ECO 365 Week 3 Apply: Elasticity and Consumer Choice Homework

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ECO 365 Week 3 Apply: Elasticity and Consumer Choice Homework

Review the Week 3 Elasticity and Consumer Choice Quiz in preparation for this assignment.

Complete the Week 3 Elasticity and Consumer Choice Homework in McGraw-Hill Connect®. These are randomized questions.

Note: You have only one attempt available to complete assignments. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after the due date.

Which of the following scenarios would lead to a decrease in the demand for labor at Stephanie’s earring shop?

Labor productivity increases.

The cost of capital (a substitute for labor) decreases.

The price of earrings increases.

The wage rate increases.

Which of the following scenarios would lead to an increase in the demand for mixers at Henry’s bread bakery?

The market price of mixers decreases.

The productivity of mixers decreases.

The wage rate of labor (a substitute for capital) decreases.

The market price of bread increases.

Henry bakes loaves of bread, which he sells for \$4 each. He is considering purchasing additional mixers (capital) for his bakery. Each additional mixer has the productivity described below. Fill in the “Marginal Product,” “Total Revenue,” and “Marginal Revenue Product” columns. Assume this is a perfectly competitive market.

Henry’s Bakery and Revenues

Capital (mixers)     Total Product (loaves of bread)     Marginal Product (loaves of bread)      Price (dollars) Total Revenue (dollars)       Marginal Revenue Product (dollars)

0     0     —    \$4    \$0    —

1     8     8     4     32    \$ 32

2     20    12    4     80    48

3     28    8     4     112  32

4     34    6     4     136  24

5     38    4     4     152  16

6     40    2     4     160  8

7     41    1     4     164  4

The marginal revenue product schedule is

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upsloping.

the same whether the firm is selling in a purely competitive or imperfectly competitive market.

the firm’s resource demand schedule.

the firm’s resource supply schedule.

Marginal product is

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the output of the least skilled worker.

the amount any given worker contributes to the firm’s total revenue.

a worker’s output multiplied by the price at which each unit can be sold.

The change in a firm’s total revenue that results from hiring an additional worker is measured by the

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marginal product.

average revenue product.

marginal revenue.

marginal revenue product.

Marginal revenue product measures the

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increase in total revenue resulting from the production of one more unit of a product.

increase in total resource cost resulting from the hire of one extra unit of a resource.

amount by which the extra production of one more worker increases a firm’s total revenue.

decline in product price that a firm must accept to sell the extra output of one more worker.

If the marginal revenue product (MRP) of labor is less than the wage rate

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more labor should be employed.

the firm is making profits.

the firm is incurring losses.

less labor should be employed

A profit-maximizing firm employs resources to the point where

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MRP = MRC.

resource price equals product price.

MRC = MP.

MP = product price.

The following is a total-product schedule for a resource. Assume that the quantities of other resources the firm employs remain constant.

Units of Resource   Total Product

1     24

2     42

3     54

4     64

5     72

If the firm’s product sells for a constant \$2 and the price of the resource is a constant \$16, the firm will employ how many units of the resource?

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2

3

4

5

Marginal resource cost is

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the increase in total resource cost associated with the production of one more unit of output.

total resource cost divided by the number of inputs employed.

the change in total revenue associated with the employment of one more unit of the resource.

the increase in total resource cost associated with the hire of one more unit of the resource.

Daphne has received job offers in six different cities across the United States. The table below shows the nominal wage she is being offered in each city and the average monthly rent for an apartment in each city.

Calculate Daphne’s real wage in terms of how many months of rent her wage could purchase in each city and complete the “Real Wage” column in the table below.

Daphne’s Nominal and Real Wages

City Nominal Salary (dollars)       Monthly Rent (dollars)   Real Wage (months of rent)

Atlanta    \$50,000   \$1,200    42 ± 1%

Austin     50,500    1,368      37 ± 1%

Chicago   65,000    1,920      34 ± 1%

Lincoln   45,000    840  54 ± 1%

Madison  48,000    1,164      41 ± 1%

New York       95,000    3,204      30 ± 1%

In which city is the nominal wage highest? New York

In which city is the real wage highest? Lincoln

Which of the following scenarios would result in an increase in the wage rate of solar panel installers and a decrease in the quantity of solar panel installers employed in Billy’s town?

A decrease in people’s income decreases the demand for solar panels.

A solar panel company shuts down in another town and solar panel installers try to find jobs in Billy’s town.

Wages of solar panel installers increase in another town and attract workers away from Billy’s town.

An increase in the demand for solar panels raises the price of each installation.

The marginal revenue product of an input tends to decrease as

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more of the input is used.

productivity increases.

the price of the input decreases.

the price of output increases.

Rising wages can be explained by which of the following?

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Labor demand increases more rapidly than labor supply.

Labor supply is highly sensitive to changes in labor productivity.

Labor supply increases more rapidly than labor demand.

Labor demand is stable and predictable.

Suppose two workers can harvest \$46 and three workers can harvest \$60 worth of apples per day. On the basis of this information we can say that the

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marginal revenue product of each of the first two workers is \$23.

marginal revenue product of the third worker is \$14.

marginal product of each of the first two workers is 23.

third worker should not be hired.

A characteristic of a competitive labor market is

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an overall reduction in employment due to firms having market power.

an equilibrium wage and quantity supplied.

high levels of unemployment.

labor supply changing as the wage changes.

Labor productivity and the price of the good being produced are two variables that contribute to

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the demand for the product.

the wage rate.

the marginal product.

whether or not a union forms.

As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _______.

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increases; decreases

decreases; increases

increases; increases

decreases; decreases

An inclusive union

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organizes a wide range of workers in an industry to gain bargaining power.

is most effective in a purely competitive industry.

restricts supply of labor through licensing requirements.

is most concerned with increasing the demand for workers in an industry.

The supply curve for labor in a purely competitive market slopes upward because

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higher wages must be paid to bid workers away from other opportunities.

marginal resource cost rises as productivity increases.

the marginal product of labor falls as output increases.

the wage rate paid to workers falls as more are hired.

Compared to a competitive labor market, workers participating in an inclusive union will enjoy

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higher wages and more workers employed.

higher wages and fewer workers employed.

similar outcomes with respect to pay and employment.

lower pay and more workers employed.

The concept of “wages” does not include which of the following items?

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money spent by workers

direct money payments, like salaries and commissions

bonuses and royalties earned

fringe benefits, like health insurance and paid leave

Use the following graph (where L is the quantity of labor) to answer the next question.

It shows a firm that buys its inputs and sells its output in competitive markets. If the firm develops a new technology that increases labor productivity, the equilibrium level of employment for this firm is expected to be

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lower than L0.

L0.

zero.

higher than L0.

The individual firm that hires labor under competitive conditions faces a labor supply curve that

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is horizontal, because individual firms have no control over wages.

slopes upward to the right.

is vertical, because workers need a job at any wage.

slopes downward to the right.

In a purely competitive labor market, a profit-maximizing firm will hire labor up to the point where the marginal revenue product of labor equals the

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marginal cost of one extra unit of output.

price of the product.

average cost of each unit of output.

wage rate, or the price of labor.

For each of the following scenarios, determine which benefit of international trade applies: lower-priced goods, increased variety of products, or access to scarce resources.

Today most television sets bought in the United Stated are made in China; however, this was not the case twenty years ago.

In large grocery stores in the United States, consumers can buy noodles from Asia, soups from France, pickled herring from Scandinavia, and beer from Germany.

The United States has become a prime location for producers of semiconductors, whose products are then exported to nations around the world. This choice to produce in the United States is largely due to the access to the high-skilled workforce that is required for this type of production.

While many developed nations have at least one domestic car manufacturer, consumers in these nations also have access to cars produced in other nations.

The United States has long been the world’s largest exporter of wheat. The access to vast, fertile, and highly productive soil combined with high-technology farming practices have made the United States a very cost-efficient producer of agricultural goods.

In economics, goods, services, or resources produced domestically and sold abroad are known as:

imports.

net exports.

exports.

Domestic producers might oppose free trade agreements because

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there could be a decrease in consumer surplus.

there could be an increase in consumer surplus.

there could be a decrease in producer surplus.

there could be an increase in producer surplus.

The principal concept behind comparative advantage is that a nation should

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concentrate production on those products for which it has the lowest domestic opportunity cost.

strive to be self-sufficient in the production of essential goods and services.

maximize its volume of trade with other nations.

use tariffs and quotas to protect the production of vital products for the nation.

Use the following table for a certain product’s market in Marketopia to answer the next question.

Quantity Demanded Domestically Price       Quantity Supplied Domestically

1,400      \$10  2,200

1,600      9     2,000

1,800      8     1,800

2,000      7     1,600

2,200      6     1,400

2,400      5     1,200

If Marketopia is entirely closed to international trade, the equilibrium price and quantity would be

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\$6 and 1,400 units.

\$9 and 2,000 units.

\$7 and 2,000 units.

\$8 and 1,800 units.

Benefits from international trade are not based on differences in

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resource availability.

technological capabilities.

product quality and other attributes.

income levels.

Limits on the quantity or total value of specific products imported to a nation are

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import quotas.

nontariff barriers.

protective tariffs.

export subsidies.

Governments often intervene in international trade and impose quotas to

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improve the performance of multinational corporations.

shift a nation’s production possibilities frontier.

increase revenues from export subsidies.

protect domestic industries from foreign competition.

An import quota on a product reduces the quantity of the product imported and

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will not affect the price of the product to the consumers.

increases the total quantity of the product consumed.

decreases the price of the product to the consumers.

increases the price of the product to the consumers.

Tariffs

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are excise taxes on goods exported abroad.

are per-unit subsidies designed to promote exports.

may be imposed either to raise revenue or to shield domestic producers from foreign competition.

are also called import quotas.

The slopes of the production possibilities curves for two nations reflect the

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relative prices of the resources in the two nations.

average income levels in the two nations.

amounts of imports and exports of the two nations.

opportunity costs of production in the two nations.

If a nation imposes a tariff on an imported product, then that nation will experience a(n)

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decrease in quantity supplied and an increase in the price of the product.

decrease in demand and a decrease in the price of the product.

decrease in the supply of, and an increase in the quantity demanded of, the product.

increase in the quantity supplied of, and a decrease in the price of the product.

A tariff is a

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quantity limit.

tax.

price ceiling.

subsidy.

A tax imposed by the U.S. government on imported Chinese frozen shrimp would be an example of

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a voluntary restriction.

a tariff.

a quota.

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time is called a

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voluntary export restriction.

tariff.

quota.

nontariff barrier.

When a nation removes tariffs on imported products that nation will

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experience lower prices and consume lower quantities.

experience higher prices and consume lower quantities.

experience higher prices and consume higher quantities.

experience lower prices and consume higher quantities.

The ratio at which nations will exchange one product for another is known as the

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exchange rate.

discount rate.

The higher price of imported products due to trade barriers causes some consumers to shift their purchases to a domestically produced product that is now

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higher in price because import competition has risen.

higher in price because import competition has declined.

lower in price because import competition has declined.

lower in price because import competition has risen.

The use of tariffs and quotas for trade protection results in

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less rent-seeking activity.

lower prices for domestic consumers.

less efficiency in the economy.

less revenue for the government.

When a nation removes restrictions on imported products that nation will

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experience higher prices and consume lower quantities.

experience lower prices and consume lower quantities.

experience lower prices and consume higher quantities.

experience higher prices and consume higher quantities.

The benefit of saving some American jobs in specific industries protected from foreign competition

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is much greater than the costs to the whole American economy.

has risen in recent years.

is much less than the costs to the whole American economy.

has fallen in recent years.

Assume that a tariff is imposed on an imported product. The difference between the domestic price and the world price is captured by

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the government.

domestic producers.

foreign exporters.

domestic consumers.

Refer to the production possibility curve for Marketopia below.

The graph indicates that with the resources and technology it has available, Marketopia

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can produce either 40 units of rye or 20 units of eggs.

cannot produce both 20 units of rye and 5 units of eggs.

cannot produce both 20 units of rye and 10 units of eggs.

can produce both 40 units of rye and 20 units of eggs.

Elasticity differs from the slope as a measure of responsiveness to changes in prices because:

elasticity is only useful for describing demand, but the slope is useful for describing demand and supply.

the slope is always negative, while elasticity is not.

percentage changes do not depend on the units of measurement, whereas the slope does.

elasticity changes depending on the currency prices are measured in, but this does not affect the slope.

For which of the following products is demand likely to be the most elastic?

All shoes

Converse All Star sneakers

All gym shoes

All clothing items

A 10% decrease in the price of gas grills leads to a 15% increase in the demand for flank steaks. The cross-price elasticity of demand between gas grills and flank steaks is:

-1.5.

1.5.

15.0.

-15.0.

If nicotine in cigarettes is highly addictive, why would it make economic sense for producers of cigarettes to offer free samples of their products to young adults?

The free samples will make demand more elastic in the long run.

The free samples will teach young adults there is such a thing as a free lunch.

The free samples will help get people addicted to nicotine, which makes demand less elastic.

The free samples will make supply less elastic so people know there will be cigarettes.

Generic macaroni and cheese is an inferior good. Demand for generic macaroni and cheese is likely to increase when:

income decreases.

the price of generic macaroni and cheese decreases.

the price of generic macaroni and cheese increases.

the price of premium macaroni and cheese decreases.

Use the figure below to answer the following question.

For which graph is the supply perfectly inelastic?

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graph 2

graph 3

graph 4

To economists, the main differences between “the short run” and “the long run” are that

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the law of diminishing returns applies in the long run, but not in the short run.

fixed inputs are more important to decision making in the long run than they are in the short run.

in the long run all resources are variable, while in the short run at least one resource is fixed.

in the short run all resources are fixed, while in the long run all resources are variable.

The cross-price elasticity of demand measures how sensitive purchases of a specific product are to changes in

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the general price level.

the price of some other product.

income.

the price of that same product.

When interpreting the Ed value as either elastic or inelastic, we look at the

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percent change in price.

Ed coefficient with its negative sign.

absolute value of the Ed coefficient (dropping the negative sign).

percent change in quantity.

Answer the next question based on information in the following table.

Product   Percentage Change in Income       Percentage Change in Quantity Demanded

W    −1   −1

X     +6   +3

Y     −1   +1

Z     +4   +8

Which product would be an inferior good?

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product X

product W

product Z

product Y

Total revenue decreases as the price of a good increases, if the demand for the good is

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unitary elastic.

inelastic.

perfectly elastic.

elastic.

Which of the following factors will make the demand for a product relatively elastic?

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Purchases of the good require a small portion of consumers’ budgets.

The good is considered a necessity.

The time interval considered is long.

There are few substitutes.

The price elasticity of demand increases with the length of the period considered because

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consumers will be better able to find substitutes.

consumers’ incomes will increase over time.

all prices will increase over time.

the demand curve will shift outward as time passes.

If the absolute value of the price elasticity of demand for a good is .75, the demand for that good is described as

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normal.

inelastic.

inferior.

elastic.

The formula for the cross-price elasticity of demand is percentage change in

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price of B/percentage change in quantity demanded of A.

quantity demanded of B/percentage change in price of B.

quantity demanded of B/percentage change in price of A.

quantity demanded of B/percentage change in income.

For a linear demand curve

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demand is elastic at high prices.

elasticity is constant along the curve.

elasticity is unity at every point on the curve.

demand is elastic at low prices.

Hector would like to buy a new pair of soccer cleats. Hector prefers Adidas to Puma brand soccer cleats. But Hector chooses to buy the Puma brand cleats instead. Which of the following reasons for Hector’s choice is consistent with rational consumer choice?

The price of Adidas brand soccer cleats was less than the price of Puma brand soccer cleats.

Hector could not afford to buy both pairs of soccer cleats.

The price of Puma brand soccer cleats was less than the price of Adidas brand soccer cleats.

Hector did not know his preferences between the two brands of soccer cleats.

Which of the following defines marginal utility?

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the maximum amount of satisfaction or happiness derived from consuming a product

the additional satisfaction or happiness received from the consumption of an additional unit of a good or service

the total satisfaction or happiness received from the consumption of a good, service, or combination of goods and services

the change in total utility divided by the price of a product

The elasticity of demand for a product is likely to be greater

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the smaller the number of substitute products available.

the greater the amount of time over which buyers adjust to a price change.

if the product is a necessity, rather than a luxury good.

the smaller the proportion of one’s income spent on the product.

The price elasticity of supply measures how

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responsive the quantity supplied of X is to changes in the price of X.

easily labor and capital can be substituted for one another in the production process.

responsive the quantity supplied of Y is to changes in the price of X.

responsive quantity supplied is to a change in incomes.

The decision-making process followed by consumers to maximize utility assumes that

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consumers are unable to rank their preferences.

consumers have unlimited incomes.

consumers do not know how much marginal utility they obtain from consuming additional units of various products.

consumers behave rationally, attempting to maximize their satisfaction.

Total utility is best defined as the

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change in marginal utility multiplied by the price of a product.

maximum amount of satisfaction from consuming a product.

total satisfaction received from consuming a good, service, or combination of goods and services.

Marginal utility is equal to

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total utility divided by quantity consumed.

total utility multiplied by quantity consumed.

change in total utility divided by change in quantity consumed.

change in total utility multiplied by change in quantity consumed.

The price elasticity of supply for a product will be 2 if a

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2% decrease in price causes a 1% decrease in quantity supplied.

1% decrease in price causes a 2% decrease in quantity supplied.

2% decrease in price causes a 2% decrease in quantity supplied.

1% decrease in price causes a 0.2% decrease in quantity supplied.

Use the following graph to answer the question below.

If the price is P3, then the total revenue is represented by area

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B + C + D.

B + C + D + E + F + G.

A + B + C + D + E + F + G.

E + F + G.

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the

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immediate period, long run, and short run respectively.

immediate period, short run, and long run respectively.

long run, short run, and immediate period respectively.

short run, long run, and immediate period respectively.

The demand schedules for such products as eggs, bread, and electricity tend to be

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perfectly elastic.

relatively inelastic.

unit-elastic.

relatively elastic.

The total revenue received by sellers of a good is computed by

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dividing the percentage change in quantity by the percentage change in price.

multiplying the percentage change in price times the percentage change in quantity.

adding the price and the quantity sold.

multiplying the price times the quantity sold.

The utility of a good or service

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rarely varies from person to person.

is the satisfaction or happiness one receives from consuming it.

is synonymous with usefulness.

is easy to quantify.

The utility from a specific product is

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determined by a consumer’s income.

determined by the price of the product.

constant as one consumes more units of it.

a measure of one’s preference or taste for it.

Which of the following is not an assumption of the decision-making process followed by consumers to maximize utility?

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The consumer does not consider the prices of the products.

The consumer can rank his preferences.

The consumer behaves rationally.

The consumer has a limited income.

Which of the following is an assumption of the decision-making process followed by consumers to maximize utility?

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The consumer oftentimes is not sure about her preferences.

The consumer considers the prices of the products

The consumer’s income increases as prices of goods increase.

Marginal utility always increases as more units of a good are consumed.

Which of the following statements is correct?

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Total utility is the change in marginal utility as quantity consumed increases.

Total utility is the product of multiplying price times marginal utility.

Total utility is the sum of marginal utilities.

Marginal utility is the sum of total utility.

The satisfaction or happiness one gets from consuming a good or service is called

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income.

profits.

utility.

price.

In deciding what to buy to maximize utility, the consumer should choose the good with the

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lowest price.

highest marginal utility per dollar spent.

lowest marginal utility per dollar spent.

highest marginal utility.

The table below represents how Marco feels about chocolate candy bars.

Fill in the missing values for total utility and marginal utility.

Chocolate Candy Bars and Marco’s Utility

Chocolate Candy Bars    Total Utility (utils) Marginal Utility (utils)

0     0     —

1     25    25

2     42    17

3     54    12

4     62    8

5     66    4

6     65    –1

Suppose Marco currently has two candy bars. You tell Marco you will give him either a soda, which gives him 22 utils of happiness, or two additional candy bars.

Which is he likely to prefer?

If an increase in the price of pineapple juice of 10% results in an increase in the demand for grape juice of 5%, the cross-price elasticity of demand between pineapple juice and grape juice is:

-0.5.

-5.0.

5.0.

0.5.

Which of the following scenarios is likely to make the supply of Maine lobsters more elastic?

The prices of butter, potatoes, and lobster bibs decrease.

Time passes to allow lobstermen to adjust to market conditions.

The price of lobster increases by \$2 per pound.

Lobster locating technologies improve.

An economist recently estimated that for every 1% increase in the price of french fries at fast-food restaurants, 0.44% fewer french fries are sold. This indicates that the demand for fast-food french fries is:

inelastic.

elastic.

perfectly inelastic.

unit-elastic.

Generally, we calculate elasticity as the:

percentage change in quantity demanded/supplied divided by the percentage change in price.

percentage change in quantity demanded/supplied divided by the change in price.

percentage change in price divided by the percentage change in quantity demanded/supplied.

change in quantity demanded/supplied divided by the change in price.

The table below presents four supply curves for the same product at four different time horizons.

Supply in Four Time Horizons

Price (dollars) Quantity Supplied in Horizon A    Quantity Supplied in Horizon B    Quantity Supplied in Horizon C    Quantity Supplied in Horizon D

\$100       100  25    46    62.5

80    75    25    39    50.0

60    50    25    32    37.5

40    25    25    25    25.0

20    0     25    18    12.5

0     0     25    11    0.0

Which of the four time horizons is most likely to represent the firm’s long-run supply curve?

Horizon A

Horizon B

Horizon C

Horizon D

Use the figure below to answer the following question.

Which graph shows the immediate period for supply?

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graph 1

graph 3

graph 2

graph 4

Tom likes to collect Batman and Superman comic books. The table below presents his total and marginal utilities for both types of comic books.

Batman Comics, Superman Comics, and Tom’s Utility

Batman Comic Books         Superman Comic Books

Quantity  Total Utility    Marginal Utility          Quantity  Total Utility    Marginal Utility

0     0     —         0     0     —

1     40    40         1     58    58

2     68    28         2     92    34

3     88    20         3     106  14

4     94    6          4     110  4

5     94    0          5     112  2

6     84    –10       6     112  0

7     64    –20       7     104  –8

Assume the price of a Batman comic book is \$1, and the price of a Superman comic book is \$2. Fill in the values for the marginal utility per dollar for Batman and Superman comic books in the table below.

Batman Comics, Superman Comics, and Tom’s Marginal Utility per Dollar

Batman Comic Books         Superman Comic Books

Quantity  Marginal Utility per Dollar         Quantity  Marginal Utility per Dollar

0     —         0     —

1     40         1     29

2     28         2     17

3     20         3     7

4     6          4     2

5     0          5     1

6     -10       6     0

7     -20       7     -4

Suppose Tom has \$5 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy?

Now suppose Tom has \$10 to spend on Batman and Superman comic books (nothing else matters to Tom). If Tom wants to maximize his utility, how many of each should he buy?