1. Why do we expect returns to equalize?Think about two markets.If their rates of return are different, firms in the market with ( ) will move into the market with ( ).When that happens, what happens to rates of return in the two markets?
2. Why would it be natural for a monopoly to form when there are certain returns to scale? What returns to scale are those?
3. What does an isoquant consist of? Suppose the input combinations (20, 100) and (30, 90) are on one of a firm's isoquants (same one).The price of the first input is $100 and the price of the second is $500.What happens to the firm's output if it changes input use from (20, 100) to (30, 90)?What happens to production costs?
4. So, say the going rate of return is 5%, and firm A has $20 million that it could use to start doing business in another part of the country.What is the opportunity cost of that action?
5. Marginal cost is always positive because in order to increase production, the efficiently managed firm must add ( )
6. How does society change from one feasible allocation and distribution to another?
7. You're told that the demand for good 1 obeys the law of demand.What does that mean?
8. The price of a good is the only thing that determines the quantity of that good that a person demands.Is this true or false.Explain.
9. If the price of an input goes up ceteris paribus, what would happen to the supply of any good that is produced using that input?Why is that?
10. Suppose the cost of producing 1000 units of some good per day is $400,000 per day and the cost of producing 2000 units of that good per day is $600,000 per day.What does this data suggest about returns to scale?
11. The minimum cost of producing 1000 units of a good per week is $300,000.The going rate of return is 10%.There are constant returns to scale.What would the price of this good be?Why would we expect this to be the price of this good?
12. An individual has a willingness to pay for anything that would make them better off.They may also have a willingness to accept compensation for something that would make them worse off.

When we are looking to determine a person's WTP for something, call it X, we are looking to determine how much ------- when we give the person X without -------.

Suppose a person's WTP for an X unit improvement in air quality is $375 a year.Suppose that there are a number of policies that would improve air quality by that much.However, each would result in this person having less income each year.What can you say about the effect of policies A and B on this individual's welfare:both of them increase air quality by exactly X units):

A) air quality is increased by X units and their income falls by $500 a year

B) air quality is increased by X units and their income falls by $300 a year

1. A person living down the street from this individual has a WTP for such an increase in air quality of $600.Is that possible when the other person has a WTP of $375?Why or why not?