Sample Questions

What happens in the market for hamburgers if

– Price of hot dogs increase
– A disease develops that kills a large proportion of
cattle
– A new breed of cattle is developed with much
faster growth
– Medical research proves that this new breed
results in hamburgers with less cholesterol
– A direct subsidy on each head of cattle is given to
farmers raising cattle
QD= 10-4P, QS=-2+8P…find Q* and P*
–If demand shifts such that QD’= 16-4P, find the new Q’* and P’*
–If a tax is collected from the sellers, such that the new supply curve is given by Q S”=-8+8P,
find Q”* and P”*

Q*= 6, P*=1
Q’*= 10, P’*=1.5
Q”*= 4 P”* = 1.5

There is a toll bridge, which costs essentially nothing to operate. The demand for bridge
crossings Q is given by P= 15-Q/2
– How many crossings would take place if there were no toll?
– What is the loss of consumer surplus associated with a bridge toll of Rs 5
– If bridge toll is increased to Rs 7, how many crossings would take place? Would toll
bridge revenue increase or decrease
– What is the loss in consumer surplus associated with an increase in toll from Rs 5 to Rs 7
• Refer to the figure above. Whenever a CD is sold, 5% of the sale goes to the
artist and the remainder of the revenue goes to the record company. The
graph above depicts this with R being the total revenue from sales, (0.95)R
being the record company's share less the 5% given to the artist and C being
the cost of producing the CD. At what quantity would the artist prefer to
produce the CD? 

C. Q2
• How would a Rs 10 increase in an input price affect a price-
taking firm's supply curve? 
A. MC would increase by Rs 10 and AC would decrease by Rs 10
B. AC would increase by Rs 10 and MC would decrease by Rs 10
C. MC and AC would both decrease by Rs 10
D. MC and AC would both increase by Rs 10
• 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 the above
• A firm has market power 
A. When it can charge any price of it's choosing
B. When it is characterized as a price taker
C. When it can profitably charge a price that is above its marginal
cost
D. Only when it is the sole firm producing in a market
• La Tortilla is the only producer of tortillas in Santa Teresa. The
firm produces 10,000 tortillas each day and has the capacity to
increase production to 100,000 tortillas each day. La Tortilla has
made a large profit for years, but no other firm has chosen to
compete in the Santa Teresa tortilla market. La Tortilla has been
able to deter entry because if other firms were to enter the
market it would greatly step-up production and reduce price.
A) La Tortilla’s behavior is inconsistent with economic theory.
B) La Tortilla has been successful because of its credible threat.
C) La Tortilla behaves like a Stackelberg firm.
D) La Tortilla must have other barriers to entry to protect its monopoly
power.