Questions:
1. Which of the following is NOT a source of Decreasing Returns to Scale.
A. Problem of coordination and control.
B. Entrepreneurial capacity is fixed.
C. Inflexibility.
D. Cannot make fast decisions.
E. Specialization in the use of capital and labor.
2. A firm has a demand function and a total cost function as follows:
P=$5,000-$3Q
TC=$300,000+$1,000Q+$2Q2
Calculate the optimal output and price. Assuming:
A. The firm is maximizing total profit.
B. The firm is maximizing total revenue.
3. A firm has a demand function: Q=30-0.2P and a supply function: Q= -30+0.4P
A. Find the market equilibrium price (P) and quantity (Q).
B. Using a graph to discuss the impacts on the market equilibrium price (P) and quantity (Q) of an increase in consumer income. Assume the product is a normal good.
4. The demand function for bicycles in Holland has been estimated to be
Q = 2,000 +15Y - 0.5P
Where Y is income in thousands of guilders, Q is the quantity demanded in units, and P is the price per unit. When P = 150 guilders and Y = 15 (thousand) guilders, determine the following:
A. Price elasticity of demand
B. Income elasticity of demand