Exam 2: Modeling the Market Process: a Review of the Basics

Assume that the marginal revenue associated with the 12^th unit of output is $25 and the marginal cost is $14. As a result, the firm should produce more, because the marginal profit at that output level is greater than zero.

Suppose that a producer's supply curve is estimated to be P = 15 + 3Q and that the product is sold at P = $45. At this price level, the firm's producer surplus is

If demand for clean water is specified as P = 140 - 2Q, and the market price is $40, then consumer surplus at that price level is

If a firm is maximizing profit, it produces at the point where

The supply curve is positively sloped because marginal cost (MC) rises with output (Q).

If supply in the market for air filters is specified as Q_S = 24 + 3P, then, when conventionally graphed,

Conventionally, the graph of demand uses the inverse form of the demand function, which is P = f(Q_D).

The deadweight loss associated with a policy change is measured as

Assume that the market demand for organic tomatoes is modeled as Q_D = 104 - 2P and market supply is Q_S = 20 + 4P. If the actual price is set at $20 per pound, there is a _________ of _______ units of the good.

Cost-effectiveness requires that resources are allocated such that the additional benefits to society are equal to the additional costs.

If a firm is producing at an output level such that the MR is $550 and the MC is $780,

Marginal revenue is defined as

Assume that in the market for bottled water, the market supply is Q_S = 14 + 20P and the market demand is Q_D = 74 - 10P. This means that the equilibrium quantity is

A competitive market is characterized by

Which of the following is NOT a characteristic of a private good?

Consider the market for a Procter and Gamble biodegradable detergent. Suppose that market demand is Q_D = 120 - 3P, and market supply is Q_S = -50 + 2P, where P is the price per case and Q is the quantity in thousands per week. a. Find equilibrium quantity and price. b. What is the value of consumer surplus (CS) and producer surplus (PS) at equilibrium? c. If each case of detergent were sold at $30, determine the amount of the shortage or surplus that would result.

Suppose that a company produces at a point where its MR is $430 and its MC is $105, this implies that

If market demand for solar panels is specified as Q_D = 100 - 2.5P, the vertical intercept of demand, as conventionally graphed, is

Market supply for a private good is found by

In the competitive market for organic corn, market demand is Q_D = 340 - 2P and market supply is Q_S = 100 + 4P, where P is the price per bushel, and Q is market output in thousands of bushels. Each individual farmer faces a marginal cost function of MC = 10 + 3q, where q is the single farmer's output level in thousands. a. What is the equation for the demand (which is also MR) faced by the individual farmer? b. Based on your answer to part (a), find the profit-maximizing output level for each farmer. c. At an output level of 8 thousand bushels, explain in terms of both marginal profit and total profit why the individual farmer should expand production.