econ final !!!!!!

In Bertrand competition between two firms, each firm believes that if it changes its output, the rival firm will change its output by the same amount.

False

In Cournot equilibrium each firm chooses the quantity that maximizes its own profits assuming that the firm's rival will continue to sell at the same price as before.

False

In the Cournot model, each firm chooses its actions on the assumption that its rivals will react by changing their quantities in such a way as to maximize their own profits.

False

Nancy's psychology teacher will give her a course grade that is the maximum of her scores on three midterm examinations. Nancy has convex preferences over the possible combinations of her midterm scores.

False

The area under the marginal cost curves measures total fixed costs

False

The average variable cost curve must always be U-shaped

False

The economists distinction between the long run and the short run captures the idea that quantities of some factor inputs can be varies in the short run but not in the long run

False

The market for a good is in equilibrium when the government unexpectedly imposes a quantity tax of $2 per unit. In the short run, the price will rise by $2 per unit so that firms can regain their lost revenue and continue to produce.

False

With quasilinear preferences, the slope pf the indifference curves is constant along all rays through the origin

False

A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand lower than -1, and does not practice price discrimination. If the government imposes a tax of $1 per unit of goods sold by the monopolist, the monopolist will increase his price by more than $1 per unit.

True

A price discriminating monopolist charges p1 in market 1 and p2 in market 2. If p1 > p2; it must be that the absolute value of the price elasticity in market 1 at price p1 is smaller than the absolute value of the price elasticity in market 2 at price p2.

True

Angela's utility function is U(x1,x2)=(x1+x2)3. Her indifference curves are downward sloping, parallel straight lines

True

Charlie's utility function is U(x,y)=xy2. His marginal rate of substitution between x and y will not change if he doubles the amount of both goods.

True

For a monopolist who faces a downward sloping demand curve, marginal revenue is less than price whenever quantity sold is positive

True

If preferences are homothetic and all prices double while income remains constant, then demand for all goods is halved

True

If preferences are quasilinear, then for very high incomes the income offer curve is a straight line parallel to one the axis

True

If the production function is f(x,y)=min{12x,3y}, then there is convexity in production

True

If there are constant returns to scale in a competitive industry, then the long run supply curve for the industry is horizontal

True

If there is one input used in production, then the marginal product for the input will be diminishing

True

In a monopolistically competitive industry with zero profit, each firm will produce less than the amount that minimizes average costs.

True

In the Bertrand model of duopoly, each firm sets its price, believing that the other's price will not change. When both firms have identical production functions and produce with constant returns to scale, the Bertrand equilibrium price is equal to marginal cost

True

In the long run, if there are increasing returns to scale, then average costs are a decreasing function of output

True

It is possible that a profit-maximizing monopolist who is able to practice first degree (perfect) price discrimination would sell a quantity x such that the demand curve for his product is inelastic when the quantity sold is x.

True

It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium

True

Mr. O. Carr has the cost function 𝑐(𝑦) = 𝑦2 + 64 if his output, y, is positive and c(0) = 0. If the price of output is 12, Mr. Carr's profit maximizing output is zero.

True

Suppose that the demand curve for an industry's output is a downward-sloping straight line and there is constant marginal cost. Then the larger the number of identical firms producing in Cournot equilibrium, the lower will be the price.

True

The utility function U(x1,x2)=2lnx1+3lnx2 represents Cobb-Douglas preferences

True

Third degree price discrimination occurs when a monopolist sells output to different people at different prices, but every unit that an individual buys costs the same amount.

True

A firm faces competitive markets for both its inputs and its outputs. If its long run supply curve is q=3p, then it cannot have constant returns to scale

True

If there is a price increase for a good Susan consumes, her compensating variation is the change in her income that allows her to purchase her new optimal bundle at the original prices

False

A competitive, cost minimizing form has the production function f(x,y)=x+2y and uses positive amounts of both inputs. If the price of y triples, then the cost of production will more than double

False

A decrease in income pivoted the budget line around the bundle initially consumed

False

A discriminating monopolist is able to charge different prices in two different markets. If when the same price is charged in both markets, the quantity demanded in market 1 is always greater than the quantity demanded in market 2, then in order to maximize profits, the monopolist should charge a higher price in market 1 than in market 2.

False

A firm produces one output with one input and has decreasing returns to scale. The price that it pays per unit of input and the price that it gets per unit of output are independent of the amount that this firm buys or sells. If the government taxes its net profits at some percentage rate and subsidizes its inputs at the same percentage rate, the firms profit-maximizing output will not change

False

A monopolist who is able to practice third degree price discrimination will make greater profits than a monopolist who is able to practice at first degree price discrimination.

False

At boundary optimum, a consumers indifference curve must be tangent to her budget line

False

Conjectural variation refers to the fact that in a single market there is variation among firms in their estimates of the demand function in future periods.

False

Consumer surplus is another name for excess demand

False

Fiery Demon is a rotgut whiskey made in Kentucky. Smoothy is an unblended malt whiskey imported from Scotland. Ed regards these brands as perfect substitutes. When he goes into a bar, he sometimes buys only Fiery Demon. Other times he buys only Smoothy. This shows that Ed has unstable preferences

False

If Melody has more classical music records than rock and roll records, she is willing to exchange exactly 1 classical record for 2 rock and roll records, but if she has more rock and roll records she is willing to exchange exactly 1 rock and roll record for 2 classical records. Melody has convex preferences

False

If a competitive firm uses two inputs and has the production function F(x,y)=x1/2+y1/2 then it's marginal cost curve is horizontal

False

If all prices are doubled and money income is left the same, the budget set does not change because prices do not change

False

If preferences are homothetic, then the slope of the Engel curve for any good will decrease as income increases

False

If preferences are transitive, more is always preferred to less

False

If the demand curve is a linear function of price, then price elasticity of demand is the same at all prices

False

If the demand function is q=3m/p, where m is income and p is price, then the absolute value of the price elasticity of demand decreases as price increases

False

If the elasticity demand curve for buckwheat is -1.25 at all prices higher than the current price, we would expect that when bad weather reduces the size of the buckwheat crop, total revenue of buckwheat producers will fall

False

If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least 10%.

False

If the value of the marginal product of factor x increases, and the value of the marginal product of x is equal to the wage rate, then the profit maximizing amount of x is being used

False

If there is Cobb-Douglas Utility, compensating and equivalent variation are the same

False

A firm uses a single variable input x to produce outputs according to the production function 𝑓 (𝑥) = 300𝑥 + 6𝑥2. This firm has fixed costs of $400. This firm's short-run marginal cost curve lies below its short-run average variable cost curve for all positive values of x.

True

A Stackelberg leader chooses his actions on the assumption that his rival will adjust to the leader's actions in such a way as to maximize the rival's profits.

True

A Stackelberg leader will necessarily make at least as much profit as he would if he acted as a Cournot oligopolist.

True

A competitive firms has a continuos marginal cost curve. It finds that as output increases, its marginal cost curve first rises, then falls, then rises again. If it wants to maximize profits, the firm should never produce where price equals marginal cost and marginal cost decreases as output increases.

True

A duopoly in which two identical firms are engaged in Bertrand competition will not distort prices from their competitive levels.

True

A competitive firm's production function is 𝑓(𝑥, 𝑦) = 8𝑥1/2 + 8 𝑦1/2. The price of factor x is $1 and the price of factor y is $3. The price of output is $6. What is the profit-maximizing quantity of output?

a.

Ambrose's brother Sebastian has a utility function 𝑈(𝑥1, 𝑥2) = 28𝑥1⁄2 + 𝑥2, where 𝑥1 is his consumption of nuts and 𝑥2 is his consumption of berries. His income is $128, the price of nuts is $2, and the price of berries is $1. How many units of berries will Sebastian demand?

a.

At a large institution of higher learning, the demand for football tickets at each game is 𝑡(𝑝) = 100,000 − 8,000𝑝. If the capacity of the stadium at that university is 60,000 seats, what is the revenue-maximizing price for this university to charge per ticket?

a.

In Problem 2, Ambrose has indifference curves with the equation x2=constant-4x1/2, where larger constants correspond to higher indifference curves. If good 1 is drawn on the horizontal axis and good 2 on the vertical axis, what is the slope of Ambrose's indifference curve when his consumption bundle is (16,10)?

a.

Ms. Laura Mussel's preferences between golf and tennis are represented by U(g,t)=gt, where g is the number of rounds of golf and t is the number of tennis matches she plays per week. She has $24 per week to spend on these sports. A round of golf and a tennis match each cost $4. She used to maximize her utility subject to to this budget. She decided to limit the time she spends on these sports to 16 hours a week. A round of gold takes 4 hours. A tennis match takes 2 hours. As a result of this additional constraint on her choice:

a.

As assistant vice president in charge of production for a computer firm, you are asked to calculate the cost of producing 170 computers.The production function is 𝑞 = 𝑚𝑖𝑛{𝑥,𝑦} where x and y are the amounts of two factors used. The price of x is $18 and the price of y is $10. What is your answer?

b.

If there are only two goods, if more of good 1 is always preferred to less, and if less of good 2 is always preferred to more, then indifference curves:

b.

A monopolist receives a subsidy from the government for every unit of output that is consumed. He has constant marginal costs and the subsidy that he gets per unit of output is greater than his marginal cost of production. But to get the subsidy on a unit of output, somebody has to consume it.

b.

Imagine first a drug dealer working in a competitive market with a constant marginal cost for producing marijuana of $6/oz. Suppose now that government authorities decided to seize the marijuana production whenever they find it. The production of marijuana is seized with a probability of 50%. If the production is seized, there is no other punishment besides loss of the marijuana. What happens to the new equilibrium prices with the new government's policy? (Hint: assume that the drug dealer is happy making zero economic profit.)

b.

Isabella's utility function is 𝑈(𝑥, 𝑦) = 4 𝑚𝑖𝑛{𝑥, 𝑦} + 𝑦. If we draw her indifference curves with x on the horizontal axis and y on the vertical axis, these indifference curves are:

b.

A profit maximizing competitive firm uses just one input, x. Its production function is q=4x1/2. The price of output is $28 and the factor price is $7. The amount of the factor that the firm demands is:

c.

Ambrose has indifference curves represented by the equation x2 = constant − 4x1⁄2, where larger constants correspond to higher indifference curves. If good 1 is drawn on the horizontal axis and good 2 on the vertical axis, what is the slope of Ambrose's indifference curve when his consumption bundle is (9, 19)?

c.

Katie Kwasi's utility function is 𝑈(𝑥1, 𝑥2) = 2(ln 𝑥1) + 𝑥2. Given her current income and the current relative prices, she consumes 10 units of x1 and 15 units of x2. If her income doubles, while prices stay constant, how many units of x1 will she consume after the change in income?

c.

Mary Granola consumes tomatoes and nectarines. Mary's indifference curves are kinky. When she is consuming more tomatoes than nectarines, she is just willing to trade 3 tomatoes for 1 nectarine. When she is consuming more nectarines than tomatoes, she just willing to trade 4 nectarines for 1 tomato. Let p1 be the price of nectarines, and p2 be the price of tomatoes. Mary maximizes her utility subject to her budget constraint. Which statement is true? (Hint: sketch one of her indifference curves.)

c.

The production function of a competitive firm is described by the equation 𝑞 = 4𝑥1/2𝑦1/2 The factor prices are 𝑝𝑥 = $1 and 𝑝𝑦 = $36 and the firm can hire as much of either factor it wants at these prices. The firm's marginal cost is

c.

(Table of avocados and grapefruits) If we graph Mary Granola's indifference curves with avocados on the horizontal axis and grapefruits on the vertical axis, then whenever she has more grapefruits than avocados, the slope of her indifference curve is -2. Whenever she has more avocados than grapefruits, the slope is -1/2. Mary would be indifferent between a bundle with 23 avocados and 29 grapefruits and another bundle of 31 avocados and:

d.

A firm has a production function f(x,y)=1.80(x0.80+y0.80)3 whenever x > 0 and y > 0. When the amounts of both inputs are positive, this firm has:

d.

A firm has fixed costs of $2,000. Its short-run production function is 𝑦 = 4𝑥1/2 , where x is the amount of variable factor it uses. The price of the variable factor is $1,600 per unit. Where y is the amount of output, the short-run total cost function is

d.

An airline has exclusive landing rights at the local airport. The airline flies one flight per day to New York with a plane that has a seating capacity of 100. The cost of flying the plane per day is $4,000+10𝑞, where q is the number of passengers.The number of tickets to NewYork demanded is 𝑞 = 165 − 0.5𝑝. If the airline maximizes its monopoly profits, the difference between the marginal cost of flying an extra passenger and the amount the marginal passenger is willing to pay to fly to New York is

d.

Suppose that the production function is f(x,y)=(xa+ya)b where a and b are positive constants. For what values of a and b is there a diminishing technical rate of substitution?

d.

The following relationship must hold between the average total cost (ATC) curve and the marginal cost curve (MC):

d.

A competitive firm uses two variable factors to produce its output, with a production function 𝑞=𝑚𝑖𝑛{𝑥,𝑦}.The price of factor x is $8 and the price of factor y is $5.Due to a lack of warehouse space, the company cannot use more than 10 units of x. In addition to the cost of inputs, the firm must pay a fixed cost of $80 if it produces any positive amount but doesn't have to pay this cost if it produces no output. What is the smallest integer price that would make a firm willing to produce a positive amount?

e.

Reginald is fond of cigars. His utility function is 𝑈(𝑥, 𝑐) = 𝑥 + 10𝑐 - 0.5𝑐2, where 𝑐 is the number of cigars he smokes per week and 𝑥 is the money that he spends on the consumption of other goods. Reginald has $200 a week to spend. Cigars used to cost him $1 each, but their price went up to $2 each. This price increase was as bad for him as losing income of

e.

The inverse demand function for grapes is described by the equation 𝑝 = 676 − 9𝑞, where p is the price in dollars per crate and q is the number of crates of grapes demanded per week. When 𝑝 = 28 per crate, what is the price elasticity of demand for grapes?

e.