Exam Econ 200 key

# Exam Econ 200 key - KEY 1. 2. 3. (D) (B) (B) 4. 5. 6. 7. 8....

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KEY 1. (D) Economists believe that, in a world of selfish and rational people, easy money never sits around waiting to be picked up. 2. (B) Demand determines revenue, which determines marginal revenue. 3. (B) Long run costs include costs, such as the costs of factories and machines, which are not included in the short run because they are sunk. At low quantities, this makes the long run curve lower. At high quantities, an opposing effect appears and tends to dominate the first effect: short run costs are high at quantities that exceed the firms designed output capacity, constraints and excessive costs which can be eliminated in the long run. 4. (A) The Law of Demand is satisfied because the demand curve has a negative slope. 5. (E) The demand curve shows that the firm sells 9 units, so revenue = \$2 × 9 = \$18. 6. (E) The revenue from the second unit is \$14 × 2 = \$28. The revenue from the third unit is \$10 × 3 = \$30. The marginal revenue is \$30 - \$28 = \$2. 7. (C) The firm’s profit is Q×(P ! AC) = 4×(\$6-\$2) = \$16. 8. (C) The formula for point elasticity of demand is P/(Q × slope). Where the firm produces seven units, the price is 3.5 and the slope of the demand curve is ! ½, so the elasticity is 3.5/(7× ! ½)= ! 1. 9. (C) The demand curve shows that consumers will buy only 4 units if the price is \$16. 10. (B) A negative economic profit means that the money earned in the proposed business activity is less than could be gained by employing the same resources in their next best uses. In other words, the opportunity cost of the resources exceeds the revenue that they would generate. The (C) and (D) situations do not say anything about economic profits, because they say nothing about revenue. 11. (BC) When the price falls from \$100 to \$90, that is a 10% drop, so the percentage change in price is ! 3 × ! 10% = 30%. A 30% increase from 60 goats is 1.3 × 60 = 78 goats. 12.

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## This note was uploaded on 04/02/2008 for the course ECON 200 taught by Professor Cramer during the Spring '07 term at University of Arizona- Tucson.

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Exam Econ 200 key - KEY 1. 2. 3. (D) (B) (B) 4. 5. 6. 7. 8....

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