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# ECO 365T Assignment Week 4 Apply The Microeconomics of Product Markets Homework

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ECO 365T  Assignment Week 4 Apply: The Microeconomics of Product Markets Homework

Review the Assignment Week 4 The Microeconomics of Product Markets Quiz in preparation for this assignment.

Note: You have only one attempt available to complete assignments. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after the due date.

Materials

The table below presents the average and marginal cost of producing cheeseburgers per hour at a roadside diner.

Cheeseburger Production Costs

Quantity(burgers per hour)    Average Variable Cost (dollars)     Average Total Cost (dollars)  Marginal Cost (dollars)

0     —    —    —

10    \$1.00      \$6.60      \$1.00

20    0.70 3.50 0.40

30    0.70 2.57 0.70

40    0.78 2.18 1.00

50    0.88 2.00 1.30

60    1.07 2.00 2.00

70    1.34 2.14 3.00

80    1.74 2.44 4.50

90    2.23 2.86 6.20

100  2.81 3.37 8.00

At a quantity of 40 cheeseburgers per hour, the average total cost of production is falling and the marginal cost of cheeseburger production is rising .

At a quantity of 60 cheeseburgers per hour, the average variable cost of production is rising and the average total cost of cheeseburger production is at a minimum .

A business owner makes 50 items by hand in 40 hours. She could have earned \$20 an hour working for someone else. Her total explicit costs are \$200. If each item she makes sells for \$15, her economic profit equals:

Instructions: Enter your answer as a whole number. If you are entering a negative number be sure to include a negative sign (-) in front of that number.

A young Thomas Edison produces and sells 20 light bulbs aAssignment Week in his dorm room. The parts for each light bulb cost \$2.00. He sells each light bulb for \$5.00. General Electric offers Thomas an executive job that pays \$50.00 aAssignment Week. Thomas’s Assignment Weekly economic profit from making light bulbs is equal to:

Which of the following costs is an explicit cost for you?

You spend your time running your own business even though a large corporation offered you a generous contract.

You raise cattle on your family-owned farm even though you could sell your land to a developer.

You hire a worker who could have received the same wage working for your competitor.

You decide to use an extra room for your business that you could have rented out to your neighbor.

Barney decides to quit his job as a corporate accountant, which pays \$10,000 a month, and goes into business for himself as a certified public accountant.

He runs his business from his converted garage apartment, which he could rent out for \$300 a month if he wasn’t using it as a home office. He must purchase office supplies worth \$75 a month, and his monthly electricity bill has increased by \$50 now that he is working out of his home office.

After six months of working from home, Barney has earned an average of \$12,000 per month.

What are Barney’s average monthly accounting profits?

What are Barney’s average monthly economic profits?

Barney decides to quit his job as a corporate accountant, which pays \$10,000 a month, and goes into business for himself as a certified public accountant.

He runs his business from his converted garage apartment, which he could rent out for \$300 a month if he wasn’t using it as a home office. He must purchase office supplies worth \$75 a month, and his monthly electricity bill has increased by \$50 now that he is working out of his home office.

After six months of working from home, Barney has earned an average of \$12,000 per month.

What are Barney’s monthly explicit costs?

What are Barney’s monthly implicit costs?

What are Barney’s monthly economic costs?

Which of the following is an implicit cost of owning and operating a farm?

The money paid for repairing a tractor

The money received for crops grown during the growing season

The money a farmer could earn by working for someone else

The money paid for fertilizer each growing season

Variable costs are

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Multiple Choice

costs that change with the amount of output a firm produces.

sunk costs.

the change in total cost associated with the production of an additional unit of output.

costs that change every day.

If all resources used in the production of a product are increased by 20% and total output increases by 20%, then the firm must be experiencing

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economies of scale.

diseconomies of scale.

increasing average total costs.

constant returns to scale.

The ability of Intel to spread product development cost over a larger number of units of output arises from

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constant returns to scale.

diseconomies of scale.

minimum efficient scale.

economies of scale.

Marginal cost can be defined as the change in

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average variable cost resulting from the production of an additional unit of output.

total fixed cost resulting from the production of an additional unit of output.

average total cost resulting from the production of an additional unit of output.

total cost resulting from the production of an additional unit of output.

Suppose that you could either prepare your own tax return in 15 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at \$11 an hour; the tax specialist will charge you \$55 an hour. The opportunity cost of preparing your own tax return is

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\$40.

\$55.

\$110.

\$165.

A firm encountering economies of scale over some range of output will have a

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rising long-run average total cost curve.

constant long-run average cost curve.

falling long-run average total cost curve.

rising, then falling, then rising long-run average total cost curve.

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

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Marginal cost is less than average variable cost.

Average variable cost is decreasing.

Average total cost is less than average variable cost.

Average total cost is increasing.

Imagine that a firm expands the size of its plant, doubling its total cost of production but more than doubling its output. This situation is known as

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Multiple Choice

a violation of the law of diminishing returns.

constant returns to scale.

diseconomies of scale.

economies of scale.

If you know that when a firm produces 8 units of output, average fixed cost is \$12.50 and average variable cost is \$81.25, then the average total cost associated with this output level is

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Multiple Choice

\$93.75.

\$880.00.

\$97.78.

\$750.00.

Implicit costs are

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opportunity costs of using owned resources.

composed entirely of variable costs.

always greater in the short run than in the long run.

equal to total fixed costs.

If the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there

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Multiple Choice

isn’t a minimum efficiency scale.

are constant returns to scale.

are economies of scale.

are diseconomies of scale.

To an economist, the economic costs associated with the use of resources include

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Multiple Choice

explicit, but not implicit, costs.

implicit, but not explicit, costs.

neither implicit nor explicit costs.

explicit and implicit costs.

Use the following information to answer the next question.

Harvey quit his job at State University where he earned \$45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be \$5,000 a year. To start the business, he cashed in \$100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at \$75 each. Of the \$75, \$55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.

The explicit costs of Harvey’s firm in the first year were

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Multiple Choice

\$655,000.

\$150,000.

\$605,000.

\$825,000.

If you know that total fixed cost is \$200, total variable cost is \$600, and total product is 4 units, then average total cost must be

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Multiple Choice

\$200.

\$800.

\$3,200.

\$250.

Answer the next question on the basis of the following information.

TFC = Total Fixed Cost

MC = Marginal Cost

TVC = Total Variable Cost

Q = Quantity of Output

P = Product Price

Select the marginal cost.

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P−QChange  in QP−QChange⁢  in⁢ Q

Change   in TFcChange   in QChange⁢   in⁢ TFcChange⁢⁢   in⁢ Q

Change   in TVCQChange⁢   in⁢ TVCQ

Change  in TVCChange  in Q

Monetary payments a firm makes to pay for resources are called

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Multiple Choice

normal profit.

explicit costs.

opportunity costs.

implicit costs.

Answer the next question on the basis of the following data.

Output    Total Cost

0     \$10

1     20

2     28

3     38

4     53

5     73

6     98

The average variable cost of producing 3 units of output is

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Multiple Choice

\$12.67.

\$9.33.

\$10.00.

\$38.00.

The table below shows Ali’s monthly costs of producing wheat. Suppose the current market price of wheat is \$56.00 per bushel.

Ali’s Wheat Production Costs

Quantity (bushels)  AVC (dollars) ATC (dollars)  MC (dollars)

0     —    —    —

500  \$40.00    \$240.00   \$40.00

1,000      35.00      85.00      30.00

1,500      30.00      63.33      20.00

2,000      30.00      55.00      30.00

2,500      31.00      51.00      35.00

3,000      32.67      49.33      41.00

3,500      34.86      49.15      48.00

4,000      37.50      50.00      56.00

4,500      40.57      51.67      65.00

5,000      44.00      54.00      75.00

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

If the market price is \$56.00 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run?

Calculate Ali’s monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of \$56.00.

Assume that the market price of wheat falls to \$35.00 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run?

Calculate Ali’s monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of \$35.00.

If the market price of wheat instead falls to \$20.00 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run?

What are the likely reason(s) that the market for electricity is not perfectly competitive? Select all that apply.

Instructions: You must make a selection for each option. Click once to place a check mark for correct answers and click twice to empty the box for wrong answers.

There are few sellers in the market

Electricity is not a standardized (homogeneous) product

It is difficult to enter or exit the industry as a supplier

There are few buyers in the market.

Which of the following markets is most likely to be perfectly competitive?

The market for Saturday matinees at the movie theater

The market for Three Musketeers candy bars

The market for touring motorcycles

The market for mushrooms

Which of the following is not a necessary characteristic of a perfectly competitive industry?

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The industry or market demand is highly elastic.

There are so many firms that none can influence market price.

Consumers see no difference between the product of one firm and that of another.

Firms can easily enter or exit the industry.

Bobby decides to sell lemonade on a hot summer day. If Bobby sells 20 glasses of lemonade for \$0.20 per cup, and his average total cost is \$0.17, what are Bobby’s economic profits for the day?

\$0.60

\$0.20

\$0.80

\$0.00

Use the following graph to answer the next question.

At the profit-maximizing level of output, the profit earned by the perfectly competitive firm is given by the area

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0AHE.

ACFH.

BCFG.

ABGH

Assume a perfectly competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price

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Multiple Choice

will be less than the initial price, but the new output will be greater.

will be the same as the initial price, and the output will be less.

will be greater than the initial price, but the new output will be less.

and industry output will be less than the initial price and output.

A constant-cost industry is one in which

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the long-run supply curve is perfectly inelastic.

the long-run supply curve is upward sloping.

the long-run supply curve is perfectly elastic.

the long-run supply curve is downward sloping.

The marginal revenue curve faced by a perfectly competitive firm

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is horizontal at the market price.

is downward sloping, because price must be reduced to sell more output.

lies below the firm’s demand curve.

has all of these characteristics.

The representative firm in a perfectly competitive industry

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will always earn an economic profit in the short run.

will always earn an economic profit in the long run.

may earn either an economic profit or a loss in the long run.

will earn a normal profit in the long run

In perfect competition, each additional unit of output that a firm sells will yield a marginal revenue that is

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equal to price.

less than price.

greater than price.

equal to average total cost.

A perfectly competitive firm’s output is currently such that its marginal revenue is \$5 and marginal cost is \$4. Assuming profit maximization, the firm should

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cut price and increase output.

leave price unchanged and increase output.

raise price and decrease output.

leave price unchanged and decrease output.

Productive efficiency refers to

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production at a level where P = MC.

maximizing profits by producing where MR = MC.

setting TR = TC.

cost minimization, where P = minimum ATC.

An industry in which the firm’s cost structures do not vary with changes in production will have a long-run supply curve that

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is perfectly elastic.

is perfectly inelastic.

slopes upward.

slopes downward.

A perfectly competitive firm does not try to sell more of its product by lowering its price below the market price because

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this would be considered unethical price chiseling.

its demand curve is inelastic, so total revenue will decline.

its competitors would not permit it.

it can sell all it wants to at the market price.

An industry in which its firms’ cost structures do not vary with changes in production is referred to as a

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fixed-price industry.

price-controlled industry.

constant-cost industry.

price-taking industry.

In perfect competition, if the market price of the product is initially higher than the minimum average total cost faced by the firms, then

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some firms will exit the industry and the industry supply will decrease.

some firms will exit the industry and the industry supply will increase.

other firms will enter the industry and the industry supply will decrease.

other firms will enter the industry and the industry supply will increase.

Use the following graph to answer the next question.

To maximize profits, the perfectly competitive firm should produce output at

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K.

A.

C.

B.

Which idea is inconsistent with perfect competition?

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price-taking behavior

a large number of buyers and sellers

freedom of entry or exit for firms

product differentiation

In perfect competition, the demand faced by a single firm is perfectly

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inelastic, because many other firms produce the same standardized product.

elastic, because many other firms produce the same standardized product.

inelastic, because the firm produces a differentiated product.

elastic, because the firm produces a differentiated product.

Which of the following is true under conditions of perfect competition?

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There are differentiated products.

The market demand curve is perfectly elastic.

No single firm can influence the market price.

Each individual firm has the ability to set its own price.

Use the following graphs for a perfectly competitive market in the short run to answer the next question.

The graphs suggest that in the long run, assuming no changes in the given information,

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more buyers will come to the market.

some firms will exit from this industry.

new firms will enter the industry.

A perfectly competitive firm will be willing to produce even at a loss in the short run, as long as

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the loss is smaller than its marginal costs.

price exceeds marginal costs.

the loss is smaller than its total variable costs.

the loss is smaller than its total fixed costs.

Which of the following suppliers is most likely to be a monopolist?

A lettuce farmer

A cereal producer

A shirt producer

A water company

If a monopolist is able to increase the amount of product she sells from 400 to 420 units by lowering the price of that product from \$50 to \$45, her marginal revenue is:

\$-55.

\$55.

\$1,100.

\$-1,100.

The table below shows the marginal revenue and costs for a monopolist.

Demand, Costs, and Revenues

Price (dollars) Quantity Demanded       Marginal Revenue (dollars)   Marginal Cost (dollars)  Average Total Cost (dollars)

\$130       200  \$110       \$25  \$139.00

120  300  90    32    103.30

110  400  70    40    87.50

100  500  50    50    80.00

90    600  30    62    77.00

80    700  10    77    77.00

What is the monopolist’s profit at the profit-maximizing level of output?

\$10,000

\$80,000

\$0

\$50,000

In many large U.S. cities, taxicab companies operate as near monopolies because of_____.

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economies of scale

strategic pricing

patents

One feature of pure monopoly is that the firm is _____.

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Multiple Choice

one of several producers of a product

a price maker

a producer of products with close substitutes

a price taker

A nondiscriminating pure monopoly must decrease the price on all units of a product to sell more units. This explains why _____.

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Multiple Choice

there are barriers to entry in pure monopoly

total revenues are greater than total costs at the profit maximizing level of output

a pure monopoly’s marginal revenue curve is below its demand curve

a pure monopoly has a perfectly elastic demand curve

Barriers to entry _____.

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Multiple Choice

are typically the result of wrongdoing on the part of a firm

usually result in perfect competition

exist in economic theory but not in the real world

are characteristic of pure monopoly

A nondiscriminating pure monopoly is generally viewed as being _____.

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productively efficient, but not allocatively efficient

both productively and allocatively efficient

neither productively nor allocatively efficient

allocatively efficient, but not productively efficient

What is one difference between a firm in a perfectly competitive industry and a firm in a monopolistically competitive industry?

A monopolistically competitive firm does not choose a level of output where marginal cost is equal to marginal revenue.

A monopolistically competitive firm faces competition from firms producing close substitutes.

A monopolistically competitive firm is guaranteed to make more than normal profits in the long run.

A monopolistically competitive firm does not face a downward-sloping demand curve.

Which of the following is a barrier to entry?

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Close substitutes

Infrastructure costs

Diminishing marginal returns

Which of the following is an example of an oligopolistic market with a standardized product?

The market for automobiles

The market for aluminum

The market for breakfast cereal

The market for jewelry

Pure monopoly refers to_____.

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Multiple Choice

a single firm producing a product for which there are no close substitutes

a large number of firms producing a differentiated product

a standardized product being&

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