ECO 165 Exam 2 - Assignment Essays

question

True or false: Total utility is the sum of marginal utilities of consuming each additional unit of a good.

answer

True

question

Which of the following are generally consistent with a downward sloping demand curve?

answer

Income effect, and substitution effect.

question

If the principle of diminishing marginal utility holds, eventually:

answer

Marginal utlitity approaches zero.

question

The reduction in quantity demanded because relative price has risen is called the _______ effect.

answer

Substitution

question

According to rational choice theory, which of the following determine a person's choice?

answer

Price and utility

question

Which of the following assumptions is used as a foundation for the utility maximizing rule?

answer

As we consume more of a good, the marginal utility we get from consuming each additional unit eventually falls.

question

According to the principle of rational choice if the marginal utility of goods X and Y are equal and the consumer chooses to consume more of good Y.

answer

Good X must cost more than good Y.

question

True or false. In the ultimatum game, the results are generally consistent with rational choice theory.

answer

False

question

The marginal utility of an additional hour of work equals:

answer

The marginal utility of the goods that can be consumed with that additional income.

question

The income effect and the ______ effect are generally used as explanations for the law of demand.

answer

Substitution

question

True or false: A conclusion of rational choice theory is that individuals choose in order to maximize total utility.

answer

False

question

Which of the following are assumptions of the rational choice model?

answer

Decisions can be made costlessly, tastes are given, individuals maximize individual utility.

question

Consuming a good just to show off is known as ______ consumption.

answer

Conspicuous

question

The opportunity cost of choosing good X over good Y and the opportunity cost of choosing good Y over good X are equal. Which of the following, then, must also be equal?

answer

Marginal utilities per dollar of goods X and Y

question

Utility is the:

answer

Pleasure people get from doing or consuming something.

question

In rational choice theory, which two concepts are most important in determining choice?

answer

Price and utility

question

The ____ effect and the substitution effect account for the downward sloping demand curve.

answer

Income

question

According to the principle of rational choice if the marginal utility of goods X and Y are equal and the consumer chooses to consume more of good X.

answer

Good X must cost less than good Y.

question

Sam has consumed 10 cookies for a total utility of 20 units of utility. Before eating the 10th cookie his total utility was 15. What is the marginal utility of the 10th cookie?

answer

5 units of utility

question

According to the principle of diminishing marginal utility, the marginal utility of consuming additional units of a good.

answer

Decreases as more units of the good is consumed

question

A consumer will not necessarily increase consumption of a good until its marginal utility is zero because consumers.

answer

Also take into account the marginal utility of having to earn another dollar to buy more goods.

question

In equilibrium the price of spending one more hour in leisure activities should be equal to:

answer

Wage for one hour of work

question

Within a set budget, people will consume until:

answer

They maximize utility.

question

According to rational choice theory people:

answer

Want as much satisfaction as they can get given their budget

question

According to the utility-maximizing rule, you are maximizing utility when ____.

answer

MUx/Px=MUy/Py

question

The riles of the ultimatum game between two people is that:

answer

Everyone keeps the money as long as the second person accepts the first person's offer.

question

True or false: Once marginal utility is negative, people stop consuming the good.

answer

True

question

According to the principle of rational choice, if there is diminishing marginal utility of goods consumed and wages received for supplying labor goes up, you should:

answer

Work more

question

True or false: Using rules of thumb does not necessarily violate rational choice theory.

answer

True

question

The maximizing utility rule provides a foundation for the law of demand because if marginal utilities per dollar between two goods are equal and the price of one good falls, the utility maximizing rule says that the consumer will:

answer

Consume more of the good whose price has fallen.

question

True or false: People will always consume until marginal utility is zero,

answer

False. The consumer may not have enough money to consume a good until its marginal utility is zero.

question

True of false: To buy more goods, a person has to work more, so she should work until the marginal utility of another dollar earned just equals the marginal utility of goods purchased with another dollar.

answer

True

question

If the marginal utility of good X with price $5 is 20 and the marginal utility of good Y with price $6 is 24, and the price of good Y increases to $8, the consumer will consume _______.

answer

More of good X and less of good Y

question

The maximizing utility rule provides a foundation for the law of demand because if a person is maximizing utility and the price of a good goes up, the utility maximizing rule says that the consumer will:

answer

Consume less of the good

question

The law of demand is consistent with the principle of _____.

answer

Diminishing marginal utility

question

If the marginal utility of good X with price $5 is 10 and the marginal utility of good Y with price $6 is 12, and the price of good Y increases to $7, the consumer will consume:

answer

More of good X and less of good Y.

question

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

answer

Marginal

question

Barriers of entry can be:

answer

Political, economic, social

question

A seller who sells at the price determined by market supply and demand as given is called a:

answer

Price taker

question

The change in total cost associated with a change in quantity is called _______ cost.

answer

Marginal

question

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

answer

Firm's products are identical, there are many firms, both buyers and sellers are price takers, there are no barriers to entry

question

The marginal revenue for a perfect competitor is the ______.

answer

Market price

question

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

answer

Competitive

question

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

answer

False. A perfectly competitive firm takes the market price as given, and has no autonomy.

question

A perfectly competitive firm maximizes profit when ______.

answer

MC=market price

question

A perfectly competitive market exhibits the following conditions:

answer

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

question

In the long run, perfectly competitive firms:

answer

Earn zero economic profit.

question

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

answer

Horizontal

question

If firms are making an economic profit in a perfectly competitive industry:

answer

New firms will enter the industry

question

The relationship between economic profit and normal profit is that:

answer

Normal profit is built into the costs of the firm; economic profit is not.

question

Total profit equals:

answer

Total revenue less total cost

question

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

answer

Firms incurring economic losses will leave the industry.

question

The demand curve facing a perfectly competitive firm is ____:

answer

Horizontal

question

The goal of a firm is to maximize ______:

answer

Profits

question

True or false. The marginal cost curve is a perfect competitors supply curve because a firm maximizes profits where marginal cost equals marginal revenue.

answer

True

question

Which of the following correctly distinguishes normal from economic profit?

answer

Normal profit is the amount owners of business would have received in the next-best alternative and economic profit is any profit above normal profit.

question

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

answer

Market

question

True or false; The opportunity cost of the owner of a firm is a part of a firm's economic cost.

answer

True

question

True or false: Maximizing profit means maximizing profit per unit.

answer

False. Maximizing profit means maximizing total profit. This does not necessarily occur where profit per unit is maximized.

question

When the ATC curve is above the marginal revenue curve, the firm makes:

answer

A loss

question

True or false: Ultimately, all supply comes from firms

answer

False

question

The standard production function:

answer

Intially exhibits increasing marginal productivity, eventually exhibits diminishing marginal productivity

question

When average total cost is falling, marginal cost is:

answer

Less than average total cost

question

A firm can choose among all possible production techniques in the:

answer

Long run

question

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.

answer

False. The average total cost curve is the vertical sum of the average fixed cost and average variable cost curves;

question

Variable cost are costs that:

answer

Change as output changes

question

Average fixed cost is fixed cost:

answer

Divided by quantity produced

question

The increase or decrease in the total cost by producing an additional unit of output is called _______.

answer

Marginal cost

question

Economic profit ______.

answer

Includes both implicit and explicit costs and includes both implicit and explicit revenues

question

A production table is a table showing:

answer

The output resulting from various combinations of factors of productions or inputs.

question

The owner of a shoe firm could instead work as an accountant to earn $300 per week. The implicit cost of her contribution to production is ____.

answer

$300

question

When marginal productivity falls, marginal cost ____.

answer

Rises

question

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

answer

All inputs are variable in the long run and some inputs are fixed in the short run.

question

The law of diminishing marginal productivity states that ____.

answer

As more and more of a variable input is added to an existing fixed input, the additional output one gets from that additional input decreases.

question

The additional output that will be forthcoming from an additional worker, other inputs constant is called _____.

answer

Marginal product

question

Total economic cost is:

answer

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

question

The firm has the greatest production flexibility in which time frame?

answer

Long run

question

Fixed costs are costs that are:

answer

Spent and cannot be changed in the period of time under consideration

question

Average product is the:

answer

Output per worker

question

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 ____.

answer

Total revenue

question

Fixed costs do not exist in which time frame?

answer

The long run

question

Profit is equal to:

answer

Total revenue less total cost

question

Average total cost is the total cost:

answer

Divided by the quantity produced.

question

The total cost curve is _____.

answer

Upward sloping

question

Which of the following tells the maximum output that can be derived from a given number of inputs?

answer

Production function

question

As output decreases, average fixed cost _____.

answer

Increase

question

Average variable cost is the:

answer

Variable cost divided by the quantity produced

question

Using economists' framework, economic profit is best defined as:

answer

Explicit and implicit revenue less explicit and implicit cost.

question

True or false: The primary distinction between a long run and a short run decision is the degree of flexibility in decision making.

answer

True

question

The average total cost curve has the same general U-shape as the average variable cost curve because the average total cost curve is:

answer

The vertical sum of the average fixed cost curve and the average variable cost curve.

question

The main difference between variable and fixed costs is that:

answer

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

question

George, who has previously unemployed, owns a firm that produces books. He sells 20 books on average per week for $50 each, and the cost of their production is $800. He makes a weekly accounting profit of:

answer

200. Accounting profit=20x50-800=200

question

The shape of the cost curves mirrors the shape of the productivity curves because as:

answer

Productivity falls, cost per unit increases and as productivity rises, cost per unit rises.

question

As output increases, average fixed cost ____.

answer

Decrease

question

Total cost is equal to ____.

answer

Fixed cost plus variable cost

question

A firm is constrained in regard to what production decisions can make in the ______.

answer

Short run

question

When total product is increasing at a decreasing rate, marginal product is:

answer

positive and decreasing.

question

List three conditions for perfect competition.

answer

There are no barrier to entry
Both buyers and sellers are price takers
Firms product are identical

question

Short run or long run decision? ADM is deciding whether to install machinery that uses Human Machine Interface technology or 8-layer PCB prototype technology in its manufacturing plant.

answer

Long-run

question

Short run or long run decision? Walmart hires additional seasonal workers during November and December.

answer

Short-run

question

Short run or long run decision? Bassett furniture manufacturers close all manufacturing plants in North Carolina, USA and outsource their furniture production to manufacturing plants in china.

answer

Long-run

question

Short run or long run decision? General Motors purchases new equipment to replace depreciating equipment.

answer

Short-run

question

If marginal productivity is below average productivity, what will happen to average variable cost as outputs rise? Why?

answer

Average variable cost will rise. That is because if marginal productivity is below average productivity, marginal cost is above average variable costs. And when marginal cost exceeds average variable costs, average variable costs are rising.

question

Which curve continuously declines as output rises?

answer

AFC

question

Which curve always lies above the AVC curve?

answer

ATC

question

Which curve first declines as quantity increases, but then increases as quantity increases.

answer

ATV, AVC, MC

question

Which curve cuts the ATC and AVC at their minimum points?

answer

question

A perfectly competitive firm's marginal revenue is:

answer

Equal to the selling price

question

Jack Sprat could eat no fat, his wife could eat no lean. And so betwixt them both, they licked the platter clean. Which of the following is true about Jack and his wife?

answer

Marginal utility of fat is negative for Jack; marginal utility of lean is negative for his wife.

question

The supply curve of a perfectly competitive firm is:

answer

the marginal cost curve only if price exceeds average variable cost.

question

An economist observes that a pharmaceutical company is sponsoring a diabetes clinic and providing free medications. She concludes that the pharmaceutical company is reducing short-term profits for the possibility of higher long-term profits. This economist is most likely a(n):

answer

Traditional economist

question

______________ are more likely to see actions as self-interested and will look for self-interested reasons to explain why firms might do something to benefit society.

answer

Traditional economists

question

Behavioral economists have found that people are more willing to save if saving is the default option, as in the case in which they have to opt out of an automatic payroll deduction savings plan. Economists call this:

answer

The status quo bias

question

The reason economists and accountants have problems using cost analysis in the real world is that:

answer

although implicit costs do not show up in accounting profits, they nevertheless affect managerial decisions.

question

The short run is a period during which:

answer

some inputs are variable and some inputs are fixed.

question

Average fixed cost:

answer

Decreases as output increases.

question

Joan is deciding where to spend her spring break. If she goes to Cancún, Mexico, the trip will give her 9,000 units of utility and will cost her $300. If she travels to Florida instead, the trip will give her 8,000 units of utility and will cost her only $200. Joan will do best going to:

answer

Florida because her pleasure per dollar will be greater.

question

What do all economists have in common?

answer

They believe that models must capture the importance of incentives.

question

Gary Becker (modern traditional economist) believes that traditional building blocks should be the essence of the economic approach because:

answer

They apply to most situations and give clear-cut results

question

What is an example of conspicuous consumption?

answer

Purchasing an expensive automobile to impress others

question

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost?

answer

$100

question

In a perfectly competitive market, firms set:

answer

quantities but not prices

question

Fixed costs plus variable costs equal:

answer

total costs

question

When labor is the variable input, the average product equals the:

answer

quantity of output divided by the number of workers.

question

An old canceled U.S. stamp of an upside-down airplane is worth $80,000, but a newer stamp in 2008 that features Bette Davis is worth only $0.42. This is explained by the fact that the:

answer

scarcer the product, the higher the marginal utility and the higher the price.

question

According to the law of diminishing marginal utility, after some point:

answer

the more we consume of something, the less each additional unit adds to our satisfaction.

question

Joseph Gallo poured two glasses of wine from the same bottle but put a more expensive price tag on one glass than on the other. He let people test both and asked them which they wanted, and most wanted the more expensive glass, not knowing that both had come from the same bottle. This result indicates that firms should:

answer

be careful about lowering the price of their product, because consumers may assume that a lower price means lower quality.

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:

answer

$176

question

You run a small business producing picture frames. This month your total cost is $10,000, your variable cost is $5,000, and your output is 5,000 picture frames. Given this information, your:

answer

Average fixed cost is $1. Fixed cost in this case is the difference between total cost and variable cost, which is $10,000 - $5,000, or $5,000. Dividing this by output yields an average fixed cost of $5,000/5,000, or $1.

question

The law of diminishing marginal productivity implies that the marginal product of a variable input:

answer

eventually declines

question

Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must true that the firm's:

answer

price exceeds its marginal cost. If this is the case, selling one more unit of output will increase total cost by less than the increase in total revenue, and so profits will rise.

question

Goods A and B cost $1 each. The total utility one could get from consuming one unit of good A is 30. The total utility one could get from consuming two units of good B is 60. Based on rational choice one:

answer

would not be able to decide what to do because there is not enough information.

question

A perfectly competitive firm facing a price of $10 decides to produce 100 widgets. If its marginal cost of producing the last widget is $12 and it is seeking to maximize profit, the firm should:

answer

Produce fewer widgets. Since marginal cost exceeds price, the firm can save more by reducing costs than it will lose in revenue by reducing output.

question

Total fixed costs:

answer

are positive even when no output is produced.

question

When marginal utility is positive, total utility is:

answer

Increasing

question

Accounting profit is explicit revenue minus explicit cost. Economists include _______________ in their determination of profit.

answer

implicit revenue and cost

question

________ revenue includes the increases in the value of assets owned by the firm. ______ costs include the opportunity cost of time and capital provided by the owners of the firm.

answer

Implicit

question

Accounting profit=TR-TC-Explicit cost

answer

Explicit cost is everything "on the books".

question

Economic profit= TR-TC-Explicit cost-Implicit cost

answer

Implicit cost are costs that are given up. (travel, hotel room, old salary etc.)

question

What are fixed costs?

answer

Costs that do not change with the amount produced

question

What are variable costs?

answer

Costs that do change with the amount produced

question

What is total cost?

answer

fixed costs + variable costs

question

Equation for AVC

answer

=Variable cost/Quantity

question

Equation for AFC

answer

=Fixed cost/Quantity

question

Equation for ATC

answer

=Total cost/Quantity.
=AVC+AFC

question

What is total product? (TP)

answer

Total output or quantity produced

question

What is marginal product? (MP)

answer

The additional output generated by additional inputs.

question

Equation for MP (marginal product):

answer

= Change in TP/Change in inputs

question

What is the law of diminishing marginal returns?

answer

adding additional inputs results in less productivity.
As variable resources (workers) are added to fixed resources (ovens, machinery, tool etc.), the additional output produced from each additional worker will eventually fall.

question

As more workers are hired, their marginal product _________ and then eventually decreases because of the law of diminishing marginal returns.

answer

increases

question

The additional costs (mc) of the units they produce fall when MP goes up, but eventually ________ as additional workers produce less & less output

answer

increase

question

MP & _____ are mirror images of each other

answer

question

When prices _______, a consumer will substitute more of that good for other goods to keep the marginal utilities per dollar the same.

answer

Fall

question

What is the law of demand?

answer

A decline in price results in a rise in quantity demanded.

question

On a graph, _______ is always a horizontal line because it never changes.

answer

Fixed Cost

question

Short run

answer

At least one fixed input, at least one variable input

question

Long run

answer

Technology is fixed, all inputs are variable

question

In the _____ run, a firm can choose among all possible production techniques

answer

long

question

In the _______ run, the firm is constrained in its choices.

answer

short

question

If MC > ATC, then ATC is _______.

answer

Rising

question

If MC = ATC, then ATC is _______.

answer

Constant

question

If MC < ATC, then ATC is _______.

answer

Falling

question

The necessary conditions for perfect competition include:

answer

Buyers and sellers are price takers, there are no barriers to entry, and firms' products are identical.

question

The profit-maximizing position of a competitive firm is where marginal revenue equals:

answer

marginal cost

question

The supply curve of a competitive firm is its marginal cost curve. Only _________ have supply curves.

answer

competitive firms

question

To find the profit-maximizing level of output for a perfect competitor, find that level of output where:

answer

MC = MR.

question

In the short run, competitive firms can make a profit or loss. In the _______, they make zero profits.

answer

long run

question

Profit=

answer

total revenue - total cost

question

The shutdown price for a perfectly competitive firm is a price below:

answer

average variable cost.

question

The short-run market supply curve is:

answer

the horizontal summation of the marginal cost curves for all firms in the market

question

An _______ in the number of firms in the market shifts the market supply curve to the right, while a decrease shifts it to the left.

answer

increase

question

Perfectly competitive firms make zero profit in the long run because if profit were being made, new firms would enter and the market price would decline, eliminating the profit. If losses were being made, firms would exit and the market price would ____.

answer

Rise

question

If you're in equilibrium and the price of a good rises, you'll ______ your consumption of that good to reestablish equilibrium.

answer

reduce

question

The ultimatum game suggests that people care about fairness as well as total income. The ______ suggests that actions are based on perceived norms.

answer

status quo bias

question

_________ economics is the study of economic choice that is based on realistic psychological foundations.

answer

Behavioral

question

_______ are the glue that holds economics together. But economists differ in the models that they use.

answer

Models

question

A deductive approach is to begin with principles and logically deduce the implications of those principles. ______________ economists approach models deductively.

answer

Traditional

question

An inductive approach is to develop a model based on patterns in observed data. __________ economists tend to approach models inductively

answer

Modern

question

_________ economists replace the traditional assumption of rationality with purposeful behavior and replace self-interest with enlightened self-interested behavior.

answer

Behavioral

1 of 179

question

True or false: Total utility is the sum of marginal utilities of consuming each additional unit of a good.

answer

True

question

Which of the following are generally consistent with a downward sloping demand curve?

answer

Income effect, and substitution effect.

question

If the principle of diminishing marginal utility holds, eventually:

answer

Marginal utlitity approaches zero.

question

The reduction in quantity demanded because relative price has risen is called the _______ effect.

answer

Substitution

question

According to rational choice theory, which of the following determine a person's choice?

answer

Price and utility

question

Which of the following assumptions is used as a foundation for the utility maximizing rule?

answer

As we consume more of a good, the marginal utility we get from consuming each additional unit eventually falls.

question

According to the principle of rational choice if the marginal utility of goods X and Y are equal and the consumer chooses to consume more of good Y.

answer

Good X must cost more than good Y.

question

True or false. In the ultimatum game, the results are generally consistent with rational choice theory.

answer

False

question

The marginal utility of an additional hour of work equals:

answer

The marginal utility of the goods that can be consumed with that additional income.

question

The income effect and the ______ effect are generally used as explanations for the law of demand.

answer

Substitution

question

True or false: A conclusion of rational choice theory is that individuals choose in order to maximize total utility.

answer

False

question

Which of the following are assumptions of the rational choice model?

answer

Decisions can be made costlessly, tastes are given, individuals maximize individual utility.

question

Consuming a good just to show off is known as ______ consumption.

answer

Conspicuous

question

The opportunity cost of choosing good X over good Y and the opportunity cost of choosing good Y over good X are equal. Which of the following, then, must also be equal?

answer

Marginal utilities per dollar of goods X and Y

question

Utility is the:

answer

Pleasure people get from doing or consuming something.

question

In rational choice theory, which two concepts are most important in determining choice?

answer

Price and utility

question

The ____ effect and the substitution effect account for the downward sloping demand curve.

answer

Income

question

According to the principle of rational choice if the marginal utility of goods X and Y are equal and the consumer chooses to consume more of good X.

answer

Good X must cost less than good Y.

question

Sam has consumed 10 cookies for a total utility of 20 units of utility. Before eating the 10th cookie his total utility was 15. What is the marginal utility of the 10th cookie?

answer

5 units of utility

question

According to the principle of diminishing marginal utility, the marginal utility of consuming additional units of a good.

answer

Decreases as more units of the good is consumed

question

A consumer will not necessarily increase consumption of a good until its marginal utility is zero because consumers.

answer

Also take into account the marginal utility of having to earn another dollar to buy more goods.

question

In equilibrium the price of spending one more hour in leisure activities should be equal to:

answer

Wage for one hour of work

question

Within a set budget, people will consume until:

answer

They maximize utility.

question

According to rational choice theory people:

answer

Want as much satisfaction as they can get given their budget

question

According to the utility-maximizing rule, you are maximizing utility when ____.

answer

MUx/Px=MUy/Py

question

The riles of the ultimatum game between two people is that:

answer

Everyone keeps the money as long as the second person accepts the first person's offer.

question

True or false: Once marginal utility is negative, people stop consuming the good.

answer

True

question

According to the principle of rational choice, if there is diminishing marginal utility of goods consumed and wages received for supplying labor goes up, you should:

answer

Work more

question

True or false: Using rules of thumb does not necessarily violate rational choice theory.

answer

True

question

answer

Consume more of the good whose price has fallen.

question

True or false: People will always consume until marginal utility is zero,

answer

False. The consumer may not have enough money to consume a good until its marginal utility is zero.

question

answer

True

question

If the marginal utility of good X with price $5 is 20 and the marginal utility of good Y with price $6 is 24, and the price of good Y increases to $8, the consumer will consume _______.

answer

More of good X and less of good Y

question

answer

Consume less of the good

question

The law of demand is consistent with the principle of _____.

answer

Diminishing marginal utility

question

If the marginal utility of good X with price $5 is 10 and the marginal utility of good Y with price $6 is 12, and the price of good Y increases to $7, the consumer will consume:

answer

More of good X and less of good Y.

question

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

answer

Marginal

question

Barriers of entry can be:

answer

Political, economic, social

question

A seller who sells at the price determined by market supply and demand as given is called a:

answer

Price taker

question

The change in total cost associated with a change in quantity is called _______ cost.

answer

Marginal

question

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

answer

Firm's products are identical, there are many firms, both buyers and sellers are price takers, there are no barriers to entry

question

The marginal revenue for a perfect competitor is the ______.

answer

Market price

question

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

answer

Competitive

question

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

answer

False. A perfectly competitive firm takes the market price as given, and has no autonomy.

question

A perfectly competitive firm maximizes profit when ______.

answer

MC=market price

question

A perfectly competitive market exhibits the following conditions:

answer

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

question

In the long run, perfectly competitive firms:

answer

Earn zero economic profit.

question

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

answer

Horizontal

question

If firms are making an economic profit in a perfectly competitive industry:

answer

New firms will enter the industry

question

The relationship between economic profit and normal profit is that:

answer

Normal profit is built into the costs of the firm; economic profit is not.

question

Total profit equals:

answer

Total revenue less total cost

question

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

answer

Firms incurring economic losses will leave the industry.

question

The demand curve facing a perfectly competitive firm is ____:

answer

Horizontal

question

The goal of a firm is to maximize ______:

answer

Profits

question

True or false. The marginal cost curve is a perfect competitors supply curve because a firm maximizes profits where marginal cost equals marginal revenue.

answer

True

question

Which of the following correctly distinguishes normal from economic profit?

answer

Normal profit is the amount owners of business would have received in the next-best alternative and economic profit is any profit above normal profit.

question

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

answer

Market

question

True or false; The opportunity cost of the owner of a firm is a part of a firm's economic cost.

answer

True

question

True or false: Maximizing profit means maximizing profit per unit.

answer

False. Maximizing profit means maximizing total profit. This does not necessarily occur where profit per unit is maximized.

question

When the ATC curve is above the marginal revenue curve, the firm makes:

answer

A loss

question

True or false: Ultimately, all supply comes from firms

answer

False

question

The standard production function:

answer

Intially exhibits increasing marginal productivity, eventually exhibits diminishing marginal productivity

question

When average total cost is falling, marginal cost is:

answer

Less than average total cost

question

A firm can choose among all possible production techniques in the:

answer

Long run

question

answer

False. The average total cost curve is the vertical sum of the average fixed cost and average variable cost curves;

question

Variable cost are costs that:

answer

Change as output changes

question

Average fixed cost is fixed cost:

answer

Divided by quantity produced

question

The increase or decrease in the total cost by producing an additional unit of output is called _______.

answer

Marginal cost

question

Economic profit ______.

answer

Includes both implicit and explicit costs and includes both implicit and explicit revenues

question

A production table is a table showing:

answer

The output resulting from various combinations of factors of productions or inputs.

question

The owner of a shoe firm could instead work as an accountant to earn $300 per week. The implicit cost of her contribution to production is ____.

answer

$300

question

When marginal productivity falls, marginal cost ____.

answer

Rises

question

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

answer

All inputs are variable in the long run and some inputs are fixed in the short run.

question

The law of diminishing marginal productivity states that ____.

answer

As more and more of a variable input is added to an existing fixed input, the additional output one gets from that additional input decreases.

question

The additional output that will be forthcoming from an additional worker, other inputs constant is called _____.

answer

Marginal product

question

Total economic cost is:

answer

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

question

The firm has the greatest production flexibility in which time frame?

answer

Long run

question

Fixed costs are costs that are:

answer

Spent and cannot be changed in the period of time under consideration

question

Average product is the:

answer

Output per worker

question

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 ____.

answer

Total revenue

question

Fixed costs do not exist in which time frame?

answer

The long run

question

Profit is equal to:

answer

Total revenue less total cost

question

Average total cost is the total cost:

answer

Divided by the quantity produced.

question

The total cost curve is _____.

answer

Upward sloping

question

Which of the following tells the maximum output that can be derived from a given number of inputs?

answer

Production function

question

As output decreases, average fixed cost _____.

answer

Increase

question

Average variable cost is the:

answer

Variable cost divided by the quantity produced

question

Using economists' framework, economic profit is best defined as:

answer

Explicit and implicit revenue less explicit and implicit cost.

question

True or false: The primary distinction between a long run and a short run decision is the degree of flexibility in decision making.

answer

True

question

The average total cost curve has the same general U-shape as the average variable cost curve because the average total cost curve is:

answer

The vertical sum of the average fixed cost curve and the average variable cost curve.

question

The main difference between variable and fixed costs is that:

answer

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

question

answer

200. Accounting profit=20x50-800=200

question

The shape of the cost curves mirrors the shape of the productivity curves because as:

answer

Productivity falls, cost per unit increases and as productivity rises, cost per unit rises.

question

As output increases, average fixed cost ____.

answer

Decrease

question

Total cost is equal to ____.

answer

Fixed cost plus variable cost

question

A firm is constrained in regard to what production decisions can make in the ______.

answer

Short run

question

When total product is increasing at a decreasing rate, marginal product is:

answer

positive and decreasing.

question

List three conditions for perfect competition.

answer

There are no barrier to entry
Both buyers and sellers are price takers
Firms product are identical

question

Short run or long run decision? ADM is deciding whether to install machinery that uses Human Machine Interface technology or 8-layer PCB prototype technology in its manufacturing plant.

answer

Long-run

question

Short run or long run decision? Walmart hires additional seasonal workers during November and December.

answer

Short-run

question

Short run or long run decision? Bassett furniture manufacturers close all manufacturing plants in North Carolina, USA and outsource their furniture production to manufacturing plants in china.

answer

Long-run

question

Short run or long run decision? General Motors purchases new equipment to replace depreciating equipment.

answer

Short-run

question

If marginal productivity is below average productivity, what will happen to average variable cost as outputs rise? Why?

answer

question

Which curve continuously declines as output rises?

answer

AFC

question

Which curve always lies above the AVC curve?

answer

ATC

question

Which curve first declines as quantity increases, but then increases as quantity increases.

answer

ATV, AVC, MC

question

Which curve cuts the ATC and AVC at their minimum points?

answer

question

A perfectly competitive firm's marginal revenue is:

answer

Equal to the selling price

question

Jack Sprat could eat no fat, his wife could eat no lean. And so betwixt them both, they licked the platter clean. Which of the following is true about Jack and his wife?

answer

Marginal utility of fat is negative for Jack; marginal utility of lean is negative for his wife.

question

The supply curve of a perfectly competitive firm is:

answer

the marginal cost curve only if price exceeds average variable cost.

question

answer

Traditional economist

question

______________ are more likely to see actions as self-interested and will look for self-interested reasons to explain why firms might do something to benefit society.

answer

Traditional economists

question

answer

The status quo bias

question

The reason economists and accountants have problems using cost analysis in the real world is that:

answer

although implicit costs do not show up in accounting profits, they nevertheless affect managerial decisions.

question

The short run is a period during which:

answer

some inputs are variable and some inputs are fixed.

question

Average fixed cost:

answer

Decreases as output increases.

question

answer

Florida because her pleasure per dollar will be greater.

question

What do all economists have in common?

answer

They believe that models must capture the importance of incentives.

question

Gary Becker (modern traditional economist) believes that traditional building blocks should be the essence of the economic approach because:

answer

They apply to most situations and give clear-cut results

question

What is an example of conspicuous consumption?

answer

Purchasing an expensive automobile to impress others

question

A firm is producing 100 units of output at a total cost of $400. The firm's average variable cost is $3 per unit. What is the firm's total fixed cost?

answer

$100

question

In a perfectly competitive market, firms set:

answer

quantities but not prices

question

Fixed costs plus variable costs equal:

answer

total costs

question

When labor is the variable input, the average product equals the:

answer

quantity of output divided by the number of workers.

question

An old canceled U.S. stamp of an upside-down airplane is worth $80,000, but a newer stamp in 2008 that features Bette Davis is worth only $0.42. This is explained by the fact that the:

answer

scarcer the product, the higher the marginal utility and the higher the price.

question

According to the law of diminishing marginal utility, after some point:

answer

the more we consume of something, the less each additional unit adds to our satisfaction.

question

answer

be careful about lowering the price of their product, because consumers may assume that a lower price means lower quality.

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:

answer

$176

question

You run a small business producing picture frames. This month your total cost is $10,000, your variable cost is $5,000, and your output is 5,000 picture frames. Given this information, your:

answer

question

The law of diminishing marginal productivity implies that the marginal product of a variable input:

answer

eventually declines

question

Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must true that the firm's:

answer

price exceeds its marginal cost. If this is the case, selling one more unit of output will increase total cost by less than the increase in total revenue, and so profits will rise.

question

answer

would not be able to decide what to do because there is not enough information.

question

A perfectly competitive firm facing a price of $10 decides to produce 100 widgets. If its marginal cost of producing the last widget is $12 and it is seeking to maximize profit, the firm should:

answer

Produce fewer widgets. Since marginal cost exceeds price, the firm can save more by reducing costs than it will lose in revenue by reducing output.

question

Total fixed costs:

answer

are positive even when no output is produced.

question

When marginal utility is positive, total utility is:

answer

Increasing

question

Accounting profit is explicit revenue minus explicit cost. Economists include _______________ in their determination of profit.

answer

implicit revenue and cost

question

________ revenue includes the increases in the value of assets owned by the firm. ______ costs include the opportunity cost of time and capital provided by the owners of the firm.

answer

Implicit

question

Accounting profit=TR-TC-Explicit cost

answer

Explicit cost is everything "on the books".

question

Economic profit= TR-TC-Explicit cost-Implicit cost

answer

Implicit cost are costs that are given up. (travel, hotel room, old salary etc.)

question

What are fixed costs?

answer

Costs that do not change with the amount produced

question

What are variable costs?

answer

Costs that do change with the amount produced

question

What is total cost?

answer

fixed costs + variable costs

question

Equation for AVC

answer

=Variable cost/Quantity

question

Equation for AFC

answer

=Fixed cost/Quantity

question

Equation for ATC

answer

=Total cost/Quantity.
=AVC+AFC

question

What is total product? (TP)

answer

Total output or quantity produced

question

What is marginal product? (MP)

answer

The additional output generated by additional inputs.

question

Equation for MP (marginal product):

answer

= Change in TP/Change in inputs

question

What is the law of diminishing marginal returns?

answer

question

As more workers are hired, their marginal product _________ and then eventually decreases because of the law of diminishing marginal returns.

answer

increases

question

The additional costs (mc) of the units they produce fall when MP goes up, but eventually ________ as additional workers produce less & less output

answer

increase

question

MP & _____ are mirror images of each other

answer

question

When prices _______, a consumer will substitute more of that good for other goods to keep the marginal utilities per dollar the same.

answer

Fall

question

What is the law of demand?

answer

A decline in price results in a rise in quantity demanded.

question

On a graph, _______ is always a horizontal line because it never changes.

answer

Fixed Cost

question

Short run

answer

At least one fixed input, at least one variable input

question

Long run

answer

Technology is fixed, all inputs are variable

question

In the _____ run, a firm can choose among all possible production techniques

answer

long

question

In the _______ run, the firm is constrained in its choices.

answer

short

question

If MC > ATC, then ATC is _______.

answer

Rising

question

If MC = ATC, then ATC is _______.

answer

Constant

question

If MC < ATC, then ATC is _______.

answer

Falling

question

The necessary conditions for perfect competition include:

answer

Buyers and sellers are price takers, there are no barriers to entry, and firms' products are identical.

question

The profit-maximizing position of a competitive firm is where marginal revenue equals:

answer

marginal cost

question

The supply curve of a competitive firm is its marginal cost curve. Only _________ have supply curves.

answer

competitive firms

question

To find the profit-maximizing level of output for a perfect competitor, find that level of output where:

answer

MC = MR.

question

In the short run, competitive firms can make a profit or loss. In the _______, they make zero profits.

answer

long run

question

Profit=

answer

total revenue - total cost

question

The shutdown price for a perfectly competitive firm is a price below:

answer

average variable cost.

question

The short-run market supply curve is:

answer

the horizontal summation of the marginal cost curves for all firms in the market

question

An _______ in the number of firms in the market shifts the market supply curve to the right, while a decrease shifts it to the left.

answer

increase

question

answer

Rise

question

If you're in equilibrium and the price of a good rises, you'll ______ your consumption of that good to reestablish equilibrium.

answer

reduce

question

The ultimatum game suggests that people care about fairness as well as total income. The ______ suggests that actions are based on perceived norms.

answer

status quo bias

question

_________ economics is the study of economic choice that is based on realistic psychological foundations.

answer

Behavioral

question

_______ are the glue that holds economics together. But economists differ in the models that they use.

answer

Models

question

A deductive approach is to begin with principles and logically deduce the implications of those principles. ______________ economists approach models deductively.

answer

Traditional

question

An inductive approach is to develop a model based on patterns in observed data. __________ economists tend to approach models inductively

answer

Modern

question

_________ economists replace the traditional assumption of rationality with purposeful behavior and replace self-interest with enlightened self-interested behavior.

answer

Behavioral

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