Homework 2

Refer to the accompanying figure. Suppose a law is passed requiring restaurants to charge no more than $25 per meal. This law would:

decrease producer surplus.

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then this firm should:

produce 80 doughnuts.

Superstar professional athletes can sustain their economic rents because: a) team owners will pay anything to win a championship. b) they are represented by highly-skilled agents. c)their opportunity costs of playing their sport are high. d)they have unique talents that they can sell to the highest bidder.

they have unique talents that they can sell to the highest bidder.

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. In the long run, how much profit will each firm in this industry earn each week?

$0

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total annual revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Pat's accounting profit is _______, and Pat's economic profit is _______.

$34,000; −$1,000

A price-taking firm makes air conditioners. The market price of one of its new air conditioners is $100. The firm's total cost information is given in the table below: Instructions: Calculate marginal cost, and enter your responses as whole numbers. Air conditionersper dayTotal cost($ per day)Marginal cost($ per day)11001002150322043105405651076508800 How many air conditioners should the firm produce per day if its goal is to maximize its profit? air conditioners per day.

1002150322043105405651076508800 5

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If S3 is the market supply curve, then in the short run, the profit-maximizing level of output for a single firm in this market is ______ gallons per week.

200

Refer to the accompanying figure. When this market is in equilibrium, total producer surplus in the market is ______ per day.

250

The daily demand and supply curves for milk in the small town of Dairyville are as shown in the figure. Suppose the government imposes a price ceiling on milk of $5 per gallon. a. How many gallons of milk will be bought and sold each day after the imposition of the price ceiling? gallons per day b. What will be the excess demand for milk each day after the imposition of the price ceiling? gallons per day c. What will be consumer surplus after the imposition of the price ceiling? $ per day d. What will be producer surplus after the imposition of the price ceiling? $ per day e. What will be the loss in total economic surplus each day that results from the imposition of the price ceiling? $ per day

400 600 1600 800 300

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit.

4; $18

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. The socially optimal level of output is:

8 units per day.

Which of the following is NOT an example of the hurdle method of price discrimination?

Permanently reducing all prices by 10 percent.

TotsPoses, Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price shown in the following table. Assume George has no fixed costs, and his cost of producing each portrait is $12.a. Complete the following table.Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Enter your responses as whole numbers. CustomerReservation price ($ per photo)Total revenue ($ per day)Marginal revenue ($ per photo)150246342438534630726822 How much should George charge if he must charge a single price to all customers? $ At this price, how many portraits will George produce each day? portraitsWhat will be his economic profit? $ per day b. How much consumer surplus is generated each day at this price? $ c. What is the socially efficient number of portraits? portraits d. George is very experienced in the business and knows the reservation price of each of his customers. If he is allowed to charge any price he likes to any consumer, how many portraits will he produce each day? portraits.What will his economic profit be? $ per day e. In this case, how much consumer surplus is generated each day? $

a. 34 5 110 b. 40 c. 8 d. 8 192 e. 0

Refer to the accompanying figure. At quantities less than 50 doughnuts per day:

average cost is declining because marginal cost is less than average cost..

Patents, which confer market power, are intended to: a) protect consumers from imitations or knock-offs. b) enable patent holders to charge lower prices for new and innovative products. c) encourage innovation by helping firms recoup the costs of research and development. d ) maintain the dominance of U.S. firms.

c) encourage innovation by helping firms recoup the costs of research and development.

Which of the following is NOT true of a perfectly competitive firm? a. It faces a perfectly elastic demand curve. b. It is unable to influence the price of the good it sells. c. It seeks to maximize revenue. d. It sells only a small fraction of the total quantity exchanged in the market.

c. It seeks to maximize revenue.

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your total cost (in dollars) is given by the equation TC = 300 + 10Q, where Q represents the number of t-shirts you make. As you increase your production of t-shirts, your average fixed cost ______ and your marginal cost ______. a) decreases; increases b) increases; decreases c)decreases; stays the same d) stays the same; increases

decreases; stays the same

Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. If the market supply curve is given by S3, then we would expect firms to:

exit the market in the long run.

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. At this monopolist's profit-maximizing level of output, it:

incurs an economic loss of $16 per day.

Suppose the production of cotton causes substantial environmental damage because the pesticides used by cotton farmers often make their way into nearby rivers and streams, and are very harmful to fish and other wildlife. If cotton farmers do not have to pay for the environmental damage caused by the pesticides used to grow cotton, then the market equilibrium price will be ______ and the market equilibrium quantity will be ______.

inefficiently low; inefficiently high

Suppose Lando Calrissian owns a smuggling business whose total revenue is $30,000 per month. The accompanying table shows Lando's monthly expenses. If Lando weren't a smuggler, he would earn $6,000 per month working for the Rebel Alliance. Apart from pay, Lando is indifferent between working as a smuggler and working for the Rebel Alliance.

join the Rebel Alliance since his economic profit from smuggling is negative

Refer to the accompanying figure. If the market for doughnuts is perfectly competitive, and the price of a doughnut is 25 cents, then at this firm's profit maximizing level of output, the firm will earn an economic ______ of ______ per day.

profit; $8

Suppose that when a firm produces the level of output at which price equals marginal cost, the firm's total revenue is less than its variable cost. In this case, the firm should:

shut down