f07 ec51 exam1 ver1 answers

f07 ec51 exam1 ver1 answers - Economics 51D 19 September...

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Economics 51D 19 September 2007 EXAM ONE ANSWERS Unfair Version PART ONE: Choose N Lose! Multiple Choice—circle the best answer to each question on the answer sheet provided. Each question is worth 5 points. No credit given for anything circled on this exam. 1. Suppose you are in the business of producing Student Bills of Rights to sell to educational institutions. In order to produce them, you need to hire Scriveners and rent devices known in the biz as Habeus Corpustulators, special bacterial colonies that are fed copies of Black’s Law Dictionary and Sudoku puzzles. The bacterial colony partially digests the paper and rearranges the remnants randomly, spewing out (among the gibberish) rules of procedure, evidence and the like. Your goal is to produce 20 Student Bills of Rights per week, which can be achieved through several combinations of Scriveners and Habeus Corpustulators: Method Scriveners Habeus Corpustulators A 3 11 B 4 7 C 13 4 D 5 7 E 2 10 If Scriveners earn $2000 per week and Habeus Corpustulators rent out at $1500 per week, then A. Methods A, B, C, and E are technically efficient and Method E is economically efficient. B. Methods A, B and C are technically efficient and Method B is economically efficient. C. Methods B, C, and E are technically efficient and Method B is economically efficient. D. Methods B, C, and E are technically efficient and Method E is economically efficient. E. Only Method B is technically and economically efficient. 1
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C Let’s sort the above table by the number of Scriveners used, and add in a column for total cost according to the costs in the problem: Method Scriveners Habeus Corpustulators Total Cost E 2 10 19000 A 3 11 22500 B 4 7 18500 D 5 7 20500 C 13 4 32000 Now we can see clearly that Method A uses more of everything than Method E, and Method D uses more Scriveners than Method B but the same number of Habeus Corpustulators. So Methods A and D are not technically efficient, leaving E, B, and C. Of these three, Method B has the lowest total cost, at $18,500, so it is economically efficient. 2. If the quantity supplied falls from 60,000 units to 52,000 units and the price elasticity is .72, then the price must have fallen from $14 per unit to A. $12.56 per unit B. $13.22 per unit C. $11.47 per unit D. $13.53 per unit E. $10.31 per unit Answer: C Use the definition of price elasticity of supply: elasticity = (% change in quantity supplied) / (% change in price). We are given .72 as price elasticity , Q 1 = 60,000, Q 2 = 52,000, P 1 = 14 and must find P 2 . Inserting the numbers into the formula for price elasticity of supply gives 2 / ) 14 ( 14 2 / ) 000 , 60 000 , 52 ( 000 , 60 000 , 52 72 . 2 2 + - + - = P P or 2 / ) 14 ( 14 142587 . 72
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f07 ec51 exam1 ver1 answers - Economics 51D 19 September...

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