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Question 01 Consider the definition of producer surplus, PS, and how it relates to the profits, x, and cost structure of a firm (marginal cost,
Question 01 Consider the definition of producer surplus, PS, and how it relates to the profits, x, and cost structure of a firm (marginal cost, MC, fixed cost, F, variable cost, VC, and total cost, C). Which of the following alternatives is correct? (a) The value of the producer surplus is to the firm's profits: PS = (b) The value of the producer surplus minus fixed costs is the firm's profits: PS - F = n (c) The value of the producer surplus is revenue, R, minus marginal cost: PS = R - MC (d) The value of the producer surplus does not have a cardinal interpretation, only ordinal Question 02 Consider a firm with no fixed costs and a marginal cost function equal to MC(q) = 2q. Assume this firm is a price-taker and that the market price it faces decreases from p = $100 top' = $90. Which of the following alternatives is correct? (a) This firm's producer surplus decreases from $5,000 to $4,500 (b) This firm's producer surplus increases from $2,500 to $2,600 (c) This firm's profit decreases from $2,500 to $2,025 (d) This firm's profit increases from $5,000 to $5,200 Question 03 Consider two different linear demand curves, A and B, passing through the same equilibrium point e1 = (Q1.pi) = (30,40): p*(Q) = 100 - 2Q and p"(Q) = 70 - Q. Assume that the price increases to p2 = 60. This price increase reduces the consumer surplus by. (a) $400 for demand A (b) approximately 50% for demand A (c) $450 for demand B (d) approximately 89% for demand B
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