Linear Production - Microeconomics

Principles of Microeconomics Practice test - Midterm II 1. The linear production possibility frontier in the US indicates that the US can produce 10 tons of wheat in day or 2 cars. Japan can produce 8 tons of wheat or 2 cars in a day. The opportunity cost of producing a car in the US is. a) b) c) d) 10 tons of wheat 5 tons of wheat 1/5 tons of wheat 1/2 a ton of wheat Iron (units produced in one day) Automobiles (units produced in one day) Mongolia 12 5 South Korea 9 14 2. a) b) c) d) Which country has an absolute advantage in Iron production? Mongolia South Korea Mongolia has an absolute advantage in both goods. South Korea has an absolute advantage in both goods. Iron (units produced in one day) Automobiles (units produced in one day) Mongolia 12 5 South Korea 9 14 Mongolia opportunity costs A B South Korea opportunity costs C D 3. What is the opportunity cost in box B? a) b) c) d) 5/12 12/5 14/9 9/14 Assume that US and China can switch between producing corn and rice at a constant rate. Number of Units Produced in 40 Hours Labor Hours Needed to Make 1 Unit of Corn Rice Corn Rice US 2 5 20 8 China 4 2 10 20 4. US’s opportunity cost of producing rice is a. 2.5 units of corn. This is higher than China’s opportunity cost of producing rice. b. 2/5 units of corn. This is lower than China’s opportunity cost of producing rice. c. 2/5 units of corn. This is higher than China’s opportunity cost of producing rice. d. 2.5 units of corn. This is lower than China’s opportunity cost of producing rice. Assume that US and China can switch between producing computers and producing cellphones at a constant rate. Output Produced in One Day Computers Cellphones US 12 6 China 24 3 5. At which of the following prices would both US and China gain from trade with each other? a. 1 cellphone for 4 computers b. 1 cellphone for 15 computers c. 1 cellphone for 10 computers d. 1 cellphone for 1 computer 6. Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. Jamaica Norway Output Produced in One Day Coolers Radios 12 6 24 3 Refer to Table above. Assume that Jamaica and Norway each has 4 days available for production. Originally, each country divided its time equally between the production of coolers and radios. Now each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by a. b. c. d. 12 24 36 48 7. Consider the small country Old Zealand. Assume Old Zealand does not allow trade of good X. In the domestic market, the equilibrium price of good X is $10 and the equilibrium quantity is 10 tons. If the world price of good X is $12 and Old Zealand decides to allow trade which of the following is true. a) Old Zealand will import good X in order to satisfy domestic demand which exceeds 10 tons b) Old Zealand will export good X but domestic producers will produce less than 10 tons c) Old Zealand will export good X and domestic producers will produce more than 10 tons d) Old Zealand will import good X in and the increased demand will raise the price to $1 8. Consider the small country Old Zealand. Assume Old Zealand does not allow trade of good X. The domestic market demand curve is P= 100-2X and the domestic supply curve is P= 10+ X. Old Zealand decides to allow trade in good X. The world price of X is $30. As result of trade Old Zealand will a) Export 15 tons of good X b) Import $20 tons of good X c) Import 15 tons of good X d) Export 20 tons of good X 9. The demand for pears can be represented by PD = 50 - (1/4)QD, and the supply of pears is represented by PS = 10 + (1/6)QS. Price is in dollars and quantity is in units of pears. Suppose the equations given in the scenario above represent the domestic market. If the country opens up for trade in pears, and the world price is $30 per unit of pears, what will be the result? a) b) c) d) The country will import 40 units of pears. The country will export 40 units of pears. The country will import 20 units of pears. The country will export 20 units of pears. 10. The demand for pears can be represented by PD = 50 - (1/4)QD, and the supply of pears is represented by PS = 10 + (1/6)QS. Price is in dollars and quantity is in units of pears. Assume the world price is $20 per unit of pears. What would be the change of imports or exports if the government imposed a $2 per unit of pears tariff? a) b) c) d) Imports increases by 40 units of pears. Exports increases by 40 units of pears. Imports decreased by 20 units of pears. Exports increases by 20 units of pears. 11. The world price of a pound of cashews is $4.50. Before Colombia allowed trade in cashews, the price of a pound of cashews there was $3.00. Once Colombia began allowing trade in cashews with other countries, Columbia began a) exporting cashews and the price per pound in Columbia increased to $4.50. b) importing cashews and the price per pound in Columbia remained at $3.00. c) importing cashews and the price per pound in Columbia increased to $4.50. d) exporting cashews and the price per pound in Columbia remained at $3.00. 12. For a country, the equation of the domestic demand curve for radios is Qd = 200 − 2P , where Qd represents the domestic quantity of radios demanded, and P represents the price of a radio. For this country, the equation of the domestic supply curve for radios is Qs = -60 + 3P , where Qs represents the domestic quantity of radios supplied, and P again represents the price of a radio. Suppose the world price of a radio is $45. Then this country’s gains from international trade in radios amount to a. $88.75. b. $102.50. c. $122.50. d. $ 135. 00 13. Consider the Figure above. Assume Q is the quantity of electricity from a coalpowered electrical plant. Coal powered plants cause pollution. How much of a Pigovian tax should the government impose in order to reduce pollution to its welfare maximizing level? a) b) c) d) P1-P4 P0-P4 P1-P3 P2-P3 14. Let Q be quantity of natural gas in tons from fracking. Assume fracking imposes a negative externality of $24 per ton. The demand for natural gas from fracking is P=200-4Q while the private supply curve is P=20+2Q. If the government impose a $24 tax per ton of natural gas from fracking, what is the change in total surplus from before to after the imposition of the tax? a) b) c) d) $48 -$672 -$48 $672 15. Suppose that candy producers create a positive externality equal to $2 a bag. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy to be produced? a. There is not enough information to answer the question. b. The equilibrium quantity is less than the socially optimal quantity. c. The equilibrium quantity is greater than the socially optimal quantity. d. They are equal. 16. Madison Square Park near Baruch has art exhibits that are free to all. It is so popular that the park is always overcrowded. This is an example of a) a common resource because it’s non-excludable but rival in consumption b) a private good because the art was made by a private citizen c) a public good because it’s non-excludable and non-rival d) a club good because people make donations 17. A city council proposed a ban on fishing in the local waters based on a study of the fish population. Which of the following statements is not correct? a) Reducing the quota on the number of fish any fisher can catch would have a protective effect on the fish population. b) If left unregulated, the fish population will likely increase. c) Fish are rival but not excludable. d) The fish population is an example of the tragedy of the commons. 18. What is an example of a common resource? a) b) c) d) A bus A laptop Coal Cable television 19. The following table shows the marginal (not total) costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. What would the total cost be if the government required that each firm eliminate 3 units of pollution? a) b) c) d) 388 480 564 868 20. If average costs are rising then a) Marginal costs must be greater than average costs b) Marginal costs must be falling which push up average costs c) Fixed cost must be rising d) Variable costs must be greater than fixed costs 21. Ma’s Impads is a major manufacturer of tablets. Currently, the company produces tablets using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company’s short-run average total cost (SRATC) each month for various levels of production if it uses one, two, or three factories. (Note: Q equals the total quantity of tablets produced by all factories.) Number Factories 1 2 3 Average Total Cost ($ per tablet) of Q=100 Q=200 Q=300 Q=400 360 540 720 200 350 400 160 160 240 240 160 160 Q=500 Q=600 300 250 200 720 540 360 Refer to Table 1: Tablets. Which of the following is NOT true about the long-run average cost curve of Ma’s tablets? a. Ma’s Impads experiences diseconomies of scale as it increases production to be over 400 tablets. b. Ma’s Impads experiences constant returns to scale at any quantity less than 400 tablets. c. The long-run average total cost of production per tablet will be $200 when 200 tablets are produced in the long run. d. The long-run average total cost of production per tablet will be the same whether Ma’s Impads produces 300 tablets or 400 tablets. Labor (Number of Workers) Quantity (Number of Shoes) 10 1,000 20 2,000 40 10,000 80 Change In Quantity Change in Labor Marginal Product of Labor (MPL) 0 0 A 1,000 10 B 8,000 20 C 14,000 2,000 40 D 95 15,000 1,000 15 E 100 15,100 100 5 F 22. What is the answer to C in the Marginal Product of Labor column? a) b) c) d) 100 400 66.67 20 Quantity (Number of Shoes) Total Costs Marginal Cost (MC) 1,000 $2,000 A 2,000 $4,000 B 10,000 $6,000 C 14,000 $7,000 D 15,000 $9,000 E 15,100 $10,000 F 23. Find the Marginal Cost for C. a) b) c) d) $0.50 $0.25 $10 $2 24. Barber John’s haircut has average variable costs of $2 and average fixed costs of $3 when he gives 100 haircuts. His barber shop’s total cost is a. $200. b. $500. c. $300. d. $100. Labor (Number of workers) Output (Units) 0 0 1 90 2 170 3 230 4 240 25. At which number of workers does diminishing marginal product begin? a. 3 b. 2 c. 1 d. 4