microecon Final exam chapters 10, 11, 12, 13

Refer to the graph for a firm that produces at the profit-maximizing level of output. What is the total profit made by the firm?

$40

Refer to the table above showing the cost of producing dresses with a market price of $30. What is the profit when 5 dresses are produced?

$75 Profit = 5 × $30 - $75 = $75

Refer to the graph for a firm that is producing at the profit maximizing level of output. How much profit is the firm making?

-$20

Refer to the graph shown. What is the profit maximizing level of output?

4 units

Refer to the graph shown that represents cost curves for a perfectly competitive firm. If the market price is $40, it will maximize profits by selling how many units?

6

Refer to the graph shown. This firm will do best producing

8 units because it is maximizing total profit.

The graph shown illustrates cost curves for a given production function. The marginal cost curve is represented by curve _____.

A

The production function shown exhibits increasing marginal productivity in area _____.

A

Refer to the graph above. In which region(s) will the firm most likely choose not to produce?

A A and C C

Which of the following statements correctly expresses the relationship between technical and economic efficiency?

An economically efficient method of production is also technically efficient.

Refer to the graph shown. If a tariff of T is imposed on the good, the revenue collected will be _____.

Areas B and C

A firm has a fixed cost of $1,200 and variable costs of $120 per unit. What is the average total cost of producing 5 units of output?

Average total cost = [1,200 + 5 (120)] / 5 = $360

A firm has fixed costs of $400 and average variable costs of $5 per unit. What is the average total cost of producing 20 units of output?

Average total cost = [400 + 20(5)] / 20 = $25

If Country X and Country Y specialized and traded which point represents a maximum combination of shoes and socks that each country could consume if they divided production equally?

B

If Country X and Country Y specialized and traded, which point represents a maximum combination of bananas and apples that each country could consume?

B

The point above which the firm will be better off if it temporarily shuts down than if it stays in business is shown by which point on the graph?

B

Why do smaller countries tend to benefit more from trade?

Because the markets are so small, trade opens up relatively more opportunities for smaller countries.

Which of the following correctly states economists' insights about how the gains from trade are divided?

Countries producing goods with economies of scale tend to get a larger gain from trade. Smaller countries tend to get a larger proportion of the gain than larger countries.

Josie, who was previously employed as a policewoman, owns a firm that produces burglary kits. She used to earn $1000 per month when she was a policewoman and she could return to that job if she wanted to do so. Now, she sells 500 kits in a month for $10 each. The cost of production is $2000. In a month, she makes an economic profit of _____.

Economic profit = 500 × 10 - 1,000 - 2,000 = $2,000. Both implicit and explicit costs should be included in the calculation.

Which of the following correctly states the reasons for the U-shapes of the long-run and short-run average total cost curves?

Economies of scale account for the downward slope of the long-run average total cost curve and increasing marginal productivity accounts for the downward slope of the short-run average total cost curve. Diseconomies of scale account for the upward slope of the long-run average total cost curve and decreasing marginal productivity accounts for the upward slope of the short-run average total cost curve.

True or false: According to the law of diminishing marginal productivity, marginal product will decline more slowly as output increases.

False

True or false: The more competition that exists among traders, the less likely it is that the citizens in the two countries get big gains from trade.

False

True or false: If a depreciation measure includes opportunity cost, it most likely refers to accounting depreciation

False Accounting measures do not account for opportunity costs; economic measures do.

lower than short-run costs. the same as short-run costs.

False The long run average total cost curve is only tangent to the minimum of a short-run average total cost curve at the minimum of the LATC curve.

True or false: The minimum efficient level of production is where marginal costs equal average total cost.

False The minimum efficient level of production is the level of production that spreads setup costs out sufficiently for a firm to undertake production profitably.

True or false: An economically efficient production method is the method that produces a given level of output at the lowest possible cost.

False This is the definition of economically efficient. It takes into account costs of production rather than just combinations of input.

Which of the following are conditions of a perfectly competitive market?

Firm's products are identical. There are no barriers to entry. Both buyers and sellers are price takers. There are many firms.

For producing 50 bags, Jenny can decide between three combinations of inputs: I. 10 zips and 5 embellishments II. 20 zips and 2 embellishments III. 5 zips and 10 embellishments Zips cost $1 each and embellishments cost $2 each. Which among these is the most economically efficient method?

I

For producing 100 shoes, John can decide between three combinations of inputs: I. 200 laces and 100 embellishments II. 150 laces and 150 embellishments III. 150 laces and 100 embellishments Laces and embellishments cost $10 each. Which method is economically efficient?

III Both methods I and II cost $3,000, while method III costs $2,500. Thus, method III is economically efficient.

For producing 100 shoes, John can decide between three combinations of inputs: I. 200 laces and 100 embellishments II. 150 laces and 150 embellishments III. 150 laces and 100 embellishments Which method is technically efficient?

III Method III uses fewer embellishments than method II without using more laces. Method III also uses fewer laces than Method I without using more embellishments. Because output levels are the same, method III must be the technically efficient method.

Trade restrictions for national security reasons do not take which of the following forms?

Limit voluntary trade restrictions Restrict imports of food

Which of the following can lead to diseconomies of scale?

Loss of team spirit Monitoring costs

The profit maximizing condition for a perfectly competitive firm is _____.

MC = MR

Which of the following are reasons economists oppose trade restrictions?

National security reasons to restrict trade are often abused. Free trade increases total output. Free trade increases competition. Trade restrictions are addictive.

Refer to the graph shown. If the country imposes a quota of Q0 on imported goods, equilibrium price paid by the consumer will be _____.

P0

The United States imposes a tariff of T per unit on speedboats imported from Canada shown above. The price the sellers of the boats receive is ____.

P1

The United States imposes a tariff of T per unit on speedboats imported from Canada as shown here. Now, the equilibrium price of Canadian imported speed boats that consumers pay is likely to be ____.

P3

Refer to the table above. What is total profit at an output of 3 units?

Profit = 3 ($20)-$35=$25

Trade restrictions for national security reasons often take which of the following forms?

Restrict exports of defense-related goods Restrict exports of strategic materials Restrict imports of defense related goods

Which of the following statements is true about the short and long runs?

Some inputs are fixed in the short run. All inputs are variable in the long run.

In what ways do quotas differ from tariffs?

Tariffs decrease the price producers receive; quotas do not.

Which of the following results in a more efficient way of producing goods?

Technological change

Fixed costs do not exist in which time frame?

The long run

Refer to the graph shown. What is wrong with the graph here that shows the profit-maximizing level of output?

The profit-maximizing level of output should be where marginal cost equals marginal revenue.

Which of the following are conditions of a perfectly competitive market?

There are many firms. Firm's products are identical. There are no barriers to entry. Both buyers and sellers are price takers.

A perfectly competitive market exhibits the following conditions.

There are no barriers to entry. The firm sells at the price dictated by the market.

Tariffs remain a primary source of revenue for many developing countries for the following reasons.

They are paid by those who can afford imports. Other forms of taxes have not been instituted. They are relatively easy to collect.

Which of the following are reasons countries restrict trade?

To increase government revenue To protect national security To be strategic in international politics

Which of the following are reasons countries restrict trade?

To stimulate domestic aggregate demand To protect national security To avoid unequal distribution of the benefits of trade

A firm sells 10 shoes for $400, and incurs a total cost of $100. The firm makes an average profit of _____.

Total profit = total revenue - total cost = $400 - $100 = $300. Average profit = total profit/quantity produced = $300/10 shoes = $30/shoe.

Given the opportunity costs illustrated in this graph, are there potential gains from trade for Country X and Y?

Yes

The comparative advantage argument for free trade assumes that

a country is fully utilizing its resources.

Refer to the firm shown producing at price P0 and quantity Q0. The firm is making _____.

a loss

The graph shown illustrates cost curves for a given production function. Curve A represents _____.

a marginal cost curve

When the ATC curve is below the marginal revenue curve, the firm makes

a profit

The graph shown illustrates cost curves for a given production function. Curve B represents _____.

an average total cost curve

The graph shown illustrates cost curves for a given production function. Curve C represents _____.

an average variable cost curve

Barriers to entry

are impediments to competition.

At the minimum efficient level of production, the long run average total cost is _____.

at its minimum

Refer to the graph shown. What is the shutdown point of the firm?

b

The production function shown exhibits diminishing marginal productivity in area ____.

b

The law of diminishing marginal productivity implies that eventually

both marginal and average cost curves will be upward sloping.

In a long-run decision, a firm

can choose among all possible production techniques.

A market in which economic forces operate unimpeded is called a perfectly ________________ market.

competitive

To maximize profits a perfectly competitive firm should produce where marginal

cost equals market price.

When a company is experiencing economies of scale,

costs per unit of output are falling as production rises.

More gains from trade go to

countries that experience economies of scale because increasing production reduces production cost.

Which country has a comparative advantage in producing shoes?

country x

A firm is experiencing diseconomies of scale when long-run average total costs

decrease as output decreases. increase as output increases.

If marginal cost is above marginal revenue, a perfectly competitive firm should

decrease production

Refer to the graph shown. The firm is currently producing at point D. It should

decrease production.

The long-run average cost curve will be upward sloping when the firm is experiencing _____.

diseconomies of scale

With constant returns to scale when an increase in output, long-run average total costs _____.

do not change

The infant industry argument states that a

domestic industry will be able to become competitive if it is protected when it initially begins production.

You know a firm is experiencing economies of scale is when its operating on the

downward sloping portion of its long-run average total cost curve.

In the long run, perfectly competitive firms

earn zero economic profit.

Refer to the graph shown. A perfectly competitive firm that maximizes profit as shown here is

earning no profit Because ATC = MR at the profit-maximizing level of output (where MC = MR), the firm is earning no profit..

The decline in the market value of an asset that occurs over time would be most consistent with _____.

economic depreciation

Cost is a determining factor in _____.

economic efficiency

The method that produces a given level of output at the lowest possible cost is called _____.

economic efficient

In a perfectly competitive market,

economic forces operate unimpeded.

Explicit and implicit revenue less explicit and implicit cost is equal to _____.

economic profit

In area A production exhibits _____.

economics of scale

If the cost of producing a good that a firm is already producing falls when it begins to produce another good, it is experiencing _____.

economics of scope

The downward sloping portion of the long-run average total cost curve is the result of _____.

economies of scale

Greater gains of trade tend to go to countries producing goods that exhibit

economies of scale because increased production will reduce the cost of production.

Who is a visionary that turns new technologies into useable goods and services?

entrepreneur

The _____ relationship tells us that, at planned output level, short-run average total cost equals long-run average total cost, but at all other levels of output, short-run average total cost is higher than long-run average total cost.

envelope

Perfectly competitive firms cannot earn economic profit in the long run because

equilibrium price will fall as new firms enter the market until economic profits are zero.

Using economists' framework, economic profit is best defined as

explicit and implicit revenue less explicit and implicit cost.

Total economic cost is

explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm.

When costs per unit are rising, we can infer that the productivity is _____.

falling

Refer to the graph. In region B the related marginal product would be

falling and average product is rising.

True or false: Regulatory trade restrictions limit imports directly.

false

True or false: Set-up costs can create diseconomies of scale.

false

True or false: Short-run costs will always be equal to or lower than long-run costs at the same level of output.

false

True or false: The average total cost curve has the same general U-shape as the average variable cost curve because the average total cost curve is the vertical sum of the average variable cost curve and the marginal cost curve.

false

True or false: The more competition that exists among traders, the less likely it is that the citizens in the two countries get big gains from trade.

false

True or false: The owner of a perfectly competitive firm sets prices based on cost mark-up.

false

True or false: The role of entrepreneurs is captured well in economic models.

false

True or false: The downward portion of the long-run and short-run average total cost curves is caused by economies of scale.

false The downward sloping portion of the short-run cost curve is caused by increasing marginal productivity. Economies of scale is a long-run concept.

True or false: The market supply curve is obtained by vertical summation of the supply curves of all the firms in a perfectly competitive market.

false The market supply curve is obtained by horizontal summation.

True or false: Technical efficiency means that the combination of inputs used to produce a given output minimizes costs.

false; This is the definition of economic efficiency. Technical efficiency minimizes inputs.

If firms are making an economic loss in a perfectly competitive industry

firms incurring economic losses will leave the industry.

The typical long-run average total cost curve

first falls and then rises.

The main difference between variable and fixed costs is that

fixed costs remain constant with the level of output, while variable costs change.

The demand curve facing a perfectly competitive firm is _____.

horizontal

The market supply curve is obtained by ________________ summation of the supply curves of all the firms in a perfectly competitive market.

horizontal

Implicit costs

include the opportunity costs of the factors of production provided by the owners of the business.

Economic profit

includes explicit revenue and cost, and accounting profit includes explicit revenue and cost. includes implicit revenue and cost, and accounting profit includes explicit revenue and cost.

Refer to the graph shown. The firm is currently producing at point B. It should

increase production.

rise in price paid by less than the tariff and reduction in quantity imported.

increase the prices of imports and reduce the level of imports.

Refer to the graph shown. A perfectly competitive firm that maximizes profit as shown here is

incurring a loss shown by area A.

The cost of an input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use is called an _____.

indivisible setup costs

Diseconomies of scale can be explained by _____.

loss of team spirit monitoring costs

Long-run costs can be

lower than short-run costs. the same as short-run costs.

The change in total revenue associated with a change in quantity is called __________ revenue.

marginal

A firm maximizes profit when marginal cost equals _____.

marginal revenue

The price of a perfectly competitive firm's good is determined by the _____.

market

The marginal revenue for a perfect competitor is the _____.

market price

The goal of the perfectly competitive firm is to ______.

maximize profits

When the firm is producing where the long-run average total cost curve is minimum, it is producing at the

minimum efficient level of production.

Every short-run average total cost curve touches the long-run average total cost curve at

one point

When there are economies of scale, as output increases _____.

per-unit cost decreases

The demand curve facing a perfectly competitive firm is ____.

perfectly elastic

An example of a regulatory trade restrictions is

prohibition of importing vegetables because of certain pesticide usage.

Refer to the graph shown for an imported good. The difference between a tariff T and a quota Q1 is that the

revenue collected by the domestic government from the tariff is areas A and B while no revenue is collected by the domestic government with a quota.

The United States imposes a tariff on machines imported from other countries. The likely impact on the price and quantity of imports sold in the United States is

rise in price paid by less than the tariff and reduction in quantity imported.

When marginal productivity falls, marginal cost _____.

rises

Refer to the graph. In region A the related marginal product would be

rising and average product is rising.

Refer to the graph. In region C, marginal cost is

rising and average variable cost is rising.

A country finances its trade deficit by

selling assets to foreign countries and by borrowing from them.

If firms are making an economic loss in a perfectly competitive industry, the market supply curve will eventually

shift to the left.

If firms are making an economic profit in a perfectly competitive industry, the market supply curve will eventually

shift to the right.

The minimum efficient level of production is the amount of production that

spreads setup costs out sufficiently for a firm to undertake production profitably.

When a given level of output cannot be produced using less of any one input, it is called _____.

technically efficient

Using economists' framework total revenue includes

the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm.

Using economists' framework, the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm is known as _____.

the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm.

A firm's marginal cost is equal to

the change in its total cost associated with an increase in output.

Economies of scope occur when

the cost of producing one good lowers the cost of producing another for a multi-product firm.

Traders are likely to get bigger gains from trade when

there is less competition among traders.

when there is competition

there is less competition among traders.

Firms that export to other countries prefer quotas over tariffs because

they raise the price they receive for a smaller quantity of goods that they sell.

Using economists' framework, explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm is _____.

total cost

Which of the following is always upward sloping?

total cost curve

True or false: As long as the opportunity costs of producing goods differ among countries, there are potential gains from trade.

true

True or false: The difference between economic profit and accounting profit is that economic profit includes implicit revenue and cost, while accounting profit does not.

true

True or false: When there is competition, smaller countries tend to get a larger percentage of the gains from trade than do larger countries.

true

True or false: The marginal cost curve is a perfect competitor's supply curve because a firm maximizes profits where marginal cost equals marginal revenue.

true Since a perfect competitor produces where MR = MR, the marginal cost curve is the perfect competitor's supply curve.

The marginal cost curve is a perfect competitor's supply curve because it maximizes profit by producing a quantity

where marginal cost equals marginal revenue, which is the market price.

Refer to the firm shown producing quantity Q0 and selling each unit for P0. The firm is making _____.

zero profit