question
T/F: if the cost of producing 1,000 Hyundai sonatas is $15,000,000 and the cost of producing 1,500 Hyundai sonatas is $22,500,000, the Hyundai firm is experiencing increasing returns to scale.
answer
False, the cost stays the same per unit, there is no increasing returns to scale (15,000,000/1000= 22,500,000/1500).
question
T/F: Phillip is a cost-minimizing producer. Phillip currently hires 15 workers and 5 machines to produce 100 bookshelves per week. if the rental rate of capital rises (and all other factors remain the same) Phillip is likely to substitute away from capital and use more labor in the long run.
answer
true, since he is concerned about the long run he can change inputs. MPl/w > MPk/r
question
T/F: while an effective price ceiling may help or hurt consumers, it will likely hurt producers in the regulated market.
answer
True, the price ceiling allows the govt. to set a maximum market price which decreases producer surplus.
question
T/F: Barbara like eating at red lobster more than eating at captain d's. but Barbara eats at captains d's more frequently than at red lobster. Barbara is probably not maximizing her utility given in her budget constraint.
answer
False, when the price of red lobster is higher, eating at captain d's will give Barbara a higher marginal utility per dollar.
question
T/F: in the short run, the marginal productivity of one or more worker is 5 additional units of output per hour. the market price of the product is $7. if the market wage is $20, you should hire at least one more worker.
answer
True, the value of marginal product of hiring one more worker is greater than the wage. (P x MPl > W). 5 x 7 > 20
question
Clarence has consumed 6 deviled eggs. currently his total utility from consuming deviled eggs is 72 utils. if Clarence consumes one more deviled egg, his marginal utility for that deviled egg will be 4 utils. if Clarence does consume the 7th deviled egg, which of the following is true concerning his utility for deviled eggs?
answer
Clarence's total utility will rise and his avg. utility will fall.
question
the cross-price elasticity of demand for greek yogurt when compared to carrots is +1.35. when the price of carrots rises you would expect the demand for greek yogurt to _____ because they are _____.
answer
rise, substitutes
question
a government is considering placing an effective price floor on the market sweet corn. which of the following is most likely?
answer
there will be excess quantity supplied of sweet corn as suppliers will want to supply more sweet corn at the price floor price than consumers will want to purchase.
question
in the short run, to produce 65 refrigerators in a week you need to hire 5 workers. the weekly avg. product of labor (APL) is:
answer
13
question
the elastic of demand for deli bagels is |-1.2|. if the price of deli bagels decreases by 10%, sales of deli bagels will:
answer
increase by 12%
question
marvin consumes 2 things with all of his budget: video games and math textbooks. currently, Marvin is maximizing his utility. which of the following is most likely to be true?
answer
if the price of math textbooks were to rise, Marvin would likely purchase fewer math textbooks and more video games.
question
the difference between the market price for a good and the cost of producing a good summed across all producers in a market.
answer
producer surplus
question
the percentage change in quantity demanded of a good or service divided by the percentage change in price.
answer
price elasticity of demand
question
the costs (prices multiplied by amounts of inputs) of the inputs than can be changed. in the long-run, all inputs are variable. these costs vary as output changes.
answer
variable costs
question
the marginal product of an input will eventually decrease as more of that input is used assuming that all other inputs remain constant.
answer
law of diminishing marginal returns
question
a time period long enough for a business to change all of its inputs.
answer
long run
question
the change in total costs that results from increasing total product by one unit (change in TC/ change in quantity)
answer
marginal cost
question
the change in total utility or satisfaction resulting from consuming one more unit of a good or service.
answer
marginal utility
question
the change in total output that results from the firm hiring one more unit of capital (change in quantity/change in capital)
answer
marginal product of capital (MPk)
question
long run avg. total cost increase as the quantity of output increases.
answer
diseconomies of scale
question
goods or services that have positive cross-price elasticities of demand.
answer
substitutes
question
T/F: The Georgia College Athletic Department would like to increase the total revenue it generates from women's basketball games. At the current price per ticket the elasticity of demand for women's basketball games is |-1.3|. The GC Athletic Department should decrease the price of tickets to increase total revenue.
answer
True. The demand for women's basketball game tickets is elastic, meaning demand is sensitive to prices. If GC decreases the price of tickets, more tickets will be purchased and total revenue will increase.
question
T/F: A price floor will reduce the net benefits of a market to all producers and consumers in that market.
answer
False. As long as the equilibrium price is below the price floor, there will be no reduction in net benefits of a market for neither producers nor consumers.
question
T/F: Wimpy is a rational utility maximizer. At current market prices, Wimpy chooses to consume 12 cheeseburgers a week and 6 pizzas - the only two items he ever consumes. If the price of pizza increases and all else stays the same, we would expect Wimpy to eat more cheeseburgers per week.
answer
True. When the price of pizza is higher, eating more cheeseburgers will give Wimpy a higher marginal utility per dollar.
question
T/F: In the short run, the total cost of producing 100 fishing lures in an hour is $500. The marginal cost of producing the 101st fishing lure is $6. Average total cost will fall if the firm produces 101 fishing lures.
answer
False. The marginal cost of producing the 101st fishing lure is greater than the average total cost.
question
T/F: At the current level of production for a firm, if the marginal product of labor is decreasing then marginal cost must be increasing.
answer
True. There is a inverse relationship between marginal product of labor and marginal cost (the law of diminishing returns shows this). When there are too many workers in the firm the marginal product of labor decreases and the workers find themselves competing for equipment/tools/etc. and inevitably becoming more and more inefficient. This causes the increase in marginal cost.
question
Assume an additional waiter can increase the number of customers served in a restaurant by 100 customers per day. The waiter will cost the restaurant $50 per day. On the other hand, a new microwave oven will speed the cooking process and allow each customer to be served more quickly. The microwave oven will allow 200 more customers to be served with no additional labor. The microwave oven can be rented for $75 per day. Which of the following actions is the best option for the restaurant owner?
answer
Rent a microwave oven , because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker.
question
If population increases in a city with effective rent controls (and nothing else changes), which of the following describes what will happen in the market for rental housing?
answer
An increase in demand, but no change in quantity supplied.
question
A firm has a choice of raising or lowering its price. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do?
answer
Raise price when demand is inelastic, because the revenues gained from the price increase will be larger than the revenues lost from the smaller quantity sold.
question
Assume that as your income increases, your consumption of burgers decreases. We can assume that your income elasticity of demand for burgers is what?
answer
negative
question
Suppose Gail is willing to pay $89 for a new pair of shoes and Karen is willing to pay $60. What is the gain in total consumer surplus if the price of the shoes falls from $70 to $50?
answer
$30
question
Assume you spend all of your income on two goods: peanuts and chips. Also assume that you are consuming the combination of peanuts and chips that maximize your utility. Which of the following statements is true?
answer
If the price of peanuts is equal to the price of chips, then the marginal utilities must also be equal.
question
The law of diminishing marginal returns is the cause of ______________ marginal product and ______________ marginal cost.
answer
decreasing, increasing
question
The production of 75 sofas per week requires 15 workers. The average product of each worker is ______________ sofas per week.
answer
5
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