Exam Econ 200 2 key

Exam Econ 200 2 key - Key The supply curve shifts to the...

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Key 1. (D) 2. (C) The supply curve shifts to the right in the short run, and it shifts even further in the long run. This causes the price to fall at first and then continue to fall as the supply curve continues to shift. Another equally correct way to reach the same conclusion is to shift the short-run supply curve a short distance and the more elastic long-run supply curve a greater distance and then track the price of oil as it moves to the new short-run and then to the new long-run equilibrium. 3. (B) When China increases its demand next year, the price of palladium will rise (other things equal). Since palladium is a storable mineral, the increase in the expected future is reflected in a higher price today. On the supply and demand diagram, current supply decreases and current demand increases, causing the price to rise. 4. (A) This is the definition of perfectly inelastic supply: changes in price have no effect on the quantity supplied. 5. (AB) A competitive firm should produce the quantity at which P=MC. 6. (A) The average cost curve shows that AC=$14. Then profit = (P-AC)xQ = ($16-$14)x10 = $20. 7. (D) Again using AC=$14, we have Cost = ACxQ = $14x10 = $140. 8. (E) As we showed in class, the firm’s supply curve has a gap between Q=0 and Q=45. It should never produce in that range. 9. (C) If the market price is P=$14, then AC>P at quantities Q<10, and P>AC at quantities Q>10. Therefore, the smallest quantity that the firm can produce without losing money is about 10. 10. (C) Profits/Q = [(P-AC)xQ]/Q = P-AC = $10 - AC. To maximize this, the firm should produce the quantity that minimizes AC. 11. (A) We expect to see entry when profits are positive, and profits are positive when P>AC. 12. (E) The price of wheat does not change, because supply is perfectly elastic. As the demand for wheat shifts left, the equilibrium quantity decreases. 13. (A)
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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 Arizona.

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Exam Econ 200 2 key - Key The supply curve shifts to the...

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