ECON 2000 FINAL EXAM

$50.

Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of

A tax on the buyers of cameras encourages

buyers to demand a smaller quantity at every price.

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.

A firm that shuts down temporarily has to pay

its fixed costs but not its variable costs

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

price equals marginal cost.

Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000thgallon of gasoline entails the following: • a private cost of $3.10;• a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. 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.

Table 4-6 ​ Price Quantity Demand Quantity Supplied ($ per unit) (Units) (Units) 10 10 60 8 20 45 6 30 30 4 40 15 2 50 0 ​ Refer to Table 4-6.If the price were $8, a

surplus of 25 units would exist, and price would tend to fall.

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.

Producers have little incentive to produce a public good because

there is a free-rider problem.

Brady Industries has average variable costs of $1 and average total costs of $3 when it produces 500 units of output. The firm's total fixed costs equal

$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

Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000thgallon of gasoline entails the following: • a private cost of $3.10;• a social cost of $3.55; • a value to consumers of $3.70. Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?

1,000 < QOPTIMUM< QMARKET

Price Quantity Demanded (Dollars per unit) (Units) 250 0 200 30 150 70 100 110 50 150 0 90 Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is

2.8.

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

Table 15-2 Suppose a monopolist faces the following demand curve: ​ Price Quantity (Dollars per unit) (Units) 8 300 7 400 6 500 5 600 4 700 3 800 2 900 1 1,000 Refer to Table 15-2. The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell?

900

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.

Suppose that a firm in a competitive market faces the following revenues and costs: ​ Quantity Marginal Cost Marginal Revenue (Units) (Dollars) (Dollars) 12 5 7 13 6 7 14 7 7 15 8 7 16 9 7 17 10 7 Refer to Table 14-5. If the firm is currently producing 14 units, what would you advise the owners?

Continue to operate at 14 units

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.

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.

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

would be more efficient with a tax on the product.

Refer to Figure 10-2.This market

420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit.

Refer to Figure 10-5.The socially optimal quantity of output is

$2,000.

Refer to Figure 10-6.If the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum, then tax revenue for the government would amount to

Marginal product is increasing at low level of output and decreasing at high level of output.

Refer to Figure 13-3. Which of the following can be inferred from the figure above?

constant returns to scale.

Refer to Figure 13-6. At levels of output between M and N, the firm experiences

$50 When price is $10. Total revenue= Average price * quantity = 10*5 =$50

Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

P4.

Refer to Figure 14-3. Firms would be encouraged to enter this market for all prices that exceed

Points W and Z represent long-run equilibria.

Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b) and that graph (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct?

Q3 MR=MC

Refer to Figure 15-3. A profit-maximizing monopoly will produce an output level of

K

Refer to Figure 15-4. What price will the monopolist charge in order to maximize profit?

Q = 45 and P = 45

Refer to Figure 15-7.To maximize total surplus, a benevolent social planner would choose which of the following outcomes?

$80

Refer to Figure 16-2.What price will the monopolistically competitive firm charge in this market?

a short-run equilibrium as well as a long-run equilibrium.

Refer to Figure 16-5. As the figure is drawn, the firm is in

$50.00.

Refer to Figure 16-5. When the firm is maximizing its profit, the markup over marginal cost amounts to

$0

Refer to Figure 16-5.The firm's maximum profit is

demand for the good conforms to the law of demand.

Refer to Figure 4-1.It is apparent from the figure that the

A improvement in production technology

Refer to Figure 4-6.The shift from S to S' could be caused by an

y to x.

Refer to Figure 4-9. All else equal, an increase in the use of laptop computers for note-taking would cause a move from

One-half of the burden of the tax will fall on buyers, and one-half of the burden of the tax will fall on sellers. Price receive by seller decline by rs 2 and price increase to be paid by byuer increase by 2 therefore the impact of tax fall equally between the buyer and seller.

Refer to Figure 6-11.Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?

binding price floor that creates a surplus.

Refer to Figure 6-3.A government-imposed price of $24 in this market is an example of a

$2,500

Refer to Figure 7-5.If the supply curve is S and the demand curve shifts from D to D', what is the increase in producer surplus to existing producers?

D+H+F.

Refer to Figure 7-9. At equilibrium, producer surplus is represented by the area

$80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Refer to Figure 8-3. The deadweight loss associated with this tax amounts to

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.

Scenario 14-1 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. Refer to Scenario 14-1. 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.

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

earn economic losses.

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

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

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 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.

An example of an explicit cost of production would be the

lease payments for the land on which a firm's 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.