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Unformatted text preview: Price Quantity $ Quantity Market Typical Firm Supply Demand Q1 P1 MR ATC MC q1 P1 New Demand P2 Q2 q2 P2 PR New MR ECON 0100 -- SECOND MIDTERM EXAM SPRING TERM 2084 NAME__________________________________________ TAs Name : (please circle) Samah Mazraani Yeol Yong Sung PROBLEMS (25 points) 1. Suppose there are 1000 hot dog stands operating in NYC. Each stand has the same U-shaped short run ATC curve. The market demand for hot dogs is negatively sloped and the market is in long-run equilibrium. Assume that this is a constant cost industry. a. Draw the current equilibrium for the NYC hot dog market on the graph on the left. Label the equilibrium price ( P1 ) and the equilibrium quantity ( Q1 ). (4) b. For a typical firm (i.e., hot dog stand) draw and label the ATC, MC, and MR curves representing the current equilibrium on the graph on the right. Also identify and label the profit maximizing output for the firm with q1 . (4) c. A study sponsored by the Hot Dog Sellers Board reports that eating hot dogs daily reduces the incidence of cancer in laboratory rats. National press coverage of the report increases the demand for hot dogs in NYC. Show the short run impact on the market graph identify the new price ( P2 ) and the new quantity ( Q2 ). (2) d. Show the short run impact on the graph for the typical hot dog stand identify the new price ( P2 ), the new output ( q2 ), and total economic profit ( PR ) for the firm. (4) e. What will happen as the market reacts to the change in demand and moves to a new long run equilibrium? In particular, how will the following variables change as the market adjusts from the short-run to the long-run equilibrium? i. Market supply for the industry. (1) increase ii. The market price. (1) decrease iii. The quantity of output sold in the market. (1) increase iv. The quantity of output sold by the typical hot dog stand in the industry. (1) decrease vii. The number of firms in the industry. (1) increase 64 and above A 56-63 B 48-55 C 41-47 D 40 and below F Quantity Price and Cost D ATC MC Q 2 Q 1 P P 2 P 3 Q P 1 MR 2. The graph to the right depicts costs and demand for a typical firm in a monopolistically competitive market. Assume the firm is a profit maximizer. a. This firm will sell its output at what price? (2) P3 b. What is profit for this firm? (2) profit = 0 c. Is this firm in long run or short run equilibrium? (2) long-run since p=atc and profit is 0 Multiple Choice: (50 points, 2 points each 1. The total product curve: a. shows the relation between output and the quantity of a variable input for varying levels of the fixed input.shows the relation between output and the quantity of a variable input for varying levels of the fixed input....
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