Econ 1023 Exam 2 - Assignment Essays

question

On a per-unit basis, economic profit can be determined as the difference between

answer

product price and average total cost.

question

Which of the following is not a characteristic of pure competition?

answer

Pricing strategies by firm

question

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

answer

Average fixed costs and average total costs would rise.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total costs are.

answer

20000

question

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

answer

marginal product of the third worker is 9.

question

An explicit cost is

answer

a money payment made for resources not owned by the firm itself.

question

The vertical distance between a firm's ATC and AVC curves represents

answer

AFC, which decreases as output increases.

question

Accounting profits are typically

answer

greater than economic profits because the former do not take implicit costs into account.

question

Which of the following is not correct?

answer

Where total product is at a maximum, average product is also at a maximum.

question

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects

answer

increasing returns, followed by diminishing returns.

question

The substitution effect

answer

refers to the change in the quantity demanded of a good due to a change in its relative price.

question

If marginal utility is diminishing, total utility must also be declining.

answer

False

question

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

answer

True

question

Where total utility is at a maximum, marginal utility is

answer

zero

question

Frank is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then

answer

the marginal utility of C is twice that of D.

question

Which of the following is correct?

answer

If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.

question

For a linear demand curve,

answer

demand is elastic at relatively high prices.

question

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded

answer

decreased by 7 percent

question

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

answer

relatively price elastic

question

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

answer

negative, and therefore X is an inferior good.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.

For a purely competitive firm,

answer

the demand and marginal revenue curves will coincide.

question

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

answer

not change its output

question

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

answer

profit-maximizing rule

question

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

answer

produce 0 units of output

question

An industry comprising a very large number of sellers producing a standardized product is known as

answer

pure competition

question

For a purely competitive seller, price equals

answer

average revenue, marginal revenue, total revenue divided by output

question

The MR = MC rule applies

answer

to firms in all types of industries

question

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

answer

positive and decreasing

question

Marginal Product

answer

Marginal product is the change in total output (total product) from adding another unit of an input (in this case, labor). If, for example, total output with five workers is 165, and total output is 180 with six workers, then the sixth worker's contribution to total output (her marginal product) is 15 (= 180 − 165).

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point.

question

Economies and diseconomies of scale explain

answer

why the firm's long-run average total cost curve is U-shaped.

question

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then

answer

the average variable cost of 9 units is $10.

question

Average Variable cost

answer

Average variable cost (AVC) can be calculated as total variable cost (TVC) divided by the quantity of output. If not explicitly given TVC can be found by subtracting total fixed cost (TFC) from total cost (TC). If, for example, total fixed cost is $24 and total cost when output is 3, is $48, then TVC is $24 (= 48 − 24) and AVC is 8 (= 24/3).

question

If you operated a small bakery, which of the following would be a variable cost in the short run?

answer

baking supplies

question

The basic difference between the short run and the long run is that

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

Total Utility

answer

Total utility is maximized when the marginal utility per dollar spent (MU/P) is equal across all goods consumed and income is exhausted. If, for example, MU of X is 40 and the price of X is $5, then MU/P for X is 8 (= 40/5). If the consumer is in equilibrium (maximizing utility), the MU/P for Y must also equal 8. Since MU of Y is 16, then P must be $2 (8 = 16/P; P = 16/8 = 2).

question

When the federal government started requiring restaurants to print calorie counts next to menu items,

answer

consumption of higher-calorie items increased, contrary to the law's objective.

question

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

answer

marginal utility.

question

When total utility reaches a maximum, then marginal utility is

answer

equal to zero

question

Which of the following is correct?

answer

Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.

question

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three cans of Pepsi is 38 units of utility. The marginal utility of the third Pepsi is

answer

8 units of utility

question

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

answer

equilibrium quantity, but equilibrium price will be unchanged

question

Economists distinguish among the immediate market period, the short run, and the long run by noting that

answer

supply is most elastic in the long run and least elastic in the immediate market period.

question

If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded, then

answer

The price elasticity of demand is zero

question

In the immediate market period for a highly perishable crop like tomatoes, the individual farmer's supply curve tends to be

answer

perfectly inelastic

question

Price elasticity of demand tends to be low for goods with few close substitutes.

answer

True

question

(Consider This) In markets entered by Southwest Airlines, gains in passenger traffic and profits

answer

went almost entirely to Southwest.

question

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

answer

inelastic

question

The short-run supply curve of a purely competitive producer is based primarily on its

answer

MC Curve

question

Marginal Revenue is the

answer

change in total revenue associated with the sale of one more unit of output.

question

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

answer

marginal revenue exceeds ATC

question

implicit costs

answer

input costs that do not require an outlay of money by the firm - not direct payments

question

When diseconomies of scale occur,

answer

the long-run average total cost curve rises.

question

explicit costs

answer

input costs that require an outlay of money by the firm - direct payments

question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

answer

use of savings to pay operating expenses instead of generating interest income

question

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is

answer

negative

question

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

answer

True

question

The income effect explains an exception to the law of demand.

answer

False

question

The increase in demand for iPad tablet computers can be explained by

answer

the enhanced versatility and storage capacity of iPads, making their MU/P increase.

question

The supply of product X is elastic if the price of X rises by

answer

5 percent and quantity supplied rises by 7 percent.

question

Price elasticity of supply

answer

The price elasticity of supply for a product equals the percentage change in quantity supplied divided by the percentage change in price.

question

At a price of $4 per unit, Gadgets Inc. is willing to supply 20,000 gadgets, while United Gadgets is willing to supply 10,000 gadgets. If the price were to rise to $8 per unit, their respective quantities supplied would rise to 45,000 and 25,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets?

answer

1.2 (4+8/2=6 30,000+70,000/2 =50,000 6/50,000=1.2

question

perfectly inelastic

answer

quantity does not respond at all to changes in price

question

The demand for a product is inelastic with respect to price if

answer

consumers are largely unresponsive to a per unit price change.

question

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because

answer

there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.

question

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

answer

False

question

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

answer

a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.

question

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

answer

marginal revenue and marginal cost

question

For a purely competitive firm, total revenue

answer

is price times quantity sold, increases by a constant absolute amount as output expands, and graphs as a straight upsloping line from the origin

question

A purely competitive firm's short-run supply curve is

answer

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

question

Total fixed cost (TFC)

answer

does not change as total output increases or decreases.

question

When total product is increasing at an increasing rate, marginal product is

answer

positive and increasing

question

Economic profits are calculated by subtracting

answer

explicit and implicit costs from total revenue.

question

Marginal Cost

answer

equals both average variable cost and average total cost at their respective minimums.

question

Marginal cost is the

answer

change in total cost that results from producing one more unit of output.

question

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that

answer

economies of scale are being realized.

question

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

answer

true

question

Total utility may be determined by

answer

summing the marginal utilities of each unit consumed.

question

Which of the following defines marginal utility?

answer

the additional satisfaction from consuming one more unit of a product

question

Which of the following is correct?

answer

If marginal utility is diminishing and is a positive amount, total utility will increase.

question

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

answer

marginal utility per dollar spent is the same for all goods.

question

The price of old baseball cards rises rapidly with increases in demand because

answer

the supply of old baseball cards is price inelastic.

question

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of

answer

W and Y

question

An income elasticity coefficient of −1.8 means the product is a normal good.

answer

False

question

The supply of cars will be more elastic the

answer

longer the time interval considered.

question

Total revenue falls as the price of a good is raised, if the demand for the good is

answer

elastic

question

The lowest point on a purely competitive firm's short-run supply curve corresponds to

answer

the minimum point on its AVC curve.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.

For a purely competitive firm, marginal revenue graphs as a

answer

straight line, parallel to the horizontal axis.

question

Fixed cost is

answer

a cost that does not change as output is increased or decreased

question

To the economist, total cost includes

answer

explicit and implicit costs

question

A consumer is maximizing her utility with a particular money income when

answer

MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

question

The budget line shows

answer

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

question

Most economists contend that

answer

noncash gifts are less efficient than cash gifts.

question

The law of supply suggests that the price-elasticity of supply is

answer

positive

question

Which of the following is not characteristic of the demand for a commodity that is elastic?

answer

Total revenue increases if price is increased.

question

When the price of movie tickets in a certain town was reduced, the movie theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of

answer

1.0

1 of 96

question

On a per-unit basis, economic profit can be determined as the difference between

answer

product price and average total cost.

question

Which of the following is not a characteristic of pure competition?

answer

Pricing strategies by firm

question

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?

answer

Average fixed costs and average total costs would rise.

question

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total costs are.

answer

20000

question

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that

answer

marginal product of the third worker is 9.

question

An explicit cost is

answer

a money payment made for resources not owned by the firm itself.

question

The vertical distance between a firm's ATC and AVC curves represents

answer

AFC, which decreases as output increases.

question

Accounting profits are typically

answer

greater than economic profits because the former do not take implicit costs into account.

question

Which of the following is not correct?

answer

Where total product is at a maximum, average product is also at a maximum.

question

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects

answer

increasing returns, followed by diminishing returns.

question

The substitution effect

answer

refers to the change in the quantity demanded of a good due to a change in its relative price.

question

If marginal utility is diminishing, total utility must also be declining.

answer

False

question

The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

answer

True

question

Where total utility is at a maximum, marginal utility is

answer

zero

question

Frank is purchasing products C and D in utility-maximizing amounts. If the price of C is $4 and the price of D is $2, then

answer

the marginal utility of C is twice that of D.

question

Which of the following is correct?

answer

If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.

question

For a linear demand curve,

answer

demand is elastic at relatively high prices.

question

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded

answer

decreased by 7 percent

question

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

answer

relatively price elastic

question

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

answer

negative, and therefore X is an inferior good.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.

For a purely competitive firm,

answer

the demand and marginal revenue curves will coincide.

question

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should

answer

not change its output

question

The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing it is known as the

answer

profit-maximizing rule

question

answer

produce 0 units of output

question

An industry comprising a very large number of sellers producing a standardized product is known as

answer

pure competition

question

For a purely competitive seller, price equals

answer

average revenue, marginal revenue, total revenue divided by output

question

The MR = MC rule applies

answer

to firms in all types of industries

question

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

answer

positive and decreasing

question

Marginal Product

answer

question

Which of the following is correct as it relates to cost curves?

answer

Marginal cost intersects average total cost at the latter's minimum point.

question

Economies and diseconomies of scale explain

answer

why the firm's long-run average total cost curve is U-shaped.

question

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then

answer

the average variable cost of 9 units is $10.

question

Average Variable cost

answer

question

If you operated a small bakery, which of the following would be a variable cost in the short run?

answer

baking supplies

question

The basic difference between the short run and the long run is that

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

Total Utility

answer

question

When the federal government started requiring restaurants to print calorie counts next to menu items,

answer

consumption of higher-calorie items increased, contrary to the law's objective.

question

In a topographic map, each line represents a particular elevation above sea level, and in an indifference map, each line represents a particular level of

answer

marginal utility.

question

When total utility reaches a maximum, then marginal utility is

answer

equal to zero

question

Which of the following is correct?

answer

Budget lines are linear and downsloping; indifference curves are downsloping and convex to the origin.

question

answer

8 units of utility

question

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

answer

equilibrium quantity, but equilibrium price will be unchanged

question

Economists distinguish among the immediate market period, the short run, and the long run by noting that

answer

supply is most elastic in the long run and least elastic in the immediate market period.

question

If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded, then

answer

The price elasticity of demand is zero

question

In the immediate market period for a highly perishable crop like tomatoes, the individual farmer's supply curve tends to be

answer

perfectly inelastic

question

Price elasticity of demand tends to be low for goods with few close substitutes.

answer

True

question

(Consider This) In markets entered by Southwest Airlines, gains in passenger traffic and profits

answer

went almost entirely to Southwest.

question

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

answer

inelastic

question

The short-run supply curve of a purely competitive producer is based primarily on its

answer

MC Curve

question

Marginal Revenue is the

answer

change in total revenue associated with the sale of one more unit of output.

question

If a purely competitive firm is producing at the P = MC output and realizing an economic profit, at that output

answer

marginal revenue exceeds ATC

question

implicit costs

answer

input costs that do not require an outlay of money by the firm - not direct payments

question

When diseconomies of scale occur,

answer

the long-run average total cost curve rises.

question

explicit costs

answer

input costs that require an outlay of money by the firm - direct payments

question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

answer

use of savings to pay operating expenses instead of generating interest income

question

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is

answer

negative

question

Indifference curves and budget lines can be used to derive an individual's demand curve for a product.

answer

True

question

The income effect explains an exception to the law of demand.

answer

False

question

The increase in demand for iPad tablet computers can be explained by

answer

the enhanced versatility and storage capacity of iPads, making their MU/P increase.

question

The supply of product X is elastic if the price of X rises by

answer

5 percent and quantity supplied rises by 7 percent.

question

Price elasticity of supply

answer

The price elasticity of supply for a product equals the percentage change in quantity supplied divided by the percentage change in price.

question

answer

1.2 (4+8/2=6 30,000+70,000/2 =50,000 6/50,000=1.2

question

perfectly inelastic

answer

quantity does not respond at all to changes in price

question

The demand for a product is inelastic with respect to price if

answer

consumers are largely unresponsive to a per unit price change.

question

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because

answer

there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.

question

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

answer

False

question

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

answer

a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.

question

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating

answer

marginal revenue and marginal cost

question

For a purely competitive firm, total revenue

answer

is price times quantity sold, increases by a constant absolute amount as output expands, and graphs as a straight upsloping line from the origin

question

A purely competitive firm's short-run supply curve is

answer

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

question

Total fixed cost (TFC)

answer

does not change as total output increases or decreases.

question

When total product is increasing at an increasing rate, marginal product is

answer

positive and increasing

question

Economic profits are calculated by subtracting

answer

explicit and implicit costs from total revenue.

question

Marginal Cost

answer

equals both average variable cost and average total cost at their respective minimums.

question

Marginal cost is the

answer

change in total cost that results from producing one more unit of output.

question

If a firm doubles its output in the long run and its unit costs of production decline, we can conclude that

answer

economies of scale are being realized.

question

A rational consumer will try to achieve the highest indifference curve that his or her income will allow.

answer

true

question

Total utility may be determined by

answer

summing the marginal utilities of each unit consumed.

question

Which of the following defines marginal utility?

answer

the additional satisfaction from consuming one more unit of a product

question

Which of the following is correct?

answer

If marginal utility is diminishing and is a positive amount, total utility will increase.

question

A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the

answer

marginal utility per dollar spent is the same for all goods.

question

The price of old baseball cards rises rapidly with increases in demand because

answer

the supply of old baseball cards is price inelastic.

question

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of

answer

W and Y

question

An income elasticity coefficient of −1.8 means the product is a normal good.

answer

False

question

The supply of cars will be more elastic the

answer

longer the time interval considered.

question

Total revenue falls as the price of a good is raised, if the demand for the good is

answer

elastic

question

The lowest point on a purely competitive firm's short-run supply curve corresponds to

answer

the minimum point on its AVC curve.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis.

For a purely competitive firm, marginal revenue graphs as a

answer

straight line, parallel to the horizontal axis.

question

Fixed cost is

answer

a cost that does not change as output is increased or decreased

question

To the economist, total cost includes

answer

explicit and implicit costs

question

A consumer is maximizing her utility with a particular money income when

answer

MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

question

The budget line shows

answer

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

question

Most economists contend that

answer

noncash gifts are less efficient than cash gifts.

question

The law of supply suggests that the price-elasticity of supply is

answer

positive

question

Which of the following is not characteristic of the demand for a commodity that is elastic?

answer

Total revenue increases if price is increased.

question

answer

1.0

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