Test Three - 1 Wessels EC 201 Review for Test Three If the...

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1 Wessels, EC 201 Review for Test Three If the question has a * it will not be on Test 3, but may be on the final. _____1.* Five workers produce 21 widgets and 6 workers produce 24 widgets. Widgets sell for $5 each. Workers earn a wage of $12. What is the marginal revenue product of the 6 th worker? A. $20 B. $15 C. $3 D. None of the above _____2.* When a firm hires a new worker, its output goes from 20 to 24 widgets. Its sells its output at $10 a unit and hires workers at a wage of $35. What did this worker add to the firm’s profit? A. -$36 B. $40 C. $15 D. $5 Use the following to answer questions 3-6 Wombat International faces the following demand curve for output: Quantity Demanded 1 2 3 4 5 6 7 8 Price $10 9 8 7 6 5 4 3 Its ATC at all levels of output equals $4 _____3. How many units of output should it produced to maximize its profits? _____4. If it acted as a competitive firm, how many units of output would it produce? _____5. What is the social loss due to this monopoly? _____6. If the government imposed a $2 per unit tax on this firm, how much would it raise the price? Use the following to answer questions 7-9. The Steel Industry, a perfectly competitive industry, produces steel and pollution. It has the following demand and supply curves shown below. The External Cost of Pollution for each Q is $6. _____7.* What price and output will prevail if this good is produced in a free market? Price Quantity 100 120 Q per period D Social MC Private MC P 22 20 16 14
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2 A. $16 120 B. $20 100 C. $24 120 D. $14 100 _____8.* What is the net social loss from letting output being set by free market forces? A. $18 B. $20 C. $40 D. None of the above _____9.* The government imposes a $6 tax per Q on the Steel Industry. Which of the following will occur? A. The price of steel to the public will go up $6 B. The after-tax price of steel will go up $6 C. The social cost of steel will go down $2 D. None of the above will occur ______10*. A perfectly competitive firm can hire labor at $30 a day. The firm's production function is as follows: Units of Labor Units of Output 1 8 2 15 3 21 4 26 5 30 6 33 If each unit of output sells for $7, how many units of labor should it hire? A. 6 B. 3 C. 4 D. 5 _____11. In the long run, which of the following is true for a monopoly but not a perfectly competitive firm? A. P = Minimum ATC B. P > MC C. MR = MC D. P = MR _____12. Which of the following persons is most likely earning an economic rent? A. Archie, Apartment Complex Owner B. Bilko, Blue Collar Worker C. Cosmo, Celebrity D. Dilbert, Dead-End Job Holder
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3 _____13. If the government imposes a price ceiling on Good X, a good that is in fixed supply, the likely effects are: A. Fewer X's will be supplied B. More X's will be supplied C. Units of X need not be allocated to their most valued uses D. No shortage of X will occur. Use the following to answer questions 14-15. _____14. What is the maximum profit of this firm? _____15. If the firm acted competitively, what level of output would it produce?
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