33. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. What is the market equilibrium quantity?
A. 5 gallons per day
34. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. How many active firms are in the market?
A. 50
35. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. If in the short run the number
of firms is fixed and their fixed costs are sunk, the short run market supply function is:
A.
Q
s
= 40
P
if price is greater than $20.
36. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. If in the short run the number
of firms is fixed and their fixed costs are sunk, what is the short run equilibrium price?
C. $10 per unit
D. $40 per unit
37. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. If in the short run the number
of firms is fixed and their fixed costs are sunk, what is the short run equilibrium quantity?
A. 100 units
38. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. If in the short run the number
of firms is fixed and their fixed costs are sunk, how much does each of the active firms produce in
the short run equilibrium?
D. 20 units
39. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. If in the short run the number
of firms is fixed and their fixed costs are sunk, what is each of the active firms’ profit per unit in
the short run equilibrium?
D. $6.67 per unit
40. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. What is the new long-run
equilibrium price?
D. $2 per unit
41. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. What is the new long-run
equilibrium quantity?
A. 50
42. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. How many new firms enter
the market in the long run due to the increased demand?
D. 2
43. Suppose the market demand for milk is
Q
d
= 150 – 5
P
. Additionally, suppose that a dairy’s
variable costs are
VC
= 2
Q
2 (where
Q
is the number of gallons of milk produced each day), its
marginal cost is
MC
= 4
Q
and there is an avoidable fixed cost of $50 per day. In the long run there
is free entry into the market. Suppose the demand for milk doubles. How many total active firms
are in the market in the long run due to the increased demand?
D. 2
44. Any market that we are studying and the markets for the related inputs must all be in
equilibrium at the same time. This leads to:
A. simultaneous equilibrium effects.
45. In a perfectly competitive market, an increase in demand will lead to a long-run increase
in the product’s price:
D. if and only if the increase in demand is temporary.
46. Aggregate surplus:
D. captures the total cost created by the production and consumption of the good.
47. Aggregate surplus:
A. is the sum of total willingness to pay and total avoidable costs of production.
48. Aggregate surplus:
A. is minimized under perfect competition.
49. The market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply function
for ice cream is
Q
s
= 4
P
– 2, where both quantities are measured in millions of gallons per year.
What is the aggregate surplus at the competitive market equilibrium?
A. $4.5 million
50. The market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply function
for ice cream is
Q
s
= 4
P
– 2, where both quantities are measured in millions of gallons per year.
What is the consumer surplus at the competitive market equilibrium?
D. $18 million
51. The market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply function
for ice cream is
Q
s
= 4
P
– 2, where both quantities are measured in millions of gallons per year.
What is the producer surplus at the competitive market equilibrium?
D. $13.5 million
52. Suppose the market demand function in a certain market where
Q
is measured in
thousands of units is
Qd
= 20 – 2.5
P
, and the market supply function is
Q
s
= 2.5
P
– 7.5. How much
deadweight loss would there be in this market if the quantity bought and sold was 6,000 units?
D. $2,500
53. Suppose the market demand function in a certain market where
Q
is measured in
thousands of units is
Qd
= 20 – 2.5
P
, and the market supply function is
Q
s
= 2.5
P
– 7.5. How much
deadweight loss would there be in this market if the quantity bought and sold was 5,000 units?
D. $6,250
54. Suppose the market demand function in a certain market where
Q
is measured in
thousands of units is
Qd
= 20 – 2.5
P
, and the market supply function is
Q
s
= 2.5
P
– 7.5. How much
deadweight loss would there be in this market if the quantity bought and sold was 8,500 units?
A. $2.03
55. A deadweight loss:
D. is equal to the difference between total willingness to pay and the total avoidable cost of
production.
Essay Questions
56. Discuss some of the changes in the organization of the economic systems of countries
transitioning from communism to capitalism. How does this type of market reform increase
economic efficiency?
57. Suppose the wiz-pop market is in long-run equilibrium. Suddenly, fixed costs decrease,
although variable costs remain unchanged. Discuss the short-run and long-run changes in market
equilibrium.
