Int Micro Ch. 8 & 9

If a firm is a price taker, its marginal revenue is a. equal to market price. b. less than market price. c. greater than market price. d. a multiple of market price that may be either greater than or less than one.

a

If an unregulated electric company is a monopolist, faces demand of Q = 100 - 50P, and has constant total costs, the profit-maximizing level of output is a. 50 b. 100 c. 25 d. 12.5

a

Positive economic profits exist for a firm in the long run if price is above a. long-run average cost. b. long-run marginal cost. c. long-run total cost. d. long-run variable cost.

a

Suppose a farmer is a price taker for soybean sales with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 The firm's supply curve is given by a. q = 5P - 10 b. q = .2P +2 c. q = 10P - 2 d. q = 2P - 5

a

Suppose a farmer is a price taker for soybean sales with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 If P = 6 the profit-maximizing level of profits is a. 10 b. 20 c. 30 d. −10

a

Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case, its marginal cost function is a. still MC = .2q + 2 b. MC = .2q + 50 c. MC = .2q + 52 d. MC = 50

a

Suppose that the price elasticity of demand for a product is −1 and that the price elasticity of supply is +1. Assume also that the income elasticity of demand is +2. Then an increase in income of 10% will raise equilibrium price by a. 10%. b. 5%. c. 20%. d. an annual amount that cannot be determined.

a

Suppose there are 100 firms each with a short run total cost of STC = q^2 + q + 10, so that marginal cost is MC = 2q +1. The short-run supply curve for each firm is a. q=0.5(P-1) b. q=sqrt(P)-3 c. q=P-1+1/sqrt(P) d. q=P-1

a

Price controls a. are always popular with consumers because they lower prices. b. create shortages. c. increase producer surplus because firms can now sell a greater quantity of a good at a lower price. d. are necessary to preserve equity.

b

Suppose a chemical company is in a perfectly competitive industry and has a short run total cost curve of TC=1/3q^3+5q^2+10q+10 and a short run marginal cost of SMC = q2 + 10q + 10. At the price of 49, how much will be produced? a. 0 b. 3 c. 5 d. 15

b

Suppose a farmer is a price taker for soybean sales with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 If P = 6 , the profit-maximizing level of output is a. 10 b. 20 c. 40 d. 80

b

Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case, its new total cost function is a. still TC = .1q2 + 2 b. TC = .1q2 + .2q + 80 c. TC = .1q2 + 2q + 50 d. TC = 50

b

Suppose demand for a good is QD = 100 - P and supply is QS = -20 + P. What is the amount consumers pay producers? a. 60 b. 2400 c. 3600 d. 6400

b

Suppose domestic beef producers face demand of QD = 1000 - 5P. In the very short run 500 head of beef are produced. Suppose mad cow strikes a portion of the national herd and the amount brought to market falls to 400. The price per head will rise by a. 10 b. 30 c. 40 d. 50

b

The excess burden of a tax is a. the amount by which the price of a good increases. b. the loss of consumer and producer surplus that is not transferred elsewhere. c. The amount by which a person's after-tax income decreases as a result of the new tax. d. the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.

b

Under perfect competition, if an industry is characterized by positive economic profits in the short run a. firms will leave the market in the long run and the short-run supply curve will shift outward. b. firms will enter the market in the long run and the short-run supply curve will shift outward. c. firms will enter the market in the long run and the short-run supply curve will shift inward. d. firms will leave the market in the long run and the short-run supply curve will shift inward.

b

Who benefit(s) from protectionism? a. Consumers b. Domestic producers c. No one d. Both consumers and domestic producers.

b

An unregulated electric company is a monopolist and faces demand of Q = 50 - 10P. If the company has zero marginal costs, its profit-maximizing price is a. 0 b. 1 c. 2.5 d. 5

c

Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because a. free entry implies that long-run profits will be zero no matter how much each firm produces. b. firms seek maximum profits and to do so they must choose to produce where average costs are minimized. c. firms maximize profits and free entry implies that maximum profits will be zero. d. firms in the industry desire to operate efficiently.

c

For an increasing cost industry, the long-run supply curve has a(n) elasticity of supply a. infinite. b. negative. c. positive. d. zero.

c

If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P. It has a constant marginal cost of 1 and must pay an environmental fee to the government of 0.2 per unit of output. In this situation, the profit-maximizing level of output is: a. 5 b. 10 c. 20 d. 50

c

If price is equal to short-run average variable cost, this price is known as a. the break-even price. b. the profit-maximizing price. c. the shutdown price. d. the revenue-maximizing price.

c

If quantity supplied is either greater or less than the equilibrium quantity, then all of the following are true except: a. total loss of surplus will depend on the shape of the demand and supply curves. b. the resulting loss of consumer surplus will depend on the price of the good. c. total loss of surplus will depend on the price of the good. d. there will be an inefficient allocation of resources.

c

If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve, an outward shift in the supply curve would be reflected primarily in the form of a. higher prices. b. higher output. c. lower prices. d. lower output.

c

In a competitive market, an efficient allocation of resources is characterized by a. a price greater than the marginal cost of production. b. the possibility of further mutually beneficial transactions. c. the largest possible sum of consumer and producer surplus. d. a value of consumer surplus equal to that of producer surplus.

c

In general, microeconomic theory assumes that firms attempt to maximize the difference between a. total revenue and accounting costs. b. price and marginal cost. c. total revenues and economic costs. d. economic costs and average cost.

c

In order to maximize profits, a firm that can sell all it wants without affecting price should produce a. where average variable costs are minimized. b. where marginal cost is equal to average variable costs c. where marginal cost is equal to price. d. where marginal cost is a minimum.

c

In the long run, the greater burden of a specific tax will usually be absorbed by a. consumers. b. the party⎯consumers or producers⎯with the more elastic demand/supply curve. c. the party with the least elastic demand/supply curve. d. shareholders and employees of the firm in the form of reduced dividends and wages.

c

In the short run, an increase in market demand will usually lead to a(n) a. decrease in price and an increase in quantity. b. decrease in price and a decrease in quantity. c. increase in price and an increase in quantity. d. increase in price and a decrease in quantity.

c

It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve. In order for this to be true, which of the following additional assumptions are necessary? I.That the firm seek to maximize profits. II.That the marginal cost curve be positively sloped. III.That price exceeds average variable cost. IV.That price exceeds average total cost. a. All of the above. b. I and II but not III and IV. c. I and III but not II and IV. d. I and II only.e. I, II and III, but not IV.

c

One way to minimize the deadweight loss resulting from a specific tax is to a. tax only wealthy firms and individuals. b. spread the tax over many goods and services. c. tax goods for which either supply or demand is inelastic. d. tax luxury items such as yachts and sports cars.

c

Suppose demand for a good is QD = 100 - P and supply is QS = -20 + P. What is the equilibrium price? a. 20 b. 40 c. 60 d. 80

c

Suppose that a firm has to pay a 10% tax on revenue. The profit-maximizing level of output is a. unaffected by the tax. b. increased because of the tax. c. decreased because of the tax.

c

A firm that sought to "maximize market share" would choose to produce an output level for which marginal revenue was equal to a. marginal cost b. average cost. c. price. d. zero.

d

A firm's marginal revenue is defined as a. the ratio of total revenue to total quantity produced. b. the additional output produced by lowering price. c. the additional revenue received due to technical innovation. d. the additional revenue received when selling one more unit of output.

d

If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P, its marginal revenue function is given by a. 5-1/10 Q b. 1-1/10 Q c. 5-1/20 Q d. 5-1/5 Q

d

In the very short run a. new firms may enter the industry. b. existing firms may change the quantity they are supplying. c. price and quantity supplied is absolutely fixed. d. quantity supplied is absolutely fixed.

d

Suppose demand for a good is QD = 100 - P and supply is QS = -20 + P. Suppose that a nationwide quota (of 20) is enforced so that more can be used in a war effort. What is the price? a. 20 b. 40 c. 60 d. 80

d

Suppose demand for a good is QD = 100 - P and supply is QS = -20 + P. What is the consumer surplus? a. 200 b. 400 c. 600 d. 800

d

Suppose demand for a good is QD = 100 - P and supply is QS = -20 + P. What is the value consumers place on the amount of the good they consume? a. 60 b. 2400 c. 2800 d. 3200

d

A deadweight loss of consumer and/or producer surplus occurs when a. producers fail to maximize profits. b. mutually beneficial transactions cannot be completed. c. consumers do not maximize their utility. d. the price of inputs increases.

b

A demand curve will shift out for any of the following reasons except a. preference for a good increases. b. price of a substitute falls. c. income rises. d. price of a complement falls.

b

If a 1 percent increase in price leads to a .7 percent increase in quantity supplied in the short run, the short-run supply curve is a. elastic. b. inelastic. c. unit elastic. d. perfectly inelastic.

b

If a firm wished to maximize total revenues it should produce where a. marginal cost is zero. b. marginal revenue is zero. c. marginal revenue is equal to marginal cost. d. marginal revenue is equal to price.

b

If an unregulated electric company is a monopolist, faces demand of Q = 100 - 50P, and has a constant marginal cost of 1, the profit-maximizing price is a. 0 b. 1 c. 1.5 d. 2

b

If the demand faced by a firm is inelastic, selling one more unit of output will a. increase revenues. b. decrease revenues. c. keep revenues constant. d. increase profits.

b

In order to maximize profits, a firm should produce at the output level for which a. average cost is minimized. b. marginal revenue equals marginal cost. c. marginal cost is minimized. d. price minus average cost is as large as possible.

b

In the opening of free trade, if world prices of a good are less than domestic prices of that same good, a. domestic consumers will experience a loss of surplus. b. domestic prices will drop to the world price level. c. all domestic producers of that good will try to find another market because they can't compete with foreign producers. d. domestic producers will increase the quantity supplied in order to crowd out the foreign-produced good.

b

In the short run a. new firms may enter an industry. b. existing firms may change the quantity they are supplying. c. price and quantity supplied are absolutely fixed. d. quantity supplied is absolutely fixed.

b