Download Lecture 19 Review Questions

Topics Covered after Midterm
Chapter 9 – Comparative advantage and international trade, gains from
trade, trade restrictions: quotas and tariffs, deadweight loss
Chapter 10 – Concept of utility and diminishing marginal benefits, marginal
utility per dollar spent, deriving demand curves, social influences on decision
making (not 10.4 – behavioral economics)
Chapter 11 – Production functions, relationship between average and
marginal, marginal and average products of labor, diminishing marginal
product, marginal cost and average cost, short run costs (fixed and variable),
long run costs
Topics Covered
Chapter 12 – Meaning of perfect competition, profit maximization, P=MR &
P=MC, market determination of price, graphs of costs, MR and profit, long
run profits and entry and exit, PC markets and efficiency
Chapter 15 - MR=MC<P, Deadweight loss of monopoly, barriers to entry.
Chapter 13 – Monopolistically competitive markets, downward sloping
demand and marginal revenue, MR<P, setting MR=MC<P, profits, long run
effects, efficiency losses.
1 The U.S. domestic market for quality leather purses are given by:
Qd=200-P
Qs=50+2P
Find the equilibrium quantity sold under autarky.
Q=150
2. The world price for leather purses is $30. If the U.S. opens its market to
international trade, calculate the producer surplus lost by U.S.
producers. (Can use positive answer since it is a "loss".)
Qd=200-P
Qs=50+2P
Loss of PS = $2600
3. To protect U.S. firms, the government imposes a $10 per purse
tariff. Find the consumer surplus lost from this tariff. (Answer should be
positive.)
Qd=200-P
Qs=50+2P
Loss of CS = 1650
4. The price of soup is $2 per cup and the price of a sandwich is $3. Keira
has $18 to spend on these two goods.
If Keira maximizes her utility, how many sandwiches should she buy? 4
sandwiches (and 3 cups of soup)
Quantity of
Quantity of
Total Utility
Total Utility
Soup (cups)
Sandwiches
1
40
1
45
2
60
2
75
3
72
3
102
4
82
4
120
5
88
5
135
6
90
6
145
5. The price of soup is $2 per cup and the price of a sandwich is $3. Keira
has $23 to spend on these two goods.
If Keira maximizes her utility, how many sandwiches should she buy? 5
sandwiches (and 4 cups of soup)
Quantity of
Quantity of
Total Utility
Total Utility
Soup (cups)
Sandwiches
1
40
1
45
2
60
2
75
3
72
3
102
4
82
4
120
5
88
5
135
6
90
6
145
6. Given your answer to the previous question, what type of good are
sandwiches (to Keira)?
A. Inferior Good
B. Giffen Good
C. Normal Good
D. Substitute Good
Given your answer to the previous question, what type of good are
sandwiches (to Keira)?
Normal Good
7. The marginal utility per dollar that Harold Stratton receives from oranges
is greater than the marginal utility per dollar Harold receives from pears. To
maximize his utility, what should Harold do?
a. He should acquire more income so that he can afford to buy more
oranges and pears.
b. He should reduce his consumption of both oranges and pears so that he
can buy a greater variety of goods.
c. He should buy fewer pears and more oranges.
d. He should buy fewer oranges and more pears.
The marginal utility per dollar that Harold Stratton receives from oranges is
greater than the marginal utility per dollar Harold receives from pears. To
maximize his utility, what should Harold do?
He should buy fewer pears and more oranges.
8. Does the firm choose to operate in the short run?
Yes! P>min AVC
9. What is the firm’s shut down price in the short run?
P0 = min AVC
10. Would firms enter or exit in the long run?
Exit
11. What will the long run equilibrium price be?
P2 = min ATC
12. The figure shows short-run cost and demand curves for a
monopolistically competitive firm in the market for designer watches. What
price is charged by the profit maximizing firm?
P3
13. If the diagram represents a typical firm in the designer watch market,
what is likely to happen in the long run?
A. Some firms will exit the market causing the demand to increase for
firms remaining in the market.
B. The firms that are making losses will be purchased by their more
successful rivals.
C. Inefficient firms will exit the market and new cost efficient firms will enter
the market.
D. Firms will have to raise their prices to cover costs of production.
14. What the (profit maximizing) firm's output if it is operating in a
monopolistically comptetitive market with demand and costs given in the
table below?
Quantity
Price
Total
Revenue
Marginal
Revenue
Total Cost
Marginal
Cost
1
$30
$30
$30
$32
$32
2
28
56
26
43
11
3
26
78
22
53
10
4
24
96
18
64
11
5
22
110
14
76
12
6
20
120
10
90
14
7
18
126
6
106
16
8
16
128
2
126
20
Q=5, P=$22 & profit = $34