Question 1

Which of the following statements identifies a key difference between condominiums and cooperative housing?

Accepted Answer

A)  Condos tend to be less expensive. 
B)  Condo owners are not responsible for maintaining the common spaces in the building. 
C)  Co-op owners have more control over who can move into their building. 
D)  Co-op owners generally commit less time to the building governance. 
A)  Condos tend to be less expensive. 
B)  Condo owners are not responsible for maintaining the common spaces in the building. 
C)  Co-op owners have more control over who can move into their building. 
D)  Co-op owners generally commit less time to the building governance.

Question 2

In a supply-and-demand graph, producer surplus can be pictured as the:

Accepted Answer

A)  vertical intercept of the supply curve. 
B)  area between the demand curve and the supply curve to the left of equilibrium output. 
C)  area under the supply curve to the left of equilibrium output. 
D)  area under the demand curve to the left of equilibrium output. 
E)  area between the equilibrium price line and the supply curve to the left of equilibrium output. 
A)  vertical intercept of the supply curve. 
B)  area between the demand curve and the supply curve to the left of equilibrium output. 
C)  area under the supply curve to the left of equilibrium output. 
D)  area under the demand curve to the left of equilibrium output. 
E)  area between the equilibrium price line and the supply curve to the left of equilibrium output.

Question 3

In the short run, a perfectly competitive profit maximizing firm that has not shut down:

Accepted Answer

A)  is operating on the downward-sloping portion of its AVC curve. 
B)  is operating at the minimum of its AVC curve. 
C)  is operating on the upward-sloping portion of its AVC curve. 
D)  is not operating on its AVC curve. 
E)  can be at any point on its AVC curve. 
A)  is operating on the downward-sloping portion of its AVC curve. 
B)  is operating at the minimum of its AVC curve. 
C)  is operating on the upward-sloping portion of its AVC curve. 
D)  is not operating on its AVC curve. 
E)  can be at any point on its AVC curve.

Question 4

Figure 8.4.2
-Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure of a perfectly competitive coffee farm, on a per-unit basis. What is the profit maximizing number of sacks when the price of coffee in the market is $380 dollars?

Accepted Answer

A)  6 sacks 
B)  14 sacks 
C)  22 sacks 
D)  14 or 22 sacks 
A)  6 sacks 
B)  14 sacks 
C)  22 sacks 
D)  14 or 22 sacks

Question 5

Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?

Accepted Answer

A)  Firm produces less than optimal quantity and earns lower profits. 
B)  Firm produces less than optimal quantity and earns higher profits. 
C)  Firm produces more than optimal quantity and earns lower profits. 
D)  Firm produces more than optimal quantity and earns higher profits. 
A)  Firm produces less than optimal quantity and earns lower profits. 
B)  Firm produces less than optimal quantity and earns higher profits. 
C)  Firm produces more than optimal quantity and earns lower profits. 
D)  Firm produces more than optimal quantity and earns higher profits.

Question 6

Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will:

Accepted Answer

A)  exceed the profit-maximizing level of output. 
B)  be smaller than the profit-maximizing level of output. 
C)  equal the profit-maximizing level of output. 
D)  generate zero economic profits. 
A)  exceed the profit-maximizing level of output. 
B)  be smaller than the profit-maximizing level of output. 
C)  equal the profit-maximizing level of output. 
D)  generate zero economic profits.

Question 7

Figure 8.8.1
-Refer to Figure 8.8.1 above. After the increase in demand, from D1 to D2 in panel (b), and being this a constant-cost industry, what is likely to happen in the market?

Accepted Answer

A)  Supply will not shift, and the market will settle in equilibrium at point B. 
B)  Supply will shift to S2 and the market will settle in equilibrium at point C. 
C)  Supply will shift to S2 and the market will settle in equilibrium back at point A, after going through B and then C. 
D)  Supply will not shift and the market will settle in equilibrium back at point A after moving only temporarily to point B. 
A)  Supply will not shift, and the market will settle in equilibrium at point B. 
B)  Supply will shift to S2 and the market will settle in equilibrium at point C. 
C)  Supply will shift to S2 and the market will settle in equilibrium back at point A, after going through B and then C. 
D)  Supply will not shift and the market will settle in equilibrium back at point A after moving only temporarily to point B.

Question 8

The market for wheat consists of 500 identical firms, each with the total and marginal cost functions shown:
TC = 90,000 + 0.00001Q2 
MC = 0.00002Q,
where Q is measured in bushels per year. The market demand curve for wheat is Q = 90,000,000 20,000,000P, where Q is again measured in bushels and P is the price per bushel.
a. Determine the short-run equilibrium price and quantity that would exist in the market.
b. Calculate the profit maximizing quantity for the individual firm. Calculate the firm's short-run profit (loss) at that quantity.
c. Assume that the short-run profit or loss is representative of the current long-run prospects in this market. You may further assume that there are no barriers to entry or exit in the market. Describe the expected long-run response to the conditions described in part b. (The TC function for the firm may be regarded as an economic cost function that captures all implicit and explicit costs.)

Accepted Answer

a.Market supply is horizontal sum of ind

Question 9

Figure 8.4.1
-Refer to Figure 8.4.1 above. The shaded area in the graph shows:

Accepted Answer

A)  the increase in profit when output is reduced from 8 to 7 units of output. 
B)  the profit that could be made if output increases from 7 to 8 units of output. 
C)  the deadweight loss associated with the power of the price taking firm. 
D)  the amount of profit when 8 units of output are produced. 
A)  the increase in profit when output is reduced from 8 to 7 units of output. 
B)  the profit that could be made if output increases from 7 to 8 units of output. 
C)  the deadweight loss associated with the power of the price taking firm. 
D)  the amount of profit when 8 units of output are produced.

Question 10

The market demand for a type of carpet known as KS-12 has been estimated as
P = 75 - 1.5Q,
where P is price ($/yard), and Q is output per time period (thousands of yards per month). The market supply is expressed as P = 25 + 0.50Q. A typical competitive firm that markets this type of carpet has a marginal cost of production of
MC = 2.5 + 10q.
a. Determine the market equilibrium price for this type of carpet. Also determine the production rate in the market.
b. Determine how much the typical firm will produce per week at the equilibrium price.
c. If all firms had the same cost structure, how many firms would compete at the equilibrium price computed in (a) above?
d. Determine the producer surplus the typical firm has under the conditions described above. (Hint: Note that the marginal cost function is linear.)

Accepted Answer

a.Market equilibrium price is found by e

Question 11

Figure 8.7.3
-Refer to Figure 8.7.3 above. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, the firm will be forced to operate at what level of output?

Accepted Answer

A)  22 
B)  34 
C)  38. 
D)  50 
E)  64 
A)  22 
B)  34 
C)  38. 
D)  50 
E)  64

Question 12

That Table 8.1 shows a short-run situation is evident from:

Accepted Answer

A)  the linear marginal revenue function. 
B)  the constant price. 
C)  the increasing marginal cost. 
D)  the presence of positive costs at Q = 0. 
E)  the absence of marginal values at Q = 0. 
A)  the linear marginal revenue function. 
B)  the constant price. 
C)  the increasing marginal cost. 
D)  the presence of positive costs at Q = 0. 
E)  the absence of marginal values at Q = 0.

Question 13

The demand for pizzas in the local market is given by:   There are 100 pizza firms currently in the market. The long-run cost function for each pizza firm is:   where w is the wage rate pizza firms pay for a labor hour and q is the number of pizzas produced. The marginal cost function for each firm is:   If the current wage rate is $7 and the industry is competitive, calculate the optimal output of each firm given each firm produces the same level of output. Do you anticipate firms entering or exiting the pizza industry? Suppose that the wage rate increases to $8.40. Calculate optimal output for each of the 100 firms. Do you anticipate firms entering or exiting the pizza industry? What happens to the market output of pizzas with the higher wage rate? What happens to the market price for pizza?

Accepted Answer

To determine the optimal output of each

Question 14

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?

Accepted Answer

A)  Consumers know their preferences. 
B)  Consumers know their income levels. 
C)  Consumers know the prices available. 
D)  Consumers can anticipate price changes. 
E)  Firms know their costs, prices and technology. 
A)  Consumers know their preferences. 
B)  Consumers know their income levels. 
C)  Consumers know the prices available. 
D)  Consumers can anticipate price changes. 
E)  Firms know their costs, prices and technology.

Question 15

Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule.
II) The firm's supply decision is to generate zero output for all prices below the minimum AVC.

Accepted Answer

A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false. 
A)  I and II are true. 
B)  I is true and II is false. 
C)  II is true and I is false. 
D)  I and II are false.

Question 16

Figure 8.4.2
-Refer to Figure 8.4.2 above. When the coffee farmer maximizes profit, how much is his profit?

Accepted Answer

A)  $116 
B)  $97 
C)  $1,624 
D)  $2,134 
A)  $116 
B)  $97 
C)  $1,624 
D)  $2,134

Question 17

Laura's internet services has the following short-run cost curve:   where q is Laura's output level, K is the number of servers she leases and r is the lease rate of servers. Laura's short-run marginal cost function is:   Currently, Laura leases 8 servers, the lease rate of servers is $15, and Laura can sell all the output she produces for $500. Find Laura's short-run profit maximizing level of output. Calculate Laura's profits. If the lease rate of internet servers rise to $20, how does Laura's optimal output and profits change?

Accepted Answer

The profit maximizing output level is wh

Question 18

Generally, long-run elasticities of supply are:

Accepted Answer

A)  greater than short-run elasticities, because existing inventories can be exploited during shortages. 
B)  greater than short-run elasticities, because consumers have time to find substitutes for the good. 
C)  greater than short-run elasticities, because firms can make alterations to plant size and input combinations to be more flexible in production. 
D)  smaller than short-run elasticities, because the firm has made long-term commitments it cannot easily modify. 
E)  the same as short-run elasticities, because technology is not assumed to change in the long-run adjustment process. 
A)  greater than short-run elasticities, because existing inventories can be exploited during shortages. 
B)  greater than short-run elasticities, because consumers have time to find substitutes for the good. 
C)  greater than short-run elasticities, because firms can make alterations to plant size and input combinations to be more flexible in production. 
D)  smaller than short-run elasticities, because the firm has made long-term commitments it cannot easily modify. 
E)  the same as short-run elasticities, because technology is not assumed to change in the long-run adjustment process.

Question 19

An improvement in technology would result in:

Accepted Answer

A)  upward shifts of MC and reductions in output. 
B)  upward shifts of MC and increases in output. 
C)  downward shifts of MC and reductions in output. 
D)  downward shifts of MC and increases in output. 
E)  increased quality of the good, but little change in MC. 
A)  upward shifts of MC and reductions in output. 
B)  upward shifts of MC and increases in output. 
C)  downward shifts of MC and reductions in output. 
D)  downward shifts of MC and increases in output. 
E)  increased quality of the good, but little change in MC.

Question 20

The following table contains information for a price taking competitive firm. Complete the table and determine the profit maximizing level of output (round your answer to the nearest whole number).
Total Marginal Fixed Average Total Average Marginal
Output Cost Cost Cost Cost Revenue Revenue Revenue
0 25
1 35
2 30
3 45
4 185
5 57
6 120 240

Accepted Answer

Total Marginal Fixed Average Total Avera

Which of the following statements identifies a key difference between condominiums and cooperative housing?

In a supply-and-demand graph, producer surplus can be pictured as the:

In the short run, a perfectly competitive profit maximizing firm that has not shut down:

Figure 8.4.2 -Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure of a perfectly competitive coffee farm, on a per-unit basis. What is the profit maximizing number of sacks when the price of coffee in the market is $380 dollars?

Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?

Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will:

Figure 8.8.1 -Refer to Figure 8.8.1 above. After the increase in demand, from D₁ to D₂ in panel (b), and being this a constant-cost industry, what is likely to happen in the market?

Figure 8.4.1 -Refer to Figure 8.4.1 above. The shaded area in the graph shows:

Figure 8.7.3 -Refer to Figure 8.7.3 above. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, the firm will be forced to operate at what level of output?

That Table 8.1 shows a short-run situation is evident from:

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?

Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. II) The firm's supply decision is to generate zero output for all prices below the minimum AVC.

Figure 8.4.2 -Refer to Figure 8.4.2 above. When the coffee farmer maximizes profit, how much is his profit?

Generally, long-run elasticities of supply are:

An improvement in technology would result in:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Behavioral Economics

Filters

Exam 8: Profit Maximization and Competitive Supply

Which of the following statements identifies a key difference between condominiums and cooperative housing?

In a supply-and-demand graph, producer surplus can be pictured as the:

In the short run, a perfectly competitive profit maximizing firm that has not shut down:

Figure 8.4.2 -Refer to Figure 8.4.2 above. The figure describes the cost and revenue structure of a perfectly competitive coffee farm, on a per-unit basis. What is the profit maximizing number of sacks when the price of coffee in the market is $380 dollars?

Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?

Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will:

Figure 8.8.1 -Refer to Figure 8.8.1 above. After the increase in demand, from D1 to D2 in panel (b), and being this a constant-cost industry, what is likely to happen in the market?

Figure 8.4.1 -Refer to Figure 8.4.1 above. The shaded area in the graph shows:

Figure 8.7.3 -Refer to Figure 8.7.3 above. As the competitive industry, not just the firm in question, moves toward long-run equilibrium, the firm will be forced to operate at what level of output?

That Table 8.1 shows a short-run situation is evident from:

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?

Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. II) The firm's supply decision is to generate zero output for all prices below the minimum AVC.

Figure 8.4.2 -Refer to Figure 8.4.2 above. When the coffee farmer maximizes profit, how much is his profit?

Generally, long-run elasticities of supply are:

An improvement in technology would result in:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

The Cost of Production

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Behavioral Economics

Filters

Figure 8.8.1 -Refer to Figure 8.8.1 above. After the increase in demand, from D₁ to D₂ in panel (b), and being this a constant-cost industry, what is likely to happen in the market?