The Above Figure Shows Supply and Demand Curves for Milk. If the Government Passes a $2
Microeconomics I
Final
1/8, 2008
- Multiple Choices (40 points)
1.
The above figure shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the loss in consumer surplus will equal
A)b + c + f + g.
B)f + g.
C)b + f.
D)c + g.
2.The above figure shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the tax revenue is
A)$2 * Q1.
B)$2 * Q2.
C)$2 * (Q2– Q1).
D)$2.
3.When the isocost line is tangent to the isoquant, then
A)MRTS = w/r.
B)the firm is producing that level of output at minimum cost.
C)the last dollar spent on capital yields as much extra output as the last dollar spent on labor.
D)All of the above.
4.In deciding whether to operate in the short run, the firm must be concerned with the relationship between price of the output and
A)total cost.
B)average variable cost.
C)total fixed cost.
D)the number of buyers.
5.Long-run average cost is never greater than short-run average cost because in the long run
A)capital costs equal zero.
B)the firm can move to the lowest possible isocost curve.
C)wages always increase over time.
D)wages always decrease over time.
6.If a firm is currently in short-run equilibrium earning a profit, what impact will a lump-sum tax have on its production decision?
A)The firm will decrease output to earn a higher profit.
B)The firm will increase output but earn a lower profit.
C)The firm will not change output but earn a lower profit.
D)The firm will not change output and earn a higher profit.
7.A special license is required to operate a taxi in many cities. The number of licenses is restricted. More drivers want licenses than are issued. This describes a non-perfectly competitive market because
A)taxi services are very different.
B)firms cannot freely enter and exit the market.
C)transaction costs are high.
D)the government generates revenue from the licenses.
8.Which of the following statements best summarizes the law of diminishing marginal returns?
A)In the short run, as more labor is hired, output diminishes.
B)In the short run, as more labor is hired, output increases at a diminishing rate.
C)In the short run, the amount of labor a firm will hire diminishes as output increases.
D)As more labor is hired, the length of time that defines the short run diminishes.
9.Returns to scale is a concept that operates
A)only in the short run.
B)only in the long run.
C)in both the long run and the short run.
D)in either the long run or the short run but never both.
10.
The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, producer surplus decreases by
A)d.
B)b + f.
C)c + g.
D)i.
11.The above figure shows supply and demand curves for apartment units in a large city. If the city government passes a law that establishes $350 per month as the legal maximum rent, deadweight loss occurs because
A)consumers place a greater value on the last apartment unit than the cost to supply it.
B)the supplier of the last apartment unit receives a rental price that is less than the marginal cost of supplying it.
C)the quantity of apartments supplied has decreased.
D)All of the above.
12.If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?
A)AFC is rising.
B)AVC is rising.
C)MC > AVC.
D)MPL is falling
13.
The above figure shows the long-run expansion path. The long-run average cost curve will be
A)horizontal.
B)downward sloping.
C)upward sloping.
D)vertical.
14.If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output
A)AC is upward sloping.
B)MC exceeds AVC.
C)AFC is constant.
D)All of the above.
15.Isoquants that are downward-sloping straight lines exhibit
A)an increasing marginal rate of technical substitution.
B)a decreasing marginal rate of technical substitution.
C)a constant marginal rate of technical substitution.
D)a marginal rate of technical substitution that cannot be determined.
16.With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that
A)capital and labor are perfect substitutes.
B)capital and labor must be used together in a certain proportion.
C)capital is not productive.
D)labor is not productive.
17.Economies of scope exist between book publishing and magazine publishing if
A)the cost of publishing a magazine is lower for book publishers than for other firms.
B)the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine.
C)the cost of publishing a book falls over time as the publisher acquires more experience.
D)the cost of a publishing a book is not subject to diminishing marginal returns.
18.Economists define a market to be competitive when the firms
A)spend large amounts of money on advertising to lure customers away from the competition.
B)watch each other's behavior closely.
C)are price takers.
D)All of the above.
19.If an economist states that not enough of a good is being produced, she usually means that
A)not everyone can afford the good.
B)price exceeds marginal cost.
C)consumer surplus equals zero.
D)at equilibrium, some people who still wish to sell the good cannot find a buyer.
20.Suppose TC = 10 + (0.1 * q2). If p = 10, the firm's profits will be
A)240.
B)250.
C)260.
D)-10 because the firm will shut down.
1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10C / A / D / B / B / C / B / B / B / C
11 / 12 / 13 / 14 / 15 / 16 / 17 / 18 / 19 / 20
A / D / B / B / C / C / A / C / B / A
- True or False (30 points)
For the following, please answer "True" or "False" and explain why.
1.Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus.(政策對於供給的限制能夠促進社會福利的增加，因為生產者剩餘的增加超過消費者剩餘的減少。)
False.
One impact of a supply restriction is an exchange from consumers to producers. The net effect on social welfare is zero. Additionally, there is a deadweight loss. This is the additional surplus that could be generated if supply were not restricted. This effect is always negative. As a result, social welfare always declines in response to a supply restriction.
2.If increasing returns to scale are present, the long-run average cost increases as more output is produced.(在規模報酬遞增的情況下，長期平均成本會隨產量增加而上升。)
False.
Increasing returns to scale imply that with a doubling of inputs, output more than doubles. Since average cost is the ratio of total cost divided by output, this increase in inputs will cause the numerator to be just double the old value while the new denominator is more than double the old value. As a result, long-run average cost falls as more output is produced.
3.Individual firms in competitive markets face more elastic demand curves than the market as a whole.(在完全競爭市場下，個別廠商面對的需求曲線較整個市場的需求曲線有彈性。)
True
In a competitive market, if an individual firm increases its price it will lose all of its customers, as consumers simply buy from another firm. However, if the price of the good increases for all firms some consumers will not continue to buy the good, but for many prices some consumers will continue to purchase the good.
4.Changing how production is organized cannot result in changes in productivity.(改變生產的組織方式並不會造成生產力的改變。)
False.
Henry Ford assembly line is an example of how changes in the organization of production increased productivity.
5.The production function Q = L0.5 K0.5 has diminishing marginal product of labor but has constant returns to scale.(生產函數Q = L0.5 K0.5具有勞動邊際生產力遞減，但是固定規模報酬之特徵。)
True.
6.Four years after graduating from college you must decide if you want to go on as an accountant (your college major) or if you want to make a career change and become a singer. The cost of your education will matter for your decision.(在大學畢業四年之後，你必須決定是否要繼續擔任會計師(註：會計是你大學的主修)，或是轉行改當一名歌手時，你的大學教育成本將會影響你的決定。)
False.
At this point the cost of your education represents a sunk cost and therefore should not figure into your decision. You incur it no matter what decision you make.
- Problems (40 points)
1.Explain why the marginal cost curve intersects a U-shaped average cost curve at its minimum point.
At low quantities, the average cost curve declines as the quantity increases. The marginal cost is below the average cost. The marginal cost represents the cost of an additional unit of production. Thus, as the marginal cost curve declines, this pulls the average cost down from its previous level. Then, the marginal cost curve will begin to rise. However, the marginal cost is still below the average cost, which will continue to lower the average cost. When the two costs are equal the marginal cost will leave the average cost unchanged. Then, the marginal cost will be above the average cost so it will start to pull up the average cost. Thus, the marginal cost curve will intersect the average cost curve at its minimum point.
2.To dig a trench, each worker needs a shovel. Workers can use only one shovel at a time. Workers without shovels do nothing, and shovels cannot operate on their own. Graphically determine the number of shovels and workers used by a firm to dig 2 trenches when:
(1)w = 10 andr = 10
(2)w = 10 and r = 5
See the above figure. Because the production process requires fixed proportions of K and L, the firm cannot change input mix when the relative factor costs change.
3.Suppose there are 1000 identical wheat farmers. For each, TC = 10 + q2. Market demand is Q = 600,000 - 100p. Derive the short-run equilibrium Q, q, and p. Does the typical firm earn a short-run profit?
The firm's supply is q = 0.5p; market supply is Q = 500p. Market equilibrium can be found as 500p = 600,000 - 100p, or 600p = 600,000, so p = 1,000 and Q = 500,000. q = 0.5p = 500. Profit = (500 * 1,000) - (10 + 250,000) = 249,990. Each firm earns a profit.
4.Suppose that the demand curve for wheat is Q = 100 - 15p and the supply curve is Q = 10p. The government imposes a price support at = 6 using a deficiency payment program.