Quiz 1

1. A potential entrepreneur is trying to decide whether to open a new health spa. She currently
makes $35,000 per year as an aerobics instructor and will have to give up this job if she opens the
new health spa. If she chooses to open the spa, it will cost her $200,000 per year in rent and other
operating expenses.
a. What are her accounting costs?
b. What are her opportunity costs?
c. How much would she need to make in revenues to earn positive accounting and economic profits?

2. Suppose that three consumers are in the market for good X. Consumer 1's (inverse) demand is
PX = 40 - 5QX; Consumer 2's (inverse) demand is PX = 10 - QX; and Consumer 3's (inverse) demand is
PX = 30 - 2QX. When PX = $5, what will the market demand be?

Quiz 2
1.

In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P.
What will happen when a price ceiling is fixed at $3?

1.

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price
floor of $30 is set, what will be the resulting effect?

Quiz 3
1.

If a price increase from $8 to $10 causes quantity demanded to fall from 500 to 400, what is
the absolute value of the own price elasticity at a price of $10?

1.

You are the manager of a popular hat company. You know that the advertising elasticity of
demand for your product is 0.25. How much will you have to increase advertising in order to
increase demand by 5 percent?