1. When the production or consumption of a good involves an externality:
Click the card to flip 👆
1 / 47
Terms in this set (47)
6. The "paradox" or puzzle referred to in the "diamond/water paradox" is thata) under normal circumstances, water, an essential good, is cheap, while a diamond, a non-essential good, is expensive.12. What is the Total Utility the above consumer will receive if she spends 5 hours watching TV?d) 132 utilsAli Mony purchases only pizza and cola. The price of pizza is $3 per slice and the price of cola is $1 per bottle. The table below details Ali's marginal utility from Pizza Slices and Cola.a. 3 pizza slices and 5 colas13. As a utility-maximizing consumer, if Ali has a disposable income of $14, Ali should purchase ________________________ to maximize her total utility.a. 3 pizza slices and 5 colas13. Now suppose Ali has only $10 of disposable income and that she decides to buy three (3) slices of pizza and one (1) cola. Which of the following is a correct statement about this choice?a. This is not a utility-maximizing choice; with $10 of disposable income, Ali's total utility would have been higher if she bought more cola and less pizza.13. Will E. Wonka is trying to maximize his utility by buying 10 candy bars and 20 glasses of milk. Will E.'s marginal utility from the 10th candy bar is 150 utils, and his marginal utility from the 20th glass of milk is 200 utils. The price of candy bars is $1.50 per bar, and the price of milk is $1 per glass. Assuming Mr. Wonka is spending all his disposable income, is his current choice maximizing his total utility?a. No, Will E's marginal utility per dollar spent on the last unit of milk is greater than the marginal utility per dollar spent on the last unit of candy, so he should consume more milk and less candy.13. The period of time during which at least one input is fixed is called thea. short run17. Diminishing marginal productivity of labor must eventually occur becausea) as increasing units of labor are added to a fixed input (say capital), each additional worker has less capital with which to work.18. When the marginal product of labor is decreasing:a) the marginal cost of producing output is increasing.19. The Marginal Product of the 5th worker equals _______ and diminishing marginal productivity sets in with the addition of the ________ worker.a) 3; fourth19. Consider the following two statements: Statement I. If marginal cost is greater than average total cost, average total cost must be rising. Statement II. If average total cost is greater than marginal cost, marginal cost must be rising.a) I is true; II is false.21. There are two types of costs associated with production: ________ costs that require monetary payments, and _________ costs that do not.d) explicit; implicit22. Chubby's Ice Cream Parlor took out a bank loan last year to expand its store (to accommodate its 299 flavors of ice cream). The interest paid on that bank loan this year is:d) both a) and b) but not c).23. Variable costs:c) increase as production increases.24. Which of the following are variable costs of production?d) all of the above are variable costs of production.25. Economic profit is defined as:a) total revenue - explicit costs - implicit costs.25. Matt quits his job, at which he was earning $50,000 per year, and opens a small business. In the first year, the business has sales of $75,000 and explicit costs of $45,000. Matt is only interested in maximizing his economic profit. Which of the following statements is TRUE?a) Matt would have been better off staying in his previous job than starting the new business.25. If the Total Cost (TC) of producing 100 computers is $2005, and the Marginal Cost (MC) of producing the 101st computer is $15, what is the Average Total Cost (ATC) of producing 101 computers?a) $2025. The Total Fixed Costs (TFC) for this firm equala) $10025. The Marginal Cost (MC) of producing the fourth unit equals _______, and the Average Variable Cost (AVC) of producing four units equals _______.a) $25; $17.5025. As output rises, Average Fixed Cost (AFC) falls because:a) total fixed costs are spread over more and more units.25. Consider the following statements about short-run cost curves. Statement I. The Marginal Cost curve crosses the ATC curve at its minimum point. Statement II. The Marginal Cost curve crosses the AVC curve at its minimum point.a) Both statements are true.25. Which of the following is a possible explanation for the existence of Long-Run economies of scale?a) Both b) and c) are possible explanations for the existence of "economies of scale"25. The above graph shows a Long-Run Average Cost (LRAC) curve. The portion of the curve in which the firm has diseconomies of scale is ______; the portion of the curve in which the firm has economies of scale is ______; the portion of the curve in which the firm has constant returns to scale is ______.a) C, A, B25. When Harry's Magic Widget Company doubled in size, average (per unit) costs of production decreased. This is an example ofa) economies of scale.35. Which of the following is true?c) A perfectly competitive firm has no power to influence the market price for its product.36. In a perfectly competitive market, the demand curve for the entire market is ________, while the demand curve facing each individual firm is _______.d) downward sloping; perfectly elastic37. In order to maximize profits, a firm should produce the output whereb) MR=MC38. Frank N. Stein runs a hot dog and root beer restaurant. His weekly total revenue equals $2,000. His weekly total economic cost of running the restaurant equals $2,500, consisting of $1,500 of variable costs and $1,000 of fixed costs. An economist would likely advise Frank N. Stein in this short run situation to:d) keep the restaurant open for a while longer because he is covering all of his variable costs and some of his fixed costs, and is thus minimizing his short-run losses.39. Bob's Hot Dogs is a firm in a perfectly competitive market. Bob can sell hot dogs at a price of $3 each. If he sells 200 hot dogs, his Marginal Revenue (MR) from the 200th unit will equala) $339. A perfectly competitive firm can sell their product at a price of $10 per unit. If the Marginal Cost (MC) of the last unit produced was $6, which of the following statements is true?a) This firm should increase output to increase its profit.39. The Table above gives short-run cost data facing a perfectly competitive firm. The current market equilibrium price of the product is $25. In order to maximize profits, this firm should produce _______ units, charge a price of _______ per unit. This will lead to an economic profit equal to _________.6; $25; $2439. A perfectly competitive firm's short-run supply curve is:a) the portion of the marginal cost curve above minimum average variable cost.39. The graph above shows the cost curves for a perfectly competitive firm in the short run. If the price of the product is $32, this profit-maximizing firm should produce _____ units. This decision will lead to a profit that is _______.a) 15, less than zero39. In the Short Run, this firm will shut down if the price is less than ______. In the Long Run, this firm will shut down if the price is less than ______.a) $25; $4039. In long-run equilibrium, there cannot be positive economic profits in a perfectly competitive industry becausea) short-run positive economic profits attract entry, leading to a fall in the market price until economic profit equals zero.If the cost of a firm's raw materials decreases, that firm's Marginal Costs will _______, and the firm's short-run supply curve will ______.decrease; shift rightward