# Econ 202 Exam 3

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### If a household's income doubles, its budget constraint will ______________.

Shift out parallel to the old one

MUx/MUy=Px/Py

Car

False

### If MUx/Px < MUy/Py, then ____________________.

Spending a dollar less on X and a dollar more on Y increases utility.

### We can state the utility-maximizing rule in words in the following way: A person maximizes utility when she equalizes the _______ across products.

Marginal utility per dollar spent

lower; higher

Substitution

higher; lower

### Ellen is spending her entire income on goods X and Y. Her marginal utility from the last units of X and Y that she consumes is 25. Ellen's utility is only maximized if __________________.

The prices of X and Y are the same

### The law of diminishing marginal utility refers to _____________________.

A consumer's decrease in additional satisfaction as she consumes more and more units of a good.

8; 30

### Jane has \$500 a week to spend on clothing and food. The price of clothing is \$25 and the price of food is \$10. What is the equation for Jane's budget constraint?

\$25 x Clothing + \$10 x Food= \$500

40; 40

cost increases

increase; lower

increase

short run

capital; short

### Both Kate and Kyle own saltwater taffy factories. Kate's factory has low fixed costs and high variable costs. Kyle's factory has high costs and low variable costs. Currently each factory is producing 1,000 boxes of taffy at the same total cost. If each produces ___________________________________.

more, the costs of Kate's factory will exceed those of Kyle's factory

### Average variable and average total costs get closer together as output increases because _______________ as output increases.

average fixed costs decrease

### Diminishing marginal returns implies _______________.

increasing marginal costs

### A firm is experiencing ____________ on the downward sloping portion of a firm's long run average cost curve.

increasing returns to scale

(P-ATC)q

exit; left

### An industry is in ____________ if firms have an incentive to enter or exit in the _____________ run

disequilibrium; long

### A firm is better off operating than shutting down when price adequately covers _____________.

average variable cost

P x q

### A short run total cost schedule is a __________ cost schedule shifted upward by the amount of __________ cost.

total variable; total fixed

True

### Assume Dell Computer Company operates a perfectly competitive market producing 5,000 computers per day. At this output level, price exceeds the firm's marginal and average variable costs. It follows that producing one more computer will cause this firm's _______________.

profits to increase

P = ATC

### A firm facing a perfectly price elastic demand curve, ceteris paribus ______________________.

will have zero quantity demanded if it raises its price above the market price.

### A firm _________ if it earns zero economic profit.

earns exactly a normal rate of return

True

decrease

### An individual wheat farmer produces wheat in a perfectly competitive market. An increase in the market demand for wheat will cause the farmer's marginal revenue to _________ and his profit maximizing level of output to _________.

increase; increase

### The marginal revenue product of labor curve will always shift to the right if _______________.

product demand increases and product price increases

### A decrease in the wage rate will change _____________________.

the amount of labor employed, and it may also change the amount of other inputs employed.

False

### Because a famous painting is fixed in supply, its price is ____________.

demand determined

True

(MPL)(MRX)

supply; demand

### A firm will continue hiring labor as along as the MRP of labor _________ the market wage rate.

is greater than or equal to

\$50

False

### A decrease in the productivity of a factor of production will ____________.

shift is marginal revenue product curve to the left

### The law of ________ explains why a marginal revenue product schedule eventually declines.

diminishing marginal returns

### A car manufacturing company adopts a new technology that, ceteris paribus, increases the productivity of capital. At the same time, workers unionize and demand higher wages. Assume that for this firm capital and labor are substitutable. What is most likely to occur?

capital will be substituted for labor

### When a large amount of output is produced per unit of the input, the input is said to exhibit __________.

higher productivity

### The marginal revenue product of labor is _________.

the additional revenue a firm earns by employing one additional unit of labor.

### The marginal cost of a unit of labor in perfectly competitive labor market is ______________.

the market wage rate

### A soybean farmer sells soybeans in a perfectly competitive market and hires labor in a perfectly competitive market.The market price of soybeans is \$1 a bushel, the wage rate is \$12, the farmer employs six workers and the marginal product of the sixth worker is 10. What wold you advise this farmer to do?

reduce employment because the wage paid is greater than the marginal revenue product

### Assume that automobiles are a normal good. An increase in income will ___________________.

shift the marginal revenue product curve of auto workers to the right

### The number of seats available in a stadium is fixed at 80,000. The equilibrium price for a ticket to a football game at a stadium is \$30. The equilibrium price for a ticket to a baseball game at the stadium is \$20. What would be true?

the demand for each baseball game must be lower than the demand for each football game

### The marginal revenue product ____________________________________.

both is the product of the marginal product of labor and the price of the output and measures the benefit to the firm form hiring an additional unit of labor are correct

Example: