Microeconomics Final Exam - Barati - Custom Scholars
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# Microeconomics Final Exam – Barati

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QUIZ 7: Refer to Figure 6-1. A perfectly inelastic demand curve is shown in
Panel A
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QUIZ 7: Refer to Figure 6-4. The inelastic segment of the demand curve
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
elastic
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If the demand for cell phone service is inelastic, then
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.
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
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?
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?
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
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
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?
it falls
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Total revenue is equal to
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?
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
elastic
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Income elasticity measures how a good's quantity demanded responds to
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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
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?
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
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?
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
panel B
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The price elasticity of an upward-sloping supply curve is always
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?
The more elastic the supply curve, the smaller the price increase
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The income elasticity of demand measures
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
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?
2
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Economists assume that the goal of consumers is to
make themselves as well off as possible
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Marginal utility is the
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
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
5 utility units.
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The law of diminishing marginal utility states that
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
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
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?
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?
4 cups of soup and 5 sandwiches
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Total utility is maximized in the consumption of two goods by
equating the marginal utility per dollar for each good consumed
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A budget constraint
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
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
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
a normal good
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We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer
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What is the endowment effect?
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
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?
being overly optimistic about their future behavior
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Behavioral economics refers to the study of situations
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?
People measure the value of a good in terms of its purchase price
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Marginal utility can be
positive, negative, or zero
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An item has utility for a consumer if it
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
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
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
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
it can produce more output using the same inputs
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A characteristic of the long run is
all inputs can be varied
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Which of the following is a fixed cost?
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
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?
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
15
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QUIZ 9: Refer to Figure 11-1. The average product of the 4th worker
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
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?
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.
3rd
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QUIZ 9: Refer to Figure 11-2. The curve labeled "E" is
the marginal product curve
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Diminishing marginal product of labor occurs when adding another unit of labor
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
the division of labor and specialization
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If production displays increasing marginal returns, then
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
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
L3
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QUIZ 9: Refer to Figure 11-2. Diminishing returns to labor set in
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?
10.8 bushels
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If marginal product is greater than average product, then
marginal product could either be increasing or decreasing
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Which of the following statements is true?
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
a cost that involves spending money
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The production function shows
the maximum output that can be produced from each possible quantity of inputs
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The average total cost of production
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?
\$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?
\$120
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Marginal cost is equal to the
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
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
\$145
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Average fixed costs of production
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
50
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The formula for total fixed cost is
TFC = TC - TVC
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Average variable cost can be calculated using any of the formulas below except
Δ(TC - FC)/ΔQ
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QUIZ 10: Refer to Figure 11-5. Identify the curves in the diagram
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
average fixed cost falls as output rises
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If the marginal cost curve is below the average variable cost curve, then
average variable cost is decreasing
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Average fixed cost is equal to
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?
the average fixed cost curve
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Long-run cost curves are U-shaped because
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
economies of scale
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The long-run average cost curve shows
the lowest average cost of producing every level of output in the long run
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The minimum efficient scale is
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?
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?
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
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
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?
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
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
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?
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
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
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
the inability of one seller to influence price
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The price a perfectly competitive firm receives for its output
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?
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?
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
\$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?
It is equal to the vertical distance c to g
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For a firm in a perfectly competitive market, price is
equal to both average revenue and marginal revenue
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For a perfectly competitive firm, at profit maximization
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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If the market price is \$40, the average revenue of selling five units is
\$40
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A firm's total profit can be calculated as all of the following except
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?
\$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?
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?
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 ________
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?
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.
b
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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
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
should shut down in the short run
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If a firm shuts down in the short run it will
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
\$6,000
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QUIZ 11: Refer to Figure 12-10. The total cost at the profit-maximizing output level equals
\$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?
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.)
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?
Entry barriers into the industry are low
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The key characteristics of a monopolistically competitive market structure include
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?
\$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
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
\$4
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What is the profit-maximizing rule for a monopolistically competitive firm?
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?
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?
P2
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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?
the area P2cdP3
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Both monopolistically competitive firms and perfectly competitive firms maximize profits
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?
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?
Panel A
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In the long run, if price is less than average cost
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?
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
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?
Q4 units
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Refer to Figure 13-13. What is the area that represents the firm's profit?
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
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?
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?
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?
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
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?
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.
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?
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
Panel A
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QUIZ 7: Refer to Figure 6-4. The inelastic segment of the demand curve
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
elastic
question
If the demand for cell phone service is inelastic, then
the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
question
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.
1.62
question
If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would
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?
A wide variety of substitutes are available for the good
question
Which of the following products comes closest to having a perfectly inelastic demand?
cholesterol medication in general
question
If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because
buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.
question
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
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?
it falls
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Total revenue is equal to
the price of a product multiplied by the number of units of the product sold.
question
Which of the following statements is true?
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
elastic
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Income elasticity measures how a good's quantity demanded responds to
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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
an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.
question
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?
a and b only
question
If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are
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?
The demand for tomatoes is price inelastic
question
QUIZ 7: Refer to Figure 6-10. A perfectly elastic supply curve is shown in
panel B
question
The price elasticity of an upward-sloping supply curve is always
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?
The more elastic the supply curve, the smaller the price increase
question
The income elasticity of demand measures
the responsiveness of quantity demanded to changes in income
question
Demand for a luxury item, such as a yacht, is likely to be
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?
2
question
Economists assume that the goal of consumers is to
make themselves as well off as possible
question
Marginal utility is the
extra satisfaction received from consuming one more unit of a product
question
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
declines
question
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
5 utility units.
question
The law of diminishing marginal utility states that
the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant
question
The substitution effect of an increase in the price of Raisin Bran refers to
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
work in the same direction to decrease quantity demanded
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. If Keira maximizes her utility, how many units of each good should she buy?
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?
4 cups of soup and 5 sandwiches
question
Total utility is maximized in the consumption of two goods by
equating the marginal utility per dollar for each good consumed
question
A budget constraint
refers to the limited amount of income available to consumers to spend on goods and services
question
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
the income and substitution effects
question
In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change
the price of the product and hold everything else constant
question
The income effect due to a price decrease will result in an increase in the quantity demanded for
a normal good
question
We can derive the market demand curve for gold earrings
by adding horizontally the individual demand curves of each gold earring consumer
question
What is the endowment effect?
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
question
Sunk costs
are costs that have already been paid and cannot be recaptured in any significant way
question
Which of the following is a common mistake made by consumers?
being overly optimistic about their future behavior
question
Behavioral economics refers to the study of situations
where consumers and firms do not appear to be making choices that are economically rational
question
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?
People measure the value of a good in terms of its purchase price
question
Marginal utility can be
positive, negative, or zero
question
An item has utility for a consumer if it
generates enjoyment or satisfaction.
question
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
wants to consume more ankle socks and fewer bandanas.
question
The income effect of an increase in the price of peaches is
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.
question
The substitution effect of an increase in the price of peaches is
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
question
A firm has successfully adopted a positive technological change when
it can produce more output using the same inputs
question
A characteristic of the long run is
all inputs can be varied
question
Which of the following is a fixed cost?
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
economic costs add the opportunity costs of a firm using its own resources while accounting costs do not
question
Which of the following is an implicit cost of production?
rent that could have been earned on a building owned and used by the firm
question
QUIZ 9: Refer to Figure 11-1. The marginal product of the 3rd worker is
15
question
QUIZ 9: Refer to Figure 11-1. The average product of the 4th worker
is 17
question
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
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?
5 pounds
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. Diminishing marginal returns sets in when the ________ worker is hired.
3rd
question
QUIZ 9: Refer to Figure 11-2. The curve labeled "E" is
the marginal product curve
question
Diminishing marginal product of labor occurs when adding another unit of labor
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
the division of labor and specialization
question
If production displays increasing marginal returns, then
each new worker hired adds more to output than previous hires.
question
Gertrude Stork's Chocolate Shoppe normally employs 4 workers. When the Chocolate Shoppe hired a 5th worker the Shoppe's total output decreased. Therefore
the marginal product of the 5th worker is negative
question
QUIZ 9: Refer to Figure 11-2. Short run output is maximized at
L3
question
QUIZ 9: Refer to Figure 11-2. Diminishing returns to labor set in
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?
10.8 bushels
question
If marginal product is greater than average product, then
marginal product could either be increasing or decreasing
question
Which of the following statements is true?
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
a cost that involves spending money
question
The production function shows
the maximum output that can be produced from each possible quantity of inputs
question
The average total cost of production
equals total cost of production divided by the level of output
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. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?
\$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?
\$120
question
Marginal cost is equal to the
change in total cost divided by the change in output
question
In the short run, if marginal product is at its maximum, then
marginal cost is at its minimum
question
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
\$145
question
Average fixed costs of production
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
50
question
The formula for total fixed cost is
TFC = TC - TVC
question
Average variable cost can be calculated using any of the formulas below except
Δ(TC - FC)/ΔQ
question
QUIZ 10: Refer to Figure 11-5. Identify the curves in the diagram
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
average fixed cost falls as output rises
question
If the marginal cost curve is below the average variable cost curve, then
average variable cost is decreasing
question
Average fixed cost is equal to
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?
the average fixed cost curve
question
Long-run cost curves are U-shaped because
of economies and diseconomies of scale
question
If, when a firm doubles all its inputs, its average cost of production decreases, then production displays
economies of scale
question
The long-run average cost curve shows
the lowest average cost of producing every level of output in the long run
question
The minimum efficient scale is
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?
As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants
question
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?
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
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
less than minimum efficient scale.
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. The minimum efficient scale of output is reached at what rate of output?
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
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
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?
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
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
each seller is too small to affect market price
question
A very large number of small sellers who sell identical products imply
the inability of one seller to influence price
question
The price a perfectly competitive firm receives for its output
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?
a corn farmer in Illinois
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. 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?
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
\$2.80
question
QUIZ 11: Refer to Figure 12-2. What is the amount of profit if the firm produces Q2 units?
It is equal to the vertical distance c to g
question
For a firm in a perfectly competitive market, price is
equal to both average revenue and marginal revenue
question
For a perfectly competitive firm, at profit maximization
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
question
If the market price is \$40, the average revenue of selling five units is
\$40
question
A firm's total profit can be calculated as all of the following except
marginal profit times quantity sold
question
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?
\$3,960
question
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?
loss of \$1,080
question
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?
Yes, because it is covering part of its fixed cost
question
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 ________
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?
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.
b
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
the marginal cost curve from b and above
question
If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm
should shut down in the short run
question
If a firm shuts down in the short run it will
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
\$6,000
question
QUIZ 11: Refer to Figure 12-10. The total cost at the profit-maximizing output level equals
\$3,300
question
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?
Panel A
question
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.)
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?
Entry barriers into the industry are low
question
The key characteristics of a monopolistically competitive market structure include
sellers selling similar but differentiated products
question
QUIZ 12: Refer to Table 13-1. What is the marginal revenue of the 3rd unit?
\$5.50
question
QUIZ 12: Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals
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
\$4
question
What is the profit-maximizing rule for a monopolistically competitive firm?
to produce a quantity such that marginal revenue equals marginal cost
question
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?
P = \$50; Q = 6 cases
question
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?
P2
question
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?
the area P2cdP3
question
Both monopolistically competitive firms and perfectly competitive firms maximize profits
by producing where marginal revenue equals marginal cost.
question
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?
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?
Panel A
question
In the long run, if price is less than average cost
there is an incentive for firms to exit the market
question
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?
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
price equals average total cost in the long run
question
QUIZ 12: Refer to Figure 13-13. What is the profit maximizing output level?
Q4 units
question
Refer to Figure 13-13. What is the area that represents the firm's profit?
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
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?
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?
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?
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
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?
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
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.
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?
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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