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Unformatted text preview: Winter 2007 Economics 20A Answers to Final Examination 1. (10 points) Consider a firm which can practice perfect price discrimination. Government imposes a tax of $10 per unit, nominally paid by the seller. Before the tax was imposed, Smith paid a price of $50. After the tax is imposed, the firm still finds it profitable to sell to Smith. What price does he pay? ANSWER: The firm charges each consumer his maximum willingness to pay. And so Smith continues to pay $50. 2. (10 points) Will a monopolist ever sell at a quantity where marginal revenue is negative? ANSWER: No. If marginal revenue is negative, the firm could increase profits by reducing the quantity sold: it would increase revenue and reduce costs. 3. The figure below shows how a tax shifts the demand curve from D to D after tax . a. (5 points) What is the amount of the tax? ANSWER: The amount of the tax $3, the amount by which the demand curve shifted down....
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This note was uploaded on 02/02/2009 for the course ECON 62140 taught by Professor Ouyang during the Spring '08 term at UC Irvine.
- Spring '08
- Price Discrimination