The domestic demand and supply for sugar are Qd = 60,000 – 400P and QSD = 20,000 +
500P. The foreign supply is QSF = 20,000 + 100P. What is the domestic market price of
sugar?
A. $15
B. $20
C. $30
D. $45
You are the manager of a firm that sells its product in a competitive market at a price of
$48. Your firms cost function is C = 60 + 2Q2. Your firms maximum profits are:
A. $192.
B. $228.
C. $348.
D. $576.
Suppose the following Lagrangian is formed to maximize a consumers utility subject to
her budget constraint: The first-order conditions for this problem imply:
A. MRS = 10.
B. PX/PY = 10.
C.
D. All of the statements associated with this question are correct.
Suppose that three consumers are in the market for good X. Consumer 1s (inverse)
demand is PX = 20 – QX; Consumer 2s (inverse) demand is PX = 20 – 2QX; and
Consumer 3s (inverse) demand is PX = 20 – 4QX. When PX = $10, the market will
demand:
A. 17.5 units and the inverse market demand curve is PX = 20 – 0.5714QX.
B. -30 units and the inverse market demand curve is PX = 60 – 7QX.
C. 17.5 units and the inverse market demand curve is PX = 60 – 7QX.
D. None of the statements is correct.
If you wish to open a store and you do not like risk, it would be wise to sell:
A. only normal goods.
B. a mix of normal and inferior goods.
C. all inferior goods.
D. None of the statements is correct.
You are a manager for a monopolistically competitive firm. From experience, the
profit-maximizing level of output of your firm is 100 units. However, it is expected that
prices of other close substitutes will fall in the near future. How should you adjust your
level of production in response to this change?
A. Produce more than 100 units.
B. Produce less than 100 units.
C. Produce 100 units.
D. Insufficient information to decide.
In the long run, perfectly competitive firms produce a level of output such that:
A. P = MC.
B. P = minimum of AC.
C. P = MC and P = minimum of AC.
D. None of the answers is correct.
Suppose that consumers preferences are well behaved in that properties 4-1 to 4-4 are
satisfied. Furthermore, assume that X is a normal good, Y is an inferior good, and the
price of good X increases. Then the substitution effect will lead consumers to consume:
A. more of good X and more of good Y.
B. less of good X and more of good Y.
C. less of good X and less of good Y.
D. more of good X and less of good Y.
Which of the following is NOT a transaction cost associated with using inputs?
A. Time spent negotiating labor contracts with union workers
B. Opportunity costs of negotiating the price of renting machines
C. Wages paid to labor
D. Costs of searching for a new supplier of machines
Economies of scale exist whenever:
A. average total costs decline as output increases.
B. average total costs increase as output increases.
C. average total costs are stationary as output increases.
D. average total costs increase as output increases and average total costs are stationary
as output increases.