Microeconomics Canadian 1st Edition

Bernheim II Solutions Manual

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c14

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1. Transactions costs are absent when

A. Sellers can easily communicate their prices
B. Buyers can easily locate suppliers and learn their prices
C. Buyers and sellers can arrange transactions without significant obstacles
D. All of these

2. Products are homogenous when

A. They are identical in the eyes of the purchasers
B. Some purchasers view the products as different
C. Suppliers can charge different prices for the same good
D. They are different in the eyes of the purchasers

3. Characteristics of a perfectly competitive market include

A. The absence of transaction costs
B. Product homogeneity
C. Many sellers, each with a very small market share
D. All of these

4. Characteristics of a perfectly competitive market include

A. The absence of transaction costs
B. Differentiated products
C. Few sellers, some with a large market share
D. All of these

5. Characteristics of a perfectly competitive market include

A. The presence of transaction costs
B. Differentiated products
C. Many sellers, each with a small market share
D. All of these
6. Characteristics of a perfectly competitive market include
A. The presence of transaction costs
B. Homogenous products
C. Few sellers, each with a large market share
D. All of these

7. In a perfectly competitive market

A. Firms take quantities as given
B. Firms produce the quantity for which marginal cost equals price
C. Firms can increase profits by charging a price higher than the market price
D. Firms produce the quantity for which marginal cost equals marginal revenue

8. In a perfectly competitive market

A. Firms are price setters
B. Firms produce the quantity for which marginal cost equals price
C. Firms can increase profits by charging a price higher than the market price
D. Firms are quantity setters

9. Market demand for a product

A. Is the sum of the demands of all the individual consumers
B. Graphically is the horizontal sum of the individual supply curves
C. Graphically is the vertical sum of the individual demand curves
D. Graphically is upward sloping

10. Market demand for a product

A. Is the demand of an individual consumer
B. Graphically is the horizontal sum of the individual demand curves
C. Graphically is the vertical sum of the individual demand curves
D. Graphically is the horizontal sum of the individual supply curves

11. Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5. If the market price for milk is $4.50, market
demand is
A. Zero
B. 1.5
C. 1
D. 10
12. Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5. Market demand when price is $4 is
A. 12 - 3P
B. 10 - 2P
C. 22 - 3P
D. 22 - 5P

13. Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5.
A. The market demand curve is upward sloping
B. The market demand curve is a downward sloping straight line
C. The market demand curve is kinked at a quantity of 2 units
D. The market demand curve is kinked at a quantity of 1 unit

14. Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5.
A. The market demand curve is upward sloping
B. The market demand curve is a downward sloping straight line
C. The market demand curve is kinked at $5
D. The market demand curve is kinked at $4

15. The market supply of a product

A. Is the sum of the supply of all the individual sellers
B. Graphically is the vertical sum of the individual supply curves
C. Graphically is the horizontal sum of the individual demand curves
D. Graphically is downward sloping

16. The market supply of a product

A. Is the same as the supply curve of an individual seller
B. Graphically is the vertical sum of the individual supply curves
C. Graphically is the horizontal sum of the individual supply curves
D. A and C
17. Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is at
prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is at prices
above $0.33 and zero at prices below $0.33. At a price of $0.45
A. Milky Moo is the only supplier of milk
B. Mega Cow is the only supplier of milk
C. Both Milky Moo and Mega Cow supply milk
D. Neither Milky Moo nor Mega Cow supply milk

18. Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is at
prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is at prices
above $0.33 and zero at prices below $0.33. At a price of $0.45
A. The market supply of milk is between 9 and 10 units
B. The market supply of milk is between 4 and 5 units
C. The market supply of milk is between 5 and 6 units
D. The market supply of milk is between 1 and 2 units

19. Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is at
prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is at prices
above $0.33 and zero at prices below $0.33. At a price of $2.00
A. The market supply of milk is 33 units
B. The market supply of milk is 15 units
C. The market supply of milk is 18 units
D. The market supply of milk is 42 units

20. Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is at
prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is at prices
above $0.33 and zero at prices below $0.33. At a price of $2.00
A. The market supply of milk is 12P - 6
B. The market supply of milk is 9P - 3
C. The market supply of milk is 21P - 9
D. The market supply of milk is 12P - 9

21. Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is at
prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is at prices
above $0.33 and zero at prices below $0.33.
A. The market supply curve is kinked at $0.33
B. The market supply curve is kinked at $0.50
C. The market supply curve is downward sloping
D. The market supply curve is an upward sloping straight line
22. Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is at
prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is at prices
above $0.33 and zero at prices below $0.33.
A. The market supply curve is kinked at $0.33
B. The market supply curve is kinked at 1.5 units
C. The market supply curve is downward sloping
D. The market supply curve is kinked at 3 units

23. The short and long run market supply curves

A. Are equivalent
B. May differ because the set of firms that are able to produce in a market may change
C. May differ due to free entry in the short run
D. Are always different

24. With free entry

A. There is a known and limited number of potential suppliers that can produce a good in the long run
B. There is an unlimited number of firms that can produce a good in the long run
C. The long run market demand curve is horizontal at the market price
D. Firms will always enter the market

25. With free entry

A. The long run market supply curve is horizontal at the market price
B. The long run market supply curve is vertical at the market price
C. The short and long run market supply curves are the same
D. The short run market supply curve is horizontal at the market price

26. Suppose that, in the long run, a dairy's variable costs are (where Q is the number of gallons of
milk produced each day), its marginal cost is and there is an avoidable fixed cost of $50 per day. In
the long run there is free entry into the market. What is the dairy's total cost function?
A.
B.
C.
D.
27. Suppose that, in the long run, a dairy's variable costs are (where Q is the number of gallons of
milk produced each day), its marginal cost is and there is an avoidable fixed cost of $50 per day. In
the long run there is free entry into the market. What is the efficient scale of production?
A. 5 gallons per day
B. 100 gallons per day
C. 20 gallons per day
D. 50 gallons per day

28. Suppose that, in the long run, a dairy's variable costs are (where Q is the number of gallons of
milk produced each day), its marginal cost is and there is an avoidable fixed cost of $50 per day. In
the long run there is free entry into the market. What is the long run market supply curve?
A. Vertical at 5 gallons per day
B. Horizontal at $20 per gallon
C. Horizontal at $50 per gallon
D. Horizontal at $100 per gallon

29. Properties of long-run competitive equilibrium with free entry include

A. The equilibrium price must equal the minimum AC
B. Firms must earn zero profits
C. Active firms must produce at their efficient scale of production
D. All of these

30. Properties of long-run competitive equilibrium with free entry include

A. The equilibrium price must equal the minimum MC
B. Firms must earn positive profits
C. Active firms must produce at their efficient scale of production
D. All of these

31. Properties of long-run competitive equilibrium with free entry include

A. The equilibrium price must equal the minimum MC
B. Firms must earn zero profits
C. Active firms must produce at their maximum scale of production
D. All of these
32. Suppose the market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. What is the
market equilibrium price?
A. $50 per gallon
B. $20 per gallon
C. $100 per gallon
D. $25 per gallon

33. Suppose the market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. What is the
market equilibrium quantity?
A. 5 gallons per day
B. 35 gallons per day
C. 50 gallons per day
D. 100 gallons per day

34. Suppose the market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. How many
active firms are in the market?
A. 50
B. 5
C. 10
D. 20

35. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
the short run market supply function in terms of price?
A. 40P if price is greater than $20
B. P/4 if price is greater than $20
C. 2.5P if price is greater than $20
D. 300-10P
36. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
the short run equilibrium price?
A. $20
B. $24
C. $10
D. $40

37. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
the short run equilibrium quantity?
A. 100
B. 200
C. 50
D. 60

38. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, how
much does each of the active firms produce in the short run equilibrium?
A. 5
B. 6
C. 10
D. 20

39. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
each of the active firms' profit per unit in the short run equilibrium?
A. $4
B. $20
C. $24
D. $10
40. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. What is the new long-run equilibrium price?
A. $20
B. $40
C. $24
D. $2

41. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. What is the new long-run equilibrium quantity?
A. 50
B. 60
C. 100
D. 120

42. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. How many new firms enter the market in the long run due to the increased demand?
A. 10
B. 20
C. 100
D. 2

43. The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. How many total active firms are in the market in the long run due to the increased
demand?
A. 10
B. 20
C. 100
D. 2
44. Aggregate surplus
A. Equals consumers' total willingness to pay for a good less firms' total avoidable cost of production
B. Equals consumers' total willingness to pay for a good plus firms' total avoidable cost of production
C. Captures the net benefit created by the production and consumption of the good
D. A and C

45. Aggregate surplus

A. Is maximized under perfect competition
B. Is minimized under perfect competition
C. Is the sum of consumer and producer surpluses
D. A and C

46. Aggregate surplus

A. Is minimized under perfect competition
B. Is the difference between consumer and producer surpluses
C. Is the sum of consumer and producer surpluses
D. A and B

47. The market demand function for ice cream is and the market supply function for ice cream
is , where both quantities are measured in millions of gallons per year. What is the aggregate
surplus at the competitive market equilibrium?
A. $4.2
B. $16.8
C. $8.4
D. $9

48. The market demand function for ice cream is and the market supply function for ice cream
is , where both quantities are measured in millions of gallons per year. What is the consumer
surplus at the competitive market equilibrium?
A. $4.2
B. $6
C. $4.5
D. $3
49. The market demand function for ice cream is and the market supply function for ice cream
is , where both quantities are measured in millions of gallons per year. What is the producer surplus
at the competitive market equilibrium?
A. $4.2
B. $5.4
C. $6
D. $3

50. A deadweight loss

A. Is zero in a perfectly competitive market
B. Is a reduction in aggregate surplus below its maximum possible value
C. Depends upon the amount produced and consumed
D. All of these

51. Discuss some of the changes in the organization of the economic systems of countries transitioning from
communism to capitalism. How does this type of market reform increase economic efficiency?

52. Suppose the wiz-pop market is in long-run equilibrium. Suddenly, fixed costs decrease, although variable
costs remain unchanged. Discuss the short-run and long-run changes in market equilibrium.
c14 Key

1. (p. 494) Transactions costs are absent when

A. Sellers can easily communicate their prices
B. Buyers can easily locate suppliers and learn their prices
C. Buyers and sellers can arrange transactions without significant obstacles
D. All of these

Bernhiem - Chapter 14 #1
Difficulty: 1
Learning Objective: LO1
Level of Learning: Knowledge

2. (p. 494) Products are homogenous when

A. They are identical in the eyes of the purchasers
B. Some purchasers view the products as different
C. Suppliers can charge different prices for the same good
D. They are different in the eyes of the purchasers

Bernhiem - Chapter 14 #2
Difficulty: 1
Learning Objective: LO1
Level of Learning: Knowledge

3. (p. 494) Characteristics of a perfectly competitive market include

A. The absence of transaction costs
B. Product homogeneity
C. Many sellers, each with a very small market share
D. All of these

Bernhiem - Chapter 14 #3
Difficulty: 1
Learning Objective: LO1
Level of Learning: Knowledge
4. (p. 497) Characteristics of a perfectly competitive market include
A. The absence of transaction costs
B. Differentiated products
C. Few sellers, some with a large market share
D. All of these

Bernhiem - Chapter 14 #4
Difficulty: 1
Learning Objective: LO1
Level of Learning: Knowledge

5. (p. 497) Characteristics of a perfectly competitive market include

A. The presence of transaction costs
B. Differentiated products
C. Many sellers, each with a small market share
D. All of these

Bernhiem - Chapter 14 #5
Difficulty: 1
Learning Objective: LO1
Level of Learning: Knowledge

6. (p. 497) Characteristics of a perfectly competitive market include

A. The presence of transaction costs
B. Homogenous products
C. Few sellers, each with a large market share
D. All of these

Bernhiem - Chapter 14 #6
Difficulty: 1
Learning Objective: LO1
Level of Learning: Knowledge

7. (p. 495) In a perfectly competitive market

A. Firms take quantities as given
B. Firms produce the quantity for which marginal cost equals price
C. Firms can increase profits by charging a price higher than the market price
D. Firms produce the quantity for which marginal cost equals marginal revenue

Bernhiem - Chapter 14 #7
Difficulty: 2
Learning Objective: LO1
Level of Learning: Knowledge
8. (p. 497) In a perfectly competitive market
A. Firms are price setters
B. Firms produce the quantity for which marginal cost equals price
C. Firms can increase profits by charging a price higher than the market price
D. Firms are quantity setters

Bernhiem - Chapter 14 #8
Difficulty: 2
Learning Objective: LO1
Level of Learning: Knowledge

9. (p. 495) Market demand for a product

A. Is the sum of the demands of all the individual consumers
B. Graphically is the horizontal sum of the individual supply curves
C. Graphically is the vertical sum of the individual demand curves
D. Graphically is upward sloping

Bernhiem - Chapter 14 #9
Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge

10. (p. 495) Market demand for a product

A. Is the demand of an individual consumer
B. Graphically is the horizontal sum of the individual demand curves
C. Graphically is the vertical sum of the individual demand curves
D. Graphically is the horizontal sum of the individual supply curves

Bernhiem - Chapter 14 #10

Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge

11. (p. 496) Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5. If the market price for milk is $4.50, market
demand is
A. Zero
B. 1.5
C. 1
D. 10

Bernhiem - Chapter 14 #11

Difficulty: 1
Learning Objective: LO2
Level of Learning: Application
12. (p. 496) Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5. Market demand when price is $4 is
A. 12 - 3P
B. 10 - 2P
C. 22 - 3P
D. 22 - 5P

Bernhiem - Chapter 14 #12

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application

13. (p. 496) Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5.
A. The market demand curve is upward sloping
B. The market demand curve is a downward sloping straight line
C. The market demand curve is kinked at a quantity of 2 units
D. The market demand curve is kinked at a quantity of 1 unit

Bernhiem - Chapter 14 #13

Difficulty: 3
Learning Objective: LO2
Level of Learning: Application

14. (p. 496) Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined
as at prices below $4 and zero for prices above $4. Zach's demand for milk is defined
as at prices below $5 and zero for prices above $5.
A. The market demand curve is upward sloping
B. The market demand curve is a downward sloping straight line
C. The market demand curve is kinked at $5
D. The market demand curve is kinked at $4

Bernhiem - Chapter 14 #14

Difficulty: 3
Learning Objective: LO2
Level of Learning: Application
15. (p. 497) The market supply of a product
A. Is the sum of the supply of all the individual sellers
B. Graphically is the vertical sum of the individual supply curves
C. Graphically is the horizontal sum of the individual demand curves
D. Graphically is downward sloping

Bernhiem - Chapter 14 #15

Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge

16. (p. 500) The market supply of a product

A. Is the same as the supply curve of an individual seller
B. Graphically is the vertical sum of the individual supply curves
C. Graphically is the horizontal sum of the individual supply curves
D. A and C

Bernhiem - Chapter 14 #16

Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge

17. (p. 497) Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function
is at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function
is at prices above $0.33 and zero at prices below $0.33. At a price of $0.45
A. Milky Moo is the only supplier of milk
B. Mega Cow is the only supplier of milk
C. Both Milky Moo and Mega Cow supply milk
D. Neither Milky Moo nor Mega Cow supply milk

Bernhiem - Chapter 14 #17

Difficulty: 1
Learning Objective: LO2
Level of Learning: Application

18. (p. 497) Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function
is at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function
is at prices above $0.33 and zero at prices below $0.33. At a price of $0.45
A. The market supply of milk is between 9 and 10 units
B. The market supply of milk is between 4 and 5 units
C. The market supply of milk is between 5 and 6 units
D. The market supply of milk is between 1 and 2 units

Bernhiem - Chapter 14 #18

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application
19. (p. 497) Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function
is at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function
is at prices above $0.33 and zero at prices below $0.33. At a price of $2.00
A. The market supply of milk is 33 units
B. The market supply of milk is 15 units
C. The market supply of milk is 18 units
D. The market supply of milk is 42 units

Bernhiem - Chapter 14 #19

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application

20. (p. 496) Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function
is at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function
is at prices above $0.33 and zero at prices below $0.33. At a price of $2.00
A. The market supply of milk is 12P - 6
B. The market supply of milk is 9P - 3
C. The market supply of milk is 21P - 9
D. The market supply of milk is 12P - 9

Bernhiem - Chapter 14 #20

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application

21. (p. 498) Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function
is at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function
is at prices above $0.33 and zero at prices below $0.33.
A. The market supply curve is kinked at $0.33
B. The market supply curve is kinked at $0.50
C. The market supply curve is downward sloping
D. The market supply curve is an upward sloping straight line

Bernhiem - Chapter 14 #21

Difficulty: 3
Learning Objective: LO2
Level of Learning: Application
22. (p. 500) Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function
is at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function
is at prices above $0.33 and zero at prices below $0.33.
A. The market supply curve is kinked at $0.33
B. The market supply curve is kinked at 1.5 units
C. The market supply curve is downward sloping
D. The market supply curve is kinked at 3 units

Bernhiem - Chapter 14 #22

Difficulty: 3
Learning Objective: LO2
Level of Learning: Application

23. (p. 500) The short and long run market supply curves
A. Are equivalent
B. May differ because the set of firms that are able to produce in a market may change
C. May differ due to free entry in the short run
D. Are always different

Bernhiem - Chapter 14 #23

Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge

24. (p. 500) With free entry

A. There is a known and limited number of potential suppliers that can produce a good in the long run
B. There is an unlimited number of firms that can produce a good in the long run
C. The long run market demand curve is horizontal at the market price
D. Firms will always enter the market

Bernhiem - Chapter 14 #24

Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge

25. (p. 503) With free entry

A. The long run market supply curve is horizontal at the market price
B. The long run market supply curve is vertical at the market price
C. The short and long run market supply curves are the same
D. The short run market supply curve is horizontal at the market price

Bernhiem - Chapter 14 #25

Difficulty: 2
Learning Objective: LO2
Level of Learning: Knowledge
26. (p. 502) Suppose that, in the long run, a dairy's variable costs are (where Q is the number of gallons
of milk produced each day), its marginal cost is and there is an avoidable fixed cost of $50 per day. In
the long run there is free entry into the market. What is the dairy's total cost function?
A.
B.
C.
D.

Bernhiem - Chapter 14 #26

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application

27. (p. 502) Suppose that, in the long run, a dairy's variable costs are (where Q is the number of gallons
of milk produced each day), its marginal cost is and there is an avoidable fixed cost of $50 per day. In
the long run there is free entry into the market. What is the efficient scale of production?
A. 5 gallons per day
B. 100 gallons per day
C. 20 gallons per day
D. 50 gallons per day

Bernhiem - Chapter 14 #27

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application

28. (p. 502) Suppose that, in the long run, a dairy's variable costs are (where Q is the number of gallons
of milk produced each day), its marginal cost is and there is an avoidable fixed cost of $50 per day. In
the long run there is free entry into the market. What is the long run market supply curve?
A. Vertical at 5 gallons per day
B. Horizontal at $20 per gallon
C. Horizontal at $50 per gallon
D. Horizontal at $100 per gallon

Bernhiem - Chapter 14 #28

Difficulty: 2
Learning Objective: LO2
Level of Learning: Application
29. (p. 503) Properties of long-run competitive equilibrium with free entry include
A. The equilibrium price must equal the minimum AC
B. Firms must earn zero profits
C. Active firms must produce at their efficient scale of production
D. All of these

Bernhiem - Chapter 14 #29

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

30. (p. 503) Properties of long-run competitive equilibrium with free entry include
A. The equilibrium price must equal the minimum MC
B. Firms must earn positive profits
C. Active firms must produce at their efficient scale of production
D. All of these

Bernhiem - Chapter 14 #30

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

31. (p. 503) Properties of long-run competitive equilibrium with free entry include
A. The equilibrium price must equal the minimum MC
B. Firms must earn zero profits
C. Active firms must produce at their maximum scale of production
D. All of these

Bernhiem - Chapter 14 #31

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

32. (p. 504) Suppose the market demand for milk is . Additionally, suppose that a dairy's variable
costs are (where Q is the number of gallons of milk produced each day), its marginal cost
is and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the
market. What is the market equilibrium price?
A. $50 per gallon
B. $20 per gallon
C. $100 per gallon
D. $25 per gallon

Bernhiem - Chapter 14 #32

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application
33. (p. 504) Suppose the market demand for milk is . Additionally, suppose that a dairy's variable
costs are (where Q is the number of gallons of milk produced each day), its marginal cost
is and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the
market. What is the market equilibrium quantity?
A. 5 gallons per day
B. 35 gallons per day
C. 50 gallons per day
D. 100 gallons per day

Bernhiem - Chapter 14 #33

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

34. (p. 504) Suppose the market demand for milk is . Additionally, suppose that a dairy's variable
costs are (where Q is the number of gallons of milk produced each day), its marginal cost
is and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the
market. How many active firms are in the market?
A. 50
B. 5
C. 10
D. 20

Bernhiem - Chapter 14 #34

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

35. (p. 505) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
the short run market supply function in terms of price?
A. 40P if price is greater than $20
B. P/4 if price is greater than $20
C. 2.5P if price is greater than $20
D. 300-10P

Bernhiem - Chapter 14 #35

Difficulty: 3
Learning Objective: LO3
Level of Learning: Application
36. (p. 505) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
the short run equilibrium price?
A. $20
B. $24
C. $10
D. $40

Bernhiem - Chapter 14 #36

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

37. (p. 506) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
the short run equilibrium quantity?
A. 100
B. 200
C. 50
D. 60

Bernhiem - Chapter 14 #37

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

38. (p. 506) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, how
much does each of the active firms produce in the short run equilibrium?
A. 5
B. 6
C. 10
D. 20

Bernhiem - Chapter 14 #38

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application
39. (p. 506) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is
each of the active firms' profit per unit in the short run equilibrium?
A. $4
B. $20
C. $24
D. $10

Bernhiem - Chapter 14 #39

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

40. (p. 507) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. What is the new long-run equilibrium price?
A. $20
B. $40
C. $24
D. $2

Bernhiem - Chapter 14 #40

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

41. (p. 507) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. What is the new long-run equilibrium quantity?
A. 50
B. 60
C. 100
D. 120

Bernhiem - Chapter 14 #41

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application
42. (p. 507) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. How many new firms enter the market in the long run due to the increased demand?
A. 10
B. 20
C. 100
D. 2

Bernhiem - Chapter 14 #42

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

43. (p. 507) The market demand for milk is . Additionally, suppose that a dairy's variable costs
are (where Q is the number of gallons of milk produced each day), its marginal cost is and
there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the
demand for milk doubles. How many total active firms are in the market in the long run due to the increased
demand?
A. 10
B. 20
C. 100
D. 2

Bernhiem - Chapter 14 #43

Difficulty: 2
Learning Objective: LO3
Level of Learning: Application

44. (p. 510) Aggregate surplus

A. Equals consumers' total willingness to pay for a good less firms' total avoidable cost of production
B. Equals consumers' total willingness to pay for a good plus firms' total avoidable cost of production
C. Captures the net benefit created by the production and consumption of the good
D. A and C

Bernhiem - Chapter 14 #44

Difficulty: 2
Learning Objective: LO4
Level of Learning: Knowledge
45. (p. 510) Aggregate surplus
A. Is maximized under perfect competition
B. Is minimized under perfect competition
C. Is the sum of consumer and producer surpluses
D. A and C

Bernhiem - Chapter 14 #45

Difficulty: 2
Learning Objective: LO4
Level of Learning: Knowledge

46. (p. 510) Aggregate surplus

A. Is minimized under perfect competition
B. Is the difference between consumer and producer surpluses
C. Is the sum of consumer and producer surpluses
D. A and B

Bernhiem - Chapter 14 #46

Difficulty: 2
Learning Objective: LO4
Level of Learning: Knowledge

47. (p. 521) The market demand function for ice cream is and the market supply function for ice
cream is , where both quantities are measured in millions of gallons per year. What is the aggregate
surplus at the competitive market equilibrium?
A. $4.2
B. $16.8
C. $8.4
D. $9

Bernhiem - Chapter 14 #47

Difficulty: 2
Learning Objective: LO5
Level of Learning: Analysis

48. (p. 521) The market demand function for ice cream is and the market supply function for ice
cream is , where both quantities are measured in millions of gallons per year. What is the consumer
surplus at the competitive market equilibrium?
A. $4.2
B. $6
C. $4.5
D. $3

Bernhiem - Chapter 14 #48

Difficulty: 2
Learning Objective: LO5
Level of Learning: Analysis
49. (p. 521) The market demand function for ice cream is and the market supply function for ice
cream is , where both quantities are measured in millions of gallons per year. What is the producer
surplus at the competitive market equilibrium?
A. $4.2
B. $5.4
C. $6
D. $3

Bernhiem - Chapter 14 #49

Difficulty: 2
Learning Objective: LO5
Level of Learning: Analysis

50. (p. 521) A deadweight loss

A. Is zero in a perfectly competitive market
B. Is a reduction in aggregate surplus below its maximum possible value
C. Depends upon the amount produced and consumed
D. All of these

Bernhiem - Chapter 14 #50

Difficulty: 2
Learning Objective: LO5
Level of Learning: Knowledge

51. (p. 529) Discuss some of the changes in the organization of the economic systems of countries transitioning
from communism to capitalism. How does this type of market reform increase economic efficiency?

Instead of government officials making production decisions, in an economy governed by capitalism, goods are
traded in markets at market-determined prices. Government-owned firms are frequently sold to private investors
and individuals are permitted to start their own firms. Market efficiency is improved in a variety of ways.
Competitive markets push firms to become efficient and to make production decisions based upon economic
motives rather than political or other non-economic ones. Competitive markets result in an efficient allocation
of production across firms and the amount of each good that is produced and consumed maximizes aggregate
surplus. Finally, competitive markets allocate goods to the consumers who value them the most.

Bernhiem - Chapter 14 #51

Difficulty: 2
Learning Objective: LO4
Level of Learning: Comprehension
52. (p. 529) Suppose the wiz-pop market is in long-run equilibrium. Suddenly, fixed costs decrease, although
variable costs remain unchanged. Discuss the short-run and long-run changes in market equilibrium.

The reduction in fixed costs reduces the average cost of production and thus decreases the efficient scale of
production. In the short run, marginal costs do not change and the number of active firms is fixed, resulting in
no change in the short run equilibrium. Thus, active firms make a positive profit in the short run. In the long
run, new firms enter the market to take advantage of the profit opportunities. New firms continue to enter the
market until profits are driven to zero. The entrance of new firms increases the long run supply, pushing down
the price of the good and increasing the amount produced in the market.

Bernhiem - Chapter 14 #52

Difficulty: 2
Learning Objective: LO4
Level of Learning: Comprehension
c14 Summary

Category # of Questions
Bernhiem - Chapter 14 52
Difficulty: 1 8
Difficulty: 2 39
Difficulty: 3 5
Learning Objective: LO1 8
Learning Objective: LO2 20
Learning Objective: LO3 15
Learning Objective: LO4 5
Learning Objective: LO5 4
Level of Learning: Analysis 3
Level of Learning: Application 28
Level of Learning: Comprehension 2
Level of Learning: Knowledge 19