Midterm 1

Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is expected to continue forever. If current profits are $1,000, what is the value of the firm?

35,000

Suppose the demand for good x is ln Q x d = 21 − 0.8 ln P x − 1.6 ln P y + 6.2 ln M + 0.4 ln A x. Then we know goods x and y are:

complements.

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

infinite

For given input prices, isocosts closer to the origin are associated with:

lower costs

Suppose Q x d = 10,000 − 2 P x + 3 P y − 4.5M, where P x = $300, P y = $200, and M = $2,000. What is the cross-price elasticity of demand for X?

-0.60

Suppose the cost function is C(Q) = 50 + Q − 10Q 2 + 2Q 3. What is the total cost of producing 10 units?

1,060

The own price elasticity of demand for apples is −2. If the price of apples increases by 5 percent, what will happen to the quantity of apples demanded?

It will fall 10 percent.

Suppose that supply increases and demand decreases. What effect will this have on price and quantity?

None of the statements associated with this question are correct.

If 1% change in price causes more than 1% change quantity demanded for a product, the own price elasticity of demand is:

Relatively elastic

Despite a 20 percent drop in the average selling price of its line of phones, a major smartphone manufacturer's product shipment increased by 80 percent. Given this information, we would expect the company's revenue to:

Rise

You are an efficiency expert hired by a manufacturing firm that uses capital (K) and labor (L) as inputs. The firm produces and sells a given output. If wage rate w = $40, rental rate r = $100, MPL = 4, and MPK = 40, the firm:

should use more K and less L to minimize cost.

Suppose the production function is Q = min{4K, 3L}. How much output is produced when 4 units of labor and 8 units of capital are employed?

12

Given the production function Q = min{4K, 3L}, what is the average product of capital when 8 units of capital and 4 units of labor are used?

1.5

Suppose you are a manager of a factory. You purchase five (5) new machines at $1,000,000 each. If you can resell two of the machines for $500,000 and three of the machines for $100,000, what are the sunk costs of purchasing the machines?

$3.7 million

Consider a market characterized by the following demand and supply conditions: P X = 50 - 5Q X and P X = 32 + 4Q X. The equilibrium price and quantity are, respectively,.

$40 and 2 units.

The demand for good X has been estimated to be ln Q x d = 100 − 3.5 ln P X + 3ln P Y + 2 ln M. The income elasticity of good X is:

2.0

For the cost function C(Q) = 100 + 2Q + 3Q 2, the marginal cost of producing 3 units of output is:

20

Suppose the cost function is C(Q) = 50 + Q − 10Q 2 + 2Q 3. What are the fixed costs?

50

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

The marginal product per dollar spent on all inputs is equal.

(Bonus Question) Which of the following is NOT a reason why the U.S. was experiencing a national coin shortage in July 2020?

The supply of new coins by the U.S. Mint declined in July due to the COVID-19 pandemic

Which of the following is NOT a reason why the U.S. was experiencing a national coin shortage in July 2020?

The supply of new coins by the U.S. Mint declined in July due to the COVID-19 pandemic

Good Y is a complement to good X if an increase in the price of good Y leads to

a decrease in the demand for good X.

Producer surplus is measured as the area Selected Answer: above the supply curve and below the market price

above the supply curve and below the market price.

Suppose the own price elasticity of demand for good X is −0.5, and the price of good X increases by 10 percent. We would expect the quantity demanded of good X to:

decrease by 5 percent

When dealing with present value, a higher interest rate: Selected Answer: decreases the present value of a future amount.

decreases the present value of a future amount.

If the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be:

elastic

It is profitable to hire units of labor as long as the value marginal product of labor:

exceeds wage.

For given input prices, isocosts farther from the origin are associated with:

higher costs.

If marginal benefits exceed marginal costs, it is profitable to:

increase Q

When the own price elasticity of good X is −0.5, then total revenue can be increased by:

increasing the price.

The minimum wage Selected Answer: is an example of a price floor.

is an example of a price floor.

Suppose the demand for good X is given by Q d x = 10 + a xP x + a yP y + a MM. From the law of demand we know that a x will be:

less than zero

Suppose the marginal product of labor is 10 and the marginal product of capital is 8. If the wage rate is $5 and the price of capital is $2, then in order to minimize costs the firm should use:

more capital and less labor.

0.5 out of 0.5 points Suppose the demand for good x is ln Q x d = 21 − 0.8 ln P x − 1.6 ln P y + 6.2 ln M + 0.4 ln A x. Then we know good x is:

normal good

The minimum legal price that can be charged in a market is:

price floor

Constant returns to scale exist when long-run average costs:

remain constant as output is increased.

Constant returns to scale exist when long-run average costs: Selected Answer: decrease as output is increased.

remain constant as output is increased.

In a competitive market, the market demand is Q d = 60 - 6P and the market supply is Q s = 4P. A price floor of $9 will result in a Selected Answer: surplus of 30 units.

surplus of 30 units.

In the short run, the marginal cost curve crosses the average total cost curve at:

the minimum point of the average total cost curve.

Economies of scope exist when: Selected Answer: the total cost of producing Q 1 and Q 2 together is less than the total cost of producing Q 1 and Q 2 separately.

the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately

Economic profits are:

total revenue minus economic cost.

When marginal revenue is zero, demand will be:

unitary elastic

An own price elasticity of zero corresponds to a demand curve that is:

vertical