10. In the Figure 3, assume that output is $10.5 trillion, while potential output is $12 trillion. Suppose that a combination of fiscal stimulus and recovery of consumer and business confidence shifts the IS and AD curves, as shown in the figure, while monetary policy sets the real interest rate at one percent. If the short-run aggregate supply curve is $\pi = \frac{4}{3}Y - 13$, then the resulting values of output and inflation are ________.
(A) $12 trillion & 3 percent
(B) $13.5 trillion & 5 percent
(C) $9.75 trillion & 0 percent
(D) $13.5 trillion & 0 percent
(E) $12.5 trillion & 2 percent

1. Refer to Figure 4. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged? (A) The movement from \( AF \) to \( BF \) (B) The movement from \( {BF} \) to \( {AF} \) (C) The movement from \( {BF} \) to \( {BD} \) (D) The movement from \( {BF} \) to \( {CE} \)

2. Refer to Figure 4. A movement from CE to BD occurs when (A) The price of capital increases while the price of labor remains unchanged. (B)The price of labor decreases while the price of capital remains unchanged. (C)The price of capital increases while the price of labor decreases. (D) The price of capital decreases while the price of labor increases.

3. Refer to Figure 4. The price of labor is $50 per unit, then along the isocost AF, the total cost (A) is $500. (B) is $750. (C) is $1,250. (D) cannot be determined without the price of capital.

4. Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor? (A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact. (B) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. (C) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. (D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

5. Refer to Table 2. If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss? (A) $0 (it breaks even) (B) loss of $1,000 (C) profit of $440 (D) loss of $440

6. Refer to Table 2. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level? (A) It must fall. (B) It must rise to offset the increased cost. (C) The firm will shut down. (D) It will remain the same.

7. Refer to Figure 5. The deadweight loss due to the externality is represented by the area (A) abc. (B) abd. (C) \( abf \). (D) ade.

8. Refer to Figure 5. The size of marginal external costs can be determined by (A) \( S_{2} + S_{1} \) at each output level. (B) \( S_{2} - S_{1} \) at each output level. (C) The supply curve \( S_{2} \). (D) The supply curve \( S_{1} \).

9. Refer to Figure 6. Following the entry of Verizon, the subscription price falls from $P_M$ to $P_C$. What is the increase in consumer surplus as a result of this change? (A) The area \( \mathrm{A} + \mathrm{B} + \mathrm{C} \) (B) The area \( \mathbf{B} + \mathbf{C} \) (C) The area \( \mathrm{D} + \mathrm{F} \) (D) The area \( \mathbf{B} + \mathbf{C} + \mathbf{D} \)

10.Refer to Figure 6. What is the size of the deadweight loss prior to Verizon entering the market and wh deadweight loss after Verizon does enter the market ? (A) The deadweight loss of area D is converted to consumer surplus. (B) The deadweight loss of area C+D is converted to consumer surplus. (C) The deadweight loss of area D is converted to producer surplus. (D)The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer su

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