Midterm_BA_315_Fall__03

Midterm_BA_315_Fall__03 - Midterm Exam, Fall 2003 Student...

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1 Midterm Exam, Fall 2003 Student Name:________________ BA 315: Economy, Industry, and Competitive Analysis HW Team#:____________ Department of Finance Charles H. Lundquist College of Business University of Oregon Ali Emami Answering the following questions please use words, or graphs, or math or any combinations to support your answers. Correct answers without explanations (intuitive, graphical, or mathematical) will not receive any credit. Please limit your answers to the space provided and be very brief in your explanations. Part A: Multiple Choices and True-False Questions (4 points each question) 1. Ali’s company estimates the elasticity of demand for its product X is –0.9. Explain why the following statements are either true or false (i.e., state whether true or false and explain why.) a. “The price effect dominates the quantity effect.” b. “A 8.1 percent increase in the number of good X sold will require a 9 percent decrease in the price of good X.” c. “A 10 percent increase in the price of good X will increase Boeing’s total revenue by one percent.” 2 Suppose that a perfectly competitive industry is in long-run equilibrium. Then the price of a substitute good decreases. What will happen? a. Next period a typical firm will increase output. b. Next period a typical firm will earn a greater than normal profit. c. Next period firms will exit the industry. d. Next period firms will decrease output. e. (a) and (b). 3. Suppose a perfectly competitive firm increases its output. In order to sell this additional output the firm: A) Can sell it at the market price. B) Can raise its price to sell the additional output. C) Must lower its price to sell the additional output. D) Will not be able to sell the additional output because of the many competitive firms selling identical products.
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The next 2 questions refer to the following Figure (Figure 1): 4. Assume that the price of good Y is $40. For a utility maximizing consumer Calculate ,, A BC X Xa n d Y 5. Derive consumer demand for good X based on price-quantity combinations given by bundles A, B, and C in Figure 1 above. X
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Midterm_BA_315_Fall__03 - Midterm Exam, Fall 2003 Student...

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