1. Question : (TCO A) There is a decrease in the cost of labor for producing bicycles.
(4 pts.) What happens to bicycle supply?
(6 pts.) What happens to bicycle demand?

2. Question : (TCO A) Peanut butter and jelly are complements in consumption. The price of jelly falls.
(4 pts.) What happens to the demand for peanut butter?
(6 pts.) What happens to the demand for jelly?

3. Question : (TCO A) The number of new home sellers in a given market decreases.
(4 pts.) What happens to the supply of new homes?
(6 pts.) What happens to the demand for new homes?

4. Question : (TCO A) A market is in equilibrium with equilibrium quantity Q* and equilibrium price P*.
(2 pts.) What happens to P* if there is an increase in supply?
(4 pts.) What happens to Q* if there is a decrease in supply and a decrease in demand?
(4 pts.) What happens to P* if there is an increase in demand followed by a decrease in supply followed by another increase in demand?

5. Question : (TCO B) The following table shows part of the demand for tickets to a local sporting event:
Price(P)…Quantity(Q)
15………..40
10……….100
6…………150
3…………250
(2 pts.) Is demand elastic in the \$6 – \$10 price range?
(4 pts.) Ed = 0.75 in the \$3 – \$6 price range. In this range of demand, by what percentage would quantity demanded change if price changes by 20 percent?
(4 pts.) Price falls from \$15 to \$10. Does total revenue (TR) increase, decrease, or remain the same?

6. Question : (TCO B) Use a hypothetical example to illustrate whether you agree or disagree with the following statement: “Unemployment will go up more if the demand for labor is inelastic because the demand for labor will decrease more when you have inelastic demand than if demand were elastic.” Explain why, using hypothetical numbers to illustrate your case.

7. Question : (TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.
No. of workers Total Labor Cost Output Total Revenue
1 \$150 100 \$170
2 300 108 550
3 450 114 1150
4 600 119 1470
5 750 123 1600
6 900 125 1700
7 1050 126 1750
(2 points) What is the marginal product of the second worker?
(2 points) What is the marginal revenue product of the fourth worker?
(2 points) What is the marginal cost of the fifth worker?
(4 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

8. Question : (TCO C) Answer the next question on the basis of the following cost data for a purely competitive seller:
Total Product TFC TVC
0 \$150 \$0
1 150 70
2 150 120
3 150 150
4 150 220
5 150 300
6 150 390
Refer to the above data. If the product price is \$95 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

9. Question : (TCO C) Answer the next question on the basis of the following cost data for a purely competitive seller:
Total Product TFC TVC
0 \$50 \$0
1 50 70
2 50 120
3 50 150
4 50 220
5 50 300
6 50 390
Refer to the above data. If the product price is \$105, at its optimal output will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

10. Question : (TCO C) A firm has Total Costs (TC) of \$10,000 over the next three months (TOTAL for the 3 months – not per month), of which \$6,000 are fixed costs (TFC) for rent on its lease that cannot be broken. If it stays in business over those months, then the firm will collect only \$5,000 in revenues (TR). So, considering only this information, should they stay in business for those three months or should they close down right now? Provide your reasoning.