Q1)The market for photocopiers is perfectly comp. A technological
breakthrough lowers the cost of photocopiers. If the demand for photocopiers
is inelastic, sales will:
Answer:c, quantity (output) rises and total revenue falls diagram #1, March
Note: Demand Curves
1. Change in quantity demanded vs change in demand
2. Substitutes vs. Complements
3. Normal vs inferior goods ( as income goes down, you use less)
Q2) a perfect comp industry is in short run equilib. Industry price and output
will increase under which one of the following conditions:
Answer:d, March 30, 2011 Q#2
Incidence of a sales tax
(who ultimately pays tax, the buyer or the seller?)
Assume tax to be paid by seller
(remember: incidence does not depend on whether paid by seller or by buyer)
Q3) a tax has been levied on a product. The more price-elastic the demand for
that product is:
Insight: use perfectly inelastic and perfectly elastic demand curves to analyze
Answer: D, the lower is the revenue that is raised by the tax. March 30, 2011
Perfectly inelastic DD: Market price increases by amount of tax full
incidence falls on buyer.
Perfectly elastic DD: Market price does not increase full incidence falls on
Average Variable Cost
Average Fized Cost
Average TOTAL Cost
Q4) a firms mc is $30, ATC $50, and output is 800 units. Its total cost of
producing 801 units is probably:answer: D March 30, 2011 Q#4
www.notesolution.com Q5) which of the following is true if MC is above AVC, as output rises: answer
c, AVC has to be rising. March 30, 2011
Profit maximization of a perfectly competitive firm:
Q6) in a perfectly competitive industry, the market price of the product is $12.
Firm A is profucing the output at which average total cost equals marginal
cost, both of which are $10. To maximize its profits, firm a should: answer B,
March 30, 2011 Q36
Profit maximization (imperfectly competitive firm):
An unregulated single plant pure monopolist is in short run equilibrium with
economic profits. Material costs increase such that the monopolist’s ATC
curve increases by exactly $1.50 per unit of output. Which one of the following
statements is correct as a result of this change: Answer b, price increase,
In the Smith household, John can cook 5 meals or clean 6 rooms in 5 hours. Joan
can cook 30 meals or clean 10 rooms in the same amount of time. Select the best
A) John has an absolute advantage in the production of both goods.
B) Since Joan is better producing both goods, she should produce both.
C) John has a comparative advantage in cooking.
D) Joan should specialize in cooking.
E) None of the above.
The smith household, Opportunity cost of:
Preparing one meal Cleaning one room
John 6/5 = 1.2 rooms 5/6 = 0.83 meals
Joan 10/30 = 0.33 rooms 30/10 = 3 meals