Microeconomics Final Word Problems
19. Suppose the government implemented a negative income tax and used the following formula to compute a family's tax liability: Taxes owed = (1/5 of income) − $18,000 Refer to Scenario 1. Below what level of income would families start to receive a subsidy from this negative income tax? a. $18,000 b. $10,000 c. $82,000 d. $90,000
$90,000 figure out how to solve
26. Aliyah has recently graduated from college with a degree in journalism and economics. She has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Aliyah is typically awake for 119 hours each week (she sleeps an average of seven hours each day). For each hour Aliyah spends writing, she can earn $75. Aliyah is such a good writer that she can get paid for as many hours of writing as she chooses to work. Refer to Scenario 2. If Aliyah decides to spend 65 hours a week playing football on the beach and the rest of her time writing, how much income will she have available to spend on consumption goods? A. $4,875 B. $8,925 C. $4,050 D. $750
24 x 7 = 168 hours in week sleep (7x7=49) 168-49=119 beach (119-65) remaining time= 54 (54x$15=$4,050)
90. Refer to Table 3. Suppose the competitive firm's selling price is $4.00 and the marginal factor cost of labor is $600, how many units of labor will the firm hire? A. 4 B. 5 C. 6 D. 3
4 because wage and price are constant
46. A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel? A. 1 B. 2 C. 5 D. 8
800/8 = hotel cost per night $800= (40 x qm) + (6x100) $800 = 40qm + 600 -> 200 =40qm -> qm =5
4. Refer to Figure 2. Why doesn't the total cost curve begin at the origin (the point 0,0)? A. Because variable costs are positive when output is zero B. Because fixed costs are positive when output is zero C. Because the firm is producing at the efficient scale D. Because the firm is maximizing profits
Because the firm is positive when output is zero
8. Refer to Figure 3. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price? A. $450 B. $900 C. $2,100 D. $1,350
Consumer surplus is point where MC and MR meet --> consumer surplus = .5(100-70) x 30 -> .5 x 30 x 30 = $450
86. : Synergy and Dynaco are the only two firms in a specific high-tech industry. They face the following pay-off matrix as they decide upon the size of their research budget. The pay-off matrix for Synergy and Dynaco is shown below Refer to scenario 10. What is the Nash equilibrium for the above scenario? a. Synergy chooses large budget and Dynaco chooses small budget b. Synergy chooses large budget and Dynaco chooses large budget c. Both Synergy and Dynaco chooses small budget d. Both Synergy and Dynaco chooses large budget
Dynaco dominant strategy is large budget Synergy also chooses large budget (large, large)
85. Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers the firm produces 90 units of output. Fixed costs of production are $6 and the variable cost per unit of labor is $10. The marginal product of the seventh unit of labor is 4. Given this information, what is the marginal cost of production when the firm hires the 7th worker? A. $1.50 B. $2.50 C. $5 D. $10
FC + VC = 6 + 10 x 6 = 66 FC + VC = 6 +10 x 7 = 77 TC = 76-66 = 10 10/4 = $2.5 $2.5
10. Refer to Table 5. If Celia and Venya operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn, assuming that the two producers split the market equally? A. $1,920 B. $2,160 C. $2,100 D. $4,320
Find marginal revenue = TRn - TRn-1 EX: 1320-0=1320 2400-1320=1080 3240-2400=840 3840-3240=600 Find last point where revenue is positive -> $4,320/2 ($2160) you divide by 2 representing the two producers
11. Refer to Figure 5. Assume that the market starts in equilibrium at point W in graph (b). An increase in demand from D0 to D1 will result in A. a new market equilibrium at point X. B. an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. C. rising prices and falling profits for existing firms in the market. D. falling prices and falling profits for existing firms in the market.
Increase in demand increases price from P2 to P3 increasing profits for existing firms, so new firms will enter market up to the profit is zero/new equilibrium is at p2 and demand is d1 and supply is s1 An eventual increase in the number of firms in the market and a new long-run equilibrium at Point Z
79. The marginal cost of a monopolist is constant and is $10. The demand curve and the marginal revenue curve of a monopolist is as follows: Demand: Q = 100 - P Refer to scenario 8. The deadweight loss from the monopoly power is A. $1000 B. $1037.50 C. $1025 D. $1012.50
MC = $10 Q = 100 - P P = 100 -Q TR= PQ = (100 - Q) Q = 100Q - Q2 -> d(TR)/dQ = 100 -2Q Monopolist -> 10=100 -2q 2q= 90 q=45 p=55 (1/2 x 45 x 45) = $1012.50
2. Only two firms, ABC and MNO, sell a particular product. The following table shows the demand curve for their product. Each firm has the same constant marginal cost of $4 and zero fixed cost. Refer to Table 2. If ABC and MNO operate to jointly maximize profits and agree to share the profit equally, then how much profit will each of them earn? A. $225.00 B. $62.50 C. $125.00 D. $24.00
MC= 4 MR= 5 Q= 25 units TC = MC x Q TC = 4 x 25 =100 Look for price of 5 and multiply by quantity demanded (5 x 45 = 225) Joint profit = TR -TC (225-100 =125) Because profit is joint /2 125/2 = $62.50
15. Refer to Figure 6. Bundle B represents a point where A. MRSxy > Py/Px. B. MRSxy = Px/Py. C. MRSxy < Px/Py. D. MRSxy > Px/Py
MRS is slope of the indifference curve and price ratio is the slope of the budget line at point B, indifference curve is steeper than budget line MRSxy > Px/Py
18. Refer to Figure 8. If the firm were to produce 154.92 units of output, A. efficient scale would not be realized. B. the firm would earn zero profit. C the firm would earn a positive profit. D. ATC would be at its minimum value.
Minimum point of average variable cost is minimum efficient scale/excess capacity is fully used ATC would be at its minimum value
total revenue equals
Price x Quantity
marginal revenue equals
Total revenue / quantity
17. Refer to Figure 7. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully, A. the total output will be 2 units and the price will be $6.00 per unit. B. the total output will be 2 units and the price will be $8.00 per unit. C. the total output will be 4 units and the price will be $6.00 per unit. D. there will be no deadweight loss.
When observing graph you can see profit maximizing price is at $8 per unit and at the point where firms successfully collide 2 units at $8 per unit
20. Refer to Table 7. The firm should not produce an output level beyond A. 4 units B. 5 units C. 6 units D. 7 units
after 5 units TR-TC begins falling which represents decline of profits
54. Refer to Figure 17. At point D the firm is a) earning profits b) earning negative profits c) maximizing profits d) breaking even
breaking even
5. Refer to Table 3. Which firm's long-run marginal cost decreases as output increases? A. Firm 1 B. Firm 2 C. Firm 3 D. Firm 4
calculate the change in $ per quantity firm 1 is the only option with decreasing long-run marginal cost
9. Refer to Figure 4. Aneesh experiences an increase in her hourly wage. Her optimal choice point moves from A to B. For Aneesh, A. her labor supply curve is upward sloping. B. her labor supply curve is backward bending. C. leisure is a normal good. D. labor is an inferior good
her labor supply curve is backward bending
82. Refer to Scenario 9, the equilibrium outcome a. is for Moto to offer a CD changer and Zport to offer low-profile tires. b. is for Moto to offer free maintenance and Zport to offer a sunroof. c. is for Moto to offer a CD changer and Zport to offer a sun roof. d. does not exist in pure strategies. e. is for Moto to offer free maintenance and Zport to offer low-profile tires.
is for moto to offer a CD charger and Zport to offer low-profile tires
72. Refer to table 10 , the total product and the average product when 5 workers are employed are a. 62 and 15, respectively b. 62 and 13, respectively c. 61 and 12.2, respectively d. 61 and 21, respectively
labor (1) output (10) average product (10) marginal product (10) labor (2) output (24) average product (12) marginal product (14) labor (3) output (13) average product(39) marginal product (15) labor(4) output (52) average product (13) marginal product (13) labor (5) output (61) average product (12.2) marginal product (9) 61 and 12.2 respectively
30. Refer to Table 8. For this firm, the average revenue from selling 4 units is A. $0 B. $1 C. $15 D. 4
marginal revenue = change in total revenue/change in quantity of output chart shows consistent price of $15
average total costs equals
total costs / quantity
marginal cost equals
total costs / quantity
67. Refer to Figure 21. If the market price of soybeans falls to $8/bushel, then to maximize profit how many bushels of output that this farmer should produce? A. 1400 B. 1000 C. 700 D. 200
use figure 21 to match point of connect at $8 (8, 700) 700
3. Refer to Figure 1. Suppose the firm sells its output for $14 per unit, and it pays each of its workers $33 per day. When the number of workers increases from 4 to 5, the A. marginal revenue is $42 per unit of output, and the marginal cost is $33 per unit of output. B. value of the marginal product of labor is $99, and the marginal cost per unit of output is $33. C. value of the marginal product of labor is $42, and the marginal cost per unit of output is about $11. D. firm's profit increases.
value of the marginal product of labor is $42 and the marginal cost per unit of output is about $11
average variable costs equal
variable costs / quantity
88. Refer to scenario 11. What is the Nash equilibrium? a. High Price; Enter b. High Price; Do not enter c. Low price; Enter d. No Nash Equilibria
when big brew maintains high price then little kona enters little kona enters then big brew maintains high price/enter
42. Refer to Figure 14. When the price of X is $6, the price of Y is $24, and income is $48, Paul's optimal choice is point C. Then the price of Y decreases to $8. Paul's new optimal choice is point A. a B. b C. D D. E
C. D because when price of Y decreases to $8 the budget line shifted to the line whose Y coordinate is 6
75. Refer to figure 22, The deadweight loss due to monopoly is represented by the area a. FQ1Q2E b. FGE c. GEH d. FHE
DWL is area between demand and supply curve monopoly prices at MR=MC efficient quantity is at MC=P Area is FHE
70. Assume perfect competition conditions. The market price for a good is $22 and total units produced in the market is 1000. Below is the cost information for the typical firm: TC = q 2 + 2q + 100 MC = 2q + 2 Refer to Scenario 6. Calculate profit (or loss) for the profit maximizing level of output. A. $0 B. $220 C. $120 D. $100
$0 FIND HOW TO SOLVE
48. Katherine gives piano lessons for $20 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are? A. $100 B. $50 C. $0 D. $150
$100 ($150 - $50)
71. Assume perfect competition conditions. Below is the cost information for the typical firm: TC = 3Q3 -18Q2 + 30Q MC = 9Q2 -36Q + 30 Refer to Scenario 7, Find the minimum of AVC A. $9 B. $3 C. $5 D. $10
$3 FIND HOW TO SOLVE
83. If the monopolist facing the demand curve P = 10 - Q is a perfectly discriminating monopolist and the marginal cost is constant at $4, how much will the firm sell if it maximizes its profits? A. 4 B. 5 C. 6 D. 10
10-Q = 4 10= 4 + Q 6 = Q
77. If food (PF) is on the vertical axis and shelter (PS) is on the horizontal axis, then the equation of the budget line can be expressed as a. PSS + PFI = F b. PSS + PFF = I c. PFS + PSF = I d. PS/PF = (F+S)/I
PsS + PfF = I
84. Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when the firm hires 4 workers, the firm produces 50 units of output. If the fixed cost of production is $4, the variable cost per unit of labor is $20, and the marginal product of labor for the fifth unit of labor is 2, what is the average total cost of production when the firm hires 5 workers? A. $2 B. $20 C. $20.8 D. $22.8
Total cost = FC + VC -> TC = 4 +20(5) = 4 + 100 = 104 output by 5 workers = output of 4 + mp of 5th 50 + 2 = 52 AVC = TC/Output -> 104/52 = $2
47. Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be? a. $3,875 b. -$3,875 c. $1,500 d. -$1,500
cost of production = 100 x 300 = 30,000 total revenue= 95 x 275= 26,125 30,000 - 26,125 = profit of -3875
41. A consumer likes two goods: books and movies. The three bundles shown in the table below lie on the same indifference curve for the consumer. Which of the following properties of indifference curves would this consumer's preferences violate? a. Indifference curves are downward sloping. b. Indifference curves do not cross. c. Indifference curves are bowed inward. d. These bundles do not violate any of the properties of indifference curves.
combination of 3 books/3 movies violates the property that indifference curves are bowed inward
34. Refer to Figure 12. It would be possible for the consumer to reach I3 if A. the price of Y increases B. the price of X increases C. income decreases D. the price of Y decreases
decrease of Y causes decrease of price closer to I3
69. Assume perfect competition conditions. The market price for a good is $22 and total units produced in the market is 1000. Below is the cost information for the typical firm: TC = q 2 + 2q + 100 MC = 2q + 2 Refer to Scenario 6. Find the ATC for the firm. a. q + 2 + 100 b. q + 2q + 100 c. q + 2q + 100/q d. q + 2 + 100/q
q + 2 + 100 / q
marginal costs equals
total costs / quantity
profit equals
total revenue - total cost
38. A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should A. hire more employees B. buy more capital C. shut down D. continue production at a point where P=MC
100-40=60 <- AVC when AVC is greater than price shut down
31. Refer to Figure 10. Suppose the manufacturing labor market, which is nonunionized, is in equilibrium at a wage equal to $25. Suppose now that the AFL-CIO (a labor organization) organizes the workers in the manufacturing market and negotiates a wage of $30 per hour. Because of the union, a. 80 people who were once employed are now unemployed. b. 40 people who were once employed are now unemployed. c. 80 people who were once unemployed are now employed. d. 40 people who were once unemployed are now employed.
employer is paying higher wages but employing less 40 people who were once employed are now unemployed
76. Refer to figure 22, Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the a. area FHE b. area FGE c. area P1P2EF d. area P1P2GF
perfect competition price is at intersection of demand and supply equilibrium price = p2 therefore CS = P0P2E Monopoly price is set when MR=MC, corresponding to point H which is OP Loss in CS due to monopoly = area P0P2E - area P0P1E = Area P1P2EF
36. Refer to Figure 13, the profit-maximizing price and quantity established by the unregulated monopolist in the above figure are a. Q1 units of output and a price of P1 b. Q4 units of output and a price of P4 c. Q1 units of output and a price of P5 d. Q3 units of output and a price of P3
the price on demand curve at profit maximizing quantity (q1 is p1) MR and MC curves intersect at q1
53. Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags of seeds, she gets 800 pumpkins. If she plants 3 bags of seeds, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Refer to Scenario 4. Joan's total-cost curve is a. increasing at an increasing rate. b. increasing at a decreasing rate. c. increasing at a constant rate. d. decreasing.
total cost grows as output grows increasing at an increasing rate
59. Refer to Figure 18. Why doesn't the total cost curve begin at the origin (the point 0,0)? a. because variable costs are positive when output is zero b. because fixed costs are positive when output is zero c. because the firm is producing at the efficient scale d. because the firm is maximizing profits
total costs are positive even at zero because of fixed costs resulting fixed costs are positive when output is zero
37. Refer to Figure 13, the total cost of producing the profit maximizing level of output is shown by a. OP1AQ1 b. OP5EQ5 c. OP4HQ4 d. OP2BQ1
OP2BQ1
57. At Bert's Bootery, the total cost of producing twenty pairs of boots is $400. The marginal cost of producing the twenty first pair of boots is $83. We can conclude that the a. average variable cost of 21 pairs of boots is $23. b. average total cost of 21 pairs of boots is $23. c. average total cost of 21 pairs of boots is $15.09. d. marginal cost of the 20th pair of boots is $20.
average total cost 21 boots = 400 + 83 = 483 483/21 =23
64. Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run
operating costs are more than revenue resulting in loss of profits operate in short run but shutdown in the long run
49. Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business? A. $60 B. $280 C. $0 D. $340
opportunity cost (.03x2000) + (.07x4000) $60+$280 = $340
66. Refer to Figure 21. Calculate the farmer's profit, if the farmer is producing the profit maximizing level of output. A. $0 B. $3000 C. $2800 D. $4000
output = (price - AC) x quantity = (12-9) x 1000 $3000
62. A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100, and its average fixed cost is $40. In the short run the firm should a) hire more employees. b) buy more capital. c) shutdown. d) continue production at a point where P = MC.
selling price = 20 fixed cost = 40 avg total cost = 100 100-40= 60 (AVC) 60 > 20 SHUT DOWN
43. Refer to Figure 15. If the consumer is currently at point A in the figure, a movement to point B as a result of a decrease in the price of potato chips represents the A. substitution effect B. income effect C. budget effect D. price effect
the budget line did not shift potato chips are more consumed and substituted for diet coke substitution effect
13. Refer to Table 6. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold? A. $140 B. $420 C. $450 D. $620
160 + 150 + 140 = $450 price per unit
50. On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product? i. L = 4; Quantity Produced = 5200 bushels of wheat ii. L = 4; Quantity Produced = 5400 bushels of wheat iii. L = 4; Quantity Produced = 5800 bushels of wheat iv. L = 4; Quantity Produced = 6000 bushels of wheat a. Only (i) b. Only (i) and (ii) c. Only (ii) and (iii) d. All four possibilities show the property of diminishing marginal productivity
Only (i) and (ii)
73. Consider the demand curve of the form Q = a - bP. If a is a positive real number, and b = 0, then demand is a. completely inelastic b. elastic, but not infinitely c. unit elastic d. inelastic, but not infinitely
Q= a - bP is demand curve A= real number B= 0 Q= a a is fixed demand at any price demand curve is vertical and completely inelastic because demand doesn't change with price
44. John is planning ahead for retirement in a two-period world. When John is young he will earn $1 million, and when John is old and retired he will be given $50,000 from Social Security. If the interest rate between the two time periods is 7 percent, what is the slope of John's budget constraint when considering the consumption possibilities between the two periods if consumption when young is graphed on the horizontal axis and consumption when old is graphed on the vertical axis? A. -.89 B. -1.05 C. -1.07 D. -1.12
Slope is -(1+R) R= interest rate -(1+.07) = -1.07
56. Larry's Lunchcart is a small street vendor business. If Larry makes 15 pretzels in his first hour of business and incurs a total cost of $16.50, his average total cost per pretzel is a. $1.10. b. $6.50. c. $15.00. d. $16.50.
average total cost = total cost/quantity 16.5/15 = 1.1
51. At a widget manufacturing company, the total costs of producing 19 widgets is $575 and the marginal cost of producing the twentieth widget is $79.65. We can conclude that the a. average total costs of 20 widgets is $32.73 b. average variable costs of 20 widgets is $32.73 c. average total costs of 20 widgets is $28.75 d. fixed costs of producing 20 widgets is $49.35
average total costs of 20 widgets is $32.73
60. Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should: a) continue producing in the short run, but plan to go out of business in the long run. b) close her doors immediately. c) continue producing in the short and long run. d) raise her prices above the perfectly competitive level.
cost= 3.95 expense = 1.25 revenue = 5 cost + expense = 5.2 5.2 > 5 continuing producing but prepare to shut down in long run
Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters or whether Big Brew sets a high price or a low price. The pay-off matrix for Big Brew and Little Kona is given below: Refer to scenario 11. If the two firms could collude and agree on how to split the total profits, how much profit would each firm get? A. $7 M each B. $3 M each C. $3.5 each D. $2.5 each
divide $7 by the two firms $3.5 M each
1. The information in the following table shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. Refer to Table 1. Assume that there are two profit-maximizing internet radio providers operating in this market. Further assume that they are able to collude on the quantity of subscriptions that will be sold on the price that will be charged for subscriptions, then their agreement will stipulate that A. each firm will charge a price of $40, and each firm will sell 1500 subscriptions B. each firm will charge a price of $40, and each firm will sell 3000 subscriptions C. each firm will charge a price of $32, and each firm will sell 4000 subscriptions D. each firm will charge a price of $32, and each firm will sell 2000 subscriptions
each firm will charge a price of $40, and each firm will sell 1500 subscriptions
6. Refer to Table 4. For the firm whose production function and costs are specified in the table, its average-total-cost curve is A. constant B. decreasing C. increasing D. U-shaped
find total cost = FC + VC then find average total cost = TC/output From there make rough chart from creating chart it creates u-shape
74. Refer to table 11, This table shows the pay-off matrix between two firms A and B, that must choose between a high price strategy and a low-price strategy. The Nash equilibrium in this game a. does not exist b. occurs when both firms set a low price c. occurs when both firms set a high price d. occurs when firm A sets a high price and firm B sets a low price
firm b has dominant strategy at charging low price both chose to enter making equilibrium at low prices
total cost equals
fixed cost + variable cost
average fixed costs equals
fixed costs / quantity
55. Suppose that Emily opens a restaurant. She receives a loan from a bank for $200,000. She withdraws $100,000 from her personal savings account. The interest rate on the loan is 6%, and the interest rate on her savings account is 2%. Refer to Scenario 5. Emily's annual explicit cost of capital is a. $2,000. b. $4,000. c. $12,000. d. $14,000.
loan = 200,000 loan rate= 6% 200,000 x .06 = 12,000
45. Refer to Figure 16. Assume that the consumer depicted the figure has an income of $50. Based on the information available in the graph, which of the following price-quantity combinations would be on her demand curve for chocolate chips if the price of marshmallows is $2.50? a. P=$2.50, Q=6 b. P=$2.50, Q=10 c. P=$5.00, Q=3 d. P=$5.00, Q=5
marshmallow= 2.5 x 10 = $25 cookie= 2.5x 10=$25 p=2.5 q=10
52. Joan grows pumpkins. If Joan plants no seeds on her farm, she gets no harvest. If she plants 1 bag of seeds, she gets 500 pumpkins. If she plants 2 bags of seeds, she gets 800 pumpkins. If she plants 3 bags of seeds, she gets 900 pumpkins. A bag of seeds costs $100, and seeds are her only cost. Refer to Scenario 4. Joan's production function exhibits a. increasing marginal product. b. decreasing marginal product. c. constant marginal product. d. Any of the above could be correct.
mp2 = 800-500/2-1=300 mp3= 900-800/1= 100 Since production falls from 300 to 100 it decreases at marginal product
68. Robin owns a horse stable and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. To maximize profits, Robin should a. give riding lessons to more than 20 children per month. b. give riding lessons to fewer than 20 children per month. c. continue to give riding lessons to 20 children per month. d. We do not have enough information to answer the question.
price = total rev/quantity = 400/20 = 200 When MR is greater than MC production of one more extra unit is profitable so increase children to maximize profit
35. Refer to Figure 13, suppose the monopolist is producing at Q3. The firm should A. decrease output and increase price B. Shut down C. not change output or price D. increase output or decrease price
profit is maxed at MR=MC/currently firm is not producing at MR=MC causing decrease of output and increase of price
63. Refer to Figure 20, Suppose that a firm in a competitive market has the cost curve in the above figure. In the long run the typical firm in this market will produce a quantity equal to A. q1 B. Q1 C. q3 D. q2
q3
12. Juan Pablo and Zak are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If they both advertise on TV, each will earn a profit of $8,000. If they both advertise on radio, each will earn a profit of $14,000. If neither advertises at all, each will earn a profit of $20,000. If one advertises on TV and other advertises on radio, then the one advertising on TV will earn $12,000 and the other will earn $10,000. If one advertises on TV and the other does not advertise, then the one advertising on TV will earn $22,000 and the other will earn $4,000. If one advertises on radio and the other does not advertise, then the one advertising on radio will earn $24,000 and the other will earn $8,000. If both follow their dominant strategy, then Juan Pablo will A. advertise on TV and earn $8,000 B. advertise on radio and earn $14,000 C. advertise on TV and earn $22,000 D. not advertise and earn $20,000
radio advertising offer equal profit towards competitor advertise on radio and earn $14,000
39. Suppose the price of hot wings is $10, the price of beer is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and beer on the vertical axis. Refer to Scenario 3. If the price of beer doubles to $2, then the a. budget constraint intersects the vertical axis at 25 beers. b. slope of the budget constraint rises to -2. c. slope of the budget constraint falls to -4. d. budget constraint shifts inward in a parallel fashion.
slope= -10/2 = -5 (0,50) max beers at $1 (0,25) max beers at $2 budget constraint intersects the vertical axis at 25 beers
40. Suppose the only two goods that Lorenzo consumes are wine and cheese. When wine sells for $10 a bottle and cheese sell for $10 a pound, he buys 6 bottles of wine and 4 pounds of cheese — spending his entire income of $100. One day the price of wine falls to $5 a bottle, and the price of cheese increases to $20 a pound, while his income does not change. If you illustrate wine on the vertical axis and cheese on the horizontal axis, then a. the slope of Lorenzo's budget has not changed. b. the slope of Lorenzo's budget constraint is flatter at the new prices. c. the slope of Lorenzo's budget constraint is steeper at the new prices. d. Lorenzo's budget constraint has shifted in a parallel fashion to the budget constraint with the old prices.
such high prices will cause a steeper slope at new prices the slope of Lorenzo's budget constraint is steeper at the new prices
25. Refer to Figure 9. Curve C represents which type of cost curve? A. marginal cost B. average total cost C. average variable cost D. average fixed cost
the curve decreases as the output increases are the average fixed cost because the fixed cost is the same at all levels of output
58. Refer to Figure 18. Which of the following can be inferred from the figure above? (i) Marginal cost is increasing at all levels of output. (ii) Marginal product is increasing at low levels of output. (iii)Marginal product is decreasing at high levels of output a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (ii) only
total cost increases slowly with the output and later on with less output the total cost is increasing at rapid pace initially per dollar spent the marginal product is high and later decreases (diminishing marginal product) ii and iii
87. Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters or whether Big Brew sets a high price or a low price. The pay-off matrix for Big Brew and Little Kona is given below: Refer to scenario 11. What is the dominant strategy of Little Kona? A. enter B. Do not enter C. Low Price D. No dominant strategy
when little Kona enters its either suffers loss or earn profit and if it doesn't enter then payoff is 0 dominant strategy
61. Refer to Figure 19. If the market price falls below $6, the firm will earn a) negative economic profits in the short run but remain in business. b) positive economic profits in the short run. c) zero economic profits in the short run. d) negative economic profits in the short run and shut down.
when market prices fall below $6 firm will make negative economic profits in the short run and shut down
81. Which of the following is true for the game in the above scenario (9)? a. neither company has dominant strategy b. Moto's dominant strategy is the free maintenance c. Zport's dominant strategy is the low-profile tires d. Zport's dominant strategy is the sun roof e. Moto's dominant strategy is the CD charger
when moto offers CD charger than Z port choose low profile when moto effects free maintained then z port choose low profile so Zport is dominant in low profile tires low profile tires
32. Refer to Figure 11. Suppose the intersection of the supply and demand curves matches with a value of $200 on the vertical axis. Then A. the marginal product of capital is 200. B. the value of the marginal product of capital is $200. C. a unit of capital can be purchased for $200. D. each worker in markets that produce capital goods earns a wage of $200.
when supply demand curve intersects the value of marginal product will be $200 marginal product of capital is the extra output which the firm gets from extra unit of capital
