Problem 17 (2 points) If demand for a product is elastic, will a price increase cause an increase in total expenditure on the product? Why or why not? Explain intuitively.

Problem 18 (2 point) A lemonade stand can use Crystal Light packets or lemons to make lemonade. One Crystal Light produces one glass of lemonade, while one lemon produces 1/8 glass of lemonade. Please model the lemonade stand’s production function.

Problem 19 (2 points) Suppose there are two periods in a man’s life. The man earns all of his income in the first period. He can spend his income in either period; any income he does not spend in the first period can be saved at an interest rate of r and spent in the second period. What is the opportunity cost of consumption in the first period?

Problem 20 (2 points) If two bundles of goods, A and B, lie on the same indifference curve, what can one conclude about the two bundles?

Problem 21 (2 points) What is the opportunity cost of producing a bicycle? There are lots of ways to say the right answer here, but make sure you explain your answer sufficiently.

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Problem 22 (1 point) If marginal cost is below average cost, is average cost falling or rising?

Problem 23 Brene is a podcaster. Identify the following costs she faces (e.g. opportunity costs, total costs, variable costs, fixed costs, average fixed costs, etc.):

1. (i) (1 point) The opportunity cost of shutting her studio down and not producing any podcast episodes in the short run.
2. (ii) (1 point) The money she could make performing on-stage instead of podcasting.
3. (iii) (1 point) The wages she pays to her producers and editors in the short run.
4. (iv) (1 point) The rent she pays on her studio in the short run.
5. (v) (1 point) The rent she pays on her studio in the long run.

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Problem 24 (3 points) If firms are earning positive economic profits in a perfectly competitive industry, will firms enter or exit the market? Which direction will short-run supply shift? Will firms continue to earn positive profits?

Problem 25 (1 point) Why can firms in perfectly competitive industries not earn positive economic profits in the long run?

Problem 26 (1 point) If a firm is said to have ”increasing returns to scale”, what does that mean?

Problem 27 (1 point) Describe the difference between a monopoly market and a monopolistically compet- itive market.

Problem 28 (1 point) In the case of a negative externality, will the social marginal cost be lower or higher than the private marginal cost?

Problem 29 (1 point) Which is not an example of price discriminating by separating markets?

(i) offering discounts for students with IDs.
(ii) charging lower prices for airline tickets with a Saturday stay-over.

(iii) selling 13 bagels (a bakers dozen) for the price of 12.
(iv) selling snowblowers at a discount in relatively warmer climates.

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Problem 30 (3 points) Why might the government allow a monopoly to exist? Please provide a plausible example. How might the government address the welfare concerns associated with monopoly markets?

Problem 31 (3 points) Suppose the market for bandages is perfectly competitive. Demand is given by Q = 1000(2 − P ) and supply by Q = 500(P − 1). The market is in equilibrium, with Q = 333.33 and P = 1.67. Calculate consumer and producer surplus at market equilibrium.

Problem 32 (2 points) A price-taking record producer is producing 1200 records per day. The market price of a record is $25. The average cost of producing a record is $12. Is the record market in long-run equilibrium? How do you know?

Problem 33 (4 points) Model a bowling alley’s production function. Make sure you define all relevant objects!