Micro Final Exam
Which of the following characteristics relate to decreasing returns to scale?
A situation in which as the quantity of output rises, the average cost of production rises.
If a firm holds a pure monopoly in the market and is able to sell 4 units of output at $2.00 per unit and 5 units of output at $1.75 per unit, it will produce and sell the fifth unit if its marginal cost is
$0.75 or less
I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was
$1.00
I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was
$2.00
I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was
$2.43
If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3,90 per unit, it will produce and sell the sixth unit if its marginal cost is
$3.40 or less
Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 4?
$4.00
"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is:
$44
In May and June, Tammy spent all her clothing budget on bathing suits and beach bags. Each bathing suit cost $75. At Tammy's optimal choice, her marginal utility from the last bathing suit purchased is 300 and her marginal utility from the last beach bag purchased is 200. This means that each handbag must cost:
$50
Given the data provided in the table below, what will the fixed costs equal for production at quantity (Q) level 4?
$9.00
Janie works for an accounting firm. Her wage increased from $30 per hour to $40 per hour. She can work up to 50 hours each week. The table below shows her utility from different levels of leisure and income. Before her raise, if Janie decreases her hours of work from 30 to 20 hours per week, the marginal utility gain from having more leisure is:
21
Refer to the table below. The information pertains to the demand curve and the average cost curve for a natural monopoly firm. What will the price be in this market?
50
A farmer has 20 acres of land. He decides he will raise corn on part of it and hogs on the other part. He debates how much to allocate to each product. His choice of two products is which of the following?
A Tradeoff
What is meant by income effect?
A change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually an incentive to buy less, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more.
Which of the following best describes the consumption of a non-rival good?
A consumer may obtain the good without preventing simultaneous consumption by another consumer.
Refer to Figure 2-1. Along the production possibilities frontier, the most efficient point of production depicted is:
All points on the production possibilities frontier are equally efficient.
Which of the following statements most likely lies within the realm of microeconomics?
An increase in labor costs will increase the additional cost of producing another bus.
Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:
Andy's demand for beer to increase.
What name is given to the legal, technological, or market forces that may discourage or prevent potential competitors from entering a market?
Barriers to entry
What term is used to describe the construct of utility maximization which describes all of the combinations of goods and services that the consumer can afford?
Budget constraint framework
Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:
C to F
Which of the following characteristics relate to variable costs?
Costs of production that increase with the quantity produced.
See Chart A above. Line De represents the current household demand for a specific product. If income taxes are reduced, which line will represent the demand for that specific product?
D2
____________ occur when the marginal gain in output diminishes as each additional unit of input is added.
Diminishing marginal productivity
What term is used to describe when the marginal gain in output diminishes as each additional unit of input is added?
Diminishing marginal returns
What name is given to dividing the work required to produce a good or service into tasks performed by different workers?
Division of labor
The term inferior good refers to the percentage change in the quantity of savings divided by the percentage change in interest rates.
False
What name is given to expenditures that must be made before production starts and that do not change regardless of the level of production?
Fixed costs
What name is given to the extremely elastic situation where quantity changes by an infinite amount in response to even a tiny change in price?
Infinite elasticity
What is meant by predatory pricing?
When an existing firm uses sharp but temporary price cuts to discourage new competition.
____________ include both the private costs incurred by firms and also costs incurred by third parties outside the production process.
Social Costs
What is meant by normative statements?
Statements that describe how the world should be.
What is meant by marginal cost?
The additional cost of producing one more unit.
If the state of Georgia had an exceptionally large crop of peanuts, what would happen to the demand for jelly?
The demand for jelly would increase.
Which of the following characteristics relate to utility?
The level of satisfaction or pleasure that people receive from their choices.
What is meant by nonexcludable?
When it is costly or impossible to exclude someone from using the good, and thus hard to charge for it.
What is meant by cross-price elasticity of demand?
The percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B.
What term is used to describe the branch of economics that focuses on the economy as a whole, including issues like growth, unemployment, inflation, and the balance of trade?
Macroeconomics
Exports are goods and services that are produced domestically and sold in another country.
True
What does it mean for a good to be non-excludable?
No one can be excluded from using it.
Model is a simplified representation of an object or situation that includes enough of the key features to be useful.
True
The term market describes an institution that brings together buyers and sellers of goods or services.
True
The term normal good describes a good for which the quantity demanded rises when income rises.
True
Zero elasticity means the highly inelastic case in which a percentage change in price, no matter how large, results in zero change in the quantity demanded or supplied.
True
____ include all of the costs of production that increase with the quantity produced.
Variable costs
See Chart B above. Line Se represents the current supply of Ford F150 pickup trucks. If Ford negotiates a new contract with the United Auto Workers, resulting in a significant reduction in Ford's cost of labor, would the supply curve change?
Yes, line S2 would be the new supply curve
When considering a peanut butter and jelly sandwich, economics would refer to jelly as which of the following?
a complement
Demand and supply refer to various goods that people are willing to buy and/or sell at various prices at ____________.
a given time
In terms of microeconomic analysis, what is the function of "utils"?
a measurement of utility
If demand is elastic, then
a price rise decreases revenue.
A business operating in a perfectly competitive market qualifies as which of the following
a price taker
In economic terms, what is a product that individuals cannot be excluded from using?
a public good
After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:
a shift of the demand curve for beef to the left.
Economic theory offers ____________ about the full range of possible events and responses, which can prevent ____________ about how households will respond to changes in prices or incomes.
a systematic way of thinking; misguided conclusions
Specialization
can lead to an increase in overall production
Those firms in the oil refining industry that can reduce pollution ____________ will do so ____________.
cheaply and easily; to minimize their pollution taxes
Goods that are rival but not excludable, such as fish in the ocean, qualify as which of the following?
common resources
A situation known as ____________ occurs when all production inputs are allowed to expand, but that expansion does not result in a change in the average cost of production.
constant returns to scale
The form of legal protection intended to prevent reproduction of original works is referred to as ____________ law.
copyright
When ____________, a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.
costs of production fall
A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:
cross-price elasticity of demand for soda is -3.
How is a pure public good best described?
as a good that is non-rival and non-excludable
If the price that a firm charges is higher than its ____________ cost of production for that quantity produced, then the firm will earn profits
average total
Marginal utility can:
be positive, negative, or zero
A positive externality arises in a situation where a third party, outside the transaction,
benefits from a market transaction by others.
In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of
buyers and sellers
Oligopoly firms acting individually may seek to gain profits ____________.
by expanding levels of output and cutting prices
An ____________ is calculated by subtracting the firm's costs from its total revenues, ____________.
accounting profit; excluding opportunity cost
The marginal revenue curve for a single price monopolist ____________ the market demand curve.
always lies beneath
Refer to Figure 3-2. A change from Point A to Point B represents a:
decrease in quantity demanded.
The two primary factors determining monopoly market power are the firm's
demand curve and its cost structure
The most common pattern for marginal utility is ____________.
diminishing marginal utility
The term ____________ is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.
diminishing marginal utility
If a solar panel manufacturer wants to look at its total costs of production in the short run, which of the following would provide a useful starting point?
divide total costs into two categories: fixed costs that can?7 ft be changed in the short run and variable costs that can be
The slope of the demand curve for a monopoly firm is
downward sloping
The term ____________ describes a situation where the quantity of output rises, but the average cost of production falls.
economies of scale
In order to calculate marginal cost, the change in ____________ is divided by the amount of change in quantity.
either total cost or variable cost
A price cut will increase the total revenue a firm receives if the demand for its product is:
elastic
Demand is said to be ____________ when the quantity demanded is very responsive to changes in price.
elastic
The ____________ is the quantity where quantity demanded and quantity supplied are equal at a certain price.
equilibrium quantity
f the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. This is known as ____________.
excess demand
If a competitive firm experiences a shift in costs of production that decreases marginal costs at all levels of output,
expanding output levels at any given price will be profitable.
Market failure describes a situation in which the market
fails to allocate resources efficiently
If a perfectly competitive firm raises its price, the quantity demanded of its product ____________.
falls to zero
A firm's ____________ consist of expenditures that must be made before production starts that typically, over the short run, ____________ regardless of the level of production.
fixed costs; do not change,
An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a ____________.
free rider
People who do not want to pay for goods and who cannot be excluded from the market are which of the following types of consumers?
free riders
If a firm's efforts to be technologically innovative will create a positive externality, then that firm will likely
have less incentive to innovate to the extent that the whole of society desires.
When it is possible for a producer to cover his production cost and make a profit he has a ____________ to enter the market place.
incentive
Economic profit can be derived from calculating total revenues minus all of the firm's costs,
including its opportunity costs.
The term ____________ describes a situation where a ____________ causes a reduction in the buying power of income, even though actual income has not changed.
income effect; higher price
Refer to Figure 3-3. A change from Point A to Point B represents a:
increase in quantity supplied.
Refer to Figure 3-3. A change from Point A to Point D represents a:
increase in supply.
If the demand curve is perfectly elastic, then an increase in supply will:
increase the quantity exchanged but result in no change in the price.
The key assumption that accompanies the use of numbers for measuring utility is that:
individuals choose based on their subjective preferences.
Demand is said to be ____________ when the quantity demanded is not very responsive to changes in price.
inelastic
Refer to Figure 5-1. Graph B represents a demand curve that is relatively ____________. Total revenue ____________ as the price decreases from $10 to $5.
inelastic; decreases
Taxes on goods with ____________ demand curves will tend to raise more tax revenue for the government than taxes on goods with ____________ demand curves.
inelastic; elastic
The opportunity cost of an action:
is a subjective valuation that can be determined only by the individual who chooses the action.
Refer to Figure 2-2. At Point A in the production possibilities graph shown above, the economy:
is not using its resources efficiently.
The economies-of-scale curve is a long-run average cost curve, because
it allows all factors of production to change.
I'mAComputerCo. would likely be more willing to undertake an innovative research project to reduce the amount of electricity required to run its computers if there were some form of guarantee that if it succeeded,
it could sell the new computers as a monopoly for at least a few years.
If a steel manufacturer considers the costs of labor and materials, as well as the broader costs of environmental injuries resulting from its manufacturing processes,
it is factoring in the social costs of the pollution it generates.
Scarcity implies that:
it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.
Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should
keep the business open in the short-run, but plan to exit the industry in the long-run.
Economists refer to the relationship that a higher price leads to a lower quantity demanded as the ____________.
law of demand
A natural monopoly occurs when the quantity demanded is ____________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.
less than or equal to
Which of the following is most likely to be a monopoly?
local electricity distributor
The term ____________ is used to describe the additional cost of producing one more unit.
marginal cost
If marginal cost is rising in a competitive firm's short-run production process and its average variable cost is falling as output is increased, then
marginal cost is below average variable cost.
If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price,
marginal revenue is affected by adding one additional unit sold at the new price.
The basic difference between macroeconomics and microeconomics is
microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.
The largest cattle rancher in a given region will be unable to have a ____________ when sufficient numbers of smaller cattle ranchers provide sources of competition.
monopoly
A perfection competition market structure features how many barriers to entry?
no barriers
A public good is a good that is ____________, and thus is difficult for market producers to sell to individual consumers.
nonexcludable and nonrivalrous
Property rights are the legal rights of ownership on which others are
not allowed to infringe without paying compensation.
If new manufacturers enter the computer industry, then (ceteris paribus):
the supply curve shifts to the right.
A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
the supply curve.
Refer to the diagram above. Based on the information illustrated in the graph, which of the following is correct?
the transition point between where MC is pulling down and pulling up AC always occurs at the minimum point of the AC curve
If cola and iced tea are good substitutes for consumers, then it is likely that:
their cross price elasticities are greater than zero.
According to the law of supply:
there is a direct relationship between price and the quantity supplied.
For a pure monopoly to exist,
there is a single seller in a particular industry
If the state you live in sets a minimum wage higher than the federal minimum a probable outcome would be what?
there will be surplus of labor.
No society can produce everything it wants due to which of the following reasons?
scarcity
Fixed costs are important because, at least in the ____________, the firm ____________.
short run; cannot alter them
In the ____________, if profits are not possible, the perfectly competitive firm will seek out the quantity of output where ____________.
short run; losses are smallest
If a firm's revenues do not cover its variable costs, then that firm has reached its ____________.
shutdown point
Whatever the firm?7 fs quantity of production, ____________ must exceed total costs if it is to earn a profit.
total revenue
A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:
total revenue will decrease.
The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises,
total utility rises, but marginal utility falls.
Demand is said to be ____________ when the quantity demanded changes at the same proportion as the price.
unit elastic
Scarcity exists because of:
unlimited wants and limited resources.
The marginal cost curve is generally ____________, because diminishing marginal productivity implies that additional units are ____________.
upward-sloping; more costly to produce
In microeconomic terms, the ability of a good or a service to satisfy wants is called:
utility.
If a paper mill shuts down its operations for three months so that it produces nothing, its ____________ will be reduced to zero?
variable costs
When dealing with the costs and operation of a typical business firm, the short run is a planning period in which the firm would usually:
vary output but not factory size.
If a comparison between average cost and price reveals whether a firm is earning profits, then a comparison between average variable cost and price reveals
whether the firm should operate at a loss or shut down in the short run.
In economics, the demand for a good refers to the amount of the good that people:
will buy at various prices.
If no externalities of pollution exist in a particular industry, the interaction of demand and supply ____________.
will coordinate social costs and benefits
For a perfectly competitive firm, the marginal cost curve above the minimum of its average variable cost curve is identical to the firm's ____________.
supply curve
A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the ____________.
supply curve to the right
A few gas stations usually serve the local market, and are therefore usually
oligopolies
Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
output will be too small and its price too high.
If the government sets prices for wheat or corn that guarantee farmers a specific price for that product, the most probable result would be what?
over production.
If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then
that firm could set up barriers to entry to discourage competition.
Government ____________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ____________.
patent; a limited time
Firms operating in a market situation that creates ____________, sell their product in a market with other firms who produce identical products.
perfect competition
Demand "A" represents a demand curve that is what?
perfectly elastic
Demand "D" represents a demand curve that is what?
perfectly inelastic
Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?
physical space for the gallery
The following figure shows the average cost curve, demand curve, and marginal revenue curve for a monopolist.
the area of rectangle ABGH
The opportunity cost of attending university is likely to include all except which of the following?
the cost of haircuts received during the school term
A ____________ would lead a large greenhouse gas emitter to reduce emissions by less.
pollution tax
The use of sharp, temporary price cuts as a form of ____________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.
predatory pricing
If a perfectly competitive firm is a price taker, then
pressure from competing firms will force acceptance of the prevailing market price.
The downward slope of the demand curve again illustrates the pattern that as ____________ rises, ____________ decreases.
price, quantity demanded
For a positive externality, ____________ than the social benefits.
private benefits of an action are less
For a negative externality, the ____________ than the costs imposed on society as a whole.
private costs of an action are less
Why would labor be treated as a variable cost?
producing larger quantities of a good or service generally requires more workers
A monopolist is able to maximize its profits by
producing output where MR = MC and charging a price along the demand curve.
Idaho farmers can sell as large a quantity of their potato crop as they wis
provided each is willing to accept the prevailing market price.
Idaho farmers can sell as large a quantity of their potato crop as they wish,
provided each is willing to accept the prevailing market price.
A demand curve shows the relationship between price and ____________ on a graph.
quantity demanded
If a graph is used to compare total revenue and total cost of a perfectly competitive firm, then the horizontal axis of the graph will represent the ____________ and the vertical axis will represent ____________.
quantity produced; both total revenue and total costs, measured in dollars.
In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely
raise prices, cut production, and realize positive economic profits.
When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale
the firm is a natural monopoly.
A consumer will maximize utility when
the marginal utility each good relative to its price is equal to that of all other goods being purchased.
As a general rule, utility-maximizing choices between consumption goods occur where the:
the marginal utility to price ratio of two goods is equal.
Price elasticity of demand is defined as:
the percentage change in quantity demanded divided by the percentage change in price.
A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A negative externality that can result is
the possibility of the bees stinging the students at the school.
As depicted in ____________, it is necessary to give up some of one good to gain more of the other good.
the production possibilities frontier
Macroeconomic topics do not usually include
the profit maximizing decisions of an individual manufacturer
Macroeconomic topics do not usually include:
the profit maximizing decisions of an individual manufacturer.
If large numbers of individuals choose to behave as free riders,
the public good may never be provided.
A pollution charge is a form of tax imposed on
the quantity of pollution that a firm emits.
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
Goods X and Y are complement goods.
___________ describes a situation where a third party, outside the transaction, suffers from a market transaction by others.
Negative externality
____________ describes a situation where a third party, outside the transaction, suffers from a market transaction by others.
Negative externality
What is meant by average cost?
Total cost divided by the quantity of output.
____________ include all spending on labor, machinery, tools, and supplies purchased from other firms.
Total costs
____________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
Total revenue
Which of the following occurs simultaneously with an income effect?
substitution effect
Economists are able to determine total utility by:
summing up the marginal utilities of each unit consumed.
Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi?7 fs demand curve?
1.0
George, Jerry, Elaine, and Kosmo are seated in a restaurant figuring out what to order.Carrot cakes cost $2 and pickles cost $1 each. George declares he would like to get three carrot cakes and four pickles. Jerry suggests, why not get two carrot cakes and six pickles, since the marginal utility of carrot cakes diminishes more rapidly. Kosmo says George should order no carrot cakes and 10 pickles, or else 5 carrot cakes and no pickles. George responds that with 10 pickles or 5 cakes, the marginal utility of the last one would be very low. "But the total utility would be greater," says Kosmo. Elaine says that George should get the quantities where the marginal utility of the next cake is double the marginal utility of the next pickle. "You're wrong," says Jerry. "The marginal utility of the cake should equal the marginal utility of the pickle." You are seated in the next table and they ask you what they should do. For rational consumer choice,
George should heed Elaine's advice and get that amount for which the marginal utility divided by the price is equal for the carrot cake and the pickle.
What term is used to describe a game in which if both players pursue their own self-interest, they both end up worse off than if they cooperate?
Prisoner's dilemma
What term is used to describe a government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time?
Patent
Refer to Figure 2-1. The most inefficient point depicted is:
Point G
Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."
The statement is correct.
A perfectly competitive industry is a
hypothetical extreme
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:
rise and the equilibrium quantity to stay the same.
The ____________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
substitution effect
If a monopolistic competitor raises its price, it ____________ customers than a perfectly competitive firm, but ____________ customers compared to the number that a monopoly that raised its prices would.
will lose fewer; it will lose more
The marginal utility of two goods changes ____________.
with the quantities consumed