QUESTION 1 Suppose wehave a perfectly competitive market where at the equilibrium price the total market demand is 300 units. Each individual firm in...
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# QUESTION 1Suppose we have a perfectly competitive market where at the equilibrium

price the total market demand is 300 units. Each individual firm in the market has a cost function C(Q) = 50 -2Q + 0.7Q^2. The number of firms this market can support in the long run is _____?

• Hint: There can be a fraction of a firm.

• 10 points

QUESTION 2

1. Refer to Figure 7-1. With the imposition of the tariff, the change in producer surplus is equal
2. a loss measured by the area of P1FGP2.
3. a gain measured by the area of P1FJP3.
4. a gain measured by the area of P2GJP3.
5. a loss measured by the area of P3JS0.

6. a gain measured by the area of P1FC0

10 points

QUESTION 3

1. Suppose that demand for and supply of a commodity in a market are shown on a graph with price on the vertical axis and quantity on the horizontal axis. The y-intercept of the demand curve is equal to \$30. The equilibrium price and quantity are \$15.6 and 300 units respectively. Total Consumer Surplus in this market is ____.
2. Hint: answer to two decimal places.

10 points

QUESTION 4

1. When all trade is prohibited in good X, the equilibrium price in the home country is PX. After free trade is instituted, the domestic country begins to import good X from the rest of the world. As a result of free trade:
2. the domestic price of good X will fall.
3. the domestic price of good X will rise.
4. the domestic price of good X will exceed the price in foreign countries.
5.  the domestic price of good X will be less than the price in foreign countries.
6. the domestic producers will gain surplus at the expense of domestic consumers.

10 points

QUESTION 5

1. The height of an individual demand curve at each level of output shows:
2. the marginal cost of producing the good.
3. the marginal benefit from consuming an extra unit of the good.
4. the value of consumer surplus.
5.  the value of producer surplus.

1.  the revenue earned by the firm from an additional unit consumed.

10 points

QUESTION 6

1. With free trade, the market for a particular good or service is in equilibrium when:
2. domestic supply is at its maximum possible level.
3. there are no exports to the world market.
4. imports into the domestic market are zero.
5. the price in the world market is equal to the price in the domestic market.
6. the domestic demand for the good equals the domestic supply of the good.

10 points

QUESTION 7

1. Refer to Figure 7-1. When trade is not restricted, the level of imports to the domestic market is _____.
2. CD
3. AE
4. 0
5. BD
6. AC

10 points

QUESTION 8

1. Suppose the equilibrium price of bread is \$2 per loaf. What would be the efficiency implications of a government policy that prevents the price of bread from rising above \$1?
2. The outcome would be inefficient since the marginal cost of producing bread is less than the marginal benefit to the consumers.
3. The outcome would be inefficient since the marginal benefit to consumers is less than the marginal cost of producing the bread.
4. The outcome would be efficient since the total benefit from consumption would be equal to the total cost of producing bread.
5. The outcome would be efficient since the total net benefits would be maximized.
6. The outcome will be efficient since the policy lowers the price of an essential item for consumers.

10 points

QUESTION 9

1.   If the long-run market supply curve in a perfectly competitive industry is upward sloping, then the industry:
2. is a constant-cost industry
3.  is an increasing-cost industry
4. exhibits constant returns to scale
5. exhibits increasing returns to scale
6. is a decreasing-cost industry.

10 points

QUESTION 10

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