Exam 2, Microeconomics2222222 - Assignment Essays %

question

The slope of an isoquant measures

answer

the rate at which inputs can be substituted for each other keeping total output constant.

question

Refer to Figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the price of labor while the price of capital remains unchanged?

answer

the movement from BF to BD

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The explicit cost of production is also called

answer

accounting cost.

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At the minimum efficient scale,

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the firm has achieved the lowest possible average cost of production.

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Economic costs of production differ from accounting costs in that

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economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.

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Refer to Figure 11-6. The movement from isoquant T to isoquant U depicts

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an increase in output.

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When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is

answer

$145

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Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the marginal cost per unit of production when the firm produces 100 lanterns?

answer

$32

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If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

answer

2 chairs.

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Refer to Figure 11-9. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

answer

combination f: 40 hours of labor and 24 units of capital

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Which of the following costs will not change as output changes?

answer

total fixed cost

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The average product of the 4th worker

answer

is 17.

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When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is

answer

50.

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The absolute value of the slope of an isocost line equals the ratio of

answer

the prices of the two inputs.

question

Which of the following is a factor of production that generally is fixed in the short run?

answer

capital

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the average total cost of production when the firm produces 120 lanterns?

answer

$14

question

Refer to Figure 11-1. The marginal product of the 7th worker is

answer

-2.

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A firm has successfully adopted a positive technological change when

answer

it can produce more output using the same inputs.

question

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?

answer

$15.

question

The production function shows

answer

the maximum output that can be produced from each possible quantity of inputs.

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Refer to Figure 11-7. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost

answer

is $500.

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An isocost line shows

answer

all the possible combinations of two inputs a firm can use that have the same total cost.

question

If a producer is not able to expand its plant capacity immediately, it is

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operating in the short run.

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If diminishing marginal returns have already set in for Golden Lark Woodworks, and the marginal product of the 6th carpenter is 8 chairs, then the marginal product of the 7th carpenter is

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less than 8 chairs.

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Refer to Figure 11-9. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

answer

$560.

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A characteristic of the long run is

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all inputs can be varied.

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Maximizing the level of output for a given total cost of production

answer

is equivalent to minimizing cost for a given level of output.

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Which of the following are implicit costs for a typical firm?

answer

opportunity costs of capital owned and used by the firm

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the average variable cost per unit of production when the firm produces 90 lanterns?

answer

$5.44

question

Higher isocost lines correspond to higher

answer

total costs of production.

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Suppose that a firm's production function is given by Y = 12 K L - L2, where K is the level of capital and L is the number of laborers the firm employs. For the given production function the marginal products are, MPL = 12 K - 2 L and MPK = 12 L. The rental rate of capital is $45 while the wage rate is $15.

What is the cost minimizing level of labor (L*) if the firm is producing 500 units of output ?

answer

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The formula for total fixed cost is

answer

TFC = TC - TVC.

question

Refer to Figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged?

answer

the movement from BF to AF

question

If, when a firm doubles all its inputs, its average cost of production increases, then production displays

answer

diseconomies of scale.

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the variable cost of production when the firm produces 115 lanterns?

answer

$1,157

question

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays

answer

economies of scale.

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Refer to Figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the firm's total cost while the price of labor and capital remain unchanged?

answer

the movement from CE to BF

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Marginal cost is the

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additional cost of producing an additional unit of output.

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Marginal cost is equal to the

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change in total cost divided by the change in output.

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If production displays economies of scale, the long-run average cost curve is

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downward-sloping.

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Suppose that a firm's production function is given by Y = 12 K L - L2, where K is the level of capital and L is the number of laborers the firm employs. For the given production function the marginal products are, MPL = 12 K - 2 L and MPK = 12 L. The rental rate of capital is $45 while the wage rate is $15.

What is the cost minimizing level of capital (K*) if the firm is producing 500 units of output ?

answer

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Which of the following equations is correct?

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AFC + AVC = ATC

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An isoquant shows

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the combinations of two inputs that yield the same total product.

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The average total cost of production

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equals total cost of production divided by the level of output.

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An expansion path shows

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the least-cost combination of inputs for each level of output.

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If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

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5 units.

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Refer to Figure 11-1. The marginal product of the 3rd worker is

answer

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Suppose that a firm's production function is given by Y = 100 , where K is the level of capital and L is the number of laborers the firm employs. For the given production function the marginal products are, MPL = and MPK = . The rental rate of capital is $20 while the wage rate is $5.

What is the firm's total cost when it is minimizing its cost of production for 1800 units of output?

answer

360

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The marginal product of labor is defined as

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the additional output that results when one more worker is hired, holding all other resources constant.

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The difference between technology and technological change is that

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technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs.

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If the market price is $25, the average revenue of selling five units is

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$25

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Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

Refer to Figure 12-4. If the market price is $30 and the firm is producing output, what is the amount of the firm's profit or loss?

answer

loss of $1,080

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Refer to Figure 12-10. At the profit-maximizing output level, the firm earns

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a profit of $2,700.

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Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

Refer to Figure 12-4. What is the amount of its total fixed cost?

answer

$2,520

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Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

answer

$3,300

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Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.

Refer to Table 12-1. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?

answer

profit of $440

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For a perfectly competitive firm, average revenue is equal to

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the market price.

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Refer to Figure 12-14. Consider a typical firm in a perfectly competitive industry which is incurring short-run losses. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

answer

Panel A; S0 left to S1, higher price, less quantity

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Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

answer

It makes less profit.

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Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.

Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?

answer

It will remain the same.

question

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is

answer

180.

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Which of the following is not true for a firm in perfect competition?

answer

Average revenue is greater than marginal revenue.

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Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.

Refer to Table 12-2. What is Margie's total revenue if she sells 250 pounds of apples?

answer

$750

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For a perfectly competitive firm, which of the following is not true at profit maximization?

answer

Market price is greater than marginal cost.

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Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

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$6,000

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Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

answer

The firm will not sell any output.

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Producing where marginal revenue equals marginal cost is equivalent to producing where

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total profit is maximized.

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Marginal revenue is

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the change in total revenue divided by the change in the quantity of output.

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Refer to Figure 12-2. What happens if the firm produces more than Q4 units?

answer

It makes a loss.

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A very large number of small sellers who sell identical products imply

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the inability of one seller to influence price.

question

answer

$3,200

question

answer

400 units

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A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run?

answer

Yes, it should continue to produce because it is minimizing its loss.

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The marginal revenue curve for a perfectly competitive firm

answer

is the same as its demand curve.

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Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay in business?

answer

Yes, because it is covering part of its fixed cost.

question

What is always true at the quantity where a firm's average total cost equals average revenue?

answer

The firm breaks even.

question

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

Refer to Figure 12-4. If the market price is $30 and if the firm is producing output, what is the amount of its total variable cost?

answer

$3,960

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The price of a seller's product in perfect competition is determined by

answer

market demand and market supply

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Which of the following is not a characteristic of a perfectly competitive market structure?

answer

There are restrictions on exit of firms.

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Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

answer

It is equal to the vertical distance c to g.

question

Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.

Refer to Table 12-1. The firm will not produce in the short run if the output price falls below

answer

$2.80

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Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

answer

will reduce its output to 1,100 units.

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The supply curve of a perfectly competitive firm in the short run is

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the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve.

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If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

answer

is incurring a loss.

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In perfect competition

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the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

question

answer

$1,000

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Refer to Figure 12-10. The firm's short-run supply curve is its

answer

marginal cost curve from b and above.

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If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

answer

should shut down.

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Refer to Figure 12-12. Consider a typical firm in a perfectly competitive industry that makes short-run profits. Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

answer

Panel B

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Both individual buyers and sellers in perfect competition

answer

have to take the market price as a given.

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Article Summary

According to the Department of Agriculture, net farm income will grow to a record high of $120.6 billion in 2013, up from the previous high mark in 2011 and after adjusting for inflation, its second highest level since 1973. Net cash income, however, is expected to fall by 10 percent due to unsold inventories. Exports of chickens and milk are expected to rise by 3 percent and 17 percent, respectively.
Source: Ros Krasny, "Farm income poised for record 2013: USDA," Reuters, August 27, 2013.

Assume that after the record year for U.S. farm income in 2013, farmers are expected to break even in 2014. This means that at the quantity being produced in 2014

answer

MR =ATC.

question

Profit is the difference between

answer

total revenue and total cost.

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A perfectly competitive firm's supply curve is its

answer

marginal cost curve above its minimum average variable cost.

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An individual seller in perfect competition will not sell at a price lower than the market price because

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the seller can sell any quantity she wants at the prevailing market price.

question

For a firm in a perfectly competitive market, price is

answer

equal to both average revenue and marginal revenue.

question

Refer to Figure 12-2. The firm breaks even at an output level of

answer

Q4 units.

question

Table 12-2 lists the various pounds (lbs.) of apples that Margie Stattler can sell. Assume that Margie operates in a perfectly competitive market.

Refer to Table 12-2. How many pounds of apples should Margie sell to maximize her profit?

answer

This cannot be determined without knowing Margie's total or marginal production costs.

question

If a firm shuts down in the short run it will

answer

suffer a loss equal to its fixed costs.

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Refer to Figure 12-1. If the firm is producing 700 units

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it should cut back its output to maximize profit.

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If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

answer

$40

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Figure 15-5 shows the demand and cost curves for a monopolist.

Refer to Figure 15-5. What is the economically efficient output level?

answer

940 units.

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Refer to Figure 13-2. The marginal revenue from selling the additional unit Qb instead of Qa equals

answer

the area (H - E).

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If we use a narrow definition of monopoly, then a monopoly is defined as a firm

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that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.

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What is a network externality?

answer

It refers to a situation in which a product's usefulness increases with the number of people using it.

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Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. If the firm's average total cost curve is ATC2, the firm will

answer

break even

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Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the price charged for the profit-maximizing output level?

answer

$34

question

Consider an industry that is made up of nine firms each with a market share (percent of sales) as follows:
a. Firm A: 30%
b. Firm B: 20%
c. Firms C, D and E: 10% each
d. Firms F, G, H and J: 5% each

What is the value of the Herfindahl-Hirschman Index?

answer

1700

question

When a monopoly cuts its price to increase its sales, it experiences a gain in revenue due to the

answer

output effect

question

A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1.

Refer to Table 15-1. What is the marginal revenue from the sale of the 12th unit?

answer

$20

question

For a natural monopoly to exist

answer

a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.

question

Figure 15-9 shows the cost and demand curves for the Erickson Power Company.

Refer to Figure 15-9. What is the economically efficient output level and what is the price at that level?

answer

Q4, P1

question

Figure 15-9 shows the cost and demand curves for the Erickson Power Company.

Refer to Figure 15-9. Why won't regulators require that Erickson Power produce the economically efficient output level?

answer

because Erickson Power will sustain persistent losses and will not continue in business in the long run

question

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

answer

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

question

Refer to Figure 15-6. What is the area that represents consumer surplus under a monopoly?

answer

the triangle P0P1F

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A merger between the Ford Motor Company and General Motors would be an example of a

answer

horizontal merger

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Refer to Figure 15-6. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the

answer

area P1P2EF.

question

When a monopoly cuts its price to increase its sales, it experiences a loss in revenue due to the

answer

price effect

question

Which of the following is true for a firm with a downward-sloping demand curve for its product?

answer

Price equals average revenue but is greater than marginal revenue.

question

Compared to perfect competition, the consumer surplus in a monopoly

answer

is lower because price is higher and output is lower.

question

Refer to Figure 15-6. The deadweight loss due to a monopoly is represented by the area

answer

FHE

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Refer to Figure 15-6. What is the area that represents producer surplus under a monopoly?

answer

the trapezium 0P1FH

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A monopoly is a seller of a product

answer

without a close substitute.

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The demand curve for the monopoly's product is

answer

the market demand for the product.

question

A monopolist faces

answer

a downward-sloping demand curve.

question

Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

answer

output effect = $5.50; price effect = -$2.00

question

Figure 15-9 shows the cost and demand curves for the Erickson Power Company.

Refer to Figure 15-9. If the government regulates Erickson Power Company so that the firm can earn a normal profit, the price would be set at ________ and the output level is ________.

answer

P2, Q3

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. If the firm's average total cost curve is ATC1, the firm will

answer

make a profit

question

Economic efficiency in a free market occurs when

answer

the sum of consumer surplus and producer surplus is maximized.

question

Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

answer

$5.50

question

For a monopolist, marginal revenue

answer

is less than the price.

question

A monopolist's profit maximizing price and output correspond to the point on a graph

answer

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

question

A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1.

Refer to Table 15-1. What is the amount of the firm's profit?

answer

$350

question

Relative to a perfectly competitive market, a monopoly results in

answer

a gain in producer surplus less than the loss in consumer surplus.

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. The firm's profit-maximizing price is

answer

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the amount of the monopoly's total cost of production?

answer

$17,700

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the profit-maximizing/loss-minimizing output level?

answer

600 units

question

To enter a local cable television market, a firm needs a license from the city government. This is an example of

answer

a government-imposed barrier.

question

A profit maximizing monopoly's price is

answer

greater than the price that would prevail if the industry was perfectly competitive.

question

A Herfindahl-Hirschman Index is calculated by

answer

summing the squares of the market shares of each firm in the industry.

question

Refer to Table 13-1. What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

answer

output effect = $6.00; price effect = -$1.50

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. If the firm's average total cost curve is ATC3, the firm will

answer

suffer a loss.

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the amount of the monopoly's total revenue?

answer

$20,400

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. To maximize profit, the firm will produce

answer

question

In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-7 shows the cable television market in Upstate New York.

Refer to Figure 15-7. Following the entry of Verizon, the subscription price falls from PM to PC. What is the increase in consumer surplus as a result of this change?

answer

the area B + C + D

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the amount of the monopoly's profit?

answer

$2,700

question

A merger between U.S. Steel and General Motors would be an example of a

answer

vertical merger

question

A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1.

Refer to Table 15-1. What is the firm's profit-maximizing output and what is the price charged to sell this output?

answer

P = $70; Q = 13

question

Refer to Table 13-1. The Table shows

answer

an elastic segment of the demand curve.

question

Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

answer

the area (A - D).

question

In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-7 shows the cable television market in Upstate New York.

Refer to Figure 15-7. What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?

answer

The deadweight loss of area D is converted to consumer surplus.

1 of 150

question

The slope of an isoquant measures

answer

the rate at which inputs can be substituted for each other keeping total output constant.

question

Refer to Figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the price of labor while the price of capital remains unchanged?

answer

the movement from BF to BD

question

The explicit cost of production is also called

answer

accounting cost.

question

At the minimum efficient scale,

answer

the firm has achieved the lowest possible average cost of production.

question

Economic costs of production differ from accounting costs in that

answer

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.

question

Refer to Figure 11-6. The movement from isoquant T to isoquant U depicts

answer

an increase in output.

question

answer

$145

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the marginal cost per unit of production when the firm produces 100 lanterns?

answer

$32

question

If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is

answer

2 chairs.

question

Refer to Figure 11-9. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost?

answer

combination f: 40 hours of labor and 24 units of capital

question

Which of the following costs will not change as output changes?

answer

total fixed cost

question

The average product of the 4th worker

answer

is 17.

question

When the average total cost is $16 and the total cost is $800, then the number of units the firm is producing is

answer

50.

question

The absolute value of the slope of an isocost line equals the ratio of

answer

the prices of the two inputs.

question

Which of the following is a factor of production that generally is fixed in the short run?

answer

capital

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the average total cost of production when the firm produces 120 lanterns?

answer

$14

question

Refer to Figure 11-1. The marginal product of the 7th worker is

answer

-2.

question

A firm has successfully adopted a positive technological change when

answer

it can produce more output using the same inputs.

question

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?

answer

$15.

question

The production function shows

answer

the maximum output that can be produced from each possible quantity of inputs.

question

Refer to Figure 11-7. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost

answer

is $500.

question

An isocost line shows

answer

all the possible combinations of two inputs a firm can use that have the same total cost.

question

If a producer is not able to expand its plant capacity immediately, it is

answer

operating in the short run.

question

If diminishing marginal returns have already set in for Golden Lark Woodworks, and the marginal product of the 6th carpenter is 8 chairs, then the marginal product of the 7th carpenter is

answer

less than 8 chairs.

question

Refer to Figure 11-9. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies?

answer

$560.

question

A characteristic of the long run is

answer

all inputs can be varied.

question

Maximizing the level of output for a given total cost of production

answer

is equivalent to minimizing cost for a given level of output.

question

Which of the following are implicit costs for a typical firm?

answer

opportunity costs of capital owned and used by the firm

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the average variable cost per unit of production when the firm produces 90 lanterns?

answer

$5.44

question

Higher isocost lines correspond to higher

answer

total costs of production.

question

answer

question

The formula for total fixed cost is

answer

TFC = TC - TVC.

question

Refer to Figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged?

answer

the movement from BF to AF

question

If, when a firm doubles all its inputs, its average cost of production increases, then production displays

answer

diseconomies of scale.

question

Table 11-3 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

Refer to Table 11-3. What is the variable cost of production when the firm produces 115 lanterns?

answer

$1,157

question

If, when a firm doubles all its inputs, its average cost of production decreases, then production displays

answer

economies of scale.

question

Refer to Figure 11-7. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the firm's total cost while the price of labor and capital remain unchanged?

answer

the movement from CE to BF

question

Marginal cost is the

answer

additional cost of producing an additional unit of output.

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Marginal cost is equal to the

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change in total cost divided by the change in output.

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If production displays economies of scale, the long-run average cost curve is

answer

downward-sloping.

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Suppose that a firm's production function is given by Y = 12 K L - L2, where K is the level of capital and L is the number of laborers the firm employs. For the given production function the marginal products are, MPL = 12 K - 2 L and MPK = 12 L. The rental rate of capital is $45 while the wage rate is $15.

What is the cost minimizing level of capital (K*) if the firm is producing 500 units of output ?

answer

question

Which of the following equations is correct?

answer

AFC + AVC = ATC

question

An isoquant shows

answer

the combinations of two inputs that yield the same total product.

question

The average total cost of production

answer

equals total cost of production divided by the level of output.

question

An expansion path shows

answer

the least-cost combination of inputs for each level of output.

question

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6 units, then the average product of 12 workers is

answer

5 units.

question

Refer to Figure 11-1. The marginal product of the 3rd worker is

answer

question

answer

360

question

The marginal product of labor is defined as

answer

the additional output that results when one more worker is hired, holding all other resources constant.

question

The difference between technology and technological change is that

answer

question

If the market price is $25, the average revenue of selling five units is

answer

$25

question

answer

loss of $1,080

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Refer to Figure 12-10. At the profit-maximizing output level, the firm earns

answer

a profit of $2,700.

question

Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

Refer to Figure 12-4. What is the amount of its total fixed cost?

answer

$2,520

question

Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

answer

$3,300

question

answer

profit of $440

question

For a perfectly competitive firm, average revenue is equal to

answer

the market price.

question

answer

Panel A; S0 left to S1, higher price, less quantity

question

Refer to Figure 12-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?

answer

It makes less profit.

question

Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.

Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?

answer

It will remain the same.

question

answer

180.

question

Which of the following is not true for a firm in perfect competition?

answer

Average revenue is greater than marginal revenue.

question

answer

$750

question

For a perfectly competitive firm, which of the following is not true at profit maximization?

answer

Market price is greater than marginal cost.

question

Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

answer

$6,000

question

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

answer

The firm will not sell any output.

question

Producing where marginal revenue equals marginal cost is equivalent to producing where

answer

total profit is maximized.

question

Marginal revenue is

answer

the change in total revenue divided by the change in the quantity of output.

question

Refer to Figure 12-2. What happens if the firm produces more than Q4 units?

answer

It makes a loss.

question

A very large number of small sellers who sell identical products imply

answer

the inability of one seller to influence price.

question

answer

$3,200

question

answer

400 units

question

answer

Yes, it should continue to produce because it is minimizing its loss.

question

The marginal revenue curve for a perfectly competitive firm

answer

is the same as its demand curve.

question

answer

Yes, because it is covering part of its fixed cost.

question

What is always true at the quantity where a firm's average total cost equals average revenue?

answer

The firm breaks even.

question

answer

$3,960

question

The price of a seller's product in perfect competition is determined by

answer

market demand and market supply

question

Which of the following is not a characteristic of a perfectly competitive market structure?

answer

There are restrictions on exit of firms.

question

Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

answer

It is equal to the vertical distance c to g.

question

Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.

Refer to Table 12-1. The firm will not produce in the short run if the output price falls below

answer

$2.80

question

Refer to Figure 12-11. Suppose the prevailing price is $20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram

answer

will reduce its output to 1,100 units.

question

The supply curve of a perfectly competitive firm in the short run is

answer

the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve.

question

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

answer

is incurring a loss.

question

In perfect competition

answer

the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

question

answer

$1,000

question

Refer to Figure 12-10. The firm's short-run supply curve is its

answer

marginal cost curve from b and above.

question

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

answer

should shut down.

question

answer

Panel B

question

Both individual buyers and sellers in perfect competition

answer

have to take the market price as a given.

question

answer

MR =ATC.

question

Profit is the difference between

answer

total revenue and total cost.

question

A perfectly competitive firm's supply curve is its

answer

marginal cost curve above its minimum average variable cost.

question

An individual seller in perfect competition will not sell at a price lower than the market price because

answer

the seller can sell any quantity she wants at the prevailing market price.

question

For a firm in a perfectly competitive market, price is

answer

equal to both average revenue and marginal revenue.

question

Refer to Figure 12-2. The firm breaks even at an output level of

answer

Q4 units.

question

answer

This cannot be determined without knowing Margie's total or marginal production costs.

question

If a firm shuts down in the short run it will

answer

suffer a loss equal to its fixed costs.

question

Refer to Figure 12-1. If the firm is producing 700 units

answer

it should cut back its output to maximize profit.

question

If the market price is $40 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

answer

$40

question

Figure 15-5 shows the demand and cost curves for a monopolist.

Refer to Figure 15-5. What is the economically efficient output level?

answer

940 units.

question

Refer to Figure 13-2. The marginal revenue from selling the additional unit Qb instead of Qa equals

answer

the area (H - E).

question

If we use a narrow definition of monopoly, then a monopoly is defined as a firm

answer

that can ignore the actions of all other firms because it produces a product for which there are no close substitutes.

question

What is a network externality?

answer

It refers to a situation in which a product's usefulness increases with the number of people using it.

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. If the firm's average total cost curve is ATC2, the firm will

answer

break even

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the price charged for the profit-maximizing output level?

answer

$34

question

answer

1700

question

When a monopoly cuts its price to increase its sales, it experiences a gain in revenue due to the

answer

output effect

question

answer

$20

question

For a natural monopoly to exist

answer

a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.

question

Figure 15-9 shows the cost and demand curves for the Erickson Power Company.

Refer to Figure 15-9. What is the economically efficient output level and what is the price at that level?

answer

Q4, P1

question

Figure 15-9 shows the cost and demand curves for the Erickson Power Company.

Refer to Figure 15-9. Why won't regulators require that Erickson Power produce the economically efficient output level?

answer

because Erickson Power will sustain persistent losses and will not continue in business in the long run

question

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

answer

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

question

Refer to Figure 15-6. What is the area that represents consumer surplus under a monopoly?

answer

the triangle P0P1F

question

A merger between the Ford Motor Company and General Motors would be an example of a

answer

horizontal merger

question

Refer to Figure 15-6. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the

answer

area P1P2EF.

question

When a monopoly cuts its price to increase its sales, it experiences a loss in revenue due to the

answer

price effect

question

Which of the following is true for a firm with a downward-sloping demand curve for its product?

answer

Price equals average revenue but is greater than marginal revenue.

question

Compared to perfect competition, the consumer surplus in a monopoly

answer

is lower because price is higher and output is lower.

question

Refer to Figure 15-6. The deadweight loss due to a monopoly is represented by the area

answer

FHE

question

Refer to Figure 15-6. What is the area that represents producer surplus under a monopoly?

answer

the trapezium 0P1FH

question

A monopoly is a seller of a product

answer

without a close substitute.

question

The demand curve for the monopoly's product is

answer

the market demand for the product.

question

A monopolist faces

answer

a downward-sloping demand curve.

question

Refer to Table 13-1. What portion of the marginal revenue of the 5th unit is due to the output effect and what portion is due to the price effect?

answer

output effect = $5.50; price effect = -$2.00

question

answer

P2, Q3

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. If the firm's average total cost curve is ATC1, the firm will

answer

make a profit

question

Economic efficiency in a free market occurs when

answer

the sum of consumer surplus and producer surplus is maximized.

question

Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

answer

$5.50

question

For a monopolist, marginal revenue

answer

is less than the price.

question

A monopolist's profit maximizing price and output correspond to the point on a graph

answer

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

question

A monopoly producer of foreign language translation software faces a demand and cost structure as given in Table 15-1.

Refer to Table 15-1. What is the amount of the firm's profit?

answer

$350

question

Relative to a perfectly competitive market, a monopoly results in

answer

a gain in producer surplus less than the loss in consumer surplus.

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. The firm's profit-maximizing price is

answer

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the amount of the monopoly's total cost of production?

answer

$17,700

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the profit-maximizing/loss-minimizing output level?

answer

600 units

question

To enter a local cable television market, a firm needs a license from the city government. This is an example of

answer

a government-imposed barrier.

question

A profit maximizing monopoly's price is

answer

greater than the price that would prevail if the industry was perfectly competitive.

question

A Herfindahl-Hirschman Index is calculated by

answer

summing the squares of the market shares of each firm in the industry.

question

Refer to Table 13-1. What portion of the marginal revenue of the 4th unit is due to the output effect and what portion is due to the price effect?

answer

output effect = $6.00; price effect = -$1.50

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. If the firm's average total cost curve is ATC3, the firm will

answer

suffer a loss.

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the amount of the monopoly's total revenue?

answer

$20,400

question

Figure 15-1 above shows the demand and cost curves facing a monopolist.

Refer to Figure 15-1. To maximize profit, the firm will produce

answer

question

answer

the area B + C + D

question

Figure 15-3 shows the demand and cost curves for a monopolist.

Refer to Figure 15-3. What is the amount of the monopoly's profit?

answer

$2,700

question

A merger between U.S. Steel and General Motors would be an example of a

answer

vertical merger

question

answer

P = $70; Q = 13

question

Refer to Table 13-1. The Table shows

answer

an elastic segment of the demand curve.

question

Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

answer

the area (A - D).

question

In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-7 shows the cable television market in Upstate New York.

Refer to Figure 15-7. What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?

answer

The deadweight loss of area D is converted to consumer surplus.

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