You collect the following production data for your firm: QL 198 2 ...

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You collect the following production data for your firm: QL 198 2 1,310 6 408 3 65 1 1,984 9 990 5 1,386 7 712 4 1,678 11 1,710 10 1 Which do you consider to be the best trendline for this data? See the four (a,b,c,d) charts in the attachment Question 2 1 Use the regression results below to answer the following two questions: R Square Adjusted R Square Intercept L L^2 L^3 0.9961 0.9942 Coefficients Standard Error 0 #N/A -10.322 42.955 63.660 12.000 -4.451 0.782 t Stat #N/A -0.240 5.305 -5.688 P-value #N/A 0.817 0.001 0.001 Using these results, calculate the Q, AP, and MP for L = 8 workers. Select one: a. Q = 1,984; AP = 202.1; MP = 54.0. b. Q = 48.89; AP = 6.11; MP = 12.76. c. Q = 1,717; AP = 214.7; MP = 155.6. d. Q = 1,713; AP = 214.1; MP = 153.7. Question 3 1 At 8 workers, is SMC rising or falling, and how do you know? Select one: a. At 8 workers, SMC is falling since MP is rising. b. At 8 workers, SMC is rising since MP is falling. c. At 8 workers, SMC is rising since MP is rising. d. At 8 workers, SMC is falling since MP is falling. Question 4 Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form and obtained the following results. Total fixed cost (TFC) at Straker Industries is $820. Adjusted R Square INTERCEPT Q Q^2 0.710 Coefficients Standard Error 41.80 4.04 -2.08 0.91 0.20 0.04 1 t-Stat P-value 10.35 0.0001 -2.29 0.0171 4.76 0.0007 What level of output (Q) is associated with the minimum AVC, and what is the value of AVC at this minimum? Select one: a. Q = 5 (or 5.2 if unrounded), AVC = $31.16 (or $31.15 if unrounded) b. Q = 16 (or 15.8 if unrounded) and AVC = $99.11 (or $99.13 if unrounded) c. Q = 7 (or 6.88 if unrounded) and AVC = $33.75. d. Q = 7 (or 6.8 if unrounded), AVC = $33.75 (or $33.69) Question 5 1 Given the regression results above, which set of equations for TC, ATC, and SMC is correct? Select one: a. TC = 820 + 41.80Q - 2.34Q2 + 0.17Q3 ATC = (820/Q) + 41.8 - 2.34Q + 0.17Q2 SMC = 41.8 - 4.68Q + 0.51Q2 b. TC = 820 + 42.0 - 2.10Q + 0.15Q2 ATC = (820)/Q - 2.10 + 0.3Q SMC = - 2.1Q + 0.15Q c. TC = 820Q + 41.80 - 2.34Q + 0.17Q2 ATC =820 + 41.80/Q -2.34 + 0.17Q SMC = 820 + 41.80/Q - 2.34Q + 0.34Q2 d. TC = 820 + 41.80 - 2.34Q2 + 0.17Q3 ATC = 861.80 - 2.34Q + 0.17Q3 SMC = - 4.68Q + 0.51Q2 Question 6 1 When output (Q) is 16, how much is TC, AVC, ATC, and SMC? Select one: a. TC = $1,586.08 AVC = $47.88 ATC = $99.13 SMC = $97.48 b. TC = $1805.68 AVC = $54.76 ATC = $100.32 SMC = $122.80 c. TC = $1413.04 AVC = $42.36 ATC = $100.93 SMC = $76.24 d. TC = $47.88 AVC = $2.75 ATC = $2.99 SMC = $53.17 Question 7 At what amount of output does labor change from exhibiting increasing returns to decreasing returns? Select one: a. When output is about 9 b. When output is 7 c. When output is 3 d. When output is 5 Do Applied Problem #10 on page 444 about grocery stores and gasoline stations. NOTE: the question is not asking if grocery stores compete with gas stations, but whether individual grocery stores are competitive with each other, and whether individual gas stations are competitive with each other. "Grocery stores and gasoline stations in a large city would appear to be examples of competitive markets: there are numerous relatively small sellers, each seller is a price-taker, and the products are quite similar." 1 1 How could we argue that these markets are not competitive? Select one: a. Most grocery stores and gas stations have a relatively small geographic range; they do not attract consumers from very far away, and thus do not compete with the grocery stores or gas stations across town. b. They usually purchase products from the same distributor: i.e., all grocery stores and gas stations buy their Coke products from the same Coke distributor. Thus, individual grocery stores do not really compete with each other; same for individual gas stations. c. Each grocery store or gas station is so small relative to the size of the market that their actions do not affect the rest of the market, therefore they do not have to behave in a competitive way. d. The individual grocery stores or gas stations do not have the power to control price on many items that they sell, so they are not able to compete on price. Question 9 1 Could each firm face a demand curve that is not perfectly elastic? Select one: a. No; since customers aren't willing to spend their morning visiting each grocery store or gas station in a large city to find the best deal, then each firm's demand curve will be perfectly elastic since consumers do not have full information. b. Yes; if they have some degree of market power (e.g., they can charge slightly higher prices since consumers will not stop at every grocery store in town to find the cheapest beef jerky), then they will not face perfectly elastic demand. c. No; the conditions mentioned (many small sellers, price-takers, homogeneous products) guarantee that each of these industries will be perfectly competitive. Demand will always be perfectly elastic. d. Yes; if the individual firm demand curve is horizontal, then demand is not perfectly elastic. This will often be true for small sellers. Question 10 How profitable do you expect grocery stores and gasoline stations to be in the long run? Select one: a. Because of rising prices of both food and gasoline, each of these industries is expected to suffer long-run losses for the foreseeable future. b. Grocery stores would be expected to enjoy long-run positive profits since they sell a wider variety of products; gasoline stations would be expected to break even or take losses in the long run because of their more limited range of products. c. Since these firms retain considerable market power (ability to set price), then they are expected to enjoy long-run positive profitability for the foreseeable future. d. Even with a small amount of market power, it is still relatively easy to enter and exit these industries. Long-run profits will likely be driven down close to zero. Suppose the market demand and supply functions are QD = 220 – 1.6P and QS = 4P - 116. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product. 1 Question 11 1 Determine the equilibrium price and quantity in this market. Select one: a. P = $1.60; Q = 220 b. P = $29; Q = 137.5 c. P = $54; Q = 100 d. P = $60; Q = 124 Question 12 1 You’ve researched and found that most firms in the market currently experience costs such that TC = 30 + 65Q – 14Q2 + 2.4Q3. Determine whether or not you should enter this market. Select one: a. Firms are profitable when P exceeds MC; this only occurs at very low levels of output for my firm and thus I should not enter. b. Plugging the market equilibrium quantity into this total cost function results in huge costs for my firm, so I should not enter. c. Using the P=MC rule, the equilibrium price is above ATC at the best quantity, so entering would be profitable. d. Where the current equilibrium P = ATC, that price exceeds the marginal cost so I would be profitable upon entering. Question 13 1 Due to unforeseen delays, you don’t enter the market. However, a year later the market supply has changed to QS = 4P - 60. Are you surprised at this shift in supply? Select one: a. No; the profit that was earned under the old supply curve would attract new entrepreneurs, shifting supply to the right (which is what this new supply curve did). b. Yes; the losses earned earlier should have reduced supply whereas this new equation shows an increase in supply. c. Yes; the earlier profits should have caused mergers among firms, reducing the number of suppliers and thus supply itself (curve should shift left), though the new supply curve has actually increased (shifted right). d. No; the losses incurred in the previous question suggest that some firms would exit. This exit would shift supply left, which is what the new supply equation did. Question 14 1 Given the new supply conditions (QS = 4P - 60), determine whether or not you should enter the market. Select one: a. Yes; even though the new equilibrium price is below ATC, the time lag would allow our firm to continue charging the old (and profitable) equilibrium price during the short run. b. No; the new equilibrium price is below ATC (though above AVC) at the optimal quantity. If I entered I'd immediately suffer losses. c. Yes; the new equilibrium price is now between AVC and ATC, so firms (including my new one) will choose to stay open. d. No; the new equilibrium price is below AVC so if I entered I would have to immediately shut down.

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