PART A Questions 1 7 Consider a market where demand is D P 30 Q and supply is S P 0 5Q Equilibrium quantity Qe is 17 18 19 20 Equilibrium is price Pe $10 $11 $12 $13 Consumer surplus CS is $199 $200 $201 $202 Producer surplus PS is $98 $99 $100 $101 Total surplus TS is $220 $300 $323 $444 When the government imposes a price ceiling $20, disequilibrium between quantity demanded and quantity supplied results in Deficit 10 Surplus 10 Deficit 30 Surplus 30 Total surplus TS with the price floor is $220 $225 $230 $235 PART B Questions 8 28 Consider a market where demand is D P 40 Q and supply is S P Q Equilibrium quantity Qe is 16 18 20 22 Equilibrium price Pe is $18 $20 $22 $24 Consumer surplus CS is $198 $199 $200 $201 Producer surplus PS is $198 $199 $200 $201 Total surplus TS is $390 $394 $396 $400 Impose a specific tax T $4 on each unit sold in the above market Post tax quantity Q is 16 18 20 22 Post tax price P is $18 $20 $22 $24 Consumer surplus CS is $156 $158 $160 $162 Producer surplus PS is $156 $158 $160 $162 Tax revenue TR of the government is $68 $70 $72 $74 Total surplus TS is $390 $394 $396 $400 Consider a market where demand is P 70 Q and supply is S P Q Equilibrium quantity Qe is 35 36 45 56 Equilibrium price Pe is $34 $35 $36 $37 Consumer surplus CS is $610 $612 5 $615 $648 Producer surplus PS is $610 $612 5 $615 $648 Total surplus TS is $1,222 $1,223 $1,224 $1,225 Construct a budget neutral subsidy in the above market Post subsidy quantity Q is35364556Post subsidy price P is$34$35$36$37Consumer surplus CS is$610$612 5$615$648Producer surplus PS is$610$612 5$615$648Total surplus TS is (do not forget to account for the subsidy expenditure SE)$1,222$1,223$1,224$1,225The basic characteristic of the long run is that A barriers to entry prevent new firms from entering the industry B the firm has sufficient time to change the size of its plant C the firm does not have sufficient time to cut its rate of output to zero D a firm does not have sufficient time to change the amounts of any of the resources it employs The law of diminishing returns indicates that A as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point B because of economies and diseconomies of scale a competitive firm's long run average total cost curve will be U shaped C the demand for goods produced by purely competitive industries is downsloping D beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction Variable cost is A the cost of producing one more unit of capital, say, machinery B any cost which does not change when the firm changes its output C average total cost multiplied by the firm's output D any cost that rises with output in the short run In the above figure, curves 1, 2, 3, and 4 represent the A ATC, MC, AFC, and AVC curves respectively B MC, AFC, AVC, and ATC curves respectively C MC, ATC, AVC, and AFC curves respectively D ATC, AVC, AFC, and MC curves respectively Refer to the above data If product price is $60, the firm will A shut down B produce 4 units and realize a $120 economic profit C produce 6 units and realize a $100 economic profit D produce 3 units and incur a $40 loss Refer to the above diagram for a pure monopolist Monopoly price will be A e B c C b D a Refer to the above diagram for a pure monopolist Monopoly output will be A between f and g B h C g D f Consider a market with the market demand D P 100 Q, which is served by two Cournot duopolistic producers with the constant marginal cost MC $10 and no fixed cost In Nash equilibrium, the output of each firm, is 20 30 40 50 In Nash equilibrium, the market output is 40 60 80 100 In Nash equilibrium, the market price is $30 $40 $50 $60 In Nash equilibrium, profit of each firm is $900 $1000 $1100 $1200 When these two firms collude to form a cartel, the market output is 10 20 35 45 When these two firms collude to form a cartel, the market price is 45 55 60 70 When these two firms collude to form a cartel, the profit of each firm is $1012 50 $1450 50 $1560 25 $1860 25 Under pure competition a large number of identical firms in this market would produce a market output of 80 90 100 110 Under pure competition the market price in this market would be $10 $14 $15 $18 PART A Questions 1 7 Consider a market where demand is D P 30 Q and supply is S P 0 5Q 1 Equilibrium quantity Qe is a 17 b 18 c 19 d 20 2 Equilibrium is price Pe a $10 b $11 c $12 d $13 3 Consumer surplus CS is a $199 b $200 c $201 d $202 4 Producer surplus PS is a $98 b $99 c $100 d $101 5 Total surplus TS is a $220 b $300 c $323 d $444 6 When the government imposes a price ceiling $20, disequilibrium between quantity demanded and quantity supplied results in a Deficit 10 b Surplus 10 c Deficit 30 d Surplus 30 7 Total surplus TS' with the price floor is a $220 b $225 c $230 d $235 PART B Questions 8 28 Consider a market where demand is D P 40 Q and supply is S P Q 8 Equilibrium quantity Qe is a 16 b 18 c 20 d 22 9 Equilibrium price Pe is a $18 b $20 c $22 d $24 10 Consumer surplus CS is a $198 b $199 c $200 d $201 11 Producer surplus PS is a $198 b $199 c $200 d $201 12 Total surplus TS is a $390 b $394 c $396 d $400 Impose a specific tax T $4 on each unit sold in the above market 13 Post tax quantity Q' is a 16 b 18 c 20 d 22 14 Post tax price P' is a $18 b $20 c $22 d $24 15 Consumer surplus CS' is a $156 b $158 c $160 d $162 16 Producer surplus PS' is a $156 b $158 c $160 d $162 17 Tax revenue TR of the government is a $68 b $70 c $72 d $74 18 Total surplus TS' is a $390 b $394 c $396 d $400 Consider a market where demand is P 70 Q and supply is S P Q 19 Equilibrium quantity Qe is a 35 b 36 c 45 d 56 20 Equilibrium price Pe is a $34 b $35 c $36 d $37 21 Consumer surplus CS is a $610 b $612 5 c $615 d $648 22 Producer surplus PS is a $610 b $612 5 c $615 d $648 23 Total surplus TS is a $1,222 b $1,223 c $1,224 d $1,225 Construct a budget neutral subsidy in the above market 24 Post subsidy quantity Q' is a 35 b 36 c 45 d 56 25 Post subsidy price P' is a $34 b $35 c $36 d $37 26 Consumer surplus CS' is a $610 b $612 5 c $615 d $648 27 Producer surplus PS' is a $610 b $612 5 c $615 d $648 28 Total surplus TS is (do not forget to account for the subsidy expenditure SE) a $1,222 b $1,223 c $1,224 d $1,225 29 The basic characteristic of the long run is that A barriers to entry prevent new firms from entering the industry B the firm has sufficient time to change the size of its plant C the firm does not have sufficient time to cut its rate of output to zero D a firm does not have sufficient time to change the amounts of any of the resources it employs 30 The law of diminishing returns indicates that A as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point B because of economies and diseconomies of scale a competitive firm's long run average total cost curve will be U shaped C the demand for goods produced by purely competitive industries is downsloping D beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction 31 Variable cost is A the cost of producing one more unit of capital, say, machinery B any cost which does not change when the firm changes its output C average total cost multiplied by the firm's output D any cost that rises with output in the short run 32 In the above figure, curves 1, 2, 3, and 4 represent the A ATC, MC, AFC, and AVC curves respectively B MC, AFC, AVC, and ATC curves respectively C MC, ATC, AVC, and AFC curves respectively D ATC, AVC, AFC, and MC curves respectively 33 Refer to the above data If product price is $60, the firm will A shut down B produce 4 units and realize a $120 economic profit C produce 6 units and realize a $100 economic profit D produce 3 units and incur a $40 loss 34 Refer to the above diagram for a pure monopolist Monopoly price will be A e B c C b D a 35 Refer to the above diagram for a pure monopolist Monopoly output will be A between f and g B h C g D f Consider a market with the market demand D P 100 Q, which is served by two Cournot duopolistic producers with the constant marginal cost MC $10 and no fixed cost 36 A B C D In Nash equilibrium, the output of each firm, is 20 30 40 50 37 A B C D In Nash equilibrium, the market output is 40 60 80 100 38 A B C D In Nash equilibrium, the market price is $30 $40 $50 $60 39 A B C D In Nash equilibrium, profit of each firm is $900 $1000 $1100 $1200 40 A B C D When these two firms collude to form a cartel, the market output is 10 20 35 45 41 A B C D When these two firms collude to form a cartel, the market price is 45 55 60 70 42 A B C D When these two firms collude to form a cartel, the profit of each firm is $1012 50 $1450 50 $1560 25 $1860 25 43 Under pure competition a large number of identical firms in this market would produce a market output of A 80 B 90 C 100 D 110 44 A B C D Under pure competition the market price in this market would be $10 $14 $15 $18

Question

PART A   Questions 1   7 Consider a market where demand is D  P   30   Q and supply is S  P   0 5Q  Equilibrium quantity Qe is 17 18 19 20 Equilibrium is price Pe $10 $11 $12 $13 Consumer surplus CS is $199 $200 $201 $202 Producer surplus PS is $98 $99 $100 $101 Total surplus TS is $220 $300 $323 $444 When the government imposes a price ceiling   $20, disequilibrium between quantity demanded and quantity supplied results in Deficit   10 Surplus   10 Deficit   30 Surplus   30 Total surplus TS  with the price floor is $220 $225 $230 $235 PART B   Questions 8   28 Consider a market where demand is D  P   40   Q and supply is S  P   Q  Equilibrium quantity Qe is 16 18 20 22 Equilibrium price Pe is $18 $20 $22 $24 Consumer surplus CS is $198 $199 $200 $201 Producer surplus PS is $198 $199 $200 $201 Total surplus TS is $390 $394 $396 $400 Impose a specific tax T   $4 on each unit sold in the above market  Post tax quantity Q  is 16 18 20 22 Post tax price P  is $18 $20 $22 $24 Consumer surplus CS  is $156 $158 $160 $162 Producer surplus PS  is $156 $158 $160 $162 Tax revenue TR of the government is $68 $70 $72 $74 Total surplus TS  is $390 $394 $396 $400 Consider a market where demand is  P   70   Q and supply is S  P   Q  Equilibrium quantity Qe is 35 36 45 56 Equilibrium price Pe is $34 $35 $36 $37 Consumer surplus CS is $610 $612 5 $615 $648 Producer surplus PS is $610 $612 5 $615 $648 Total surplus TS is $1,222 $1,223 $1,224 $1,225 Construct a budget neutral subsidy in the above market  Post subsidy quantity Q  is35364556Post subsidy price P  is$34$35$36$37Consumer surplus CS  is$610$612 5$615$648Producer surplus PS  is$610$612 5$615$648Total surplus TS is (do not forget to account for the subsidy expenditure SE)$1,222$1,223$1,224$1,225The basic characteristic of the long run is that  A  barriers to entry prevent new firms from entering the industry  B  the firm has sufficient time to change the size of its plant  C  the firm does not have sufficient time to cut its rate of output to zero  D  a firm does not have sufficient time to change the amounts of any of the resources it employs The law of diminishing returns indicates that  A  as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point  B  because of economies and diseconomies of scale a competitive firm's long run average total cost curve will be U shaped  C  the demand for goods produced by purely competitive industries is downsloping  D  beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction Variable cost is  A  the cost of producing one more unit of capital, say, machinery  B  any cost which does not change when the firm changes its output  C  average total cost multiplied by the firm's output  D  any cost that rises with output in the short run In the above figure, curves 1, 2, 3, and 4 represent the  A  ATC, MC, AFC, and AVC curves respectively  B  MC, AFC, AVC, and ATC curves respectively  C  MC, ATC, AVC, and AFC curves respectively  D  ATC, AVC, AFC, and MC curves respectively  Refer to the above data  If product price is $60, the firm will  A  shut down  B  produce 4 units and realize a $120 economic profit  C  produce 6 units and realize a $100 economic profit  D  produce 3 units and incur a $40 loss  Refer to the above diagram for a pure monopolist  Monopoly price will be  A  e  B  c  C  b  D  a  Refer to the above diagram for a pure monopolist  Monopoly output will be  A  between f and g  B  h  C  g  D  f  Consider a market with the market demand D  P   100   Q, which is served by two Cournot duopolistic producers with the constant marginal cost MC   $10 and no fixed cost  In Nash equilibrium, the output of each firm, is 20 30 40 50 In Nash equilibrium, the market output is 40 60 80 100 In Nash equilibrium, the market price is $30 $40 $50 $60 In Nash equilibrium, profit of each firm is $900 $1000 $1100 $1200 When these two firms collude to form a cartel, the market output is 10 20 35 45 When these two firms collude to form a cartel, the market price is 45 55 60 70 When these two firms collude to form a cartel, the profit of each firm is $1012 50 $1450 50 $1560 25 $1860 25 Under pure competition a large number of identical firms in this market would produce a market output of 80 90 100 110 Under pure competition the market price in this market would be $10 $14 $15 $18 PART A   Questions 1   7 Consider a market where demand is D  P   30   Q and supply is S  P   0 5Q  1  Equilibrium quantity Qe is a  17 b  18 c  19 d  20 2  Equilibrium is price Pe a  $10 b  $11 c  $12 d  $13 3  Consumer surplus CS is a  $199 b  $200 c  $201 d  $202 4  Producer surplus PS is a  $98 b  $99 c  $100 d  $101 5  Total surplus TS is a  $220 b  $300 c  $323 d  $444 6  When the government imposes a price ceiling   $20, disequilibrium between quantity demanded and quantity supplied results in a  Deficit   10 b  Surplus   10 c  Deficit   30 d  Surplus   30 7  Total surplus TS' with the price floor is a  $220 b  $225 c  $230 d  $235 PART B   Questions 8   28 Consider a market where demand is D  P   40   Q and supply is S  P   Q  8  Equilibrium quantity Qe is a  16 b  18 c  20 d  22 9  Equilibrium price Pe is a  $18 b  $20 c  $22 d  $24 10  Consumer surplus CS is a  $198 b  $199 c  $200 d  $201 11  Producer surplus PS is a  $198 b  $199 c  $200 d  $201 12  Total surplus TS is a  $390 b  $394 c  $396 d  $400 Impose a specific tax T   $4 on each unit sold in the above market  13  Post tax quantity Q' is a  16 b  18 c  20 d  22 14  Post tax price P' is a  $18 b  $20 c  $22 d  $24 15  Consumer surplus CS' is a  $156 b  $158 c  $160 d  $162 16  Producer surplus PS' is a  $156 b  $158 c  $160 d  $162 17  Tax revenue TR of the government is a  $68 b  $70 c  $72 d  $74 18  Total surplus TS' is a  $390 b  $394 c  $396 d  $400 Consider a market where demand is  P   70   Q and supply is S  P   Q  19  Equilibrium quantity Qe is a  35 b  36 c  45 d  56 20  Equilibrium price Pe is a  $34 b  $35 c  $36 d  $37 21  Consumer surplus CS is a  $610 b  $612 5 c  $615 d  $648 22  Producer surplus PS is a  $610 b  $612 5 c  $615 d  $648 23  Total surplus TS is a  $1,222 b  $1,223 c  $1,224 d  $1,225 Construct a budget neutral subsidy in the above market  24  Post subsidy quantity Q' is a  35 b  36 c  45 d  56 25  Post subsidy price P' is a  $34 b  $35 c  $36 d  $37 26  Consumer surplus CS' is a  $610 b  $612 5 c  $615 d  $648 27  Producer surplus PS' is a  $610 b  $612 5 c  $615 d  $648 28  Total surplus TS is (do not forget to account for the subsidy expenditure SE) a  $1,222 b  $1,223 c  $1,224 d  $1,225 29  The basic characteristic of the long run is that  A  barriers to entry prevent new firms from entering the industry  B  the firm has sufficient time to change the size of its plant  C  the firm does not have sufficient time to cut its rate of output to zero  D  a firm does not have sufficient time to change the amounts of any of the resources it employs  30  The law of diminishing returns indicates that  A  as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point  B  because of economies and diseconomies of scale a competitive firm's long run average total cost curve will be U shaped  C  the demand for goods produced by purely competitive industries is downsloping  D  beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction  31  Variable cost is  A  the cost of producing one more unit of capital, say, machinery  B  any cost which does not change when the firm changes its output  C  average total cost multiplied by the firm's output  D  any cost that rises with output in the short run  32  In the above figure, curves 1, 2, 3, and 4 represent the  A  ATC, MC, AFC, and AVC curves respectively  B  MC, AFC, AVC, and ATC curves respectively  C  MC, ATC, AVC, and AFC curves respectively  D  ATC, AVC, AFC, and MC curves respectively  33  Refer to the above data  If product price is $60, the firm will  A  shut down  B  produce 4 units and realize a $120 economic profit  C  produce 6 units and realize a $100 economic profit  D  produce 3 units and incur a $40 loss  34  Refer to the above diagram for a pure monopolist  Monopoly price will be  A  e  B  c  C  b  D  a  35  Refer to the above diagram for a pure monopolist  Monopoly output will be  A  between f and g  B  h  C  g  D  f  Consider a market with the market demand D  P   100   Q, which is served by two Cournot duopolistic producers with the constant marginal cost MC   $10 and no fixed cost  36  A  B  C  D  In Nash equilibrium, the output of each firm, is 20 30 40 50 37  A  B  C  D  In Nash equilibrium, the market output is 40 60 80 100 38  A  B  C  D  In Nash equilibrium, the market price is $30 $40 $50 $60 39  A  B  C  D  In Nash equilibrium, profit of each firm is $900 $1000 $1100 $1200 40  A  B  C  D  When these two firms collude to form a cartel, the market output is 10 20 35 45 41  A  B  C  D  When these two firms collude to form a cartel, the market price is 45 55 60 70 42  A  B  C  D  When these two firms collude to form a cartel, the profit of each firm is $1012 50 $1450 50 $1560 25 $1860 25 43  Under pure competition a large number of identical firms in this market would produce a market output of A  80 B  90 C  100 D  110 44  A  B  C  D  Under pure competition the market price in this market would be $10 $14 $15 $18

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PART A ? Questions 1 ? 7 Consider a market where demand is D: P = 30 ? Q and supply is S: P =

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