Homework 5 (Test 2)

The demand and supply curves for the pizza market are shown in the graph below (chapter 6, problem 9). Calculate daily producer surplus. The linear demand curve crosses the P axis at 6 and the Q axis at 24. The supply curve goes through the origin. Both curves intersect at Q=12, P=3. Enter your response as a whole number (in $/day). Make sure to consider the units from the diagram.

$18,000/day

Which of the following best explains why you are more likely to see a poor person than a wealthy person picking up aluminum cans to sell? a. The opportunity cost of picking up cans is higher for wealthy people than for poor people. b. Wealthy people do not care about the environment. c. Wealthy people are more aware of diseases transmitted through litter than are poor people. d. Wealthy people are more concerned about their public image than are poor people.

a. The opportunity cost of picking up cans is higher for wealthy people than for poor people.

For the pizza seller whose marginal, average variable, and average total cost curves are shown in the accompanying diagram, what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is $2.50 per slice? Consider a perfectively competitive market. Determine the profit-maximizing level of output, i.e. Q*, and state only the profit of the producer below. MC goes through Q=570 slides/day and P=2.5 $/slice; ATC through Q=570 and P=1.40.

$627

A price-taking firm makes air conditioners. The market price of one of its new air conditioners is $120. The firm's total cost information is given in the table below. How many air conditioners should the firm produce per day if its goal is to maximize its profit? In order to solve the problem, you will have to determine the marginal cost for each additional unit produced.

6 air conditioners

As price increases, firms in a perfectly competitive market find that it is: a. beneficial to produce more units of output. b. beneficial to produce fewer units of output. c. more difficult to sell their product. d. easier to sell their product.

a. beneficial to produce more units of output.

A seller's supply curve shows the seller's: a. opportunity cost of producing an additional unit of output at each quantity. b. profit from producing an additional unit of output at each quantity. c. willingness to pay for an additional unit of output at each quantity. d. hourly wage for producing an additional unit of output at each quantity.

a. opportunity cost of producing an additional unit of output at each quantity.

Your neighbors have offered to pay you to look after their dog while they are on vacation. It will take you one hour per day to feed, walk, and care for the dog, which you can do either before or after you go to work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after your neighbor's dog each day is equal to: a. $10, because that is your opportunity cost of one hour of work. b. the value you place on one hour of leisure. c. $15, because overtime wages are generally 1.5 times your regular wage when you work more than eight hours a day. d. zero, because your regular job is not available for more than eight hours per day.

b. the value you place on one hour of leisure.

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.

The short run is best defined as: a. a period of time sufficiently short that all factors of production are variable. b. one year or less. c. a period of time sufficiently short that at least one factor of production is fixed. d. the period of time between quarterly accounting reports.

c. a period of time sufficiently short that at least one factor of production is fixed.

A price-taker faces a demand curve that is: a. vertical at the market price. b. upward sloping. c. downward sloping. d. horizontal at the market price.

d. horizontal at the market price.

A rational seller will sell another unit of output: a. as long as the quantity demanded is greater than zero. b. whenever the seller is earning a profit. c. if the seller can charge more than the equilibrium price. d. if the cost of making another unit is less than the revenue gained from selling another unit.

d. if the cost of making another unit is less than the revenue gained from selling another unit.

In general, when the price of a variable factor of production increases: a. total cost falls. b. the profit maximizing level of output rises. c. the profit-maximizing price falls. d. marginal cost rises.

d. marginal cost rises.

The primary objective of most private firms is to: a. maximize revenue. b. maximize output. c. minimize cost. d. maximize profit.

d. maximize profit.

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: a. produce more so that its total revenue increases. b. not change its level of output even if it's earning an economic loss in the short run. c. purchase more fixed factors of production. d. shut down.

d. shut down.

Average variable cost is defined as: a. total cost divided by number of workers. b. total cost divided by total output. c. variable cost divided by price. d. variable cost divided by total output.

d. variable cost divided by total output.