question
A producer's supply function is given by the equation:
Q=-55+26Ps+1.3Pa
if Pa rises, what happens to the producers supply curve?
A: shifts to the left
B: shifts to the right
C: remains unchanged
Q=-55+26Ps+1.3Pa
if Pa rises, what happens to the producers supply curve?
A: shifts to the left
B: shifts to the right
C: remains unchanged
answer
B is correct. The positive coefficient on the unit price of aluminum implies that aluminum is a substitute for steel. Thus, an increase in the price of aluminum implies that more steel can be sold at given price for steel than before, as steel is substituted for aluminum.
question
A producer's supply function is given by the equationQss=−55+26Ps+1.3Pa
where Qss is the quantity of steel supplied by the market, Ps is the per unit price of steel, and Pa is the per unit price of aluminum.
Assume the supply side of the market consists of exactly five identical sellers. If the unit price of aluminum is 20, which equation is closest to the expression for the market inverse supply function?
A Ps=9.6+0.04Qss
B Ps=1.1+0.008Qss
C Qss=−145+130Ps .
where Qss is the quantity of steel supplied by the market, Ps is the per unit price of steel, and Pa is the per unit price of aluminum.
Assume the supply side of the market consists of exactly five identical sellers. If the unit price of aluminum is 20, which equation is closest to the expression for the market inverse supply function?
A Ps=9.6+0.04Qss
B Ps=1.1+0.008Qss
C Qss=−145+130Ps .
answer
B is correct. Start with the equation Qss=−55+26Ps+1.3Pa . To aggregate for five suppliers, multiply the individual producer's supply function by 5:Qss=5(−55+26Ps+1.3Pa)Qss=−275+130Ps+6.5PaNow insert the unit price of aluminum at 20:Qss=−275+130Ps+6.5(20)Qss=−145+130PsInvert the equation to get the market inverse supply function: Ps=1.1+0.008Qss .
question
If an excise tax is paid by the buyer instead of the seller, which of the following statements is most likely to be true?
A the price paid will be higher than if the seller had paid the tax
B the price received will be lower than if the seller had paid the tax
C the price received will be the same as if the seller had paid the tax
A the price paid will be higher than if the seller had paid the tax
B the price received will be lower than if the seller had paid the tax
C the price received will be the same as if the seller had paid the tax
answer
C is correct. The trade price should be the same whether the tax is imposed on the buyer or on the seller
question
9. A quota on an imported good below the market-clearing quantity will most likely lead to which of the following effects?
A. The supply curve shifts upward.
B. The demand curve shifts upward.
C. Some of the buyer's surplus transfers to the seller
A. The supply curve shifts upward.
B. The demand curve shifts upward.
C. Some of the buyer's surplus transfers to the seller
answer
C is correct. A quota will cause excess demand, raising the price of the good and moving it up and to the left along the demand curve. This should shift some of the buyer's surplus to the seller.
question
Which of the following best describes producer surplus?
A. Revenue minus variable costs
B. Revenue minus variable plus fixed costs
C. The area above the supply curve and beneath the demand curve and to the left of theequilibrium poi
A. Revenue minus variable costs
B. Revenue minus variable plus fixed costs
C. The area above the supply curve and beneath the demand curve and to the left of theequilibrium poi
answer
A is correct. Producer surplus is the difference between the total revenue that sellers receive from selling a given amount of a good and the total variable cost of producing that amount.
question
Which of the following ranking systems best describes consumer preferences within a utility function?
Util.
Ordinal.
Cardinal.
Util.
Ordinal.
Cardinal.
answer
B is correct. Utility functions only allow ordinal rankings of consumer preferences.
question
If a consumer's marginal rate of substitution of good X for good Y (MRSXY) is equal to 2, then the:
consumer is willing to give up 2 units of X for 1 unit of Y.
slope of a line tangent to the indifference curve at that point is 2.
slope of a line tangent to the indifference curve at that point is -2.
consumer is willing to give up 2 units of X for 1 unit of Y.
slope of a line tangent to the indifference curve at that point is 2.
slope of a line tangent to the indifference curve at that point is -2.
answer
C is correct. The marginal rate of substitution is equal to the negative of the slope of the tangent to the indifference curve at that point, or -2.
question
A firm engages in the development and extraction of oil and gas, the supply of which is price inelastic. The most likely equilibrium response in the long run to an increase in the demand for petroleum is that oil prices:
increase, and extraction costs per barrel fall.
increase, and extraction costs per barrel rise.
remain constant, and extraction costs per barrel remain constant.
increase, and extraction costs per barrel fall.
increase, and extraction costs per barrel rise.
remain constant, and extraction costs per barrel remain constant.
answer
B is correct. The development and extraction of scarce oil and gas is an increasing-cost industry. A positive shift in demand will cause firms to increase supply, but at higher costs. The higher costs associated with increasing supply will cause prices to rise.
question
A firm experiencing an increase in the marginal product of labor employed would most likely:
allow an increased number of workers to specialize and become more adept at their individual functions.
find that an increase in workers cannot be efficiently matched by other inputs that are fixed such as property, plant, and equipment.
find that the supply of skilled workers is limited, and additional workers lack essential skills and aptitudes possessed by the current workforce.
allow an increased number of workers to specialize and become more adept at their individual functions.
find that an increase in workers cannot be efficiently matched by other inputs that are fixed such as property, plant, and equipment.
find that the supply of skilled workers is limited, and additional workers lack essential skills and aptitudes possessed by the current workforce.
answer
A is correct. Adding new workers in numbers sufficient for them to specialize in their roles and functions should increase marginal product of labor.
question
A firm produces handcrafted wooden chairs, employing both skilled craftsmen and automated equipment in its plant. The selling price of a chair is €100. A craftsman earns €900 per week and can produce ten chairs per week. Automated equipment leased for €800 per week can produce ten chairs per week.
The marginal revenue product (per week) of hiring an additional craftsman is closest to:
€100.
€900.
€1,000.
The marginal revenue product (per week) of hiring an additional craftsman is closest to:
€100.
€900.
€1,000.
answer
C is correct. The marginal revenue product is the marginal product of an additional craftsman (10 chairs) times the price per chair (€100). 10 × €100 = €1,000.
question
A market structure characterized by many sellers with each having some pricing power and product differentiation is best described as:
oligopoly.
perfect competition.
monopolistic competition.
oligopoly.
perfect competition.
monopolistic competition.
answer
C is correct. Monopolistic competition is characterized by many sellers, differentiated products, and some pricing power.
question
Market competitors are least likely to use advertising as a tool of differentiation in an industry structure identified as:
monopoly.
perfect competition.
monopolistic competition.
monopoly.
perfect competition.
monopolistic competition.
answer
B is correct. The product produced in a perfectly competitive market cannot be differentiated by advertising or any other means.
question
Aquarius, Inc. is the dominant company and the price leader in its market. One of the other companies in the market attempts to gain market share by undercutting the price set by Aquarius. The market share of Aquarius will most likely:
increase.
decrease.
stay the same.
increase.
decrease.
stay the same.
answer
A is correct. As prices decrease, smaller companies will leave the market rather than sell below cost. The market share of Aquarius, the price leader, will increase.
question
Collusion is less likely in a market when:
the product is homogeneous.
companies have similar market shares.
the cost structures of companies are similar.
the product is homogeneous.
companies have similar market shares.
the cost structures of companies are similar.
answer
B is correct. When companies have similar market shares, competitive forces tend to outweigh the benefits of collusion.
question
In an industry comprised of three companies, which are small-scale manufacturers of an easily replicable product unprotected by brand recognition or patents, the most representative model of company behavior is:
oligopoly.
perfect competition.
monopolistic competition.
oligopoly.
perfect competition.
monopolistic competition.
answer
B is correct. The credible threat of entry holds down prices and multiple incumbents are offering undifferentiated products.
question
Profti=
answer
total revenue - total costs
question
accounting profit
answer
total revenue minus total cost
question
economic profit
answer
accounting profit - total implicit opportunity costs
question
normal profit
answer
Level of acct. profit needed to cover total implicit opportunity costs
question
economic rent
answer
particular resource for a good is fixed in supply & market price is too high to bring good to market
question
Shut Down point for short run
answer
If P > AVC then produce
question
shutdown point for long run
And for entry/expand
And for entry/expand
answer
P > ATC
P> ATC + AI
P> ATC + AI
question
Large # of Firms
Homogeneous Product
Single producer unable to influence mkt prices
Homogeneous Product
Single producer unable to influence mkt prices
answer
Perfect competition
question
Large # of firms
Product differentiation
Product differentiation
answer
Monopolistic Competition
question
small # of firms
high barriers of entry
nonprice competition
interdependence of firms
high barriers of entry
nonprice competition
interdependence of firms
answer
oligopoly
question
single firm
pricing and output power
restricted entry
pricing and output power
restricted entry
answer
monopoly
question
Giffen good
answer
a hypothetical inferior good for which the income effect outweighs the substitution effect and the demand curve slopes upward
question
Veblen Good
answer
A good with a positively sloped demand curve. As price increases people buy more of these goods to demonstrate their social status.
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