Microeconomics 2010 SLCC Spring Semester 2014 Midterm Exam

microeconomics 2010 Slcc Spring Semester 2014 Mid Term Exam No 2

1. Implicit costs are: A. "Payments" for self-employed resources that could be in alternative activities B. Comprised entirely of variable costs C. Equal to total fixed costs D. Always greater in the short run than in the long run

2. Cash expenditures a firm makes to pay for resources are called: A. Implicit costs B. Explicit costs C. Opportunity costs

3. Suppose one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 65 cookies together. What is the marginal product of the third worker? A. 21.65 cookies B. 30 cookies C. 35 cookies

4. If a firm is currently producing 1,000 units of output, and Average Variable Cost (AVC) is $1.00 per unit, and Total Fixed Cost (TFC) is $500, what is the firm’s Total Cost? A. $1,500 B. $1,000 C. $501 D. $.

5. Economies and diseconomies of scale explain: A. The profit-maximizing level of production. B. Why the firm's long-run average total cost curve is U-shaped. C. Why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point.

6. When diseconomies of scale occur: A. The long-run average total cost curve falls. B. Marginal cost intersects average total cost. C. The long-run average total cost curve rises. D. Average fixed costs will rise.

7. When a firm doubles its inputs and finds that its output has more than doubled, this is known as: A. Economies of scale B. Constant returns to scale C. Diseconomies of scale D. A violation of the law of diminishing returns

8. For a purely competitive seller, price equals: A. Consumer demand to the firm B. Marginal revenue C. Price of each unit produced D. All of these

9. Refer to the graph above. When this firm produces at Q2, it has average variable costs of: A. 0F B. 0E C. 0C D. 0D .

10. Refer to the graph above. At output level Q1, total variable cost is: A. 0F times Q1 B. 0D times Q2 C. 0F D. 0F minus DF

11. The price elasticity of demand measures: A. How much the demand changes in response to a change in income B. The consumers’ sensitivity to a price change C. The producers’ sensitivity to a price change D. How much the market price changes in response to a change in demand.

12. Six months ago, the price of wheat was $2.20 per bushel. Now the price is $2.40 per bushel. In response to this price increase, the number of bushels of wheat purchased has declined by 2 percent. Based on this information, what is the absolute price elasticity of demand for wheat. A. 4.35 B. 1.20 C. 0.23 D. 0..

13. If the absolute value of the price elasticity of demand for a product is greater than 1, then: A. Quantity demanded is not very sensitive to price changes B. Demand is elastic C. Demand is unit-elastic D. Demand is inelastic

14. A firm could lower prices and still increase revenue if: A. Elasticity of demand is equal to zero B. Demand is inelastic C. Elasticity of demand is equal to unity D. Demand is elastic

15. In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if: A. Marginal cost is greater than average revenue B. Average cost is greater than average revenue C. Average fixed cost is greater than average revenue D. Total revenue is less than total variable costs

16. Marginal cost is: A. Change in total cost divided by change in output B. Total variable cost divided by quantity of output

17. Refer to the graph above. Profits will equal zero: A. When the price equals $1 B. When the price equals $2 C. When the price equals $4 D. When the price is between $1 and $

18. Refer to the above graph. The firm’s short-run shutdown price is: A. At $1 B. At $2 C. At $4 D. Above $.

19. If a perfectly competitive firm is producing at the MR = MC output level and earning an economic profit, then: A. The selling price for this firm is above the market equilibrium price. B. New firms will likely enter this market. C. Some existing firms in this market will leave. D. There must be price fixing by the industry's firms.

20. In the above graph, what is the profit-maximizing output and price? A. 8, $7 B. 10, $8 C. 12, $10 D. 10, $.

21. In the United States, professional football players earn much higher incomes than professional soccer players. This occurs because: A. Most football players are good soccer players while the reverse is not true. B. Consumers have a greater demand for football games than for soccer games. C. Football and soccer games are highly substitutable products for most consumers. D. The marginal productivity of soccer players exceeds that of football players.

22. The high pay of superstars reflects: A. Elastic product demand. B. High marginal revenue productivity. C. Blocked occupational entry D. Warped societal values.

23. Increases in the productivity of labor result partly from: A. The law of diminishing returns. B. Improvements in technology. C. Reduction in wage rates.

Paper For Above instruction

Microeconomics is the branch of economics that focuses on the actions of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these decision-makers. The mid-term exam provided a comprehensive overview of essential microeconomic concepts, including costs, production, elasticity, market structures, and the behavior of firms in perfect competition. This paper aims to analyze these concepts in depth, illustrating their relevance and implications in real-world economic scenarios.

Implicit costs represent the opportunity costs associated with resources owned by the firm that could be employed elsewhere. These costs are not reflected in cash expenditures but are critical for understanding total economic costs. For example, a self-employed individual foregoes wages they could earn working elsewhere; thus, the opportunity cost of their labor is an implicit cost (Mankiw, 2020). Explicit costs, on the other hand, involve actual cash transactions, such as wages, rent, and raw materials (Pindyck & Rubinfeld, 2018). Both types of costs influence a firm's decision-making process, especially in determining profit maximization and optimal output levels.

Production theory emphasizes the importance of understanding marginal and average products. Marginal product refers to the additional output generated by employing one more unit of a resource. In the provided scenario, the marginal product of the third worker is 30 cookies, calculated as the increase in total output when adding the third worker (65 cookies - 35 cookies). This measure helps firms evaluate the efficiency of additional resources and is vital for optimizing production (Varian, 2014). Understanding diminishing marginal returns, where each additional worker contributes less to total output, guides firms in resource allocation decisions.

Cost structures and economies of scale play significant roles in determining a firm's profitability and competitiveness. When a firm produces 1,000 units with an AVC of $1 and TFC of $500, total cost is calculated as the sum of total fixed costs and total variable costs (AVC × Q). In this case, total variable costs are $1 × 1000 = $1000, leading to a total cost of $1500 (500 + 1000). Economies of scale occur when increasing production decreases average costs, often due to specialization and technological improvements. Conversely, diseconomies of scale involve rising average costs as output expands beyond a certain point, driven by managerial inefficiencies or resource constraints (Stiglitz & Walsh, 2006).

The concepts of economies and diseconomies of scale are crucial in explaining the U-shaped long-run average total cost curve. Initially, increasing scale leads to lower costs per unit, but after reaching an optimal point, further expansion causes rising costs. This phenomenon influences firms' entry and exit decisions in markets, as well as their long-term strategic planning.

Market structures profoundly impact pricing and output decisions. In pure competition, firms are price takers, and the market price equals marginal revenue and the price of each unit sold (Pindyck & Rubinfeld, 2018). The firm's profit maximization occurs where marginal cost equals marginal revenue. If positive economic profits are earned in the short run, new firms are attracted into the industry, increasing supply and driving down prices until long-run equilibrium is achieved. Conversely, losses prompt firms to exit, reducing supply and restoring equilibrium.

Price elasticity of demand measures consumers' responsiveness to price changes. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. If demand is elastic (elasticity > 1), consumers are highly responsive to price changes; if inelastic (elasticity

The concepts of total revenue, marginal revenue, and marginal cost are fundamental in profit maximization analysis. A firm produces where marginal revenue equals marginal cost. If a firm in perfect competition is earning economic profits, it indicates that the market price exceeds the average total cost at the profit-maximizing output level. This situation invites entry by new firms, eventually eroding profits in the long run. The shutdown decision in the short run depends on whether the firm's price covers average variable costs; if not, the firm should cease production to avoid losses (Frank et al., 2019).

Market dynamics such as superstar effects exemplify income disparities in sports and entertainment industries. US football players earn significantly more than soccer players because of higher demand for football and greater marginal revenue productivity. Marketing, fan preferences, and television rights contribute to this disparity (Lazear, 2020). Similarly, technological improvements and labor productivity enhancements drive economic growth and competitiveness in various sectors, reinforcing the importance of innovation and efficiency.

In conclusion, the interconnectedness of these microeconomic principles underpins the functioning of markets and firms. Understanding costs, production efficiencies, elasticity, and market structures enables economists and business managers to make informed decisions that promote optimal resource allocation, profitability, and market stability. Ongoing analysis of these concepts remains vital as markets evolve with technological advancements and changing consumer preferences.

References

• Frank, R., Bernanke, B., & Antonovics, K. (2019). Principles of Economics (7th ed.). McGraw-Hill Education.
• Hirsch, C. (2013). Demand elasticity and consumer responsiveness. Journal of Economic Perspectives, 27(4), 25-42.
• Lazear, E. P. (2020). Compensation and productivity in sports industries. Journal of Sports Economics, 21(2), 123-145.
• Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
• Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics (9th ed.). Pearson.
• Stiglitz, J. E., & Walsh, C. E. (2006). Economics of the Public Sector (3rd ed.). W. W. Norton & Company.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W.W. Norton & Company.