Question 1

If there are constant returns to scale in a competitive industry, then the long-run industry supply curve for that industry is horizontal.

Accepted Answer

A) True 
 B)False

Question 2

It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 3

On a tropical island there are 100 potential boat builders, numbered 1 through 100. Each can build up to8 boats a year, but anyone who goes into the boatbuilding business has to pay a fixed cost of $7. Marginal costs differ from person to person. Where y denotes the number of boats built per year, boat builder 1 has a total cost function c(y) = 7 + y. Boat builder 2 has a total cost function c(y) = 7 + 2y, and more generally, for each i, from 1 to 100, boat builder i has a cost function c(y) = 7 + iy. If the price of boats is 15, how many boats will be built per year?

Accepted Answer

A)  112 
B)  64 
C)  32 
D)  168 
E)  Any number between 120 and 128 is possible. 
A)  112 
B)  64 
C)  32 
D)  168 
E)  Any number between 120 and 128 is possible.

Question 4

In the problem discussed in your workbook, the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird. Cockatoos are drugged and smuggled in suitcases to the United States. Half of the smuggled cockatoos die in transit. Each smuggled cockatoo has a 10% probability of being discovered, in which case the smuggler is fined. If the fine imposed for each smuggled cockatoo is increased to $1,200, then the equilibrium price of cockatoos in the United States will be

Accepted Answer

A)  $100. 
B)  $160. 
C)  $76. 
D)  $355.56. 
E)  $266.67. 
A)  $100. 
B)  $160. 
C)  $76. 
D)  $355.56. 
E)  $266.67.

Question 5

In the absence of government interference, there is a constant marginal cost of $4 per ounce for growing marijuana and delivering it to buyers. Suppose that government authorities seize shipments whenever they find them and resell the marijuana that they seize on the open market. The probability that any shipment of marijuana is seized is .50. If a shipment is seized, there is no other punishment besides loss of the marijuana that is seized. The effect of the government action is to

Accepted Answer

A)  raise the equilibrium price by $8. 
B)  raise the equilibrium price by $4. 
C)  lower the equilibrium price by $2. 
D)  leave prices unchanged. 
E)  raise the equilibrium price by $2. 
A)  raise the equilibrium price by $8. 
B)  raise the equilibrium price by $4. 
C)  lower the equilibrium price by $2. 
D)  leave prices unchanged. 
E)  raise the equilibrium price by $2.

Question 6

In the absence of government interference, there is a constant marginal cost of $5 per ounce for growing marijuana and delivering it to buyers. If the probability that any shipment of marijuana is seized is .10 and the fine if a shipper is caught is $45 per ounce, then the equilibrium price of marijuana per ounce is

Accepted Answer

A)  $50. 
B)  $9.50. 
C)  $10.56. 
D)  $4.50. 
E)  $5.50. 
A)  $50. 
B)  $9.50. 
C)  $10.56. 
D)  $4.50. 
E)  $5.50.

Question 7

The price elasticity of gasoline in the United States has been estimated to be 0.15. If this is so, should profit-maximizing gasoline stations raise their prices? (Explain why or why not.)

Accepted Answer

Individual station's price ela

Question 8

In a certain industry, the supply curve of any firm is Si(p) =   . If a firm produces 6 units of output, what are its total variable costs?

Accepted Answer

A)  $34 
B)  $72 
C)  $54 
D)  $36 
E)  There is not enough information given to determine total variable costs. 
A)  $34 
B)  $72 
C)  $54 
D)  $36 
E)  There is not enough information given to determine total variable costs.

Question 9

The market for a good is in equilibrium when the government unexpectedly imposes a quantity tax of $2 per unit. In the short run, the price will rise by $2 per unit so that firms can regain their lost revenue and continue to produce.

Accepted Answer

A) True 
 B)False

Question 10

The cheese business in Lake Fon-du-lac, Wisconsin, is a competitive industry. All cheese manufacturers have the cost function C = Q2 + 4, while demand for cheese in the town is given by Qd = 120 - P. The long-run equilibrium number of firms in this industry is

Accepted Answer

A)  29. 
B)  58. 
C)  56. 
D)  120. 
E)  59. 
A)  29. 
B)  58. 
C)  56. 
D)  120. 
E)  59.

Question 11

The cost per bushel of growing corn on a given acre of land depends partly on how intensely the land is farmed and partly on the quality of the soil, the amount of rainfall, and the length of the growing season. Suppose that the last three factors are summarized by a single index f for fertility. Suppose that the long-run total cost of producing y hundred bushels of corn on an acre of land of fertility f is c(y, f), where c(y, f) =   for y > 0 and c(0, f) = 0. 
a. Write down a formula for the long-run average cost function per hundred bushels of corn from an acre of land of quality
b. At what level of output is long-run average cost minimized on an acre of land of quality f?
c. What is the lowest price per hundred bushels at which an acre of land of quality f will be used to produce corn?
f.

Accepted Answer

a. @#IMG-DLM& .
b. 1

Question 12

In Baggs, Wyoming, cattle can be produced according to the following process: C =   +   , where C is the number of cattle, G are bushels of grain, and P are acres of pasture. If grain costs $5 per bushel and pasture costs $4 per acre, how many cattle can Rancher Roy produce with a budget of $3,000?

Accepted Answer

A)  600 
B)  60 
C)  30 
D)  25 
E)  150 
A)  600 
B)  60 
C)  30 
D)  25 
E)  150

Question 13

Consider a competitive industry with several firms all of which have the same cost function, c(y) = y2 + 4 for y > 0 and c(0) = 0. The demand curve for this industry is D(p) = 50 2 p, where p is the price. The long-run equilibrium number of firms in this industry is

Accepted Answer

A)  4. 
B)  23. 
C)  25. 
D)  46. 
E)  2. 
A)  4. 
B)  23. 
C)  25. 
D)  46. 
E)  2.

Question 14

The bicycle industry y is made up of 100 firms with the long-run cost curve c(y) = 2 + (   ) and 60 firms with the long-run cost curve c(y) =   . No new firms can enter the industry. What is the long-run industry supply curve at prices greater than $2?

Accepted Answer

A)  y = 400p. 
B)  y = 420p. 
C)  y = 200p. 
D)  y = 300p. 
E)  y = 435p. 
A)  y = 400p. 
B)  y = 420p. 
C)  y = 200p. 
D)  y = 300p. 
E)  y = 435p.

Question 15

An industry has 1,000 firms, each with the production function f(x1, x2) =   . The price of factor 1 is $1 and the price of factor 2 is $1. In the long run, both factors are variable, but in the short run, each firm is stuck with using 100 units of factor 2. The long-run industry supply curve is

Accepted Answer

A)  upward sloping with zero supply if price is less than $10. 
B)  downward sloping for outputs less than 10. 
C)  horizontal with zero supply for prices less than $2 and infinite supply for prices greater than $2. 
D)  horizontal with zero supply for prices less than $10 and infinite supply for prices greater than $10. 
E)  upward sloping with zero supply if price is less than $20. 
A)  upward sloping with zero supply if price is less than $10. 
B)  downward sloping for outputs less than 10. 
C)  horizontal with zero supply for prices less than $2 and infinite supply for prices greater than $2. 
D)  horizontal with zero supply for prices less than $10 and infinite supply for prices greater than $10. 
E)  upward sloping with zero supply if price is less than $20.

Question 16

The possibility of more firms entering an industry in the long run tends to make long-run industry supply more price elastic than short-run industry supply.

Accepted Answer

A) True 
 B)False

Question 17

An industry has 100 firms. These firms have identical production functions. In the short run, each firm has fixed costs of $200. There are two variable factors in the short run and output is given by y =   . The cost of factor 1 is $5 per unit and the cost of factor 2 is $5 per unit. In the short run, the industry supply curve is given by

Accepted Answer

A)    
B)    
C)    
D)  the part of the line $ Q=50(\min \{5,20\}) $ for which   
E)  None of the above. 
A)    
B)    
C)    
D)  the part of the line $ Q=50(\min \{5,20\}) $ for which   
E)  None of the above.

Question 18

An industry has 100 firms. These firms have identical production functions. In the short run, each firm has fixed costs of $200. There are two variable factors in the short run and output is given by y =   . The cost of factor 1 is $5 per unit and the cost of factor 2 is $4 per unit. In the short run, the industry supply curve is given by

Accepted Answer

A)    
B)  the part of the line $ Q=50(\min \{5,12\}) $ for which   
C)    
D)    
E)  None of the above. 
A)    
B)  the part of the line $ Q=50(\min \{5,12\}) $ for which   
C)    
D)    
E)  None of the above.

Question 19

In the problem discussed in your workbook, the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird. Cockatoos are drugged and smuggled in suitcases to the United States. Half of the smuggled cockatoos die in transit. Each smuggled cockatoo has a 10% probability of being discovered, in which case the smuggler is fined. If the fine imposed for each smuggled cockatoo is increased to $1,100, then the equilibrium price of cockatoos in the United States will be

Accepted Answer

A)  $333.33. 
B)  $150. 
C)  $95. 
D)  $73. 
E)  $244.44. 
A)  $333.33. 
B)  $150. 
C)  $95. 
D)  $73. 
E)  $244.44.

Question 20

Suppose that all firms in a given industry have the same supply curve given by Si(p) = 2p when p is greater than or equal to $2 and Si(p) = 0 when p is less than $2. Suppose that market demand is given by D(p) = 12 - p. If firms continue to enter the industry so long as they can do so profitably, the equilibrium price must be closest to

Accepted Answer

A)  $5. 
B)  $4. 
C)  $2.40. 
D)  $2. 
E)  $1.75. 
A)  $5. 
B)  $4. 
C)  $2.40. 
D)  $2. 
E)  $1.75.

Exam 22: Industry Supply

If there are constant returns to scale in a competitive industry, then the long-run industry supply curve for that industry is horizontal.

It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium.

The price elasticity of gasoline in the United States has been estimated to be 0.15. If this is so, should profit-maximizing gasoline stations raise their prices? (Explain why or why not.)

In a certain industry, the supply curve of any firm is Si(p) = . If a firm produces 6 units of output, what are its total variable costs?

The market for a good is in equilibrium when the government unexpectedly imposes a quantity tax of $2 per unit. In the short run, the price will rise by $2 per unit so that firms can regain their lost revenue and continue to produce.

The cheese business in Lake Fon-du-lac, Wisconsin, is a competitive industry. All cheese manufacturers have the cost function C = Q2 + 4, while demand for cheese in the town is given by Qd = 120 - P. The long-run equilibrium number of firms in this industry is

In Baggs, Wyoming, cattle can be produced according to the following process: C = + , where C is the number of cattle, G are bushels of grain, and P are acres of pasture. If grain costs $5 per bushel and pasture costs $4 per acre, how many cattle can Rancher Roy produce with a budget of $3,000?

Consider a competitive industry with several firms all of which have the same cost function, c(y) = y2 + 4 for y > 0 and c(0) = 0. The demand curve for this industry is D(p) = 50 2 p, where p is the price. The long-run equilibrium number of firms in this industry is

The bicycle industry y is made up of 100 firms with the long-run cost curve c(y) = 2 + ( ) and 60 firms with the long-run cost curve c(y) = . No new firms can enter the industry. What is the long-run industry supply curve at prices greater than $2?

An industry has 1,000 firms, each with the production function f(x1, x2) = . The price of factor 1 is $1 and the price of factor 2 is $1. In the long run, both factors are variable, but in the short run, each firm is stuck with using 100 units of factor 2. The long-run industry supply curve is

The possibility of more firms entering an industry in the long run tends to make long-run industry supply more price elastic than short-run industry supply.

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

Market Demand

A: Market Demand

Equilibrium

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

Cost Minimization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

Externalities

A: Externalities

Information Technology

A: Information Technology

Public Goods

A: Public Goods

In a certain industry, the supply curve of any firm is S_i(p) = . If a firm produces 6 units of output, what are its total variable costs?

The cheese business in Lake Fon-du-lac, Wisconsin, is a competitive industry. All cheese manufacturers have the cost function C = Q² + 4, while demand for cheese in the town is given by Q_d = 120 - P. The long-run equilibrium number of firms in this industry is

Consider a competitive industry with several firms all of which have the same cost function, c(y) = y² + 4 for y > 0 and c(0) = 0. The demand curve for this industry is D(p) = 50 2 p, where p is the price. The long-run equilibrium number of firms in this industry is

An industry has 1,000 firms, each with the production function f(x₁, x₂) = . The price of factor 1 is $1 and the price of factor 2 is $1. In the long run, both factors are variable, but in the short run, each firm is stuck with using 100 units of factor 2. The long-run industry supply curve is