Question

1.Consider a single-price monopolist facing a demand curve of , where P is market price and q is quantity. The monopolist incurs $40 as fixed cost. The monopolist’s variable cost function is given by , where is quantity. In this market, what is the consumer surplus (CS), producer surplus (PS), monopolist’ profits ( and deadweight loss (DWL)?

Group of answer choices

a. CS=1000; PS=1250; =1210; DWL=0

b. CS=625; PS=1250; =1250; DWL=1250

c. None of the other answers is correct

d. CS=1250; PS=600; =1210; DWL=625

e. CS=625; PS=1250; =1210; DWL=625

2. Consider three statements below. Which one is true?

I. A positive productivity shock to all goods and services can be represented on the Production Possibility Frontier as an outwards shift of the frontier.
II. A negative productivity shock to all goods and services can be represented on the Production Possibility Frontier as an inwards shift of the frontier.
III. A positive productivity shock to all goods and services can be represented on the Production Possibility Frontier as a flattening of the frontier

Answer 1

Since Q1 is incomplete (variable cost equation missing), Q2 is answered below

2.

Correct statements:

I. A positive productivity shock to all goods and services can be represented on the Production Possibility Frontier as an outwards shift of the frontier.

II. A negative productivity shock to all goods and services can be represented on the Production Possibility Frontier as an inwards shift of the frontier.

Reason: A PPF represents various combinations of 2 goods which can be produced using the same resources. A positive productivity shock will shift PPF out to the right, while a negative shock will shift PPF to the left.