Review 3 Questions and Answers

Review 3 Chapters 10, 11, 12, 13, 14 are included in Midterm 3. There will be 40-45 questions. Most of the questions will be definitional, make sure you read the text carefully. Table 14-2 The following table presents cost and revenue information for Soper’s Port Vineyard. COSTS ____ ____ ____ ____ REVENUES Quantity Produced Total Cost Marginal Cost Quantity Demanded Price 0 1 2 3 4 5 6 7 8 100 150 202 257 317 385 465 562 682 -- 0 1 2 3 4 5 6 7 8 120 120 120 120 120 120 120 120 120 Total Revenue Marginal Revenue -- 1. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the total revenue from selling 7 units? a. $120 b. $700 c. $820 d. $840 2. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the total revenue from selling 4 units? a. $120 b. $217 c. $263 d. $480 3. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal revenue from selling the 3rd unit? a. $50 b. $80 c. $120 d. $140 4. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the average revenue when 4 units are sold? a. $50 b. $120 c. $125 d. $130 1 Name: ________________________ ____ ____ ____ ID: A 5. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal cost of the 1st unit? a. $50 b. $75 c. $80 d. $150 6. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is the marginal cost of the 8th unit? a. $0 b. $100 c. $120 d. $140 7. Refer to Table 14-2. Consumers are willing to pay $120 per unit of port wine. What is Soper's Port Vineyard's economic profit at their profit maximizing point? a. $78 b. $243 c. $278 d. $375 Figure 10-1 ____ 8. Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market. 2 Name: ________________________ ID: A ____ 9. Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. ____ 10. Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. Table 12-5 Income $0 to $40,000 Over $40,000 Tax rate 20% 50% ____ 11. Refer to Table 12-5. What is the marginal tax rate for a person who makes $35,000? a. 20% b. 30% c. 40% d. 50% ____ 12. Refer to Table 12-5. What is the marginal tax rate for a person who makes $60,000? a. 20% b. 30% c. 40% d. 50% ____ 13. Refer to Table 12-5. What is the average tax rate for a person who makes $60,000? a. 20% b. 30% c. 40% d. 50% ____ 14. XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units sold was sold for a price of $95. Total profit for the XYZ corporation would be a. -$3,875. b. $26,125. c. $28,500. d. $30,000. 3 Name: ________________________ ID: A Scenario 13-1 Joe wants to start his own business. The business he wants to start will require that he purchase a factory that costs $400,000. Joe currently has $500,000 in the bank earning 3 percent interest per year. ____ 15. Refer to Scenario 13-1. Suppose Joe purchases the factory using $200,000 of his own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Joe’s annual opportunity cost of purchasing the factory? a. $3,000 b. $6,000 c. $15,000 d. $18,000 ____ 16. Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired. The firm is able to produce 176 units of output per day when 16 workers are hired (holding other inputs fixed). Then the marginal product of the 16th worker is a. 10 units of output. b. 11 units of output. c. 16 units of output. d. 176 units of output. Table 13-2 Number of Workers 0 1 2 3 4 5 Output 0 50 110 180 260 330 ____ 17. Refer to Table 13-2. What is the marginal product of the fourth worker? a. 65 b. 70 c. 75 d. 80 ____ 18. Refer to Table 13-2. At which number of workers does diminishing marginal product begin? a. 2 b. 3 c. 4 d. 5 4 Name: ________________________ ID: A Table 13-3 Number of Workers Number of Machines Output (corks produced per hour) 1 2 3 4 5 6 7 2 2 2 2 2 2 2 5 10 20 35 55 70 80 Marginal Product of Labor Cost of Workers Cost of Machines Total Cost ____ 19. Refer to Table 13-3. Each worker at Gallo's cork factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of corks produced. If Gallo's produces at a rate of 70 corks per hour and operates 8 hours per day, what is Gallo’s total labor cost per day? a. $72 b. $96 c. $480 d. $576 Table 13-6 Adrian's Premium Chocolates produces boxes of chocolates for its mail order catalogue business. 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. Number of Workers 0 1 2 3 4 5 6 Boxes of Chocolates Produced per Week Marginal Product of Labor Cost of Factory Cost of Workers Total Cost of Inputs 330 150 275 425 150 825 975 60 10 1,375 0 630 890 950 1,800 ____ 20. Refer to Table 13-6. What is the marginal product of the second worker? a. 110 b. 200 c. 260 d. 300 5 Name: ________________________ ID: A ____ 21. Refer to Table 13-6. What is the total cost associated with making 890 boxes of premium chocolates per week? a. $1,250 b. $1,325 c. $1,400 d. $1,575 ____ 22. Refer to Table 13-6. During the week of July 4th, Adrian doesn't box any chocolates. What are her costs during the week? a. $0 b. $150 c. $275 d. $425 ____ 23. Refer to Table 13-6. One week, Adrian earns a profit of $125. If her revenue for the week is $1100, how many boxes of chocolate did she produce? a. 140 b. 330 c. 780 d. 950 Table 13-9 Output 0 10 20 30 40 50 Total Cost 40 60 90 130 180 240 ____ 24. Refer to Table 13-9. What is the total fixed cost for this firm? a. $20 b. $30 c. $40 d. $50 ____ 25. Refer to Table 13-9. What is average fixed cost when output is 40 units? a. $1.00 b. $3.32 c. $5.00 d. $8.00 ____ 26. Refer to Table 13-9. What is average variable cost when output is 50 units? a. $3.60 b. $4.00 c. $4.40 d. $4.80 6 Name: ________________________ ID: A ____ 27. Refer to Table 13-9. What is variable cost when output equals 30 units? a. $4.00 b. $4.33 c. $40.00 d. $90.00 Table 13-10 Consider the following table of long-run total cost for four different firms Quantity Firm 1 Firm 2 Firm 3 Firm 4 1 $210 $180 $120 $150 2 $340 $350 $250 $300 3 $490 $510 $390 $450 4 $660 $660 $540 $600 5 $850 $800 $700 $750 6 $1,060 $930 $870 $900 7 $1,290 $1,050 $1,050 $1,050 ____ 28. Refer to Table 13-10. Which firm has constant returns to scale over the entire range of output? a. Firm 1 b. Firm 2 c. Firm 3 d. Firm 4 7 ID: A Review 3 Answer Section MULTIPLE CHOICE 1. ANS: MSC: 2. ANS: MSC: 3. ANS: MSC: 4. ANS: MSC: 5. ANS: MSC: 6. ANS: MSC: 7. ANS: MSC: 8. ANS: MSC: 9. ANS: MSC: 10. ANS: MSC: 11. ANS: MSC: 12. ANS: MSC: 13. ANS: MSC: 14. ANS: MSC: 15. ANS: MSC: 16. ANS: MSC: 17. ANS: MSC: 18. ANS: MSC: 19. ANS: MSC: 20. ANS: MSC: D Applicative D Applicative C Applicative B Applicative A Applicative C Applicative C Applicative B Applicative C Applicative B Applicative A Analytical D Analytical B Analytical A Applicative D Applicative B Applicative D Analytical D Analytical D Applicative D Applicative DIF: 2 REF: 14-1 TOP: Total revenue DIF: 2 REF: 14-1 TOP: Total revenue DIF: 2 REF: 14-1 TOP: Marginal revenue DIF: 2 REF: 14-1 TOP: Average revenue DIF: 2 REF: 14-2 TOP: Marginal cost DIF: 2 REF: 14-2 TOP: Marginal cost DIF: 2 REF: 14-2 TOP: Economic profit DIF: 2 REF: 10-1 TOP: Externalities DIF: 2 REF: 10-1 TOP: Externalities DIF: 2 REF: 10-1 TOP: Externalities DIF: 2 REF: 12-2 TOP: Marginal tax rates DIF: 2 REF: 12-2 TOP: Marginal tax rates DIF: 3 REF: 12-2 TOP: Average tax rates DIF: 2 REF: 13-1 TOP: Profit DIF: 2 REF: 13-1 TOP: Opportunity cost DIF: 1 REF: 13-2 TOP: Marginal product of labor DIF: 2 REF: 13-2 TOP: Marginal product DIF: 1 REF: 13-2 TOP: Marginal product DIF: 2 REF: 13-2 TOP: Variable costs DIF: 2 REF: 13-3 TOP: Marginal product of labor 1 ID: A 21. ANS: MSC: 22. ANS: MSC: 23. ANS: MSC: 24. ANS: MSC: 25. ANS: MSC: 26. ANS: MSC: 27. ANS: MSC: 28. ANS: MSC: A Applicative B Applicative C Applicative C Analytical A Analytical B Analytical D Analytical D Applicative DIF: 2 REF: 13-3 TOP: Total cost DIF: 2 REF: 13-3 TOP: Fixed costs DIF: 2 REF: 13-3 TOP: Accounting profit DIF: 2 REF: 13-4 TOP: Fixed costs DIF: 3 REF: 13-4 TOP: Average fixed cost DIF: 3 REF: 13-4 TOP: Average variable cost DIF: 2 REF: 13-4 TOP: Variable costs DIF: 2 REF: 13-4 TOP: Constant returns to scale 2