Microeconomics Exam II - Assignment Essays

question

If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, what is the maximum quantity of X the consumer is able to purchase?

answer

question

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3. To maximize utility, without spending more money, the consumer should

answer

Make no changes in the quantities Y and Z

question

The marginal utility of the last unit of apples consumed is 10, and the marginal utility of the last unit of bananas consumed is 15. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

answer

$2 and $3

question

If you purchase a gift worth $40 for your sister, but your sister would be willing to pay only $30 if she bought the item for herself, then the

answer

loss of value in the gift is $10

question

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 75 utils and the marginal utility of the last bag is 100 utils. The prices of soda and pretzels are $0.5 per bottle and $0.6 per bag, respectively. It can be concluded that

answer

Mrs. Arnold should spend less on soda and more on pretzels.

question

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

answer

the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed.

question

The price of diamonds is substantially greater than the price of water because

answer

the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person.

question

Other things equal, an increase in the price of product A will

answer

decrease the marginal utility per dollar spent on A.

question

Most economists contend that

answer

noncash gifts are less efficient than cash gifts.

question

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

answer

5A and 6B

question

The theory of consumer behavior assumes that consumers attempt to maximize

answer

total utility

question

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three cans of Pepsi is 38 units of utility. The marginal utility of the third Pepsi is

answer

8 units of utility.

question

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

answer

Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

question

The utility from a specific product is

answer

a measure of one's preference or taste for it.

question

"Consumer equilibrium" refers to the situation when the consumer is getting

answer

the highest total utility out of spending a given budget on various goods.

question

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 if she bought the item for herself, then the

answer

loss of value in the gift is $15.

question

Rosa received a corgi pillow as a raffle prize; she would have been willing to pay $18 to buy it herself. Based on the endowment effect, we would expect Rosa to be willing to sell the pillow

answer

only if she is offered more than $18.

question

Suppose Faith and Mickey are playing both dictator and ultimatum games. Faith is the dictator/proposer and has $20 to allocate. Based on repeated experiments of the dictator and ultimatum games, what payouts to Faith would be most consistent with the findings of behavioral economists?

answer

Faith receives $12 from the dictator game and $11 from the ultimatum game.

question

Parker’s shares of stock in ACME Corporation lost $100 in value, but his shares in XYZ, Inc. gained $350. According to behavioral economics research, how would Parker feel as a result of these changes?

answer

Parker would feel better off.

question

Riley has a new tennis racket for which she paid $75. Haley would like to buy the racket from Riley. Assuming Riley’s decision is only influenced by the endowment effect, which of the following amounts would most likely represent how much Riley would have to receive to be willing to sell the racket?

answer

$100

question

Huxley lost $80 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utility?

answer

$200

question

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $100 to allocate. Based on repeated experiments of the dictator game, what amounts, on average, are Justine and Sarah most likely to receive?

answer

$58 for Justine and $42 for Sarah.

question

Angela owes $500 on a credit card and $2,000 on a student loan. The credit card has a 15 percent annual interest rate, and the student loan has a 7 percent annual interest rate. Her sense of loss aversion makes her more anxious about the larger loan. As a result, she plans to pay it off first—despite the fact that professional financial advisors always tell people to pay off their highest-interest-rate loans first. Suppose Angela has only $500 at the present time to help pay down her loans and that this $500 will be the only money she will have for making debt payments for at least the next year.

answer

If she uses the $500 to pay off the credit card, how much interest will accrue on the other loan over the coming year? = $140

b. On the other hand, if she uses the $500 to pay off part of the student loan, how much in combined interest will she owe over the next year on the remaining balances on the two loans? = $180

c. By how many dollars will she be better off if she uses the $500 to completely pay off the credit card rather than partly paying down the student loan? = $40

question

One type of systematic error arises because people tend to think of benefits in percentage terms rather than in absolute dollar amounts. For example, Samir is willing to drive 20 minutes out of his way to save $4 on a grocery item that costs $10 at a local market. But he is unwilling to drive 20 minutes out of his way to save $10 on a laptop that costs $400 at a local store.

answer

a. In percentage terms, how big are the savings on the grocery item? = 40%

On the laptop? = 2.5%

b. In absolute terms, how big are the savings on the grocery item? = $4

On the laptop? = $10

c. If Samir is willing to sacrifice 20 minutes of his time to save $4 in one case, should he also be willing to sacrifice 20 minutes of his time to save $10? Yes

question

Ted has always had difficulty saving money, so on June 1, he enrolls in a Christmas savings program at his local bank and deposits $650. That money is totally locked away until December 1 so that Ted can be certain that he will still have it once the holiday shopping season begins. Suppose that the annual interest rate is 10 percent on ordinary savings accounts (which allow depositors to withdraw their money at any time). How much interest is Ted giving up by precommitting his money into the Christmas savings account for six months instead of depositing it into an ordinary savings account?

answer

$32.50

question

When the endowment effect occurs,

answer

people assign higher values to the things they own than to the things they do not own.

question

When a framing effect occurs,

answer

people's preferences can change drastically dependent on contextual information.

question

When mental accounting occurs,

answer

people isolate purchases and fail to consider all consumption options.

question

When anchoring occurs,

answer

recent information has the most influence on decision making.

question

Neoclassical economics does NOT hold which of the following assumptions

answer

People make regularly repeated mistakes.

question

Match each of the following behaviors with the appropriate bias or heuristic: Students end up doing an "all-nighter" just to finish a term paper.

answer

Planning fallacy

question

Match each of the following behaviors with the appropriate bias or heuristic: The so-called "Lake Wobegon effect" where everyone in a group claims to be above average.

answer

Overconfidence effect

question

Match each of the following behaviors with the appropriate bias or heuristic: People who are usually very neat tend to litter in areas covered with graffiti.

answer

Framing effects

question

Match each of the following behaviors with the appropriate bias or heuristic: Behavioral economists suggest that brand loyalty can be a source of monopoly power for producers.

answer

Status quo bias

question

The coffee shop near the local college normally sells 10 ounces of roasted coffee beans for $10. But the shop sometimes puts the beans on sale. During some sales, it offers “33 percent more for free.” Other weeks, it takes “33 percent off” the normal price. After reviewing the shop’s sales data, the shop’s manager finds that “33 percent more for free” sells a lot more coffee than “33 percent off.” Are the store’s customers making a systematic error? Which is actually the better deal?

answer

Yes, they are making a systematic error because "33 percent off" is the better deal.

question

Neoclassical economists believe that the "invisible hand" of the market is driven by people's

answer

self-interest.

question

Neoclassical economic analysis tends to disregard all of the following motivations for people's decisions and actions except

answer

self-interest.

question

The "dictator game" and "ultimatum game" are experiments that have provided field evidence for

answer

fairness.

question

Behavioral economics assumes that people are

answer

prone to falling prey to temptation because they lack sufficient willpower.

question

Which of the following is NOT an assumption that neoclassical economics makes about people?

answer

People care deeply about fairness and are often generous.

question

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for all of the following reasons EXCEPT

answer

they allow the models to generate quite accurate predictions of behavior.

question

Neoclassical economics and behavioral economics disagree on all of the following assumptions EXCEPT

answer

the determinants of prices.

question

One major consequence of the framing effect is that

answer

decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions.

question

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

answer

confirmation bias.

question

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics) approach?

answer

providing discounts for buying in bulk

question

Examples of precommitments to deal with people's time inconsistency problems include the following, except

answer

debit card accounts.

question

Which of the following do behavioral economists blame for why many households in sunny areas resist solar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accrue from the solar panels?

answer

myopia

question

Solar City helped homeowners overcome their myopia by

answer

eliminating the upfront costs of solar systems.

question

Carlos and Darla are playing the dictator game. Carlos is assigned the role of dictator and given $20 to split between the two of them. Based on previous experiments with this game, if Carlos is a typical player, behavioral economists would expect

answer

Carlos to split the money, keeping a little more than half for himself.

question

When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions were incorrect, they suffer from

answer

hindsight bias.

question

According to behavioral economists, giving to charity

answer

contradicts the view that people are narrowly self-interested.

question

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

answer

framing effect.

question

Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?

answer

It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.

question

Josh will receive a salary of $300,000 next year. According to prospect theory,

answer

Josh's satisfaction with that salary depends on how much he made in the past.

question

Round Things, Inc.'s production process exhibits constant returns to scale. Currently their long-run average cost is $20/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be

answer

$20/unit.

question

Harvey quit his job at State University, where he earned $62,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $4,000 a year. To start the business, he cashed in $50,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 10,000 units of software at $72 for each unit. Of the $72 per unit, $60 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.

The accounting profit of Harvey's firm in the first year was

answer

$120,000.

question

Assume that in the short run a firm is producing 800 units of output, has average total costs of $150, and has average variable costs of $100. The firm's total variable costs are.

answer

$80,000.

question

The following is cost information for the Creamy Crisp Donut Company.

Entrepreneur's potential earnings as a salaried worker = $50,000

Annual lease on building = $22,000

Annual revenue from operations = $380,000

Payments to workers = $120,000

Utilities (electricity, water, disposal) costs = $8,000

Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000

Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

Creamy Crisp's explicit costs are

answer

$150,000.

question

Suppose that you could either prepare your own tax return in 8 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at $20.00 an hour; the tax specialist will charge you $45 an hour. The opportunity cost of preparing your own tax return is

answer

$160.

question

The ABC Corporation decreases all of its inputs by 24 percent and finds that its output falls by 28 percent. This means that initially it was producing

answer

in the range of economies of scale.

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

answer

profits were $0 and its economic losses were $500,000.

question

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs.

question

Economic cost can best be defined as

answer

a payment that must be made to obtain and retain the services of a resource.

question

Production costs to an economist

answer

reflect opportunity costs.

question

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were

answer

$200,000 and its economic profits were $0.

question

Which of the following definitions is correct?

answer

Economic profit = accounting profit − implicit costs.

question

Economic cost can best be defined as

answer

the income the firm must provide to resource suppliers to attract resources from alternative uses.

question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.60 and the market price is $5.30. What should the firm do?

answer

decrease output if the minimum possible average variable cost is below $5.30

question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 3,000 units is $6.00. The minimum possible average variable cost is $4.00. The market price of the product is $3.50. To maximize profits or minimize losses, the firm should

answer

shut down.

question

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $4 per pound. Joe's marginal revenue from selling the 21st pound of pork would be

answer

$4.

question

A purely competitive firm currently producing 25 units of output earns marginal revenues of $22 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be

answer

$660.

question

If a purely competitive firm shuts down in the short run,

answer

it will realize a loss equal to its total fixed costs.

question

The short-run supply curve for a competitive firm is the

answer

segment of the MC curve lying above the AVC curve.

question

(Last Word) Replacement and repair costs

answer

are intermittent and often unpredictable.

question

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

answer

will also be $5.

question

The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be

answer

$8.

question

Complete the following statements:

In a constant-cost industry, a decrease in demand will result in economic: ________. As a result, firms will _______ the industry, resulting in _____________________ over time. A long-run adjustment will eventually cause the price level to ______________, causing it to ________________________ before the demand shift. There will be __________ firms in the industry, and the long-run industry supply curve will be _____________.

answer

Losses, exit, a decrease in supply, increase, return to the level where it was, fewer, horizontal.

question

The entry and exit of firms in a purely competitive industry help to improve resource allocation because

answer

losses result in firms exiting an industry, causing resources to flow to markets where there are profits.

question

Suppose that the pen-making industry is perfectly competitive. Also suppose that all current firms and any potential firms that might enter the industry have identical cost curves, with minimum ATC = $1.25 per pen.

If the market equilibrium price of pens is currently $1.50, what would you expect the equilibrium price to be in the long run?

answer

$1.25

question

Complete the following statements.

In a constant-cost industry, an increase in demand will result in economic _________. As a result, firms will ___________ the industry, resulting in ______________________ over time. A long-run adjustment will eventually cause the price level to ______________, causing it to _______________________ before the demand shift. There will be ______________ firms in the industry, and the long-run industry supply curve will be _______________.

answer

Profits, enter, an increase in supply, decrease, return to a level where it was, more, horizontal.

question

The equality of MR and MC is essential for profit maximization in all market structures because if

answer

MR and MC are equal, any other output level will result in reduced profits.

question

Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because

answer

price is constant regardless of the quantity demanded.

question

In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving

answer

productive efficiency.

question

The equality of P and MC means the firm is achieving

answer

allocative efficiency, since the industry is producing the amount of product that equates society’s valuation of that product and the price of the product.

question

Consider the following statement: “Ninety percent of new products fail within two years—so you shouldn’t be so eager to innovate.”

This statement is

answer

false, because a firm could capture enough expected economic profit in the short run to cover its initial investment.

question

Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry is purely competitive, we would expect the long-run supply curve for mobile phones to be:

answer

downward sloping.

question

Suppose that Betty’s Beads is a typical firm operating in a perfectly competitive market. Currently Betty’s MR = $20, MC = $20, ATC = $17, and AVC = $12. Based on this information, we can conclude that

answer

Betty’s experience will encourage new firms to enter the market.

question

If the price of product Y is $14 and its marginal cost is $18,

answer

resources are being overallocated to Y.

question

Purely competitive industry X has increasing costs and its product is a normal good. The industry is currently in long-run equilibrium. The economy now goes into a recession and average incomes decline. The result will be

answer

a decrease in output, and in the price of the product.

question

Assume a purely competitive constant-cost industry is initially in long-run equilibrium, producing 9 million units at a market price of $18.00. Suppose that an increase in consumer demand occurs. After all economic adjustments have been completed, which output and price combination is most likely to occur?

answer

10 units at a price of $18.00.

question

If the price of bottled water is $2.00 and the marginal cost of producing it is $1.50,

answer

resources are being underallocated to bottled water.

question

If a purely competitive increasing-cost industry is realizing economic profits, we can expect industry supply to

answer

increase, output to rise, price to fall, and profits to fall.

question

Augi’s Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $14,000 in the short run. In the long run we would expect Augi’s to

answer

realize economic profits of $0.

question

In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then

answer

other firms will enter the industry and the industry supply will increase.

question

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that

answer

price is greater than marginal cost.

question

Under pure competition, in the long run

answer

both allocative efficiency and productive efficiency are achieved.

question

If a purely competitive firm is producing where price exceeds marginal cost, then

answer

the firm will fail to maximize profit and resources will be underallocated to the product.

question

All of the following statements apply to a purely competitive market in the long run, except

answer

total fixed costs remain constant even when output expands in the long run.

question

In long-run equilibrium, purely competitive markets

answer

maximize the sum of consumer surplus and producer surplus.

question

When a purely competitive firm is in long-run equilibrium,

answer

price equals marginal cost.

question

Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be

answer

higher, but total output will be lower.

question

The primary force encouraging the entry of new firms into a purely competitive industry is

answer

economic profits earned by firms already in the industry.

question

If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to

answer

decrease, and consequently the representative firm's profits will increase.

question

Competitive firms will always try to earn more than a normal profit by doing the following except

answer

raising the prices of their existing products.

question

Long-run supply curves for a purely competitive industry can never be downsloping.

answer

False

1 of 105

question

If a consumer has an income of $200, the price of X is $5, and the price of Y is $10, what is the maximum quantity of X the consumer is able to purchase?

answer

question

Assume that a consumer purchases a combination of products Y and Z and that the MUy/Py = 30/2 and MUz/Pz = 45/3. To maximize utility, without spending more money, the consumer should

answer

Make no changes in the quantities Y and Z

question

answer

$2 and $3

question

If you purchase a gift worth $40 for your sister, but your sister would be willing to pay only $30 if she bought the item for herself, then the

answer

loss of value in the gift is $10

question

answer

Mrs. Arnold should spend less on soda and more on pretzels.

question

The fact that an ounce of gold is priced higher than an ounce of chocolate suggests that

answer

the marginal utility of the last unit of gold consumed or purchased is greater than the marginal utility of the last unit of chocolate consumed.

question

The price of diamonds is substantially greater than the price of water because

answer

the marginal utility of the last diamond purchased is significantly greater than the marginal utility of the last gallon of water purchased by a typical person.

question

Other things equal, an increase in the price of product A will

answer

decrease the marginal utility per dollar spent on A.

question

Most economists contend that

answer

noncash gifts are less efficient than cash gifts.

question

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which of the following combinations is on the consumer's budget line?

answer

5A and 6B

question

The theory of consumer behavior assumes that consumers attempt to maximize

answer

total utility

question

answer

8 units of utility.

question

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately?

answer

Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

question

The utility from a specific product is

answer

a measure of one's preference or taste for it.

question

"Consumer equilibrium" refers to the situation when the consumer is getting

answer

the highest total utility out of spending a given budget on various goods.

question

If you purchase a gift worth $25 for your sister, but your sister would be willing to pay only $10 if she bought the item for herself, then the

answer

loss of value in the gift is $15.

question

Rosa received a corgi pillow as a raffle prize; she would have been willing to pay $18 to buy it herself. Based on the endowment effect, we would expect Rosa to be willing to sell the pillow

answer

only if she is offered more than $18.

question

answer

Faith receives $12 from the dictator game and $11 from the ultimatum game.

question

answer

Parker would feel better off.

question

answer

$100

question

Huxley lost $80 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utility?

answer

$200

question

answer

$58 for Justine and $42 for Sarah.

question

answer

If she uses the $500 to pay off the credit card, how much interest will accrue on the other loan over the coming year? = $140

b. On the other hand, if she uses the $500 to pay off part of the student loan, how much in combined interest will she owe over the next year on the remaining balances on the two loans? = $180

c. By how many dollars will she be better off if she uses the $500 to completely pay off the credit card rather than partly paying down the student loan? = $40

question

answer

a. In percentage terms, how big are the savings on the grocery item? = 40%

On the laptop? = 2.5%

b. In absolute terms, how big are the savings on the grocery item? = $4

On the laptop? = $10

c. If Samir is willing to sacrifice 20 minutes of his time to save $4 in one case, should he also be willing to sacrifice 20 minutes of his time to save $10? Yes

question

answer

$32.50

question

When the endowment effect occurs,

answer

people assign higher values to the things they own than to the things they do not own.

question

When a framing effect occurs,

answer

people's preferences can change drastically dependent on contextual information.

question

When mental accounting occurs,

answer

people isolate purchases and fail to consider all consumption options.

question

When anchoring occurs,

answer

recent information has the most influence on decision making.

question

Neoclassical economics does NOT hold which of the following assumptions

answer

People make regularly repeated mistakes.

question

Match each of the following behaviors with the appropriate bias or heuristic: Students end up doing an "all-nighter" just to finish a term paper.

answer

Planning fallacy

question

Match each of the following behaviors with the appropriate bias or heuristic: The so-called "Lake Wobegon effect" where everyone in a group claims to be above average.

answer

Overconfidence effect

question

Match each of the following behaviors with the appropriate bias or heuristic: People who are usually very neat tend to litter in areas covered with graffiti.

answer

Framing effects

question

Match each of the following behaviors with the appropriate bias or heuristic: Behavioral economists suggest that brand loyalty can be a source of monopoly power for producers.

answer

Status quo bias

question

answer

Yes, they are making a systematic error because "33 percent off" is the better deal.

question

Neoclassical economists believe that the "invisible hand" of the market is driven by people's

answer

self-interest.

question

Neoclassical economic analysis tends to disregard all of the following motivations for people's decisions and actions except

answer

self-interest.

question

The "dictator game" and "ultimatum game" are experiments that have provided field evidence for

answer

fairness.

question

Behavioral economics assumes that people are

answer

prone to falling prey to temptation because they lack sufficient willpower.

question

Which of the following is NOT an assumption that neoclassical economics makes about people?

answer

People care deeply about fairness and are often generous.

question

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for all of the following reasons EXCEPT

answer

they allow the models to generate quite accurate predictions of behavior.

question

Neoclassical economics and behavioral economics disagree on all of the following assumptions EXCEPT

answer

the determinants of prices.

question

One major consequence of the framing effect is that

answer

decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions.

question

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

answer

confirmation bias.

question

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics) approach?

answer

providing discounts for buying in bulk

question

Examples of precommitments to deal with people's time inconsistency problems include the following, except

answer

debit card accounts.

question

answer

myopia

question

Solar City helped homeowners overcome their myopia by

answer

eliminating the upfront costs of solar systems.

question

answer

Carlos to split the money, keeping a little more than half for himself.

question

When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions were incorrect, they suffer from

answer

hindsight bias.

question

According to behavioral economists, giving to charity

answer

contradicts the view that people are narrowly self-interested.

question

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

answer

framing effect.

question

answer

It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.

question

Josh will receive a salary of $300,000 next year. According to prospect theory,

answer

Josh's satisfaction with that salary depends on how much he made in the past.

question

answer

$20/unit.

question

The accounting profit of Harvey's firm in the first year was

answer

$120,000.

question

Assume that in the short run a firm is producing 800 units of output, has average total costs of $150, and has average variable costs of $100. The firm's total variable costs are.

answer

$80,000.

question

The following is cost information for the Creamy Crisp Donut Company.

Entrepreneur's potential earnings as a salaried worker = $50,000

Annual lease on building = $22,000

Annual revenue from operations = $380,000

Payments to workers = $120,000

Utilities (electricity, water, disposal) costs = $8,000

Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000

Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

Creamy Crisp's explicit costs are

answer

$150,000.

question

answer

$160.

question

The ABC Corporation decreases all of its inputs by 24 percent and finds that its output falls by 28 percent. This means that initially it was producing

answer

in the range of economies of scale.

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

answer

profits were $0 and its economic losses were $500,000.

question

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs.

question

Economic cost can best be defined as

answer

a payment that must be made to obtain and retain the services of a resource.

question

Production costs to an economist

answer

reflect opportunity costs.

question

answer

$200,000 and its economic profits were $0.

question

Which of the following definitions is correct?

answer

Economic profit = accounting profit − implicit costs.

question

Economic cost can best be defined as

answer

the income the firm must provide to resource suppliers to attract resources from alternative uses.

question

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.60 and the market price is $5.30. What should the firm do?

answer

decrease output if the minimum possible average variable cost is below $5.30

question

answer

shut down.

question

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $4 per pound. Joe's marginal revenue from selling the 21st pound of pork would be

answer

$4.

question

A purely competitive firm currently producing 25 units of output earns marginal revenues of $22 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be

answer

$660.

question

If a purely competitive firm shuts down in the short run,

answer

it will realize a loss equal to its total fixed costs.

question

The short-run supply curve for a competitive firm is the

answer

segment of the MC curve lying above the AVC curve.

question

(Last Word) Replacement and repair costs

answer

are intermittent and often unpredictable.

question

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

answer

will also be $5.

question

The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be

answer

$8.

question

Complete the following statements:

answer

Losses, exit, a decrease in supply, increase, return to the level where it was, fewer, horizontal.

question

The entry and exit of firms in a purely competitive industry help to improve resource allocation because

answer

losses result in firms exiting an industry, causing resources to flow to markets where there are profits.

question

If the market equilibrium price of pens is currently $1.50, what would you expect the equilibrium price to be in the long run?

answer

$1.25

question

Complete the following statements.

answer

Profits, enter, an increase in supply, decrease, return to a level where it was, more, horizontal.

question

The equality of MR and MC is essential for profit maximization in all market structures because if

answer

MR and MC are equal, any other output level will result in reduced profits.

question

Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because

answer

price is constant regardless of the quantity demanded.

question

In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving

answer

productive efficiency.

question

The equality of P and MC means the firm is achieving

answer

allocative efficiency, since the industry is producing the amount of product that equates society’s valuation of that product and the price of the product.

question

Consider the following statement: “Ninety percent of new products fail within two years—so you shouldn’t be so eager to innovate.”

This statement is

answer

false, because a firm could capture enough expected economic profit in the short run to cover its initial investment.

question

answer

downward sloping.

question

answer

Betty’s experience will encourage new firms to enter the market.

question

If the price of product Y is $14 and its marginal cost is $18,

answer

resources are being overallocated to Y.

question

answer

a decrease in output, and in the price of the product.

question

answer

10 units at a price of $18.00.

question

If the price of bottled water is $2.00 and the marginal cost of producing it is $1.50,

answer

resources are being underallocated to bottled water.

question

If a purely competitive increasing-cost industry is realizing economic profits, we can expect industry supply to

answer

increase, output to rise, price to fall, and profits to fall.

question

Augi’s Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $14,000 in the short run. In the long run we would expect Augi’s to

answer

realize economic profits of $0.

question

In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then

answer

other firms will enter the industry and the industry supply will increase.

question

Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that

answer

price is greater than marginal cost.

question

Under pure competition, in the long run

answer

both allocative efficiency and productive efficiency are achieved.

question

If a purely competitive firm is producing where price exceeds marginal cost, then

answer

the firm will fail to maximize profit and resources will be underallocated to the product.

question

All of the following statements apply to a purely competitive market in the long run, except

answer

total fixed costs remain constant even when output expands in the long run.

question

In long-run equilibrium, purely competitive markets

answer

maximize the sum of consumer surplus and producer surplus.

question

When a purely competitive firm is in long-run equilibrium,

answer

price equals marginal cost.

question

answer

higher, but total output will be lower.

question

The primary force encouraging the entry of new firms into a purely competitive industry is

answer

economic profits earned by firms already in the industry.

question

If firms are losing money in a purely competitive industry, then the long-run adjustments in this situation will cause the market supply to

answer

decrease, and consequently the representative firm's profits will increase.

question

Competitive firms will always try to earn more than a normal profit by doing the following except

answer

raising the prices of their existing products.

question

Long-run supply curves for a purely competitive industry can never be downsloping.

answer

False

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order