EBF Midterm.docx - Josh Cahill Energy and Business Finance 200Spring 2018 MID TERM EXAM Due Date Sunday March 4 2018 11:59 PM INSTRUCTIONS 1 Please note

EBF Midterm.docx - Josh Cahill Energy and Business Finance...

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Josh Cahill Energy and Business Finance 200—Spring 2018 MID TERM EXAM Due Date: Sunday, March 4, 2018, 11:59 PM INSTRUCTIONS 1. Please note the due date for the exam. No exceptions for late submissions. 2. This is an untimed exam--you have the full week to complete it. 3. There are 7 questions. Each question is worth the points indicated, divided equally between sub-parts. The available points add up to 124, and there is one extra credit question worth 6 points. 4. Show all your work and state any assumptions you make in your answers. 5. Download the exam questions using the link provided in Canvas. Then, answer the questions within the document and convert your completed Word document to a PDF and upload to this assignment in Canvas. 6. DO NOT communicate in any mode with anyone about the exam until after the exam closes. 7. If believe there is an error in a question, note it and answer the question as best as you can. QUESTION 1 (20 points) Show all your work. The demand and supply equations in the global molybdenum market are estimated to be: Demand curve: P = 140 - 2Q Supply curve: P = 20 + 4Q Assume a perfectly competitive market. a) Calculate the equilibrium price and quantity. 140 – 2Q = 20 + 4Q 20 + 4(20) 120 – 2Q = 4Q 20 + 80 120 = 6Q $100/unit – equilibrium price Q = 20 units – equilibrium quantity
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Josh Cahill b) Calculate the consumer surplus. Consumer surplus is the area between the price line (P = 100, price per unit ) and the demand curve. The top of the triangle is the point on the demand curve where Q = 0, which is P = 140 ( number in demand curve ). So the side of the triangle has length 140 - 100 = 40. The length of the triangle is Q =20 ( units) . 140 – 100 = 40 Q = 20 ((40)(20)) / 2 = $400 c) Calculate the producer surplus. On the producer side, we are interested in the price when Q=0. That is 20 ( number in supply curve ). So the side of the triangle has height (100-20)=80. The length of the triangle is again 20 ( units ). 100 – 20 = 80 Q = 20 ((80)(20)) / 2 = $800 d) Imagine that an innovation in mining technology shifts the supply curve “to the right,” and the new supply curve is: P = 2Q. Complete the following sentence choosing the correct word for each blank (hint: just sketch a picture of this situation for yourself—you should NOT need to do a calculation): The consumer surplus increases (decreases/increases ) because consumers can buy more (more /less) at a lower (higher/lower ) price.
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