1. A firm can sell its good in the US, where the elasticity of demand is 10.51 ,
ID: 2429333 • Letter: 1
Question
1. A firm can sell its good in the US, where the elasticity of demand is 10.51 , and in South Korea, where the elasticity of demand is 141 . How should the firm alter its pricing in each country to maximize total revenue?
a. increase price in both countries
b. increase price in USA and decrease price in South Korea
c. decrease price in USA and increase price in South Korea
d. decrease price in both countries
2. Consider the market for apples grown in the China. This market is NOT a good example of a perfectly competitive market because
a. there is a very large number of producers
b. there are no barriers to entry
c. there are different varieties of apples so the product is not homogeneous
3. Recently, Chipotle closed over 40 restaurants on the West Coast after discovering that some of the food they served was tainted with E Coli. Before this discovery was made, many people bought and ate food at Chipotle. They were unaware of this potential danger and now many are very ill. When this sort of asymmetric information is present, the actual market output level will be
a. lower than the true socially optimal output level.
b. higher thau the true socialiy optimal output level.
c. the same as the true socially optimal output level.
d. determined by the government.
3. A city street is
a. always a public good, whether or not it is congested.
b. a public good when it is congested, but it is a common resource when it is not congested.
c. a common resource when it is congested, but it is a public good when it is not congested.
d. always a common resource, whether or not it is congested.
4. Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are unionized. The union at The Electric Co. has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Pete receives all the benefits that the union has negotiated. Pete's behavior is an example of
a. rivalry.
b. a barrier to entry.
c. free dding.
d. Taft-Hartley opposition.
5. As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bnbba's Bubble Gum Company encounters
a. economies of scale.
b. diseconomies of scale.
c. increasing marginal product.
d. diminishing marginal product.
6. Total variable cost is:
a. the same as sunk cost
b. irrelevant to decision making, because they are sunk
c. the costs of inputs that vary with the level of production
d. the costs of inputs that do not vary with the level of production
7. For a certain firm, total cost is $1,800 when output equals 100, and total cost is $1,000 when output is zero. What are average variable costs when output equals 100?
a. $800 b. $100 c. $80 d. $18 e. $8
8. Sunk costs are:
a. costs that form the major component of the firm's variable cost.
b. costs that add to the firm's marginal costs.
c. costs associated with current operational decisions.
d. costs that have already been incurred as the result of past decisions.
9. In perfect competition, no individual producer can significantly affect the market price because
a. The market is regulated by the government
b. Each producer is ignorant of the market price
c. Each producer provides a very small portion of the total market supply
d. Strictly enforced collusion prevents any producer from acting independently
10. In perfect competition, no individual producer can significantly affect the market price because
a. The market is regulated by the government
b. Each producer is ignorant of the market price
c. Each producer provides a very small portion of the total market supply
d. Strictly enforced collusion prevents any producer from acting independently
e. Each firm's product is so different that there is no market price
Explanation / Answer
d. Decrease prices in both countries as PED is elastic (>1). This would increase the total revenue.
2. Consider the market for apples grown in the China. This market is NOT a good example of a perfectly competitive market because
c. Product is not homogeneous. Characteristics of perfect competition include large number of buyers and sellers, homogeneous products, no barriers to entry, perfect information and mobility of factors of production.
3. Recently, Chipotle closed over 40 restaurants on the West Coast after discovering that some of the food they served was tainted with E Coli. Before this discovery was made, many people bought and ate food at Chipotle. They were unaware of this potential danger and now many are very ill. When this sort of asymmetric information is present, the actual market output level will be
a. Lower than socially optimal level which occurs at the intersection of marginal social benefit and marginal social cost. Due to the presence of the contamination which is an externality, the marginal social cost will be higher and level of output will be lower than optimal.
4. A city street is
c. a common resource when it is congested, but it is a public good when it is not congested.
Public goods have two characteristics: non excludability and nonrivalrous. When the city street is not congested, it will satisfy these two conditions.
A common resourceis a rival good, so when the street is congested one user can prevent another user from using the street.
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