question
How is the price elasticity of demand measured?
The price elasticity of demand is measured as
The price elasticity of demand is measured as
answer
the percentage change in the quantity demanded divided by the percentage change in price.
question
Consider the market for a new DVD movie, where the price is initially $8 and 44 copies are sold per day at a superstore, as indicated in the figure to the right.
The superstore is considering lowering the price to $6 and sold 48 copies per day.
What is the price elasticity of demand between these two prices (use the Midpoint Formula)?
The superstore is considering lowering the price to $6 and sold 48 copies per day.
What is the price elasticity of demand between these two prices (use the Midpoint Formula)?
answer
The price elasticity of demand is −0.304.
question
Consider the market for a breakfast cereal. The cereal's price is initially $4 and 60 thousand boxes are demanded per week.
The company that produces the cereal is considering raising the price to $5. At that price, consumers would demand 50 thousand boxes of cereal per week.
What is the price elasticity of demand between these prices using the midpoint formula?
The company that produces the cereal is considering raising the price to $5. At that price, consumers would demand 50 thousand boxes of cereal per week.
What is the price elasticity of demand between these prices using the midpoint formula?
answer
The price elasticity of demand using the midpoint formula is −0.82.
question
The figure to the right illustrates the demand for taxi rides in a large city. Suppose the price per ride is initially $45 and rode 40,000 trips per day but then falls to $20 due to a recession and rode 140,000 trips per day. What is the price elasticity of demand for taxi rides?
answer
Using the midpoint formula, the price elasticity of demand is −1.45.
Demand is elastic.
Demand is elastic.
question
If the price of steak rises while the demand for chicken rises, is the cross-price elasticity of demand between the pair of products likely to be positive or negative? _____
Therefore, the cross-price elasticity of demand between "substitutes" is most likely _____ and the cross-price elasticities of demand between "complements" is most likely _____.
Therefore, the cross-price elasticity of demand between "substitutes" is most likely _____ and the cross-price elasticities of demand between "complements" is most likely _____.
answer
Positive
Positive
Negative
Positive
Negative
question
Use the midpoint formula to calculate the price elasticity of supply between point A and point B for the diagram to the right. Point A (16,15) and Point B (16,30).
The calculated price elasticity of supply is _____.
The calculated price elasticity of supply is _____.
answer
Price Elasticity of Supply is 0
question
Assume world oil supply is 70 million barrels per day at a price of $50 per barrel. Suppose that if the price per barrel of oil increases to $56 per day, then 89 million barrels of oil will be supplied.
Using the midpoint formula, what is the price elasticity of supply for oil?
In this price range, the world supply of oil is _____ .
Using the midpoint formula, what is the price elasticity of supply for oil?
In this price range, the world supply of oil is _____ .
answer
2.10
Elastic
Elastic
question
Suppose that shortly after graduating from college you decide to start your own business. Assuming you are starting a small business and realize that you need someone with particular expertise or business skills, which category of firm are you most likely to start?
answer
Partnership
question
ExxonMobil is a large corporation. Who owns this company?
ExxonMobil is owned by _____ .
ExxonMobil is owned by _____ .
answer
Stockholders
question
Of the three types of firms in the United States, the _____ .
answer
Sole proprietorship has the disadvantage of
limited ability to raise funds.
limited ability to raise funds.
question
A partnership is _____ .
answer
a firm owned jointly by two or more persons and not organized as a corporation.
question
In the United States, there are three legal categories of firms: sole proprietorships, partnerships, and corporations.
Which of the following is an advantage for partnerships?
Which of the following is a disadvantage for corporations?
Which of the following is an advantage for partnerships?
Which of the following is a disadvantage for corporations?
answer
Partnership have the ability to share work.
Corporations are susceptible to double taxation of income.
Corporations are susceptible to double taxation of income.
question
The owners of corporations have _____
answer
limited liability
question
Suppose Ford Motor Company issues bonds with a face value of $10,000 and an annual coupon payment of $200.
What is the interest rate Ford is paying on the borrowed funds?
The interest rate is ____ percent.
What is the interest rate Ford is paying on the borrowed funds?
The interest rate is ____ percent.
answer
200/10,000 * 100 = 2%
question
Large corporations may obtain funds for operations and expansion _____ .
answer
by reinvesting profits.
question
Suppose Madison has used
$37,500 of her money to start a window-washing company. Assume that her money otherwise could have been invested elsewhere and earned as much as a 6 percent annual rate of return. The window-washing company's revenue as well as its various costs of production is depicted in its income statement below
Income Statement 2006
Revenue $15,000
Cost of Labor $2,000
Cost of Supplies $190
Cost of Advertising $210
What is the accounting profit of Madison's window-washing company?
What is Madison's economic profit?
$37,500 of her money to start a window-washing company. Assume that her money otherwise could have been invested elsewhere and earned as much as a 6 percent annual rate of return. The window-washing company's revenue as well as its various costs of production is depicted in its income statement below
Income Statement 2006
Revenue $15,000
Cost of Labor $2,000
Cost of Supplies $190
Cost of Advertising $210
What is the accounting profit of Madison's window-washing company?
What is Madison's economic profit?
answer
15,000 - (2,000+190+210) = 12,600
12,600 - (37,500 * 6%) = 10,350
12,600 - (37,500 * 6%) = 10,350
question
The three major types of firms in the United States are called _____.
answer
sole proprietorships, partnerships, and corporations.
question
A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.
answer
stock, bond.
question
Economic profit is equal to a firm's revenues minus its costs, _____. Accounting profit is _____ economic profit.
answer
both explicit and implicit.
larger than
larger than
question
The table below shows the relationship between the number of movies seen per month and the total utility received.
Fill in marginal utility in the table below.
In this example, consuming additional movies _____ the law of diminishing marginal utility.
Fill in marginal utility in the table below.
In this example, consuming additional movies _____ the law of diminishing marginal utility.
answer
Movies |Total Utility | Marginal Utility
0 0 -
1 36 36
2 60 24
3 72 12
4 78 6
5 81 3
In this example, consuming additional movies illustrates the law of diminishing marginal utility.
0 0 -
1 36 36
2 60 24
3 72 12
4 78 6
5 81 3
In this example, consuming additional movies illustrates the law of diminishing marginal utility.
question
The following table shows William's utility from consuming slices of
pizza and cans of Sprite.
Suppose William has
$4.00 per week to spend on
pizza and Sprite. The price of a slice of pizza is $1.00 and the price of a can of Sprite is $0.50.
If William wants to maximize his utility, he should buy _____ slice(s) of pizza and _____ can(s) of Sprite.
pizza and cans of Sprite.
Suppose William has
$4.00 per week to spend on
pizza and Sprite. The price of a slice of pizza is $1.00 and the price of a can of Sprite is $0.50.
If William wants to maximize his utility, he should buy _____ slice(s) of pizza and _____ can(s) of Sprite.
answer
2 slices and 4 cans.
question
The following table shows Madison's
utility from consuming popcorn and Coke. Suppose that Madison has income of $6.00, the price of popcorn is $2.00, and the price of Coke is $0.50. If Madison wants to maximize her utility, how much popcorn and Coke should she buy?
utility from consuming popcorn and Coke. Suppose that Madison has income of $6.00, the price of popcorn is $2.00, and the price of Coke is $0.50. If Madison wants to maximize her utility, how much popcorn and Coke should she buy?
answer
Madison should buy 2
boxes of popcorn and 4 cans of Coke.
boxes of popcorn and 4 cans of Coke.
question
Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 20
and his marginal utility from an additional unit of housing is 180. Furthermore, suppose the price of a unit of food is $1.00 and the price of a unit of housing is $5.00. Can Bob increase his utility without changing his total expenditures on food and housing?
and his marginal utility from an additional unit of housing is 180. Furthermore, suppose the price of a unit of food is $1.00 and the price of a unit of housing is $5.00. Can Bob increase his utility without changing his total expenditures on food and housing?
answer
Holding expenditures constant, Bob can increase utility by spending less on food and more on housing.
question
Carol consumes tacos and coke. The marginal utility each yields is illustrated in the table below. If the price of tacos is $5.00 per taco and the price of coke is $4.00 per coke and if Carol has $32.00 to spend, what is her utility-maximizing quantity of tacos and coke?
To answer this question, first fill in the marginal utility per dollar spent on tacos, MUT/PT, and coke, MUC/PC, in the table below.
To answer this question, first fill in the marginal utility per dollar spent on tacos, MUT/PT, and coke, MUC/PC, in the table below.
answer
Carol maximizes utility by consuming 4 tacos and 3 cokes.
question
What is positive technological change? Positive
technological change is when _____.
technological change is when _____.
answer
a firm is able to produce the same output with fewer inputs.
question
What is the difference between the short run and the long run?
Is the amount of time that separates the short run from the long run the same for every firm?
Is the amount of time that separates the short run from the long run the same for every firm?
answer
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
No.
No.
question
What are implicit costs?
An implicit cost is _____.
How are implicit costs different from explicit costs?
An implicit cost is _____.
How are implicit costs different from explicit costs?
answer
a nonmonetary opportunity cost.
An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost.
An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost.
question
Mr. Jernigan owns a piece of land on which he grows corn. Corn production annually requires $2,000 in seed, $7,000 in fertilizer, and $6,000 in pesticides.
Mr. Jernigan uses his own labor to grow the corn and therefore hires no workers.
If Mr. Jernigan did not use his time to grow corn, he would instead be able to sell insurance, earning $30,000 per year.
Suppose another farmer has just offered to pay Mr. Jernigan rent of $20,000 per year for use of the land.
If Mr. Jernigan refuses to rent the land to another farmer, then what will be his accounting costs from farming corn himself on his land? What will be his economic costs? Mr. Jernigan's accounting costs will be _____ per year, and his economic costs will be _____ per year.
Mr. Jernigan uses his own labor to grow the corn and therefore hires no workers.
If Mr. Jernigan did not use his time to grow corn, he would instead be able to sell insurance, earning $30,000 per year.
Suppose another farmer has just offered to pay Mr. Jernigan rent of $20,000 per year for use of the land.
If Mr. Jernigan refuses to rent the land to another farmer, then what will be his accounting costs from farming corn himself on his land? What will be his economic costs? Mr. Jernigan's accounting costs will be _____ per year, and his economic costs will be _____ per year.
answer
2,000+7,000+6,000 = 15,000.
15,000+30,000+20,000 = 65,000.
15,000+30,000+20,000 = 65,000.
question
Suppose Sheri owns a restaurant that serves pizza using three inputs: workers, restaurant space (and layout), and ovens. If workers are
variable, restaurant space (and layout) is variable,
and ovens are variable,
then Sheri is producing pizza in the _____.
variable, restaurant space (and layout) is variable,
and ovens are variable,
then Sheri is producing pizza in the _____.
answer
long run
question
What is the production function?
The production function is the relationship between
The production function is the relationship between
answer
the inputs employed by a firm and the maximum output it can produce with those inputs.
question
The table below shows the quantity of workers and total output for a local pizza parlor. Answer the following questions based on this table:
Quantity of Workers | Total Output
0 0
1 5
2 —
3 19
4 24
5 28
6 26
a. When the owner hires 4 workers, the average product of labor is _____ pizzas
b. The marginal product of the fifth worker is _____ pizzas.
c. If the marginal product of the second worker is 6, then the total number of pizzas produced when 2 workers are hired is _____ pizzas.
d. Assuming the marginal product of the second worker is 6, the law of diminishing marginal returns set in with the
Quantity of Workers | Total Output
0 0
1 5
2 —
3 19
4 24
5 28
6 26
a. When the owner hires 4 workers, the average product of labor is _____ pizzas
b. The marginal product of the fifth worker is _____ pizzas.
c. If the marginal product of the second worker is 6, then the total number of pizzas produced when 2 workers are hired is _____ pizzas.
d. Assuming the marginal product of the second worker is 6, the law of diminishing marginal returns set in with the
answer
6
4
11
fourth worker hired.
4
11
fourth worker hired.
question
How can marginal cost be expressed mathematically?
Marginal cost (MC) can be expressed as _____.
For example, if the total cost of producing three units of output is
$2,425 and the total cost of producing four units of output is
$3,010, then the marginal cost of the fourth unit is $_____.
Marginal cost (MC) can be expressed as _____.
For example, if the total cost of producing three units of output is
$2,425 and the total cost of producing four units of output is
$3,010, then the marginal cost of the fourth unit is $_____.
answer
MC= ΔTC/ΔQ,
where TC is total cost and Q is output.
3,010 - 2,425 = 585
where TC is total cost and Q is output.
3,010 - 2,425 = 585
question
Suppose the total cost of producing 5,000 tennis balls is $50,000, and the fixed cost is $5,000.
What is the variable cost?
When output is 5,000, what is the average variable cost?
When output is 5,000, what is the average fixed cost?
Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs _____ as output increases.
What is the variable cost?
When output is 5,000, what is the average variable cost?
When output is 5,000, what is the average fixed cost?
Assuming that the cost curves have the usual shape, the dollar difference between average total costs and average variable costs _____ as output increases.
answer
50,000 - 5,000 = 45,000
45,000 / 5,000 = 9
5,000 / 5,000 = 1
decreases
45,000 / 5,000 = 9
5,000 / 5,000 = 1
decreases
question
Use the information in the graph to the right to find the values for the following at an output level of 40.
The marginal cost is $
The total cost is $
The variable cost is $
The fixed cost is $
The marginal cost is $
The total cost is $
The variable cost is $
The fixed cost is $
answer
marginal cost is $24
total cost is 55*40 = $2,200
variable cost is 42*40 = $1,680
fixed cost is 2,200 - 1,680 = $520
total cost is 55*40 = $2,200
variable cost is 42*40 = $1,680
fixed cost is 2,200 - 1,680 = $520
question
Your company incurs a cost for machinery, which, in the short run, is fixed. What happens to this cost in the long run?
In the long run, the cost of machinery ______.
In the long run, the cost of machinery ______.
answer
becomes a variable cost.
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