Deck 24: A: Industry Supply

Question 1

If there are constant returns to scale in a competitive industry,then the long-run industry supply curve for that industry is horizontal.

Answer 1

True

Question 2

If some firm in an industry has the production function F(x,y)= x^3/4 y^3/4,where x and y are the only two inputs in producing the good,then that industry cannot be competitive in the long run.

Answer 2

True

Question 3

The bicycle industry is made up of 100 firms with the long-run cost curve c(y)= 2+ (y₂/2)and 120 firms with the long-run cost curve c(y)= y₂/4.No new firms can enter the industry.What is the long-run industry supply curve at prices greater than $2?

A) y = 170p.
B) y = 360p.
C) y = 240p.
D) y =340p.
E) y =375p.

Answer 3

y =340p.

Question 4

The market for a good is in equilibrium when the government unexpectedly imposes a quantity tax of $2 per unit.In the short run,the price will rise by $2 per unit so that firms can regain their lost revenue and continue to produce.

Question 5

The bicycle industry is made up of 100 firms with the long-run cost curve c(y)= 2 + (y₂/2)and 60 firms with the long-run cost curve c(y)=y₂/10.No new firms can enter the industry.What is the long-run industry supply curve at prices greater than $2?

A) y = 420p.
B) y = 400p.
C) y = 200p.
D) y = 300p.
E) y = 435p.

Question 6

The short-run industry supply curve can be found by horizontally summing the short-run supply curves of all the individual firms in the industry.

Question 7

An industry has 1,000 firms,each with the production function f(x₁,x₂)=x^1/2₁x^1/2₂.The price of factor 1 is $1 and the price of factor 2 is $1.In the long run,both factors are variable,but in the short run,each firm is stuck with using 100 units of factor 2.The long-run industry supply curve is

A) upward sloping with zero supply if price is less than $10.
B) downward sloping for outputs less than 10.
C) horizontal with zero supply for prices less than $2 and infinite supply for prices greater than $2.
D) horizontal with zero supply for prices less than $10 and infinite supply for prices greater than $10.
E) upward sloping with zero supply if price is less than $20.

Question 8

In East Icicle,Minnesota,on the northern edge of the corn belt,the growing season is short and the soil is poor.Corn yields are meager unless a great deal of expensive fertilizer is used.In Corncrib,Illinois,the land is fertile and flat and the growing season is 20 days longer.For any given expenditure per acre,corn yields are far greater than in East Icicle.Farmers in both places are profit maximizers who grow corn.

A) Marginal costs are higher in East Icicle than in Corncrib.
B) More fertilizer is used per acre in East Icicle than in Corncrib.
C) Marginal costs are the same in both places.
D) More fertilizer is used per acre in Corncrib than in East Icicle.
E) More than one of the above is true.

Question 9

It is possible to have an industry in which all firms make zero economic profits in long-run equilibrium.

Question 10

A competitive industry has 10,000 identical firms.For each firm in the industry,the long-run cost of producing y units of output is c(y)= $100 +y2 if y $\gt$ 0 and c(0)= 0.The government imposes a lump sum tax of $300 on each firm in the industry.Firms can avoid this tax only by going out of business.There is free entry and exit into this industry.In the long run,the number of firms

A) stays constant and the price of output rises by $30.
B) doubles and the price of output doubles.
C) is halved and the price of output is doubled.
D) stays constant and the price of output rises by less than $30.
E) None of the above.

Question 11

In a competitive market,if both demand and supply curves are linear,then a per-unit tax of $10 will generate exactly the same deadweight loss as a per-unit subsidy of $10.

Question 12

The possibility of more firms entering an industry in the long run tends to make long-run industry supply more price elastic than short-run industry supply.

Question 13

Suppose that all firms in a given industry have the same supply curve given by S_i(p)= 2p when p is greater than or equal to $2 and S_i(p)=0 0 when p is less than $2.Suppose that market demand is given by D(p)= 12 -p.If firms continue to enter the industry so long as they can do so profitably,the equilibrium price must be closest to

A) $5.
B) $4.
C) $2.40.
D) $2.
E) $1.75.

Question 14

On a tropical island there are 100 potential boat builders,numbered 1 through 100.Each can build up to20 boats a year,but anyone who goes into the boatbuilding business has to pay a fixed cost of $19.Marginal costs differ from person to person.Where y denotes the number of boats built per year,boat builder 1 has a total cost function c(y)= 19 + y.Boat builder 2 has a total cost function c(y)=19 + 2y,and more generally,for each i,from 1 to 100,boat builder i has a cost function c(y)= 19 + iy.If the price of boats is 25,how many boats will be built per year?

A) 480
B) 120
C) 60
D) 720
E) Any number between 500 and 520 is possible.

Question 15

On a tropical island there are 100 potential boat builders,numbered 1 through 100.Each can build up to8 boats a year,but anyone who goes into the boatbuilding business has to pay a fixed cost of $7.Marginal costs differ from person to person.Where y denotes the number of boats built per year,boat builder 1 has a total cost function c(y)= 7 + y.Boat builder 2 has a total cost function c(y)= 7 + 2y,and more generally,for each i,from 1 to 100,boat builder i has a cost function c(y)= 7+ iy.If the price of boats is 15,how many boats will be built per year?

A) 112
B) 64
C) 32
D) 168
E) Any number between 120 and 128 is possible.

Question 16

The bicycle industry y is made up of 100 firms with the long-run cost curve c(y)= 2 + (y₂/2)and 60 firms with the long-run cost curve c(y)=y₂/10.No new firms can enter the industry.What is the long-run industry supply curve at prices greater than $2?

A) y = 400p.
B) y =420p.
C) y = 200p.
D) y = 300p.
E) y = 435p.

Question 17

Two firms constitute the entire doghouse industry.One has a long-run cost curve of 3 + 4y₂/3 and the other has a long-run cost curve of 10 + y₂/10.If no new firms enter the industry,at which of the following prices will exactly one firm operate?

A) $1
B) $3
C) $5
D) $7
E) None of the above.

Question 18

In the absence of government interference,there is a constant marginal cost of $6 per ounce for growing marijuana and delivering it to buyers.Suppose that government authorities seize shipments whenever they find them and resell the marijuana that they seize on the open market.The probability that any shipment of marijuana is seized is .10.If a shipment is seized,there is no other punishment besides loss of the marijuana that is seized.The effect of the government action is to

A) leave prices unchanged.
B) raise the equilibrium price by $.67.
C) lower the equilibrium price by $.33.
D) raise the equilibrium price by $1.33.
E) raise the equilibrium price by $.60.

Question 19

On a tropical island there are 100 potential boat builders,numbered 1 through 100.Each can build up to 16 boats a year,but anyone who goes into the boatbuilding business has to pay a fixed cost of $15.Marginal costs differ from person to person.Where y denotes the number of boats built per year,boat builder 1 has a total cost function c(y)=15 + y.Boat builder 2 has a total cost function c(y)= 15 + 2y,and more generally,for each i,from 1 to 100,boat builder i has a cost function c(y)=15 + iy.If the price of boats is 40,how many boats will be built per year?

A) 624
B) 200
C) 936
D) 400
E) Any number between 640 and 656 is possible.

Question 20

On a small island,papayas can only be sold in the market in the center of the island.Although papayas only cost $1 to raise,they can be sold in the market for $3.But it costs $.10 per kilometer to transport each papaya to market.If an acre of land grows 200 papayas,how much rent does an acre of land 4 kilometers from the market command?

A) $302
B) $320
C) $240
D) $262
E) None of the above.

Question 21

In the absence of government interference,there is a constant marginal cost of $5 per ounce for growing marijuana and delivering it to buyers.If the probability that any shipment of marijuana is seized is .10 and the fine if a shipper is caught is $25 per ounce,then the equilibrium price of marijuana per ounce is

A) $8.33.
B) $7.50.
C) $30.
D) $4.50.
E) $5.50.

Question 22

In a certain industry,the supply curve of any firm is S_i(p)= p/2.If a firm produces 6 units of output,what are its total variable costs?

A) $34
B) $72
C) $54
D) $36
E) There is not enough information given to determine total variable costs.

Question 23

In Baggs,Wyoming,cattle can be produced according to the following process: C== G/10 + P/40,where C is the number of cattle,G are bushels of grain,and P are acres of pasture.If grain costs $4 per bushel and pasture costs $4 per acre,how many cattle can Rancher Roy produce with a budget of $4,000?

A) 80
B) 25
C) 100
D) 1,000
E) 400

Question 24

In Baggs,Wyoming,cattle can be produced according to the following process: C =G/20+ P/40,where C is the number of cattle,G are bushels of grain,and P are acres of pasture.If grain costs $4 per bushel and pasture costs $3 per acre,how many cattle can Rancher Roy produce with a budget of $6,000?

A) 50
B) 100
C) 1,500
D) 75
E) 300

Question 25

An industry has 100 firms.These firms have identical production functions.In the short run,each firm has fixed costs of $200.There are two variable factors in the short run and output is given by y =(min{x₁,3x₂})^1/2.The cost of factor 1 is $5 per unit and the cost of factor 2 is $4 per unit.In the short run,the industry supply curve is given by

A) Q = 100p/10.
B) the part of the line Q =50(min{5,12})for which pQ $\gt$ 200/Q.
C) Q = 575p^1/2.
D) Q = 100p/12.67.
E) None of the above.

Question 26

In a certain industry,the supply curve of any firm is S_i(p)= p/2.If a firm produces 5 units of output,what are its total variable costs?

A) $50
B) $23
C) $37.50
D) $25
E) There is not enough information given to determine total variable costs.

Question 27

In the problem discussed in your workbook,the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird.Cockatoos are drugged and smuggled in suitcases to the United States.Half of the smuggled cockatoos die in transit.Each smuggled cockatoo has a 10% probability of being discovered,in which case the smuggler is fined.If the fine imposed for each smuggled cockatoo is increased to $1,200,then the equilibrium price of cockatoos in the United States will be

A) $100.
B) $160.
C) $76.
D) $355.56.
E) $266.67.

Question 28

In the problem discussed in your workbook,the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird.Cockatoos are drugged and smuggled in suitcases to the United States.Half of the smuggled cockatoos die in transit.Each smuggled cockatoo has a 10% probability of being discovered,in which case the smuggler is fined.If the fine imposed for each smuggled cockatoo is increased to $1,100,then the equilibrium price of cockatoos in the United States will be

A) $333.33.
B) $150.
C) $95.
D) $73.
E) $244.44.

Question 29

The price elasticity of demand for gasoline in the United States is equal to 0.15.How should the price elasticity of demand for the individual firm compare to 0.15 (higher,lower,same,can't tell)? Explain why.

Question 30

In the absence of government interference,there is a constant marginal cost of $5 per ounce for growing marijuana and delivering it to buyers.If the probability that any shipment of marijuana is seized is .30 and the fine if a shipper is caught is $35 per ounce,then the equilibrium price of marijuana per ounce is

A) $22.14.
B) $40.
C) $3.50.
D) $15.50.
E) $6.50.

Question 31

In the absence of government interference,there is a constant marginal cost of $6 per ounce for growing marijuana and delivering it to buyers.Suppose that government authorities seize shipments whenever they find them and resell the marijuana that they seize on the open market.The probability that any shipment of marijuana is seized is .50.If a shipment is seized,there is no other punishment besides loss of the marijuana that is seized.The effect of the government action is to

A) leave prices unchanged.
B) raise the equilibrium price by $6.
C) lower the equilibrium price by $3.
D) raise the equilibrium price by $12.
E) raise the equilibrium price by $3.

Question 32

In the absence of government interference,there is a constant marginal cost of $5 per ounce for growing marijuana and delivering it to buyers.If the probability that any shipment of marijuana is seized is .10 and the fine if a shipper is caught is $45 per ounce,then the equilibrium price of marijuana per ounce is

A) $50.
B) $9.50.
C) $10.56.
D) $4.50.
E) $5.50.

Question 33

In the absence of government interference,there is a constant marginal cost of $4 per ounce for growing marijuana and delivering it to buyers.Suppose that government authorities seize shipments whenever they find them and resell the marijuana that they seize on the open market.The probability that any shipment of marijuana is seized is .50.If a shipment is seized,there is no other punishment besides loss of the marijuana that is seized.The effect of the government action is to

A) raise the equilibrium price by $8.
B) raise the equilibrium price by $4.
C) lower the equilibrium price by $2.
D) leave prices unchanged.
E) raise the equilibrium price by $2.

Question 34

An industry has 100 firms.These firms have identical production functions.In the short run,each firm has fixed costs of $200.There are two variable factors in the short run and output is given by y =(min{x₁,4x₂})^1/2.The cost of factor 1 is $2 per unit and the cost of factor 2 is $4 per unit.In the short run,the industry supply curve is given by

A) Q =100p/6.
B) Q = -100p/6.
C) Q= 300p^1/2.
D) the part of the line Q =50(min{2,16})for which pQ $\gt$ 200/Q.
E) None of the above.

Question 35

An industry has 100 firms.These firms have identical production functions.In the short run,each firm has fixed costs of $200.There are two variable factors in the short run and output is given by y =(min{x₁,4x₂})^1/2.The cost of factor 1 is $5 per unit and the cost of factor 2 is $5 per unit.In the short run,the industry supply curve is given by

A) Q =100p/12.5.
B) Q =100p/10.
C) Q = 580p^1/2.
D) the part of the line Q =50(min{5,20})for which pQ $\gt$ 200/Q.
E) None of the above.

Question 36

In a certain industry,the supply curve of any firm is S_i(p)= p/2.If a firm produces 5 units of output,what are its total variable costs?

A) $37.50
B) $25
C) $23
D) $50
E) There is not enough information given to determine total variable costs.

Question 37

The price elasticity of gasoline in the United States has been estimated to be 0.15.If this is so,should profit-maximizing gasoline stations raise their prices? (Explain why or why not. )

Question 38

In the problem discussed in your workbook,the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird.Cockatoos are drugged and smuggled in suitcases to the United States.Half of the smuggled cockatoos die in transit.Each smuggled cockatoo has a 10% probability of being discovered,in which case the smuggler is fined.If the fine imposed for each smuggled cockatoo is increased to $700,then the equilibrium price of cockatoos in the United States will be

A) $110.
B) $244.44.
C) $75.
D) $61.
E) $155.56.