are100b-sample-midtm1-key

# are100b-sample-midtm1-key - ARE 10 Fall 2003 M Whitney ‘...

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Unformatted text preview: ARE 10% Fall 2003 M. Whitney ‘ YOUR NAME: FIRST MIDTERM A P lNlK KEV Kai Section A consists of 10 multiple-choice questions, each worth 10 points. . This exam has two sections. Total possible points in Section A = 100. Section B consists of 5 problems each worth 30 points. Partial credit is given for correct approach even if ﬁnal answer is incorrect, so show your work! Total possible points in Section B = 150. Total points in this exam: 250 SECTION A l. A monopolist charges \$150 per treatment for a patented drug it sells. The cost of producing the drug is constant at \$100 per treatment. What is the elasticity of demand for this drug? pub-I .5 uni.» @957.” 2. A monopolist owns two plants with the following cost functions: TC1= 1000 + 50 q1+ ql2 TCZ = 4000 + 100 q2 Suppose that the monopolist’s marginal revenue is currently \$100. Which of the following statements do you agree with? Plant 1 will produce 25 units of output. . Plant 1 should shut down. c. Plant 2 should shut down. d, None of the above. 3'. A small town has two competitive motels. Which of the following events would cause consumer surplus to decline the most? a. A monopolist purchases both motels and operates them as a multiplant monopoly. b. A monopolist purchases both motels, shuts one down, and operates the other as a monopoly, A monopolist charges each consumer his or her reservation price for motel rooms. . All of the above would reduce consumer surplus equally. 4. Demand for Sponge Bob T-shirts is Qd = 10,000 - 500P. Suppose these T-shirts are produced by a monopolist and sold for a single price. Which of these statements is true? The monopolist would never produce more than 5000 T-shirts. . Demand is perfectly elastic. c. There is a constant elasticity of demand for Sponge Bob shirts. d. The optimal price per shirt is \$20. 5. A fast food restaurant oﬂ‘ers a 6-ounce serving of fries for \$99, and a 12-02. serving for \$1.49. This is an example of: , . F irst-degree price discrimination Second-degree price discrimination c. Third-degree price discrimination (1. Pure bundling 6. A monopolist sells its output at a single monopoly price. The ﬁnn’s total costs are TC = 2000 + 50 Q. Which of the statements below do you agree with? @ The monopolist’s marginal revenue will be \$50. b. The monopolist’s price will be \$50. c. The ﬁrm will not earn any producer surplus. d. All of the above. 7. Tomika Travel offers 1-week Hawaiian hotel stays for \$699. Air fare to Hawaii is \$499. The ﬁrm also offers a combined airfare/hotel package for \$1100. What do we call this pricing strategy? a. Second—degree price discrimination b. Pure bundling Mixed bundling . Two-part tariff 8. Ace Camera is a monopolist that sells sophisticated digital photography equipment. Demand ﬁmctions for its two main types of customers are: Geeks: ng = 10,000 P-2 Artists: Qda = 20,000 P'3 What marketing strategy would likely enhance proﬁts for this ﬁrm? . Give away discount coupons at geeky locations such as computer labs. Give away discount coupons at artsy locations such as art galleries. 0. Charge geeks and artists the same price. d. Sell only to artists. 9. What type of barrier to entry gives authors and artists monopoly power over their creations? a. Patent law b. Economies of scale Copyright law . Control of scarce inputs 10. A publisher issues new books in an expensive hardbound version, then later reissues the same books in a cheaper paperback format. This is an example of: a. Peak-load pricing b. Pure bundling c. Two-part tariff @ Intertemporal price discrimination SECTION B. 1. Demand for wedding cakes in Doonesville is Qd = 740 - 4P. Several bakeries supply wedding cakes in this market. The cost function for each ﬁrm is: TCi = 2500 + 10 qi + qi2 a. (12) In long-run competitive equilibrium, how many cakes are produced by each ﬁrm? LR :9 MIL: MCL 37.; c: ‘2 go 95”- 7 -, it 70=Q§003 = {fol CW b.(8) What is the long-run equilibrium price? P=Mc or P=MZ so P=I0+;2(5v):l375] c. (5) What is the market quantity of cakes sold? a): WHO ~L4CHOB 4300 W1 d. (5) How many ﬁrms are there in LR equilibrium? N: g: éVVYk—g 2. Malecon Publishing is a monopolist that prints travel guidebooks. Demand for its current Malaysian guidebook is Qd = 5600 - SOP. The ﬁrm owns two identical printing plants, each with cost function TCi = 1000 + 10 qi +.05 q? a. (14) How many books should the ﬁrm produce at each plant? mum : mcqt) P: '70—, km Q = 10—.012562 Match: Float)ng = Io+,\%L-.mg. 577?”.029{2?z): /01~./ L. '70 ~05?” ’O’L ’/ 7" w earn/5%.; go”: 7;: [/00 boo/w. b(8) What is the monopoly price? ' Pinm '/<go (23(qu Q: emu-.800 WM E51 0(8) What is the ﬁrm’s proﬁt or loss? K. * ~ & rm rﬁL: PM GM ( b 2 _ @oxgooy. 2(1000+\0(40<)\+.050{00\ ) 2 H8000“ 205900): {F’iztooﬁl ,1, ﬂ,— -Tgﬁﬂ 3. Sleepaway Lodge is the only hotel in Pine City, Montana. The proprietor does not post her room rates; instead, she quotes each potential customer a room rate based on the maximum she thinks the customer is willing to pay. The ﬁrm’s cost function is TC = 25000 + 100Q , and annual demand for hotel rooms in the area is Qd = 5000 - 20P a. (10) Assuming the proprietor accurately assesses people’s willingness to pay, what are the maximum and minimum prices she charges for rooms in this hotel? P:_%%9_.%w Q so ?vmwn= \$2€U b.(10) How many rooms does she rent out each year? Q = SDOO~1O(PM\ : 50004000 : f w° \””l \3000 Kuhn! c.(10) What is her proﬁt? “ "W:Ps-F¢ . ~ gyrloQLEUOID __ 237000 —,-_ 115,00» — 23 000 T; \$;‘12"%>"«%’1,s> o3 4. Drummond Corp. is a monopolist that manufactures aircraft thermostats for the military, Demand for these thermostats is Qd = 1300 - P. The ﬁrm owns two production facilities with these cost functions: TC1=6000+400q1+q12 ma; 2 “Act TC1= 3000 + 400 qt+ 4%. PM a. (20) What is the optimal output for each plant? max: mc2 P.— BOO "Q (L: [300 “a LiPdJr 256‘ = Llo/(H (at); W” Q gag: \$4“; I t 2/ C /L‘ l W ‘ (69. q ‘(l 5‘ Mumw‘ultb taco—1Q = Lloom cf). b. (10) Whatisthemarketquantityandpriee? \300 —* 9%“? V“ (253 3 Q: aows’o HZSW @00 2 4-53: (FA e 5. Dailydemandforplumbingrepairs inRuralville isQ=50-.5P.BradBloomistl1eonl experienced plumberinthe area; thus he behavesasamonopolist. HistotaloostsareTC = 100+ 10Q+& a. (14) How many plumbing repairs does Brad make each day, and what price does he charge? Wﬂ‘kUﬁ: \MC «m P: too—1Q “ML: \OOAIIQ : \0 +219 \ WLL. QO: éQ Leif: WHEl 17;: 100 - ZUﬂEé—l b(16) Find consumer surplus and producer surplus for this market. ...
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are100b-sample-midtm1-key - ARE 10 Fall 2003 M Whitney ‘...

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