midterm 3 Flashcards
Joe is a shrimp fisherman who used $2,000 from his personal savings account to buy a boat and equipment for his shrimp business. The savings account paid 2% interest. What is Joe’s annual opportunity cost of the financial capital that he invested in his business?
$40
Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya’s annual opportunity cost of the financial capital that has been invested in the business?
$700
Alanna is an organic lettuce farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Alanna helps people organize their houses. Due to the popularity of her home-organization services, Farmer Alanna has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Alanna charges $25 an hour for her home-organization services. One spring day, Alanna spends 10 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of lettuce.
Alanna’s economic profit from farming equals
$-80
For a firm, the production function represents the relationship between
quantity of inputs and quantity of output.
On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?
the cost of the steel that is used in producing automobiles
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
there are economies of scale in retail sales.
A market is competitive if
(i)firms have the flexibility to price their own product.
(ii)each buyer is small compared to the market.
(iii)each seller is small compared to the market.
(ii) and (iii) only
Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML
can choose quantity of butter that it produces but not the price at which it sells its butter.
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?
(i) Marginal revenue equals $3.
(ii) Average revenue equals $3.
(iii) Total revenue equals $900.
(i), (ii), and (iii)
Which of the following firms is the closest to being a perfectly competitive firm?
a wheat farmer in Kansas
A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its
variable costs
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to
increase.
A firm that is a natural monopoly
is not likely to be concerned about new entrants eroding its monopoly power.
