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Unformatted text preview: Page 1 of 9 Department of Economics Professor Kenneth Train University of California, Berkeley Fall 2008 ECONOMICS 1 SECOND MIDTERM EXAMINATION November 19, 2008 ANSWER KEY DO NOT DISTRIBUTE INSTRUCTIONS 1. Please fill in the information below: Students Name: _____________________________________ SID #: ____________________________________________ GSIs Name: ________________________________________ Section Number (Day/Time):___________________________ 2. This exam starts at 12:08 pm and ends at 12:58pm. 3. If you finish early, please remain in your seat so that you do not disturb others. 4. When time is called, please stop writing and pass your exam to the aisle. Please stay in your seats until all the exams are collected. 5. There is a total of 100 points, 6 questions, and 10 pages (including this cover sheet) points for each question are in parenthesis. 6. NO BLUE BOOKS NEEDED . Please answer the questions in the space provided. If you need extra room to answer the questions, use the backs of the pages. 7. Calculators are not permitted. 8. Good Luck!!! DO NOT TURN THE PAGE UNTIL YOU ARE TOLD TO BEGIN THE EXAM Page 2 of 9 Question 1: TRUE, FALSE, UNCERTAIN. (20 points) For each question decide whether the statement is false, true or uncertain. Your grade is determined by your explanation; an answer without an explanation receives no credit. Use graphs when needed to complement your answer. a) (4 points) Placing an excise tax on the output of a polluting monopolist always makes the monopolist move towards the socially optimal output level. FALSE. If the monopolist is producing less than is socially optimal before the tax, then the tax, which reduces the monopolists output, will move it further from the social optimal output level. b) (4 points) Predatory pricing is a way for a firm to prevent entry of other firms into the market. FALSE. Predatory pricing is a way to get rid of competitors in the market. c) (4 points) In the monopolistic competition case, the min of the AC curve is tangent to the demand curve at the market equilibrium price. Hence p=MC=min AC. FALSE. The AC curve is tangent to the demand curve at the market price; however this tangency point is higher than the marginal cost and than the min AC. (Note: The statement is true in the special case when monopolistic competition is perfect competition, which can be considered a limiting case, but is not true in general.) competition, which can be considered a limiting case, but is not true in general....
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This note was uploaded on 08/13/2009 for the course ECON 1 taught by Professor Martholney during the Spring '08 term at University of California, Berkeley.
- Spring '08