The production function for a firm is Q = min(2K, L), and the price per unit of capital is
$40 and the price per unit of labor is $60.
a.What is the minimum cost of producing 10 units of output?
b.Using an isoquant and isocost line, illustrate the cost-minimizing input choice of the
firm producing 10 units of output.
Figure 10.9
(Figure 10.9) This firm is using block pricing, charging $35 per unit for the first 5 units,
$25 per unit for units 6 and 7, and $15 per unit for all units beyond 7. What is the firm’s
producer surplus?
A) $80
B) $140
C) $100
D) $165
Cashews are sold in either 8-(C8) or 16-(C16) ounce cans.
a. Write the equation for the utility function.
b. What is the MRS? (Assume that 16-ounce cans are measured on the y-axis and
8-ounce cans are measured on the x-axis.)
The New Democratic Party in Canada is concerned that the Canadian oil boom has
increased the exchange rate, thereby harming the manufacturing sector by making it
less competitive in international markets. This concern highlights the notion of ______
and can best be studied by using ______ analysis.
A) Dutch disease; general equilibrium
B) Dutch disease; partial equilibrium
C) Baumol’s cost disease; general equilibrium
D) Baumol’s cost disease; partial equilibrium
Which of the following are model assumptions of Bertrand competition with identical
goods?
I. The firms compete by choosing the quantity of output produced.
II. The firms agree to coordinate their output and pricing decisions to act like a
monopolist.
III. The firms compete by choosing the price of their product.
A) I only
B) II only
C) III only
D) I, II, and III
Consider a society with three people whose utilities are UA = 40, UB = 90, and UC = 60.
What is the value of the Rawlsian utility function?
A) 190
B) 50
C) 40
D) 10
Figure 9.11
(Figure 9.11) Zinfandelic, which sells wine gift baskets, faces the demand curve and
marginal cost curve depicted in the graph.
a. Solve for Zinfandelic’s marginal revenue equation.
b. Solve for Zinfandelic’s profit-maximizing quantity.
c. Solve for Zinfandelic’s profit-maximizing price.
d. At the profit-maximizing quantity, what is the price elasticity of demand?
Brenda’s utility function for regular-flavored toothpaste (R) and mint-flavored
toothpaste (M) is given by U = 2R + 4M. Which of the following statements is true?
A) The MRSMR = 2M/R.
B) Brenda’s indifference curves are vertical.
C) Brenda’s indifference curves are horizontal.
D) Brenda is willing to give up two tubes of regular-flavored toothpaste for one tube of
mint-flavored toothpaste.
A perfectly competitive industry consists of many identical firms, each with a long-run
average total cost of LATC = 800 ” 10Q + 0.1Q2 and long-run marginal cost of LMC =
800 “20Q + 0.3Q2.
a. In long-run equilibrium, how much will each firm produce?
b. What is the long-run equilibrium price?
c. The industry’s demand curve is QD= 40,000 ” 70P. How many units do consumers
buy in long-run equilibrium? How many firms are in the industry?
d. Suppose the industry’s demand curve rises to QD= 40,600 ” 70P. How many new
firms will enter this constant-cost industry in the long run?
Table 12.29
(Table 12.29)
a. Is there a pure-strategy Nash equilibrium?
b. Is there a mixed-strategy Nash equilibrium?
Figure 5.12
(Figure 5.12) The size of the substitution effect will be largest for indifference curve:
A) U1.
B) U2.
C) U3.
D) U4.
Which of the following are examples of production functions?
I. Q = 56K + 18L II. Q = 2K0.8L0.2 III. Q = KL
I. Q = 56K + 18L
II. Q = 2K0.8L0.2
III. Q = KL
A) II and III
B) I, II, and III
C) II only
D) I only
Figure 4.14
(Figure 4.14) Suppose the budget constraint shifted from Budget constraint 2 to Budget
constraint 1. What could have caused this change?
A) a decrease in income
B) a decrease in the price of good X
C) a decrease in income and decrease in the relative price of good X to those of good Y
D) an increase in the relative price of good X to that of good Y
Figure 10.4
(Figure 10.4) If the firm is able to segment the market based on the residences of its
customers, it will earn producer surplus of:
A) $2,680.
B) $4,025.
C) $2,012.50.
D) $1,800.50.
In the market for used cars, the demand and supply conditions are given by QD =
12,000 ” 0.4P and QS= 1P + 5,000, where P is the price per car and Q measures the
quantity of cars. What happens at a price floor of $20,000?
A) There is a surplus of 7,000 cars.
B) There is a surplus of 3,000 cars.
C) Consumers want to buy 3,000 cars.
D) Consumers want to buy 7,000 cars.
Figure 8.13
(Figure 8.13) What could have caused the supply and average variable cost curves to
shift downward?
A) a decrease in average fixed costs
B) a decrease in wages
C) an increase in input prices
D) an increase in rental payments or property taxes
Figure 2.10
(Figure 2.10) What is the price elasticity of demand at point A?
A) “2.6
B) “1.54
C) “0.7
D) “3.2
The market for Matsutake mushrooms is characterized by the following demand and
supply equations: QD = 100 ” P and QS = “50 + 2P, where Q is measured in pounds and
P is measured in price per pound. If a new fertilizer increases the quantity supplied by
30 pounds at every price, the equilibrium price changes from ______ to ______.
A) $50; $70
B) $100; $30
C) $150; $110
D) $50; $40
People who fail to take into account inflation when calculating losses may be:
A) unbiased loss-averse.
B) using real variables to make decisions.
C) nominally loss-averse.
D) nonnominally loss-averse.
Billy is maximizing utility subject to his limited income. As a result, which of the
following statements is TRUE?
A) The slope of the indifference curve is twice the slope of the budget constraint.
B) The indifference curve intersects the budget constraint at precisely two points.
C) The budget constraint is tangent to the indifference curve.
D) The MRSXY = PXPY.
If the government subsidizes a product, what is the relationship between the price that
buyers pay (PB) and the price that sellers receive (PS)?
A) PB + subsidy = PS
B) PB + PS = subsidy
C) PB= PS+ subsidy
D) PB (1 + subsidy) = PS
Figure 3.8
(Figure 3.8) At a price ceiling of $2, what is the amount of surplus transferred from
producers to consumers?
A) $4,000
B) $2,000
C) $1,000
D) $500
Eli purchased stock in XYC Inc. at $31 a share, but the stock is now only worth $19 a
share. Eli believes that XYC’s stock will underperform the average stock market return.
However, Eli won’t sell his stock until it reaches at least $31. Eli’s decision making is:
A) biased by sunk costs.
B) economically rational.
C) biased by self-control problems.
D) the result of hyperbolic discounting.
Table 12.33
(Table 12.33) Firm A and Firm B have formed an agreement to restrict output. The
firms are playing an infinitely repeated game in which output decisions must be made
every period. Both firms are using grim trigger strategies.
a. If d (discount rate) = 0.80, what is Firm B’s expected payoff from following the
agreement?
b. If d (discount rate) = 0.80, what is Firm B’s expected payoff from cheating on the
agreement?
Maximilian rules over a three-person society. The three people are Andre, Bojan, and
Soumendra. Andre has a utility level of 60, Bojan’s utility level is 80, and Soumendra’s
utility level is 10.
a. Suppose that Maximilian uses a Rawlsian social welfare function to gauge the
well-being of society. What is the value of the Rawlsian social welfare function for this
three-person society?
b. In this society, assuming resources and utility can be transferred among the people,
what is the highest value that the Rawlsian social welfare function can equal?
c. If Maximilian transferred 20 units of utility from Bojan to Soumendra, what would
happen to the Rawlsian social welfare function?
Which scenario represents time inconsistency?
A) A person prefers $80 today over $100 one year from now, but prefers $100 in six
years over $80 in five years.
B) You prefer to receive $2 on January 1, 2013, over receiving $1 the next day, and you
prefer $2 on January 1, 2014, over receiving $1 the next day.
C) A person prefers $100 in one year over $80 today, but prefers $100 in six years over
$80 in five years.
D) You value $1 more today than $1 tomorrow.
The costs of obtaining a college degree for high-productivity and low-productivity
workers are as follows:
High productivity: CH = $120,000
Low productivity: CL= $180,000
In an economy, workers with a college degree are paid a lifetime income of $400,000,
and workers without a college degree are paid a lifetime income of $230,000. Which of
the following statements is TRUE?
A) Both high- and low-productivity workers choose to get a college degree.
B) Neither high- nor low-productivity workers choose to get a college degree.
C) The net lifetime income of high-productivity workers increases by $50,000 because
of their college degree.
D) Low-productivity workers are better off getting a college degree.
A firm’s demand curve is Q = 2 ” 0.01P, where Q is measured in millions.
a. Derive the firm’s marginal revenue curve.
b. Calculate the level of output at which marginal revenue is zero.
c. Calculate the level of output at which marginal revenue is “$50.
d. What is marginal revenue at Q = 0.50?
Figure 3.3
(Figure 3.3) The decrease in supply from S1 to S2 will cause consumer surplus to
______ and producer surplus to ______.
A) decrease by $10.50; decrease by $4.50
B) decrease by $5.50; increase by $3
C) increase by $6; decrease by $18
D) increase by $8.75; increase by $6.67
In the market for cotton, the quantity demanded and quantity supplied are expressed
mathematically as QD= 400 ” 250P and QS = 250P ” 100, where P is the price per
pound of cotton.
a. What is the equilibrium price and equilibrium quantity?
b. Graph the demand and supply curves and include your answers from part a.
Which of the following statements best exemplifies the firm’s constrained minimization
problem?
A) The firm desires to produce a given quantity of output by choosing values of W and
R that minimize RK + WL.
B) The firm desires to produce as much output as possible subject to the constraint that
C = RK + WL.
C) The firm desires to produce as much output as possible by choosing values of L and
K that minimize RK + WL.
D) The firm desires to produce a given quantity of output by choosing values of L and
K that minimize RK + WL.
Crush and Frenzy are two producers of motorized bicycles, which are identical in all
aspects. The total demand in this market is for Q motorized bicycles. The price of
Crush’s bicycle is PC and the price of Frenzy’s bicycle is PF. If the firms are engaged in
Bertrand competition, which of the following statements is TRUE regarding the
demand for Crush’s bicycles?
I. If PC> PP, Crush sells Q bicycles.
II. If PC= PF, Crush sells 0.50Q bicycles.
III. If PC< PF, Crush sells zero bicycles.
A) I and III
B) I, II, and III
C) II only
D) II and III