Microeconomics Fall 2024 Homework 2 PDF

1. Let L represent the number of workers hired by a firm, and let Q represent that firm’s quantity of output. Assume two points on the firm’s production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is a. 25 units of output. b. 27 units of output....

1. Let L represent the number of workers hired by a firm, and let Q represent that firm’s quantity of output. Assume two points on the firm’s production function are (L=6,Q=147) and (L=7,Q=184). The marginal product of the seventh worker is a. 25 units of output. b. 27 units of output. c. *37 units of output. d. 184 units of output. 2. A firm has market power if it can a. maximize profits. b. minimize costs. c. *influence the market price of the good it sells. d. hire as many workers as it needs at the prevailing wage rate. 3. Free entry means that a. the government pays any entry costs for individual firms. b. government-funded research lowers the costs of patents and other barriers to entry. c. a firm's marginal cost is zero. d. *no legal barriers prevent a firm from entering an industry. 4. Which of the following industries is most likely to exhibit the characteristic of free entry? a. nuclear power b.municipal water and sewer c. *dairy farming d.airport security 5. Which of the following statements best reflects a price-taking firm? a. The firm can sell only a limited amount of output at the market price before the market price will fall. b. If the firm were to charge less than the going price, it would maximize its profits and revenues. c. *If the firm were to charge more than the going price, it would sell none of its goods. d. Both b and c are correct. 6. In the long run, a firm that produces and sells textbooks gets to choose a. how many workers to hire. b. the size of its factories. c. which short-run average-total-cost curve to use. d. *All of the above are correct. 7. If the total cost curve gets steeper as output increases, the firm is experiencing  a. diseconomies of scale. b. economies of scale. c. *diminishing marginal product. d. increasing marginal product. 8. Which of the following statements about a production function is correct for a firm that uses labor to produce output? a. The production function depicts the relationship between the quantity of labor and the quantity of output. b. The slope of the production function measures marginal product. c. The slopes of the production function and the total cost curve are inversely related; if one is increasing, the other is decreasing. d. *All of the above are correct. 9. Which of the following statements is correct? a. For all firms, marginal revenue equals the price of the good. b. Only for competitive firms does average revenue equal the price of the good. c. Marginal revenue can be calculated as total revenue divided by the quantity sold. d. *Only for competitive firms does average revenue equal marginal revenue. 10. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be a. less than $12. b.more than $12. c. *$12. d. Any of the above may be correct depending on the price elasticity of demand for the product. 11. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, total revenue will be a. $2,000. b. *$2,400. c. $4,200. d. We do not have enough information to answer the question. 12. Firms operating in competitive markets produce output levels where marginal revenue equals a. *price. b. average revenue. c. total revenue divided by output. d. All of the above are correct. 13. For a competitive firm,  a. total revenue equals average revenue. b. total revenue equals marginal revenue. c. total cost equals marginal revenue. d. *average revenue equals marginal revenue. Scenario 13-14 If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. 14. Refer to Scenario 13-14. Farmer Brown’s production function exhibits a. increasing marginal product. b. constant marginal product. c. *diminishing marginal product. d. The production function is unrelated to the marginal product. 15. Refer to Scenario 13-14. Farmer Brown’s total-cost curve is a. *increasing at an increasing rate. b. increasing at a decreasing rate. c. increasing at a constant rate. d. decreasing. Figure 13-3 16. *Refer to Figure 13-3. The graph illustrates a typical a. total-cost curve. b. production function. c. production possibilities frontier. d. fixed-cost curve. 17. Refer to Figure 13-3. Which of the following is true of the production function (not pictured) that underlies this total cost function?  (i) Total output increases as the quantity of inputs increases but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage. (iii) The slope of the production function decreases as the quantity of inputs increases. a. (i) only b. (ii) and (iii) only c. *(i) and (iii) only d. (i), (ii), and (iii) Table 13-5 Number of Workers Output 0 0 1 10,000 2 19,000 3 27,000 4 32,000 5 35,000 6 36,000 18. Refer to Table 13-5. The marginal product of the third worker is a. 9,000 units. b. *8,000 units. c. 7,000 units. d. 5,000 units. 19. Refer to Table 13-5. Diminishing marginal product begins with the addition of the a. second worker. b. *third worker. c. fourth worker. d. fifth worker. 20. Which of the following characteristics of competitive markets is necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same. a. (i) and (ii) only b. *(i) and (iii) only c. (ii) only d. (i), (ii), and (iii) Table 14-3 The table represents a demand curve faced by a firm in a competitive market.  Quantity Total Revenue 0 $0 1 $13 2 $26 3 $39 4 $52 21. Refer to Table 14-3. For this firm, the price is a. $39. b. $26. c. *$13. d. $0. 22. Refer to Table 14-3. For this firm, the marginal revenue is a. $39. b. $26. c. *$13. d. $0. Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. COSTS REVENUES Quantity Total Cost Marginal Cost Quantity Total Revenue Marginal Produced Demanded Price Revenue 0 $100 -- 0 $120 -- 1 $150 1 $120 2 $202 2 $120 3 $257 3 $120 4 $317 4 $120 5 $385 5 $120 6 $465 6 $120 7 $562 7 $120 8 $682 8 $120 23. Refer to Table 14-6. What is the total revenue from selling 7 units? a. $120 b. $490 c. $562 d. *$840 24. Refer to Table 14-6. What is the total revenue from selling 4 units? a. $120 b. $257  c. $317 d. *$480 25. Refer to Table 14-6. What is the marginal revenue from selling the 3rd unit? a. $55 b.* $120 c. $137 d. $140 26. Oligopoly and monopolistic competition are examples of a market structure called imperfect competition. a. True b. False ANSWER: True 27. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. a. True b. False ANSWER: True 28. All competitive firms earn zero economic profit in both the short run and the long run. a. True b. False ANSWER: False 29. A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run. c. True d. False ANSWER: False Table 13-20 Listed in the table are the long-run total costs for three different firms. Quantity 1 2 3 4 5 Firm A 100 100 100 100 100 Firm B 100 200 300 400 500 Firm C 100 300 600 1,000 1,500 30. Refer to Table 13-20. Firm A is experiencing economies of scale. a. True b. False  ANSWER: True 31. Refer to Table 13-20. Firm B is experiencing constant returns to scale. c. True d. False ANSWER: True 32. Refer to Table 13-20. Firm C is experiencing economies of scale. e. True f. False ANSWER: False 33. If the government regulates the price a natural monopolist can charge to be equal to the firm’s marginal cost, the government will likely need to subsidize the firm. a. True b. False ANSWER: True 34. A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society. a. True b. False ANSWER: True 35. Monopolistic competition is characterized by a few sellers offering similar products, whereas oligopoly is characterized by many sellers offering differentiated products. a. True b. False ANSWER: False 36. When some resources used in production are only available in limited quantities, it is likely that the long- run supply curve in a competitive market is a. downward sloping. b. upward sloping. c. horizontal. d. vertical. ANSWER: b Figure 14-13  Suppose a firm in a competitive industry has the following cost curves: 37. Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm’s average variable costs, the firms will shut down. ANSWER: b 38. Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm’s average variable costs, the firms will shut down. ANSWER: c 39. In the short run, a market consists of 100 identical firms. The market price is $6, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market? Quantity Total Costs 0 $1 1 $7 2 $12 3 $21  4 $32 5 $45 a. 100 units b. 200 units c. 300 units d. 400 units ANSWER: b Table 14-15-a Quantity Total Cost 0 $4 1 $10 2 $16 3 $21 4 $24 5 $35 6 $48 40. Refer to Table 14-15-a. What is the lowest price at which this firm would operate in the short run? a. $5. b. $6. c. $7. d. $8. ANSWER: a Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. 41. Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00? a. 300 b. 6,000 c. 30,000 d. 60,000 ANSWER: c 42. Refer to Figure 14-9. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $2.00? a. 300 b. 6,000 c. 30,000 d. 60,000 ANSWER: d Figure 15-19 43. Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to a. $0. b. $1,562.50. c. $3,125. d. $6,250. ANSWER: b 44. Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. $0. b. $1,562.50.  c. $3,125. d. $6,250. ANSWER: a 45. Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to b. $0. b. $1,562.50. c. $3,125. d. $6,250. ANSWER: b 46. For a monopolist, when the output effect is greater than the price effect, marginal revenue is a. positive. b. negative. c. zero. d. maximized. ANSWER: a Figure 15-20 47. Refer to Figure 15-20. The consumer surplus at the monopolist’s profit-maximizing price is a. $450. b. $900. c. $1,350. d. $2,025. ANSWER: a 48. Refer to Figure 15-20. The deadweight loss caused by a profit-maximizing monopoly amounts to a. $225. b. $450. c. $900. d. $1,350. ANSWER: a 49. For a typical natural monopoly, average total cost is a. rising, often because marginal costs are very large. b. rising, often because fixed costs are very large. c. declining, often because marginal costs are very large. d. declining, often because fixed costs are very large. ANSWER: d 50. A profit-maximizing monopolist charges a price of $14. The intersection of the marginal revenue curve and the marginal cost curve occurs where output is 15 units and marginal cost is $7. What is the monopolist’s profit? a. $90 b. $105 c. $180 d. Not enough information is given to determine the answer. ANSWER: d 51. Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist? a. The monopolist is currently maximizing profits, and its total profits are $375. b. The monopolist is currently maximizing profits, and its total profits are $300. c. The monopolist is not currently maximizing profits; it should produce more units and charge a lower price to maximize profits. d. The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price to maximize profits. ANSWER: d Table 15-20 A monopolist faces the following demand curve: Quantity Price 0 $30 1 $27 2 $24 3 $21  4 $18 5 $15 6 $12 7 $9 8 $6 9 $3 10 $0 52. Refer to Table 15-20. If a monopolist faces a constant marginal cost of $20, how much output should the firm produce in order to maximize profit? a. 2 units b. 3 units c. 4 units d. 5 units ANSWER: a 53. Refer to Table 15-20. If a monopolist faces a constant marginal cost of $10, how much output should the firm produce in order to maximize profit? a. 2 units b. 3 units c. 4 units d. 5 units ANSWER: b 54. When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium quantity, a. its average revenue will equal its marginal cost. b. its marginal revenue will exceed its marginal cost. c. it will be earning positive economic profits. d. its demand curve will be tangent to its average total cost curve. ANSWER: d Figure 16-14 55. Refer to Figure 16-14. Which of the following represents the excess capacity of this firm? a. BJ b. GH c. LM d. There is no excess capacity. ANSWER: c 56. Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here? a. This firm is earning a short run profit, but will earn zero profit in the long run. b. This firm is incurring a short run loss, but will earn zero profit in the long run. c. This firm is earning zero profit in the short run, but will earn a positive profit in the long run. d. This firm is in long run equilibrium and will continue to earn zero profit. ANSWER: d 57. Refer to Figure 16-14. If this firm were operating in a perfectly competitive market, it would charge a price equal to point a. I but in a monopolistically competitive market, the profit-maximizing price is C. b. G but in a monopolistically competitive market, the profit-maximizing price is C. c. C but in a monopolistically competitive market, the profit-maximizing price is G. d. G but in a monopolistically competitive market, the profit-maximizing price is J. ANSWER: b 58. Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas? a. ABC b. IJK c. BHJ d. BCIJ ANSWER: c 59. Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas? a. ABC b. IJK c. BHJ d. BCIJ ANSWER: c 60. We must be knowledgeable of how people behave in strategic situations if we are to understand a. perfectly competitive markets. b. monopolistically competitive markets. c. oligopolistic markets. d. All of the above are correct. ANSWER: c 61. The simplest type of oligopoly is a. monopoly. b. duopoly. c. monopolistic competition. d. oligopolistic competition. ANSWER: b Table 17-14 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). B Right Left Up (2, 2) (3, 1) A Down (1, 3) (0, 0) 62. Refer to Table 17-14. If player A chooses his/her best strategy, player B should a. choose left and earn a payoff of 4.  b. choose left and earn a payoff of 6. c. choose right and earn a payoff of 2. d. choose right and earn a payoff of 0. ANSWER: a Figure 14-14 63. Refer to Figure 14-14. When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will a. have a zero economic profit. b. have a negative accounting profit. c. exit the market. d. choose to increase production to increase profit. ANSWER: a 64. Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in a. a new market equilibrium at point X. b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point Z. c. rising prices and falling profits for existing firms in the market. d. falling prices and falling profits for existing firms in the market. ANSWER: b 65. Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct? a. Points W, Y, and Z represent both short-run and long-run equilibria. b. Points W, Y, Z, and X represent short-run equilibria. c. Points W, Y, and Z represent long-run equilibria. d. Points W and Z represent long-run equilibria. ANSWER: d