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Q3S08 - Name Test Form A Economics 1 Quiz 3 Each correct...

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Name Test Form A Economics 1 Quiz 3 May 21, 2008 Each correct answer is worth 5 points. Answers left blank are worth 2 points. Wrong answers are worth 0 points. True-False Questions: Fill in Bubble A for True, Bubble B for False. 1. A profit-maximizing firm will hire the number of workers that maximizes the difference be- tween the average value product of labor and the wage it pays to workers. 2. If the demand curve for labor is elastic, a minimum wage that is set higher than the equilib- rium wage will decrease total labor income. 3. If an industry with free entry and exit is in long run equilibrium, any firm that is not currently producing in the industry could not make a profit by entering the industry. 4. As a firm increases the number of units it sells, its fixed costs increase proportionately. 5. If a small increase in a firm’s output would decrease its average variable cost, the firm’s marginal cost is less than its average variable cost. Multiple Choice Questions 6. In the rental housing market in the town of Enchilada Grande, the price elasticity of demand is - 1 and the price elasticity of supply is 3. The market is currently in competitive equilib- rium. A rent-control ordinance is proposed which would set the maximum rent at a rate 30% lower than the current rate. If this proposal is adopted, then the quantity of rental housing that is demanded at the new legal maximum price will be (a) 30% greater than the amount that was demanded before the ordinance went into effect. (b) 90% greater than the amount that was demanded before the ordinance went into effect. (c) 30% smaller than the amount that was demanded before the ordinance went into effect. (d) 90% smaller than the amount that was demanded before the ordinance went into effect. (e) the same as the quantity that was demanded before the ordinance went into effect.
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Economics 1 2 7. If the rent-control ordinance is adopted in Enchilada Grande, then the number of housing units that are actually rented will 8. A profit-maximizing firm producing black boxes has fixed costs of $1,600 and variable costs of $80 per unit sold. It has a capacity of 40 units of output. In the short run it can not avoid its fixed costs. In the long run it could avoid its fixed costs by shutting down. In the short run, this firm
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