Please answer the next eight questions based on the following information. A pro
ID: 1219558 • Letter: P
Question
Please answer the next eight questions based on the following information. A profit-maximizing firm can produce 100 units of output using any of the 4 techniques listed in the table below
6. Which technique should the firm utilize?_________
7. This firm will realize an economic profit of________.
8. Suppose developments in the resource markets lead to the following prices for land, labor, and capital respectively, $5, $5, and $2. Now, which technique will the firm utilize?______
9. Subsequent to the new resource prices, the firm will realize an economic profit of _______.
10. The market price for the output that this firm produces is ________.
11. The amount of labor embedded in T1 is ______.
12. The amount of capital embedded in T4 is ______.
13. If the market demand for this product increases, which of the following statements is correct?
a. Product price will increase and production costs will fall, resulting in greater profits.
b. Product price will decrease and production costs will rise, resulting in greater profits.
c. Product price will decrease and production costs will rise, resulting in lower profits.
d. Product price will increase and production costs will fall, resulting in lower profits.
e. Product price will increase and profits will increase.
14. Which of the following statements correctly reflects the developments in the U.S. automobile industry following an interest rate hike by the Federal Reserve?
a. Both equilibrium output and price will increase.
b. Both equilibrium output and price will decrease.
c. Both equilibrium output and price may decrease.
d. Both equilibrium output and price may increase.
e. none of the above statements is correct.
15. Which of the following statements correctly reflects the developments in the U.S. automobile industry following an across the board increase in wages paid to auto workers?
a. Equilibrium price will increase.
b. Equilibrium price will decrease.
c. Equilibrium price will not change.
d. Equilibrium price may increase.
e. none of the above statements is correct.
16. Suppose that currently 4 million automobiles are imported into the U.S. and the average price of those automobiles is $25,000. Further suppose that Congress passes legislation approving a 5 million annual quota on imports, that is signed into law by the President. Which of the following statements correctly reflects the subsequent developments in the domestic U.S. automobile industry?
a. Equilibrium price & quantity will decrease.
b. Equilibrium price will increase and the quantity will not change.
c. Equilibrium price will decrease and the quantity will not change.
d. Both Equilibrium price and quantity will not be affected.
e. none of the above statements is correct.
17. Suppose in the current year that there is a nation-wide boom harvest for apple growers and a statewide killer frost in both Florida and California. Which of the following statements correctly reflects the subsequent developments in the U.S. orange market?
a. Both equilibrium output and price will increase.
b. Both equilibrium output and price will decrease.
c. Both equilibrium output and price may decrease.
d. Equilibrium output may decrease and price will increase.
e. Equilibrium output will decrease and price may increase.
25. Other things being equal, how would the market for bicycles be affected by an increase in the availability and number of bicycle paths?
A. An increase in prices and a decrease in the quantity exchanged
B. A decrease in prices and an increase in the quantity exchanged
C. An increase in prices and an increase in the quantity exchanged
D. A decrease in prices and a decrease in the quantity exchanged
28. For which of the following goods or services would a government subsidy be most likely to improve the allocation of resources?
A. wheat
B. newspaper publishing
C. cancer research
D. toys
Suppose expectations are such that the rate of inflation for the foreseeable future is pegged at 2%. Further suppose that lenders and investors are seeking a 4% real return.
37. Money will be lent at what rate of interest under this scenario?
A. 2%
B. 8%
C. 4%
D. 6%
E. Impossible to determine.
38. Suppose that 4 years from now it is obvious that the actual rate of inflation averaged 1%. Which of the following statements is correct regarding loans initially granted with 4-year terms?
A. Both lenders and borrowers meet their objectives.
B. There is an arbitrary redistribution of income from lenders to borrowers.
C. There is no redistribution of income resulting from the loans.
D. There is an arbitrary redistribution of income from borrowers to lenders.
Technique T1 T2 T3 T4 Resource Price Land 5 5 5 5 $5 Labor 8 10 12 $4 Capital 7 4 3 $3 Cost of Technique Profit $26Explanation / Answer
(6) - (9):
(6)
Cost of T1 ($) = 5 x 5 + 7 x 3 = 25 + 21 = 46
Cost of T2 ($) = 5 x 5 + 8 x 4 + 4 x 3 = 25 + 32 + 12 = 69
Cost of T3 ($) = 5 x 5 + 10 x 4 + 3 x 3 = 25 + 40 + 9 = 74
Cost of T4 ($) = 5 x 5 + 12 x 4 = 25 + 48 = 73
Firm will employ the least-cost technology, i.e. T1.
(7) When T3 is chosen, profit = $26
So, revenue = Cost of T3 + Profit = $(74 + 26) = $100
When T1 is chosen, Economic profit = Revenue - Cost of T1 = $(100 - 46) = $54
(8)
Cost of T1 ($) = 5 x 5 + 7 x 2 = 25 + 14 = 39
Cost of T2 ($) = 5 x 5 + 8 x 5 + 4 x 2 = 25 + 40 + 8 = 73
Cost of T3 ($) = 5 x 5 + 10 x 5 + 3 x 2 = 25 + 50 + 6 = 81
Cost of T4 ($) = 5 x 5 + 12 x 5 = 25 + 60 = 85
Firm will employ the least-cost technology, i.e. T1.
(9) Economic profit = Revenue - Cost of T1 = $(100 - 39) = $61
(10) Market price = Revenue / Output = $100 / 100 = $1 per unit
Note: First 5 questions are answered.