Costs and Price

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Week I Quiz Results/Answers ECO561
1. Revenue increases when
* producer surplus increases
2. An increase in the price of an inelastic good
* increases revenues

3. Price elasticity of Demand increases when
* people become less price sensitive over time
4. The purpose of a market in a market system is to
* bring buyers and sellers into contact
5. By specializing in the production of one good, a company is able to benefit from economies of scale which increases its revenue. Which of the following is an attribute of specialization? * Saving time by allowing a worker to focus on one task

6. The market system promotes progress by
* providing incentive for technological advances
7. Productive efficiency is achieved when
* the best technology is used
8. The market is said to be in equilibrium when
* neither a shortage nor a surplus exists
9. The market will move to a higher equilibrium price if
* the increase in demand is greater than the increase in supply 10. The intersection of supply and demand will be at a lower equilibrium price but a higher equilibrium quantity if * demand is constant and supply increases

11. When a price ceiling occurs
* the market price will be lower than the equilibrium price 12. Because the goals of firms, entrepreneurs, and workers have different incentives, which of the following principles applies? * Self-interest

Week 2 Quiz Results/Answers ECO561
1. Purely competitive firms increase total revenue by
* increasing production
(To increase revenue, firms look to increase price or quantity, as price multiplied by quantity equals total revenue. Purely competitive firms can sell as much as they want at the market price. Adding additional units of the product does not result in a change in the market price. Therefore, since purely competitive firms do not influence price, they increase total revenue by increasing quantity). 2. What are two ways for a competitive firm to determine the optimal level of production, that is, the level of production that will maximize profit or minimize losses? * Comparing total revenue to total cost or marginal revenue to marginal costs (A firm can look at two factors when considering whether it is maximizing profit or minimizing losses. First, it can find the maximum difference between total revenue and total cost. Second, a firm can look at the additional revenue gained from selling one more unit and at the additional cost from producing that additional unit. As long as the additional revenue from selling one more unit is greater than the cost of producing that unit, the firm will continue to increase its revenue. If the additional cost of producing another unit is greater than the additional revenue generated by selling that additional unit, the firm takes away from its total profit; this is the difference between revenue and cost. Thus, a firm maximizes its profit by producing at the point where marginal revenue equals marginal cost. Before that, additional profit can be generated, while after that, the firm reduces it overall profit).

3. Suppose that a firm determines that its marginal revenue is greater than its marginal cost, it would be better to * increase production
(Inelastic goods are necessities that consumers continue to purchase even when the price increases. This increases the revenue, as more is paid for each good. The percentage change in price increases faster than the change in quantity, which may remain constant. When more is paid for a good or a service, revenue increases).

4. It is profitable for a firm to continue employing additional resources as long as * Marginal Revenue Product >= Marginal Resource Cost
(As with the optimal level of production for a good, the optimal usage of a resource is determined by ensuring that the revenue from that resource is at least equal to the marginal cost of that resource)

5. As additional units are produced, the marginal revenue...
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