Review_Midtewrm__BA_315_Fall__2004 - BA 315 Economy...

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1 BA 315: Economy, Industry and Competitive Analysis Review for Midterm Exam: Fall 2004 Lundquist College of Business University of Oregon A l i E m a m i 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 long-run 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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2 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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Review_Midtewrm__BA_315_Fall__2004 - BA 315 Economy...

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