Question 1. Select the correct statement for each of the following ...

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Question 1. Select the correct statement for each of the following questions. There is only one correct statement for each question. (a) Suppose that supply increases and demand decreases. What effect will this have on price and quantity? (A) Price will increase and quantity may rise or fall. (B) Price will decrease and quantity will increase. (C) Price will decrease and quantity will decrease. (D) None of the statements associated with this question are correct. (b) Suppose supply decreases and demand increases. What effect will this have on the price? (A) It will fall. (B) It will rise. (C) It may rise or fall. (D) It will remain the same. (c) Consumer-consumer rivalry: (A) increases the negotiating power of consumers in the marketplace. (B) reduces the negotiating power of producers in the marketplace. (C) reduces the negotiating power of consumers in the marketplace. (D) increases the likelihood of government intervention in the marketplace. (d) Each week a firm stocks its kitchen with exactly 100 bottles of water regardless of its price. All the bottles are consumed during the work week. What is this firm's own price elasticity of demand for bottles of water in absolute value? (A) greater than 1. (B) less than 1, but greater than zero. (C) 1. (D) zero. (e) The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is: (A) the foregone interest that could be earned if you had the money today. (B) the taxes paid on any earnings. (C) the value of $10 relative to the total income of that person. (D) the value of $10 relative to the total income of all persons. (f) Consumer surplus is (A) the value consumers get from a supplier. (B) the value consumers do not pay because of a discount by supplier. (C) the value consumers get from a good but do not pay for. (D) equal to the amount consumers pay for a good. (g) As additional firms enter an industry, the market supply curve (A) shifts to the left. (B) shifts to the right. (C) remains the same. (D) none of the statements associated with this question are correct. (h) Consider a market characterized by the following inverse demand and supply functions: Px = 10 - 2Qx and Px = 2+2Qx. An $8 per unit price floor will result in a (A) shortage of 1 unit. (B) surplus of 2 units. (C) shortage of 3 units. (D) surplus of 3 units. (i) If A and B are substitute goods, a decrease in the price of good A would: (A) have no effect on the quantity demanded of B. (B) lead to an increase in demand for B. (C) lead to a decrease in demand for B. (D) none of the statements associated with this question are correct. (j) Suppose market demand and supply are given by Qd = 300 - 4P and Qs = -50+3P. The equilibrium price is: (A) $35. (B) $40. (C) $50. (D) $60. (k) Consider a market characterized by the following inverse demand and supply functions: Px = 40 -40x and Px = 10+2Qx. Compute the surplus received by consumers and producers¹. (A) $25 and $25, respectively. (B) $20 and $40, respectively. (C) $40 and $20, respectively. (D) $50 and $25, respectively. (I) The own price elasticity of demand for apples is -1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded? (A) It will increase 5 percent. (B) It will fall 4.3 percent. (C) It will increase 4.2 percent. (D) It will increase 6 percent. (m) If apples have an own price elasticity of -1.2 we know the demand is: (A) unitary. (B) indeterminate. (C) elastic. (D) inelastic. (n) We would expect the demand for jeans to be: (A) more elastic than the demand for clothing. (B) less elastic than the demand for clothing. (C) the same as the demand for clothing. (D) neither more elastic, less elastic, nor the same elasticity as that of the demand for clothing. Question 2. You are a strong advocate for a one-year investment project that would cost your firm $15,000 today, but generate virtually certain earnings of $25,000 at year-end. Those in your firm's financial group concur that the investment is virtually risk-free, but nonetheless your boss is concerned about the firm's cash flow problems. In fact, the problems are SO severe that the firm's bank currently charges it 25 percent on one-year loans (paid in full at the end of the year). Convince your boss to undertake the project. In particular, address your boss' concerns about the firm's cash flow problems. Question 3. Your firm's research department has estimated your total revenues to be R(Q) = 30,000Q - 80Q² and your total costs to be C(Q) = 1, 000 + 20Q². (Note that the marginal functions are MR(Q) = 30,000 - 1600 and MC (Q) = 40Q). (a) What level of Q maximizes net benefits? (b) What is the marginal benefit and marginal cost at this level of Q? (c) What is the maximum level of net benefits? (d) What is another word for net benefits in this example?

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