Microeconomics Final Exam - Barati

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QUIZ 7: Refer to Figure 6-1. A perfectly inelastic demand curve is shown in

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Panel A

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QUIZ 7: Refer to Figure 6-4. The inelastic segment of the demand curve

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lies below the midpoint of the curve

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If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

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elastic

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If the demand for cell phone service is inelastic, then

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the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

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If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

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1.62

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If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

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remain constant

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Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

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A wide variety of substitutes are available for the good

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Which of the following products comes closest to having a perfectly inelastic demand?

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cholesterol medication in general

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If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because

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buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

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Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

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the demand for salt is relatively inelastic

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If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?

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it falls

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Total revenue is equal to

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the price of a product multiplied by the number of units of the product sold.

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Which of the following statements is true?

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If the price of a good is raised and total revenue increases, demand is inelastic

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QUIZ 7: Refer to Table 6-6. Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

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elastic

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Income elasticity measures how a good's quantity demanded responds to

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change in buyers' incomes

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Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

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an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

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Consider the following pairs of items:
a. shampoo and conditioner
b. iPhones and earbuds
c. a laptop computer and a desktop computer
d. beef and pork
e. air-travel and weed killer

Which of the pairs listed will have a negative cross-price elasticity?

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a and b only

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If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are

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substitutes

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Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this?

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The demand for tomatoes is price inelastic

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QUIZ 7: Refer to Figure 6-10. A perfectly elastic supply curve is shown in

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panel B

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The price elasticity of an upward-sloping supply curve is always

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positive

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Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price?

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The more elastic the supply curve, the smaller the price increase

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The income elasticity of demand measures

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the responsiveness of quantity demanded to changes in income

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Demand for a luxury item, such as a yacht, is likely to be

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both income elastic and price elastic

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QUIZ 7: Refer to Figure 6-11. What is the value of the price elasticity of supply between g and h?

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Economists assume that the goal of consumers is to

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make themselves as well off as possible

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Marginal utility is the

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extra satisfaction received from consuming one more unit of a product

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As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

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declines

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If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

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5 utility units.

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The law of diminishing marginal utility states that

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the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant

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The substitution effect of an increase in the price of Raisin Bran refers to

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the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran

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Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects

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work in the same direction to decrease quantity demanded

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QUIZ 8: Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.

Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy?

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3 cups of soup and 4 sandwiches

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QUIZ 8: Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.

Refer to Table 10-2. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?

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4 cups of soup and 5 sandwiches

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Total utility is maximized in the consumption of two goods by

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equating the marginal utility per dollar for each good consumed

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A budget constraint

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refers to the limited amount of income available to consumers to spend on goods and services

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QUIZ 8: Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

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the income and substitution effects

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In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

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the price of the product and hold everything else constant

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The income effect due to a price decrease will result in an increase in the quantity demanded for

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a normal good

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We can derive the market demand curve for gold earrings

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by adding horizontally the individual demand curves of each gold earring consumer

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What is the endowment effect?

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the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it

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Sunk costs

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are costs that have already been paid and cannot be recaptured in any significant way

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Which of the following is a common mistake made by consumers?

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being overly optimistic about their future behavior

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Behavioral economics refers to the study of situations

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where consumers and firms do not appear to be making choices that are economically rational

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Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?

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People measure the value of a good in terms of its purchase price

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Marginal utility can be

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positive, negative, or zero

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An item has utility for a consumer if it

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generates enjoyment or satisfaction.

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If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

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wants to consume more ankle socks and fewer bandanas.

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The income effect of an increase in the price of peaches is

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the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

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The substitution effect of an increase in the price of peaches is

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the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power

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A firm has successfully adopted a positive technological change when

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it can produce more output using the same inputs

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A characteristic of the long run is

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all inputs can be varied

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Which of the following is a fixed cost?

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payment to hire a security worker to guard the gate to the factory around the clock

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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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Which of the following is an implicit cost of production?

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rent that could have been earned on a building owned and used by the firm

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QUIZ 9: Refer to Figure 11-1. The marginal product of the 3rd worker is

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QUIZ 9: Refer to Figure 11-1. The average product of the 4th worker

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is 17

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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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QUIZ 9: Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.

Refer to Table 11-1. What is the marginal product of the 4th worker?

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5 pounds

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QUIZ 9: Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.

Refer to Table 11-1. Diminishing marginal returns sets in when the ________ worker is hired.

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3rd

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QUIZ 9: Refer to Figure 11-2. The curve labeled "E" is

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the marginal product curve

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Diminishing marginal product of labor occurs when adding another unit of labor

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changes output by an amount smaller than the output added by the previous unit of labor

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Increases in the marginal product of labor result from

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the division of labor and specialization

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If production displays increasing marginal returns, then

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each new worker hired adds more to output than previous hires.

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Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore

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the marginal product of the 5th worker is negative

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QUIZ 9: Refer to Figure 11-2. Short run output is maximized at

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QUIZ 9: Refer to Figure 11-2. Diminishing returns to labor set in

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after L1

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QUIZ 9: Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.

Refer to Table 11-1. What is the average product of labor when the farm hires 5 workers?

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10.8 bushels

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If marginal product is greater than average product, then

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marginal product could either be increasing or decreasing

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Which of the following statements is true?

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The average product of labor is at its maximum when the average product of labor equals the marginal product of labor.

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An explicit cost is defined as

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a cost that involves spending money

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The production function shows

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

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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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Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?

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$220

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Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers?

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$120

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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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In the short run, if marginal product is at its maximum, then

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marginal cost is at its minimum

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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

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$145

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Average fixed costs of production

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fall as long as output is increased.

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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

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The formula for total fixed cost is

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TFC = TC - TVC

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Average variable cost can be calculated using any of the formulas below except

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Δ(TC - FC)/ΔQ

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QUIZ 10: Refer to Figure 11-5. Identify the curves in the diagram

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E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve

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QUIZ 10: Refer to Figure 11-5. Curve G approaches curve F because

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average fixed cost falls as output rises

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If the marginal cost curve is below the average variable cost curve, then

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average variable cost is decreasing

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Average fixed cost is equal to

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fixed cost divided by the quantity of output produced

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All of the following cost curves are U-shaped except one. Which curve is not U-shaped?

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the average fixed cost curve

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Long-run cost curves are U-shaped because

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of economies and diseconomies of scale

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

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economies of scale

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The long-run average cost curve shows

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the lowest average cost of producing every level of output in the long run

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The minimum efficient scale is

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the level of operation where long-run average costs are lowest

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Which of the following is a reason why a firm would experience diseconomies of scale?

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As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants

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QUIZ 10: Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production?

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In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41

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Minimum efficient scale is defined as the level of output at which

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all economies of scale are exhausted

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If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

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less than minimum efficient scale.

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QUIZ 10: Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.

Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of output?

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10,000 picture frames

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QUIZ 10: Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.

Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

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the firm will be operating efficiently

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QUIZ 10: Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.

Refer to Table 11-8. Elegant Settings experiences

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economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400

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Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

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Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run

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A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

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a long-run average total cost curve

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The demand curve for each seller's product in perfect competition is horizontal at the market price because

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each seller is too small to affect market price

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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

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The price a perfectly competitive firm receives for its output

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is determined by the interaction of all sellers and all buyers in the firm's market

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Which of the following is the best example of a perfectly competitive firm?

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a corn farmer in Illinois

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QUIZ 11: 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?

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profit of $440

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QUIZ 11: 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

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$2.80

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QUIZ 11: Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?

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It is equal to the vertical distance c to g

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For a firm in a perfectly competitive market, price is

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equal to both average revenue and marginal revenue

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For a perfectly competitive firm, at profit maximization

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marginal revenue equals marginal cost

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If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm

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added more to total revenue than it added to total cost

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If the market price is $40, the average revenue of selling five units is

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$40

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A firm's total profit can be calculated as all of the following except

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marginal profit times quantity sold

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QUIZ 11: 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?

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$3,960

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QUIZ 11: 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?

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loss of $1,080

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QUIZ 11: 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?

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Yes, because it is covering part of its fixed cost

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QUIZ 11: Figure 12-6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples.

Refer to Figure 12-6. If Jason maximizes his profit he will produce the output rate indicated by point ________ and his average profit will equal ________

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d; $3 minus ATC at point d

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

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The firm breaks even

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QUIZ 11: Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.

Refer to Figure 12-9. Identify the short-run shut down point for the firm.

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QUIZ 11: Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.

Refer to Figure 12-9. Identify the firm's short-run supply curve

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the marginal cost curve from b and above

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If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

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should shut down in the short run

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If a firm shuts down in the short run it will

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suffer a loss equal to its fixed costs

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QUIZ 11: 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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QUIZ 11: Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

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$3,300

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QUIZ 11: 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?

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Panel A

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QUIZ 11: The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.

Refer to Figure 12-17. The graphs depicts a short-run equilibrium. How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.)

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The firm's profit will be lower in the long run than in the short run

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Which of the following characteristics is common to monopolistic competition and perfect competition?

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Entry barriers into the industry are low

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The key characteristics of a monopolistically competitive market structure include

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sellers selling similar but differentiated products

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QUIZ 12: Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

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$5.50

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QUIZ 12: Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

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the area (A - D)

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Suppose a monopolistically competitive firm sells 25 units at a price of $10. Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9

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What is the profit-maximizing rule for a monopolistically competitive firm?

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to produce a quantity such that marginal revenue equals marginal cost

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QUIZ 12: Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.

Refer to Table 13-2. What is the output (Q) that maximizes profit and what is the price (P) charged?

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P = $50; Q = 6 cases

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QUIZ 12: Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.

Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

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QUIZ 12: Figure 13-4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.

Refer to Figure 13-4. What is the area that represents the loss made by the firm?

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the area P2cdP3

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Both monopolistically competitive firms and perfectly competitive firms maximize profits

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by producing where marginal revenue equals marginal cost.

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QUIZ 12: Refer to Figure 13-5. The candy store represented in the diagram is currently selling Qa units of candy at a price of Pa. Is this candy store maximizing its profit and if it is not, what would you recommend to the firm?

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No, it is not; it should lower its price to Pb and sell Qb units

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QUIZ 12: Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

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Panel A

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In the long run, if price is less than average cost

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there is an incentive for firms to exit the market

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QUIZ 12: Figure 13-12 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.

Refer to Figure 13-12. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?

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Some firms will exit the market causing the demand to increase for firms remaining in the market.

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The entry and exit of firms in a monopolistically competitive market guarantee that

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price equals average total cost in the long run

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QUIZ 12: Refer to Figure 13-13. What is the profit maximizing output level?

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Q4 units

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Refer to Figure 13-13. What is the area that represents the firm's profit?

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P4edP2

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If a restaurant like Buffalo Wild Wings has higher costs than a comparable Hooters restaurant, the only way it can have higher profits is if

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the demand for its food is higher than the demand for food at Hooters.

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Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?

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In the long run the firm will be able to charge a price that is greater than its average total cost.

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What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

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Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.

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QUIZ 12: Refer to Figure 13-18. Which of the following statements is true?

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Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor

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QUIZ 12: Refer to Figure 13-18. The diagram demonstrates that

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it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation

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How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

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A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

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Suppose Alexander is successful in establishing a profitable market for his vegan bakery in what is a monopolistically competitive industry. In the long run, Alexander will most likely find it ________ to remain profitable as he faces ________ competition in the vegan bakery market.

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harder; more

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QUIZ 12: Refer to Figure 13-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?

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Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss

1 of 150

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QUIZ 7: Refer to Figure 6-1. A perfectly inelastic demand curve is shown in

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Panel A

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QUIZ 7: Refer to Figure 6-4. The inelastic segment of the demand curve

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lies below the midpoint of the curve

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If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

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elastic

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If the demand for cell phone service is inelastic, then

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the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

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If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

answer

1.62

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If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

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remain constant

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Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

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A wide variety of substitutes are available for the good

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Which of the following products comes closest to having a perfectly inelastic demand?

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cholesterol medication in general

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If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because

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buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

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Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore

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the demand for salt is relatively inelastic

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If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?

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it falls

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Total revenue is equal to

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the price of a product multiplied by the number of units of the product sold.

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Which of the following statements is true?

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If the price of a good is raised and total revenue increases, demand is inelastic

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QUIZ 7: Refer to Table 6-6. Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

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elastic

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Income elasticity measures how a good's quantity demanded responds to

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change in buyers' incomes

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Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

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an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

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a and b only

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If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are

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substitutes

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Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this?

answer

The demand for tomatoes is price inelastic

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QUIZ 7: Refer to Figure 6-10. A perfectly elastic supply curve is shown in

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panel B

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The price elasticity of an upward-sloping supply curve is always

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positive

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The more elastic the supply curve, the smaller the price increase

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The income elasticity of demand measures

answer

the responsiveness of quantity demanded to changes in income

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Demand for a luxury item, such as a yacht, is likely to be

answer

both income elastic and price elastic

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QUIZ 7: Refer to Figure 6-11. What is the value of the price elasticity of supply between g and h?

answer

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Economists assume that the goal of consumers is to

answer

make themselves as well off as possible

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Marginal utility is the

answer

extra satisfaction received from consuming one more unit of a product

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As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

answer

declines

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If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

answer

5 utility units.

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The law of diminishing marginal utility states that

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the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant

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The substitution effect of an increase in the price of Raisin Bran refers to

answer

the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran

question

Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects

answer

work in the same direction to decrease quantity demanded

question

answer

3 cups of soup and 4 sandwiches

question

QUIZ 8: Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.

Refer to Table 10-2. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?

answer

4 cups of soup and 5 sandwiches

question

Total utility is maximized in the consumption of two goods by

answer

equating the marginal utility per dollar for each good consumed

question

A budget constraint

answer

refers to the limited amount of income available to consumers to spend on goods and services

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QUIZ 8: Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

answer

the income and substitution effects

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In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

answer

the price of the product and hold everything else constant

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The income effect due to a price decrease will result in an increase in the quantity demanded for

answer

a normal good

question

We can derive the market demand curve for gold earrings

answer

by adding horizontally the individual demand curves of each gold earring consumer

question

What is the endowment effect?

answer

question

Sunk costs

answer

are costs that have already been paid and cannot be recaptured in any significant way

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Which of the following is a common mistake made by consumers?

answer

being overly optimistic about their future behavior

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Behavioral economics refers to the study of situations

answer

where consumers and firms do not appear to be making choices that are economically rational

question

answer

People measure the value of a good in terms of its purchase price

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Marginal utility can be

answer

positive, negative, or zero

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An item has utility for a consumer if it

answer

generates enjoyment or satisfaction.

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If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

answer

wants to consume more ankle socks and fewer bandanas.

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The income effect of an increase in the price of peaches is

answer

the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

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The substitution effect of an increase in the price of peaches is

answer

question

A firm has successfully adopted a positive technological change when

answer

it can produce more output using the same inputs

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A characteristic of the long run is

answer

all inputs can be varied

question

Which of the following is a fixed cost?

answer

payment to hire a security worker to guard the gate to the factory around the clock

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

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Which of the following is an implicit cost of production?

answer

rent that could have been earned on a building owned and used by the firm

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QUIZ 9: Refer to Figure 11-1. The marginal product of the 3rd worker is

answer

question

QUIZ 9: Refer to Figure 11-1. The average product of the 4th worker

answer

is 17

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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

answer

5 units

question

QUIZ 9: Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.

Refer to Table 11-1. What is the marginal product of the 4th worker?

answer

5 pounds

question

answer

3rd

question

QUIZ 9: Refer to Figure 11-2. The curve labeled "E" is

answer

the marginal product curve

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Diminishing marginal product of labor occurs when adding another unit of labor

answer

changes output by an amount smaller than the output added by the previous unit of labor

question

Increases in the marginal product of labor result from

answer

the division of labor and specialization

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If production displays increasing marginal returns, then

answer

each new worker hired adds more to output than previous hires.

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Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore

answer

the marginal product of the 5th worker is negative

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QUIZ 9: Refer to Figure 11-2. Short run output is maximized at

answer

question

QUIZ 9: Refer to Figure 11-2. Diminishing returns to labor set in

answer

after L1

question

QUIZ 9: Table 11-1 shows the technology of production at the Matsuko's Mushroom Farm for the month of May.

Refer to Table 11-1. What is the average product of labor when the farm hires 5 workers?

answer

10.8 bushels

question

If marginal product is greater than average product, then

answer

marginal product could either be increasing or decreasing

question

Which of the following statements is true?

answer

The average product of labor is at its maximum when the average product of labor equals the marginal product of labor.

question

An explicit cost is defined as

answer

a cost that involves spending money

question

The production function shows

answer

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

question

The average total cost of production

answer

equals total cost of production divided by the level of output

question

answer

$220

question

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers?

answer

$120

question

Marginal cost is equal to the

answer

change in total cost divided by the change in output

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In the short run, if marginal product is at its maximum, then

answer

marginal cost is at its minimum

question

answer

$145

question

Average fixed costs of production

answer

fall as long as output is increased.

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

question

The formula for total fixed cost is

answer

TFC = TC - TVC

question

Average variable cost can be calculated using any of the formulas below except

answer

Δ(TC - FC)/ΔQ

question

QUIZ 10: Refer to Figure 11-5. Identify the curves in the diagram

answer

E = marginal cost curve; F = average total cost curve; G = average variable cost curve; H = average fixed cost curve

question

QUIZ 10: Refer to Figure 11-5. Curve G approaches curve F because

answer

average fixed cost falls as output rises

question

If the marginal cost curve is below the average variable cost curve, then

answer

average variable cost is decreasing

question

Average fixed cost is equal to

answer

fixed cost divided by the quantity of output produced

question

All of the following cost curves are U-shaped except one. Which curve is not U-shaped?

answer

the average fixed cost curve

question

Long-run cost curves are U-shaped because

answer

of economies and diseconomies of scale

question

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

answer

economies of scale

question

The long-run average cost curve shows

answer

the lowest average cost of producing every level of output in the long run

question

The minimum efficient scale is

answer

the level of operation where long-run average costs are lowest

question

Which of the following is a reason why a firm would experience diseconomies of scale?

answer

As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants

question

answer

In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41

question

Minimum efficient scale is defined as the level of output at which

answer

all economies of scale are exhausted

question

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

answer

less than minimum efficient scale.

question

answer

10,000 picture frames

question

QUIZ 10: Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.

Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

answer

the firm will be operating efficiently

question

QUIZ 10: Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.

Refer to Table 11-8. Elegant Settings experiences

answer

economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400

question

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

answer

Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run

question

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

answer

a long-run average total cost curve

question

The demand curve for each seller's product in perfect competition is horizontal at the market price because

answer

each seller is too small to affect market price

question

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

answer

the inability of one seller to influence price

question

The price a perfectly competitive firm receives for its output

answer

is determined by the interaction of all sellers and all buyers in the firm's market

question

Which of the following is the best example of a perfectly competitive firm?

answer

a corn farmer in Illinois

question

answer

profit of $440

question

QUIZ 11: 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

QUIZ 11: 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

For a firm in a perfectly competitive market, price is

answer

equal to both average revenue and marginal revenue

question

For a perfectly competitive firm, at profit maximization

answer

marginal revenue equals marginal cost

question

If, for the last bushel of apples produced and sold by an apple farm marginal revenue exceeds marginal cost, then in producing that bushel the farm

answer

added more to total revenue than it added to total cost

question

If the market price is $40, the average revenue of selling five units is

answer

$40

question

A firm's total profit can be calculated as all of the following except

answer

marginal profit times quantity sold

question

answer

$3,960

question

answer

loss of $1,080

question

answer

Yes, because it is covering part of its fixed cost

question

answer

d; $3 minus ATC at point d

question

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

answer

The firm breaks even

question

QUIZ 11: Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.

Refer to Figure 12-9. Identify the short-run shut down point for the firm.

answer

question

QUIZ 11: Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.

Refer to Figure 12-9. Identify the firm's short-run supply curve

answer

the marginal cost curve from b and above

question

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

answer

should shut down in the short run

question

If a firm shuts down in the short run it will

answer

suffer a loss equal to its fixed costs

question

QUIZ 11: Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is

answer

$6,000

question

QUIZ 11: Refer to Figure 12-10. The total cost at the profit-maximizing output level equals

answer

$3,300

question

answer

Panel A

question

answer

The firm's profit will be lower in the long run than in the short run

question

Which of the following characteristics is common to monopolistic competition and perfect competition?

answer

Entry barriers into the industry are low

question

The key characteristics of a monopolistically competitive market structure include

answer

sellers selling similar but differentiated products

question

QUIZ 12: Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

answer

$5.50

question

QUIZ 12: Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

answer

the area (A - D)

question

Suppose a monopolistically competitive firm sells 25 units at a price of $10. Calculate its marginal revenue per unit of output if it sells 5 more units of output when it reduced its price to $9

answer

question

What is the profit-maximizing rule for a monopolistically competitive firm?

answer

to produce a quantity such that marginal revenue equals marginal cost

question

answer

P = $50; Q = 6 cases

question

answer

question

answer

the area P2cdP3

question

Both monopolistically competitive firms and perfectly competitive firms maximize profits

answer

by producing where marginal revenue equals marginal cost.

question

answer

No, it is not; it should lower its price to Pb and sell Qb units

question

QUIZ 12: Refer to Figure 13-9. Which of the graphs in the figure depicts a monopolistically competitive firm that is earning economic profits?

answer

Panel A

question

In the long run, if price is less than average cost

answer

there is an incentive for firms to exit the market

question

answer

Some firms will exit the market causing the demand to increase for firms remaining in the market.

question

The entry and exit of firms in a monopolistically competitive market guarantee that

answer

price equals average total cost in the long run

question

QUIZ 12: Refer to Figure 13-13. What is the profit maximizing output level?

answer

Q4 units

question

Refer to Figure 13-13. What is the area that represents the firm's profit?

answer

P4edP2

question

If a restaurant like Buffalo Wild Wings has higher costs than a comparable Hooters restaurant, the only way it can have higher profits is if

answer

the demand for its food is higher than the demand for food at Hooters.

question

Which of the following will not happen as a consequence of a monopolistically competitive firm suffering economic losses in the short run?

answer

In the long run the firm will be able to charge a price that is greater than its average total cost.

question

What is the trade-off that consumers face when buying the product of a monopolistically competitive firm?

answer

Consumers pay a price greater than marginal cost, but have the luxury of choices more suited to their tastes.

question

QUIZ 12: Refer to Figure 13-18. Which of the following statements is true?

answer

Da represents the long-run demand curve facing a perfect competitor while Db depicts the long-run demand curve facing a monopolistic competitor

question

QUIZ 12: Refer to Figure 13-18. The diagram demonstrates that

answer

it is not possible for a monopolistic competitor to produce the productively efficient output level, Qa, because of product differentiation

question

How does the long-run equilibrium of a monopolistically competitive industry differ from that of a perfectly competitive industry?

answer

A firm in monopolistic competition does not take full advantage of its economies of scale but a firm in perfect competition produces at the lowest average cost possible.

question

answer

harder; more

question

QUIZ 12: Refer to Figure 13-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?

answer

Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss

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Microeconomics Final Exam – Barati

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