The following exam contains 26 multiple choice questions - each worth 2 points, for a total of 52 points, and 3 problems. The point value of each problem is noted next to it. Try to answer the problems as completely as possible.

Relax, concentrate and think your answers through. All the best.

1. If the demand function for tickets to a play is q = 1100 - 55p, at what price will total revenue be maximized?

a. 40

b. 20

c. 10

d. 5

Answer: ______

2. When the price of bananas is 50 cents a pound, the total demand is 100 pounds. If the price elasticity of demand is -2 (use the negative value), what quantity would be demanded if the price rose to 60 cents a pound? (Use the point elasticity formula)

a. 50

b. 40

c. 60

d. 80

Answer: _______

3. If at current prices, the demand for a good is price elastic, then for movements along the demand curve:

a. Increasing the price will increasing revenue

b. Increasing the price will decrease revenue

c. Decreasing the price will decrease revenue

d. There is no impact of a price change on revenue

Answer: ______

4. A firm has the production function f(x,y) = 50*x^1/5*y^4/5. The slope of the firm’s isoquant at the point (x,y) = (50,30) is (in absolute value):

a. 1.67

b. 0.25

c. 4

d. 0.15

Answer: ______

5. A firm has the production function f(x₁, x₂) = (x₁^b + x₂^b)^c where b > 0 and c > 0. This firm will have

a. Increasing returns to scale if and only if 2b+c > 1

b. Increasing returns to scale if and only if bc > 1

c. Increasing returns to scale if and only if b+c > 1

d. Constant returns to scale if and only if c = 1

Answer: ______

Output 0 1 2 3 4 5 6 7 8

Total Cost 10 11 13 16 20 25 31 38 48

6. The average total cost of producing 4 units of output is

a. 20

b. 4

c. 5

d. 2.5

Answer: ______

7. The average fixed cost of producing 2 units of output is

a. 13

b. 6.5

c. 5

d. 2

Answer: ______

8. The marginal cost of producing the 6th unit of output is

a. 6

b. 31

c. 6/31

d. 31/6

Answer: ______

a. At a minimum

b. At a maximum

c. Increasing

d. Decreasing

Answer: ______

10. Suppose a firm’s total revenue function is TR = 200Q - 20Q². What is average revenue equal to when the firm produces one unit of output?

a. 180

b. 20

c. 200

d. 220

Answer: ________

11. The marginal cost (MC) when output = 10 is equal to

a. The slope of a line drawn tangent to the total cost curve where output=10

b. The total cost of 10 units of output divided by 10

c. The average cost of 10 units of output

d. The slope of a ray drawn from the origin to the point on the total cost curve where output = 10

Answer: _______

12. If a firm’s total revenue function is a straight line through the origin, then

a. Marginal revenue is zero

b. Average revenue is zero

c. Marginal revenue is equal to average revenue

d. All of the above are true

Answer: _______

13. If the marginal revenue is zero, then

a. Total revenue is zero

b. Average revenue is zero

c. Total revenue is at a maximum or minimum

d. Average revenue is at a maximum or minimum

Answer: _______

14. If average cost is at a minimum, then

a. It is equal to marginal cost

b. Total cost is also at a minimum

c. Profit is at a maximum

d. All of the above are true

Answer: ______

15. When total revenue is at a maximum,

a. Average revenue is at a maximum

b. Average revenue is at a minimum

c. Average revenue is equal to zero

d. Marginal revenue is equal to zero

Answer: _______

16. Which if the following short run cost curves declines continuously?

a. Average total cost

b. Average variable cost

c. Average fixed cost

d. Marginal cost

Answer: _______

17. The shut-down point for a perfectly competitive firm is :

a. the lowest point on the ATC curve.

b. the point at which the firm's long-run supply curve ends.

c. the lowest point on the AVC curve.

d. the lowest point on the MC curve.

Answer: _______

18. The market demand curve for a perfectly competitive industry is Q_D = 12-2P. The market supply curve is Q_S=3+P. The market will be in equilibrium if

a. P=6 and Q=9

b. P=5 and Q=2

c. P=4 and Q=4

d. P=3 and Q=6

Answer: _____

19. Refer to the demand and supply curves of Question 18. Suppose the government fixes the price at $2. The result will be

a. Excess supply of 5 units

b. Excess demand of 3 units

c. Excess supply of 3 units

d. Excess demand of 5 units

Answer: ______

REFER TO THE DIAGRAM BELOW TO ANSWER QUESTIONS (20) THROUGH (26).

THIS REPRESENTS THE COST AND DEMAND CONDITIONS FACING A WHEAT FARMER.

20. For this farmer to maximize profits, he should produce bushels of wheat.

a. 6.

b. 9.

c. 12.

d. 16.

Answer: _____

21. If this farmer is maximizing profits, his total costs will be :

a. $11.

b. $66.

c. $90.

d. $132.

Answer: _______

22. If this farmer is maximizing profits, his total variable costs are :

a. $24.

b. $42.

c. $108.

d. $255.

Answer: ______

23. If this farmer is maximizing profits, his total revenue will be :

a. $90.

b. $135.

c. $180.

d. $240.

Answer: _______

24. If this farmer is maximizing profits, his total profits will be :

a. $24.

b. $45.

c. $48.

d. $72.

Answer: ________

25. This farmer would earn zero economic profit (the break-even point for this farmer is) if the price was ;

a. $7

b. $9.

c. $10.

d. $11.

Answer: _____

26. This farmer's SHUT-DOWN POINT is at a price of ;

a. $0.

b. $4.

c. $7.

d. $10.

Answer: ______

A firm’s demand function is defined as Q = 14 – 2P. Use this function to calculate Total Revenue when P = $3 and P = $4.

What is marginal revenue equal to between P=3 and P=4?

3+3+2 = 8 points

A firm’s demand function is Q = 40 – 2P and its total cost function is defined as

TC = 100 + 2Q + 0.25Q².

(i) Write down the firm’s profit function and then determine the level of output that maximizes profit. What is the corresponding price?

(ii) What is the level of profit at that optimum level of output?

(iii) How do we know that the level of profit that we found in Part (ii) is indeed where profit is maximized?

6+3+3= 12 points

A MONOPOLISTIC firm faces a linear demand curve

P = 210 – 2Q

The firm produces its output at a constant marginal cost of $10. So every unit of output costs the same $10 to produce.

1. What output should the firm produce if it wanted to MAXIMIZE TOTAL REVENUE and what is the corresponding price?
2. What output should the firm produce if it wanted to MAXIMIZE PROFIT and what is the corresponding price?