Micro Test 3- Everything

Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. a. If the current equilibrium price in the pencil market is ​$1.60​, what price will Frances​ charge?

$1.60

A company mows yards using labor and equipment. Suppose the cost of renting equipment​ (a lawn​ mower) is ​$1 comma 000 per season and the cost of each worker is ​$35 comma 000 in wages per season. The​ firm's isocost line is illustrated in the figure to the right. What is the slope of the​ firm's isocost​ line? The slope of the​ firm's isocost line is minus 35.00. ​(Enter your response rounded to two decimal​ places.)

-35

Suppose the equilibrium price of basketballs is​ $2.50. In the short​ run, how many basketballs will Andy​ produce? 0 ​(enter a whole​ number). How much profit​ (or loss) will he​ make? ​$ negative 10 per day ​(round your answer to the nearest​ penny, and express a loss as a negative​ number).

0 -10

A firm uses land and labor to produce flowers. The isoquant graph to the right illustrates the​ firm's technology with isoquants. A couple of input combinations are also indicated in the figure. What is the​ firm's marginal rate of technical substitution​ (MRTS) between input bundles A and B​? The​ firm's marginal rate of technical substitution between bundles A and B​ (in absolute​ value) is 1.00. ​(Enter your response rounded to two decimal​ places.) Were the firm to use more labor​ (and less​ land) holding output​ constant, then the marginal rate of technical substitution would be lower ​(in absolute​ value).

1.00 lower

The substitution effect is the change in the quantity demanded of a good that results from __________, holding constant the effect of the price change on consumer purchasing power.

A change in price making the good more or less expensive relative to other goods

The graph to the right shows your weekly demand for pizza. How was this demand curve​ constructed?

By computing your optimal consumption of pizza at the various prices​ shown, all other variables that affect your demand for pizza held constant.

In deciding between consuming more goods now or saving​ money, consumers should do which of the​ following?

Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.

Suppose you have a fixed amount of income and spend equal amounts on two goods, X and Y. The price of good X is Px = $10, and the price of good Y is Py = $5. The marginal utility of X is MUx = 60 utils, and the marginal utility of Y is MUy = 15 utils. How should the consumption of X and Y change, if at all, to increase utility?

Consumption of good X should increase, and consumption of good Y should decrease.

How are efficiencies realized when combining two​ firms?

Cutting the overlap between the two firms and leveraging fixed costs across greater quantities.

When are firms likely to enter an​ industry? When are they likely to​ exit?

Economic profits attract firms to enter an​ industry, and economic losses cause firms to exit an industry.

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory?

Firms have difficulty coordinating production.

Consumer advocacy groups charged at a press conference yesterday that there is widespread price gouging in the sale of pencils. They released a study showing that whereas the average retail price of pencils was​ $1.00, the average cost of producing pencils was only​ $0.50. "Pencils can be produced without complicated machinery or highly skilled​ workers, so there is no justification for companies charging a price that is twice what it costs them to produce the product. Pencils are too important in the life of every American for us to tolerate this sort of price gouging any​ longer," said George​ Grommet, chief spokesperson for the consumer groups. The consumer groups advocate passage of a law that would allow companies selling pencils to charge a price no more than 20 percent greater than their average cost of production. Which of the following is not likely to happen in the pencil​ market?

Firms will charge a price above marginal cost in the long run.

In the ultimatum​ game, when the allocator and the recipient care about​ fairness, how does that affect the distribution of​ $20.00?

Recipients usually reject offers of less than a 10 percent share.

How does the fact that consumers apparently value fairness affect the decisions that businesses​ make?

Firms will not raise prices in response to an increase in demand.

Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a great seat in the sun on a​ hot, humid​ day: ​"Granted, I could have moved under the overhang and enjoyed​ today's contest from a​ nice, cool, shady seat. But when you paid​ forty-five dollars for a ticket in the fourth​ row, it's tough to move back to the​ twenty-fourth [row]." ​Source: Rob​ Neyer, Feeding the Green Monster​, New​ York: iPublish.com,​ 2001, p.50. What should Rob​ do?

He should weigh the marginal cost of moving into the shade​ (a less desirable​ view) versus the marginal benefit of being under the shade.

​"I believe that a firm will want to produce at Upper Q 1​, not Upper Q 2. At Upper Q 1​, the distance between price and marginal cost is the greatest.​ Therefore, at Upper Q 1​, the firm will be maximizing its​ profits." Is the​ student's argument correct or​ incorrect?

Incorrect. Profits are maximized at the quantity where marginal revenue equals marginal cost.

According to the model of perfectly competitive markets LOADING...​, the demand for wheat should be a horizontal line. But this​ can't be​ true: When the price of wheat​ rises, the quantity of wheat demanded​ falls, and when the price of wheat​ falls, the quantity of wheat demanded rises.​ Therefore, the demand for wheat is not a horizontal​ line."

Incorrect. The commentator is confusing the market demand for wheat with the demand line facing the representative firm.

How can BlackBerry best maximize its​ profit?

Increase revenues and cut costs.

Which of the indicated input bundles would produce more output

Input combination Upper A would produce more output because it is on a higher isoquant

When does the law of diminishing marginal utility LOADING... hold​ true?

It holds true in most situations involving the consumption of a good.

The following excerpt is from a letter sent to a financial advice​ columnist: ​"My wife and I are trying to decide how to invest a​ $250,000 windfall. She wants to pay off our​ $114,000 mortgage, but​ I'm not eager to do that because we refinanced only nine months​ ago, paying​ $3,000 in fees and​ costs." ​Source: Liz​ Pulliam, Los Angeles Times advice​ column, March​ 24, 2004. How should the​ $3,000 in fees and costs be​ considered?

It is a sunk cost and should not be taken into account when deciding to pay off the mortgage.

What is a budget​ constraint?

It is the limited amount of income available to consumers to spend on goods and services.

​Long-run equilibrium in perfect competition results in

both A and B

What is the definition of marginal​ utility?

The change in utility from consuming an additional unit of a good or service.

Economies of scale happen when the​ firm's long run average total cost​ ________ as output increases.

decreases

What is the difference in the short run and the long​ run? In the short​ run,

at least one of the​ firm's inputs is​ fixed, while in the long​ run, the firm is able to vary all its​ inputs, adopt new​ technology, and change the size of its physical plant.

Long-run equilibrium in perfect competition results in:

both productive and allocative efficiency

Assuming that the cost curves have the usual​ shape, the dollar difference between average total costs and average variable costs decreases as output increases.

decreases as output increases

Considering only the income effect LOADING...​, if the price of an inferior good increases​, would a consumer want to buy a larger quantity or a smaller quantity of the​ good?

if the price of a good increases, the consumer has less purchasing power, so he would want to purchase more of an inferior good

Marginal utility is more useful than total utility in consumer decision making because

optimal decisions are made at the margin.

What is the supply curve for a perfectly competitive firm in the short​ run? The supply curve for a firm in a perfectly competitive market in the short run is

that​ firm's marginal cost curve for prices at or above average variable cost.

What is path​ dependence? Path dependence is where

the technology that was first available has advantages over better technologies that were developed later.

What is the difference between total cost and variable cost in the long​ run? In the long​ run,

the total cost of production equals the variable cost of production.

The disadvantages of using Snoopy are that he appears to be

too cute and cuddly to be giving insurance advice.

If the income effect of a price change for an inferior good is larger than the substitution effect, the demand curve will be:

upward sloping

In a perfectly competitive industry with increasing average​ costs, the​ long-run supply curve will be

upward sloping

As output​ increases, the vertical distance between average total cost and average variable cost curves gets​ _______ and equals​ _______.

​smaller; average fixed cost

The result of the strategy was

a signficant drop in sales and the firing of Johnson.

in consumer decision-making, sun costs should

be ignored

Your company incurs a cost for fire insurance​, ​which, in the short​ run, is fixed. What happens to this cost in the long​ run? In the long​ run, the cost of fire insurance

becomes a variable cost

As the level of output​ increases, what happens to the difference between the value of average total cost and average variable​ cost? As the level of output​ increases, the difference between the value of average total cost and average variable cost

decreases because average fixed cost decreases as output increases.

Which of the following are sometimes called accounting costs?

explicit

Rules of thumb are guides to decision making that always produce optimal choices.

false

In the short-run, the cost that is independent of the amount of output produced is called __________.

fixed costs

If the average total cost curve is above the demand curve, then this firm is:

having economic losses

​Thaler's behavior is inconsistent because

he was ignoring the nonmonetary opportunity cost of the wine.

According to the law of diminishing marginal​ utility, as the consumption of a particular good​ increases,

marginal utility decreases.

What determines entry and exit of firms in a perfectly competitive industry in the long​ run? In a perfectly competitive industry in the long​ run,

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

does it apply to the long run

no

If the total utility increases with additional consumption of a good, then the marginal utility is:

positive

Does the market system result in productive​ efficiency? In the long​ run, perfect competition

results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost.

The quote describes logical behavior of solar panel firms in the

short run

The budget line shows:

the affordable combinations of goods and services you can buy with your income

What is the economic definition of​ utility? Utility is

the enjoyment or satisfaction people receive from consuming goods and services.

why are firms willing to accept losses in the short run but not in the long run?

there are fixed costs in the short run but not in the long run

Economies of scale occur

when a​ firm's long-run average costs decrease with output.

What are diseconomies of​ scale? Diseconomies of scale is

when a​ firm's long-run average costs increase with output.

Should the​ owner's decision about whether or not to sell depend on what price he originally paid for the​ townhouse? The​ owner's decision about whether or not to sell should

depend on the price he originally paid for the townhouse because that is a relevant monetary cost.

Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the​ graph?

The marginal product of labor initially increases due to division of labor and then decreases due to diminishing returns. and Whenever the marginal product of labor is greater than the average product of​ labor, it pulls the average product of labor up.

If increasing your consumption of pizza from 3 to 4 slices increases your utility, which of the following must be true?

The marginal utility of the fourth slice of pizza must be positive.

What are implicit​ costs? An implicit cost is

a nonmonetary opportunity cost

In early​ 2015, gasoline prices in many parts of the United States had fallen to below​ $2.00 per​ gallon, which a news story called​ "one of the swiftest declines on​ record." ​Source: Nick​ Timiraos, "As Gasoline Heads Toward​ $2, the Benefits Start to Trickle​ Down," Wall Street Journal​, January​ 22, 2015. For most​ people, gasoline is likely to be

a normal good because as incomes increase people drive more

A buyer or seller that is unable to affect the market price is called

a price taker

Suppose a company mows yards with workers and​ lawn-mowing equipment. The​ firm's isocost line will show

all the combinations of workers and equipment that have the same total cost.

Which of the following terms best describes a state of the economy in which production reflects consumer​ preferences?

allocative efficiency

When marginal cost is less than average total​ cost, average total cost must be

decreasing

Explain why it is true that for a firm in a perfectly competitive market that P​ = MR​ = AR. In a perfectly competitive​ market, P​ = MR​ = AR because

firms can sell as much output as they want at the market price

If the​ firm's marginal costs are​ $5 at every level of​ output, what shape will the​ firm's average total cost​ have? The​ firm's average total cost curve will be

horizontal

In a perfectly competitive industry with constant​ costs, the​ long-run supply curve will be

horizontal

Can indifference curves LOADING... ever​ cross? In consumer​ theory,

indifference curves cannot cross because this would violate the assumption of transitivity.

What effect will firms exiting have on the market​ price? When firms exit​,

market supply will decrease, increasing price

What effect will firms exiting have on the market​ price? When firms exit​,

market supply will decrease​, increasing price.

How does using​ 'rules of​ thumb' impact the likelihood of a consumer making an optimal​ choice? Consumer utility

may be​ sub-optimized because rules of thumb may not reflect current reality.

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the

production function

The relationship between the inputs used by the firm and the maximum output it can produce is known as the:

production function

Which of the following terms best describes the result of the forces of competition driving the market price to the minimum average cost of the typical​ firm?

productive efficiency

​Karl's firm illustrates

productive efficiency because price equals average total cost and allocative efficiency because marginal revenue equals marginal cost.

Economists assume that firms search for the​ cost-minimizing combination of inputs that will allow them to produce a given level of output. On what two factors does the​ cost-minimizing combination of inputs​ depend? The​ cost-minimizing combination of inputs depends on

technology and input prices

What is the difference between technology and technological​ change?

technology is the process of using inputs to make output, while technological change is when a firm is able to produce more output using the same inputs

An article in the Wall Street Journal described the Chinese automobile industry as​ "a hodgepodge of​ companies," most of which produce fewer than​ 100,000 cars per year. Ford Chief Executive Alan Mulally commented on the situation by​ saying, "If you​ don't have​ scale, you just​ won't be able to be​ competitive." ​Source: Colum​ Murphy, "Chinese Car Makers Struggle to Lure​ Buyers," Wall Street Journal​, April​ 19, 2014. a. Mulally meant that Chinese firms

that​ aren't producing at minimum efficient scale will have higher costs than their competitors.

What does the​ short-run production function hold​ constant? A​ short-run production function holds constant

the amount of capital

when the price of pizza falls along the demand curve for pizza

the consumer adjusts the consumption of both pizza and coke following the rule of equal marginal utility per dollar

​Next, suppose a consumer prefers a chicken sandwich to a slice of pizza and a slice of pizza to a taco. If the​ consumer's preferences are​ transitive, then

the consumer will prefer a chicken sandwhich to a taco

Suppose bundle A contains 5 CDs and 5 DVDs and bundle B contains 2 CDs and 7 DVDs. If a consumer is able to rank different combinations of goods and services in terms of how much utility they​ provide, then

the consumer will prefer bundle B to bundle A. B. the consumer will prefer bundle A to bundle B. C. the consumer will be indifferent between bundle Upper A and bundle Upper B the consumer will be indifferent

What happens when consumption of a product is path​ dependent?

the cost of switching to a product with a better technology gives the product with the initial technology an advantage.

How should firms in perfectly competitive markets LOADING... decide how much to​ produce? Perfectly competitive firms should produce the quantity where

the difference between total revenue and total cost is as large as possible.

The income effect is the change in quantity demanded of a good that results from __________, holding all other factors constant.

the effect of a price change on consumer purchasing power

Explain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum. The marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum because

when the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ averge, it pulls the average up.

The optimal combination of pizza and coke you should consume is the one

where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke.

Would a firm earning zero economic profit continue to​ produce, even in the long​ run? In​ long-run competitive​ equilibrium, a firm earning zero economic profit

will continue to produce because such profit corresponds with positive accounting profit

Suppose that last semester your semester GPA was 1.90 and your resulting cumulative GPA was 2.56. ​Next, suppose that this semester your semester GPA will be 2.10. If​ so, then your cumulative GPA

will decrease because your​ "marginal" GPA will be below your cumulative GPA

Suppose that last semester your semester GPA was 3.90 and your resulting cumulative GPA was 2.87. ​Next, suppose that this semester your semester GPA will be 3.50. If​ so, then your cumulative GPA

will increase because your​ "marginal" GPA will be above your cumulative GPA.

What is likely to happen in the long run to firms that do not reach minimum efficient​ scale? A firm that does not reach its minimum efficient scale

will lose money if it remains in business

Assume the market for oranges is perfectly competitive. If the demand for oranges​ increases, will the market supply additional​ oranges? If the demand for oranges​ increases, then the market

will supply additional oranges because producers seek the highest return on their investments.

Maya spends her​ $50 budget on two​ goods, cans of tuna and bottles of ginger ale.​ Initially, the marginal utility per dollar she spends on tuna is equal to the marginal utility per dollar she spends on ginger ale. Then the price of ginger ale​ decreases, while her income and the price of tuna does not change. a. Her marginal utility from consuming ginger ale does not change . b. The marginal utility per dollar she spends on ginger ale increases . c. Because of the substitution​ effect, Maya will buy more ginger ale. Can we conclude that ginger ale is a normal​ good? A. ​No, because normal and inferior good designations are related to the income​ effect, not the substitution effect. This is the correct answer.B. ​Yes, ginger ale must be a normal good. C. ​No, because ginger ale is a Giffen good. D. ​No, because ginger ale is an inferior good. Your answer is not correct. d. As Maya adjusts to the change in the price of ginger​ ale, her marginal utility per dollar spent on tuna will A. decrease because she will buy less tuna. B. increase because she will buy less tuna. Your answer is correct.C. increase because she will buy more tuna. D. decrease because she will buy more tuna.

-does not change -increases -no, because normal and inferior good designations are related to the income effect, not the substitution effect -increase because she will buy less tuna

Consider a form of public consumption LOADING... such as wearing jewelry. An​ individual's demand for jewelry depends on

-the individual's taste -the cost of the jewelry -other consumers' consumption of jewelry

Refer to the to graph on the right. Which level of output in the graph below represents the minimum efficient​ scale? A. ​1,000 books B. ​20,000 books Your answer is correct.C. ​40,000 books D. ​80,000 books Which size bookstore is more likely to experience diseconomies of​ scale? A. A bookstore selling​ 1,000 books per month B. A bookstore selling​ 20,000 books per month C. A bookstore selling​ 40,000 books per month D. A bookstore selling​ 80,000 books per month

20,000 \ 80,000

Suppose it is October 1. You have paid ​$12 comma 000 in tuition and have been attending college classes. ​ However, you are offered a​ full-time job paying ​$22 comma 500 for the next two months. If you take the​ job, you'll have to stop attending classes and withdraw from college for the semester. ​ Unfortunately, at this point in the​ semester, tuition is no longer refundable. You must decide whether to remain enrolled in college. What is the relevant cost of staying in​ school? When deciding whether to remain in​ school, the relevant cost of staying in school is ​$

22,500

Charles has decided to open a​ lawn-mowing company. To do​ so, he purchases mowing equipment for ​$5 comma 000​, buys gasoline ​($2.10 in gas is required to mow each​ yard), and pays a helper ​$10.00 per yard. Prior to opening the lawn​ company, Charles earned ​$4 comma 000 as a lifeguard at the neighborhood swimming pool. Assume the money he used to purchase the mowing equipment could otherwise have earned 1 percent per year in the bank and that the mowing equipment depreciates at 20 percent per year. Charles plans to mow 250 yards per year. What is​ Charles's implicit cost LOADING... of​ production? ​Charles's implicit cost of production is ​$ nothing per year. ​(Enter your response as an​ integer.)

5050

According to the inequality, the marginal utility per dollar spent on good X is less than the marginal utility per dollar spent on good Y. According to the rule of equal marginal utility per dollar spent, what can a consumer do to increase total utility for a given budget from consumption of goods X and Y?

A consumer can increase total utility for a given budget by consuming more good Y and less good X.

List the errors in the graph to the right ​(where AFC is average fixed​ cost, AVC is average variable​ cost, ATC is average total​ cost, and MC is marginal cost​).

AFC should be​ MC, ATC should be​ AVC, and AVC should be ATC.

What is the difference between the average cost of production​ (ATC) and marginal cost of production​ (MC)?

ATC=TC/Q and MC= change TC/ change quantity .

Someone who owns a townhouse wrote to a real estate advice columnist to ask whether he should sell his townhouse or wait and sell it in the future when he hoped that prices would be higher. The columnist​ replied: "Ask​ yourself: would you buy this townhouse today as an​ investment? Because every day you​ don't sell​ it, you're buying​ it." ​Source: Edith​ Lane, "Contract Exclusion​ OK?" (Allentown,​ PA) Morning Call​, May​ 22, 2011. Do you agree with the​ columnist? In what sense are you buying something if you​ don't sell​ it?

Agree. Every day the owner uses the​ house, there is an opportunity cost involved that is equal to the cost of not selling the house.

One description of the costs of operating a railroad makes the following​ observation: ​"The fixed . . . expenses which attach to the operation of railroads . . . are in the nature of a tax upon the business of the​ road; the smaller the​ [amount of]​ business, the larger the​ tax." ​Source: Quoted in Alfred D.​ Chandler, Jr., Thomas K.​ McCraw, and Richard​ Tedlow, Management Past and​ Present, ​Cincinnati: South-Western,​ 2000, pp.​ 2-27. In what sense is this tax smaller when the amount of business is​ larger?

As production​ increases, fixed costs can be allocated over a greater amount of​ output, decreasing the average cost of the tax.

Which of the following best explains why firms​ don't maximize LOADING... revenue rather than profit LOADING...​?

At the point where revenue is​ maximized, the difference between total revenue and total cost may not be maximized.

What is the relationship between a perfectly competitive​ firm's marginal cost curve and its supply​ curve?

A​ firm's marginal cost curve is equal to its supply curve for prices above average variable cost.

Why are consumers so powerful in a market​ system?

Because it is​ consumers' demand that influences the market price and dictates what producers will supply in the market.

Although New York State is second only to Washington State in production of​ apples, its production has been declining during the past 20 years. The decline has been particularly steep in counties close to New York City. In​ 1985, there were more than​ 11,000 acres of apple orchards in Ulster​ County, which is 75 miles north of New York City.​ Today, only about​ 6,000 acres remain. As it became difficult for apple growers in the county to compete with​ lower-cost producers​ elsewhere, the resources these entrepreneurs were using to produce appleslong dashparticularly landlong dashbecame more valuable in other uses. Many farmers sold their land to housing developers. Suppose a revolutionary new diet is developed that involves eating 10 apples per​ day, and the new diet becomes wildly popular.

Because of the popularity of the​ diet, the number of apple orchards within 100 miles of New York City will likely increase . Housing prices in the area will increase because less land will be available for housing. increase increase

Eating too much today based on an expectation that you will reduce your food intake at some later date in order to lose weight is an example of what type of flaw in decision making?

Being unrealistic about future behavior.

According to the graph, what size bookstore is more likely to experience diseconomies of scale?

Bookstores that sell more than 80,000 books per month

For which of the following​ reason(s) may firms experience economies of​ scale?

Both managers and workers may become more specialized and hence more productive as output expands. B. ​Firm's production may increase with a smaller proportional increase in at least one input. C. Large firms may be able to purchase inputs at lower costs than smaller​ competitors; they can also borrow money at a lower interest rate.

b. Although most books were published as scrolls in the first century​ A.D., by the third​ century, most were published as codices. Considering only the factors mentioned in this​ problem, explain why this change may have taken place.

By the third​ century, enough books were being published such that the average cost of producing a book as a codex was lower than the average cost of producing a book as a scroll.

What is the difference between the short run and the long​ run?

In the short​ run, at least one of a​ firm's inputs is​ fixed, while in the long​ run, a firm is able to vary all its inputs and adopt new technology.

A student​ argues: ​"To maximize profit LOADING...​, a firm should produce the quantity where the difference between marginal revenue LOADING... and marginal cost is the greatest. If a firm produces more than this​ quantity, then the profit made on each additional unit will be​ falling." Is the above statement true or​ false?

False. Profit is maximized at the output level where marginal revenue equals marginal cost.

In which of the following situations does the law of diminishing marginal utility not​ hold?

For methamphetamine​ addicts, the more dosages of the illegal​ drug, the more euphoric they become.

Suppose that Henry Ford had continued to experience increasing returns to​ scale, no matter how large an automobile factory he built. Discuss what the implications of this would have been for the automobile industry. A.

Ford could have profitably sold his cars at a lower price than competitors. B. Ford would have been able to produce his cars at lower​ long-run average cost than competitors.

Another scholar points out that a significant fixed cost was involved in producing a​ codex: ​"In order to copy a codex...the amount of text and the layout of each page had to be carefully calculated in advance to determine the exact number of sheets...needed. No​ doubt, this is more​ time-consuming and calls for more experimentation than the production of a scroll would. But for the next copy these calculations would be used​ again." ​Source: T. C.​ Skeat,"The Length of the Standard Papyrus Roll and the​ Cost-Advantage of the ​Codex,"Zeitschrift fur Papyrologie and Epigraphik​, ​1982, p​ 175; and David​ Trobisch, The First Edition of the New Testament​, New​ York: Oxford University​ Press, 2000, p 73. a. Suppose that the fixed cost of preparing a codex was 58 drachmas and that there was no similar fixed cost for a scroll. Would an ancient book publisher who intended to sell 5 copies of a book be likely to publish it as a scroll or as a​ codex? What if he intended to sell 10​ copies? Briefly explain. A.

If a publisher intended to sell 5​ copies, he would publish the book as a scroll because the average cost would be lower than as a codex. If he intended to sell 10​ copies, he would publish the book as a codex because the average cost would be lower than as a scroll.

According to the endowment​ effect, people appear to be behaving irrationally when they are unwilling to sell a good they already own in which of the following​ situations?

If they are offered a price greater than the price they would pay if they did not already own the good.

As the market demand shifts to the left, how will the firm's level of output change?

The firm will decrease its output and suffer losses.

Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for​ $4,000 per month. Jill is considering selling her building and renting space in the suburbs for​ $3,000 per month. Jill decides not to make the move. She​ reasons, "I would like to have a restaurant in the​ suburbs, but I pay no rent for my restaurant​ now, and I​ don't want to see my costs rise by​ $3,000 per​ month." What do you think of​ Jill's reasoning?

Jill is incorrectly ignoring the opportunity cost of using the building she owns.

Which of the following statements is true when the difference between TR and TC is at its maximum positive​ value?

MR​ = MC Slope of TR​ = Slope of TC

What would need to be true for a demand curve to be upward​ sloping?

The good would have to be an inferior​ good, and the income effect would have to be larger ​(in absolute​ value) than the substitution effect.

Miriam consumes tacos and Coke. Suppose the price of a taco is ​$3.80​, the price of a Coke is ​$3.00​, and that Miriam is currently consuming tacos and Coke such that her marginal utility of tacos is 100 and her marginal utility of Coke is 8. Is Miriam behaving​ optimally? If​ not, then what should she​ do?

Miriam is not maximizing​ utility; she should instead consume more tacos and less coke

Is the amount of time that separates the short run from the long run the same for every​ firm?

No

c. If next week the equilibrium price of desk lamps drops to​ $30, should Edward shut down

No because price is greater than minimum AVC.

Is it possible for a firm to experience a technological change that would increase the marginal product of labor while leaving the average product of labor​ unchanged? Explain.

No. An increase in the marginal product of labor will increase the average product of labor.

​"In a perfectly competitive​ market, in the long run consumers benefit from reductions in​ costs, but firms​ don't." ​Don't firms also benefit from cost reductions because they are able to earn greater​ profits?

No. Because​ short-run profits encourage​ entry, firms earn zero economic profit in the long run.

A student looks at the data in the table to the right and draws this​ conclusion: ​"The marginal product of labor is increasing for the first 3 workers​ hired, and then it declines for the next 3 workers. I guess each of the first 3 workers must have been hard workers. Then Jill must have had to settle for increasingly poor​ workers." Do you agree with the​ student's analysis? Briefly explain.

No. Marginal product initially increases due to division of labor and then decreases due to the law of diminishing returns

Suppose a firm has no fixed​ costs, so all of its costs are​ variable, even in the short run. If the​ firm's marginal costs are continually increasing​ (that is, marginal cost is increasing from the first unit of output​ produced), will the​ firm's average total cost curve have a U​ shape?

No. The average total cost curve will be continually increasing.

In the short run, the firm should:

Operate if price > average variable cost.

The Economist magazine offered the following two options for​ subscribing: 1.​ $56 per year for an online only subscription 2.​ $125 per year for print plus online access subscription A large majority of subscribers chose option 1. But the magazine would have preferred to sell more​ $125 subscriptions because it can charge higher rates to advertisers in the print magazine than it can online. The magazine decided to rely on insights from behavioral economics to try to increase the number of people choosing the​ $125 subscriptions. It began offering the following three​ options: 1.​ $56 per year for an online only subscription 2.​ $125 print plus online access subscription only 3.​ $125 print-only subscription A large majority of subscribers now chose option 2 rather than option 1. ​Source: Mukul​ Patki, "5 Behavioral Economics Principles Marketers​ Can't Afford to​ Ignore," Forbes​, March​ 1, 2013. What insights from behavioral economics that were discussed in this chapter can help explain this​ result?

Option 1 looked good compared to option​ 2; but when option 3 was​ offered, option 2 looked better.

In considering consumers' attitudes towards fairness, which of the following have economists found to be true?

People attempt to treat others fairly, even if doing so makes them worse off financially.

In considering the attitudes of consumers toward​ fairness, which of the following have economists found to be​ true?

People attempt to treat others​ fairly, even if doing so makes them worse off financially. Your answer is correct.

What is the relationship between​ price, average​ revenue, and marginal revenue for a firm in a perfectly competitive​ market?

Price is equal to both average revenue and marginal revenue.

Briefly discuss the difference between these two concepts.

Productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industries.

Which of the following is an expression of profit for a perfectly competitive​ firm? Profit for a perfectly competitive firm can be expressed as

Profit=(P-ATC)*Q​, where P is​ price, Q is​ output, and ATC is average total cost.

An article in the New York Times notes that classic rock star Tom Petty likes to perform in smaller venues that​ don't have as many seats as large venues such as Madison Square Garden in New York. According to the​ article, Petty insists that tickets to his concert be sold​ "below market​ price." The author of the article wondered why​ "Petty and his promoter would price tickets so low when there were clearly people willing to pay​ much, much​ more." ​Source: Adam​ Davidson, "How Much Is Michael Bolton Worth to​ You?" New York Times​, June​ 4, 2013. What is the best indicator that Petty sells tickets below market​ price?

Scalpers are able to sell many tickets high above the original price.

In recent​ years, the United States has experienced large increases in oil production. The increases in oil production are due in large part to a new​ technology, hydraulic fracturing​ ("fracking"). Fracking involves injecting a mixture of​ water, sand, and chemicals into rock formations at high pressure to release oil and natural gas. A news story indicates that economies of scale in fracking may be considerably smaller than in conventional oil drilling. ​Source: Russell Gold and Theo​ Francis, "The New Winners and Losers in​ America's Shale​ Boom," Wall Street Journal​, April​ 20, 2014. If this view is​ correct, what would the likely consequences be for the number of firms drilling for oil in the United​ States?

Since firms can reach minimum efficient scale at a relatively low output​ rate, there will continue to be a large number of firms drilling for oil in the United States.

Which of the following factors best explains why consumers might prefer to go to a restaurant that was identical to another in terms of décor, food choices and price but had more customers?

Some people receive utility from goods they believe are popular.

Andrea grew up enjoying her Italian​ grandmother's home-cooked meals. Chicken and pasta with meatballs were her favorite foods. But after Andrea graduated from​ college, found a​ job, and got​ married, she became a vegetarian and no longer ate chicken or meatballs. Which of the following​ statement(s) provides the most likely explanation of​ Andrea's decision to become a​ vegetarian? i. When Andrea was young she was unrealistic about her future behavior.​ Therefore, she did not act rationally. ii. Andrea was not working when she was young. After she graduated from college and became employed her income rose. We can conclude that for​ Andrea, chicken,​ meatballs, and other meat products are inferior goods. iii. Social influences explain​ Andrea's decision to become a vegetarian. More​ people, including celebrities from the entertainment​ field, have become vegetarians. Andrea became a vegetarian because she now feels a kinship with these celebrities and being a vegetarian makes her appear to be fashionable.

Statement​ iii, because​ Andrea's preferences changed over time so that she preferred to eat no​ meat, regardless of her income changes.

Richard​ Thaler, an economist at the University of​ Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on the object if not currently owned. According to an article in the Economist​: Dr​ Thaler, who recently had some expensive bottles of wine​ stolen, observed that he is​ "now confronted with precisely one of my own​ experiments: these are bottles I​ wasn't planning to sell and now​ I'm going to get a cheque from an insurance company and most of these bottles I will not buy.​ I'm a good enough economist to know​ there's a bit of an inconsistency​ there." ​Source: "It's​ mine, I tell​ you," Economist​, June​ 19, 2008. Based on​ Thaler's statement, how do his stolen bottles of wine illustrate the endowment​ effect, and why does he make the​ statement: "I'm a good enough economist to know​ there's a bit of an inconsistency​ there"? ​Thaler's stolen bottles of wine illustrate the endowment effect because

Thaler places a higher value on bottles of wine when he owns them than when he does not own them.

Adam​ Smith's idea of the gains to firms from the division of labor makes a lot of sense when the good being manufactured is something complex like automobiles or​ computers, but it​ doesn't apply in the manufacturing of less complex goods or in other sectors of the​ economy, such as retail sales.

The argument is incorrect. Gains from division of labor will occur whenever production of a good or provision of a service has multiple tasks.

Older oil wells that produce fewer than 10 barrels of oil a day are called​ "stripper" wells. Suppose that you and a partner own a stripper well that can produce eight barrels of oil per day and you estimate that the marginal cost of producing another barrel of oil is​ $80. In making your​ calculation, you take into account the cost of​ labor, materials and other inputs that increase when you produce more oil. Your partner looks over your calculation of marginal cost and​ says: "You forgot about that bank loan we received two years ago. If we take into account the amount we pay on that​ loan, its adds​ $10 per barrel to our marginal cost of​ production." Which of the following statements is most​ true?

The bank loan should not be included in marginal cost because it cannot be avoided by not producing another barrel.

Refer to the graph to the right of the demand curve facing a firm in the perfectly competitive market for wheat. The fact that the demand curve is horizontal implies which of the​ following?

The firm can sell any amount of output as long as it accepts the market price of​ $7.00.

The financial writer Andrew Tobias has described an incident when he was a student at Harvard Business​ School: Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strategy for the firm. Most of the students spent hours preparing their answers and came to class carrying many sheets of paper with their calculations. When his professor called on him in class for an​ answer, Tobias​ stated, ​"The case said the XYZ Company was in a very competitive industry . . . and the case said that the company had all the business it could​ handle." ​Source: Andrew​ Tobias, The Only Investment Guide​ You'll Ever Need​, San​ Diego: Harcourt,​ 2005, pp.​ 6-8. Given this​ information, what price do you think Tobias argued the company should​ charge? (Tobias says the class greeted his answer with​ "thunderous applause."

The market price.

Refer to the to graph on the right. For a certain output range​ (or quantity of pizzas produced per​ day), marginal cost is greater than average cost. What is this output​ range?

The output range greater than about 525 pizzas per day

A student in a principles of economics course makes the following​ remark: ​"The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long​ run, a firm in a perfectly competitive market will earn no profits. No firm in the real world would stay in business if it earned zero​ profits." Is this remark correct or​ incorrect?

The remark is incorrect because the student has confused accounting profit and economic profit. Firms in a perfectly competitive market earn accounting​ profit, but no economic profit.

When the DuPont chemical company first attempted to enter the paint​ business, it was not successful. According to a company​ report, in one year it ​"lost nearly​ $500,000 in actual cash in addition to an expected return on investment of nearly​ $500,000, which made a total loss of income to the company of nearly a​ million." Why did this report include as part of the​ company's loss the amount it had expected to earn​ -- but​ didn't -- on its investment in manufacturing​ paint? ​Source: Alfred D.​ Chandler, Jr., Thomas K.​ McCraw, and Richard​ Tedlow, Management Past and​ Present,​ Cincinnati: South-Western,​ 2000, pp.​ 3-92.

The report sought to include implicit costs because DuPont could have invested its money elsewhere and earned​ $500,000.

Briefly explain whether you agree with the following​ observation: ​"Technological change refers only to the introduction of new​ products, so it is not relevant to the operations of most​ firms."

The statement is incorrect. Technology includes firm operations such as the training of its workers. The statement is incorrect. Technology includes firm operations such as the speed of its machinery.

If pizza is an inferior good and its price​ falls, which of the following will most likely​ occur?

The substitution effect causes you to want to eat more pizza.

What happens when network externalities are​ present?

The usefulness of a product increases with the number of consumers who use it.

The Statistical Abstract of the United States is published each year by the U.S. Census Bureau. It provides a summary of​ business, economic,​ social, and political statistics. It is available for free​ online, and a printed copy can also be purchased from the U.S. Government Printing Office for​ $39. Because government documents are not​ copyrighted, anyone can print copies of the Statistical Abstract and sell them. Each​ year, one or two companies typically will print and sell copies for a significantly lower price than the U.S. Government Printing Office does. The copies of the Statistical Abstract that these companies sell are usually identical to those sold by the​ government, except for having different covers. How can these companies sell the same book for a lower price than the government and still cover their​ costs?

These companies decrease their average cost of production by increasing production from low levels.

Las Vegas is one of the most popular tourist destinations in the United States. In November​ 2008, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to​ $5.99 for local​ residents, while keeping the regular price of​ $14.99 for nonlocals. ​Source: Las Vegas Advisor​, ​November, 2008. Why would the restaurant do​ this?

They were willing to trade off some profits to keep their regular customers happy.

Does purchasing a smaller​ (larger) quantity demanded when price falls​ (rises) mean that demand curves for inferior goods should slope​ upward?

This does not mean that the demand curves for inferior goods should slope upward as we must also take into account the substitution effect.

In the figure to the​ right, Sacha Gillette reduces her output from 7250 to 5250 dozen eggs when the price falls to ​$2.00. At this price and this output​ level, she is operating at a loss. What option does Gillette have in this​ situation?

Try to cut her costs of production to decrease the loss in the short run.

Explain how a​ downward-sloping demand curve results from consumers adjusting their consumption choices to changes in price.

When the price of a good rises​, the ratio of the marginal utility to price falls​, leading consumers to buy less of that good.

Which of the following is true of the relationship between the average product of labor and the marginal product of labor LOADING...​?

Whenever the marginal product of labor is less than the average product of​ labor, the average product of labor must be decreasing.

The chapter​ states, ​"Firms will supply all those goods that provide consumers with a marginal benefit at least as great as the marginal cost of producing​ them." A student objects to this statement by making the following​ argument: "I doubt that firms will really do this. After​ all, firms are in business to make a​ profit; they​ don't care about what is best for​ consumers." After reminding the class that we are assuming a competitive​ market, your professor would most likely give the following reply.

While​ it's true that firms​ don't care about consumer​ welfare, they do maximize profits by producing the efficient level of output.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is​ increasing? Briefly explain.

Yes. If marginal cost is less than average total​ cost, then average total cost will be decreasing.

Which of the following mistakes do consumers commonly commit when making​ decisions?

all of the above

Suppose that Uber decides that its strategy of using surge pricing during times of high demand is causing the company to receive too much bad publicity. It decides that it will maintain its regular prices even during periods of high demand. a. If you are trying to get a ride through Uber at the end of a football game or on New​ Year's Eve, will you benefit from​ Uber's change in​ policy?

You will benefit only if you can get a​ ride, because the wait times will be long.

The marginal cost of production shows the change in a​ firm's total cost from producing one more unit of a good or service. What is the shape of the marginal cost​ curve? ​Graphically, the marginal cost curve is

a U​ shape, initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.

If households in the Northeast decreased their consumption of heating oil in the winter for​ 2014-15, we can conclude that for these households heating oil is

a giffen good because when the price fell less was consumed

A firm can use anchoring to influence consumer choices so as to increase sales by marking

a high​ "regular price" on a​ product, which makes the discounted​ "sale price" appear to be a bargain.

Discuss the shape of the​ long-run supply curve in a perfectly competitive market. The​ long-run supply curve is

a horizontal line equal to the minimum point on the typical​ firm's average total cost curve.

A market demand curve is derived by

adding horizontally the individual demand curves

What is the law of diminishing​ returns? The law of diminishing returns states that

adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline.

Minimum efficient scale is the level of output at which:

all economics of scale have been echausted

an example of technological change is

all of the above

How do specialization and division of labor typically affect the marginal product of​ labor? In the initial stages of​ production, specialization and division of labor lead to an increasing marginal product for​ workers,

allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently.

Are consumers only interested in making themselves as well off as possible in a material​ sense?

also concerned with fairness as exemplified by tipping in restaruants that will never be vistited again

UPS has reorganized the routes its drivers take to deliver packages to homes. According to an article in the Wall Street Journal​, ​"The company can save​ $50 million a year by reducing by one mile the average aggregated daily travel of its​ drivers." ​Source: Steven Rosenbush and Laura​ Stevens, "At​ UPS, the Algorithm Is the ​Driver,​" Wall Street Journal​, February​ 16, 2015. a. This cost saving is

an example of positive technological change

how are implicit costs different from explicit costs?

an explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost

According to the​ figure, hamburgers for Pam are

an inferior good the more money she makes the less hamburgers she buys

if a good has an upward-sloping demand curve, then it has to be

an inferior​ good, and the income effect would have to be larger than the substitution effect.

According to a news​ story, the Web site Stickk offers a service where you give them money that they will donate to charity if you fail to go to the gym as often as you promise to.​ (You can even have the money donated to an ​anti-charitylong dasha cause you disapprove​ of.) ​Source: Josh​ Barro, "How to Make Yourself Go to the​ Gym," New York Times​, January​ 10, 2015. Why would anyone use this​ service? People who fail to go to a gym to work out as often as they promise

are overly optimistic about their future behavior in attending the gym regularly and Stickk provides a financial incentive for them to reach these goals.

For what types of products are network externalities likely to be​ important? Network externalities are likely to be important for products that

are widely used use inferior technology

Firms experience economies of scale LOADING... for several reasons. What is one such​ reason? A firm might experience economies of scale because

as a firm expands, it may be able to borrow money more inexpensively

If the number of people in a publishing company does not go up or down with the quantity of books it publishes, then how should we categorize the salaries and benefits paid to these employees?

as a part of a fixed cost

Assume that a consumer buys only two goodslong dashpizza and Coke. He is faced with a budget constraint because he has a limited amount of income to spend on the two goods. All of the following statements regarding the​ individual's demand curve for pizza are true except that

at each point on the demand​ curve, marginal utility from the consumption of pizza equals marginal utility from the consumption of Coke.

The short run is a period of time where __________ while the long run is a period of time where __________.

at least one input is fixed, all inputs are variable

As production levels​ increase, the Nook would become more profitable because

average cost per unit will fall.

All of the following cost measures reach their minimum points when they are equal to the value of marginal​ cost, except one. Which cost measure is the​ exception?

average fixed cost

What cost measure is equal to AFC plusAVC​?

average total cost

What is the difference between a​ firm's shutdown point in the short run and its exit point in the long​ run? In the short​ run, a​ firm's shutdown point is the minimum point on the

average variable cost​ curve, while in the long​ run, a​ firm's exit point is the minimum point on the average total cost curve.

Suppose that the market for​ gluten-free spaghetti is in​ long-run equilibrium at a price of​ $3.50 per box and a quantity of 4 million boxes sold per year. Assume that the production of​ gluten-free spaghetti is a​ constant-cost industry. If the demand for​ gluten-free spaghetti increases​ permanently, which of the following combinations of equilibrium price and equilibrium quantity would you expect to see in the long​ run? a. A price of​ $3.50 per box and a quantity of 4 million boxes. b. A price of​ $3.50 per box and a quantity of more than 4 million boxes. c. A price of more than​ $3.50 per box and a quantity of more than 4 million boxes. d. A price of less than​ $3.50 per box and a quantity of less than 4 million boxes.

b. After demand​ increases, and supply​ increases, the quantity will be more than 4 million​ boxes, but the price will return to its initial level.

Suppose you bought a ticket to a football game. The ticket is nonrefundable​ (and can't be​ resold) and must be used on Saturday.​ Then, a friend calls and invites you to a basketball game on Saturday. You only have time to attend one of the​ events, and your friend offers to pay the cost of going to the basketball game. If you prefer basketball games over football games​, then you should attend the

basketball game

A study analyzed a pharmaceutical​ firm's costs to develop a prescription drug and receive government approval. An article in the Wall Street Journal describing the study noted that included in the​ firm's costs was​ "the return that could be gained if the money​ [used to develop the​ drug] were invested​ elsewhere." ​Source: Ed​ Silverman, "Can It Really Cost​ $2.6 Billion to Develop a​ Drug?," Wall Street Journal​, November​ 21, 2014. This return sho

be included in the​ firm's costs because it is the opportunity cost of not investing those funds elsewhere.

Why might consumers not act​ rationally? Consumers might

be overly optimistic about their future behavior

How does perfect competition lead to allocative and productive​ efficiency? Perfect competition leads to allocative and productive efficiency

because prices reflect consumer preferences. B. because firms are motivated by profit.

In what sense did J.C. Penney​ "pull up the​ anchor"? J.C. Penney

began charging​ 'everyday low​ prices' instead of the typical marking down process.

In recent​ years, some economists have begun studying situations in which people do not appear to be making choices that are economically rational. This new area of economics is called

behavioral economics

What do economists call the study of situations in which people act in ways that do not appear to be economically rational?

behavioral economics

Behavioral economists LOADING... attribute some consumer behavior to the endowment effect. Which of the following is an example of the endowment​ effect? An example of the endowment effect is

being unwilling to sell a painting for a price that is greater than the price you would be willing to pay to buy the painting if you​ didn't already own it.

Petty and his manager might want tickets to have prices below the market price because

below market prices allow poorer fans to attend the concert.

How is the market supply curve derived from the supply curves of individual​ firms? The market supply curve is derived

by horizontally adding the individual​ firms' supply curves.

Suppose a consumer is trying to decide how much to spend on clothing and how much to spend on all other ​(non-clothing​) consumption. The economic model of consumer behavior predicts that the consumer will

choose the combination of clothing and non-clothing consumption that makes her as well off as possible from among the combinations of clothing and non-clothing items she can afford

In which of the following situations are social influences on consumer decision making likely to be​ greater: choosing a restaurant for dinner or choosing a brand of toothpaste to​ buy? Consumer decision making is likely to be more affected by social influences when

choosing a restaurant because it takes place publically

b. Uber received criticism for using surge pricing following a severe snowstorm in Boston. Some people would be more critical of​ Uber's using surge pricing after a snowstorm than using this pricing strategy on New​ Year's Eve because it is

considered fair for producers to raise their prices following an increase in their​ costs, but not when price increases follow increases in​ demand, such as those caused by snowstorms.

The law of diminishing marginal utility suggests that

consumers experience diminishing additional satisfaction as they consume more of a good or service.

What explanations have economists offered for why firms​ don't raise prices when doing so would seem to increase​ profits? Firms might not raise prices when doing so might increase profits becau

consumers find it unfair for firms to increase prices after an increase in demand.

What effect does a network externality have on the market for a​ product? If a network externality is present for a​ product, then

consumers may be more likely to buy the product because it is more useful.

According to a news​ story, the​ Boston-based game company Proletariat launched its first mobile​ game, World​ Zombination, after having​ "spent nearly 18 months and​ $2 million to develop​ it." In the first three months following the​ game's release in February​ 2015, it was downloaded more than three 3 million times. Yet the firm was just breaking even on the game. ​Source: Sarah E.​ Needleman, "Mobile-Game Makers Try to Catch More​ 'Whales' Who Pay for Free​ Games," Wall Street Journal​, May​ 10, 2015. If game companies can only break even on the mobile games they​ develop, in the long​ run, we would expect them to

continue to develop mobile games because they can cover all costs of production if they break even.

Which of the following is most likely to a variable cost for a business​ firm?

cost of shipping products

A news story discussed the financial results for​ BlackBerry, the smartphone and software​ company: ​"Revenue tumbled​ 32% from a year earlier to​ $658 million in the quarter ended May 30 from​ $966 million a year earlier...BlackBerry posted profit of​ $68 million...up from​ $23 million a year​ earlier." ​Source: Ben​ Dummett, "BlackBerry Results Miss​ Expectations," Wall Street Journal​, June​ 23, 2015. It is possible for profits to increase even if revenue decreases if

costs decrease more than revenue decreases.

Behavioral economist Richard Thaler has studied several examples of how businesses make use of inconsistencies in consumer​ decision-making. Which of the following is an example of​ this? An example of businesses taking advantage of inconsistencies in consumer​ decision-making is

credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash.

As we move down an indifference​ curve, the MRS

decreases

The figure to the right illustrates the​ long-run average cost curve for a company that makes motors. Suppose the company produces 13 thousand motors per month. Is it experiencing economies of​ scale, diseconomies of​ scale, or constant returns to​ scale? If the company produces 13 thousand​ motors, then it experiences diseconomies of scale . At what level of output does the firm experience the minimum efficient​ scale? The minimum efficient scale occurs when the firm produces 5 thousand motors.

diseconomics of scale 5 thousand

In his​ autobiography, T. Boone​ Pickens, a​ geologist, entrepreneur, and oil company​ executive, wrote: ​It's unusual to find a large corporation​ that's efficient ... When you get an inside​ look, it's easy to see how inefficient big business really is. Most corporate bureaucracies have more people than they have work. ​Source: T. Boone​ Pickens, The Luckiest Man in the World​, ​Washington, DC: Beard​ Books, 2000, p. 275. Pickens was describing

diseconomies of​ scale, because he is referring to the inefficieny of a large scale business operation.

Suppose the market for cotton is perfectly competitive and that input prices decrease as the industry expands. Characterize the​ industry's long-run supply curve. The cotton​ industry's long-run supply curve will be

downward sloping because the long-run average cost of production will be decreasing

The demand curve for an inferior good is __________ sloping while the demand curve for a Giffen good is __________ sloping.

downward, upward

The downward sloping part of the long run average total cost curve is where the firm is achieving:

economics of scale

Anchoring is relating a value to some other known value

even if the second value is irrelevant

The figure to the right represents the cost structure for a perfectly competitive firm with its average total cost​ (ATC) curve, average variable​ (AVC) curve, and marginal cost​ (MC) curve. Suppose the market price is ​$8.00 per unit. Will firms enter or exit the industry in the long​ run? If market price is ​$8.00​, then firms will exit the market in the long run.

exit

which of the following are sometimes called accounting costs?

explicit costs

The marginal utility from consuming the second ice cream cone is the:

extra satisfaction you get from consuming the second ice cream cone

According to an article in the Wall Street Journal​, as a result of U.S. consumers increasing their demand for​ beef, in 2015 world beef prices increased. For​ example, according to the​ article, "Australian beef prices are up​ 40% this​ year, while New Zealand prices are​ 17% higher." The article​ observed, "The gains show no signs of​ stopping, given the​ [increasing] U.S.​ demand...." ​Source: Lucy​ Craymer, "Beef Prices Sizzle With U.S.​ Demand," Wall Street Journal​, September​ 10, 2015. If U.S. demand for beef continues to​ increase, in the long​ run, beef prices will

fall because the supply of beef will increase as new firms enter the industry.

Utility refers to how much consumers utilize a product or service.

false

Which of the following products is most likely to have significant network externalities

fax machines

If Uber decided not to use surge pricing during snowstorms or other​ weather- related​ situations, then

few consumers would benefit because of high​ demand, most would not get rides.

b. We can predict​ that, as the Chinese automobile industry develops over the next 10​ years, there should be

fewer firms in the industry and the remaining firms will likely be larger.

For Jill​ Johnson's pizza​ restaurant, explain whether each of the following is a fixed or variable cost. The payment she makes on her fire insurance policy is a fixed cost. The payment she makes to buy pizza dough is a variable cost. The wages she pays her workers is a variable cost. The lease payment she makes to her landlord who owns the building where her store is located is a fixed cost. The​ $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a fixed co

fixed variable variable fixed fixed

Any cost that remains unchanged as output changes represents a​ firm's

fixed cost

According to an article in the New York Times​, interest payments on bank loans make up more than half the costs of the typical solar panel manufacturer. The owner of a firm that imports solar panels made this observation about solar panel​ manufacturers: ​"So as long as companies can cover their variable costs and earn at least some revenue to put toward interest​ payments, they will continue to operate even at a​ loss." ​Source: Diane​ Cardwell, "Solar Tariffs​ Upheld, but May Not Help in​ U.S.," New York Times​, November​ 7, 2012. The interest payments these firms make are a

fixed cost since they do not vary with output

The chapter states​ that: ​"When the price of an inferior good​ falls, the income LOADING... and substitution LOADING... effects work in opposite directions.​" This statement​ means:

if the price of an inferior good falls, the income effect will decrease quantity demanded while the substitution effect will increase quantity demanded, so these two effects are n the opposite directions

Three mistakes consumers often make are

ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future.

What is a production​ function? A​ firm's production function is best described as

illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.

The​ short-run average cost can never be less the​ long-run average costs because

in the long​ run, all inputs are adjusted including the ones that are fixed in the short run.

The law of diminishing returns applies

in the short run

A budget​ constraint:

indicates the limited amount of income available to consumers to spend on goods and services.

Explain how the listed events would affect the following at Southwest​ Airlines: i. Marginal cost ii. Average variable cost iii. Average fixed cost iv. Average total cost Southwest signs a new contract with the Transport Workers Union that requires the airline to increase wages for its flight attendants. Marginal cost would increase ​, average variable cost would increase ​, average fixed cost would remain unchanged ​, and average total cost would increase

increase increase remain unchanged increase

The federal government starts to levy a​ $20 per passenger carbon emissions tax on all commerical air travel. Marginal cost would increase ​, average variable cost would increase ​, average fixed cost would remain unchanged ​, and average total cost would increase .

increase increase remain unchanged increase

s the demand for​ cage-free eggs​ increases, other things​ equal, the price would increase so firms will earn higher profits. This will attract more farmers into the industry and cause the industry supply curve to shift to the right . If this is a constant-cost ​industry, the price will decrease in the​ long-run to what it was prior to the increase in demand.

increase higher supply right a constant-cost

In​ 2012, then Barnes​ & Noble CEO William Lynch predicted that although the firm was suffering losses in selling its Nook​ tablet, "the Nook business will scale in fiscal​ 2013, reducing losses from last​ year." When Lynch said that​ "the Nook business will​ scale," he meant the Nook business wi

increase in size gaining economy of scale advantages.

Why is your answer important for predicting how much the quantity of gasoline demanded will increase as a result of the price​ decline? When the price of a good​ declines, the income effect tells us that the quantity demanded will ▼ decrease more decrease less increase more increase less if the good is a normal good than if it is an inferior good.

increase more

The marginal utility per dollar you are spending on iTunes music downloads is less than the marginal utility per dollar you are spending on Red Bull. According to the rule of equal marginal utility per dollar​ spent, what can you do to increase your total utility from consumption of music downloads and Red​ Bull?

increase your consumption of red bull

Network externalities are present when the usefulness of a product

increases when the number of consumers who use it

When the marginal product of labor is greater than the average product of labor, then the average product of labor must be:

increasing

When the marginal product of labor is greater than the average product of​ labor, then the average product of labor must be

increasing

A firm uses capital and labor to produce output. The isoquant graph to the right illustrates the​ firm's technology with isoquant curves. A couple of input combinations are also indicated in the figure. Suppose the firm is currently using a combination of inputs indicated by point Upper C. Which of the indicated input bundles would produce the same amount of output​ (as input combination Upper C​)?

input combination Upper B would produce the same amount of output because it is on the same isoquant.

Which of the following is most likely to be a fixed cost for a​ farmer?

insurance premiums on property

The substitution effect for a normal good is __________ while the substitution effect for an inferior good is __________

inversely related to price, inversely related to price

The substitution effect for a normal good is __________ while the substitution effect for an inferior good is __________.

inversely related to price, inversely related to price

When the ultimatum game experiment is carried​ out, both allocators and recipients act as if fairness

is important

Is it possible for technological change to be​ negative? If​ so, give an example.

is it possible for technological change to be negative. an example is when a hurricane damages a firm's facilities

Which of the following are examples of a firm experiencing positive technological​ change? a. A firm is able to cut each​ worker's wage rate by 10 percent and still produce the same level of output. This is not an example of positive technological change. b. A training program makes a​ firm's workers more productive. This is an example of positive technological change. c. An exercise program makes a​ firm's workers more healthy and productive. This is an example of positive technological change. d. A firm cuts its workforce and is able to maintain its initial level of output. This is an example of positive technological change. e. A firm rearranges the layout of its factory and finds that by using its initial set of​ inputs, it can produce exactly as much as before. This is not an example of positive technological change.

is not is is is is not

A firm produces output using capital and labor. The​ firm's marginal product of labor ​(MP Subscript Upper L​) is 10 and its marginal product of capital ​(MP Subscript Upper K​) is 2. Suppose the wage per unit of labor​ (w) is ​$14.00 and the cost per unit of capital​ (r) is ​$7.00. Is the firm minimizing the cost of​ production? What should the firm​ do, if​ anything, to produce the same level of output at lower​ cost? The firm

is not minimizing the cost of production and should use more labor and less capital

What is meant by allocative​ efficiency? Allocative efficiency is when every good or service

is produced up to the point where the marginal benefit for consumers equals the marginal cost of producing it

When the price of a product​ changes,

it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

The optimal combination of pizza and coke is the one where the:

marginal utility per dollar spent on pizza equals the marginal utility per dollar spent on coke

The GPA you earn in a particular semester is your​ ________ GPA, and your cumulative GPA for all completed semesters is your​ ________ GPA.

marginal; average

The late Nobel​ Prize-winning economist George Stigler once​ wrote, "the most common and most important criticism of perfect competition...​ [is] that it is​ unrealistic." ​Source: George​ Stigler, "Perfect​ Competition, Historically​ Contemplated," Journal of Political Economy​, Vol.​ 55, No.​ 1, (February​ 1957), pp.​ 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to​ entry, economists believe that the model of perfect competition is important because

it is a benchmarklong dasha market with the maximum possible competitionlong dashthat economists use to evaluate actual markets that are not perfectly competitive.

When are firms likely to be price​ takers? A firm is likely to be a price taker when

it sells a product that is exactly the same as every other firm

Penney followed this strategy because

it sold almost​ three-quarters of its products at prices marked down by at least 50 percent.

If a firm decided to maximize​ revenue, would it be likely to produce a smaller or a larger quantity than if it were maximizing​ profit? The firm would produce a larger quantity of output.

larger

Suppose ham is a normal LOADING... good. How will consumers adjust their buying decisions if the price of ham​ changes? If the price of ham​ increases, then consumers will demand

less ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.

An article in the Wall Street Journal discussed the purchase of the small Zipcar rental car firm by the much larger Avis. The article predicted that the purchase would be successful because of the​ "efficiencies gained by putting the two companies​ together." The article also observed​ that: "On its​ own, Zipcar is too small to achieve economies of​ scale." ​Source: Rolfe​ Winkler, "Avis Puts Some Zip in Its​ Weekend," Wall Street Journal​, January​ 2, 2013. A rental car company can realize benefits from economies of scale by

leveraging its purchasing power when buying new cars.

According to an article in ​Forbes, the cost of materials in​ Apple's iPhone 6 with 16 gigabytes of memory was estimated to be​ $227. Apple was selling the iPhone 6 for​ $650. Most phone​ carriers, like​ AT&T and​ Verizon, made payments to Apple that reduced the price to consumers to​ $200. ​Source: Chuck​ Jones, "Apple's iPhone 6 Teardown And and Other Costs​ Analysis," Forbes​, September​ 24, 2014. Can we conclude from this information that Apple is making a profit of about​ $423 per​ iPhone? Briefly explain. ​Apple's profit is

likely less than​ $423 per iPhone because Apple also has fixed costs of production.

Speaking about a recent trip to​ Switzerland, Daniel Hammermesh made the following comment in the New York Times​: A waste of​ time! After arriving at our hotel in Switzerland at 7​ p.m., my wife and I had both hoped to work on our computerslong dashbut we​ couldn't. Although we had bought universal plug adapters​ (which convert American plugs to​ European, Australian, and English​ outlets), it turns out that Switzerland has its own unique​ three-prong plug.​ Why? This kind of plug adapter is not sold with standard adapter sets. Why does Switzerland renounce the network externalities that would come with using standard European plugs with their standard​ 220-volt electricity? ​Source: Daniel​ Hammermesh, "If Switzerland Would Only Change Its​ Plugs," New York Times​, September​ 23, 2008. How is Switzerland​ "renouncing network​ externalities" by not using standard European​ plugs? Switzerland is​ "renouncing network​ externalities" by

limiting the usefulness of the standard European plug.

Which of the following terms refers to the lowest cost at which a firm is able to produce a given level of output in the long​ run, when no inputs are​ fixed?

long-run average cost curve

What are the three conditions for a market to be perfectly​ competitive? For a market to be perfectly​ competitive, there must be

many buyers and​ sellers, with all firms selling identical​ products, and no barriers to new firms entering the market.

What is the name for the additional output that a firm produces as a result of hiring one more worker?

marginal product of labor

The increase in total revenue that results from selling one more unit of output is

marginal revenue

According to the law of diminishing marginal utility, as the consumption of a particular good increases:

marginal utility decreases

The marginal cost curve intersects both the average variable cost and the average total cost curves at their

minimum points

nstead, suppose ham is an inferior good. If the price of ham​ increases, then consumers will demand more ham due to the income effect and less ham due to the substitution effect.

more less

Suppose ham is an inferior LOADING... good. How will consumers adjust their buying decisions if the price of ham​ changes? If the price of ham​ increases, then consumers will demand

more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.

In studying the consumption of very poor families in​ China, Robert Jensen and Nolan Miller found that in both Hunan and Gansu​ "Giffen behavior is most likely to be found among a range of households that are poor​ (but not too poor or too​ rich)." ​Source: Robert T. Jensen and Nolan H.​ Miller, "Giffen Behavior and Subsistence​ Consumption," American Economic Review​, Vol.​ 98, No.​ 4, September​ 2008, p. 1569. a. ​"Giffen behavior" describes the purchase of

more of a good when the price rises

when positive technological change occurs

more output can be produced from the same inputs the same output can be produced with fewer inputs

What affects the desirability of a​ product? Products become more desirable when

movie stars use a product celebrities use a product professional athletes use a product

Small business owner Jay Goltz described several decisions he made to reduce the fixed costs of his​ businesses, including replacing halogen lamps with LED lamps. Goltz​ noted, "...I'm guessing that many business owners could save a lot more than pennies on their fixed​ costs, and those savings...fall right to the bottom​ line." ​Source: Jay​ Goltz, "Not All Fixed Costs Are Truly​ Fixed," New York Times​, May​ 25, 2011. a. The cost of electricity used to power the lights used in Mr.​ Goltz' businesses are fixed costs because these costs

must be paid regardless of the volume of output.

The income effect for a normal good is __________ while the income effect for an inferior good is __________.

negative; positive

In​ 2015, some beer drinkers filed a lawsuit against​ Anheuser-Bucsh, the brewer of​ Beck's beer. The beer drinkers claimed that​ Beck's was marketed as an authentic German​ beer, but was actually brewed in St. Louis. Other breweries have established facilities in Canada so they can truthfully claim that their beers are​ "imported." ​Source: Jacob Greshman and Tripp​ Mickle, "Trouble Brews for​ 'Imported' Beers Brewed in​ America," Wall Street Journal​, June​ 24, 2015. If the market for beer were perfectly​ competitive, the location of breweries would

not matter to consumers since the product would be homogeneous.

Marty and Ann discussed the rule of equal marginal utility per dollar​ spent, a topic that was recently covered in the economics course they were both​ taking: ​Marty:​ "When I use my calculator to divide the marginal utility of pizza by a price of​ zero, I​ don't get an answer. This result must mean that if pizza were being sold for a price of zero the quantity demanded would be​ infinite." ​Ann:​ "Marty, that​ can't be true. No producer would be willing to sell​ pizza, or any other​ product, for a zero price. Quantity demanded cannot be​ infinite, so zero prices cannot appear on demand curves and demand​ schedules." Assume that Marty and Ann ask you for advice. Which of their statements is​ correct? A. Marty is correct.

neither is correct

is utility measurable

no

According to the U.S. Energy Information​ Administration, the average price of heating oil fell to under​ $3.00 a gallon during the winter of​ 2014-2015, the lowest price in more than four years. About 6.2 million U.S. households in the Northeast rely on the fuel to heat their homes. For the following​ questions, assume that no factor that affects the demand for heating​ oil, other than its​ price, changed during the winter of​ 2014-2015. ​Source: Jon​ Kamp, "Cheaper Hearing Oil Fuels Billions in Savings in​ Northeast," Wall Street Journal​, January​ 16, 2015. If households in the Northeast decreased their consumption of heating oil in the winter of​ 2014-2015, can we conclude that for these​ households, heating oil was an inferior ​good?

no. to conclude that heating oil is an inferior good, we would have to know that less heating oil was consumed as the incomes of northeast households rose

The following questions are about​ long-run equilibrium in the market for​ cage-free eggs. ​Source: John​ Kell, "Dunkin' Donuts Considers Using Only​ Cage-Free Eggs," fortune.com​, March​ 30, 2015. a. As described in the chapter​ opener, the market for cage​-free eggs in 2015 was

not in equilibrium because farmers who were raising​ cage-free chickens were earning higher profits than farmers who raised chickens using more traditional methods.

Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of​ $5.00 per movie and to purchase 5 CDs per month at a cost of​ $10.00 per CD. Your marginal utility LOADING... from the fifth movie is 20 and your marginal utility from the fifth CD is 30. Are you maximizing​ utility? You are What could you do to increase​ utility? You could increase utility by consuming more movies and fewer CDs .

not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs movies and CDs

Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of​ $5.00 per movie and to purchase 5 CDs per month at a cost of​ $10.00 per CD. Your marginal utility LOADING... from the fifth movie is 30 and your marginal utility from the fifth CD is 68. Are you maximizing​ utility? You are

not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs.

Refer to the to graph on the right. From the origin up until point ​A, A. output increases at a decreasing rate. B. the effect of diminishing returns is greater than the effect of specialization. C. output increases at a constant rate. D. output increases at an increasing rate. Your answer is correct. From point A up until point ​B, A. output increases at an increasing rate. B. output decreases. C. output increases at a decreasing rate. Your answer is correct.D. output increases at a constant rate.

output increases at an increasing rate output increases at a decreasing rate

In perfect competition, the marginal revenue is the same as:

price

A firm in perfect competition earns profit if:

price is greater than average total cost

What is meant by productive​ efficiency? Productive efficiency is

produced at lowest price possible

Consider a firm in each of the following three​ situations, and explain whether the firm will produce in the short run or shut down in the short run.

produce​ 1,000 units of output and break even with a price of​ $10.00. produce​ 1,000 units of output at a loss since the price is less than the average total cost. shut down since the price is less than the average variable cost.

Many people donate to charity and leave tips to servers in restaurants even when they will never visit the restaurant again. Economists consider this type of behavior to be:

rational, because it shows people value fairness

What role does utility LOADING... play in the economic model of consumer​ behavior? When modeling consumer​ behavior, utility

reflects the satisfaction a consumer receives from consuming a particular set of goods and services

An article in the New York Times about J.C.​ Penney's pricing strategy under former CEO Ron Johnson​ observes: ​"Penney had pulled up the​ anchor, only to see many of its customers sail​ away." ​Source: Stephanie Clifford and Katherine​ Rampell, "Sometimes We Want Prices to Fool​ Us," New York Times​, April​ 13, 2013. In behavioral​ economics, an​ "anchor" is

relating an unknown value or price to another similar known value or price.

Southwest decides on an​ across-the-board 10 percent cut in executive salaries. Marginal cost would remain unchanged ​, average variable cost would remain unchanged ​, average fixed cost would decrease ​, and average total cost would decrease

remain unchanged remain unchanged decrease decrease

Southwest decides to cut its television advertising budget. Marginal cost would remain unchanged ​, average variable cost would remain unchanged ​, average fixed cost would decrease ​, and average total cost would decrease .

remain unchanged remain unchanged decrease decrease

southwest decides to double its television budget

remain unchanged remain unchanged increase increase

Does the market system result in allocative​ efficiency? In the long​ run, perfect competition

results in allocative efficiency because firms produce where price equals marginal cost.

Suppose that UPS saves​ $50 million per year because of lower gasoline prices. Would that cost saving be due to technological change at the​ firm? Briefly explain. If UPS saved​ $50 million annually due to a decrease in gasoline​ prices, this would be

saving that results from the use of lower priced inputs.

In perfect competition, when a firm is making positive economic profit in the short run, then new firms enter the market causing the market supply curve to __________ and the market price to __________.

shift rightward, decrease

Suppose Sheri owns a restaurant that serves pizza using three​ inputs: workers, restaurant space​ (and layout), and ovens. If workers are fixed​, restaurant space​ (and layout) is fixed​, and ovens are variable​, then Sheri is producing pizza in the

short run

A study analyzed the costs to a pharmaceutical firm of developing a prescription drug and receiving government approval. An article in the Wall Street Journal noted that included in the​ firm's costs was​ "the return that could be gained if the money​ [used to develop the​ drug] were invested​ elsewhere." Briefly explain whether you agree that this return should be included in the​ firm's costs. ​Source: Ed​ Silverman, "Can It Really Cost​ $2.6 Billion to Develop a​ Drug?," Wall Street Journal​, November​ 21, 2014. This return

should be included in the​ firm's costs because the opportunity cost of the​ firm's investment is one of the​ firm's implicit production costs.

If the market price for wheat were indeed ​$3 per​ bushel, should the wheat farmer exit the industry in the long​ run? In the long​ run, the wheat farmer

should continue to produce wheat because breaking even is as high a return as she could earn elsewhere.

A perfectly competitive firm is losing money in the short​ run, and its price is less than its average variable cost. In order to minimize its losses in the short​ run, this firm should

shut down

Behavioral economics is the study of

situations in which people make choices that do not appear to be economically rational.

in an article in the Quarterly Journal of Economics​, Ted​ O'Donoghue and Matthew Rabin make the following​ observation: ​"People have​ self-control problems caused by a tendency to pursue immediate gratification in a way that their​ 'long-run selves' do not​ appreciate." ​Source: Ted​ O'Donoghue and Matthew​ Rabin, "Choice and​ Procrastination," Quarterly Journal of Economics​, February​ 2001, pp.​ 125-26. Which of the following is an example of pursuing a goal which is in a​ person's long-term​ interest?

succeeding in school

Economically rational means that consumers and firms

take actions that are appropriate to reach goals given available information.

Marvin visits his aunt and uncle who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during​ Marvin's visit. An online broker has a ticket for sale in Section 212 of the arena where the game will be played but the​ price, $75, is more than Marvin is willing to pay. From another online ticket broker he buys a ticket for​ $50 for a seat in Section 212 of the arena. On the day of the​ game, a friend of​ Marvin's uncle offers to pay Marvin​ $75 for his ticket. He declines the offer. ​Marvin's refusal to sell his ticket can be explained b

the endowment effect in which Marvin is not considering the nonmonetary opportunity cost of the ticket.

b. In the long run in the market for cage​-free ​eggs, we would expect

the equilbrium price to decrease and the equilibrium quantity to​ increase, as more firms enter.

which of the following costs are implicit costs?

the forgone salary and interest

What is the production​ function? The production function is the relationship between

the inputs employed by a firm and the maximum output it can produce with those inputs.

What is minimum efficient​ scale? Minimum efficient scale is

the level of scale in which all economics of scale are exhausted

If the marginal product of labor is falling​, is the marginal cost of production rising or​ falling? Briefly explain. If the additional output from each new worker is falling​,

the marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.

Explain why it is true that for a firm in a perfectly competitive​ market, the​ profit-maximizing condition MR​ = MC is equivalent to the condition P​ = MC. When maximizing​ profits, MR​ = MC is equivalent to P​ = MC because

the marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

Quantity Price 3 3 6 7 8 12 10 $21 The image is the first diagram in the panel that shows two upward-sloping supply curves. The horizontal axis measures the quantity and the vertical axis measures the price in dollars. In the graph, there is an upward-sloping supply curve that is convex to the horizontal axis. There are four points marked on the supply curve. These points correspond to the quantity and price combinations of (3, $3), (6, $7), (8, $12), and (10, $21) respectively. Quantity Price 300 3 600 7 800 12 1,000 $21 The image is the second diagram in the panel that shows two upward-sloping supply curves. The horizontal axis measures the quantity and the vertical axis measures the price in dollars. In the graph, there is an upward-sloping supply curve that is convex to the horizontal axis. There are four points marked on the curve. These points correspond to the quantity and price combinations of (300, $3), (600, $7), (800, $12), and (1,000, $21) respectively. Refer to the graphs above. Suppose the graph on the left represents a typical​ firm's supply curve in a perfectly competitive​ industry, and there are 100 identical firms in the industry. What does the graph on the right​ represent?

the market supply curve

The poorest of the poor would be less likely to exhibit this behavior than people with slightly higher incomes because

the poorest of the poor often cannot purchase more of a good when the price rises

what is technology

the processes a firm uses to turn inputs into outputs of goods and services.

When network externalities are present, the usefulness of:

the product increases as more consumers use it

​AXA's actions could make economic sense in the long run if​ AXA's

total cost per square foot is equal to​ $40 or less.

Characterize utility maximization. When consumers maximize​ utility,

they consume each good up to the point where the marginal utility per dollar spent is the same for each good. B. the slope of the indifference curve equals the slope of the budget constraint at the point of optimization. C. the marginal rate of substitution equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis at the point of optimization. D. both a and b.t

What explanation might an economist provide why some people smoke cigarettes when such behavior can lead to health​ consequences? Some people likely smoke cigarettes because

they underestimate the future costs of current choices

LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility LOADING... of the fourth bag of corn chips is​ 10, and the marginal utility of the fifth bottle of soda is also 10. Is LaToya maximizing​ utility?

this cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda

If people are uncertain whether the price of a product is high or​ low, they often compare the price to the previous price of the product.

true

In many​ cases, the popularity of people who use a product can make the product desirable.

true

The economic model of consumer behavior predicts that consumers will choose to buy the combination of goods and services that makes them as well off as possible from among all the combinations that their budgets allow them to buy.

true

Any cost that changes as output changes represents a​ firm's

variable cost

According to an article in the Wall Street Journal​, in 2007 the insurance company AXA Equitable signed a​ long-term lease on 2 million square feet of office space in a skyscraper on Sixth Avenue in Manhattan in New York City. In​ 2013, AXA decided that it only needed 1.7 million square feet of office​ space, so it subleased​ 300,000 square feet of space to several other firms. Although AXA is paying a rent of​ $88 per square foot on all 2 million square feet it is​ leasing, it is only receiving​ $40 per square foot from the firms subleasing the​ 300,000 square feet. ​Source: Molly​ Hensley-Clancy, "A Slump on Sixth​ Avenue," Wall Street Journal​, June​ 16, 2013. ​AXA's actions might make economic sense in the short run if​ AXA's

variable cost per square foot was equal to or less than​ $40.

Which costs are affected by the level of output​ produced?

variable costs

Which of these costs are affected by the level of output produced?

variable costs

When graphing a conventional short-run production function, we place __________ on the horizontal axis and __________ on the vertical axis.

variable input, output

The following problem is somewhat advanced. Using​ symbols, we can write that the marginal product of labor is equal to Upper Delta Upper Q divided by Upper Delta Upper L. Marginal cost is equal to Upper Delta TC divided by Upper Delta Upper Q. Because fixed costs by definition​ don't change, marginal cost is also equal to Upper Delta VC divided by Upper Delta Upper Q. If Jill​ Johnson's only variable cost is labor​ cost, then her variable cost is just the wage times the quantity of workers​ hired, or w times L. If the wage Jill pays is​ constant, then what is Upper Delta VC in terms of w and​ L?

w * change of L

Use your answer above and the expressions given for the marginal product of labor and the marginal cost of output to find an expression for marginal​ cost, Upper Delta TC divided by Upper Delta Upper Q​, in terms of the​ wage, w, and the marginal product of​ labor, Upper Delta Upper Q divided by Upper Delta Upper L. Marginal cost equals w divided by left parenthesis Upper Delta Upper Q divided by Upper Delta Upper L right parenthesis

w/change Q/change W

​[Related to Solved Problem ​#4​] Suppose you decide to open a copy store. You rent store space​ (signing a​ one-year lease), and you take out a loan at a local bank and use the money to purchase 10 copiers. Six months​ later, a large chain opens a copy store two blocks away from yours. As a​ result, the revenue you receive from your copy​ store, while sufficient to cover the wages of your employees and the costs of paper and​ utilities, doesn't cover all of your rent and the interest and repayment costs on the loan you took out to purchase the copiers.

yes, because you are covering variable costs

Which of the following are perfectly competitive markets corn farming sub sandwich shop manufacturing computers bridge building

yes, many, identical, high no many differentiated high no few differentiated low no few differentiated low

Suppose that you are a big fan of the Harry Potter books. You would love to own a copy of the very first printing of the first​ book, but unfortunately you​ can't find it for sale for less than​ $5,000. You are willing to pay at most​ $200 for a​ copy, but​ can't find one at that price until one day in a used bookstore you see a copy selling for​ $10, which you immediately buy. If you keep the copy rather than sell​ it, then all of the following are correct except

you are making a rational choice since the opportunity cost of the book is​ $5,000.

what could you do to increase utility?

you could consumer more CDs and fewer movies

In perfect​ competition, long-run equilibrium occurs when the economic profit is

zero

The graph at right represents the situation of Karl​ Kumquats, a kumquat grower. Karl is earning

zero economic​ profit, but could have a positive accouting profit.

In the ultimatum​ game, if neither the allocator nor the recipient cared about​ fairness, what would be the optimal distribution of​ $20.00? A.

​$19.99 for the allocator and​ $0.01 for the recipient.

Is Jill Johnson correct when she says the​ following: ​"I am currently producing​ 10,000 pizzas per month at a total cost of ​$40 comma 000. If I produce​ 10,001 pizzas, my total cost will rise to ​$40 comma 050. ​Therefore, my marginal cost of producing pizzas must be​ increasing."

​Jill's average total cost of production is​ increasing, so her marginal cost of producing pizzas must be increasing.

The Washington National Football League team paid a very high price to select Baylor quarterback Robert Griffen III in the 2012 player draft. In addition to paying Griffen a high​ salary, the team made a trade with the St. Louis team in which they had to give up the rights to select several other highly ranked players. According to a news​ story, by​ 2014, the​ team's coaches seemed to view the​ team's backup quarterback as a better player than​ Griffen, "but had to go with Griffin because the organization was so committed to​ him." The story described the price the team had paid​ "the highest price ever to draft an N.F.L.​ player." ​Source: Neil​ Irwin, "Robert Griffin III and the Sunk Cost​ Fallacy," New York Times​, September​ 15, 2014. Should the price the team paid matter to its decision as to whether Griffen or his backup should start for the​ team?

​No, the quarterback who the coaches believe is best suited to be the starter should start for the team.

Which of the following reasons do economists use to explain why people are​ overweight?

​People's preferences are not consistent over time. B. People undervalue the utility to be received in the future. C. People overvalue the utility from current choices

Sally looks at her college transcript and says to​ you, ​"How is this​ possible? My grade point average​ (GPA) for this​ semester's courses is higher than my GPA for last​ semester's courses, but my cumulative GPA still went down from last semester to this​ semester." Explain to Sally how this is possible.

​Sally's GPA for this semester is lower than her cumulative GPA.

If Avis and​ Zipcar, before the​ merger, each were already as efficient as possible as stand alone​ companies, would a merger provide any additional possible efficienies for the combined​ company?

​Yes, because economies of scale would increase.

An article in the Wall Street Journal discusses the visual effects​ industry, which is made up of firms that provide visual effects for films and television programs. The article notes​ that: "Blockbusters... often have thousands of visual effects shots. Even dramas and comedies today can include hundreds of​ them." But the article notes that the firms producing the effects have not been very profitable. Some firms have declared​ bankruptcy, and the former general manager of one firm was quoted as​ saying: ​ "A good year for us was a​ 5% return." ​Source: Ben​ Fritz, "Visual Effects Industry Does a Disappearing​ Act," Wall Street Journal​, February​ 22, 2013. What dynamics best describe the factors at play in this​ market? Market entry for visual effect companies is relatively

​easy, so firms can expect to earn zero economic profit in the long run.

In an opinion​ survey, Snoopy was found to be the most appealing celebrity endorser. The beagle from the popular Peanuts comic strip appeared in commercials for the insurance company MetLife. ​Source: Jeff​ Bercovici, "America's Most Loved​ Spokespersons," Forbes​, March​ 14, 2011. The advantages of using Snoopy are that he always appears to be

​lovable, funny and he has a reassuring aura.

b. Goltz wrote that reducing fixed costs results in savings that​ "fall right to the bottom​ line" because

​profit, the bottom​ line, is revenue minus fixed costs minus variable​ costs, so a reduction in fixed costs increases profit.