question
Which of the following statements is (are) TRUE?
I. If marginal cost is rising, the average total cost must be rising
II. The marginal cost curve intersects both the average total and average variable cost curves at their minimum points.
III. If marginal cost is less than average variable cost, the average variable cost curve is negatively sloped
I. If marginal cost is rising, the average total cost must be rising
II. The marginal cost curve intersects both the average total and average variable cost curves at their minimum points.
III. If marginal cost is less than average variable cost, the average variable cost curve is negatively sloped
answer
II. and III.
question
If LTC=1,000+100Q-10Q^2+Q^3, then what is Marginal Cost?
answer
100-20Q+3Q^2
question
In a perfectly competitive market, if the market price is above minimum average total cost, and above minimum average variable cost, in the short run
answer
The firm will be earning a positive profit, and will continue operating.
question
When indifference curves are relatively flat or straight, (the substitution effect...)
answer
the substitution effect does not depend on the curvature of the indifference curve.
question
The goal of the firm is to
answer
Minimize costs subject to a given amount of production
question
If good X is measured on the horizontal axis and good Y is measured on the vertical axis; and if bundles A and B lie on the same, normally shaped indifference curve; and if bundle A contains less of good X than bundle B, then:
answer
the marginal rate of substitution is higher at bundle A than at bundle B.
question
The goal of consumers is to:
answer
Maximize utility subject to income and market prices.
question
Consider 2 individuals Christopher and Megan, with the same initial consumption bundles of Pens (X) and Pencils (Y). Cristopher has a marginal rate of substitution of 3 at the current bundle. Megan has a marginal rate of substitution of 1/2 at the current bundle. At the current consumption bundle: (give up 1 pen...)
answer
If Christopher gives up 1 pen, he would have to get more pencils than if Megan gave up 1 pen.
question
If the wage rate decreases, (isocost line shift and slope)
answer
the slope of an isocost line becomes flatter and the labor intercept of the iso cost line rotates counterclockwise (or outwards).
question
Which of the following are simplifying assumptions about a firm's production behavior? (3)
answer
1. In the short-run firms can choose the amount of labor employed, but capital is assumed to be fixed in total supply.
2. Inputs, like capital and labor, are characterized by diminishing returns
3. Output increases with inputs
2. Inputs, like capital and labor, are characterized by diminishing returns
3. Output increases with inputs
question
Two firms use capital and labor to produce their good. Firm 1's isoquants are sharply curved, while firm 2's isoquants are relatively straight. Capital and labor are: (compliments/substitutes)
answer
Compliments for Firm 1
Substitutes for Firm 2
Substitutes for Firm 2
question
Qb=10-2P
Ql=5-P
Qn=20-2P
Market Demand?
Ql=5-P
Qn=20-2P
Market Demand?
answer
Qm=35-5P if P<5
=20-2P if P>=5
=20-2P if P>=5
question
Which of the following production functions exhibit constant, decreasing, or increasing returns to scale?
1. Q=10K^0.3L^0.6
2. Q=min(2K,12L)
1. Q=10K^0.3L^0.6
2. Q=min(2K,12L)
answer
1. decreasing
2. constant
2. constant
question
Which of the following is not an assumption underlying the supply and demand model?
answer
Different firms sell their goods at different prices.
question
In the market for bagels, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change?
answer
An increase in demand
question
A binding price floor: (surplus/shortage)
answer
Causes a surplus because it keeps the price from decreasing to the equilibrium
price
price
question
In the market for college textbooks, if the price of printer ink used in the production of college textbooks increases, and the number of kids taking college courses increases
answer
the equilibrium price of college textbooks will increase and equilibrium quantity of college textbooks will be uncertain.
question
As the size of a per-unit tax decreases:
answer
the deadweight loss resulting from the tax gets smaller.
question
If the demand curve is QD = 10 - 5P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is:
answer
2
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