1. Under the binding price ceiling (one that actually effects the market), what does the change in consumer surplus represent? A. The gain in surplus for those buyers who can still purchase the product at the lower price. B. The loss in surplus for those buyers who previously purchased some units of the good at the hight price, but whose units are no longer produced at the lower price. (answer says both A and B are right)
2. Two small airline provide shuttle service between LA and Reno. the service are alike in every respect except that Fly Right bought this airplane for $500,000 while Fly by Night rents its plane for $30,000 a year. If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs? (Why is that answer says "Neither, the costs are identical"?)
3. a firm's marginal product of labor is 4 and MPk is 5. if the firm adds one unit of labor, but doesn't want its output quantity to change, the firm should A. Use 0.8 fewer units of capital B. Add 1.25 units of capital (Why is the answer A? for B, I used 4/5=0.8. and if one more labor is added, it'd be 5/x=0.8 and solve for x. why is this wrong?) 4. which of the following is NOT true for a single price monopoly? A. P=AR B. At profit maximizing output, P=MC (The answer says B is wrong. I thought A is wrong...?) 5. When the demand curve is downward sloping, MR is: less than price. why?