Pearson Answers Econ Exam 1 with 100% correct answers 2024

Should a competitive firm ever produce when it is losing money? Why or why not? - answer-Yes, as long as revenue can cover total variable costs plus any portion of fixed costs. Suppose a competitive firm has cost, C = (0.002q3) + (22q) + 750, marginal cost, MC = 0.006q2 + 22, and revenue, R = 80q. 1) If the firm produces 150 units of output then what is true about MR and MC? 2)At this output level (150 units).... 3) The firm's profit maximizing level of output is - answer-1) MRMC 2) marginal profit is negative and profit is positive. 3) 98 Suppose the firm faces a price of $30, an average variable cost of $25, and has an average fixed cost of $5. In the short-run, the firm - answer-Will just cover all costs According to "Oil Sands Shutdowns," the minimum average variable cost of processing oil sands dropped from $25 a barrel in the 1960s to $18 today due to technological advances. How does this change affect the supply curve of a typical competitive firm? 1) How does this change affect the supply curve of a typical competitive firm? 2) What about for all firms? - answer-1) It will start at a lower price and quantity. 2) It will shift supply curve to the left If a firm is currently in a short-run equilibrium earning a profit, what impact will an increase in variable factor prices have on its production decision? - answer-The firm will decrease output and earn a lower profit. If a country imports a small fraction of the world's supply, we expect it to face - answer-a nearly perfectly elastic, horizontal residual supply curve. If the average cost of production is decreasing then there is - answer-an advantage to having only one music publisher because the average cost of production is decreasing At Lequals=686, Kequals=142, the marginal product of labor is 10 and the marginal product of capital is 10. What is the marginal rate of technical substitution (labor measured on the horizontal axis)? - answer-The marginal rate of technical substitution is -1 To speed relief to isolated South Asian communities that were devastated by the December 2004 tsunami, the U.S. government doubled the number of helicopters from 45 to 90 to deliver supplies in early 2005. Navy admiral Thomas Fargo, head of the U.S. Pacific Command, was asked if doubling the number of helicopters would "produce twice as much [relief]." He predicted, "Maybe pretty close to twice as much." 1) Identify the outputs and inputs and describe the production process. 2) This economic phenomena is called - answer-1) Relief is produced from donated supplies and helicopter transportation. 2) diminishing marginal returns. Suppose that q=40, L=5, and K=25 is a point on the production function q=f(L, K). Is it possible for qequals=40, L=5, and K=26 to also be a point on this production function? Why or why not? - answer-it cannot be a point because we assume production functions are efficient The difference between a fixed and a variable input is that a - answer-fixed input does not change with output and a variable input changes with output. A firm might not seek to maximize profit if instead its primary goal is to - answer-be as large as possible A firm produces two products: q 1 and q 2. The firm's total cost curve is given by: TCequals=$3,000+4q(1)q(2) plus+40q1+30q 2 If q 1=10 and q 2=70, does this firm have economies of scope? - answer-Yes To maximize profits, a firm must produce as efficiently as possible. A firm engages in efficient production if: - answer-given the quantity of inputs, cannot produce more output. it cannot produce its current level of output with fewer inputs. it is maximizing profit. This level of production is also known as: technological efficiency. In what types of industries would you expect to see substantial learning by doing? You would expect to see the strongest effect of "learning by doing" in industries - answer-producing new products. "There are certain fixed costs when you own a plane," Andre Agassi explained during a break in the action at the Volvo/San Francisco tennis tournament," so the more you fly it, the more economic sense it makes. The first flight after I bought it, I took some friends to Palm Springs for lunch." (Scott Ostler, "Andre Even Flies like a Champ," San Francisco Chronicle, February 8, 1993, C1.) Discuss whether Agassi's statement is reasonable. Agassi's statement - answer-is reasonable because the average cost of a plane flight decreases with the number of flights. Are firms with limited liability likely to be larger than other firms? Why? Firms with limited liability are likely to be - answer-large firms because limited liability allows firms to raise more funds. Efficient production is: - answer-a necessary but not sufficient condition for profit maximization. The production function is a relationship between - answer-inputs and outputs. In the short-run, - answer-one or several inputs are fixed. What is the production function if labor, L, and capital, K, are perfect substitutes and each unit of q requires 0.20 units of L or 0.2 units of K (or a combination of these inputs that adds to .2? The production function is - answer-q = 5L + 5K In the short-run, a firm cannot vary its capital, K=4, but can vary its labor, L. I produces output q. Explain why the firm will or will not experience diminishing marginal returns to labor in the short-run if its production function is q = 10L+K note that dq/dL = 10. In the short run, the firm will - answer-will not experience diminishing marginal returns to labor because labor's marginal product is constant. will not experience diminishing marginal returns to labor because labor's marginal product equals 10 Explain why the firm will or will not experience diminishing marginal returns to labor in the short-run if its production function is q = L^.5 K^.5 Note that dq/dL = .5L^-.5 K^-.5 In the short run the firm will - answer-will experience diminishing marginal returns to labor because labor's marginal product equals .5L^-.5 K^-.5 The steeper an isoquant is (labor measured on the horizontal axis): - answer-the greater is the marginal productivity of labor relative to that of capital. To say that isoquants are convex is to say that: - answer-the marginal rate of technical substitution falls as labor increases. Remy views ice cream and fudge sauce as perfect complements. Is it possible that either of these goods or both of them are Giffin goods? - answer-Neither good can be a Giffen good because there is no substitution effect with perfect complements. In tracing out a price-consumption curve (PCC) for good X, which of the following variables is held constant? - answer-Consumer income hy would a consumer's demand for a supermarket product change when the product price is quoted inclusive of taxes rather than before tax? Is the same effect as likely for people buying a car? 1) Whether taxes are quoted as part of a supermarket product's price might affect consumer demand because 2) Quoting car prices after deducting sales taxes rather than in pre-tax form - answer-1) mentally calculating the impact of taxes has a cost. 2) would have a smaller effect on car sales because for such an important decision, the consumer would calculate the taxes. West Virginians who live near the border with other states can shop on either side of the border. If they buy food in West Virginia, their total cost is the price of the food plus the tax. If they buy across the border in states that do not tax food, the total cost is the price plus the cost due to the extra travel. Tosun and Skidmore (2007) found that West Virginian food sales dropped 8% in border counties when a 6% sales tax on food was imposed. Explain why. Food sales in West Virginia dropped 8% in border counties when it (West Virginia) added a 6% sales tax on food because - answer-the cost of food became greater in West Virginia than across the state border. Suppose that Boston consumers pay twiceas much for avocados as for tangerines, whereas San Diego consumers pay half as much for avocados as for tangerines. Assuming that consumers maximize their utility, which city's consumers have a higher marginal rate of substitution of avocados for tangerines? Explain your answer. If Boston consumers pay relatively more for avocados than San Diego consumers, then (in absolute value) the marginal rate of substitution (MRS) of avocados for tangerines for consumers in Boston when maximizing utility is - answer-Smaller because MRS equals the ratio of prices For changes in the price of good X (holding income and the price of good Y constant), a vertical price consumption curve (as shown to the right), corresponds to a: - answer-perfectly inelastic demand curve. Under what conditions does the income effect reinforce the substitution effect? - answer-The income effect will reinforce the substitution effect for a normal good. Under what conditions does the income effect have an offsetting effect? - answer-The income effect will have an offsetting effect for an inferior good. If the income effect more than offsets the substitution effect for a good, what do we call that good? - answer-The income effect more than offsets the substitution effect for a Giffen good. During his first year at school, Ximing buys 7 new college textbooks at a cost of $70.00 each. Used books cost $35.00 each. When the bookstore announces a 20.00% price increase in new texts and a 5.00% increase in used texts for the next year, Ximing's father offers him $98.00extra. Is Ximing better off, the same, or worse off after the price change? Why? With the price increases and his additional textbook allowance, Ximing is - answer-at least as well off, and potentially better off, because any combination of books that includes one or more used books is now cheaper in real terms. The supply-and-demand model is appropriate in which of the following markets? - answer-wheat Which of the following is true? The elasticity of supply varies along most supply curves. The elasticity of supply varies only along upward-sloping linear supply curves. The elasticity of supply is constant along most supply curves. None of the above - answer-The elasticity of supply varies along most supply curves. Which of the following is true? When 0 η 1, supply is considered inelastic. When η 1, supply is considered elastic. When η = 1, supply is considered unit elastic. All of the above. - answer-All of the above Use calculus to derive the elasticity of supply if the supply function is Q = Bp^.5 - answer-The price elasticity of supply is .5 Economists make many assumptions to simplify their models because - answer-the real world is too complex to analyze fully. Economic theory is: - answer-the development and use of a model to test hypotheses. If the demand curve for a good is horizontal and the price is positive, then a leftward shift of the supply curve results in - answer-no change in price. The change in price that results from a leftward shift of the supply curve will be greater if - answer-the demand curve is relatively steep than if the demand curve is relatively flat. What can you say about the elasticities of demand on the two demand curves at the point where they cross? When the two curves cross, - answer-the elasticities of demand for both types of firms are based on the same price. the elasticities of demand for both types of firms are based on the same quantity. The incidence of the subsidy on buyers is - answer-the difference in the pre-subsidy equilibrium house price and the new equilibrium house price minus the $8,000 subsidy divided by the subsidy. In early 2010, the U.S. government offered an $8,000 subsidy to new homebuyers. What effect does a per house subsidy have on the equilibrium price and quantity of the housing market? What is the incidence of the subsidy on buyers?Hint: A subsidy is a negative tax. - answer-A per house subsidy provided to consumers will increase the equilibrium price and will increase the equilibrium quantity. Which of the following is not a key trade-off faced by society? Which goods and services to produce? Who gets the goods and services? How to produce? Whether or not to produce? - answer-Whether or not to produce What links the decisions of consumers and firms in a market? - answer-Prices Which of the following is true? A. A positive statement concerns what somebody believes should happen; a normative statement concerns what will happen. B. A normative statement concerns what somebody believes should happen; a positive statement concerns what will happen. Your answer is correct.C. A normative economic statement is a testable hypothesis about cause and effect. D. None of the above are true. - answer-A normative statement concerns what somebody believes should happen; a positive statement concerns what will happen. Microeconomic models are used to: - answer-explain real-life phenomena. make predictions. evaluate policy alternatives. According to the Law of Demand, the demand curve for a good will: - answer-slope downward. An increase in the price of a good will lead to:a movement up along the demand curve for that good. An increase in consumer's income will lead to:a rightward shift of the demand curve for a normal good. If the cross-price elasticity is positive, the goods are - answer-substitutes. If the cross-price elasticity is negative, the goods are - answer-complements