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Consider a market where demand is: P = 70 - Q and supply is S: P = Q. Equilibrium quantity

Consider a market where demand is: P = 70 - Q and supply is S: P = Q. Equilibrium quantity

Consider a market where demand is: P = 70 – Q and supply is S: P = Q.
Equilibrium quantity Qe is
35
36
45
56
Equilibrium price Pe is
$34
$35
$36
$37
Consumer surplus CS is
$610
$612.5
$615
$648
Producer surplus PS is
$610
$612.5
$615
$648
Total surplus TS is
$1,222
$1,223
$1,224
$1,225
Construct a budget neutral subsidy in the above market.
Post-subsidy quantity Q’ is
35
36
45
56
Post-subsidy price P’ is
$34
$35
$36
$37
Consumer surplus CS’ is
$610
$612.5
$615
$648
Producer surplus PS’ is
$610
$612.5
$615
$648
Total surplus TS is (do not forget to account for the subsidy expenditure SE)
$1,222
$1,223
$1,224
$1,225
The basic characteristic of the long run is that:
A. barriers to entry prevent new firms from entering the industry.
B. the firm has sufficient time to change the size of its plant.
C. the firm does not have sufficient time to cut its rate of output to zero.
D. a firm does not have sufficient time to change the amounts of any of the resources it employs.
The law of diminishing returns indicates that:
A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
Variable cost is:
A. the cost of producing one more unit of capital, say, machinery.
B. any cost which does not change when the firm changes its output.
C. average total cost multiplied by the firm's output.
D. any cost that rises with output in the short run.

Liam Smith 05-Nov-2017

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