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一、 True or False 1. According to the Law of Comparative Advantage, individuals and economies should specialize in producing those goods and services in which they have a comparative advantage. ( ) 2. If MUx/Px is less than MUy/Py, then a utility-maximizing consumer the consumer should consume more X and less Y. ( ) 3. If there are two goods with positive prices and the price of one good is reduced, while income and other prices remain constant, then the size of the budget set is reduced. ( ) 4. Just as in the theory of utility maximizing consumers, the theory of profit maximizing firms allows the possibility of "Giffen factors". These are factors for which a fall in price leads to a fall in demand. ( ) 5. If the value of the marginal revenue product (MRP) of labor exceeds the wage rate, then a competitive, profit-maximizing firm would want to hire more labor. ( ) 6. If the amount of money that people are willing to spend on a good stays the same when its price doubles, then demand for that good must have a price elasticity of demand smaller in absolute value than one. ( ) 7. If the equation for the demand curve is q = 40-2p; then marginal revenue decreases in the quantity demanded. ( ) 8. Producer's surplus at price p is the vertical distance between the supply curve and the demand curve at price p. ( ) 9. Those who want to use higher cigarette taxes as a means of reducing smoking would prefer the demand curve for cigarettes to be highly elastic. ( ) 10. A firm is experiencing economies of scale means that the percent increase in output is greater than percent increase in inputs, and hence, the long run average cost of production is stable. ( ) 二、 Multiple Choice 1. Economics is the study of a. scarcity under the conditions of democracy b. choice within a system of capitalism c. the role of government in a market system d. choice under conditions of scarcity 2. Opportunity costs exist because a. there is a price attached to virtually every good or service b. technology is not fixed in the economy c. people have different tastes and preferences d. limited resources cannot satisfy all of the wants in society 3. Along a production possibilities frontier a. more of one good can be produced without giving up some of the other good b. resources are not being fully utilized c. available resources are being used efficiently d. there is productive inefficiency 4. You have a bond that you can redeem for $10,000 in the next year. The interest rate is 10% per year. How much is the bond worth today? a. $9,090.91 b. $10,000.00 c. $8,264.46 d. $9,523.81 5. Which of the following would NOT cause the demand curve for college football tickets to shift? a. an increase in the price of professional football tickets b. a decrease in the price of college basketball tickets c. an increase in the price of college football tickets d. an increase in student preferences for college football tickets 6. A price floor on corn would have the effect of a. creating a surplus regardless of where the price floor is set b. creating a surplus if the price level is set above the equilibrium price c. creating a shortage when the price floor is set below the equilibrium price d. creating a shortage regardless of where the price floor is set 7. Along a perfectly elastic supply curve a. the quantity supplied is always the same b. the price elasticity of demand is always the same c. the price is always the same d. the cross-price elasticity of demand is always the same 8. The income effect measures how a. the quantity of a good supplied changes in response to a change in income b. the quantity of a good supplied changes in response to a change in the price of a good c. how far the budget line shifts due to a change in income d. the quantity of a good demanded changes in response to a change in purchasing power 9. Which of the following formulas is incorrect? a. AC = AVC + (FC/Q) b. TVC = TC / Q c. TC = FC + VC d. AFC = FC / Q 10. When there are implicit costs of production, a. accounting and economic profit are equal b. explicit costs of production are small c. accounting profit will exceed economic profit d. economic profit will exceed accounting profit 11. Which of the following is true regarding the cost curves faced by a firm? a. when MC > AC, AVC must be falling b. when MC > AVC, AC must be rising c. when MC > AC, AC must be rising d. MC and AC are the same for a perfectly competitive firm 12. A profit-maximizing competitive firm uses just one input, x. Its production function is q = 8x1/2. The price of output is 16 and the factor price is 8. The amount of the factor that the firm demands is: a. 10 b. 22.63 c. 64 d. 48 13. The production function is f(L,M) = 4L1/2M1/2; where L is the number of units of labor and M is the number of machines used. If the cost of labor is $25 per unit and the cost of machines is $64 per unit, then the total cost of producing 6 units of output will be: a. 120 b. 267 c. 150 d. 240 14. When Farmer Hoglund applies N pounds of fertilizer per acre, the marginal product of fertilizer is 1-N/200 bushels of corn. If the price of corn is $1 per bushel and the price of fertilizer is $0.40 per pound, then how many pounds of fertilizer per acre should Farmer Hoglund use in order to maximize his profits? a. 120 b. 240 c. 64 d. 248 15. If a monopolist faces an inverse demand curve, p(y) = 100-2y and has constant marginal costs of 12 and zero fixed costs, how many products will be sold? a. 22 b. 44 c. 50 d. 88 三、 Calculations and Discussions 1. Consider a perfectly competitive market. Demand is given by the equation? and supply is given by the equation . Quantities are millions of kilograms per year and price is dollars per kilogram. a) Solve for the equilibrium price and quantity. b) Suppose a price floor is paced at $3.95.? Will a surplus result and, if so, how much of one? c) Suppose a price ceiling is placed at $2.65.? Will a shortage result and, if so, how much of one? d) Suppose the government provides a subsidy of $0.50 per kilogram to sellers of the good.? Determine the new equilibrium price and quantity, the amount sellers receive, and the annual cost of the program. 2. A firm in a perfectly competitive industry has a production function of: Where is the number of workers it employs per week and is its weekly output. Suppose that workers earn $400 per week (w = 400) and the firm’s fixed costs are $6,000 per week (FC = 6000). The competitive market price of the firm’s output is $32 per unit. a) How much labor should the firm employ? b) How much output should it produce? c) What will be its profits, total revenues, and total costs? d) Based on your answers to part c, will firms be entering or exiting from this industry? Explain briefly. 3. Illustrate the following firms on graphs. Illustrate each firm’s profit or loss(if any). you must write down your steps below the graph. a) A monopolistically competitive firm operating but losing money. Q $ MR D ATC AVC b) A loss-minimizing monopoly in the short run that is shut down. Q $ D ATC AVC MC c) A natural monopoly regulated to break even. Price ceiling $ Q D d) A perfectly competitive firm in the long run, attempting to maximize profits. $ Q D LRAC(長期平均變動成本) 4. Suppose that there are only two companies in a market. Both sell a product that consumers treat as homogeneous. Company A has a marginal cost of $20 per unit and company B has a marginal cost of $10 per unit; neither firm has any fixed costs. Demand for their product is: a) What are the two firms’ Cournot(古諾) reaction functions？ b) Solve for the Cournot equilibrium outputs ( and ) for these firms. Determine the market price and their respective profits. c) Why do the firms end up producing different amounts of output? d) Should company B set price low enough to drive company A out of business? Explain. 5. Suppose a firm produces two goods: good x and good y using two inputs: labor (l) and capital (k). The prices the firm receives for goods x and y are px and py respectively. Suppose the production function for x is f(kx, lx) and the production function for y is g(ky, ly). Moreover, the total endowments of capital and labor for the firm are fixed at K and L respectively. a) What is the firm’s optimization problem? Using the first order conditions, find out an expression for the equilibrium price ratio px / py in terms of f and g. b) Now suppose f(k, l) = kal and g(k, l) = klb. If the capital-labor ratio for the production of good x is lower than the capital-labor ratio for the production of good y, then what can you say about the relationship of a and b? What will be the ratio of the capital-labor ratios for good x and good y? c) Suppose all the goods produced by this firm are bought by identical individuals whose preferences are given by the utility function U where U(x, y) = xαy1-α. They pay px and py for goods x and y respectively. Using the consumer’s optimization problem, express the equilibrium price ratio px / py in terms of x, y and α. 6. Following graph is the “Circular Flow of Economic Life”, answer the questions below the graph. Consumers Firms Product Markets Factor Markets Circular Flow of Economic Life 1 2 3 4 a) What are the four parts and their optimal decision principles in the “Circular Flow of Economic Life”? b) Illustrate the partial equilibrium and the general equilibrium and their relation briefly. 8