Questions for Review without Answers
Chapter 10. Supply Theory I. The Supply Curve and Cost Behaviour
I. Preliminary Remark
1) Do you remember some of the analogies between demand theory and supply theory?
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II. Theoretical Premises of Supply Theory
2) What are the criteria that the model firm of microeconomics must fulfil?
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3) Why is the demand curve for the model firm a horizontal line?
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III. The Basics
4) Distinguish quantity supplied and supply.
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5) Distinguish endogenous and exogenous variables in supply theory.
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6) What causes a movement along the supply curve?
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7) And what causes a shift of the supply curve?
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8) Explain why the supply curve slopes upwards from left to right.
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9) What is market supply?
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10) What happens to the market supply curve for red tulips when bad weather destroys part of the red-tulip harvest?
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IV. Price Elasticity of Supply
11) What is price elasticity of supply?
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12) Write down the fraction to calculate it.
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13) Why are the slope of the supply curve and elasticity not identical?
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14) What does the slope of a linear supply curve tell you about elasticity?
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15) How do you calculate supply elasticity between two points on the supply curve?
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V. Cost Behaviour and Cost Curves
16) Define
A. AFC
B. AVC
C. ATC
D. MC
E. Sunk costs
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17) What are total costs for 10 units according to the following cost function: TC = 8Q.
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18) State and explain the viability rule.
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VI. The Reasons for the Behaviour of Costs
19) Draw and explain the production function.
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20) Distinguish between the production function and the PPF.
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21) Explain the law of diminishing returns.
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22) What is the difference between returns and returns to scale?
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23) Define
A. economies of scale
B. diseconomies of scale
C. economies of scope
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VII. Back to the Firm's Supply Curve
24) Define efficient scale.
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25) What happens to fixed factors in the long term?
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26) Draw a short-term and a long-term supply curve and explain the difference between them in words.
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