Question 1

Consider an input whose usage varies in direct proportion to the quantity of output produced. A firm has a deal where it buys a given quantity of this input at a fixed contractual price. Whatever it doesn't use in its own operation, it can resell in the spot market. The spot market price of the input just went up and is now much higher than the fixed contractual price the firm is committed to pay.

Which of the following cost curves is affected by the change in the spot market price?

a. Average variable cost

b. Average fixed cost

c. None of the given cost curves will be affected.

d. Fixed cost

Question 2

The demand curve for widgets is D(P) = 400 - P, where P is the price in euros per units and D(P) is the units of widgets demanded per year. Suppose P=250. Consumer surplus is:

a. 22500

b. 18750

c. 15000

d. 11250