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2003Fmidterm-2 - John Riley Econ 106P Mid-term Fall 2003...

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John Riley Econ 106P Mid-term Fall 2003 Time allowed: 75 minutes. Each question is worth 10 points. This quiz is only worth 10% of the total so there is no reason to get tense. You can find a helpful spread-sheet by clicking on the last arrow on the following web-page. http://www.econ.ucla.edu/riley/104/2003F/index.htm . 1. Transportation Problem Shipping costs between each of 4 sources and destinations are indicated below. tij dest 1 dest 2 dest 3 dest 4 supply source 1 source 2 source 3 source 4 Demand (a) Solve for the cost minimizing shipping plan and fill in the blanks below. (b) Define a “shadow price.” (c) Explain how to interpret the shadow prices as market prices in this application. (c) If you could increase the supply at any one source by 1 what would you do and how much would you save? (d) What is the largest increase in any tij (shipping cost per unit) that would have no effect on the routes used? 2. Peak and off–peak pricing Electricity is produced by a profit-maximizing monopolist. Demand in each of three sub- periods (morning, afternoon and night) is given as follows.
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