Exam 2 Material

Question 1

Sunk Costs

Answer 1

sunk costs are unrecoverable costs that should not effect current decisions

Question 2

In the short run, fixed costs are

Answer 2

sunk costs

Question 3

In the short run, fixed costs should be

Answer 3

ignored

Question 4

Economic profit

Answer 4

total revenue minus total costs (total cost= explicit + implicit costs)

Question 5

If total revenue is greater than total cost, then economic profit is

Answer 5

positive

Question 6

if total revenue is less than total cost, then economic profit is

Answer 6

negative

Question 7

Accounting costs are only those costs that the firm

Answer 7

explicity pays (i.e. costs that an accountant sees)

Question 8

Economic profit is always ____ than accounting profit

Answer 8

less

Question 9

Do accounting costs account for the owner’s forgone value of time?

Answer 9

no. The value of the owner’s time is an implicit cost.

Question 10

Output is the same thing as

Answer 10

total product

Question 11

If a firm makes pizzas, its total product will be measured in terms of

Answer 11

pizzas

Question 12

Inputs

Answer 12

are resources that a firm uses to produce a final product

Question 13

The variable input discussed in class is

Answer 13

labor (i.e. workers)

Question 14

For a pizza company, an example of a fixed input is

Answer 14

ovens

Question 15

In the short run only ____ inputs can be changed

Answer 15

variable

Question 16

Teamwork and specialization occur in the _____ portion of the total product curve.

Answer 16

convex

Question 17

Congestion occurs in the ____ portion of the total product curve.

Answer 17

concave

Question 18

The marginal product of labor

Answer 18

the change in total output that results from increasing the amount of labor by 1 unit.

Question 19

Eventually, the marginal product of labor

Answer 19

decreases

Question 20

The total product curve is convex when the output is ____ at an _____ rate.

Answer 20

increasing; increasing

Question 21

The total product curve is concave when the ouptut is _____ at a _____ rate

Answer 21

increasing; decreasing

Question 22

True or False: an extra worker will always add to total product

Answer 22

false

Question 23

When there is one worker: 2 televisions are made per hour. When there are two workers: there are 10 televisions made per hour. Hence, the marginal product of the 2nd worker is

Answer 23

8 televisions per hour

Question 24

the marginal product curve reflects changes in the _____ curve

Answer 24

total product

Question 25

When the total product curve is convex, marginal product is

Answer 25

increasing

Question 26

When the total product curve is concave, marginal product is

Answer 26

decreasing

Question 27

Suppose the 4th worker produces an additional 6 pizzas. Is marginal product increasing or decreasing?

Answer 27

not enough information

Question 28

When total product reaches its maximum, marginal product equals

Answer 28

0

Question 29

Marginal product is the slope of the

Answer 29

total product curve

Question 30

Average product is a measure of

Answer 30

how much each worker produces on average.

Question 31

When marginal product is higher than average product, average product is

Answer 31

rising

Question 32

Wage

Answer 32

is a payment to an employee for labor services

Question 33

Variable costs

Answer 33

are costs that change with the amount of output being produced.

Question 34

In the case of labor, variable cost=

Answer 34

of workers\*wages

Question 35

If 4 workers are hired at a wage of $10/hr, VC=

Answer 35

$40

Question 36

True or False. Variable costs and marginal costs are essentially the same thing

Answer 36

False

Question 37

When total product increases, then variable costs will \_\_\_

Answer 37

increase

Question 38

Variable cost can be graphed by plotting ____ on the y-axis and ____ on the x-axis

Answer 38

variable cost; total product

Question 39

Marginal cost

Answer 39

is the cost incurred by producing one additional unit of a good.

Question 40

Suppose with 3 workers: VC= $30 and TP= 20. With 4 workers: VC= $40 and TP= 25. Marginal cost=

Answer 40

$2 per unit

Question 41

The formula for marginal cost=

Answer 41

change in VC/ change in TP

Question 42

If change in variable cost= $5, and change in quantity=2, then marginal cost=

Answer 42

$2.50 per unit

Question 43

When there is teamwork and specialization, marginal cost is

Answer 43

decreasing

Question 44

When there is congestion (i.e. decreasing productivity), marginal cost is

Answer 44

increasing

Question 45

Changes in marginal cost are always the result of changes in

Answer 45

productivity

Question 46

If you keep hiring more workers, then at some point they will inefficiently use the ___ \_\_\_

Answer 46

fixed inputs (thus marginal cost inreases)

Question 47

When plotting the marginal cost curve, what goes on the x-axis?

Answer 47

TP

Question 48

When graphing marginal product, what goes on the x-axis?

Answer 48

of workers

Question 49

Marginal cost is rising when marginal product is

Answer 49

falling

Question 50

When marginal product is rising, marginal cost is

Answer 50

falling

Question 51

When marginal cost is at a minimum, then ____ is at a maximum

Answer 51

marginal product

Question 52

marginal cost and marginal product are ____ related

Answer 52

inversely

Question 53

The slope of the variable cost curve is

Answer 53

marginal cost

Question 54

Marginal product is the addition to total product from

Answer 54

hiring one more worker

Question 55

marginal cost is the addition to total costs from

Answer 55

producing another unit

Question 56

You can find marginal cost by dividing W by

Answer 56

MP. (MC=wage/MP)

Question 57

True or false: marginal product and marginal cost curves are mirror images of one another.

Answer 57

true

Question 58

Short run

Answer 58

a brief period of time during which only one input can be varied

Question 59

In class examples, what was the variable input?

Answer 59

The number of workers

Question 60

Fixed inputs

Answer 60

inputs in the production production process that do not change with changes in output. Examples are machinery and factories.

Question 61

Total fixed costs (FC)

Answer 61

short-run costs that do not vary with output

Question 62

Do all firms have fixed inputs in the short run?

Answer 62

yes

Question 63

The fixed inputs are usually the ____ and equipment, and the variable input is \_\_\_\_.

Answer 63

factory; labor

Question 64

To produce output, firms have to combine ____ and ____ inputs.

Answer 64

fixed; variable

Question 65

Are there fixed inputs in the long run?

Answer 65

no. Every input is variable.

Question 66

Can a small company transform into a large company in the short run?

Answer 66

no

Question 67

Can a small company transform into a large company in the long run?

Answer 67

yes

Question 68

Can a firm vary the size of its factory in the short run?

Answer 68

no

Question 69

Can a firm vary the size of its factory in the long run?

Answer 69

yes

Question 70

A firm with market power is called a price \_\_\_\_

Answer 70

setter

Question 71

How much market power do competitive firms have?

Answer 71

zero

Question 72

Competive firms are called price \_\_\_\_

Answer 72

takers

Question 73

How much influence does a competive firm have over the price the good it sells?

Answer 73

zero

Question 74

Do competitive firms have to accept the price determined by the market?

Answer 74

yes

Question 75

A firm that has market power is usually ____ relative to the size of the market.

Answer 75

large

Question 76

Can price setters influence the price of their product?

Answer 76

yes

Question 77

What are the 3 characteristics of perfect competition?

Answer 77

1. the output of a single firm is relatively small. 2) all firms sell identical products and customers do not distinguish between products. 3) there are no barriers to entry.

Question 78

What is a competitive firm's demand curve determined by?

Answer 78

the market price. a firm's demand curve is flat and equal to the market price.

Question 79

If a firm tries to raise their price above the market price, what happens?

Answer 79

the firm sells nothing

Question 80

how many units can a firm sell at the market price?

Answer 80

as much they want

Question 81

what is the difference between 'market price' and 'equilibrium price'?

Answer 81

nothing. they are the same thing.

Question 82

What is the formula for total revenue (TR)?

Answer 82

TR= P\*y In other words price\*quantity.

Question 83

What is the difference between total product and quantity?

Answer 83

nothing. they are the same thing.

Question 84

If the market price is $4 and y= 20. What is total revenue?

Answer 84

$80

Question 85

The total revenue curve looks like a \_\_\_\_\_

Answer 85

straight line with a positive slope.

Question 86

A competitive firm's profit maximizing output level is where its MC curve equals

Answer 86

the product price. (the MC curve must be increasing at this point)

Question 87

When q=3; MC= $4, when q=4; MC= $5. If the price is $4.50, how many units should the firm sell?

Answer 87

3 (assuming fractional units are not an option)

Question 88

Marginal revenue

Answer 88

the change in total revenue that results from a change in output

Question 89

For a competitive firm, what is the difference between price and marginal revenue?

Answer 89

nothing. they are the same thing for a competitive firm.

Question 90

On a graph, what shape is TR?

Answer 90

a rectangle