question

Accounting profit differs from economic profit because:

answer

economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.

question

Profit computed using explicit costs as the only measure of costs is:

answer

accounting profit

question

The costs economists use in the concept of economic profit are:

answer

accounting costs and opportunity costs (i.e., the value of the best opportunity forgone)

question

Profit is the difference between ______ and ______.

answer

total revenues; total costs

question

The amount by which an additional unit of an activity increases total cost is:

answer

marginal cost

question

According to the optimal output rule, if marginal benefit:

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is equal to marginal cost, net benefit is maximized

question

In economics, "marginal" value refers to:

answer

the value associated with one more unit of an activity

question

Paul's Pizza offers the following prices: one slice for $2, two slices for $3.50, three slices for $4.50, four slices for $5.00. The marginal cost to the customer of the third slice is:

answer

$1.00

question

Suppose Bob has a part-time business washing cars. He has washed nine cars on a given day; the marginal benefit of washing the tenth car is $20 and the marginal cost is $12. Bob should:

answer

wash the tenth car

question

Total net gain is maximized when marginal benefit _____ marginal cost.

answer

is equal to

question

The short run is a period that is:

answer

long enough in which to vary output but not plant capacity

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In the long run:

answer

all inputs are variable

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An input whose quantity can be changed during a particular period is a:

answer

variable input

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The total product curve:

answer

will become flatter as output increases, if there are diminishing returns to the variable input

question

A farm can product 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is:

answer

300 bushels

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The sum of fixed and variable costs is:

answer

total cost

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Average total cost is:

answer

total cost divided by output

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At 20 units of output, a firm finds that its average variable cost is $5 per unit and its average total cost is $8 per unit. Therefore, its:

answer

average fixed cost is $3 per unit

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If marginal cost is greater than average total cost, then:

answer

average total cost is increasing

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A firm finds that as it produces more, its long-run average total costs increase. This firm is experiencing:

answer

diseconomies of scale

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If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a:

answer

price-taker

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All except one of the following are characteristics of perfect competition. Which is the exception? a. there are many producers and each has only a small market share b. there are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each c. there are no obstacles to entry into or exit from the industry d. all firms produce the same standardized product

answer

b. there are many producers; one firm has a 25% market share, and all the remaining firms have a market share of less than 2% each

question

In perfect competition, each firm:

answer

produces a standardized product

question

The demand curve for a perfectly competitive firm is:

answer

perfectly elastic

question

Price-takers are individuals in a market who:

answer

have no ability to affect the price of a good in a market

question

Marginal revenue:

answer

equals the market price in perfect competition

question

Marginal revenue is a firm's:

answer

increase in total revenue when it sells an additional unit of output

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If it produces, a perfectly firm will maximize profits at which:

answer

marginal revenue equals marginal cost

question

Zoe' s bakery determines that PAVC. Zoe should:

answer

continue to operate even though she is experiencing an economic loss

question

A perfectly competitive firm is definitely earning an economic profit when:

answer

P>ATC

question

A perfectly competitive firm operating in the short run producing 100 units of output has ATC=$6 and AFC=$2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), the firm should:

answer

shut down

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The short-run supply curve for a perfectly competitive firm is its:

answer

marginal cost curve above its average variable cost curve

question

A perfectly competitive firm maximizes its profit by producing the quantity at which:

answer

MR=MC

question

A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if price is:

answer

greater than average variable cost but less than average total cost

question

Economic profits in a perfectly competitive industry induce _____, and losses induce ______.

answer

entry; exit

question

The relationship between an individual's consumption bundle and his or her utility is called a:

answer

utility function

question

The marginal utility of coffee consumption for Steve is the change in ______ generated by consuming an additional unit of coffee.

answer

total utility

question

The principle of diminishing marginal utility states that as an individual consumes more of a good:

answer

the addition to total utility obtained from the nth unit of the good will be less than that obtained from the (n-1) unit of the good

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Economists identify the satisfaction a person derives from the consumption of goods and services as:

answer

utility

question

The amount by which total utility increases when an additional unit of a good is consumed is called _____ utility:

answer

marginal

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The utility of a good is determined by how much ______ a particular consumer obtains from it:

answer

satisfaction

question

When total utility is at a maximum, marginal utility is:

answer

zero

question

The amount by which total utility rises when an additional unit of a good is consumed is called:

answer

marginal utility

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Marginal utility is best computed as the:

answer

change in total utility from an additional unit consumed

question

A consumer's spending is restricted because of:

answer

a budget constraint

question

Suzy knows she has maximized her utility, because she is on her budget constraint and:

answer

MUx/Px=MUy/Py

question

Jessica spends all of her income on two goods, A and B. The price of A is $5, and the price of B is $7. At the current consumption bundle, the marginal utility of A is 10 and the marginal utility of B is 21. To maximize utility given her income, Jessica should:

answer

increase her consumption of B and decrease her consumption of A

question

If a consumer purchases a combination of commodities X and Y such that MUx/Px=20 and MUy/Py=10, to maximize utility, the consumer should buy:

answer

more of X and less of Y

question

The optimal consumption rule for all goods requires that:

answer

the marginal utilities of all goods consumed divided by their respective prices are equal

question

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:

answer

purchase more of the now relatively less expensive good

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