Question

1. Suppose that the famers in a given market can either grow soybean or corn on their land. In addition, suppose that the price of corn increases with no change in the price of soybean. All else equal, an increase in the price of corn creates an incentive for famers to: A. grow more soybean and less corn. B. grow more corn and less soybean. C. grow less corn, but not change their production of soybean. D. grow less of both. 2. For a typical seller, the accompanying figure shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. If the market consists of 4 identical sellers, each with the same opportunity cost as the seller depicted in the figure, then how many units would be supplied in the market at a price of $4 per unit? 10+ $ Per Unit 0 50 100 150 200 250 300 350 400 Number of Units A. 150 B. 500 C. 1000 D. 1500 3. The table describes the relationship between the number of employee-hours and daily output of a firm that uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. Employee-hours per day Output per day O 40 80 120 160 200 15 If each unit of output sells for $1, what is the firm's daily revenue when it uses 4 employee-hours per day? A. $240 B. $160 C. $120 D. $80

Answer 1

(1) (B)

Higher price of corn makes it more profitable to grow & sell more corn, and grow & sell less soybean.

(2) (C)

When price = $4, single seller's quantity sold = 250

Market quantity sold = 4 x 250 = 1,000

(3) (D)

With 4 hours, 80 units of output are sold with revenue of ($1 x 80) = $80.

(4) (A)

Increase in output = 120 - 80 = 40