Acme anvils has a newly patented

10 is shopping for mixers (capital) for his bakery. Each mixer costs $40. Assume this is a perfectly competitive market.

a. Fill in the “Total Capital Cost” and “Marginal Resource Cost” columns in the table below.

Henry's Capital Cost

Capital

(mixers)

Total

Capital Cost

(dollars)

Marginal

Resource Cost

(dollars)

0

$0

—

1

$

2

3

4

5

6

7

b. Graph the marginal resource cost of capital for Henry's business.

Instructions: Use the tool provided 'MRC Curve' to plot the line point by point (7 points total).

2.

Henry can purchase mixers (capital) for his bakery, where he makes loaves of bread. The productivity and revenue generated by additional mixers is presented in the table below. Assume this is a perfectly competitive market.

Capital Productivity

Capital

(mixers)

Total

Product

(loaves of bread)

Marginal

Product

(loaves of bread)

Price

(dollars)

Total

Revenue

(dollars)

Marginal

Revenue Product

(dollars)

0

0

—

$5

$ 0

—

1

11

11

5

55

$55

2

20

9

5

100

45

3

28

8

5

140

40

4

34

6

5

170

30

5

38

4

5

190

20

6

40

2

5

200

10

7

41

1

5

205

5

a. Graph Henry's demand for capital based on the information in the table above. Draw the marginal resource cost (MRC) curve if the price for a mixer is $30.

Instructions: Use the tools provided 'Demand for Capital' and 'MRC Curve' to plot each line point by point (7 points total for each line).

b. How much capital does Henry demand given the current price of mixers?

5 mixers

4 mixers

3 mixers

2 mixers

3.

Billy is hiring workers to help him install solar panels. The table below presents the marginal product (in terms of solar panels installed per week) of various workers. Assume this is a perfectly competitive market.

Labor Productivity and Marginal Revenue Product for Solar Panel Installation

Labor

(workers)

Marginal

Product

(solar panels)

Marginal Revenue

Product

for P = $50

(dollars)

Marginal Revenue

Product

for P = $100

(dollars)

Marginal Revenue

Product

for P = $150

(dollars)

1

14

$

$

$

2

12

3

10

4

8

5

6

6

4

7

2

a. What is the marginal revenue product of each worker if the current market price to install one solar panel is $50? What if the current market price is $100? $150? Using the table above, fill in the “Marginal Revenue Product” columns.

b. Graph the three marginal revenue product curves (for prices of $50, $100, and $150) based on your answers to part a.

Instructions: Use the tools provided 'MRP (P = $50),' 'MRP (P = $100),' and 'MRP (P = $150)' to plot each line point by point (7 points total for each line).

4.

Alfonso wants to know what the cost of living would be in four different cities. He looks at circular ads from each of the cities and finds the prices of goods that he would normally buy during a typical trip to the grocery store each week. He adds up what he would pay for each grocery trip in the different cities and calls the sum “Price of Grocery Basket.” He compares theses costs to what he would earn in each city.

Compute Alfonso’s real wage in terms of how many baskets of groceries his wage could purchase and complete the “Real Wage” column with this information.

Instructions: Round your answers to whole numbers.

Alfonso’s Nominal and Real Wages

City

Price of Grocery Basket (dollars)

Nominal Wage (dollars)

Real Wage (baskets of groceries)

Boston

$187.17

$56,000

Pittsburgh

174.74

50,000

Minneapolis

169.62

55,000

Houston

155.00

45,000

5.

Stephanie is considering how many workers she wants to hire to produce earrings for her business. She sells each pair of earrings she produces for $5.00. The table below shows the productivity of workers that Stephanie might hire. Assume this is a perfectly competitive market.

a. Fill in the “Marginal Product,” “Total Revenue,” and “Marginal Revenue Product” columns.

Stephanie's Production and Revenue

Labor

(workers)

Total

Product

(pairs of earrings)

Marginal

Product

(pairs of earrings)

Price

(dollars)

Total

Revenue

(dollars)

Marginal

Revenue Product

(dollars)

0

0

—

$5

$0

—

1

11

5

$

2

20

5

3

28

5

4

34

5

5

38

5

6

40

5

7

41

5

b. Graph Stephanie's demand for labor based on the information in the table above.

Instructions: Use the tool provided 'Demand for Labor' to plot the line point by point (7 points total).

c. If the wage rate is $20, how much labor does Stephanie demand?

6.

Which of the following scenarios would result in a decrease in the wage rate of solar panel installers and a decrease in the quantity of solar panel installers employed in Billy’s town?

Wages of solar panel installers increase in another town and attract workers away from Billy’s town.

A solar panel company shuts down in another town and solar panel installers try to find jobs in Billy’s town.

A decrease in people’s income decreases the demand for solar panels.

An increase in the demand for solar panels raises the price of each installation.

7.

What is one difference between a firm in a perfectly competitive industry and a firm in a monopolistically competitive industry?

A monopolistically competitive firm does not have the exact same product as other firms.

A monopolistically competitive firm does not choose a level of output where marginal cost is equal to marginal revenue.

A monopolistically competitive industry does not have a large number of sellers.

A monopolistically competitive firm does not face entry from other firms.

8.

Compared to a perfectly competitive market, a monopolistically competitive market:

is more efficient and offers fewer choices to customers.

is more efficient and offers more choices to customers.

is less efficient and offers more choices to customers.

is less efficient and offers fewer choices to customers.

9.

A monopolistically competitive market can do this because:

it produces differentiated products that are similar but produces a smaller quantity overall compared to a perfectly competitive market.

it produces differentiated products that are similar and produces a larger quantity overall than perfectly competitive markets.

it produces the same products between firms but produces a smaller quantity overall compared to a perfectly competitive market.

it produces the same products between firms but produces a larger quantity overall compared to a perfectly competitive market.

10.

Acme Anvils has a newly patented anvil that is ready for the market. While there are plenty of other anvil producers, Acme’s anvils are unique. Past models have been featured in a number of animated short films over the years. The weekly demand and cost information for Acme Anvils are described in the graph below.

a. To maximize its profits, Acme should produce and charge a price of per anvil.

b. At its profit-maximizing level, Acme's weekly profits are per week.

c. Even though Acme has a patent on its particular type of anvil, there are many other potential anvil makers out there. Which of the following is most likely to happen in the long run?

Other firms will copy Acme’s anvils exactly and hope they do not get caught for violating Acme’s patent.

Other firms will look for other innovations to try to capture some of Acme’s profits.

Other firms will leave the market because of Acme’s patent.

Other firms will simply take Acme’s price as being the market price and sell as many anvils as they can at that price.

11.

Use the following table to answer the question below.

Giovanni's Production Possibilities Schedule

Jorge's Production Possibilities Schedule

Pounds of Green Beans

Pounds of Corn

Pounds of Green Beans

Pounds of Corn

0

160

0

320

40

120

20

240

80

80

40

160

120

40

60

80

160

0

80

0

If Giovanni and Jorge both specialize in the production of their respective low-cost goods, then the total production of corn equals ______ pounds and the total production of green beans equals _____ pounds

A) 160, 160

B) 320, 320

C) 160, 320

D) 320, 160

12.

Gains from specialization and mutually beneficial trade _________ wealth or well-being.

A) decreases

B) increases

C) dilutes

D) moderates

Top of Form

Top of Form

13.

An industry in which the firm’s cost structures do not vary with changes in production will have a long-run supply curve that

A) is perfectly inelastic.

B) is perfectly elastic.

C) slopes upward.

D) slopes downward.

14.

Use the following graph to answer the next question.

Picture

At its short-run equilibrium, this pure monopoly generates

A) an economic profit.

B) a normal profit.

C) a loss.

D) zero revenue.

Top of Form

Bottom of Form

15.

Which of the following scenarios would lead to an increase in the demand for mixers at Henry’s bread bakery?

The market price of mixers decreases.

The market price of bread increases.

The wage rate of labor (a substitute for capital) decreases.

The productivity of mixers decreases.

16.

Suchin owns a specialty T-shirt shop in a college town where she makes custom design shirts. The weekly demand for her shirts and her cost curves are below.

a. Suchin's profit-maximizing quantity of T-shirts is shirts per week.

b. Suchin should charge per T-shirt to maximize profits.

c. Suchin will make an economic profit of per week.

d. The allocatively efficient number of T-shirts for Suchin to produce is T-shirts.

e. If the population of college students increases, and Suchin's costs do not change, Suchin would expect the demand for her shirts to and her profits to .

f. If the market for T-shirts is monopolistically competitive, an increase in the student population will lead to:

product choice decreasing.

productive efficiency increasing.

T-shirt companies entering the market.

T-shirt companies leaving the market.

17.

Specialization implies that an individual should produce the good for which he/she has the _____________ opportunity cost.

A) highest

B) lowest

C) necessary

D) general

Top of Form

Bottom of Form

Top of Form

18.

Use the following graph to answer the next question.

Picture

If the industry were served by a pure monopoly, the deadweight loss would be the area

A) AEF.

B) ACB.

C) ACE.

D) This can’t be determined with the information provided in the graph

19.

Stephanie is looking to hire workers to help her produce earrings. The current hourly market wage is $10 per worker. Assume this is a perfectly competitive market.

a. Fill in the “Total Labor Cost” and “Marginal Resource Cost” columns in the table below.

Stephanie's Labor Cost

Labor

(workers)

Total

Labor Cost

(dollars)

Marginal

Resource Cost

(dollars)

0

$0

—

1

$

2

3

4

5

6

7

b. Graph the marginal resource cost of labor for Stephanie's business.

Instructions: Use the tool provided 'MRC Curve' to plot the line point by point (7 points total).

20.

Ronnie owns a cookie store. He has carefully recorded the number of cookies that his shop can produce per day with different numbers of workers. The table below shows the different number of workers and the “Total Product” column shows their output. The current market price for Ronnie’s cookies is $0.50 per cookie. Assume this is a perfectly competitive market.

a. Fill in the “Marginal Product,” “Total Revenue,” and “Marginal Revenue Product” columns.

Ronnie's Production and Revenue

Labor

(workers)

Total Product

(cookies)

Marginal

Product

(cookies)

Price

(dollars)

Total

Revenue

(dollars)

Marginal

Revenue Product

(dollars)

0

0

—

$0.50

$0

—

1

100

0.50

$

2

180

0.50

3

240

0.50

4

280

0.50

5

300

0.50

b. Graph Ronnie's demand for labor based on the information in the table above.

Instructions: Use the tool provided 'Demand for Labor' to plot the line point by point (5 points total)

21.

Which of the following scenarios would lead to an increase in the demand for labor at Ronnie’s cookie shop?

The cost of capital (a substitute for labor) decreases.

The price of cookies decreases.

Labor productivity increases.

The wage rate increases.

Top of Form

22.

Andrei opens a small Russian tea room in downtown Minneapolis. He advertises that he uses a secret blend of exotic tea leaves to make his unique tea. The daily demand for cups of his Russian tea is described in the table below.

Demand for Andrei's Russian Tea

Price

(dollars)

Quantity of Tea

Demanded

(cups)

$5.00

0

4.50

10

4.00

20

3.50

30

3.00

40

2.50

50

2.00

60

1.50

70

a. Examine the four tables below, tables A–D.

Table A

Table B

Table C

Table D

Price

(dollars)

Quantity of Tea

Demanded

(cups)

Price

(dollars)

Quantity of Tea

Demanded

(cups)

Price

(dollars)

Quantity of Tea

Demanded

(cups)

Price

(dollars)

Quantity of Tea

Demanded

(cups)

$6.00

0

$5.00

5

$4.00

0

$5.50

0

5.70

10

4.70

20

3.50

10

5.00

10

5.40

20

4.40

35

3.00

20

4.50

20

5.10

30

4.10

50

2.50

30

4.00

30

4.80

40

3.80

65

2.00

40

3.50

40

4.50

50

3.50

80

1.50

50

3.00

50

4.20

60

3.20

95

1.00

60

2.50

60

3.90

70

2.90

110

0.50

70

2.00

70

Which table best represents what is likely to happen to the demand for Andrei's tea if other immigrants from Russia also open tea rooms in Minneapolis?

Table A

Table B

Table C

Table D

b. Which of the following scenarios is most likely to increase the demand for Andrei’s tea and make it less elastic?

Andrei’s family members also move to Minneapolis and open tea rooms with the same secret blend of tea leaves.

The price of coffee, a substitute for tea, rises dramatically.

A newspaper article accuses all Russian tea rooms of using ordinary tea rather than the exotic tea they claim to use.

Andrei’s tea wins the “Best Tea in the Midwest” award in Tea Lover’s Digest.

23.

Use the following table to answer the question below.

Jake's Production Possibilities Schedule

Jane's Production Possibilities Schedule

Pounds of Green Beans

Pounds of Corn

Pounds of Green Beans

Pounds of Corn

0

160

0

80

10

120

20

60

20

80

40

40

30

40

60

20

40

0

80

0

Jake should specialize in the production of which good?

A) corn

B) green beans

C) both

D) neither

24.

A pure monopoly will generate an economic profit whenever

A) total revenue is less than total cost.

B) total revenue is equal to total cost.

C) total revenue is greater than total cost.

D) price is greater than average variable cost.

25.

When compared with a perfectly competitive market with identical costs of production, a pure monopoly will produce

A) more output and charge the same price.

B) more output and charge a higher price.

C) less output and charge a higher price.

D) less output and charge the same price.

26.

A point inside the production possibilities frontier is _______ while a point outside the frontier is ________.

a) attainable; unattainable

b) unattainable; attainable

c) below the maximum possible; the maximum possible

d) the maximum possible; below the maximum possible

27.

Economic analysis assumes "rational or purposeful behavior," which means that people will pursue decisions or actions

a) that will increase their well-being.

b) always based on full or complete information.

c) with minimal consideration for their emotions.

d) without any logical faults.

11

55

9

100

45

8

140

40

6

170

30

4

190

20

2

200

10

1

205