question
opportunity cost
answer
benefit that you might have gained from choosing the next best alternative
question
Opportunity cost of attending college
answer
benefit of earning a salary
question
Opportunity cost of attending yesterday's lecture in this course
answer
what ever you could of done instead (study, sleep)
question
Opportunity cost of taking Econ 2030
answer
benefit of earning a salary or taking another course
question
marginal benefit
answer
additional benefit above what you have already derived
question
marginal costs
answer
additional costs to you over and above the costs you have already included (does not include sunk cost)
question
sunk costs
answer
costs already been incurred and cannot be recovered
question
You rent a car for $29.95. The first 150 miles are free, but each mile there after is 15 cents. You plan to drive it 200 miles. What is the marginal costs of driving the car?
answer
$7.50 (for the 50 miles that aren't free) + the cost of gas.
question
Suppose you currently earn $30,000 a year. You are considering a job that will increase your lifetime earnings by $300,000 but requires a MBA. The job will also mean attending business school for 2 years at an annual cost of $25,000. You already have a bachelor's degree, for which you spent $80,000 in tuition and books. Which information is relevant to your decision whether to take the job?
answer
You need the marginal costs and benefits.
Sunk cost (bachelor's degree) is irrelevant
Sunk cost (bachelor's degree) is irrelevant
question
For the situation above, what is the opportunity cost of taking the job?
answer
The earnings form current job and paying for other things with the money that would have been used for business school
question
If the marginal costs of doing something exceed the marginal benefits....
answer
don't do it.
question
If the marginal benefits of doing something exceed the marginal cost...
answer
do it
question
Coconuts and bananas are complements
Price of coconuts increases and a fungal disease kills ten percent of the worlds banana crops.
The demand for bananas will __________, everything else held constant.
Price of coconuts increases and a fungal disease kills ten percent of the worlds banana crops.
The demand for bananas will __________, everything else held constant.
answer
Decrease!
Price of both coconuts and bananas increase
Price of both coconuts and bananas increase
question
Coconuts and bananas are complements
Price of coconuts increases and a fungal disease kills ten percent of the worlds banana crops.
Equilibrium price of bananas will _____ and the equilibrium quantity of bananas will _________.
Price of coconuts increases and a fungal disease kills ten percent of the worlds banana crops.
Equilibrium price of bananas will _____ and the equilibrium quantity of bananas will _________.
answer
be ambiguous (cannot predict price) and decrease (disease)
question
Tony, rational, reservation price of $500 for selling. Buyer made an offer and Tony accepted. How much did Tony sell it for?
answer
Greater than or equal to $500
question
Engaging in trade with other countries allows the United States to consume outside of its
answer
production possibilities frontier
question
Ramen= inferior good
National income is decreasing
Productivity of ramen induction increases.
Supply of ramen will _______.
National income is decreasing
Productivity of ramen induction increases.
Supply of ramen will _______.
answer
increase
question
Ramen= inferior good
National income is decreasing
Productivity of ramen induction increases.
Equilibrium price of ramen will ________.
National income is decreasing
Productivity of ramen induction increases.
Equilibrium price of ramen will ________.
answer
be ambiguous (can not predict price)
question
Voucher for a free concert ticket to see either Helen or Beth. You are rational.
Reservation price for Helen is $25.
Reservation price for Beth is $20.
Which concert will you chose?
Reservation price for Helen is $25.
Reservation price for Beth is $20.
Which concert will you chose?
answer
Helen
question
Voucher for a free concert ticket to see either Helen or Beth. You are rational.
Reservation price for Helen is $25.
Reservation price for Beth is $20.
What is your sunk cost?
Reservation price for Helen is $25.
Reservation price for Beth is $20.
What is your sunk cost?
answer
It is $0 because you didn't have to pay.
If you did have to pay it would be $20.
If you did have to pay it would be $20.
question
Vitals EKG
Camilla 18 6
Elizabeth 28 7
Can mutually beneficial trade occur?
Camilla 18 6
Elizabeth 28 7
Can mutually beneficial trade occur?
answer
Yes, Elizabeth has a comparative advantage of vitals.
Not the same ratio so you know they can trade.
Elizabeth 4:1
Camilla 3:1
Not the same ratio so you know they can trade.
Elizabeth 4:1
Camilla 3:1
question
Vitals EKG
Camilla 18 6
Elizabeth 28 7
Who has the absolute advantage in blood and who has the comparative advantage in EKG.
Camilla 18 6
Elizabeth 28 7
Who has the absolute advantage in blood and who has the comparative advantage in EKG.
answer
Elizabeth and Camilla
question
Sticks Bats
Canada 2 4
USA 3 5
Employment in Canadian baseball bats __________.
Canada 2 4
USA 3 5
Employment in Canadian baseball bats __________.
answer
Increase. They have the comparative advantage.
question
Justin is paid $10 per hour. Overtime pay for over 40 hours is rate time and one half of reg pay. ($15). Last wee he worked 42 hours. What is the marginal benefit of the 42nd hour?
answer
$15 (if didn't work, would have received $0 so its the pay for that one hour)
question
The quantity producers are willing and able to sell is ___-__the quantity consumers are willing and able to purchase. There is a ________ of the good and overtime, everything held constant, the price in the market will decrease.
answer
greater than, surplus
question
Brussels sprout are the main ingredient in dog treats. Demand for Brussels sprouts decrease. Price of dog treats _____ and quantity of treats ________.
answer
decrease, increase
question
Chicken and turkey are substitutes. Which will cause quantity of turkey demanded to increases.
answer
Price of turkey decreases.
question
Benefit
answer
What is received
question
Sunk Cost
answer
a monetary expenditure incurred regardless of the option chosen irrelevant to the decision
question
Rationality
answer
Do something if the benefit is at least as great as the opportunity cost at the time the decision is taken
question
Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 7 fish on the south side, or 5 fish on the west side. Everything else held constant, Remus' benefit of fishing the south side of the lake is _____ fish.
answer
7 (what your receive)
question
Suppose Remus decides to go fishing at Lake Pescaccio on his day off from work, but he faces a choice: he can fish the east, south, or west side of the lake. His expected catch for the day is as follows: 3 fish on the east side, 7 fish on the south side, or 5 fish on the west side. Everything else held constant, Remus' opportunity cost of fishing the south side of the lake is _____ fish.
answer
5 (the next best alternative not chosen)
question
Suppose rational decision-maker Charles faces a choice: he can either see Helen Gillet or Beth Patterson in concert. Suppose further that tickets to see Helen are $10 each while tickets to see Beth are $15 each. Everything else held constant, what is the benefit of seeing Helen if Charles has not yet obtained a ticket to see either performer?
answer
The expected pleasure of seeing Helen in concert plus $5.
question
Suppose rational decision-maker Charles faces a choice: he can either see Helen Gillet or Beth Patterson in concert. Suppose further that tickets to see Helen are $10 each while tickets to see Beth are $15 each. Everything else held constant, what is the opportunity cost of seeing Helen if Charles has not yet obtained a ticket to see either performer?
answer
The expected pleasure of seeing Beth in concert.
question
Suppose rational decision-maker Harry has decided to attend a concert but he faces a choice: he can buy a ticket to see either Kim Boekbinder or Zoe Boekbinder. The price of a ticket to see Kim is $25 and the price of a ticket to see Zoe is $15. In making his decision, what is Harry's sunk cost?
answer
$15.
question
A decrease in the hourly wage rate, everything else held constant, will cause _____ in the marginal cost of an extra hour of leisure.
answer
a decrease
question
Suppose a store sells pairs of shoes for $30 each and is running a "buy one, get one 50% off" sale. Suppose further that you buy four pairs of shoes. The marginal (i.e., extra) cost of the third pair of shoes purchased is
answer
$30
question
Suppose a store sells pairs of shoes for $30 each and is running a "buy one, get one 50% off" sale. Suppose further that you buy four pairs of shoes. The marginal (i.e., extra) cost of the fourth pair of shoes purchased is
answer
$15
question
Suppose a parking garage has the following pricing schedule: 0-2 Hours, $5; 2-4 Hours, $10; 4-8 Hours, $15. The marginal (i.e., extra) cost of the fifth hour of parking is
answer
$5
question
Opportunity Cost Calculation:
answer
Opportunity cost of what get = Productivity give up / Productivity get
question
Bagels Cookies
Aurora 25 200
Eos 20 240
Who has the absolute advantage in the production of bagels? Cookies?
Aurora 25 200
Eos 20 240
Who has the absolute advantage in the production of bagels? Cookies?
answer
Bagels- Aurora
Cookies-Eos
Cookies-Eos
question
Bagels Cookies
Aurora 25 200
Eos 20 240
Who has the comparative advantage in the production of bagels? Cookies?
Aurora 25 200
Eos 20 240
Who has the comparative advantage in the production of bagels? Cookies?
answer
Bagels- Aurora
Cookies- Eos
Cookies- Eos
question
Bagels Cookies
Aurora 25 200
Eos 20 240
Is mutually beneficial trade possible between Aurora and Eos?
Aurora 25 200
Eos 20 240
Is mutually beneficial trade possible between Aurora and Eos?
answer
Yes
question
Peaches Cream
John 60 15
Yoko 50 10
Who has the absolute advantage in the production of peaches? Cream?
John 60 15
Yoko 50 10
Who has the absolute advantage in the production of peaches? Cream?
answer
Peaches- John
Cream- John
Cream- John
question
Peaches Cream
John 60 15
Yoko 50 10
Who has the comparative advantage in the production of peaches? Cream?
John 60 15
Yoko 50 10
Who has the comparative advantage in the production of peaches? Cream?
answer
Peaches- Yoko
Cream- John
They both have a comparative advantage so they can have a mutual beneficial trade.
Cream- John
They both have a comparative advantage so they can have a mutual beneficial trade.
question
Peaches Cream
John 60 15
Yoko 50 10
Suppose in a ten-hour day Yoko produces 40 cream and picks 250 peaches. On that day Yoko's level of production was
John 60 15
Yoko 50 10
Suppose in a ten-hour day Yoko produces 40 cream and picks 250 peaches. On that day Yoko's level of production was
answer
inefficient
4 hours on cream
5 hours on peaches
only use 9/10 hours
4 hours on cream
5 hours on peaches
only use 9/10 hours
question
Buyers
answer
BUYERS
Benefit: get good/service; something of value;
what the good/service is worth
reservation price: maximum price willing and able to pay
Cost: give up; pay; actual price
Benefit: get good/service; something of value;
what the good/service is worth
reservation price: maximum price willing and able to pay
Cost: give up; pay; actual price
question
Sellers
answer
SELLERS
Benefit: get paid; actual price
Cost: give up good/service; something of value;
what good/service is worth
reservation price: minimum price willing and able to receive
Benefit: get paid; actual price
Cost: give up good/service; something of value;
what good/service is worth
reservation price: minimum price willing and able to receive
question
Suppose Chris, a rational art collector, has a reservation price of $700 for Rosemary's painting Shark. Suppose further that Chris purchased the painting. We know with certainty that the price of Shark was _____ $700.
answer
less than or equal to
question
Suppose Tony, a rational painter, has a reservation price of $500 for his painting 'Banana Head'. Suppose further that a potential client liked the painting and made him an offer that Tony rejected. It can be concluded with certainty that the client's offer was _____ $500.
answer
less than
question
Buyers
Cause: Change in actual price
Cause: Change in actual price
answer
Effect: Change in Quantity demanded (-)
question
Sellers
Cause: Change in actual price
Cause: Change in actual price
answer
Effect: Change in quantity supplied (+)
question
Suppose the price of umbrellas decreases. Everything else held constant, this will cause the _____ umbrellas to _____.
answer
quantity demanded of; increase
(is buyers so quantity demanded)
(is buyers so quantity demanded)
question
Suppose that Brussels sprouts are a normal good. Suppose further that incomes in the country are increasing.
Which side of the Brussels sprout market is directly affected by this change in income? (I.e., Who in the Brussels sprout market will notice the change and react to it?)
Which side of the Brussels sprout market is directly affected by this change in income? (I.e., Who in the Brussels sprout market will notice the change and react to it?)
answer
Buyers (higher income will spend more. Normal good, so when income goes up, demand increases)
question
Suppose that Brussels sprouts are a normal good. Suppose further that incomes in the country are increasing.
How will their behavior change? (I.e., buy/sell more/less.)
How will their behavior change? (I.e., buy/sell more/less.)
answer
They will buy more and price will go up
question
Suppose that Brussels sprouts are an inferior good. Suppose further that incomes in the country are decreasing.
Which side of the Brussels sprout market is directly affected by this change in income?
Which side of the Brussels sprout market is directly affected by this change in income?
answer
buyers
question
Suppose that Brussels sprouts are an inferior good. Suppose further that incomes in the country are decreasing.
How will their behavior change?
How will their behavior change?
answer
Buy more and price will go up
question
Suppose that chicken and turkey are substitutes in consumption. Suppose further that the price of chicken decreases.
Which side of the turkey market is directly affected by this change?
How will their behavior change?
What will be the result?
Which side of the turkey market is directly affected by this change?
How will their behavior change?
What will be the result?
answer
Buyers, the demand for turkey decrease, price will go down as well because fewer people want it
question
Suppose that limes and coconuts are complements in consumption. Suppose further that the price of limes increases.
Which side of the coconut market is directly affected by this change?
How will their behavior change?
What will be the result?
Which side of the coconut market is directly affected by this change?
How will their behavior change?
What will be the result?
answer
Buyers, demand for coconuts will go down.
question
Suppose milk is the main input in the production of cream cheese. Suppose further that the price of milk increases.
Which side of the cream cheese market is directly affected by this change?
How will their behavior change?
What will be the result?
Which side of the cream cheese market is directly affected by this change?
How will their behavior change?
What will be the result?
answer
Sellers, price of cream cheese will increase, supply less
question
Suppose worker productivity increases in the watch industry.
Which side of the watch market is directly affected by this change?
How will their behavior change?
What will be the result?
Which side of the watch market is directly affected by this change?
How will their behavior change?
What will be the result?
answer
Seller, supply increases, prices go down
question
Suppose lawn mower buyers, but not sellers, expect the price of lawn mowers to increase next month. Everything else held constant, the equilibrium price of lawn mowers will _____ and the equilibrium quantity transacted will _____ TODAY.
answer
increase, increase
question
Suppose lawn mower sellers, but not buyers, expect the price of lawn mowers to increase next month. Everything else held constant, the equilibrium price of lawn mowers will _____ and the equilibrium quantity transacted will _____ TODAY.
answer
increase, decrease
question
In a market, a surplus exists when _____ is greater than _____.
answer
the quantity supplied; the quantity demanded
question
Suppose you observe a market in which, at a given point in time, the quantity producers are willing and able to sell is greater than the quantity consumers are willing and able to purchase. Thus we say that there is a _____ of the good and over time, everything else held constant, the price in the market will _____.
answer
surplus; decrease
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
(rent goes up, will move because large portion-elastic. Price of salt goes up, still buy because small portion of budget- inelastic)
(rent goes up, will move because large portion-elastic. Price of salt goes up, still buy because small portion of budget- inelastic)
question
PRICE ELASTICITY OF DEMAND
If Cause < Effect
If Cause < Effect
answer
Demand is "price elastic
question
PRICE ELASTICITY OF DEMAND
Cause > Effect
Cause > Effect
answer
Demand is "price inelastic
question
PRICE ELASTICITY OF DEMAND
Cause = Effect
Cause = Effect
answer
Demand is "unit elastic
question
If a 4 percent decrease in price results in a 6 percent _____ in quantity demanded, it can be concluded with certainty that demand is _____.
answer
increase; price elastic
question
Total Revenue
answer
Price x Quantity Demanded
question
Change in total revenue:
Increase if...
Increase if...
answer
a) price increases and demand is price inelastic.
b) price decreases and demand is price elastic.
b) price decreases and demand is price elastic.
question
Change in total revenue:
Decrease if...
Decrease if...
answer
a) price increases and demand is price elastic.
b) price decreases and demand is price inelastic.
b) price decreases and demand is price inelastic.
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
Qd will go up because TR goes up
Qd will go up because TR goes up
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
PRICE ELASTICITY OF SUPPLY
Cause < Effect
Cause < Effect
answer
Supply is "price elastic
question
PRICE ELASTICITY OF SUPPLY
Cause > Effect
Cause > Effect
answer
Supply is "price inelastic"
question
PRICE ELASTICITY OF SUPPLY
Cause = Effect
Cause = Effect
answer
Supply is "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 (CS)
answer
Benefit - Cost = Reservation Price Buyers - Actual Price
question
PRODUCER SURPLUS (PS)
answer
Benefit - Cost = Actual Price - Reservation Price Sellers
question
ECONOMIC SURPLUS (ES)
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
Ticket bought $150
Reservation Price $200
Consumer surplus
$200-$150= $50
Ticket bought $150
Reservation Price $200
Consumer surplus
$200-$150= $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
$325-$250= $75
$325-$250= $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
...
question
Percentage of tax borne by buyer
answer
(εS / (εD + εS)) x 100
question
Percentage of tax borne by seller
answer
(εD / (εD + εS)) x 100
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
Percentage of the tax borne by the buyers- 70%
Percentage of the tax borne by the sellers- 30%
The price buyers pay for the good after the tax is levied will be more ($7) than the price they paid prior to the tax.
The price sellers receive for the good after the tax is levied will be less ($3) than the price they received prior to the tax.
Percentage of the tax borne by the sellers- 30%
The price buyers pay for the good after the tax is levied will be more ($7) than the price they paid prior to the tax.
The price sellers receive for the good after the tax is levied will be less ($3) than the price they received prior to the tax.
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
explicit cost- $100,000 (how much have to pay)
implicit cost- $50,000 (he gave up this salary)
accounting profit- $80,000 ($180,000 - $100,000)
economic profit- $30,000 ($180,000-$100,000-$50,000)
implicit cost- $50,000 (he gave up this salary)
accounting profit- $80,000 ($180,000 - $100,000)
economic profit- $30,000 ($180,000-$100,000-$50,000)
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
explicit cost- $169,000 (20,000+30,000+36,000+40,000+43,000)
implicit cost- $40,000 + (0.02 x 50,000) = $41,000
accounting profit- $31,000 ($200,000 - $169,000 = $31,000)
economic profit- -$10,000 ($200,000-$169,000-$41,000)
because economic profit is negative, she is worse off than if she kept her previous job
implicit cost- $40,000 + (0.02 x 50,000) = $41,000
accounting profit- $31,000 ($200,000 - $169,000 = $31,000)
economic profit- -$10,000 ($200,000-$169,000-$41,000)
because economic profit is negative, she is worse off than if she kept her previous job
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
ambigous
question
Quantity Price per Unit Total Cost
0 25 10
1 25 15
2 25 30
3 25 55
4 25 90
5 25 135
What is the firm's fixed cost?
What is the variable cost of producing two units of output?
What is the marginal cost of the second unit produced?
What is the firm's total revenue from selling two units of output?
What is the marginal revenue from the second unit sold?
What is the firm's profit-maximizing level of output?
0 25 10
1 25 15
2 25 30
3 25 55
4 25 90
5 25 135
What is the firm's fixed cost?
What is the variable cost of producing two units of output?
What is the marginal cost of the second unit produced?
What is the firm's total revenue from selling two units of output?
What is the marginal revenue from the second unit sold?
What is the firm's profit-maximizing level of output?
answer
fixed cost- 10 (look at 0 quantity)
variable cost of producing two units of output- 20 (total cost-price per unit)
marginal cost- 15 (one cost 15, two cost 30, so 30-15= 15)
firm's total revenue- 50
marginal revenue- 28
profit maximizing level of output- (55-30=25 MC=MR-P)
variable cost of producing two units of output- 20 (total cost-price per unit)
marginal cost- 15 (one cost 15, two cost 30, so 30-15= 15)
firm's total revenue- 50
marginal revenue- 28
profit maximizing level of output- (55-30=25 MC=MR-P)
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
P=MR=1.75
MC=2
worse off by 25 cents so profits are decreasing
P=MR=1.75
MC=2
worse off by 25 cents so profits are decreasing
question
Which of the following is a characteristic of a perfectly competitive market?
answer
Firms face no barriers to entering the market
question
For ALL firms:
answer
Profit = (P - ATC) x Q.
Profit-maximizing rule: produce quantity Q* where MR = MC.
Remain in business (i.e., produce Q* > 0) if P ≥ AVC.
Shut down (i.e., produce Q* = 0) if P < AVC.
Profit-maximizing rule: produce quantity Q* where MR = MC.
Remain in business (i.e., produce Q* > 0) if P ≥ AVC.
Shut down (i.e., produce Q* = 0) if P < AVC.
question
In perfect competition, P=MR at all levels of output. Thus
answer
P = MR = MC at (and only at) the profit-maximizing level of output, Q*.
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
...
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
...
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
...
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
...
question
For ALL firms:
answer
Profit = (P - ATC) x Q.
Profit-maximizing rule: produce quantity Q* where MR = MC.
Remain in business (i.e., produce Q* > 0) if P ≥ AVC.
Shut down (i.e., produce Q* = 0) if P < AVC.
Profit-maximizing rule: produce quantity Q* where MR = MC.
Remain in business (i.e., produce Q* > 0) if P ≥ AVC.
Shut down (i.e., produce Q* = 0) if P < AVC.
question
In a monopoly, P > MR at all levels of output. Thus,
answer
P > MR = MC at (and only at) the profit-maximizing level of output, Q*.
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
...
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?
answer
...
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
...
question
It can be concluded with certainty that a monopolist's economic profits will be _____ zero in the long run.
answer
...
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