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The difference between the price buyers pay for a good and the amount of the tax is the price sellers receive from selling it.
1. True
2. False
1. True
Price sellers receive= Price buyers pay - tax
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Suppose the government imposes an excise tax of $10 on a market. Suppose further that the price elasticity of demand for the good is 1.6 and the price elasticity of supply for it is 2.4.
1. What percentage of the tax will be borne by the buyers?
2. What percentage of the tax will be borne by the sellers?
3. The price buyers pay for the good after the tax is levied will be _____ than the price they paid prior to the tax.
4. The price sellers receive for the good after the tax is levied will be _____ than the price they received prior to the tax.
- 1. E(D)= 1.6, E(S)= 2.4
- E(S)/(E(S)+E(D))= 60%
- (E= elasticity, S&D= Seller and Demand)
- 2. E(D)= 1.6, E(S)= 2.4
- (E(D) / (E(D)+E(S))= 40%
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- Lower Elasticity implies Higher Tax Burden
- 3. higher
- 4. lower
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Sellers will bear the entire burden of an excise tax if supply is perfectly _____.
1. elastic
2. inelastic
2. inelastic
- Lower Elasticity implies Higher Tax Burden
- Higher Elasticity implies Lower Tax Burden
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Buyers will bear none of the burden of an excise tax if demand is perfectly _____.
1. elastic
2. inelastic
1. elastic
- Lower Elasticity implies Higher Tax Burden
- Higher Elasticity implies Lower Tax Burden
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Suppose Al owns a donut shop. He pays his employees $120,000 per year and his inventory costs him $40,000 per year. Prior to running the donut shop, Al worked on a television show and earned $60,000 per year. (Assume these are the only costs he faces.) The total revenue of the store per year is $250,000.
What is Al's...
.a) explicit cost
b) implicit cost?
c) accounting profit
d) economic profit?
a) 120,000+40,000= 160,000
b) 60,000
c) Total Rev. - Explicit cost= 250,000 - 160,000= 90,000
- d) Account. Profit - Implicit cost= 90,000 - 60,000= 30,000
- Tot Rev. - Expl. cost - Impl. cost= 250,000 - 160,000 - 60,000= 30,000
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Suppose Danielle is considering opening her own beauty salon. She anticipates the following costs per year:
Furniture: $30,000
Equipment: $20,000
Rent: $48,000
Coloring products: $30,000
Styling products: $38,000
Danielle is withdrawing $50,000 from her savings account that pays 4 percent interest per year to purchase furniture and equipment and is quitting her current job that pays $40,000. She expects that the total revenues from the new business in the first year will be $200,000.
What is Danielle's...
.a) Explicit cost
b) Implicit cost
c) accounting profit
d) economic profit
a) 30k+20k+48k+30k+38k= 166,000
b) 50,000*4%= 2,000 - 40,000 + 2,000= 42,000
- c) Total Rev - Expli. cost
- 200,000 - 166,000= 34,000
- d) Acount. Profit - Impli. Cost
- 34,000 - 42,000= -8,000
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Suppose a profit-maximizing firm is earning positive economic profits at its current level of output. Everything else held constant, the firm's accounting profits are...
1. positive
2. negative
3. normal
4. ambiguous
1. positive
Accounting Profit > Economic Profit
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The following table depicts the price and cost structure of a profit-maximizing firm:
| Quantity | Price per Unit | Total Cost |
|---|
| 0 | 20 | 10 | | 1 | 20 | 15 | | 2 | 20 | 25 | | 3 | 20 | 45 | | 4 | 20 | 75 | | 5 | 20 | 120 |
a) What is the firm’s fixed cost (FC)?
b) What is the variable cost (VC) of producing four units of output?
c) What is the marginal cost (MC) of the fourth unit produced?
d) What is the firm’s total revenue (TR) from selling four units of output?
e) What is the marginal revenue (MR) from the fourth unit sold?
f) What is the firm’s profit-maximizing level of output (Q*)?
| MR | TR | Q | P PER UNIT | TC | FC | VC | MC |
|---|
| undefined | 0 | 0 | 20 | 10 | 10 | 0 | undefined | | 20 | 20 | 1 | 20 | 15 | 10 | 5 | 5 | | 20 | 40 | 2 | 20 | 25 | 10 | 15 | 10 | | 20 | 60 | 3 | 20 | E45 | 10 | G35 | 20 | | 20 | 80 | 4 | 20 | 75 | 10 | 65 | 30 | | 20 | 100 | 5 | 20 | 120 | 10 | 110 | 45 |
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When marginal cost is greater than the average total cost at a particular level of output, average total cost must be...
1. increasing
2. decreasing
3. remaining constant
1. increasing
Marginal Cost > Avg. Total Cost
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Suppose the average total cost of producing 9 sweaters is $61 and the marginal cost of producing the 10th sweater is $63. Everything else held constant, the average total cost of producing 10 sweaters will be _____ the average total cost of producing 9 sweaters.
1. greater than
2. the same as
3. less than
1. greater than
- Avg. Total Cost(10= [(9*61)+63] / 10 = 61.2
- Avg. Total Cost(9)= 61
Avg. Total Cost(10) > Avg. Total Cost(9)
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