question
A firm might not seek to maximize profit if instead its primary goal is to
answer
keep risks low
question
economists assume firm owners want to maximize
answer
profits
question
To maximize profits, a firm must produce as efficiently as possible. A firm engages in efficient production if:
A. it cannot produce its current level of output with fewer inputs.
B. it is maximizing profit.
C. given the quantity of inputs, cannot produce more output.
D. All of the above.
This level of production is also known as:
A. technological efficiency.
B. average efficiency.
C. marginal efficiency.
D. social efficiency.
A. it cannot produce its current level of output with fewer inputs.
B. it is maximizing profit.
C. given the quantity of inputs, cannot produce more output.
D. All of the above.
This level of production is also known as:
A. technological efficiency.
B. average efficiency.
C. marginal efficiency.
D. social efficiency.
answer
all of the above
technological efficency
technological efficency
question
effiencet production is
answer
a necessary but not sufficient condition for profit maximization.
question
the short run period is when
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at least one input is fixed
question
Suppose that q=20, L=5, and K=20 is a point on the production function q=f(L, K).
Is it posssible for q=20, L=5, and K=21 to also be a point on this production function? Why or why not?
Is it posssible for q=20, L=5, and K=21 to also be a point on this production function? Why or why not?
answer
cannot be a point because we assume production functions are efficent
question
the production function is the relationship between
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inputs and outputs
question
the distinction between the short- and long-run is made in terms of
answer
the ability to chnage the factors of production
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The difference between a fixed and a variable input is that a
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fixed input cannot practically vary in the short run and a variable input can easily vary during the relevant period.
question
The production function for a firm that uses only labor and capital shows
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the maximum amount of output that can be produced from given levels of labor and capital.
question
Why do we expect the law of diminishing marginal product to hold?
We believe the law of diminishing marginal product holds because
We believe the law of diminishing marginal product holds because
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technology is held constant
question
Given the production function q = f(L, K), we obseve that MPL > APL.
What also must be true?
What also must be true?
answer
%Δq > %ΔL
question
you observe that MPL > APL and MPL is decreasing but positive as more labor input is used.
answer
Output must be increasing at a decreasing rate and average productivity 'APL' must be increasing
question
What is the difference between an isoquant and an indifference curve?
answer
Isoquants map inputs to output and indifference curves map goods to utility.
question
Why must isoquants be thin?
Isoquants must be thin because we assume production
Isoquants must be thin because we assume production
answer
is efficent
question
What is the production function if labor, L, and capital, K, are perfect substitutes and each unit of q requires 0.25 units of L or 0.25 units of K (or a combination of these inputs that adds to 0.25)?
The production function is
The production function is
answer
q=4L+4K
question
At L=59, K=81, the marginal product of labor is 4 and the marginal product of capital is 2. What is the marginal rate of technical substitution (labor measured on the horizontal axis)?
The marginal rate of technical substitution is
The marginal rate of technical substitution is
answer
-2
question
To say that isoquants are convex is to say that:
answer
the marginal rate of technical substitution falls as labor increases and capital decreases.
question
You have a ticket to go to a concert by one of your favorite groups, the Hives, which you cannot resell. However, you can buy a ticket for $35 to attend a talk by Steven Colbert, at the same time as the concert. You are willing to pay up to $100 to hear Colbert. Given that there are no other costs involved in attending either event, what is your opportunity cost of attending the Hives concert?
answer
$65
question
William, a journeyman carpenter with an associate's degree in civil engineering, had been making $35,000 per year as a carpenter for a building contractor. As a self-employed subcontractor, William incurred explicit costs of $285,000 per year.
What is William's economic cost?
What is William's economic cost?
answer
320000
question
What is the principle distinction between explicit costs and implicit costs?
answer
Explicit costs are direct, out-of-pocket payments, while implicit costs are all opportunity costs.
question
If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as
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the rent the firm could earn if it rented the building to another firm.
question
The Shaffer Auto Company has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is
answer
$0
question
If both the price of labor and capital rise in the same proportion, which of the following will occur (holding production costs constant)?
answer
The isocost line makes a parallel shift inward.
question
As a result of the refining process, the refiner's output from refining crude oil is heating fuel and gasoline in virtually fixed proportions. What can you say about economies of scope for such a firm? What is the sign of its measure of economies of scope?
answer
The firm's measure of economies of scope is
positive which indicates economies of scope.
positive which indicates economies of scope.
question
A production possibilities frontier that is a downward-sloping straight line implies
answer
no economies of scope
question
In a perfectly competitive market,
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firms can freely enter and exit.
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If consumers view the output of any firm in a market to be identical to the output of any other firm in the market and the market has many firms and transaction costs are low, the demand curve for the output of any given firm
answer
will be vertical
question
Why do economists study the perfectly competitive model?
answer
It is an important model to use as a benchmark to compare with other market structures.
Many markets have similarities to the perfectly competitive model.
Perfectly competitive markets maximize societal welfare.
Many markets have similarities to the perfectly competitive model.
Perfectly competitive markets maximize societal welfare.
question
Should a firm shut down if its revenue is R=$800 per week, its variable cost is VC=$700, and its sunk fixed cost is F=$2,400?
This firm should
This firm should
answer
not shut down because variable cost is less than revenue.
question
Should a firm shut down if its weekly revenue is
$650,
its variable cost is
$200,
and its fixed cost is
$800,
of which
$300
is avoidable if it shuts down? Why?
$650,
its variable cost is
$200,
and its fixed cost is
$800,
of which
$300
is avoidable if it shuts down? Why?
answer
The firm should produce to save $150
question
Should a competitive firm ever produce when it is losing money? Why or why not?
answer
Yes, as long as revenue can cover total variable costs plus any portion of fixed costs.
question
Suppose the firm faces a price of
$41,
an average variable cost of
$21,
and has an average fixed cost of
$5.
In the short-run, the firm
$41,
an average variable cost of
$21,
and has an average fixed cost of
$5.
In the short-run, the firm
answer
will earn an economic profit
question
Many marginal cost curves are U-shaped. As a result, it is possible that the MC curve hits the demand or price line at two output levels. Which is the profit maximizing output? Why?
answer
Profit is maximized when MC intersects demand from below because at any quantity greater than this MC is greater than marginal revenue.
question
What is the short-run and long-run effect on firms and market equilibrium of the U.S. law that requires firms give their workers six months' notice before they can shut down a plant?
answer
In the short run, market price decreases, market quantity increases, and the quantity produced by an individual firm increases.
In the long run, market price remains unchanged, market quantity remains unchanged, and the quantity produced by an individual firm remains unchanged.
In the long run, market price remains unchanged, market quantity remains unchanged, and the quantity produced by an individual firm remains unchanged.
question
In the long run, profits will equal zero in a competitive market because of
answer
free entry and exit
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