Econ 201B Midterm
1Q) Which of the Following Exemplifies a Microeconomic Question?
" Well legislative Recreational Cannabis Increase the number of buyers" (Big Picture Examples= GDP, National, Inflation, Unemployment)
3Q) Sue sold silver coins for 1,000$ that she bought a year ago for 1,000. She says, "At least I didn't lose any money on my financial investment". Here Economist friend points out that in effect she did lose money because she could have received a 3% return on the 1000$ if she had bought a bank certificate of deposit instead of the coins. This is?
"Opportunity Cost" (Since we are taking into account the next best alternative is your opportunity cost.)
20Q) Suppose you are given the following data on the diagram for a product. The price elasticity of demand (based on the midpoint formula) when price decreases from $9 to $7 is:
$1.60 ( P=$9, Q=40 & P=$7. Q=60) PED Numerator=(40-60)/(60+40)/2 & Denominator= (9-7)/(9+7)/2 PED Numerator = -.4 & Denominator =.25 (so the answer is when solved 1.6)
4Q) (Use the Image) Assume the government imposes a $2.25 tax on suppliers, which results in the shift of the supply curve from S1 to S2. The government tax revenue is.
$675 (Tax Rev: 300 Units are new Equilibrium. Vertical distance between supply curves is per unit tax ( $3.50-$1.25)= $2.25 Tax Revenue = 300 x 2.25$ = 675)
16Q) (Diagram) What is the firm's total economic profit
$82 MR=MC optimum quantity ~ 4 At 4 Quantity: Price= AR= $70; ATC= $49.50 (AR-ATC) x Q= Economic Profit/Loss OR ($70-$9.50) x 4=$82 Profit
39Q) Which determinant of price elasticity of demand explains the changing demand curve with each market structure?
'Number of Substitutes' More substitutes= More Elastic Pure Competition= Perfectly elastic Monopoly= Very inelastic
45Q) You currently manage a cookie store. You are in the middle of a one-year rental contract for your bakery that requires you to pay $50.000 per month and you have contractual labor obligations of $100,000 per month that you can not negotiate out of. You also have a marginal cookie ingredient cost of .25$ per cookie as well as a marginal cookie wrapper cost of .10$ per cookie. You currently sell 50,000 cookies per month. What is the minimum amount you must charge per cookie to earn a normal amount
($3.35) Normal Profit: When Total Revenue = Economic Cost When Average Revenue= Average Economic Cost Average Revenue (AR)= Price = Demand Curve Quantity=50,000 Economic Cost: Rent (fixed cost)= $50,000 Average rent= $50,000/ 50,000= $1.00 Labor (variable cost) = $100,000 Average labor= $100,000/50,000= $2.00 Ingredients= MC= $.25 Wrapper=MC=$.10 Pre Cookie average economic cost= $1.00+$2.00+$.25+$.10= $3.35
13Q) look up photo
(105,200) Economic profit= Total Revenue- Economic Cost; Total Revenue = 7 homes x $200,000; Total Revenue=$1,400,000 Economic Cost= Explicit Costs+Opportunity Costs Explicit Cost: 4% of $1,110,000(interest)=$44,400; 40x$20,000(workers)=$800,000; 7 x$50,000 (materials,etc)= $350,000 Opportunity Cost: $100,000(foregone salary)=$100,00; $40,000x 1%(forgon)=$400 Economic Cost= $1294,800 Total Revenue- Economic Cost= $1,400,000- $1,294,800= $105,200
15Q) (Diagram) This firm will maximize its profit by producing the amount of output equal to:
(4) Where MR= MC
Refer to the data above. The value for Y is:
(45) TU= sum of MU - If TU at 2 units is 35, adding the MU of the 3rd units of 10=45
11Q) Refer to the below data. At the profit-maximizing output the firm's total revenue is:
(48) Steps: Determine optimum output where MR=MC (if not equal close to MR>MC) SO 3unit as MR of $16 per unit 3x$16=48
17Q) (Diagram) If government wanted to regulate this business & force the firm to change a fair-return price, the price changed would then be:
(50) Fair Return Pricing forces normal profit Price(=AR)= ATC Hint: Find firm's price without regulation where MR=MC Regulation price(s) will be lower than price determined by this rule If Unregulated Price= $70 Price(=AR)=ATC at $50
20Q) (Diagram) which pertain to monopolistically competitive firms. Long-run Equilibrium is shown by:
(A) When ATC=Demand
27Q) In which market models would advertising be used most often? (A) Perfect competition (B) Monopolistic competition (C)Oligopoly (D) Monopoly
(B & C) Both monopolistic competition and oligopoly need to differentiate their products/services from their competitors= advertisement
14Q) (diagram) which of the following is a correct portray a monopolist's demand and marginal revenue curves:
(B) Its when demand is above marginal revenue
Refer to the diagram and assume that price increases from $2 - $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about:
.25 & supply is inelastic P=$10, Q=7 P=$2, Q=5 PES Numerator=(7-5)/(7+5)/2 PES Denominator=(10-2)/(10+2)/2 PES Num= .33 PES Den= 1.33 = .25 this means PES <1= inelastic
When the price of movie tickets in a certain town was increased, the movie-theaters' revenues increased. This suggests that the demand for movie tickets in that town has a price-elasticity of demand that is:
.45 (PED Greater than 1= elastic= lower price to increase TR Less than 1=inelastic=raise Price to increase TR Equal to 1= Unit elastic= Pricing at max TR
Assume the Government imposes a 2.25$ tax on suppliers, which results in a shift of the supply curve from s1 to s2. The amount of the tax paid per unit by the seller is?
2.25$ ^ (Tax Revenue = 300 x 2.25$ = 675)
(Use Graph) Jorge's opportunity cost of producing 1 lb of green beans is _lbs of Corn?
4 Opportunity cost: What you give up of one thing when you choose the other. Opp Cost X = Y extreme / X extreme ( Opp cost Beans = corn extreme / bean extreme Opp cost beans = 320 / 80 Opp cost beans = 4 corn (for eavey bean produced, 4 corn not produced)
33Q) Which type of industry structure is most likely to have both allocative efficiency and productive efficiency? (A) Perfect Competition (B) Monopolistic Competition (C)oligopoly (D) Near Monopoly
A
(Graph) Which one always shows demand w/ a price-elasticity of demand
A ( the flat horizontal graph)
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by...
A change in demand in consumer tastes & preferences Supply Determinant (Resource Price); Demand Decrease (expectation); Demand Decrease (Related goods); Demand Increase (Tastes & Pref)
The cross price elasticity of demand btw Breyers ice cream & Dreyer's ice cream is likely to be:
A positive number When Items are similar it would be positive if not like tires and ice cream it will be negative
11Q) Which of the following would not shift the demand curve for beef?
A reduction in the price of cattle feed (supply Sterminat) (Tastes & Preferences) (Income, normal good) (substitute good) = demand related
38Q) The Law of Diminishing Marginal Returns Explains: (A) the shape of the marginal cost curve (B) the beyond some point each additional unit of resource will produce less output (C)the shape of the average cost curves (D) the shape of the demand curve (E) The elasticity of Demand for the Industry
A,B, and C
Include physical capital resources?
Autos owned by a car rental firm; computers at the car rental agency; airport shuttle vans (Remember: Physical capital is tools, equipment, factories, etc. which are "created by man & used to create other things")
30) (Diagram) Refer to the below graph for a monopolist in the short-run. This monopo;ist will change a price of:
B
19Q) In a competitive market illustration by the diagram above, for the price ceiling to be binding and alter the market situation, it must be set:
Below the 15$ ( Equilibrium is at 15$)
44Q) Refer to the graph below. This firms' MES point would be at the point represented by which of the following choices below? (Diagram)
C MES= the least amount of output where cost are at their minimum of Long Run ATC
35Q) In Switzerland banks work together to control the value of the Swiss Franc, Banking fees, interest rates, etc. This collaboration is known as:
Collusion
31Q) (Diagram) Monopolist in the short run. This monopolist will:
Continue producing at a loss
41Q) Which of the following market structure will likely have the least amount of Economic efficiency? (A) Perfect Competition (B) Monopolistic Competition (C)oligopoly (D) Near Monopoly
D
42Q) Which of the following is NOT an example of rent seeking: (A) Supporting appointments to regulatory authorities (B) Campaign conditions for elections (C)Legal action against customers (D) first, second or third degree price discrimination
D
25Q) (Diagram) You are the manager of Alpha. If you do not trust the actions of Beta regarding pricing policy to customers the most likely outcome will be:
D Low trust=go low
41Q) The ability to read work w/ analyze and argue w/ data is known as
Data Literacy
You are a sales manager for a processed food co. & have been informed that the price elasticity of demand for your most popular snack is 1.45. To increase total revenue from that product, you should.
Decrease the price of the snack
21Q) Among a linear downward-sloping demand curve, the price elasticity demand will be
Different across each price range
4Q) What kind of demand curve at the established price is due to?
Firm independence
2Q) Which of the following industries most closely approximates perfect competition?
Foregin Exchange Be sure to review the specific characteristics for each industry structure (# competing suppliers; Standardized/unique good or services; Easy of Entry; Forms of Competition; Rice maker/taker)
18Q) Which of the following depicts the effect on the steel market w/ an increase in subsidies paid by the government to steel producers?
Graph C ( Subsidies "rule of the game" supply determinant. Shift supply rightward)
17Q) Select the graph above that best shows the change in the change in the market specified in the following situation: In the market for new Tesla cars, when the price of electronic components for tesla's increase in price.
Graph D ( this selection depicts the a contraction of supply along the demand curve)
What is the first step in the research process?
Identify the Research Question
Ben likes to treat himself to a smoothie each morning. On Wednesdays, when Jamba Juice decreases the price of smoothies, Ben buys a large one instead. Which is this an example?
Income Effect (When price drops Ben's income goes farther.)
Two Months ago coffee co. sold 2000 coffee mugs at 30$; last month the co raised its price to 35$ per mug & sold 3000 mugs. This is evidence the co. experiencing
Increase in demand
According to elasticity, ceteris paribus, if airlines change business travelers more than leisure travelers for the same flight, it is because there is more:
Inelastic demand for business travelers
9Q) Assume that a corporation is producing 20 units of output. It is elling this output in a purely competitive market at $10 per unit. Its total fixed cost are $100 and its average variable cost is $3 at 20 units of output . The data tells us that this corporation
Is realizing an economic profit of 40$ Total Revenue= 20x$10=$200; Total fixed costs= $100; Total variable cost= $3x20=$60; Total Costs = $100+$60=$160; TR-TC= Economic Profit or Loss; $200-$160=$40 Economic Profit
The sum of your cost of education plus the total lost wages was reported as your:
Is taking into evaluation other possible avenues of option
24Q) Game Theory:
Is the analysis of how firms behave in strategic situations
34Q) A problem with the firm concentration ratio is:
It can be difficult to differentiate between oligopoly and monopoly
Refer to the data above.
Law of diminishing Marginal Utility
28Q) A patent is an example of which barrier to entry?
Legal Restrictions
The Supply curve will be more elastic if:
Marginal Cost Rise slowly PES Determinants: -time; less= inelastic & More=Elastic Marginal Cost: Rise Slowly= Elastic & Rise Quickly=Inelastic
1Q) In which of the following industry Structures is the entry of the new firms the most difficult?
Monopoly (correct)
12Q) (refer to the diagram) a decrease in quantity demanded is depicted by a:
Move from point y to point x ( this is because a decrease in demand will raise the price )
Which of the following best explains the difference btw Neoclassical Econ & Behavioural Econ?
Neoclassical Economics assumes that people are rational in their decision making, while behavioral Economics believes people make systematic errors
45Q) Which of the following is likely to have the most elastic demand curve?
Nike shoes PED Determinants- most elastic when (many substitutes, large proportion of budget, luxury, lots of time)
40Q) When Analyzing the change to the market for Juul products particularly by teenagers from 2015-2019 which determinant most likely explains the increases in the size of this market?
Number & corespontion of consumers
3Q) The "Kinked" demand curve is a theory of which market structure?
Oligopoly
32Q) Refer to the below graph for a pure monopoly. If the government regulated the monopoly and made the firm set a socially-optimal price what price and quantity levels would we observe in the short run?
P2 & Q3 Socially optimal=price= MC Find point on demand curve equal to MC =P2 $ Q3
A Horizontal Supply Curve is:
Perfect Elastic
10Q) (look at the Data) this firm is selling its output in a(n):
Perfect competitive industry Because the Marginal Revenue does not change= indicates perfect competition
The supply of painting by Van Gogh is most likely to be:
Perfectly Inelastic because the artist is no longer painting
Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer the largest decline in demand during a recession?
Plasma seen & LCD TVs (+4.2)
26Q) A break-down in price leadership could lead to successive rounds of price cuts. This is known as:
Prise war
36Q) Production Efficiency means:
Producing at the minimum point of Average Total Cost Economic Efficiency Test Productive Efficiency= at optimum Q, minimum point of ATC curve Allocative Efficiency= at optimum Q, Price (demand curve)= MC
13Q) Ceteris Paribus, if the price of a key resource used to produce product X falles the
Product supply curve of X will shift to the Right (Supply determinant: relevant resources less expensive to produce, increases supply expensive to produce, increase supply shift right)
19Q) Refer to the below diagram for a firm participating in monopolistic competition. This firm will realize an economic:
Profit of $480 AR+MC at Quantity of 160 AR at quantity of 160=$16 ATC at quantity of 160= $13 (AR-ATC) x quantity= econ profit(loss) ($16-$13)x160= $480 Profit
44Q)Kombucha can now be found in many supermarkets for $4.99. If the price of Kombucha falls to $4 what happens and what most accurately helps to explain why?
Quantity Demanded increases due to the substitution effect
40Q) Changing consumers higher prices for low volume; the use of Ebay to sell products; Changing prices based on different elasticities. In order of example, these are examples of:
Second Degree price discrimination, first Degree price discrimination, third Degree price discrimination
29Q) (Diagram) A profit maximizing monopolist facing the situation shown on the graph below should:
Shut down and pay fixed cost only
10 Q) (Use Graph) If the current output of shoes is Q1 then... ?
Society would consider producing additional units as the marginal benefit outweighs the marginal cost. Since they are at Q1 they would want to get equilibrium at Q2.
An Increase in the excise tax on cigarettes raises the price of them by shifting the...
Supply curve for cigarettes leftward (supply determinant: rule of the game increases in taxes, decreases supply, shift left)
23Q) As a general rule, a merger between two companies may be blocked by the U.S Government if their index number combined total 1800 or more and the index rises by 100 points or more. These numbers refer to the:
The Herfindahl index (HHI)
43Q) Use the below Production Possibilities Frontier table to analyze the following: the country currently produces 2000 motorcycles and 30,000 oranges. If the country shifts their production to 3000 motorcycles, which of the below is true?
The Opportunity cost of the change is 30,000 oranges
12Q) Refer to the diagram below. The firm's short-run supply curve is:
The bcd segment of the MC curve (Anything above AVC)
We would expect
The demand for Hershey's to be more price elastic than the demand for chocolate in general -Determinants of PED: Number of Substitutes; Proportion of Budget; Luxury v Necessity;Time -Most Inelastic=Less Elastic: Few substitutes; small production budget; necessity; little time -Most Elastic= Many substitutes large portion of budget; luxury; lots of time
43Q) (Diagram) Which of the following is true regarding this perfectly competitive firm with pricing at P3?
The firm has both productive and allocative efficiency
22Q) Which of the following is an example of a differentiated oligopoly:
The soft drink industry
18Q) A first degree price discrimination monopolistic will attempt to change each buyer(or group of buyers):
Their maximum willingness to pay First Degree= Maximum willingness to pay Second Degree= Buying in bulk (Costco,etc) Third Degree= Pricing based off of elasticity (airlines tickets)
15Q) (look at the Graph) The market for Corn. If the Price in this market is fixed at $2per bushels then ...
There will be a shortage of 4 units of corn (At $2, Shortage of B occurs( 12-4=8) Quantity demanded is 12, Quantity Supply is 4
What does question 27 tell us?
This Industry is relatively limited in expansion
8Q) The MR=MC rule applies:
To firms in all types of industries (Golden Rule of Profit max/loss min. Produce quantity where MR=MC)
21Q) In the long Run, new firms will enter a monopolistically competitive industry:
Until normal profit are earned because barriers to entry are low
7Q) If a firm in a perfectly competitive industry is confronted with an equilibrium price of $5, its marginal revenue:
Will also be $5
An industry comprised of a small number of firms each of which considers the potential reactions of its rivals in making price-output decisions is called:
[Oligopoly] (Few firms w/ 40% or more of the market; High barriers to entry; Homogeneous or differentiated; Inter dependence rent seeking; Price maker)
6Q) A perfectly competitive firm is
[Price taker] Perfect (pure) competition [Many firms; Very low barriers to entry; Standardized(homogeneous); Perfect Information; Price taker]
