econ MT3 - Assignment Essays

question

Assume that both X and Y are normal goods and that the price of good Y increases. Then, which of the following effects is known with certainty?

answer

C. There will be an indeterminate effect on the consumption of good X.

question

If money income triples and the price of all goods doubles, then the:

answer

C. consumer will buy more of normal goods

question

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 0, and I = 400?

answer

B. 20

question

Assume that both X and Y are inferior goods and the price of good Y increases. Then the substitution effect will lead consumers to consume:

answer

D. more of good X and less of good Y.

question

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

answer

C. 7

question

Suppose Chip's Chips produces bags of potato chips that sell for $3 a bag. If they sold 12,000 bags and incurred total costs of $30,000, what was the company's profit?

answer

A. $6,000

question

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000. What are Tom's economic profits?

answer

D. -$6,000

question

Assume the table shown is for a hat factory, and shows the total production of hats given various numbers of employees. What is the marginal product of the fifth worker?

answer

A. 40

question

for a cost function TC=100+10q+Q2, the average fixed cost of producing 2 units of output is

answer

B. 50

question

For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is:

answer

C. 30

question

Suppose perfectly competitive market conditions are characterized by the following inverse demand and inverse supply functions: P = 100 − 5Q and P = 10 + 5Q. The demand curve facing an individual firm operating in this market is:

answer

C. a horizontal line at $55.

question

Suppose that in a perfectly competitive market, the short-run equilibrium price is $7,, for a firm faces a marginal cost MC(Q)=3+2Q, what is the optimal output level?

answer

B. 2

question

An assumption underlying indifference curve analysis is that MUx/MUy
_____ as more of X and less of Y is consumed.

answer

decrease

question

Assuming that leisure is a normal good, if an individual's labor supply curve is backward bending, then the

answer

income effect outweighs the substitution effect at higher wages.

question

If the price of an inferior good rises, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.

answer

more; less

question

Assume that a store is giving hamburgers and sodas away for free. Consumers can have as many sodas and hamburgers as they want, but the food has to be consumed one unit at a time. If George has already had one soda and two hamburgers, then George should

answer

be indifferent between consuming the second soda or the third hamburger.

question

Assume Mr. Lingle is on budget constraint AC. If the price of a beer is $4, Mr. Lingle's monthly income is

answer

$160

question

To maximize total utility, a consumer will choose the combination of goods

answer

where the budget constraint and indifference curve are tangent.

question

At the point of tangency, the slope of an indifference curve is the same as the slope of the budget constraint.

answer

true

question

The diagram to the right shows point A, the optimum consumption point for a consumer. At this consumption point, the budget constraint is tangent to the indifference curve, IC.
Which utility-maximization rule does this point of tangency illustrate?

answer

MUx/Px=MUy/Py

question

Which assumption about indifference curves does indifference curve 2 violate?

answer

.
Diminishing marginal rate of substitution.

question

If leisure is a normal good, the income effect of a wage increase suggests that the labor supply curve will ________, and the substitution effect of a wage increase suggests the labor supply curve will ________.

answer

slope downward; slope upward

question

More normal goods and leisure are consumed when the price of a normal good falls, or when wages rise, because of the income effect.
What happens with the substitution effect?

answer

More normal goods are purchased while less leisure is consumed, because the higher wage rate costs more in forgone wages.

question

During 2010, Congress debated the advisability of retaining some or all of the tax cuts signed into law by former President George W. Bush in 2001 and 2003 and set to expire at the end of 2010. By reducing tax rates across the board, take-home pay for all taxpaying workers would increase. The purpose, in part, was to encourage work and increase the supply of labor. Households would respond the way the president hoped, but only if income effects were stronger than substitution effects.
Do you agree or disagree?

answer

Disagree: If the income effect were stronger than the substitution effect, households would work less.

question

How would this change if the good is an inferior good?

answer

The income effect and the substitution effect would work in opposite directions.

question

Explain why both income and substitution effects might be expected to increase Remy's number of trips to New Orleans.

answer

Cheaper air travel increases real income and lowers the opportunity cost of trips to New Orleans.

question

Explain how Remy's demand for Halloween costumes and concert tickets will be affected by a decrease in air travel prices.

answer

His demand for these items will rise because less of his income will be used for plane tickets.

question

The utility-maximizing rule states that to maximize utility you must equate:

answer

the ratio of the marginal utility of a good to its price for all goods.

question

If a consumer wants to maximize utility and MUX / PX < MUY / PY, the consumer should

answer

spend less on X and more on Y.

question

Marginal utility (MU) is:

answer

the additional satisfaction gained by the consumption or use of one more unit of something.

question

Assume a price change occurs and Katarina and Ivanna now face the new budget constraint.
What is the equation of the new budget constraint?

answer

40X+20Y=$640

question

Katarina and Ivanna are sisters and plant lovers and have saved a total of $640 to spend on plants for their new apartment in Miami. They have decided to use this money on orchids and ferns. Their original budget constraint is shown in the graph on the right. Let X represent orchids and Y represent ferns.

What is the equation of the original budget constraint?

answer

16X+20Y=$640

question

Graphically, a household's opportunity set is represented as

answer

the area to the left of, and including, the budget constraint.

question

A household budget constraint is defined by all of the following except

answer

need.

question

The choice set or opportunity set available to consumers is:

answer

the set of options that is defined and limited by a budget constraint.

question

Perfect competition is defined as:

answer

many firms, each being small relative to the industry and producing virtually identical products, and in which no firm is large enough to have any control over prices.

question

Consider a firm that uses capital and labor as inputs and sells 20 comma 000 units of output per year at the going market price of $15. Also assume that total labor costs to the firm are $250 comma 500 annually. Assume further that the total capital stock of the firm is currently worth $400 comma 000, that the return available to investors with comparable risks is 8 percent annually, and that there is no depreciation.
Is this a profitable firm? Explain your answer.

answer

The firm is profitable because profit equals $17 comma 500.

question

Ben Cartwright runs the Wild West Wax Museum in Carson City, Nevada. The museum has been in business for 40 years and is a major tourist attraction. The total value of the museum's capital stock is $3.5 million, which Ben owns outright. This year, the museum earned a total of $1.4 million after out-of-pocket expenses. Without taking the opportunity cost of capital into account, this means that Ben is earning a 40 percent return on his capital. Suppose that risk-free bonds are currently paying a rate of 14 percent to those who buy them.
What is meant by the "opportunity cost of capital"?

answer

The implicit cost of capital

question

Explain why opportunity costs are "real" costs even though they do not necessarily involve out-of-pocket expenses.

answer

The capital could have instead earned a normal rate of return invested in risk dash free government bonds.

question

If the price of capital is $20, then along isocost line AB total cost is

answer

$1200

question

You are certain that a normal rate of return is 18% for the computer industry.
What do you expect for a normal rate of return in the computer software industry, which is considered to be much riskier than the computer industry?

answer

Above 18%

question

Diminishing marginal returns begin when the _____ worker is hired.

answer

third

question

The average product with six workers is

answer

8.33.

question

Economic costs

answer

include both a normal rate of return on investment and the opportunity cost of each factor of production.

question

A firm's cost-minimizing equilibrium condition is represented by which of the following?

answer

MPL/PL=MPK/PK

question

For a particular level of output, the least costly way to produce the output occurs

answer

at the point of tangency of the isocost line and the isoquant.

question

One of the reasons for substituting capital for land near the center of a city is that land is more expensive near the center. What is true about the relative supply of land near the center of a city? (Hint: Consider the formula for the area of a circle.)

answer

A and C only.

question

Why is the demand for land likely to be very high near the center of a city?

answer

Easy accessibility using various modes of public and private transportation.

question

One major reason seems to be that manufacturing firms find it difficult to substitute capital for land, while service-sector firms that use office space do not. Why do you think it is relatively easier for a nbsp law firm or an insurance company to substitute capital for land?

answer

Since people can take stairs or elevators, offices can be stacked; assembly lines cannot.

question

Since the end of World War II, manufacturing firms in the United States and in Europe have been moving farther and farther outside of central cities. At the same time, firms in finance, insurance, and other parts of the service sector have been locating near downtown areas in tall buildings.
What kinds of buildings represent substitution of capital for land?

answer

Skyscrapers.

question

A student who lives on the fifth floor of Bates Hall is assigned to a new room on the seventh floor during her junior year. She has 10 heavy boxes of books and "stuff" to move.
What are some of the alternative combinations of capital and labor that might be used to make the move?

answer

All of the above.

question

If one worker can produce 30 units of output and two workers can produce a total of 50 units of output, the average product for the two workers is ________ units of output and the marginal product of the second worker is ________ units of output.

answer

25; 20

question

When total product reaches its highest level, marginal product

answer

is zero

question

The law of diminishing returns occurs:

answer

when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines.

question

During the early phases of industrialization, the number of people engaged in agriculture usually drops sharply, even as agricultural output is growing. Given what you know about production technology and production functions, explain this seeming inconsistency.
Output increases with less labor because:

answer

added capital increases the productivity of labor.

question

Does the table indicate a situation of diminishing returns? Explain your answer.

answer

Yes, because the marginal product of labor falls as labor increases.

question

Diminishing returns occur when:

answer

the marginal product of the variable input decreases when additional units are added to the production process.

question

A firm earning zero economic profits is probably suffering losses from the standpoint of general accounting principles. Do you agree or disagree with this argument?
It is actually earning a ________ given the extent of the risks involved. The full economic cost, including opportunity costs, is included in _______ cost but not in _______ cost.

answer

normal rate of return (or profit); economic; accounting

question

The optimal method of production is:

answer

the production method that minimizes cost for a given level of output.

question

After working for 25 years as personal fitness trainers while raising their kids, three sisters cashed in a total of $120 comma 000 in bonds and decided to open a small, neighborhood fitness center. They spent the $120 comma 000 on exercise equipment, advertising, computer equipment, and other furnishings for the business. For the next 3 years, they took in $135 comma 000 in revenue each year, paid themselves $30 comma 000 annually each, and rented a space in a strip mall for $32 comma 000 per year. Before the investment, their $120 comma 000 in bonds were earning interest at a rate of 10 percent.
Are they now earning economic profits? Explain your answer.

answer

They are earning profits of $1 comma 000, which takes into account the $12 comma 000 opportunity cost of their capital and the $90 comma 000 combined opportunity cost of their own labor.

question

If an individual perfectly competitive firm charges a price ________ the industry equilibrium price while competitors charge the equilibrium price, the firm will not sell any of what it produces.

answer

above

question

This farmer's profit-maximizing level of output is _____ units of output

answer

500

question

Both Stan and Kyle own potato chip factories. Stan's factory has low fixed costs and high variable costs. Kyle's factory has high fixed costs and low variable costs. Currently, each factory is producing 5,000 bags of potato chips at the same total cost. Complete the following statement with the correct answer. If each produces

answer

less, the costs of Kyle's factory will exceed those of Stan's factory.

question

All of the following statements about variable costs are true except

answer

they are constant as output increases.

question

If two microwave ovens are produced, Micro Oven's total variable costs are

answer

$150.

question

When the marginal product is falling, the marginal cost is:

answer

rising.

question

Firms minimize costs; thus, a firm earning short-run economic profits will choose to produce at the minimum point on its average total cost curve.
Do you agree or disagree with this statement?

answer

Disagree: Firms earning profits will produce to the right of the minimum point on the average total cost curve.

question

Total revenue (TR) is best characterized by which of the following?

answer

all of the above

question

Average variable cost (AVC) is falling. A companies primary supplier of resources implements a 3 percent price increase for all of its supplies

answer

Marginal cost, average variable cost, and average total cost will increase. Average fixed cost will not change.

question

When marginal cost (MC) is falling, which of the following must be true?

answer

Average variable cost (AVC) is falling.

question

Marginal cost (MC) intersects the average variable cost (AVC) and the average total cost (ATC):

answer

at their lowest, or minimum, points.

question

While charging a general admission price of $15 for adults most days of the week, the Museum of Fine Arts in Houston offers free admission every Thursday.
Why do you suppose that museums often price this way, offering free admissions on one day during the week?

answer

The marginal cost of admitting additional visitors is almost zero.

question

In deciding whether to drive from Atlanta to Las Vegas (about 2,000 miles round-trip) to visit a friend, which costs would you consider? Why?

answer

Variable costs, because they will increase with each mile driven.

question

Which costs are fixed, and which are variable?

answer

Fixed costs are the monthly car payment and the cost of insurance; variable costs are the cost of gasoline and costs associated with wear and tear.

question

As output increases, average fixed costs:

answer

decreases as output increases but never reaches zero

question

The slope of the total variable cost curve is

answer

marginal cost

question

As output increases, total variable cost ________ and average variable cost ________.

answer

increases; decreases and then increases

question

Fixed costs are best described as:

answer

Costs that are incurred even if the firm is currently producing nothing.

question

If the price of a inferior good falls, the substitution effect suggests that we will purchase ________ of that good, and the income effect suggests that we will purchase ________ of that good.

answer

more; less

question

Ann's money income is $250, the price of X is $3, and the price of Y is $2. Given these prices and income, Ann buys 60 units of X and 35 units of Y. Call this combination of X and Y bundle J. At bundle J Ann's MRS is 〖𝑀𝑈〗_𝑥/〖𝑀𝑈〗_𝑦 = 2. Given these prices and income, what is Ann's optimal consumption of X?
(ch6)

answer

...

question

Which assumption about indifference curves does the indifference curve shown violate?
(ch 6)

answer

...

question

answer

all of these are true

question

Assume the table shown is for a hat factory, and shows the total production of hats given various numbers of employees. Diminishing marginal product sets in with the:

answer

fourth worker

question

Assume a company is at a point in production where marginal product is above average product. Which of the following must be true?

answer

Average product must be rising.

question

Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4, how many units of K and L will be utilized in the production process?

CHeck

answer

C Equal amounts of K and L.

question

A college student is thinking about running an ice-cream truck over the summer. Which of the following would likely be a fixed cost of the business?

answer

The cost of the truck

question

For a cost function TC = 100 + 10Q + 𝑄^2, the average variable cost of producing 2 units of output is:

answer

question

If a firm in a perfectly competitive market faces a market price of $2, and it decides to increase its production from 2,000 units to 4,000 units, the firm's marginal revenue:

answer

stay the same

question

Because firms in perfectly competitive markets can sell any quantity without driving down prices, they should:

answer

None of these is true.

question

According to the table shown, the firm's profit:

answer

is maximized at three units of output

1 of 90

question

Assume that both X and Y are normal goods and that the price of good Y increases. Then, which of the following effects is known with certainty?

answer

C. There will be an indeterminate effect on the consumption of good X.

question

If money income triples and the price of all goods doubles, then the:

answer

C. consumer will buy more of normal goods

question

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 0, and I = 400?

answer

B. 20

question

Assume that both X and Y are inferior goods and the price of good Y increases. Then the substitution effect will lead consumers to consume:

answer

D. more of good X and less of good Y.

question

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

answer

C. 7

question

Suppose Chip's Chips produces bags of potato chips that sell for $3 a bag. If they sold 12,000 bags and incurred total costs of $30,000, what was the company's profit?

answer

A. $6,000

question

answer

D. -$6,000

question

Assume the table shown is for a hat factory, and shows the total production of hats given various numbers of employees. What is the marginal product of the fifth worker?

answer

A. 40

question

for a cost function TC=100+10q+Q2, the average fixed cost of producing 2 units of output is

answer

B. 50

question

For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is:

answer

C. 30

question

answer

C. a horizontal line at $55.

question

Suppose that in a perfectly competitive market, the short-run equilibrium price is $7,, for a firm faces a marginal cost MC(Q)=3+2Q, what is the optimal output level?

answer

B. 2

question

An assumption underlying indifference curve analysis is that MUx/MUy
_____ as more of X and less of Y is consumed.

answer

decrease

question

Assuming that leisure is a normal good, if an individual's labor supply curve is backward bending, then the

answer

income effect outweighs the substitution effect at higher wages.

question

If the price of an inferior good rises, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.

answer

more; less

question

answer

be indifferent between consuming the second soda or the third hamburger.

question

Assume Mr. Lingle is on budget constraint AC. If the price of a beer is $4, Mr. Lingle's monthly income is

answer

$160

question

To maximize total utility, a consumer will choose the combination of goods

answer

where the budget constraint and indifference curve are tangent.

question

At the point of tangency, the slope of an indifference curve is the same as the slope of the budget constraint.

answer

true

question

answer

MUx/Px=MUy/Py

question

Which assumption about indifference curves does indifference curve 2 violate?

answer

.
Diminishing marginal rate of substitution.

question

answer

slope downward; slope upward

question

More normal goods and leisure are consumed when the price of a normal good falls, or when wages rise, because of the income effect.
What happens with the substitution effect?

answer

More normal goods are purchased while less leisure is consumed, because the higher wage rate costs more in forgone wages.

question

answer

Disagree: If the income effect were stronger than the substitution effect, households would work less.

question

How would this change if the good is an inferior good?

answer

The income effect and the substitution effect would work in opposite directions.

question

Explain why both income and substitution effects might be expected to increase Remy's number of trips to New Orleans.

answer

Cheaper air travel increases real income and lowers the opportunity cost of trips to New Orleans.

question

Explain how Remy's demand for Halloween costumes and concert tickets will be affected by a decrease in air travel prices.

answer

His demand for these items will rise because less of his income will be used for plane tickets.

question

The utility-maximizing rule states that to maximize utility you must equate:

answer

the ratio of the marginal utility of a good to its price for all goods.

question

If a consumer wants to maximize utility and MUX / PX < MUY / PY, the consumer should

answer

spend less on X and more on Y.

question

Marginal utility (MU) is:

answer

the additional satisfaction gained by the consumption or use of one more unit of something.

question

Assume a price change occurs and Katarina and Ivanna now face the new budget constraint.
What is the equation of the new budget constraint?

answer

40X+20Y=$640

question

answer

16X+20Y=$640

question

Graphically, a household's opportunity set is represented as

answer

the area to the left of, and including, the budget constraint.

question

A household budget constraint is defined by all of the following except

answer

need.

question

The choice set or opportunity set available to consumers is:

answer

the set of options that is defined and limited by a budget constraint.

question

Perfect competition is defined as:

answer

many firms, each being small relative to the industry and producing virtually identical products, and in which no firm is large enough to have any control over prices.

question

answer

The firm is profitable because profit equals $17 comma 500.

question

answer

The implicit cost of capital

question

Explain why opportunity costs are "real" costs even though they do not necessarily involve out-of-pocket expenses.

answer

The capital could have instead earned a normal rate of return invested in risk dash free government bonds.

question

If the price of capital is $20, then along isocost line AB total cost is

answer

$1200

question

answer

Above 18%

question

Diminishing marginal returns begin when the _____ worker is hired.

answer

third

question

The average product with six workers is

answer

8.33.

question

Economic costs

answer

include both a normal rate of return on investment and the opportunity cost of each factor of production.

question

A firm's cost-minimizing equilibrium condition is represented by which of the following?

answer

MPL/PL=MPK/PK

question

For a particular level of output, the least costly way to produce the output occurs

answer

at the point of tangency of the isocost line and the isoquant.

question

answer

A and C only.

question

Why is the demand for land likely to be very high near the center of a city?

answer

Easy accessibility using various modes of public and private transportation.

question

answer

Since people can take stairs or elevators, offices can be stacked; assembly lines cannot.

question

answer

Skyscrapers.

question

answer

All of the above.

question

answer

25; 20

question

When total product reaches its highest level, marginal product

answer

is zero

question

The law of diminishing returns occurs:

answer

when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines.

question

answer

added capital increases the productivity of labor.

question

Does the table indicate a situation of diminishing returns? Explain your answer.

answer

Yes, because the marginal product of labor falls as labor increases.

question

Diminishing returns occur when:

answer

the marginal product of the variable input decreases when additional units are added to the production process.

question

answer

normal rate of return (or profit); economic; accounting

question

The optimal method of production is:

answer

the production method that minimizes cost for a given level of output.

question

answer

They are earning profits of $1 comma 000, which takes into account the $12 comma 000 opportunity cost of their capital and the $90 comma 000 combined opportunity cost of their own labor.

question

If an individual perfectly competitive firm charges a price ________ the industry equilibrium price while competitors charge the equilibrium price, the firm will not sell any of what it produces.

answer

above

question

This farmer's profit-maximizing level of output is _____ units of output

answer

500

question

answer

less, the costs of Kyle's factory will exceed those of Stan's factory.

question

All of the following statements about variable costs are true except

answer

they are constant as output increases.

question

If two microwave ovens are produced, Micro Oven's total variable costs are

answer

$150.

question

When the marginal product is falling, the marginal cost is:

answer

rising.

question

Firms minimize costs; thus, a firm earning short-run economic profits will choose to produce at the minimum point on its average total cost curve.
Do you agree or disagree with this statement?

answer

Disagree: Firms earning profits will produce to the right of the minimum point on the average total cost curve.

question

Total revenue (TR) is best characterized by which of the following?

answer

all of the above

question

Average variable cost (AVC) is falling. A companies primary supplier of resources implements a 3 percent price increase for all of its supplies

answer

Marginal cost, average variable cost, and average total cost will increase. Average fixed cost will not change.

question

When marginal cost (MC) is falling, which of the following must be true?

answer

Average variable cost (AVC) is falling.

question

Marginal cost (MC) intersects the average variable cost (AVC) and the average total cost (ATC):

answer

at their lowest, or minimum, points.

question

answer

The marginal cost of admitting additional visitors is almost zero.

question

In deciding whether to drive from Atlanta to Las Vegas (about 2,000 miles round-trip) to visit a friend, which costs would you consider? Why?

answer

Variable costs, because they will increase with each mile driven.

question

Which costs are fixed, and which are variable?

answer

Fixed costs are the monthly car payment and the cost of insurance; variable costs are the cost of gasoline and costs associated with wear and tear.

question

As output increases, average fixed costs:

answer

decreases as output increases but never reaches zero

question

The slope of the total variable cost curve is

answer

marginal cost

question

As output increases, total variable cost ________ and average variable cost ________.

answer

increases; decreases and then increases

question

Fixed costs are best described as:

answer

Costs that are incurred even if the firm is currently producing nothing.

question

If the price of a inferior good falls, the substitution effect suggests that we will purchase ________ of that good, and the income effect suggests that we will purchase ________ of that good.

answer

more; less

question

answer

...

question

Which assumption about indifference curves does the indifference curve shown violate?
(ch 6)

answer

...

question

answer

all of these are true

question

Assume the table shown is for a hat factory, and shows the total production of hats given various numbers of employees. Diminishing marginal product sets in with the:

answer

fourth worker

question

Assume a company is at a point in production where marginal product is above average product. Which of the following must be true?

answer

Average product must be rising.

question

Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4, how many units of K and L will be utilized in the production process?

CHeck

answer

C Equal amounts of K and L.

question

A college student is thinking about running an ice-cream truck over the summer. Which of the following would likely be a fixed cost of the business?

answer

The cost of the truck

question

For a cost function TC = 100 + 10Q + 𝑄^2, the average variable cost of producing 2 units of output is:

answer

question

If a firm in a perfectly competitive market faces a market price of $2, and it decides to increase its production from 2,000 units to 4,000 units, the firm's marginal revenue:

answer

stay the same

question

Because firms in perfectly competitive markets can sell any quantity without driving down prices, they should:

answer

None of these is true.

question

According to the table shown, the firm's profit:

answer

is maximized at three units of output

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