101_prelim_2_07_Q_A_final_edit - Cornell University...

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Cornell University Spring 2007 Department of Economics Professor R. H. Frank Your name__________________________________________ Your signature_______________________________________ Your TA’s name_____________________________________ Your section number and meeting time____________________ Economics 101 Second Preliminary Examination For each of the 20 multiple-choice questions below, circle the best response.
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Questions 1-4 refer to the graph below: 3 6 3 6 0 Q u a n t i t y P r i c e M C D 1. If the marginal cost and demand curves for the sole supplier to a market are as shown, what is the socially efficient price and quantity in this market? a. P=12, Q=24 b. P=15, Q=15 c. P=18, Q=18 d. P=24, Q=12 e. None of the above. Answer. c. At the socially efficient price and quantity, price must be equal to marginal cost, which occurs at P=18, Q=18. 3 6 3 6 0 Q u a n t i t y P r i c e 1 8 1 8 2. In this market, what is the profit-maximizing price and quantity for a single-price monopolist? a. P=12, Q=24 b. P=15, Q=15 c. P=18, Q=18 d. P=24, Q=12 e. None of the above. Answer: d. At the profit-maximizing output level, MC=MR, so Q=12, P=24.
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3 6 3 6 0 Q u a n t i t y P r i c e M C D M R 1 8 2 4 1 2 3. What is the value of the monopolist's producer surplus? a. 324 b. 216 c. 162 d. 0 e. None of the above. Answer: b. Producer surplus is equal to the area of the shaded figure. 3 6 3 6 0 Q u a n t i t y P r i c e M C D M R 1 8 2 4 1 2 1 2 4. By how much is total surplus decreased if the market goes from the socially efficient outcome to the single-price monopolist's outcome? a. 64 b. 32 c. 24 d. 0 e. None of the above. Answer. e. The loss in surplus compared to the efficient outcome is 36, the area of the light shaded triangle. 3 6 3 6 0 Q u a n t i t y P r i c e M C D M R 1 8 2 4 1 2 1 2
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5. The difference between accounting profit and economic profit is: a. Explicit costs. b. Implicit costs. c. Normal profits. d. Fixed costs. e. None of the above. Answer. Both b and c are correct. 6. Immature Youth, a local band, sells its CDs after each of its live performances. The marginal cost of producing each CD is $1.99. On each occasion there are 10 potential buyers, whose reservation prices for the CD are as given in the table: Customer Reservation price A $20 B 18 C 16 D 14 E 12 F 10 G 8 H 6 I 4 J 2 The band’s business manager knows that only those customers whose reservation price is below $11 would bother to make use of a mail-in rebate coupon included with the CD. If the goal is to maximize profits from the sale of CDs, at what level should it set the list price for CDs. At what level should it set its discount price (list price minus the rebate)? a. List price = $18, discount price = $8
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This note was uploaded on 03/27/2008 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell University (Engineering School).

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101_prelim_2_07_Q_A_final_edit - Cornell University...

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