+ 0.80, substitutes
b
Refer to the exhibit. A profit-maximizing single-price monopolist will earn profits of Quantity Total Revenue Total Cost 1 $29 $10 2 $47 $16 3 $62 $23 4 $74 $35 5 $80 $50 a.$30 b.$39 c.$45 d.$31
b
Refer to the exhibit. If Luis spends $10 (total) a week on good X and good Y, and if the price of each good is $2 per unit, then how many units of each good does he purchase to maximize utility? Units of Good X Total Utility of Good X (utils) Units of Good Y Total Utility of Good Y (utils) 1 50 1 40 2 80 2 75 3 100 3 90 4 110 4 98 5 105 5 104 a.one unit of good X and four units of good Y b.three units of good X and two units of good Y c.two units of good X and three units of good Y d.four units of good X and one unit of good Y
b
The price at which a perfectly competitive firm sells its product is determined by a.the government, because there are so many buyers and sellers of the product that together they cannot usually agree on the price. b.all sellers and buyers of the product, collectively. c.the individual seller based on his costs of production and his profit margin. d.the buyers of the product, because there are so many sellers that they cannot agree on the price.
b
The price of good Y rises from $8.00 to $8.60 as the quantity supplied rises from 2,000 to 2,400 units. The price elasticity of supply for good Y is ________________ and good Y is price ____________ in supply. a.0.40, inelastic b.2.52, elastic c.3.54, elastic d.0.38, inelastic e.1.57, elastic
b
Which of the following is an assumption of perfect competition? a.There are many buyers and few sellers. b.Each firm produces and sells a homogeneous product. c.There are few buyers and many sellers. d.There are high barriers to entry into the market.
b
____________________ consists of the actions of individuals and groups that spend resources to influence public policy in the hope of redistributing (transferring) income to themselves from others. a.Productive efficient actions b.Rent seeking c.Resource-allocative efficient actions d.X-inefficiency
b
16. The firm negotiates a new agreement with its workers for lower wages. The ATC curve should be __________ and the AFC curve should be __________ after the agreement goes into effect. a. lower; lower b. lower; unchanged c. higher; higher d. lower; highere. unchanged; lower
b.
24. For a price taker, market equilibrium price is $50. At 1,000 units, MR = MC, ATC = $45, and AVC = $30. This price taker will a. earn $50,000 profits if it produces 1,000 units of the good. b. earn $5,000 profits if it produces 1,000 units .c. shut down its operation, and by doing this minimize its losses. d. maximize its profits if it produces fewer than 1,000 units. e. maximize its profits if it produces more than 1,000 units.
b.
26. The theory of monopoly assumes that the monopoly firm a. faces a downward-sloping supply curve that is the same as its marginal revenue curve. b. faces a downward-sloping demand curve. c. produces more than the perfectly competitive firm under identical demand and cost conditions. d. produces a product for which there are many close substitutes .e. none of the above
b.
29. Arbitrage is a. a form of negotiation between two parties having a disagreement. b. buying a good in one market and selling it in another for a profit. c. a form of price discrimination where the producer sells its product at two different prices. d. a means of deciding the most efficient way of producing a product.
b.
30. Individuals who spend resources to influence public policy in a way that will redistribute income to themselves are a. stabilizing the economy. b. rent seeking. c. engaging in collusion. d. minimizing explicit costs.
b.
According to economists Alchian and Demsetz, a firm is formed when a.the sum of team production is equal to the sum of individual production. b.the sum of team production is greater than the sum of individual production. c.when profit can be earned. d.it is necessary to avert economic losses. e.the sum of individual production is greater than the sum of team production.
b.
Consider the following data: equilibrium price = $8, quantity of output where MR equals MC = 500 units, average total cost = $10, average variable cost = $9. What should the perfectly competitive firm do in the short run and why? a.Shut down, because price is less than average total cost. b.Shut down, because price is less than average variable cost. c.Continue to produce, because price is less than average total cost. d.Continue to produce, because price is less than average variable cost. e.Shut down, because total revenue is less than total cost.
b.
Consider the following information about a business Jackie's opened last year: price = $12, quantity sold = 150,000; implicit cost = $155,000; explicit cost = $660,000. What was Jackie's accounting profit last year? a.$985,000 b.$1,140,000 c.$1,645,000 d.$1,295,000
b.
If market demand rises in a perfectly competitive market, it follows that a.a perfectly competitive firm's marginal cost will rise. b.a perfectly competitive firm's marginal revenue will rise. c.a perfectly competitive firm's average cost will rise. d.a perfectly competitive firm's demand curve will shift downward.
b.
If price elasticity of demand is 0.5, it follows that a ______________ percent increase in price must cause a ____________ percent decrease in quantity demanded. a.0.50, 1.00 b.2.00, 1.00 c.5.00, 10.00 d.1.50, 3.00
b.
If, as the price of good A decreases by 10 percent, the quantity demanded of good B increases by 8 percent, then goods A and B are likely to be a.substitutes. b.complements. c.inferior goods. d.normal goods.
b.
Maximizing profit is the same as maximizing _________________ if _____________. a.total revenue, TFC is positive b.total revenue, TVC is zero c.total cost, TFC is constant d.marginal revenue, TVC is positive and constant e.none of the above
b.
Refer to the exhibit. At a quantity of 16 units, ATC is _________ and ___________________________. Price Quantity Sold Total Cost $10 10 $50 10 11 55 10 12 61 10 13 68 10 14 75 10 15 85 10 16 100 a.$6.25, AVC is $3.75 b.$6.25, there is not enough information to determine AVC c.$4.25, AVC is $3.75. d.$5.50, there is not enough information to determine AVC e.$15, AVC is $4
b.
Refer to the exhibit. Fill in blanks (A), (C), (F) and (H), respectively. Variable Input (units) Fixed Input (units) Output (units) Marginal Physical Product of Variable Input (units) Fixed Cost Variable Cost Marginal Cost 0 1 0 $400 $0 1 1 12 (A) $400 $100 (F) 2 1 25 (B) $400 $200 (G) 3 1 45 (C) $400 $300 (H) 4 1 58 (D) $400 $400 (I) 5 1 65 (E) $400 $500 (J) a.12, 15, $5.00, $7.50 b.12, 20, $8.33, $5.00 c.10, 25, $8.33, $7.00 d.5, 10, $4.25, $7.50
b.
Suppose for a given consumer the marginal utility (MU) of a pizza is 100 utils and the MU of a hamburger is 80 utils, and that the price of a pizza is $15, and the price of a hamburger is $8. Given this information, the consumer ___________ in equilibrium and should _________________. a.is, continue to consume the same quantity of pizza and hamburger b.is not, consume more hamburgers and fewer pizzas c.is not, consume more pizzas and fewer hamburgers d.is not, quit consuming both pizzas and hamburgers
b.
Suppose we find people who are willing to pay $1 to reduce the income of some others by, say, $4. Individuals who do this are a.expressing the endowment effect. b.probably interested in their relative rank. c.probably interested in the absolute of amount of money they hold. d.framing options in an irrational way.
b.
3. If the cross elasticity of demand for good A with respect to good B is -0.72 (neg), then good A is a. an inferior good. b. a normal good. c. a substitute for good B. d. a complement to good B.
d
13. Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club? a. Wilson paid $120 for an outside laundry service to clean the towels used at the club. b. Wilson paid $100 for the pest control exterminator to spray the health club. c. Wilson previously worked as an accountant, earning $3,000 a month. d. Wilson usually eats four hamburgers a day, priced at $3 each.
c
2. The longer the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand. a. lower, price b. lower, income c. higher, price d. higher, income
c
20. A perfectly competitive firm should increase its level of production as long as a. total revenue is less than total cost. b. the total revenue curve is rising .c. marginal revenue is greater than marginal cost. d. the marginal revenue curve is rising.
c
7. When economists talks about utility, they are talking about a. a company that provides electricity, water, gas, etc. b. the satisfaction, in terms of price, that a producer receives from selling his product. c. the satisfaction that results from the consumption of a good. d. the amount of one good that a person is willing to give up in order to get a unit of another good. e. the satisfaction that results from the consumption of a good minus the price that must be paid to get the good.
c
8. Suppose a consumer is purchasing Coke and pretzels in quantities such that she is achieving consumer equilibrium. Then the price of Coke decreases. The consumer will likely __________ her consumption of Coke and the marginal utility of Coke will __________ while the total utility from Coke will __________. a. increase; increase; increase b. increase; decrease; decrease c. increase; decrease; increase d. decrease; increase; increase e. decrease; decrease; decrease
c
At 100 units of output, total cost is $50,000 and total variable cost is $33,000. At 100 units of output, what is the value of average total cost, average variable cost, and average fixed cost, respectively? a.$170, $330, $500 b.$200, $300, $500 c.$500, $330, $170 d.$300, $200, $325
c
If a firm earns normal profit, it follows that the firm a.is incurring an economic loss. b.is earning zero accounting profit. c.could be earning a positive accounting profit. d.is earning positive economic profit.
c
Individuals who spend resources to influence public policy in a way that will redistribute income to themselves are engaging in a.price discrimination. b.profit-maximization. c.rent seeking. d.economies of scale.
c
Suppose that a decreasing-cost industry is initially in long-run competitive equilibrium, and then demand increases. After full adjustment, the new equilibrium price will be a.the same as the initial equilibrium price. b.higher than the initial equilibrium price. c.lower than the initial equilibrium price. d.any of the above is possible.
c
5. Cross elasticity of demand measures the responsiveness of the a. demand for one good to changes in the demand for another good. b. demand for one good to changes in the price of another good. c. quantity demanded of one good to changes in the quantity demanded of another good. d. quantity demanded of one good to changes in the price of another good.
d
Consider the following information about a business Jerry opened last year: price = $20, quantity sold = 15,000; implicit cost = $150,000; explicit cost = $120,000. What was Jerry's economic profit? a.$300,000 b.$150,000 c.$30,000 d.$180,000 e.$270,000
c.
If the demand for a good is perfectly inelastic, then a $1 per unit tax placed on the sellers of the good will a.end up raising the price of the good by $1 and the entire tax will be paid for by the sellers of the good. b.end up raising the price of the good by less than $1, and half the tax will be paid by consumers and half by sellers. c.end up raising the price of the good by $1 and the entire tax will be paid for by the consumers of the good. d.end up lowering the price of the good by less than $1 and the entire tax will be paid for by the sellers of the good.
c.
One difference between a perfectly competitive firm and a monopoly firm is that for a perfectly competitive firm the a.profit maximizing firm will produce the level of output for which marginal revenue is equal to marginal cost, but this is not the case for a monopoly firm. b.firm is earning a profit when price is greater than average total cost c.demand curve and marginal revenue curve are the same, but not for a monopoly firm. d.demand curve and marginal revenue curve are not the same, but they are for a monopoly firm.
c.
Price elasticity of supply measures the responsiveness of quantity ________________ of a good to changes in __________________. a.supplied, income b.demanded, the price of that good c.supplied, the price of that good d.supplied, the price of another good e.demanded, the price of another good
c.
Refer to the table. What value belongs in blank (B)? Units of Good Consumed Total Utility (utils) Marginal Utility (utils) 1 120 120 2 (A) 80 3 (B) 70 4 320 (C) a.210 b.240 c.270 d.300 e.There is not enough information provided to answer this question.
c.
Suppose that the price of good X rises from $2.00 to $2.50, and as a result the quantity demanded of good Y rises from 370 units to 390 units. The cross elasticity of demand for good Y with respect to the price change in good X is ___________________, indicating that goods X and Y are ___________________. a.-0.24, substitutes b.4.22, substitutes c.0.24, substitutes d.-4.22 complements e.0.24, complements
c.
When economies of scale are present, the __________ curve is _____________. a.SRATC, downward sloping b.MC, U-shaped c.LRATC, downward sloping d.LRATC, upward sloping
c.
______________ exists if a firm produces its output at the lowest per-unit cost. a.Resource allocative efficiency b.Perfectly competitive efficiency c.Productive efficiency d.Constant cost e.Increasing cost
c.
At a given level of output, the vertical distance between the average variable cost curve and the average total cost curve is equal to a.marginal cost. b.marginal physical product. c.economic profit. d.average fixed cost. e.accounting profit.
d
David receives 50 utils from consuming two oranges. The utility he derives from consuming the second orange equals 20 utils. Which of the following conclusions can be derived from the law of diminishing marginal utility? a.David's marginal utility of the first orange is 25 utils. b.David's marginal utility of the third orange will be less than 50 utils but greater than 20 utils. c.If the price of oranges rises, David will consume more oranges. d.David's marginal utility of the third orange will be less than 20 utils.
d
In maximizing profits, a single-price monopolist will charge a price that is _____________ and therefore the monopolist ____________________ achieve resource-allocative efficiency. a.below marginal cost, does not b.above marginal cost, does c.equal to marginal cost, does d.above marginal cost, does not e.equal to marginal cost, does not
d
Maximizing utility is _____________ with the law of demand, which states that consumers will buy _______ of a good as the price of that good falls, ceteris paribus. a.not consistent, more b.not consistent, less c.consistent, less d.consistent, more
d
To an economist, utility is a measure of _________________ from the __________________ of a good. a.satisfaction, production b.usefulness, production c.efficiency, consumption d.satisfaction, consumption
d
28. A monopolist practicing (perfect) price discrimination has a. a larger deadweight loss triangle than a single-price monopolist has. b. the same deadweight loss triangle as a single-price monopolist. c. a deadweight loss triangle one-half the size of what it would be with uniform pricing. d. no deadweight loss triangle.
d.
A perfectly price-discriminating monopolist charges ____________ price for each unit of the good it sells, and a single-price monopolist charges _________________ price for each unit of the good it sells. a.the same, a different b.the same, the same c.a different, a different d.a different, the same
d.
Refer to the exhibit. Suppose that you have done some work for a neighbor and the neighbor offers you two payment options, A and B. If you are a more risk averse person, you will most likely choose Option Payoff A Guaranteed payment $500 B A coin is tossed, payment made if heads comes up $1,000 a.Option B, since risk averse people tend to prefer a gamble over a sure thing. b.either Option A or Option B, since risk averse people are indifferent between two options when the expected payout is the same for both options. c.Option B, since risk averse people tend to prefer a gamble over a sure thing. d.Option A, since risk averse people tend to prefer a sure thing over a gamble.
d.
21. The perfectly competitive firm's short-run supply curve is the a. upward-sloping portion of its average total cost curve. b. horizontal portion of its marginal revenue curve. c. portion of its average variable cost curve that lies above the average fixed cost curve. d. upward-sloping portion of its marginal cost curve. e. portion of its marginal cost curve that lies above its average variable cost curve.
e
1. If the price of good X rises and the demand for good X is inelastic, then the percentage fall in quantity demanded is __________ the percentage rise in price, and total revenue __________. a. greater than; rises b. less than; falls c. equal to; remains constant d. greater than; falls e. none of the above
e, less than rises
27. Which of the following statements is true? a. A monopolist can charge whatever price it wants without losing any customers, by virtue of its monopoly position. b. A monopolist can always increase its profits by increasing its price. c. In the monopoly market structure, there are low barriers to entry. d. A monopolist is assured of positive economic profits. e. none of the above. All are False.
e.
Which of the following statements is false? a.For a price taker, P = MR, but for a price searcher, P > MR. b.A monopoly firm's demand curve lies above its MR curve. c.A single-price monopolist charges the same price for all units of its product. d.A perfect price-discriminating monopolist charges a different price for each unit of the good it sells. e.A single-price monopolist charges a price equal to marginal cost at the profit-maximizing level of output.
e.
Utility
the capacity to be useful and provide satisfaction
Managerial Coordination
the process in which managers direct employees to perform certain tasks
total cost (TC)
the sum of fixed costs and variable costs
accounting profit
total revenue - explicit costs
average variable cost (AVC)
total variable costs divided by quantity of output
