ECON2001
Economics 2A
Moodle Quiz 2 Questions
Fall 2021
In the questions below, if anything was not identical to the Moodle quiz, please consider the Moodle
version as the correct one. Please contact Michele Battisti for any academic issue, and Ania Doswell for
any administrative issue.
1. EXERCISE 1 A typical consumer’s monthly demand for kilowatt hours (kwh) of electricity is given
by D(p) = 570 − 2200. Due to advances in renewable energy that have reduced barriers to entry, the
supply of electricity can be considered as a perfectly competitive market, with a horizontal supply
curve at price $0.08 per kwh. What is the quantity consumed by a typical consumer in equilibrium?
2. Suppose that Congress wants to promote renewable energy and thus proposes a subsidy to consumers
of $0.02 per kwh. What is the equilibrium quantity with the subsidy?
3. What percentage of the gain from the subsidy goes to sellers?
4. What is the deadweight loss from the subsidy?
5. EXERCISE 2 The university’s food court is a competitive market for lunch combos. The inverse
demand for lunch combos is p = 10 −
q
10 ,
where q is the number of combos demanded and p is the
market price per combo. The inverse supply of lunch combos is given by p =
q
5
− 2.
What is the equilibrium quantity of lunch combos?
6. What is the equilibrium price?
7. The university wants to ensure that meals remain affordable, so it imposes a price ceiling per lunch
combo of $4. With this price ceiling in place, the lunch combo market will exhibit:
a. a shortage of the lunch combos
b. a surplus of the lunch combos
8. How many units of lunch combos will the shortage/surplus amount to?
9. EXERCISE 3 A firm’s production function is given by the equation f (K, L) = 6K 0.5 L0.5 . The
marginal product of labor for this firm is
1
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a. M PL = 6K 0.5 L0.5
b. M PL = 3K −0.5 L0.5
c. M PL = 3K 0.5 L−0.5
d. M PL = 12K −0.5 L0.5
e. M PL = 12K 0.5 L−0.5 .
10. As the number of laborers increases, the marginal product of labor
a. increases.
b. decreases.
c. is constant.
d. increases then decreases.
e. decreases then increases.
11. EXERCISE 4 An intergalactic firm combines kliptons K and lobots L to make yonars Y . The
firm’s production function is given by the equation Y = 3K + 2L. Which of the following (K, L)
input bundles are on the same isoquant? (can pick more than one answer)
a. (5,2)
b. (3,2.5)
c. (3,3)
d. (2,4)
e. (4,1)
f. (4,0)
g. (1,4)
12. EXERCISE 5 Consider a call center that uses two different kinds of workers: recent high school
graduates x1 and seniors x2 . The call center’s production function is y = 53 x1 + 52 x2 , where y represents
the number of calls handled per hour. The market for call-center services is competitive. The market
for hiring recent graduates and seniors (the labor market) is also competitive.
Suppose that the call center had already made an agreement with the local high school to hire all
recent graduates for the next three months. There are 138 recent graduates. Let p stand for the
price charged by the call center per call handled. Let ω1 stand for the hourly wage paid to recent
high school graduates. Which of the following statements is correct?
a. If 0.6 ∗ p = ω1 , the firm’s commitment to the local high school will generate profits.
b. If 0.6 ∗ p > ω1 , the firm’s commitment to the local high school will generate profits.
c. If 0.6 ∗ ω1 > p, the firm’s commitment to the local high school will generate profits.
d. If 0.6 ∗ ω1 < p, the firm’s commitment to the local high school will generate profits.
13. If the call center hires only the recent graduates and no seniors, how many calls will it handle per
hour? Notice that calls may take more than an hour, so the number of calls may not be an integer.
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14. Suppose the price per call handled per hour is p = $30 , and the hourly wage that must be paid to
seniors is $13.00. If the call center is looking to maximize profits or minimize losses, in the short run
(next three months), the firm should hire
a. only the recent graduates.
b. seniors in addition to recent graduates.
15. EXERCISE 6 A businessperson is setting up a new dry cleaning store and is choosing between two
fully automated cleaning machines. The first machine can process up to 2,000 pieces of clothing per
month at a marginal cost of $1 per piece of clothing. The second machine can also process up to
2,000 pieces of clothing per month but at a marginal cost of $0.50 per piece of clothing.
The monthly lease for the machine with the higher marginal cost is $1,500. The monthly lease for
the machine with the lower marginal cost is $1,870.
The dry cleaner can sell the service of cleaning for $5 per piece.
Suppose the businessperson chooses to lease the machine with the higher marginal cost for the first
month and does indeed process 2,000 pieces of clothing in that month. What is the businessperson’s
profit in the first month?
16. Suppose now the businessperson chooses to lease the machine with the lower marginal cost for the
second month and again processes 2,000 pieces of clothing in that month. What is the businessperson’s
profit in the second month?
17. If the dry cleaner will process 2,000 pieces of clothing per month, in the long run the optimal machine
to lease is the one with the
a. lower marginal cost.
b. higher marginal cost.
18. EXERCISE 7 A video game developer hires two types of workers to develop games: game coders x1
and game testers x2 . The developer produces games according to the following production function:
1/2 1/2
y = x1 x2 ,
where y stands for the number of games developed per month, and x1 and x2 stand for, respectively,
the number of programmers and testers hired per month. Because both types of workers freelance
using their own tools, the video game developer does not require any other inputs. Suppose the game
developer has already contracted to hire 36 game testers this month. Because of contracting rules,
no more testers can be hired until next month. Let ω1 be the monthly salary of a game programmer,
and ω2 be the monthly salary of a game tester. The short-run cost function for the firm is:
a. ( y6 )2 ω1 + 6ω2
y 2
b. ( 36
) ω1 + 6ω2
y 2
c. ( 36
) ω1 + 36ω2
d. ( y6 )2 ω1 + 36ω2
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19. Let ω1 = 1, 800, and ω2 = 1, 200. The total cost of producing 12 games is
20. EXERCISE 8 David Ricardo modeled agricultural production as a function of one input, labor.
√
For instance, on a typical farm, production of wheat can be represented by the function f (x) = x,
where x is the labor input.
What are the returns to scale in wheat production?
a. increasing
b. constant
c. decreasing
d. They vary based on the level of production.
21. If the wage rate is $8, what is the cost to produce 7 units of wheat?
22. What is the general-form cost function to produce any output y at any wage w?
c(w, y) =
a. wy
b. wy 2
c. y
√
d. w y
23. What is the average cost per unit of wheat produced?
AC(y) =
a. wy
b. wy 2
c. 2wy
d. w
2
24. EXERCISE 9 A small fast-food restaurant makes hamburgers and has costs equal to c(y) = 28+ y2 ,
where y stands for the number of hamburgers made in a day.
What is the restaurant’s average cost of making 4 hamburgers?
25. Suppose the restaurant is making 4 hamburgers. What is the marginal cost of the last hamburger?
26. Without performing any additional calculations, you know that if the restaurant produces one more
hamburger, the average total cost will
a. decrease
b. increase
c. remain the same
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27. EXERCISE 10 A manufacturer of fine pens produces in two plants. The total cost of producing in
the first plant is given by
T C1 = y12 + 100.
The total cost of producing in the second plant is given by
T C2 =
y23
3
+ 200.
In these cost functions, y1 corresponds to the number of pens produced in the first plant, and y2
corresponds to the number of pens produced in the second plant. Suppose the firm is producing 60
fine pens. If the firm is minimizing costs, how many pens is it producing in the first plant?
28. EXERCISE 11 Sarah and Tiffany are in the battery business; they run a firm that produces batteries
1
1
for electric cars. There are two inputs to production; the production function is f (x1, x2) = x13 x23 .
You may recall that with this production function, the total cost to produce any output, y, as a
1
1
3
function of the input prices, w1 and w2 , is c(y) = 2w12 w22 y 2 . Assume that Sarah and Tiffany are
price takers in the market for electric car batteries.
Suppose that w1 = 4 and w2 = 9. What is the marginal cost of producing 49 batteries?
29. Suppose that the market price for electric car batteries is $252 and that input prices remain the same
as in the previous question. How many batteries will Sarah and Tiffany produce?
30. What is the average cost of production in Question 28?
31. What is the average cost of production in Question 29?
32. What are the returns to scale in production of electric car batteries?
a. increasing
b. decreasing
c. constant
d. They change based on the level of production and the combination of inputs
33. EXERCISE 12 A competitive firm has a cost function given byc(y) = 2y 2 + 98 and marginal cost
of M C(y) = 4y.
What is the firm’s supply function?
a. p(y) = 4y
b. y(p) =
p
4
c. p(y) =
p−98
4
d. p(y) = 2y 2 + 98
34. How many units will the firm supply if the price is $32?
35. What if the price is $12?
36. What is the firm’s profit when the price is $32?
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37. What is profit when the price is $12?
38. At what price will the firm break even?
39. At what quantity will the firm break even?
40. EXERCISE 13 There are two factories in a small town. Both of them emit carbon dioxide into the
air. Factory 1 currently emits 120 tons per month, whereas factory 2 currently emits 160 tons per
month. The technology of each factory is different, so their costs of reducing emissions are different
as well. The tables below show the costs of reducing emissions in increments of 20 tons per month
for each factory:
Factory 1 Total cost of reducing emissions by 20 tons/month: $50
Total cost of reducing emissions by 40 tons/month: $150
Total cost of reducing emissions by 60 tons/month: $270
Total cost of reducing emissions by 80 tons/month: $410
Total cost of reducing emissions by 100 tons/month: $570
Factory 2 Total cost of reducing emissions by 20 tons/month: $20
Total cost of reducing emissions by 40 tons/month: $60
Total cost of reducing emissions by 60 tons/month: $110
Total cost of reducing emissions by 80 tons/month: $200
Total cost of reducing emissions by 100 tons/month: $300
The existing technology does not allow for reductions in emissions beyond 100 tons/month. That is,
the most each factory could reduce its emissions by is 100 tons/month.
Suppose the government in this town would like to cut monthly emissions to half of the current level.
To do that, the government has decided to impose a tax for every 20 tons of pollution per month
emitted by a factory. To achieve its desired goal (but not exceed the goal), the tax would have to be
set between $X and $Y for every 20 tons/month. (The first number should be the lower end of the
tax, and the second number should be the higher end of the tax.)
What is the value of $X?
41. What is the value of $Y?
42. EXERCISE 14 Marco’s is the only fine-dining restaurant in town and, as such, it has a monopoly
on the market for steak dinners in its area. The demand for steak dinners per week is given by D(p) =
400 − 10p, and the cost of producing a steak dinner is fixed at 8.Inaddition, M arco0 smustpay400 per
week in fixed costs to cover rent, maintenance of the kitchen, etc.
Find the profit-maximizing price and quantity for Marco’s for steak dinners.
What is the profit-maximizing quantity?
43. What is the profit-maximizing price?
44. How much profit does Marco’s make in this case?
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45. EXERCISE 15 The daily demand function for a product is given by Q = 1010 − 2P , where Q
stands for the quantity demanded, and P stands for the price.
Suppose the market for this product is competitive, and all firms in the market have an identical
constant marginal cost of $65 (and no fixed cost). What is the daily quantity sold in this market
equal to?
46. Suppose instead that this market is served by a single-price monopolist (a monopolist charging a
single price) with a marginal cost of $65 (and no fixed cost). What is the daily quantity sold in this
market equal to?
47. Suppose now that this market is served by a monopolist that practices first-degree (perfect) price
discrimination and the monopolist has a marginal cost of $65 (and no fixed cost). What is the daily
quantity sold in this market equal to?
48. EXERCISE 16 Two firms compete as Stackelberg duopolists in a market with inverse demand given
by p = 168 − 2Q, where p is the per-unit price, qi is the output for Firm i (either Firm 1 or 2), and
Q = q1 + q2 . Firm 1 has a constant marginal cost of $4 per unit, and Firm 2 has a constant marginal
cost of $8 per unit. Assume no fixed costs.
What is the optimal output for Firm 1?
49. What is the optimal output for Firm 2?
50. What is the equilibrium price in this market?
51. What is the profit of Firm 1?
52. What is the profit of Firm 2?
53. EXERCISE 17 Two Cournot duopolists compete in a market with inverse demand given by p =
56 − 2Q, where p is the per-unit price, qi is the output for firm i (either firm 1 or firm 2), and
Q = q1 + q2 . Both firms face constant marginal costs of $2 per unit. Assume no fixed costs.
What is the optimal output for firm 1?
54. What is the optimal output for firm 2?
55. What is the equilibrium price in this market?
56. What is the profit of Firm 1?
57. What is the profit of Firm 2?
58. EXERCISE 18 Players A and B are on the same team at a video game championship. In this
multiplayer game, teammates make choices simultaneously and attempt to outduel their opponents.
Each player has two possible actions: player A can attack or hide, and player B can attack or hide.
Although the teammates want to win the game, they have slightly different preferences that lead to
the payoff table below.
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If player B chooses attack, player A will maximize her payoff if she chooses
a. attack
b. hide
59. If player B chooses hide, player A will maximize her payoff if she chooses
a. attack
b. hide
60. What is the equilibrium outcome?
a. Player A plays attack, player B plays attack.
b. Player A plays attack, player B plays hide.
c. Player A plays hide, player B plays attack.
d. Player A plays hide, player B plays hide.
e. There is no pure strategy equilibrium.
61. EXERCISE 19 Tasked with the crucial job of teaching measurement to young children, teachers
must choose between two systems, the metric system and the imperial system. Similarly, when making
tools, vehicles, signs, clothing, and so on, industries must choose to list measurements in either the
metric system or the imperial system. This situation is modeled in the game below. Because the
imperial system relies on arbitrary foundational units and is more difficult to use mathematically,
both groups get a lower payoff if they both opt for the imperial system. The lowest payoffs, however,
result from mismatches between what is taught and what is used because those situations lead to
mass confusion.
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What is (are) the pure strategy Nash equilbrium(a) of this game?
a. (teach metric, use metric)
b. (teach imperial, use imperial)
c. (teach imperial, use metric)
d. (teach metric, use imperial)
62. Will this game result in a Pareto optimal outcome?
a. Yes, it will result in this outcome all of the time.
b. It might, but it is not guaranteed.
c. No, it will never result in this outcome.
d. The Pareto criterion cannot be applied to game theory.
63. EXERCISE 20 Based on the payoff table below, which of the following is true if players 1 and 2
choose their actions simultaneously?
a. There are two pure strategy equilibria: (R, L) and (L, R).
b. The only equilibrium is (R, L).
c. The only equilibrium is (L, R).
d. There are no pure strategy equilibria.
64. Which of the following is true if player 1 moves first and player 2 moves second?
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a. The only equilibrium is (R, L).
b. The only equilibrium is (L, R).
c. There are two pure strategy equilibria: (R, L) and (L, R).
d. There are no pure strategy equilibria.
65. EXERCISE 21 Luxury goods are often a tempting target for taxation because they are by definition
unnecessary and are also consumed more by wealthy people, who would potentially suffer less from
higher taxes. Suppose that the demand for luxury goods is given by D(p) = 700, 000, 000p−3.5 and
the supply of luxury goods is given by S(p) = p0.5 .
What is the equilibrium price for luxury goods? (Round to two decimals if necessary.)
66. Suppose that a 10% tax on luxury goods is put in place.
What is the buyer’s price?
67. What is the seller’s price?
68. What is the additional cost per unit to buyers after the tax?
69. What is the decrease in revenue per unit to sellers after the tax?
70. Who bears most of the burden of the tax?
a. buyers
b. sellers
c. The burden is equally shared.
71. EXERECISE 22 A firm produces output y using two inputs that we’ll call input 1 (denoted x1 )
and input 2 (denoted x2 ). The firm has a Cobb-Douglas production technology and a production
function given by y = f (x1 , x2 ) = Ax10.7 x20.2 , where the parameter A can take on any positive value.
Suppose A is equal to 10. Does this function exhibit increasing, decreasing, or constant returns to
scale?
a. increasing
b. decreasing
c. constant
72. When A is equal to 2000, does the function exhibit increasing, decreasing, or constant returns to
scale?
a. increasing
b. decreasing
c. constant
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73. Finally, if A is equal to 0.75, does the function exhibit increasing, decreasing, or constant returns to
scale?
a. increasing
b. decreasing
c. constant
74. EXERCISE 23 A delivery service company hires messengers to deliver expensive goods around a
wealthy city. Each messenger has a vehicle that he or she brings to the job. Therefore, the only input
the company needs to choose is the number of messengers to hire per day. Because the items are
expensive and often heavy, it may take several messengers (a team of messengers) to make a single
delivery.
The market for delivery services in the city is competitive, so the company charges a flat-rate competitive price per delivery (let P stand for that price). The market for messengers is also competitive,
so the company pays its messengers a competitive daily wage (let ω stand for the wage).
The number of deliveries per day depends on the number of messengers. Specifically, the number of
deliveries (y) depends on the number of messengers (x) according to the following function:
y = x0.8 .
Suppose the price for each delivery is $240 and the daily wage paid to each messenger is $48. If the
firm wants to maximize profits, how many messengers will it hire per day?
75. Without actually substituting any numbers, you would know that if the price of deliveries (P) increases, the optimal number of messengers would
a. increase
b. decrease
c. not change
76. EXERCISE 24 Consider the production function below for a firm producing output (y) using two
inputs, (x1 and x2 ):
y = min{x1 , x2 }.
Let the cost of input x1 be ω1 , and the cost of input x2 be ω2 .
An increase in the unit cost of x2 , all else being equal, will cause the quantity demanded of x1 to
a. increase
b. decrease
c. remain unchanged
77. An increase in the unit cost of x2 , all else being equal, will cause the quantity demanded of x2 to
a. increase
b. decrease
c. remain unchanged
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78. An increase in the unit cost of x2 , all else being equal, will cause the quantity demanded of y to
a. increase
b. decrease
c. remain unchanged
79. EXERCISE 25 The market for tablets has grown increasingly competitive. Assume producers of
tablets all rely on the same technology and face the same costs. The cost function for a tablet
manufacturer is given by the following function:
c(y) =
y3
3
− 10y 2 + 200y,
wherey stands for the number of tablets produced and sold in a month.
Suppose the market demand for tablets in any month is given by
QD = 560 − p.
In the long-run equilibrium, how many tablets will be sold monthly?
80. What will be the equilibrium price?
81. Suppose all tablet manufacturers have been using a free, open-source operating system. The company
behind this software, however, has decided to impose a monthly operating system fee on each tablet
manufacturer. The monthly fee equals $385 and does not depend on how many tablets a manufacturer
produces and sells.
In the short run, what will be the price of a tablet?
82. What will be the quantity of tablets bought and sold every month?
83. With the fee in place, in the short run, firms will be earning
a. negative profits.
b. positive profits.
c. zero profits.
84. EXERCISE 26 Marijuana remains illegal in many places, but demand is consistently present, and
a black market supply exists to meet it. The black market is competitive, and marijuana can be
produced at a constant marginal cost of $126 per ounce; assume for simplicity that there are no
fixed costs. However, there is a risk that sellers may be caught selling marijuana or possessing large
quantities. Assume that an arrest and charge of possession will result in a fine of $1000, and there is
a 3% chance of getting caught with marijuana for each ounce that is sold. Demand for marijuana is
represented by D(p) = 507 − 2p.
What is the black-market price for an ounce of marijuana?
85. How many ounces of marijuana are sold in the market?
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86. Now suppose that marijuana is legalized, so there is no longer a risk of getting caught and fined. It
is, however, subject to a tax of $30 per ounce. The market otherwise remains the same in terms of
costs and demand.
What is the new legal market price for an ounce of marijuana?
87. How much tax revenue is generated?
88. EXERCISE 27 Suppose the daily market demand for meat in a small town is given by
QD =
8
,
5p2
where QD is the quantity demanded (pounds of meat), and p is the price per pound of meat.
Suppose the market for meat is competitive, and all firms in the market have a marginal cost of meat
of $0.5 per pound. How many pounds of meat per day will be sold in this market? (Round your
answers to the nearest two decimals if necessary.)
89. Now suppose instead that this market is served by a monopolist. What is the difference between the
quantity of meat sold in this market and the one sold when the market is competitive (please write
the absolute value, that is, ignore negative sign if present).
90. The daily quantity of meat sold in this market would be
a. lower than if the market is competitive.
b. higher than if the market is competitive.
91. EXERCISE 28 A very particular local oyster bar allows customers to enter and order oysters only
once a day (the owner requires ID and keeps track of customer visits). The oyster bar owner also
allows customers to place only one order per visit. The profit-maximizing owner of the bar knows
that there are two types of customers: those who are very hungry, and those who are only mildly
hungry. The demand for oysters by any very hungry customer is given by p = 10 − q, while those
who are mildly hungry have (individual) demand p = 4 − 2q. Because the owner of the oyster bar
can’t easily determine who is a very hungry customer and who is not, she decides to sell oysters in
packages. She offers a large package of 10 oysters and a small package of 2. The oyster bar owner
receives all of the oysters for free from a sailor friend, so her marginal cost is M C = 0.
If the oyster bar owner wants the very hungry customers to buy the large package and the mildly
hungry customers to buy the small package, what is the most the oyster bar can charge for the small
package?
92. If the oyster bar owner wants the very hungry customers to buy the large package and the mildly
hungry customers to buy the small package, what is the most the oyster bar can charge for the large
package?
93. EXERCISE 29 Player 1 and player 2 are playing a simultaneous-move one-shot game, where player
1 can move ”up” or ”down” and player 2 can move ”left” or ”right.” The payoffs for the game are
shown in the payoff matrix. The first number of each cell represents player 1’s payoff, and the second
number is player 2’s. Use the matrix to answer the questions below.
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Which of the following statements is true regarding player 1?
a. Player 1 has a dominant strategy to play up.
b. Player 1 has a dominant strategy to play left.
c. Player 1 has a dominant strategy to play right.
d. Player 1 has a dominant strategy to play down.
e. Player 1 does not have a dominant strategy.
94. Which of the following statements is true regarding player 2?
a. Player 2 has a dominant strategy to play up.
b. Player 2 has a dominant strategy to play down.
c. Player 2 has a dominant strategy to play left.
d. Player 2 has a dominant strategy to play right.
e. Player 2 does not have a dominant strategy.
95. Which of the following outcomes is a pure strategy Nash equilibrium of this game?
a. Player 1 plays up; player 2 plays left.
b. Player 1 plays up; player 2 plays right.
c. Player 1 plays down; player 2 plays left.
d. Player 1 plays down; player 2 plays right.
e. There is no pure strategy Nash equilibrium in this game.
96. EXERCISE 30 There are two firms whose factories sit alongside a lake. It costs each firm $1,950.00
to install filters to avoid polluting the lake. Because both firms utilize the lake’s water to produce
goods, a polluted lake hurts their production process and increases their costs. Assume that the cost
to each firm of a polluted lake is $1300.00 times the number of polluting firms.
Fill in the cost matrix based on the above information. Note: Include negative signs because this
problem refers to costs.
Which of the following are true about the equilibrium in a one-shot game?
a. The equilibrium is not Pareto optimal.
b. Both firms pollute.
c. Only firm 1 pollutes.
Economics 2A Quiz 2, Fall 2021
d. Only firm 2 pollutes.
e. Neither firm pollutes.
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