Question

Which of the following goods likely has the most inelastic demand curve?

a. Comped business flight to an important meeting that will affect your chances at a promotion

b. Vacation flight to Maui.

c. Square feet in an apartment

d. Pet Adoption e. Marijuana

If a good has an elastic demand curve, a decrease in price and movement along the demand curve will result in:

a. An increase in total revenue

b. A decrease in total revenue

c. The same amount of total revenue

d. There isn’t enough information to answer the problem

Assuming the production function for retail checkouts are the same in each country, making use of automated capital and low-skilled workers. Why does Japan have so many more vending machines compared to the US?

a. Vending machines are cheaper to make in Japan.

b. Theft is less common in Japan.

c. The opportunity cost of hiring low-skilled workers is higher in Japan than in the US.

d. The cost of both vending machines and low-skilled workers is lower in Japan

e. Americans are more outgoing.

In the short-run, rising Variable Cost eventually corresponds to:

a. Diminishing returns to variable input

b. Increasing returns to variable input

c. Constant returns to scale

d. Decreasing returns to scale

e. Increasing returns to scale

Jean runs a pig farm and sells manure. She makes $250,000 in revenue, pays $150,000 in expenses, and has land and capital that are valued at $100,000. What is her economic and accounting profit?

a. Economic $100,000 Accounting $100,000

b. Economic $100,000, Accounting $0

c. Economic $0, Accounting $100,000

d. Economic $0, Accounting $0

e. Economic $0, Accounting $150,000

A perfectly competitive firm has a Total Cost function of TC=3Q2+2. Suppose the price increases from 1 to 12. How much does Q change for the firm if it’s profit-maximizing?

a. Increase by 1

b. Increase by 2

c. Increase by 0

d. Decrease by 1

e. Decrease by 2

Answer 1

Ans 1: Option a:  Comped business flight to an important meeting that will affect your chances at a promotion because the promotion is attached with this trip. Whatever be the price of the flight, the employee will buy it as it is a business trip, amount will be paid by the organisation and also the chances of the promotion are there. Other options can be delayed or substitutes are available.

Ans 2: Option a. The elastic demand means e>1, if the price falls by small amount, the quantity demanded will rise by much larger amount. Hence, total revenue rises.

Ans 3: (C) because it is costly to employ a low skilled worker in Japan, so they use vending machines. While in the US, it is not expensive to employ more labor.

Ans 4: Diminishing returns to variable input. It means as more and more variable input is employed, it becomes expensive to employ each variable input, the cost rises, the returns from variable input falls. the reason is law of diminishing marginal returns.

Ans 5: Accounting profit: Revenue - Expenses = $250,000 - $150,000 = $100,000

Economic profit = Revenue - Expenses - Land and Capital Value = $250,000 - $150,000 - $100,000 = $0

Ans 6: For perfect competition: P=MC is profit maximization condition.

First order difference of TC gives us MC = 6Q (TC = 2Q^2 +2)

So, P = MC

Initial level: 1=6Q

Therefore, Q = 1/6

If new P = 12

then, 12 = 6Q

Therefore, new Q = 2

So, change in Q = 2 - (1/6) = 1.83 (Approx) so, 2 (Approx).