1. The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $21,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $8,000).

Note: Assume¬†QūĚĎĄ¬†denotes the quantity produced of a particular design.

Which of the following best represents the average cost function for producing any single design?





Based on this information, production in any one single design
(Does not exibit/exibit)    economies of scale.

2. Under decreasing returns to scale, average cost
(falls/rises/remains constant)    as the quantity produced increases. Over this range of output, the marginal cost curve is equalivent to/higher than/lower than
    the average cost curve.

3. Suppose you have a production technology that can be characterized by a learning curve. Every time you increase production by one unit, your marginal cost decreases by $4. There are no fixed costs, and the first unit costs you $76 to produce.

Use the given information to fill in the marginal cost of each unit, as well as the total cost and average cost of each level of output.


Marginal Cost

Total Cost

Average Cost














Suppose you receive a request for proposal (RFP) on a project for three units.

Your break-even price for three units is


Suppose that if you get the contract, you estimate that you can win another project for two more units.

The break-even price for those next two units alone is


4. The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $20, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $20, $30, $38, and $44 (one buyer at each price).

For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied.


Quantity Demanded

Quantity Supplied

($ per widget)










In this market, the equilibrium price will be________.

per widget, and the equilibrium quantity will be
(0,1,2,3,4,5)    widgets.

5. Suppose that due to the outbreak of a new flu, known as H14N9, the demand for hand sanitizer has tripled.

Smith & Smith, a company that produces and sells hand sanitizer, should
(decrease/increase)    production of its hand sanitizer.

Suppose there is no vaccine for H14N9, and that a vaccine will not be developed for several decades.

True or False: Smith & Smith should increase its productive capacity by leasing new plant and equipment.

A. True

B . False

Indicate whether the following change would cause a shift in the demand curve for product A and, if so, the direction of the shift.


Demand Curve Shift?

Direction of Shift

The launch of an effective advertising campaign for product A Demand curve shift?
(NO/YES) Direction of the shift Direction of shift

7. Suppose that on Christmas, the demand for both Christmas trees and Christmas cards increases by the same percentage amount. However, the price of Christmas trees increases by more than the price of Christmas cards.

Based on this information, you can conclude that the supply of trees is
(Less/More)    sensitive to price than the supply of Christmas cards.




8.Distributors of pipes earn some monopoly profits in their local markets but see them slowly erode as substitutes enter the market. Suppose Nebraska has scheduled a vote on the legalization of marijuana. Additionally, suppose that marijuana and pipes are complements and that the legalization of marijuana would lead to a decrease in the price of marijuana.

Given the relationship between marijuana and pipes, the legalization of marijuana would lead to
increase/decrease)    in demand for pipes. Thus, distributors of pipes would likely
( support/oppose)    the legalization of marijuana.

9.Relative to managers in more
( competitive/monopolistic)    industries, managers in more (
competitive/monopolistic )   industries are more likely to spend their time on pricing strategies rather than on reducing costs.

10. Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium?

In the short run, both monopolists and competitive firms
(can/cannot)    earn positive economic profits. In the long run, neither monopolistic nor
but not competitive firms/both monopolistic and competitive firms/ competitive, but not monopolistic    can earn a positive economic profit.

True or False: The adjustment to long-run equilibrium occurs more quickly for competitive industries than for monopolists.



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