Econ 302 Final

Terms in this set (219)

Bob runs a pedicure business in a perfectly competitive industry. He knows that he will break even if the price of pedicures is $15 but that he will have to shut down if the price is $11. If the market demand in the industry is P = 30 - (0.2)Q and the market supply is P = (0.2)Q, then in the short run, Bob will:

produce, since he is at his break-even level

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the typical firm is likely to begin:

earning an economic profit

Suppose that Jody sells fish in a perfectly competitive market. He can sell each fish for $5, and today he brought 20 fish to the fish market. If his total variable cost is $110 and his total fixed cost is $50, then:

he should have stayed home

A competitive firm operating in the short run is maximizing profits and just breaking even. Its costs include a monthly license fee of $100 that is imposed by the state and must be paid for as long as the firm is in existence. If the license fee is raised to $150, what should the firm do to maximize profits in the short run?

not change output

If the marginal revenue for the next unit being produced is $50, but the marginal cost is $45, the firm should:

increase production

Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must be true that the firm's:

marginal revenue exceeds its marginal costs

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:

negative economic profits (firms will leave the industry)

The market for beef is in long-run equilibrium at a price of $3.25 per pound. The announcement that mad cow disease has been discovered in the United States reduces the demand for beef sharply, and the price falls to $2.00 per pound. If the long-run supply curve is horizontal, then when the long-run equilibrium is reestablished, the price will be:

$3.25 per pound

Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, a decrease in population decreases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.

fall; fall

Suppose the market for widgets is perfectly competitive. Furthermore, suppose the total cost curve for a typical firm in this market is TC = 123 + 3q2 where q represents the quantity of widgets sold by a single supplier; and that marginal costs are equal to dTC/dq.

Suppose that there are 47 sellers in this market, sharing a market demand given by P = 1477 - 5Q, where P represents price per widget and Q represents the market quantity of widgets sold.

What is the short-run equilibrium quantity in this market?

...

In which case would production using just men or just women be less efficient than using both men and women?

men and women may be perfect substitutes and equally productive in some or all industries

For many firms, capital is the production input that is typically fixed in the short run. Which of the following firms would face the longest time required to adjust its capital inputs?

Computer chip fabricator
Flat-screen TV manufacturer
Nuclear power plant
Firm that makes DVD players.

correct answer: nuclear power plant

On this chapter quiz for this course you can study for up to four hours If you don't study at all you will get a 70. One hour would give you an 80, the second hour increased your score to 89, the third to 92. If you studied the fourth hour your score would be 87. In which hour did diminishing returns set in?

the second because you gain less than the previous hour

Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that:

production at this point is technically inefficient

A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

use 0.8 fewer unit of capital

Say you manage a car wash, and that you charge $10 for every car wash. If you pay your workers $10 per day, and the production function was given by this table (L = workers; q = car washed):

L: q:
0 0

1 1

2 3

3 4

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input in the production function at your deli?

the dining room where customers eat their meals

Oscar has negotiated a lease for his sporting goods store in which he is required to pay $2,500 per month in rent. Oscar pays his staff $9 per hour to sell sporting goods and his monthly electricity bill averages $700, depending on his total hours of operation. Oscar's fixed costs per month equal:

$2,500

When a cherry orchard in Oregon adds an additional worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is:

$40 ($24,000/600 = 40)`

Suppose that Bob leaves a job that pays $50,000 per year in order to open a new sponge business. His insurance cost is $5,000, his material cost is $25,000, his lease payments are $10,000 and his sales revenue is $90,000. Bob's economic profit is:

Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=3 machines, what is his short-run production function?

q = 9L

We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K=10 robots and L=10 workers in order to produce q = 450 autos per shift, then we know that production is:

technologically inefficient

Consider the following statements when answering this question;
I. Suppose a semiconductor chip factory uses a technology where the average product of labor is constant for all employment levels. This technology obeys the law of diminishing returns.
II. Suppose a semiconductor chip factory uses a technology where the marginal product of labor rises, then is constant and finally falls as employment increases. This technology obeys the law of diminishing returns.

I is false and II is true

Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor?

MP = 5k

Joe's Organic Cereal Company produces granola breakfast cereal under a fixed proportion production system in which 22 ounces of cereal are packaged in each cardboard box. However, the plant production manager decides to reduce the amount of cereal per box to 20.5 ounces at the start of the next year. For the isoquant map, cereal is plotted in the vertical axis, and boxes are on the horizontal axis. What happens to the curves in the isoquant map as a result of this change?

shifts downward

Write the equation for the marginal product of capital for each of the following production functions:

a) Q = 4L^2.5K^0.5.

b) output elasticity of labor for this equation is equal to:

c) output elasticity of capital for this equation is equal to:

a) MPL = 10L^1.5 K^0.5

b) 2.5

c) 0.5

Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. If labor is his only variable cost, what is Austin's total cost?

$4,800 (3600 + (20 x 60))

The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the marginal cost of increasing output from 5 clients to 6 clients?

Quantity FC VC TC

5 70 95

6 70 120

$25 (120 - 95)

Darren runs a barbershop with average fixed costs equal to $60 per day and a total output of 50 haircuts per day. What is his weekly total fixed cost if he is open six days per week?

$18,000 (($60 x 50) x 6 days)

For a restaurant:

labor and food would be variable resources and a building would be a fixed resource in the short run

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a fixed input in the production function at your deli?

dining room where customers eat their meals

Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:

lower apple prices due to the entry of new firms

negative economic profits

If a perfectly competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $26 per bushel and the marginal cost is $26 per bushel, the firm should:

cut output to zero

If a competitive firm can sell a ton of steel for $500 a ton and it has an average variable cost of $400 a ton, and the marginal cost is $600 a ton, the firm should:

reduce output

Heath's company is currently producing 30 units of output. The price of the good is $8 per unit. Total fixed costs are $50 and the average variable cost is $5 at 30 units. This company:

is experiencing an economic profit of $40

(30 x $8 = 240 - 50 - (30 x $5) = $40)

If the owner of an ice-cream stand told a student looking for summer work that he would not hire him even if he worked for nothing, we can infer that

the marginal product of labor is zero or less

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that

the average product of labor is always equal to the marginal product of labor

The table shows the cost information for Bonita's pet-sitting service, where quantity of output is the number of clients served per day. Think about the number you would put in the total cost column, and then answer this question. What is the average total cost of serving 5 clients?

Q FC VC

5 70 95

33 (70 + 95 = 165 / 5 = 33)

Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q^2 where Q is the quantity of dogs groomed. Given this expression, if Janet grooms five dogs her total costs will be:

$175 (plug in 5 for Q)

Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly total fixed costs are $500, and her monthly total variable costs are $1,000. If for some reason Cindy's fixed cost increased to $4,000, then her:

- marginal costs would increase
- average variable costs would increase
- all are correct
- average fixed costs would increase

average fixed costs would increase

A perfectly competitive small organic farm that produces 1,000 cauliflower heads in the short run has an ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. In order to maximize profits (or minimize losses), this farm should:

shut down

Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that once all of the adjustments to long-run equilibrium have been made, the price of candy canes will equal:

$0.15

...

Aisha is willing to spend $5 for a haircut. If she finds a salon where the price of a haircut is only $2, she will receive ______ in consumer surplus from this transaction.

Jeanette is willing to pay $100 for the first pair of shoes, $80 for the second pair, $50 for the third, and $30 for the fourth. If shoes cost $50, Jeanette will buy ________ pairs of shoes and her total consumer surplus equals ________.

3;$80

The diagram above shows the effect of a tax in the market for good X. Assume the following are the values for the prices and quantities identified in the diagram:

P4 = 811

P3 = 646

P2 = 478

P1 = 151

QA = 185

QB = 311

What is the value of Consumer Surplus (CS) wheh the market has a tax?

CS tax = $15262

Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $26, what is the total producer surplus received by the 3 of them?

$22

((26-10) + (26-20))

Alex is willing to buy the last ticket to the Billy Bragg concert for $15, while Jake is willing to pay $25. Alex is first in line and buys a ticket for $15. He then resells his ticket to Jake for $20. By reselling the ticket instead of going to the concert himself, Alex caused:

total surplus to increase

Oil is an input in the production of gasoline, and gasoline and cars are complements. An increase in the price of oil will _________ the producer surplus in the market for cars.

decrease

Natasha, Nelson, and Nikolai are all looking to buy flashlights for a camping trip. Natasha is willing to pay $4, Nelson is willing to pay $10, and Nikolai is willing to pay $20. If the actual price of a flashlight turns out to be $12, what is the total consumer surplus for these three shoppers?

Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $23, what is the total producer surplus received by the three of them?

$16

Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 231 - 4Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The firm's total cost function is given by the equation. TC = 4710 + 6Q^2

what's the profit-maximizing level of output for this firm?

Notice that MC = 2(6)Q, and MR = 231 - 2(4)Q

Assume that there are 100 customers in the market for Vanity Wagons (VWs), each with the demand curve q = 10 − P/2, where P is the price of VWs, and q is the quantity of VWs demanded by the consumer per day.

a) Assume that the VW market is a monopoly and that the average variable cost of producing VWs is constant at $10. What is the monopolist's profit maximizing output of VWs?

Qm =

Remember that when demand is: P = a - bQ; MR = a - 2bQ

What is the loss to society as a result of the VW market being a monopoly?

DWL =

Qm = 250

DWL = 625

*see notes for how to do this problem

If a monopolist knows its price elasticity of demand is elastic, then a(n):

decrease in price will increase total revenue

Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.

less; higher

The deadweight loss associated with a monopoly will decrease if:

the monopolist is forced to change a price equal to the marginal cost

Suppose that a monopoly firm invest in very expensive form of capital. In response to the investment, the firm will:

not change its price

The demand curve for a monopoly is:

above the MR curve

If a monopoly is producing at the profit-maximizing level of output, then we can assume that at that level of output, demand is:

price-elastic

If a monopolist is producing a quantity that generates MC = P, then profit:

can be increased by decreasing production

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5

Refer to Scenario 10.2. What is the profit maximizing level of output?

The demand curve and marginal revenue curve for red herrings are given as follows:
Q = 250 - 5P
MR = 50 - 0.4Q

What level of output maximizes revenue?

125

Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q

At the profit maximizing level of output, what is the deadweight loss?

900

The See TV Company is a monopolist in two neighboring countries, East Egg and West Egg. The elasticity of demand for TVs is 4 in East Egg and 10 in West Egg. The price of a TV in East Egg is $60. If the company can successfully separate these two markets, how much should it charge for a TV in West Egg?

Pw = $50

A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should:

charge a lower price in the US and a higher price in Japan

You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. You will charge the higher price in the market with the

lower own price elasticity of demand (more inelastic demand)

Which of the following is not an example of price discrimination?
a. Ladies receive free admission into a nightclub, while men must pay a cover charge.
b. Street vendors increase the price of umbrellas when it is raining.
c. College students receive a discount at the ice cream store when they show their college ID cards.
d. A country club requires members to pay annual dues, but members receive discounted prices to golf.

b. Street vendors increase the price of umbrellas when it is raining.

A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing

third-degree price discrimination

Milk is an input in the production of cheese, and cheese and bagels are complements. A decrease in the price of milk will _________ the producer surplus in the market for bagels.

increase

If a monopolist knows its price elasticity of demand is equal to one, then a(n):

increase in price will have no impact on total revenue

If a monopolist knows its price elasticity of demand is greater than one, then a(n):

decrease in price will increase total revenue

If a monopolist knows its price elasticity of demand is less than one, then a(n):

increase in price will increase total revenue

Suppose a perfectly competitive industry is suddenly transformed into a monopoly industry. We can assume that monopoly output will be ________ than the competitive output and that ________.

lower, deadweight loss will emerge

The demand curve facing a monopolist is always:

the same as the industry's demand curve

The demand curve for a monopoly is:

above the MR curve

The marginal revenue of green ink pads is given as follows:
MR = 2500 - 5Q
The marginal cost of green ink pads is 5Q.

Refer to Scenario 10.7. How many ink pads will be produced to maximize profit?

250

5Q = 2500 - 5Q

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P
MR = 100 - Q
TC = 5Q
MC = 5

how much profit does a monopolist earn?

$4512.50

Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q

Refer to Scenario 10.9. What level of output maximizes the sum of consumer surplus and producer surplus?

Q=45

its the perfectly competitive output, where price = MC

(360 - 4Q = 4Q)

A firm sells an identical product to two groups of consumers, A and B. The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?

MRa = MRb = MC

If there are open first-class seats available on a particular flight, some airlines allow customers with coach (discount) tickets to upgrade to first-class tickets during the electronic check-in process. Which of the following statements must be true for the airline to justify this practice?

MR must be the same for both full-fare and upgraded customers

Which of the following is not an example of price discrimination?

a. a special Fourth of July sale
b. a lower price charged to the grandfather who bought his airline ticket to Chicago three weeks in advance and will stay over a Saturday night than to the businesswoman who bought her ticket the day of the flight and will not stay over Saturday night
c. a coupon in the newspaper offering a 10% discount on a product
d. a higher price charged for front row seats at a concert than charged for seats at the back

a. a special fourth of july sale

An electric power company uses block pricing for electricity sales. Block pricing is an example of

second-degree price discrimination

A doctor charges two different prices for medical services, and the price level depends on the patients' income such that wealthy patients are charged more than poorer ones. This pricing scheme represents a form of

third-degree price discrimination

Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q

Refer to Scenario 10.9. At the profit maximizing level of output, what is the level of consumer surplus?

CS = 1800

(30 x (360-240)) / 2

Adriana is a monopolist producing green calculators. The average and marginal cost curves and average and marginal revenue curves for her product are given as follows:
AC = Q + (10,000/Q) MC = 2Q AR = 30 - (Q/2) MR = 30 - Q

DWL = 5

she'll break even too

Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows:
P = 360 - 4Q MR = 360 - 8Q MC = 4Q

Refer to Scenario 10.9. At the profit maximizing level of output, what is the level of producer surplus?

5400

Suppose that the demand equations of women and men for admission to Los Angeles Dodger baseball games are given by:

Pw = 6 - (1/8,000)Qw

Pm = 10 - (1/8,000)Qm

respectively. Moreover, suppose that the total seating capacity of Dodger Stadium is fixed at 56,000. If the ball club elects to practice third-degree price discrimination and would like to fill the stadium, what prices should men and women be charged for a ticket?

Pm = 5.5

Pw = 3.5

*see notes

The demand curve and marginal revenue curve for red herrings are given as follows:
Q = 250 - 5P
MR = 50 - 0.4Q

Refer to Scenario 10.3. At the profit-maximizing level of output, demand is

elastic, but not infinitely elastic

Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows:
Q = 160 - 4P TR = 40Q - 0.25Q2 MR = 40 - 0.5Q TC = 4Q MC = 4

Refer to Scenario 10.1. How much profit will she make?

1,296

The diagram above shows the effect of a tax in the market for good X. Assume the following are the values for the prices and quantities identified in the diagram:

P4 = 865

P3 = 651

P2 = 482

P1 = 171

QA = 138

QB = 347

What is the Government Revenue (GR) from the tax?

GR = $66240

Aisha is willing to spend $16 for a haircut. If she finds a salon where the price of a haircut is only $12, she will receive ______ in consumer surplus from this transaction.

Adie wants to take some online classes this semester. She is willing to pay $1,000 for the first class, $800 for the second, $700 for the third, and $500 for the fourth. If online classes cost $750, Adie will take ________ online classes and her consumer surplus will equal ________.

2; $300

Ahmed is willing to mow lawns for $10 each, Boris is willing to mow lawns for $20 each, and Chelsea is willing to mow lawns for $30 each. If the going rate for lawn mowing is $15, what is the total producer surplus received by the 3 of them?

Milk is an input in the production of cheese, and cheese and humus are substitutes. A decrease in the price of milk will _________ the producer surplus in the market for humus.

decrease

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:

price to rise, output to fall, consumer surplus to fall, producer surplus to rise, deadweight loss to rise

If a monopolist is producing a quantity that generates MC = MR, then profit:

is maximized

The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a ________ for bus service than other passengers.

more elastic demand

Because business travelers' demand for airline flights is relatively ________, small increases in price will result in relatively ________ in additional business travelers.

price-inelastic; small decreases

Which of the following is not an example of price discrimination?

a special fourth of july sale

Pw = $50

1. The demand for good X is given by: Qd = 401 - 9P, and the supply by: Qs = 7 + 2P. What is the equilibrium price in this market?

P= 35.8

2. The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium relative price of digital cameras ________ and the equilibrium quantity ________.

a. May increase, decrease or stay the same; increases

3. In recent years, the world demand curve for copper shifted rightward due to continued economic growth in China and other emerging economies. Also, the costs of extracting the copper increased due to higher energy prices. As a result, we observed:

a. Higher equilibrium copper prices and either higher or lower quantities

4. Assume that the current market price is below the market clearing level. We would expect:

a. Upward pressure on the current market price

- market clearing = no leftover supply or demand

5. The price of good A goes up. As a result, the demand for good B shifts to the left. From this we can infer that:

a. Goods a and b are complements

6. Which of the following would cause a rightward shift in the demand curve for gasoline?
I. A large increase in the price of public transportation.
II. A large decrease in the price of automobiles.
III. A large reduction in the costs of producing gasoline.

a. I and II only

7. A recent news story reported that OPEC is expected to decrease the supply of oil next summer. Summer is traditionally a time of increased demand for oil because of the many families driving and flying to vacation sites. What would be the combined effect of these two events on the summer market for gasoline?

a. An increase in the price and unpredictable change in the quantity

8. A decrease in the price of a good will result in:

a. And increase in the quantity demanded

If prices and income all change by the same proportion

the budget line doesn't change

Sally's Bakery specializes in making five types
of treats: pies, muffins, ice cream, cookies, and milk shakes. Angel, a
long-time customer, is addicted to Sally's ice cream. The cookies and milk
shakes are equally appealing, but not quite addicting. She does not like the
muffins very much and absolutely hate Sally's pies. If Sally chooses to make
and sell only muffins, cookies, and ice cream, Angel will buy:

ice cream

Suppose you only consume food and clothing, and clothing is plotted on the vertical axis. Also, you purchase food at a fixed price (PF), but the price of clothing declines as you buy in larger quantities (i.e., quantity discounts). What does the budget line look like in this case?

the budget line is now convex (bows in towards the origin)

Jiaxiu used to consume 8 hot dogs and 4 hamburgers
a day. Now she consumes 12 hot dogs and 2 hamburgers daily in order to maintain
the same level of wellbeing as before. The MRS for hot dogs with hamburgers is:

-0.5

Two products are perfect complements if

they are valuable only when used together in fixed proportion

Suppose a consumer only purchases food and clothing, and food is plotted along the horizontal axis of the consumer's indifference map. If the price of food and clothing increase and income does not change, then the budget line changes by rotating:

a. counter-clockwise about the fixed vertical axis intercept.
b. clockwise about the fixed horizontal axis intercept.

c. none of the above**CorrectCorrect !

d. counter-clockwise about the fixed horizontal axis intercept.
e. clockwise about the fixed vertical axis intercept.

The price of bread is $1.50 per pound and the price of butter is $3 per pound. Steve has an income of $30, with which he buys 4 pounds of bread. How many pounds of butter does he buy, assuming he buys nothing else?

...

Suppose a consumer buy books and DVDs. The price of a book is $10, the price of a DVD is $20 and the consumer's income is $400. If books are measured on the vertical axis and DVDs are measured on the horizontal axis, then the slope of the budget line is

-2

Say a consumer likes apples better than oranges, and oranges better than bananas. According to the transitivity assumption this consumer must also:

like apples better than bananas

transitivity - consumers choices are consistent

Other things equal, a decrease in demand of good X will ________ the ________ for good X.

decrease; quantity supplied

Marge has spent her entire budget on milk and cookies. The last glass of milk provided Marge with 10 additional utils and the last cookie provided her with 25 additional utils. The price of a cookie is twice the price of a glass of milk. Given this information, Marge should:

decrease her consumption of milk and increase her consumption of cookies

Suppose Bart's MRS for sodas with chips is 6 bags of chips per soda. Also assume that Lisa's MRS for sodas with chips is 8 bags of chips per soda. Assuming that these rates of substitution don't depend on the amounts consumed, which of the following trades would make Bart and Lisa better off?

no mutually beneficial trade can occur here

In a Cobb Douglas Utility function with the form U = XaYb, the demand for X depends on

consumer preferences, price of X, and income

Vasco's utility funtion is U = 10X ^ 4.7 Z^3.6. The price of X = $ 23.4, the price of Z = $10,and his income is Y = $778.7. What is his optimal consumption of X?

19.0

If the consumer budget constraint is given by 1F + 2 S = 975, where F is food and S is shelter, how much shelter can she buy if she purchases 3 units of food?

486

If the consumer budget constraint is given by 9.0F + 4.2 S = M, where F is food and S is shelter, what is the opportunity cost of food in terms of shelter?

2.14

(9 divided by 4.2)

If the consumer budget constraint is given by 68.8F + 10 S = 494.3, where F is food and S is shelter, what is the x-intercept of the Budget Line? Assume Food is on the x-axis

7.18

x-intercept: M/Px --> 494.3/68.8

The substitution effect between left shoes and right shows (perfect complements) is:

zero

As we move downward along a demand curve for apples,

the marginal utility of apples decreases

When a good has a unitary price elasticity, consumer expenditures for the good

does not change when the price of a good decreases

unitary price elasticity = change in price of a good causes an equal change in the quantity demanded; elasticity = 1

The demand for erasers (Q) is given as follows:

Q = 240 - 4Pe + 2I + Pb + A

where Pe is the price of erasers
I is the level of income
Pb is the price of another good
A is the level of advertising

Suppose that Q = 240, Pe = 10, Pb = 10, and A = 2.

Given the information in Scenario 4.3, erasers and good b, are:

substitutes

The demand for erasers (Q) is given as follows:

Q = 240 - 4Pe + 2I + Pb + A

where Pe is the price of erasers
I is the level of income
Pb is the price of another good
A is the level of advertising

Suppose that Q = 240, Pe = 10, Pb = 10, and A = 2.

The point price elasticity of demand is -1/2. The price of the product increases from $1.00 to $1.10. Given the information in Scenario 4.3, the quantity demanded will decrease by approximately:

5 percent

Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

more; less

Suppose the price of rice increases and you view rice as an inferior good. The substitution effect results in a ________ change in rice consumption, and the income effect leads to a ________ change in rice consumption.

negative; positive

inferior good = quantity demanded decreases when consumer income rises; or vice versa

substitution effect will always be the opposite sign of the price change; income effect will have the same sign

For an inferior good, when the income effect is larger than the substitution effect the demand curve ends up being:

upward slopping

Alex's firm wants to transfer him from its Seattle office to its London office, where he will face different prices and cost of living.

Like most firms, his employer will pay him an after-tax salary in British pounds such that he can buy the same bundle of goods in London that he is currently buying in Seattle.
is the company overcompensative Alex?

two products are perfect substitutes if

a consumer is willing to swap one for another at a fixed rate

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line?

-1/2

An increase in a consumer's income will cause the budget line to

shift outward

Mikey is very picky and insists that his mom make his breakfast with equal parts of cereal and apple juice any other combination and it ends up on the floor. Cereal costs 4 cents per tablespoon and apple juice costs 6 cents per tablespoon. If Mikey's mom budgets $8 per month for Mikey's breakfast, how much cereal and juice does she buy?

80 tablespoons for each cereal and juice f

Suppose that a family spends $1,000 on either food (F) or clothing (C), and that the price of food is $10 per unit while the price of clothing is $1 per unit. If the government wanted to help this family to buy food every month, would be cheaper to give them money, or to pay for some of the food they buy?

pay for food

In a Cobb Douglas Utility function with the form U = X^aY^b, the demand for X depends on:

consumer preferences; price of X and income

Why it is more cost effective (cheaper), for the government to help a family consume more food by giving them a grant (more income), than by subsidizing the price of food?

because a price subsidy makes other goods more expensive

You are a division manager at Toyota. If your marketing department estimates that the semi-annual demand for the Highlander is Q = 150,000 - 1.5P, what price should you charge in order to maximize revenues from sales of the Highlander?

50,000

-1/6

Which of these three consumers has generally the highest value for good Y?

juan because his slope is the flattest (see screen shot)

The more is better assumption states that a consumer represented by these indifference curves map is always going to prefer bundle:

none of the other choices (see screen shot)

Eliza used to consume 5 cookies and 6 cupcakes a
day. Now she consumes 6 cookies and 3 cupcakes daily in order to maintain the
same level of happiness as before. The MRS for cookies with cupcakes is:

3/1

she consumes one more 1 more cookie to compensate for the loss of 3 cupcakes

Vasco's utility funtion is U = 10X ^ 9.2 Z^1.0. The price of X = $ 39.1, the price of Z = $10,and his income is Y = $635.6. What is his optimal consumption of X?

14.67

9.2/10.2 x 635.6/39.1

a normal good

definition = any goods for which demand increases when income increases; and demand falls when income decreases and price remains constant

Suppose Qd=100-4Px

Qs=0.5 Px

what's the slope of the demand curve?

1/4

solve the demand equation for Px

so: Px = 25 - 1/4Qd
and take the absolute value of the slope

Suppose we assume the supply and demand for good X are the following:

Qd = 125 - 2Px
Qs = 0.5Px

what is the change in quantity demanded when demand changes by 50 units (enter a neg. sign in the case that Q decreases)

First we get the before_change quantity by solving the system:

125 - 2Px = 0.5Px

Px = 50; Qx = 25

A straight unit change (not a slope change), simply shifts the demand demand by the amount of the change. Therefore, the new demand equation should be:
Qd = 125 - 2Px - 50 = 75 - 2Px

When we solve the system again for the new Q and Ps, we get:

75 - 2Px = 0.5Px

Px = 30; Qx = 15.

So this is a decrease of 15 in demand.

An increase in the price of the good measured along the vertical axis will cause the budget line to

become flatter

Say the demand for salsa was:

Qd = a - 8.3Ps - 6.7Pc + 1.7Pk - 5.8I

where
Ps = price of salsa =

Pc = price of chips =

Pk = price of ketchup =

I = income =

If Qd = 751.1, Ps = $8.8, Pc = $5.3, Pk = $5.6 and I = $8732.4, the cross-price elasticity between chips and salsa would be:

-0.0

5.3/751.1 x 6.7

The budget constraint for a consumer who only buys apples (A) and bananas (B) is PAA + PBB = I where consumer income is I, the price of apples is PA, and the price of bananas is PB. To plot this budget constraint in a figure with apples on the horizontal axis, we should use a budget line represented by the slope-intercept equation:

B = I/Pb - (Pa/Pb)A

When a market is experiencing a surplus of supply the equilibrium price tends to:

decrease

Other things equal, an increase in the price of oranges, a substitutes for apples, will __________ the market price of apples.

increase

Other things equal, a decrease in the average income of buyer's of good X will __________ the market price of good X (assume good X is an inferior good).

increase

If you spent your entire income, you could afford either 3 units of x and 9 units of y or 9 units of x and 3 units of y. If you spent your entire income on x, how many units of x could you buy?

12
(3 + 9)

Murphy used to consume 100 units of X and 50 units of Y when the price of X was $2 and the price of Y was $4. If the price of X rose to $4 and the price of Y rose to $9, how much would Murphy's income have to rise so that he could still afford his original bundle?

(100 x $4) + (50 x $9) = 850 --> 850 - 400 = 450

income rise of $450

Lars consumes only potatoes and herring. When the price of potatoes was 9 crowns per sack and the price of herring was 5 crowns per crock, he spent his entire income to buy 5 sacks of potatoes and 10 crocks of herring per month. Now the government subsidizes potatoes. Market prices haven't changed, but consumers get a subsidy of 5 crowns for every sack of potatoes consumed. To pay for this subsidy, the government introduced an income tax. Lars pays an income tax of 20 crowns per month. If s is the number of sacks of potatoes and c is the number of crocks of herring, what is Lars's new budget equation?

4s + 5c = 75

M = (9x5) + (5x10) = 95 - $20 tax = $75

Which of the following would cause a shift to the right of the supply curve for gasoline?
I. A large increase in the price of public transportation.
II. A large decrease in the price of automobiles.
III. A large reduction in the costs of producing gasoline.

III only

When an industry's raw material costs increase, other things remaining the same,

the supply curve shifts to the left

Which of the following would cause an unambiguous decrease in the real price of DVD players?

A shift to the right in the supply curve for DVD players and a shift to the left in the demand curve for DVD players

The demand curve for the new computer game, Rock and Roll Trivia, is given as follows:

Q = 200 - 5P - .1Pc - .5Pd + .2A - I

where P is the price of the game
Pc is the price of a computer
Pd is the price of a diskette
A is the level of advertising
Q is the level of income

See the information in Scenario 4.4. From this demand curve, one can infer that:

Rock and Roll Trivia is an inferior good

inelastic, but not completely inelastic

completely inelastic is when e=0

relatively inelastic : 0 < E < 1

Suppose that the demand for artichokes (Qa) is given as:

Qa = 200 - 4P

Use the information in Scenario 4.2. Suppose that the price of artichokes is increased slightly from $10. The total expenditure by consumers on artichokes will ________ and the number of artichokes sold will ________.

rise, fall

artichokes are an inferior good

Al loves lollies and hates oatmeal. His mom pays him 10 pence for every quart of oatmeal he eats. He can only buy lollies from the store that cost 5 pence each. besides what he earns from eating oatmeal, Al gets an allowance of 10 pence per week. if he consumes only oatmeal and lollies and his consumption bundles are graphed with quarts of oatmeal on the vert. axis, then Al's budget line has a slope of:

exactly 2

With his weekly allowance, he can buy 2 lollipops without eating any oatmeal, so the intersect on the vertical axis is 2 and for every quart of oatmeal he eats, he get 10 pence with which he can get 2 lollipops. so 2/1=2

Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

less, less

The substitution effect between left shoes and right shows (perfect complements) is:

zero

Use the following two statements in answering this question:
I. For all Giffen goods the substitution effect is larger than the income effect.
II. For all inferior goods the substitution effect is larger than the income effect.

I and II are false

giffen good = a product that people consume more of as the price rises and vice versa

According to the graph, the income effect of a decrease in the price of X from $2 to $1 is equal to:

5 ( see screenshot)

other things equal, a decrease in the price of good Y, a substitute of good X, will _____ the market price of good X.

decrease

a decrease in the price of Y decreases the demand for good X, which decreases the price of X

Must we appeal to differences in taste to explain why Germans and Americans read different types of books, or can taxes and price differences explain this difference? Suppose that Max, a German, and Bob, an American, are avid readers with identical incomes and tastes. Both are indifferent between reading a novel in a traditional printed book or on an e-reader. Therefore, traditional books and e-books are perfect substitutes and the indifference curves for both Max and Bob have a slope of −1. Assume that the pretax price of e-books is less than for printed books in both Germany and the United States, but that the after-tax price of e-books is higher than for printed books in Germany only.

a) Describe their indifference curves.

b) Describe the slopes of their budget line.

c) Use an indifference curve and a budget line to show why Max and Bob make different choices.

a) max and bob view both types of books as perfect substitutes, so their indifference curve has a slope of -1 and is a straight line

b) with printed books on vert. axis, max faces a relatively steep budget line (thats steeper than his indiff. curve) because the german tax makes the e-books relatively more expensive. bob has a budget line thats flatter than his indiff. curve

c). bob maximizes his utility by spending his entire book budget on e-books. he picks bundle eB, where his indiff. curve hits his budget line on the ebook axis. max spends his entire budget on printed books at point eM

Sally's Bakery specializes in making five types
of treats: pies, muffins, ice cream, cookies, and milk shakes. Steve, a
long-time customer, is addicted to Sally's muffins. The pies and milk shakes
are equally appealing, but not quite addicting. He does not like the cookies
very much and absolutely hate Sally's ice cream. If Sally chooses to make and
sell only pies, cookies, and ice cream, Steve will buy:

pies

Two products are perfect complements if

they are valuable only when used together in fixed proportions

When a market is experiencing a surplus of supply the equilibrium price tends to:

decrease

Other things equal, an increase in the average income of buyer's of good X will __________ the market price of good X (assume good X is an inferior good).

decrease

Murphy used to consume 100 units of X and 50 units of Y when the price of X was $2 and the price of Y was $4. If the price of X rose to $3 and the price of Y rose to $8, how much would Murphy's income have to rise so that he could still afford his original bundle?

$300

An increase in the price of wheat, an important ingredient in the production of bread, combined with an increase in the number of people consuming bread, will result in which of the following changes in the bread market?

Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same.

If the consumer budget constraint is given by 57.6F + 10 S = 223.6, where F is food and S is shelter, what is the x-intercept of the Budget Line? Assume Food is on the x-axis. (Round your answer to 2 decimal places)

3.88

a normal good

Say the demand for salsa was:

Qd = a - 7.3Ps - 5.5Pc + 7.5Pk - 7.5I

where

Ps = price of salsa =

Pc = price of chips =

Pk = price of ketchup =

I = income =

If Qd = 939.7, Ps = $5.1, Pc = $9.8, Pk = $5.2 and I = $8334.5, the cross-price elasticity between chips and salsa would be:

-0.1

less, less

negative, positive

John consumes two goods, X and Y, given the following utility function:

U = X3Y2

The price of X (Px) = $10 , and the price of Y (Py) = $20.

b) If John's income (M) is $1,500, then his maximizing utility bundle is:

X = 90, Y = 30

John consumes two goods, X and Y, given the following utility function:

U = X3Y2

The price of X (Px) = $10 , and the price of Y (Py) = $20.

Say the Px falls by $5. The new utility maximizing bundle is:

The following would be effects of this decrease in price:

Income Effect =
Substitution Effect =

X = 180 Y = 30

IE = 54
SE = 36

I is false; and II is true

Suppose that at a firm's current level of production the marginal product of capital is equal to 10 units, while the marginal rate of technical substitution between capital and labor is 2. Given this, we know the marginal product of labor must be:

If the owner of an ice-cream stand told a student looking for summer work that he would not hire him even if he worked for nothing, we can infer that

the marginal product of the labor is zero or less

A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

use 0.8 fewer units of capital.

Consider the following statements when answering this question;
I. Whenever the marginal product of labor curve is a downward sloping curve, the average product of labor curve is also a downward sloping curve that lies above the marginal product of labor curve.
II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands.

I is false, and II is true

$2,500 per month

Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3Q2 where Q is the quantity of dogs groomed. Given this expression, one can determine that Janet is operating in the:

short run and her fixed costs are equal to $100.

The average total cost of producing cell phones in a factory is $20 at the current output level of 100 units per week. If fixed cost is $1,200 per week:

average variable cost is $8.

Maria has a business printing t-shirts selling 200 t-shirts per month. Her monthly total fixed costs are $400, and her monthly total variable costs are $1,000. If for some reason Maria's fixed cost increased to $1,000, then her:

average fixed costs would increase.

If a firm produces a quantity at which total revenue equals total cost, then:

economic profit is zero

You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is:

Q = 2(K)1/2(L)1/2

where K represents capital equipment and L is labor. The marginal product of labor and capital are:

MPL = (½)2K1/2L-1/2

MPK = (½)2L1/2K-1/2

Your company has already spent a total of $8,000 on the 9 units of capital equipment it owns.

Due to current economic conditions, the company does not have the flexibility needed to acquire additional equipment. If workers at the firm are paid a competitive wage of $120 per day and chairs can be sold for $400 each.

a) What is your profit- maximizing level of labor usage?
b) What is the profit maximizing level of output?
c) What are the variable costs when the firm maximizing profits?
d) What are the profits when the firm maximizes profits?

a) L = 100

b) Q = 60

c) VC = $12000

d) profits = $4000

earning an economic profit.

A competitive firm facing a price of $15 decides to produce 100 units. If the marginal cost of producing the last unit is $20, the firm should:

decrease production

negative economic profits

not change output

The total cost curve of each firm in a perfectly competitive industry is given to be:

TC = 350 + q2

where q represents the quantity sold by a single firm. The MC = 2q.

Suppose that currently firms in this industry share a market demand given by QD = 3,000 - 7PD

where P represents price unit and Q represents the total number of units sold in the entire industry.

In longrun equilibrium:

a) What is the profit maximizing level of output (q) each firm produces?
b) What is market price?
c) What is the market quantity (Q)?
d) How many firms will operate in this market?

a) q = 18.7

b) p = $37

c) Q = 2738

d) F = 146

Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 438 - 5Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The firm's total cost function is given by the equation. TC = 3078 + 3Q2

What is the profit-maximizing level of output for this firm?

Notice that MC = 2(3)Q, and MR = 438 - 2(5)Q

Which of the following will have an effect on the price the monopolist must charge in order to maximize profits in the short-run?

increase in labor costs

Say that a monopolist purchases an expensive new machine. In order to maximize profits in the short-run, the monopolist should _________ its price to offset the investment in the new machine

not change

The reason a monopoly creates a deadweight loss is because a monopolist charges a price that is _________ marginal cost.

greater than

A monopolist knows an increase in price will have no impact on total revenue when its price elasticity of demand is:

equal to 1

A monopoly always produces along the __________ portion of the demand curve.

price-elastic

In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.

lower; elastic

Movie theaters charge lower ticket prices for matinee showings (before 6pm), than for evening showings to the same movie. From this information, we can conclude that buyers attending evening showings must have a ________ for than matinee movie goers.

less price-elastic demand

Which of the following is an example of price discrimination?

buyers using discount coupons to pay lower price at grocery store

$4512.50

Which of the following is an example of price discrimination?

College students receive a discount at the ice cream store when they show their college ID cards.

Oil is an input in the production of gasoline, and gasoline and cars are complements. A decrease in the price of oil will _________ the producer surplus in the market for cars.

increase

third-degree price discrimination.

Oil is an input in the production of gasoline, and gasoline and cars are complements. An increase in the price of oil will _________ the producer surplus in the market for cars.

decrease

Tomatoes are an input in the production of ketchup, and ketchup and mustard are substitutes. A decrease in the price of tomatoes will _________ the total surplus in the market for mustard.

decrease

Natasha, Nelson, and Nikolai are all looking to buy flashlights for a camping trip. Natasha is willing to pay $4, Nelson is willing to pay $10, and Nikolai is willing to pay $20. If the actual price of a flashlight turns out to be $18, what is the total consumer surplus for these three shoppers?

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Econ 302 Final

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