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After the ban total social welfare equals 2500

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Unformatted text preview: ours per day. At the current regulated price, consumers demand 4 billion kilowatt hours per day. Is this market a natural monopoly? If demand increases to 10 billion kilowatt hours, is this market a natural monopoly? Explain. 11. Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium. Answers Multiple choice 1. A 2. B 3. C 4. B 5. B 6. D 7. D 8. D 9. D 10. C 11. D 12. C 13. C 14. D 15. A 16. D 17. A 18. A 19. B 20. C 21. A 22. D 23. B 24. B 25. D 26. A 27. A 28. C 29. D 30. B 31. D 32. C 33. C 34. A 35. D 36. D 37. C 38. B 39. D 40. C 41. B 42. A 43. C 44. C 45. D 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. B B B A C A C B D A D D A B (D isn’t price discrimination b/c there are actual price differences) C A C A B D C B Short answer 1. See the above figure. The curve labeled LE is the less elastic demand curve, and the curve labeled ME is the more elastic demand curve. When price increases from $1 to pn, the person with demand curve ME suffers a loss of a + c + e. The person with demand curve LE suffers a loss of a + b + c + d + e. Thus, the person with the less elastic demand suffers the greater loss of consumer surplus. 2. At a price of $2, producer surplus equals ($1.50 ∗ 1200)/2 = $900. At a price of $1, producer surplus equals ($0.50 ∗ 500)/2 = $125. The $1 decrease in prices results in a $775 decrease in producer surplus. 3. If less output is produced, then the last unit that is consumed will be valued by consumers more than the cost of producing it. If output is increased to the competitive level, consumers will value those additional goods more than the cost of producing them, and welfare will increase. If output is greater than the competitive output level, then the cost of producing the units be...
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This note was uploaded on 09/29/2013 for the course ECON 201 taught by Professor Maxli during the Winter '13 term at Massey Palmerston North.

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