Micro Final (Part 2)

The minimum wage has its greatest impact on the market for
teenage workers

An externality is the impact of
a person's actions on the well-being of a bystander

All externalities
cause markets to fail to allocate resources efficiently

According to the graph below, this market is experiencing

a negative externality

When negative externalities are present in a market
social costs will be greater than private costs

Internalizing an externality refers to making
buyers and sellers take into account the external effects of their actions

Which of the following policies is the government most inclined to use when faced with a positive externality?
subsidies

A command-and-control policy is another term for a
government regulation 

Corrective taxes
give factory owners an economic incentive to reduce pollution

Tradable pollution permits
will be more valuable to firms that can reduce pollution only at high costs

What is the difference between command-and-control policies and market-based policies towards externalities?
command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for decision-makers to change their behavior

The theory of consumer choice examines
the tradeoffs inherent in decisions made by consumers

Suppose a consumer has an income of $800 per month and that she spends her entire income each month on beer and hamburgers. The price of a pint of beer is $5, and the price of a hamburger is $4. Which of the following combinations of beer and hamburgers represent a point that would lie to the exteriorof the consumer's budget constraint?
160 beers and 200 hamburgers

Consider the two goods from the prior question: beer and hamburgers.  The slope of the consumer's budget constraint is measured by the
relative price of beer and hamburgers

Economists represent a consumer's preferences using
indifference curves

All of the following are properties of indifference curves except
indifference curves are bowed outward

Utility measures
the satisfaction a consumer receives from consuming a bundle of goods

When the price of pizza falls, the income effect (for normal goods Pepsi and pizza) causes
the consumer to feel richer, so the consumer buys more Pepsi

When the price of pizza falls, the substitution effect (for normal goods Pepsi and pizza) causes
Pepsi to be relatively more expensive, so the consumer buys less Pepsi

The goal of the consumer is to
all of the above

Assume that the consumer depicted in the figure above has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?
C

Economists normally assume that the goal of a firm is to
maximize its profits

Profit is defined as total revenue
minus total cost

An example of an explicit cost of production would be the
lease payments for the land on which a firm's factory stands

Suppose that for a particular business there are no implicit costs. Then
accounting profit will be the same as economic profit

John has been working for a law firm and earning an annual salary of $80,000. He decides to open his own practice. His annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. John will cover his start-up expenses by cashing in a $20,000 certificate of deposit on which he was earning annual interest of $500. (Use the information provided above to answers the following 3 questions)
John's annual economic costs will equal
$135,700

According to John's accountant, which of the following revenue totals will yield his business $50,000 profit?
$105,200

According to an economist, which of the following revenue totals will yield John's business $50,000 economic profit?
$185,700

For a firm, the production function represents the relationship between
quantity of inputs and quantity of output

The marginal product of any input is the
increase in total output obtained from one additional unit of input

Gallo Cork Factory:

Use the information provided in the table above to answer the following 3 questions.
Each worker at Gallo cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo produces at a rate of 70 corks per hour and operates 8 hours per day, what is Gallo’s total labor cost per day?
$576

Assume Gallo currently employs 5 workers. What is the marginal product of labor when Gallo adds a 6th worker?
15 corks per hour

Gallo cork factory experiences diminishing marginal product of labor with the addition of which worker?
the 6th

Marginal cost tells us the
amount by which total cost rises when output is increased by one unit

Jane's Elegant Earrings produces pairs of earrings for its mail order catalogue business. Each pair is shipped in a separate box. 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.

Use the information provided above to answer the following 3 questions.
What is the total cost associated with making 890 boxes of earrings per week?
$1,250

During the week of July 4th, Jane doesn't produce any earrings. What are her costs during the week?
$150

One week, Jane earns a profit of $125. If her revenue for the week is $1,100 how many boxes of earrings did she produce?
780

Curve A represents which type of cost curve (see the graph above)?
average fixed cost

Which of the following is not a characteristic of a perfectly competitive market?
many firms have market power

When firms are said to be price takers, it implies that
marginal revenue is equal to price

For a certain firm, the 100th unit of output that the firm produces has marginal revenue of $10 and a marginal cost of $11. It follows that the
firm's profit-maximizing level of output is less than 100 units

What is John's Vineyard's economic profit at its profit-maximizing output level (see the table below)?

$115

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should
operates his business as long as he rents at least 1 boat per month

The fundamental cause of monopoly is
barriers to entry

(Refer to the graph below to answer the following 3 questions)

What price will the monopolist charge?
B

How much output will the monopolist produce?
K

What area measures the monopolist's profit?
(B-G)*K

Which of the following is an example of price discrimination?
all of the above

What is the profit-maximizing price, quantity, and resulting profit (see the graph below)?

P=$80, Q=20 units, profit=$200

In which of the following product markets are we likely to observe the largest amount of advertising?
markets with highly differentiated products