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Eco 301 Questions
2. True or false, explain your answer. Producer surplus and profits are always equal, since they
mean the same thing.
3. Suppose instead of a minimum wage, the government instituted a maximum wage (set below
the equilibrium) in the unskilled labor market. Show the welfare effects of this cap on the market
using a graph.
5. True or false, explain your answer. I bought three of these (identical) hats because the price
was $10 each and that’s how much each is worth to me.
14) True or false, explain your answer. Consumers who are more sensitive to changes in price
suffer a greater loss of consumer surplus from any given price increase.
9) True or false, explain your answer. Producer surplus equals total revenue minus the sum of
all marginal cost.
10) When is the profit a firm earns equal to the producer surplus? Explain.
11) True or false, explain your answer. As the quantity produced of a good increases, the social
welfare generated by that good increases.
12) True or false, explain your answer. While producing less then the competitive output
decreases social welfare, the same cannot be said about producing more than the competitive
output.
13) Explain why the competitive output maximizes welfare.
14) Suppose a consumer advocacy group has convinced legislators that vitamin pills should be
free to consumers. Such a policy would enhance the health of the citizenry, they argue.
Assuming a downward-sloping linear demand curve and a horizontal long-run supply curve,
determine the resulting output and social welfare from such a policy. Compare this result to the
competitive equilibrium.
8) True or false, explain your answer. Policies that restrict supply could generate an increase in
social welfare because the increase in producer surplus could exceed the decrease in consumer
surplus.
9) True or false, explain your answer. If a city decides to lift restrictions of how many taxi cabs
can operate social welfare will increase.
21) True or false, explain your answer. A per unit subsidy increases both consumer and
producer surplus, but results in a deadweight loss.
15) True or false, explain your answer. The welfare loss of a tariff equals that of an import
quota that leads to the same level of imports.
16) True or false, explain your answer. "Supporters of import restrictions and protectionist
policies place greater weight on producer welfare than on consumer welfare."
17) The domestic demand curve, domestic supply curve, and world supply curves for a good are
given in the above figure. All the curves are linear. Initially, the country allows imports. Then
imports are banned. Calculate how consumer and producer surplus change because of the ban. Is
the country better off with the ban on imports? Why?
18) Explain why a government would impose an import tariff when domestic consumers suffer
more than producers gain?
19) True or false, explain your answer. If the monopoly's demand curve intersects the AVC
curve at minimum AVC, the firm will shut down.
21) True or false, explain your answer. Since a monopoly can set any price it wants, it always
makes a profit?
22) True or false, explain your answer. A monopoly always operates in the inelastic portion of
its demand curve.
24) Suppose a monopolist has TC = 100 + 10Q + 2Q2, and the demand curve it faces is p = 90 2Q. What will be the price, quantity, and profit for this firm?
18) True or false, explain your answer. The less elastic is the demand for a firm's product, the
greater is that firm's market power.
14) True or false, explain your answer. The deadweight loss represent the sum of added
consumer and producer surplus if the firm would produce the quantity where P=MC.
15) Suppose that market demand for a good is Q = 480 - 2p. The marginal cost is MC = 2Q.
Calculate the deadweight loss resulting from a monopoly in this market.
16) Why is the monopoly total welfare lower than the competitive total welfare?
9) A monopoly faces an inverse demand curve of P = 100 - 2Q. The marginal cost curve is MC
= .5Q. What government price ceiling would represent optimal price regulation?
4. A monopolist sells in two states and practices price discrimination by charging separate
prices in each state. The monopolist produces at constant marginal cost MC = 10. Demand in
market 1 is Q1 = 50 – p1. Market 2 demand is Q2 = 90 – 1.5p2. What price will be charged in each
market?
9. In most cases, when a consumer purchases season tickets for a professional sports team, the
consumer must purchase pre-season games as well at the same price as regular season games.
What type of pricing strategy does this represent?
10. Why do firms place ads with coupons in the paper, instead of simply offering a sale price in
the same ad?
8) True or false, explain your answer. If two markets have the same price elasticity of demand
at every price, a monopoly will not practice multi-market price discrimination.
9) True or false, explain your answer. Firms price discriminate to maximize total revenue.
10) Explain why a firm can earn more profit by price discrimination than from setting a uniform
price.
11) Suppose two countries, A and B, are at war with each other. Country A is very wealthy;
country B is very poor. The XYZ Co. produces tanks. Is XYZ able to set a different price for the
tank sold to country A than the price for the tank sold to country B? Explain by relying on the
requirements for price discrimination.
15) True or false, explain your answer. A perfect-price-discriminating monopoly maximizes
social welfare as measured by the sum of producer surplus plus consumer surplus.
16) True or false, explain your answer. A perfect price discriminator receives a price equal to
marginal revenue for each unit.