question

The economic principle that producers are willing to produce more output when price is higher is depicted by the:

answer

The upward slope of the supply curve

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Which of the following events would cause a movement upward and to the left along the demand curve for olives?

answer

The price of olives rises.

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Technological advances will cause the supply curve to:

answer

Shift to the right

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A country club usually only allows members to purchase tickets for its celebrity golf tournament, but the club is considering allowing non-members to purchase tickets this year. The demand and supply schedules are as follows:

If both members and non-members are allowed to purchase tickets to this year's celebrity golf tournament, then what will be the equilibrium price?

If both members and non-members are allowed to purchase tickets to this year's celebrity golf tournament, then what will be the equilibrium price?

answer

25; Add demand by members and non members to equal quantity supplied

question

Suppose market demand and supply are given by Qd = 100 - 2P and Qs = 5 + 3P

The equilibrium quantity is:

The equilibrium quantity is:

answer

62

question

Suppose market demand and supply are given by Qd = 100 -2P and Qs = 5 + 3P.

If a price ceiling of $15 is imposed,

If a price ceiling of $15 is imposed,

answer

There will be a shortage of 20 units

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Which of the following price floors would be binding in this market?

answer

For a Price Floor to be rational, it has to be above the equilibrium price.

question

Consider a market characterized by the following inverse demand and supply functions:

PX = 10 - 2QX and PX = 2 + 2QX.

Compute the surplus consumers receive when an $8 per unit price floor is imposed on the market.

PX = 10 - 2QX and PX = 2 + 2QX.

Compute the surplus consumers receive when an $8 per unit price floor is imposed on the market.

answer

Demand fn: PX = 10 - 2QX. Plug in P= 8 to find Qd after price floor. Qx =1

Consumer surplus = = 1

Consumer surplus = = 1

question

During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production?

answer

Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.

question

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

answer

Price would fall, and the effect on quantity would be ambiguous.

We need to know what happens to equilibrium price and quantity of coffee.

If the wages of coffee-bean pickers fell, for the same budget, more coffee can be produced. Hence, with higher supply, qty rises and price falls.

If price of tea fell, more tea is consumed and demand for coffee reduces leading to lower price and lower qty.

We need to know what happens to equilibrium price and quantity of coffee.

If the wages of coffee-bean pickers fell, for the same budget, more coffee can be produced. Hence, with higher supply, qty rises and price falls.

If price of tea fell, more tea is consumed and demand for coffee reduces leading to lower price and lower qty.

question

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise?

answer

Both the equilibrium price and quantity would decrease.

Macaroni and cheese is an inferior good. If consumers' incomes rise, less macaroni and cheese will be consumed. Demand shifts left. Less qty, lower price !

Macaroni and cheese is an inferior good. If consumers' incomes rise, less macaroni and cheese will be consumed. Demand shifts left. Less qty, lower price !

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What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you?

answer

Price will rise, and the effect on quantity is ambiguous.

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If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

answer

the availability of close substitutes in determining the price elasticity of demand.

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If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a

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5 percent increase in the quantity demanded.

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The flatter the demand curve through a given point, the

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greater the price elasticity of demand at that point.

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Which of the following is likely to have the most price elastic demand?

answer

ice cream

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Ryan says that he would buy one cup of coffee every day regardless of the price. If he is telling the truth, Ryan's

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demand for coffee is perfectly inelastic.

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If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

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decrease total revenue of textbook sellers.

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Melvin's Magnets earned $200 in total revenue last month when it sold 100 souvenir magnets. This month it earned $300 in total revenue when it sold 60 souvenir magnets. The price elasticity of demand for Marvin's Magnets this month is

answer

1.11

Melvin's Magnets earned $200 in total revenue last month when it sold 100 souvenir magnets. This month it earned $300 in total revenue when it sold 60 souvenir magnets.

Last month: TR = 200. Q= 100. P=2

This month: TR = 300. Q= 60. P=5

Assuming linear demand: = 40/3

The price elasticity of demand for Marvin's Magnets this month:

e= = 200/180 = 1.11

Melvin's Magnets earned $200 in total revenue last month when it sold 100 souvenir magnets. This month it earned $300 in total revenue when it sold 60 souvenir magnets.

Last month: TR = 200. Q= 100. P=2

This month: TR = 300. Q= 60. P=5

Assuming linear demand: = 40/3

The price elasticity of demand for Marvin's Magnets this month:

e= = 200/180 = 1.11

question

The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the cross-price elasticity between goods X and Y is:

answer

.008

The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units.

Qxd = 10, 000 - 4 (50) + 5(100) + 2 (25000) + 1000 = 61,300

The cross-price elasticity between goods X and Y is: eCP = 5 = 0 .008

eCP >0. X and Y are substitutes.

The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units.

Qxd = 10, 000 - 4 (50) + 5(100) + 2 (25000) + 1000 = 61,300

The cross-price elasticity between goods X and Y is: eCP = 5 = 0 .008

eCP >0. X and Y are substitutes.

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In economics the short run is:

answer

A time period when there are fixed factors of production

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Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use:

answer

More labor and less capital

MPL/w = 8/4 = 2

MPK/r = 2/2 = 1

Labor has a higher rate of return. Invest more in Labor

MPL/w = 8/4 = 2

MPK/r = 2/2 = 1

Labor has a higher rate of return. Invest more in Labor

question

For the short-run total cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is:

answer

To get the equation for MC, find the first derivative of the total cost curve. MC = 2 + 6Q. Substitute 2 for Q to get the MC when Q is 2. MC = 2 + 6*2 = 14.

question

For a short-run total cost function C(Q) = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is:

answer

Total variable cost is 10Q + Q2. Divide by Q to get Average Variable Cost. AVC = 10 + Q. Now substitute 20 for Q to get the AVC at Q=20. AVC = 10 + 20 = 30.

question

A carpenter hammers nails each day at work. The average number of nails hammered over the first three hours is 50, and the marginal product of the fourth and fifth hours of work is 40 and 20 nails, respectively. The total output after five hours work is _____ nails.

answer

210

question

What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately?

answer

Ecomomies of scope

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Larger firms can produce a product at a lower long-run average cost than small firms when:

answer

Economies of scale exist

question

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product?

answer

15 pieces of pottery

question

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters

answer

diminishing marginal product.

question

Suppose the production function is Q = min{K, 2L}. What is Average Product of Labor when 4 units of labor and 9 units of capital are employed?

answer

Q = min{K, 2L} where K=9, L=4 .

Q= min (9, 8) = 8

APL = Q/L = 8/4 =2

Q= min (9, 8) = 8

APL = Q/L = 8/4 =2

question

The following table shows the production function for a particular business. The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.

Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. How many workers should this firm hire to maximize its profit?

Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. How many workers should this firm hire to maximize its profit?

answer

Find MPL in the above data.

The hiring decision is based on: VMPL = w → P × MPL = w

Now, P = 5, w = 160

MPL = w/P = 160/5 = 32. We choose 4 workers , 4th worked contributed 40 >32.

The hiring decision is based on: VMPL = w → P × MPL = w

Now, P = 5, w = 160

MPL = w/P = 160/5 = 32. We choose 4 workers , 4th worked contributed 40 >32.

question

Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal

answer

110

question

A firm has a fixed cost of $700 in its first year of operation. When the firm produces 99 units of output, its total costs are $4,000. The marginal cost of producing the 100th unit of output is $200. What is the total cost of producing 100 units?

answer

4200

Total Costs already included fixed costs

Total Costs already included fixed costs

question

Suppose a firm that uses labor and capital as the only inputs in production is currently on the long-run path. The marginal product of labor and capital at this least cost combination are 60 units and 80 units respectively and the wage rate of labor is $6. Calculate the rental cost of capital borne by the firm.

answer

Since the firm will cost minimize: MPL/MPK = w/r which implies 60/80 = 6/r

question

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?

answer

The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers. With the 4th worker, his incremental output has to be less than 4400 -3000 = 1400 !