AEDECON 2001 Exam 2 Study Guide

question

Diminishing marginal returns implies _________.

answer

increasing marginal costs.

question

If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is __________.

answer

0.33.

question

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are _________.

answer

$3,000.

question

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will _________.

answer

increase the quantity of education demanded by 14%.

question

Refer to Figure 5.2. If the price of a hamburger increases from $8 to $10, the price elasticity of demand equals ________. Use the midpoint formula.

answer

-3.0

question

The optimal method of production is the one that _________.

answer

minimizes cost.

question

Refer to Table 8.2. If Sherry produces three pairs of earnings, her total variable costs are _________.

answer

$140.

question

Refer to Table 8.2 above. If Sherry produces five pairs of earrings, her total costs are _________.

answer

$370.

question

Refer to Figure 6.10. The current price of a turkey sandwich is $6. If Kyle is currently buying five turkey sandwiches a week, he ________ maximizing utility because the marginal utility ________ than its price.

answer

is not; gained from the fifth sandwich is greater.

question

Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 6 and MUy/Py = 10. To maximize utility, he should _________.

answer

consume less X and more Y.

question

If industry supply increases while the industry demand remains the same, then an individual firm in a perfectly competitive industry currently earning positive profits will see its profits _________.
impossible to determine

answer

decrease.

question

Refer to Figure 7.2. The average product of the second worker is ________ lawns moved.

answer

question

Refer to Table 6.1. Diminishing marginal utility sets in after the ________ soda per day.

answer

First

question

Refer to Table 6.1 above. The total utility of five sodas per day is _________.

answer

question

Refer to Table 8.7. Assume that fruit baskets are sold in a perfectly competitive market. The market price of a fruit basket is $22. To maximize profits, Exotic Fruit should sell ________ fruit baskets and their profit is ________.

answer

six; $14

question

Refer to Figure 7.3. The marginal product of the second worker is ________ yards raked.

answer

question

If an individual perfectly competitive firm charges a price above the industry equilibrium price while competitors charge the equilibrium price, the firm will _________.

answer

not sell any of what it produces.

question

At the Pampered Pet Salon the marginal products of the first, second, and third workers are 20, 16, and 10 dogs washed, respectively. The total product (number of dogs washed) of the first two workers is _________.

answer

question

The price elasticity of demand for kale in Texas is -2, and the price elasticity of demand for kale in California is -0.5. In other words, demand in Texas is ________, and demand in California is ________.

answer

elastic; inelastic

question

Refer to Table 7.1. If the hourly wage rate is $10 and the hourly price of capital is $25, which production technology should be selected?

answer

question

The less time that elapses, the _________.

answer

less price elastic is the demand for the product.

question

Refer to Figure 5.1. The demand for tickets is _________.

answer

perfectly price inelastic.

question

If the most someone is willing to pay for ticket to see their favorite team is $100 and the market price of the ticket is $35, then this buyer will get consumer surplus of _________.

answer

$65

question

A deadweight loss occurs ________ in a market.

answer

when there is underproduction or overproduction

question

Total cost is _________.

answer

TFC + TVC

question

Refer to Figure 7.5. Diminishing marginal returns set in after the ________ worker is hired.

answer

fifth

question

The relationship between the price that a perfectly competitive firm can charge buyers and the firm's marginal revenue is that the price is ________ marginal revenue over all output.

answer

equal to

question

Refer to Figure 6.9. The marginal utility of the fourth video game rental is _________.

answer

question

If marginal cost is above average variable cost, then _________.

answer

average variable cost is increasing.

question

A firm is currently hiring capital and labor so that MPL/PL < MPK/PK, if the firm wishes to maximize profits it should hire _________.

answer

less labor and more capital.

question

Total revenue increases if price ________ and demand is ________.

answer

rises; inelastic

question

When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________.

answer

inelastic; increase

question

Assume Robbie's Robots operates in a perfectly competitive market producing 3,000 robots per day. At this output level, the selling price is $800 per robot and the marginal cost is $625 per robot. It follows that producing one more robot will cause this firm's _________.

answer

profits to increase.

question

Refer to the figure below. Assuming the wool market (industry) is perfectly competitive, each wool producer faces a(n) ________ demand curve starting at $3.00 per pound.

answer

Horizontal

question

When there are fewer substitutes for a product, the ________ for the product is ________.

answer

demand; less price elastic

question

We can state the utility-maximizing rule in words in the following way: A person maximizes utilitywhen she equalizes the ________ across products.

answer

marginal utility per dollar spent

question

The diamond/water paradox states that things with the ________ value in use frequently have ________ value in exchange.

answer

greatest; little or no

question

If economic profit is zero, a firm _________.

answer

earns exactly a normal rate of return.

question

Refer to Figure 8.8. If the market price of soybeans falls to $8, then to maximize profits this farmershould produce ____________.

answer

700 bushels of soybeans.

question

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?

answer

$800.

1 of 40

question

Diminishing marginal returns implies _________.

answer

increasing marginal costs.

question

If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is __________.

answer

0.33.

question

The Lawn Ranger, a landscaping company, has total costs of $4,000 and total variable costs of $1,000. The Lawn Ranger's total fixed costs are _________.

answer

$3,000.

question

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will _________.

answer

increase the quantity of education demanded by 14%.

question

Refer to Figure 5.2. If the price of a hamburger increases from $8 to $10, the price elasticity of demand equals ________. Use the midpoint formula.

answer

-3.0

question

The optimal method of production is the one that _________.

answer

minimizes cost.

question

Refer to Table 8.2. If Sherry produces three pairs of earnings, her total variable costs are _________.

answer

$140.

question

Refer to Table 8.2 above. If Sherry produces five pairs of earrings, her total costs are _________.

answer

$370.

question

answer

is not; gained from the fifth sandwich is greater.

question

Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 6 and MUy/Py = 10. To maximize utility, he should _________.

answer

consume less X and more Y.

question

answer

decrease.

question

Refer to Figure 7.2. The average product of the second worker is ________ lawns moved.

answer

question

Refer to Table 6.1. Diminishing marginal utility sets in after the ________ soda per day.

answer

First

question

Refer to Table 6.1 above. The total utility of five sodas per day is _________.

answer

question

answer

six; $14

question

Refer to Figure 7.3. The marginal product of the second worker is ________ yards raked.

answer

question

If an individual perfectly competitive firm charges a price above the industry equilibrium price while competitors charge the equilibrium price, the firm will _________.

answer

not sell any of what it produces.

question

answer

question

answer

elastic; inelastic

question

Refer to Table 7.1. If the hourly wage rate is $10 and the hourly price of capital is $25, which production technology should be selected?

answer

question

The less time that elapses, the _________.

answer

less price elastic is the demand for the product.

question

Refer to Figure 5.1. The demand for tickets is _________.

answer

perfectly price inelastic.

question

If the most someone is willing to pay for ticket to see their favorite team is $100 and the market price of the ticket is $35, then this buyer will get consumer surplus of _________.

answer

$65

question

A deadweight loss occurs ________ in a market.

answer

when there is underproduction or overproduction

question

Total cost is _________.

answer

TFC + TVC

question

Refer to Figure 7.5. Diminishing marginal returns set in after the ________ worker is hired.

answer

fifth

question

The relationship between the price that a perfectly competitive firm can charge buyers and the firm's marginal revenue is that the price is ________ marginal revenue over all output.

answer

equal to

question

Refer to Figure 6.9. The marginal utility of the fourth video game rental is _________.

answer

question

If marginal cost is above average variable cost, then _________.

answer

average variable cost is increasing.

question

A firm is currently hiring capital and labor so that MPL/PL < MPK/PK, if the firm wishes to maximize profits it should hire _________.

answer

less labor and more capital.

question

Total revenue increases if price ________ and demand is ________.

answer

rises; inelastic

question

When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________.

answer

inelastic; increase

question

answer

profits to increase.

question

Refer to the figure below. Assuming the wool market (industry) is perfectly competitive, each wool producer faces a(n) ________ demand curve starting at $3.00 per pound.

answer

Horizontal

question

When there are fewer substitutes for a product, the ________ for the product is ________.

answer

demand; less price elastic

question

We can state the utility-maximizing rule in words in the following way: A person maximizes utilitywhen she equalizes the ________ across products.

answer

marginal utility per dollar spent

question

The diamond/water paradox states that things with the ________ value in use frequently have ________ value in exchange.

answer

greatest; little or no

question

If economic profit is zero, a firm _________.

answer

earns exactly a normal rate of return.

question

Refer to Figure 8.8. If the market price of soybeans falls to $8, then to maximize profits this farmershould produce ____________.

answer

700 bushels of soybeans.

question

Wilbur's Widgets, a widget company, produces 100 widgets. Its average fixed cost is $5 and its total variable cost is $300. What is the total cost of producing 100 widgets?

answer

$800.

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