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Practice Test 2 Questions Solutions

# Practice Test 2 Questions Solutions - Solutions to Must —...

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Unformatted text preview: Solutions to Must — try Practice Questions for Test 2 Demand and supply for GPS units in a competitive market is given by (Sid = 750 — 2P and supply is Os = 3P. Each identical ﬁrm has marginal costs MC = BC! and average total costs ATC = 30. a) What is equilibrium price and quantity traded in the market? lvx eﬁlhuik’f‘r'um) (291.3625 ’lS'D -,;LP= 3P 731’) 3 P2150 Q=¢l§o b) How much does each ﬁrm produce? gar Pen/KC. =3: lays“? Q: .13 lyeaoﬁ Q‘rm c) What is each firm’s average revenue? P=rvuz= paid £1; £22 «rs—O d) Are firms making positive. normal or negative economic profits? M (9:95, Arc a 30-5-3 = “73" 1T: (PvﬂTC\CQ =[ls'1ar'7r\:ls" 7' Sh‘rwcc—l—FVOJ g'fms at": Wit-inf) [005]th proﬁts :1, 5“th 9“ LR e) For argument’s sake, say that min ATC = \$75 (clearly it doesn’t). How many ﬁlms will there be in the long run? {In (42 P=miﬂﬂTC=7\$ﬂ ) H; P;1g-’ Q4: 7§0*J('15'3:(°00 FH— ka’lud. RV».- fwﬂfll'c‘ 1C7: =3 @149“? awe/mo as“: em 5 W 1.3.5.- f) Suppose the government institutes a \$20 per unit tax on consumers. The new, after — tax demand curve is Qd = 710 - 2P. i) What is the deadweight loss due to the tax? 35'" 04—3,“; 5 710 - 1P:3P "ho: S'P %:l‘iz_ P¢:p.§:+2.0 For 624.0,,” Sub Rpm; I'W‘ioS‘ Q?” = 30125 2 Line ii) What are the consumer and producer burdens of the tax? CONSuwéTFQ-‘S'. +2.4»: g) SEC 1 CMSamcr baa-vie.» ; S i 9.. 'PWDMLERS: Laccwtw, rec-‘9" 223‘?) acw haw, receive 51%}. Fwdbucer burdh» is “’8’ iii} Which is more inelastic — demand or supply? Slhﬂﬁ. Whine!— bkx-olgn > Web-«.W bdc‘“; but thaw pier-wand is M—Dm Ended-{9Q 9) Forget about the tax and return to the original equilibrium. Suppose the government imposes a price ﬂoor of \$180 in the market. i) What is producer surplus both before and after the price floor is imposed? Bap-922: ps 2 505-0301sz W: 9+ F: We, 629/: 751) —l(18’0) = 39" IhDFT {I'd/é “IDA-ﬁnal?! 5-D aha/7 390 are [mot-iced. fn'ee “Aer: Q:3‘?0 z'nﬂrstedi' . 5‘“fo Cur-.21: I; 390 :3; 390 L‘s-0 62 p-s/go 2 1: g L/Lf/ 8-3.0, W ii) Which is larger — the change in producer surplus or the deadweight loss? AWL. PS = qulgso~33f2§o ‘1’. ll, 100 [Acre-ts: DWL = .§'(5D3(Go\ :1 " lg'oo 1. '91»; is iarﬁcr ...
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Practice Test 2 Questions Solutions - Solutions to Must —...

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