Supply and Demand Essay Sample

Supply and Demand Pages
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* Question 1
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| Duopolists A and B face the following demand curves: QA = 120  2PA + PB and QB = 120  2PB + PA. If both firms have zero marginal cost and they form a cartel, what is the profit-maximizing price and quantity?Answer| | | | | Correct Answer:| a. P = 60, Q = 120|

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* Question 2
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| Total surplus in a market is a measure of:Answer| | | | | Correct Answer:| c. social welfare created by the market|
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* Question 3
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| The long-run average cost curve slopes downward if there are:Answer| | | | | Correct Answer:| e. economies of scale|
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* Question 4
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| Average fixed cost is equal to the:Answer| | | |
| Correct Answer:| d. difference between average total cost and average variable cost|
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* Question 5
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| In a two-player game in which each player has four options, how many outcomes can there be?Answer| | | | | Correct Answer:| e. 16|
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* Question 6
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| Fred loves tomatoes. He makes soups, sauces, and stews with them; stuffs them; roasts them; and grills them. Fred has discovered a farmer’s market where the price of a bushel of tomatoes depends on how many bushels are purchased. The first bushel is $15; the second, $12; the third, $10; and four or more, $9.00 each. Fred has $82 to spend on tomatoes and on “all other things” during the coming week. All other things sell for $1 per unit. Assume that all other things are measured on the vertical axis. What is the horizontal intercept of Fred’s budget constraint?Answer| | | | | Correct Answer:| d. 8|

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* Question 7
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| Consider the indifference map below. The price of Y is $5. Two points on a demand curve for good X are: Answer| | | |
| Correct Answer:| d. (3, $20) and (5, $10)|
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* Question 8
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| The OPEC oil cartel lost its market power and world oil prices fell in the 1980s because:Answer| | | | | Correct Answer:| d. members began to cheat on cartel agreements|
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* Question 9
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| Long-run average cost equals long-run marginal cost whenever:Answer| | | | | Correct Answer:| c. the production function exhibits constant returns to scale|
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* Question 10
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| If the marginal cost of making a photocopy is 3 cents and the elasticity of demand is –2, the profit-maximizing price is:Answer| | | | | Correct Answer:| d. 6 cents|
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* Question 11
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| The marginal rate of substitution:Answer| | | |
| Correct Answer:| c. decreases as the consumer moves down a typical indifference curve|
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* Question 12
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| A producer refuses to sell some of one joint product. MRA is the marginal revenue for a low-demand good. If the producer were to sell all its production, what would be true of MRA?Answer| | | | | Correct Answer:| c. MRA < 0|

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* Question 13
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| Please use this information to answer the following questions:

The XYZ Steel Company produces its own coal for use in its production facility. The demand for steel is given by Ps = 500 – 2Qs and the total cost of producing steel is given by TCs = 100Qs, where Qs is tons of steel per week. The price of coal in a perfectly competitive market outside the firm is $250 per ton, and the total cost of producing coal is given by TCc = 40 + 5Qc2, where Qc is tons of coal per week.

How much should XYZ steel charge itself for coal?Answer| | | | |
Correct Answer:| a. $250 per ton|
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* Question 14
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| The formula for the elasticity can be written (where Q denotes the change in Q) as:Answer| | | | | Correct Answer:| a. |
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* Question 15
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| A representative firm with long-run total cost given by TC = 20 + 20q + 5q2 operates in a competitive industry where the short-run market demand and supply curves are given by QD = 1,400  40P and QS = 400 + 20P. If it continues to operate in the long run, its profit-maximizing level of output is:Answer| | | | | Correct Answer:| a. 2 units|

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* Question 16
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| Ramblin’ Randy’s Dude Ranch’s daily total cost of accommodating overnight guests is given by TC = 100 + 5Q. On the basis of this information, the average fixed cost, when there are 25 overnight guests, is:Answer| | | | | Correct Answer:| d. $4|

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* Question 17
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| In the model of monopoly, there:Answer| | | |
| Correct Answer:| b. is one firm producing a highly differentiated product|

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