Econ 102 Practice Problems 1 When a country that imports a particular good imposes an import quota on that good b producer surplus increases and total surplus decreases in the market for that good 2 A profit maximizing monopolist charges a price of 14 The intersection of the marginal revenue curve and the marginal cost curve occurs where output is 15 units and marginal cost is 7 What is the monopolist s profit NEED TO KNOW ATC d Not enough information is given to determine the answer 3 Suppose when a monopolist produces 75 units its average revenue is 10 per unit its marginal reve nue is 5 per unit its marginal cost is 6 per unit and its average total cost is 5 per unit What can we conclude about this monopolist d The monopolist is not currently maximizing profits it should produce fewer units and charge a higher price to maximize profits 4 A monopolist can sell 200 units of output for 36 per unit Alternatively it can sell 201 units of output for 35 80 per unit The marginal revenue of the 201st unit of output is a 4 20 35 80 36 1 5 Suppose a firm has a monopoly on the sale of widgets and faces a downward sloping demand curve When selling the 100th widget the firm will always receive a less marginal revenue on the 100th widget than it received on the 99th widget 6 Amanda inherited the only local cable TV company in town after her father passed away The company is completely unregulated by the government and is therefore free to operate as it wishes Assume that Amanda understands the true power of her new monopoly a She will be able to set the price of cable TV service at whatever level she wishes 7 Shrimp Galore a shrimp harvesting business in the Pacific Northwest has a 30 year loan on its shrimp harvesting boat The annual loan payment is 25 000 and the boat has a market salvage value that exceeds its outstanding loan balance Prior to the 2010 shrimp harvesting season Shrimp Galore s accountant predicted that at expected market prices for shrimp Shrimp Galore would have a net loss of 75 000 dollars after paying all 2010 expenses including the annual loan payment In this case Shrimp Galore should a produce nothing and experience a loss of 25 000 8 In a competitive market the price is 8 A typical firm in the market has ATC 6 AVC 5 and MC 8 How much economic profit is the firm earning in the short run c 2 per unit 4 Consider a firm operating in a competitive market The firm is producing 40 units of output has an average total cost of production equal to 5 and is earning 240 economic profit in the short run What is the current market price c 11 economic profit revenue cost opp cost 240 revenue 200 240 200 440 2 11 5 A per unit tax impose on buyers of good X will hurt D We can t answer with the information given 6 Suppose the current equilibrium price of DVDs is 10 and we know that the price paid by buyers will be 10 4 if 1 tax is imposed on every DVD sold Then when the tax is imposed the price received by sellers will be and buyers will pay and sellers will pay of the burden of the tax In general when demand is more elastic than supply demanders pay of the tax than sellers d 9 4 0 4 0 6 less 7 In a market with an equilibrium price of 30 if the government imposes a price ceiling of 20 there will be a in producer surplus a in consumer surplus and a in total surplus c decrease increase or decrease decrease 8 If the equilibrium price is 100 and the government imposes a price ceiling of 75 then there will be in the quantity traded The goods will be sold to buyers d a decrease randomly 9 If the equilibrium price is 50 and the government imposes a price ceiling of 60 the new market price will be and there will be d 50 no excess supply or demand 10 When patients or farmers choose whether to use more antibiotics they compare b their private benefits with the market price 11 Say you have a ticket to see the next Cubs game at Wrigley Field You bought the ticket at face value which was 50 but since the Cubs are in the playoff you could scalp it for at least 400 The cost of attending the game is count the amount you paid for the ticket as part of the cost 450 monsters and sunk 12 Consider the market for iPods What happens if a fantastic new alternative MP3 player is developed and at the same time a boat carrying a large shipment of iPods is attacked by sea b The change in price is indeterminate and quantity decreases 13 What would happen to the quantity and price of beer sold around Campustown if a reputable newspaper publishes the results of a research study concluding that drinking beer DECREASES your GPA a price and quantity of beer will decrease 30 Monte owns a dog the dog s barking annoys Monte s neighbor Teresa Suppose that the benefit of owning the dog is worth 200 to Monte and that Teresa bears a cost of 400 from the barking As suming Monte has the legal right to keep the dog a possible private solution to this problem is that c Teresa pays Monte 300 to give the dog to his parents who live on an isolated farm 42 Ed is a writer who works from his home Ed lives next door to Ricky the drummer for a local band Ricky needs lots of practice to earn his share of the bands profits 250 Ed gets distracted by Ricky s drumming but needs to get his writing done to earn 500 for his current article Which of the following is an efficient solution c Ed offers Ricky 251 to stop practicing his drumming Ricky agrees and both are better off