Econ 2001 final exam

Brandy Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firms total fixed costs equals

$1,000

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$10 and 100 units

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of Fertilizer is 0.008. The cost of imposing a regulation that would ban the chemical is $32 million. If the value of a human life is equal to $10 million, how many people must the policy affect in order for the benefits to exceed the costs?

401

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous

the demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: - a private cost of $3.10 - a social cost of $3.55 - a value to consumers of $3.70 Let Q-market represent the equilibrium of gasoline and let Q-optimum represent the socially optimal quantity of gasoline. Which one of the following is correct?

Qmarket < 1,000 < Qoptimum

A tax on the buyers of cameras encourages...

buyers to demand a smaller quantity at every price

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the...

buyers will bear a greater burden of the tax than the sellers

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it...

can prevent children from buying the lower-priced tickets and selling them to adults

Which of the following costs of publishing a book is a fixed cost?

composition, typesetting, and jacket design for the book

What happens to consumer surplus in the cell phone market if cell phones are normal goods and buyers of cell phones experience an increase in income?

consumer surplus may increase, decrease, or remain unchanged

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. To maximize its profit, the firm should

decrease its output but continue to produce

Equilibrium price must decrease when demand...

decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously

Miguel, Maria, and Marcos all would like a place to sit while waiting at their children's bus stop. The neighborhood association is considering installing several park benches at the bus stop. Miguel values the benches at $20, Maria at $30, and Marcos at $40. The park benches and labor for installation cost $100. If Miguel, Maria, and Marcos are the only residents who value the benches, what should the neighborhood association do?

do not install the park benches because the costs outweigh the benefits

If government regulation set the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

earn economic losses

If the government removes a binding price ceiling from a market, then the price paid by buyers will

increase, and the quantity sold in the market will increase

Private decisions about consumption of common resources and production of public goods usually lead to an

inefficient allocation (distribution) of resources and external effects

the deadweight loss from a tax per unit of good will be smallest in a market with...

inelastic supply and inelastic demand

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

its average total cost is less than $10

A firm that shuts down temporarily has to pay...

its fixed costs but not its variable costs

An example of an explicit cost of production would be the...

lease payments for the land on which a firms factory stands

Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market

may increase, decrease, or remain unchanged

In which of the following market structures can firms earn economic profits in the long run?

monopoly only

For which pairs of goods is the cross-price elasticity most likely to be positive?

pens and pencils

For a monopoly, the socially efficient level of output occurs where

price equals marginal cost

the demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: - a private cost of $3.10 - a social cost of $3.55 - a value to consumers of $3.70 Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were...

required to pay a tax of $0.45 per gallon of gasoline sold

For a good that is a luxury, demand

tends to be elastic

If a price floor is not binding, then...

the equilibrium price is above the price floor

If a sawmill creates too much noise for local residents,

the government can raise economic well being through noise control regulations

In some cases, tradable pollution permits may be better than a corrective tax because

the government can set a maximum level of pollution using permits

You are in charge of the local city-owned aquatic center. you need to increase the revenue generated by the aquatic center to meet expenses. the mayor advises you to increase the price of a day pass. the city manager recommends reducing the price of a day pass. You realize that...

the mayor thinks demand is inelastic, and the city manager thinks demand is elastic

Producers have little incentive to produce a public good because

there is a free rider problem