question
Average variable cost
answer
Total variable costs divided by total output
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Economies of scale
answer
Long-run average total cost decreases as the quantity of output increases
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Marginal product of labor (MPL)
answer
The change in total output that results from the firm hiring one more unit of labor while holding other inputs constant
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Marginal cost
answer
The change in total costs that results from increasing total product by one unit (ΔTC/ΔQ)
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Law of diminishing marginal returns
answer
The marginal product of an input will eventually decrease as more of that input is used assuming all other inputs are held constant
question
Law of diminishing marginal utilities
answer
The more of a good a person consumes in a period of time the less additional utility that good provides
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Marginal utility
answer
The change in total utility or satisfaction resulting from consuming one more unit of a good or service
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Consumer surplus
answer
The difference between the total value to the consumer of consuming a specific amount of a good and the amount the consumer must pay for that amount of the good.
question
Price elasticity of demand
answer
The percentage change in quantity demanded of a good or service divided by the percentage change in price
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Income elasticity of demand
answer
The percentage change in quantity demanded of a good or service divided by the percentage change in income
question
T/F: The GC athletic department would like to increase the total revenue it generates from women's basketball games. At the current price per ticket that elasticity of demand for women's basketball games is |-1.3|. The GCAD should increase the price of tickets to increase total revenue
answer
At |-1.3| the demand for tickets is elastic. An increase in price will decrease revenue because the change in revenue caused by the decrease in attendance will be bigger than the increase in revenue caused by higher price
question
T/F: An effective price ceiling will reduce the net benefits of a market to all producers and consumers in that market
answer
False. An effective price ceiling will reduce benefits to our producers by keeping the price below equilibrium. Some consumers will benefit from lower price, some will not get the good that they're willing to pay because lower price will reduce quantity supplied. Total benefit should decline with pricing ceiling
question
T/F: Whimpy's a rational utility maximizer. At current market prices, he chooses to consume 12 burgers a week and six pizzas. If the price of pizza increases in all else stays the same, while we might would expect him to eat more burgers weekly, it is possible that the price change could lead to him eating fewer per week.
answer
True. Two affects apply; At new price his MU/P ratio for pizza is now lower than his MU/P for burgers. But the price increase has decreased his purchasing power. We call this income effect. This could lead to a decrease in consumption of both goods
question
T/F: In short run, total cost of producing 100 lures an hour is $500. Marginal cost of producing the 101st lure is $6. Average total cost will fall if the firm produces 101 fishing lures.
answer
False. Two ways to show answer
1. MC is $6 and average cost is $500/100= $5. So, MC>AC implies AC rises
2. Calculating AC at both points. $500/100 and $506/101 to present the answer
1. MC is $6 and average cost is $500/100= $5. So, MC>AC implies AC rises
2. Calculating AC at both points. $500/100 and $506/101 to present the answer
question
T/F: At particular levels of production for a firm in the short run, if the marginal product of labor is decreasing in the marginal cost of production must be increasing
answer
True. The two are inversely related. If MPL is decreasing it will take longer increments of labor to increase output by same amount. Larger increments of labor will require more money; so MC is rising
question
Additional waiters can increase the number of customers served in a restaurant by 100 per day. The waiter costs the restaurant $50 per day. On the other hand, new microwave ovens will speed up cooking process and allow 200 more customers to be served per day. Ovens are rented for $75 dollars a day. Which action is the best option for the restaurant owner?
A. Hire another waiter, waiters are cheaper
B. Rent oven, the expansion in output is greater than the increase resulting from a new waiter
C. Hire waiter, the increase in input per dollar spent is greater than increase per dollar spent from renting oven
D. Rent oven, The increase in pay per dollar spent is greater than the increase in output per dollar spent from hiring workers
A. Hire another waiter, waiters are cheaper
B. Rent oven, the expansion in output is greater than the increase resulting from a new waiter
C. Hire waiter, the increase in input per dollar spent is greater than increase per dollar spent from renting oven
D. Rent oven, The increase in pay per dollar spent is greater than the increase in output per dollar spent from hiring workers
answer
D
question
If population increases in the city with effective rent controls (nothing else changes), Which of the following describes what will happen in the market for rental housing?
A. An increase in the number of rental housing units available, but no change in rent
B. An increase in quantity supplied in quantity demanded
C. An increase in supply, but no change in quantity demanded
D. An increase in demand, but no change in quantity supplied
A. An increase in the number of rental housing units available, but no change in rent
B. An increase in quantity supplied in quantity demanded
C. An increase in supply, but no change in quantity demanded
D. An increase in demand, but no change in quantity supplied
answer
D
question
A firm has a choice of raising a lowering prices. If the firm wishes to increase its revenues (the price times the quantity sold), what should it do?
A. Increase price when demand is elastic, because quantity demanded will increase
B. Lower price when demand is elastic, because quantity demanded will decrease
C. Raise prices when demand is inelastic, the revenues gain from the price increase will be larger than revenues lost from smaller quantity sold
D. Lower price when demand is inelastic, the revenues lost from lower price will be smaller than the revenues gained from increase in quantity sold
A. Increase price when demand is elastic, because quantity demanded will increase
B. Lower price when demand is elastic, because quantity demanded will decrease
C. Raise prices when demand is inelastic, the revenues gain from the price increase will be larger than revenues lost from smaller quantity sold
D. Lower price when demand is inelastic, the revenues lost from lower price will be smaller than the revenues gained from increase in quantity sold
answer
C
question
Assume as your income increases, your consumption of hotdog decreases. We can assume that your income elasticity of demand for hotdogs was what?
answer
Negative. If consumption of hotdogs decreases as income increases, hotdogs must be an inferior good. The income elasticity of an inferior good is always negative.
question
Suppose Gail is willing to pay $89 for a new pair shoes and Karen is willing to pay $60. What is the gain of the combined consumer surplus if the price of shoes falls from $70 to $50
answer
$30
question
Assume you spend all your income of peanuts and chips. Also assume you're consuming the combination of the two that maximize your utility. Which statement is true?
A. If the price of peanut is equal to the price of chips, the marginal utility is must also be equal
B. If the price of peanuts is more than the price of chips, the marginal utility of peanuts as was the marginal utility of chips
C. If the price of peanuts is less than the price of chips, The marginal utility of peanuts as more than the marginal utility of chips
D. The marginal utility is of the two goods and their prices are not related
A. If the price of peanut is equal to the price of chips, the marginal utility is must also be equal
B. If the price of peanuts is more than the price of chips, the marginal utility of peanuts as was the marginal utility of chips
C. If the price of peanuts is less than the price of chips, The marginal utility of peanuts as more than the marginal utility of chips
D. The marginal utility is of the two goods and their prices are not related
answer
A
question
The law of diminishing marginal returns is the cause of ___ marginal product and ___ marginal cost.
answer
Decreasing; Increasing
question
The production of 75 south is per week requires 15 workers. The average cost of each worker is sofas ___ per week
answer
5 (75/15)
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