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are100b-sample-midterm1

are100b-sample-midterm1 - ARE 10 Fall 2003 M Whitney YOUR...

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Unformatted text preview: ARE 10% Fall 2003 M. Whitney ' YOUR NAME: FIRST MIDTERM This exam has two sections. Section A consists of 10 multiple-choice questions, each worth 10 points. . 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 1. 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? b. -1.5 c. -2 d. -3 2. A monopolist owns two plants with the following cost functions: TC1= 1000 + 50 q1+ ql2 TC2 = 4000 + 100 q2 Suppose that the monopolist’s marginal revenue is currently $100. Which of the following statements do you agree with? a. Plant 1 will produce 25 units of output. b. Plant 1 should shut down. c. Plant 2 should shut down. (1. 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. c. A monopolist charges each consumer his or her reservation price for motel rooms. d. 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? a. The monopolist would never produce more than 5000 T-shirts. b. 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 offers 3 6-ounce serving of fries for $.99, and a 12-02. serving for $1.49. This is an example of: a. First-degree price discrimination b. Second-degree price discrimination c. Third-degree price discrimination d. Pure bundling 6 A monopolist sells its output at a single monopoly price. The firm’ s total costs are TC: 2000 + 50 Q Which of the statements below do you agree with? a. 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 l-week Hawaiian hotel stays for $699. Air fare to Hawaii is $499. The firm also ofi‘ers a combined airfare/hotel package for $1100. What do we call this pricing strategy? a. Second-degree price discrimination b. Pure bundling c. Mixed bundling d. 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: Qd, = 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. Charge geeks and artists the same price. Sell only to artists. 9.0.6.” 5° What type of barrier to entry gives authors and artists monopoly power over their creations? Patent law Economies of scale Copyright law Control of scarce inputs 9-? 9"?” 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 d. lntertemporal price discrimination SECTION B. 1. Demand for wedding cakes in Doonesville is Qd = 740 - 4P. Several bakeries supply wedding cakes inthis market. The cost fimction for each firm is: TCi = 2500 + 10 qi + qi2 a. (12) In long-run competitive equilibrium, how many cakes are produced by each firm? b.(8) What is the long-run equilibrium price? c. (5) What is the market quantity of cakes sold? d. (5) How many firms are there in LR equilibrium? 2. Malecon Publishing is a monopolist that prints travel guidebooks. Demand for its current Malaysian guidebook is Qd = 5600 - 80P. The firm owns two identical printing plants, each with cost fimction TCi = 1000 + 10 qi +.05 qi2 a. (14) How many books should the firm produce at each plant? b(8) What is the monopoly price? c.(8) What is the firm’s profit or loss? 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 + lOOQ, 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? b.(10) How many rooms does she rent out each year? c.(10) What is her profit? 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 + 400 q1+ ql 2 TC2=3000+400q2+4q22 a. (20) What is the optimal output for each plant? b. (10) What is the market quantity and price? 5. Daily demand for plumbing repairs in Ruralville is Q = 50 - .5 P . Brad Bloom is the only experienced plumber in the area; thus he behaves as a monopolist. His total costs are TC = 100 + 10Q +Q2 a. (14) How many plumbing repairs does Brad make each day, and what price does he charge? b(l6) Find consumer surplus and producer surplus for this market. ...
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