ECN Ch8 - Assignment Essays

question

Economists define a market to be competitive when the firms

answer

are price takers

question

In a perfectly competitive market

answer

firms can freely enter and exit

question

Should a competitive firm ever produce when it is losing money? Why or why not?

answer

Yes, as long as revenue can cover total variable costs plus any portion of fixed costs

question

If a competitive firm is producing a profit-maximizing level of output and chooses to continue operating at a loss, which of the following must be true?

answer

AC >/ p >/ AVC
p = MC
MR = MC
ALL OF THE ABOVE*

question

Suppose the firm faces a price of $39, an average variable cost of $27, and has an average fixed cost of $5. In the short-run, the firm_____

answer

Will earn an economic profit

question

Suppose the firm faces a price of $30, an average variable cost of $32, and has an average fixed cost of $5. In the short-run, this firm_____

answer

cannot cover all its costs
AND
will have a loss per unit of $-7

question

If the marginal cost function is: MC = 10 - 2q + q^2
Which of the following is/are the profit-maximizing condition if the market is perfectly competitive?

answer

MR = 10 - 2q + q^2
P = 10 - 2q + q^2

question

If a competitive firm's cost function is:
C(q) = a + bq - cq^2 + dq^3
Where a, b, c, and d are constants, what is the firm's marginal cost function?
What is the firm's profit-maximizing condition?

answer

P = b - 2cq + 3dq^3
MR = b - 2cq + 3dq^3

question

In the long run, profits will equal zero in a competitive market because of

answer

free entry and exit

question

In making its exit decision, does Kodak compare the price of its paper and average variable cost (at its optimal output)? Alternatively, does Kodak compare the price of its paper and average total cost (again at its optimal output)?

answer

Since the decision to exit an industry is a long-run decision, it compares the price to average total cost

question

1. What factors (such as fuel) determine the marginal explicit cost to a corporation of an executive's personal flight?
Explicit costs to a corporation of an executives personal flight include:

2. Does any one of the three valuation methods correctly determine the marginal explicit cost?

3. What is the marginal opportunity cost to the corporation of an executive's personal flight?

answer

1. Payments to the pilot

2. The incremental cost of the flight

3. The price the corporation could have earned from leasing the jet to someone else

question

What is the principle distinction between explicit costs and implicit costs?

answer

Explicit costs reflect a foregone opportunity involving a direct, out-of-pocket payment, while implicit costs reflect a forgone opportunity with no direct payment

question

The difference between the total cost and the total variable cost is a constant

answer

True

question

When total cost or total variable cost is increasing, there are increasing marginal returns to the variable input

answer

False

question

Changes in fixed costs do not affect the shape or placement of the total cost curve

answer

False

question

The marginal cost is the slope of the total cost curve or the total variable cost curve

answer

True

question

The average cost curve is everywhere above the average variable cost curve

answer

True

question

The marginal cost at a particular output level is the slope of a line from the origin to the corresponding point on the cost curve

answer

False

question

Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost

answer

The bottling company is not minimizing the cost of production because MP M/r < MP L/w and should use more labor and fewer machines

question

Toward the end of the exam, the more time you spend on either question, the fewer extra points per minute you get for that question. How should you allocate your time between the two questions?

answer

Allocate you time such that the marginal product of spending another unit of time on the first question is equal to the marginal product of spending another unit of time on the second question

question

Given labor is on the horizontal axis and capital is on the vertical axis, as the price of labor increases, the isocost line becomes

answer

Steeper

question

If both the price of labor and capital rise in the same proportion, which of the following will occur (holding production costs constant)?

answer

The isocost line makes a parallel shift inward

question

A U-shaped short-run average cost curve touches a U-shaped long-run average cost curve

answer

to the left of its minimum when long-run average costs are decreasing and to the right of its minimum when long-run average costs are increasing

question

The steeper an isoquant (labor measure on the horizontal axis)

answer

The greater is the marginal productivity of labor relative to that of capital

question

To say that isoquants are convex is to say that:

answer

The marginal rate of technical substitution falls as labor increases

question

Suppose the production function for a certain device is:
q = L + K
If neutral technical change has occurred, which of the following could be the new production function?

answer

q = 5 x (L + K)

question

Joey's snow shoveling service, with Joey being the only employee, recently traded in his snow shovel for a gasoline-powered snow blower. Joey still requires one worker per blower; however, more snow is now moved in the same amount of time as before. This is an example of

answer

neutral technical change

1 of 27

question

Economists define a market to be competitive when the firms

answer

are price takers

question

In a perfectly competitive market

answer

firms can freely enter and exit

question

Should a competitive firm ever produce when it is losing money? Why or why not?

answer

Yes, as long as revenue can cover total variable costs plus any portion of fixed costs

question

If a competitive firm is producing a profit-maximizing level of output and chooses to continue operating at a loss, which of the following must be true?

answer

AC >/ p >/ AVC
p = MC
MR = MC
ALL OF THE ABOVE*

question

Suppose the firm faces a price of $39, an average variable cost of $27, and has an average fixed cost of $5. In the short-run, the firm_____

answer

Will earn an economic profit

question

Suppose the firm faces a price of $30, an average variable cost of $32, and has an average fixed cost of $5. In the short-run, this firm_____

answer

cannot cover all its costs
AND
will have a loss per unit of $-7

question

If the marginal cost function is: MC = 10 - 2q + q^2
Which of the following is/are the profit-maximizing condition if the market is perfectly competitive?

answer

MR = 10 - 2q + q^2
P = 10 - 2q + q^2

question

If a competitive firm's cost function is:
C(q) = a + bq - cq^2 + dq^3
Where a, b, c, and d are constants, what is the firm's marginal cost function?
What is the firm's profit-maximizing condition?

answer

P = b - 2cq + 3dq^3
MR = b - 2cq + 3dq^3

question

In the long run, profits will equal zero in a competitive market because of

answer

free entry and exit

question

answer

Since the decision to exit an industry is a long-run decision, it compares the price to average total cost

question

answer

1. Payments to the pilot

2. The incremental cost of the flight

3. The price the corporation could have earned from leasing the jet to someone else

question

What is the principle distinction between explicit costs and implicit costs?

answer

Explicit costs reflect a foregone opportunity involving a direct, out-of-pocket payment, while implicit costs reflect a forgone opportunity with no direct payment

question

The difference between the total cost and the total variable cost is a constant

answer

True

question

When total cost or total variable cost is increasing, there are increasing marginal returns to the variable input

answer

False

question

Changes in fixed costs do not affect the shape or placement of the total cost curve

answer

False

question

The marginal cost is the slope of the total cost curve or the total variable cost curve

answer

True

question

The average cost curve is everywhere above the average variable cost curve

answer

True

question

The marginal cost at a particular output level is the slope of a line from the origin to the corresponding point on the cost curve

answer

False

question

Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost

answer

The bottling company is not minimizing the cost of production because MP M/r < MP L/w and should use more labor and fewer machines

question

Toward the end of the exam, the more time you spend on either question, the fewer extra points per minute you get for that question. How should you allocate your time between the two questions?

answer

Allocate you time such that the marginal product of spending another unit of time on the first question is equal to the marginal product of spending another unit of time on the second question

question

Given labor is on the horizontal axis and capital is on the vertical axis, as the price of labor increases, the isocost line becomes

answer

Steeper

question

If both the price of labor and capital rise in the same proportion, which of the following will occur (holding production costs constant)?

answer

The isocost line makes a parallel shift inward

question

A U-shaped short-run average cost curve touches a U-shaped long-run average cost curve

answer

to the left of its minimum when long-run average costs are decreasing and to the right of its minimum when long-run average costs are increasing

question

The steeper an isoquant (labor measure on the horizontal axis)

answer

The greater is the marginal productivity of labor relative to that of capital

question

To say that isoquants are convex is to say that:

answer

The marginal rate of technical substitution falls as labor increases

question

Suppose the production function for a certain device is:
q = L + K
If neutral technical change has occurred, which of the following could be the new production function?

answer

q = 5 x (L + K)

question

answer

neutral technical change

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