question
For a profit-maximizing firm, the goals of an advertising campaign are to _____ demand for the company's product and make it more price _____.
answer
Increase; inelastic
question
If there are few substitutes for gasoline, then the _____ gasoline would tend to be price _____, everything else held constant.
answer
demand for; inelastic
question
The _____ the proportion of a consumer's budget a good makes up, everything else held constant, the more price elastic demand will be for the good.
answer
greater
question
Ed>1
cause < effect
cause < effect
answer
elastic
question
Ed<1
Cause > effect
Cause > effect
answer
inelastic
question
Ed=1
Cause = Effect
Cause = Effect
answer
unit elastic
question
If a 9 percent decrease in price results in a 12 percent _____ in quantity demanded, it can be concluded with certainty that demand is _____.
answer
increase; elastic
question
Total Revenue
answer
Price * Quantity Demanded
question
Suppose green grocer Artie ran a 20 percent-off sale on artichokes last week and his revenues from selling artichokes increased from the previous week. It can be concluded with certainty that the demand for Artie's artichokes is _____, everything else held constant.
answer
price elastic
question
Last month Gene increased the price on all the jeans he sells at his local boutique by 15 percent. If the number of pairs of jeans that he sold decreased by 20 percent, it can be concluded with certainty that the demand for Gene's jeans is price _____ and his revenues for the month _____, everything else held constant
answer
elastic; decreased
question
Suppose Charles spends $150 each and every month on paint, no matter what the price of paint is in a particular month. From this it can be concluded with certainty that Charles' price elasticity of demand for paint is
answer
unit elastic
question
If a 6 percent increase in price results in a 4 percent _____ in quantity supplied, it can be concluded with certainty that supply is _____.
answer
increase; inelastic
question
Consumer Surplus
answer
Reservation price of buyers - Actual Price
question
Producer Surplus
answer
Actual Price - Reservation Price of Sellers
question
Economic Surplus
answer
Reservation Price Buyers - Reservation Price Sellers
question
Suppose rational decision-maker Gena purchased a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $150 and Gena's reservation price for the ticket was $200. Gena's consumer surplus from this purchase was
answer
$50
question
Suppose rational decision-maker Gena was considering purchasing a ticket to see Bruce Springsteen in concert. Suppose further that the price of a Springsteen ticket was $150 and Gena's reservation price for the ticket was $200. Instead of buying the Springsteen ticket, however, Gena chose to go to a free Beth Patterson concert. Everything else held constant, it can be concluded with certainty that Gena's consumer surplus from seeing Beth Patterson was
answer
greater than or equal to $50
question
Suppose Andrea, a rational artist, recently sold her painting, City #1, for $325. Suppose further that her reservation price for selling the painting was $250. Andrea's producer surplus from this sale was
answer
$75
question
Suppose pens and pencils are substitutes in consumption. Suppose further that the price of pens decreases.
Everything else held constant...
How will consumer surplus change in the pencil market?
Producer surplus?
Economic surplus?
Everything else held constant...
How will consumer surplus change in the pencil market?
Producer surplus?
Economic surplus?
answer
CS - ambiguous
PS - bad
ES - bad
PS - bad
ES - bad
question
Suppose that worker productivity increases in the steel industry.
Everything else held constant...
How will consumer surplus change in the steel market?
Producer surplus?
Economic surplus?
Everything else held constant...
How will consumer surplus change in the steel market?
Producer surplus?
Economic surplus?
answer
CS - good
PS- ambiguous
ES- good
PS- ambiguous
ES- good
question
Who bears burden of tax
answer
side of the market that is less sensitive (smaller elasticity)
question
demand is perfectly elastic
answer
supplier bears burden of tax
question
demand is perfectly inelastic
answer
=0
buyers bears burden
buyers bears burden
question
supply is perfectly elastic
answer
buyer bears burden of tax
question
supply is perfectly inelastic
answer
sellers bear burden of tax
question
Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.5 and the price elasticity of supply for it is 3.5.
What percentage of the tax will be borne by the buyers?
What percentage of the tax will be borne by the sellers?
The price buyers pay for the good after the tax is levied will be _____ than the price they paid prior to the tax.
The price sellers receive for the good after the tax is levied will be _____ than the price they received prior to the tax.
What percentage of the tax will be borne by the buyers?
What percentage of the tax will be borne by the sellers?
The price buyers pay for the good after the tax is levied will be _____ than the price they paid prior to the tax.
The price sellers receive for the good after the tax is levied will be _____ than the price they received prior to the tax.
answer
70%
30%
$7 higher
$3 less
30%
$7 higher
$3 less
question
Buyers will bear none of the burden of an excise tax if supply is perfectly _____.
answer
inelastic
question
Sellers will bear the entire burden of an excise tax if demand is perfectly _____
answer
elastic
question
Suppose Al owns a donut shop. He pays his employees $80,000 per year and his inventory costs him $20,000 per year. Prior to running the donut shop, Al worked on a television show and earned $50,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $180,000.
What is Al's...
a) explicit cost?
b) implicit cost?
c) accounting profit?
d) economic profit?
What is Al's...
a) explicit cost?
b) implicit cost?
c) accounting profit?
d) economic profit?
answer
100k
50k
80k
30k
50k
80k
30k
question
Suppose Danielle is considering opening her own beauty salon. She anticipates the following costs per year: Furniture: $20,000Equipment: $30,000Rent: $36,000Coloring products: $40,000Styling products: $43,000 Danielle is withdrawing $50,000 from her savings account that pays 2 percent interest per year to purchase furniture and equipment and is quitting her current job that pays $40,000. She expects that the total revenues from the new business in the first year will be $200,000.
What is Danielle's...
a) explicit cost?
b) implicit cost?
c) accounting profit?
d) economic profit?
What is Danielle's...
a) explicit cost?
b) implicit cost?
c) accounting profit?
d) economic profit?
answer
169k
41k
31k
-10k
41k
31k
-10k
question
Suppose a profit-maximizing firm is earning positive accounting profits at its current level of output. Everything else held constant, the firm's economic profits are
answer
ambiguous
question
When marginal cost is greater than the average total cost at a particular level of output, average total cost must be
answer
increasing
question
If the price a firm charges for a good is greater than its average total cost of producing it, then the firm is earning an economic profit _____ zero.
answer
greater than
question
Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra's marginal cost is $2.00 per kilo. If the market price of plantains is $1.75 per kilo, it can be concluded with certainty that Petra's economic profits are
answer
decreasing
question
Which of the following is a characteristic of a perfectly competitive market?
answer
Firms face no barriers to entering the market
question
In perfect competition P =
answer
Marginal Revenue at all levels of output
question
profit maximizing level of output
answer
MR = MC
question
Suppose Petra's Plantain Plantation sells plantains in a perfectly competitive market. Suppose further that at her current level of production, Petra's marginal cost is $2.00 per kilo. If the market price of plantains is $2.25 per kilo, it can be concluded with certainty that Petra's profits are
answer
increasing
question
Suppose, at a given point in time, Sally's Smoothie Shack operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing a smoothie is $2.90, average total cost is $4.00, and marginal cost is $3.60.
At her current level of production, what is...
a) Sally's average fixed cost of producing a smoothie?
b) Sally's marginal revenue from selling a smoothie?
c) the price of a smoothie?
d) Sally's profit from selling smoothies?
In the short run, will Sally's Smoothie Shack remain open or shut down?
At her current level of production, what is...
a) Sally's average fixed cost of producing a smoothie?
b) Sally's marginal revenue from selling a smoothie?
c) the price of a smoothie?
d) Sally's profit from selling smoothies?
In the short run, will Sally's Smoothie Shack remain open or shut down?
answer
1.10
3.60
3.60
-.40*Q
stay open bc price is > AVC
3.60
3.60
-.40*Q
stay open bc price is > AVC
question
Suppose Michelle's Mitten Mill operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average variable cost of producing mittens is $17, average total cost is $19, and marginal revenue is $18. In the short run, Michelle should
answer
maintain her current level of production since she is minimizing her losses.
question
Suppose Mimi's Magic Marker Company operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost of producing magic markers is $0.20, average variable cost is $0.15, and marginal revenue is $0.25.
At her current level of production, what is...
a) the price of a magic marker?
b) Mimi's marginal cost of producing magic markers?
c) Mimi's profit from selling magic markers?
Over time, what will happen to...
a) the number of firms selling magic markers?
b) the price of magic markers?
c) the quantity of magic markers transacted in the market?
d) profits of firms operating in the magic marker market?
At her current level of production, what is...
a) the price of a magic marker?
b) Mimi's marginal cost of producing magic markers?
c) Mimi's profit from selling magic markers?
Over time, what will happen to...
a) the number of firms selling magic markers?
b) the price of magic markers?
c) the quantity of magic markers transacted in the market?
d) profits of firms operating in the magic marker market?
answer
.25
.25
.05*Q
increase
decrease
increase
decrease
.25
.05*Q
increase
decrease
increase
decrease
question
In a monopoly, price ___ marginal revenue
answer
greater than
question
profit maximizing level of output for monopolies
answer
P>MR=MC
question
Answer true or false to the following statement. If a non-price discriminating monopolist is maximizing its profits, we know that it has equated its marginal cost with the market price.
answer
false
question
Suppose, at a moment in time, the price at which a monopolist is selling its output is $10 and the marginal revenue from the last unit sold is $6. Suppose further that the marginal cost of producing the last unit of output sold is $8. Everything else held constant, which of the following actions should the non-price discriminating, profit-maximizing monopolist take?
Increase output and increase price.
Increase output and decrease price.
Decrease output and increase price.
Decrease output and decrease price
Increase output and increase price.
Increase output and decrease price.
Decrease output and increase price.
Decrease output and decrease price
answer
decrease output and increase price
question
Suppose Marcy's Medical Machines is a monopolist and is producing its profit-maximizing level of output. Suppose further that at this level of production its average total cost is $2500, average fixed cost is $900, and marginal revenue is $2500.
At her current level of production, what is...
a) Marcy's average variable cost of producing a medical machine?
b) Marcy's marginal cost of producing a medical machine?
c) the price of a medical machine?
d) Marcy's profit from selling medical machines?
Will Marcy continue to produce medical machines in the long run?
At her current level of production, what is...
a) Marcy's average variable cost of producing a medical machine?
b) Marcy's marginal cost of producing a medical machine?
c) the price of a medical machine?
d) Marcy's profit from selling medical machines?
Will Marcy continue to produce medical machines in the long run?
answer
1600
2500
>2500
>= 0
continue to produce
2500
>2500
>= 0
continue to produce
question
It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.
answer
greater than or equal to
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