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James Pesando

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 30, 2011 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 problem. Answer: D, the lower is the revenue that is raised by the tax. March 30, 2011 Q#3 Observations 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 seller COSTS Marginal Cost 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 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, quantity decrease Comparative advantage 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 statement. 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 Therefor
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