EC 311 Final Exam

A competitive cost-minimizing firm has production given by f(x) = 2x + 2y. If the cost of y triples while the cost of x remains the same, then production costs will necessarily increase

False

A natural monopoly occurs because a firm gains exclusive control over a natural resources

False

A fixed factor is always used in fixed proportion to output, y

False

An Engel curve is a demand curve with the horizontal axis and horizontal axis reversed.

False

Average costs never rise when marginal cost is falling

False

Average fixed costs sometimes increase with output

False

Dirty Randy has an indifference curve with equation x2 = 20 − 4x1. When Dirty Randy is consuming the bundle (4, 16), his marginal rate of substitution is different than when he is consuming (2,3).

False

If a quantity tax is collected from producers in a competitive market, then placing the tax on the good causes the price paid by consumers to rise by as much or more as the tax itself

False

If goods 1 and goods 2 are perfect substitutes, then an increase in the price of good 2 causes a decrease in the quantity demanded of good 1.

False

If preferences are complete, then more is always preferred to less.

False

If supply is perfectly elastic, then an increase in demand (i.e. an upward shift in the demand curve) will cause an increase in price

False

If the price of the output of a competitive firm's good increases and the prices of all inputs also increase then decreasing output is necessarily a profit-maximizing move

False

If the production function is x1x2 then we have constant returns to scale

False

If the value of the marginal product of capital is less than the rental rate (price) of capital, then a firm would want to utilize more capital

False

If u(x, y) = xy then the marginal rate of substitution (MRS) is constant.

False

It is not possible to have a competitive industry where all firms earn no economic profits in the long-run

False

Market demand for good 1 is given by, X1(p1, p2, m2, m2, ..., mn), where (m1, m2, ..., mn) is a list of every individual's income. Given this information, market demand only depends on total income

False

Producer's surplus at price, p, is the vertical distance between the demand curve and the supply curve at that price

False

Since a monopoly price is greater than marginal cost, it will produce more than the socially optimal quantity

False

Suppose I consume a positive quanity of blue pencils, but no red pencils. At that point, the marginal rate of substitution necessarily equals the slope of the budget line, -p1/p2

False

Suppose the demand curve is a linear function (i.e. a curve with constant slope). Then the price elasticity of demand is a constant equal to the slope

False

Suppose the marginal product of labor increases as the quantity of labor increases. Furthermore, suppose the current level of labor inputs equates the marginal prod-uct of labor with wage. Then the profit-maximizing quantity of labor is being used.

False

Suppose we have two goods with prices p1 and p2. If we double both p1 and p2 and income, m, is tripled, then the budget line will become flatter.

False

Suppose we have two goods. Sally treats these goods and perfect substitutes, and Fred has preferences for these goods that we can represent using a Cobb-Douglas utility function. Both Sally and Fred have the same price offer curves

False

The conditional factor demand function tells us the optimal ratio of price to output given optimal factor choice

False

The marginal cost curve intersects the average fixed cost curve at its minimum point

False

The production set of a firm is the set of all output levels the firm can produce

False

There is a positive consumer's surplus when the price of a good, p, is greater than the amount the consumer is willing to pay for the good

False

When the government imposes a quantity tax, t, prices will rise by t in the short run so that firms can continue to earn nonnegative profits

False

With increasing returns to scale, we can double the level of any one input and output will more than double

False

With perfect substitutes, the indifference curve at the optimal bundle is always tangent to the budget line

False

Describe the shape of the average fixed cost curve. Why does it have this shape?

The AFC curve is downward sloping because average fixed costs are a constant (fixed costs) being divided by output. As output increases the denomi-nator increases against a fixed numerator. Intuitively, as output increases, fixed costs are being spread out over a large quantity of output.

A demand function for x1 can depend on both p1 or p2.

True

A production isoquant crosses all combinations of inputs that can be used to produce a given maximum quantity

True

A firm in a competitive market does not believe that it confronts a downward sloping demand curve

True

Assume the average cost curve is U-shaped. Then the marginal cost curve intersects the average cost curve at its minimum point

True

Bob's utility function is given by u(x1, x2) = x1 + x2. His indifference curves are parallel straight lines

True

Bob's utility function is given by u(x1, x2) = x1 +x2 and Sharlene's utility function is given by v(x1, x2) = (x1 + x2)2. Bob and Sharlene have identical preferences

True

If a monopolist faces downward sloping demand, then price is always greater than marginal revenue

True

If consumer 1 has the demand function, x1 = 650−2p, and consumer 2 has demand function, x2 = 340 − 3p, then market demand is 990 − 5p, for p < 990/5

True

If marginal costs are higher than average costs than average costs are increasing

True

If preferences are complete and transitive, then we say they are "rational"

True

If supply is vertical, then a sales tax does not change the consumer's price

True

If the price elasticity of demand for corn is -0.5 at all prices higher than the current price, then we would expect a storm that destroys crops (and therefore decreases supply) to increase revenue

True

If the price of a good equals the price that a consumer is willing to pay for the good, then this consumer has no consumer surplus

True

If the production function is ax1 + bx2 where b > 0 and c > 0, then we have constant returns to scale

True

If utility is ordinal then an infinite number of utility functions can represent each set of references (assuming at least one utility function exists).

True

Quasi-fixed costs are fixed costs that only have to be paid if a firm produces positive output

True

Suppose a competitive firm finds out that as output increases, its marginal costs curve first rises, then falls, and then rises again. Given this information, the firm should not produce where marginal costs are falling

True

Suppose a monopolist has fixed costs, but no variable costs. If the firm produces positive output, then they will set price and output as to maximize revenue

True

Suppose supply is upward sloping. If the demand curve shifts up, then equilibrium price and equilibrium quantity will increase

True

Suppose we have a consumer with income m and two goods with positive prices, p1 and p2. If p1 falls, then the size of the budget set increases.

True

Suppose we have two goods, and a consumer with convex preferences. Use (x1, x2) to denote a consumption bundle. If we observe (2, 0) ∼ (0, 2) then (1, 1) (2, 0)

True

Suppose we have two goods. Sally treats these goods and perfect substitutes, and Fred has preferences for these goods that we can represent using a Cobb-Douglas utility function. Both Sally and Fred have upward sloping Engel curves

True

Suppose we measure good 1 on the vertical axis and good 2 on the horizontal axis. Furthermore, let p1 denote the price of good 1 and let p2 denote the price of good 2. Is the following true or false: the slope of the budget line is −p2/p1.

True

The cost function function C(y) = 14 + 42y has marginal cost that is less than average cost for all y > 0.

True

The demand curve for total output in a competitive industry is downward sloping

True

The industry supply curve is the horizontal sum of all the individual firm supply curves

True

The long run industry supply curve tends to be more elastic because firms can enter a profitable industry and therefore affect the responsiveness of supply to a change in price.

True

The first-order condition for profit-maximization is satisfied when marginal revenue equals marginal cost. This is true in both perfect competition and monopoly cases.

True

There are 3 goods with prices, p1 = −2, p2 = 1, and p3 = 1. If my consumer has an income of 8, he can afford to consume a commodity bundle that includes 5 units of good 1 and 8 units of good 2.

True

With a vertical supply curve, output does not vary with price

True

A firm has fixed costs of 10, 000 and production is given by y = 4x1/2 where x is the input good and y is the output good. A unit of x costs 4, 000. What is the cost function, c(y)? a. 10, 000 + 250y2 b. 10, 000 + 4, 000x2 c. 10, 000 + 4, 000x1/2 d. 10, 000 e. 4, 000

a

Consider an illegal plant that grows abundantly in Northern California's Humboldt County. There is a lot of space to grow this plant, so the supply can be virtually unlimited. While growers ship this plant to Oregon in very large quantities, the shipping costs roughly break down to $1 a gram. It costs roughly $4 a gram to grow. However, about half of the plant that is shipped to Oregon gets confiscated by Oregon State Patrol. Demand by Oregonians for this plant is q = 10, 000−20p2. If the plant is competitively supplied, the number of grams of the plant supplied to Oregonians will be: a. 8000 b. 9000 c. 10500

a

In "comparative statics" we vary: a. vary a single exogenous variable and observe how the endogenous variable(s) respond b. vary multiple exogenous variables and observe how the endogenous variable(s) respond c. are concerned with the process of adjustment that brings us from an old optimal bundle, to a new optimal bundle

a

Johnny always has a hotdog bun with his hotbog. Furthermore, Johnny is insa-tiable; he always wants more hotdogs with hotdog buns. Let (x1, x2) denote the consumption bundle in which Johnny consumes x1 units of hotdog buns and x2 units of hotdogs. Which of the following are true: a. (3, 3) ∼ (3, 4) b. (3, 3) (4, 4) c. (5, 6) (5, 7) d. none of the above e. all of the above

a

Let good 1 and good 2 be perfect substitutes with a one-to-one rate of substitution between good 1 and good 2. Let m denote income and let p1 and p2 denote the price of goods 1 and 2, respectively. Assume p2 < p1 Then: a. the income offer curve is the vertical axis and the Engel curve for good 2 is a line with a slope of p2 b. the income offer curve is the vertical axis and the Engel curve for good 2 is a line with a slope of 1/p2 c. the income offer curve is the horizontal axis and the Engel curve for good 2 is a line with a slope of p2 d. the income offer curve is the horizontal axis and the Engel curve for good 2 is a line with a slope of p1 e none of the above

a

Suppose a firms production function is f(x)= x1^(1/2)x2^(1/2) where inputs, x1 and x2 both cost $4 dollars per unit. In what proportions should the firm use both of these inputs? a. x1 = x2 b. 4x1 = x2 c. x1 = 4x2 d. x1 = ln(x2)

a

Suppose a monopolist faces a constant marginal cost, and a price elasticity of demand that is less than one in absolute value. The monopolist should: a. change prices because she cannot be at a profit-maximizing price b. maybe change prices

a

Suppose inverse demand is p = 120 − 4q and inverse supply is p = 60 + 2q then equilibrium quantity is a. 10 b. 20 c. 5 d. 8

a

Suppose my consumer has preferences that satisfy the tangency condition at the optimal bundle. If the consumer is currently at a bundle where he is willing to give up 3 units of food (vertical axis) in exchange for one unit of shelter (horizontal axis) and food is priced at 10 and shelter at 20, then the consumer is: a. Purchasing too much food for utility maximization b. At an optimal bundle bundle c. Purchasing less than the budget would allow

a

Suppose we have two goods. (x1, x2) denotes a consumption. If you spent all of your budget, you could afford either of the following budgets: (2,1) and (1,2). If you spent your entire income on good 2, what would x2 equal? a. 3 b. 4 c. 15 d. 1 e. 2

a

The Eugene Visitor's Bureau is the exclusive national marketer of weekend getaway vacations in Eugene, Oregon. At current prices, the price elasticity of demand is exactly -1. To maximizing profits, the Bureau should a. raise prices b. lower prices c. not change prices d. print more brochures e. start a facebook and get as many "likes" as possible.

a

The number of "Feel the Bern" buttons demanded on a given college campus is given by D(p) = 100 − p, and the supply of buttons is given by S(p) = p where p is the price of buttons in pennies. Suppose that p = 50 initially, then the supply curve shifts up to S(p) = −20 + p. What change in consumer surplus is induced by the supply shift? a. -450 b. -2000 c. +100 d. +50 e. +75

a

A competitive firm has the following cost function: c(y) = y3 − 2y2 + 5y + 50. Write down equations for: a. average cost b. average variable cost c. average fixed cost

a. (y3 − 2y2 + 5y + 50)/y b. y2 − 2y + 5 c. 50/y

Write a utility function that describes the following preferences: a. perfect substitutes where the consumer is willing to substitute 6 units of good 1 for 2 units of good 2 b. preferences for 20 dollar bills and five dollar bills c. well-behaved preferences d. non-monotonic preferences

a. 3x1 + x2 b. 4x1 + x2 where x1 is number of 20 dollar bills consumed c. xy (hint: almost all of the utility functions represent monotonic and convex preferences ) d. -xy

Suppose u(x, y) = x + 3y. The price of good x, px = 1, and the price of good y, py = 2. Income is 10 dollars. a. How much of good x will be consumed at the optimal bundle? b. Suppose py increases to 4 and px and income remain unchanged. How much of good y will be consumed at the optimal bundle?

a. Consumption of x will equal 0. b. Consumption of y will equal 0.

On separate axes, draw typical production isoquants for each of the following production functions a. f(x, y) = min{x, y} b. f(x, y) = xy c. f(x, y) = 5x + y. Label the slope

a. L-shaped (see perfect complements; fixed proportions inputs) b. Cobb-Douglas isoquants (see Figure 4.5) c. Straight lines (see perfect substitutes). Slope of −5 with x on horizontal axis

Kurt's utility function is x2y2. Chris's utility function is xy+2000x. Dave's utility function is −xy a. Who has the same preferences as Kurt b. Who has the same indifference curves as Kurt c. Why are the answers to part a and part b different?

a. No one. Dave's utility function is not a monotonic transformation of Kurt's utility function because it reverses the order of preference (i.e. the negative sign gives higher utility values to bundles that Kurt prefers less). Chris's utility function is not a monotonic transformation because of the 2000x part b. Dave has the same indifference curves as Kurt. To see this, solve for Dave's and Kurt's indifference curves (they're of the form y = k/x). Their prefer-ences are different because Dave preferes bundles close to the origin while Kurt has monotonic preferences. c. Their preferences are different because Dave preferes bundles close to the origin while Kurt has monotonic preferences.

Define each of the following: a. Demand curve b. Engel curve

a. The Demand curve is a curve that relates the price of a good with the quantity demanded of that good. b. An Engel curve for a good is the graph of the function that relates income with the quantity demanded of that good.

If good 2 is on the vertical axis and good 1 is on the vertical axis what can I say about someone's preferences if these indifference curves are: a. parallel to the horizontal axis b. upward sloping c. linear and downward sloping

a. When I fix my consumption of good 2, I don't care how much of good 1 I consume. Hence, good 1 does not affect my happiness. b. If you increase my consumption of good 1, I have to be compensated for it by an increase in my consumption of good 2 in order to remain indifferent between the original bundle and the new bundle. This means that either good 1 or good 2 is undesirable c. These goods are perfect substitutes.

Let w1 be the price of input 1; let w2 be the price of input 2. Find the cost functions for the following production functions: a. A firm with production function: f(x1, x2) = min{2x1, x2} b. A firm with production function: f(x1, x2) = 2x1 + x2

a. c(y) = w1x1 + 2w2x2 b. These inputs are perfect substitutes. If w1 > 2w2 then the firm will only use x2 = y, hence c(y) = w2y. If w1 < 2w2 then 2x1 = y so that c(y) = w1(y/2). If w1 = 2w2 then either cost function works.

A company can rent one of two printers. The first printer costs $20 a month and an additional 5 dollars per page printed. The second costs $40 a month and an additional 2.5 dollar per page printed. How many pages would the company need to print each month in order for the second printer to be worthwhile? a. 8 b. 10 c. 12 d. 20

b

A firm has a short-run cost function c(y) = 15 + 4y for y > 0 and c(0) = 5. The firm's quasi-fixed costs are? a. 9 b. 10 c. 11 d. 12 e. 20

b

A flat of beer is four sixpacks. If the price elasticity of demand for beer is -0.45 when beer is measured in flats, then when beer is measured in sixpacks the price elasticity will be: a. -0.045 b. -0.45 c. -4.5 d. -45 e. -450

b

Barb spends her entire budget and consumes 5 units of x and 10 units of y. The price of x, px, is half the price of y, py. Suppose her income doubles and px doubles, but py remains constant. If she continues to buy 10 units of y, how many units of x can she afford? a. 7 b. 15 c. 10 d. Orange e. Not sufficient information

b

Consider a plant that grows abundantly in Northern California's Humboldt County. There is a lot of space to grow this strain, so the supply can be virtually unlimited. It costs about $5 a gram to grow and ship this plant to Oregon. However, about 1/2 of the plant that is shipped to Oregon gets confiscated by Oregon State Patrol. If competitively supplied, what will be the price of this plant in Oregon? a. 8 b. 10 c. 12 d. 20 e. 42

b

If output, Q, is produced according to Q = 2Lu + Ls, the price of unskilled labor, Lu, is 10 dollars, and the price of skilled labor, Ls is 25 dollars, the minimum cost of producing 10 units of output is a. 40 b. 50 c. 60 d. 70 e. 80

b

Pet rocks were a popular toy in the 1970s. Suppose the price elasticity of demand for pet rocks was 1.20. Given that marginal costs were zero (rocks are free...), should pet rock producers: a. raise prices? b. lower prices? c. curb production? d. do nothing? e. invent beanie babies?

b

Suppose inverse demand is given by p = 160 − 6q and and inverse supply is given by p = 61 + 3q. Now suppose a quantity tax, t = 27, is imposed. What is the equilibrium price in the presence of the quantity tax? a. 94 b. 112 c. 4 d. 56

b

Suppose my consumer has preferences that satisfy the tangency condition at the optimal bundle. If the consumer is currently consuming an affordable bundle where he is willing to give up 3 units of food (vertical axis) in exchange for one unit of shelter (horizontal axis) and food is priced at 10 and shelter at 20, then the consumer is: a. At an optimal bundle b. On an indifference curve that crosses the budget line c. On an indifference that lies above the budget line

b

Suppose the supply curve for a specific firm that faces no fixed cost is S(p)=p/2. If a firm produces q = 5, what are its variable costs? (Hint: if cost function is c(q) = aq2 then marginal costs are given by 2aq a. 16 b. 25 c. 36 d. 49 e. 64

b

Suppose we have two goods, x and y, and an income, m. Let px denote the price of good x and let py denote the price of good y. If py increases, holding px and m constant, what happens to the budget line when the quantity of y is graphed on the vertical axis and the quantity of good x is graphed on the horizontal axis? a. nothing b. The budget line pivots around the horizontal intercept and gets flatter c. The budget line pivots around the horizontal intercept and gets steeper d. The budget line pivots around the vertical intercept and gets flatter e. none of the above

b

The inverse demand function for apples is decribed by p = 520 − 10q, where p is the price in dollars per crate, and q is the quantity of crates of apples demanded each day. When p = 40, what is the price elasticity of demand for apples a. -12 b. -(1/12) c. -(2/48) d. -0.5

b

A competitive, profit-maximizing firm uses one input, x. It's production function is given by f(x) = ln(x). If the price of the output good is $4 and the price of the input is $2 per unit, then profits are given by 4ln(x) − 2x. The first-order condition that gives us the demand for x is: a. 4ln(x) − 2x = 0 b. (4/ln(x)) − 2x = 0 c. (4/x) − 2 = 0 d. 14 − 2x = 0

c

A monopolist faces the inverse demand curve p = 36 − q. At what level of output is total revenue maximized? a. 8 b. 12 c. 18 d. 24 e. 50

c

A monopoly has demand given by q = 650−45p and costs given by c(q) = 23423+ 4.1111q. The government plans to tax monopoly profits at 50%. What should the monopoly do? a. increase price b. decrease price c. not change anything if it's already profit-maximizing

c

A monopoly maximizes profits at p = 15 and elasticity equals -3. What are its marginal costs? a. 8 b. 9 c. 10 d. 12 e. 22.5

c

A firm has production function, f(x, y) = (x1^b/(b+c)x2^c/(b+c)) where b>0 and c>0. This firm will have: a. increasing returns to scale b. decreasing returns to scale c. constant returns to scale d. none of the above

c

A firm has fixed costs of 5, 000 and production is given by y = x1/2 where x is the input good and y is the output good. A unit of x costs 4. What is the cost function, c(y)? a. 4, 000 + 4x2 b. 16, 000 + 4x2 c. 4, 000 + 4y2 d. 4y2 e. 4

c

A firm uses perfect substitute inputs to produce its output good, and it can produce zero units of output with zero units of each input. Then: a. the firm faces increasing returns to scale b. the firm faces decreasing returns to scale c. the firm faces constant returns to scale

c

Consider a firm with the following production function: F(L) = L1/2, where L is units of labor. The price of the output good is $12 and the cost of each labor unit is $3. Using the power rule for derivatives (i.e. if f(x) = bxa then f(x) = abxa−1), obtain the first-order condition and solve for the optimal level of x. What is the value of this optimal level? a. 2 b. 3 c. 4 d. 5 e. 6

c

If a firm moves from one point on an isoquant to a point a different isoquant then which of the following will surely occur? a. output is unchanged b. inputs are unchanged c. output changed d. ratio of inputs changed e. Donald Trump and Vladimir Putin will engage in nine rounds of bare-knuckled boxing

c

In the short run, a firm has production function, f(K, L) = 10L1/2K1/2 and must use exactly four units of capital, K (i.e. capital is a fixed factor). If labor, L, cost $10 per unit and capital costs $20 per unit, the short run cost of producing 200 units of output is: a. 80 b. 10,000 c. 10,080 d. 14

c

John owns a convenience store. John works 40 hours each week managing but doesn't have a salary (his income is simply profits from the store's sales). John's convenience store also owes $10, 000 to the bank. He could earn $500 a week doing the same work for his buddy, Donny, who owns a convenience store and needs someone to manage it. If John's store profits are $1000 a week, and he owes the bank $400 each week in interest, what is John's economic profits? a. 50 b. 200 c. 100 d. 42 e. 600

c

Mary's utility function is x + 2y. She consumes x = y = 2. Since these goods are perfect substitutes and she consumes positive quantities of both goods, we know that the marginal rate of substitution equals the slope of the budget line. The price of good x is 3. What is the price of y? a. 2 b. 4 c. 6 d. 8 e. not enough information

c

My total costs are c(y) = 2s2 + 20s + 4 where s is my input. If I supply y = 5 then my average variable costs are: a. 20 b. 25 c. 30 d. 35 e. 4

c

Say your friend has received two free tickets to the Sunday movie matinee and she wants you to go with her. Nevertheless, the movie plays at the same time you were planning to watch football. As a result person, you should decide to go the movie: a. Always, since the tickets were free b. Only if you should gain some pleasure from it c. Only if the pleasure you gain from the movie outweighs the pleasure you gain from watching football d. Only if it brings you more pleasure than the cost of the tickets

c

Suppose a profit-maximizing competitive firm is operating at negative profits and is selling its price at $50. Then a. average costs are less than $50 b. average fixed costs are greater that $50 c. average variable costs are less than $50 d. marginal costs are negative e. none of the above

c

Suppose demand is q = 40 − 4p and supply is q = 10 + 2p. Then equilibrium price is a. 3 b. 4 c. 5 d. 6 e. 8

c

Suppose inverse demand is p = 120 − 4q and inverse supply is p = 60 + 2q before a quantity tax of amount t is imposed. What is equilibrium quantity after the quantity tax is imposed? a. 10 b. 10+t c. (60-t)/6

c

Suppose my two goods are right shoes and left shoes, and I treat these two goods as perfect complements. Then the equation for my income offer curve is: a. m = (p1 + p2)x1 b. x1 = m/p1+p2 c. x1 = x2 d. insufficient information

c

Suppose one firm in a competitive market faces higher marginal costs overnight (5 dollars higher, to be exact), but all other firms observe no change in marginal costs. What is the change in price? a. 5 b. 5/(number of firms in industry) c. 0 d. not enough information

c

Suppose our demand for a good is given by D(p) = 100 − p. If p = 90 what is consumer's surplus? a. 10 b. 100 c. 50 d. 75 e. 9

c

Suppose we have a model with two goods and we vary p1. The price offer curve: a. illustrates all combinations of income, p1, and x2 that are optimal in the consumer's utility maximization problem b. illustrates all combinations of price, p1, and income, m that are optimal in the consumer's utility maximization problem c. illustrates all combinations of income, p1, and (x1, x2) that are optimal in the consumer's utility maximization problem. d. all of the above e none of the above

c

Suppose we have a model with two goods. The income offer curve: a. illustrates all combinations of income, m, and x2 that are optimal in the consumer's utility maximization problem b. illustrates all combinations of price, p1, and income, m that are optimal in the consumer's utility maximization problem c. illustrates all combinations of income, m, and (x1, x2) that are optimal in the consumer's utility maximization problem. d. all of the above e none of the above

c

Suppose we have two goods, x and y, and an income, m. The budget constraint is given by 4x+12y=m. You are currently consuming some quantity of x that is greater than 3 (i.e. x > 3). How many units of x must you forgo to gain one additional unit of y? a. 5 b. 4 c. 3 d. 2 e. 1

c

The Seahawks and 49ers are two football teams that played each other in the 2014 NFC Championship. The market demand for NFC Championship tickets is the sum of the demand for tickets by Seahawks fans, and the demand for tickets by 49ers fans. Suppose at p = 1000, both Seahawks fans and 49ers fans demand 50,000 tickets (i.e. these fans want to buy 100,000 total). Furthermore, suppose that at p = 1100, Seahawks fan demand 48,000 tickets and 49ers fans demand 45,000 tickets. Suppose both Seahawks and 49ers fans have linear demand curves. Given this information, what is the price elasticity of demand evaluated at p = 1000? a. -0.05 b. -0.5 c. -0.7 d. 49 e. 1414

c

The U.S. Postal Service can pay $10 per messenger bag and pay postal workers $21 for every bundle of mail delivered by foot using said bag, or it can invest $10, 010 is a drone that delivers each bundle at a marginal cost of $1. How many bundles of mail does the USPS need to ship before it considers replacing a postal worker with a drone? a. 100 b. 400 c. 500 d. 3 e. 3.49494949494949

c

The indifference curve for nickels and dimes will be: a. L-shaped b. A straight line with positive slope c. A straight line with negative slope d. Nonconvex

c

Which of the following is true about the relationship between marginal cost curve (MC) and average cost curve (AC)? a. AC is falling when MC is falling b. AC is falling when MC is rising c. AC is rising when MC is above AC d. AC intersects MC at MC's minimum point e. AC and MC are totally unrelated

c

Let production be given by f(x1, x2) = min{x1, x2}. Let w1 be the price of input 1; let w2 be the price of input 2. Find the cost function for producing the output good

c(y) = w1y + w2y

A firm has a short-run cost function c(y) = 15 + 4y for y > 0 and c(0) = 5. The firm's fixed costs are? a. 2 b. 3 c. 10 d. 5 e. 20

d

I consume goods x and y. Let (x, y) denote a consumption bundle. I view these goods as perfect substitutes and am indifferent between (3, 4) and (4, 3). Which of the following is not true a. (7, 0) ∼ (0, 7) b. (3, 4) ∼ (3, 4) c. (1, 6) ∼ (6, 1) d. (1, 6) (6, 1)

d

If indifference curves slope upwards then a. preferences are convex b. preferences are monotonic c. the budget line is upward sloping d. one good is undesirable e. all of the above

d

If two goods are complements then a. a bliss point exists b. indifference curves are positively sloped c. only the cheaper good is consumed d. none of the above

d

In Minnesota, corn seasons are short and harvests are meager due to harsh winters and poor soil that require lots of fertilizer. In Southern Illinois, however, corn seasons are long and harvest are bountiful. Corn from both places are identical to consumers, so that Minnesota corn farmers and Illinois corn farmers are part of the same competitive market. Which of the following is true: a. marginal costs are higher in Minnesota, due to higher costs of fertilizer b. marginal costs equal average cost in short run c. Illinois farmers outnumber Minnesotan farmers d. marginal costs are the same in both places

d

In year 1, the price of good x, px, was $4, the price of good y, py, was $2, and income was $100. In year 2, the px was $10, the py was $5, and income was $50. On a graph with good x on the horizontal axis and y on the vertical, the budget line in year 2 a. is flatter than the old budget line, with a smaller vertical intercept b. is flatter than the old budget line, with a larger vertical intercept c. is steeper than the old budget line, with a smaller vertical intercept d. has the same slope as the old budget line, with a smaller vertical intercept

d

One U.S. dollar trades for 12 pesos. With quantity of U.S. dollars on the vertical axis and pesos on the horizontal axis, what do my indifference curves look like? a. L-shaped b. upward sloping c. curved and downward sloping d. downward sloping line with slope of -1/12 e. downward sloping line with slope of -12

d

Sig is a commercial tuna fisherman out of Westport, Washington. During each fishing trip, his cost function for producing Q pounds of tuna is given by c(Q) = 1000 + 5Q. He sells his tuna for 7 dollars a pound in Westport. What is his break-even quantity of tuna (i.e. that quantity of tuna that guarantees him zero profits)? a. 100 b. 400 c. 450 d. 500 e. 3.49494949494949

d

Stan's price elasticity of demand for milk is -4 at today's prices when we measure price ind olars and quantity of milk in quarts. If the price per quart of milk stays the same but we measure quanity of milk in gallons and price in dollars, then what will be the elasticity of demand for gallons of milk? a. -16 b. -1 c. -0.4 d. -4 e. 34

d

Suppose F(K, L) = (K + L)4/9 is a production function. Let w be the price of L and let r be the price of K. The firm will necessarily use some K (i.e. K > 0) if: a. r > w b. r ≥ w c. w ≥ r d. w > r

d

Suppose I have two goods, x and y. Moreover, suppose my preferences can be described by the following utility function: u(x, y) = 3x + 3y. If my consumption of x is reduced by 3 units, how much must I increase consumption of y to restore my initial utility? a. 6 b. 5 c. 4 d. 3 e. 2

d

Suppose all consumers who purchase two goods are behaving rationally (i.e. choos-ing their optimal bundle) and have indifference curves that are tangent to the bud-get line at their optimal bundle. Also suppose that each consumer has a different level of income. Then: a. All consumers have the same level of utility b. All consumers should buy more of the least expensive good c. All consumers end with up with same optimal bundle d. All consumers have the same marginal rate of substitution (MRS) between the two goods

d

Suppose our consumer has the following utility function: x3 1x3 2 = u(x1, x2). Which of the following equation(s) characterize an indifference curve? a. x3 1x3 2 = k b. x1x2 = k1/3 c. x2 = k1/3/x1 d. all of the above e. none of the above

d

Suppose we have two goods, x and y, and an income, m. The budget line depends on all of the following variables except: a. px b. py c. m d. preferences e. none of the above

d

The inverse demand curve, P(q), is a manipulation of the demand curve, D(p), that expresses price as a function of quantity demanded. Suppose the demand function is given by D(p) = 30 − p/3. Then inverse demand is a. 30 − q/3 b. 1/30 − q/3 c. 1/(30 − p/3) d. 90 − 3q

d

I consume goods x and y. Let (x, y) denote a consumption bundle. My indiffer-ence curves are given by equations of the form y = k/x where higher values of k correspond to better indifference curves (i.e. k is a utility value). Which of the following is true? a. I hate x, but love y b. I love x, but hate y c. (2, 3) (3, 2) d. (2, 3) ∼ (3, 4) e. (16, 4) ∼ (4, 16)

e

Orbtatroff's utility function is xy. He is currently consuming (16,4). Which of the following is true? a. Orbatroff would trade away all of his x for more y b. Orbatroff would trade away all of his y for more x c. The marginal rate of substitution is the same at all points on an indifferent curve d. x and y are perfect substitutes e. none of the above

e

The demand functions for Cobb-Douglas preferences have which of the following properties: a. x1 and x2 have proportional relationships with income, m. b. x1 and/or x2 are inferior goods c. The Engel curves for x1 and x2 are linear d. x1 depends on both p1 and p2 e. a and c

e

Which of the following utility function(s) describe my preferences for five dollar bills (x) and single dollar bills (y). a. 5x+y b. x+(1/5)y c. x+5y d. (1/5)x+y e. a and b f. c and d

e

A company has the following production function: Q = min{K, L}, where K is capital and L is labor. Should the company adjust its ratio of capital to labor?

no

Casey and his brother like hamburgers and hotdogs and want to have a barbecue. Hotdogs cost $1 and hamburgers cost $4. They $20 to spend. Draw their budget line with hotdogs on the vertical axis. Label the axes. Tell me the following dollar values: the vertical intercept, the horizontal intercept, the slope.

vertical intercept = 20; horizontal intercept = 5; slope = -4.

Solve the following maximization problem: L(x) = ln(x) − px − m

x=1/p