Economics Question Set

Part 1

1. Suppose that $300 is the minimum total cost in the long run when output = 10 and that the firm is experiencing economies of scale. The minimum total cost in the long run when output = 20 could be

a. $250
b. $300
c. $450
d. $600
e. $750

Explain your choice.

Use the information below to answers that follow.

The table below contains the output a firm produces as the number of workers increases from 0 to 10. The wage paid to workers is $60 per worker. L=the number of workers; Q=output; MPL=marginal product of L, APL=average product of L, VC=variable cost, FC=fixed cost, TC=cost, AVC=average variable cost, ATC=average total cost, and MC=marginal cost.

3. What is variable cost when Q=0? a = $___.

4. What is total cost when Q = 0? b = $___.

5. When does the firm begin to experience diminishing marginal product?

When L increases from ___ to ___.

6. What is the minimum average product of L? APL = ____

7. What level of employment minimizes APL? L = ___

8. What is the minimum average variable cost? AVC = $____

9. What level of output minimizes AVC? Q = ___

10. What is the minimum average total cost? ATC = $____

11. What level of output minimizes ATC? Q = ___

13. What is marginal cost for each extra unit of output when output increases from 14 to 24?

MC = $____

Part 2

Questions

1. What are the characteristics of a perfectly competitive market?

2. Is the restaurant market in Richmond a good example of perfect competition? If not, describe how it deviates from the characteristics you listed in question 1. Sellers in the restaurant market include Joe's Inn, Acacia, Savory Grain, Subway sandwich shops, etc. Consumers are people like you and me who dine in restaurants.

3. Is the market for residential electricity in Richmond a good example of perfect competition? If not, describe how it deviates from the characteristics you listed in question 1. The seller in the electricity market include Dominion Virginia Power. Consumers are people who live in houses or apartments.

4. Is the automobile manufacturing market in the world a good example of perfect competition? If not, describe how it deviates from the characteristics you listed in question 1. Sellers in the automobile manufacturing market include General Motors, Ford, Volvo, Toyota, Nissan, etc. Consumers are automobile dealers like Whitten Brothers, Hyman Brothers, Haley Ford, etc.

5. Assume that the market for durum wheat is perfectly competitive and that the equilibrium price is $5 per bushel and the equilibrium quantity is 100 Trillion bushels per year. Assume that market price equals the equilibrium price.

a. Sketch the supply and demand for the market for durum wheat .
b. Sketch the demand curve facing an individual midwest wheat farmer who sells an average of 1000 bushel per year.