ECON101 Chapter Notes - Chapter 11: Diminishing Returns, Sunk Costs, Average Cost

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sangriacrow114

3 Feb 2018

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Zara Liaqat

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If a firm"s plant has no resale value, the amount paid for it is a sunk cost: to increase output in the short run, a firm must increase the amount of labour. Short-run technology constraint employed: three concepts describe the relationship between output and the quantity of labour employed: Marginal product increases initially but eventually decreases. Product curves: product curves show how the firm"s total product, marginal product, and average product change as the firm varies the quantity of labour employed. Total product curve: figure 11. 1 shows a total product curve, the total product curve shows how total product changes with the quantity of labour employed, the total product curve is similar to the ppf. It separates attainable output levels from unattainable output levels in the short run. Initially, the marginal product of a worker exceeds the marginal product of the previous worker: the firm experiences increasing marginal returns.

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When jewelry stores ask you to put on the product, or car dealers refer to the prospective vehicle you are considering as "your car", what is this an example of ? Choose the BEST answer.

The Endowment Effect

Time Inconsistency/Myopia

Mental Accounting

Framing Effects

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Question 23.125 pts

Prospect Theory says that you...

Feel the same about losses and gains

Cannot say anything, because prospect theory does not cover this topic

Suffer from losses more than you enjoy equivalent gains

Enjoy gains more than you suffer from equivalent losses

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Question 33.125 pts

Which of the following is NOT an example of a nudge

Telling a customer that they must buy this health product if they want to lose 30 pounds and be healthier

placing the healthy food snacks towards the front of the store where they are most visible

marking the buttons you don't want users to select (although they technically can) in a grey color

labelling the trash can as recycle and landfill

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Question 43.125 pts

What kind of market structure is being used by the majority of companies in the mall

Monopolistic Competition

Monopoly

Pure Competition

Oligopoly

What is true of ALL Firms?

They make pricing decisions by setting MR=MC

They have positive profits in the short run

They have higher costs in the long run than in the short run

The engage in advertising to differentiate themselves from others

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Question 73.125 pts

If Price=$10 when Q=10, VC=$95, TC=$120, then what will the firm do?

It will produce in the short run, but in the long run it may exit if nothing substantively changes

It will produce in both the long and the short run even if nothing in the industry or market changes

It will produce in the long run, but in the short run it will not produce

It will not produce in the short run and in the long run it will exit the industry

magentaweasel639

Which of the following is not necessarily a characteristic of perfect competition? (Points: 1)

low prices
a large number of buyers and sellers
a homogeneous product
perfect information

2. In the short run, a perfectly competitive ball bearing manufacturer will continue to produce at a loss if (Points :1)
it is covering all of its variable cost plus part of its fixed cost

it is covering all of its fixed cost
variable cost is less than the fixed cost
fixed cost is zero

3. The golden rule of profit maximization states that any firm maximizes profit by producing where (Points :
marginal revenue equals marginal cost
demand is unit elastic, and total revenue is the greatest
price equals marginal revenue
price equals marginal cost

4. Which of the characteristics of perfect competition assures that economic profit will be zero in the long run? (Points: 1)
There are easy entry and exit in the market.
Each firm is a price taker.
Each firm has access to perfect information.
Each firm is small relative to the market.

5. A constant-cost industry is distinguished by the fact that(Points: 1)
firms' short-run average total costs are horizontal
firms' short-run marginal cost curves are horizontal
the long-run industry supply curve is perfectly elastic
the short-run industry supply curve is perfectly elastic

6. Commodity products are (Points: 1)
pasteurized
bland
perceived by consumers to be identical
made by one manufacturer

7. In a perfectly competitive industry we are likely to find(Points: 1)
firms producing a wide variety of products
barriers to entry
no profit possible in the short run
firms that do not advertise

8. Perfectly competitive firms are price takers because (Points :1)
all small firms must take the price set by the largest firm in the market
firms take the price that government determines is a "fair" price
each firm is small and goods are perfect substitutes for one another
free entry and exit in the short run creates a constant market price in the long run

9. In perfect competition, if one firm raises its price, (Points :1)
others will follow
that firm will increase its revenues
that firm will lose revenues because other firms will not follow
all consumers will be adversely affected

10. Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost. To maximize profit, the firm should (Points: 1)
lower the price
raise the price
increase output
reduce output

tanpig844

1- All of the following statements apply to a purely competitive market in the long run, except:

A- In the long run, all inputs are variable in quantity.

B- Firms can expand their plant capacities in the long run.

C- Total fixed costs remain constant even when output expands in the long run.

D- Firms may enter or leave the industry in the long run.

2- Which of the following is true of normal profits?

A- They are necessary to keep a firm in the industry in the long run

B- They are zero under pure competition in the long run

C- They are excluded from a firm's costs of production

D- They are what attract other firms to enter an industry

3- -The long-run supply curve would be perfectly elastic when:

A- An increase in demand does not cause a change in product price

B- An increase in demand causes an increase in product price

C- A decrease in demand causes an increase in short-run supply

D- A decrease in demand causes an increase in product price

4- What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

A- The average cost will increase

B- The average cost will decrease

D- The total cost will decrease

C- The product price will decrease

5- Which of the following statements about a competitive firm is correct?

A-To maximize profits a competitive firm should produce at that output at which total revenue is greatest

B- In long-run equilibrium a competitive firm will produce at the point of minimum average costs

C- A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs

D-A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost

6- When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is:

A- Less than marginal benefit

B- Greater than marginal cost

C- Equal to the amount of efficiency or deadweight losses

D- Equal to the maximum price consumers are willing to pay

7- A patent is the legal right granted to a firm that allows it to:

A- Make copies of other firm's products

B- Be the sole buyer of a particular product or resource

C- Sell its new product exclusively for a set number of years

D- Be the exclusive distributor of a particular imported product

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ECON101 Chapter Notes - Chapter 11: Diminishing Returns, Sunk Costs, Average Cost

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