Chapters 20, 21, 22, and 23 - Flashcards

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Horizontal

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A demand curve that is completely elastic is

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1.29

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Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to

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How much quantity demanded changes after a change in price.

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Price elasticity looks at

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The percentage change in quantity demanded divided by the percentage change in price.

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The basic formula for price elasticity is

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The change in quantity demanded is divided by the average quantity.

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To find the average percentage change in quantity demanded,

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0.5. X=.10/.05 = 0.5

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If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be

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The quantity demanded will fall by 45 percent. The basic formula for price elasticity is the price elasticity of demand number = the percentage change in quantity demanded divided by the percentage change in price. 3 = x/.15 =.45, so quantity demanded falls by 45 percent.

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If the elasticity of demand is 3, and the price rises by 15 percent, then

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Increase by 95 percent. The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. From that, one can manipulate the formula to compute the percentage change in quantity demanded by multiplying the price elasticity of demand by the percentage change in price. Therefore the percentage change in quantity is equal to 4 �24% - the percentage change in price using the midpoint formula ((1.49 - 1.89)/((1.49 + 1.89)/2)).

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Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will

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The percentage change in quantity demanded is greater than the percentage in price.

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If the demand for a product is elastic, then

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The percentage change in quantity demanded divided by the percentage change in price.

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The price elasticity of demand is equal to

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European travel.

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Which of the following products will have elastic demand?

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Airline travel in the long run.

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Which of the following would most likely have a price elasticity coefficient greater than 1?

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elastic; more

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The demand will be _______________ if the consumer has _________ substitute goods to choose from

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Coffee.

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Which of the following would most likely have a price elasticity coefficient less than 1?

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A high ratio of price to income.

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Which of the following causes demand to be more elastic with respect to price?

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More elastic the demand for the good.

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Ceteris paribus, the longer the time period, the

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An increase in price will reduce total revenue.

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If demand is elastic, then

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Lower his price to increase revenue.

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Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to

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Increase because the percentage increase in price is greater than the percentage change in quantity demanded.

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Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will

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Price leads to greater total revenue.

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When demand is price-inelastic, ceteris paribus, an increase in

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The company's total revenue will decrease.

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If the price of a good rises by 10 percent and quantity demanded falls by 20 percent, we can predict that

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6.3 The cross-price elasticity of demand is equal to the percentage change in the quantity demanded of typewriters divided by the percentage change in the price of computers. Because a 10.5 percent decrease in computer prices caused a 66.7 percent decrease in the demand for typewriters, the cross-price elasticity of demand is equal to 6.3.

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Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to

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Negative.

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MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be

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Substitutes.

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When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore

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1.80

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Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is

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The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.

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If two goods are substitute goods,

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Both goods are substitute goods because the cross-price elasticity is +2.

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If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that

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Responsiveness of quantity demanded to a percentage change in income.

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Income elasticity measures the

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Income elasticity of demand.

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Which of the following is the best measure of the effects of a recession?

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Positive.

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A good is normal if the sign on the income elasticity formula is

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The quantity supplied changes little when the price increases.

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Supply is very inelastic when

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Substitute goods.

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Oil and alternative sources of energy such as wind and solar are

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The demand for iPhones is highly elastic.

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In the article "After iPhone Price Cut, Sales Are Up by 200 Percent,"

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The demand for alligator skins fell when income dropped, indicating that the skins were a normal good.

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The In The News article "Recession Eats into Gator Market" states that

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That gasoline and SUV sales have a cross-price elasticity that is negative.

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The article "SUV Sales Drop with Gasoline Price Rise" states

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Decrease by 14.3 percent

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Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will

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6 percent

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If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage

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Medicines

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Which of the following products will have more inelastic demand?

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Demand is inelastic

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Higher prices will increase total revenue if

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Increase price to increase total revenue

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If the elasticity of demand for cigarettes is 0.4, a seller should

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At higher prices

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On a demand curve, demand is more elastic

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$100

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In Figure 20.1, total revenue is maximized at the unit price of

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$100

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In Figure 20.1, at what price is the elasticity of demand unitary?

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Price-inelastic

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In the $80 to $40 price range in Figure 20.1, demand is

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5.7

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In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to

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Total revenue will decrease

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If the price is reduced from $100 to $80 in Figure 20.1, ceteris paribus

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The demand for salt is inelastic

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A grocery store put salt on sale but found that total revenues fell. This can be explained by which of the following?

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Less positive (move closer to zero).

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Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become

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The cross-price elasticity sign will be negative

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If two goods are complementary goods, then

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The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y

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If two goods are substitute goods

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3.5

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If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to

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New cars are a normal good, and the income elasticity is +2.0

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If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,

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Income elasticity of demand is positive.

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If a good is normal, its

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Income elasticity of demand is negative

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If a good is inferior, its

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An inferior good

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If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent, then this particular type of vehicle is

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fall; fall

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Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will _______.

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How much sellers will increase production in response to a change in price

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Elasticity of supply tells us

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The percentage change in quantity demanded was greater than the percentage change in price.

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The In The News article "Play Station 3 Sales More Than Double after Price Cut" indicated that

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Showing that the long-run response to a price increase in cigarettes was likely to be more elastic than the president had estimated.

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Nobel Prize-winning economist Gary Becker corrected President Clinton's elasticity estimate for cigarette smoking by

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Gasoline and SUVs are complementary goods, and when the price of gasoline rose, the demand for SUVs fell

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In the article on SUV sales

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Land, labor, capital, and entrepreneurship.

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Which of the following are factors of production?

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Higher output per worker.

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Greater labor productivity means

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An increase in the amount of physical capital per worker.

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Labor productivity will increase in response to

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Opportunity cost.

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The most desired goods and services that are given up in order to get more of another good are the

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12.0 units per day. The marginal physical product is the difference in total output associated with one additional unit of input, which is 12 (40 - 28).

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The marginal physical product of the third unit of labor in Figure 21.1 is

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Change in total output associated with one additional unit of the variable input.

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The marginal physical product is the

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The difference between total revenue and total cost.

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Profit is

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Total costs.

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An increase in production in the short run definitely results in an increase in

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Fixed costs.

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Which of the following costs do not change when output changes in the short run?

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The rent for a factory.

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Which of the following is most likely a fixed cost?

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The change in total costs divided by the change in quantity produced.

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Marginal cost is equal to

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The average total cost curve when it is above the marginal cost curve.

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Which of the following is always downward-sloping?

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Declines as long as output increases.

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The average fixed cost (AFC) curve

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ATC

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The marginal cost curve intersects the minimum of the curve representing

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Above the average total cost curve.

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When the average total cost curve is rising, the marginal cost curve will be

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$288.00.

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What is the marginal cost of the 120th unit of output in Figure 21.2?

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$80.00.

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What is the average fixed cost when output is 120 units in Figure 21.2?

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40 units

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At what output level do diminishing marginal returns begin in Figure 21.2?

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Dad says her cost is $31,000 and Mom says her cost is $47,600. Profit is equal to revenue minus costs. An accountant will consider only explicit costs, whereas an economist will consider economic costs, which include explicit and implicit costs.

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Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her costs for her.

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The time period when all costs are variable.

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In economics, the long run is considered to be

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Total cost that result from using operations of larger size.

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Economies of scale are reductions in average

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Constant returns to scale.

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Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of

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Explain why average total costs decline as output increases in the long run.

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Economies of scale

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Diseconomies of scale.

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Which of the following is a long-run concept?

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Less than 7.

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If a fifth unit of labor was added to Table 21.1, its MPP would most likely be

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Continues to decline.

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Above 10 units of output, the average fixed cost in Table 21.2

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20 units per day.

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For the output levels in Table 21.2, the minimum of the average variable cost curve occurs at a production rate of

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$40

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At 10 units of output in Table 21.2, the total fixed cost is

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$20.00.

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The marginal cost of the fourth unit of output in Table 21.4 is

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$13

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At 2 units of output in Table 21.4, the average variable cost is

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$62.00.

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At 4 units of output in Table 21.4, the total variable cost is

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$5.33. AFC is equal to FC ($16) divided by quantity (3), which is $5.33.

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At 3 units of output in Table 21.4, average fixed costs are

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3 units per day. ATC is equal to TC divided by quantity. The ATC is $30, $21, $19.3, and $19.5 with output levels of 1 through 4 respectively. Therefore, ATC is minimized at 3 units of output.

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For the output levels in Table 21.4, the minimum of the average total cost curve occurs at a production rate of

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$30

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The total cost of 3 units of output in Table 21.5 is

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$8.00 VC is equal to TC ($23) minus FC ($15), which is $8.00.

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The total variable cost of the first unit of output is:

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ATC3 only.

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In Figure 20.4, a firm that produces over 800 units of output should choose a plant with which short-run average total cost function?

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ABFDGE.

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In Figure 21.4, the long-run average total cost curve is given by the curved line segment

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Wage rate divided by MPP.

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Unit labor cost is equal to the

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A downward shift in the MC curve.

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Assuming labor is a variable input, an increase in labor productivity will result in

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Economies of scale.

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One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general. Such profits are most likely the result of

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Flour

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Which of the following is a factor of production for the Little Biscuit Bread Company?

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Using the fewest resources to produce a good or service

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When a firm produces at a technically efficient output level, it is

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The quantity of labor changes

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The short-run production function shows how output changes when

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A production function tells us the maximum amount of output attainable from the use of all resources

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Which of the following statements is not true regarding the production function and the production possibilities curve?

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Marginal physical product

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The change in total outeput associated with one additional unit of input is the

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The marginal physical product of the input

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Which of the following is the slope of the production function with respect to an input?

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Efficiency will suffer as the restaurant becomes too crowded with employees

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As an In and Out Burger restaurant increases the number of employees for a specific restaurant

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Marginal cost of each unit of output is rising

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If the marginal physical product (MPP) is falling, then the

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Total cost

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The sum of fixed cost and variable cost at any rate of output is

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Property taxes

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Which of the following is most likely a fixed cost?

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The rent for a factory

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Which of the following is most likely a fixed cost?

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Variable costs

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Changes in short-run total costs result from changes in

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Labor and raw materials costs

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In the short run, which of the following is most likely a variable cost?

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$20,000

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What is the total variable cost when output is 100 units in Figure 21.2?

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includes both implicit and explicit costs

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Economic cost

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Economic costs include implicit costs and accounting costs do not

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Accounting costs and economic costs differ because

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Long-run decision, and therefore an investment decision

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Intel's chief executive says the company might expand the technology it is using in its planned $2.5 billion chip-manufacturing factory in China if the U.S. government allows it, underscoring the technology giant's ambitions in the world's fourth-biggest economy. The Intel executive is making

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Economies of scale must exist

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When the size of a factory (and all its associated inputs) doubles and, as a result, output more than doubles

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The upward-sloping segment of the long-run average total cost curve

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Diseconomies of scale are reflected in

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Diseconomies of scale

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Which of the following is a long-run concept?

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20

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What is the marginal physical product of the second unit of labor in Table 21.1?

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$40

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At 30 units of output in Table 21.2, the total variable cost is

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20

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What is the marginal physical product of the fourth unit of labor in Table 21.3?

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30

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How many units of output can be produced when one unit of labor is employed in Table 21.3?

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96

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How many units of output can be produced when three units of labor are employed in Table 21.3?

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$5.33

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32.award:0.00 pointsAt 3 units of output in Table 21.4, average fixed costs are

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$15

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Total fixed costs in Table 21.5 are equal to

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ATC3 only.

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In Figure 21.4, a firm that produces over 800 units of output should choose a plant with which short-run average total cost function?

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A higher wage rate

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Which of the following is least likely to increase productivity?

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Wage rate divided by MPP.

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Unit labor cost is equal to the

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$0.67 per unit

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When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour, the unit labor cost is

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Shift the long-run ATC curve downward

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Higher education levels and better management

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Upward and cost curves shift downward

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The World View article titled "United States Gains Cost Advantage" says productivity advances have contributed to U.S. competitiveness in world markets. When improvements in productivity reduce costs, the production function shifts

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this investment by Ford is a long-run production decision, and the company plans to enjoy economies of scale

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The In The News article "Ford Pumps $400 Million into Kansas City Plant" says that

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profit

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Economists assume the principal motivation of producers is

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Maximize social welfare.

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The profit motive can encourage businesses to do all of the following except

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Are the costs to produce a good or service for which no direct payment is made.

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Implicit costs

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Covers all its costs, including a provision for normal profit.

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A firm that makes zero economic profits

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Payment for entrepreneurship.

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Greater-than-normal profit represents

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Accounting profit = $75,000; economic profit = $0. Accounting profit is equal to revenue ($250,000) minus explicit costs ($175,000), which is $75,000. Economic profit is equal to accounting profit ($75,000) minus implicit costs ($75,000); therefore his economic profit is $0.

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Adam Weed is the owner/operator of a flower shop. Last year he earned $250,000 in total revenue. His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources). During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year. Which of the following is true about Adam's accounting and economic profit?

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There are many firms and no buyer or seller has market power.

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Perfect competition is a situation in which

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Has market power.

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If a firm can change market prices by altering its output, then it

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Is a price taker.

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A competitive firm

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Increase output.

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In order to sell additional units of their products, competitive firms must

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Horizontal, while market demand is downward-sloping.

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The demand curve confronting a competitive firm is

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Equals the marginal revenue curve.

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The demand curve confronting a competitive firm

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Property taxes on land used in production.

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Which of the following is generally a fixed cost?

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Marginal cost.

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Which of the following represents the change in total cost that results from a one-unit increase in production?

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Diminishing returns occurs with greater output.

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When the short-run marginal cost curve is upward-sloping,

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$50 The total fixed cost is $50 because total cost is $50 at 0 units of output.

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Refer to the data in Figure 22.1. The total fixed costs for this firm are approximately

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Marginal revenue is equal to marginal cost.

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Short-run profits are maximized at the rate of output where

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Economic profits will be zero.

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Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $15,

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An economic loss will occur.

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Refer to Figure 22.3 for a perfectly competitive firm. If the market price is $10,

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31 units. The difference between price and average cost-profit per unit-is illustrated by the vertical distance between the price and ATC curves. At a price of $23, the profit per unit is maximized at the output that minimizes ATC, 31.

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Refer to Figure 22.3 for a perfectly competitive firm. At a market price of $23, profit per unit is maximized at an output of

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39

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Refer to Figure 22.3 for a perfectly competitive firm. At a market price of $23, total profits are maximized at an output of

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AVC

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The shutdown point occurs where price is below the minimum of

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The amount of plants and equipment and is a long-run decision.

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An investment decision involves choosing

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Payroll taxes.

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A change in which of the following will change the optimal rate of output?

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Increase output.

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Suppose the cost of insecticide (a variable input) decreases for broccoli farmers. In order to maximize profits, ceteris paribus, broccoli farmers should

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An increase in property taxes.

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Which of the following does not affect marginal costs?

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Make more money when they shut down.

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Businesses that fail to account for implicit costs, like the strawberry farmer, Hiroshi Fujishige, who failed to consider the enormous opportunity of selling his property to Disneyland, will

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Maximize implicit costs but not explicit costs.

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All of the following are ways a business can earn economic profits except

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Economic costs include the opportunity costs of all resources used, while accounting costs include actual dollar outlays.

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Accounting costs and economic costs differ because

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Covers the full opportunity cost of the resources used by the firm.

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Normal profit

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The return on the next best alternative investment opportunity.

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Which of the following should not be included when calculating accounting profit?

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$360,000. The explicit costs include wages and salaries, raw materials, equipment, rent, and interests for a total of $360,000.

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Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual explicit costs for the firm described above?

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$450,000. Economic costs include both explicit and implicit costs, totaling $450,000.

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Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What are the annual economic costs for the firm described above?

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-$90,000. Economic profit is equal to accounting profit ($0) minus implicit costs ($90,000), which is -$90,000.

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Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What is the economic profit for the firm described above?

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Receive $90,000 more in revenue. Since the firm is losing $90,000, to get the economic profit or normal profit, the firm would need additional revenue of $90,000.

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Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to

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Equilibrium price will rise as firms exit.

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If long-run economic losses are being experienced in a competitive market,

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Patients

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Examples of barriers to entry include

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Perfect information.

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Which of the following is not a barrier to entry?

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Perfect information.

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Which of the following is not a barrier to entry?

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There are many firms, none of which has a significant share of total output.

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Perfectly competitive firms cannot individually affect market price because

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Economic losses for the firm.

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Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for its product. The most likely short-run result of this campaign, ceteris paribus, would be

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price equals marginal cost.

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To maximize profits, a competitive firm will seek to expand output until

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The ATC is minimized.

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Profit per unit is maximized when the firm produces the output where

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P = maximum ATC.

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For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one?

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P > ATC.

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If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

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Equals the minimum of the ATC.

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In long-run perfectly competitive equilibrium, marginal cost

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P = long-run ATC.

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In which of the following cases would entry and exit cease?

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Greater demand.

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If price is below the long-run competitive equilibrium level, there will be

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$15 In the long run, a firm should stay in business only if economic profit is greater or equal to zero. This happens when price is greater than or equal to the minimum average total cost ($15).

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Refer to Figure 23.1 for a perfectly competitive firm. In the long run, this firm would stay in this market only if the market price was equal to or higher than

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An increase in marginal revenue.

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In a perfectly competitive market where firms are currently experiencing economic profits in the short-run, which of the following is least likely to occur during the long-run?

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That they are not using resources in the best way.

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Economic losses are a signal to producers

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Price is driven down to minimum ATC.

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A perfectly competitive market results in efficiency because

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The prices consumers pay are a reflection of the value of the goods and services given up.

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Marginal cost pricing results in the most desirable mix of goods and services from the consumer's standpoint because

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The cost of producing the additional 200 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.

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Bib's Soccer Ball Company produces 800 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 600 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Bib's because

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Consumers would like more scarce resources devoted to the production of this product.

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When economic profits exist in the market for a particular product, this is a signal to producers that

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Firms will enter the market.

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In Figure 23.3, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the following question: In Figure 23.3, at a price of p2 in the long run

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A decrease in MR for the remaining firms.

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Refer to Figure 23.4. In the long run, which of the following would not be expected?

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Zero economic profit.

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Refer to Figure 23.5 for a perfectly competitive firm. If this firm produces the level of output corresponding to point B in the short run, it will earn

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The firm should leave this market in an effort to earn economic profits.

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Refer to Figure 23.5 for a perfectly competitive firm. Which of the following is not true for this firm at a price of $200?

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Created new entrants into the tablet market.

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The "$99 iPads" The Economy Tomorrowanalysis indicates that the success of the iPad

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The market supply curve for lasagna will shift to the left.

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If the price of ricotta cheese, an ingredient in lasagna, increases, then

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Increase in production.

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Marginal cost is the increase in total cost associated with a one-unit

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Long-run average total cost.

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Investment decisions are made on the basis of the relationship of price to

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Economic profits induce firms to enter until profits are normal.

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For a competitive market in the long run,

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Additional firms will enter the market.

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If economic profits are earned in a competitive market, then over time

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Reduces the profits of existing firms in the market.

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The entry of firms into a market

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Shifts to the right.

answer

Other things being equal, as more firms enter a market, the market supply curve

question

Are perfect substitutes.

answer

If the products of two firms are homogeneous, then they

question

Are identical

answer

If two products are homogeneous, then they

question

Should reduce production.

answer

If a firm finds that its marginal cost is greater than its price, it

Chapters 20, 21, 22, and 23 – Flashcards

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