PART A – Questions 1 – 7
Consider a market where demand is D: P = 30 – Q and supply is S: P = 0.5Q.
PART B – Questions 8 – 28
Consider a market where demand is D: P = 40 – Q and supply is S: P = Q.
Impose a specific tax T = $4 on each unit sold in the above market.
Consider a market where demand is: P = 70 – Q and supply is S: P = Q.
Construct a budget neutral subsidy in the above market.
Post-subsidy quantity Q’ is35364556Post-subsidy price P’ is$34$35$36$37Consumer surplus CS’ is$610$612.5$615$648Producer surplus PS’ is$610$612.5$615$648Total surplus TS is (do not forget to account for the subsidy expenditure SE)$1,222$1,223$1,224$1,225The 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.In the above figure, curves 1, 2, 3, and 4 represent the: A. ATC, MC, AFC, and AVC curves respectively. B. MC, AFC, AVC, and ATC curves respectively. C. MC, ATC, AVC, and AFC curves respectively. D. ATC, AVC, AFC, and MC curves respectively.
Consider a market with the market demand D: P = 100 – Q, which is served by two Cournot duopolistic producers with the constant marginal cost MC = $10 and no fixed cost.
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