Answered: 1. Advertising and product…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Advertising and product differentiation are key characteristics of: a. Perfect competition. b. Monopolistic competition. c. Oligopoly. d. Monopoly. 2. An effective price ceiling must be set a. above the equilibrium price. b. below the equilibrium price. c. at the equilibrium price. d. either at or above the equilibrium price. 3. In long-run equilibrium, the perfectly competitive firm earns………… economic profits. a. Positive. b. Negative. c. Zero. d. None of the above. 4. Which of the following describes what happens to a consumer's budget line if that consumer's budget increases? The budget line a. becomes steeper. b. shifts farther away from the origin of the graph. c. does not change. d. shifts closer to the origin of the graph. 5. Refer to the Figure below: On the graph, the movement from D to D1 is called a. A decrease in demand b. An increase in demand. c. A decrease in quantity demanded d. An increase in quantity demanded. 6. Because we collectively consume public goods a. the government cannot produce them. b. they are illegal. c. they are very expensive; thus the private sector cannot provide them. d. firms in the private sector may not provide them because they cannot exclude those who do not pay. 7. Refer to the figure above. This farmer's profit -maximizing level of output is ……………… units of output. a. 200 b. 700 c. 1000 d. 1400 8. If the supply of a product decreases, we would expect a.equilibrium price to increase and equilibrium quantity to decrease. b.equilibrium price to decrease and equilibrium quantity to increase. c.equilibrium price and equilibrium quantity both to increase. d.equilibrium price and equilibrium quantity both to decrease. 9. An oligopoly is an industry market structure with a. a single firm in which the entry of new firms is blocked. b. a small number of firms each large enough to impact the market price of its output. c. many firms each able to differentiate their product. d. many firms each too small to impact the market price. 10. According to the graph bellow, which one reflects an increase in the price of chicken? a. Figure A. b. Figure B. c. Figure C. d. Figure D. Section B – True / False Questions - Answer All (10x 0.5 mark = 5 marks) 11. The average total cost curve reflects the shape of both the average fixed cost and average variable cost curves. a. True b. False 12. A surplus exists when there is excess demand in a market. a. True b. False 13. The profit -maximizing level for all firms, regardless of industry structure, is the output level where MR=MC. a. True b. False 14. If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result, then the price elasticity of demand is 3. a. True b. False 15. In monopolistic competition, price is equal to marginal revenue and average revenue. a. True b. False 16. A firm should shut down in the short-run if its total revenue does not exceed its total cost. a. True b. False 17. A consumer will maximize his utility where his indifference curve is just tangent to his budget constraint. a. True b. False 18. A reduction in an input price will cause a change in quantity supplied, but not a change in supply. a. True b. False 19. The law of diminishing marginal utility implies that total utility never reaches a maximum. a. True b. False 20. Cross-price elasticity is used to determine whether goods are inferior or normal goods. a. True b. False Section C - Medium Answer Questions - Answer any THREE (3x 3 marks = 9 marks) 21. Differentiate between monopoly and perfect competition, based on the characteristics given in the table below: Monopoly perfect competition number of sellers free entry/exit long-run econ. profits firm has market power? D curve facing firm close substitutes 22. Differentiate between Accounting profit and economic profit. 23. The following table shows the quantity produced from wheat and number of labour units used: Labour (L) Quantity of Wheat (Q) (in bushels) Marginal Product (MPL) 0 0 1 10 2 18 3 24 4 28 5 30 a. Calculate the marginal product of labour MPL. b. Use the data to graph the production function and explain the shape of the curve. 24. Determine AND interpret the price elasticity of demand between point A and point B, using the midpoint method: Section D - Long Answer Questions - Answer any ONE (1x 6 marks = 6 marks) 25. Consider total cost and total revenue given in the following table: Quantity Total Cost Marginal Cost Total Revenue Marginal Revenue Profit 0 $8 $0 1 9 8 2 10 16 3 11 24 4 13 32 5 19 40 6 27 48 7 37 56 a. Calculate marginal cost, marginal revenue and profit for each quantity. b. How much quantity should the firm produce to maximize profit? 26. Distinguish two principles of fairness that can be applied to tax system with examples.

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