1
BA 315:
Economy, Industry and Competitive Analysis
Review for Midterm Exam: Fall 2004
Lundquist College of Business
University of Oregon
A
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1
Boeing estimates the elasticity of demand for new commercial jets is
–
1.25.
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 4 percent increase in the number of jets sold will require a 5 percent decrease
in the price of jets.”
c.
“A 5 percent decrease in the price of jets will increase Boeing’s total revenue.”
2
A Blue Ribbon Committee has decided that the amount of acid rain should be
reduced and is trying to determine the optimal level of reduction.
There are
benefits from reducing acid rain (reduced loss of wildlife and forest, better health,
etc.), but there are also costs.
The committee estimates that the marginal benefit
of each unit of reduction is $500  4
R
, where
R
is units of reduction, and the
marginal cost is 6
R
.
If the committee wants to maximize the net benefit from
reducing acid rain, what is the optimal level of pollution reduction?
a. 250
b. 50
c. 100
d. 125
3.[5 points]
Suppose that a perfectly competitive industry is in longrun equilibrium.
Then
the price of a complement 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.
Eventually firms will exit the industry.
d.
both
a
and
b
e.
all of the above will happen
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The next 2 questions refer to the following:
Y
60
X
300
120
B
A
U
1
U
2
200
26
20
U
3
C
Units of good X
Units of good Y
The price of
Y
is $10.
4.[10 points]
If the price of
X
is $5, what combination of
X
and
Y
will a utility
−
maximizing
consumer choose?
a.
80
X
, 20
Y
b.
120
X
, 620
Y
c.
120
X
, 250
Y
d.
200
X
, 620
Y
e.
none of the above
5.[5 points]
Which of the following are points on the consumer's demand curve for
X
?
a.
$2, 300 units
b.
$3, 120 units
c.
$5, 120 units
d.
both
a
and b
e.
both
c
and
d
Fill in the blanks in the table below and answer the next 4 questions:
Units of
Labor
Total
Product
Average
Product
Marginal
Product
1
2
3
4
5
6
7
____
____
66
____
____
78
____
20
____
____
____
16
____
10
____
30
____
10
____
____
____
6.[5 points]
The average product of labor when 4 units of labor are employed is
a.
22,
b.
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 Spring '08
 AliEmami
 Economics, a. b. c., b. c. d., Hardaway Corporation, Paxton Industries

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