Unformatted text preview: 5/7/2015 Homework 7 Submitted by DUNLEAVY, COLLIN (CPD5141) on 4/17/2015 9:36:46 PM
Suppose a market has the following supply and demand functions:
Qd = 60 – 2P
Qs = – 4 + 2P
Using the equations, solve for equilibrium price and quantity. You may want to double check your math
just to be sure.
A) Q* = 10, P* = 7
B) Q* = 46, P* = 7
C) Q* = 32, P* = 14
D) Q* = 24, P* = 14
E) Q* = 28, P* = 12
F) Q* = 28, P* = 16
G) Q* = 32, P* = 16
H) Q* = 32, P* = 60
Points Earned: 0.5/0.5 Correct Answer(s): F 2. Notice that I have provided the graph of these functions, although it is not necessarily drawn to scale. I
have provided the vertical intercepts for the supply and demand functions for you. What is the … 1/8 5/7/2015 Homework 7 consumer surplus at this equilibrium price?
A) CS = $56
B) CS = $112
C) CS = $196
D) CS = $224
E) CS = $392
F) CS = $420
Points Earned: 0.5/0.5 Correct Answer(s): C 3. What is the producer surplus at this equilibrium price?
A) PS = $2
B) PS = $16
C) PS = $28
D) PS = $196
E) PS = $392
F) PS = $784
Points Earned: 0.5/0.5 Correct Answer(s): D 4. Now, suppose that the government imposes a price ceiling on the market for this good. The price
ceiling is PC = $14. See the provided picture. First, we need to find the number of trades actually
occurring at this price. The number of trades occurring is labeled “A” on the graph. (Consumers are
willing to buy more at this price, but producers are not willing to produce as much. Therefore, the
number of trades is only equal to the number of goods produced.) You must find “A” by plugging in the
PC price into the supply curve. … 2/8 5/7/2015 Homework 7 A) A = 12
B) A = 16
C) A = 20
D) A = 24
Points Earned: 0.5/0.5 Correct Answer(s): D 5.
At this quantity “A” that you just found, find “B”. “B” is the consumer willingness to pay (WTP) when
purchasing “A” units of the good. This is the height of the demand curve at this quantity. Find “B” by
plugging in quantity “A” into the demand function and solving for price (which is the height of the
A) B = $17
B) B = $18
C) B = $20
D) B = $26
Points Earned: 0.5/0.5 Correct Answer(s): B 6. What is consumer surplus with the price ceiling?
A) CS = $48
B) CS = $96
C) CS = $144
D) CS = $192
E) CS = $240
F) CS = $288
Points Earned: 0.5/0.5 Correct Answer(s): E 7. What is producer surplus with the price ceiling?
A) PS = $48
B) PS = $96
C) PS = $144
D) PS = $192
E) PS = $240
F) PS = $288
Points Earned: 0.5/0.5 Correct Answer(s): C 8. What is deadweight loss with the price ceiling?
A) DWL = $4
B) DWL = $8
C) DWL = $14 … 3/8 5/7/2015 Homework 7 D) DWL = $16
E) DWL = $18
F) DWL = $28
Points Earned: 0.5/0.5 Correct Answer(s): B 9. On the previous graph, why did the price ceiling decrease number of trades from Q* to A?
A) The government legally enforced quantity restrictions
B) The firms wanted to sell fewer goods
C) The consumers didn’t want to buy as many goods
D) The profit of the firms became too high
E) All of the above
Points Earned: 0.5/0.5 Correct Answer(s): B 10. In a market with voluntary trade and exchange, where does producer surplus (PS) come from?
A) Firms forcing consumers to pay prices higher than they are willing to pay
B) Firms charging higher prices because there are no substitute goods for consumers to buy
C) Firms selling a good at a price that is greater than the marginal cost of producing the good
D) All of the above
Points Earned: 0.0/0.5 Correct Answer(s): C 11.
Suppose a binding price control is placed on a competitive market. What is the reason that deadweight
loss (DWL) is created?
A) The government is deciding the allocation of goods
B) Consumers are now paying lower prices
C) Producers are now receiving higher prices
D) The number of trades in the market is reduced
Points Earned: 0.5/0.5 Correct Answer(s): D 12. In a perfectly competitive industry
A) each firm determines its own price
B) no individual buyer or individual seller can influence the market price
C) there is likely to be a shortage of sellers of output
D) firms can never make an economic profit
Points Earned: 0.5/0.5 Correct Answer(s): B … 4/8 5/7/2015 Homework 7 13. Which of the following is NOT a characteristic of a perfectly competitive industry?
A) There are large numbers of buyers and sellers.
B) The firms in the industry produce a homogeneous product.
C) Sellers have better information about the product than consumers.
D) Any firm can enter or leave the industry without serious barriers.
Points Earned: 0.5/0.5 Correct Answer(s): C 14. Which of the following is true regarding voluntary trade and exchange?
A) Firms generally take advantage of consumers with trade
B) Trade is zero sum – there is a winner and a loser
C) Voluntary trade is mutually beneficial for both parties involved
D) Trade usually helps producers and hurts consumers
Points Earned: 0.5/0.5 Correct Answer(s): C 15. Refer to the above figure. Line Z in the right graph does NOT represent
A) the equilibrium price
B) the demand curve faced by the individual firm
C) ,marginal production costs of the individual firm
D) marginal revenue of the individual firm when selling more units
Points Earned: 0.5/0.5 Correct Answer(s): C 16. What would happen if the individual firm tried to sell its output at a price higher than Z?
A) the firm would lose some of its customers
B) the firm would lose all of its customers … 5/8 5/7/2015 Homework 7 C) other firms would raise their prices to match this firm
D) the market would become non-competitive
Points Earned: 0.5/0.5 Correct Answer(s): B 17. Micro and Gini are pictured here. Suppose that Micro and Gini are each producers in the perfectly
competitive catnip market. Which of the following is true, according to the assumptions and
characteristics of perfect competition?
A) Gini’s catnip output affects the price of Micro’s catnip
B) Micro will choose his output independently from Gini’s chosen output level
C) Gini knows she can never maximize profits since this is a competitive industry
D) Micro and Gini will both exit the industry in the long run since economic profits will go toward zero
E) Gini will actively try to put Micro out of business
Points Earned: 0.5/0.5 Correct Answer(s): B 18.
In perfect competition, we said that the firm can sell as much as it wants at the going market price.
Why don’t firms just try to sell the absolute highest amount of output they can?
A) No one would buy large amounts of output
B) The perfect competitor firm would lower the market price with higher output levels
C) The firm has to consider costs as well, and the firm would not want to produce output levels
where costs are higher than revenues
D) Government regulations prevent competitive firms from growing too large
Points Earned: 0.5/0.5 Correct Answer(s): C 19. If marginal revenue is less than marginal cost, the perfectly competitive firm should … 6/8 5/7/2015 Homework 7 A) raise price
B) raise marginal revenue
C) increase its rate of output
D) decrease its rate of output
Points Earned: 0.0/1.0 Correct Answer(s): D 20. The above figure shows a perfectly competitive firm. In the above figure, what is the profit-maximizing
output and price, respectively?
A) 8, $7
B) 10, $8
C) 12, $10
D) 10, $10
Points Earned: 1.0/1.0 Correct Answer(s): D 21. In the above figure, what is the total profit at the profit-maximizing output level?
Points Earned: 1.0/1.0 Correct Answer(s): C 22.
Refer to the above figure. If the firm only decided to sell 8 units of output, what price would it receive
for those outputs? … 7/8 5/7/2015 Homework 7 A) $10
D) not enough information to answer
Points Earned: 0.0/1.0 Correct Answer(s): A 23.
Suppose a perfectly competitive asparagus farm can produce six containers of asparagus at an output
at which marginal cost equals marginal revenue. The price per container of asparagus is $100 and the
average total cost is $75. What is the profit or loss that this asparagus farm is earning?
Points Earned: 1.0/1.0 Correct Answer(s): C 24. In a perfectly competitive market, if P > ATC, there is likely to be
A) entry of new firms into the market in the long run
B) an accounting loss for existing firms.
C) exiting of existing firms out of the market in the long run
D) an upward pressure on price.
E) an incentive for firms to try lowering the price of the good to discourage new entry
Points Earned: 0.0/1.0 Correct Answer(s): A 25.
This homework had some difficult questions on it. This question is probably not as difficult. Pick [C] if
you want a free point for answering this question.
A) Do not pick this answer.
B) Do not pick this answer.
C) Choose this answer for a free point.
D) Do not pick this answer.
Points Earned: 1.0/1.0 Correct Answer(s): C Continue … 8/8 ...
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