ECON MIDTERM 2 EXAM STUDY
GUIDE
Economists assume that firms - Answer act as though they intend to make profit as large
as possible
Elaine is a successful lawyer who decides to quit her law practice and do what she
loves. She opens a bread bakery using $20,000 from her savings account. Which of the
following is an explicit cost of her new bakery business? - Answer the wages Elaine pays
to her employees.
Labor Output 1 0 2 8 3 14 4 18 5 20
--Consider the table above. What is the average product when 4 workers are hired? -
Answer 4.5
Labor Marginal Product 0 1 8 2 10 3 13 4 12 5 8 6 7 7 4 8 3
--Consider the table above. If 4 workers are hired, how much output is produced? -
Answer 43
The short run is a situation such that - Answer at least one input to production is fixed in
quantity.
(graph picture, output vs labor, upward squiggle)
Refer to the figure above. As more workers are hired - Answer at first marginal product
is increasing, but then marginal product declines.
Which of the following is a fixed cost to a firm that produces ice cream? - Answer rent
paid for factory space
At low levels of output, average total cost is high due to high levels of - Answer average
fixed cost
Output Variable Cost Fixed Cost Total Cost 0 14 1 5 2 24 3 15 4 20 34
--What is the variable cost of production when Q=0 ? - Answer $0
Diseconomies of scale occur when - Answer when long run ATC increases as output
expands.
Select the answer below that corresponds to the idea of a derived demand curve. -
Answer A bagel producer decides to supply more bagels to the market, and as a result
her demand for bagel workers increases
When a firm hires labor up to the point where the wage is equal to the marginal revenue
, product of labor, the firm is - Answer maximizing profit
The graph above represents - Answer the marginal product of labor
LaborOutputMP of laborMRP laborWageMarginal
Profit00NANANANA1444030102103035503043300520621130-20
--Consider the table above. What is the marginal revenue product of the 5th worker? -
Answer $20
LaborOutputMP of laborMRP laborWageMarginal
Profit00NANANANA1444030102103035503043300520621130-20
--Consider the table above. What is the price of the final good? - Answer $10
The marginal product of labor eventually slopes downward due to - Answer the law of
diminishing marginal productivity
A person's labor supply curve would be downward sloping if an increase in the
opportunity cost of leisure resulted in working - Answer fewer hours
A bakery firm owns a large factory in San Francisco. An earthquake destroys 25% of the
bakery's capital equipment. The marginal productivity of the undamaged capital
equipment will - Answer increase
You run a small farm that grows fresh produce to sell at your roadside stand. You
employ workers, you rent land and you rent capital in order to grow the produce. If the
marginal product per dollar of capital is $2, the marginal product of labor is 20, the price
of labor is $10 and the marginal product of land is 32, what is the price of land? - Answer
$16
When the price of a factor of production increases, firms that use that factor will -
Answer reduce output and increase their demand for other inputs
Which of the following is an assumption that underlies the perfectly competitive model? -
Answer There are many firms
If a firm in a perfectly competitive market sets its price slightly above the market price,
then - Answer the firm will not sell any product
In the above figure, assume that S0 represents the industry supply curve and D0
represents the demand curve in a perfectly competitive market. A perfectly competitive
firm will charge - Answer $1.25
Because a firm's marginal revenue curve demonstrates the amount of extra revenue
that a firm will gain by expanding output by one unit, a perfectly competitive firm's
marginal revenue curve is the same as its - Answer demand curve
Which of the following is always true for a perfectly competitive firm that is maximizing
profits? - Answer MR=MC=P*
GUIDE
Economists assume that firms - Answer act as though they intend to make profit as large
as possible
Elaine is a successful lawyer who decides to quit her law practice and do what she
loves. She opens a bread bakery using $20,000 from her savings account. Which of the
following is an explicit cost of her new bakery business? - Answer the wages Elaine pays
to her employees.
Labor Output 1 0 2 8 3 14 4 18 5 20
--Consider the table above. What is the average product when 4 workers are hired? -
Answer 4.5
Labor Marginal Product 0 1 8 2 10 3 13 4 12 5 8 6 7 7 4 8 3
--Consider the table above. If 4 workers are hired, how much output is produced? -
Answer 43
The short run is a situation such that - Answer at least one input to production is fixed in
quantity.
(graph picture, output vs labor, upward squiggle)
Refer to the figure above. As more workers are hired - Answer at first marginal product
is increasing, but then marginal product declines.
Which of the following is a fixed cost to a firm that produces ice cream? - Answer rent
paid for factory space
At low levels of output, average total cost is high due to high levels of - Answer average
fixed cost
Output Variable Cost Fixed Cost Total Cost 0 14 1 5 2 24 3 15 4 20 34
--What is the variable cost of production when Q=0 ? - Answer $0
Diseconomies of scale occur when - Answer when long run ATC increases as output
expands.
Select the answer below that corresponds to the idea of a derived demand curve. -
Answer A bagel producer decides to supply more bagels to the market, and as a result
her demand for bagel workers increases
When a firm hires labor up to the point where the wage is equal to the marginal revenue
, product of labor, the firm is - Answer maximizing profit
The graph above represents - Answer the marginal product of labor
LaborOutputMP of laborMRP laborWageMarginal
Profit00NANANANA1444030102103035503043300520621130-20
--Consider the table above. What is the marginal revenue product of the 5th worker? -
Answer $20
LaborOutputMP of laborMRP laborWageMarginal
Profit00NANANANA1444030102103035503043300520621130-20
--Consider the table above. What is the price of the final good? - Answer $10
The marginal product of labor eventually slopes downward due to - Answer the law of
diminishing marginal productivity
A person's labor supply curve would be downward sloping if an increase in the
opportunity cost of leisure resulted in working - Answer fewer hours
A bakery firm owns a large factory in San Francisco. An earthquake destroys 25% of the
bakery's capital equipment. The marginal productivity of the undamaged capital
equipment will - Answer increase
You run a small farm that grows fresh produce to sell at your roadside stand. You
employ workers, you rent land and you rent capital in order to grow the produce. If the
marginal product per dollar of capital is $2, the marginal product of labor is 20, the price
of labor is $10 and the marginal product of land is 32, what is the price of land? - Answer
$16
When the price of a factor of production increases, firms that use that factor will -
Answer reduce output and increase their demand for other inputs
Which of the following is an assumption that underlies the perfectly competitive model? -
Answer There are many firms
If a firm in a perfectly competitive market sets its price slightly above the market price,
then - Answer the firm will not sell any product
In the above figure, assume that S0 represents the industry supply curve and D0
represents the demand curve in a perfectly competitive market. A perfectly competitive
firm will charge - Answer $1.25
Because a firm's marginal revenue curve demonstrates the amount of extra revenue
that a firm will gain by expanding output by one unit, a perfectly competitive firm's
marginal revenue curve is the same as its - Answer demand curve
Which of the following is always true for a perfectly competitive firm that is maximizing
profits? - Answer MR=MC=P*
