Select the correct answer and provide a brief justification:

1- A profit-maximizing dairy farm is currently producing 10,000 gallons of milk per day. The government is considering two alternative policies. One is to give the farm a lump sum subsidy of $500 per month. The other policy is to give the farm a subsidy of $.05 per gallon of output.

a.Both kinds of subsidy will increase production at this farm.

b.Neither subsidy will affect production at this farm, since output is determined by profit maximization.

c.Production at this farm will be increased if the per-unit subsidy is adopted but not if the lump sum subsidy is adopted.

d.Which subsidy has the greater effect on production at this farm depends on whether fixed costs are greater than variable costs.

e.Production will be increased by either kind of subsidy if and only if there are not decreasing returns to scale.

2- A competitive firm is choosing an output level to maximize its profits in the short run. Which of the following is not necessarily true? (Assume that marginal cost is not constant and is well defined at all levels of output.)

a.Marginal cost is at least as large as average variable cost.

b.Total revenues are at least as large as total costs.

c.Price is at least as large as average variable cost.

d.Price equals marginal cost.

e.The marginal cost curve is rising.

3- A competitive firm has a long-run total cost function c(y) = 3y2 + 675 for y > 0 and c(0) = 0. Its long-run supply function is described as

a.y =if p > 90, y = 0 if p < 90.

b.y =if p > 88, y = 0 if p < 88.

c.y =if p > 93, y = 0 if p < 99.

d.y =if p > 93, y = 0 if p < 93.

e.y =if p > 95, y = 0 if p < 85.

4- Suppose that Dent Carr's long-run total cost of repairing s cars per week is c(s) = 3s2 + 75. If the price he receives for repairing a car is $18, then in the long run, how many cars will he fix per week if he maximizes profits?

a.3

b.0

c.6

d.4.50

e.9

5- A firm has the long-run cost function C(q) = 3q2 + 27. In the long run, it will supply a positive amount of output, so long as the price is greater than

a.$36.

b.$44.

c.$9.

d.$18.

e.$23.