Q&A Hero

Q: Figure 9.2Refer to Figure 9.2. At price 0E and quantity Q*, producer surplus is the areaA) 0ACQ*.B) 0ECQ*.C) 0FCQ*.D) EFC.E) none of the above

Q: Figure 9.2Refer to Figure 9.2. At price 0E and quantity Q*, consumer surplus is the areaA) 0FCQ*.B) AFC.C) EFC.D) AEC.E) none of the above

Q: Producer surplus for the whole market can be thought of as A) total profit. B) variable operating profit plus factor rents. C) total profit minus factor rents earned by lower cost firms. D) total profit plus factor rents earned by lower cost firms.

Q: Price ceilings can result in a net loss in consumer surplus when the ________ curve is ________. A) demand; very elastic B) demand; very inelastic C) supply; very inelastic D) none of the above; price ceilings always increase consumer surplus

Q: An effective price ceiling causes a loss ofA) producer surplus for certain and possibly consumer surplus as well.B) consumer surplus only.C) producer surplus only.D) consumer surplus for certain and possibly producer surplus as well.E) neither producer nor consumer surplus.

Q: In 1970s the federal government imposed price controls on natural gas. Which of the following statements is true? A) These price controls caused a chronic excess supply of natural gas. B) Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium. C) Producers gained from the price controls because producer surplus was larger than it would have been under free market equilibrium. D) This episode of price controls was unusual, because it resulted in no deadweight loss to society.

Q: Deadweight loss refers to A) losses in consumer surplus associated with excess government regulations. B) situations where market prices fail to capture all of the costs and benefits of a policy. C) net losses in total surplus. D) losses due to the policies of labor unions.

Q: In an unregulated, competitive market producer surplus exists because some A) consumers are willing to pay more than the equilibrium price. B) producers are willing to take more than the equilibrium price. C) producers are willing to sell at less than the equilibrium price. D) consumers are willing to purchase, but only at prices below equilibrium price.

Q: In an unregulated, competitive market consumer surplus exists because some A) sellers are willing to take a lower price than the equilibrium price. B) consumers are willing to pay more than the equilibrium price. C) sellers will only sell at prices above equilibrium price (or actual price). D) consumers are willing to make purchases only if the price is below the actual price.

Q: Producer surplus is measured as the A) area under the demand curve above market price. B) entire area under the supply curve. C) area under the demand curve above the supply curve. D) area above the supply curve up to the market price.

Q: When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to ________ and the quantity demanded to ________. A) fall; rise B) fall; fall C) rise; rise D) rise; fall

Q: Consumer surplus measures A) the extra amount that a consumer must pay to obtain a marginal unit of a good or service. B) the excess demand that consumers have when a price ceiling holds prices below their equilibrium. C) the benefit that consumers receive from a good or service beyond what they pay. D) gain or loss to consumers from price fixing.

Q: Figure 9.1Refer to Figure 9.1. If the government establishes a price ceiling of $20, total consumer and producer surplus will beA) $30.B) $400.C) $600.D) $900.E) $1200.

Q: Figure 9.1Refer to Figure 9.1. If the government establishes a price ceiling of $20, the resulting deadweight loss will beA) $0.B) $20.C) $30.D) $300.E) $600.

Q: Figure 9.1Refer to Figure 9.1. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus willA) fall by $200.B) fall by $300.C) remain the same.D) rise by $200.E) rise by $300.

Q: Figure 9.1Refer to Figure 9.1. Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, consumer surplus willA) fall by $200.B) fall by $300.C) remain the same.D) rise by $200.E) rise by $300.

Q: Figure 9.1Refer to Figure 9.1. If the government establishes a price ceiling of $20, how many widgets will be sold?A) 20B) 30C) 40D) 50E) 60

Q: Figure 9.1Refer to Figure 9.1. If the market is in equilibrium, total consumer and producer surplus isA) $0.B) $100.C) $800.D) $1200.E) $2000.

Q: Figure 9.1Refer to Figure 9.1. If the market is in equilibrium, total producer surplus isA) $30.B) $70.C) $400.D) $800.E) $1200.

Q: Figure 9.1Refer to Figure 9.1. If the market is in equilibrium, total consumer surplus isA) $30.B) $70.C) $400.D) $800.E) $1200.

Q: Figure 9.1Refer to Figure 9.1. If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is ________.A) $5.00B) $10.00C) $15.00D) $20.00E) $40.00

Q: Figure 9.1Refer to Figure 9.1. If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is ________.A) $5.00B) $15.00C) $22.50D) $40.00

Q: The market demand for a type of carpet known as KP-7 has been estimated as: P = 40 - 0.25Q, where P is price ($/yard) and Q is rate of sales (hundreds of yards per month). The market supply is expressed as: P = 5.0 + 0.05Q. A typical firm in this market has a total cost function given as: C = 100 - 20.0q + 2.0q2. a. Determine the equilibrium market output rate and price. b. Determine the output rate for a typical firm. c. Determine the rate of profit (or loss) earned by the typical firm.

Q: Suppose a firm has unavoidable fixed costs of $500,000 per year, and it decides to shut down. What is the firm's producer surplus? A) PS is positive in this case, but we cannot determine the value based on the given information B) PS is negative in this case, but we cannot determine the value based on the given information C) PS = -$500,000 D) PS = 0

Q: A perfectly competitive hardware manufacturer has total revenue of $85 million, total variable costs of $45 million, and fixed costs of $10 million. What is the firm's producer surplus? A) $85 million B) $70 million C) $40 million D) $30 million

Q: One practical implication of a kinked market supply curve is that: A) producer surplus is not defined at the kink point. B) the MC = MR rule does not hold at the kink point. C) the market supply elasticity for a price increase may be different than the market supply elasticity for a price decrease at the kink point. D) All of the above are true.

Q: Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________: A) perfectly inelastic, fixed costs B) perfectly inelastic, zero C) perfectly elastic, fixed costs D) perfectly elastic, zero

Q: Imposition of an output tax on all firms in a competitive industry will result in A) a downward shift in each firm's marginal cost curve. B) a downward shift in each firm's average cost curve. C) a leftward shift in the market supply curve. D) the entry of new firms into the industry. E) higher profits for the industry as price rises.

Q: An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is A) 1/50 B) 3/10 C) 1/5 D) 2/5 E) none of the above

Q: Three hundred firms supply the market for paint. For fifty of the firms, their short-run average variable costs are minimized at $10 and short-run total costs are minimized at $15. For the remaining firms, the short-run average variable costs and short-run average total costs are minimized at $20 and $25, respectively. If each firm has a U-shaped marginal cost curve then the short-run market supply curve is A) U-shaped too B) kinked at $10 C) kinked at $15 D) kinked at $20 E) kinked at $25

Q: If a competitive firm's marginal costs always increase with output, then at the profit maximizing output level, producer surplus is A) zero because marginal costs equal marginal revenue. B) zero because price equals marginal costs. C) positive because price exceeds average variable costs. D) positive because price exceeds average total costs. E) positive because revenues are increasing faster than variable costs.

Q: In a supply-and-demand graph, producer surplus can be pictured as the A) vertical intercept of the supply curve. B) area between the demand curve and the supply curve to the left of equilibrium output. C) area under the supply curve to the left of equilibrium output. D) area under the demand curve to the left of equilibrium output. E) area between the equilibrium price line and the supply curve to the left of equilibrium output.

Q: A firm's producer surplus equals its economic profit when A) average variable costs are minimized. B) average fixed costs are minimized. C) marginal costs equal marginal revenue. D) fixed costs are zero. E) total revenues equal total variable costs.

Q: The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as A) revenue exceeds producer surplus. B) producer surplus is positive. C) producer surplus exceeds fixed cost. D) producer surplus exceeds variable cost. E) profit and producer surplus are equal.

Q: Producer surplus in a perfectly competitive industry is A) the difference between profit at the profit-maximizing output and profit at the profit-minimizing output. B) the difference between revenue and total cost. C) the difference between revenue and variable cost. D) the difference between revenue and fixed cost. E) the same thing as revenue.

Q: Sarah's Pretzel plant has the following short-run cost function: C(q, K) = + 50K where q is Sarah's output level, w is the cost of a labor hour, and K is the number of pretzel machines Sarah leases. Sarah's short-run marginal cost curve is MC(q, K) = . At the moment, Sarah leases 10 pretzel machines, the cost of a labor hour is $6.85, and she can sell all the output she produces at $35 per unit. If the cost per labor hour rises to $7.50, what happens to Sarah's optimal level of output and profits?

Q: A competitive firm sells its product at a price of $0.10 per unit. Its total and marginal cost functions are: TC = 5 - 0.5Q + 0.001Q2 MC = -0.5 + 0.002Q, where TC is total cost ($) and Q is output rate (units per time period). a. Determine the output rate that maximizes profit or minimizes losses in the shortterm. b. If input prices increase and cause the cost functions to become TC = 5 - 0.10Q + 0.002Q2 MC = -0.10 + 0.004Q, what will the new equilibrium output rate be? Explain what happened to the profit maximizing output rate when input prices were increased.

Q: Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision? A) Output increases to cover the higher input cost B) Output increases because the marginal cost curve shifts upward C) Output decreases because the marginal cost curve shifts upward D) Output decreases because the price of pizza must also increase

Q: Use the following statements to answer this question: I. An increase in the firm's fixed costs will also shift the firm's short-run supply curve to the left. II. An increase in the firm's fixed costs will not shift the firm's short-run supply curve to the right or left, but it may alter how much of the marginal cost curve is used to form the short-run supply curve. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward. II. Under perfect competition., an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Short-run supply curves for perfectly competitive firms tend to be upward sloping because: A) there is diminishing marginal product for one or more variable inputs. B) marginal costs increase as output increases. C) marginal fixed costs equal zero. D) A and B are correct. E) B and C are correct.

Q: Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift? A) Firm's short-run supply curve B) Average total cost curve C) Average variable cost curve D) Average fixed cost curve

Q: Higher input prices result in A) upward shifts of MC and reductions in output. B) upward shifts of MC and increases in output. C) downward shifts of MC and reductions in output. D) downward shifts of MC and increases in output. E) increased demand for the good the input is used for.

Q: The supply curve for a competitive firm is A) its entire MC curve. B) the upward-sloping portion of its MC curve. C) its MC curve above the minimum point of the AVC curve. D) its MC curve above the minimum point of the ATC curve. E) its MR curve.

Q: Homer's Boat Manufacturing cost function is: C(q) = q4 + 10,240. The marginal cost function is: MC(q) = q3. If Homer can sell all the boats he produces for $1,200, what is his optimal output? Calculate Homer's profit or loss.

Q: Laura's internet services has the following short-run cost curve: C(q, K) = + rK where q is Laura's output level, K is the number of servers she leases and r is the lease rate of servers. Laura's short-run marginal cost function is: MC(q, K) = . Currently, Laura leases 8 servers, the lease rate of servers is $15, and Laura can sell all the output she produces for $500. Find Laura's short-run profit maximizing level of output. Calculate Laura's profits. If the lease rate of internet servers rise to $20, how does Laura's optimal output and profits change?

Q: Spacely Sprockets' short-run cost curve is: C(q, K) = + 15K, where q is the number of Sprockets produced and K is the number of robot hours Spacely hires. Currently, Spacely hires 10 robot hours per period. The short-run marginal cost curve is: MC(q, K) = 50. If Spacely receives $250 for every sprocket he produces, what is his profit maximizing output level? Calculate Spacely's profits.

Q: The table below lists the short-run costs for One Guy's Pizza. If One Guy's can sell all the output they produce for $12 per unit, how much should One Guy's produce to maximize profits? Does One Guy's Pizza earn an economic profit in the short-run? Q TFC TVC ATC AVC MC Profits 58 100 336.4 59 100 348.1 60 100 360 61 100 372.1

Q: Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are: TC = 3,000,000 + 0.001Q2 MC = 0.002Q where Q is measured in thousand box bundles per year. a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit? b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in the shortrun?

Q: Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions? A) No impact on the restaurant's decisions B) Ronny's will remain in business but will definitely produce less pizza C) Ronny's will definitely shut down D) Ronny's decision depends on the circumstances -- if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.

Q: Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error? A) Firm produces less than optimal quantity and earns lower profits B) Firm produces less than optimal quantity and earns higher profits C) Firm produces more than optimal quantity and earns lower profits D) Firm produces more than optimal quantity and earns higher profits

Q: Use the following statements to answer this question: I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule. II. The firm's supply decision is to generate zero output for all prices below the minimum AVC. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Suppose your firm has a U-shaped average variable cost curve and operates in a perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will: A) exceed the profit-maximizing level of output. B) be smaller than the profit-maximizing level of output. C) equal the profit-maximizing level of output. D) generate zero economic profits.

Q: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be A) higher than Sizzle's by $500,000 yearly. B) higher than Sizzle's by just less than $500,000 yearly. C) zero in the long run, and Sizzle will be out of business. D) the same as Sizzle's, because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent. E) the same as Sizzle's, because Sizzle will move to a more advantageous location in order to compete.

Q: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. , Fizzle and Sizzle A) would be perfectly competitive if their purification costs were equal; otherwise, not. B) would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. C) may or may not be perfect competitors, but their position on the river has nothing to do with it. D) cannot be perfect competitors because they are not identical firms.

Q: An industry analyst observes that in response to a small increase in price, a competitive firm's output sometimes rises a little and sometimes a lot. The best explanation for this finding is that A) the firm's marginal cost curve is random. B) the firm's marginal cost curve has a very small positive slope. C) the firm's marginal cost has a very large positive slope. D) the firm's marginal cost curve is horizontal for some ranges of output and rises in steps. E) the firm's marginal cost curve is downward sloping.

Q: When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that A) the firm's marginal cost curve must be flat. B) the firm's marginal costs of production never fall below $5. C) the firm's average cost of production was less than $10. D) the firm's total cost of producing 100 tons is less than $1000. E) the minimum value of the firm's average variable cost lies between $5 and $10.

Q: A firm never operates A) at the minimum of its ATC curve. B) at the minimum of its AVC curve. C) on the downward-sloping portion of its ATC curve. D) on the downward-sloping portion of its AVC curve. E) on its long-run marginal cost curve.

Q: In the short run, a perfectly competitive firm earning negative economic profit A) is on the downward-sloping portion of its AVC. B) is at the minimum of its AVC. C) is on the upward-sloping portion of its AVC. D) is not operating on its AVC. E) can be at any point on its AVC.

Q: In the short run, a perfectly competitive firm earning negative economic profit is A) on the downward-sloping portion of its ATC curve. B) at the minimum of its ATC curve. C) on the upward-sloping portion of its ATC curve. D) above its ATC curve.

Q: In the short run, a perfectly competitive profit maximizing firm that has not shut down A) is operating on the downward-sloping portion of its AVC curve. B) is operating at the minimum of its AVC curve. C) is operating on the upward-sloping portion of its AVC curve. D) is not operating on its AVC curve. E) can be at any point on its AVC curve.

Q: If a competitive firm's marginal cost curve is U-shaped then A) its short run supply curve is U-shaped too B) its short run supply curve is the downward-sloping portion of the marginal cost curve C) its short run supply curve is the upward-sloping portion of the marginal cost curve D) its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve E) its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average total cost curve

Q: In the short run, a perfectly competitive firm earning positive economic profit is A) on the downward-sloping portion of its ATC. B) at the minimum of its ATC. C) on the upward-sloping portion of its ATC. D) above its ATC. E) below its ATC.

Q: TABLE 8.1QPTRMRTCMC0$30$0---$15---1$30$30$30$25$102$30$60$30$40$153$30$90$30$60$204$30$120$30$85$255$30$150$30$115$306$30$180$30$150$35The total revenue graph consistent with Table 8.1 isA) linear and upward-sloping.B) linear and horizontal.C) linear and vertical.D) linear and downward-sloping.E) concave downwards.

Q: TABLE 8.1QPTRMRTCMC0$30$0---$15---1$30$30$30$25$102$30$60$30$40$153$30$90$30$60$204$30$120$30$85$255$30$150$30$115$306$30$180$30$150$35That Table 8.1 shows a short-run situation is evident fromA) the linear marginal revenue function.B) the constant price.C) the increasing marginal cost.D) the presence of positive costs at Q = 0.E) the absence of marginal values at Q = 0.

Q: TABLE 8.1QPTRMRTCMC0$30$0---$15---1$30$30$30$25$102$30$60$30$40$153$30$90$30$60$204$30$120$30$85$255$30$150$30$115$306$30$180$30$150$35Average cost for the firm in Table 8.1A) cannot be determined from the information given.B) is upward-sloping for all output values shown.C) is constant for all output values shown.D) is downward-sloping for all output values shown.E) is U-shaped.

Q: TABLE 8.1QPTRMRTCMC0$30$0---$15---1$30$30$30$25$102$30$60$30$40$153$30$90$30$60$204$30$120$30$85$255$30$150$30$115$306$30$180$30$150$35The maximum profit available to the firm isA) $20.B) $30.C) $35.D) $155.E) $180.

Q: TABLE 8.1QPTRMRTCMC0$30$0---$15---1$30$30$30$25$102$30$60$30$40$153$30$90$30$60$204$30$120$30$85$255$30$150$30$115$306$30$180$30$150$35That the firm is perfectly competitive is evident from itsA) increasing marginal cost.B) increasing total cost.C) zero economic profits.D) constant marginal revenue.E) absence of marginal values at Q = 0.

Q: If a competitive firm has a U-shaped marginal cost curve then A) the profit maximizing output will always generate positive economic profit. B) the profit maximizing output will always generate positive producer surplus. C) the profit maximizing output is found where MC = MR and MC is decreasing. D) the profit maximizing output is found where MC = MR and MC is constant. E) the profit maximizing output is found where MC = MR and MC is increasing.

Q: An improvement in technology would result in A) upward shifts of MC and reductions in output. B) upward shifts of MC and increases in output. C) downward shifts of MC and reductions in output. D) downward shifts of MC and increases in output. E) increased quality of the good, but little change in MC.

Q: If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is A) raise prices. B) lower prices to gain revenue from extra volume. C) shut down immediately, but not liquidate the business. D) shut down immediately and liquidate the business. E) continue operating, but plan to go out of business.

Q: Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should A) close her doors immediately. B) continue producing in the short and long run. C) continue producing in the short run, but plan to go out of business in the long run. D) raise her prices above the perfectly competitive level. E) lower her output.

Q: If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC, A) the firm is earning negative profit, and will shut down rather than produce that level of output. B) the firm is earning negative profit, but will continue to produce where MR = MC in the short run. C) the firm is still earning positive profit, as long as variable costs are covered. D) the firm is covering explicit, but not implicit, costs. E) the firm can cover all of fixed costs but only a portion of variable costs.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40.At the profit-maximizing level of output, total profit isA) -$120.B) $0.C) $432.D) $600.E) $603.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40. At the profit-maximizing level of output, total revenue is A) $1200. B) $2160. C) $2400. D) $2680. E) $3160.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40. At the profit-maximizing level of output, A) AVC is minimized. B) ATC is minimized. C) MC is minimized. D) total cost is minimized. E) no costs are minimized.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40. At the profit-maximizing level of output, AVC is A) $22. B) $26. C) $30. D) $32. E) $40.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40. At the profit-maximizing level of output, ATC is A) $26. B) $30. C) $31. D) $40. E) $44.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40. At 67 units of output, profit is A) maximized and zero. B) maximized and negative. C) maximized and positive. D) not maximized, and zero. E) not maximized, and negative.

Q: Consider the following diagram where a perfectly competitive firm faces a price of $40.The firm earns zero profit at what output?A) 0.B) 34 and 79.C) 54.D) 60.E) 67.