For the interested reader, the graph below and a corresponding explanation is based on Figure 19-10 page 609 which can be found in the text titled “The Structure of Economics” by Silberberg and Swen, Third Edition.
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Graph 1
1) Based on Graph 1. The area OBCD measures:
a) Optimal level of lake pollution.
b) Profits when the manufacturing company produces Xp
c) Total pollution when the manufacturing firm produces Xp
d) Total losses experienced by the fishers.
2) Based on Graph 1. The area BCE measures:
a) Excess unnecessary damage for producing X beyond the optimum.
b) The amount by which fishers’ losses exceeds the industry’s profits.
c) Society’s dead weight loss.
d) All of the above
3) Based on Graph 1. If the manufacturing company reduces the production from Xp to Xs the fishers’ profits will increase by:
a) BEC
b) DBEC
c) DBC
d) OBD
4) Based on Graph 1. If the manufacturing company owns the lake and produces at the private optimum, the fishers can sway the industry to produce Xs by:
a) Paying them (the manufacturing firm) BDC and keeping (the fishers) DCXPXs
b) Paying BEC and keeping OBD
c) Paying BDC and keeping BEC
d) b) and c).
5) Based on Graph 1. If the fishers own the lake the company can produce up to Xs by compensating fishers paying:
a) OAB
b) BDC
c) ODXs
d) OBD
6) Based on Graph 1. Given the State of the Art the optimal level of pollution is:
a) Zero
b) DBEC
c) OBD
d) OAB
7) Based on Graph 1. From a societal vantage point, welfare is maximized when profits of the industry are:
a) OCBA
b) OBA
c) ODBA
d) OCBA
Graph 2
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Graph 2
Graph 2 above is based on The Structure of Economics, as aforementioned, Figure 19-9 on page 606
8) Production is maximized when the number of workers hired is:
a) L1
b) L2
c) E
d) No way of knowing
9) Based on Graph 2, production is maximized under:
a) Private property.
b) Common property.
c) Socialist cooperative.
d) None of the above
10) Based on Graph 2 profits are zero under:
a) Private property.
b) Common property.
c) Socialist cooperative.
d) None of the above.
11) The zero profit point is reached at:
a) B
b) C
c) D
d) E
12) A potential consequence for resources under common property is:
a) Extinction of the common resource.
b) Increased societal welfare over time.
c) Tragedy of the commons.
d) Efficient allocation of resources
e) a) and c).
13) Under a private property regime, L1 -- L2 workers would be allocated to:
a) The farm
b) The manufacturing company
c) Both
d) Not enough information has been provided in class to make a definite prediction.
14) Which company is most likely to be less efficiently managed?
a) U.S. Postal Service
b) UPS
c) FedEx
d) Apple
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The following questions 14 to 16 are based on the above graph.
15) The profit-maximizing output is:
a) 30.
b) 54.
c) 60.
d) 67.
e) 79.
16) At the profit-maximizing level of output, total revenue is
a) $1200.
b) $2160.
c) $2400.
d) $2680.
e) $3160.
17) At the profit-maximizing level of output, total profit is
a) -$120.
b) $0.
c) $432.
d) $600.
e) $603
18) If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC,
a) The firm is earning negative profit, and will shut down rather than produce that level of output.
b) The firm is earning negative profit, but will continue to produce where MR = MC in the short run.
c) The firm is still earning positive profit, as long as variable costs are covered.
d) The firm is breaking even.
e) The firm can cover all of fixed costs but only a portion of variable costs.
19) If a competitive firm's marginal cost curve is U-shaped then:
a) Its short run supply curve is also U-shaped.
b) Its short run supply curve is the downward-sloping portion of the marginal cost curve.
c) Its short run supply curve is the upward-sloping portion of the marginal cost curve.
d) Its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve.
e) Its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average total cost curve.
20) As output increases, the average fixed cost curve tends to:
a) Increase
b) Become closer to the average total cost curve
c) Zero
d) Infinity
e) None of the above
1
JaredRain
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