Question

Max is selling his car. The minimum he needs to be paid for the car is $4,000. He pays $20 to place a for sale ad in the newspaper, and he also pays mechanic $100 to provide a written assessment of the quality of the car. He initially asks $5,200 for the, but ends up selling it for $4,900. Calculate Max’s producer surplus.

Question 7 options:

	$1,080.
	$1,200.
	$900.
	$780.

When deciding how much of a particular good to produce, a producer should:

Question 6 options:

	Keep producing more as long as the price is at least as great as marginal cost.
	Produce an extra unit of output if it generates positive producer surplus.
	Follow both the rules proposed in the first and second answer choices.
	Follow neither rule proposed in the first or second answer choices.

An increase in the marginal cost of producing a good is, graphically, represented by:

Question 5 options:

	A movement down and to the left along a supply curve.
	A movement up and to the right along a supply curve.
	A leftward shift in the supply curve.
	A rightward shift in the supply curve.

Which of the following statements about supply is TRUE?

Question 4 options:

	The “law of supply” states that as price rises, supply increases.
	If the marginal cost of production is always equal to $5 per unit, then the supply curve is horizontal.
	Both the first and second answers are true.
	Neither the first or second answers is true.

Answer 1

1 - Option D

$ 780

Producer surplus = 4900 - 4000-120

= $ 780

2 - Option A

Keep.producing as long as price is as great as marginal cost.

The producer should produce till the level where MR = MC is obtained. This is the profit maximisation condition. The other conditions are wrong.

3 - Option C

Leftward shift in the supply curve

Movement is caused by the change in price of commodity. Rightward shift will be there when the cost of production falls. Hence Option C will be correct

4 - Option A

The law of supply states that as price rises , supply increases.

The second statement is not correct. The horizontal supply curve will be on constant AC and not MC.