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1
1. Suppose the price elasticity of supply for a product is zero. This means that:
a. There is a shortage.
b. The firm makes the same amount of product even if the price changes some.
c. The firm makes the same amount of revenue even if the price changes some.
d. No one wants to buy the good.
e. The supply curve is horizontal
2. Tony is a wheat farmer, but he spends part of his day teaching guitar lessons. He has more students requesting lessons than he has time to teach and still maintain his farm. Tony charges $25/hr for guitar lessons. One spring day he spends 10 hours in his field planting $130 worth of seeds, which he expects will produce $300 worth of wheat. What will Tony’s economic profit equal?
a. -$80
b. $130
c. $170
d. $300
e. $140
3. If supply and demand both shift to the right at the same time, what can we say about equilibrium price and quantity?
a. both will increase
b. price will increase, quantity may increase or decrease
c. both will decrease
d. quantity will increase, price may increase or decrease
e. price will decrease, and quantity will increase
4. Following the events of 9/11, the airlines have been forced to increase security at a cost of $800 million per year. The number of inspectors and machines does not vary with the number of passengers -- the airlines must have sufficient staff to handle the full-capacity load. These security expenditures will
a. increase MC and ATC.
b. increase MC and leave ATC unchanged.
c. increase ATC and leave MC unchanged.
d. increase MC and AVC.
e. increase MC and leave AVC unchanged.
5. Suppose it is discovered that drinking cranberry juice prevents the common cold. What effect do you predict this discovery will have on the price and quantity of cranberry juice sold, other things equal?
a. both price and quantity will increase
b. both price and quantity will decrease
c. price will increase while quantity will decrease
d. price will decrease while quantity will increase
e. price and quantity will both remain constant
Expert Solution
Answering only first 4 MCQ
1) option b)
as supply Curve is Vertical, so Elasticity is zero, then Quantity supplied is fixed
2) option a) -80
economic profit = TR - TC( explicit + implicit )
Total opportunity cost = 25*10= 250
total Revenue = 300
total explicit cost = 130
economic profit = 300-250-130
= -80
3) option d)
as both curves shift, Q will rise definitely, but P may rise of fall
4) option c)
so MC unchanged, Fixed cost rises, So TC rises,
ATC rises
5) option a)
Demand curve shifts right, supply unchanged
So Both P & Q rises
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