Economics Quiz on Revenue and Costs
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Questions and Answers

What was the initial justification for the college's preference for mailings over phone calls?

  • The cost of making a call was considered the same as mailing a letter.
  • The cost of making a call was lower than the cost of mailing a letter.
  • The phone call system was completely broken.
  • The cost of making a call was believed to be $1, while the cost of mailing a letter was $0.50. (correct)

    • The college correctly calculated the cost of a phone call by considering the marginal cost of each call.

    False (B)

    What was the main factor that the college failed to include in their calculation of call costs, causing an inaccurate cost assessment?

    marginal cost

    The total revenue of a firm is calculated by multiplying the _________ by the quantity of goods sold.

    <p>price</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Revenue = The amount of money a firm brings in from the sale of its outputs Marginal cost = The cost incurred by producing one additional unit of a good or service. Quantity sold = Amount of a given product sold Price = The monetary value of a product.</p> Signup and view all the answers

    What is the formula to calculate Total Revenue?

    <p>Total revenue = Price * Quantity sold (B)</p> Signup and view all the answers

    If the marginal cost of making a call is lower than the cost of mailing a letter, the college should prefer making phone calls.

    <p>True (A)</p> Signup and view all the answers

    What is the term used for the amount of money a company brings in from the sale of its products?

    <p>revenue</p> Signup and view all the answers

    What is the term used to describe agents in a perfectly competitive market who have no control over the market price?

    <p>Price-takers (C)</p> Signup and view all the answers

    In a perfectly competitive market, a single seller's decision to alter production significantly affects the overall market price.

    <p>False (B)</p> Signup and view all the answers

    Besides buying, what other role is a price-taker expected to play in the market?

    <p>selling</p> Signup and view all the answers

    The assumption of free entry and exit in a market has important consequences for the market as a ______

    <p>whole</p> Signup and view all the answers

    What is the primary goal of a seller in a market?

    <p>To maximize net benefits or profits (A)</p> Signup and view all the answers

    A single farmer's decision to grow corn instead of soybeans will cause significant price fluctuations in the global market.

    <p>False (B)</p> Signup and view all the answers

    Give one example of a market that allows sellers to enter and exit as they please.

    <p>eBay / online auctions</p> Signup and view all the answers

    Match the following market characteristics with their definitions:

    <p>Free entry and exit = Firms can easily enter or leave the market Price-taker = Accepts the market price as given Profit maximization = Seller's goal to maximize net benefits Small seller size = An individual seller's output is small relative to the whole market</p> Signup and view all the answers

    When should a firm shut down in the short run?

    <p>When price is less than average variable cost (C)</p> Signup and view all the answers

    A firm can still achieve positive revenue if it produces while its total costs exceed total revenues.

    <p>True (A)</p> Signup and view all the answers

    What is the optimization rule regarding variable costs and shutdown?

    <p>If revenues do not cover all of the variable costs, then shutdown is optimal in the short run.</p> Signup and view all the answers

    The Cheeseman pays labor $0.06 more than it receives in __________ revenue.

    <p>marginal</p> Signup and view all the answers

    Match the components with their descriptions:

    <p>AVC = Average Variable Cost Total Cost = Sum of fixed and variable costs Price = Amount received per unit sold Marginal Revenue = Additional revenue from selling one more unit</p> Signup and view all the answers

    What does it mean when supply is described as elastic?

    <p>Quantity supplied is responsive to price changes. (A)</p> Signup and view all the answers

    A perfectly inelastic supply curve means that quantity supplied changes with price changes.

    <p>False (B)</p> Signup and view all the answers

    Provide an example of a situation with perfectly inelastic supply.

    <p>Oil refinery operating at full capacity.</p> Signup and view all the answers

    A _______ supply curve leads to an infinite change in quantity supplied with a small change in price.

    <p>perfectly elastic</p> Signup and view all the answers

    Match the type of supply with its description:

    <p>Perfectly elastic = Any small price change causes infinite quantity change Perfectly inelastic = Quantity supplied is constant regardless of price Unit elastic = Percentage change in price equals percentage change in quantity Elastic = Quantity supplied changes significantly with price changes</p> Signup and view all the answers

    How does a steeper supply curve affect sensitivity to price changes?

    <p>Less sensitivity to price changes (D)</p> Signup and view all the answers

    Inelastic supply means that changes in price lead to significant changes in quantity supplied.

    <p>False (B)</p> Signup and view all the answers

    An oil refinery operating at full capacity cannot increase production in the _______.

    <p>short run</p> Signup and view all the answers

    What is the profit when selling 500 units at $10 per unit?

    <p>$5,000 (C)</p> Signup and view all the answers

    Selling at $8 per unit with 1,000 units sold results in less profit compared to selling at $10 per unit with 500 units sold.

    <p>False (B)</p> Signup and view all the answers

    What is the relationship between market price and output in a competitive firm?

    <p>Market price determines the firm's output.</p> Signup and view all the answers

    The rule that links market price to marginal cost is referred to as MR = ____.

    <p>MC</p> Signup and view all the answers

    If The Cheeseman experiences an increase in packaging costs to $1.41 per box, what is expected to happen?

    <p>Increase quantity supplied (D)</p> Signup and view all the answers

    Total profits can be significantly affected when translating numbers across several plants and over several years.

    <p>True (A)</p> Signup and view all the answers

    Match the profit amount with the corresponding units sold and price per unit:

    <p>500 units, $10/unit = $5,000 profit 1,000 units, $8/unit = $8,000 profit 500 units, $8/unit = $4,000 profit 1,000 units, $10/unit = $10,000 profit</p> Signup and view all the answers

    The profit of _____ is achieved when profits are optimized.

    <p>$245</p> Signup and view all the answers

    What are sunk costs?

    <p>Costs that are already committed and cannot be recovered (C)</p> Signup and view all the answers

    The Cheeseman should make future production decisions based on sunk costs.

    <p>False (B)</p> Signup and view all the answers

    Why might The Cheeseman continue production even when losing money?

    <p>To cover some fixed costs.</p> Signup and view all the answers

    Sunk costs are costs that, once committed, can never be __________.

    <p>recovered</p> Signup and view all the answers

    What portion of the marginal cost curve represents the short-run supply curve for The Cheeseman?

    <p>The portion above average variable cost (A)</p> Signup and view all the answers

    Fixed costs can affect the relative costs of current and future production decisions.

    <p>True (A)</p> Signup and view all the answers

    What is the significance of covering fixed costs when continuing production?

    <p>It helps mitigate losses.</p> Signup and view all the answers

    Match the following terms related to costs.

    <p>Sunk Costs = Cannot be recovered once incurred Fixed Costs = Do not vary with production level Variable Costs = Change with production levels Marginal Costs = Cost of producing one additional unit</p> Signup and view all the answers

    Study Notes

    Sellers and Incentives

    • Sellers and buyers exist in all markets, including service markets
    • Sellers optimize by making decisions at the margin to maximize profits
    • Supply curves show seller's willingness to sell at different price levels
    • Producer surplus is the difference between market price and marginal cost.
    • Firms enter and exit markets based on profit opportunities.
    • Perfectly competitive markets have three key conditions: no single buyer or seller influences price; sellers produce identical goods; free entry and exit.
    • Sellers in perfectly competitive markets are price takers.
    • Sellers, like buyers, optimize using marginal thinking.

    The Seller's Problem

    • Profit maximization is the central goal of a seller.
    • The seller's problem involves three main components: production, costs, and revenues.
    • Making goods involves understanding how different inputs combine to produce outputs.
    • Costs involve the price of inputs (labor, machinery, etc.).
    • Revenues are determined by selling price and quantity.

    From the Seller's Problem to the Supply Curve

    • Market price determines a firm's output in the short run.
    • The firm's supply curve shows output at various price levels.
    • A change in market price leads to a change in the firm's quantity supplied.
    • Price elasticity of supply measures how responsive quantity supplied is to price changes.

    Producer Surplus

    • Producer surplus measures the difference between market price and marginal cost.
    • Graphically, producer surplus is the area above the marginal cost curve and below the market price.
    • Total producer surplus is calculated by adding up the surplus from all units sold.

    From the Short Run to the Long Run

    • In the short run, some inputs (like physical capital) are fixed whereas others can change.
    • In the long run, all inputs are variable, meaning firms can enter or exit the market based on profitability.
    • Short-run cost curves (like ATC, AVC) are above the long-run cost curve because options are limited in the short run.
    • Economies of scale exist when ATC falls as output increases; diseconomies of scale exist when ATC rises as output increases.
    • Exit is a long-run decision to leave a market; it occurs when price is less than average total cost.
    • Entry is a long-run decision to enter a market when price is greater than average total cost.
    • In the long run in a competitive market, all firms will make zero economic profits.

    From the Firm to the Market: Long-Run Competitive Equilibrium

    • In a perfectly competitive market, the number of firms can change in the long run.
    • Firms enter the market when there are positive economic profits (price is greater than average total cost).
    • Firms exit when there are negative economic profits (price is less than average total cost).
    • Free entry and exit drive long-run economic profits to zero.
    • The long-run supply curve is horizontal at the minimum average total cost.

    Evidence-Based Economics

    • Subsidies can affect ethanol production, driving changes in the number of producers and overall quantity.
    • The effect can vary in the short run vs. the long run due to firm entry/exit responsiveness.
    • Data on ethanol plant numbers and construction show trends related to government subsidies.
    • Experimental studies can be used to isolate the impacts of subsidies in artificial markets.

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    E&S Textbook 154-183 PDF

    Description

    Test your understanding of key economic concepts such as total revenue, marginal costs, and perfectly competitive markets. This quiz will challenge you with questions about cost calculations, revenue formulas, and market behavior. Enhance your knowledge of the fundamental principles of economics.

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