Search & Filtering
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are
a. 36
b. 40
c. 60
d. 80
Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3. At 10 units of output, the average cost curve is
a. at the maximum level.
b. in the declining stage.
c. in the increasing stage.
d. at the minimum level
Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3. What is the marginal cost of producing 10 units?
a. $560
b. $1,010
c. $401
d. $1,060
If the price of good X is $10 and the price of good Y is $5, how much of good X can the consumer purchase if her income is $15 and she spends it entirely on purchasing good X?
a. 1.5
b. 0
c. 3
d. 2
True, False, or Uncertain. To have any credit you should justify your answer and support
it with the proper graph.
a. Consumers pay more of a per bottle tax on beer, the more elastic is the demand curve for beer. [8 points]
b. Effective rent control makes everyone who is affected better off. [7 points]
Suppose the supply and demand curves for apples are given by: Qs = -25 + 2P; Qd = 500 - 3P
(a) Calculate the equilibrium price and quantity in
(b) Calculate the consumer surplus given the equilibrium price. Clearly identify the area of consumer surplus on the graph.
(c) Calculate the elasticity of demand and of supply at the equilibrium point.
(d) Given the elasticities you calculated above, could you tell whether a leftward shift of the supply curve would lead to more or less spending on apples?
(e) Suppose the government introduces a price floor of $130. What is the new equilibrium quantity traded? What is the consumer surplus? Calculate and indicate on the same graph. Are consumers better or worse off by this policy?
(f) If the government decides to buy all excess surplus (resulting from introduction of price floor) of apples in the market how much money it has to spend to clear the market? Explain.
Consider a two-period model economy populated with consumers that have the same income and the same preferences. There is also a government whose objective is to spend 60 in period 0 and 150 in period 1. This government can issue bonds in period 0. Each bond pays interest rate r. Consumers can also issue bonds at the same interest rate .Consumers’ optimal decisions, given r, imply that aggregate consumption C*0 is equal to2/3(Y0− T0) +2/3(Y1− T1)/(1 + r). Suppose Y0= 300 and that income is expected to remain at this level in period 1
a)define the competitive equilibrium of this economy
b) Show that, together, the three conditions given in a) imply that the equilibrium value of r is given by
r = (2(Y1-G1)/Y0-G0)-1.
c) Calculate Aggregate Demand in the current period.
Consider a two-period economy populated with consumers that have the same income and the same preferences. G = 60, G' = 150. The government can borrow in the current period by issuing bonds. Each bond pays the real interest rate r. Consumers can also borrow at the same real interest rate r. Consumers’ optimal decisions, given r, imply that AG C* = 2/3 (Y− T) + 2/3 (Y' - T')/(1+r). Suppose that Y=Y' = 300.
Economic activity falls by 18 units in the current period. This recession is expected to continue and national income is expected to fall by 20 units in the future period. Consumers believe these expectations.
A) Calculate AD given the current period and recession.
B) Use a graph to explain why the equilibrium interest rate falls from 0.25 to 0.20
C) Explain why the government should not increase its expenditure G
D) Would a tax cut in the current period, that is decrease in T, be a better choice than an increase in G to fight this recession? Explain, why or why not.
With the aid of a well labelled diagram, carefully explain the impact on the
money market if there was a discovery of gold that fuels inflation.
Illustrate and carefully explain the impact of an increase in the income tax rate
from 25 percent to 35 percent on the demand for labour, supply of labour,
equilibrium wage and level of employment.
