Microeconomics Final Prep

Total Revenue

Price x Quantity

The _________________ is found where the demand curve and the marginal cost curve intersect.

Socially-Efficient Quantity

Income Quantity Demanded $40 100 $80 120 Which statement is true? A. This good is inelastic. B. This good is normal. C. This good is a substitute. D. This good is inferior.

B. This good is normal.

A monopolist faces the following demand and costs: Demand: P = 100 - 2Q Total Revenue: TR = 100Q - 2Q² Marginal Revenue: MR = 100 - 4Q Marginal Cost: MC = 10 + Q Find the price and quantity that will maximize social welfare.

P = MC 100 - 2Q = 10 + Q 90 = 3Q 30 = Q P = 100 - 2Q P = 100 - 2(30) P = $40

Price Quantity $8 300 $7 400 $6 500 $5 600 $4 700 $3 800 $2 900 $1 1,000 The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? a. 500 units b. 700 units c. 900 units d. 1,000 units

c. 900 units

A firm will shut down in the short-run if the total revenue from selling its output is less than: a. Opportunity costs b. Fixed costs c. Variable costs d. Total costs

c. Variable costs

Marginal Cost

∆ Total Revenue ÷ ∆ Quantity

Marginal Revenue

∆ Total Revenue ÷ ∆ Quantity Demanded

Each firm below can produce only 1 pound of cookies. Firm Production Costs Becca $10 Rob 7.50 Trisha 6 Mike 5.25 Steve 5 Suppose this is the market for cookies and that demand is perfectly elastic. Let the market clearing price be $6 per pound of cookies. Suppose also that there is a $0.50 negative externality associated with the consumption of a pound of cookies by the market. What is the producer surplus in this market? A. $1.75 B. $4 C. $5.50 D. $6

A. $1.75 PS = $ Received - $ Paid 6 - 6 = 0 6 - 5.25 = 0.75 6 - 5 = 1 1 + 0.75 = $1.75 Firm - Production Costs - PS Becca - $10 Rob - 7.50 Trisha - 6 - 0 Mike - 5.25 - .75 Steve - 5 - 1

Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should: A. Decrease the price charged to vacationers and increase the price charged to business travelers. B. Increase the price charged to vacationers and decrease the price charged to business travelers. C. Decrease the price to both groups of customers. D. Increase the price for both groups of customers.

A. Decrease the price charged to vacationers and increase the price charged to business travelers.

Total Cost

Average Total Cost x Quantity

Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: Shen Antonio Dimitri Jake 1st Film 10 9 6 3 2nd Film 9 7 4 2 3rd Film 8 5 2 1 4th Film 7 3 0 0 5th Film 6 1 0 0 If it costs $8 to rent a movie, how many movies should the roommates rent in order to maximize the total surplus? A. 3 movies which creates a surplus of $42 B. 4 movies which creates a surplus of $44 C. 3 movies which creates a surplus of $58 D. 4 movies which creates a surplus of $68

B. 4 movies which creates a surplus of $44 Willingness To Pay: Film 1 10 + 9 + 6 + 3 = 28 28 - $8 = 20 Film 2 22 - $8 = 14 Film 3 16 - $8 = 8 Film 4 10 - $8 = 2 Film 5 7 - $8 = -1 Surplus -> 20 + 14 + 8 + 2 = $44

Syrup Honey Company A 30 50 Company B 60 120 Which statement makes no false assertions? A. Company A has a comparative advantage in syrup, an absolute advantage in honey, and should specialize in syrup. B. Company B has a comparative advantage in honey, an absolute advantage in syrup, and should specialize in honey. C. Company A has a comparative advantage in honey, has no absolute advantage, and should specialize in honey D. Company B has a comparative advantage in syrup, an absolute advantage in honey, and should specialize in honey.

B. Company B has a comparative advantage in honey, an absolute advantage in syrup, and should specialize in honey. For Company A OC(S): 50 ÷ 30 = 1.67 honey OC(H): 30 ÷ 50 = 0.6 syrup For Company B OC(S): 120 ÷ 60 = 2 honey OC(H): 60 ÷ 120 = 0.5 syrup

Pairs Bought/Sold PV PC 1 $46 $21 2 $44 $24 3 $42 $27 4 $40 $30 5 $38 $33 6 $36 $36 7 $34 $39 If producing each pair of shoes has an external cost of $6, then total surplus would be: A. $30 without the external cost and $24 with the external cost. B. $30 without the external cost and $0 with the external cost. C. $75 without the external cost and $45 with the external cost. D. $75 without the external cost and $39 with the external cost.

C. $75 without the external cost and $39 with the external cost. *Need Total Surplus* TS = PV - PC Pairs PV PC TS 1 $46 $21 $25 2 $44 $24 $20 3 $42 $27 $15 4 $40 $30 $10 5 $38 $33 $ 5 6 $36* $36* $ 0 7 $34 $39 WITHOUT EXTRA COST TS = 25 + 20 + 15 + 10 + 5 TS = $75 WITH EXTRA COST 75 - 36 = $39

Suppose the total cost (in dollars) facing a firm is represented by the equation: TC(Q) = 100 + 10Q + 2Q². If the firm is operating in a competitive market in which the market price is $24 and stays at $24 in the long-run, then the firm will: A. Shut down in the short-run and exit in the long-run. B. Shut down in the short-run, but does not exit in the long-run. C. Produce 4 units in the short-run, and exit in the long-run. D. Produce 4 units in the short-run and does not exit in the long-run.

C. Produce 4 units in the short-run, and exit in the long-run. MR = $24 MC = 10 + 4Q 10 + 4Q = 24

If cocaine were legalized, it is likely that there would be an increase in the demand for cocaine. If demand for cocaine is inelastic and the supply of cocaine is perfectly elastic, this will result in... A. Higher prices and higher total revenue from cocaine sales. B. Higher prices, but lower total revenue from cocaine sales. C. The same price and higher total revenue from cocaine sales. D. The same price, but lower total revenue from cocaine sales.

C. The same price and higher total revenue from cocaine sales.

Suppose the total cost (in dollars) facing a firm is represented by the equation: TC(Q) = 100 + 10Q + 2Q². What is the average variable cost of producing 10 units of output and the marginal cost of producing the second unit of output? A. $40 ; $40 B. $30 ; $30 C. $40 ; $16 D. $30 ; $16

D. $30 ; $16 TC(Q) = 100 + 10Q + 2Q² AVC = (10Q + 2Q²) ÷ Q AVC = 10 + 2Q AVC = 10 + 2(10) AVC = $30 TC₂ - TC₁ TC₁ = 100 + 10(1) + 2(1)² = 112 TC₂ = 100 + 10(2) + 2(2)² = 128 128 - 112 = $16

Quantity Total Cost 0 $ 4 1 $10 2 $16 3 $21 4 $24 5 $35 6 $48 What is the lowest price at which this firm would operate in the short-run and long-run in a competitive market? A. $6 in short run and $5 in long run at which firm earns a positive economic profit. B. $6 in short run and $5 in long run at which firm earns a zero economic profit. C. $5 in short run and $6 in long run at which firm earns a positive economic profit. D. $5 in short run and $6 in long run at which firm earns a zero economic profit.

D. $5 in the short run and $6 in the long run at which firm earns a zero economic profit. *Need VC ; ATC ; AVC* AVC = VC ÷ Q ATC = TC ÷ Q VC = ∆TC ÷ ∆Q Q TC VC ATC AVC 0 $ 4 0 - - 1 $10 6 10 6 2 $16 12 8 6 3 $21 17 7 5.6 4 $24 20 6 5** 5 $35 31 7 6.2 6 $48 44 8 7.3 Short-Run Lowest AVC = $5 Long-Run Lowest ATC = $6

Katia has the following demand curve for selling coffee. Assume that Katia has a marginal cost of $3 per unit. Price Quantity $10 1 $ 9 2 $ 8 3 $ 7 4 $ 6 5 What is Katia's profit-maximizing level of output? A. 1 B. 2 C. 3 D. 4

D. 4 *Need TR and MR* TR = P x Q MR = ∆TR ÷ ∆Q P Q TR MR MC 10 1 10 10 3 10>3 9 2 18 8 3 8>3 8 3 24 6 3 6>3 7 4 28 4 3 4>3 6 5 30 2 3

Average Total Cost

Fixed Cost ÷ Quantity

A monopolist faces the following demand and costs: Demand: P = 100 - 2Q Total Revenue: TR = 100Q - 2Q² Marginal Revenue: MR = 100 - 4Q Marginal Cost: MC = 10 + Q Calculate the deadweight loss.

MR = MC 100 - 4Q = 10 + Q 90 = 5Q Q = 18 P = 100 - 2Q P = 100 - 2(18) P = 64 P = MC 100 - 2Q = 10 + Q 90 = 3Q Q = 30 MC = 10 + Q MC = 10 + 18 MC = 28 DW = ½(64 - 28)(30 - 18) DW = 216

A monopolist faces the following demand and costs: Demand: P = 100 - 2Q Total Revenue: TR = 100Q - 2Q² Marginal Revenue: MR = 100 - 4Q Marginal Cost: MC = 10 + Q Find the price and quantity that will maximize the profit.

MR=MC 100 - 4Q = 10 + Q 90 = 5Q Q = 18 units P = 100 - 2Q P = 100 - 2(18) P = $64

A monopolist will maximize profit by producing and selling units up to the point where:

Marginal Revenue = Marginal Cost

Profit

Total Revenue - Total Cost or Quantity (Price - Average Total Cost)

Assuming a single-price monopolist sets his short-run price and quantity at their profit-maximizing levels, what can we say for sure about consumer demand at that point? a. It is elastic. b. It is perfectly inelastic. c. It is inelastic. d. It is perfectly elastic.

a. It is elastic

Demand in the market for swim briefs is characterized by Pd = 35 - 4Q, while supply in the market for swim briefs is characterized by Ps = 5 + 2Q . The price is in dollars and the quantity is in thousands of pairs of swim briefs per month. The market is perfectly competitive. What price would we expect the company to charge for a pair of swim briefs after the merge? a. $23 b. $15 c. $17.50 d. None of the above.

a. $23 Pd = 35 - 4Q | Q = 3 Pd = 35 - 4(3) Pd = $23

Suppose a firm has total cost curve TC = 64 + 6Q +Q2 and marginal cost curve MC = 6 +2Q. Suppose the costs above belong to a monopolist facing demand curve P = 36 - 2Q. What is the firm's profit-maximizing price? a. $26 b. $31 c. $24 d. $29

a. $26 6 + 2Q = 36 - 4Q 6Q = 30 Q = 5 36 - 2(5) = 26

The firm's marginal cost has a minimum value of $3.50, its average variable cost has a minimum value of $4.70, and its average total cost has a minimum value of $6.00. In the short-run, the firm will shut down if the price of its product falls below: a. $4.70. b. $3.50. c. $6.00. d. There is not enough information to answer this question.

a. $4.70 Short-run Shut Down: When Price is below Average Variable Cost

Suppose a 6% increase in the price of iPhones results in a 4% decrease in the quantity of iPhones demanded. The price elasticity of demand is: a. 0.67 b. 1 c. 1.5 d. 2

a. 0.67 PEoD = %∆Q/%∆P PEoD = 4/6 PEoD = 0.67

Suppose a firm's fixed costs are $50 and its marginal cost of producing Q units is MC = 10 + 2Q. The industry demand curve is given by P = 40 - Qd (where quantity is given in thousands of units). If the firm operates in a perfectly competitive industry and the price of the good is $30, what is this firm's optimal short-run quantity? a. 10 units b. 0 units c. 6 units d. 15 units

a. 10 units 30 = 10 + 2Q 20 = 2Q 10 = Q

Let the market demand curve be P = 1000 - 10Q. Assume the market is controlled by a monopolist. Let fixed cost be $10,000 and marginal costs (MC) = 20Q. What is the profit-maximizing output? a. 25 b. 50 c. 33.3 d. 20

a. 25 MR = MC MC = 1000 - 10Q MR = 1000 - 20Q 1000 - 20Q = 20Q 1000 = 40Q Q = 25

While grading a final exam, an economics professor discovers that two students (A and B) have virtually identical answers. She is convinced the two cheated but cannot prove it. The professor speaks with each student separately and offers the following deal: Sign a statement and admit to cheating. If both students sign the statements, each will receive an "F" for the course. If only one signs, he is allowed to withdraw from the course while the other student is expelled. If neither signs, both receive a "C" because the professor does not have sufficient evidence to prove cheating. Which outcome do you expect? a. A gets an F ; B gets an F b. A withdraws ; B is expelled c. A is expelled ; B withdraws d. A gets a C ; B gets a C

a. A gets an F ; B gets an F

Which of the following is a public good? a. An outer space missile defense system protecting the planet Earth b. Mail delivery by the United States Postal Service c. Education d. Healthcare

a. An outer space missile defense system protecting the planet Earth.

Which of the following is NOT a barrier to entry that leads to the rise of monopoly power? a. Annual rental contracts that cannot be broken. b. Government grants an exclusive right to produce a good. c. Declining ATC curve for all quantities. d. Ownership of a key resource.

a. Annual rental contracts that cannot be broken.

Regulating natural monopolies by making them set price equal to marginal cost would: a. cause the monopolist to operate at a loss. b. result in less than optimal total surplus. c. maximize producer surplus. d. result in higher profits for the monopoly.

a. Cause the monopolist to operate at a loss.

Consider a perfectly competitive market with 1,000 firms, where all firms have identical costs. The market price is currently set at $20 per unit, and a total of 100,000 units are sold. Suppose that each firm initially faces plant costs of $1,000 (fixed cost) and labor costs of $15 per unit of output. Assume these are the firm's only costs. Which of the following is most accurate in the short-run? a. In the short-run, each firm will incur $500 in economic losses. b. In the short-run, each firm will earn $500 in economic profit. c. In the short-run, each firm will incur $5 in economic losses. d. In the short-run, each firm will earn $0 in economic profit.

a. In the short-run, each firm will incur $500 in economic losses. TR = P x Q TR = 20 x 100 TR = $2000 TC = FC + VC TC = 1000 + (15)(100) TC = $2,500 Profit = TR - TC Profit = $2000 - $2,500 Profit = $500 in losses

Suppose a competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. At Q = 500, the firm should: a. Increase output to increase economic profit. b. decrease output to increase economic profit. c. Profit is maximized at Q = 500. d. None of these answers are correct.

a. Increase output to increase economic profit.

If a competitive firm is producing at a point where marginal cost is less than marginal revenue then it should: a. Increase production b. Decrease production c. Keep production the same d. Shut down

a. Increase production. MC > MR 2 > 3

Suppose that the government notices that salmon is being overfished along Oregon's Columbia River. There are only so many fish, but the river is publicly owned and there are no restrictions on fishing. Which of the following represents all the solutions that the government could likely use to successfully reduce the overuse of this resource? a. Taxing or setting quantity restrictions on the use of the resource or selling the resource to a private entity. b. Taxing, setting quantity restrictions on, and encouraging voluntary reductions in the use of the resource. c. Taxing or setting quantity restrictions on the use of the resource. d. Taxing the use of the resource.

a. Taxing or setting quantity restrictions on the use of the resource or selling the resource to a private entity.

Suppose a firm has total cost curve TC = 64 + 6Q +Q2 and marginal cost curve MC = 6 +2Q. Suppose the costs above belong to a monopolist facing demand curve P = 36 - 2Q. What is the firm's profit? a. $13 b. $11 c. $9 d. $7

b. $11 P = TR - TC P = (26x5) - (64 + (6x5) + 5²) P = $11

Let the market demand curve be P = 1000 - 10Q. Assume the market is controlled by a monopolist. Let fixed cost be $10,000 and marginal costs (MC) = 20Q. Assume the government breaks up the monopolist in order to create a perfectly competitive market of identical firms. Assume the MC curve is now the industry supply curve. By how much has consumer surplus increased from breaking up the monopolist? a. $2,500 b. $2,421 c. $1,041 d. $2,075

b. $2,421 CS IN MONOPOLY (25 x 750) ÷ 2 3,125 CS IN PERF. COMP. 1000 - 10Q = 20Q 1000 = 30Q Q = 33.3 (33.3 x 333.3) ÷ 2 2,421

Suppose a competitive firm is producing Q=500 units of output. The marginal cost of the 500th unit is $17, and the average total cost of producing 500 units is $12. The firm sells its output for $20. At Q=500, the firm's profits equal: a. $1,000 b. $4,000 c. $7,000 d. $10,000

b. $4,000 Q x (P - ATC) 500 x (20 - 12) $4,000

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? a. $3,000 ; $1,500 b. $4,500 ; $3,500 c. $4,500 ; $4,000 d. $4,500 ; $2,500

b. $4,500 ; $3,500 WITHOUT TRADE FIRM A: 30 x 100 = 3000 FIRM B: 30 x 50 = 1500 3000 + 1500 = 4500 WITH TRADE FIRM A: (50 - 40) x 100 = 1000 FIRM B: 50 x 50 = 2500 1000 + 2500 = 3500

Suppose demand is given by the equation Pd=120−1.5Qd and supply is given by the equation Ps=40+2.5Qs. Price is in dollars, quantity is in units. What is the deadweight loss associated with a tax of $20 per unit? a. $10 b. $50 c. $150 d. $300

b. $50 120 - 1.5Q - 20 = 40 + 2.5Q Q = 15 1/2(20 - 15)(100 - 20) $50

Andy owns the only well in town that produces clean drinking water. He faces the following demand P = 100 - Q, and marginal cost curves MC = 10 + Q. If the marginal cost of producing clean water is $0, what price would Andy charge for it? a. $0 and consumers would receive total consumer surplus of $10,000 in this market b. $50 and consumers would receive total consumer surplus of $1,250 in this market c. $0 and consumers would receive total consumer surplus of $5,000 in this market d. $50 and consumers would receive total consumer surplus of $500 in this market

b. $50 and consumers would receive total consumer surplus of $1,250 in this market MR = 100 - 2Q MC = 0 100 - 2Q = 0 Q = 50 P = 100 - Q | Q = 50 P = 100 - 50 P = $50 CS = (Q($ at intersection - $ Paid)) ÷ 2 CS = (50(100 - 50)) ÷ 2 CS = $1,250

Suppose demand is given by the equation Pd=120−1.5Qd and supply is given by the equation Ps=40+2.5Qs. Price is in dollars, quantity is in units. What is *Producer Surplus* in equilibrium? a. $300 b. $500 c. $1,000 d. None of the above.

b. $500 120 - 1.5Q = 40 + 2.5Q 80 = 4Q Q = 20 2.5Q + 40 2.5(20) + 40 P = $90 1/2(90 - 40)(120) $500

Suppose a firm's marginal cost of producing q units is MC=8+8q. The industry demand curve is given by P=488-Qd (where quantity is given in thousands of units). If the firm operates in a perfectly competitive industry and the price of the good is $200, how many firms produce this good in the short run? a. 1 firm b. 12 firms c. 24 firms d. 288 firms

b. 12 firms P = 488 - Qd 488 - Qd = 200 Qd = 288 288 ÷ 24 = 12 firms

Demand in the market for swim briefs is characterized by Pd = 35 - 4Q, while supply in the market for swim briefs is characterized by Ps = 5 + 2Q . The price is in dollars and the quantity is in thousands of pairs of swim briefs per month. The market is perfectly competitive. Suppose now, that all of the makers of swim briefs merged into one company, with a marginal cost curve of MC = 5 + 2Q. What would you expect the change in monthly swim brief production to be? a. 2,000 more pairs per month b. 2,000 less pairs per month c. 1,667 more pairs per month d. 1,667 less pairs per month

b. 2,000 less pairs per month Pd = 35 - 4Q MR = 35 - 8Q MR = MC 35 - 8Q = 5 + 20Q 30 = 10Q Q = 3 Pd = MC 35 - 4Q = 5 + 20Q 30 = 6Q Q = 5 5 - 3 = 2

Suppose a firm's marginal cost of producing q units is MC=8+8q. The industry demand curve is given by P=488-QD (where quantity is given in thousands of units). If the firm operates in a perfectly competitive industry and the price of the good is $200, what is this firm's optimal short-run quantity? a. 196 units b. 24 units c. 48 units d. 192 units

b. 24 units MR = P MR = MC 200 = 8 + 8Q Q = 24

Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist has constant marginal costs and average total costs of $10. The profit-maximizing monopolist will produce an output level of: a. 80 units b. 40 units c. 20 units d. 10 units

b. 40 units MR = MC 10 = 90 - 2Q 80 = 2Q Q = 40

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. If one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. What will the two companies do if they behave as individual profit maximizers? a. Neither company will advertise. b. Both companies will advertise. c. One company will advertise, the other will not. d. The question requires we know how many customers are stolen through advertising.

b. Both companies will advertise.

Consider a perfectly competitive market with 1,000 firms, where all firms have identical costs. The market price is currently set at $20 per unit, and a total of 100,000 units are sold. Suppose that each firm initially faces plant costs of $1,000 (fixed cost) and labor costs of $15 per unit of output. Assume these are the firm's only costs. If there are industry-wide advances in technology, which of the following is most accurate? a. Each firm's marginal cost will increase, which leads to an increase in market demand. b. Each firm's marginal cost will decrease, which leads to an increase in market supply. c. Each firm's marginal cost will increase, which leads to an increase in market demand. d. Each firm's marginal cost will increase, which leads to an increase in market supply.

b. Each firm's marginal cost will decrease, which leads to an increase in market supply.

Mary and Cathy are roommates. Mary assigns a $50 value to smoking cigarettes. Cathy values smoke-free air at $35. Cathy has the legal right to a smoke free apartment. Which is one possible efficient private market outcome? a. Cathy offers Mary $30 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $36 so that Mary can smoke. c. Mary pays Cathy $34 so that Mary can smoke. d. Cathy offers Mary $35 not to smoke. Mary accepts and does not smoke.

b. Mary pays Cathy $36 so that Mary can smoke.

Gyms that charge lower prices for customers who purchase memberships in January for the New Years' resolutions are: a. Not price discriminating because the cost of the membership is not the same. b. Price discriminating by identifying potential members with lower reservation prices. c. Perfect price discriminators. d. Lowering total economic surplus.

b. Price discriminating by identifying potential members with lower reservation prices.

A primary factor contributing to the issue in the previous question is: a. The existence of free riders b. The absence of property rights c. The concentration of market power d. The presence of excess capacity

b. The absence of property rights.

Suppose that the producers of copper are permitted to emit harmful pollutants, free fo charge, into the air. How will the price and output of copper products in the competitive market compare with their values under conditions of ideal economic efficiency? a. The price will be too high, and the output will be too large. b. The price will be too low, and the output will be too large. c. The price will be too low, and the output will be too small. d. The price will be too high, and the output will be too small.

b. The price will be too low, and the output will be too large.

Duke University's basketball stadium is always sold out, and students who wait in line for hours may be turned away. a. This indicates that the ticket price is above the equilibrium price. b. This indicates that the ticket price is below the equilibrium price. c. This indicates that the ticket price is at the equilibrium price. d. This indicates that nothing about the equilibrium price.

b. This indicates that the ticket price is below the equilibrium price.

Let the market demand curve be P = 1000 - 10Q. Assume the market is controlled by a monopolist. Let fixed cost be $10,000 and marginal costs (MC) = 20Q. What is the monopolist's total revenue at the profit maximizing output? a. $15,000 b. $12,500 c. $18,750 d. $15,500

c. $18,750 MR = MC MR = 1000 - 20Q 1000 - 20Q = 20Q Q = 25 100 - 10Q | Q = 25 100 - 10(25) = 750 TR = 750(25) TR = $18,750

Suppose the equation for the demand curve in a market is Pd=100-1.5Qd, where Qd is the quantity demanded and P is the price. Also, suppose the equation for the supply curve in the same market is Ps=0.5Qs, where Qs is the quantity supplied. Suppose there is an external cost of $12 associated with the production of each unit of the good. Suppose that to internalize the externality, a tax of $12 is imposed by government. Then total surplus which is: a. $2500 before tac will decrease to $1936 after tax. b. $2500 before tax will decrease to $2200 after tax. c. $1900 before tax will increase to $1936 after tax. d. $1900 before tax will increase to $2200 after tax.

c. $1900 before tax will increase to $1936 after tax. 100 - 1.5Q = 0.5Q Q = 50 P = $25 BEFORE TAX: 1/2 x 100 x 50 - 12 x 50 = $1900 AFTER TAX: 1/2 x 100 - 12 x 44 = $1936

Suppose a firm has total cost curve TC = 64 + 6Q +Q2 and marginal cost curve MC = 6 +2Q. If the firm is perfectly competitive, what is its exit price? a. $18 b. $20 c. $22 d. $24

c. $22 MC = ATC MC = 6 + 2Q ATC = TC ÷ Q ATC = (64/Q) + 6 + Q 6 + 2Q = 64/Q + 6 + Q Q = 64/Q Q² = 64 Q = 8 6 + 2Q 6 + 2(8) = 22

A tax of $4 per unit is imposed on cigarettes. The tax reduces the equilibrium quantity from 620 to 500. The deadweight loss is: a. $1,000 b. $480 c. $240 d. $120

c. $240 DW = 1/2(4)(620 - 500) DW = 1/2(4)(120) DW = 240

Demand in the market for swim briefs is characterized by Pd = 35 - 4Q, while supply in the market for swim briefs is characterized by Ps = 5 + 2Q . The price is in dollars and the quantity is in thousands of pairs of skinny jeans per month. The market is perfectly competitive. Suppose the government levied a $6 tax on each pair of swim briefs sold. What would be the deadweight loss as a result of the tax? a. $2,000 per month b. $2,850 per month c. $3,000 per month d. Skinny jean consumers cannot lose weight.

c. $3,000 per month Ps = 5 + 2Q Ps+T = 5 + 2Q + 6 Ps = 11 + 2Q Pd = Ps+T 35 - 4Q = 11 + 2Q 6Q = 24 Q = 4 Pd = Ps 35 - 4Q = 5 + 2Q 6Q = 30 Q = 5 DW = ½(5 - 4) x 6 DW = 3

Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to the museum on a weekday. Suppose the executives also know that 200 students are willing to pay $8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000. How much additional profit will the museum earn if it engages in price discrimination compared to charging each customer $8 for admission? a. $0 b. $200 c. $400 d. $800

c. $400 $12 - $8 = $4 $4 x 100 = 400

Andy owns the only well in town that produces clean drinking water. He faces the following demand P = 100 - Q, and marginal cost curves MC = 10 + Q. In order to maximize profits, Andy should charge a price of: a. $55 at the profit maximizing quantity with a marginal revenue equal to $55. b. $55 at the profit maximizing quantity with a marginal revenue equal to $27.5. c. $70 at the profit maximizing quantity with a marginal revenue equal to $40. d. $70 at the profit maximizing quantity with a marginal revenue equal to $70.

c. $70 at the profit maximizing quantity with a marginal revenue equal to $40. P = 100 - Q MR = 100 - 2Q MC = MR 10 + Q = 100 + 2Q 3Q = 90 Q = 30 P = 100 - Q | Q = 30 P = 100 - 30 P = $70 P = 10 + Q | Q = 30 P = 10 + 30 P = $40

Suppose a firm's fixed costs are $50 and its marginal cost of producing q units is MC = 10 + 2q. The industry demand curve is given by P = 40 - QD (where quantity is given in thousands of units). If the firm operates in a perfectly competitive industry and the price of the good is $30, how many firms produce this good in the short run? a. 500 b. 800 c. 1,000 d. 1,200

c. 1,000 30 = 40 - Q Q = 10

Consider that the market for haircuts in a midsized city is described by the following demand equation: P = 30 - 1/5Q, and the following supply equation: P = 2 + 1/5Q. At the equilibrium price, the absolute value of the point price elasticity of demand is: a. 0.05 b. 0.88 c. 1.14 d. 21.88

c. 1.14 30 - 1/5Q = 2 + 1/5Q 2/3Q = 28 Q = 70 30 - 1/5Q | Q = 70 30 - 1/5(70) = 16 (P/Q)(∆Q/∆P) (16/70)(-5) 1.14

Which of the following might lead to an increase in the equilibrium price of jelly and a decrease in the equilibrium quantity of jelly sold? a. An increase in the price of peanut butter, a complement to jelly. b. An increase in the price of Marshmallow Fluff, a substitute for jelly. c. An increase in the price of grapes, an input to jelly. d. An increase in consumers' income, as long as jelly is a normal good.

c. An increase in the price of grapes, an input to jelly.

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm exhibits... a. diminishing labor. b. diminishing output. c. diminishing marginal product. d. negative marginal product.

c. Diminishing marginal product. 1st worker -> 10 shirts 2nd worker -> 9 shirts

Which of the following is most true of the free-rider problem? a. It is not a typical problem for club goods, which are optimally produced by markets because they are rival and excludable. b. It is a typical problem for common goods, which are underproduced by markets because they are excludable and non-rival. c. It is a typical problem for public goods, which are underproduced by markets because they are non-excludable and non-rival. d. It is not a typical problem for goods with positive externalities, which are optimally produced by markets because of the benefits they provide society.

c. It is a typical problem for public goods, which are underproduced by markets because they are non-excludable and non-rival.

Andy is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Andy. As a result, he is the only business in town that sells meatballs to restaurants. Assuming that Andy is maximizing his profit, which of the following statements is true? a. Meatball prices will be less than marginal cost. b. Meatball prices will equal marginal cost. c. Meatball prices will exceed marginal cost. d. Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs.

c. Meatball prices will exceed marginal cost.

BUYER WILLINGNESS TO PAY Mike............................$50 Martijn.........................$40 Charles........................$35 Larry............................$30 You have an extra ticket to the Bayern Munich game. The table shows the willingness to pay of the four buyers in the market for a ticket to the game. You hold an auction to sell the ticket. Who makes the winning bid, and what does he offer to pay for the ticket? a. Martijn; $39 b. Martijn: $40 c. Mike; > $40 but ≤ $50 d. Mike; $51

c. Mike; > $40 but ≤ $50

Economic profits are NOT possible in the long run in which of the following markets? a. Monopoly b. Oligopoly c. Monopolistic Competition d. Duopoly

c. Monopolistic Competition

Andy used to work as a telemarketer earning $37,000.00 per year. He decided to give up this job and to open a restaurant. In calculating the economic profit of his new business, $37,000.00 that he gave up is counted as part of firm's: a. Explicit costs. b. Total revenue. c. Opportunity costs. d. Marginal costs.

c. Opportunity costs

For a monopolist that charges the same price to all customers, what is the relationship between price, MR and MC? a. P = MR and MR = MC b. P = MR and MR > MC c. P > MR and MR = MC d. P > MR and MR > MC

c. P > MR and MR = MC

A firm's decision to enter into a market in the long-run depends if: a. Price is less than average total cost b. Total revenue is less than total cost c. Price is greater than average total cost d. Price is equal to marginal cost

c. Price is greater than average total cost

Suppose the total cost (in dollars) facing a firm is represented by the equation: TC(Q)=100+10Q+2Q² If the firm is operating in a competitive market in which the market price is $24 and stays at $24 in the long run, then firm will: a. Shut down in the short run and exit in the long run b. Shut down in the short run but does not exit in the long run c. Produce 4 units in the short run and exit in the long run d. Produce 4 units in the short run and does not exit in the long run

c. Produce 4 units in the short run and exit in the long run. MR=24 MC=10+4Q+24 Q=35

Relative to free markets with no government intervention, which of the following represents an economic rationale for federal taxation? a. To decrease quantities produced in a market with positive externalities. b. To subsidize production of goods with negative externalities. c. To raise revenues to pay for public goods. d. To increase deadweight loss.

c. To raise revenues to pay for public goods.

Demand in the market for swim briefs is characterized by Pd = 35 - 4Q, while supply in the market for swim briefs is characterized by Ps = 5 + 2Q . The price is in dollars and the quantity is in thousands of pairs of swim briefs per month. The market is perfectly competitive. What is the value of the deadweight loss resulting from the skinny jeans market now being a monopoly versus when it was characterized by perfect competition? a. $2,000 b. $4,000 c. $8,000 d. $12,000

d. $12,000 ½ x (Pd - MC) x (Qe - Qm) ½ x (23 - 11) x (5 - 3) $12,000

Let the market demand curve be P = 1000 - 10Q. Assume the market is controlled by a monopolist. Let fixed cost be $10,000 and marginal costs (MC) = 20Q. How much profit is the monopolist earning? a. $8,250 b. $8,750 c. $7,000 d. $2,500

d. $2,500 P = TR - TC TC = VC + FC FC = 10,000 VC = (25 x 500) ÷ 2 VC = 6,250 TC = 6,250 + 10,000 TC = 16,250 TR - TC 18,750 - 16,250 2,500

The concert promoters of a heavy-metal band know that there are two types of concert-goers: die-hard fans and casual fans. For a certain concert, there are 1,000 die-hard fans who will pay $350 for a ticket and 500 casual fans who will pay $100 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $150 per ticket? a. $75,000 b. $100,000 c. $175,000 d. $250,000

d. $250,000 (350)(1000) + (100)(500) = 350,000 (150)(1000) - 50000 = 100,000 350,000 - 100,000 = $250,000

Suppose the total cost (in dollars) facing a firm is represented by the equation: TC(Q)=100+10Q+2Q² What is the average variable cost of producing 10 units of output and the marginal cost of producing the second unit of output? a. $40 ; $40 b. $30 ; $30 c. $40 ; $16 d. $30 ; $16

d. $30 ; $16 AVC=(10Q+2Q²)/Q AVC=10+2(10)=30 TC₁=100+10(1)+2(1)³ TC₁=112 TC₂=100(2)+10(2)+2(2)³ TC₂=128 128-112=$16

Your sister is thinking about opening a hardware store. She estimates that it would cost $400,000 per year to rent the location, buy the stock, and pay the interest on the loan she uses to open the business. In addition, she would have to quit her $50,000 per year job as an accountant. Suppose your sister thought she could sell $420,000 worth of merchandise in a year. Her economic cost of running a hardware store for a year is...? a. $400,000 and she should open the store because accounting profit is positive. b. $400,000 and she should not open the store because economic profit is negative. c. $450,000 and she should open the store because accounting profit is positive. d. $450,000 and she should not open the store because economic profit is negative.

d. $450,000 and she should not open the store because economic profit is negative. Eco Cost = Explicit + Implicit Cost

Katia has the following demand curve for selling coffee. Assume that Katia has a marginal cost of $3 per unit. PRICE QUANTITY $10 1 $9 2 $8 3 $7 4 $6 5 What is Katia's profit-maximizing level of output? a. 1 b. 2 c. 3 d. 4

d. 4 *Need Total Revenue and Marginal Revenue* TR = P x Q MR = ∆TR P Q TR MR 10 1 10 10 9 2 18 8 8 3 24 6 7 4 28 4 6 5 30 2

Andy owns the only well in town that produces clean drinking water. He faces the following demand P = 100 - Q, and marginal cost curves MC = 10 + Q. If Andy can engage in perfect price discrimination, the quantity that maximizes economic profit would be: a. 55 units lower than efficient quantity. b. 55 units equal to efficient quantity. c. 45 units lower than efficient quantity. d. 45 units equal to efficient quantity.

d. 45 units equal to efficient quantity. 100 - Q = 10 + Q 2Q = 90 Q = 45

Angela recently graduated from college with a degree in journalism and economics. She decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Angela is typically awake for 112 hours each week (she sleeps an average of 8 hours per day). For each hour Angela spends writing, she can earn $75. Angela is such a good writer that she can get paid for as many hours of writing as she chooses to work. Which of the following points would fall outside her budget constraint? a. 75 hours of leisure, $2775 of consumption. b. 70 hours of leisure, $2400 of consumption. c. 90 hours of leisure, $1650 of consumption. d. 85 hours of leisure, $2475 of consumption.

d. 85 hours of leisure; $2475 of consumption

If the price elasticity of demand for a good is 5.0, then a 10 percent increase in the price results in: a. A 0.5 percent decrease in the quantity demanded b. A 2 percent decrease in the quantity demanded c. A 5 percent decrease in the quantity demanded d. A 50 percent decrease in the quantity demanded

d. A 50 percent decrease in the quantity demanded %∆Q ÷ %∆P

By 2025, all domestic cars in the US must be rated to at least 42 MPG. This is a law made up to help reduce pollution. This is an example of: a. The Coase Theorem b. A market-based policy c. A private solution d. A command-and-control policy

d. A command-and-control policy

Consider a perfectly competitive market with 1,000 firms, where all firms have identical costs. The market price is currently set at $20 per unit, and a total of 100,000 units are sold. Suppose that each firm initially faces plant costs of $1,000 (fixed cost) and labor costs of $15 per unit of output. Assume these are the firm's only costs. Which of the following is most accurate in the long-run? a. A number of new firms will enter the market. This will lead to an increase in equilibrium quantity and an increase in equilibrium price. b. A number of new firms will enter the market. This will lead to a decrease in equilibrium quantity and an increase in equilibrium price. c. A number of firms will exit the market. This will lead to a decrease in equilibrium quantity and a decrease in equilibrium price. d. A number of firms will exit the market. This will lead to a decrease in equilibrium quantity and an increase in equilibrium price.

d. A number of firms will exit the market. This will lead to a decrease in equilibrium quantity and an increase in equilibrium price. ATC = TC ÷ (100,000 / 1) ATC = 2500 ÷ 100 ATC = 23 AVC = 1,500 ÷ 100 AVC = 15

Suppose a monopolistically competitive firm operates in the short run at a price above its average total cost of production. In the long run, the firm should expect: a. New firms to enter the market. b. The market price to fall. c. Its prices to fall. d. All of the above.

d. All of the above

Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist has constant marginal costs and average total costs of $10. If a monopoly market were to be transformed into a competitive market, the result would be that: a. Market output would increase. b. The market would be efficient, once the market reached the competitive output. c. The deadweight loss from the monopoly would be eliminated. d. All of the above.

d. All of the above.

What is a key difference between firms in a perfectly competitive versus a monopolistically competitive industry? a. Marginal cost pricing versus mark-up. b. Efficient scale versus excess capacity. c. Identical products versus slightly differentiated products. d. All of the above..

d. All of the above..

Which of the following is most likely to face depletion? a. Public goods b. Private goods c. Club goods d. Common Resources

d. Common Resources

Consider the market for automobiles is currently in equilibrium. Which of the following would cause the price of automobiles to rise? a. A decrease in the wage of workers. b. A reduction in the price of business travel. c. An increase in the price of gasoline. d. Fire destroys a major auto-production facility.

d. Fire destroys a major auto-production facility.

Suppose Julian bought brand new speakers and an amp to go with it. The speakers are very loud and the amp causes the sound to carry (with vibrations) through the entire apartment building. Carlo, his upstairs neighbor, really does not like the racket (nor does anybody else). Suppose the music gives Julian $50 in satisfaction and costs Carlo $20 in dissatisfaction. Using the Coase Theorem, how can this situation be remedied to maximize both agents' utility? a. Carlo could pay Julian $60 b. Julian could pay Carlo $60 c. Carlo could pay Julian $30 d. Julian could pay Carlo $30

d. Julian could pay Carlo $30

What is the best argument for society allowing single-price natural monopolies to maintain their monopoly power? a. Natural monopolies are always able to engage in perfect price discrimination, which maximizes consumer surplus. b. As long as markets are free from government regulation, the firm will minimize deadweight loss. c. As long markets are free from government regulation, the firm will minimize total social surplus. d. Natural monopolies can produce the entire market output at the lowest possible cost per unit.

d. Natural monopolies can produce the entire market output at the lowest possible cost per unit.

Suppose the equation for the demand curve in a market is Pd = 100 - 1.5Qd, where Qd is the quantity demanded and P is the price. Also, suppose the equation for the supply curve in the same market is Ps = 0.5Qs, where Qs is the quantity supplied. Suppose there is an external cost of $12 associated with the production of each unit of the good. What are the socially optimal quantity and price? a. P=$37; Q=50 b. P=$25; Q=50 c. P=$22; Q=44 d. P=$34; Q=44

d. P=$34; Q=44 0.5Q + $12 = 100 - 1.5Q 2Q = 88 Q = 44 0.5(44) + 12 P = $34

Government has decided to place a $1 per unit tax on beer, which beer producers must pay to the government monthly based upon total unit sales. Which of the following is most accurate? a. Consumers and producers always split the incidence of the tax 50/50. b. The more consumers believe that beer is a luxury good with many close substitutes; the more likely it is that consumers will pay most of the tax. c. Since the tax was placed on producers, the incidence of the tax falls entirely on producers. d. The more consumers believe that beer is a necessity good with no close substitutes; the more likely it is that consumers will pay most of the tax.

d. The more consumers believe that beer is a necessity good with no close substitutes; the more likely it is that consumers will pay most of the tax.