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Microeconomics For Today 6th Edition Irvin B. Tucker - Solutions

10. Suppose the demand and cost curves for a monopolist are as shown in Exhibit 10. Explain what price the monopolist should charge and how much output it should produce.
9. In each of the following cases, state whether the monopolist would increase or decrease output:a. Marginal revenue exceeds marginal cost at the output produced.b. Marginal cost exceeds marginal revenue at the output produced.
8. Explain why a monopolist would never produce in the inelastic range of the demand curve.
7. Make the unrealistic assumption that production is costless for the monopolist in question 6. Given the data from the above demand schedule, what price will the monopolist charge, and how much output should the firm produce? How much profit will the firm earn? When marginal cost is above zero,
6. Use the following demand schedule for a monopolist to calculate total revenue and marginal revenue.For each price, indicate whether demand is elastic, unit elastic, or inelastic. Using the data from the demand schedule, graph the demand curve, the marginal revenue curve, and the total revenue
5. Suppose the average cost of producing a kilowatt-hour of electricity is lower for one firm than for another firm serving the same market. Without the government granting a franchise to one of these competing power companies, explain why a single seller is likely to emerge in the long run.
4. Explain why you agree or disagree with the following statements:a. “All monopolies are created by the government.”b. “The monopolist charges the highest possible price.”c. “The monopolist never takes a loss.”
3. Suppose an investigator finds that the prices charged for drugs at a hospital are higher than the prices charged for the same products at drugstores in the area served by the hospital. What might explain this situation?
2. Why is the demand curve facing a monopolist downward sloping while the demand curve facing a perfectly competitive firm is horizontal?
1. Using the three characteristics of monopoly, explain why each of the following is a monopolist:a. Local telephone companyb. San Francisco 49ers football teamc. U.S. Postal Service
18. Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to seea. some firms leave.b. the market price rise.c. market supply shift to the left.d. economic profits become zero.e. production levels remaining the same as in the short-run.19.
17. Which of the following is true of a perfectly competitive market?a. If economic profits are earned, then the price will fall over time.b. In long-run equilibrium, P ¼ MR ¼ SRMC ¼SRATC ¼ LRAC.c. A constant-cost industry exists when the entry of new firms has no effect on their cost curves.d.
16. Suppose that, in the long run, the price of feature films rises as the movie production industry expands. We can conclude that movie production is a (an)a. increasing-cost industry.b. constant-cost industry.c. decreasing-cost industry.d. marginal-cost industry.
15. In a constant-cost industry, input prices remain constant asa. the supply of inputs fluctuates.b. firms encounter diseconomies of scale.c. workers become more experienced.d. firms enter and exit the industry.
14. In long-run equilibrium, the perfectly competitive firm’s price is equal to which of the following?a. Short-run marginal costb. Minimum short-run average total costc. Marginal revenued. All of the above
13. As shown in Exhibit 15, the short-run supply curve for this firm corresponds to which segment of its marginal cost curve?a. A to D and all points aboveb. B to D and all points abovec. C to D and all points aboved. B to C only
12. In Exhibit 15, the firm’s total revenue at a price of$10 per unit pays fora. a portion of total variable costs.b. a portion of total fixed costs.c. none of the total fixed costs.d. all of the total fixed costs and total variable costs.
11. Assume the price of the firm’s product in Exhibit 15 is $10 per unit. The maximum profit the firm earns isa. zero.b. $5,000 per week.c. $1,500 per week.d. $10,500 per week.
10. Assume the price of the firm’s product in Exhibit 15 is $6 per unit. The firm shoulda. continue to operate because it is earning an economic profit.b. stay in operation for the time being even though it is incurring an economic loss.c. shut down temporarily.d. shut down permanently.
9. In Exhibit 15, the lowest price at which the firm earns zero economic profit in the short run isa. $5 per unit.b. $10 per unit.c. $20 per unit.d. $30 per unit.
8. Assume the price of the firm’s product in Exhibit 15 is $15 per unit. The firm will producea. 500 units per week.b. 1,000 units per week.c. 1,500 units per week.d. 2,000 units per week.e. 2,500 units per week. EXHIBIT 15 Marginal Revenue and Cost per Unit Curves ATC AVC 500 1,000 1,500 2,000
7. A perfectly competitive firm’s supply curve follows the upward-sloping segment of its marginal cost curve above thea. average total cost curve.b. average variable cost curve.c. average fixed cost curve.d. average price curve.
6. A perfectly competitive firm sells its output for$100 per unit, and the minimum average variable cost is $150 per unit. The firm shoulda. increase output.b. decrease output, but not shut down.c. maintain its current rate of output.d. shut down.
5. Short-run profit maximization for a perfectly competitive firm occurs where the firm’s marginal cost equalsa. average total cost.b. average variable cost.c. marginal revenue.d. all of the above.
4. If a perfectly competitive firm sells 100 units of output at a market price of $100 per unit, its marginal revenue per unit isa. $1.b. $100.c. more than $1, but less than $100.d. less than $100.
3. Which of the following are the same at all levels of output under perfect competition?a. Marginal cost and marginal revenueb. Price and marginal revenuec. Price and marginal costd. All of the above
2. Which of the following is a characteristic of perfect competition?a. Entry barriersb. Homogeneous productsc. Expenditures on advertisingd. Quality of service
1. A perfectly competitive market is not characterized bya. many small firms.b. a great variety of different products.c. free entry into and exit from the market.d. any of the above.
12. Suppose independent truckers operate in a perfectly competitive industry. If these firms are earning positive economic profits, what happens in the long run to the following: the price of trucking services, the industry quantity of output, the profits of trucking firms? Given these conditions,
11. Suppose the industry equilibrium price of residential housing construction is $100 per square foot and the minimum average variable cost for a residential construction contractor is $110 per square foot. What would you advise the owner of this firm to do? Explain.
10. Suppose a perfectly competitive firm’s demand curve is below its average total cost curve. Explain the conditions under which a firm continues to produce in the short run.
9. Consider this statement: “The perfectly competitive firm will sell all the quantity of output consumers will buy at the prevailing market price.”Do you agree or disagree? Explain your answer.
8. Consider Exhibit 14, which shows the graph of a perfectly competitive firm in the short run.a. If the firm’s demand curve is MR3, does the firm earn an economic profit or loss?b. Which demand curve(s) indicate(s) the firm incurs a loss?c. Which demand curve(s) indicate(s) the firm would shut
7. Consider this statement: “When marginal revenue equals marginal cost, total cost equals total revenue, and the firm makes zero profit.” Do you agree or disagree? Explain.
6. Consider this statement: “A firm should increase output when it makes a profit.” Do you agree or disagree? Explain.
5. Consider the following cost data for a perfectly competitive firm in the short run:Output (Q)Total Fixed Cost (TFC)Total Variable Cost (TVC)Total Cost (TC)Total Revenue (TR) Profit 1 $100 $120 $ $ $2 100 200 3 100 290 4 100 430 5 100 590 If the market price is $150, how many units of output will
4. Assuming the market equilibrium price for wheat is$5 per bushel, draw the total revenue and the marginal revenue curves for the typical wheat farmer in the same graph. Explain how marginal revenue and price are related to the total revenue curve.
20. Which of the following is not a source of economies of scale?a. Division and specialization of laborb. Increase in outputc. More efficient use of capitald. All of the abovee. Centralized marketing#!#1. Explain why a perfectly competitive firm would or would not advertise.#!#2. Does a Kansas
19. long-run constant returns to scale exist when thea. short-run average total cost curve is constant.b. long-run average cost curve rises.c. long-run average cost curve is flat.d. long-run average cost curve falls.
18. long-run diseconomies of scale exist when thea. short-run average total cost curve falls.b. long-run marginal cost curve rises.c. long-run average total cost curve falls.d. short-run average variable cost curve rises.e. long-run average cost curve rises.
17. The downward-sloping segment of the long-run average cost curve corresponds toa. diseconomies of scale.b. both economies and diseconomies of scale.c. the decrease in average variable costs.d. economies of scale.
16. Suppose a typical firm is producing x units of output per day. Using any other plant size, the long-run average cost would increase. The firm is operating at a point at whicha. its long-run average cost curve is at a minimum.b. its short-run average total cost curve is at a minimum.c. both (a)
12. As shown in Exhibit 10, total fixed cost for the firm isa. zero.b. $250.c. $500.d. $750.e. $1,000.13. As shown in Exhibit 10, the total cost of producing 100 units of output per day isa. zero.b. $250.c. $500.d. $750.e. $1,000.14. In Exhibit 10, if the total cost of producing 99 units of output
11. Which of the following is true at the point where diminishing returns set in?a. Both marginal product and marginal cost are at a maximum.b. Both marginal product and marginal cost are at a minimum.c. Marginal product is at a maximum, and marginal cost is at a minimum.d. Marginal product is at a
10. If both the marginal cost and the average variable cost curves are J-shaped, at the point of minimum average variable cost, the marginal cost must bea. greater than the average variable cost.b. less than the average variable cost.c. equal to the average variable cost.d. at its minimum.
9. Assuming the marginal cost curve is a smooth J-shaped curve, the corresponding total cost curve has a (an)a. linear shape.b. S-shape.c. U-shape.d. reverse S-shape.
8. The total fixed cost curve isa. upward sloping.b. downward sloping.c. upward sloping, then downward sloping.d. unchanged with the level of output.
7. If the units of variable input in a production process are 1, 2, 3, 4, and 5 and the corresponding total outputs are 10, 22, 33, 42, and 48, respectively, the marginal product of the fourth unit isa. 2.b. 6.c. 9.d. 42.
6. Suppose a car wash has two washing stations and five workers and is able to wash 100 cars per day. When it adds a third station, but no more workers, it is able to wash 150 cars per day. The marginal product of the third washing station isa. 100 cars per day.b. 150 cars per day.c. five cars per
5. An example of a variable input isa. raw materials.b. energy.c. hourly labor.d. all of the above.
4. Fixed inputs are factors of production thata. are determined by a firm’s plant size.b. can be increased or decreased quickly as output changes.c. cannot be increased or decreased as output changes.d. are none of the above.
3. Which of the following equalities is true?a. Economic profit ¼ total revenue accounting profitb. Economic profit ¼ total revenue explicit costs accounting profitc. Economic profit ¼ total revenue implicit costs explicit costsd. Economic profit ¼ opportunity cost þaccounting cost
2. Implicit costs are the opportunity costs of using the resources ofa. outsiders.b. owners.c. banks.d. retained earnings.
1. Explicit costs are payments toa. hourly employees.b. insurance companies.c. utility companies.d. all of the above.
11. For mathematically minded students, what is the algebraic relationship between the equation for output and the equation for marginal product in Exhibit 2? Explain the circumstances under which the long-run supply curve for an industry is a horizontal line. Next, explain the circumstances under
8. Ace Manufacturing produces 1,000 hammers per day. The total fixed cost for the plant is$5,000 per day, and the total variable cost is$15,000 per day. Calculate the average fixed cost, average variable cost, average total teller machines have on Computech’s average total cost curve?
7. Explain why the average total cost curve and the average variable cost curve move closer together as output expands.
10. What short-run effect might a decline in the demand for electronic components for automatic Total Output (Q)Total Fixed Cost (TFC)Total Variable Cost (TVC)Total Cost (TC)Marginal Cost (MC)Average Fixed Cost (AFC)Average Variable Cost (AVC)Average Total Cost (ATC)0 $ 50 $ $ 50 $ $ $$1 $ 70 2 $
9. An owner of a firm estimates that the average total cost is $6.71 and the marginal cost is$6.71 at the current level of output. Explain the relationship between these marginal cost and average total cost figures.
8. Ace Manufacturing produces 1,000 hammers per day. The total fixed cost for the plant is$5,000 per day, and the total variable cost is$15,000 per day. Calculate the average fixed cost, average variable cost, average total cost, and total cost at the current output level.
7. Explain why the average total cost curve and the average variable cost curve move closer together as output expands.
6.a. Construct the cost schedule using the data below for a firm operating in the short run:Total Output (Q)Total Fixed Cost (TFC)Total Variable Cost (TVC)Total Cost (TC)Marginal Cost (MC)Average Fixed Cost (AFC)Average Variable Cost (AVC)Average Total Cost (ATC)0 $ 50 $ $ 50 $ $ $$1 $ 70 2 $ 85 3
5. What effect might a decrease in the demand for high definition televisions have on the short-run average total cost curve for this product?
4. Consider this statement: “Total output starts falling when diminishing returns occur.” Do you agree or disagree? Explain.
3.a. Construct the marginal product schedule for the production function data in the following table:Labor Total Output Marginal Product 0 0 1 8 2 18 3 30 4 43 5 55 6 65 7 73 8 79 9 82 10 80b. Graph the total output and marginal product curves, and identify increasing and diminishing marginal
2. Suppose you own a video game store. List some of the fixed inputs and variable inputs you would use in operating the store.
1. Indicate whether each of the following is an explicit cost or an implicit cost:a. A manager’s salaryb. Payments to IBM for computersc. A salary forgone by the owner of a firm by operating his or her own companyd. Interest forgone on a loan an owner makes to his or her own companye. Medical
12. In Exhibit A-6, point D isa. a consumer equilibrium.b. unattainable, given the consumer’s current budget constraint.c. a point that does not exhaust all of the consumer’s income.d. none of the above.
11. The consumer equilibrium shown in Exhibit A-6 is located at pointa. A.b. B.c. C.d. D.
10. At point A in Exhibit A-6, consumers would bea. spending all of their income but not maximizing total utility.b. spending all of their income and maximizing total utility.c. maximizing total utility without spending all of their income.d. none of the above. EXHIBIT A-6 Quantity of good Y F 6 5
9. Only at the point of consumer equilibrium does the marginal rate of substitution (MRS) equal thea. slope of the budget line.b. slope of the indifference curve.c. price ratio.d. all of the above.
8. Consumer equilibrium occurs where the budget line is tangent to thea. lowest possible indifference curve.b. highest possible indifference curve.c. utility-maximizing indifference curve.d. utility-equalization indifference curve.
7. Assume Px is the price of good X on the horizontal axis and Py is the price of good Y on the vertical axis. The slope of the budget line equalsa. Py/PxY.b. PyQy/PxQx.c. (1 Py/Px).d. Px/Py.
6. The ratio of the price of good X on the horizontal axis to the price of good Y on the vertical axis is the ______________ of the budget line.a. marginal rateb. slopec. marginal utilityd. equalization rate
5. Assume the price of good X is Px, price of good Y is Py, and B is the budget. The formula for the budget line for these two goods isa. PyQy/PxOx.b. PxB þ PyB ¼ B.c. PxX þ PyY ¼ B.d. (1Py/B) Px.
4. Given the prices of two goods, all quantity combinations inside the budget line area. indifferent.b. efficient.c. unattainable.e. attainable.
3. The slope of the indifference curve for goods X and Y is called the marginala. product rate.b. rate of transformation.c. rate of substitution.d. rate of utility.
2. The absolute value of the slope of an indifference curve is called thea. marginal rate of transformation.b. transitivity slope.c. indifference rate of preference.d. marginal rate of substitution.
1. An indifference curve consists of quantity combinations of two goods that yielda. equal marginal utilities.b. negative marginal utilities.c. the same price ratios.d. the same total satisfaction.
3. Assume that the data in the following table are an indifference curve for a consumer:a. Graph this indifference curve and label“Quantity of Y” on the vertical axis and“Quantity of X” on the horizontal axis.Label the points A–D.b. Assume the consumer’s budget is $12 and the prices of
2. Let M represent the quantity of medical services, such as the number of doctor visits, and let O represent the quantity of other goods purchased by a consumer in a given year. Let the budget (B)be in thousands of dollars and the price of medical services and other goods be in terms of dollars
1. Suppose a consumer’s marginal rate of substitution is three slices of pizza for one coke. If the price of a coke is $1 and the price of three slices of pizza is $2, would the consumer change his or her consumption combination?
15. The total utilities associated with the first 5 units of consumption of good X are 15, 30, 40, 47, and 50, respectively. What is the marginal utility associated with the third unit?a. 15b. 70c. 85d. 10e. 45
14. The demand curve is downward sloping because of the law ofa. diminishing marginal utility.b. diminishing consumer equilibrium.c. consumer equilibrium.d. diminishing utility maximization.
13. The law of diminishing marginal utility exists for the first 4 units of a good if they have marginal utilities ofa. 1, 2, 4, 8.b. 8, 4, 1, 2.c. 4, 8, 2, 1.d. 8, 4, 2, 1.
12. In Exhibit 4, assume the Multiplex tickets cost$6 each, video rentals cost $2 each, and bags of popcorn cost $1 each. Suppose the consumer has $12 per week to spend on multiplex tickets, video rentals, and popcorn. In consumer equilibrium, what is the marginal utility per dollar for each of the
11. In Exhibit 4, assume Multiplex tickets cost $6 each, video rentals cost $2 each, and bags of popcorn cost $1 each. Suppose the consumer has $12 per week to spend on Multiplex tickets, video rentals, and popcorn. What combination of goods will give the consumer the most utility?a. 1 movie, 3
10. In Exhibit 4, assume Multiplex tickets cost $6 each, video rentals cost $2 each, and bags of popcorn cost $1 each. What is the marginal utility of renting a third video?a. 6 utilsb. 8 utilsc. 10 utilsd. 30 utils
9. The change in quantity demanded resulting from a change in purchasing power is known as thea. income effect.b. substitution effect.c. law of demand.d. consumer equilibrium effect. EXHIBIT 4 Total Utility from Multiplex Tickets 1 movie (30 utils) 2 movies (54 utils) 3 movies (72 utils) 4 movies
8. A state of consumer equilibrium for goods consumed prevails when thea. marginal utility of all goods is the same for the last dollar spent for each good.b. marginal utility per dollar’s worth of two goods is the same for the last dollar spent for each good.c. price of two goods is the same for
7. Suppose an individual consumes pizza and cola. To reach consumer equilibrium, the individual must consume pizza and cola so that thea. price paid for the two goods is the same.b. marginal utility of the two goods is equal.c. ratio of marginal utility to price is the same for both goods.d. ratio
6. Assume an individual consumes only milk and doughnuts and has arranged consumption so that the last glass of milk yields 12 utils and the last doughnut 6 utils. If the price of milk is $1 per glass and the price of a doughnut is $0.50, we can conclude that thea. consumer should consume less milk
5. Assume that a person’s consumption of just the right amounts of pork and chicken is in equilibrium.We can conclude that thea. marginal utility of pork must equal the marginal utility of chicken.b. price of pork must equal the price of chicken.c. ratio of marginal cost to price must be the same
4. Rational consumers will continue to consume two goods until thea. marginal utility per dollar’s worth of the two goods is the same for the last dollar spent on each good.b. marginal utility is the same for each good for the last dollar spent on each good.c. prices of the two goods are equal
3. A certain consumer buys only food and compact discs. If the quantity of food bought increases, while that of compact discs remains the same, the marginal utility of food willa. fall relative to the marginal utility of compact discs.b. rise relative to the marginal utility of compact discs.c.
2. The amount of added utility that a consumer gains from the consumption of one more unit of a good is calleda. incremental utility.b. total utility.c. diminishing utility.d. marginal utility.
1. As an individual consumes more of a given good, the marginal utility of that good to the consumera. rises at an increasing rate.b. rises at a decreasing rate.c. falls.d. rises.
10. Suppose the price of a BMWfalls. Explain the law of demand based on the income and substitution effects.
9. Using the marginal utility schedule in question 8, begin in consumer equilibrium, and assume the price per hamburger meal falls from $5 to $2, all other factors held constant. What is the total utility realized?
8. Consider the table below, which lists James’s marginal utility schedule for steak and hamburger meals:Steak meals per month Marginal utility of steak meals Price per steak meal Hamburger meals per month Marginal utility of hamburger meals Price per hamburger meal 1 20 $10 1 15 $5 2 15 10 2 8 5

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