eco midterm

# eco midterm - Assume Anna is risk-averse Which of the...

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Assume Anna is risk-averse. Which of the following bets is she more likely to accept, depending on the degree of risk aversion? Selected Answer: . Correct Answer: Win \$20, ¼ of the times; win \$10, ½ of the times; and lose \$20, ¼ of the times. Question 2 4 out of 4 points John pays \$150 for tickets to see his favorite sports team play. With 10 minutes left in the game, his team is losing heavily and has no chance of winning the game. John chooses to stay until the end of game because he wants to get the full value for his admission price. As an economist, you should advise John to: Selected Answer: leave the game now if his marginal benefit of leaving is greater than marginal cost, since the admission price is a sunk cost. Correct Answer: leave the game now if his marginal benefit of leaving is greater than marginal cost, since the admission price is a sunk cost. Question 3

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4 out of 4 points Assume the market for hammers is perfectly competitive, and the current price is \$15. If, at this price, the quantity of hammers demanded is 27,000, while the quantity supplied is 25,000, then: Selected Answer: the price of hammers is likely to increase. Correct Answer: the price of hammers is likely to increase. Question 4 Assume XYZ Company produces table and chairs with the following total cost function, TC=10,000+10Q+0.1Q 2 , where Q=quantity of chairs produced. The marginal cost (MC) is equal to 10 + 0.2Q. If XYZ Company can sell as many chairs it wishes at the current market price of \$45, how many chairs should it produce to maximize its short-run profits?
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