micro exam 2

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be

$2,500

You've set aside $500 a month to go golfing. If each round costs $55, how many rounds of golf can you play each month?

9 rounds

Combinations to the left of the budget line are:

Attainable and inefficient

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

The flu shot reduces the likelihood others will catch the flu.

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency?

The price will be too low, and the output will be too large.

The two main characteristics of a public good are

nonrivalry and nonexcludability.

Economic efficiency requires that

all economic activity generating more benefits than costs be undertaken.

Which of the following is an example of a positive externality (additional social benefit)?

an increase in the value of land you own when a nearby development is completed

When costs that vary with the level of output are divided by the output, you have calculated

average variable cost.

Which of the following represents a long-run adjustment?

construction of a new assembly-line plant by a car manufacturer

Average fixed cost

declines continually as output increases.

The law of diminishing returns

explains why marginal cost eventually increases as output expands.

Economic costs of production

include opportunity costs.

Markets may have difficulty providing the proper quantity of a public good because

individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good.

Which of the following is most likely to be an implicit cost of production?

interest income foregone on funds invested in the firm by the owners

In a free-market economy, a product that entails a negative externality (additional social cost) will be

overproduced.

Competitive markets generally give consumers and producers correct incentives when

property rights are well-defined and enforced.

Which of the following is the most fundamental function of government?

protection of individuals and their property

When production of a good generates external costs, the

supply curve for the good will understate the true social cost of producing the good.

Total utility is best defined as the

total satisfaction received from consuming a good, service, or combination of goods and services.

In a free-market economy, a product that entails a positive externality (additional social benefit) will be

underproduced.