Reference no: EM1374937

1. Carl is deciding whether or not to make a farm. If he makes a farm, he will earn a $50,000 grant from the government (even if he does not produce anything). For every 100 head of cattle that he increase and sells, he receives $10,000 in revenue. The cost to create the farm is $30,000. Once the farm is constructed, he can raise up to 200 head of cattle without additional cost. Beyond 200 head of cattle, though, costs are $20,000 for every additional 100 head of cattle. Carl raises _____ head of cattle if he acts as for-profit firm and raises ____ head of cattle if he acts as a not-for-profit firm.
a. 0; 0
b. 0; 500
c. 200; 600
d. 200; 900

2. Consider a newly established product market where the following is true:
The demand curve is downward sloping and will remain stationary over time.
The average variable cost of production does not vary with output for any technology.
The economic return on development of new production technologies is positive for any firm.
Fixed costs of operation are relatively low.
If producer-producer rivalry intensifies, then which of the following will most likely occur?
a. Customer surplus will rise, marginal cost will stay the same, and economic profits will fall.
b. Customer surplus will fall, marginal cost will stay the same, and economic profits will fall.
c. Customer surplus will rise, marginal cost will fall, and economic profits will fall.
d. Customer surplus will rise, marginal cost will fall, and economic profits will rise