Econ Exam 2 Study Questions

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Accounting profit differs from economic profit because:
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economic costs are generally higher than accounting costs because economic costs include all opportunity costs, while accounting costs include explicit costs only.
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Profit computed using explicit costs as the only measure of costs is:
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accounting profit
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The costs economists use in the concept of economic profit are:
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accounting costs and opportunity costs (i.e., the value of the best opportunity forgone)
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Profit is the difference between ______ and ______.
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total revenues; total costs
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The amount by which an additional unit of an activity increases total cost is:
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marginal cost
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According to the optimal output rule, if marginal benefit:
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is equal to marginal cost, net benefit is maximized
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In economics, “marginal” value refers to:
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the value associated with one more unit of an activity
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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:
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$1.00
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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:
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wash the tenth car
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Total net gain is maximized when marginal benefit _____ marginal cost.
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is equal to
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The short run is a period that is:
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long enough in which to vary output but not plant capacity
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In the long run:
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all inputs are variable
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An input whose quantity can be changed during a particular period is a:
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variable input
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The total product curve:
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will become flatter as output increases, if there are diminishing returns to the variable input
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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:
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300 bushels
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The sum of fixed and variable costs is:
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total cost
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Average total cost is:
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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:
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average fixed cost is $3 per unit
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If marginal cost is greater than average total cost, then:
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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:
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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:
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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
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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
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In perfect competition, each firm:
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produces a standardized product
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The demand curve for a perfectly competitive firm is:
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perfectly elastic
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Price-takers are individuals in a market who:
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have no ability to affect the price of a good in a market
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Marginal revenue:
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equals the market price in perfect competition
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Marginal revenue is a firm’s:
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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:
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marginal revenue equals marginal cost
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Zoe’ s bakery determines that PAVC. Zoe should:
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continue to operate even though she is experiencing an economic loss
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A perfectly competitive firm is definitely earning an economic profit when:
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P>ATC
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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:
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shut down
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The short-run supply curve for a perfectly competitive firm is its:
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marginal cost curve above its average variable cost curve
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A perfectly competitive firm maximizes its profit by producing the quantity at which:
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MR=MC
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A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if price is:
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greater than average variable cost but less than average total cost
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Economic profits in a perfectly competitive industry induce _____, and losses induce ______.
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entry; exit
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The relationship between an individual’s consumption bundle and his or her utility is called a:
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utility function
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The marginal utility of coffee consumption for Steve is the change in ______ generated by consuming an additional unit of coffee.
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total utility
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The principle of diminishing marginal utility states that as an individual consumes more of a good:
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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:
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utility
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The amount by which total utility increases when an additional unit of a good is consumed is called _____ utility:
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marginal
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The utility of a good is determined by how much ______ a particular consumer obtains from it:
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satisfaction
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When total utility is at a maximum, marginal utility is:
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zero
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The amount by which total utility rises when an additional unit of a good is consumed is called:
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marginal utility
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Marginal utility is best computed as the:
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change in total utility from an additional unit consumed
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A consumer’s spending is restricted because of:
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a budget constraint
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Suzy knows she has maximized her utility, because she is on her budget constraint and:
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MUx/Px=MUy/Py
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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:
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increase her consumption of B and decrease her consumption of A
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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:
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more of X and less of Y
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The optimal consumption rule for all goods requires that:
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the marginal utilities of all goods consumed divided by their respective prices are equal
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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:
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purchase more of the now relatively less expensive good

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