Question

1.)If the demand for mass transit is inelastic, then increasing fares will increase mass transit revenues.

True

False

2.)The opportunity cost of any activity can be measured by _____.

	A.	price or other monetary costs of the activity
	B.	level of technology involved
	C.	time needed to select alternatives
	D.	value of the best alternative that is given up

3.)In the short run as output rises, the distance between TC and TVC will _____.

	A.	increase
	B.	decrease
	C.	remain unchanged
	D.	increase then decrease
	E.	decrease then increase

4.)A price floor on corn would have the effect of which of the following?

	A.	Creating an excess supply regardless of the price.
	B.	Creating an excess supply when the price floor is above the equilibrium price.
	C.	Creating an excess demand when the price floor is below the equilibrium price.
	D.	Creating an excess demand regardless of the price floor.

5.)Which of the following best defines what the long run for a business is?

	A.	more than one year
	B.	the time to make necessary business decisions
	C.	the period of time during which at least one input is fixed
	D.	the period of time during which all inputs are variable

Answer 1

1)

According to total outlay method If demand is inelastic then increase in price will result in increase in revenue and decrease in price will result in decrease in Revenue.

Here, demand for mass transit is inelastic, thus increasing fares will result in increase in mass transit revenues.

Hence this statement is True.

2)

Opportunity cost is defined as the value of the next best alternative that one should give give up in order to choose the alternative he/she has chosen.

Hence, the correct answer is (D) value of the best alternative that is given up.

3)

In short run firms incur both fixed cost and variable cost because in short run atleast 1 factor is fixed. For any amount of output Total fixed cost(TFC) is constant.

TC = TFC + TVC => TC - TVC = TFC which is constant

=> the distance between TC and TVC will remain unchanged.

Hence, the correct answer is (C) remain unchanged.

4)

Price floor means that price cannot go below the price at which price floor is set.

If Price floor is set below equilibrium price this means that Market can still reach equilibrium price and hence will reach equilibrium price and hence there will be neither excess supply nor excess demand.

If Price floor is set above equilibrium price this means that Market can not reach equilibrium price and price that will prevail in the market is the Price at which price floor is set. As Price floor is above equilibrium price this means that now there will be more quantity supplied than quantity demand. Hence There will be excess supply.

Hence, the correct answer is (B) Creating an excess supply when the price floor is above the equilibrium price.

5)

In the long run there is no input which is fixed and because of this all variables in the long run are variable. Business reaches long run for that period of time at which all factors are fixed and not variables and that time can be any time(there is no fixed time).

Hence, the correct answer is (D) the period of time during which all inputs are variable