Question

Jane operates a muffin shop in a market where she takes the price of $2 per muffin as given. Her total cost of production is given by TC(q) = 15 + 0.01q² and her marginal cost of production is given by MC(q) = 0.02q. At her profit maximizing output level of q* = ______, Jane earns ______ profit.

Question 7 options:

a)	50 muffins; $5

b)	100 muffins; $85

c)	100 muffins; $100

d)	2,000 muffins; $1,580

e)	0 muffins; -$20

Which of the following would cause an outward shift in supply?

Question 16 options:

a)	an increase in wealth

b)	an expectation of a lower future price

c)	an increase in the profitability of a substitute in production.

d)	the good becomes trendy.

e)	none of the answers presented are correct.

The relationship between averages and marginals implies that

Question 28 options:

a)	both marginal and average product curves increase at a decreasing rate.

b)	marginal returns will typically go through three distinct phases.

c)	the average product curve and the marginal product curve intersect at the highest point on the marginal product curve.

d)	the marginal product curve is everywhere below the average product curve.

e)	the average product curve and the marginal product curve intersect at the highest point on the average product curve.

If cotton and wheat are complements in production for a farmer, an increase in the supply of cotton will take place:

Question 23 options:

a)	When the price of cotton falls.

b)	When the price of wheat falls.

c)	When the demand for cotton rises.

d)	When the price of cotton rises.

e)	When the price of wheat rises.

When a firm can increase its output with a less than proportional increase in total costs, which of the following is true?

Question 24 options:

a)	the firm has economies of scale

b)	the firm has diseconomies of scale

c)	the firm’s average total cost is increasing with output

d)	the firm’s marginal cost is greater than its average cost

e)	all of the above.

Answer 1

Jane operates a muffin shop in a market where,

Price = MR = $2, MC(q) = $0.02q

So at equilibrium,

MR=MC i.e. 0.02q=2 or q=2/0.02 =100 units

Profit = TR - TC = (2×100) - {15+0.01(100)²} = 200 - (15+100) = 200-115 = $85

Question 7. Answer is Option b)

Question 16. An outward shift in supply can be caused by-

A decrease in the cost of production of the good. So non of the options are correct.

Question 28. The relationship between averages and marginals implies that: The average product curve and the marginal product curve intersect at a point where the average product curve is at maximum.

Question 23. If cotton and wheat are complements in production for a farmer, an increase in the supply of cotton will take place: e) when the price of wheat rises.

Question 24. When a firm can increase its output with a less than proportional increase in total costs, a) the firm has economies of scale