Question

 

1)Assume there is a decrease in the price of a complement, an increase in income, a decrease in the number of firms, an increase in the cost of input, firms expect a higher price, and consumers expect a lower price. Based on all of this information, which of the following is correct?

A)The equilibrium price will increase, and the equilibrium quantity will increase.

b)The equilibrium price will decrease, and the equilibrium quantity will decrease.

c) More information is needed to know what changes will occur in the equilibrium price/quantity

d)The equilibrium price will increase, and the equilibrium quantity will decrease.

e)The equilibrium price will decrease, and the equilibrium quantity will increase.

2) Assume that a firm is considering using another hour of labor at a cost of $20. The marginal product of this additional hour of labor is 15 units. The selling price is $2 per unit. Which of the following correctly identifies what the firm should do and for the correct reason?

A) The firm should use the additional hour of labor because the firm’s total product will increase.

B) The firm should not use the additional hour of labor because the marginal product is less than the wage rate.

C)The firm should use the additional hour of labor because the firm’s MRP is greater than the wage rate.

d)The firm should not use the additional hour of labor because the MRP is negative.

E) The firm should obtain more information because there is not enough information provided to determine its best course of action.

F) The firm should use the additional hour of labor because the marginal product is positive.

3)Opportunity cost is defined as the value of everything given up when a decision is made or a course of action is followed. Is this true or false?

                                                           

4)Increases in demand are graphed as rightward swift of the demand curve. Similarly, increases in supply are graphed as rightward shifts of the supply curve. Is this true or false?

                                               

5) When demand and supply move in the same direction there is uncertainty on the equilibrium price. Is this true or false?

6) Which of the following is true regarding the production possibility frontier model? There is more than one correct answer to this question. Mark all correct answers

a) The PPF always slopes down because resources are limited.

b) Using only the PPF model, it is not possible to state that anyone combination on a fronter is superior to any other combination on the same frontier.

c) Resource use is efficient in producing all of the combinations shown on a PPF.

d)The principle of increasing marginal opportunity cost only applies in cases when resources are specialized.

e) If resources are not specialized, the PPF will be a straight, downward-sloping line.       

7) A pizza place increased the selling price on its pizza by 10% and noticed a 13% decrease in the number of pizzas it sold. The demand for pizzas in this case is _______.          

a) inelastic

b) unit elastic

c)elastic

d) perfectly inelastic

           

8) Netflix and Hulu are two streaming services companies that many consumers are using to eliminate expensive cable-TV services. They offer similar benefits to customers. If the price of the FuboTV service decreases, this will cause a decrease in the _______ for the Hulu brand streaming service which would be graphed as _______.

1. demand, movement up/left along its demand curve
2. quantity demanded; movement up/left along its demand curve
3. quantity demanded, the leftward shift of its demand curve
4. demand, leftward swift of its demand curve

9) When a firm has diminishing marginal returns its marginal cost decreases. Is it true or false?

10) Which of the following statements is correct regarding cost curves? There is more than one correct answer to this question. You must mark all of the correct answers to receive full credit for this question.

a).      The total fixed cost curve is a horizontal line.

b.)     The total variable cost curve and total cost curve have exactly the same shape.

c) The average total cost curve and average variable cost curve get closer to each other as you move from le" to right in the graph.

d)The slope of the total cost curve is the marginal cost.

e) The average fixed cost curve is continually downward sloping.

f) The marginal cost curve passes through the minimum points of the average total cost curve and average fixed cost curve.

.

 

Answer 1

Answer:

Q1. There have been changes in both demand and supply. The decrease in the price of a complement and increase in income will increase demand for a good, shifting the demand schedule to the right. The decrease in the number of firms and increase in input price will affect the supply schedule by shifting it to the left. Thus the shift in demand curve to the right will increase price however this will be offset by a leftward shift in the supply curve, causing price to further increase and quantity demanded to decrease. This is met by option D.

Q2. The Marginal Revenue for an additional labour hour is $30, since the marginal product is 15 units and selling price is $2. Now note that the Marginal Revenue Product ($30) is greater than the marginal cost ($20), thus an additional unit will increase the firms total revenue. Note that the marginal cost is nothing but the wage rate. Thus Option C is the correct answer.

Q3. True. Opportunity cost is the option that you forego when you choose another action. For example, you are given the option to attend school and the option to stay at home. To you, education is more important thus you choose the first option, but then you end up foregoing your leisure or the time you could have spent doing something else other than attending school (for instance, income from a part-time job, sleep). This is the concept of opportunity cost.

Q4. True. Increases in demand, shifts the demand curve upwards to the right, facilitating an increase in price and quantity. Increase in supply shifts the supply curve downwards to the right, facilitating a fall in price and increase in quantity.

Q5. False, increases in demand will increase price and quantity, and increase in supply will decrease price and increase quantity. The resulting price will be a price slightly higher than the initial equilibrium price, and an overall increase in quantity.

Q6. The production possibility frontier depicts all possible efficient combinations of two products that can be produced using the same finite resources. Due to the theory of opportunity cost, the increase in production of one good will decrease the production of another (naturally!) The PPF is thus bowed out/concave when there are increasing opportunity costs and is straight downward sloping when there are constant opportunity costs. Now, looking at a PPF alone cannot tell us which combination is superior to the other, since they are all efficient outcomes and are thus pareto optimal. Therefore, both option b and c are correct.

Q7. When the price of a good increase by a certain % and the resulting consequence is a larger % decrease in quantity demanded, we say that the good is price elastic such that consumers are highly sensitive to changes in price for the commodity. Since a 13% decrease is larger than a 10% increase, we say the demand for pizza is price elastic (option c).

Q8. Now note that Hulu and FuboTV services are substitutes since consumers have the option to choose between the two. Now, a decrease in FuboTV services makes cable services cheaper (increasing quantity demanded) and thus consumers will substitute FubtoTV for Hulu, causing a decrease in demand for Hulu, resulting into a leftward shift for Hulu. This is best depicted by option D.