姓名: 學號: Date: 2014.1.8

Quiz 2(A)

Economics (I), 2013

Part I. Multiple Choices (48 points: 4 points of each )

Please fill your answers in below blanks.

1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10 / 11 / 12
A / B / C / C / A / B / B / B / D / B / A / B
  1. Refer to Figure 1. What is the area that represents producer surplus after the imposition of the price floor?

A)B+E.

B)A+B+E.

C)B+E+F.

D)B+C+D+E.

Figure 1

Figure 1 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf

  1. Refer to Figure 1. What area represents the deadweight loss after the imposition of the price floor?

A)F+G.

B)C+D.

C)C+D+F+G.

D)C+D+G.

  1. Suppose that in Canada the government places a $1,500 tax on the buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph?

A)The tax will shift both the demand and supply curve to the right by $1,500.

B)The tax will shift the supply curve to the left by $1,500.

C)The tax will shift the demand curve to the left by $1,500.

D)The tax will shift the demand curve to the right by $1,500.

Figure 2

  1. Refer to Figure 2. Which diagram demonstrates a decrease in total utility following an increase in the price of candy?

A)the movement from e to d in Panel A.

B)the movement from g to f in Panel B.

C)the movement from k to h in Panel C.

D)none of the above.

Figure 4

Figure 4 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc

  1. Refer to Figure 4. Constant returns to scale

A)occur between 10,000 and 20,000 pictures frames per month.

B)occur for output rates greater than 5,000 picture frames.

C)will shift the long-run average cost curve downward.

D)occur between 5,000 and 20,000 picture frames per month.

  1. Refer to Figure 4. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

A)the firm would lower its average costs by reducing its scale of operation.

B)the firm will be operating efficiently.

C)the firm will not be able to earn a profit.

D)the firm will not be operating efficiently.

  1. A change in the slope of an isocost line is due to a change in

A)the output price.

B)the price of one or both inputs.

C)quantity of output.

D)total cost.

Figure 5

The graphs in Figure 5 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.

  1. Refer to Figure 5. Which of the following statements is true?

A)The current market price is $3 but the price will fall in the long-run as a result of a decrease in demand.

B)The current market price is $3 but the price will fall in the long-run as new firms enter the market.

C)The current market price is $3 but the price will increase in the future as the market demand increases.

D)The current market price is $3 but the firm will be able to increase the price in the future.

  1. Refer to Figure 5. The graphs depicts a short run equilibrium. How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.)

A)The price will be higher in the long run than in the short run.

B)Fewer firms will be in the market in the long run than in the short run.

C)The market supply curve will be further to the left in the long run than in the short run.

D)The firm's profit will be lower in the long run than in the short run.

  1. Refer to Figure 6. To maximize his profit, Jason should produce the rate of output indicated by point

A)a.

B)d.

C)b.

D)e.

Figure 6

Figure 6 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples.

  1. Refer to Figure 6. Which of the following statements is true?

A)Jason should produce where MC equals $3 (point d) where he will maximize his profit.

B)Jason should produce where the distance between MC and his demand curve is greatest (point b).

C)Jason cannot earn a profit from selling any number of apples.

D)Jason should produce where MC equals $3 (point d) where he will minimize his losses.

  1. A firm could continue to operate for years without ever earning a profit as long as it is producing an output where

A)AFCAVC.

B)MRAVC.

C)MRATC.

D)ATCAVC.

Part II. Problems: 52%

  1. You are given the following market data for Venus automobiles in Saturnia.

Demand: P= 200 - 0.25Q

Supply: P= 130 + 0.10Q

whereP= Price and Q= Quantity.

  1. Calculate the equilibrium price and quantity.
  2. Calculate the consumer surplus in this market.
  3. Calculate the producer surplus in this market.
  4. If the government sets a price floor at $160, calculate the equilibrium price and quantity.
  5. Calculate the deadweight loss in this market after setting price floor at $160.

ANS:

  1. Price = $150; Quantity = 200
  2. Consumer surplus = $5,000
  3. Producer Surplus = $2,000
  4. Price = $160; Quantity = 160
  5. 28
  1. Use the following graph to answer the following questions

  1. If the wage rate and the rental price of machines are both $50 and total cost is $800, is the cost-minimizing point A, B, or C? And explain your answer.
  2. If the wage rate is $40, the rental price of equipment is $120, and total cost is $1,200, is the cost-minimizing point A, B, or C? And explain your answer.
  3. If the wage rate is $60, the rental price of equipment is $90, and total cost is $1,800, is the cost-minimizing point A, B, or C? And explain your answer.

ANS:

A. If total cost is $800 and the wage rate and rental price of machines both equal $50, the isocost line's endpoints are at 16 and 16. Along this isocost line, the cost minimizing point for producing 6,000 units is at point A

B. If the wage rate is one-third the rental price of machines, we must be on the isocost line whose endpoints are where capital = 10 and labor = 30, because we can buy three times as much labor with a total cost of $1,200. Along this isocost line the cost-minimizing point for producing 6,000 units is point B

C. If the wage rate is two-thirds the rental price of machines, we must be on the isocost line whose endpoints are where capital = 20 and labor = 30, because we can buy three times as much labor with a total cost of $1,800. Along this isocost line the cost-minimizing point for producing 14,000 units is point C

Figure 1

  1. Use the figure above to answer the following questions.
  1. How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
  2. What is the market price?
  3. What is the profit-maximizing output?
  4. What is total revenue at the profit-maximizing output?
  5. What is the total cost at the profit-maximizing output?
  6. What is the firm's total fixed cost?

ANS:

  1. The perfectly competitive firm is a price taker and therefore faces a perfectly elastic demand curve which is also the MR curve
  2. Market price = $40
  3. Profit maximizing output = 200
  4. Total revenue = $40 × 200 = $8,000
  5. Total cost = ATC × total output = $24 × 200 = $4,800
  6. Profit = Total revenue - total cost = $8,000 - 4,800 = $3,200