Solutions SS201_251 Practice Problems for WPR2 AY08-02

Solutions SS201_251 Practice Problems for WPR2 AY08-02 -...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
SS201 Practice Problems for WPR2 (Spring 08): This document contains practice problems for WPR2. The answers to the questions that follow will not be graded, but all cadets are required to complete the practice problems prior to the Lesson 20 Review . Working through the practice problems will set you up for success on the WPR. Practice Problems for WPR2: 1. Multiple Choice 1. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? a. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. b. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. c. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. d. There is not enough information to answer the question. ANSWER: If benefits of receiving an MBA degree are completely captured by the student, there is no external benefit, so there is neither under-investment or over-investment in MBA degrees: the Private Benefit = Social Benefit. 2. A competitive firm earns positive economic profits in the short-run when the price it receives is: a. greater than average fixed cost b. greater than the minimum of average variable cost c. equal to the minimum of average total cost d. greater than the level of average total cost at its chosen level of output ANSWER: If Price > Average Total Cost at the profit-maximizing level of output, the competitive firm earns positive economic profits in the short-run. P r o f i t s T o t a l R e v e n u e s T o t a l C o s t s P r o f i t s P q P q T C q P e r u n i t P r o f i t s q P q q T C q q P e r u n i t P r o f i t s q P A T C q = - = × - - = × - - = - : ( , ) ( ) : ( ) : ( ) * * * * π
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3. When a good is excludable: a. one person’s use of the good diminishes another person’s ability to use it b. people can be prevented from using the good c. no more than one person can use the good at the same time d. everyone will be excluded from using the good ANSWER: Pure public goods exhibit the property of non-excludability in consumption: it is either difficult or impossible to prevent any individual from enjoying the benefit of the good. Quasi-public and private goods exhibit excludability in consumption – individuals can be excluded from enjoying the benefits. In Manhattan, Gramercy Park excludes people (only residents living near the park are granted keys to the locked gates of the park), even though the marginal cost of letting another person use the park is zero at most times. The same is true of many community swimming pools/beaches in New England – individuals are excluded unless they are residents of the town .
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 21

Solutions SS201_251 Practice Problems for WPR2 AY08-02 -...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online