e1s7m3q econ 1 spring 7 mid 3 Foldvary

Study guide

 

____††† 1.†††††††† One example that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is that in the short run,

 

Figure 13-6

 

The curves below reflect information about the cost structure of a firm.

 

 

____††† 2.†††††††† Refer to Figure 13-6. Which of the curves is most likely to represent average? Marginal? Total? cost?

 

____††† 3.†††††††† Average total cost (ATC) is calculated as follows:

 

Table 13-6

 

Adrian's Premium Chocolates produces boxes of chocolates for its mail order catalogue business. She rents a small room for $150 a week in the downtown business district that serves as her factory. She can hire workers for $275 a week. There are no implicit costs.

 

 

 

Number of Workers

Boxes of

Chocolates Produced per Week

 

Marginal Product

of Labor

 

 

Cost of

Factory

 

Cost

of

Workers

 

Total Cost

of

Inputs

0

0

 

 

 

 

1

 

330

150

275

425

2

630

 

 

 

 

3

 

150

 

825

975

4

890

 

 

 

 

5

950

60

 

1,375

 

6

 

10

 

 

1,800

 

 

____††† 4.†††††††† Refer to Table 13-6. What is the marginal product of the second worker?

 

____††† 5.†††††††† At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty-first pair of boots is $83. We can conclude that the average variable or total cost is?

 

____††† 6.†††††††† For Firm A, when 4 units of labor, the only variable input into the production process, are hired, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when labor is 5 units?

 

____††† 7.†††††††† Which of the following costs of publishing a book is a fixed cost?

 

Figure 13-8

 

The figure below depicts average total cost functions for a firm that produces automobiles.

 

 

____††††††††† 8.†† Refer to Figure 13-8. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

____†† 9.†††††††† Refer to Figure 13-8. This firm experiences diseconomies of scale at what output levels?

 

____††† 10.††††††† Economies of scale arise when

 

____††† 11.††††††† Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

 

Scenario 14-1

 

As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per year.

 

____††† 12.††††††† Refer to Scenario 14-1. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?

 

____††† 13.††††††† The short-run supply curve for a firm in a perfectly competitive market is

 

____††† 14.††††††† In the long-run equilibrium of a competitive market, the number of firms in the market adjusts until the market demand is satisfied at a price equal to

 

____††† 15.††††††† Tommy's Tires operates in a perfectly competitive market. If tires sell for $50 each and average total cost per tire is $40 at the profit-maximizing output level, then in the long run

 

Figure 15-1

 

 

____††† 16.††††††† Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm

 

____††† 17.††††††† The key difference between a competitive firm and a monopoly firm is the ability to select

 

____††† 18.††††††† For a monopoly firm, which of the following equalities is always true?

 

____††† 19.††††††† Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist?

 

____††† 20.††††††† Which of the following statements comparing monopoly with competition is correct?

 

____††† 21.††††††† In game theory, a Nash equilibrium is

 

____††††††††† 22. On a vacation to Cancun, Mexico, you find yourself eating every meal at the local McDonald's rather than having a hamburger from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat McDonald's hamburgers when you are home and McDonald's hamburgers cost more than those prepared and sold by Cancun's street vendors. An economist would most likely explain your behavior by suggesting that

____††† 23.††††††† As the price of oil falls, the demand? Supply? of gasloine increases? Decreases?

 

 

____††† 24.††††††† If the firmís manager sets prices to equal that of the competitors, this firm is definitely in what market or not in which market structures?