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Unformatted text preview: Practice Quiz on Chapter 3 TrueFalse Questions 1. The shortrun industry;r sumaly curve is the indLlEUY supply curve obtained when ﬁxed costs cannot be changed and the number of ﬁrms in
the induetry is also unehenged. Answer: True 2. When an industry is in fangrun competitive Equilibrium, prise must be
equal to variable cost. Answer: False Multiple Choice l{Julestimua 3. Demand for haircuts in the city of San Barberia is given by the function
P=39«Ql2ﬂ. where Q is the number of haircuts per dealr and P is the price of
a haircut. Everyone who opens a barber shop in town has a ﬁxed cost of
52m per day which must be paid so long as a shop is in business and
regardless of the number of haircuts it sells. There Is also a variable cost of
$4 for each customer served. Each barber shop has a capacity of still
customers per day. San Barberia currently has 12 barbershopa. A barber shop that is open cannot escape its ﬁxed costs immediately, but must give
6 months notice to its landlord of its intention to close. It also takes about E months to organize and open a new barber shop. The short run supply.'
curve for haircuts in San Barberia consists of {a} a vertical segment extending from the origin to the point [[1,4] and an
unbounded horizontal line extending to the right oi the point {0.4}
lb) a vertical segment extending from the origin to the point [B14], a horizontal segment extending from {(1.4} to NEDA}, and a vertical segment
extending upwards from {430,4}. [c] a vertical segment extending from the origin to the point [ii.9], a horizontal segment extending from {ELEM to [480,9]. and a vertical segment
extending upwards from HERB}. {d} a vertical segment extending from the origin to the point [13,4], a horizontal segment extending from {CIA} to {553,4} and a vertical segment
extending upwards from (560.4}. [a] a vertical segment extending from the origin to the point [on], a horiZontal segment extending from {like} to [353,4]. and a vertical segment
extending upwards from {SHEA}. Answer:Ei Jﬁmwmﬂmﬂe WW
ageing; ﬂWWHM. Wmmmmﬁﬂw‘? M #0 W, 71%
m 1.9. WWJ/ﬁd We C: W950)
WWmWrﬁ W emf 4. What is the short run equilibrium price ofa haircut in San Barbaria? [a] $15
{b} 55
M $4
id} $5
[E] $29 f0
10: M“ 355
imam?
2 xsr
Mswuéﬂ 5. If initially. conditions in San Elarheria are as described in the previous
questions, and if in the long run there is free entry and exit from the industry. competitive theory predicts that in the long run in San Earneria
the number of barber shops [a] would decrease and each would sell more haircuts per day. to] would decrease and each would continue to operate at full capacity.
to} would increase. {d} would remain the same, but each would sell more haircuts. [e] would remain the same and each would continue to operate at full
capacuy. Answer: (3 émJWAQe 6. Suppose that 5 new barberehepe open in San Barberia and none of the old barbershops close. in the new ahurt run equilibrium the price efa
haircut la) will be $9 and all barbershape will make zera prafits. {b} will be $1!) and all harberehppa will make positive pmﬁts.
{n} will be $3 and all harberahppa will make leases. {ti} will be $5 and all barbershapa will make lessee.
[a] will be $6 and all barberahepe will make leases. Answer: El w&fﬁW/W2:égo (H ﬂ)le
Wagmm “‘4'” _ # P: 39" “eta T. In long run equiiibrium in San Barberia, the number cf barber shape {a} is 15 and the price of a haircut is 59.
[hi Is 1? and the price cf a haircut is $5. {c} is 12 and the price eta haircut is 515.
id] is 13 and the price of a haircut is $13
(ei is 1B and the price at a haircut is $9. AnBWer: A Q.
Q :: 3?“ 51L“;
3C}: {ﬁfeLO
£200 5‘ " 3. Suppose that in San Barberiar the number of barber shops had adjusted
so that both the number of barber shops and the price of a hair out were in
long run equilibrium. After long run equilibrium had been reached without
any taxes, the olty unexpectedly imposed a tax on baahers. requiring them
to pay a $2 sales tax on every haircuts they sold. What does economic theory predict would be the short run effect of the tax on the price of a hair
out? {a} The price would rise by $2. [bl The price would rise by $1. {c} The price would remain the same as before the tax.
id] The price would rise by 3.50. {a} The price would rise by $1.53. Answer: I: 5. How would the new 52 tax on hair cuts affect proﬁts. of barber chops in
the short run? [3] Because prices rise by the amount of the tam:r there would he no effect.
{b} Profita would fail. but would remain pGSiﬁVE after the tax.
in} Proﬁts would fall to zero after the tax. id) In the short run, after the tax is impoaed. each firm would have a toes of
$4ﬂ. [e] In the short rum after the tax is imposed each firm would have a loaa of
$80. Anawer: E 1a. In long run equilibrium. imposing the 32 tax on haircuts in San Elerberia
would cause the price bf haircutt {a} to rise by $1.53 and the number of barbershepe to increase by 1.
[bi to rise by $1 and the number ef barbersheps te stay eenstant.
[e] to rise by $2 and the number ef barbersheps to stay constant.
{d} to rise by $2 and the number ef barbersheps tu decreeee by1.
{e} be rise by $2 and the number ef barbershups to decrease by 3. Answer:D
M We. £11, #WW W
WM : mud—£1? Mia/Me. 511:: 39a Giza/920 ...
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 Spring '07
 Bergstrom

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