question
A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, accounting profit for 50 items is
answer
$236
question
A business owner makes 50 items by hand in six hours. She could have earned $10 an hour working for someone else. If each item sells for $5 and the explicit costs total $14, economic profit equals
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$176
question
Implicit and explicit revenues minus implicit and explicit costs equals:
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Economic profit
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Short-run decisions are
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Constrained because some inputs are fixed and others are variable
question
A regional airline owns 10 aircraft and employs 20 pilots. The airline makes an average of three trips per day with each of its 10 aircraft. The aircraft and their ground crews are idle part of the day. Minimum rest requirements for its pilots mean that if the airline wants to increase its flights, it must hire more pilots. The decision to hire more pilots is
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a short-run decision because the number of aircraft is held constant while the labor input is changed.
question
The increase in output obtained by hiring an additional worker is known as
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The marginal product
question
Mr. Woodard's cabinet shop is experiencing rapid growth in sales. As sales have increased, Mr. Woodard has found it necessary to hire more workers. However, he has observed that doubling the number of workers has less than doubled his output. What is the likely explanation?
answer
The law of diminishing marginal productivity
question
What kind of costs remain the same regardless of the level of production?
answer
Fixed
question
Average fixed cost:
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Decreases as output increases
question
When output is 50, fixed costs are $1,000, and variable costs are $2,000, what is the average total cost?
answer
$60
question
The only variable input used in producing bicycles in a small factory is labor. Currently four workers are employed; each works 40 hours per week and is paid $10 per hour. If fixed cost is $2,000 per week and total output is 10 bicycles per week, average cost is:
answer
$360
question
Why does the distance between curves II and III get smaller as quantity increases?
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Average fixed cost is declining.
question
The average fixed cost curve should be downward-sloping and not horizontal because with increased production the average fixed cost declines.
answer
...
question
The average total cost of Q output is the vertical distance from the x-axis to the ATC curve at quantity Q , or BQ *.
answer
...
question
When the average variable cost curve is at its minimum point, average product will be:
answer
At its maximum
question
If the average cost of producing 9 sweaters is $6.50 and the marginal cost of producing the tenth sweater is $6.25, the average cost of producing 10 sweaters will
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be less than $6.50
question
Which of the following is one of the necessary conditions for perfect competition?
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No barriers to entry
question
Firms continue to produce (illegally) counterfeit computer software and documentation. Many of the illegal copies are Microsoft products, though Microsoft still has a large share of the market for its products. The presence of enforced copyright protection laws indicates that the market for Microsoft software cannot be considered a competitive market because:
answer
There are significant barriers to entry
question
eBay.com is a vast auction site that is similar to a competitive market in some ways but differs from it in others. Which of the following describes how eBay resembles a competitive market?
answer
It is easy to enter eBay and easy to leave eBay
question
An assumption of a competitive market is that both buyers and sellers are price takers. When we go to the mall to shop for clothing or to the grocery to buy food, what do we usually observe?
answer
Buyers are often price takers, but sellers are usually price makers.
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In a perfectly competitive market, the demand curve faced by an individual firm is:
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Perfectly elastic
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A perfectly competitive firm's marginal revenue is:
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Equal to the selling price
question
Spam (junk e-mail) is a major annoyance for many people who use the Internet. However, spammers sometimes have to send thousands of messages to get just one response that pays money. Given this information:
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spamming can be profitable even with a very low number of buyers because the marginal cost of sending spam is virtually zero.
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To maximize profits, a perfectly competitive firm should produce where marginal:
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Costs equal marginal revenue
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Currently, if this perfectly competitive firm is maximizing profit, the market price is:
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$5.00 and marginal revenue for the firm is $5.00.
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A perfectly competitive firm in the long run:
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makes zero economic profits.
question
Suppose that the firms in the perfectly competitive oat industry currently are receiving a price of $2 per bushel for their product. The minimum possible average total cost of producing oats in the long run is $1 per bushel. It follows that:
answer
New firms will enter the oat industry
question
Suppose cookie sales fall as consumers become more carbohydrate-conscious. If the cookie industry is a constant-cost, perfectly competitive industry, this decline in market demand will cause market supply to:
answer
decrease in the long run until the equilibrium price is again equal to minimum average total cost.
question
Suppose the dry cleaning industry is initially in long-run equilibrium but then experiences a sharp increase in the price of its inputs. Assuming that the industry is perfectly competitive, the increase in costs should:
answer
decrease the number of firms in the industry in the long run and raise the market price.
question
If market demand increases in a perfectly competitive increasing-cost industry:
answer
new firms will enter the industry, factor prices will rise, and the price at which each firm earns zero economic profit will increase.
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