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Economics 1 - Fall 2004 - Train - Midterm 2 Answers

Economics 1 - Fall 2004 - Train - Midterm 2 Answers -...

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Department of Economics Professor Kenneth Train University of California, Berkeley Spring Semester 2004 ECONOMICS 1 SECOND MIDTERM EXAMINATION In class, April 21 INSTRUCTIONS 1. Please fill in the information below: Your Name: ___________SUGGESTED SOLUTIONS__________________ Your SID# : ______________________________________________________ GSI’s Name: _____________________________________________________ Section Number (Days/Time): _____________________________________________ Todd Gilman = MW 1-2 in 425 Latimer and MW 2-3 in 2 Evans Sally Kwak = MW 8-9 in 433 Latimer, MW 9-10 in 105 Latimer, T-Th 8-9 in 425 Latimer Justin Park = MW 9-10 in 24 Wheeler; MW 8-9 in 285 Cory Jeff Butler = MW 1-2 in 185 Barrows, MW 2-3 in 175 Barrows Kenny Kuhn = MW 1-2 in 56 Hildebrand, MW 2-3 in 7 Evans, T-Th 8-9 in 3113 Ethcheverry David Zaft = T-Th 8-9 in 56 Hildebrand, T-Th 2-3 in 106 Wheeler Juanito Rus = T-Th 9-10 in 240 Mulford, T-Th 8-9 in 321 Haviland Shanan Alper = T-Th 4-5 in 175 Barrows, T-Th 5-6 in 5 Evans Si-Yeon Lee = MW 2-3 in 285 Cory, T-Th 9-10 in 122 Barrows 2. The exam ends at 10:55 a.m. 3. If you finish early, please remain in your seat so that you do not disturb others. 4. When time is called, stop writing and pass your exam to the aisle. Please stay in your seat until all of the exams are collected. 5. There are a total of 100 points, 4 questions, and 6 pages (including this cover sheet and a blank last page). Points for each question are in brackets. 6. Answer the questions in the space provided. (NO BLUE BOOKS). If you need extra room to answer questions, use the backs of pages and the last blank page. 7. Calculators are not permitted. Do not turn the page until you are told to begin the exam.
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Problem 1: True/False/Uncertain . [15 points] Explain your answer: no points given without an explanation. a) In equilibrium Monopolistic Competition achieves the social optimum. False: Even though Monopolistic Competition leads to zero profits in equilibrium, price is greater than MC and price is greater than Minimum AC. b) Several years ago, airlines began publishing their fares on the Internet. Due to the Prisoner’s Dilemma, this practice decreases the chance that airlines will successfully collude in pricing. False: By publishing their prices on the Internet, they are helping to break the Prisoner’s Dilemma. It becomes easier for them to collude, because if one firm lowers its price, it is immediately observed by its competition and they also lower their price. Because they all know this, they realize they have no incentive to lower prices, because they will not capture greater market share even for a while. c) When the Federal Reserve “buys” government securities on the open market, it
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Economics 1 - Fall 2004 - Train - Midterm 2 Answers -...

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