ECON 200 Exam 2 - d) If, at present output level, price...

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Sample Second Exam 1) National Defense is considered a good example of a public good. Briefly explain why National Defense is considered a public good. 2) Define the term “Negative Externality” (External Costs) and give an example of a negative externality. 3) What gives a firm the ability to earn an economic profit in the long run? 4) What is the difference between real GDP and money GDP? 5) You purchase a 52-week membership in the “Marginal Muscle Health Club” for $208. What does it cost you if you are unable to use the club for three weeks? 6) Indicate whether or not each of the following statements is true or false and explain your choice. a) Marginal Cost is the cost of producing one additional unit of output. b) Sunk costs are irrelevant to economic decisions because they represent future opportunity costs. c) If a firm is earning a normal profit, its owners are earning more than they would have if they had invested in the next best alternative.
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Unformatted text preview: d) If, at present output level, price exceeds marginal cost, the purely competitive firm should reduce output to maximize its profits. 7) What does the term Market Power mean? 8) Assume that a price searcher was selling 5 units of output at a price of $10.00 a unit. If price must be lowered to $9.00 to sell 6 units, what is the marginal revenue associated with the 6 th unit? 9) Under conditions of pure competition, if the firms are earning short-run economic profits graphically illustrate what will happen to the industry supply curve in the long run. (LABEL ALL PARTS OF YOUR GRAPH) 10) Using supply-demand diagrams, illustrate the effect of a law requiring copper producers to install pollution control devices on their smoke stacks. (LABEL ALL PARTS OF YOUR GRAPH) 11) Explain why profits are said to be maximized where Marginal Revenue equals Marginal Cost. 12) Why are purely competitive firms called price takers?...
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